The Effects of Financial Innovations

Summary
The purpose of the study was to assess the effects of financial innovations on performance of the
banking sector. Technological innovations have led to the rise of new and profound ways of
banking operations in Sudan. The methodology opted for the study was casual research
(explanatory research) in which 16 commercial banks were taken into consideration for the
study. The data collected for the research was from 2009 2013. The findings revealed that the
adoption of financial innovation led to higher profitability for commercial banks. The dependent
variable was named as Return on Assets (ROA). The independent variables were named as
ATMs, mobile banking and money borrowed through internet transactions. The results of the
study revealed a positive and moderate linear relationships using ATMs. The number of mobile
transactions showed positive but weak relationship with financial performance of commercial
banks. Money borrowed showed a weak but negative relationship. As per the depiction of
Corolyne (2012), financial innovation contributes to and is positively correlated to profitability
in the banking sector particularly the commercial banks. Patrick (2011), found that there is a
significant relationship between the adoption of financial innovations and the profit levels of the
commercial banks of Kenya. Financial innovations present banks with effective ways of
conducting transactions and communicating with their customer market. These innovations are
revolving around convenience, security and efficiency of banking operations due to which
customer would demand new ways for conducting transactions with their bank. Customers are
gradually shifting towards effective payment systems as observed through negative correlation
between real time gross settlement transactions turnover and Automated clearing house
throughput and the negative correlation between profitability and ACH throughput.
Recommendations
Commercial banks should adopt financial innovations to increase financial performance
by providing consumer base and capital base.
Governments, through financial sector regulatory authorities should encourage banks to
adopt financial innovations. But at the same time they should closely regulate such

developments to assure the integrity of payment systems. This will enhance effective and
efficient delivery of services by the financial sector to all sectors of the economy.
Faster and more secure payment systems spurs development of businesses and economic
growth in all other sectors in addition to facilitating financial deepening.
Similar studies should be done on other firms such as micro finance institutions.
There is also need to carry out similar tests for a longer time period of time and on
quarterly basis to regress the RTGS. This will assist in getting more precise and diverse
information on the changes in the independent variables along the years in the different
commercial banks that were under research. This will increase the scope of the research
and clear indication of financial innovation on the economy as a whole.
Limitations
Lack of full information on the financial performance of the commercial banks since
some commercial banks do not reveal financial positions and transaction volume of the
banks.
Reluctance of respondents in giving answers to the asked questions as they feared that the
information would be used for other purposes-this limits the time frame.
Banking sectors profit after tax and exceptional items figures were only available on an
annual basis. Effective interpretation could have been done it the data was available on a
quarterly and monthly basis.