Influence of Product Innovation Practices on Financial Performance of Tier III Commercial Banks in Kenya

Abstract

Tier III banks in Kenya have been faced with the risk of collapse due to poor innovative practices, low asset quality, inadequate capitalization, weak risk management practices, and a lack of liquidity. The banks face several struggles competing with large banks due to limited resources, lack of economies of scale, and inadequate innovative practices. By embracing innovative practices, these banks will develop and offer new products and services that meet the evolving needs of their customers, differentiate themselves from larger banks, and create value for their shareholders. The main objective of the study was to examine the influence of product innovation practices on the financial performance of Tier III Commercial Banks in Kenya. The study adopted a descriptive research design. The population was all twenty-one (21) Tier III banks listed according to CBK categorization as of 1st February 2023. The census technique was adopted to encompass all the bank managers of the branches based in Nairobi County. The data was collected from both primary and secondary data. Primary data was collected using questionnaires, whereas secondary data was collected using data collection sheets for a period of 3 years (2020-2022). The study found that product innovation practices have a positive and significant effect on the financial performance of tier III commercial banks. The study recommended that tier III commercial banks in Kenya should enhance the adoption of innovation practices in order to improve their financial performance.