Abstract
Technology has enabled banks to introduce new products that integrate markets, simplify operations and enable expansion of business at low cost, expand to new markets, take new risks and deepen their markets. Zimbabwe registered significant growth in adoption and diffusion of financial innovations over the past two decades, which coincided with a shift in the structure of credit portfolios of banks, and growth in credit as well as risk appetite. This study empirically evaluates the impact of financial innovations in influencing bank behaviour, specifically, portfolio structure risk appetite and delivery channels of banks in Zimbabwe. The study applied co-relational analysis, Fully Modified OLS and the Dynamic OLS estimation models as well as Autoregressive Granger causality approaches. Empirical results show that technology has the capacity to influence activities of banks in risk management, credit and delivery of banking service in lowincome countries. Precisely, financial innovation influences increase in credit towards previously high-risk areas, compositions of credit portfolios in banks and support growth in number of bank accounts. Causality was found to run from financial innovation to bank behaviour, and only in the long run.
Highlights
The proliferation of information communication technology in banking enables financial innovations that influence dynamic changes in the behaviour of banks
Econometric Estimation Results: The study carried out econometric estimations on three broad areas, one to estimate the linkage between credit risk and financial innovation, second the relationship between credit portfolio and financial innovation and lastly between delivery channels as well as business expansion and financial innovation
The paper put forward a discussion on the influence of financial innovation on bank behaviour, focusing on banks’ decision regarding risk-taking; branch network and expansion of delivery channels for banking services
Summary
The proliferation of information communication technology in banking enables financial innovations that influence dynamic changes in the behaviour of banks. Technology has enabled banks to introduce new products that integrate markets, simplifying operations and enable expansion of business at low cost. Technology has created opportunities for banks to expand to new markets, take new risks, introduce new products and deepen their markets thereby redefining portfolio balance of banks. The last decade has seen a proliferation of innovative financial services targeted at the unbanked populations (Denyes & Lonie, 2016). Development of innovations supports increased credit by banks given improved credit scoring, monitoring, data processing and evaluation of borrowers. Financial innovation, on the one hand, reduces risk on some banks products and markets, allowing a reduction in risks and costs, resulting in enhancement in services (Arnaboldi & Rossignoli, 2013). It results in the emergence of new risks and increased the risk of some portfolios (Matthews & Thompson, 2008)
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