The Effect of Financial Innovation on Bank Performance: Evidence from Commercial Banks of Sri Lanka

This study investigates the impact of financial innovation on bank performance in the context of commercial banks in Sri Lanka. Automated Teller Machines (ATM), mobile banking, internet banking, and debit cards are used as proxies to measure financial innovation while bank performance is measured by ROA and ROE. Pooled OLS regressions are estimated using data for a balanced panel of 11 commercial banks over 10 years from 2010 to 2019. All the proxies for financial innovation have significant effects on bank performance. However, the effects are not uniform across the performance measures. The results show that the financial innovations proxies of ATMs, internet banking, and debit cards have a significantly positive impact on ROA, while mobile banking has a negative impact. Internet banking has a significant positive impact on ROE, while ATMs and mobile banking are negatively related to ROE. These findings underscore the important role played by financial innovation in bank performance.