Measuring the Impact of Financial Innovation on Bank Performance: Evidence from Private Commercial Banks in Bangladesh

Abstract

This research examines the effect of financial innovations on the performance of private commercial banks in Bangladesh over a twelve-year period (2013–2024). As banking institutions in developing economies face increasing pressure to enhance efficiency, profitability, and risk management, financial innovations such as mobile banking, agent banking, blockchain integration, regulatory technology, and digital payment platforms have emerged as transformative tools. This research investigates whether these innovations contribute to key performance metrics: ROA: (Return on Assets), NIM: (Net Interest Margin), and NPLs: (Non-Performing Loans). Employing a quantitative methodology, the study analyzes panel data from 20 private commercial banks using multiple regression techniques. By using Statistical Package for Social Science (SPSS-26), the data was processed and analyzed. The findings reveal that financial innovations significantly influence bank performance, with improvements observed in profitability (ROA), income efficiency (NIM), and a reduction in credit risk (NPLs). Notably, variables such as capital adequacy and loan-to-asset ratio were found to be negatively associated with digital adoption, suggesting that banks under tighter financial conditions are more inclined to innovate. While some fintech tools, like mobile banking and GDP growth, showed high adoption but low statistical significance, this research underscores that strategic and integrated application of financial innovations is crucial to achieving tangible performance gains. These findings are useful for bank executives, legislators, and regulators who want to use technology to help banks grow in developing countries like Bangladesh.