Determinants and effects of financial innovation on the banking sector in the developing countries: An application on West African Economic and Monetary Union Countries (WAEMU)

Innovation in the banking sector is a strategic tool for improving services and performance for African countries, particularly in West African Countries Economic and Monetary Union (WAEMU). This thesis has tried to analyze the effects of the adoption of financial innovations on the performance of the banking sector in the WAEMU countries. Financial Innovations are measured by the number of ATMs, amounts of transaction realized via STAR-WAEMU (Settlements and Automated Transfer System) and SICA-WAEMU (Automated Interbank Compensation System), the investment rate in intangible assets and the number of POS (Points of Sales). The performance of the sector is measured by 3 main variables namely ROE (Return on Equity), ROA (Return on Asset) and NIM (Net Interest Margin). To lead this study, we used fixed effect regression models and Generalized Least Square models on balanced panel data between the 2004-2015 periods (12 years) for the 8 WAEMU countries. The results obtained show that the amounts of transactions realized through STAR-WAEMU and the rate of investment in intangible assets negatively (significantly) influence both the ROE and the ROA. These two variables mentioned above reveals that they have a positive (not significantly) influence on the Net Interest Margin (NIM). Similarly, the number of ATMs positively (but not significantly) influences both ROA and NIM. The number of ATMs also has negative (insignificant) effects on ROE. On the other hand, the amounts of transactions realized through SICA-WAEMU have positive (but not significant) effects on both ROE and ROA. But this last variable remains negatively related with the NIM.