effects of electronic banking services on financial performance of selected commercial banks in Ethiopia

Abstract

Electronic banking systems are expanding due to the great economic benefits in case of reducing banks costs and increasing their profitability. In spite of the spreading use of the e-banking as a delivery channel in Ethiopian commercial banking industry´, there is a relative dearth of empirical studies that provide a quantitative analysis of the effect of the e-banking service on banks´ performance. Because of this fact, this study is conducted to fill this gap. The main objective of this study is to investigate the effects of e-banking on financial performance of commercial banks in Ethiopia. To achieve this broad objective, specifically the study investigated the effect of automated teller machine, point of sale, internet and mobile banking on the profitability and cost efficiency of selected commercial banks in Ethiopia. Explanatory research design with quantitative approach was employed. The study used secondary data from purposely selected seven commercial banks for the period of 2013 to 2018. Both descriptive and inferential statistics with panel data regression model were adopted to analyze the data. The study finding with the aid of STATA version 14 using fixed effect panel data model reveals that usage of ATM, mobile banking and bank size had significant positive effects on ROA. However, usage of POS banking had significant negative effects on ROA. On the other hand usage of POS, mobile banking, internet banking and bank size had insignificant effects on operating cost rate of commercial banks in Ethiopia. But, usage of ATM banking had significant negative effects on operating cost rate. Generally, electronic banking had positive effect on financial performance of commercial banks in Ethiopia. Even the result of some variables influences negatively but, it is clear that usage of e-banking is promising activity to attain financial inclusion and improve the performance of commercial banks in Ethiopian. Therefore, this study recommends for enhancing return on asset and cutting operating cost, it is better for commercial banks in Ethiopia to exert more on usage of e-banking by crating awareness, adopting latest e-banking product and expanding those e-banking products across the country.