The effects of Electronic Banking on bank Performance of selected Commercial Banks in Ethiopia

Abstract

Electronic banking is the use of electronic and telecommunication networks to deliver a wide range of value-added products and services to the bank customers. The main objective of this study was to examine the effect of electronic banking (as measured by POS, ATM, & Mobile Banking) on financial performance of selected commercial banks in Ethiopia. The specific objective is to measure the impact of electronic banking performance on ROA and ROE. The targeted population of the study was 8 commercial banks in Ethiopia. The study employed quantitative research design using secondary data extracted from annual reports of banks and their respective websites. Both descriptive and inferential statistics, such as Pearson correlation analysis, linear regression model & panel data were used to analyze the data. The study found that there was positive association between the value of ATM and POS terminal transaction with return on equity (ROE). While the association between value of mobile bank transaction and return on equity (ROE) is found insignificant. With regard to ROA, the study found that value of ATM transaction has negative and significant linear relationship. The significance test of the models shows an overall explanatory power of the regression as 74.2 and 58.8 percent of variation in the ROE & ROA respectively, indicating that the combined effect of the e-banking services in this research is statistically significant in explaining the performance of commercial banks in Ethiopia. However, the statistical significance is different for each e-banking component and coefficients of the control variables tested and therefore if banks are to have meaning contribution to ROE & ROA, they should espouse to the multifaceted forms of e-banking services. Based on this summary of findings, the following main conclusions are drawn from the study. Except Mobile Banking, most of e-banking services (POS & ATM banking) have positive and significant relationship on performance to the ROE, whereas value of ATM has negative and significant relationship. However, the relationship between value of Mobile & POS have found in significant on ROA. This implies, an increase in all these e-banking services/products have very weak performance impact in terms of their contribution to the profit (except POS) and the investment made to them as measured by ROA of selected commercial banks in Ethiopia. Hence, the study recommends that banks should maintain and give due attention to promote and increase the use of POS product that has positive performance to their profitability, while giving special emphasis to improve on the sluggish performance of mobile banking, so as to enhance their contribution to the ROE. On the other hand, banks should strive their best so as to maintain a balance between the investment on all their e-banking service/products and the return on asset (ROA), so as to make the investment made on these products worthy enough. Moreover, they need to measure the impacts of e-banking service/products to their financial performance & strive to deter the bearings before pursuing on adopting the technologies that are both negative and weak in terms of their profitability and investment contribution.