The Effect of Information and Communication Technology on Financial Performance of Commercial Banks in Ethiopia

Abstract

Information and communication technology has become the heart of banking industry, while the banking industry is the heart of the economy. This study examine the effect of ICT on the financial performance of Ethiopian banking industry using secondary data over the period 2010 –2022 published annual reports by the banks. Data analysis was carried out in panel environment. The study was employed purposive sampling technique to select the required sample of banks from commercial banks in Ethiopia. The result of the study was affirmed by co integration regression analysis. Seven banks, out of the 21 commercial banks as of December 2022, were selected for the study. The dependent variables were used in this study in order to measure the sample commercial banks performance is ROA whereas the explanatory variables are ATM, POS, MB, IB, and NB. The study empirically analyzed the effect of information communication technology in Ethiopian commercial banks financial performance by creating an econometric model to study the effect of various factors such as M-Banking, Internet Banking, and POS, ATM, and POS. Accordingly, the regression result revealed that the R-squared of this model is 0.85404 which means that 85% of the total variation of Ethiopian commercial banks return on asset is explained by the total variation of ATM, POS, MB, IB and BRAN. It implies that these independent variables were statistically significant effect on return on asset on commercial banks in Ethiopia. Based conclusions of the study, it is recommended for commercial banks in Ethiopia, to increase the profitability impact of POS and ATMs, Ethiopian Commercial Banks are strongly suggested to installing POS and ATMs, MB, and IB, more comprehensively. Overall, Information and Communication Technology can have a significant effect on financial performance. By leveraging technology, businesses can streamline their operations, improve efficiency, and make more informed decisions. Thus, the study suggested that integrating ICT into financial practices can enhance productivity and ultimately contribute to improved financial performance of commercial banks of Ethiopia.