Impact of Electronic Banking on the Profitability of Commercial Banks in Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The main objective of this study will be to examine the impact of electronic banking on the profitability of commercial banks in Nigeria. While some other objectives will be :
- To examine the relationship between mobile banking service expenditure and the profitability of commercial banks in Nigeria.
- To examine the relationship between automated teller machine (ATM) service expenditure and the profitability of commercial banks in Nigeria
- To examine the relationship between point of sales terminals (POS) service expenditure and the profitability of commercial banks in Nigeria.
Chapter Two
Literature Review
The impact of electronic banking on profitability of commercial banks in Nigeria are explored in this research work. For years, banks have been providing electronic services to individuals and companies via the internet. Banks are regarded as early adopters of technology as well as the primary movers of the technological revolution. Small payments and corporate cash management systems, as well as publicly accessible automated devices for currency withdrawals and retail account management, are all global mainstays. However, as the internet becomes more widely accepted as a delivery channel for banking products and services, it opens up new business options for both banks and clients. At the same time, these new opportunities come with both dangers and rewards. In the past few years, banking activities in Nigeria have increasingly depended on the development of Information and Communication Technology (ICT). ( Rafiu Oyesola Salawu and Mary Kehinde Salawu, 2007).Thus, electronic banking is the delivery of a wide range of value-added products and services to bank customers using electronic and communications networks. Electronic banking is the application of information technology to banking processes. Electronic banking, according to some authors, is a product of ecommerce in the sector of banking and financial services. Banks also provide payment services on behalf of their consumers who shop at various e-commerce sites. Electronic banking can be seen in this study as a manner in which banks are able to use various tools such as Automated teller machine (ATM), Points of sales machine (POS), mobile banking to maximize profits in their various organizations. The prospects of reducing the cost of operations revenue actually is seen as a motivator in the investment in internet banking by banks according to Simpson, J. (2002).
In most research papers studied the most appropriate way to measure the profitability of commercial banks would be to use the return on asset (ROA), return on equity (ROE) and return on investment (ROI). Another good way to measure profit is through the time series analysis. Ayanda (et al., 2013) stresses profitability is defined as the bank’s capacity to generate profit year after year. Return on assets (ROA) is the ratio of Net Income After Taxes (NIAT) divided by Total Assets. The ROA signifies managerial efficiency in other words it depicts how effective and efficient the management of banks has been as they seek to transform assets into earnings. The higher ratio is an indication of higher performance of the banks. It is a useful tool for comparing profitability of one bank with other or even the whole commercial banking system. (Njogu,2014)
Both banks and customers have reaped various benefits from electronic banking services. The first benefit for banks that provide electronic banking services is improved branding and market reaction. Those banks that provide this service will be seen as pioneers in the field of technology deployment. As a result, their brand image would improve. The other advantages are measurable in monetary terms. electronic banking services have provided numerous benefits for both banks and customers. Among the numerous benefits of electronic banking to banking institutions are : 1) it provides way for international banking 2) It provides convenience in terms of capital, labor, time all the resources needed to make a transaction. 3) There is less data entry as applications are completed and processed online by customers. All of these various benefits are among reasons why banks in Nigeria have adopted electronic banking in Nigeria.
Chapter Three
Methodology
Research Design, Nature and Source of Data
The research design for this work is ex-post factor research design. The study employed annual time series data covering the period 2005 -2018. Data for the study was obtained from Central Bank of Nigeria’s (CBN) Statistical Bulletin and CBN Financial Stability Report
Model Specifications
This study adapts the model used by Udoka and Mbat (2016) when they examined the relationship between banks credits and agricultural production in Nigeria and specified the following model:
CHAPTER FOUR
DATA PRESENTATION, MODEL ESTIMATION AND INTERPRETATION OF RESULTS
Result and Discussion of Findings
Table 1: Augmented Dickney-Fuller Unit Root Test Results Unit root test at logarithmic levels
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was on impact of electronic banking on profitability of commercial banks in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of electronic banking on profitability of commercial banks in Nigeria
Summary
This study was on Impact of electronic banking on profitability of commercial banks in Nigeria. A case study of first bank. Three objectives were raised which included: To examine the relationship between mobile banking service expenditure and the profitability of commercial banks in Nigeria, to examine the relationship between automated teller machine (ATM) service expenditure and the profitability of commercial banks in Nigeria and to examine the relationship between point of sales terminals (POS) service expenditure and the profitability of commercial banks in Nigeria. In summary there was relationship between mobile banking service expenditure and the profitability of commercial banks in Nigeria 2005-2018. That ATM transactions had a positive and significant impact on the generation of excess revenues (profitability) by commercial banks in Nigeria between 2005-2018 and also there was positive relationship between POS and profitability of commercial bank in Nigeria form 2005 -2018
Conclusion
Co-integration bound test revealed there is no existence of co-integration and long run relationship among the variables of interest, therefore, only ARDL short run estimates was estimated. The results of data analysis revealed that two independent variables namely ATMTV and POSTV individually have positive but insignificant relationship ROA. Both MBTV and IBTV defied apriori expectations as they have negative relationship with ROA. However, a combined test for all the four variables revealed a no significant relationship with ROA. The study therefore, concludes that electronic banking have no significant effect on the profitability of banks in Nigeria in the short run for the period covered by the study
Recommendation
Based on the findings above, the study therefore recommends that monetary authorities and commercial banks should enlighten their customer on the benefits and importance of using mobile and internet banking just as they seem to have embraced the use of point of sale POS and automatic teller machines ATM for their transactions.
References
- Abaenewe, Z. C., Ogbulu, O. M. & Ndugbu, M. O. (2013). Electronic Banking And Bank Performance In Nigeria. West African Journal of Industrial & Academic Research, 6(1), 171-187.
- Abubakar, A. & Rasmaini, B. (2012). The Impact of ICT on Banks’ Performance and Customer Service Delivery in the Banking Industry. International Journal Latest Trend Finance and Economic Science, 3(2), 173-182.
- Asidok, N.O., & Michael, A, A. (2018). Mobile banking transactions and bank profitability in Nigeria. International Journal of Economics, Commerce and Management, VI(6),692 716.
- Auta, M. E. (2010). E-banking in Developing Economy: Empirical Evidence from Nigeria. Journal of Applied Quantitative Methods. 5(2)
- Basel Committee on Banking Supervision. (2003). Risk Management Principles for Electronic Banking. Switzerland Bank for International Settlements. Retrieved 10th July, 2019 from http://www.bis./pub/bcbs/pdf
