IMPACT OF ELECTRONIC BANKING ON THE PROFITABILITY OF NIGERIAN COMMERCIAL BANKS
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IMPACT OF ELECTRONIC BANKING ON THE PROFITABILITY OF NIGERIAN COMMERCIAL BANKS
CHAPTER ONE
BACKGROUD OF THE STUDY
In this study, the effect of electronic banking on commercial banks’ profitability in Nigeria is investigated. Banks have been offering online electronic services to people and businesses for many years. Banks are recognised as both the main drivers of the technological revolution and early users of new technology.
Global staples include systems for small payments and corporate cash management, as well as openly accessible automated devices for currency withdrawals and retail account management.
However, as the internet gains acceptance as a means of delivering banking goods and services, it creates new economic opportunities for both banks and customers. These new opportunities come with risks and benefits, though.
The advancement of information and communication technology (ICT) has become more important to banking operations in Nigeria during the past few years.
(Mary Kehinde Salawu and Rafiu Oyesola Salawu, 2007).Therefore, electronic banking is the use of electronic and communications networks to provide a wide range of value-added products and services to bank customers.
Information technology is used in electronic banking to streamline financial operations. Some authors claim that electronic banking is a byproduct of ecommerce in the banking and financial services industry.
Additionally, banks offer payment services on behalf of their customers who make purchases at different e-commerce websites. According to this study, electronic banking refers to a method by which banks can employ a variety of instruments,
including automated teller machines (ATM), points of sale (POS), and mobile banking, to increase profitability across all of their organisations. According to Simpson, J. (2002), banks are motivated to invest in online banking by the potential to lower operating expenses and increase income.
In the majority of research studies examined, return on asset (ROA), return on equity (ROE), and return on investment (ROI) metrics were found to be the most appropriate for gauging the profitability of commercial banks.
Time series analysis is a useful tool for measuring profit. According to Ayanda (et al., 2013), profitability is the bank’s ability to produce profits year after year. The ratio of Net Income After Taxes (NIAT) to Total Assets is known as Return on Assets (ROA).
The ROA denotes managerial effectiveness, or more specifically, it shows how successful and efficient banks’ management has been in converting assets into profits. A higher ratio indicates that the banks are performing better. It is a helpful tool for evaluating the profitability of several banks, or even the entire commercial banking industry. (Njogu,2014)
Electronic banking services have provided numerous advantages to both banks and customers. For banks that offer electronic banking services, increased branding and market response are the first advantages. The banks who offer this service will be recognised as innovators in the application of technology.
Thus, their brand’s reputation would advance. The other benefits might be valued financially. Both banks and customers have benefited greatly from electronic banking services. One of the many advantages of electronic banking for financial institutions is that it allows for worldwide banking. 2)
It makes it easier to obtain the capital, labour, and time needed to complete a deal. 3) Since clients complete and process applications online, there is less data entry. The use of electronic banking in Nigeria by banks is one reason for all of these numerous advantages.
STATEMENT OF THE RESEARCH PROBLEM
Extreme predictions assert that the Internet will displace current models for creating and delivering financial services (DeYoung, 2001a).
The variety of financial services offered by banks, how these services are created, and the financial performance of these banks are all anticipated to be impacted by the widespread use of electronic banking.
Whether or not banks adopt this new technology will depend on their assessment of the profitability of such a delivery system for their services, which will determine whether or not this extreme position turns out to be accurate.
However, no current research has been able to pinpoint the significant expenses associated with maintaining many of these systems, such as the cost of maintaining ATM, POS, and ongoing software updates.
By addressing the research topic, “Does electronic banking affect the profitability of commercial banks in Nigeria,” this study aimed to close a knowledge gap.
PURPOSE OF THE STUDY
Examining how electronic banking affects commercial banks’ profitability in Nigeria is the main goal of this study. While some other goals will be:
To investigate the connection between the cost of mobile banking services and the success of Nigerian commercial banks.
To investigate the connection between ATM (automated teller machine) service costs and Nigerian commercial banks’ profitability.
To investigate the connection between point of sales terminal (POS) service costs and the Nigerian commercial banks’ profitability.
RESEARCH QUESTIONS
The following queries were determined to be pertinent to the research activity being conducted in light of the goals listed below, given the purpose of the study:
What impact does mobile banking have on Nigerian commercial banks’ profitability?
What impact do Nigerian commercial banks’ profitability at the point of sale have?
What impact do Nigerian commercial banks’ earnings from automated teller machines have?
RESEARCH HYPOTHESIS
The following hypotheses will be tested in the study:
HYPOTHESES 1
Ho: Commercial bank profitability and electronic banking do not significantly correlate.
H1: There is a considerable link between commercial bank profitability and electronic banking.
HYPOTHESES 2
Ho: Commercial banks’ profitability is negatively impacted by electronic banking.
H1: Commercial banks become more profitable as a result of electronic banking
SIGNIFICANCE OF THE STUDY
This study aims to comprehend the connection between commercial banks’ profitability and electronic banking. The results of this study will help commercial banks decide whether the expense of setting up a technology environment and adequately training staff members to be able to carry out their obligations wisely exceeds the income they generate.
The introduction of internet banking has made life easier for many customers, and this research will help bank management better understand and cultivate customer relationships.
The study’s findings would help banking officials create effective strategies for commercial banking’s adoption of electronic banking in Nigeria by educating them about the anticipated effects of electronic banking on bank profitability. Finally, after this investigation is successfully completed, the findings will contribute to the body of existing knowledge.
SCOPE AND LIMITATIONS OF THE STUDY
The focus of this study tends to be on how electronic banking affects commercial banks’ profitability in Nigeria. First Bank Nigeria Limited’s annual reports and financial statements are used in this study.
The major obstacle to this study was time, which prevented the researcher from including all the banks in Nigeria. According to the central bank of Nigeria, there are presently 22 commercial banks in Nigeria;
thus, we are only including First Bank Nigeria because it was one of the country’s first to implement electronic banking.
SUMMARY OF THE RESEARCH METHODOLOGY
The data collecting, analysis, sources, and interpretation steps were detailed in the research methodology that was followed to carry out this study.
The methodology includes the study design, sample population, sampling size, and procedures; the technique of data collecting, including the sources and methods of data collection;
the method of operationalizing variables in data analysis; and the specification of the model. Secondary data from the yearly reports published by First Bank Nigeria were used in this study.
DEFINITION OF TERMS
Banking that uses electronic signals to trade money rather than cash, checks, or other sorts of paper documents is known as electronic banking. Complex computer networks that communicate over phone lines are the foundation of electronic banking.
Automated teller machines (ATMs) are computerised banking facilities that enable customers to complete transactions without visiting a bank branch.
While some ATMs only disperse cash, others support a range of operations like check deposits, balance transfers, and bill payments.
A point-of-sale (POS) terminal is a piece of hardware used in retail establishments to handle credit card payments. Hardware includes inbuilt software for reading magnetic strips on credit and debit cards.
The next generation of point-of-sale (POS) systems will consist of portable (as opposed to counter-anchored) proprietary or third-party devices with contactless capabilities.
A bank or other financial institution’s mobile banking service enables its customers to carry out financial transactions remotely using a mobile device, such as a smartphone or tablet.
SUMMARY
The introduction to the research study is detailed in this chapter. The definitions of key terminology used in the analysis are included, along with a description of the research variables.
It outlines the research project’s issue statement, goals, and objectives, as well as what it intends to achieve, which is to investigate how electronic banking affects commercial banks’ profitability in Nigeria.
Research questions and hypotheses were generated to help with the research investigation in order to achieve this goal. The importance of a study must be stated, along with what it aims to add to the body of knowledge, its scope, and any potential limitations that may have been discovered.
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