Effect of E-banking on the Profitability of Commercial Banks in Kenya

Abstract

The banking sector's use of new technologies has increased globally. The adoption of new technology has caused impactful results in the banking sector. Stock trading, product development, internet, electronic payment processing, and overall bank process have all benefited from the upgrade. This study's primary purpose was to determine the impact of e-banking on the profitability of commercial banks. The profitability was measured using Return on Assets of commercial banks. E-banking under study were Mobile banking, Internet banking, and Agency banking. The study aimed at 35 commercial banks in Kenya, from which secondary data was obtained. Consequently, worldwide financial services are better than ever. The findings of the study established financial innovations has affected the profitability of commercial banks. The study incorporated three control variables, capital adequacy, asset quality, and bank size, to assess their potential influence on the model's outcomes. Additionally, the study established positive correlation between agency banking and the financial performance of commercial banks in Kenya. The published bank supervisory reports and audited financial statements from 2017 to 2021 was obtained and analyzed. With the help of SPSS, the study adopted correlation and regression analysis. To Determine significance relationship among the independent and dependent variable regression analysis was applied. The research findings illustrate that adopting e-banking has a positive impact on the financial performance of commercial banks operating in the Kenyan market. Kenyan commercial banks have increased their earnings by adopting new technology, making business operations efficient and effective for customers. Based on the findings of the study, it is essential for commercial banks in Kenya to do proper valuation and proper background checkup in order choose suitable technological solutions to optimize their financial performance and bolster profitability. Selecting technology that aligns with commercial specific operational needs and strategic objectives is paramount. Due to the complications in adopting advanced technology, the research recommends that banks invest in up-to-date advanced technology. The study also recommends that adopting the new technology should be monitored and regulated to reduce the chances of Kenya's commercial banks using outdated technological systems.