The effect of electronic banking on the financial performance of commercial banks in Kenya

Abstract

Electronic banking is the use of electronic and telecommunication networks to deliver a wide range of value added products and services to bank customers. E-business is therefore revolutionizing the way business is conducted in every industry and commercial banks are no exception to this transformation. Electronic banking services as an invention has proven to be a fundamental innovation in the Kenyan banking industry. It is against this background that this study investigated the relationship between e-banking and performance of commercial banks in Kenya. Specifically, the study was meant to establish whether there exists a relationship between the dependent variable, for example, performance measured by profit after tax and the independent variables consisting of number of ATMS, number of debits and credit cards issued to customers, number of point of sales terminals and the usage levels of Mobile banking, Internet banking and Electronic funds transfer, as components of e-banking. The study used secondary data which was collected from the annual report of commercial banks and Central Bank of Kenya. The study used both descriptive and inferential statistics in analyzing the data. The findings of the study were that e-banking has a strong and significant effect on the profitability of commercial banks in the Kenyan banking industry. Thus, there exists positive relationship between e-banking and bank performance. The significance test showed that the influence of bank innovations on bank profitability was statistically significant meaning that the combined effect of the bank innovations in this research is statistically significant in explaining the profits of commercial banks in Kenya. The study recommends to the management of those banks that are slow in innovation adoption, to move in and adopt various innovations in their operations in order to shore up their profitability. This recommendation is well supported by the fact that highly profitable banks are mostly the fast movers in adoption of new technologies. It also recommends that the Government policy makers should review policies related to promotion of innovation adoption and transfer of technology. Adoption of innovations will improve profitability of organizations because it will translate to better tax revenues for the government.