The effect of electronic banking on profitability of commercial banks in Kenya

Abstract

Internet technology holds the potential to fundamentally change banks and the banking industry. An extreme view speculates that the Internet will destroy old models of how bank services are developed and delivered (DeYoung, 2001a). Electronic banking in Kenya has emerged as a strategic resource for achieving higher efficiency, control of operations and reduction of cost by replacing paper based and labour intensive methods with automated processes thus leading to higher productivity and profitability. This study sought to fill the existing research gap by answering the following research question: does electronic banking affect profitability of commercial banks in Kenya? The study objective was to determine the effects of electronic banking on profitability of commercial banks in Kenya. These data were collected from the Central Bank of Kenya and Commercial banks. Regression analysis was done for the period to determine the effects of electronic banking on profitability of commercial banks in Kenya. The study covered a period of 5 years from year 2009 to 2013. The findings on the coefficient of determination, the study found that major changes in the financial performance of commercial banks in Kenya could be accounted to changes in internet banking, point of sales, automatic teller machine, mobile banking and size of the bank at 95% confidence interval .The study found that there was a strong positive relationship between financial perfomance of commercial banks and electronic banking , as it was found that there was a strong relationship between financial perfromance of commercial banks and electronic banking. Size of of the bank was also found to positively influence the financial perfomance of commercail banks in kenya. Electronic banking has helped the commercial banks to lower their cost of banking, through technology which has created greater opportunities to the banks to offer great flexibility to the customers, this has enabled commercial banks to be very fast in adopting electronic banking which has enabled commercial bank to be ubiquity in coverage, flexibility, interactivity, and with greater accessibility compared to conventional banking channels such as Automated Teller Machine (ATM),Point of Sale Mobile banking and internet banking which influence the financial; performance of the bank . Electronic banking service provides convenience and promptness to customers along with cost savings, banks are also interested in expanding their market through internet services.The study further revealed that the P-value were less than 0.05 in all the variables, which shows that all the independent variable were statistically significant .