The effect of electronic banking on the financial performance of Commercial Banks in Kenya

Abstract

It is expected the adoption of electronic banking services will have a positive effect on the profitability of commercial banks.The objective of this research was to measure and compare the effect of e-banking technologies on the profitability of domestic banks, how much the provision of these services affect the service quality of the banks and hence their efficiency, to assess the impact of changing from the traditional banking to the electronic banking on the banks. This study targeted 44 commercial banks in Kenya where secondary data was used.Data from financial statements between year 2009 and 2013 was used for analysis.The study used correlation and regression statistics to analyse with the help of SPSS.The dependent variable (ROA) was correlated with independent variables (overhead ratio,market share,deposit asset ratio,loan asset ratio,effective lending rate and e-bank commission to income ratio) to determine if a relationship existed between variables.Regression statistics was used to determine the significance of the relationship between variables.This study investigated the returns on assets of commercial banks following the adoption of electronic banking in Kenya. Kenya is a developing economy pressing forward in the use of electronic banking for its banking activities. This study has provided evidence that electronic banking has advanced returns on the assets of Kenya commercial banks though not significantly based on the hypotheses tested.This study therefore recommends that the banking industry should adjust to total and effective deployment of information technology due to its sophistication since the technology is irreversible with relative perceived advantage. That Kenyan banks should be able to accept the level of risk that they can cope with in electronic banking system, measurable to the bank’s overall strategic and business plans.