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

Abstract

The Banking industry has been in a process of significant transformation. Innovation in information technology has been the major force behind this transformation. It is through this force that the study aimed to investigate the relationship between electronic banking and the financial performance of commercial banks in Kenya. The study specifically established whether there is a relationship between the dependent variable (Financial Performance) which was measured by banks return on assets and the independent variable (Electronic Banking Technology) which was measured by the number of ATM machine installed by the commercial banks, the number of point of sale outlets, and the number of credit and debit cards issued by the banks to customers as proxy for e-banking. The study used secondary data between the year 2010 and 2014. The data was collected from Central Bank of Kenya, and the Kenya Financial Sector Stability Reports. This study targeted 43 commercial banks in Kenya and both descriptive and inferential statistics were used in analyzing the data. In this case, correlation and regression statistics were used to analyze the data with help of SPSS version 17. In general the study revealed that e-banking has strong and significance marginal effects on returns on asset in the Kenyan banking industry. The relationship a 5% level of significance indicate that electronic banking is significant in explaining profitability of commercial banks in Kenya with a significance of 0.207. From the R correlation, 70.1% changes in financial performance of commercial banks is accounted to changes in electronic banking. Thus, there exists positive relationship between e-banking and bank performance. In general conclusion the electronic banking has made banking transaction to be easier by bringing services closer to its customers hence improving banking industry performance. The study recommends that the various players in the banking industry should adopt electronic banking services as this will enable them to have a wide coverage, flexibility, and greater accessibility compared to conventional banking.