Effect of the Proliferation of Electronic Banking on the Financial Performance of Commercial Banks in kenya
Mwai, Frida W.
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With liberalization and internalization in the financial market and progress in information technology, banks face competitive pressure to provide quality service for improved financial performance. Although one of the primary motivations among commercial banks for adopting electronic banking is the possibility of increasing profitability by lowering the cost of providing retail banking services and attracting new technology savvy customers, most studies have failed to establish the relationship between electronic banking and banks‟ performance. While some researches find positive relationship between electronic banking adoption and financial performance; to others the relationship is negative. This study, therefore, sought to find out the effect of electronic banking on the financial performance of commercial banks in Kenya. The study looked at how transactional convenience, efficiency and service accessibility brought about by electronic banking influence the annual net profits of commercial banks. This study took on a causal-comparative research design on a target population of middle management staff from all the commercial banks in Kenya which were 45 in number by the end of 2010. The study sampled one respondent from the targeted banks on whom semi-structured questionnaires were sent as the main research instrument. Besides the questionnaires, the study also used secondary source materials such as the annual financial statements. The data was collected and run though SPSS from which descriptive statistics (frequencies, mean and standard deviation) were drawn. The study used multiple linear regression analysis to show the relationship between independent and dependent variables. The study established a very good linear dependence between banks‟ financial performance and electronic banking; that is, service accessibility, transactional convenience and service efficiency brought about by electronic banking increases banks‟ financial performance. The study concluded that electronic banking has revolutionized the way transactions are carried out from depositing of money to withdrawals and checking of balances. The customers do not have to go to the actual physical location of the banks. This is also made more convenient since it can be done anywhere. The transactions that are conducted are very accurate thus it is not a major security risk either losing money or any form theft. Some of the quality services that customers get in the banks cannot be accessed through electronic banking such as making changes in their transactions. The study recommends that the banking industry in Kenya should be open to emulate new innovation that will improve their finance management; the government should invest in education of IT personnel and the society should be molded to emulate new technology