WOLLEGA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
A RESEARCH PROPOSAL
ON

Effect of Electronic Banking on Financial Performance of Commercial Banks In

Ethiopia
Prepared By: Geleta Deressa
Program: weekend
Submitted to: Tarekegn Tariku (Asst.professor
 CHAPTER ONE: INTRODUCTION
1.1 Background of the study
• The banking industries play a significant effect in supporting
economic development through provision of efficient financial
services Dube et. al. (2009).
• primarily role of commercial banks is to mobilize deposit and
avail such resource for investment (Keatinge, 2014).
• Due to emergence of global economy, e-business has increasingly
become a necessary component of business strategy based on its
convenience and flexibility, speed, efficiency, accessibility, etc.
Elisha, (2010).
• E-banking uses the internet and telecom (SMS) to deliver
transactional banking services like cash withdrawals, currency
exchange, transferring funds, balance inquiry, electronic bill
payment, applying for letter of credit, bank statement, cheque
book request, cheque stop payment order, account alerts, and
more recurring services Girma Abebe (2019).
• The adoption of e-banking began to occur due to rapid
new information technology (IT) and intensive
competitive banking markets Mahdi and Mehrdad,
(2010); Dube, et. al., (2009).
• In the face of rapid expansion of e-payment systems
throughout the world, the Ethiopian financial sector
cannot remain an exception in expanding the use of the
system (Gardachew, 2010).
• Ethiopian commercial banks continue to offer most of
their banking transactions through electronic systems.
• These are more convenient, faster and often cheaper for
clients.
• E-banking plays a crucial effect in the banking
industry by creating value for banks and customers.
• Currently the use of cash has been replaced by
digital cash and digital Hannington, (2013).
• Objectively Commercial Banks are established to
earning profits by providing banking services.
• They seeking to achieve their strategic objectives by
competition through technological development and
knowledge.
 1.2 Statement of the problem
• Commercial Banks play an important effect as financial
mediators in the economic development of the nations.
• Banks collect financial resources from private and public
organization and redistribute it to others to get further
benefit Okoth & Gemechu (2013).
• Beyond these, the financial performance of banks has
critical implications for economic growth of countries
and poor bank performance may lead to banking failure
which have negative consequence on the economic
growth (Okoth et al.2013).
• Electronic banking system like ATM, Pay direct, electronic
check conversion, mobile banking and internet banking
has a great impact on bank performance by increasing
profitability, reduce bank cost of operations, and
increase bank asset and bank efficiency (Ngango, 2015).
• Girma, (2019) conducted a research about the impact of
ICT on the performance of Ethiopian banking industry
over the period 2010 – 2014.
• The finding shows that the ICT, ATM and POS have no
statistically significant effect on return on asset on
commercial banks in Ethiopia.
• Despite the potential benefits of e-banking, there is
debate about whether and how their adoption improves
bank performance.
• A research carried out by Kariuki (2005) the impacts of e-
banking on banking performance using bank turnover and
profits as measure of performance.
• Adoption of electronic banking has positively and
significantly improved the returns on equity (ROE) of
Nigerian banks (Abaenewe et al., 2013) .
• Studies on the effect of e-banking regarding the financial
performance of commercial banks have been contradicting
each other.
• there are a few research conducted in Ethiopia on
adoption of e-banking (Gardachew 2010) and (Abenet,
2010), Challenges and Opportunities in adapting e-banking
(Abreham, 2012), customer satisfaction to measure the
efficiency of e-banking (Sintayehu, 2015).
• The results of the studies in general agreed that e-
banking in Ethiopia is slow and less adaptable.
• This research includes further research direction
and also debits card, credit card and Agent
Banking Service as the research gap.
 1.3 Objective of the study
1.3.1 General Objective of the study

• Objective of this study is to examine the effect of

electronic banking service on financial
performance of commercial banks in Ethiopia,
focusing on its effect on return on assets.
 1.3.2 Specific Objectives

• The effect of ATM transaction on the financial

performance of commercial banks.
• The effect of POS transaction on the financial
performance of commercial banks.
• The effect of Debit card on the financial
performance of commercial banks.
• The effect of credit card on the financial
performance of commercial banks.
• The effect of Agent Banking Service on the
financial performance of commercial banks.
 1.4.3 Research Hypothesis
.

 .The followings are hypothesis will be tested based on

selected variables.
• H1: Value of transaction on ATM has positive and
significant effect on ROA of commercial banks in Ethiopia.
• H2: Value of transaction on POS has positive and
significant effect on ROA of commercial banks in Ethiopia.
• H3:Using of debit cards has positive and significant
effect on ROA of commercial banks in Ethiopia.
• H4: Using of credit cards has positive and significant effect
on ROA of commercial banks in Ethiopia.
• H5: Agent Banking Service has the positive and significant
effect on ROA of commercial banks in Ethiopia
 1.5 Significance of the study

• there is no study made regarding of the effect of

electronic banking on banks financial performance
in Ethiopian context and the researcher aims to
investigate it.
• it is important for those concerned government
regulatory authorities .
• the study will helps other academic researchers as a
source of reference.
 1.6 Scope and limitations of the study

• The scope of the study will be limited to

commercial Banks in Ethiopia pertaining electronic
banking on banks financial performance.
• Fourteen commercial banks established before the
year 2010 considered for the study regarding
adoption of electronic banking service and based on
availability of relevant data.
• Ten years data from the period of 2010 to 2019
will be required and banks established after 2010
will not included in the study.
 Chapter Three: Research Methodology
3.1 Research Design

• The primary aim of this study it will be to examine the

effect of electronic banking on bank's financial
performance.
• To achieve this objective explanatory type of research
design with a quantitative approach will be used.
• STATA 13 statistical software; panel least square
regression method will be used to analyze the data.
• Furthermore, descriptive analysis, normality test, the
autocorrelation matrix analysis, F-test and the
regression analysis will be conducted.
 3.1.1 Population of the study and Sampling Techniques

• The target populations of the study will be all commercial

banks adopting e-banking service in Ethiopia.
• researcher will use purposive sampling technique because
he assumed, commercial banks have no complete data of
e-banking service before year 2010 and banks established
after 2010 period are not invested heavily in e-banking
service.
• Therefore, fourteen banks having organized e-banking
service report to NBE for that are considered as a sample
size based on purposive sampling technique.
 3.1.2 Source and types of Data

• The study will employ a quantitative research

approach by using secondary data.
• annual audited financial statement and published
annul reports of selected commercial banks will be
gathered from National Bank of Ethiopia for a
period covering from 2010-2019 which will use as
a main source of data to gather relevant
information for the study.
 3.1.3 Data analysis

• the collected data will be analyzed using descriptive

statistics, correlations and multiple linear regression analysis.
• Mean values and standard deviations will be used to analyze
the general trends of the data.
• correlation matrix will be used to examine the relationship
between the dependent variable and explanatory variables.
• The multiple linear regressions will be used to test the casual
relationship between the bank’s financial performance and
their potential determinants and to determine the most
significant and influential e- banking explanatory variables
affecting the financial performance of commercial banks.
 3.2 Model Specification

• multiple linear regression model will be used to

test the impact of more than one independent
variables on dependent variable .
• panel estimation techniques will be used to test
unbalanced information in this study since it
allow more degree of freedom and greater
efficiency (Christopher and Rim, 2014).
• the effects of e-banking on profitability of commercial
banks can be modeled as described below:-
• ROA=β0+ β1VATMi, t + β2VPOSi, t +β3DCi,
t+β4CCi, t+ β5VABSi, t+ϵi 
• Where;-
• ROA = Profit before tax / Total Asset
• VATM= value of ATM transaction
• VPOS = value of POS transaction
• DC = Number of Debit Card
• CC = Number of Credit Card
• VABS = Value of Agent Banking Service
• βo = Constant term
• β1, 2, 3…5 are parameters to be estimated;
• Є = is the error component for company i at
time t assumed to have mean zero E [Є it] =0 i =
commercial banks i = 1. . . 10; and t = the index
of time periods and t = 1- 3
 3.3 Variables Definition and Hypothesis development

• 3.3.1 Dependent Variable

• bank financial performance has often been
measured using return on asset (ROA) and profit
before tax.
• It is defined as net income before tax divided by
total assets, which represents efficiency in asset
utilization to generate income.
• The ROA reflects the ability of commercial
banks to generate profits from the bank’s
assets (Amdemikael, 2012)
 3.3.2 Independent Variable
• Debit Card (DC): number of card issued to card holders
• Value of transaction on Automated Teller Machine
terminals (NATM).
• The effect of ATM transaction on the financial
performance of commercial banks
• The effect of POS transaction on the financial
performance of commercial banks
• Value of transaction on Point of sale terminals (NPOS)
• Credit Card: number of card issued to customers
• Value of transaction on Agent Banking Service: number
of transaction performed by agents
The end