ABSTRACT
This study investigated the Returns on Equity and
Returns on Asset of Guaranty Trust Bank following the adoption of E-banking in
Nigeria: a study of Guaranty Trust Bank Plc 2014-2017. The main objective of
the study is to examine the effect of e-banking on profitability of commercial
banks in Nigeria using Guaranty Trust Bank (GTBank) plc as a study. One
specific objective is to examine to which extent e-banking influences ROA.
Three hypotheses were formulated, three research questions. The research design
used was ex post-fact. The data was sourced from the annual report of Guaranty
Trust Bank plc. Regression analysis was used to analyze the data. The analysis
was carried out using Statistical Package for Social Sciences (SPSS). One of
the findings of this work is that e-banking has no significant impact on Return
on Asset. In conclusion, this study has provided e-banking has not improved
Returns on the Equity and Return on Assets of GT Bank. I recommend that the
banking industry should adjust to full and effective deployment of Information
Technology (IT) due to its sophistication since the technology is irreversible
with relative perceived advantage.
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
Internet is a fast spreading service
which allows customers to access account-specific information and possibly
conduct transactions from a remote location- such as at home or from the work
place. ATM cards, debit cards, credit cards etc. have eased up human life to a
point that life today would have been hard and stressful.
The increased acceptance and penetration
of internet have redefined the ground for retail banks. The retail banks are
now offering their services mostly through their internet branches. However,
the effect of internet banking on bank profitability has remained an
understudied issue.
Daniel, (1999) cited in Al-hajri, (2008)
describes internet as the provision of banking services to customers through
internet technology. According to Basel Committee on banking, (2008), internet
banking is defined as to include the provision of retail and small value
banking products and services through electronic channels as well as a large
value electronic payment and other wholesale banking services delivered
electronically. Though Al-samadi and Al-wabel, (2011) expressed that the
definition of internet banking varies among researchers partially because
internet banking refers to several types ofservices through which bank
customers can request information and carry out banking services.
However, the change in the banking
industry in Nigeria started with the advent of electronic devices to assist in
carrying out quality services to the customers. The introduction of these
electronic devices, has increased competition in the industry, and has gone a
long way to reduce customers’ waiting time for banking transactions. This
invention is brought in by the use of computers and other networks. In Nigeria,
the networking started with the LAN (Local Area Network), MAN (Metropolitan
Area Network) and later, WAN (Wide Area Network).
Generally, the automation of banks makes
transactions and data processing very easily reached for quick management
decision making. This led to another level of benefit which brought in what is
today referred to as internet. Internet Banking helps the banks to speed up
their retail and wholesale banking services. The banking industry believes that
by making use of the new technology, banks would improve customer service level
and tie their customers closer to the Yang and Whitefield, (2005). Simpson, (2002)
asserted that what actually motivates the investment in internet banking is
largely the prospects of minimizing operating costs and maximizing operating
revenue.
Nevertheless, the adoption of Internet
Banking has brought challenges to the industry in terms of risk exposure. The
volume of deposits has increased as well as fraudulent practices experienced by
Nigerian banks since its adoption in the economy. This is why Ovia, (2001)
posits that Nigeria’s banking scene has witnessed remarkable changes,
especially in the mid-80s and these have been seen in the large volume and
complexity in product or service delivery, financial freedom and business
process re-engineering. The effectiveness of using Information Technology in
banks therefore cannot be put to doubt. The fact remains that the idea of using
IT in banks is necessitated by the huge amount of information being handled by
banks on a daily basis. On the side of the customer, cash is withdrawn or
deposited; cheques are deposited or cleared, statement of accounts are
provided, money transfers and so on. At the same time, banks need up-to-date
information on accounts, credit facilities and recovery, interest, deposits,
charge, income, profitability, indices and other control of financial
information.
However, researchers have not given much
attention to this change caused by internet banking with regard to profitability
performance of banks. The changes in industry in Nigeria occasioned by the idea
of internet banking has forced Nigerian banks to invest more on assets to meet
up with competitive positioning. Since many earnings have been retained to meet
up this obligation, shareholders have been denied dividend with the
anticipation of fatter future dividend.
The banking software which is usually
improved on a short term basis causes huge financial costs to the banks. To the
capital providers, they expect extremely large returns from the project if the
internet is adopted. Annual financial reports of Nigerian banks in recent years
have shown that dividend returns are dwindling while other performance
indicators seem to be weak contrary to the expectation of the shareholders or
investors.
Generally, there appears not to be
improvement on banks’ return on equity and assets as speculated.
1.2
Statement of Problem
A great majority of the recent works on
electronic money and banking suffers from a narrow focus. It usually ignores
internet banking in every way and equates electronic money with the
substitution of currency. For instance, Freedman, (2000) put forward that
e-banking and electronic money consists of three devices; access devices,
stored value card, and network money. Internet banking is simply the use of new
access device and is therefore ignored.
Electronic money is the sum of stored
value (smart) cards and network money (value stored on computer hard drives).
Within this constricted room for internet banking and electronic money, there
are however many research that addresses one or more of the challenges facing
it. Santomero and Seater, (1996), Prinz, (1999) and Shy and Tarkka, (2002) and
many others have produced models, that ascertain conditions under which
different electronic payments substitute for money. Most of these models show
that there is at least the possibility for electronic substitutes for currency
to emerge and succeed on a large scale, depending on the features of the
various technologies as well as the trait of the potential users.
Friedman, (1999) point out that internet
banking presents the chance that a totally different payment system, not under
the control of the Central Bank may arise. King, (1999) argues, that today
computers make it at least possible to avoid the payment system altogether,
instead using direct bilateral clearing and settlement.
1.3 Objectives
of the Study
The main objective of this study is to
examine the effect of internet banking on profitability of commercial banks in
Nigeria, using Guaranty Trust Bank (GTB) plc. as a case study. The specific
objectives of the study are:
i.
To
examine to which extent internet banking influences bank ROA.
ii.
To
examine the magnitude to which internet banking influences ROE.
iii.
To
determine if ATM transactions has any significant impact on ROE.
1.4 Research
Questions
In order to achieve the stated
objectives for the study, the following questions are to be asked:
i.
To
what extent does internet banking affect ROA in Guaranty Trust Bank?
ii.
To
what extent does internet banking affect ROE in Guaranty Trust Bank?
iii.
To
what extent does an ATM transaction affect ROE?
1.5 Research
Hypotheses
i.
H0:
Internet Banking has no significant impact on Return on Asset of Guaranty Trust
Bank.
H1:
Internet Banking has a significant impact on Return on Asset of Guaranty Trust
Bank.
ii.
H0:
Internet Banking has no significant effect on Return on Equity of Guaranty Trust
Bank.
H1:
Internet Banking has a significant effect on Return on Equity of Guaranty Trust
Bank.
iii.
H0:
ATM transactions have no significant effect on Return on Equity of Guaranty
Trust Bank.
H1:
ATM transactions have a significant effect on Return on Equity of Guaranty
Trust Bank.
1.6 Significance
of Study
The study will aid commercial banks tin
Nigeria to understand banking in a new dimension. Exposure from the study will
highlight the different benefits of cashless banking and how these measures, if
properly taken can reduce operation costs and increase profitability. Besides
interest from loans and other investments commercial banks participate in, this
study will also introduce a model for banks to adopt the customer convenience
model. This model as shown in this study will inform managers of commercial banks
on how to serve customers better while gaining their loyalty and money.
1.7 Scope
of Study
The study will cover internet banking
investments (POS channels, ATM channels) and profit after tax of Guaranty Trust
Bank plc. from 2014-2017. The study could not cover other banks due to
inadequate disclosure on internet banking investments from these banks and time
factor (limited time).
1.8 Definition
of Terms
Internet banking: is an electronic
payment system that enables customers of a financial institution to conduct
financial transactions on a website operated by the institution, such as a
retail bank, virtual bank, credit union or building society. Online banking is
also referred to as; internet banking, e-banking, virtual banking, online
banking.
CBN: Central Bank of Nigeria.
Profitability: the state or condition of
yielding a financial gain. It is often measured by price to earnings ratio.
Return on Asset (ROA): this shows the
percentage of how profitability a company’s assets are generating revenue.
Return on Equity (ROE): measures the
rate of return for ownership interest (shareholders’ equity) of common stock
owners. It measures the efficiency of a firm at generating profits from each
unit of shareholder equity, also known as net assets or assets minus
liabilities. ROE shows how well a company uses investments to generate earnings
growth. ROEs 15-20% are generally considered good.
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