Effect Of E-banking On Bank Profitability
[A STUDY OF GUARANTY TRUST BANK PLC ENUGU]

2.3 Empirical Review 

Sullivan, (2000), in his study took sample of banks that are located in tenth Federal Reserve District that have adopted internet banking and those that have not. Comparing their financial performances and risk positions, he observed the profitability and risks of these grouped banks were similar.

Hernando and Nieto, (2006) found that the effect of adopting internet on the performance of banks as a delivery channel of internet takes time to appear. They hold the view that the adoption of a transactional website has a positive impact on profitability which becomes significant in terms of ROA and ROE three years after adoption. This discovery conveys that there is a lag time for positive profitability effect to be evident on adoption of internet banking.

However, their study revealed some weaker evidence of an earlier positive effect on adoption of internet particularly in terms of ROA.

Siam, (2006) citing the works of Shuqair, (2008) on “Practical Internet Banking Services by Jordanian Banks”, pointed out that one of the most important findings in that study is the high cost of internet banking services on the short run due to the training of employees, and the cost of the infrastructure. The implication of this discovery is that internet banking services will have an adverse effect on the bank’s profitability in the short run.

Onay et al, (2008) in their study reveal that adoption of online banking and its investment is a gradual process. They state that internet banking does not seem to have a significant impact on the performance of Turkish banks measured in terms of ROA, ROE or margin in the year of adoption of the technology. In addition, they showed that in the following year, there was a significant reduction in profitability which was also attributed to the increase in IT expenditure following the adoption of the new technology.

Also, in similar study, Malhotra and Singh, (2010) found that profitability and experience in offering of internet banking do not have any impact on banks’ performance in the Indian banking context.

Kharwish and Al-sa’di, (2011) studied the effect of internet on bank profitability with evidence from Jordan. For banks that applied electronic services for less than two years, they found that there was no significant effect of these electronic services on the Return of Assets and the Return on Equity. The study however, showed that such services made significant effect on the profit margin of the banks involved. They also found that there was no significant effect of these services on banks profitability after two years of applying it in Jordan.

Al-samadi and Al-wabel, (2011) while studying the effect of internet banking on the performance of Jordanian banks, found that the use of internet affects bank profitability negatively. In their opinion, they hold that internet may eventually become a very important factor affecting performance for many banks. In Nigeria, the impact of e-banking was analyzed by using data from commercial banks that retained their brand name and adopted e-banking between 1999-2010, estimations were done on the impact of e-banking on bank performance in terms of Return on Asset, Return on Equity. The result of the study shows that e-banking begins to contribute positively to bank performance after two years of adoption in ROA and NIM while a negative impact was observed in the first year. Electronic banking thus offers many benefits to banks as well as to customers. However, in global terms the majority of private bankers are still not using electronic banking channel. There exist multiple reasons for this. Foremost, customers need to have an access to the internet in order to utilize the service. Furthermore, new online users need first to learn how to use the service .Secondly, nonusers often complain that electronic banking has no social dimension, i.e. you are not served in the way you are in a face-to-face situation at branch (Mattila et al., 2003). Finally, customers have been afraid of security issues (Sathye, 1999). However, this situation is changing as the electronic banking channel has proven to be safe to use and no misuse has been reported by the media in Finland. E-banking continues to influence banks activities and their income structure. Among the activities that may be subject to stronger pressures for change are those that, up to today, have remained relatively insulated from ICT developments. This applies mainly to some retail banking activities that are suitable for standardization, and also to developments in remote banking Kariuki, (2005). Kariuki, (2005), in his research paper titled, “Six Puzzles in Electronic Money and Banking”, showed the positive impacts of ICT on their banking performance using bank turnover and profits as measure of performance. He established that banks with high profit growth are more likely to be using greater numbers of advanced ICTs. He concluded that e-banking leads to higher profits though in long-term but not in short-term due to high ICT investment cost. Further he provides evidence that the use of e-banking can contribute to improved bank performance, in terms of increased market share, expanded product range, customized products and better response to client demand. It has been proved that online banking channel is the cheapest delivery channel for banking products once established (Sathye, 1999; Robinson, 2000).