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
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.
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: