ASSESSMENT OF ELECTRONIC BANKING ON PROFITABILITY OF COMMER CIAL BANK OF

ETHIOPIA IN CASE FICHE BRANCHS

SELALE UNIVERSITY

DEPARTEMENT OF ACCOUNTING AND FINANCE

COLLE OF BUSSNES AND ECONOMICS

A Proposal Submitted to the department of accounting and finance for the partial fulfillment
of the requirement of the degree of bachelor of art (BA) in accounting and finance

PREPARED BY;

Name

1. TALEAMLAK………………………………………………………………………………1175/RU

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ADVISOR:AYELE BOGALE

JUNUARY 28 2022

FICHE ETHIPIA

ACRONYMS

ATM Automated Teller Machine

E-Bank Electronic Banking

E-Finance Electronic Finance

EFT Electronic Fund Transfer

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TABLEOFCONTENTS
Page

Acronyms.............................................................................................................................

1.chapter one----------------------------------------------------------------------------------------------------

Introduction-------------------------------------------------------------------------------------------------------1

1.2 Statement of problem 2

1.3Research question..............................................................................................................................3

1.4Objectives (general and specific)........................................................................................................3

1.4.1 General objective.......................................................................................................................3

1.4.2 Specific objective............................................................................................................................3

1. 5Scope and Limitation of study...........................................................................................................3

1.6 Significance of the study....................................................................................................................4

1.7 Operational working definition..........................................................................................................4

CHAPTER TWO.............................................................................................................................................5

LITRATURE REVIEW.....................................................................................................................................5

2.1 Electronic banking.............................................................................................................................5

2.2.Electronic banking profitability and efficiency...................................................................................5

2.3 Empirical review................................................................................................................................6

2.4 conceptual frame work......................................................................................................................9

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CHAPTER THREE........................................................................................................................................11

METHODOLOGY.........................................................................................................................................11

3.1Description of the study area...........................................................................................................11

3.2 Research design and strategy..........................................................................................................11

3.3 Data source and type.......................................................................................................................11

3.4 Sample design..................................................................................................................................11

3.4. 1Target population....................................................................................................................11

3.4.2 Sampling procedure and size determination............................................................................12

3.4.3 Methods of data collection.......................................................................................................12

3.5Methods of data analysis and processing presentation...................................................................12

CHAPTER ONE

INTRODUCTION

1.1 Back ground of the study

E banking is defined as the provision of retail and small value banking products and services
through electronic channel. It implies a service that allows customers to use some form of
computer to access account banking includes varies banking activities conducted from sites other

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than a physical bank location. For instance, all over the world customer relay on ATMs to
withdraw money from their demand deposit accounts at any hour. (Mascon, 2022).

Banks are focusing on their electronic banking activities and are globally expanding E-banking
activities exploring the use of wireless networks and venturing in to some new areas of electronic
commerce. Banks offer e-banking services to expand market share or as a cost saving strategy to
reduce paper work and personnel (WWW.ehow.com).

E banking started in the early 1980 both in USA and in UK. It really took off with the arrival of
the World Wide Web. The evolution of e-banking started with the use on automatic teller
machines (ATMs) and has online banking. ATMs represent a significant change in the banking
industry because they offer a method of delivering bank services to customers without the need
for contact between customers and staff. (Handerson.1988).

In the recent year electronic banking has been viewed a driving force that is changing the land
scope of the banking industry fundamentally in particularly towards more competitive industry
E- banking has blurred the boundaries between different financial products and services and
made existing financial service available different package (A gbala,2008)

The 21st century has witnessed a dramatic revolution in the financial service industry because of
rapid advancement technological transformation has become known as e-developments. These
changes have brokering, e-insurance, e-change and e- supervision. The information technology is
turning in to the most important factor in the future development of banking influencing bank's
marketing and business strategies. Because of rapid advancement in IT and intensive competition
in the banking sector the adoption of e- banking is being increasing used a channel of distributor
financial service. (Mahdi and Mehrdad, 2010 cited in fenchone 2013).

The Commercial bank has provided the e-banking services for their users. Some of the electronic
technologies that has provided by the bank are automated teller machines technology, internet
banking, point of sale, and mobile banking.

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Therefore, commercial bank of Ethiopia fiche branch organization is also required to give
adequate attention to e banking service to enhance its profitability.

1.2 Statement of problem

The internet and different things it can do to uplift business procedures, products and services is
a current necessity for business. One of internet’s products is E-banking. It is a faster way for
clients to transact without the banks personnel. E-banking services expand market share or a cost
saving strategy to reduce paper work and personnel. Ethiopia is lagging behind in the adoption of
e-commerce. The internet infrastructure is only in its major cities; due to lack of internet facility.
Lack of sufficient internet facility and unsatisfactory level of attitude on the use of e-banking
activity makes insufficient (http; ivy thesis, typepad.com).
Even if an internet facility and low level of attitude towards on the use of e-banking is
insufficient, Ethiopian banks including fiche branch commercial bank started the e-banking
service. so, this research assessed its effect on the profitability of the aforementioned branch.
The factors that initiate the researcher are the researches that are done in previous period by this
title in other financial institutions. Now the researcher try to fill the knowledge gap between the
commercial bank of Ethiopia fiche branch and other financial institutions by changing the
research method and source that used by other researcher.

1.3 Research question

The study will try to assess the problem of area of ATM in commercial bank of Ethiopia in fiche
branch by raising of research question
1. How electronic banking supports the attainment of business goal in commercial bank?
2. How the bank balances the cost spent for using e banking and its profitability?
3. What activities are done by Commercial bank to change attitude of the customer?
4. How do automated teller machine (ATM) transaction on profitability of commercial Bank
of Ethiopia fiche branches?

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 1.4 Objectives (general and specific)

1.4.1 General objective

The General objective of the study is assessing the impact of e-banking technology on
profitability of Commercial bank of Ethiopia, fiche branch.

1.4.2 Specific objective

The study aimed to achieve the following specific Objectives

 Assess how e- banking supports the attainment of business goal in Commercial bank.
 To assess how the bank balances the cost spent for using e-banking and its profitability.
 To determine the activities those are done by Commercial bank to change attitude of customer.
 To determine the impact of Automated machine teller (ATM) transaction on profitability of
commercial Bank of Ethiopian in Fiche branches.

1.5 Scope and Limitation of study

1.5.1 Scope of study

This study will assessment of Automated machine teller of Commercial Bank of Ethiopian Fiche
branches. It didn't include other e-banking service provider in the country as whole and Fiche
branches in particular.

1.5. 2 Limitations of the study

 Scarcity of source material or available data.

 Lack of awareness of people
 Lack of computerization
 Wrong assumption by people
 Problem of security.

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 1.6 Significance of the study

 The study will help ATM in Commercial bank to explore its weakness and strength.
 Study will play an important role to the company to find out the information requirements for
the various aspects of resources allocation and control.
 The study will enable the company to get understanding how electronic fund transfer (EFT)
provide competitive advantage and how e-banking company effectiveness profitability.

1.7 Operational working definition

The research paper will be organized in to three chapters. Chapter one is introduction in which
overview of the Automated machine teller background, statement of the problem, objectives of
the study, formulation of research hypothesis, significance of the study and scope and limitation
of the study presented. Chapter two would be review of related literature in which theories,
empirical evidence and conceptual frame work are identified. Chapter three is research design
and methodology.

Chapter two
LITRATURE REV

2 Introduction

This chapter deals with the concept of Automated machine teller in commercial bank of Ethiopia
profitability, profitability related theories and studies on the determinants of Automated machine
teller, profitability. The review divided into three sections. The first section discusses about
theoretical reviews, concept of Automated machine teller profitability and profitability related
theories will present. In addition’s empirical reviews on determinants profitability and
conceptual framework will be presented in the second and third section respectively of
Automated machine teller

2.2 Theoretical Review

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2.2.1 Electronic banking

The first ever electronic banking gateway was signed between Ethiopian Commodity Exchange
(ECX) and Dashan Bank and CBE. The electronic banking system being developed with both
banks is designed to give a secure electronic data sharing gateway between clients, banks and
ECX, facilitating a smooth transaction, Dashan Bank remains so far, the sole player in the field of
electronic banking since 2006. The agreements signed by other private banks to introduce e-
banking are welcoming. PROSPECTRS FOR E-BANKING DEVELOPMENT

electronic banking, Use of computers and telecommunications to enable banking

transactions to be done by telephone or computer rather than through human
interaction. Its features include electronic funds transfer for retail purchases, automatic
teller machines (ATMs), and automatic payroll deposits and bill payments. (G, work)

Electronic banking is the modern topic in the era of science and technology. Though electronic
banking started in 80’s but the revolution has taken place in 20 th century. Since then electronic
banking concept is flourished with populous model, theory and practical concept. So, before
going to discuss any core content of electronic banking, it is good to memorize the fundamental
concept of electronic banking which helps to realize basic concepts of electronic banking.
Electronic banking is umbrella term for the process by which a customer may perform banking
transaction electronically without visiting a brick-and-mortar institution. Therefore, transaction
related to bank activities via electronic mean and medium is called electronic banking
(Henderson, 1988).

2.3 Empirical review

As earlier mentioned e-banking system is said to have increased the performance of banking
industry. Several researchers have been carried out to find the extent to which e-banking has
impacted on banks using both qualitative and quantitative data through the still lie divergent
view.

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Milind (2005) reported that the transaction with Internet banking does not have significant
impact on performance and risk profile and thus concluded that internet banking has not proved
to be a performance enhancing tool in major credit union in Australia.

Abele we at all (2013) analyzed the effect of e-banking on bank performance in Nigeria. They
found that e-banking has positively and significantly impacted on return and equity. While e-
banking did not impact significantly on return on assets. Similarly, Ibukun and James (2012)
claimed that e-banking has led to increased customer satisfaction, improved operational
efficiency, reduced transaction time better competitive edge, reducing running cost and us here
in swift response in service delivery.

In the research, Sana Mohamed, Hassan and Monica (2011) investigated the impact of e-banking
on the profitability of Pakistan banks. Their finding reveal that e-banking has increased the
profitability of bank hence enabling them to meet their cost and earn profit in short span of time.
Also the illiteracy of customer is not regarded as major impediment improvising of their product
further more.

Olusegun (2010) found that has an effective e-banking system which has improved it's customer
satisfaction, by critical appraisal of e-banking in unity bank.

Elisha (2010) studied the prospects of e-banking in developing economy. The Study showed that
e-banking serves several advantage to Nigeria banking sector provide convenience and flexible
advantage . It also transaction related benefit like easy transfer speedy transaction less cost and,
time saving

Commission (2011) investigated internet banking and performance of micro and small enterprise
in Costa Rica. The result shows that internet uses is limited in MSE daily operations because of
limited access to computer and relatively low penetration of internet service.

Abiola (2001) studied the impact of computer automation on banking services in Loga’s using 6
banks and concluded that electronic banking tremendously improved the service of the banks to
their customers.

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Lutsk (2004) explorers the implementation of technique of Activity-Based-Costing (ABC) in the
banking sector on the example of Estonia bank in order to analyses the cost structure for
traditional and electronic channel transactions. The methodology and empirical parts of the study
were based on Hans banks analysis and statistical report as well as on Hans banks internal
document that stipulate rule for cost allocation and limit cost calculation. The finding of the
study revealed that banks additional profit on the transaction effected via electronic channel
banking service have high profitability for banks as the absolute unit cost number are lower than
those of fees collected from clients.

Siam (2006) examined the effect of e-banking on banks profitability in Jordan. The population of
the study included all working banks in Jordan which have size on the Internet for the period of
1999-2004.The result from that data analysis that were gathered from the study
instrument(question arises) showed that there is correlation with statistical significance between
electronic banking and banks profitability showing negative effect in profitability of in short run
and positive effect on Long run .Thus manager banks employees in the area prefer their bank to
expand employees in the area prefer their bank to expand their electronic operation in servicing
customer but not converting all bank to total electronic banks.

Hernando and Nieto to (2007) attempted to fill this gap by identifying and estimating the impact
of the adoption of transactional web site on financial performance using a sample of 72 deposit
money banks in Spanish over the period 1994-2002. The analysis of the sample size is based on
several financial performance ratios. These financial ratio measure business activities as
percentage of average total assets and profitability. The result showed that the impact of
transactional web adoption on bank performance take to appear. The adoption of the Internet as
delivery channel involves gradual reduction in overhead expenses. This effect statically
significant after one or half year after adoption the cost reduction translate into an improvement
in banks profitability which became significant after one and half years in terms of Return on
Assets (ROS) and after three years in terms of return on equity (ROS).

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Naoses and Ash (2008) investigated the impact of Internet banking on banks profitability. Their
analysis covered thirteen (13) bank that have adopted online banking in Turkey between 1996
and 2005.Using the approach of Hernando and Nieto (2007) and using specific and
macroeconomic control variable; the investigated the impact of Internet banking start
contributing to banks return on equity (ROS) with a time lag of two years confirming the finding
of Hernando and Nieto while negative impact is also observed for one and half years of its
adoption.

Madueke (2010) studied the impact of ICT on banking efficiency in Nigeria employing a survey
of 13 Banks. Based on banking CAMEL rating and transcendental logarithmic function of the
banks, it was revealed that the efficiency value obtained through CAMEL rating system where
higher during past adoption era than before adoption and estimated that 1% increase in ICT
capital on average leads to 0.9185 Naira increase in bank output post ICT adoption era.

Miyake and Mokhtar (2010) employing survey of 407: banks customer in 33 organization in
Kano state of Nigeria studied the effects of availability of e-banking facilities such as ATM,
online banking and Telephone banking do not have significant influence on customers banks
choice decision.

Carpaccio and Siegel (2011) investigated the return on investment for online banking services
and analysis of financial account aggregation. The return on investment of the account
aggregation technology was evaluated using the calculation of earnings before interest and taxes
(EBIT) and the net present value (NPV) for a period of five years. The sample cover three basic
bank site. According to the numbers of its online account medium banks those with 2-8 to 6-0
million online account and Large banks those with 8.8 to 16 million online account. The study
concluded that account aggregation is compelling technology that should become a commodity
in the bank provide it and it will represent no more differentiated competitive advantage.

2.4 conceptual framework

Electronic can be described using the internet as delivery mode for the Provision of services like
opening a deposit account, electronic bill payment, on line transfer, online withdrawals and in

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fact any other online banking transaction. Allen metal (2002) gave the definition of electronic
finance(e-finance) as Provision of financial services market using electronic communications and
computation. Electronic banking has also been defined by Lyford and Limit (2005) as the
medium of using electronic devices like internet Wirelesses Connection Network, ATM, Phone
and Cell phone in banking services. These services are a part of providing currency for the
economic system of the country electronic banking services grouped into four major classes
namely:

Telephone banking electronic banking

Mobile banking Internet banking

A Telephone banking: model can be considered as a form of distance or virtual banking which
is basically the delivery of branch financial service via tele communications device where banks
clients can perform retail banking transaction by calling phone or mobile communication unit
which is linked to an automated system bank by utilizing Automated Voice Response (ARS)
technology.

Balachander at (2001) it allows clients to phone their financial institution to check account
balance, pay certain bill, transfer fund between account and change Pia's.

B Internet banking(on line or web banking): this form electronic banking model involves
conducting banking transaction such as account enquiry, printing account statement, fund
transfer payment for good and services, etc. On the Internet (world wide web) using electronic
tools such as the computer without visiting the banking hall.

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E-commerce is greatly facilitated by internet banking and mostly used to effect the payment.
Internet banking also use electronic card infrastructure executing payment instruction and for
final settlement for good and services over internet between the merchant and customer.
Currently the most common Internet payment are for customers bill and purchase of air tickets
through website of merchant (Littler 2004).

C mobile banking (m- banking): this form of electronic banking involves the use of mobile
phone for settlement of financial transaction. it supports person to person transfer with
immediate availability of fund for the beneficiary. Mobile payment use the card infrastructure for
execution of payment instruction as well as secure short message messaging for confirmation of
receipt beneficiary as mean. Mobile banks for low value transaction where speed of completing
transaction is key. The service covered under this product include account enquiry, fund transfer
phone recharge change of password and bill payment which re offered by few institutions
(Cathey 1999).

D. Electronic card: This form of electronic banking is physical plastic card uniquely identifies
the holder and can be used for financial transaction on internet for instance Automated teller
machine (ATM) and point - of-sale (POS) terminal is used to authorized payment to the
merchant or seller (James,2009). The various types of electronic card include debit card, credit
card releasable and which require visiting the bank for replenishment (2009).

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 CHAPTER THREE

METHODOLOGY

3.1 Description of the study area

The study will conduct in semen Shewa Zone Oromia region fiche town which found on 114 km
from the capital city of Ethiopia Addis Ababa. The study will conducted on assessment of
electronic banking on profitability of commercial bank of Ethiopia Fiche branch.

3.2Research design and strategy

The proposal design (method) selected for the study is descriptive in nature, because it describes
and explain the data for the purpose of describing nature of existing condition of assessment of
electronic banking on profitability of commercial Bank of Ethiopia Fiche branches. The
researcher will be collect data by census survey, that is relevant data would collected at one
point.

3.3 Data source and type

The study will be employee both primary and secondary source of data. Primary data will be
obtained from respondent by distributing structured questionnaire. While secondary source of
data is will be gathered from different written document material, books and internet the close
ended and open-ended questionnaires, will use.

3.4 Sample design

3.4 .1 Target population

The population of the study will the assessment of electronic banking on

profitability of commercial bank of Ethiopia in Fiche branch’s that found at

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different level of position, this due to the fact that the raised issued will concerned
with population emphasized is an organization contain around 40 employees.

3.4.2 Sampling procedure and size determination

The population of the study include 40 employees of the commercial bank of

Ethiopia fiche branches, as the population size is small, study will use census
survey, because all the population are accessible to collect the appropriate data.

3.4.3 Methods of data collection

The study will be employs both primary and secondary data to achieve the
objective of the study. Primary data is will be collected through questionnaire
which to get new information from the respondent. The of questionnaire that
distribute for employees are interview questionnaires.

This interview give greater flexibility and opportunity to get information in-depth and broader
manner. Secondary data will be collecting such form published books, company's electronic
form and internet will be review as reference.

3.5 Methods of data analysis and processing presentation

Once the data are collected, it will be processed by basic data processing methods such as
editing, coding and classifying to make suitable for further analysis. Descriptive analysis
technique of data analyzing technique will be used because it describes data in both tabulation,
graph, purchaser and percentage.

Tabulation refer to order or arrangement of data in the table after all relevant data process and
analyze the result are presented by conclusion will be make.

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 Reference

Abaenewe, Ndugbu(2013) Electronic Banking and performance in Nigeria.

Agboola,A, A(2001) impact of electronic banking on customer in Logas Nigeria, Ife journal of
electronic and finance,vol 5(1&2).

Carvalcio,T and Siegel,M (2011) return on investment analysis of financial account aggregation
MIT Sloan school of management working paper 4384 -02 August.

Hernando,I, and Nieto ,M,j.(2007) is the internet delivery channel changing banks performance:
The case of Spanish banks. Journal of banking and finance,31(1083-1099)

Lustsik,o,(2004) can e-banking be profitable inTartu? Garth University press ISBN 9985-4-
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Mahidi,s,&Mehdold A, (2010). E-banking internet economy: Empirical evidence of Iran

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