MEKELLE UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

Impacts of E-banking on Financial Performance of Commercial Banks in

Ethiopia

A Thesis Submitted to the Department of Accounting and Finance, in partial

Fulfillment of the Requirements for the Award of a Master of Science Degree
in Finance and Investment

By: Tesfalem Mesfin

ID NO.CBE/PE/111/11/AA

Advisor: Bereket Zerai (Phd)

August, 2023

Addis Ababa, Ethiopia

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 List of Acronyms
ATM: Automated Teller Machine

CBE: Commercial bank of Ethiopia

DOIT: Diffusion of Innovation Theory

E-banking: Electronic banking

EFT: Electronic funds transfer

ICT: Information communication technology

INT: Intention

NBE: National bank of Ethiopia

PEU: Perceived Ease of Use

POS: Point of Sale

PU: Perceived Usefulness

ROA: Return on Asset

ROE: Return on Equity

TAM: Technology Acceptance Model

TPB: Theory of planned behavior

TRA: Theory of Reasoned Action

GLS: General least square

LM: Lagrange multiplier

VTOPOS value transaction on POS

VTOATM value transaction on ATM

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 Approval
MEKELE UNIVERSITY
SCHOOL OF GRADUATE STUDIES

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
This is to certify that the thesis entitled “Impacts of electronic banking on financial performance
of commercial banks in Ethiopia” which is undertaken by Tesfalem Mesfin, in partial fulfillment
of the requirement for degree of Master of Science in Finance and Investment is, an original
work of his own and not submitted for any degree or master program in any other university.

________________________ ___________________

Bereket Zerai (Phd) A Date

Advisor August 2023

ii
 Acknowledgement
First of all, I would like to thank the Almighty God. Next, I thank my advisor Bereket Zeray
(PhD) for his unlimited support and encouragement. Secondly, I would like to thank Giday
Kinde, Atakilti G/ Medhine, and other unspecified friends who supported me technically and
ideally assisting during my thesis work. Finally, I would like to thank the National Bank of
Ethiopia, for information and material support during my works.

iii
 Declaration
I, hereby declare that the research work entitled “Impacts of electronic banking on financial
performance of commercial banks in Ethiopia” is my original work and it hasn’t been presented
for the award of any other Degree, Diploma, Fellowship or other similar titles of any other
university or institution.

Name: Tesfalem Mesfin

Signature: _____________

Date: August 2023

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 CERTIFICATION
This is certify that the thesis entitles: ‘Impacts of electronic Banking on financial performance of
commercial banks in Ethiopia’ was carried out by Tesfalem Mesfin Sharo submitted in partial
fulfillment of the requirements for the degree of Masters of Science in investment and Finance
compiles with the regulations of the university and meets the respect to originality.

Approved By Board of Examiners

Internal Examiner Signature Date

________________ _________________ __________________

External Examiner Signature Date

____________________ ___________________ __________________

Advisor Signature Date

____________________ ___________________ _________________

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Table of Contents
List of Acronyms..........................................................................................................................................i
Approval......................................................................................................................................................ii
Acknowledgement......................................................................................................................................iii
Declaration.................................................................................................................................................iv
CERTIFICATION.......................................................................................................................................v
LIST OF FIGURE.....................................................................................................................................viii
LIST OF TABLE.............................................................................................................................................ix
ABSTRACT..................................................................................................................................................x
CHAPTER ONE..........................................................................................................................................1
1. INTRODUCTION...................................................................................................................................1
1.1 Background of the Study...................................................................................................................1
1.2 Statement of Problems.......................................................................................................................3
1.3 Research Questions............................................................................................................................5
1.4 Objectives of the Study......................................................................................................................6
1.4.1 General Objective of the Study...................................................................................................6
1.4.2 Specific Objectives of the Study.................................................................................................6
1.5 Significance of the Study...................................................................................................................7
1.6 Scope of the Study.............................................................................................................................8
1.7 limitations of the studies....................................................................................................................8
1.8 Definition of Terms...........................................................................................................................9
1.8 Organization of the study...................................................................................................................9
CHAPTER TWO.......................................................................................................................................10
2. LITERATURE REVIEW......................................................................................................................10
2.1 Theoretical Review of Literature.....................................................................................................10
2.1.1 Definition of Electronic Banking..............................................................................................10
2.1.2 Benefits of E-banking...............................................................................................................12
2.1.3 Types of E-Banking in Ethiopia................................................................................................12

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 2.1.3.1 Automated Teller Machines (ATM)......................................................................................12
2.1.3.2 Point of sale (POS)................................................................................................................13
2.1.3.3 Mobile banking......................................................................................................................13
2.1.3.4 Internet Banking....................................................................................................................13
2.1.4 Bank history in Ethiopia...........................................................................................................14
2.2. Technological Acceptance Model...................................................................................................15
2.2.1 Theory of planned behavior......................................................................................................17
2.2.2 Diffusion of innovation theory..................................................................................................18
2.2.3 Overview of E- banking in Ethiopia.........................................................................................19
2.2.3.1 Economic benefits of commercial banks................................................................................20
2.2.3.2 Measure of Bank performance...............................................................................................21
2.3 Measurements Bank financial performance.....................................................................................22
2.3.1 Relation between E- banking and ROA....................................................................................23
2.3.2 Relation between ATM and ROA.............................................................................................25
2.3.3 Relation between mobile banking and ROA.............................................................................25
2.3.4 Relation between debit card and ROA......................................................................................26
2.4 Empirical reviews............................................................................................................................26
2.4.1 International research evidence.................................................................................................26
2.4.2 Local research evidence............................................................................................................29
2.5 Control variables.............................................................................................................................32
2.5.1 Market share.............................................................................................................................32
2.5.2 Literature gap............................................................................................................................32
2.6 CONCEPTUAL FRAMEWORK....................................................................................................33
CHAPTER THREE...................................................................................................................................34
3. RESEARCH METHODOLOGY...........................................................................................................34
3.1 Research approach & Design...........................................................................................................34
3.2 Population of the study and sampling methods................................................................................35
3.2.1Target Population.......................................................................................................................35
3.2.2 Sampling methods....................................................................................................................35
3.3 Data Source and type.......................................................................................................................35
3.4 Data Analysis...................................................................................................................................36
3.5 Model Specification.........................................................................................................................37

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 3.5.1 Dependent variable...................................................................................................................38
3.5.2 Return on asset (ROA)..............................................................................................................38
3.5.3 Independent Variables..............................................................................................................38
3.5.4 Mobile banking.........................................................................................................................38
3.5.5 Automated Teller Machine.......................................................................................................39
3.5.6Market share..............................................................................................................................39
3.5.7 Value of transaction in POS......................................................................................................39
3.5.8 Value of transaction of ATM....................................................................................................39
CHAPTER FOUR.....................................................................................................................................40
4. DATA ANALYSIS AND INTERPRETATION...................................................................................40
4.1 Descriptive statistics........................................................................................................................40
4.2 Analysis of Inferential Statistics......................................................................................................42
4.2.1 Correlation Analysis.................................................................................................................42
4.2.1.1 Test of Data Stationary..........................................................................................................43
4.2.1.2 Model Selection.....................................................................................................................44
4.2.1.3 Rationale for Choosing Fixed Effect VS Random Effect.......................................................44
4.2.1.4 Hausman test..........................................................................................................................45
4.2.1.5 Testing for Random Effects: Breusch-Pagan Lagrange multiplier.........................................46
4.3 Random effect model...................................................................................................................47
4.3.1 Regression Analysis..................................................................................................................49
4.3.2 Mobile Banking and ROA........................................................................................................49
4.3.3 Value Transaction by ATM and ROA......................................................................................51
4.3.4 Value Transaction of POS and ROA.........................................................................................52
4.3.5 Number of ATM and ROA.......................................................................................................52
4.3.6 Market Share and ROA.............................................................................................................53
CHAPTER FIVE.......................................................................................................................................54
5. CONCLUSIONS AND RECOMMENDATION...................................................................................54
5.1 Conclusion.......................................................................................................................................54
5.2 Recommendation..........................................................................................................................55
References....................................................................................................................................................i
Appendix....................................................................................................................................................vi

viii
 LIST OF FIGURE

Figure 1Technology Acceptance Model........................................................................................17

Figure 2Conceptual framework of the study.................................................................................33

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 LIST OF TABLE

Table 1 Descriptive statistics Analysis.......................................................................................39

Table 2 Correlation between variable............................................................................................41
Table 3 Unit Root test of all variables...........................................................................................42
Table 4 Hausman test....................................................................................................................44
Table 5 Properties of the Random and Fixed Effect Estimation Model........................................45
Table 6 Breusch-Pagan Lagrange multiplier (LM).....................................................................45
Table 7Random effect model.........................................................................................................47

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 ABSTRACT
The purpose of this study was to examine the impacts of e-banking on the financial performance
of commercial banks in Ethiopia, by using multiple linear regression (MLR) models for the
period between 2014 and 2020. Secondary data was employed to capture the effects e-banking
on financial performance, particularly in the context of developing economies like Ethiopia. This
model was aimed to providing insights on the relationship between e-banking and financial
performance in commercial banks by computing quantitative data consecutively recording
during the study period. The research has a target variable i.e. financial performance whereas
considered number of ATMs, value transaction on ATM, Mobil banking, value transaction on
POS, and market share related to e-banking adoption and financial performance (ROA), as an
independent variables. The findings of the study stressed that, an increased value or price of
POS and numbers of automated teller machines have a positive effect, while mobile banking and
value-transaction of automated teller machines have a negative effect on financial performance.
This implies that commercial banks in Ethiopia should be able to identify ways to improve their
financial performance by leveraging E-Banking Technologies.

Key words: E-banking, ATM, POS, Market share, financial performance

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 CHAPTER ONE
1. INTRODUCTION
In this chapter started by brief describe Backgrounds of the study followed by statements of the
problem, research question research objectives general and specific, significance of the studies,
scopes of the studies, limitations of the studies and organization of the studies.

1.1 Background of the Study

E-banking is a product of e-commerce in the sphere of financial and banking services (Steven,
2002). It's a broad word for the procedure by which a client can complete financial transactions
electronically rather than visiting a bank (Fincen, 2014). Turban (2008) stated that e-banking has
enabled banking institutions to compete more effectively in the global environment by extending
their products and services beyond the restrictions of time and space. Hence, the banks, be they
domestic or foreign, are investing more in providing their customers with new technologies
through E- banking (Mwangi, 2014). Furthermore, E-banking is a system that allows financial
service providers, consumers, individuals, and organizations to access their accounts, conduct
transactions, and acquire the most up-to-date information on financial products and services via
public or private networks, such as the internet (Siddik et al., 2015).

E-banking service is provided through the use of electronic banking, which facilitates the service
without the involvement of a customer service representative (Mekuannint, 2019). E-banking can
offer faster, quicker, and more dependable services to customers, with which they may be more
satisfied than with the manual system of banking. They considered ATM telephone banking,
internet banking, and mobile banking as key channels of electronic banking Recently (Li et al.
2017). In several developing countries, electronic banking is the newest distribution platform,
and there is widespread consensus that the latest channel would have a major effect on the bank
market (Daniel, 1999). The global advancement of information technology is becoming a critical
factor in the future development of enterprises and industries all over the world (Ashenafi, 2019).
According to Chadima (2018), in the 21st century, information and communication technology
has vastly developed and led to development in the whole world. The improved usage and
diffusion of online banking have introduced a new channel of distribution for retail banking.
Online banking has increased acceptance in the entire world as a new channel of delivery to
perform a number of banking transactions (Ogutu & Fatoki, 2019). On the other side E-banking

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in Ethiopia dates back to late 2001, when the country's largest state-owned commercial bank
(CBE) launched ATMs to serve local customers. The majority of Ethiopian banks provide very
basic electronic banking services. However, the e-banking services offered are comparable to
those in the country (Shaikh, 2014). In comparison to the rest of the world, Ethiopia's banking
system is one of the least established. Cash is still the most common form of payment in
Ethiopia, and electronic banking is barely understood, let alone used for banking transactions.
Both Ethiopian banks are behind the times in terms of technological advancement, and they
should set a specific timeline for their integration and technological advancement. Unlike other
forms of electronic banking, however, almost all banks have ATMs in convenient locations for
their cardholders. Currently, debit cards are only used for Visa and MasterCard, and customers
of those banks can use their debit cards to withdraw cash and purchase goods and services
(Worku, 2016).

According to National Payment System Proclamation No. 718/2011, electronic banking enables
bank customers to get banking service without visiting the bank‘s branch. For instance, clients
can withdraw cash; transfer funds to others by using ATM cards from ATM machines. In
addition to this, clients can transfer money from one account to another, pay for utilities, or buy
airtime by using mobile banking, internet banking, or ATMs. Advanced banking technologies
and payment platforms like mobile payment and internet banking are a recent phenomenon. In
addition to the recentness, the progress of the technologies is deteriorating. Many of the
customers always use the traditional branch for their day-to-day banking needs. To solve this
problem, the national bank of Ethiopia made it mandatory for commercial banks operating in the
country to use electronic banking, which includes card payment, mobile banking, internet
banking, POS, and agent banking, by June 2011.

Ethiopia's financial sector cannot afford to be an outlier when it comes to extending the use of e-
banking systems. Ethiopian commercial banks continue to provide electronic banking for the
majority of their transactions. Electronic communication tools are becoming increasingly
popular. When it comes to expanding the use of e-banking systems, Ethiopia's financial sector
cannot continue to be an outlier. For the bulk of their transactions, Ethiopian commercial banks
prefer to use electronic banking. The use of electronic communication tools is growing in
popularity. Electronic banking can be divided based on the instruments used: telephone

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connections, personal computers, means of payment (bankcards), and self-service zones. NBE
(2015). The primary role of commercial banks is to mobilize deposits and use such resources for
investment. Banks are also key players in the financial system; by clearing and settling
transactions, they remove capital shortages, which have a huge impact on a country's economic
progress. The researcher is highly motivated to conduct a study on the effect of E-banking on
financial performance in the Ethiopian banking industry based on the foregoing evidence. As a
result, the aim of this research is to determine the effect of E-banking on commercial banks'
financial output in Ethiopia. From the above mentions, it is clearly seen that e-banking in
Ethiopia is not yet adaptable (Worku, 2016). There is evidence about the impact of e-banking on
financial performance, so it becomes important to carry out a study in the Ethiopian context to
determine whether e banking has an impact on the financial performance of commercial banks. It
is therefore important for regulators, bank supervisors, and researchers to understand how e-
banking impacts the performance of banks. Hence, the researchers' main purpose is to fill these
significant and above-mentioned gaps by providing systematic analysis of electronic banks on
the performance of Ethiopian commercial banks in Ethiopia.

1.2 Statement of Problems

The financial sector is one of the engines of sustainable economic growth in any country in the
world (Hussen, 2014). It plays a significant role in the process of economic acceleration in
developing economies in the emerging global economy. In the banking sector, commercial banks
play a pivotal role as financial mediators in the economic development of the nation (Worku,
2016). These banks all perform a wider range of functions, such as accepting demand deposits,
issuing cheque, saving and fixed deposits, making short-term business and consumer loans,
providing brokerage services, and buying and selling foreign exchange (Kalpana & Vasantaha,
2017).

Electronic banking was one of the commercial banks’ services. It is a product of e-commerce in
the field of banking and financial services (Ovia, 2001). Banking customers use digital ways to
access their bank account and to undertake banking transactions. ATMs, Pay Direct, electronic
check conversion, mobile banking, and e-transact are examples of electronic banking systems
that have a significant effect on bank efficiency. Thus, they boost profitability, lower bank
operating costs, and boost bank assets and performance (Ngango, 2015). Furthermore, the

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benefits of e-banking services include lower transaction costs and less strain on branches, as well
as consumers' perceptions of ease of access, convenience, and time savings (Dawed, 2004).
Particularly, in Sub-Saharan Africa, i.e. Ethiopia, the commercial banks in Ethiopia has recently
organized a large number of ATMs and POS machines across the country, by investing a large
sum of money in the process and attempting to broaden electronic alternative self-service
channels (CBE Annual Report, 2015). Many scholars have conducted research in the field of
electronic banking. Ogare, (2001) for example, looked into the effect of electronic banking on
Kenyan commercial banks' financial results. His findings revealed that E-banking has an
important and positive impact on the profitability of commercial banks in Kenya's banking
industry. Thus, it implied there was a positive relationship between e-banking and bank outputs.

According to a study conducted in Ethiopia in 2016, by assessing the role of e-banking on the
financial performance of Ethiopian banking industries revealed that the number of ATMs, the
number of POS, and bank market share have a positive and significant impact on the financial
performance of commercial banks (Worku, 2016). However, the researcher could not include all
types of e-banking technologies his study. Tilahun (2016), in his study, confirmed that electronic
banking influences the financial performance of commercial banks in Ethiopia positively. He
also found that the effect of ATMs, debit cards, and POS terminals has an effect on private
commercial banks and their return on assets. This study mainly focuses on the relationship
between the number of ATM and POS transactions and the number of debit cards on financial
performance. The author of the study concluded that two of the three variables had a positive
relationship with the return on assets of commercial banks in Ethiopia. However, he could not
include all of the electronic banking services provided by the banks, like mobile banking.

Girma (2016), on the other hand, has investigated the impact of ICT on the efficiency of the
Ethiopian banking industry. His findings revealed that ICT, ATMs, and POS have no statistically
significant impact on commercial banks' return on assets in Ethiopia. Likewise, the study results
revealed that the POS, ICT, and number of branches have a negative effect on the return on
assets of commercial banks in country. Mekuanint (2019), for his part, conducted a study
entitled, the Effect of Investment in electronic banking on the financial performance of
commercial Banks in Ethiopia. The finding illustrated that investment in internet banking
infrastructure has a negative and significant effect on ROA, whereas ROE has a negative and

4
insignificant effect. According to his result, some variables influenced negatively, but it could
not be concluded that investment in E- banking is affecting the financial performance of
commercial banks of the country despite, a promising activity in increase the performance of
Ethiopian commercial banks.

The above arguments from different studies show inconsistent of findings about the true impact
of e-banking on financial performance, especially in Ethiopian banking industries. Hence, it
needs further studies by involving different variables, including mobile banking, and value
transaction of POS, in the context of Ethiopia. Furthermore, the former scholars did not indicate
the values and volumes of transactions, which are settled during the period of study (i.e. 2014-
2020). Therefore, this study was intended to fill this gap by making its own contributions and
providing empirical evidence through studying the impact of e-banking on the financial
performance of commercial banks in Ethiopia.

1.3 Research Questions

1. The following research questions were designed to capture the value, volume and its
impact on commercial banks’ financial performance.
2. How did the number of ATMs and POS of commercial banks impact the financial
performance of commercial banks in Ethiopia?
3. How much were the values of transactions conducted through ATM & POS between
2014 and 2022 these commercial banks?
4. What was the role of mobile banking in influencing the financial performance of
commercial banks?
5. How did the utilization of e-banking services, including ATMs, POS, and mobile
banking, improve the financial performance of commercial banks?
6. What was the relationship between the e-banking services and the financial performance
of commercial banks in Ethiopia?

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1.4 Objectives of the Study
The objective of the study was designed to examine, how the implementation of electronic
banking (e-banking) affects the financial performance of commercial banks in Ethiopia. As such,
it aims to determine the overall impacts of e-banking on financial performance of commercial
banks.

1.4.1 General Objective of the Study

The general objective of this study was aimed to examine the effect of electronic banking
services on financial performance of the commercial banks in the country for the period between
2014 and 2020.
1.4.2 Specific Objectives of the Study
The research designed the following specific objectives to:
1. Assess the impact of increased number of ATMs and POSs on financial performance of
commercial banks during 2014 -2020.
2. Determine the values of transactions conducted through ATMs and POSs in the
commercial banks.
3. Analyze the role of mobile banking in influencing the financial performance of the
commercial banks in the country.
4. Asset the utilization of ATMs, POSs, and mobile banking in improving the financial
performance of the commercial banks.
5. Determine the relationship between the electronic banking services and financial
performance of the commercial banks of the country during the period of the study.

6
1.5 Significance of the Study
The results of this study would have potential benefits to financial institutions, especially for
banks, in making them understand the significant impacts, which electronic banking would
extend on the overall financial performance. Moreover, this research would be of help to other
studies, by setting the solid grounds for those who are interested in conducting more studies, in
similar area of topic. It would also be of service by providing inputs for key stakeholders and
policy makers in the sector. Finally, it would add values to the existing knowledge of electronic
banking utilization and implementation for banks in particular and financial institutions in
general. Overall, the findings would have practical implications for commercial banks’ clients
and policy analysts, by offering them guidance on how to harness the potential of e-banking to
drive financial performance in the rapidly evolving digital economy.

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1.6 Scope of the Study
The study's scope was focused on two major areas. This includes the study's historical and
geographical reach. Contextually, the research would concentrate on electronic banking,
focusing on the impact of E-banking on financial performance in targeted commercial banks in
Ethiopia, except Development Bank of Ethiopia (DBE). The geographical scope of the study
encompasses only commercial banks, in Addis Ababa through the Head Office. It did not include
other financial institutions (such as, Micro Finances and Insurance Corporations) and it should
also be noted that, the study was delimited to collect data from head office of each banks, which
was exclusively combined from all branches and districts. Finally, the research was delimited to
collected data for the time frame starting from 2014 to 2020, for the relevancy of records.
1.7 limitations of the studies
When discussing the limitations of studies on this studies of the impacts of e-banking on the
financial performance of commercial banks in Ethiopia, several key areas can be highlighted:
Data Availability and Quality: One major limitation could be the availability and reliability of
financial data from commercial banks. In some cases, banks may not provide comprehensive or
up-to-date information, which can affect the accuracy of the analysis particularly E- banking
areas. Sample Size and Representation: If the study examines only a limited number of banks or
focuses on specific regions within Ethiopia, the findings may not be generalizable to all
commercial banks across the country. Time Frame: The period over which the data is collected
may influence the results. Short-term studies may not capture the long-term effects of e-banking
on financial performance, especially in a rapidly evolving technological landscape.
Technological Adoption Variability: Different banks may adopt e-banking technologies at
different rates and levels of sophistication. This variability can lead to inconsistent impacts on
financial performance, complicating comparative analyses. Customer Demographics and
Behavior: Variations in customer demographics and their willingness to adopt e-banking services
can affect the overall impact on financial performance. Studies may not fully account for these
differences.

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1.8 Definition of Terms
ATM: - a machine provides the same services, such as money withdrawal, fund transfer, balance
enquiry, mini statement, and money transfer from one account to the other.

Mobile banking:- is a term used for performing balance checks, account transactions, payments,
credit applications and other banking transactions through a mobile device such as a mobile
phone

POS: - transactions: Paying with a debit or credit card through a POS machine

Smart Card: - the smart card contains a chip that can hold substantially more information on the
card itself than a magnetic stripe card, including biometric identification and some transaction
history. Its benefits include offline capability and high security protection.

Transaction: - between the cardholder and merchant and financial institutions which result in
the sale of goods services and cash withdrawal.

Magnetic Stripe Card: - the magnetic stripe card is typically used for credit and debit cards in
the United States. A limited amount of data, such as the card number, is stored on the magnetic
band.

Interoperability: - are set of connected scheme by the internet platform that can allow
participants in different systems to conduct and settle payments or security transactions across
system while continuing to operate in own respective system.

1.8 Organization of the study

This chapter has established the context of the financial sector particularly in banking sector with
major emphasis on investigating the impact of E- banking on the financial performance on
commercial banks in Ethiopia. On this research encompasses five chapters the first chapter
indicates that Chapter 1 provides the background to the research and introduces the research
problem. It also includes a brief overview of the research objectives, significance and limitations.
Chapter 2 reviews the literature about the six disciplines of this research, which is, theoretical
and empirical research evidence and conceptual framework. Chapter 3 presents data sources,
types, the research methodology as well as the model specification and econometric models.
Chapter 4 presents the analysis of the data. The analysis was facilitated through the use of
STATA version15 software with the utilization of selected quantitative analysis techniques.
Chapter 5 presents the major conclusions and recommendations of this research. In addition
limitation of the study and future study area mentioned next to key recommendation points.

9
 CHAPTER TWO
2. LITERATURE REVIEW
In this chapters deals with literature reviews in the reviews part are categorized under the two
parts the first part is theoretical parts in this part definition of e banking in Ethiopia, deferent
theories and etc. the second part is empirical studies and conceptual framework

2.1 Theoretical Review of Literature

2.1.1 Definition of Electronic Banking
The automated delivery of new and classic banking products and services directly to customers
using electronic interactive communication channels is defined as electronic banking (Simpson
2002). In addition to E-banking, a system through which financial service providers, customers,
individuals, and businesses are able to access their Accounts uses public or private networks, like
the internet, to conduct transactions and acquire the most up-to-date information about financial
products and services. E-banking, commonly known as electronic funds transfer (EFT), is the use
of electronic means to move funds from one account to another instead of using a check or cash
(Malak 2007). Electronic banking entails the delivery of banking services using electronic
methods, such as online transactions. Electronic banking encompasses a number of platforms,
including Internet banking (or online banking), telephone banking, television-based banking,
mobile phone banking, and e-banking (or offline banking).

According to Daniel (1999), electronic banking is the dissemination of bank information and
services to consumers using a variety of delivery platforms that may be used with a variety of
terminal devices. A personal computer and a mobile phone with browser or desktop software, a
telephone, or a digital television are examples of such devices. Electronic banking, also known
as "e-banking," refers to both computer and telephone banking. It refers to banks' use of
information and communication technology to deliver services and manage client relationships
more efficiently and effectively (Charity Commission, 2003).

Electronic banking is the term used to describe the mechanism by which a customer can conduct
banking transactions without having to visit a physical location. Personal computer banking,
Internet banking, virtual banking, online banking, home banking, remote electronic banking, and
phone banking are all terms used to describe electronic banking. In addition to that, the terms
used to describe the various types of electronic banking are often used interchangeably (F.
Sameni et al.). According to Worku (2016), e-banking refers to electronic banking. It's similar to

10
the banking industry's e-business. E-banking is a sort of electronic banking that is also known as
"Virtual Banking" or "Online Banking. According to Daniel (1999), electronic banking is the
provision of banking services to clients via the Internet.

E-banking is a mechanism that allows financial service providers, consumers, individuals, and
companies to use public or private networks such as the internet to access their accounts, conduct
transactions, and receive the most up-to-date information on financial products and services. E-
banking, according to Burr (1996), is an electronic link between a bank and a customer for the
purpose of preparing, managing, and controlling financial transactions. According to Gemechu
(2012), customers have easy access to their accounts and transactions. e.g., to check his debt
credit balance, pay bills, and make an online fund transfer to another bank service using simple
electronic mechanisms to easily deliver the bank's products and services 24 hours per day, seven
days a week. Also included in the concept of E-banking is the fact that E-banking is the use of a
computer to retrieve and process banking data (statements, transaction information, and so on)
and to initiate transactions (payments, transfers, service requests, and so on) with a bank or other
financial service provider over a telecommunications network (Yang 1997, p. 2).

Sumra et al. (2011) say that electronic banking is described as the use of the internet as a
delivery mode for services such as opening a deposit account, making electronic bill payments,
and making online transfers. Either these services can be provided by the banks having physical
offices and creating a website and providing services through that, or services can be provided
through a virtual bank as well. The use of electronic and telecommunication networks to offer a
broad variety of value-added goods and services to bank customers is known as electronic
banking (Steven, 2002). Electronic banking is a type of electronic payment system that allows
bank or other financial institution customers to perform a wide range of financial transactions
remotely through the financial institution’s website; ATM is an electronic device like Mobil
Banking, SMS, and other ICT methods or financial electronic networks.

2.1.2 Benefits of E-banking

Banks benefit from e-banking as well. E-banking needs less paper work, fewer employees, and
fewer physical branches, so banks will benefit from lower transaction costs (Cheng, 2006).
According to Smith & Rupp (2003), e-banking reduces loan processing time since the borrower's
loan application can be evaluated simultaneously by both the loan processing and loan approval

11
authorities. Moreover, Business organizations are trying to uncover the new technologies coming
from e-commerce applications, which have a lower transaction cost and eliminate the association
between distribution channels (Salman &Kashif 2010).

E-banking is vital in the banking sector of developing countries (Polatoglu & Ekin 2001). Each
ATM, according to Jayawardhena and Foley (2000), can conduct the same, essentially routine
transactions as the others. At half the cost of human tellers at branch offices and with a four-to-
one efficiency advantage’s a result, banks can offer customers easy, low-cost access to their
accounts 24 hours a day, seven days a week. Customers' relationships with online banking are
extended by delivering financial services directly to their homes or offices (Robinson, 2000).

2.1.3 Types of E-Banking in Ethiopia

2.1.3.1 Automated Teller Machines (ATM)
It's an electronic terminal that allows customers to obtain financial services at practically any
time (Gemechu, 2012). „A buyer wants an ATM card and a personal identification number (PIN)
or punching a special code number into a computer terminal connected to the bank's
computerized records 24 hours a day to withdraw cash and review customers' remaining balance
accounts. " The main advantages of ATMs are, that they save clients time in service delivery and
that they are a cost-effective way to achieve more productivity per period than a human teller.
Furthermore, since ATMs continue to operate, even when human tellers are unavailable, banks
maintain a high level of efficiency even after normal business hours.

They're also found outside of branches, at airports, malls, and other locations where consumers'
home banks aren't. The ATM helps you get cash wan never have you wanted. You can also use it
to check your balance, make transfers, and make cash deposits.

2.1.3.2 Point of sale (POS)

The selling process is overseen by a salesperson-accessible interface on a POS terminal.
Electronic cards are offered to users that can be inserted into specific electronic device machines
in this system. So that payments can be made (Nwakoby2020). These POS terminals thus
arranged will serve like the Automatic Teller Machines (ATM). POS is the point at which a
customer makes a payment to the merchant in exchange For goods (Tilahun, 2016

12
2.1.3.3 Mobile banking
Halili (2014) indicated that it is getting very usable and applicable everywhere nowadays; also
costumers seem to feel more secure with this type. It is similar to PC- or personal-Computer-
Banking, but on a smaller machine, as well as it is a 24/7 Operation, through which the Customer
can pay, transfer and check balances everywhere, every time.

Mobile banking is a form of Internet Banking, which involves the use of cell or mobile phones in
order to settle some transactions. Some of the examples of this transaction includes; change of
PIN, transfer of little amount of funds, phones recharge, pay bill and check account balance
(Peace, 2020). Several Parts of the World, particularly remote and rural areas, use mobile
banking because they have little to no infrastructure. Feature of mobile commerce is also
common in countries where the majority of the population does not have access to banking
services (Mekuannint 2019).

2.1.3.4 Internet Banking

Thulani et al. (2009) conducted research. Internet Banking is a cutting-edge concept in banking.
It makes use of technology to bring the bank and the customer closer together. Internet banking
refers to systems that enable bank customers to get access to their accounts and general
information on bank products and services with banks' websites, without the intervention or
inconvenience of sending letters, faxes, original signatures, and telephone confirmations. In other
words, customers can have access to their accounts around the clock, from all over the world;
‘’access up to minute information on their accounts; Perform their Account-Transactions
electronically with Low Cost, In the same relation banks profitability also developed by use of
automated e-banking.

2.1.4 Bank history in Ethiopia

Banking established in Ethiopia in 1905 between Emperor Minilik II and Mr. The introduction of
modern banking in Ethiopia was highlighted by Ma Gillivray, a representative of the British-
owned National Bank of Egypt. Following the agreement, the Emperor launched the first bank,
the Bank of Abyssinia, on February 16, 1906. The Bank was totally managed by the Egyptian
National Bank and the following rights and concessions were agreed upon the establishment of
the Bank of Abyssinia. The Bank was given complete authority to create banknotes and oversee
coins that would be legal tender, with all profits going to the bank and freely exchangeable

13
against gold and silver on the bank's cover, as well as to establish silver coins and abolish the
Maria.

In general, during its brief life, the Bank of Abyssinia only did limited operations, such as
monitoring government accounts, providing modest export finance, and doing different
government jobs. Moreover, the Bank faced enormous pressure for being inefficient and purely
profit motivated and reached an agreement to abandon its operation and liquidate, in order to
disengage banking from foreign control and to make the institution responsible for Ethiopia’s
credit needs and to deal in foreign currency. The Bank also served as the country's primary
commercial bank, handling all aspects of commercial banking. The Ethiopian Monetary and
Banking Law of 1963 divided the functions of commercial and central banking, resulting in the
establishment of the National Bank of Ethiopia and the Commercial Bank of Ethiopia. Moreover,
it allowed foreign banks to operate in Ethiopia, limiting their maximum ownership to 49 percent,
while Ethiopians should own the remaining balance.

The Ethiopian National Bank, which had increased authority and responsibilities, began
operations in January 1964. Commercial Bank of Ethiopia took over the commercial banking
activities of the old State Bank of Ethiopia, after being incorporated as a share company on
December 16, 1963, as per decree No. 207/1955 of October 1963. With a capital of ETB20
million, it began operations on January 1, 1964. In contrast to the earlier State Bank of Ethiopia,
the new Commercial Bank of Ethiopia employed only Ethiopians. Banco di Roma S. and Banco
di Napoli S.C. were the two other banks in existence. That subsequently sought for license under
the revised proclamation, each with a paid-up capital of Eth. Birr 2 million. There was also the
Ethiopian Savings and Mortgage Corporation, whose goals and responsibilities included
accepting savings and trust deposits, providing loans for the construction, repair, and upgrading
of residential, commercial, and industrial buildings, and carrying out other related activities. On
the other hand, in 1945, a bank called Agricultural Bank was founded to provide loans for
agricultural and other related initiatives. However, the Ethiopian Investment Bank took its place
in 1951. The bank's name was changed to Ethiopian Investment Corporation Share Company in
1965, and the capital was increased to Eth. Birr 20 million, and it was fully paid up.

With a capital of Birr 65 million, 128 branches, and 3,633 workers, the Commercial Bank of
Ethiopia began operations. In addition, the Imperial saving and Home Ownership Public

14
Association was amalgamated to form the Housing and Saving Bank, which has a working
capital of Birr 6.0 million. By proclamation No. 60, 1975, all rights, privileges, assets, and
liabilities were transferred to the new bank. The Agricultural and Industrial Bank, which was
established in 1970 with 100% state control, was brought under the cover of the National Bank
of Ethiopia by Proclamation No. 99 of 1976. Then was reestablished by proclamation No. 158 of
1979 the Agricultural and Industrial Development Bank as a public financing institution with
judicial authority (AIDB). The banking industry, insurance firms, microfinance institutions,
savings and credit cooperatives, and the informal financial sector make up Ethiopia's financial
sector. The banking industry accounts for about 95% of the total financial sector assets, implying
that the financial sector is undeveloped and activities that banks could perform are legally
limited, which in turn contribute to lesser contestability (Zerayehu, Kagnew, &Teshome, 2013).
Apart from traditional banking activities, commercial banks now provide all banking services
such as ATMs, Internet Banking, Telephone Banking, SMS Banking, and Mobile Banking.

2.2. Technological Acceptance Model

The Ideas Davis (1989) develops a technological acceptance model for Use and acceptance of
information systems and technology by individual users (TAM). Technology Acceptance Model
is one of the most popular theories that are used. Widely to explain Information System usage,
the primary goal of TAM is to provide an explanation of factors affecting computer applications'
acceptance in general. Furthermore, this approach aids academics and practitioners in
determining why a system is undesirable (Davis, 1989)

Individual Technology-Acceptance-Behavior in various Information-System-Constructions is

evaluated by TAM in various Researches. According to Franco and Roldan (2005), among goal-
directed users, the Association between perceived usefulness and behavioral intention was high.
Based on the attitude-behavior pattern from cognitive psychology, in the other hand Davis
(1989) to validate his model demonstrates that the link between the purpose to use an
information system and perceived usefulness is stronger than perceived ease of use. According to
this paradigm, the perceived utility of a tool should be the most influential aspect in a user's
decision. According to Davis, an individual’s attitude is not the only aspect that influences how
he uses a system; it also depends on the impact it may have on his performance.

15
Even if an employee dislikes an information system, the Likelihood that he will utilize it is high,
if he believes the system would help him perform better at work. Even if an employee dislikes an
information system, the Likelihood that he will utilize it is high, if he believes the system would
help him perform better at Furthermore, the Technology Acceptance Model proposes that
perceived usefulness and perceived ease of use are inextricably linked. When two systems have
the same features, the one that is easier to use will be more beneficial to the user (Dillon and
Morris, on 1996). Perceived ease of use might also help a person improve their performance.
Because the user will have to exert less effort with an easy-to-use tool, he will be able to devote
more time and effort to other things. Davis (Davis, 1986).

TAM is built around two major assumptions: perceived utility (PU) and perceived ease of use
(PEOU). Other things being equal, TAM believes that perceived usefulness is influenced by
perceived ease of use, because the easier a technology is to use, the more valuable it can be.
Perceived Usefulness (PU) its definer also the degree to which a person believes that using a
particular system would enhance his or her job performance. Ease of use as perceived the degree
to which a person 12 believes that using the system would be painless, is referred to as PEU.
Mentality: A person's favorable or unfavorable appraisal of the act in question is explained by
ATT. TAM, intention is determined by one's attitude and perceived utility (PU). The degree of
evaluative affect that an individual associated with utilizing the target system is referred to as
attitude (Davis, 1993) the strength of a person's willingness to exert effort when completing a
specific behavior is measured by the intention INT.

The model's external variables are a set of variables that can affect information system adoption
indirectly through perceived ease of use and perceived usefulness (Davis et al., 1989).
Pavlou(2003) developed a model to predict the acceptance of E-Commerce by adding new
variables: trust and perceived. According to the model developed by Pikkarainen et al. (2004) to
understand the acceptance of online banking in Finland, perceived usefulness and information in
online banking play a very important role, and Chiu suggested a model that specifies that the
acceptance pattern and role of Internet Self-Efficacy play an important role in service adoption.
To understand mobile service uptake, Ervasti and Helaakoski (2010) established a model based
on TAM and TPB, which argues that perceived usefulness is the most important element. Szajna

16
(1994) looked into the predictive validity of TAM metrics in order to see if they can accurately
predict future behavior.

Figure 1Technology Acceptance Model

Perceived
Usefulness

Behaviora
Perceived behavior
attitude l intent
easy of use

Source: Davis, Bagozzi, & Warshaw (2011)

2.2.1 Theory of planned behavior

Theories of planned Behavior are introduced by (Fishbein & Ajzen 1975, Ajzen & Fishbe 1980).
(TPB) is an extension of the Theory of Reasoned Action TRA, and estimates the individual
Behavior to engage at a specific time and place. In the other hands, the performances of a
behavior are determined by the individual’s intention to engage in it and the perception that the
behavior is within his/her control. TPB is also a behavioral model that is widely used. It enables
us to comprehend, how people's behavior can change.

The model assumes that behavior was planned; hence, it predicts deliberate behavior (Ajzen,
1991). In addition, the Theory of Planned Behavior is behavior that determined by intentions of
attitudes, beliefs and subjective norms. Theory assumes that individuals are rational and make
systematic decisions based on available information. Human behavior is under the voluntary
control of the individual. Studies on electronic commerce show that attitude and perceived
behavior control would positively affect people’s ability to use electronic banking. Huanget al.
(2006) further assumes, as people think about the consequences and implications of their action-
behavior before they decide whether to do or not to do something.

According to Ajzen (2002), „human behavior is defined by the intention to perform the act,
which is influenced jointly by attitude toward conduct, subjective norm, and perceived
behavioral control.“ Behavioral intention is a measure of an individual's preparedness to carry
out a specific action, and it is seen to be an immediate precursor to action. The core theory of

17
TRA, on the other hand, asserts that behavior is based on volitional control of one's willpower
(Fishbein and Ajzen, 1975). Venkatesh, et.al (2003) discuss compliance; Moore & Benbasat
(1991) raise issues of image and social influence; Barki & Hartwick (1994); Taylor & Todd
(1995) argue that system experience decreases the direct effect of SN on intentions; and
Cournega (2000) propose substituting SN with social support. As a result, in the TPB, a person's
ability to do a specific activity is determined by his or her intention toward that activity, which is
influenced by attitudes, subjective norms (SN), and PBC. Ajazen (2006, P. 54) defines PBC as
„people’s perceptions of their ability to perform a given behavior", and empirical evidence
suggests that it improves predictions of intentions (Ajzen 1991). The ability of TBP in providing
a useful theoretical framework for understanding and predicting the acceptance of new
information systems is demonstrated (Ajzen, 2002). However, Davis et al. (1989) fail to find a
significant relationship between SN and intentions. Scholars tackle the Confusion from different
Angles.

2.2.2 Diffusion of innovation theory

Diffusion of Innovation Theory (DOI) to explain ways in which innovation is espoused in the
organizations in the same industry however the theory built execution of five major stages,
which includes Knowledge, persuading, decision, implementation, and confirmation. Knowledge
encompasses the awareness of innovation and its importance amid the potential stakeholders.
However, the diffusion of innovation theory, developed by Rogers in 1962, endeavors to
investigate the factors that influence an individual or organization to adopt a new technology.
The theory confirms that organizations will participate in the diffusion of innovation in order to
gain competitive advantage, lessen costs, and protect their strategic positions. Diffusion is the
process, by which an Innovation was communicated through certain channels over time among
the members of a social system. Diffusion, therefore, is a special type of communication, in
which the messages are concerned with a new idea. It is this Newness of the Idea in the
Message-Content of Communication, which gives Diffusion its special character.

Along these lines, it hypothesized that, when banks perceive distinct advantages offered by E-
Banking, they are more likely to adopt it (Al-Jabri et al., 2012). The innovation-diffusion-theory
put forward by Rogers in 1962. How an Innovation was diffused among users over time (Liu &
Li, 2009). It also helps to know customers’ behavior in the adoption or non-adoption of an

18
innovation (Vaugh and Schavione, 2010; Lee and others, 2003). In additional, Fishben and Ajzen
(1975) concur: Attitudes towards an object and attitudes regarding a particular behavior relating
to that object can frequently differ.

2.2.3 Overview of E- banking in Ethiopia

E-banking was first introduced in Ethiopia in 2001, when the Commercial Bank of Ethiopia, the
country's largest and most powerful state-owned bank, launched an ATM service for local users
with its fleet of eight ATMs in Addis Ababa. CBE has also been a Visa member since November
14, 2005. Dashen Bank, which worked hard to preserve its advantage in electronic payment
systems, trailed CBE. Dashen Bank, a trailblazer in establishing e-banking in Ethiopia, has
placed ATMs for its own cards in accessible locations.

The Dashen Bank ATM is available 24 hours a day, seven days a week and 365 days a year,
providing service to Dashen Debit Cardholders and International Visa Cardholders coming to the
country at the end of June 2009. However, according to Gardachew (2010), Wegagen Bank
inked an agreement with Technology Associates, a Kenyan-based information technology firm,
towards the end of 2008 for the development of payment system solutions and the installation of
an ATM network. In February 2009, drei private commercial banks signed a letter of
understanding to build an Automated Teller Machine (ATM) and Point of Sale Terminal (POS)
network, which is a welcome plan to strengthen Ethiopia's electronic card payment system.

Three private commercial banks, Awash International Bank S.C., Nib International Bank S.C.
and United Bank S.C. There will be a ATM at every branch of the association banks, all
domestic airports serviced by commercial service, shopping complexes and merchants. Because
no single bank in Ethiopia can afford to provide vast geographical coverage and access, the deal
marks the first significant cooperation between rival banks in Ethiopia, and others should be
encouraged to follow suit (Binyam and Tamene, 2009). 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 (Abiy Demilew, 2008). As per Zemen
Bank's official Website (www.zemenbank.com), electronic banking facilities are multi-channel
based and include Internet Banking, ATM Banking, Call-center Banking and SMS Banking.

19
2.2.3.1 Economic benefits of commercial banks
Banks play a crucial role in economic development by facilitating investment and growth by
serving as a middleman. Through a network of branches, commercial banks provide financial
services to businesses and consumers. These banks are usually public limited firms managed by
shareholders and are in business to produce a profit for their owners. According to Li Yuqi
(2007), banks operate as financial mediators by accepting deposits of money from people, who
have advance loans, but do not need them right now, and lending it to people who wish to invest
in it. Dieses it’s critical in growing the country's output, exports, job generation, and foreign
exchange revenues. Banks also accept/collect funds from the public and excess funds or notes, as
well as distribute shortfalls of funds and act as intermediaries between investors and the public or
individuals. Promote people's national saving habits by developing appealing deposit systems
and offering incentives or returns in the form of interest to depositors. Customers can choose
from a variety of deposit options offered by banks. It allows for the Instillation of banking or
saving habits in people.

Capital formation and promotes industry: Capital is one of the most important parts of any
business or industry. It is the backbone of business. Banks enhance capital formation through
collecting deposits from depositors and businesses, as well as easing trade and commerce
operations. In today's world, trade and commerce play a critical role between nations. As a result,
the money transaction should be simple. A modern bank enables its customers to send and
receive money from anywhere on the planet. A well-developed banking system offers a variety
of appealing services such as mobile banking, internet banking, debit cards, credit cards, and so
on. These services make transactions go quickly and smoothly. As a result, the bank contributes
to the growth of trade and commerce. Fasil and Merhatibeb claim that (2009). If banks offer
reduced interest rates on money lent to borrowers, it may encourage potential borrowers and
investors to borrow and invest, so helping to the expansion and rise of goods and service output.
The presence of a network of banks that spans the country facilitates commercial operations by
making payments easier, providing convenience, and ensuring the safety of people's money.
Payment through banks also reduces the risk of money being stolen or lost, and allows for the
prudent use of many in national circulation and available throughout the country.

20
The banking system in Ethiopia is made up of 16 commercial banks that accumulated Birr 730
billion in deposits as of 2018. provided total credit worth Birr 733 billion (33 percent of GDP);
handled close to $10 billion in annual foreign-exchange-trading; Employed 90,000 people; gave
good returns to around 115,000 Stockholders; und paid Birr 13 billion in Taxes to the
Government. For nearly a decade, the banking sector has had tremendous growth, high earnings,
and high returns – almost one Interruption. Deposits have grown at a very high annual rate of 28
percent, loans have grown at a rate of 31 percent, and profit has grown at a rate of 22 percent
during the last 10 years 9). Despite common conceptions of Ethiopian banks' „excessive" returns,
their average return on equity is comparable to banking rates in most emerging nations; The
sector's profits account for 1% of GDP, unchanged from a decade ago. Ethiopian banks have
traditionally provided simple deposit accounts, loans, guarantees, and Letters of Credit for
Importers as part of their service offerings. ATMs, point-of-sale terminals, Internet banking and
mobile banking have all become more prevalent in recent years. (2019, Research & Analytics)

2.2.3.2 Measure of Bank performance

The bank's performance is excellent. Bank performance is represented through measurable safety
and soundness of financial measures. Since banks offer a variety of financial products at
reasonable prices any. There are many different sorts of bank performance measurements, and
it's easier to grasp them, if you divide them in internal and external elements. Internal
Microeconomics Factors are defined as Performance by Rahel and Shete (2015). Because
financial performance is unique to each bank and is often the direct outcome of managerial
actions, such management influences will undoubtedly affect bank operational results. Moreover,
efficiency, productivity and profitability of the bank concerning size optimizes and capital
structures. External factors, Macroeconomic, are those, die reflect the economic and legal
environments, where the financial institutions operate. They represent events outside the
influence of the bank (worku2016). The Management can anticipate changes in the external
environment and try to position the institution to take advantage of anticipated developments
(Anna P.ivong, 2008). The return on assets (ROA) represents the profit earned per cash of assets
and, more crucially, it represents management's capacity to profit from the bank's financial and
real investment resources.

21
Bank profitability is best measured by ROA, since high equity multipliers do not skew ROA and
ROA gives a better gauge of a firm's capacity to generate returns on its asset portfolio. ROE, on
the other hand, reflects how effectively a bank management is in utilizing its shareholders funds.
Since ROA tend to be lower for financial intermediaries, most banks heavily utilize financial
leverage to increase their ROE to competitive levels (Tadese, 2016).

2.3 Measurements Bank financial performance

Financial performance is a subjective indicator of a company's ability to earn revenue from its
principal way of operation. It is used to assess a company's overall financial health over a certain
time period and can be used to compare similar companies in the same industry or to aggregate
industries or sectors (Harelimana, 2017). Financial ratios such as Return on Assets (ROA) are
included in key bank profitability and financial performance metrics (ROA). Return on Asset
Measure assesses the profitability performance of total assets and can be regarded as a measure
of financial performance in this study. The capability of banks management to generate profits
from banks assets. Efficiency (total assets turnover) and effectiveness are two components of this
metric (profit margin). As previously stated, ROA represents a bank's ability to make profits
through the use of available financial and real assets. Return on Assets (ROA): Productive assets
play a critical part in generating profit; the efficient the assets are used, the profitable the
business unit will be. Furthermore, regardless of whether the asset is financed by debt or by the
owner's investment, the asset's performance is affected. However, the return on assets (ROA)
should be calculated before deducting interests.

Return on assets (ROA) is an all-encompassing measure of overall bank performance from an

accounting standpoint, according to Sinkey (1992). Because tax is calculated on earnings before
interest, this is the case. Therefore, for measuring the return on the asset „Earnings before
Interest & Tax" (EBIT) are usually used. Earnings before interest and taxes/Average total assets
= Return on Asset (ROA). This percentage should ensure, dose everyone, who works on the
rails, earns enough money to pay interest and taxes (Shabahang, 2005). Return on Investment
(ROI) is a term that refers to the amount of money that you (ROE). The profit made by the
owners of a firm unit is referred to as Return on Equity. The following Formula is used to
compute this ratio: Return on Equity (ROE) is calculated as net profit divided by average equity.
From the standpoint of the shareholder, ROE evaluates accounting profitability. It also shows the

22
rate of return that the bank's stockholders receive. It approximates the net benefit gained by
stockholders as a result of their capital investment (Rose and Hudgins, 2006). It assesses we well
a bank can use shareholder funds to produce profits and grow. From the investor's perspective,
it's a profitability ratio. Dose Ratio calculates, how much Investment is made based on the
Investors' Investment in the Bank, not the Company's Investment in assets or something else
(Molyneux, 1995), Belayneh (2011), cited by Tadesse (2015).

2.3.1 Relation between E- banking and ROA

Furst et al (2002) conducted studies on whether there is a direct connection that exists between
attractive in electronic banking and bank’s profitability. From various literatures, electronic
banking such Automated Teller Machines, POS, debit cards, and E-Cards attracted many people
to open up current accounts, especially those who prefer convenience. These devices can be
found in a variety of locations, such as shopping malls, universities, hotels and airports. Their
Implementation in such regions has reduced bank premise overcrowding and enhanced the
number of transactions completed per day. Baxley (1987) stated that E-Banking offers banks
customer’s access to their bank-Accounts via Web-Site and enable them.

To enact certain transactions on their accounts by their nature E-Banking put up more
convenience and flexibility to customers joined with a virtually absolute control over their
banking. In other words, customers can have access to their accounts by electronic banking
methods, check their accounts and make easily transactions and pay electronic ways by Internet
Access, moreover communicate globally, access up to minute information on their accounts,
perform their account transactions electronically with low cost. Claessens et al (2001) supports
that the Role of ICT in the banking industry can permit global economies to setup a financial
system before first establishing a fully functioning financial infrastructure instead." Moreover
Using an ATM, customers can access their bank accounts in order to make cash withdrawals,
credit card cash advances, and check their account balances as well as purchase prepaid
cellphone credit. Convenience, since customers can withdraw money from their point of reach
without necessarily visiting the bank. This increases efficiency and mitigates the costs of
transactions leading to financial performance (Monyoncho, 2015).

According to Polatoglu and Ekin (2001), in the same relation to banks, profitability also
developed by use of automated e-banking. Identify that users of debt cards were more satisfied

23
with the cost-saving factor of electronic banking including train reservations, energy bills, taxes,
and investment in stocks (Damtew, 2016). In addition to that, electronic banking plays a big role
in terms of saving clines time and costs and is available for everywhere in simple ways by
networking. As the result of efficiency and effectiveness maintained by various systems like
electronic fund transfer, personal computer banking and ATMS (namara peace, 2014)

According to Ahmed.y(2018) cited that in contrast to the results of England et al (1998), Furst et
al. (2000a, 2000b, 2002a and 2002b) found that banks in all size categories offering Internet
Banking were generally more profitable and tended to rely less heavily on traditional banking
activities in comparison to non-Internet banks. An exception to the superior performance of
Internet banks was the new start-ups Internet banks, which were less profitable and less efficient
than non-Internet banking. The authors concluded that Internet Banking was too small a factor to
have affected banks profitability. The banking sector is considered to be an important source of
financing for most businesses. The common assumption, which underpins much of the financial
performance research and discussion, is that increasing financial performance will lead to
improved functions and activities of the organizations.

The subject of financial performance and e-banking in its measurement would be advanced
within the finance and management fields. It can be argued that there are three principal factors
to improve financial performance for financial institutions; The institution size, its asset
management, and the operational efficiency (namara peace, 2014). According to Avkiran (1995)
studies, there are number of indicators for evaluating the financial performance of banks on the
basis of the financial measures. Usually the financial performance of the institutions has been
measured by using a combination ratio analysis, benchmarking, and measuring performance
against budget or a mix of these methods. Profitability offers clues about the ability of the bank
to undertake risks and to expand its activity.

The main indicators used in the appreciation of the bank profitability are Return on Equity, ROE
(Net income / Average Equity), Return on Assets, ROA (Net income / Total Assets) (Rose1999).
Financial performance was studied under different yardsticks of performance, i.e. size,
profitability, financing pattern, economic efficiency, operational efficiency, asset quality,
diversification, and cost of operations (DeYoung 2001).

24
2.3.2 Relation between ATM and ROA
According to Monyoncho (2015), an automated teller machine (ATM), also known as an
automated banking machine (ABM), is computerized telecommunications equipment that allows
financial institution clients to conduct financial transactions in public spaces without the need for
a cashier, human clerk, or bank teller. According to Monyoncho (2015), an automatic teller
machine allows a bank customer to conduct his/her banking transactions from almost every other
ATM machine in the world.

As a result, the ATM fills the roles of bank cashiers and other counter personnel. Since it
operates electronically, it can respond to a customer's request almost instantly. Automated Teller
Machines (ATMs) are one of the existing replacements for the flowing labor-intensive
transaction mechanism, effected by what is commonly referred to as paper-based payment
instruments, according to (Ogbuji et al 2012). Customers can use an ATM to access their bank
accounts and make cash deposits, credit card cash advances, check account balances, and buy
prepaid cellphone credit. Customers will withdraw funds from their point of contact without
having to go to the bank. Increases efficiency and alleviates the costs of transactions, leading to
financial performance.

2.3.3 Relation between mobile banking and ROA

Mobil Banking is when busy customers are not visiting to bank branches, to live anywhere to
easily access their bank services to hand using their phones anytime. It allows customers with
busy lives to conveniently their banking. It is about getting banking services. According to Rose
(1999), mobile banking is a service provided by financial institutions in cooperation with mobile
phone operators.

Furthermore, a system that enables customers of a financial institution to perform a variety of

financial transactions using a mobile device such as a phone or tablet is known as mobile
banking (Darrat, 1999). In addition to that, M-Banking helped to promote efficiency and
confidence in the financial system, thus winning public trust (ritho.m&ambrose2015). Mobile
banking provides a possible option for millions of people in developing markets, which have
access to a cell phone but are not yet part of the mainstream financial system (Kisaka et al.
2015).

25
2.3.4 Relation between debit card and ROA
A debit card is sometimes referred to as a credit card or a check card. It is a plastic card that
allows its owner to enter his or her bank account electronically. Credit card use as a means of
making payments and receiving cash has grown in popularity in the banking industry today, but
this has resulted in increased credit risks, which are a major threat to the bank's profitability.
Debit Cards, like Credit Cards, are commonly used for telephone and Internet transactions, but
unlike credit cards, the funds are paid directly from the bearer's bank account, rather than making
the bearer pay the money back later. Debit Cards may also be used to make instant cash
withdrawals, serving as both an ATM card and a check-guarantee card. However, Polatoglu and
Ekin (2001) identified that users of debt cards were more satisfied with the cost-saving factor of
electronic banking including train reservations, energy bills, taxes, and investment in stocks.

2.4 Empirical reviews

2.4.1 International research evidence
The relationship between e banks and the performance of Kenya's banking system was
investigated by Josiah A and Nancy K (2012). In order to analyze the results, the study used both
descriptive and inferential statistics. However, the study discovered that e-banking has strong
and substantial marginal effects on returns on assets in the Kenyan banking industry. As a
consequence, there is a connection zwischen E-Banking und Banking-Outcomes. Using a
multiple regression model to help ATM, POS, Mobile Banking, Debit- and Credit Card use,
Hiyam Sujud, Bouthein, and Hashem (2017) investigate the effect of bank developments on
profitability and return on assets (ROA) of commercial banks in Lebanon. Use Profit and Return
on Assets (ROA) from Internet Banking and EFT.

According to the findings, only EFT has a major effect on commercial bank profitability in India.
Furthermore, these variables illustrate ROA, with only debit and credit cards having a
meaningful and important contribution to ROA. Electronic Banking's Effect on Kenyan
Commercial Bank Profitability According to Mekuannt (2019), William (2015) cited Mekuannt
(2019) in his study titled „Effect of bank innovation on banks financial results in Ghana’s
universal bank“. Indicate that new products, such as ATMs, are available. Mobile banking,
online banking has the potential to improve upon the revenue generation and profitability of the
universal banks. He concludes that ATM, mobile and internet banking has favorable

26
consequence on ROA. Beside these products, enable the bank to attract and maintain new
customers while helping to remove costly paper handling and teller interactions in an ever more
competitive banking environment. Diese Studie, Data is collected from 43 commercial banks
from January 2007- 2015. From the study, it was concluded that ATM Transactions and POS
transactions have positive and significant effect on ROE, whereas mobile banking transactions
have negative and insignificant effect on bank profitability (Joseph M. & Vekya 2017).Ngango
ngango ngango n (2015). The effect of electronic banking on Rwandan commercial banks'
financial results has been investigated. A descriptive method of the study was based on
qualitative and quantitative approach and in the findings was established that electronic banking
systems such as ATMs, Pay Direct, electronic check conversion, mobile telephone banking and
E-Transactions have a significant effect on bank profitability. Reduce bank operating costs thus
the bank asset and bank capital. Oladejo Moruf (2016). E-Payments Adoption and Profitability
Performance of Deposits Money Banks in Nigeria It studies independent variables, finding that
ATMs, POSs have positive and insignificant effect of ROA. Lasisi Ma.A and Abubakar.S
(2014), Jean Bosco H (.2018) study of automated teller machine ATM.The independent variable
result also indicates that is positive but insignificant. Jean Bosco H (2018) Automated Teller
Machines and Profitability of Commercial Banks in Rwanda His concludes that there is
significant relationship between automated teller machines and profitability of the Bank of
Kigali, where the finding shows that the correlations between ATM and ROA. The data was
analyzed using panel unit root, panel counteraction, Fully Modified Ordinary Least Square and
Generalized Method of Moments to reveal positive impacts of ICT on banks performance in the
country.

As a result, the study concludes that, unless disrupted by externalities, careful application of ICT
apparatus will continue to improve commercial bank output in the region. The consequence of
this result is that a cashless economy in Nigeria has the ability to improve the efficiency of the
financial system. As a result, the Central Bank of Nigeria's cashless policy is a positive step
forward, as it will reduce the cost of issuing currency in the thriving Nigerian economy.
According Ho and K. Mallick, (2006) the studies show that this paper tries to explain the
inconsistency by emphasizing the heterogeneity in banking services; We describe the conditions
for identifying these two effects and the conditions for the two apparently positive effects to turn
negative in the equilibrium in a differentiated model with network effects. Torki et al (2020) the

27
Effects of Electronic Payment Systems on the Performance of the Financial Sector in Selected
Islamic Countries and their find that the results show POS-Machines as positive and significantly
effect on financial sector performance. Oginni, S et.al. (2013) Nofie (2011) and Iftekhar et.al
(2009) conclude that e-banking products including POS beginning to contribute positively to
bank performance in terms of ROA. According to Lucy (2015) stated that in Kenya banks
concludes that Internet Banking and POS had a positive impact on the financial performance of
commercial banks. Humphrey (, 2009) and Akhisar (, 2015) have suggested that POS is found to
have a positive impact on bank profitability. Alex (2014)’ Study examined the impact of e-
banking on customer service and profitability of banks in Ghana. The study found that E-
Banking and hence Information and Communication Technology has positively impacted on
Customer Service and Profitability of Banks, though there are a number of challenges. Yang et
al. investigate how e-banking can improve Chinese bank productivity in terms of ROA, ROE,
and OM in China. Sufian & Shah, (2009) Okoth, V & Gemechu, B, (2013a), Ghazouani &
Moussa, (2013b), Alkhatib, Al (2012).Furthermore, most research on bank performance looks at
both internal and external variables when evaluating bank performance. As a result, the
following are analyses of the determinants of bank success studies performed in a single country,
a panel country, and Ethiopian studies. I enjoy doing research.

The effect of automated teller machines on the delivery of banking services in Nigeria was
reported by Ifeanyichukwu.A and Kalu.O (2016). In Nigeria, an ATM transaction has negative
consequences and importance for private sector savings and time deposits. Mustapha (Mustapha)
is a (2018). Francisco&Santiago.c (2014) ATM transaction and bank profitability is negative
relationship to bank profitability and Oladejo.M (2016). ATM transactions have negative and
significant relation with commercial bank profit in Kenya Bank. Oginni Simon O (2013)
Conclusion: After a two-year lag, e-banking starts to positively influence bank efficiency in
terms of ROA and NIM, while there is a negative impact in the first year of adoption. They also
suggested that electronic banking investment decisions be fair, in order to explain the cost and
revenue effects on bank results.

According to Sumra et al. (2011), the Impact of E-Banking on the Profitability of Banks: A
Study on Pakistani Banks discovers that this paper covers twelve banks across Pakistan The
study is qualitative in nature, research approach, which determines the performance of banks

28
mainly in terms of profitability. It also considers the impact of consumer literacy on service
delivery from the viewpoint of banks. It also goes in detail why banks are adopting e-banking
services in the first place. The Impacts of mobile banking on the financial results of commercial
banks in Kenya,Rachael.w (2010), & Hani.M (2019). His conclusion found that there is a
negative relationship between mobile banking and significant effects on financial performance or
ROA of commercial banks in Kenya. And. Oladejo Morufu (2016). Hailu etal (2017) discoveries
that it is found, that mobile payment transactions have a negative but significant relation with
bank profitability or performance. Nur et al (2015) stated that impacts of E-Banking on
performance of banks in developing economy. Empirical Evidence from Bangladeshi Bank
Models using Panel Data would 13 banks over the period of 2003-2013 use the pooled ordinary
least square model and its Finding Study empirically investigated the impact of electronic
banking on Bangladeshi Bank Results, as measured by Return on Equity, Return on Assets, and
Net Interest Margin.

2.4.2 Local research evidence

Besufkad (2017) investigates the effects of e-banking on bank performance in Ethiopian
commercial banks from 2011 to 2015. Ethiopian commercial banks profitability is affected.
Profitability metrics include Return on Assets and Return on Equity. ATMs, debit cards, and post
office boxes are all options.

E-banking services have a positive impact on commercial bank profitability in terms of ROA and
ROE, according to regression analysis. Moreover Aduda&Kingoo (2012) stated that the
Relationship between Electronic Banking and Financial Performance among Commercial Banks
in Kenya Study used both descriptive and inferential statistics in analyzing the data. In general,
the study found that in the Kenyan banking industry, e-banking has clear and significant
marginal effects on returns on assets. As a result, E-banking and bank output have a good
relationship.

Uvaneswaran et al (2017) studieren Challenges in E-Banking Services and their impact on

profitability of public-sector-banks in Ethiopia. E-banking Services and IT, affects the
profitability of the Public Sector Bank in Ethiopia, particularly Commercial Bank of Ethiopia,
before and after the introduction of E-banking Services. In terms of three financial performance
metrics of ROA, ROE, and NIM, descriptive statistics indicate that e-banking services have no

29
effect on CBE's profitability. According to Obura&Anyira (2017), studies about the Effect of
Internet Banking on Financial Performance of Commercial Banks in Kenya and they use
descriptive survey research design. Both were collected to meet the objective of quantitative and
qualitative data. Quantitative Analysis: The Study established a positive effect of Internet
Banking on financial performance of commercial banks. The qualitative findings also revealed
that Internet Banks have a positive impact on commercial banks' financial results.

Financial Performance of Ethiopian Commercial Banks as Result of Electronic Banking

Investment, Mekuannt (2019).Using fixed- and random effect regression methods and correlation
analysis, the study discovered that bank performance evaluation has a strong and significant
relationship with ATM-Investment. Furthermore, POS investment has a positive and statistically
significant impact on ROA while having a negative and statistically insignificant effect on ROE.
Investment in mobile banking facilities, on the other hand, has a positive and negligible impact
on ROA, but a substantial positive effect on ROE. Investment in internet banking infrastructure,
on the other hand, has a negative and important impact on ROA, but a negative and negligible
effect on ROE. According to the findings, some variables have a negative impact, but it is clear
that investing in E-Banking is a promising activity for improving Ethiopian Commercial Banks'
efficiency.

Determinants of the Financial Performance of a Private Commercial Bank in Ethiopia are studied
by Rahel.T and Maru S (2015). The data were estimated using the Ordinary Least Square method
of a multiple linear regression model using a quantitative analysis approach. As explanatory
variables, the study looked at only internal factors including capital adequacy, loan to deposit
ratio, income diversification, operating efficiency, export, liquidity, loan output, and deposit
mobilization. The Bank's financial output was measured using return on asset (ROA), return on
equity (ROE), and net interest margin as dependent variables. The study's findings showed that
income diversification, deposit size, export volume, and loan performance all have a direct
impact on the bank's financial performance. Determinants of commercial banks financial success
in Ethiopia: Studies were conducted by Ayano (2016) using panel data from seven sample
commercial banks in Ethiopia from 2000 to 2014. The data is secondary in nature and the
quantitative approach to research was used. This study runs a redundant fixed-effects-test using
Housman's Specification Test. Hence, based on the result, a random effect model was adopted.

30
According to the regression results, asset quality, earning power, and bank size all have a
significant effect on the financial performance of Ethiopian commercial banks, as calculated by
return on asset, return on equity, and net interest margin.

According to Belayneh (2011), using balanced panel data from seven Ethiopian commercial
banks, examine the influence of bank-specific, industry-specific, and macroeconomic
determinants of Ethiopian commercial banks profitability over the period 2001-2010. He used
the ROA as a dependent variable and capital, loan size, deposits, noninterest revenue, and
noninterest income as independent variables. The approximation results show that all bank-
specific determinants have a significant effect on commercial bank profitability in Ethiopia.
Another critical factor in determining profitability is market concentration. Finally, only
economic growth has a substantial relationship with bank profitability when it comes to
macroeconomic variables

2.5 Control variables

2.5.1 Market share
Vong and Hoi Si Chan (2008) calculated each bank's market share using logarithms to represent
the value of deposits. To minimize the scale impact, the log of deposits was used instead of
deposits. Market shares, on the other hand, describe bank market share as the amount of a bank's
loans over the world, which is known as domestic credit. Since they were unable to obtain
information on total bank loans at the country level, they used domestic credit as a denominator,
and the results indicate a positive relationship between this ratio and bank profitability.

2.5.2 Literature gap

The previous literature show that research in the area of E banking has been done but not on the
impacts of e banking on financial performance commercial banks. Adoption of Electronic
banking system in Ethiopian Banking industry Barriers and Drivers ,effect of ATM service
quality on customers satisfaction, Opportunities and challenges in the adoption of e-banking
services, Challenges and Opportunities of E-payment, Challenges and Prospect of E-Banking in
Ethiopia, The practice of electronic banking in Ethiopia. Assessment of challenges of electronic
banking and effects of investment on E- banking these studies makes the more relevant. From
assessment of relevant literature, it has been feel a gap that there are some studies conducted in
Ethiopia on the topic of e banking and ICT adoption and its effects of commercial banks. This

31
 study therefore proposes to fill these literature gaps by studying the impacts of E banking on
financial performance profitability in commercial banks of Ethiopia.

2.6 CONCEPTUAL FRAMEWORK

Figure 2 Conceptual framework of the study

Independent variable Dependent variable

Number ATM

Value transaction
by ATM

Mobile banking ROA

Value of
transaction POS

Market share

Source: Developed by the Researcher

32
 CHAPTER THREE
3. RESEARCH METHODOLOGY
This chapter deals with research methodology parts in this parts organized by deferent sub titles then the
first research approach and design, Population of the study and sampling methods, Data Source and type
, Data Analysis, Model Specification and finally variable definition.

3.1 Research approach & Design

The primary goal of this research is to look into the effects of electronic banking on commercial
banks' financial results in Ethiopia. Research design, according to Kothari (2008), is the
conceptual framework within which research is conducted and establishes the blueprint for data
collection, calculation, and study. This research would use explanatory types of research design
and a quantitative research approach is used. So that in this study the explanatory research
designs have employees, to examine the relationship of the stated variables.

The explanatory type of research design helps to identify and evaluate the causal relationships
between the different variables under consideration (Marczyk et al 2005). Exploratory research,
according to Zikmund (2000), is undertaken to explain and research a deeper understanding of
the nature of the issue. Explanatory research is useful for defining differences in dependent and
independent variables. In most of such cases the researcher is concerned with knowing the
impact that the independent variable has on the dependent variable. Explanatory research can
help determine whether e-banking has a causal impact on the financial performance of
commercial banks. By collecting data on e-banking adoption and financial performance
indicators over time, researchers can analyze the relationship between these variables and
establish whether e-banking is causing changes in financial performance. Explanatory research
can identify and analyze the factors that mediate or moderate the impact of E-Banking on
financial performance. Quantitative research approach based on the measurement of quantity or
amount is applicable to Phenomena that can be expressed in terms of quantity or number.

33
 3.2 Population of the study and sampling methods
3.2.1Target Population
Kothari (2004) stated that all the items under consideration in any field of inquiry constitute
‘universe’ or ‘population’. It is reasonable to assume, that when all of the objects are protected,
there is no element of chance left, and the highest accuracy is obtained. The entire community of
people or artifacts, to which the researcher wants to apply the results of the analysis the target
populations of this study would be including all commercial banks in Ethiopia, which are 17 in
number. A sample consists of a panel of 10 commercial banks from the total population of 17
banks operated in Ethiopia.
3.2.2 Sampling methods
According to Ashenafi (2019), sampling is „the method by which specific members of a
population are selected for observation or data collection." The study used seventeen (17)
commercial banks as its sample units, of which ten (10) commercial banks (Commercial Bank of
Ethiopia, Dashin Bank, Zemen Bank, Wegagen Bank, Awash International Bank, Bank of
Abyssinia, Abay Bank,Oromia International Bank, United Bank, and Nib International Bank)
were chosen because of their greater levels of information disclosure and accessibility to
information. According to information from their annual reports, the banks that have made
significant investments in e-banking use POS and ATM machines, mobile banking, and value
transactions for POS and ATM transactions. In this situation, a purposive sampling strategy
would be better suitable, because it enables targeting of particular banks that have implemented
e-banking services. This method enables the researcher to concentrate on studying how e-
banking affects financial performance, such intended in the research question.
3.3 Data Source and type
The source of data for this study was secondary data for the period 2014-2020 (seven years).
Data for this study would obtain from the National Bank of Ethiopia (NBE) and published
annual reports of commercial banks. Financial Statements and other published and unpublished
documents also used to construct the literature part of this thesis and cited accordingly.
According to Hsiao (2003), the described panel or a longitudinal data set is one that follows a
given sample of individuals over time, and thus provides multiple observations on each
individual in the sample. In other hands, the panel dataset consists of both time series and cross-
sectional data.

34
According to Brooks (2008), stated that the Panel Data Set has two major benefits. It can address
a broader range of issues and challenge more complex problems than pure time-series or pure
cross-sectional data alone. The researcher can remove the impact of certain forms of omitted
variable bias in the regression result. A benefit of the panel data over cross-section analysis is
that a model can be constructed for evaluating the impact that some time-varying variables have
on some dependent variable (Sheytanova, 2014). In addition to that, it examined how the
relationships between Variables change. Hence, by combining cross-sectional data and time-
series data, the researcher can increase the number of degrees of freedom, and thus the power of
the test, by employing information on the dynamic behavior of a large number of entities at the
same time.
3.4 Data Analysis
The data was organized and analyzed, after it was collected. The collected data was evaluated
based on the nature of the data, in order to achieve the study's objectives. As a result, the data
collected via the data collection sheet was edited, coded, and tabulated. The study used
correlation and regression statistics to analyses with the help of STATA Version 15 econometric
software package. To accomplish this research primarily based on Panel Data. The collected
panel data was analyzed using descriptive statistics, correlations and multiple linear regression
analysis. Mean values and standard deviations would use to analyze the general trends of the data
from 2014 to 2020, based on the sector sample of ten banks, and a correlation matrix was used to
examine the relationship between the dependent variable and independent variables.
According to Brooks (2008, 2008), stated that regression is concerned with describing and
evaluating the relationship between a given dependent variable and its one or more other
variables, usually known as the independent variables. For this study, the regression analysis
known as pooled OLS was used to estimate the relationship between return on asset and its
determinants. Descriptive statistics including minimum, maximum, and standard deviation are
used to describe and provide detailed information about selected variables.
3.5 Model Specification
Based on the study objective, the study would conduct primarily on panel data. The major
common models for panel data analysis are pooled OLS, fixed effect, and random effect models.
Based on Haussmann, F-statistics and Unit root test, the appropriate model is selected for each
model expected to obtain through structured document review. In other words, if there is more

35
than one independent variable, a multiple linear regression model is sufficient to measure the
importance of these variables in explaining the shift in the dependent variable.
According to Hausman and Siekpe (2008), the aim of a study using this method is the same as it
is with any other model-structure-methodology used in statistics. To find the best appropriate and
most parsimonious, yet reasonable model to describe the relationship between a dependent
variable and sets of independent variables (these independent variables are often covariates). The
general multivariate regression model with independent variables can be written as follows
(Brooks, 2008):
yit = β0 + β1 xit,1+ β2 xit,2+... + βK xit,K + εit

Where Yit is the ith observation of the dependent variable (ROA), X1i.Xki are the ith
observation of the independent variables, β0.... βk is the coefficients, εi is the ith observation of
the error term, and n is the number of observations.
αi (i=1....n) is the unknown intercept for each entity (n entity-specific intercepts).
– Yit is the dependent variable where i = entity and t = time.
– Xit represents one independent variable
– β1 is the coefficient for that
– 𝜀𝑖𝑡 is the error term

ROA= β0 +β1NATM+β2MOB+β3VTPOS+β4 VTATM +β5 Mash +εit

Electronic banking which, would measure by the ratio of value transactions revenue generated
from electronic banking over total value/price transactions of revenue for the bank.
 ROA= Net Income
Total Asset
 NATM = natural logarithm of each automated teller machine
 MOB= natural logarithm of each mobile banking transactions
 VTPOS= natural logarithm of value of POS transactions
 VTATM= natural logarithm value of ATM transactions
 MASH = deposit of each banks
Total deposit

36
 3.5.1 Dependent variable
3.5.2 Return on asset (ROA)
Return on asset (ROA) and profit after tax (PAT) are often used to assess bank results. Net
income after taxes divided by total assets is the definition of return on asset. Return on Asset
(ROA) reflects asset utilization efficiency and indicates how much net income is produced from
assets. It demonstrates the bank's ability to produce income by using the bank's available assets
(worku2016).
According to Ahmed (2009) studies that the Return on Assets (ROA) is net profit/total assets
Show the ability of management to acquire deposits at a reasonable cost and invest them in
profitable investments. The return on assets (RoA) is calculated by dividing the year's net profits
by the total assets, which is normally the average value for the year. Diese Figure represents the
amount of net income earned per dollar of assets. The higher the bank's return on assets (ROA),
the more profitable it is.
3.5.3 Independent Variables
The independent variables are; number of ATM, value transaction by ATM, number of POS,
value of transaction by POS, debit card, number of Mobil banking, and value of transaction by
Mobil banking and market share of commercial banks there are also many e-banking service that
can be considered as independent variables.
3.5.4 Mobile banking
Mobile banking is the delivery of banking services using the mobile phone (Kato, G.etal2014)
Mobile banking is a term used for performing balance checks, account transactions, payments,
credit applications and other banking transactions through a mobile device such as a mobile
phone or Personal Digital Assistant (Njoroge, 2018).
3.5.5 Automated Teller Machine
Adelowo (, 2010 stated that Automated A Teller Machine is a computerized telecommunications
system that allows customers of a financial institution to conduct financial transactions in a
public setting without the assistance of a human clerk or bank teller. Then ATMs’ offer a 24/7
banking service to the bank customer like cash withdrawal, balance inquiry, card to card transfer,
and bill payment, accept deposit etc (K umbhar, 2011).
3.5.6Market share
The market share of each bank is each individual bank deposit to the total deposit of selected
banks, the researcher employed as a control variable.in other hands Devinaga Rasiah (2010)

37
Profitability model as an external determinant because if commercial banks could be able to
expand their market share then they may be able to increase their income as well hence profit.

MSH = deposit of each bank

Total deposit of all banks

3.5.7 Value of transaction in POS

Hamed et al., 2016 used the value of POS transactions (price of transaction) as an independent
variable to investigate the profitability (return on asset) of Iranian banks. The study's findings
revealed that the influence of ATM and POS prices on ROA of selected banks is positive and
substantial. Insofar as ATMs have the least influence, POS has a bigger effect on bank ROA than
ATMs.
3.5.8 Value of transaction of ATM
To analyze the effect of electronic banking on the financial performance of commercial banks in
Ethiopia, proxies of Automated Teller Machines Transactions (ATMT), Point of Sales
Transactions (POST), Call Center Banking Transactions (CCT), and Mobile Banking
Transactions (MOBT) are used to measure cashless banking in the region.
Multiple regressions using Ordinary Least Square (OLS) for the banking industry's return on
equity (ROE).Hamed et al. (2016) used the price of ATM transactions as an independent
variable, and the results showed that the impact of ATM and POS prices on ROA of selected
banks is positive and important. Insofar as ATMs have the least effect, POS has a higher effect
on bank ROA than ATMs.

38
 CHAPTER FOUR
4. DATA ANALYSIS AND INTERPRETATION

This chapter deals with the analysis and interpretations of the study’s results. Data was analyzed
by using STATA software version 1, hence provided major descriptive statistics, and correlation
coefficients of the study. Before choosing the model, unit root tests have been conducted to check
data stationarity and its diagnostics tests for its importance, as well as its relevancy. Then,
analysis was conducted and the results of the data have been discussions by econometric
methods for the findings of the researches, and then end results were discussed by supporting
empirical evidences from the related literature of the research.

4.1 Descriptive statistics

Table 4.1 shows the first summery of descriptive statistics for dependent and independent
variables from the selected ten commercial banks by employing purposive sampling technique,
stating from 2014-2020 for consecutive seven years. The sample of the research has 70 total
numbers of observations. Hence, this study was investigated on the local currency (Ethiopian
Birr), in terms of values and volumes of transactions conducted through these electronic banking
services. The table shows the mean, minimum, maximum, standard deviation, Skewness,
Kurtosis, Probability and number of observations for the dependent variable, Return on asset
(ROA) and independent variables Number of ATM, Value of transaction by ATM, Value of
transaction by POS, mobile banking and market share.
Table 1 Descriptive statistics Analysis
Descriptive statistics Analysis
ROA NATM MBANK VTATM VTPOS M SHAR
Mean .024305 2.00 4.63 9.19 7.5 .1019193
Max .046852 .60 6.756 10.95 9.52 .672171
Min .0093508 .301 2.66 3.65 5.8 .01
St.dev .0064027 .60 0.94 0.93 0.913 .1823434

Skewness 0.0048 .0.96 0.9808 .0000 0.5884 0.0000

Kurtosis . 0.0212 .099 0.5087 .0000 .1799 0.0001
Probability 0.0040 .24 0.8008 .0000 0.3379 0.0000
Adjchi(2) 11.02 2.83 0.44 52.61 2.17 37.17
Observation 70 70 70 70 70 70
Source: Own Computation

39
As stated in the above table 4.1, from the total number of 70 observations, the maximum return
on asset (ROA) is 0.046 and the minimum return on asset (ROA) is 0.00935. ROA measured by
net income divided by total asset. On the other side, there were commercial banks that reported
ROA with a maximum performance of 4.6 percent and commercial banks that recorded a
minimum performance of 0.935 percent. It has a standard deviation of 0.64 percent and a mean
value of 2.43on average. Standard deviation shows that the existence of a small level of variation
in the group performance. This range shows the existence of great difference in performance
among the selected commercial banks in Ethiopia. This indicates that commercial banks in
Ethiopia generated 2.43% Return on average from the total asset per year.
The table 4.1 above indicates the descriptive statistics of explanatory variables. VTATM has
9.19 mean and 0.93 of standard deviation. These indicates that the commercial banks in Ethiopia
on the average improved their performance by 9.19% for each bank transaction they made
through ATM, with its maximum 10.95 and minimum of 3.65. The second independent variable
is VTPOS, measures the annual POS transaction value. It has the results with a mean value of 7.5
and standard deviation of 0.913. It has a maximum value 9.52 and minimum value 5.8,
individually. This indicates that commercial banks in Ethiopia have an average performance of
7.5% for value transaction of POS. MBANK is the next explanatory variable. This variable has a
mean of 4.63 and a standard deviation of 0.94, with a maximum of 6.75 and a minimum of 2.6.
This indicates that commercial banks in Ethiopia have on average performance 4.63 % for
mobile banking facilities. The final independent variable is NATM. It has a mean value of 2 and
standard deviation 0.60, with maximum and minimum of 0.60 and 0.31, respectively. This
indicates that commercial banks in Ethiopia on average have 2 performance percent for the
number of ATMs. As the standard deviation indicates the existence of a minimum level of
difference in the impacts on electronic banking, the range indicates the being of minimum
variation in electronic banking between the selected commercial banks in Ethiopia.

40
 4.2 Analysis of Inferential Statistics
4.2.1 Correlation Analysis
The techniques used to determine the degree of linear correlation between variables. The
correlation coefficient values are always in the range of between +1 to -1. A correlation
coefficient of +1 indicates the actuality of a perfect positive correlation between dependent and
independent variables, while a correlation coefficient of −1 indicates a perfect negative
association between the target and independent variables. Any of the absence of relations
between the two variables, dependent and independent, is indicated by zero correlation
coefficients (Gujarati, 2004). If Y (dependent variables) and X (independent variables) are
correlated, then it indicates that Y and X are being handled in an equally balanced manner
(Brooks 2008). Pearson Correlation Coefficient is a statistical measure of strength of the
relationship or association between two variables. According to Evans (1996), the degree of
correlation is 0.20- 0.39 „weak", 0.40- 0.59 „moderate", 0.60- 0.79 „strong", 0.8-1.00 „very
strong".
Table 2 Correlation between variable
ROA NOATM MOBBAN VOTATM VTOPOS
MASH

ROA 1.00

NOATM -0.3104 1.00

MOBBAN -0.5089 0.6239 1.00
VOTATM -0.4303 0.7205 0.4648 1.00
VTOPOS -0.7098 0.7026 0.4725 0.4476 1.00
MASH -0.3208 0.6022 0.5507 0.4102 0.4685
1.00
Source: STATA 15 output, 2021
The correlation results in Table 4.2 indicates that the number of ATMs, mobile banking
(MOBBAN), value transaction of (VATM), value transaction of POS (VTPOS) and market share
has negatively correlated by ROA. This results show that an increase in the independent factors
decrease ROA significantly. According to correlation matrix, this indicates that the correlation
between the independent variables did not present multi-collinarity problems. In addition to that,
the above results show that the number of ATMs, mobile banking (MOBBAN), value transaction

41
of (VATM), the POS transaction value and market share have a substantial negative linkage, with
each variable associated between the ranges of 0.60 - 0.79. When the correlation is more than 0.8,
multi-collinearity becomes a serious issue (Kennedy, 2008). The maximum correlation of 0.72, as shown
in table 4.2, is between the value of a transaction (VATM) and the number of ATMs. As a result, there is
no correlation that is greater than 0.8.

4.2.1.1 Test of Data Stationary

Data stationary is important, with a good result, which is generally correct, because many useful
analytical tools and statistical tests and models rely on a stationary process that the property, the
mean, variance and autocorrelation structure, do not change over time. Unit Root is common test
for Panel Data. Each variable should pass this Unit Root Test before Data Analysis being done.
Based on this method all variables have data stationarity based on 5% and 1% Level of
Significant.
Table 3 Unit Root test of all variables
Levin-Lin-Chu unit-root test
Ho: Panels contain unit roots Number of panels = 10
Ha: Panels are stationary Number of periods = 7
AR parameter: Common Asymptotics: N/T -> 0
Panel means: Included
Time trend: Not included
ADF regressions: 1 lags
LR variance: Bartlett kernel, 6.00 lags average (chosen by LLC)

Statistic
variable Unadjusted t Adjusted t* p-value
ROA -8.1933 -5.7044 0.0000
NOATM -23.4528 -25.0468 0.0000
MOBAN -10.9103 -11.3820 0.0000
VOTATM -6.2704 -3.1976 0.0007
VTOPOS -5.5216 -1.7912 0.0366
MS -6.1149 -3.5584 0.0002
5%and 1%level of significance

Source: generated stata version 1

42
 4.2.1.2 Model Selection
The goal of this study was to examine the effect of electronic banking on financial performance
of commercial banks. Thus, the model selection was based on the data acquired for the specific
period of time. In this case, panel data was consumed by regressing variables of interest through
multiple linear regression model (MLR) as pooled ordinary least square. The fixed effect and
random effect model of analysis are commonly appropriate for this type of data. However, using
Hausman testing criteria and the F statistical test, an appropriate model for panel data should be
further examined and selected. When the strength and adaptability of OLS regression and its
correctives have been exhausted, or when data with specific features are available, panel data
approaches are considered the best option.
4.2.1.3 Rationale for Choosing Fixed Effect VS Random Effect
A dataset, in which the behavior of entities is observed throughout time in other hands, is known
as panel data, or also known as longitudinal or cross-sectional time-series data. Unobserved
group effects, time effects, or both may be included in the error term when using panel data. This
component of the panel data focuses on two models: fixed effect and random effect models, or
both. FE models can only estimate within-effects; therefore they can't be skewed by
heterogeneity. However, because this comes at the cost of being unable to estimate the impacts
of higher-level processes, RE is frequently favored in situational when bias is not present (Jones
& Bell 2015).
When using FE, we anticipate that something about the individual will influence or bias the
predictor or outcome variables, and it must therefore account for this. The assumption of a
correlation between the entity's error term and predictor factors is based on this logic. Researcher
may analyze the net effect of the predictors on the outcome variable using FE because it removes
the effect of those time-invariant traits. The variance between entities is believed to be random
and unrelated to the model's predictor or independent factors. Unobserved heterogeneity is
uncorrelated with the independent variables in the random effects model. In addition to that, the
random effects model can be used to control for some omitted variables that are constant over
time and vary between banks (Worku, 2016). In conclusion, it is assumed that either fixed or
random effect Hausman test is suitable where the null hypothesis preferred model is random
effects vs. the alternative the fixed effects model. In this case, therefore, random effect
correlation was preferred by testing the Hausman Test of significance.

43
 4.2.1.4 Hausman test
Random effects are favored over fixed effects, because it better examines the unique error I
which is linked to the regressions (Kalita, 2013). The null hypothesis for the Hausman Test in
this case for the Random Effects Model is (Sig = 0.1983) which is greater than the 0.05 percent
significance level. Therefore, the result shows that random effect (RE) better examines the
unique error in the regression better than that of fixed effect (FE, which assumed to be
significant with p-value = 0.05). As such, the alternative hypothesis indicates that the Fixed
Effect Model is better than the Random Effects Model, in examining whether the unique errors I
are linked to the regression or not.

Table 4 Hausman test

Coefficient

(b) (B) (b-B) sqrt (diag(v-b-v-B)

fe re difference S.E.

NOATM .00418 .0032 .000978 .002298

MOBBAN - . 00229 - .00272 .000431 .0009954
VOTATM - .00366 - .00324 -.000364 .00017
VOTPOS .0020 .00197 .0000295 .0001853
MS .03719 -.0060 .0432 .0271

Test Ho: difference in different not systematic

chi2 (5) = (v-b-v-B) > (-1)) (b-B)
= 7.31
prob > chi 2 = 0.1983
= (v-b-v-B) (not positive definite)
Source: Own Computation (STATA version15)

Therefore, it is accepting the H0: because as the p-value (Prob>chi2) is greater than 5% level of
significance.
H0: random effects would be consistent.
H1: random effects would be inconsistent.
For this suggests that the random effect model is more appropriate than the fixed effect model.
The above findings from Hausman Specification Test show that the random effects model is the
most appropriate in this study. Then the above the table 4.4 indicates that the Husman
specification test the P value of the model has 19.83%, which is greater than the 5% level of

44
significant. Then, the null hypothesis of the random effect model is appropriate, hence failed to
reject the 5% level of significant.

Table 5 Properties of the Random and Fixed Effect Estimation Model

Model correct hypothesis Random effect model used Fixed effect model used
H0: COV(𝜶𝒊,𝒙𝒊𝒕)=𝟎 constant efficient constant efficient
H1:COV(𝜶𝒊,𝒙𝒊𝒕) ≠0 in constant constant possibly effect

H0: appropriate model is random effect. There is absence of correlation between error terms and
independent variables in panel data model.
H1: appropriate model is fixed effect. Correlation between error terms and independent variables
in panel data model statistically significant

4.2.1.5 Testing for Random Effects: Breusch-Pagan Lagrange multiplier

Below the Table 4.6 indicates that the LM test helps to determine, either the Random-Effects-
Model or OLS-Regression, is better. Then to choose the best option, whether random or OLS,
then the null hypothesis in the LM test is analyzed with variances across entities are zero. The
LM tests to require P Value is shown by the number, which is 0.0448, where the value is less
than 5% level of significant. So the LM Test indicates that there is no evidence to rejecting the
null hypothesis H0 and that accepting H0 means, the best estimation method is Random Effect.
In this model is random effect is the best model because the P value is less than 5% level of
significance (prob. > chibar2 = 0.0448).

Table 6 Breusch-Pagan Lagrange multiplier (LM)

Breusch-Pagan Lagrange multiplier (LM)

45
 Source: Own Computation (STATA version 15)

4.3 Random effect model

According to Sheytanova (2014), the random effect models are constant, efficient and considered
unbiased. However, if there is Correlation between the errors term of the random effects model
and the independent variables, estimates would be inconsistent and thus fixed effects model
would be preferred over the random effects model. Time-invariant variables can be utilized as
explanatory variables in random effects models, because the entities error term is not linked to
the predictors. The advantage of the Random-Effect-Model is that it eliminates
heteroscedasticity. This model is also known as the Error Component Method (ECM) or the
Generalized Least Square (GLS) approach. In essence, the random effect model differs from the
fixed effect model in that it employs the principle of maximum probability or generic least
square rather than the principle of ordinary least square. In the random-effects model, it is
assumed that the study results that we combine represent a random sample of studies that share a
common mean effect size, despite the fact that each study has an individual true effect.

46
Table 7Random effect model
Random effect GLS regression number of obs = 70
Group variable ID number of group = 10
R-SQ obs per group:
Within =0.3044 min =7
Between =0.4669 avg =7.0
Overall =0.3611 max=7

corr (u-i,x) =0(assumed wald chi2 (5) = 30

prob >chi2 = 0.000

ROA coefficient S.E Z P>: z 95% conf interval

NOATM .00320 .00248 1.29 0.198 -.00167 .0080

MOBAN -.00272 .00110 -2.46 0.14 -.00489 -.00055
VOTATM -.00324 .00093 -3.48 0.000 -.0050 -.00141
VOTPOS .00197 .0090 2.19 0.029 .00020 .00375
MS -.0060 .0068 -0.88 0.380 -.0194 .0074
CONS .046166 .0090 5.08 0.000 .0283 .0639

Sigma-u .002925
Sigma-e .00461
Rho .287 (fraction of variance due to u-i)
Source: Own Computation (STATA version 15)
Significant level 5%and1%

47
 4.3.1 Regression Analysis
In the Hausman Test, the H0: says, that Random Effects Model is an appropriate model than the
Fixed Effect Model, and the alternative hypothesis says, Fixed Effect Model is an appropriate
model than the Random Effects Model. Hence, this study found that the Random effect model is
more appropriate model because the P-value of 5% level of significance (See Table 4.7). The
table 4.7 indicated that the overall model is significant, as shown by the Wald test statistic (Wald
chi2 (5) = 30). According to Baum (2006), in a random effect model, Rho is the fraction of total
variance and the variations of the error term. So that the above findings indicates that (Rho
=.287), or 28.7% is being explained by the error term and the remaining 71.3% is determined by
the constant terms.

According to Pillai N. (2016), random effect models assumption must have the covariance or
Cov (Xit, μi), which means the correlation of μi and the independent variables is zero, and this is
described as corr (u_i, X = 0). The above tables 4.7 show that the random effect model is
suitability, whether the established model was good or not. The random effect model indicates
the relationship between two variables, dependent (ROA) and independent variables: number of
ATMs, mobile banking, value transition of ATM, value transaction of POS and market share
(MSH).

Therefore, the model was a good appropriate, and then three independent variables have
significant influence on the dependent variable (ROA). It also assured that the (Wald chi2 (5)
=30.72, Prob >chi2=0.0000). The three statistically relevant variables illustrate the model well.
Mobile banking and value transaction of ATMs is statistically significant at 5% and 1% level of
significance, but negative related to return on assets. And the value transaction by POS is
statistically at 5% significance and has positive correlation to ROA. On the other hand, the
number of ATMs is statistically insignificant, but has a positive correlation to ROA, whereas,
market share has a negative and insignificance influence to return on asset (ROA)

4.3.2 Mobile Banking and ROA

The regression coefficients of Mobile Banking is (-0.0027), as shown in Table 4.7, and the (p-
value = 0.014), which indicates, when a unite increase in Mobile Banking by 1% return on asset

48
(ROA) will decreased (0.0027) by this amounts. This implies that mobile banking has a reduced
performance on return on assets, but statistically signifies by 5% level of significance. Mobile
Banking has statistical significance at 95% confidence level at (P-value=0.014). In addition to
that; mobile banking is negatively linked to financial performance. This finding was supported
by the previous empirical research (Rachael, 2010) and (Hani2019). Their finding indicated that
there was a negative relationship between mobile banking and return on asset.

There may be several factors that contribute to negative findings in Ethiopia's value-transactions
of mobile banking. Thus, addressing these core factors would be crucial in improving the value
of transactions of mobile banking in Ethiopia and increasing its adoption and usage among the
population in the future. Some of the main contributors may be: limited financial infrastructure,
including a lack of banking services and limited access to ATMs and other financial institutions.
This hinders mobile banking transactions and limits the reach and convenience of such services.
On the other hand, low mobile phone penetration, can have a significant among other things. For
instance although mobile phone penetration in Ethiopia is increasing, it is still relatively low
compared to other Sub-Saharan African countries. Many individuals, particularly those in rural
areas, do not have access to mobile phones or smartphones, making it more difficult for them to
participate in mobile banking transactions.

Also limited network coverage and connectivity issues are prevalent in many regions of Ethiopia.
That’s poor-quality networks and limited coverage can disrupt mobile banking transactions and
cause delays or failures in processing transactions. Lack of adoption and awareness, on the other
hand might have contributed its part. For example, many people in country are not familiar with
or aware of the benefits and convenience of mobile banking. The lack of awareness leads to low
adoption rates, limiting the number of transactions conducted through mobile banking platforms.

Trust and Security Concerns: Trust and Security are significant concerns for Individuals
considering mobile banking. Due to the lack of familiarity with mobile banking services, people
may be hesitant to use these platforms, fearing the risk of fraud or privacy breaches. Limited
interoperability: In Ethiopia, there is limited interoperability among mobile banking platforms
and financial institutions. This hampers the smooth transfer of funds between different providers,
making it challenging for users to conduct transactions across various banking platforms.

49
Regulatory limitations, such as restrictions on transaction amounts and other bureaucratic
requirements for physical presence at banking institutions for certain transactions, hinder the
growth and convenience of mobile banking in Ethiopia.

4.3.3 Value Transaction by ATM and ROA

The random effect model appropriate, that model is good or not, is indicating the relationship
between Value Transaction by ATM and ROA. The (Table 4.7) indicates that the regression
coefficient has (−0.00324 and P-value=0000). This means, when 1% unit increased, the value of
transaction by ATM will reduced by 0.00324 units of ROA. Value transaction of ATM has
statistical significance at 99% confidence level at (p-value 0.000), which is statistically
significance < 1% level. The Correlations show that the value transaction by ATMs has a
negative relationship to ROA or banks’ financial performance. Value transaction by ATM has
reduced performance, but statistically signifies 1% level of significance. The negative influence
means to the relation between the independent variable value transitions by ATM with the
dependent variable ROA. In addition to that the value transaction of ATM is not sufficiently
influential to the banks’ financial performance. This finding was also confirmed by (Francisco
and Santiago, 2014), (Ifeanyichukwu and Kalu, 2016), (Oladejo 2016), and (Mustapha
2018).The factors, among others, that contributed to the negative coefficient but significant value
transaction of ATMs in Ethiopian commercial banks may be High transaction fees: Ethiopian
commercial banks may charge high transaction fees for ATM usage, discouraging frequent
transactions and reducing the overall value of ATM usage. Limited ATM Infrastructure: There
may be a limited number of ATM machines available, leading to longer queues and
inconvenience for customers. This can discourage customers from using ATMs frequently and
opting for alternative banking channels. Low banking penetration: Ethiopia has a relatively low
banking penetration rate, with a significant portion of the population still unbanked. This low
banking penetration can result in fewer ATM-Transactions and less Value being generated
through ATM-Usage.

Cash-based Economy: Ethiopia is predominantly a cash-based economy, with a majority of

transactions being conducted in cash. This reliance on cash transactions reduces the demand for
ATM services, resulting in lower value transactions. Security concerns: Customers in Ethiopia
may have lingering security concerns regarding the use of ATMs. This could be due to instances

50
of ATM fraud or theft, which can deter customers from using ATMs frequently. Limited
Awareness and Education: Lack of awareness and education about ATM usage and benefits may
also contribute to the negative coefficient, but significant value transaction of ATMs. Customers
may not be fully aware of the convenience and advantages offered by ATMs, leading to low
usage and value transactions.

4.3.4 Value Transaction of POS and ROA

The Table 4.7 shows, that the random effect model of the Value transaction of POS, has a
coefficients of (0.00197) and (p-value=0. 03). This shows that value transaction of POS is
positive and has a significant impact on financial performance (ROA). When 1% unit increased,
the Value of the transaction through POS will increase (ROA) by (0.00197) amounts. Then this
results show that the value transaction through POS terminals has positively influenced the
banks’ financial performance statistically at 5% level. In addition to that, the value transaction of
POS has statistical significance at 95% confidence level at (p-value= 0.029) which is statistically
significant <5% level because; POS terminals have positive impacts on commercial banks
profitability. On the other hand, high-POS-Terminal in commercial banks is more profitable than
low-POS-Terminal in banks. In other words, the POS-Transaction has an increased influence on
the performance of banks on the exchange. An increase in the use of POS-Machines raises the
availability and coverage of Ethiopian commercial banks. Researchers Iftekhar et al (2009),
Humphrey (2009), Nofie (2011), Oginni et al (2013), Akhisar (2015), and Torki et al (2020) all
have similar agreement with this findings.

4.3.5 Number of ATM and ROA

The above table 4.7 shows the random effect regression coefficient number of ATM has a
coefficient of (=0.0032) and its (p-value 0.198) shows that other things remains constant, the
number of ATMs is positive but, insignificant. On the other hand, the number of ATMs has a
positive relationship with Return on assets (ROA) of the Commercial Banks. In this result, the
number of ATMs positively contributes to bank profitability, but insignificance is 5% level.

This implies that, where the number of ATMs increased by a unit of 1, the return on assets of
commercial banks would be increased by (0.0032) percent, but it is statistically insignificant at
the 5% level of significance. Then number of ATMs has positive influence on performance. In
this research it was failed to reject the null hypothesis, because there is not enough evidence to

51
reject the null hypothesis. So number of ATMs has positive correlation with ROA, and it has
positive influence on banks’ financial performance. The result of this finding was supported by
the earlier Researchers (Lasisi and Abubakar, 2014), (Oladejo 2016), and (Jean 2018).

4.3.6 Market Share and ROA

According to the Table 4.7 indicate that the random effect regression model shows that the
coefficient of market share is (-0.0060 and p-value =0.38). So this indicates that the market share
has negative relationship with ROA and it is insignificant. That means market share is
statistically insignificant 5% level of confidence. When market share is raised by a unit of 1%,
the return on asset (ROA) is reduced by 0.006, then statistically insignificant at 5% level of
confidence. This means, market shares are not sufficiently influencing the return on asset or
market shares have negatively influenced on ROA. This finding was supported by other
empirical evidence for instance (Onipe, 2015), and (Zampara, 2016). The following reasons
explain the above arguments. First, non-price competition may be more intense in more
concentrated markets, and so bank profitability is may be lower. Second, managers in more
concentrated markets can more easily engage in expense-preference-behavior, so bank costs in
such markets are considered higher, thus lowering profitability (Edwards, 1977). Lastly,
managers in concentrated markets may opt for a ‘quiet life’ by taking less risky assets, thus
lowers earning returns (Heggestad, 1977).

52
 CHAPTER FIVE
5. CONCLUSIONS AND RECOMMENDATION
In this chapter depends on the above findings on the study’s conclusions and recommendations,
based on this the first part conclusion and the second parts where putdown recommendation.

5.1 Conclusion
This study found that number of ATMs and value transactions of POSs the most dominant
contributes to the financial performance (ROA) of E-banking-Types in Ethiopian commercial
banks. In addition to this study was found that the Number of ATMs and Value Transactions of
POS of the E-Banking-Types have a positive relationship with financial performance (ROA).
Number of ATMs has statistical insignificance P > 5% Level and value transaction of POS has
statistical significance P <5% Level. Moreover, the value transaction of POS has statistical
significance at 95% confidence level at p value of 0.029 which is statistical significance <5%
level. This implies that increasing transaction volume on POS terminal may result in improved
financial performance. This means that higher transaction values on ATM may result in lower
financial performance in commercial banks in Ethiopia.

The other study founded that mobile banking, value transaction of ATMs and market share is not
efferent to contribute to the financial performance (ROA) of E-Banking-Types in Ethiopian
commercial banks. Moreover, these results indicate that mobile banking, value transaction of
ATMs and market share is negatively related to ROA. Mobile banking has statistically
significant P<5% level and value transaction of ATMs has statistically significance <1% level.
Although the evidences from the above founding studies show that E-Banking on financial
performance indicate, that there was contradict result.

In addition to that, mobile banking and value transaction of ATMs has statistical significance at
95% and 99% confidence level at p value of 0.014 and 0.000, which is statistical significance
<5% and 1% level. According to descriptive analysis, the result of overall financial performance
(ROA) of commercial banks in Ethiopian shows a mean value of 2.43 and standard deviation of
0.064.this means, the range shows the existence of great difference in performance among the
selected commercial banks in Ethiopia. This indicates that commercial banks in Ethiopia
generated 2.43% average return on asset from the total asset per year. According to the results of

53
the correlation study, the amount of ATMs, mobile banking (MOBBAN), value transaction of
ATM (VATM), value transaction of POS (VTPOS), and market share are all negatively
associated by ROA. In addition to that the correlation coefficient of among overall independent
variable such as number of ATMs Mobile Banking, Value Transaction of ATM, Value
Transaction of POS and Market Share are positively and stronger correlated between the ranges (r=60-
79).

5.2 Recommendation
Based on the findings and analysis presented regarding the impact of e-banking on the financial
performance (ROA) of commercial banks in Ethiopia, the following recommendations can be
made:

I. Enhance POS Infrastructure: Since the value transactions of POS have shown a positive
relationship with financial performance, banks should invest in expanding and enhancing
their POS infrastructure. This includes increasing the number of POS terminals and
encouraging merchants to adopt these systems.
II. Focus on Transaction Volume: Banks should develop strategies to increase transaction
volumes on POS systems. This could involve promotional campaigns, partnerships with
businesses, or incentives for customers to use POS for payments.
III. Reevaluate ATM Strategy: Given that the number of ATMs has shown statistical
insignificance and that higher transaction values on ATMs may be associated with lower
financial performance, banks should reassess their ATM deployment strategy. They
might consider reducing the number of underperforming ATMs or optimizing their
locations to better serve customer needs.
IV. Mobile Banking Improvement: Despite mobile banking showing statistical significance,
its negative relationship with ROA indicates potential issues in its implementation or
usage. Banks should focus on improving user experience, security features, and
marketing efforts to increase adoption and effective use of mobile banking services.
V. Conduct Customer Education Programs: To enhance the adoption of e-banking services,
banks should invest in customer education programs that inform users about the benefits
and functionalities of e-banking options, including POS and mobile banking.

54
 VI. Monitor and Analyze Performance Metrics: Continuous monitoring of key performance
indicators (KPIs) related to e-banking services is essential. Banks should regularly
analyze the data to understand trends and make informed decisions regarding their e-
banking strategies.
VII. Leverage Data Analytics: Banks can utilize data analytics to better understand customer
behavior and preferences regarding e-banking services. This insight can inform targeted
marketing strategies and service improvements.
VIII. Diversify E-Banking Offerings: To mitigate risks associated with reliance on specific e-
banking channels, banks should explore diversifying their e-banking offerings, such as
integrating new technologies (e.g., QR codes, digital wallets) that may attract more
customers.
IX. Invest in Technology Upgrades: Banks should continuously invest in upgrading their
technology infrastructure to ensure smooth and secure transactions across all e-banking
platforms. This includes ensuring compatibility with new payment technologies and
enhancing cyber security measures.
X. Benchmark against Competitors: Conduct competitive analysis to understand how other
banks are performing in terms of e-banking services. Learning from best practices can
help improve overall financial performance.
XI. Evaluate Market Share Strategies: Since market share was found to be negatively related
to ROA, banks should critically evaluate their market share strategies and focus on
profitability rather than just expanding their customer base. By implementing these
recommendations, Ethiopian commercial banks can enhance their financial performance
through more effective e-banking strategies while addressing the inconsistencies
observed in the study's findings.

55
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Appendixes

Appendix1

v
Appendex.2

Summery statistics

Appendex.3

Hausman test

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Appendix.4

Breusch pagan lm test for random effect model

Appendex.5

Test of data Stationary

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 Appendex1.6

Random effect regression model

viii
 Appendix 7

Names Commercial banks in Ethiopia

no Commercial banks in Ethiopia Started year

1 Commercial bank of Ethiopia 1963
2 Dashin bank 1995
3 Awashi bank 1994
4 Bank of abyssinya 1996
5 Wegagen bank 1997
6 Nib bank 1999
7 United bank 1998
8 Abay bank 2010
9 Zemen bank 2009
10 Brehan bank 2010
11 Cooperative bank of oromia 2011
12 Oromia international bank 2008
13 Buna international bank 2009

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14 Enat bank 2012
15 Debub global bank 2012
16 Lion bank 2006
17 Addis international bank 2011