COLLEGE OF BUSSINES AND ECONOMICS

DEPARTEMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF ELECTRONIC BANKING ON PROFITABILITY OF

COMMERCIAL BANK OF ETHIOPIA IN CASE KEBRI DEHAR BRANCH.

RESEARCH PAPER SUBMITTED TO DEPARTMENT OF ACCOUNTING AND FINANCE

PARTIAL FULFIMENT REQUIRIMENT IN BA DEGREE IN ACCOUNTING AND

FINANCE

PREPARED BY: MEGERSA KELIFA

ADVISOR: ABDIKABIR SEP. 12 2024

KEBRI DEHAR,ETHIOPIA

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ACKNOWLEDGEMENT

First of all I would like to thanks a great full to my God for making survive
and for helping me to reach at this stage of for every thing influenced me
that I have achieved through out my life.

I would like to express my deepest gratitude to my advisor ABDUKABIR for his

relevant advice guidance, constructive, suggestion, and offering a follow up
advice throughout my work from the gaining to the completion of this paper
i Would also like to Kebri dehar University College of business and Economic in general
and specially department of Accounting and Finance.

Besides this my special thanks continuous t o flow to my family for their

whole hearted and indefinite support in helping me through moral and
financial support in helping me through moral and financial supports.

Finally, I would like to say thanks for all my best friends for their
encouragement and supporting in study period and in different manners
through out my life learning process. And thanks to commercial bank of
Ethiopia, kebri dehar branches manager, employees and whole society for their
help.

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Abstract
This research paper aims at assessing the the impacts of E-banking on the profitability of
Commercial bank ethiopia Kebri dehar branch ,the researcher used different data gathering
method and research technique. for the primary and secondary data ,I used interview and
questionnaire as data collection method. The study is adopted a census or data gathered from the
entire population
Commercial bank improves the technology in order to pave the way that it will give an
impression to the peoples for becoming a customer. And the finding indicate e-banking has
positive impact on the profitability of the bank.
Finally logical conclusion are reported driving inferences that indicate there is a short coming to
use e-banking such as, lack of customer’s awareness toward the technology and low level of an
access in the country even though ,it increases the profitability of the bank.

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 ACRONYMS

ATM Automated Teller Machine

E-Bank Electronic Banking

E-Finance Electronic Finance

EFT Electronic Fund Transfer

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TABLEOFCONTENTS
Page

Knowledgement.............................................................................................................................

Abstract.......................................................................,....................................................................

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

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

1.1Introduction-------------------------------------------------------------------------------------------------------1

1.2Statement of problem........................................................................................................................2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHAPTERFOUR...........................................................................................................................................13

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 CHAPTER ONE

INTRODUCTION

1.1 Back ground of the study

E-banking is defined as the provision of retail and small value banking products and services
through electronic channel. It implies a service that allows customers to use some form of
computer to access account banking includes varies banking activities conducted from sites other
than a physical bank location. For instance, all over the world customer relay on ATMs to
withdraw money from their demand deposit accounts at any hour. (Mescon, 2002).

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

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

In Africa Nigeria did not embrace electronic banking early compared to developed countries of
the world in the year 1986 Society General Bank of Nigeria (SGBM) now called Heritage Bank
plc introduced online, real time banking within its 5 branches in lagos metropolis. However
many of the Nigeria bank adopted electronic banking system in the early 2005.Today the ATM
mobile web and pos are major e-payment channel currently in use in Nigeria.

In the recent year electronic banking has been viewed adriving force that is changing the
landscope of the banking industry fundamentally in particularly towards more competitive

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industry E- banking has blurred the boundaries between different financial products and services
and made existing financial service available different package(Agbala,2008).

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

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

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

1.2 Statement of problem

The internet and different things it can do to uplift business procedures, products and services is
a current necessity for business. One of internet’s products is E-banking. It is a faster way for
clients to transact without the banks personnel. E-banking services expand market share or a cost
saving strategy to reduce paper work and personnel. Ethiopia is lagging behind in the adoption of
e-commerce. The internet infrastructure is only in its major cities; due to lack of internet facility.
Lack of sufficient internet facility and unsatisfactory level of attitude on the use of e-banking
activity makes insufficient (http; ivy thesis, typepad.com).
Even if an internet facility and low level of attitude towards on the use of e-banking is
insufficient, Ethiopian banks including kebri dehar branch commercial bank started the e-
banking service. so, this research assessed its effect on the profitability of the aforementioned
branch.

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 The factors that initiate the researcher are the researches that are done in previous period by this
title in other financial institutions. Now the researcher try to fill the knowledge gap between the
commercial bank of Ethiopia kebri dehar branch and other financial institutions by changing the
research method and source that used by other researcher.

1.3 Research question

The research would answer the following questions.

1. How electronic banking supports the attainment of business goal in commercial bank?
2. How the bank balances the cost spent for using e banking and its profitability?
3. What activities are done by Commercial bank to change attitude of the customer?
4. How do automated teller machine (ATM) transaction on profitability of commercial Bank
of Ethiopia kebri dehar branches?

1.4 Objectives (general and specific)

1.4.1 General objective

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

1.4.2 Specific objective

The study aimed to achieve the following specific Objectives

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

1.5 Scope and Limitation of study

1.5.1 Scope of study

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 The study was limited in Commercial Bank of Ethiopian kebri dehar branches. It didn't include
other e-banking service provider in the country as whole and kebri dehar branches in particular.

1.5. 2 Limitations of the study

 Scarcity of source material or available data.

 Shortage of time.
 Lack of experience on such study.
 Lack of money (financial sponsor)
 The researcher was faced the difficulty to find reliable data in research process.

1.6Significance of the study

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

1.7 Operational working definition

As it is nearby and easy to collect data as it is required in order to attain the research objective,
Furthermore its transportation cost is less and it is suitable area for the research regarding to
limitation of time and finance.

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 CHAPTER TWO

LITRATURE REVIEW

2.1 Electronic banking

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

2.2.Electronic banking profitability and efficiency

Commercial banking assaulted by the pressure of globalization, competition from non banking
new ways to add value to services. The question "what drives performance?" is at top in
understanding superior performance and hence striving for it. substantial research effort have
gone into addressing this question starting from the strategic level going down to operation
detail bank and( Vander Velde 1992) . This study based on the opinion of head of retails banks at
all us commercial Bank established in linkage between marketing operation, organizing
excellence. This finding led to the formulation of the service management strategy encapsulated
in the trail operational capabilities service quality performance (C-SQ-P). (Foth and Jackson
1995 ). The C-SQ-P trail is in turn focused the view of the service profit chain described
by(Hesketta all 1999) based on their analysis of successful service organization.

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2.3 Empirical review

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

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

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

In the research, Sana Mohammed,Hassan and Monica(2011) investigated the impact of e-

banking on the profitability of Pakistan banks. Their finding reveal that e-banking has increased
the profitability of bank hence enabling them to meet their cost and earn profit in short span of
time. Also the illiteracy of customer is not regarded as major impediment improvising of their
product further more.

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

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

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

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

Lustsik(2004) explorers the implementation of technique of Activity-Based-Costing (ABC) in

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

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

Hernando and Nieto to (2007) attempted to fill this gap by identifying and estimating the impact
of the adoption of transactional web site on financial performance using a sample of 72 deposit
money banks in Spanish over the period 1994-2002. The analysis of the sample size is based on
several financial performance ratios. These financial ratio measure business activities as

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percentage of average total assets and profitability. The result showed that the impact of
transactional web adoption on bank performance take to appear. The adoption of the Internet as
delivery channel involve gradual reduction in over head expenses. This effect statically
significant after one or half year after adoption the cost reduction translate into an improvement
in banks profitability which became significant after one and half years in terms of Return On
Assets(ROS) and after three years in terms of return on equity(ROS).

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

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

Maiyaki and Mokhtor(2010) employing survey of 407: banks customer in 33 organization in

Kano state of Nigeria studied the effects of availability of e-banking facilities such as ATM,
online banking and Telephone banking do not have significant influence on customers banks
choice decision.

Carvalcio and Siegel (2011) investigated the return on investment for online banking services
and analysis of financial account aggregation. The return on investment of the accountant
aggregation technology was evaluated using the calculation of earning before interest and taxes
(EBIT) and the net present value (NPV) for a period of five years. The sample cover three basic
bank site. According to the numbers of its online account medium banks those with 2-8 to 6-0
million online account and Large banks those with 8.8 to 16 million online account. The study

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concluded that account aggregation is compelling technology that should become acommodity in
the bank provide it and it will represent no more differentiated competitive advantage.

2.4 conceptual framework

Electronic can be described using the internet as delivery mode for the Provision of services like
opening a deposit account, electronic bill payment, on line transfer, online withdrawals and in
fact any other online banking transaction. Allen metal(2002) gave the definition of electronic
finance(e-finance) as Provision of financial services market using electronic communications
and computation. Electronic banking has also been defined by Loford and Limit(2005) as the
medium of using electronic devices like internet Wirelesses Connection Net work, ATM, Phone
andC Cell phone in banking services. These services are a part of providing currency for the
economic system of the country Eletronic banking services grouped into four major classes
namely :Telephone banking Electronic banking

Mobile banking Internet banking

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

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

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

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

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

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

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 CHAPTER THREE

METHODOLOGY

3.1 Description of the study area

The study was conducted in Qorahe Zone Somale region Kebridehar town which found on
1450km from the capital city of Ethiopia, Addis Ababa. The study was conducted on assessment
of electronic banking on profitability of commercial bank of Ethiopia Kebri dehar branchs.

3.2Research design and strategy

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

3.3 Data source and type

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

3.4 Sample design

3.4 .1 Target population

The population of the study would be the assessment of electronic banking on

profitability of commercial bank of Ethiopia Kebridaher branch’s that found at

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different level of position, this due to the fact that the raised issued was concerned
with population emphasized is an organization contain around 22 employees.

3.4.2 Sampling procedure and size determination

The population of the study include 22 employees of the commercial bank of

Ethiopia Kebridaher branches, as the population size is small, the researcher would
used census survey, because all the population are accessible to collect the
appropriate data.

3.4.3 Methods of data collection

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

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

3.5 Methods of data analysis and processing presentation

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

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

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 CHAPTER FOUR

4 .TIME SCHEDULE AND COST BUDGET

4.1. Time scheduling

Time schedule refers to the duration of each activity performed by the researcher during the
study time and budget is the financial resources required by to accomplish each activity.

The time allocation for each activity during the study period showed here.

No Activities Mar Apr May Jun Jul Aug Sept Oct

1 Title X
selection

2 Literature X
searching

3 Finalizing X
proposal

4 Submissio X
n of
proposal

5 Actual X
data
collection

6 Data X
analyzing

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7 Report X
writing

8 Submissio X
n of
research

9 Final X
paper
presentati
on

4.2.Cost budget

There will cost be same that will be incurred while doing the research to have the best cost effective
research. There will have a budgeting as follows:-

- Stationery cost for writing the research paper;

- Transportation cost during data collection,

- Cost incurred for mobile card, data collector/supporter and other costs.

Cost allocation for each activity and items

No Stationary Unit Quantity Unit price Total price

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 material measurement

1 Paper Page 42 1 42

2 Transportation Round 15 5 75

3 Printing page Page 42 1.5 63

4 Pen Birr 4 10 40

5 Internet Hours 4 20 80

6 Note book Birr 2 30 60

7 Tea Birr 10 3 30

8 Stapler Birr 2 5 10

9 Mobile card Birr 10 15 150

Total 550

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