Effect of Internet Banking on Financial Performance of Commercial Banks in Kenya

Abstract

Internet banking has the potential to profoundly transform financial services and banking industry. The integration of internet in the banking sector in Kenta is expected to affect the way in which banks come up with financial products and services and consequently customer satisfaction and the performance of these banks. To accomplish this, my study will try to find out: what is the effect of internet banking on financial performance of commercial banks in Kenya. The objective of the study was to establish the effect of internet banking on financial performance among commercial banks in Kenya. Descriptive design was adopted. The target population for the study comprised of the 40 commercial banks. Data collection sheet was used in data collection Pearson correlation coefficient helped evaluate the effect of internet banking on the banks’ financial performance. The other inferential test multiple regression analysis was used to analyse the effects of internet banking on financial performance .The study revealed that ROA in commercial banks in Kenya increased in upwards trends due increase in online customer deposits through internet banking. The study established that online bank transaction to total asset ratio increased in an upwards trend over the specified study period. Further increase in internet expenses fees and commissions to total asset ratio increased. There is a moderate, significant and positive correlation between online banking transactions and ROA. The study however found that there exist a moderate and negative correlation between Internet transaction Fees and Commissions (F&Cs) and ROA. The study results further revealed that there exist a strong, significant and negative relationship between Internet banking Expenditure and ROA. The study found that online customer deposits and online banking transaction has a significant relationship with ROA while Internet fees and commissions and internet banking expenditure had a negative relationship with ROA in commercial banks. Regression results established that ROA of bank was significantly predicted by online customer Deposits (OCD) and increase in online customer Deposits would lead to significant increase in ROA in commercial banks in Kenya. Findings in regression revealed that online banking transaction significantly and positively predicted ROA and that an increase online banking transactions led to increase in ROA. However, the Fees and Commissions on internet banking predicted a negatively and significant influence on ROA in banks hence increase in internet fees and commission led to decrease in ROA while internet banking expenditure predicted significant and negative effect on ROA in banks increase in internet banking expenditure led to decrease in ROA in banks. The study concluded that ROA in banks increased in upwards trends due to internet banking. The study concluded that there is a strong, significant and positive correlation between online Customer Deposit (OCD) and Return on Assets (ROA). The study concluded that online banking transaction significantly and positively predicted ROA and that an increase online banking transactions led to increase in ROA. The study recommends that bank management should enhance internet banking to improve financial performance in commercial banks.