The Effect of Electronic Banking on the Financial Performance of Commercial Banks in Kenya

Abstract

Kenya banking sector has tremendously evolved since the beginning of e-banking to ensure that customers are satisfied and to remain competitive in the ever changing environment. Today, bank customers’ enjoy efficient, convenient and fast banking services conveyed through electronic banking such as mobile banking, internet banking, agency banking and ATMS. This study sought to determine the effect of electronic banking on financial performance of commercial banks in Kenya. The study’s population was all the 42 commercial banks operating in Kenya. Data was obtained from 41 out of the 42 banks giving a response rate of 97.62%. The independent variable for the study was electronic banking as measured by value of transactions carried out through mobile banking, internet banking, agency banking and ATMs. The control variables were liquidity as measured by the current ratio, firm size as measured by natural logarithm of total assets and capital adequacy as measured by the ratio of gross loans and advances to total assets. Financial performance was the dependent variable which the study sought to explain and it was measured by return on assets. Secondary data was collected for a period of 5 years (January 2013 to December 2017) on an annual basis. The study employed a descriptive cross-sectional research design and a multiple linear regression model was used to analyze the association between the variables. Data analysis was undertaken using the Statistical package for social sciences version 21. The results of the study produced R-square value of 0.373 which means that about 37.3 percent of the variation in the Kenyan commercial banks’ financial performance can be explained by the seven selected independent variables while 62.7 percent in the variation of financial performance of commercial banks was associated with other factors not covered in this research. The study also found that the independent variables had a strong correlation with financial performance (R=0.611). ANOVA results show that the F statistic was significant at 5% level with a p=0.000. Therefore the model was fit to explain the relationship between the selected variables. The results further revealed that agency banking, ATMs, capital adequacy, liquidity and bank size produced positive and statistically significant values for this study. The study found that mobile banking and internet banking are statistically insignificant determinants of financial performance of commercial banks. This study recommends that measures should be put in place to enhance agency banking and ATMs services among commercial banks as this will improve their financial performance.