Effect Of Electronic Banking On The Operating Costs Of Commercial Banks In Kenya

Abstract

A challenge for Kenya’s Commercial banks has been increasing in operational performance. The operational costs in Kenya have been on the increase; the total operating costs rose by a 6.4% to KSh 158.7 billion in 06/2018 from KSh 149.1 billion in 06/2017. The cause of increase in operating costs was rise in deposits interest, that was as a result of increased deposits by clients by a 10.5% in the course of the span to 06/ 2018. Deposits interests, staff expenses as well as other costs were the major constituents of the cost of operating, being an account for 33.8%, 25.3% and 23.7 % of sum costs, respectively (CBK report, 2018). The key research objective was to determine the impact of electronic banking on the operating costs of Kenya’s commercial banks. A descriptive study was used. The population that was targeted for this research was 42 Kenya commercial banks. The research collected secondary data by use of a sheet for collection of data. This data was collected from the Kenya commercial banks financial statements with a 5-year duration from 2014 and 2018 where data was obtained annually. SPSS was used for analysis of this data where diagnostics tests and inferential statistics in form of regressions, correlations and ANOVA were performed. The study concluded that there was a positive correlation coefficient between operating cost and automatic teller machine which was statistically significant. The study further concluded that there was a strong positive correlation between internet banking and operating costs. It was concluded that there was a strong negative correlation between mobile banking and operating cost. The study concluded there was a positive correlation between bank size and operating cost. Finally, it was concluded there was a negative correlation between capital adequacy and operating cost. The study recommended that there is need for commercial banks to reduce the cost of maintenance of the ATM. There is need for commercial banks to invest in cheaper but efficient systems that prevent and reduce internet fraud and cyber-crime since this may reduce the operational cost of commercial banks. There is need for commercial banks to enhance the mobile banking platform and also collaborate with the various mobile telecommunications firms in reducing the costs involved in mobile bank transactions. The commercial banks in Kenya should consider merging as this will enhance synergy and which in turn may reduce operational costs of the banks. The commercial banks in Kenya should ensure that they hold the right amount of capital necessary to facilitate their operations as this reduces the operational risks and costs.