ABSTRACT
This study examines the impact of internet banking on bank performance in Nigeria. This study specifically examines the long and short run effect from internet transactions and mobile payment transactions on liquidity ratio of banks in Nigeria. The study adopted ex post facto research design. A monthly time series data from January 2009 to June 2017 was used for the econometric analysis. Johansen Co-integration Test, Vector Error correction model, and Wald test were used to estimate the long and short run effect. Econometrics Views (Eviews) version 8.0 statistical Package was used for the analysis. The study reveals that there is a significant long-run effect from internet transactions and mobile transactions to bank liquidity in Nigeria. Secondly, there is a significant short-run effect from internet transactions to bank liquidity in Nigeria but failed to establish a significant short-run effect from mobile transactions to bank liquidity in Nigeria. The study recommends among other things that banks should intensify effort to update and secure the internet transactions for continuous and improved long term benefits. Moreover, the Nigerian banks should improve the awareness and security of the mobile payment system to encourage user to reliably make payments from the mobile phone.
TABLE
OF CONTENTS
Cover page i
Title page ii
Declaration iii
Certification iv
Dedication v
Acknowledgement vi
Table of Contents vii
List of Tables ix
Abstract x
CHAPTER ONE: INTRODUCTION 1
1.1 Background
to the Study 1
1.2 Research
Problem 2
1.3
Objectives of The Study 5
1.4 Research Question 5
1.5 Hypotheses 5
1.6 Significance of Study 6
1.7 Scope of the Study 6
CHAPTER TWO: LITERATURE REVIEW 7
2.1 Conceptual Framework 7
2.1.1 Types and Delivery Channels of E-Banking 8
2.1.2 Benefits of E-Banking 9
2.1.3 Measures of E-Banking and Bank
Performance 10
2.1.3.1 Capital Adequacy 11
2.1.3.2 Asset Quality 11
2.1.3.3 Management Quality 12
2.1.3.4 Earning Performance 12
2.1.3.5 Liquidity 12
2.1.3.6 Sensitivity to Market Risk 13
2.2.
Theoretical Review 13
2.2.1 Technology Acceptance Theory 14
2.2.2. Theory of Planned Behavior 15
2.2.3. The Theory of Reasoned Action 16
2.3 Empirical Review 17
CHAPTER THREE: RESEARCH METHODOLOGY 24
3.1 Research Design 24
3.2 Area of Study 24
3.3 Nature and Sources of Data 24
3.4 Model Specification 25
3.5 Description of Variables 26
3.5.1 Dependent variable 26
3.5.2 Independent Variables 26
3.6 Data
Analysis Techniques 26
3.6.1 Unit Root Test 26
3.6.2 Co-Integration Test: 27
3.6.3 Vector Error Correction Model 27
3.6.4 Wald Test 27
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS
AND
INTERPRETATION OF RESULTS 28
4.1 Data Presentation 28
4.2 Descriptive Analysis 28
4.3 Unit
Root Test 30
4.4 Inferential Statistics, Hypothesis
Testing, and Result Interpretations 30
CHAPTER FIVE: SUMMARY
OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS 40
5.1 Summary of Findings 40
5.2 Conclusion 40
5.3 Recommendations 41
References
Appendix
LIST OF TABLES
Table 4.1. Descriptive Statistics of Research Variables 28
Table 4.2. Result of unit root test
30
Table 4.3. Johansen
Cointegration Test for Hypothesis One 31
Table 4.4. Co-integration Equation for Hypothesis One 32
Table 4.5. Vector Error Correction Model
(VECM) Result for Hypothesis Two 33
Table 4.6. Wald Test Result for Hypothesis Two 34
Table 4.7. Johansen
Cointegration Test for Hypothesis Three 35
Table 4.8. Co-integration Equation for Hypothesis
Three 36
Table 4.9. Vector Error Correction
Model (VECM) Result for Hypothesis Four 37
Table 4.10. Wald Test Result for
Hypothesis Four 38
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
No
doubt the internet has transformed the way we search for information and
transact businesses. This has significantly renovated many industries ranging
from music and travel to advertising and retail. Now internet and mobile
technologies have proven to exert a far-reaching impact on the banking and
payment system across the world (Gupta, 2013). The modern Nigerian banking
environment has revolved drastically to a very dynamic and innovative industry,
owing to the penetration, acceptance and appreciation of information and communication
technology (ICT). Little wonder why it is said that information and
communication technology is at the center of global change curve. Seeing that
ICT has changed the scope of activities in the retail banking, following the
introduction of e-banking. According to Xiao (2008) e-banking is a service
channel that enables a bank customer to carry out a financial transaction
anywhere, via electronic means without necessarily visiting a physical
location/branch of the bank. However, according to Gonzalez (2008), e-banking
has not replaced traditional banking but has relatively improved on quality of
service delivery, speed, decreased cost and optimized on efficiency of banking
services. This e-banking offers a variety of channels ranging from POSs and
ATMs to mobile banking, telephone banking, and internet banking (Ghodrati &
Khah, 2014).
According
to Sarlak and Hastiani (2011) Internet banking involves performing monetary
transactions via the internet by means of a bank’s website. Transactions such
as payment of bills, money transfer, and investment are done through the
internet. By the introduction of internet banking, banks create an avenue for
customers to manage their accounts from the comfort of their homes (Njilu,
2016). The internet banking offer a diversified benefits to the bank consumers,
these ranged from convenience to low costs; and from speed delivery to
consumers’ satisfaction. Other advantages of internet banking include faster
marketing with wider customer reach, easier to introduce new product and
information is easily accessible by customers (Gomez, 2011). Accordingly the
mobile banking, which has been classified as a subset of the internet banking
is a banking channel offered by financial institutions that allows use of
mobile phones make financial transactions such as fund transfer, bills payment,
investing and saving (Njilu, 2016).
Invariably,
the increase in convenience, speedy delivery, efficiency, and customers’
satisfaction have led to a significant increase in bank transactions. Most Nigerians
never visits the bank to withdraw money to buy recharge card for their phones,
DSTV among others, they sits in their comfort zones and carry out these
transactions. Thus, banking technology has increased transactions which
ultimately have direct and indirect impact on banks’ liquidity. The use of
internet and mobile banking Funds Transfer cut cost and speed up payments. They
enable instant global access to information, products and services therefore
customers do banking transactions anywhere anytime (Kondabagil &
Kondabagil, 2007).
Empirically,
the widespread availability of Internet banking is estimated to affect the
mixture of financial services produced by banks, the mode in which banks
produce these services and the resulting financial performances (Malhotra
&Singh, 2009). The industry analysis charting the potential impact of
Internet banking on cost savings, revenue growth and liquidity profile of the
banks have also generated significant interest and speculation from researchers
and decision makers about the impact of the Internet on the banking industry
(Gomez, 2011).
1.2 Research Problem
Internet
and mobile banking is being used as a tool by banks to cut cost, increase
efficiency, deliver product varieties, and increase flexibility or for the mere
purpose of being perceived as technology leader (Pyun, Scruggs & Nam,
2002). Ogare (2001) observes that internet banking affects financial
performance of commercial banks. However, a company may be liquid but not
profitable or profitable but illiquid. More banks are embracing internet and
mobile banking as a competitive strategy to increase performance but with
little attention on indirect impacts. Doubtlessly, the emergence of Internet
banking created a strategic means for achieving higher efficiency, control of
operations and reduction of cost by replacing paper based and labour intensive
methods with automated processes thus leading to higher performance (Malhotra
&Singh, 2009). However, to date researchers have produced little evidence
regarding the effect of internet banking on banks performance in Nigeria,
especially with regard to bank liquidity.
Internationally,
studies have been conducted on internet banking and liquidity. Rauf, Qiang, and
Sajid (2014) examined whether internet banking determine liquidity and asset
quality in Pakistan Banking Sector. They concluded that a proportionate
increase in internet banking leads to a more than proportionate increase in
liquidity and asset quality of the whole banking sector in Pakistan. Ghodrati
& Khah (2014) investigate whether there exists a connection between
liquidity management and internet banking in Iran banks. The study found that
there is a linear relationship between e-banking development and the variable
of interbank liquidity ratio. Stoica, Mehdian and Sargu (2015) conducted a
research to examine how internet banking impacts on the performance of Romanian
banks and concluded that internet banking provides efficient and lower cost
services which increase banks’ performance. Aduda, Masila, and Onsongo. (2012)
examine the relationship between e-banking and financial performance among
commercial banks in Kenya. The study established that there exists a strong
positive correlation between the e-banking and financial performance of banks
in Kenya. Njogu (2014) studied the effect of electronic banking on
profitability of Kenyan Commercial Banks and found that there exists a strong
positive relationship e-banking and bank profit. Njilu (2016) examined the
effects of electronic banking on liquidity of commercial banks in Kenya. The
study established that there is a strong positive relationship between
liquidity and electronic banking of commercial banks in Kenya.
In
Nigeria, Taiwo and Agwu (2017) examined the role of e-banking on operational
efficiency of banks in Nigeria. The study revealed that banks operational
efficiency in Nigeria since adoption of electronic banking has improved
compared to the era of traditional banking. Ugwueze and Nwezeaku (2016) studied
the relationship between electronic banking and the performance of Nigeria
commercial banks. The study concluded that POS transactions is not cointegrated
with both the savings and time deposit but is coingrated with demand deposit.
Eze and Egoro (2016) investigate the impact of electronic banking on
profitability of commercial banks in Nigeria. The study concluded that
electronic banking has a significant impact on the profitability of commercial
banks in Nigeria. Ogunlowore and Oladele (2014) examined the impact of
electronic banking on satisfaction of corporate bank consumers in Nigeria. The
study found a significant relationship between electronic banking and
customers’ satisfaction. Hassan, Mamman and Farouk (2013) investigated the
influence of electronic banking products on performance of Nigeria deposit
money banks. The study revealed that the adoption of electronic banking product
(e-mobile and ATM transactions) has strong significant impact on the
performance (return on equity) of Nigerian banks.
Comparing
the empirical results from Nigeria to the rest of the world, the study
establishes no significant studies examining the impact of electronic banking
on bank performance proxy by liquidity in Nigeria. In other words, though there
are multiple studies covering electronic banking but from the empirical studies
reviewed, there is inadequate research on the relationship between electronic
banking and liquidity of Banks in Nigeria. Most of the available studies on the
effect of E/internet banking on bank performance in Nigeria are qualitative research.
This implies that such studies used questionnaire as data collection instrument
where there is a database for internet banking data.
Moreover,
the volume of deposit available with the banks affect liquidity of banks.
Therefore, it is expected that internet banking, which offers depositors the
free hand to transfer, and make payment even international using the internet
will affect the liquidity level of banks in Nigeria. Yet, there still exist
insignificant studies in the subject area. Thus, this research aims at filling
these gaps by investigating the impact of internet banking on bank performance
proxy by liquidity.
1.4
Objectives Of The Study
The main objective of this study is to estimate the impact of
internet banking on performance of banks in Nigeria.
The specific objectives are to:
1.
Estimate the long run effect of
internet transactions on bank liquidity in Nigeria.
2.
Determine the short run effect
of internet transactions on bank liquidity in Nigeria.
3.
Assess the effect of mobile
transactions on bank liquidity in Nigeria on long run.
4.
Explore the effect of mobile
transactions on bank liquidity in Nigeria on short run.
1.4 Research Question
In order to achieve the above objectives, the following questions
have been asked to direct this study.
1.
What is the long run effect of
internet transactions on bank liquidity in Nigeria?
2.
What is the short run effect of
internet transactions on bank liquidity in Nigeria?
3.
To what extent does mobile
transactions affect bank liquidity in Nigeria on long run?
4.
How does mobile transactions
affect bank liquidity in Nigeria on short run?
1.5 Hypotheses
HO1. There is no significant long-run effect from internet
transactions to bank liquidity in Nigeria.
HO2. There is no significant short-run effect from internet
transactions to bank liquidity in Nigeria.
HO3. Mobile transaction
does not have significant long-run effect on bank liquidity in Nigeria.
HO4. Mobile transaction does not have significant short-run effect on
bank liquidity in Nigeria.
1.6 Significance of Study
This study will aid commercial banks in Nigeria to
understand banking in a new dimension, it would enlighten operators in the
banking industry and other concerned individuals and organizations adopting
internet banking. It would highlight the various benefit of cashless banking
and how these measures if properly taken can reduce operation cost and increase
bank profitability and performance. This study will also help managers of
commercial banks to serve their customers better while gaining their loyalty and
money
The study shall basically identify the technical and
operational challenges facing electronic banking in Nigeria banking environment
and suggest ways by which they could be tackled
It is important to researchers and student because it reduce
the stress of consulting series of textbook and travelling from one place to
another looking for information, thereby, provide avenue for browsing, thus
make the work to be done at ease.
1.7 Scope of the Study
The research work deals on the impact of internet banking on
the performance of Nigerian banks. The research work will cover the period from
2009 – 2017. The study covers the Nigerian commercial banks.
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