The Impact of Digitalization on Bank Profitability: The Case of Selected Commercial Banks in Ethiopia
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Date
2022-03
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A.A.U
Abstract
This research examines the impact of digitization on commercial bank profitability in Ethiopia, using return on equity as a proxy for profitability. The study selected nine commercial banks operating in Ethiopia between 2018 and 2021 using secondary data and a purposive sampling technique. In addition, primary data was obtained by a questionnaire on 311 sample branches of the nine commercial banks that were chosen. Key variables were determined based on existing literature to reveal their link and impact on commercial bank profitability. Number of mobile banking transactions, ATM transaction value, internet banking transaction value, number of internet banking users, and mobile banking transaction value were the factors studied. The value of ATM transactions had a positive and significant impact on the bank's profitability as measured by return on equity, which may be related to the reduction of the bank's own overheads and transaction-related operational costs associated with hosting and serving the customer at a branch's counter as a result of making basic financial services more accessible to the customer. As a consequence of the findings, it was determined that digitalization has a beneficial impact on operational excellence and service quality, which would have resulted in higher commercial bank profitability. However, the study found that the number of Internet banking users and the value of mobile banking transactions are both negative and insignificant. The researcher recommended that commercial banks should consider commission based mobile and internet banking transaction and exert maximum effort to increase the number of active users. The researcher conclude that with the existing digitalization efforts of the Ethiopian banks goes with and supported by new national digital strategy of the country and ultimately brings better returns on investment.
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Keywords
Digitalization; Commercial Banks; ROE; Profitability; Service quality and Operational excellence, National Digital Strategy.