The Effect of Digitalization on Financial Performance: the Case of Selected Commercial Banks in Ethiopia
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Date
2025-05-18
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A.A.U
Abstract
The banking sector in Ethiopia is a driving force in the country's economy, consisting of one state owned bank and 29 private commercial banks. This paper sought to offer understanding into how digitalization has influenced the performance of selected Commercial banks in Ethiopia by using return on equity as the indicator of financial performance. ROE (return on equity) is usually used to measure the performance of banks and is often regarded as an index of financial performance. The paper used secondary data, which was gathered from the head offices & annual reports of eight commercial banks which were selected by using purposive sampling method, covering the years 2022 to 2024. A causal research approach was used to identify the
association among the different factors under study. In the study, the researcher tried to analyze how independent variables, which are digitalization services including number of debit card users, value of ATM transactions, value of POS transactions, number of mobile banking users,
value of mobile banking transactions, value of internet banking transactions & bank size (control variable) affect financial performance. The researcher assumed that digital transformation has a positive effect on banks’ financial performance. The data was analyzed by using the random effect regression technique with descriptive and correlation analyses conducted through the
econometric software STATA version 15. The regression analysis indicated that from bank specific variables, value of ATM transactions and number of mobile banking users had a positive and significant effect on bank’s performance as measured by return on equity which showed that
an increase in these variables had a positive effect on the financial performance of commercial banks. Bank size, a control variable the researcher used also had a positive effect on the ROE. Keywords Digitalization; ATM; Commercial Banks; Internet banking; Mobile banking; POS; ROE