Consideration the effect of E-Banking on Bank Profitability; Case Study Selected Asian Countries

Abstract

E-Banking is one of the gifts to human beings by computer technology. Use of computers have automated banking process and thus has given birth to e-Banking. E-Banking is a fast spreading service that allows customers to use computer to access account-specific information and possibly conduct transactions from a remote location - such as at home or at the workplace. ATM cards, credit cards ,debit cards, smart cards ,all these have eased human life up to such an extent that today life without these seems to be hard, full of misery. The increased adoption and penetration of Internet has recently redefined the playground for retail banks. The retail banks are now offering their services majorly through their internet branches. However, the effect of internet banking on bank performance mainly on the bank profitability has remained an unstudied issue. Our analysis covers fourth banks that have adopted online banking in Asian selected countries between 1990 and 2010. The empirical results support of a short-run cointegration relationship after allowing for the heterogeneous country effect. The long-run relationship is estimated using a full-modified OLS. By using bank specific and macroeconomic control variables, we investigate the impact of internet banking on the return on assets (ROA) and equity (ROE). Our results show that internet banking starts contributing to banks’ ROE with a time lag of three years confirming have a negative impact is observed for one year lagged.

Keywords: E-Banking, Profitability, Panel Model.