NAME OF PRESENTER: CHARLES BARAZA

ADMISSION NUMBER: ELTOP/DACC/3246/M21

COURSE : DIPLOMA IN ACCOUNTANCY

COURSE CODE : 2804

PAPER CODE : 2804/307

INSTITUTION : ELDORET TOURISM AND PROFFESIONAL COLLEGE

SUPERVISOR : MR.DERRICK OCHIENG

SUBMITTED TO : KENYA NATIONAL EXAMINATION COUNCIL FOR A WARD

OF DIPLOMA IN

ACCOUNTING.
DECLARATION
I hereby declare that this project is my own work carried out during the period of my study under
the supervisor Mr. Derrick Ochieng

CHARLES BARAZA

SIGN ……………………………………..
DATE…………………………………………………

SUPERVISOR’S DECLARATION

I hereby declare that this project wok has been submitted to Kenya National Examination
Council under my supervision as the institute supervisor.

Name…………………………………………………………………………

Date ……………………………………………………………………………

Sign………………………………………………………………………………..
DEDICATION
I dedicate this project work to God Almighty my creator, my source of knowledge, inspiration,
wisdom and understanding.Iaslo give special thanks to my parents John Baraza and Madam
Amina Baraza for their support and contribution to seeing this work to complete.
ACKNOWLEDGEMENT
I am thankful too and fortunate enough to get constant encouragement, support and guidance
from my supervisor Mr. Derrick Ochieng who helped me in successfully completing my project
work .Thank you so much and God bless you.
LIST OF ABBREVIATION
ICT-Information communication technology

UGC-Uasin Gishu County

Definition of terms
Online banking-It is an electronic payment system that enables customers of a bank to conduct
range of financial transaction through financial institution website

Commercial banks-This are banks that offers loans, deposits, savimgs account to their
customers

Computer-It is an electronic device that accept data, output information

  Table of Contents
DECLARATION.............................................................................................................................2
DEDICATION.................................................................................................................................3
ACKNOWLEDGEMENT...............................................................................................................4
LIST OF ABBREVIATION............................................................................................................5
Definition of terms...........................................................................................................................6
ABSTRACT....................................................................................................................................8
CHAPTER ONE..............................................................................................................................9
1.0 INTRODUCTION.................................................................................................................9
1.1 Background information........................................................................................................9
1.2 Problem statement..................................................................................................................9
1.3 Purpose of study.....................................................................................................................9
1.4 Objective of the study............................................................................................................9
1.4.1 Main Objective................................................................................................................9
1.4.2 Specific objective..........................................................................................................10
1.5 Research questions...............................................................................................................10
1.6 Significance of the study......................................................................................................10
1.7 Limitation of study...............................................................................................................10
1.8 Assumption of study............................................................................................................10
CHAPTER TWO: LITERATURE REVIEW................................................................................11
2.1 Introduction..........................................................................................................................11
2.2 Theoretical Review..............................................................................................................11
2.3 Review of specific objectives..............................................................................................11
2.3.1Effects of Internet banking on profitability of commercial banks.................................11
2.3.2 Challenges facing internet banking...............................................................................12
2.3.3 Measures to improve internet banking..........................................................................13
2.4 Summery in the review........................................................................................................13
CHAPTER THREE.......................................................................................................................14
3.0 RESEARCH METHODOLOGY.........................................................................................14
3.0 Introduction..........................................................................................................................14
 3.2 Study area.............................................................................................................................14
3.3 Research design....................................................................................................................14
3.4 Study target population........................................................................................................14
3.5 Sample and Sampling Procedure.........................................................................................14
3.6 Method of Data Collection...................................................................................................15
3.7 Instrument of piloting (Reliability.......................................................................................15
3.8 Data collection procedure....................................................................................................15
3.9 Data collection.....................................................................................................................15
CHAPTER FOUR.........................................................................................................................16
4.0 DATA ANALYSIS AND PRESENTATION.....................................................................16
4.1 Introduction..........................................................................................................................16
4.2 Background information analysis........................................................................................16
4.2.1 Gender...........................................................................................................................16
4.2.2 Age................................................................................................................................16
4.2.3 Level of education.........................................................................................................17
4.2.4 Occupation.....................................................................................................................17
4.3 Specific objective questions.................................................................................................18
4.3.1 Response rate on the effects of internet banking on profitability of commercial.........18
4.3.2 Response rate on the challenges facing internet banking.................................................19
4.3.3 Response rate on the measures used to improve on internet banking...........................19
CHAPTER 5..................................................................................................................................21
5.0 FINDINGS, CONCLUSION AND RECOMMENDATION..............................................21
5.1 Findings................................................................................................................................21
5.2 Conclusion...........................................................................................................................21
5.3 Recommendation.................................................................................................................21
REFFERENCES............................................................................................................................22
ABSTRACT
The title of the study is the effects of internet banking on the financial performance of
commercial banks. The objective of the study was to find out effects of internet banking, to find
out challenges facing internet and to determine measures that can be implemented to improve on
internet banking

The study adopted a descriptive survey design. The target population comprised of 30
respondents of faulu bank. The researcher used treasury square in questionnaire and analyzed
using statistical tool. From the study it was revealed that impact of internet banking adoption on
the performance of banking sector, mainly refers to time saving and quality improvement rather
than that of cost reduction
EFFECTS OF INTERNET BANKING ON PROFITABILTY OF COMMERCIAL
BANKS

CHAPTER ONE

1.0 INTRODUCTION
This chapter contains background of information, problem statement, purpose of study, objective
of the study, research questions, significance of study, limitations of study, assumption of the
study and definition of terms.

1.1 Background information

Internet banking is the use of computers and personal finance software to coordinate the total
personal financial management process (Daniels 2007).Internet banking is the use of electronic
means to transfer funds directly from one account to another rather than by use of claques or
cash. Internet banking includes importing information into personal accounting software. For
instance you may use your computer to review your Accounts balance request transfers between
accounts and pay expenses electronically.

1.2 Problem statement

In the study carried out by Romero –Avilla.D (2007) shows that the concept and adoption of
internet banking in commercial banks in USA,United King Dom and Germany has enhanced
international banking by providing a platform for corporate to carry out business worldwide
through electronic fund transfer.

In a Study c conducted by Ire Chukusa (200) in Nigeria states some banking services that have
been revolutionized through the use of ICT including opening account and transaction process.

In research carried out by Korir (2012) on internet banking adoption with specific coverage in
Garisa He states that online banking helps to produce bank cost ,increase commission
income ,reduce staffing levels and making bank more convenient for customers.

1.3 Purpose of study

The main reason for carrying out this research is to investigate the effect of internet banking on
financial performance of commercial banks in Eldoret Town Uasin Gishu County.

1.4 Objective of the study

1.4.1 Main Objective

The main objective of this study is to find out effect of internet banking on profitability of
commercial banks
1.4.2 Specific objective
• To find out methods of internet banking

• To find out challenges facing internet banking

• To find out measures to improve internet banking

1.5 Research questions

• What are the methods of internet banking

• What are the challenges facing internet banking

• What are the means to improve on internet banking

1.6 Significance of the study

The outcome of this study will p[provide understanding on the level of adopting use and effect of
internet banking in Kenya banking system and in what ways the banks can initiate E banking, to
improve their services.

Money commercial banks in Kenya will find the study very important to their operation and
more so to implement decisions to improve on internet banking. Policy makers in the banking
business will find the study valuable as basis of formulating policies which can be effectively
implemented for better and easier regulations in banking sector.

1.7 Limitation of study

Insufficient data is a potential problem in that most of firms establishment are of the opinion that
the researcher may misuse the data provided by them.

The researcher may find it difficult to access data that supports the framework of his study. Time
management may be a problem in that he mighty spent a lot of time in learning theories and
practical implementations.

Financial problem may arise because the cost of travelling to the areas of study, printing of
questionnaires to carry out his research work is high

1.8 Assumption of study

The researcher will have to determine the resources needed for the research work, time, and
money and choose a topic that he can do better in order to overcome the limitation of the study.
CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction
The main objective of this study is to determine the effects of internet banking on performance of
commercial banks. In this chapter the researcher will look at theoretical review, review of
specific objectives and summery in the review.

2.2 Theoretical Review

In order to adopt internet technology in the sector of banking ,the following theories need to be
looked in details before adopting the technology .Innovation diffusion theory states that ,the
methods of how new inventory in the case of internet is adopted and how it becomes
succefull .Constraint –induced financial innovation theory states that innovation occurs to
remove the constraints imposed on firms .Information production and contemporary banking
theory suggest that economic agents may find it worth to produce information about certain
investments. Then finally transaction cost innovative theory, this theory advocates that the
dominant factor of financial innovation is the response of the advance in technology which
coursed the transaction to reduce.

2.3 Review of specific objectives

2.3.1Effects of Internet banking on profitability of commercial banks

Internet is transforming the banking industry in terms of the nature of services and the way
innovation enhances competitiveness (Gupta 2008).Banks are turning to IT to improve business
efficiency, service quality and attract new customers (Naragan 2005) Technological innovation
have been identified to contribute to the distribution channels of banks and these electronic
delivery channels are collectively referred to as electronic banking.

Electronic banking has experienced explosive growth and has transformed traditional practices in
banking sector (Gonzalez 2008.Internet banking by its nature more convenience and flexibility to
customers compared to other forms of banking. Internet banking eliminates the barriers of
distance and time and provides continuous productivity for the banks (Korir 2010).

Joseph and Stone (2003) in their paper started that customers friendly such as use of ATM has
enhanced been used by banks to reduce the cost of providing services and to increase the
customers loyalty and market share.

Lustik (2004) in his study tried to assess the profitability of electronic banking services for the
banks in order to analyze the cost structure for traditional and electronic channel transaction. The
results of the study indicated that electronic channels provide cost saving for banks and clients.

2.3.2 Challenges facing internet banking

IAMAI Report (2006) indicated that security risks is as very big challenge for internet banking to
make customers and marketers to opt it because of security issues .According to banking act
(2011) shows that challenges facing internet banking includes internet fraud, fishing act and
password hacks.

Privacy risk where people fear very much from the fact there is fear of identifying theft and
disclosing private information in online banking IT act (200).Niehans (2006) states that language
and literacy barriers are obstructs in using internet banking services, they do use English,
language and it is very difficult in country like Kenya with 47 million population only about 25%
of population are literate and able to speak and listen to English language, the remaining 75% are
illiterate.

Korir (2010) states that fraud by human resource managers of the banks is one of the major
challenge facing internet banking, Korir states that when you have the access to a plenty
information and the information is in hands of a person that can be trusted by anyone, these are
several people who use their own gain and may course loss to both customers as well as banks.

Khalfan .A.(2004) States in his study that lack of customers awareness ,poor internet speed, lack
of internet banking alerts and poor marketing penetration are some of the challenges facing
internet banking.

2.3.3 Measures to improve internet banking

Alladwani A.M (2001) in his paper states that spreading awareness in people about banks and
internet facilities, their benefits and easy to use facilities.Pooja (2015) says that improving
security when we move to something new and when it is related to money there are various
security risk, bank and to made their system powerful and secure so that it cannot be hacked by
anybody.

Training and development for employees when there is sudden change in technique or
technology or system, some people have the barrier of adopting, it to the new changes (Sighn
Preeti 2013).Simplicity is best, when we have to make people use internet it should be quick,
simple and useful so that people should be used to it and feel confident when using it (Saluja
Rajni 2012).

2.4 Summery in the review

Financial institution has been in the process of transformation, even though there are theories
explaining the effects of internet banking on financial performance of commercial bank. They
include Innovation diffusion theory, innovation production and contemporary banking theory,
constraint-induced financial theory and transaction cost innovative theory.

Internet banking eliminates the barriers of distance and time and provider continuous
productivity of the banks. Poor internet speed, lack of internet banking alert and lack of
customers’ awareness are some of the challenges facing internet banking. For internet banking to
make improvements the following measures should be implemented, marketing internet banking
through-mail and mobile marketing and creating you tube channels with contents of internet
banking for the information to reach a wider market.

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.0 Introduction
In this chapter the researcher will discuss the following study area, research design, study target
population, sample and sampling procedure, method of data of collection, instrument of piloting,
data, data collection procedure and data collection

3.2 Study area

Study area is the place chosen or available as an object of study (UK dictionary).The study will
be done in Faulu Bank found in Eldoret Town, Uasin Gishu County. The researcher decided to
use the place for this study because he resides near the town hence the cost of travelling will low.
3.3 Research design
Research design refers to the overall strategy utilized to carry out research that defines a succinct
and logical plan to tackle established research questions (go ogle Wikipedia).The research has
decided to use descriptive design because he will get opportunity to integrate the qualitative and
quantities methods of data collection

3.4 Study target population

Study target population in the group of individual that the intervention intends to conduct
research and draw conclusion (Henry 1990).The researcher will use the following group of
people as his study targeted population.

Respondent Number
Manager 1
Accountant 5
Customer care 10
Receptionist 4
cashier 5
Non staff 5
Total 30

3.5 Sample and Sampling Procedure

Sample and sampling procedure is the choosing part of a population to test hypotheses about the
entire population (google wikipedia). The researcher will use random sampling in his study
because the method will offer a chance to perform data analysis that has less risk of carrying an
error, also random sampling is the simplest form of data collection procedure of random
sampling would be the name of 30 employee being chosen out of 200 employee,in this case the
population of all 200 employee and the sample is random because each employee and the sample
is random because each employee has an equal chance of being chosen

3.6 Method of Data Collection

Is the process of gathering and measuring information on targeted variables in an established
system (Google). The researcher will use Questionnaires to conduct his study, he decided to use
Questionnaire because questionnaires is an economical way of accumulating information, it is
suitable in special type of response and also it covers wide coverage also the researcher may
face the following challenges .When using Questionnaire to conduct the study . he may get
dishonest answer , lack of personalization and also the researcher may find it difficult to convey
feeling and emotions of the respondent

3.7 Instrument of piloting (Reliability)

Reliability is the Quality of being trustworth,the degree of the result being depend (Google
Wikipedia)piloting refers to the conduct of preliminary research prior to the main study (Frank
land and Bloor 1999).The will distribute few copies to the few individual, if they answer
according then he will proceed to give out Questionnaire to the remaining department

3.8 Data collection procedure

Is the process of gathering and measuring information on variable of interest, in an established

systematic fashion that enable one to answer stated research Questions(Google). The researcher
will request a request letter from the bank manager and inform the respondent the date he will
come to carry out the study, he will give the Questionnaires to few individuals to ensure piloting
of the data, then after ensuring that information is reliable to the study, the researcher will
supervise the answering of Questions the finally he will collect the Question and depart from the
area of the study

3.9 Data collection

Data analysis is the process of inspecting data, cleasing,transformation and modeling data with
the goals of discovering useful information (Google Wikipedia) .The researcher will use the
following method to analyze the data collected in the study i.e. use

CHAPTER FOUR

4.0 DATA ANALYSIS AND PRESENTATION

4.1 Introduction
In this chapter the researcher is going to look at background information analysis and response
rate on specific objective questions.

4.2 Background information analysis

4.2.1 Gender
In the study out of 30 respondents 10 were male while 20 were female. This indicates that
33.33% were male while 66.66% were female. The information is represented in the pie chart
below.
 gender

33.33% male
female

66.66%

4.2.2 Age
In the study out of 30 respondents 20 of the respondents had age bracket of 20-30 years,8
respondents were in age bracket of 30-40 years while only 2 were in age bracket of 40 and
above. In percentage form is 66.7%, 26.7% and 6.7% respectively. The data can be analyzed in
the pie chart below.

age
6.70%

20-30
30-40
26.70% 40 and above

66.67%

4.2.3 Level of education

Out of 30 respondents in the study 16 respondents were degree holder,12 of them were diploma
holders while two had artisan certificate. This indicates that 53.33% were degree holders, 40%
were diploma holders while 6.67% were artisan holders.

The data can be analyzed in the bar graph below.

 degree

diploma Series2
level of education
certificate

artsan

0% 20% 40% 60%

4.2.4 Occupation
In the study out of 30 respondents 2 were managers,10 were accountants,8 were receptionist
while 10 fall under the category of others. The study indicates that 6.67% represent managers,
33.33% represent receptionist while 33.33% represent others. The data can be analyzed using the
bar graph below.

no of respondents
others 40%

receptionist 30% no of re-

spondents
accountant 20%

managers 10%

0% 20% 40% 60%

4.3 Specific objective questions

4.3.1 Response rate on the effects of internet banking on profitability of commercial

Effects agree % Strong % Disagree % Strongly % Total %

agree agree response response
Attracting 20 66.67% 10 33.33% 30 100%
customers
Offering 8 26.67% 22 71.33% 30% 100%
more
convenient
and
flexibility
Providing 12 40% 18 60% 30 100
cost saving
Eliminatin 8 26.67% 22 73.33% 30 100
g the
barriers of
distance
and time

In the study most respondents says that cost saving and barrier eliminates of distance and time is
most effect of internet banking on profitability of commercial banks.

4.3.2 Response rate on the challenges facing internet banking

Challenge agree % Strongl % disagree % Strongly Total %

s y agree disagree response respond
Security 18 60% 8 26.67 4 13.3% 30 100%
risk %
Internet 18 60% 12 40% 30 100%
fraud
Password 18 60% 12 40% 30 100
hacks
Poor 20 66.67% 10 33.33 30 100
internet %
Privacy 14 47% 6 20 8 26.7% 27 93.7%
risk
Lack of 8 26.67% 2 6.7% 16 53.33 26 86.67%
customers %

In the study most respondents states that internet fraud is the most challenge facing internet
banking while agreed with the researcher that security risk and passwords hacks do affect
negatively internet banking.

4.3.3 Response rate on the measures used to improve on internet banking

Measures agre % Strongl % disagre % Strong Total %

 e y agree e disagre respons respon
e e d
Spreading 16 53.33 12 40% 2 6.67% 30 100%
internet %
awareness
to
customers
Improving 10 33.33 14 46.67 2 6.7% 30 100
internet % %
security
Training 10 33.33 14 46.67 4 13.33 2 30 100
and % % %
developme
nt of
employees.
From the study it shows that most respondents agreed with the researcher that in order to
improve internet banking, internet security should be improved, training and development of
employees should also be employed.
CHAPTER 5

5.0 FINDINGS, CONCLUSION AND RECOMMENDATION

5.1 Findings
The reason of the study was to establish the effects of internet banking on financial performance
of commercial banks a case study of Faulu bank Eldoret branch.The objective of the study were
to determine effects of internet banking on profitability of commercial, To determine challenges
facing internet banking and to determine measures to improve on internet banking.

On effects of internet banking on profitability of commercial banks the researcher found out that
internet banking offers more convenient and flexibility to customers was the most positive effect
of internet banking.

From the study it shows that password hack was the most challenge facing internet banking with
40% of respondent who strongly agreed. The study also showed that security risk and internet
fraud were also big challenge facing internet banking

.On measures to improve on internet banking the researcher found that improving internet
security will help a lot followed by training and development of employees.

5.2 Conclusion
After carrying out a proper research, the researcher came with a conclusion that internet banking
lowers banking process. The study reveals that cheaper banking cost can lead to extended client
base as many customers seek value for their money.

5.3 Recommendation
After thorough analysis of the study the researcher recommends that all Faulu bank should take
advantage of reduced banking cost to lower its transaction cost which in return will attract
potential customers. If internet banking is effectively used, the bank can create distinctive
competence which will enhance its market share
REFFERENCES

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Davies Bagoz and worshow (1989) ‘Explaining the intention to use technology among visional
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