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The Effect of Information Communication Technology 2
The Effect of Information Communication Technology 2
August 27/2023
ADDISABABA, ETHIOPIA
CERTIFICATE
This is to certify that the thesis entitles “The Effect Of Information &
Communication Technology On Ethiopian Private Banks Performance: The Case Of Awash
Bank” , submitted to CPU college for the award of the degree of the degree of master of business
administration (MBA) and is a record of bona fide research work carried out by Mr. ___, under
our guidance and supervision. Therefore, were here by declare that no part of this thesis has been
submitted to any other university or institutions for the award of any degree or diploma.
The thesis is original and has not been submitted for the award of any degree or diploma
to any university or institutions.
Through an extensive literature review, this study examines the theoretical foundations
and conceptual frameworks underpinning the integration of ICT in the banking domain. It sheds
light on the various technologies employed by banks, such as mobile banking, online
transactions, artificial intelligence, big data analytics, and block chain, and how they have
revolutionized traditional banking processes.
The findings demonstrate that ICT adoption has significantly affect banks' strategies,
allowing them to streamline operations, improve efficiency, and expand their service offerings.
Moreover, banks that have successfully embraced ICT have witnessed enhanced financial
performance, with improved profitability and reduced operational costs.
The thesis concludes with practical recommendations for banks and industry practitioners aiming
to leverage ICT effectively. By combining theoretical insights with empirical evidence, this
study contributes to the understanding of ICT's transformative impact on the banking sector and
provides valuable insights into creating strategies that maximize the benefits of technology
adoption while mitigating potential risks.
Acknowledgement
I would like to express my deepest appreciation and gratitude to the following individuals
and organizations, without whom this thesis would not have been possible. My sincere thanks go
to my supervisor, Yohannes W. (PhD) for their invaluable guidance, mentorship, and
unwavering support throughout the entire research process. Their expertise and encouragement
have been instrumental in shaping the direction and quality of this thesis.
I am grateful to the faculty members of the CPU college MBA department staffs for their
valuable insights and feedback, which have enriched my understanding of the subject matter.
Special thanks to the participants of this study, whose cooperation and willingness to share their
time and knowledge have been crucial in gathering the necessary data for my research.
I would also like to acknowledge the support of my friends and family, who have been a constant
source of motivation and encouragement. Their belief in my abilities has kept me focused and
determined to complete this thesis.
Table of contents
Table of Contents
CHAPTER ONE
INTRODUCTION
The role of ICT in the banking industry became of interest to this study due to the significance
role it plays in the economy by stimulating economic growth through the intermediation of funds
to economic agents that need them for productive activities. This functions very vital for any
economy that intends to experience meaningful growth because it makes arrangement that bring
borrowers and lenders of financial resource together and more efficiently too than if they had to
relate directly with one another. (Adam, 1998)
Hence, the objective of this study is to examine the role of information and communication
technology in ensuring efficient service delivery in the banking industry as a strategy for the
actualization of the profit maximization objectives of banks. The history of modern money in
Ethiopia is traced back more than 2000 years (Pankhust 1968 cited in Alemayehu, 2006).
Modern banking in Ethiopia was started in 1905 with the establishment of Abyssinia Bank which
was based on a fifty-year agreement with the Anglo-Egyptian National Bank. In 1908 a new
development bank (called Socite Nationale d’Ethiope Pour le Development de Agriculture et du
Commerce) and two other foreign banks (Banque de 1’Indochine and the Compagnie de
1’Afrique Orientale) were also established. These banks were criticized for being wholly foreign
owned.
This research concentrates on the effects of ICT in the performance of commercial banks.
The aim is to identify and understand the changes that ICT is causing on the banking sector, in
order to examine in detail how the recent (and foreseeable) advances in ICT are affecting the
sector and its future evolution. As ICT is having a strong influence on the evolution of the
financial sector as a whole, financial markets and banks, some characteristics of evolution of
markets will fall within the scope of this research.
There exist various approaches to studying the impact of ICT on the banking sector. In this
research, we combine the technology assessment (TA) and economic approach. The aim of TA is
to state objectively as much as possible the positive and negative impacts, the costs and benefits,
the risks and advantages associated with (present or foreseeable) technical challenges. TA is an
appropriate conceptual framework for analyzing the multiple aspects of the relationship between
technology and banking and payment systems.
Operational and technical constraints. The human constraints include physical disability, poor
Sight, illiteracy and aging. The operational constraints include insecurity of funds transferred,
Frauds and standardization of channels. The technical constraints are centered on the lack of
Supporting infrastructure such as erratic electric supply, independence and lack of encryption on
Other identified problems that can have an impact on the banks in the adoption of ICT can
Additionally, diffusion of smart card innovation needs high investment for the upgrade of
ATMs and EFT/POS terminals to be capable of accepting smart cards and presumably a
Substantial investment in adding smart card technology for mobile computers and telephony
stand to be another challenge.
Coupled with the problems is a situation where a bank issues an individual debit card that is
Associated with an account with a line of credit and is also an ATM debit card, the individual
can
Perform a number of different types of transactions with the same card. The line of credit could
be accessed fraudulently, where the owner has resource under consumer credit legislation and
under regulation if the fraud involves an electronic fund transfer (EFT). When automated teller
machines (ATMs) or electronic points of sale (POS) terminals are used, his liability is limited
under the electronic fund transfer agreement. If, however, the fraudulent use of the card directly
debits his bank account in a paper-based transaction, the consumer has no recourse under current
legislation.
This is an example where the same card represents three different instruments, each of which, in
the case of fraud, would require different actions by the consumer (Agbada, 2008). In order to
investigate the impact of ICT on bank performance in addition to problems identified, this study
intends to investigate the following question: To what extent does ICT improve bank
performance with reference to the selected Awash banks in Ethiopia?
The study contributes to the existing body of knowledge in the banking industry by providing a
deeper understanding of how ICT adoption impacts banks' performance.
Promoting Innovation in Banking: The study may reveal innovative ICT solutions and best
practices that have positively affect banks' performance. This can encourage banks to adopt a
culture of innovation and explore cutting-edge technologies to stay competitive in the digital
landscape.
In conclusion, the significance of the study on the "Effects of ICT on Banks' Performance"
extends beyond the banking sector. It offers valuable knowledge, insights, and guidance that can
positively influence the strategies and practices of banks, policymakers, investors, and other
stakeholders. The study's findings have the potential to foster a more technologically advanced
and customer-focused banking industry, ultimately benefiting the broader economy and society.
The first limitation of the study relates to the sampling procedure i.e. convenience sampling,
which limits the generalizability of the research findings. The second limitation relates to the
sample size for primary data sources; the number of participants included in the sample may not
be good representative of the population. As last limitation, the study failed to measure the
financial impact of adoption and use of the ICT in the banking industry. Future research is,
therefore, recommended to address the above stated limitations.
The first limitation of the study relates to the sampling procedure i.e. convenience sampling,
which limits the generalizability of the research findings. The second limitation relates to the
sample size for primary data sources; the number of participants included in the sample may not
be good representative of the population. As last limitation, the study failed to measure the
financial impact of adoption and use of the ICT in the banking industry. Future research is,
therefore, recommended to address the above stated limitations.
REVIEW OF RELATEDLITERATURE
This chapter starts with presenting the overview of banking system in Ethiopia. Besides,
information and communication technology and its impact on commercial bank’s performance
were presented. Following this, empirical studies are reviewed by focusing on ATM, POS and
ICT infrastructure. Then after, the knowledge gaps from the reviewed literatures are outlined.
Ethiopian banking history, in its modern sense, began towards the end of the reign Emperor
Menilek. This period witnessed the establishment of the country’s first bank, called Bank of
Abyssinia, which was an affiliate of the National bank of Egypt, and was founded in 1905
(Pankhurst,2012). Currently, banking sectors in Ethiopia is showing progressive development in
terms of number of branches, total assets and human resource utilization. Thus, currently number
of banks in Ethiopia reached nineteen as shown in the following table.
ICT, especially the use of networks, can help the firms lower the cost of market participation
(transaction cost), making it worthwhile for firms to contract with external suppliers instead
ofusing internal sources. Firms traditionally grew in size to reduce transaction cost. IT
potentially reduces the costs of a given size, shifting the transaction cost curve inward, and
opening up the possibility of revenue growth without increasing size, or even revenue growth
accompanied by shrinking size. This is thought enabling the company online finding of low cost
suppliers all over the world (Kenneth & Jane, 2009).
Hence firms operate asvirtual organizations in which work no longer is tied to geographic
location. Virtual organizationlink use networks to link people, asset and ideas. They can ally
with suppliers, customers, competitors and other stockholders to create and distribute new
products and services without limited by traditional organizational boundaries or physical
locations. IT helps companies organize in more flexible ways, increasing their ability to sense
and respond to changes in the marketplace and to take advantage of new opportunities (Robert
&Dorothy, 2003).
According to Kenneth& Jane (2009) there are six important strategic benefits that business will
realize as a result of using Information technology and associated technologies make so essential.
These are operational excellence; new products, services, and business models, customer and
supplier intimacy, improved decision making, competitive advantage and survival.
Techniques, policies and implementation strategies to banking service, has become a subject of
fundamental importance and concern to all banks and indeed a prerequisite for local and global
competitiveness. ICT directly affects how managers decide, how they plan and what products
and services are offered in the banking industry. According to R.K. Uppal (2008), the
relationship between IT and banking is fundamentally symbiotic. In the banking sector, IT can
reduce costs, increase volumes, and facilitate customized products; similarly, IT requires banking
and financial services to facilitate its growth.
Alalade et. al. (2014) argued that the most significant shortcoming in the banking industry today
is a wide spread failure on the part of senior member of management in banks to grasp
theimportance of technology and incorporate it into their strategic plans accordingly. He
continuedthat banks should re-examine their service and delivery systems in order to properly
positionthem within the framework of the dictates of the dynamism of information and
communication technology. Many studies agreed that there is a positive relationship between
ICT and performance of banking in terms of quality service delivery, customer satisfaction and
attraction, employees‟ productivity, cost reduction, profitability, and effective decision-making.
Information and Communication Technology (ICT) is the automation of processes, controls, and
information production using computers, telecommunications, software’s and other gadget that
ensure smooth and efficient running of activities. It is a term that largely covers the coupling of
electronic technology for the information needs of a business at all levels. ICT has surpassed the
role of support services or only electronic data processing; its fields of applications are slightly
global and unlimited. Its devices especially the Internet and modern computer email facilities
havefurther strengthened early modernizations like the telephone and fax. Other ICT devices
include data recognition equipment, factory automation hardware and services, telecommuting
andteleconferences using real time and online system (Adeoti, 2005).
CHAPTER THREE
METHODOLOGY
3.1. The study setting
This study will conduct on private banks in Ethiopia specifically in case of Awash bank in Addis
Ababa different branches. It will be at Awash Bank's head office and various branches to inform
new employees who have been working in the bank for many years, as well as new employees
about the bank's ICT.
According to Creswell (2003), the objective to be achieved in the study is a base for determining
the research approach for the study. In case, if the problem identified is factors affecting the
outcome having numeric values, it is quantitative research. Therefore, the researcher employed
quantitative research approach to see the regression result analysis with respective empirical
literatures on the impact of ICT on commercial banks performance. Thus, the researcher used
data from 2010 to 2014 period for seven commercial banks in Ethiopia.
11 Megenagna
12 Mehal Arada
13 Mexico
14 Piazza
15 Sidist Killo
16 Urael
17 Enderase
18 CMC
19 Ayat Adebabay
20 Africa Avenue
For the purpose of this research work, the sample used comprises six selected Awash banks
branches out of one hundred twenty five banks in Addis Ababa. Thus, compared to the
population, the sample is 61.3%, which makes it adequate for the purpose of drawing inferences
with respect to the entire population of one hundred twenty five banks in Addis Ababa.
NO Activity Months
9 Data analysis
10 Writing up of paper
11 Revision, editing and
submission
12 Submission of research
paper
13 Paper defense
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University