Abstract

Making payments for goods and services in cash or non-cash forms as well as depositing money in financial institutions and managing these resources is important for economic life. Banks serve as important intermediate forces. In recent years, with the development of technologies and techniques, options for communication with banks are expanding for clients.

New services are originating such as home banking, phone banking, internet banking, and others. Today, traditional banking and e-banking (electronic banking) are used as strategic tools by the global banking sector to attract and retain customers. The present research is an analytical study which topic is: Assessing the effect of traditional banking and electronic banking on banks profitability.

Our case study is the United Bank for Africa, the Douala branch in the Littoral region of Cameroon. Therefore, this study is conducted with the objective of investigating the effects of e-banking and traditional banking on banks’ profitability. The secondary source data will be extracted from documentations.

The data used in this research are collected from various company reports and statements in United Bank for Africa Cameroon in the Littoral region specifically in Douala. It is mainly on the basis of inferential analysis that the task of interpretation is performed. In the course of our research, we will use regression analysis and correlations. At the end of this study, we concluded that traditional and electronic banking has significant effects on United Bank for Africa’s profitability.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

In the past, customers’‟ demand for banking services was driven basically by the safety of their monies as well as interest accruing from such savings. However, the present-day customers’ demand has shifted from just safety of money to how banks deliver their services.

The reason is that the present-day customer requires efficient, fast, and convenient services. The rapid changes in business operations in contemporary times in the form of technological improvement require banks in Cameroon to serve their customers electronically.

Traditionally, banks have been at the forefront of harnessing technology to improve their products and services. The banking industry and its environment in the 21st century is highly complex and competitive and therefore the need for information and communication technology to take center stage in the operations of banks (Wisdom, 2012)

However, Internet banking is changing the banking industry, having major effects on banking relationships. Banking is now no longer confined to the branches where one has to approach the branch in person, to withdraw cash or deposit a cheque, or request a statement of accounts.

In true Internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly becoming a “need to have” than a “nice to have” service. Net banking, thus, now is more of a norm rather than an exception in many developed countries due to the fact that it is the cheapest way of providing banking services. (Vyas, 2009)

Recently, it was observed that the economy of most developing countries is cash-driven; meaning that monetary transactions are basically made through the exchange of banknotes and coins for goods and services. However, this trend is now giving way to a modern and sophisticated payment system where the currency and notes are converted to data, which are in turn transmitted through telephone lines and satellite transponders.

This is as a result of rapid technological progress and development in the financial market. There is faster delivery of information from the customer and service provider, thus differentiating Internet-enabled electronic banking systems from traditional banking operations. This transfer process makes money to be carried in an information storage medium such as cheques, credit cards, and electronic means than its pure cash form.

E-banking has thus become an important channel to sell Products and Services; leading to a paradigm shift in marketing practices, resulting in high performance in the banking industry. The banking industry has been undergoing changes since the mid-1990s, in the form of innovative use of information technology and development in electronic commerce). This development made E-banking pose a threat to traditional branch operations, despite the fact that electronic commerce is still developing and is rapidly changing. (Chavan, 2006)

1.2 Problem Statement

The economy of Cameroon was depending on various raw commodities and was therefore vulnerable to price fluctuation of these commodities. This abundance of natural resources has allowed Cameroon to build one of the most diverse and prosperous economies in sub-Saharan Africa.

Beginning in 1986, however, the economy shrank dramatically as low prices of some commodities reduced the country’s export income. It is only during the late 1990s that Cameroon began emerging from the slump. (Nations Encyclopedia, 2011)

From 1960 to 1985, the financial sector was developed with the aid of monetary and regulatory policies aimed at supporting the development strategies set by the state. This situation has been termed financial repression by the proponents of financial liberalization.

All banks were owned by the state and credits were directed to sectors deemed important. By 1987, due to the downturn in the world economy, the demand and price of the main exports of Cameroon declined due to changes in foreign exchange rates. This has led to a drastic collapse of the economy after practically two decades of good performance. To fight back this situation, the Bretton Woods institutions proposed the Structural Adjustment Programs (SAPs) that Cameroon adopted in 1987.

In these programs, the role of the state was redefined and a set of policies were undertaken to liberalize the economy in all its sectors. As such public enterprises were privatized, and many monopolies were dismantled.  The financial sector was not spared by the crisis in the real sector. The collapse of the real sector made companies not to meet their financial obligations.

This, together with other factors such as the incompetence of managers, poor management techniques, competition from the informal financial sector, and state intervention led to serious crises in the financial sector. Many banks went bankrupt and others became illiquid not being able to meet the withdrawals of depositors. Under the structural adjustment programs, the restructuring of the financial sector was undertaken in which some banks were liquidated and others recapitalized.
There was also a change in monetary and financial policies with the liberalization of financial markets in 1990. A new banking regulatory agency (COBAC) was also established.  As such, there was the deregulation of interest rates, the removal of directed credit schemes, and the privatization of banks, the creation of the money market, the liberalization of the capital account.

Lastly, a stock exchange was created on December 1st, 2001: the Douala Stock Exchange (DSX), which still remains in its embryonic stage 2. It is believed that such an emerging financial system would better support an economy that was henceforth regulated by market forces. These reforms marked the end of a repressed financial system and the beginning of a classical market-based system. With all the above reforms, the economy regained the path of economic growth and the banking sector regained its liquidity and soundness. (Tabi Atemnkeng Johannes, 2011 )

Added to the above-mentioned evolution in the financial system of Cameroon, the megatrends (Demographic changes, resource limitations, and technological advances) have been affecting every sector of activities. A megatrend is a long-term change that affects governments, societies, and economies permanently over a long period of time. Megatrends drive other trends in financial markets in terms of sales, growth, and innovation.

One of these megatrends is technology. This technological innovation represents a process innovation since it strengthens the interaction between the bank and its customers and enhances the distribution function. Indeed, getting to the bank is time-consuming, waiting to be served is stressful and the delivery of services was also time-consuming.

In our case, most customers of the banking sector adapt to the changes in the banking systems and services. In general, customers quickly adapt to changes. However, Traditional banking has been providing services that cannot all be replaced by e-banking. This is true through the fact that traditional banking still survives.

However, both traditional and modern banks have advantages and disadvantages. This image is seen from the general customer point of view. From the banker’s point of view, it is important to understand where profits come from, from which activity in order to come out with relevant strategies concerning the profitability of the firm. These strategies must take into consideration both the bank and the bank’s stakeholders.

The research is therefore structured to provide answers to the following questions:

1. To what extent do traditional and e-banking affect the bank’s net income?
2. To what extent does traditional banking affect the Bank’s financial performance?
3. To what extent does Electronic Banking affect the Bank’s financial performance?

1.3 Objective of the Study

The general purpose of the study is to investigate the effects of e-banking and traditional banking on banks, especially UBA Cameroon profitability. However, the study specifically seeks to:

1. Analyze the effects of both traditional and electronic banking on bank’s profit.
2. Examine the effect of traditional banking on the profit margin and return on assets of the Bank.
3. Analyze the effect of e-banking on the profit to sales and in the process of generating return out of Bank’s assets used.
4. Making necessary recommendations based on results.

 

Further Readings

THE EFFECT OF E-BANKING ON CUSTOMER’S SATISFACTION IN BICEC BUEA, SOUTHWEST REGION CAMEROON