The Effect of Digitalization on the Financial Performance of Private Commercial Banks in Ethiopia

Abstract

This research examines the effect of digitization on private commercial bank financial performance in Ethiopia, using return on asset as a proxy for financial performance. The study selected 10 private commercial banks operating in Ethiopia between 2017 and 2023 using secondary data. Key variables were determined based on existing literature to reveal their link and effect on commercial bank profitability. Number of mobile banking user, ATM number, number of internet banking user, number of debit card user, and number of POS terminals was the factors studied. The empirical findings of this study disclosed that number of ATM machines, number of POS machines and number of mobile banking users have significant effect on profitability of private commercial banks in Ethiopia. while the number of debit card users and number of internet banking users are insignificant and this revealed that they could not explain as well as could not affect the return on asset or profitability of Ethiopian private commercial banks.The researcher recommend that Private commercial banks should work aggressively on increasing number of active users’ as equivalent to expansion of digital technologies by creating awareness to their customers, training employees and series follow ups so as to improve effectiveness and efficiency of their asset. Additionally, private commercial banks should work on integrating their systems. This would enable customers to transfer money via mobile or online to another bank without having to open a bank account at the other bank or go to a bank. By solving the issue of integration problems, the banks should start to increase their profitability.