The Effects of Digitalization on Bank Profitability: The Case of selected Commercial Banks in Ethiopia

Abstract

The main objective of this study was to investigate the effects of digitalization on bank profitability of commercial banks in Ethiopia. The study uses explanatory research design, and mixed research approach was adopted with nine years of quantitative data from 2014 to 2022 and the ordinary least squares model was used. The data was collected from nine sampled commercial banks and the National Bank of Ethiopia. The fixed effect model was used to investigate digitalization variables used in this study affecting the profitability measures by return on asset (net income to total asset). The regression result of the study revealed that; automated teller machine and debit card have a positive significant effects on banks profitability whereas, mobile banking and mobile wallet found a negative significant effects on the profitability of commercial banks. However, the study found that the number of internet banking and point of sale are both negative and insignificant. Therefore, based on the result of this study the researcher suggested that; Ethiopian commercial banks managers should emphasize training their clients on the use of digitalization through advertisements to improve their profit abilities, Commercial banks in Ethiopia should ensure that systems failures are kept at minimal to reduce its influence on the financial profitability of commercial banks in Ethiopia and Commercial banks should work on awareness creation to their customers with regard to usage of online and mobile banking services and its benefits to time and cost reduction.