Impact of Online Banking Adoption on Bank’s Profitability: Evidence from Bangladesh

Abstract

The rise in information technologies has transformed banking industry worldwide. To stay competitive, banks are introducing internet banking with the motive to achieve higher productivity and efficiency, reduce cost and increase profit. In Bangladesh, the impact of this new distribution channel in improving bank’s performance is yet to be measured. It is against this backdrop this research is conducted to identify whether performance of banks that has adopted internet banking is different from banks yet to adopt internet banking. Furthermore, it is to be seen whether there is significant change in performance of banks before and after implementation of internet banking. Performance was measured through Return on Asset (ROA) and Return on Equity (ROE). Secondary data were collected from annual report of all the 30 listed banks in Bangladesh. The results revealed that ROA and ROE of banks with online banking is higher compared to banks without online bank. However, the results were insignificant. Furthermore, ROA and ROE were found out to be lower after implementation of internet banking and is statistically significant. Such findings could be attributed to the initial cost allocated for infrastructure development and fail to attract customer to adopt online banking in mass scale. Thus with investment done, the benefit could not be realized during the initial period of internet banking adoption.