IMPACT OF INFORMATION TECHNOLOGY ON THE MODERN DAYS BANKING SYSTEM A CASE STUDY OF GUARANTY TRUST BANK

IMPACT OF INFORMATION TECHNOLOGY ON THE MODERN DAYS BANKING SYSTEM

A CASE STUDY OF GUARANTY TRUST BANK

CHAPTER ONE

1.0            INTRODUCTION

1.1            BACKGROUND OF THE STUDY

One of the modern yardsticks used for rating a modern business enterprise is its (ICT) infrastructure layout this is an indication of the importance of ICT for business establishment banks in particular adopt information and communication technology, to improve, the efficiency and effectiveness of services offered to customers, improve business processes as well as to enhance managerial decision making and wok group collaboration. This helps strength their competitive positions in rapidly changing/emerging economics environment organization and technological factors can change quickly sometimes unpredictably thus the growth of any enterprise is tired of retaining loyal customers improving productivity cutting costs increasing market share and providing timely organizational response (ICT) is a major enable for dealing with the issues because the pace of change and the degree of uncertainty in today’s competitive environment are accelerating geometrically. Organization are operating under increasing pressures to succeed (or even merely to survive) in this dynamic world companies must not only take traditional actions such as the acquisition of a company ICT. Surface as a key element in view of the importance of ICT in the banking industry a number of research work have been carried out in an evaluation of the response of Nigerian bank to the adoption of ICT was presented. In a technical model that to ascertain the impact of ICT on the Nigeria banking sector as a function of reforms was propose.

Some benchmarks of evolutionary the impact of ICT in the banking industry were outlined in these benchmarks will be used to evaluate the impact of ICT on the Nigerian banking industry.

1.2            STATEMENT OF THE PROBLEM

The Nigerian financial sector scene was characterized by long guesues of people waiting to transact one business or the other in banks before 1980. During this period customer could stay a while just to collect trend in banking. Bank executive have resolved to change this ugly situation some of the which this issue could be addressed as the introduction of more innovation service delivery in banks have call for an improvement in ICT in view of the increasing competition in the industry. There is need to engage in more research and development in order to introduce new producer services through utilization of ICT in solving the industry problems.

1.3            OBJECTIVE/PURPOSE OF THE RESEARCH

1.     To evaluate the effectiveness of information technology in improving quality of services in banks.

2.     To ascertain the effect of information technology on the staff performance at banks.

1.4     RESEARCH QUESTION

The stated below are the relevant research question formulated for this study.

1.     What are the effectiveness of informational technology on quality services improvement.

2.     What are the effect of informational technology on staff performancy.

1.5     RESEARCH HYPOTHESIS (OPTIONAL)

The following research hypothesis below were used to test the effectiveness of information technology in the banking industry.

1.     Null hypothesis (H₀)     

2.     Alternative hypothesis (H₁)

1.     H₀: Information Technology dose not have a significant relationship with quality service improvement.

H₁: Technology has a significant relationship with quality service improvement.

2.     H₀: Information Technology does not have a significant relationship with staff performance.

H₁: Information Technology has a significant relationship with staff performance.

1.6     SIGNIFICANT OF THE STUDY

The research is significant for the following reasons

a.     It would give the researchers the knowledge of banks operations in Nigeria.

b.     It would also give the researchers the knowledge of the formulated polices to improve information technology in Nigeria.

c.      It would be useful to lecture of higher instruction of learning i.e university and polytechnics.

d.     Information technology would give the researchers the knowledge of how information is been managed in the banking industry.

e.      It would generate information useful to financial institution and investors in the field.

f.       Should be the priority of the government most especially during the domestic dispensation going by the recent distress in banking industry in Nigeria the level of public confidence in the sector has dwindled and this has led to the instability syndrome in the sector.

1.7     LIMITATION OF THE STUDY

Embarking on the work of this nature is a daunting task. The following are the factors which impeded the carrying out of the research as schedule:

a.     Finance insuffiaent capital to carry out the research work show the efficiency of the project writing.

b.     The researchers did not really have enough time to gather facts about the research topic.

c.      Materials: The non – availability of the needed material for the work also effects the project writing negatively.

d.     Facts: Poor responses to facts disclose by the bank operators and stakeholders in the field also affect the project completion.

1.8     DELIMITATION OF THE STUDY

This study would only focus on the impact of information technology on the modern days banking system, using Guaranty Trust Bank as a case study since information must be received and processed into meaningful use for economic growth and development especially in the banking industry.

The researcher shall also examine the electronic banking operation of First Bank Kaura Namoda Branch Zamfara State as a case study.

1.9     BRIEF HISTORY OF CASE STUDY

First Bank of Nigeria limited (First Bank), established in 1894, 15 the premier Bank in west African, Nigeria’s number one bank branch and the leading financial services solutions provider in Nigeria, the bank was founded by Sir Alferd Jones, a shipping magnate from Liverpool, England with its head office originally in Liverpool, the bank commenced business on a modest scale in Lagos, Nigeria under the name bank of British west Africa (BBWA).

In 1912, the bank acquired its first competition the bank of Nigeria (previously called Anglor African Bank) which was established in 1899 by the Royal Niger Company. In 1954, the bank changed its name from. Bank of British west African (BBWA) it’s merger with standard bank, UK, the Bank adopted the name standard bank, of west Africa limited and 1969 it was incorporated locally as the standard bank of Nigeria limited in line with the Companies Decree of 1968.

CHAPTER TWO

2.0            LITERATURE REVIEW

2.1            BACKGROUND OF THE STUDY

Theoretical background and hypotheses: ICT is a combination of information technology and communication technology. It merges computing with high speed communication link carrying data, sound and video (Alabi, 2005). It deals with the collection, storage, manipulation and transfer of information using electronic means. Communication technology refers to the physical devices and software that link various computer hardware components and transfer data from one physical location to another (Laudon, 2001).

The relationship between ICT and performance has attracted the attention of researchers in recent times. Several studies have been conducted to investigate this relationship. It is however worthy of note that there has never been a consensus on whether ICT contribute to organizational performance or not.

Different theoretical approaches have been adopted by researchers to investigate the nature of the relationship between ICT and firm performance over the years. Transaction cost theory (Williamson, 1975); value chain analysis (Porter, 1995); and resources based view which is more recent theory that is widely embraced by many such as Bharadwaj (2000), Wade and Hulland (2004), Kim et a.,(2006), Rai et al.,(2006), Wu et al.,(2006), Ordanini and Rubera (2010), Lee, Keo and Nam (2010), Fahy and Hooley (2011); Rashidirad, Syad and Solitani (2012).

The resource-based view (RBV) of the firm posits that firms compete on the basis of “unique” corporate resources that are considered to be valuable, rare, difficult to either imitate or substituted by other resources. The theory stemmed  from the area of strategic management research and widely attracts attention as a suitable tool to examine the value delivered by IT resources (Melville, 2004; Wade and Holland, 2004).

The resource-based theory rationalizes firm’s superior performance to organizational resources and capabilities. The resource-based view of the firm links the performance of organizations to resources and skills that are firm specific, rare and difficult to imitate or substitute (Barney, 1991). Hence, it is a theory that is mostly preferred by researchers in this area of study. This paper consequently is based on this theory. The paper highlights the importance of ICT investment (ICTINV) and ICT cost efficiency (ICTCE) as pivotal determinants of commercial banks capability and examines the relationship between ICTCE, ICTINV, and performance of commercials banks in South Africa.

2.2            VIEW OF ICT AND FIRM PERFORMANCE

Resource-based view of ICT and firm performance: Extant literature reveals that firms do compete on the basis of unique corporate resources that are valuables, rare, difficult to imitate, and non-substitutable by other resources (Barney, 1991; Corner, 1991: Schulze, 1992). RBV operates under the assumptions that the resources needed to conceive. Choose and implement strategies are heterogeneously distributed across firms whose differences remain stable over the time (Barney, 1991).

Resources can be broadly defined to include; assets, knowledge, capabilities, and organizational processes (Bharadwaj; 2000). Grant (1991) however, distinguishes between resources and capabilities and further classifies resources and into tangible, intangible and personnel based resources. The tangible resources include: financial capital and physical assets of the firm such as plant, equipment, and stocks of raw materials whereas, intangible resources include reputation, brand image, and product quality while personnel-based resources include technical know-how, and other knowledge assets including dimensions such as organizational culture, employee training, loyalty, etc.

The ability of a firm to create competitive advantage depends on its capability, which is the extent to which the organization can assemble, integrate, and deploy valued resources to create or sustain competitive advantage in the industry to which it belongs (Russo and Fouts, 1997).

2.3            INFORMATION AND COMMUNICATION TECHNOLOGY (ICT)

   ICT investment (ICTINV): The information and communication technology infrastructure of an organization comprises of its physical ICT asset stock. The business functionally of an organization depends on the reach and range of the stock of these resources. It is a major business resource and a key sources for attaining long-term competitive position (McKenney, 1995). Banney (1991) contended however that physical assets, in and of themselves, can only serve as sources of competitive advantage if and only if they outperform equivalent assets of competitive.

This notion arises out of the fact that considering the fact that physical asset can be easily duplicated by competitors and as such may not be regarded as sources of competitive advantage when their synergetic benefits are exploited to enhance the organizational competitiveness.

The relationship between ICT investment and firm performance has been studied by several researchers over the years. Bitter (2001) investigated the relationship between information and communication technology investments and small firms performance. His study reveals that there was a significant performance difference between firms that adopt ICT and those that do not adopt the technology.

In their study conducted to examine technological progress and its effects in the banking industry using relevant data. Berger et al.,(2003). Find that ICT investment leads to improvements in costs. The improvement was hinged on productivity increase in form of improved “back-office” technologies which is in form of organization- related benefits such as reduced costs of operation as well as improved “front-office” technologies which is in form of benefits to customers such as improved quality and variety of banking services.

Evidence from other empirical studies conducted on the contribution of automated teller machine (ATMs) to banks profitability reveal that investment in ATMs increases both the volume and value of deposit accounts, reduces banking transaction costs, reduce the number of staff and the number of branches and consequently improves banks’ profitability (Abdullah, 1985; Katagin 1989; Shawkey, 1995).

In this study on analysis of the values of return on asset (ROA) arising from ICT investment in the US, Kozak (2005) finds that the value of the return on asset for the US banking sector has increased by 51% thereby suggesting that improvement in ICT investment, associated with extensive office networks and range of offered services have helped to generate additional revenues for banks thus pointing to the fact that a huge number of diverse operations require higher ICT investment.

Furthermore, Osei and Harvey (2011) in their study (covering fifteen banks over in period of ten years) on investments in ICT and bank business performance in Ghana find that investment in ICT tend to increase profitability (ROA and ROE) for high ICT level banks than for lower ICT level banks.

Considering the foregoing and from literature, we thus hypothesize that:

H₁: There is a positively significant relationship between ICT investment and performance of banks in South Africa.

2.4            ICT COST EFFICIENCY (ICTCE)

ICT cost efficiency (ICTCE): ICT use has continued to permeate virtually every organization and is being applied in a wide range of areas. It has provided new ways to store, process, distribute, and exchange information within companies and with customers (Kollberg and Dreyer, 2006). The recent ICT developments have enormous implications for the operations, structure and strategy of organizations (Buhalis, 2003).

Application of ICT to enhance the performance of organizations of all types around the world do not only helps to cut costs and improve efficiency but also for providing better customer services (Ashrafi and Murtaza). Spanes et al.,(2002) posit that ICT has the ability to enhance, coordinate and control the operations of many organizations and can also increase the use of management systems.

Conversely, Ongori and Migiro (2010) maintain that the impact of globalization has obliged many organization to adopt ICT in order to survive in the present competitive era especially in the area of competing with large organizations. Bresnahan et al.,(2002) argue that durable productivity gains have been achieved in enterprises that use ICT. This is traceable to the fact that ICT helps in the effective low of data in organizations thereby assisting organizations to obtain information at any given time, which in turns helps these organizations to reach their desired target. Furthermore, ICT brings about changes in businesses and helps to create competitive advantage hence, organizations of all types tend to adopt the innovation (Apulo and Latham, 2011).

However, on the basis of the socio-technical view (STV) of an organization, it is instructive to note that the ICT acquisition is in itself not a guarantee of improved organizational performance. The principle of STV holds that for there to be an optimal benefit from acquisition of ICT, its potential must be optimally harnessed in the interest of achievement or organizational objective (Trist, 1990).

The theory posits that technology rarely possesses the capacity to advance the overall performance of an organization. The import of this view lies in its recognition of interdependencies between technological and social factors as well as sequential impacts of technology. The argues that organizations are neither exclusively social nor predominantly technical systems but are rather best conceived as socio-technical systems.

The two dimensions of an organization though are independent but yet are correlative thus; organizational activities and outcomes are optimal when both social and technical elements of an organization are strong (Trist, 1990). This theory (STV) complements and builds on the RBV which holds that are firm’s combination of technological and human inputs are socially complex, therefore organizational routines can be difficult to imitate, forming the basis of competitive advantage and superior performance (Barney, 1991; and Barney and Ketchen, 2001).

The STV principle underscores the argument in favor of ICT cost efficiency being a necessary condition for the attainment of optimality in the department of ICT to enhance organizational performance. Cost efficiency in the spirit of strategic cost management is concerned with minimum possible inputs (Fethi and Pasiovras, 2010; Casu and Giradone, 2004, 2006). Furthermore, Casu (2004), and Tanna (2009) posit that efficiency can be measured in terms of observable increase in efficiency owing to technical progress which is a function of technological changes.

Hence, from literature and theory, we thus hypothesize that:

H₂: There is a significant relationship between ICT cost efficiency and performance of commercial banks in South Africa.

2.5            BANK PERFORMANCE

Bank performance: Measurement of bank performance is a complicated activity. Researchers have used different approaches to assess the performance of banks in various countries at various times. However, some of most reliable yardstick that have been used in the past to measure bank performance are the return of assets (ROA) and return on equity (ROE).

Ahmed and Khababa (1999) in their assessment of bank performance in Saudi Arabia employed three ratios as measures of performance – ROE, ROA and percentage change in earnings per share.

Sinkey (1992) posits that return on assets is a comprehensive measure of overall bank performance from an accounting perspective being a primarily indicator of managerial efficiency as it indicates how capable the management of a bank has been in converting the bank’s asset into net earnings.

Rose and Hudgins (2006) however maintain that ROE is a good measure of accounting profitability from the shareholders perspective. It approximates the net benefit that the stockholders have received from investing their capital.

Akintoye (2004) also identified three ratios that can be used as proxies for organizational performance namely: Net profit margin (NPMARG), Return on Assets (ROA). Arising from the principles of both the resource-based view and socio-technical view is another measure of organization performance, which depends on the basis of the organizations information and communication technology cost efficiency (ICTCE). This is a measure of ICT capability of an organization the extent to which the organization can assemble, integrate, and deploy valued resources to create or sustain competitive advantage in the industry to which it belong (Russo and Fouts, 1997).

These variables of organizational performance in their nominal formats are as expressed in their respective ratios as follow:

1.     Net Profit Margin =   100

2.     Return on Capital Employed =   100

3.     Return on Asset =   100

4.     ICT Cost Efficiency =   100

2.6     REVIEW OF THEORIES

The academic study of e – operations was inventory embryonic and as such there was a dearth of reported research studies examining the impact of e – commerce on internal business processes (Van et al.,2003). A lot of what had been written about e – commerce to date had either been predictive, that is, the how to succeed type of publication according to Daniel (1999) much of the literature appeared to emanate from those with direct commercial interest, as consultant selling advice computer hardware or software sales agents.

2.7            CONTEMPORARY BANK THEORY

Bhattcharya and Thakor (1993) contemporary banking theory suggest that bank together with other financial intermediaries are essential in the allocation of capital in the economy. A very powerful tool to explain how banks work is provided by the literature on financial intermediation this literature is centered on information asymmetries an assumption that “ different economic agent possess different pieces of information on relevant economic variable, and their agents will use this information for their own profit (Freixas and Rachet 1998).

2.8            MEASURES OF A BANK’S PERFORMANCE

The role of technology in the banking sector may be exaggerated or underestimated according to Oscamp and Spacapan (1990), technology, is probably the most dominate influence on life in the modern world. According to Kirkup and Keller (1992), technology, touches every aspect of our lives; coping with all needs in a practical way, the utilization of present day technology is the distinguishing  factor between human species in today’s  contemporary society of all the technologies of our time, information technology has the greatest influence at the international arena. According to Hanna, Boyson and Guarantee (1996), as some economic historians would assert the pervasiveness of information technology on society amounts to a second industrial revolution: it is an enabling technology for quality enhancement various models have been propounded on how to measure the impact of  information technology an economic sectors. A synthesis of the works of chief information officer (1992) and Strassman (1990) show that the impact of IT on the banking sector in Kenya could be assessed through the following models.

Balanced score card model; under this methods Fournier related operational and financial measures are used. These measures center on customer’s view of organization performance line managers view of internal processes, strategic manager’s view of information economics model; relative weight are assigned to tangible and intangible corporation objectives IT systems are scored based on their impacts on each of the objectives. The final step is a peer review process to evaluate the scoring for errors and oversights.

Impact focus strategy model; this approach relies on the listing of benefits of benefits anticipated by an organization at onset of system’s implementation it also involves the creation of benchmarks, which the system must meet to have an impact.

2.9            REVIEW OF EMPIRICAL STUDIES

Various empirical studies on information technology and its impact on the banking sector in various countries have been conducted over the year. Various scholar such as Wilson (1993), Freund, Konig and Roth (1997), Radick, Wenninger and Orlow (1997), O’Sullivan (2000) and other have been engaged in unending discourse on the position payoffs emenating from the other financial institution. Such academic debates have resulted in the origin of the term information technology productivity paradox’s which is concerned with appraising the impact of information technology and operational efficiency and the productivity of organizations. A cursory look at the industry level studies of the nineties such as the works of Wilson (1993), jordary John and (1990), Furst, Lang and Nolle (1998) portray that in many instances a positive correlation is posited between increased investment information technology and productivity on the contrary other works such as those of Strassman (1990), Morrison and Berndt (1990), Dos – santos and others (1993) show that an additional investment in information technology does not necessarily contribute positively to productivity. Such works argue that the estimated marginal costs, that for each additional dollar spent in information  technology equipment the marginal increase in measured output was only eight center Brynjolfson and Hitt (1998) noted that most of such results from researches account for what he referred to as the economic theory of equilibrium this means that increased profitability is not necessarily a by-product of increased spending in information technology.

2.10       INNOVATION DIFFUSION THEORY

This theory explains individuals intention to adopt a technology as a modality to perform a traditional activity. The theory is developed by Roger’s (1983). The critical factors that determine the adoption at an innovation at the general level are the following: relative advantage, compatibility and complexity.

2.11   CONCLUSION FROM LITERATURE REVIEW

Existing studies has cooked the ICT and financial system holistically specifically looking on E-banking the vast majority of the recent literature on electronic money and banking suffers from a general entirely and equates, electronic money with the substitution of currency through electronic gadget such as smart card and currency for example, Freedman (2000) propose that electronic banking and electronic money consist of three devices; access devices, stored value cards, and network money.  

 

   

   

    

CHAPTER THREE

3.0            RESEARCH METHODOLOGY AND DESIGN

This perhaps is the difficult part of the study and the background against which the findings and conclusions are based. This phase of the research consists therefore of the methods and approaches of collecting information and data for the research purpose.

3.1            RESEARCH DESIGN

This is the major framework of collection, measurement and analysis at data the data used in this research come from two (2) broad services.

a.     Secondary Sources: These sources of data were utilized mainly in the review of related literature. This information was obtained from textbooks, journals, published research works, seminars workshops paper, micrograph e.t.c.

b.     Primary Sources: These sources of information were raw data obtained through questionnaires and interviews. The questionnaires were structured because of the simple fact that respondents feel more at home with questionnaires.

3.2            POPULATION

A population is a group of individuals, object or items from which sample are taken for measurement. It is the group the investigator wishes to make inference from (Babble, 2005). The population of the study is 24.

3.3            POPULATION SAMPLE

It is a fragmented number taken from the population for the purpose of testing and one close examination on the purpose of testing and an the assumption that it can be taken as representation of the whole group.

Due to the small nature of the population, the entire population were used.

3.4     INSTRUMENT FOR DATA COLLECTION

Data collection is very crucial in any research work. Questionnaire as a research instrument was mainly used for collection of primary data.

The instrument used for data collection is a structure and closed ended questionnaire.

3.4            DATA ANALYSIS PROCEDURES

In the analysis of data collected statistical method of sample percentage and table were used for descriptive purpose and responses while chi-square method of analysis were employed for testing of hypothesis.

This enable the researcher to draw a relevant conclusion based on the empirical facts available.