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European Research Studies Journal

Volume XXI, Issue 4, 2018


pp. 435-458

The Impact of Information and Communication Technology


Investments on the Performance of Lebanese Banks

R.M. Mahboub1

Abstract:

Previous research on the relationship between investment in information and communication


technology (ICT) and bank performance (BP) have been obviously disagreeing. This is
because some posit a positive relationship and some argue to the contrary.

Thus, this research contribute to the ongoing debate regarding the contribution of ICT to BP
by looking at the impact of ICT investments on the performance of a sample of 50 Lebanese
banks for the period 2009-2016.

Secondary data were collected from the annual report for each bank. CAMELS model is
chosen as the dependent variable, while ICT investments (adoption of automated teller
machines (ATM), mobile banking (MB), internet banking (IB), telephone banking (TB), debit
and credit cards (BC) and point of sale (POS) terminals) is the independent variable.

Using multivariate OLS model, the results demonstrate that the application ATM, IB, TB and
POS terminals does not significantly affect banks performance. However, the application of
MB and offering BC to customers significantly and directly affects performance of banks in
Lebanon.

Thus, banks in Lebanon are recommended to find a way to increase interest of Lebanese
consumers in MB applications and attract more customers by offering them a range of BC
tailored to fit their preferences.

Keywords: ICT, Bank Performance, CAMELS, Lebanon.

1
Beirut Arab University, Beirut, Lebanon, r.mahboub@bau.edu.lb
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
436

1. Introduction
Today’s business environment is extremely vigorous and encounters quick changes
as a cosequence of creativity, universal competition, rapid disseminating of
knowledge, continual technology advancement, innovation, increased consciousness
and demands from customers (Agbolade, 2011; Talegeta, 2014). Thus, business
firms, specifically the banking industry, are required to react rapidly to the dynamics
of quick changing customers’ anticipations (Nigussie, 2015; Grima et al., 2016;
Grima and Caruana, 2017). Hence, to be able to remain alive and surpass in this
fierce universally competitive market, every bank must embrace ICT in its business
operations to enhance the efficiency and effectiveness of services provided to
customers, ameliorate business processes, as well as to improve managerial decision
making and working group cooperations (Luka and Frank, 2012; Adesola et al.,
2013; Thalassinos et al., 2012; 2013b).

Thus, the latest developments in the technological world of the latest decade of the
twentieth century has enforced the banks to adopt ICT as a strategy for their
continuous growing in an extended competitive environment (Juma, 2013). The
usage of ICT in banking operations is named electronic (e) - banking (Victor et al.,
2015). This tendency have bring about outstanding changes in the manners banks are
run in modern times (Binuyo and Aregbesola, 2014). In this manner, the
introduction of ICT has altered hand operated and traditional forms of carrying out
business and is being substituted by the highly developed technology that is depend
on automatism and linkage of computers and other computerized machines (Adesola
et al., 2013). Therefore, new delivery technologies along e banking products like IB,
MB, POS terminals and numerous ATM products are currently substituting the
traditional delivery methods (Mensah, 2016; Ozen et al., 2014).

Various studies have revealed converting the banking system from traditional to
automated based have promote support in business operations and aid as competitive
advantage for realizing higher efficiency; branch productivity; control of operations;
customer service; accurate fund transfer; risk management; maintaining customer;
real time information system; diminishing human errors; diminution of branch
offices; lessening the number of branch staff, enhancement in service delivery; and
minimizing of cost by substituting paper based and labor intensive methods with
computerized processes (Aliyu et al., 2012; Wondimu, 2013; Sarji, 2017). This will
enhance the performance of banks, reducing the costs, and rising profits (Sumra et
al., 2011; Kosinova et al., 2016; Japparova and Rupeika-Apoga, 2017).

On the other hand, some researchers such as Saatcioglu et al. (2001), Malhotra and
Singh (2009), Wondimu (2013) and Okibo and Wario (2014) contend that despite e
banking has a benefit; it also has major pitfalls that can harm BP and lessen service
quality. Thus even though e banking provides new opportunities to banks, but it also
raises numerous challenges as the innovation of IT applications; the blearing of
market boundaries; the breaking of industrial barriers; the potential of fraud on
R.M. Mahboub

437

customers’ account; the entry of new competitors; the development of new business
models; the staff challenges; and the great direct and indirect costs such as training
costs, installations costs, and service costs (Saatcioglu et al., 2001; Kipesha, 2013;
Ibrahim and Muhammad, 2013; Okibo and Wario, 2014; Thalassinos et al., 2013a;
Vovchenko et al., 2017). These circumstances will slash the profitability of banks.

Hence, the association between ICT investments and performance has attracted the
attention of researchers in numerous countries in latest times (Binuyo and
Aregbeshola, 2014). However, the results from previous studies on the relationship
between investment in ICT and business performance have been obviously
disagreeing (Ibrahim and Muhammad, 2013). Thus, whether the amount of
investments in ICT certainly carries actual benefits to the banks or not is still a
matter of interest in academic circles (Binuyo and Aregbeshola, 2014). This is
because while some postulate a positive relationship between ICT investments and
performance (Becchetti et al., 2003; Hernando and Nunez, 2004; Indjikian and
Siegel, 2005; Moriones and Lopez, 2007; Badescu and Ayerbe, 2009) some others
contend to the contrary (Malhotra and Singh, 2009; Willy and Obinne, 2013).

There is a necessity for additional studies to contribute to the continuing debate on


the nature of the relationship between ICT investments and BP specially in
developing countries. Consequently, this research aims at closing the research gap
by looking at the impact of ICT invetments that have on the performance of one of
the leading sectors in the Lebanese economy, namely its banking sector to
understand its important influence on their operations to guarantee their growth and
profitability.

The rest of the research is organised as follows: section 2 presents a review of


related literatures, the components of the conceptual framework and development of
hypotheses. The research methodology is discussed in section 3 while section 4
presents the research findings and analysis of the findings. Finally, section 5 presents
the conclusions, limitations and future research.

2. Literature Review and Hypotheses Development

There is a rapid growing literature on ICT and BP (Dehghan et al., 2015; Asia, 2015;
Mensah, 2016; Siddik et al., 2016; Vekya, 2017; Kiragu, 2017). However, most of
the literatures exist were carried out at the developed countries, leaving the
developing countries extremely beyond despite the thorough employment of the ICT
in the banking sector of these countries (Ogunyomi and Obi, 2016). Despite the
likely benefits of ICT, there is debate about whether and how their investments
enhance BP (Malhotra and Singh 2009; Karim and Hamdan, 2010; Leckey et al.,
2011; Agbolade, 2011; Sumra et al., 2011). The results from prior literatures of the
impact of ICT on the performance of the banking sector in both developed and less
developed countries yields conflicting results (Ibrahim and Muhammad, 2013).
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
438

Thus, it is at the center of such varied conclusions that creates and entails the need to
make a study from a Lebanese context to establish the impact of ICT investments on
BP. Therefore, thisresearch will address the following research question: What is the
impact of ICT investments on financial performance of banks in Lebanon?

Numerous efforts have been made to explore the impact of e banking on BP (Table
1). For instance, Siam (2006) aimed at investigating the effect of e banking on
bank’s profitability of twenty Jordanian banks based on a questionnaire that was
disseminated over the twenty working banks in Jordan. The findings of the study are
the effect of e banking on banks profitability will be attribute of the short run owing
to the capital investment by the Jordanian banks on infrastructure and training but
will be positive on the long run.

Furthermore, Hernando and Nieto (2007) aimed at identifying and assessing the
effect of the adoption of a transactional web site on financial performance using a
sample of seventy-two commercial banks operating in Spain over the period 1994-
2002 based on data take out from the regulatory database of Banco de España. The
results found that the effect on BP of transactional web adoption takes time to come
into sight. The adoption of the internet as a delivery channel comprises a gradual
diminution in overhead expenses. This effect is significant after one and a half years
after adoption. The cost cutting translates into an enhancement in banks´
profitability, which becomes significant after one and a half years in terms of return
on assets (ROA) and after three years in terms of return on equity (ROE).

Similarly, Onay et al. (2008) investigated the effect of IB on financial performance


of fourteen commercial and savings banks in Turkey following the approach of
Hernando and Nieto (2007) for the period between 1996 and 2005 based on a dataset
that is extracted from income statements and staments of financial position found in
the Bank-Scope Database for Turkish banks. The findings provide some
confirmation that investment in ebanking is a gradual process. The IB has had a
positive impact on the performance of the banking system in Turkey in terms of
ROE only with a lag of two years approving the findings of Hernando and Nieto
while a negative effect is detected for one year lagged dummy.

In the same vein, Malhotra and Singh (2009) seek to investigate the effect of IB on
BP in India. Using information drawn from the survey of eighty-five scheduled
commercial bank’s websites, during the period of 1998-2006, the results show that
nearly 57 percent of the Indian commercial banks are providing transactional IB
services. The results specify also that there is no significant relationship between
adoption of IB by banks and their performance. Thus, the adoption of IB was a
causebeyond the lesser profitability of these banks, as IB in new private sector were
running with greater cost of operations, thus influencing negatively the profitability
of these banks.
R.M. Mahboub

439

In addition, Karim and Hamdan (2010) studied the impact of information technology
(IT) on enhancing the performance of all the fifteen Jordanian banks for the period
of 2003-2007 using bank data. The results showed that there is an effect on the usage
of MIS in Jordanian banks in the market value added (MVA), earnings per share
(EPS), ROA, net profit margin (NPM). The results also indicated that there is no
efect of the usage of MIS in Jordanian banks to enhance the ROE.

Moreover, Leckey et al. (2011) attempt to determine and document the extent to
which investment in IT by banks in Ghana can impact their profitability using the
Balanced Scorecard (BSC) framework based on an extensive panel dataset of fifteen
banks sampled from the Ghanaian banking industry over a 10-year period (1998-
2007). The results demonstrated that banks that keep high levels of investments in IT
enlarged ROA and ROE.

Besides, Agbolade (2011) investigated the nature of the association that exist
between banks profitability and the adoption of ICT for a sample of three banks in
south-west Nigeria through a structured questionnaire directed to ninty personnel.
The results revealed that a positive correlation exists between ICT and banks
profitability in Nigeria. This indicates that a marginal change in the level of the
investment and adoption of ICT in the banking industry will result to a proportional
increase in the profit level.

Likewise, Sumra et al. (2011) aimed at investiagating the effect of e banking on the
profits of Pakistani banks based on a survey conducted by interviewing the managers
of twelve bank in Pakistan. The findings indicated that ebanking has increased the
profitability of banks largely as well as it has allowed the banks to meet their costs
and obtain profits even in the short period.

Khrawish and Al-Sa'di (2011) aimed to assess the impact of e banking services
offered by banks on the internet on the profitability of these banks during the period
2000-2009. For the sample used all domestic banks in Jordan divided into 3 groups
(early adopters of the service, recent adopters of the service, and non-internet service
providers) based on the financial and operational data disclosed in the annual reports
of these banks. The results indicated that there is no significant effect of e banking
services on the profitability of recent adopter's banks in terms of ROA, and ROE. It
gives a signal of high expenses and cost associated with excuting these services. The
study further demonstrated that margins significantly influenced by the e banking
services.

As well, Willy and Obinne (2013) assessed the impact of IT investment on bank
returns for a sample of four banks in Nigeria. By depending greatly on historic data
that were extracted from annual financial reports of the sampled banks for a seven-
year period from 2005 to 2011.The findings suggested that IT expenditure has a
negative relation with bank profitability demonstrating that IT expenditures of all the
studied banks do not increase bank profitability, but rather declines it insignificantly.
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
440

Inparallel, Kholousi (2013) aimed at examining the association between e banking


and banks profitability in all nine banks of Tehran Stock Exchange during 2006-
2010 based on a data collected from using financial reports and Rahavard- Novin
software. The main findings indicated that electronic services growth has a notable
effect on banks profitability increase. This efffect has the greatest value in ROA and
the smallest value in NPM. Thus, banks must renovate and update banking
electronic services and afford customers with simple access to these services.

Adesola et al. (2013) examined the effect of ICT on the Nigerian banks operations
regarding speed of banking operations, efficient service delivery, workers’
performance and bank’s profit level, using United Bank for Africa (UBA) Plc. as a
case study. Based on the usage of a self-designed structured questionnaire that was
directed to fifty staff of ten branches of UBA Plc; the findings demonstrated the use
of ICT contributed significantly to the speed of banking operations, efficient service
delivery, workers’ performance and bank’s profit level.

In the same way, Ogare (2013) aimed to establish the impact of ebanking on the
financial performance of forty-four commercial banks in Kenya based on a data
attained from the central bank of Kenya and from audited financial statements of
commercial banks for the period 2008 to 2012. The results demonstrated that
ebanking has a strong and significant impact on the profitability of commercial
banks in the Kenyan banking industry. Thus, there exists positive relation between
ebanking and BP.

Alike, Binuyo and Aregbeshola (2014) evaluated the effect of ICT on the
performance of four biggest banks in South African using bank annual data over the
period 1990–2012 using the orthogonal transformation approach. The results
indicated that the usage of ICT increases return on capital employed (ROC) as well
as ROA of the South African banking industry. The study realizes that more of the
contribution to performance be from ICT cost efficiency contrasted to investment in
ICT.

More than that, Jegede (2014) examined the impact of ATM on the performance of
five Nigerian banks based on a questionnaire that served 125 employees of the five
chosen banks in Lagos State. The findings revealed that the utilization of ATM
terminals have averagely enhanced the performance of Nigerian banks due to the
alarming rate of ATM fraud. The Nigerian banks are aggressively encouraging
issuance and usage of ATM cards, credit cards, debit cards, and smart cards to
improve their performance and destroy competition.

By the same token, Victor et al. (2015) investigated the effect of ICT and financial
innovation on the performance of selected eleven commercial banks in Nigeria over
the period 2001 to 2013 based on a data collected from the banks' annual reports and
CBN fact-books. The results revealed that an increase in banks’ profitability
R.M. Mahboub

441

performance increases commercial banks’ ROE. However, investments in e banking


services and ATMs do not certainly enhance banks’ performance.

Also, Dehghan et al. (2015) aimed to evaluate the impact of the implementation of
main banking services (IB, MB, TB, POS, ATM, and electronic money (EM)) on
profitability of twenty-four branches grades 1, 2 and 3 in Mashhad- Iran over a
period from 2010 to 2012. Based on a data that were extracted from financial
reporting programs and analytical software utilized in the banks. The results
demonstrated a significant association between the application of IB and ATM and
profitability, while there is no significant association between the application of TB,
MB, POS, and EM and profitability.

Along with, Asia (2015) investigated the contribution of ebanking towards


performance of banking institutions in Rwanda based on a case study of Bank of
Kigali for a period of five years from 2008 to 2012. The study was based on a
questionnaire embracing fourty-four of bank of Kigali employees from head office
specifically from the department of accounting and finance, audit and IT. The results
revelaed that e banking system like ATM, pay direct, electronic check conversion,
mobile telephone banking and E transact has a great effect on BP as they increase
profitability, decrease bank cost of operations, and increase bank asset and bank
efficiency.

Aside from, Mensah (2016) examined the effect of ICT on the performance of
twenty selected rural banks in Ghana utilizing annual financial data stream from
2011 to 2014. Using panel data regression, the results revealed that ICT cost
efficiency has a significant impact on the performance of the rural banks. The results
further indicated that investment in ICT has little effect on the performance of the
rural banks. Thus, as opposed to investing in new ICT facilities, the rural banks can
use their existing capacities by altering the financial products and services they
provide to their customers and this will have more impact on their performance than
making new investment taking into consideration competition from the rural banking
industry.

What’s more, Siddik et al. (2016) empirically examined the effect of ebanking on
the performance of a sample of thirteen private commercial banks in Bangladesh
over the period of 2003 to 2013 based on questionnaires that were delivered to the
respective banks’ head office or MIS department through personal visits. The
findings show that ebanking starts to contribute positively to banks’ ROE with a
time lag of two years while a negative effect was found in initial year of adoption.
Overall, empirical findings of the study approve some findings in previous studies
that e banking has gradual positive effect on BP.

Nevertheless, Vekya (2017) sought to identify the effect of ebanking on the


profitability of fourty-three commercial banks in Kenya for the period of nine years
from 2007 to 2015 based on a census survey. Findings from multiple regression
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
442

revealed that there is positive significant association between ATM transactions and
bank profitability. Additionally, the study found a positive significant association
between POS transactions and bank profitability. The study reached at the
conclusion that mobile transactions do not influence performance of commercial
bank.

Identically, Kiragu (2017) aimed to examine the effect of e banking in Kenya on the
financial performance of the top five Kenyan banks providing ebanking based on
personal interviews with 60 respondents in addition to the application of both open-
ended and closed questionnaires. The key findings revealed that bank profits have
riseexcessively after the introduction of e banking in the banks included in the study.

Table 1. Summary of Previous Research Studies


Researche Time Country Sample Size Data Collection Key Findings
r (s) Period Method (s)
Siam _ Jordan 20 Banks Questionnaire The impact of e
(2006) banking on
banks
profitability will
be feature of the
short run.
Hernando 1994- Spain 72 Database of The impact on
and Nieto 2002 Commercial Banco de BP of
(2007) Banks España transactional
web adoption
takes time to
appear.
Onay et 1996- Turkey 14 Income The IB has a
al. (2008) 2005 Commercial Statements & positive effect
& Savings Balance Sheets on the
Banks performance of
the banking
system.
Malhotra 1998- India 85 Survey No significant
& Singh 2006 Commercial association
(2009) Banks between
adoption of IB
by banks & their
performance.
Karim & 2003- Jordan 15 Banks Bank Data There is an
Hamdan 2007 impact on the
(2010) use of MIS on
MVA, EPS,
ROA & NPM.
Leckey et 1998- Ghana 15 Banks BSC Maintain high
al. (2011) 2007 Framework levels of
investments in
IT increased
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443

ROA & ROE.


Agbolade _ Nigeria 3 Banks Questionnaire A positive
(2011) correlation
exists between
ICT & banks
profitability.
Sumra et _ Pakistan 15 Banks Interview E banking has
al. (2011) increased the
profitability of
banks.
Willy & 2005- Nigeria 4 Banks Annual IT expenditure
Obinne 2011 Financial has a negative
(2013) Reports relation with
bank
profitability.
Kholousi 2006- Iran 9 Banks Financial Electronic
(2013) 2010 Reports & services growth
Rahavard- has a
Novin Software remarkable
impact on banks
profitability.
Adesola et _ Nigeria 10 Branches Questionnaire Usage of ICT
al. (2013) of UBA contributed
Bank significantly to
the bank’s
profit.
Table 1. Summary of Previous Research Studies (Continue)
Ogare 2008- Kenya 44 Central Bank & There exists
(2013) 2012 Commercial Audited positive relation
Banks Financial between e
Statements banking & BP.
Binuyo & 1990- South Africa 4 Biggest Orthogonal The use of ICT
Aregbesho 2012 Banks Transformation increases ROC
la (2014) Approach & ROA.
Jegede _ Nigeria 5 Banks Questionnaire The deployment
(2014) of ATM
terminals have
improved the
performance of
Nigerian banks.
Victor et 2001- Nigeria 11 Banks' Annual Investments in e
al. (2015) 2013 Commercial Reports & CBN banking services
Banks Fact-Books & ATMs do not
improve BP.
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
444

Dehghan 2010- Iran 59 Branches Financial A significant


et al. 2012 in Mashhad Reporting relation between
(2015) Programs & IB & ATM &
Analytical profitability, as
Software well
insignificant
relation between
TB, MB, POS,
& EM &
profitability.
Asia 2008- Rwanda Kigali Bank Questionnaire Banking system
(2015) 2012 has a great
impact on BP.
Mensah 2011- Ghana 20 Rural Annual Investment in
(2016) 2014 Banks Financial Data ICT has little
impact on the
performance of
the rural banks.
Siddik et 2003- Bangladesh 13 Questionnaire E banking has
al. (2016) 2013 Commercial gradual positive
Banks impacts on BP.
Vekya 2007- Kenya 43 Census Survey There is a
(2017) 2015 Commercial positive
Banks significant
relation between
ATM & POS
transactions &
bank
profitability.
Kiragu _ Kenya 5 Top Banks Interview & Bank profits
(2017) Questionnaire have gone up
after the
introduction of e
banking.
Source: Developed by the Researcher

Based on the insights obtained from discussion and review of the literature, the
following conceptual framework displaying the relationship between independent
variables and dependent variable was generated (Figure 1). It could be realized from
the explained empirical literatures that the impact of ebanking on the performance of
banks provides diverse evidences and thus inconclusive. Some scholars noticed
positive impact, some perceived negative while other researchers have observed
mixed conclusions. Nevertheless, the newest studies appear to find a positive
relationship with BP. It could be contended that as the intensity in the usage of ICT
increases, the financial performance of multichannel banks is possible to enhance.
Consequently, after a comprehensive and extensive review of literature, and to
confirm the above findings the following hypotheses were developed:
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445

Figure 1. Conceptual Framework

Source: Developed by the Researcher

H1: There is a positive relation between adoption of ATM banking and banks
performance in Lebanon.
H2: There is a positive relation between adoption of internet banking and banks
performance in Lebanon.
H3: There is a positive relation between adoption of mobile banking and banks
performance in Lebanon.
H4: There is a positive relation between adoption of telephone banking and banks
performance in Lebanon.
H5: There is a positive relation between offering bank cards and banks performance
in Lebanon.
H6: There is a positive relation between offering POS service and banks
performance in Lebanon.

3. Research Methodology

3.1 Population and Sample Size

For the purpose of this research, the sample used comprises by fifty selected banks
out of sixty-five banks in Lebanon. Thus, compared to the population, the sample is
quite big, which makes it acceptable for drawing inferences (Table 2). The research
employed purposive sampling technique to choose the required sample of banks
from all banks operated in the country. The selection criteria put by the researcher
was first, the banks are operated in Lebanon, second the banks have websites, and
third they publish annual reports in their websites for a period of eight successive
years from 2009 to 2016 because this is the period that witnessed the major growth
of e banking services in Lebanon.
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
446

Table 2. Population and Sample Size


Population Sample
Lebanese Banks S.A.L. 32 29

Lebanese Banks S.A.L. Arab with Control 7 7


Arab Banks 7 5
Foreign Banks 3 1
Investment Banks 16 8
Total 65 50
Source: ABL, 2018.

3.2 Sources of Data

For the purpose of this research, the researcher has used secondary data sources to
examine the impact of ICT investments on financial performance among banks. Data
for the research were therefore retrieved from the annual reports of the banks under
consideration for a period spanning from 2009 to 2016. The data for relevant
variables comprises deposits, equity, investments, assets, admin expense, interest
income, net income, cash, cash equivalents, current liabilities, doubtful debts, loans,
number of debit and credit cards and number of ATM devices.

3.3 Measurement of Variables

Dependent Variable: A close look at the literature of firm performance demonstrates


that various measures have been adopted by the researchers to measure the
performance (Al Matari et al., 2014). Among them are ROA, ROE, NPM, EPS,
ROC, MVA and Net Profit. Although these measures are frequently used in previous
studies, this research has used CAMELS model- the newest tool today- to measure
the financial performance (FP) (the dependent variable) of the banking sector
following Fu Qiang and Sajid (2014), Asia (2015), as well as Muhmad and Hashim
(2015). This model is very effective, efficient and precise to be utilized as a
performance evaluator in banking industries and to predict the future and relative
risk (Rostami, 2015). CAMELS stands for Capital adequacy (CA), Asset quality
(AQ), Management capability (MC), Earning quantity and quality (EC), Liquidity
(LQ), and Sensitivity (SN) (Singh and Jain, 2017). Thus, the FP was measured in
this research based on six variables of the CAMELS models. First, a sub rating for
each variable of each individual annual report was calculated by the following
formulas: CA: total deposits/total equity (Ishaq et al., 2016); AQ: total
investments/total assets (Singh and Jain, 2017); MC: admin expenses/interest
income (Ishaq et al., 2016); EC: net income/total assets (Karapinar and Dogan,
2015); LQ: cash and cash equivalents/current liabilities (Ishaq et al., 2016); and SN:
doubtful debts/loans (Rostami, 2015). Second, a composite rating of each individual
annual report was computed. Third, rating from one to five was allocated for each
composite rating of each individual annual report (Table 3).
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447

Table 3. Composite CAMELs Ratings


Rating Composite Range Description
1 1.00-1.49 Strong
2 1.50-2.49 Satisfactory
3 2.50-3.49 Fair
4 3.50-4.49 Marginal
5 4.50-5.00 Unsatisfactory
Source: Ahsan, 2016.

Independent Variable: Since the aim of this research is to investigate the impact of
ICT investments on bank financial performance, thus ICT investments is the
independent variable. It was measured by: adoption of ATM - the number of ATM
systems install by the banks (Abebe, 2016), it takes the value of one if the number of
ATM ≥ 9 (median) and the value of zero if the number of ATM < 9. Adoption of
MB - it takes the value of zero if the MB activities is not adopted and one if the MB
is adopted (Halili, 2014). Adoption of IB - it takes a value of one if the bank has
adopted IB activities otherwise it takes the value of zero (Malhotra and Singh,
2009). Adoption of TB - it takes the value of one if the bank has adopted TB
activities otherwise it takes the value of zero. Offering BC - the number of debit and
credit cards issued by the banks (Ogare, 2013), it takes the value of one if the
number of cards ≥ 6 (median) and the value of zero if the number of cards < 6.
Installation of POS - it takes the value of one if the bank has offer the service of
installing POS machines otherwise it takes the value of zero.

4. Emperical Findings

4.1 Descriptive Statistics


This section presents the descriptive statistics of each dependent and independent
variables included in this research. The dependent variable of this study is FP
(measured by CA, AQ, MC, EC, LQ, and SN) and the independent variable is ICT
investments (measured by IB, MB, TB, BC, ATM and POS). The total observation
for each dependent and independent variable is 400 (data for 50 banks operating for
the period 2009-2016). The descriptive statistics include minimum, maximum, mean
and standard deviation of all research variables. Accordingly, the summary statistics
for all variables are presented below in Table 4.

Table 4. Descriptive Statistics of Variables


N Minimum Maximum Mean Std. Deviation (SD)
ATM 400 .00 1.00 .5100 .50053
MB 400 .00 1.00 .5400 .49902
IB 400 .00 1.00 .7000 .45883
TB 400 .00 1.00 .2000 .40050
BC 400 .00 1.00 .5200 .50023
POS 400 .00 1.00 .4200 .49418
FP 400 .00 1.00 .5900 .49245
Source: SPSS (20) Outputs.
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
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Table 4 shows that the average and the SD of ATM is 0.51 and 0.50 respectively
with a range of one as a maximum and zero as a minimum. This demonstrates that,
about 51% of the banks have more than nine ATM machines available at all their
branches that provide their clients 24-hour access to their accounts.

The average and the SD of MB is 0.54 and 0.49 with a range of one as a maximum
and zero as a minimum. This demonstrates that, about 54% of the banks in Lebanon
have applied ICT to their operations through easy to access MB applications.

On the other hand, the average and the SD of IB was found to be 0.70 and 0.45 with
a range of one as a maximum and zero as a minimum. Thus, IB has the highest mean
score. That is about 70% of tha banks have applied ICT to their operations through
IB. Then it seems that IB is the highest e-banking service offered by most banks
operating in Lebanon.

The lowest mean is detected for TB. Its average and the SD were found to be 0.20
and 0.40 with a range of one as a maximum and zero as a minimum. Then it seems
that TB is not used widely.

Moreover, the results indicate that the average and the SD of BC is 0.52 and 0.50
with a range of one as a maximum and zero as a minimum. This reveals that about
52% of the banks in Lebanon offer more than six different types of bankcards (debit
and credit cards) to suit the lifestyle requirements of their customers.

Furthermore, the average and the SD of POS is 0.42 and 0.49 with a range of one as
a maximum and zero as a minimum. This implies that about 42% of the banks offer
their clients the service of installing POS machines that allow them to make their
payments using their debit or credit card.

Lastly, FP has an average and SD of 0.59 and 0.49 with a range of one as a
maximum and zero as a minimum. This shows that about 59% of the banks in
Lebanon have satisfactory performance levels.

4.2 Correlation Analysis


Table 5 shows that all the independent variables have a significant positive
relationship with each other (Pearson’s correlation coefficients stand between 16.9%
and 54.0%), except for the relationship between POS with ATM and MB (Pearson’s
correlation coefficients stand respectively at 6.4% and 5.4%). Furthermore, Table 5
shows significant positive relation between FP and MB (Pearson’s correlation
coefficients stand at 29.1%) as well as between FP and IB (Pearson’s correlation
coefficients stand at 16.4%). These results reveal the existence of a low correlation
between independent variables (the correlation does not exceed 54.0%) and propose
that multi-collinearity is not a matter as the VIF values for the predictors are lower
than the threshold value of "3.3" (Kock and Lynn, 2012).
R.M. Mahboub

449

Table 5. Correlation Matrix of Variables and VIF Test


ATM MB IB TB BC POS FP VIF
ATM 1 .259** .493** .340** .540** .064 -.085 1.691
** ** ** ** **
MB .259 1 .447 .361 .238 .054 .291 1.357
** ** ** ** ** **
IB .493 .447 1 .327 .419 .292 .164 1.741
** ** ** ** **
TB .340 .361 .327 1 .280 .182 .061 1.286
** ** ** ** **
BC .540 .238 .419 .280 1 .169 .094 1.502
** ** **
POS .064 .054 .292 .182 .169 1 .091 1.147
FP -.085 .291** .164** .061 .094 .091 1
**. Correlation is significant at the 0.01 level (2-tailed)
Source: SPSS (20) Outputs

4.3 Regression Analysis


Multiple regression analysis was conducted to examine the impact of ICT
investments on financial performance of banks operating in Lebanon. The model is
as follows:
FP = β0 + β1 ATM + β2 MB + β3 IB + β4 TB + β5 BC + β6 POS + ε
where: FP: Financial Performance; ATM: Automated Teller Machines; MB: Mobile
Banking; IB: Internet Banking; TB: Telephone Banking; BC: Bank Cards; POS:
Point of Sale Terminals. The findings of regression analysis are summarized in
subsequent Tables 6-8.

Table 6. Model Summary


Model R R Adjusted R Std. Error of
Square Square the Estimate
1 .376a .142 .128 .45975
a. Predictors: (Constant), POS, MB, ATM, TB, BC, IB
Source: SPSS (20) Outputs.

The findings of the model indicate R of 0.376, R square of 0.142 and adjusted R
square of 0.128. This implies that 14.2% of the variations in overall FP of banks
operating in Lebanon is explained by the independent variables of the study
(adoption of ATM technology, adoption of MB, adoption of IB, adoption of TB,
usage of BC and adoption of POS system).

Table 7. ANOVAa
Model Sum of df Mean F Sig.
Squares Square
1 Regression 13.693 6 2.282 10.797 .000b
Residual 83.067 393 .211
Total 96.760 399
a. Dependent Variable: FP
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
450

b. Predictors: (Constant), POS, MB, ATM, TB, BC, IB


Source: SPSS (20) Outputs.

The ANOVA findings from Table 7 indicate F calculated of 10.797 and p-value of
.000; this is an indicator that the overall regression model was significant in
predicting the impact of ICT investments on FP of the banks in Lebanon.

Table 8. Coefficientsa
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
(Constant) .412 .046 8.948 .000
1 ATM -.275 .060 -.279 -4.592 .000
MB .286 .054 .290 5.331 .000
IB .124 .066 .115 1.872 .062
TB -.038 .065 -.031 -.582 .561
BC .127 .056 .129 2.250 .025
POS .044 .050 .044 .878 .381
a. Dependent Variable: FP
Source: SPSS (20) Outputs.

Table 8 shows that the coefficient of ATM has the negative unexpected sign (-.275)
and it is significant (.000). This signifies that ATM is significantly negatively
influencing the performance of the banks operating in Lebanon. Hence, hypothesis 1
is rejected. This result corroborates the results of the works of Benedict (2013),
Shehu et al. (2013) and Farouk et al. (2013) but oppose Hung et al. (2012),
Gichungu and Oloko (2015) as well as Jenevive and Anyanwaokoro (2017) who
found ATM banking had positively impacted on the bank FP. This result implies that
when there is a unit increase in the adoption of ATM technologies, the performance
of banks operating in Lebanon will decrease by .275. This is maybe due to the cost
of maintenance and the slight amount they charge customers for utiliizng ATM
which may not essentially offset the amount spent in purchasing and maintaining
such machines. Besides the latest initiative by several banks to cease charging their
customer when they take out from their own ATM or another bank’s ATM, the
financial consequence of purchasing and maintaining the ATM machine exclusively
lies on banks and not on customers. This may cause the banks in deeping their hands
into the banks profit to cater for such overhead cost. Furthermore, the likely
explanation for the observed association is that the costs accompanying with ATM,
which contains electronic infrastructures, continuing maintenance, depreciation and
employees training are greater than the revenues from ATM services in the Lebanese
banks (Farouk et al., 2013).

The coefficient of MB is positive (.286) and significant (.000). This indicates that
there exists a positive significant relationship between MB and the FP of banks in
Lebanon. This suggests that when there is a unit increase in the adoption of MB, the
performance of banks will increase by .286. Therefore, hypothesis 2 is accepted.
R.M. Mahboub

451

This result confirms the results of Mutua (2010), Kithaka (2014) and Munyoki
(2015), but contradict with Vekya (2017) and Jenevive and Anyanwaokoro (2017)
who found a negative relationship between MB transactions and bank profitability.
Thus, based on the findings of the study it can be concluded that MB provides banks
numerous opportunities for growing revenues. Specifically, it has resulted in more
profits for the banks through commission incomes and gradual drop in overhead
expenses especially staff and marketing expenses; it has lessened the transaction
costs for banks and customers and it hasallowed banks to aid more clients within a
shorter time as well as enhancing operations and decrease costs (Mwange, 2013).

The coefficient of IB is positive (.124) and insignificant (.062). This reveals that
there exists a positive influence of adopting IB on the FP of the banks, but it is not
statistically significant. This finding indicates that the adoption of IB does not
influence financial bank’s performance. Consequently, hypothesis 3 is rejected. This
result supports the work of Sathye (2005), Malhotra and Singh (2009) as well as
Khrawish and Al-Sa'di (2011) but confutes the results of Monyoncho (2015),
Mateka et al. (2016) and Barasa et al. (2017) who revealed that IB has positive
influence on the FP of the banks. This result can be explained by the fact that banks
in Lebanon use internet services as an aggressive business strategy to obtain market
share rather than for achieving profits (Arnaboldi and Claeys, 2008).

The coefficient of TB is negative (-.038) and insignificant (.561). This indicates that
there exists a negative influence of adopting TB on the FP of the banks, but it is not
statistically significant. This finding demonstrates that the adoption of TB does not
influence financial bank’s performance. Accordingly, hypothesis 4 is rejected.
Similar results were observed by Al-Hawari (2006) as well as Al-Hawari and Ward
(2006), and contradictory results obtained by Asia (2015) as well as Kihara (2015)
who concludes that there is a relationship between TB and FP. This result can be
explained by the fact that in a world with seven billion persons, five billion have
mobile phones and two billion have bank accounts (Halili, 2014). This seems that
TB have been replaced by MB due to its convenience, access to the service
regardless of time and place, privacy and savings in time and effort (Bhatt and Bhatt,
2016).

The coefficient of BC is positive (.127) and significant (.025). This points out that
there exist a positive significant association between offering different types of
bankcards and the FP of the banks in Lebanon. This suggests that when there is a
unit increase in BC usage, the performance of banks operating in Lebanon will
increase by .127. Therefore, hypothesis 5 is accepted. Same results are obtained by
Aduda and Kingoo (2012), Kyalo (2014) as well as Muiruri and Ngari, (2014). This
finding reveals that debit cards and credit cards are able of generating few incomes
for banks in Lebanon because of the convenience they offer to bank customers
(Ogare, 2013). These cards are also affordable to both the banks and the customers
and they do not need much maintenance costs both at acquirement and when in
operation. This makes cards quite attractive as a tool for carrying out transactions for
The Impact of Information and Communication Technology Investments on the Performance
of Lebanese Banks
452

customers and the banks. This great usage of cards appeals commission income for
the bank, which increases the bank profits (Agboola, 2006).

The coefficient of POS is positive (.044) and insignificant (.381). This indicates that
there exists a positive influence of offering the service of installing POS on the FP of
the banks, but it is not statistically significant. This finding demonstrates that
offering clients the service of installing POS machines does not influence financial
bank’s performance in Lebanon. Subsequently, hypothesis 6 is rejected. This finding
concurs with the findings of Alber (2011), Dehghan et al. (2015), Abebe (2016), and
Jenevive and Anyanwaokoro (2017). However, complementary findings were found
by Meihami et al. (2013), Njogu (2014), and Vekya (2017) which argued that POS
has a positive relationship with the performance of the banks. This result can be
clarified by the fact that the usage of POS terminals couldn't have been analyzed
independently, as it is affected by other available forms of payments, level of
competition among banks, kinds of products to be bought and transaction size
(Alber, 2011).

5. Conclusions, Limitations, and Future Research

The research aimed to look at the impact of the ICT investments that have on the FP
of fifty banks operated in Lebanon for the period from 2009 to 2016. Specifically,
the research was meant to establish whether there exists a relationship between the
dependent variable, FP measured by CAMELS framework and the independent
variables consisting of number of ATM machines, adoption of MB, IB, TB, number
of debits and credit cards issued to customers, and offering POS services, as
components of ICT investments.

The achieved results indicate that the application of MB and offering debit/credit
cards to customers significantly and directly affects the performance of the banks in
Lebanon. Thus, banks should focus to find a way to increase interest of Lebanese
consumers in MB applications by marketing these applications in a way that
increases the rate of consumer usage and adoption. Further, banks should compete to
attract more customers by offering them a range of bank cards -especially tailored to
fit their preferences and needs- that allow them to enjoy a list of privileges and
numerous services both locally and internationally.

On the other hand, the achieved findings of this research demonstrate that the
application of other core banking services such as ATM, IB, TB and POS terminals
does not significantly affect the performance of the banks in Lebanon. These results
yield a powerful evidence that the costs of adopting these applications by Lebanese
banks exceed their benefits. It seems that banks are investing greatly in new
technologies to take advantage of new IT and digital solutions to make their
operations more efficient, comply with regulators while at the same time increasing
interaction with customers in order to sustain competitiveness without taking into
R.M. Mahboub

453

cosideration banks' performance. Thus, banks are recommended not to exaggerate in


spending on ICT investments.

Hence, this research is an important contribution to the literature due to its findings.
It will assist policy makers to formulate policies that improve optimal utilization of
ICT resources rather than go into additional investments. However, this research is
not beyond limitations. This research was done solely on a sample of banks operated
in Lebanon. Future research can be extended to other financial markets such as
capital and insurance companies in order to recognize the implication of e-banking
on the overall financial markets in Lebanon. Similar studies can also be done for
other banks in other countries. The current research fully employed secondary data
and the analysis was fully based on financial data. However, secondary data
obtained from financial reports of banks can have potential bias. Thus, future
research is recommended to substantiate secondary data by primary data such as
interviewing. The current research uses only some representative financial ratios
from factors of the CAMELS model, the financial ratios included in the research
may not be comprehensive and sufficient to evaluate the bank’s CA, AQ, MA, EC,
LQ, and SN. Therefore, for the future researcher is recommended to consider
additional financial ratios.

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