Economic Analysis of The Impact of Information Communication Technology On The Nigeria Banking Sector

ABSTRACT
Effective communication links and computerized
system are a sine qua non for high quality service
delivery. With instantaneous access to information,
indentified shortage in markets are quickly
disseminated throughout a global network, thereby
ensuring efficiency, competitiveness, strengthening of
domestic services quality.
This agrees with Hanna (1994) who stipulated the
importance of information technology as follows:
1) It enhances access to global knowledge, markets
and capital.
2) It is critical tool for competition in an information
intensive economy.
3) It transforms the way people do things
4) It increase the amount of information available to
economic agents
5) It increase information intensity of processes,
occupations, institutions, products and economics
1
6) It reduces transaction and coordination costs
within and across institutions.
In this research work, the researcher will consider in
chapter one….the introduction of the study which will in
turn considers the following topics. The background of
the study, the statement of research problem, the
objective of the study, significance of the study, the
hypothesis and the structure of the work.
Chapter two focuses on the literature review, this
chapter is where the researcher extract materials from
various books, magazines, news papers and internet
resources. In chapter three, the researcher deals on
research methods while chapter four is data analysis
and presentation. The summary and findings are in
chapter five.
TABLE OF CONTENT
2
Title page - - - - - - - - - i
Certification - - - - - - - - ii
Dedication - - - - - - - - iii
Acknowledgement - - - - - - - iv
Abstract - - - - - - - - - vi
Table of content - - - - - - - viii
CHAPTER ONE INTRODUCTION
1.1 Background of the study - - - - - 1
1.2 Statement of the research problem - - - 14
1.3 Research objectives - - - - - - 20
1.4 Scope of the study - - - - - - 21
1.5 Significance of the study - - - - - 22
1.6 Research questions - - - - - - 23
1.7 Hypothesis - - - - - - - 24
3
1.8 Conceptual framework - - - - - 25
1.9 Theoretical framework - - - - - 35
CHAPTER TWO LITERATURE REVIEW
2.1 Theoretical literature - - - - - 54
2.1.1The concept of information - - - - 54
2.1.2Types and applications of information - - 56
2.1.3The importance of information- - - - 58
2.2 Empirical literature - - - - - - 63
2.3 Summary of literature and value added - - 72
CHAPTER THREE METHODOLOGY
3.1 Research design - - - - - - 75
3.2 Population - - - - - - - 76
3.3 Sample - - - - - - - - 76
3.4 Data collection and instrumentation- - - 77
3.5 Validation of the instrument - - - - 78
4
3.6 Reliability of the instrument - - - - 79
3.7 Administration of the research instrument - 79
CHAPTER FOUR DATA PRESENTATION, ANALYSIS
AND INTERPRETATION
4.1 Introduction - - - - - - - 80
4.2 Presentation and analysis of data - - - 81
4.3 Testing the hypotheses - - - - - 83
4.4 Research findings - - - - - - 86
CHAPTER FIVE SUMMARY AND CONCLUSION
5.1 Summary - - - - - - - - 88
5.2 Conclusion - - - - - - - 89
Reference - - - - - - - - 91
Appendix - - - - - - - - 98
CHAPTER ONE
5
INTRODUCTION
1.1 Background to the Study
The interface between technology, knowledge and
development in today's globalised world cannot be
overemphasize. presently there are four broad classed
of emerging technologies that are exerting deep
ongoing impact on industry, services and the society at
large. These are:
1. Information Communication Technology (ICT)
2. Biotechnology
3. New Materials and
4. Renewable energy technologies.(Kagbojola;
2005). Such technologies have impacts according to
Dos-Santos, Reffers and Mauer (1993 which could be
incremental (occurring continuously in the indutry
over a long time and at different rates often
associated with plant scale up, product and process
adjustments); radical (which are discontinuous events
which produce impulse for new markets), or change
6
agents of the techno -- economic paradigm (being at
the heart of Schumpeter's theory of long waves that
technological revolutions embody many clusters of
radical and incremental innovations which exert
pervasive effects on the economy to create new
technical and organizational modes).
Out of the emerging technologies, information
communication technology can be described as a new
techno-economic paradigm which has experienced the
most rapid development and taken the field of micro
electronics, informatics, data processing and
communications into areas of life which only a few
years ago were an exclusive preserve of space and
advance manufacturing systems. ((Kagbojola; 2005).
Its growing applications of robotics, media electronics,
optical fibers and digital networks are radical
technological innovations. The nature of response and
challenges of such technologies are equally
fundamental because generic technical innovations
7
alter the fundamental nature of product and processes.
It has influenced greatly information transmission
between and within organizations in multifarious
dimensions.
With respect to the banking sector, the utilization of
information communication technology has increased
attention from bankers and other financial services,
industry participants and policy makers. This is
partially due to the rapid and significant growth in
electronic commerce and the notion that electronic
banking and payments will likely advance more in
tandem with electronic commerce. In addition,
industry analysis's outlining the potential impact of
electronic banking on costs, savings, revenue growth
and increased customer convenience have also
generated considerable interest and speculation about
the impact of information communication technology
on the banking industry.
It is upon this premise that various scholars such as
8
Wilson (1993). Frei and Harker(1997). Freund, konig
and Roth (1997), Radeck, Wenninger and Orlow(1997),
James (1999). O'Sullivan (1998, 2000) and others
have been engaged in unending discourse on the
positive payoffs emanating from the utilization of
information technology in various enterprises. Such
academic debates have resulted in the birth of the
term information technology productivity paradox'
which is concerned with appraising the impact of
information technology on operational efficiency and
the productivity of organisations. A cursory look at the
industry level studies of the nineties such as the works
of Wilson (1993), Jordan, John and Katz(1999), Furst,
Lang and Nolle (1998) portray that in many instances a
positive correlation is posited between increased
investment in information technology and productivity.
On the contrary, other works, such as those of
Strassman (1990), Morrison and Berndt (1990), Dos-
Santos and other (1993) show that additional
investments in information technology does not
9
necessarily contribute positively to productivity. Such
works argue that the estimated marginal benefits are
less that the estimated marginal costs; hence there is
insignificant correlation between increased investment
in information technology and profitability measures,
Briynjolfsson and Hitt (1996) 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.
Some other researchers such as Loveman (1994),
Lichtenberg (1995) and others emphasize the need to
asses the differing impacts of information technology
utilization at the firm level. Loveman in his work
complied data from the Management Productivity and
Information database (MPIT). He discovered that the
utilization of information technology made no
significant impact to the out of manufacturing firms.
Lichtenberg in his work obtained his data from yearly

10
surveys conducted from the eighties to the nineties by
Computer world magazines. Using the Code Douglas
production function as his theoretical framework, he
estimated a positive correlation between increased
investment in information technology and the
productivity of firms. In addition, the International
data Group (IDG) usually compiles on a yearly basis,
details of expenditures made by firms on information
technology while the Standard and Poor's Compustat
11 database provides various measures of output and
non information communication technology expenses.
These two sets of data were analyzed by Brynjolfsson
and Hitt (1996). He made two interesting discoveries;
that information communication technology staff were
twice more productive than their non information
communication technology counterparts. In addition,
computer capital contributes over eighty percent
marginal increase in output whereas the contribution of
non information communication technology capital is as
low as six percent.
11
In spite of the differing views about the impact of
information communication technology, its revolution
in recent years aptly captured by the establishment
and access to global networking of information systems
has positively influenced time and space in the sending
and retrieving of information both within and across
diverse organizations, nations and regions. This
development has brought about drastic changes in the
way in which decisions are reached and policies
implemented. Countries and organizations with
electronic communication networks arising from
innovations in information communication technology
has made practicable on line access to a variety of
technical and non technical information, turning the
world into a virtual workplace. In facilitating the move
towards a more open and inclusive global system, the
global search for efficient and effective solutions to
pressing and often complex local, regional and global
problems. This is of course a key element in the global
quest for sustainable national and regional
12
development in developing countries.
The diffusion of information communication technology
innovations embodied in a vastly improved computing
and telecommunications capacity has generally been
weak especially in Sub-Saharan African countries.
However, a strong interest in its adoption to provide
information services has emerged in recent years in
the continent for two main reasons. First of all, the
revolution in information technology has resulted in
computer hardware becoming cheaper and more
readily available. Secondly, the value added or the
substantial utility of information communication
technology in the provision and access to information
services for improved planning and management has
become more widely recognized.
An overview of the global production and use of
information technology in Africa reveals that for over
thirty years, technological innovation has fueled
unprecedented advances in digital computing capability
13
in the fields of semi-conductor technology (the
foundation on which the information communication
industry is built), recording technology and
telecommunication capability (Frenzel; 1996).
Developing countries are following export led growth
examples of newly industrialized Asian economics by
becoming suppliers and investors of information
communication technology. However these
technologies have continued to be inaccessible to many
people in Africa. According to Mansel and Wehnll
(1980), though information communication technology
can be seen to attribute to economic growth, they also
introduce new challenges in Africa supporting the
notion that growth in its use is often thought of as a
cause of economic growth. Telecommunications
infrastructure is more broadly dispersed and developed
than other measures of information technology though
its diffusion is often compounded by problems of cost
allocation, geographic and climatic conditions,
procurement practices of operations, equipment design
14
and other architectural issues for several years.
However the convergence of computing and
telecommunications and the prevailing movement
towards regulation seems to have fostered an
increasing wave of mergers and alliances.
Infrastructure financing has also been one of the active
areas in international financing in recent years. For
example. IDRC has taken over the lead in financing
African electronics networking initiatives (Computers
and communication in Africa: 1994). Africa has started
shifting from state owned telecommunications
monopolies in the past decades to make way for
private sector participation. Nevertheless information
communication technology development in Africa is
poor compared to the rate of development in other
countries. According to ITU (1998) in the nineties
internet users in Africa is 1.3 percent while that of
America is 49 percent. Tele density for Africa is just
1.66 percent and international telephone traffic per
subscriber is over two hundred minutes per year but
15
overall traffic per inhabitant is less than one minute
probably due to growing debt burdens, high population
growth rate and civil disturbances.
In Nigeria, the adoption level of information technology
in the nineties in terms of availability and utilization is
at an average of 52 percent while the frequency of
utilization is about 56bpercent. (Vanguard; 1998).
According to the report, there are about seven
computers per one thousand persons in Nigeria. Which
indicates very low computer availability. Mansel and
Wehill (1998) used the footprint analysis' which refers
to infrastructure, experience, skills and knowledge
(INEXSK) to compute inter country index values for the
adoption of information communication technology.
The values they obtained are presented as follows in
Table 1.
Table 1: Index values on the diffusion of information
technology for selected countries.
Type of JAPAN NIGERIA FRANCE GERMANY UNITED UNITED
16
ICT KINGDOM STATES
Personal 68 0.38 60 74 60 147
computers
Main lines 72 0.36 82 72 74 92
Internet 22 0 22 60 78 238
hosts
Television 101 5.5 95 90 100 127
sets
Source: Mansel and Wehill (1998) Knowledge,
societies, information technology for sustainable
development
Table 1 shows very low index values for Nigeria
compared to other countries. This unsatisfactory state
of affaires according to ITU (1998) brought about a
greater desire for universal access to information
technology facilities in developing countries. Hence
within the past seven years, fiscal policies have been
used to encourage increased consumption of ICT
facilities in Nigeria. Unfortunately foreign exchange
restrictions have adversely affected technology inflow
and it availability. In addition, there is still low level of
computer spending per gross domestic product which
is estimated al less than 0.5 percent. The installation
of the global service mobile communication system and
17
greater private sector participation has helped to
improve the diffusion of information communication
technology in the Nigeria economy. This is based on
the fact that the substantial utility of information
communication technology in the provision of an
access to information services for improved planning
and management has become more widely recognized.
With respect to the banking sector (which is
fundamentally a service industry which thrives on a
series of informational transactions based on shared
concepts, procedures and relationships that enable
commodities and funds to flow within and among
regions), information communication technology
diffusion has taken place to a great extent. Many banks
are deviating from the use of manual record keeping
and transactions to micro banker training soft wares
and packages. This is based on the purview that with
increased competition, new electronic services are
likely to sharply accelerate the global retail financial
services by making delivery systems more efficient,
18
reducing prices and spreads, undermining geographic
and segment barriers and increasing customer value
and convenience. In line with the foregoing historical
developments, it becomes imperative to assess the
impact of information communication technology on
various sectors; in this instance the banking sector in
order to determine empirically the extent to which the
expected contributions from its adoption have been
realized in the Nigeria banking industry.
1.2 Statement of the Research Problem
The banking industry is one of the critical sectors of the
economy whose contributions to the pace and pattern
of economic development is well established. The neo-
classical production theory has identified capital and
labour among others as crucial factors, which
determine growth in output. The quality of labor
implicitly affects productivity and growth in output. In
relation to capital, the development of innovative
capacities is needed for its utilization, improvement
and sustainability, unfortunately changes in today's

19
modern world have shown that the abundance of
qualified labor and capital are no longer sufficient for
global competition. According to Hanna (1994),
information, flexibility and fast response are the keys
new factors and ICT plays a critical role in these areas.
According to her:
IT transforms the way people do things, increasing the
amount of information available to economic agents,
information intensity of processes, occupations,
institution, products and economies. It enhances
workings of markets, reduces transactions and co-
ordination costs within and across enterprises and
institutions. This is why the interface between
knowledge and technology in today's globalized world
cannot be overemphasized in achieving sustainable
development. In fact the distinction between
developed and developing nations according to the
United Nations Center for Science and Technology lies
in the access to information technology. African
countries are generally classified as underdeveloped

20
because of the relatively low level of their scientific and
technological development. Some of the commonly
expressed priorities of African countries, according to
Forje (1987) include inculcating a science and
technology tradition and consciousness in the society
and evolving technological potentialities. An assertion
at the 1982 Harare meeting of Ministers of Education is
that:
'Science and Technology form the basis of
industrialization, the fact that they can be used as such
effective instruments and vehicles of development
means that the entire population must be associated
with scientific and technological advance.
This buttresses the fact that the importance of
information communication technology cuts across
sectors, Even in the educational sector, Obeka (1991)
has recommended information technology as an
effective tool for the reduction of instructional time
because it ignites student's interest and enhances their
21
understanding of subjects. Based on this realization,
the 1981 Nigerian Policy on Education and 1986
science and technology policy have emphasized science
and technology at all levels of education and the
provision of well equipped laboratories with information
communication technology equipment. Hanna, Guy
and Arnold (1995) noted that, the use of information
technology improved operational productivity of
Singapore Ports. With respect to the banking industry,
information technologies have improved internal
efficiency and inter-bank operations in Brazil and other
nations. (Frischtak 1993; Aiwenmobor, 1991; Ojo,
1991; Ekechi, 1990 and Unchendu; 1990).
A cursory look at Nigerian development plans and
target objectives of the banking sector reiterates the
need to strengthen and improve information
technology utilization in order to galvanize the nation
for development. The need is especially important to
reduce manual record keeping, banking time; grapple
with increasing challenges with inter bank operation

22
and global retail financial services with an attractive
diversified product mix. This is base on the premise
that banking is fundamentally a service industry based
on information in form of discounts, interest rate prices
and other information which enable customers make
implicit decisions about saving or spending. Hence the
growth of electronic commerce and banking and its
potential impact on cost, savings, revenue growth and
increased customers convenience has generated
considerable interest and speculation within the
present decade.
Beyond this revolution in the banking sector, there is a
critical problem. Put differently, how far has the
utilization of information communication technology in
the banking sector been able to achieve the objectives
guiding its acquisition. According to Hanna and Boyon
(1990), assessment of the impact of information
communication technology on sectors is in important
because there is insufficient empirical analysis of the
23
payoff of information technology utilization in
developing countries. kajobola (2004) also noted that
in Nigeria, though preliminary investigations reveal
that some organizations have adopted information
technology, there are no formal studies to determine
the level of adoption and impact on the efficiency of
such organizations and the consequent effect on the
Nigeria economic.
Hence after many years of the adoption of information
communication technology in the banking sector, it is
pertinent to evaluate its impact on their productivity,
profitability operational efficiency, capacity building
and employment structure. If significant impacts have
been made by utilizing information technology
facilities, there is need for policies to encourage both
the sustainability of such impacts and greater
investment in information technology gadgets.
Therefore the problem of this study is to determine
empirically the impact of the use of information
communication technology on the performance of the
24
Nigeria banking sector.
1.3 Research objectives
The general objective of this proposed study is to
assess the impact of information communication
technology on the Nigeria banking sector and formulate
strategies for policy reforms based on constraints
noticed at implementation levels.
Specifically, the study has been designed to
achieve the following:
1. To determine available information
communication technology facilities in Nigeria banks
and their level of adoption.
2. To determine the impact of information
communication technology on the efficiency of the
banking industry.
communication technology on the productivity and
profitability of the Nigerian banks.

25
communication technology on employment structure
and staff development in Nigeria banks.
5. To offer policy recommendation for more effective
adoption of information in Nigeria banks.
1.4 Scope of the Study
The scope of this study is restricted to banks that
have been in existence for at least seven years.
This scope is chosen because such banks have a
history of pre and post information technology
adoption experiences, which the study is
structured to capture. The scope of the study will
also focus on evaluating the impact of information
communication technology adoption with respect
to profitability, productivity, operational efficiency,
capacity building of staff and employment
structure in Nigerian banks.
1.5 Significance of the study.
The importance of banking sector in natural

26
development and life cannot be overestimated. It
does not require much effort to discern that success in
achieving the laudable objectives of this sector
depends on her ability to adopt a firm of technology
which will contribute effectively to its productivity,
competitiveness, profitability and efficiency.
Information communication technology is an
instrument par excellence in providing the banking
sector with a backing for greater effectiveness. Hence
this study will be of much importance to manufacturers
of ICT product, bankers and policy makers. First of all,
this study will provide empirical information as to the
notable impacts of ICT in the Nigerian banking sector
which is seemingly lacking in current researches. It
will enable bankers and others firms to increase
investments in ICT facilities based on noticeable
payoffs. Policy makers on the other hand will better
equipped to modify laws concerning ICT importation.
manufacturing and adoption in order to encourage
greater utilization by sectors.
27
1.6 Research Questions
The following research questions are formulated to
guide the study:
1. What are the available information communication
technology facilities in Nigeria banks and their
level of adoption?
2. What is the impact of information communication
technology utilization on the efficiency of the
banking industry?
technology on the productivity and profitability
of Nigerian banks?
technology on employment structure and staff
development in Nigeria banks?
1.7 Hypothesis (p<0.05)
The following null hypotheses are formulated to guide
the study:
28
HO1: There is no significant difference in the
productivity of Nigerian banks pre and post adoption
of information communication technology.
HO2: There is no significant difference in the
profitability of Nigeria banks pre and post adoption of
information communication technology.
1.8 Conceptual Framework
The framework adopted in this proposed research
follows a synthesis of the works of Hanna (1995, 1994
and 1990),Barnett (1993), Forje (1987) and others.
The concept of technology stands at the center of
many critical issues facing the development of any
society. However, many people tend to associate
technology with products and techniques (or hardware)
and this association may be particularly prevalent in
developing countries. Nevertheless, Barnett (1993)
stated that technology may be broken into at least four
components namely:
29
Technique- The specific configuration of machines
and equipment required to Produce a good or service
(often regarded as hardware) Knowledge-Comprising
Knowledge of science and technology, skills,
experience, Know-how and attitudes (often regarded
as software) Organization- The institutional
arrangements by which the technique and knowledge
Are combined, and the means by which they are
managed; Product- The good or service resulting from
all the above.
Technology includes all software applied in the
production of goods and services. This covers all skills,
knowledge. Processes and methods used to carry out
man's activities. Hence, technology in the context of
the above is taken to stand for those practices,
techniques and inputs whose resources requirements is
locally available and meet the needs of the user on a
sustainable basis. According to Forje (1987),
technology is an instrument of socio-economic
development meant to strengthen endogenous
30
scientific and technological capacity. These objectives
are the same with the objectives behind the
introduction of information communication technology
in the banking sector. Hence technology is
conceptualized as an instrument which can be used to
improve banking performance.
Information is perceived as facts, data, news and
knowledge. It is a symbol of political potency and
economic prosperity, carrying implications for
relationships between nations. Hence information is
conceptualized as data processed in useful form. it can
be delivered orally, visually, as data, text or through
graphics.
Information technology on the other hand, is the
acquisition, processing, storage, dissemination and use
of vocal, pictorial, textual and numerical information by
a microelectronics based combination of computing and
telecommunications, Its various types are the compact
disc, Read-Only Memory (CD ROM). Computer

31
networks, Desktop publishing, Expert system,
Geographic information systems, Interactive Video disc
(IVD) Packed radio, Radio and interactive Radio,
Video cassettes, satellite communications and such
like. Its softwares are multifarious ranging from
Microsoft word, Spreadsheets (such as Lotus excel
etc.). Data base Management systems. Statistical
packages (for example SPSS, SAS etc), User written
programs, Fault Diagnosers, Micro banker, Oracle,
Insurance accounting etc. These can be used for data
analysis, information processing, storage and retrieval
of data, information dissemination, CD ROM searches,
peer review groups teleconferencing general
management, forecasting, graphics/education
modeling, simulation and such like. It is essentially the
product of advances in three key areas of computing,
telecommunications and microelectronics.
Computing in this instance is conceived as a
32
conglomeration of electronic and other devices that
perform prescribed operations on coded data. It
consists of hardware and software.
Telecommunications is the exploitation of technologies
to create a worldwide communication infrastructure,
which transmits not just voice but text, data and
image, Microelectronics comprises core-enabling
technologies, which enable computers and
telecommunications to work. Hence IT spans a
definitional spectrum that includes microprocessors.
cable access television, fiber optics, satellites, teletex,
word processing electronic mail, video, robotics, etc.
the basic expected linkages existing in the utilization of
information communication technology in the Nigerian
banking sector is conceptualized as shown in Figure1
Productivity as a concept involves the transformation
of resources into final goods and services. The
relationship between inputs and output is a
technological relationship which economists summarize
33
in a production function. Production is the creation of
wealth which adds to welfare. It is a vital link in the
process of satisfying unlimited wants subject to
available resources. It is measured by comparing the
amount produced with time taken or resources used to
produce it. Production function involves and can
provide measurements of marginal productivity of
factors of production, marginal rate of substitution and
elasticity of substitution, factor intensity, efficiency,
efficiency of production and returns to scale. The basic
theory of productivity usually concentrates on the
range of output over which the marginal product of
factors although positive, decrease or over the range of
diminishing (but non negative) productivity of factors
of production. Alternatively, productivity. theory
concentrates on levels of employment of the factors
over which their marginal products are positive but
decreasing. According to koutsoyiannis (1979), its laws
describe the technically possible ways of increasing the
level of output.
34
The concept of efficiency on the other hand seeks to
produce improvements in statuesque and satisfactory
results with minimal wastages. This takes place when
changes in the organization of production and
distribution are beneficial an contributes positively to
social welfare. With respect to production, efficiency
occurs when an economy is employing all its factors of
production in efficient combinations so that it operates
within its production possibility frontier. With respect
to exchange, efficiency occurs when it is possible to
redistribute a given stock of goods and services in such
a way that it benefits someone else without harming
another. This is similar to the concept of efficiency in
output mix. In line with the foregoing, Efficiency in the
banking sector is conceptualized as having practical
indices such as diversified product mix, positive
improvements in employment structure and service
delivery time for things like bank transfers, clearing of
cheques, checking of bank balances, production of
35
bank statements and such like.
Staff development or capacity building of manpower
with respect to the adoption of information
communication technology as a wide terms, is
conceptualized as the specific activities and
mechanisms by which technological capacities is
acquired. This includes formal training and non-formal
training programs for capacity building of manpower.
formal here is used to provide the foundation of other
forms of learning activities or programs. The merger of
technological learning and adaptation produces
capacity building of labor at the end of the continuum.
Profitability on the other hand, is a major goal of any
firm or industry. It is the ultimate output of a
company; the difference between the total revenues
and expenditures. It is a conceptually sound method
of appraising investment projects for it gives due
consideration to the time value of money. Calculation
36
of profitability helps firms solve the problem of
choosing among alternative projects provides a means
for distinguishing between acceptable and
unacceptable project, provides a ranking of projects in
order of desirability and acts as a criterion which is
applicable to any conceivable investment. It can be
determined through traditional approaches such as the
payback period or accounting rate of return or through
the discounted cash flow criteria which indicates the
use of the net present value, internal rate of return or
benefit cost ratio. In fact because of the utmost
importance of the capital budgeting decision, it is
imperative to measure the economic worth of such
investment project through its profitability. With
respect to the banking sector, profitability analysis is
conceptualized as determining earning per share
(dividing earnings after in interest and taxes by
outstanding common shares) or return on equity
(dividing earnings after in interest and taxes by share
capital plus reserve and surpluses) or return on assets
37
(net profit divided by total asset) and so on.
Nigerian Banking sector prior to

nineties
Little exposure to information communication

technology
Result?
Manual handling of large volume of transactions
Delays in
Long Restricted Confirmatio Long
Customer Interbank n banking
queues operations Of balances, time
clearing of
cheques
and other
services
Increase customers inconveniences, low operational

efficiency and high cost of production.
Need for adoption of information communication technology

in Nigerian
banks
Increased Increased
Diversified Faster
Capacity of profitabilit
Product service
building of y and
mix Delivery to
staff and productivit
customers
positive y
changes in
38
structure of
employment
Increase in operational efficiency of Nigerian Banks

Fig 1: A flow chart showing the expected impact
information communication technology in the
banking sector
1.8: Theoretical Framework
The role of technology in any sector may be
exaggerated or underestimated. According to Oscamp
and Spacapan (1992), technology is probably the most
dominant influence on life in the modern world.
According to KIkup and Keller(1992), technology
torches every aspect of our lives, coping with all needs
in a practical way. Other researchers such as Inkster
(1991), Bauchi (1990), have all noted that technology
is an instrument for socio-economic development. The
utilization of present day technology is the
39
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
Gunaratne (1996), 'as some economic historians would
assert, the pervasiveness of information technology or
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 on
economic sectors. A synthesis of the works of Chief
Information Officer (1992) and Strassman (1990) show
that the impact of IT on sectors could be assessed
through the following models:
(a). Balanced Score Card Model: Under this
method, four inter related operational and
financial measures are used. These measures
center on customer's view of organizational
performance, line manager's view of internal

40
processes, strategic manager's view of innovation
effects and the shareholders view of financial
rewards.
(b). Information Economics Model: Relative
weights are assigned to tangible and intangible
corporate 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 of errors and oversight.
(c). Impact Focus Strategy Model: This approach
relies on the listing 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.
(d). The Value Framework Model: This method
uses a grid to define multiple impacts of an
information system based on two dimensions
namely impact and value. The value dimension
includes additional service/product quality cost by
technology. The impact dimension included time
41
compression of processes, overcoming geographic
restrictions and restructuring business
relationships.
(e). Alternative Payoff Scenarios Model: The
value of information technology investment is
calculated by determining how the value of
generated information leads to payoff. This
payoff is compared with the payoff without
information technology by quantifying impacts in
non monetary terms, quantifying monetary
benefits from associated improvements. These
net profit effects are compared with expected net
profits from changed decisions and processes
without information technology.
(f). The Return on Management Model (ROM):
Information technology here is regarded as a tool
primarily to improve managerial performance.
management outputs and inputs are compared at
a ratio at management value added; the lower the
ratio, the lower the ROM and vice versa.
42
(g). Embedded Network Productivity
Measurement Model: This approach predefines
measurement parameters, which are built into
network management software, and real time
indices of compliance with performance targets
are generated.
The framework adopted for this study is the impact
focus strategy model propounded by the Systems
Research Center, Boston University. The model relies
on the listing of benefits anticipated by an organization
at onset of systems implementation. Benchmarks,
which the system must meet in order to have an
impact, are also created. the benefits anticipated in
this instance are improved operational efficiency,
productivity and profitability of the banking sector.
Hence as this study proposes to determine the extent
to which the use of information communication
technology have impacted on these afore-mentioned
benefits, the impact focus strategy model is deemed
43
best suited above other models for such a kind of
study.
In order to empirically determine the returns from
investments in information communication technology
by sectors, the most widely used methodology is the
production theoretical framework (Loveman; 1994,
Lichenberg; 1995 and Baba and Parker, 1997).
According to Parsons, Gotlieb and Danny (1993), in the
absence of measures of actual benefits associated with
information communication technology (ICT), it is not
possible to perform cost benefit analysis of ICT
investments and thus production functions which relate
to ICT spending to overall productivity or output
measures are seen as the best alternatives. Berdnt
(1994) noted that production function techniques are
quite good and reliable. Loveman (1994) and
Lichtenberg (1995) noted that many studies on
impacts of ICT on productivity use Cobb Douglas
production function for their empirical analysis.
According to Prasad and Harker (1997), the choice of

44
the form of production function is constrained by
economic theory which requires that conditions such as
monotonicity and quasi concavity be satisfied. However
Berndt (1991) noted that one of the simplest most
prove production functions for decades which satisfies
such condition is the Cobb Douglas production function
theory which states that
Q = Q = Ala1 Ka2 Ma3
Where Q is the output rate; L is the quantity of labor;
K is the quantity of capital; M is the quantity of raw
materials and A, a1, a2 a3 are the associated output
elasticity parameters that vary from case to case. It is
of course true that in the estimation of the Cobb
Douglas production function, a relatively high
correlation may be expected between the independent
variables. Nevertheless Kennedy (1985) noted that
the existence in which the researcher is set does not
necessarily mean that the coefficient estimates in
which the researcher is interested in have unacceptably
45
high variances. Most studies on assessment of the
impact of information communication technology on
productivity have used this model and obtained reliable
estimates. Some of such works are those of Loveman
(1994), Lichtenberg (1995), Brynjolfsson and Hitt
(1996) and others.
While production functions have been used by various
studies in the past, it is imperative to mention that
production function approaches, addresses both
impacts on productivity and profitability. With respect
to productivity, an impact analysis of ICT investments
make positive contributions to output after deductions
for depreciation and labor expenses have made. On
the other hand, profitability studies are concerned with
whether ICT investments contribute to profits of the
firm or its stock market value.
The major problem of productivity studies with respect
to the banking sector is on the issue of what
constitutes the output of a bank since ICT investments
46
must make positive contribution to output for it to have
an acceptance impact. According to Berger and
Humphrey (1992) there are various approaches for
evaluating the output of banks which may be classified
into three namely; the asset approach, the user cost
approach and the value added approach.
According to Baba and Parker (1997), the asset
regards banks as financial intermediaries between
borrowers and depositors. In this approach, loans and
other assets are regarded as bank output while
depositors and other liabilities which provide the
finance and equip banks with the capacity to 'sell'
finance are regarded as bank inputs. Mester (1987)
noted that under this approach inputs refer to labor,
capital and deposits while bank outputs are the dollar
value of the earning assets of the firm. Triplett (1992)
however criticized this by saying that it fails to
recognize the services a bank provides to depositors in
return for the finance they provide to it.
47
The user cost approach on the other hand focuses on
the net contribution of each of the financial products to
the banks revenue. It assumes that if assets financial
returns are more than its opportunity cost, it becomes
an output as does a liability whose financial cost are
less than its opportunity cost. The assets and liabilities
which fail to satisfy these conditions become inputs.
Hancock (1991) utilized this approach where regarded
loans as banks output with demand deposits and time
deposits as inputs. This approach however is not free
from problems. According to Berger and Humphrey
(1992) it is difficult, if not virtually impossible to
measure and unambiguously apportion financial
returns and opportunity costs among the various
financial products of a bank.
The value added approach according to Baba and
Parker (1997) or the activity approach studies all
assets and liabilities as having some output
characteristics without grouping them into output or
input exclusively. Benston, Hanweck and Humphrey

48
(1982) posited that output should be measured in
terms of what banks do that cause operating expenses
to be incurred. In line with Berger and Humphrey
(1992) argued that the value added for each financial
measures of the bank should be determined on the
basis of operating costs and those that have significant
value added should be considered as the outputs of the
banks.
Another measure that is often considered
representative of a bank's output and one that is
relevant to this proposed study is based on the works
of Lichtenberg (1995) and Bryjolfolsson and Hitt
(1996). Revenue is regarded as output of the few
banks they studied. Unfortunately econometric studies
of the banking industry do not use revenues as an
output measure. This is because revenues are often
both inputs and output for example in the case of
interest and fees derived from loans can be considered
as output, but often borrowers are required to hold idle
deposits as a condition for loans and such deposits give

49
rise to implicit revenues. Hence this makes revenues
an unreliable guide for determining outputs (Berger
and Humphrey; 1992).
Acc to Baba and Parker (1997), with respect to the
issue of profitability, several studies in competitive
strategy have posted that the competitive environment
in which firms operate have significant effects on the
returns from ICT investments. Porter (1980) noted
that in a free competitive market, firms cannot gain
sustainable competitive advantage from technologies
that are available to all. It is only when a technology
creates significant barriers to entry that it becomes
profitable to invest in it. Hence ICT that is freely
available to all firms according to him does not provide
any sustainable competitive advantage to the firm in
such an environment. Clemons 919910 posited that
ICT investment is more of a strategic necessity rather
than a provider of competitive advantage. Thus, the
firms investment in ICT should not be associated with
supra normal profits. This gave rise to the profitability
50
oriented hypothesis suggested by Bryjolffosson and
Hitt (1996) which states that ICT investment make
zero contribution to profits or stock market values of
the firm.
In spite of these varying dissenting views, theoretically
profitability can be calculated in relation to sales or to
investment. Each company should be able to produce
adequate profit on each item of sales. If sales do not
generate sufficient profits, it would be very difficult for
the firm to cover operating expenses and interest
charges and as a result, will fail to earn any profit for
owners. The profitability of a firm can also be
evaluated in terms of firm's investment in assets and in
terms of capital contributed by creditors and owners.
If such a firm is unable to earn a satisfactory return on
investment, its survival is threatened. The following
approaches can be used to determine a firm's
profitability according to Pendey (1981)
a) GROSS PROFIT MARGIN: This profitability ratio
51
in relation to sales is determined by dividing the gross
profit by sales. This will reflect the efficiency
with which the management produce each unit of
product. The ratio also indicates the average spread
between cost of goods sold and the sales revenues.
b) NET PROFIT MARGIN: This is obtained when
operating expenses and income tax are
subtracted from the gross profit. The net profit
margin ratio is measured by dividing net profit
after tax by sales. This ratio indicates the firm's
capacity to withstand adverse economic
conditions; it establishes a relationship between
net profit and sales and indicates management's
efficiency in manufacturing, administering and
selling the products, It is the overall measure of
the firm's ability to turn each items of sales into
net profit in order to achieve a satisfactory return
on owner's equity.
c) RETURN ON INVESTMENT: The term
investment here refers to total assets, capital
52
employed or the owner's equity. Accordingly,
many profitability ratios in relation to investment
can be calculated such as:-
i) Return on Assets: The return on assets or profit
to assets ratio is net profit divided by total
assets. This excludes interest charges from the
net profit figure. However, in order to arrive at
real earnings, the interest charges are included in
the net profit after taxes such that return on
assets is net profit after taxes plus interest
divided by total assets. Sometimes a further
modification is introduced. The intangible assets
are excluded from total assets such that it is
calculated as net profit after taxes plus interest
divided by total tangible assets. This measure
evaluates the use of total funds without any
regard to its source. It also evaluates the
performance of division in the multi-divisional
form.
53
ii) Return on capital employed: Capital in this
instance includes permanent capital (non current
liabilities plus shareholders equity) Alternatively,
it is equal to working capital plus non current
assets. As with total assets, there are three
variations of the return on capital employed
given as:-
• Net profit after taxes divided by capital employed
or
• Net profit after taxes plus interest divided by
capital employed or
• Net profit after taxes plus interest divided by
capital employed less intangible assets.
This measure indicates how well the management
has used the funds supplied by owners and
creditors.
iii) Return on shareholders equity; This is sometimes
called the net worth which includes common share
capital, preference share capital, premium and
reserves and surpluses less accounted losses. It

54
can be calculated by dividing net after taxes by
shareholders equity. This ratio reveals the relative
performance and strength of the company in
attracting future investments. The other measures
for calculation of profitability are as follows:-
d) EARNINGS PER SHARE: This is obtained by
dividing the net profit after taxes less preference
dividend by the total number of common shares
outstanding. This reveals the profitability of the
firm on a per share basis but not how much is
paid as dividend or retained in the business.
e) DIVIDENDS PER SHARES: This is obtained by
dividing earnings paid to shareholders and number
of common shared outstanding.
f) DIVIDEND PAYOUT RATIO: This is the dividend
per share or total dividend divided by the earnings
per share.
55
g) DIVIDEND AND EARNINGS YIELD: This
dividend yield is the dividend per share divided by
the market value per share while he earnings
yield is the earnings per share divided by the
market value per share. These evaluate the
shareholders return in relation to the market
value of the share.
h) PRICE EARNINGS RATIO: The reciprocal of the
earnings yield is called the price earnings ratio
which is obtained as the market value per share
divided by earning per share. This is widely used
by security analysts to evaluate a firm's
performance as expected by investors. It reflects
investor's expectations about the growth in the
firm's earnings.
With respect to the theoretical framework for the
determination of changes in productivity in this
proposed study, the sum of total loans and
deposits for each year will be regarded as the

56
representation of output. The analysis will be
repeated with the net income of the bank or
revenues accruing to the bank. In the case of
profitability, the main two measures used by
banks as indicators of profitability are the return
on assets (ROA) and the return on equity where
ROA is the net income as a percentage of total
assets indicating how well a bank has utilized its
assets which is the theoretical framework selected
to guide this study. The ROE is the net income as
a percentage of total shareholders equity
measuring how well bank equity has been
employed.
CHAPTER TWO
LITERATURE REVIEW
57
Various literatures are reviewed to guide the study.
These are subsumed under headings such as
theoretical literature, empirical literature, summary of
literatures review and value added.
2.1 Theoretical literature
This section consists of the concept of information
communication technology, types, applications and
importance of information technology.
2.1.1 The concept of information communication
technology (ICT) in the emerging electronics complex
industrial sector, information communication
technology forms part of a constellation of industries
which consist of various sub groups such as semi
conductors, computer components,
telecommunications, consumer electronic and office
devices. It is the product of advances in key areas of
computing, telecommunications and microelectronics.
(Martin; 1988). Zijp (1994) described it as
58
telecommunications and computer-based technology.
According to Hanna (1994). information
communication technology covers all activities and
technologies which involves the handling of information
by electronic means. This includes information
acquisition, storage, retrieval, processing, transmission
and control. According to her, it includes the supply
side (which deals with computer hardware and
software, telecommunications equipment and micro
electronics) and the demand side (which includes
applications of information technology of all sectors
including financial. manufacturing, education,
transaction system. management information
systems, electronic publishing and information
services). hence information communication
technology refers to the acquisition, processing,
storage, dissemination and use of vocal, pictorial ,
textual and numerical information by a
microelectronics based combination of computing and
telecommunications.
59
2.1.2 Types and applications of information
communication technology
There are multifarious types of information technology
with extensive applications in various sectors. Some of
the commonest types are as follows:
i) Compact disc read only memory (CD ROM): This
requires a micro computer with a CD ROM drive,
discs and electricity. It is basically used as a reference
tool.
ii) Computer Networks: This refers to computers at
different location linked to modern and to
telecommunications networks. It is basically used
to link locations with typed messages and link users to
sources of data.
iii) Desktop Publishing: This makes use of
microcomputers, Laser printer, software and
electricity for the production of high quality
60
texts and graphics.
iv) Expert systems; This consists of the use of micro
computer with expert system software and electricity.
It is used for training and provision of expert
advice to less experienced users.
v) Geographic information system (GIS): this types of
information technology uses micro computer, ink jet
printers or equivalent, GIS software, digitizing tablet
and electricity. Its applications are for data
organization and comparisons on geographic areas and
for land use planning and environmental impact
assessment.
vi) Interactive video disc (IVD): This is used mainly for
pictorial and verbal communication. Its involves a
combination of a micro computer with internal video
board linked to video disc player and speaker.
vii) Packet radio: It utilizes a micro computer, radio with
modern antenna and access to satellite link for link
61
groups with poor communication to others
viii) Radio and interactive radio: This requires the use of
radio, radio broadcasting station, broadcast materials
for mass communication and training purposes.
ix) Video technology: This makes use Video camera and
tapes, editing equipment, projectors and television to
enables small groups produce powerful visual
materials
x) Satellite communication: This consists of a satellite
dish for low orbiting satellite (LEOS) and for
geostationary orbiting satellite (GEOS). It uses a
satellite channel, user terminal and electricity for
access to television broadcasts, distance education,
remote sensing transmission of video pictures, life
events, texts, graphics, etc.
2.1.3 The importance of information communication
technology. We are currently in the information age.
According to the United Nations Center for S&T, the
62
distinction between information have and the basis for
the dichotomies between developed and developing,
rich and poor; it is within this context that the concept
of development might be understood in information
terms. A synthesis of the works or Wellenius (1992)
and Hanna (1991) shows that IT accounts for a great
percentage of GNP. In the United States of America,
more than 46% of GNP and 53% of labor income are
related to knowledge, information and communication.
In many other countries such as countries within the
organization for economic co-operation and
development (OECD), the information sector accounts
for between one third to half of Gross Domestic
Product (GDP) and employment Wellenius (1992)
noted that by the year 2000 this sector is expected to
grow the 60% of the European community GDP.
The information sector is taking up such a large
percentage of GDP because the abundance of cheap
labor and raw material is no longer adequate for global
63
competition. According to Hanna (1994) information,
flexibility, product quality and fast response are the
key new factors required and IT plays a critical role in
these areas. Anotholt (1993) has declared that
information is just as important as a production factor
like lank, labor and capital. Adeola (1995) has
commended on the implications of the new General
Agreement on Trade and Tariffs (GATT) - the product
of Uruguay round of multilateral trade negotiations.
According to her:
Effective communication links and computerized
system are a sine qua non for high quality service
delivery. With instantaneous access to information,
indentified shortage in markets are quickly
disseminated throughout a global network, thereby
ensuring efficiency, competitiveness, strengthening of
domestic services quality.
This agrees with Hanna (1994) who stipulated the
importance of information technology as follows:
64
1) It enhances access to global knowledge, markets
and capital.
2) It is critical tool for competition in an information
intensive economy.
3) It transforms the way people do things
4) It increase the amount of information available to
economic agents
5) It increase information intensity of processes,
occupations, institutions, products and economics
6) It reduces transaction and coordination costs
within and across institutions.
Onwuka (1981) in his work stipulated that the use of
information communication technology is advantages
because it develops a continuity of thoughts especially
for motion pictures. It also stimulates self activity for
pupils through the provision of realities of experience,
makes learning more permanent and kindles student's
interest in subjects. It also supplies meaningless word
responses by pupils. Martin (1988) noted that
information is the life blood of any form of education.
65
according to him, any problems cause by an
exponential growth in information are offset by the
benefits of information communication technology to
educational development. Such benefits refer to
marked increase in the amount of information
learning and enhancing of understanding. The essential
significance of information communication technology
lies in the role as a change agent, creator of
possibilities: and an enabling and liberating presence in
our midst which changes the relationship between
learning and leisure.(Martin: 1988). According to craig
(1984): "although it will be some time before the full
potential of ICT is realized, the advantages are
apparent and include exposure to new ideas,
experiences, development of logical thinking and
reasoning abilities, support for training in new skills
such as programming remedial activity and stimulation
of real life situations."
In summary, information communication technology is
66
profoundly transforming competitive strategies,
product development, manufacturing processes and
procurement practices. It is upon this premise that
Martin (1988) stated emphatically that, "no important
field of endeavor remains immune to the influence of
information technology and no corner of life its left
undisturbed at its short coming." The transformations
achieved by information communication technology
according to Hanna (1994) induces managerial and
organizational innovations, new businesses practices
such as sourcing, de-layering, time based competition,
just in time procurement and flexible manufacturing.
According to Gbade (1990) and Antonello (1990)
information communication technolo1gy is an enabling
technology, which blends traditional industrial
structures, based on small firms with trends towards
quality enhancement. This is because the success and
efficiency of firms surely depends on timely access to
information.
67
2.2 Empirical Literature
Various empirical studies on information technology
and its impact on sectors in various countries have
been conducted over the years. Strassman (1990)
studied the statistical correlation between ICT spending
and profitability or stock value. He discovered that the
correlation between these two factors was insignificant
which implies that ICT spending is unproductive.
Morrison and Bernt (1991) compared the marginal
benefits of investment in information communication
technology with the marginal costs for the
manufacturing industry. They discovered that for each
additional dollar spent in information technology
equipment, the marginal increase in measured output
was only eighty cents.
Tan, Luv and Loh cited in Hanna, Guy and Arnold
(1995) studied the impact of ICT in Singapore ports.
They noticed a significant increase in the operational
productivity of the ports. Frischtak (1992) looked at
68
the linkages between ICT used in banks and
productivity change in Brazil. Mckendrik (1992) on the
other hand looked at the impact of ICT on Indonesian
commercial banks. The results obtained showed that
Brazilian banks have benefited from the use of
computers systems. Unfortunately the use of ICT has
not had any significant impact on the financial
performance of banks in Indonesia. Mody, Suri and
Sanders (1992) looked at the impact of ICT at low
wage levels. Their results portrayed that at low wage
levels, ICT has significant impact provided
organizational prerequisites are put in place.
McFarland cited in Hanna (1995) surveyed sixteen
studies on the impact of ICT in 1992. He noted like
Perez that the benefits of ICT are innumerable but
untapped due to lack of management support, lack of
understanding of technology, worker employer
conflicts, etc. The resultant effects according to Hanna
(1990) are that most developing countries suffer from
69
a dearth of readily available reliable information with
adverse consequences for achieving their numerous
developmental objectives. Hanna (1994) also studied
information technology utilization for the development
of India. Her result show that the possibility of fraud
and delayed discovery of fraud is a by-product of
manual paper based system of data processing.
Many other researches have been conducted on
information communication technology. Presnaham,
Brynjolfsson and Hilt (1999) examined firm level data
linking IT use, workplace organization and demand for
skilled labor while Brynjolfsson and Hilt (1996) worked
on the impact of ICT expenditure on firm level output.
Both studies discovered a significant contribution of
ICT expenditure on investment or output level. Davis,
MacCrisken and Murphy (2001) worked on economic
perspectives on software design. Singh, Donoghue and
Broome (1999), Underwood (1999), Wall (1999) and
Widdison (2000) worked on how it could be used in
the law practice. Other related researches on IT and

70
the law practice are those of Guibault (2002), Agata
and Cizek (2003), Lloyd (2000), and Brochu (2003).
Turban, Lee and Chung (2000) worked on electronic
commerce while Peppard (1993) looked at its
applications for business. Hawkins, Manshell and
Steinmueller (1997) worked on mapping and
measuring of information technology in the electronics
and communication sector of the United Kingdom.
Hawkins and Veroest (1999) developed a methodology
for the assessment of the dynamics and impacts of
electronic commerce. Hawkins and Prencipe (2000)
worked on the impact of electronic commerce on
employment while Hawkins, DeMunck and Stroeken
(2001) studied the effects of electronic commerce in
the banking sector: the report which was prepared for
the Dutch Ministry of Economic Affairs. Some other
researches on the impacts of information
communication technology with respect to the banking
and financial sector are those of Frei and Harker
(1997), Radeck, Wenninger and Orlow (1997), United
71
States general Accounting Office (1998), Furst, Lang
and Nolle (1998,2000) wenninger(1999), Jordan and
Katz(1999), Mishkin and Strahan (1999), O' Sullivan
(1998, 2000), Couch and Parker (2000), Moody
(2000a, 2000b) and Azarchs (2000). Bamodu (2003) in
his own study worked on how to enhance customer
confidence in e-money products compared with the use
of credit and debit cards as a means of payment for e-
commerce transactions.
Bileta (2003) looked at how to control information in
the online environment while Gehrung (2003) studied
software development, intellectual property and it
security. Wilson (1993) assessed the impact of ICT on
organizational performance while Freud, Konig and
Roth (1997) measured its impact on manufacturing
technology development. Mansel and When (1998)
focused on how information technology can be used
for sustainable development while Wellenius (1993),
presented his research on the development of the
72
electronics industry in a World Bank symposium.
Colineau and Paris (2003) studied task driven
information presentation while Colineau, Lampert and
Paris (2003) looked at how to ground information
provision within the context of the user's activity using
visual interfaces. Dale, Paris and Tilbrook (2003)
studied information extraction and path merging while
Murray (2004) looked at IEEE next generation wireless
laws. Pfeiffer and Schremmer (2004) worked on
automated anndexing of meeting recordings for
multimedia information retrieval while Granet (2003)
tried to design a compact C board for earth station
antenna.
Clarke (1996) developed a model for evaluating ICT
impacts. According to him community impacts of ICT
could be evaluated through the indices of changes
within communities and emergence of electronics.
Economic impacts relates to the issues of employment
levels, distribution of income and access to education
73
and training while social impacts evolves around the
elements of equity of access to information, pricing
regulation, customer rights, electronics freedom amidst
other factors. Various researchers also covered the
importance of information technology in the library.
Nicole Camel (2001) conducted a usability assessment
of libraries related web sites while Ward (2000) tried to
design commercial and academic websites for data
assimilation. Peterson (2002) worked on a guide
simplifying web site management with three
techniques for implementation in libraries. Murdock,
Schenell and Clarke(2002) in their work introduced
readers to open source software for libraries while
Gibbons, Peter and Robin (2003) conducted in an in-
depth review of surveys and studies on user
preferences for e-book functionality and a classified
arrangement for electronic book functionalities.
In Nigeria, some studies have been done on the
importance of impacts of ICT . works done by Sote
(1998), Aiwenhmobor (1991),Ojo(1991), Ekechi
74
(1990) , etc have centered most of the importance of
ICT . Such works have the significant impacts of ICT
on enhancement of internal efficiency and relationship
between sectors and organizations. Most of these
studies in addition to Uchendu (1990) and NDIC
reports have centered on assessing the impacts of ICT
on the Nigeria banking industry. The result of these
studies shows that ICT has make both negative and
positive contributions to the banking industry. On the
positive side, it has improved internal efficiency, banks
profits, inter banking activities, investment
capabilitise ,etc . On the negative side, it serves as a
tool for banking fraud. According to Ranta (1996) in
spite of the computer's vast potentials for producing
information, it potential as a vehicle of manipulation of
fraud could be equally great. On the issue of bank
fraud, the reports of the Nigeria Deposit Insurance
Corporation (NDIC) reveals that returns of commercial
and merchant banks on fraud has been growth steadily
in million of naira from the eighties. According to
75
Martin (1988), surely computer crime is now assuming
such proportions that it could well become a subject of
a major inquiry by the organization for Economic Co-
operation and development (OECD). Some other
related studies are with respect to the impact of media
technology on the society such as works by Azubuike
(1991), Chdozie (1991) and Onyekwere (1991).
Results from these studies show that media technology
is an effective tool for communication and rural
development. It has both positive and negative
impacts on personality development especially among
adolescents.
2.3 Summary of Literature and Value Added.
Various literatures have been reviewed on the concept
of information technology, types, importance and
empirical studies on the impact of ICT on sectors in
76
various countries. Literature reviewed show that
information communication technology has positive
and negative impact on the society. Its positive
contributions are with respect to the improvement of
internal efficiency of sectors and relationship between
organizations, while its negative contributions are with
respect to its use as a tool for the impartation of
negative personality traits especially among
adolescents. In addition, the few existing studies on
the impacts of information technology have been with
respect to the manufacturing sector, educational
industry, adolescent personality formation and
development. Nevertheless, Hanna, Boyson and
Gunaratne (1996) noted that impacts audits of
computerization backed by empirical data in developing
countries have been painfully absent. Systematic
efforts aimed at qualifying and measuring ICT impacts
have been very few and far between. Despites this
deficiency she continued, many articles have been
written with strong and blankets claims that
77
computerization efforts have either benn consistent
failures or have had sweeping benefits . These are
broad statements, which are not backed by empirical
measurements. According to Her, until a sufficiently
large body impacts audits has been accumulated, most
claims will continue to be largely based on conjecture
and not on real interpretation of facts.'
It is upon this premise that this study has been
designed to fill the gap in the body of knowledge with
respect to the provision of current empirical
information on the impacts of information
communication technology on the Nigerian banking
sector. This study will provide data on the impacts of
information technology on this relatively unexplored
area, which is the banking sector with respect to
empirical assessment on productivity , profitability,
employment structure and staff development.
78
CHAPTER THREE
METHODOLOGY
3.1 Research Design
79
The experimental research design in line with Obasi
(1999) will be adopted for this proposed study.
Experimental researches involve taking activities to
influence a phenomenon under study while the
consequences of the influence are observed. It also has
three essential component which are independent and
dependent variables, experimental and control groups,
pre testing and post testing exercises. Hence as this
proposed study involves the study of the impact of
information communication technology on a sector,
the experimental research design is deem best suited
for this proposed study.
3.2 Population
The population of this proposed study consists of all
banks in Enugu state of Nigeria.
3.3 Sample
80
The multi stage sampling technique inline with
Nachmais (1982) will be used for this proposed study.
The first stage involves the selection of the towns and
banks to constitute the sample. The purposive
sampling technique will be used. The head offices of all
banks within the state shall be used. In addition, banks
to constitute the sample must have had a history of at
least three pre and three post experience of ICT
adoption. The purposive sampling technique is used
here because many banks commerce changes with
respect to technological adoption at their head offices.
Before implementing the same at their branch offices,
hence the selection of head offices. The second stage
of sampling involves the determination of the number
of banks to constituted the sample. Eighty percent of
all banks in Enugu state shall be selected through
sample random sampling technique (balloting with
replacement) to constitute the sample of the study.
The third step involves determination of sample
respondents. There shall be no random sampling. All
81
senior banking staff within the sample constitute the
sample respondents. The purposive sampling technique
shall be used. The choice of senior banking officials is
because they have more knowledge than other cadres
of staff concerning banking operations.
3.4 Data collection and Instrumentation
Primary data will be collected through semi structured
questionnaires and interviews. These Will provide
information in available ICT facilities and level of
adoption, operational efficiency, capacity building,
employment, constraints in ICT utilization and possible
solutions for three years respectively pre and post ICT
adoption.
Secondary data will be obtained through archival
sources: from the financial records and banking
publications. These will provide time series data on
productivity, employment profit and profitability of the
banks.
82
3.5 Validation of the instrument
Adequate consideration will be given to issue of face
and content validly of the instruments to be used. To
ensure face and content validity, the instrument will be
given to experts in the department of Economics,
University of Nigeria, Nsukka. They will be required to
review and criticize the items on the instruments in
terms of their clarity, appropriateness of the language
and instruments to the respondents and to determine
also whether the items can elicit the information they
are intended to elicit. Their criticisms will be
incorporated in modifying the items on the instrument
to be used. In addition, content validity will also be
ensured furthermore by making sure that each items
on the questionnaire addresses a specific problem of
the study as identified from the trial testing of
instruments to ensure reliability.
3.6 Reliability of the Instrument
83
In order to ensure the reliability of the instruments, a
modified version of the Kudder Richards reliability
approach known as the Cronbach alpha will employed.
This approach is recommended by Nachmias (1982) to
ensure internal consistency of research instruments.
The instruments will be administered once to the staff
of a bank. Values obtained which are equal or greater
than 0.5 will be accepted as indicative consistency of
items on the instrument.
3.7 Administration of the Research Instrument
The researcher will administer the instruments
personally to respondents. This approach is preferred
in the realization that reliance in the postal system of
delivery is unfavorable due to delays and poor returns.
84
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND

INTERPRETATION
4.1 INTRODUCTION
The objective of this chapter were to present the data
collected in the course of this study, analyse and interpret

85
the results emanating from the statistical and other tests
carried out on the data, as well as discussing the findings.
The principal objective of this chapter was also the
validation (testing with a view to accepting or rejecting) of
the research hypotheses. These formed the bases of this
study.
The purpose of this research had been the investigation of
the relative impact of information communication
technology on Nigerian Banks. In Furthering the objective
of this study, data in respect of information communication
technology in Nigerian Banks were collected, an presented.
4.2 PRESENTATION AND ANALYSIS OF DATA
The data so collected, for the purpose of these research
were as presented, in the relevant tables in the appendices
to this report.
The researcher built up a model for the results of the
statistical analysis carried out on the data, were also
86
presented in appendix two (2) of this report. The Regression
Reports of the model used for this study are as set out
hereunder.
Model:
Y = a o + a1 X 1 + a2 X 2 + U
Where:
Y = information communication technology
X 1 = Nigerian Banking system
X2 = customer information system
U = Error term
ao, a, and a2 = parameters estimated.
Reports:
Y = 18.98043 + -0.00024NBS + 0.0023/Ms
T* = (4.927063) (-1.18226601) (1.408537)
R2 = 0.143847, R-2 = 0.82201923
F (2,17) =2.184209, W- statistic = 0.8939
87
The above estimated parameters in the above model
portray the relationship information communication
technology(Y) as a defended variable and Nigerian Banking
system and customer information system. In the model
above, the autonomous interest (ao) of 18.98043 which is
independent of Nigerian Banking system and customer
information system, shows that even if information
communication technology were Zero, there will still be an
increase of 18.98043 in the rate of information technology.
The slope of the estimated regression line (a1) is -0.00024.
This indicates that there is no positive correction between
Nigerian Banking system and customer information system.
4.3 TESTING THE HYPOTHESES
In order to pursue the objective of this study, which has
been the economic analysis of the impact of information
communication technology on the Nigeria Banking sector,
this section of the research report was devoted to the
testing of the research hypotheses earlier stated in chapter
one (1) of this study.

88
The statistic or tools used in testing the research
hypotheses was the student ‘t’-ratio the procedures and the
rules governing the tests or validation of hypotheses using
the ‘t’ statistic, were earlier stated in chapter three (3) of
this study.
HYPOTHESIS ONE (1):
NULL HYPOTHESIS (HO)
Ho: a1 = O: There is no significant difference in
the productivity of Nigerian banks pre and post
adoption of information communication technology.
ALTERNATIVE HYPOTHESIS (H1)
H1,: a, = O There is significant difference in the productivity
of Nigerian banks pre and post adoption of information
communication technology.
DECISION RULE:
If the value of the observed ‘t’ (t-ratio) is greater than the
value of the tabular ‘t’ (‘t’ – critical) at n-k degrees of
freedom, at 0.025 level of significance (95% confidence
89
level), then the null hypothesis (Ho) stands rejected and the
alternative hypothesis (H1) accepted.
This is the say:
If t* bi > teri (0.025) at n – k d.f.
Reject null Hypothesis (Ho).
But if t* bi < teri (0.025) at n-k d.f.
Accept the null hypothesis (Ho) and reject (H1).
RESULT :
The result showed that t* (a1) is – 1.18223 and teri
(0.025) at 17 d.f is 2.110. based on the validation rule
governing this test, the null hypothesis (Ho) is
accepted thus concluding that There is no significant
difference in the productivity of Nigerian banks pre and
post adoption of information communication
technology.
HYPOTHESIS TWO (2)
NULL HYPOTHESIS (Ho):
Ho: a2 = 0: There is no significant difference in the
90
ALTERNATIVE HYPOTHESIS
H1: a2 = O: There is significant difference in the
DECISION RULE:
If the value of the observed ‘t’ (t-ratio) is greater than
the value of the tabular ‘t’ (t-critical) at n-k degree of
freedom (d.f.), at 0.025 level of significance (95%
confidence level), the null hypothesis (Ho) stands
rejected and the alternative hypothesis (H1) accepted.
That is to say that:
If t* bi > teri (0.025) at n-k d.f.
Reject the null hypothesis (HO)
But if t* bi < tcri (0.025) at n-k d.f,
Accept the null hypothesis and (HO) and reject the
alternative hypothesis (HI)
91
RESULT
(0.025) at 17 d.f, is 2.110. from the statistics given
above, toh < tori since 1.408536 < 2.110.
On the strength of the rules governing the varidation of
the research hypothesis, the rule hypothsis (HO) is
again accepted, and the alternative hypothesis (HI)
rejected, thus concluding that There is no significant
difference in the profitability of Nigeria banks pre and
post adoption of information communication
technology.
4.4 RESEARCH FINDINGS
The statistical tests of the research hypotheses
formulated in the course of this study were successfully
carried out by the research, and the summary of the
result & findings of the study were summarized in the
table shown below.
Table
HYPO N K DF R2 Tob Teri Level of Remark
THSIS significance
1 20 3 17 NA -1.18226 2.110 0.025 Not significant
2 20 3 17 NA 1.40854 2.110 0.025 Not significant
92
Source: from the statistical test carried out by the Researcher.
CHAPTER FIVE
SUMMARY AND CONCLUSIION
5.1 SUMMARY
With respect to the banking sector, the utilization of
information communication technology has increased
attention from bankers and other financial services,
industry participants and policy makers. This is
93
partially due to the rapid and significant growth in
electronic commerce and the notion that electronic
banking and payments will likely advance more in
tandem with electronic commerce. In addition,
industry analysis's outlining the potential impact of
electronic banking on costs, savings, revenue growth
and increased customer convenience have also
generated considerable interest and speculation about
the impact of information communication technology
on the banking industry.
The profitability of banks world-wide has decreased
from the early 1980s to the 1990s. This has been
attributed to several factors: the decline of traditional
banking activities (deposit taking and lending), poorly
performing debts (arising from poor lending decisions)
and for domestic banks to factors such as depressed
property prices and important local industrial sectors
performing badly. However the analyses of bank
performance tend to be short-term and narrow in their
outlook, and seldom attempt to explain the underlying
94
trends and processes of change. In this research work,
it is argued that the broad competitive forces of
information technology, globalisation and deregulation
are de-stabilising the banking industry which leads to
irrevocable changes which allow new entrants,
disintermediation, innovation and customer changes on
a much greater scale than has occurred in the past.
5.2 CONCLUSIION
This project examined the general impact of Information
communication Technology on the banking industry. The
banking industry has introduced various new customer services
and products using IT. The banking industry has gone through
many changes as a result of the introduction of IT. In fact, the
structure of the industry is continuously changing because of
rapid development of IT. The continued success of IT
applications mean that the limitations of current IT computer
systems in banks have to be re-developed to meet future
requirements.
95
In this research work, the researcher has unveiled that
the banking industry has demonstrated a fair amount
of competence in the application of IT. Some banks
were at the cutting edge of IT and have a clear vision
of how IT could be furthered applied successfully.
The research brought to light the fact that IT has
increased competition within the industry. The
realisation that the market size is not really increasing
has made banks more competitive. Also, the
expectation of their customers is very high and in
response banks using IT to satisfy the demand for
quality services and products. However, there is an
increasing outside threat to the banking industry from
the non-banking sector. Deregulation of the banking
industry has introduced more competition but the low
cost of computer technology has made it easier to
enter the industry. Non-banks can now pick up off the
shelf IT solutions for the services they want to provide.
96
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103
APPENDIX
QUESTIONNAIRE
…………………………………
…………………………………
…………………………………
Dear Sir/Madam,
ECONOMIC ANALYSIS OF THE IMPACT OF INFORMATION
COMMUNICATION TECHNOLOGY (ICT) ON THE NIGERIAN BANKING
SECTOR.
I am a National Diploma student of the Department of Business
Administration, Akwa Ibom State Polytechnic, Ikot Asurua, Ikot
Ekpene. I am conducting a study on the topic stated above. The

104
purpose of the study is to find out about available ICT facilities utilized
in banks and its impact on operational efficiency, productivity,
profitability, capacity building and employment.
You are please required to respond carefully to the instrument
administered to you. You are assured that information given by you is
purely for the purpose of this study and will be treated as confidential.
Thanks for your co-operation.
Yours sincerely
…………………………………………………..
(Student)
1. Name of Bank .........................................................................
2. Date of establishment ..............................................................
3. Location/Address of bank ..........................................................
4. Please what are the available information communication

technology facilities (ICT) in your bank?
Types of ICT Pick of

available
A Telephones ( )
B Fax machine ( )
C Computers ( )
D Word processing packages ( )
E E mail ( )
F File transfer protocol ( )
105
G Web offset (www) ( )
H Gopher ( )
I Please mention others ( )
5. Which year did you using these ICT facilities in your bank?
..................................................................................................
6. What average number of hours is such ICT facilities used each

working day?
Types of ICT Utilization per hour
a. Telephones ( )
b. Fax machine ( )
c. Computers ( )
d. Word processing package ( )
e. E mail ( )
f. File transfer protocol ( )
g. Web offset (www) ( )
h. Gopher ( )
i. Please mention others ( )
7) What computer software’s do you use in your bank (Tick as

appropriate)
a. Word perfect ( )
b. MS word ( )
c. Spreadsheets (e.g. Excel) ( )
d. Database management system ( )
106
e. Statistical package (e.g. SPSS. SAS etc) ( )
f. Fault diagoniser ( )
g. Micro banker ( )
h. Oracle ( )
i. Insurance accounting ( )
j. Power point ( )
k. Mention others ( )
8) What do you use the ICT facilities and software for in your bank?
(Tick as appropriate)
a. Data analysis ( )
b. Information processing ( )
c. Information storage and retrieval ( )
d. Information dissemination ( )
e. CD ROM Searches ( )
f. Teleconferencing ( )
g. General Management ( )
h. Forecasting ( )
Graphics/education ( )
j. Modeling and simulation ( )
k. Seminar presentation ( )
i. Mention others ( )
SECTION B: Operational efficiency
1. Please mention the types of new services that your has introduced
as a result of ICT utilization.
2. Please assess the average time it takes your bank to complete the
following activities before and after the adoption of ICT facilities.
107
Types of Service Pre Adoption Post Adoption
1. Clearing of cheques
2. Processing of bank drafts
3. Local inter-bank transfers
4. International inter-bank transfer
5. Production of bank statements
6. Deposit of money by customers
7. Withdrawal of money by customers
8. Checking of customers balances
9. Processing of Loans
10. Processing of overdrafts
11. Purchase of foreign exchange by

customers
12. Sale of foreign exchange
13. Mention others
SECTION C: Capacity Building and

employment
1. How many people has your bank

employed under the following cadres
as a result of ICT adoption/utilization?
Category of manpower No. employed

a) Senior Level
b) Intermediate Level
c) Junior Category
2. How many people has your bank retrenched as a result of
ICT utilization in the following cadres of manpower?
Category of manpower No. retrenched
108
a) Senior Level
b) Intermediate Level
c) Junior Category
3. Please provide information on the types, average cost
and duration of tanning programmes organized for staff to
get them acquainted with ICT facilities.
Types of training Duration Amount Amount Amount

in spent Less spent spent
weeks than N50,000 N50,000 to N100,000
N100,000 and above
1)Database
management
2)Computer
appreciation
3)Word processing
4)Power point
presentation
5) Spreadsheets
6) Windows
7)Computer
maintenance
8) Micro banking
9)Operating
system
10) Novel netware
11) AUTO CAD
applications
12) System
administration
13) Programming
languages
(eg. COBOL UNIX,
Oracle)
14) E mail and
Internet use
15) Financial
management
109
16) Please mention
others
110

Economic Analysis of The Impact of Information Communication Technology On The Nigeria Banking Sector

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ABSTRACT

Effective communication links and computerized

system are a sine qua non for high quality service

delivery. With instantaneous access to information,

indentified shortage in markets are quickly

disseminated throughout a global network, thereby

ensuring efficiency, competitiveness, strengthening of

domestic services quality.

This agrees with Hanna (1994) who stipulated the

importance of information technology as follows:

1) It enhances access to global knowledge, markets

2) It is critical tool for competition in an information

3) It transforms the way people do things

4) It increase the amount of information available to

5) It increase information intensity of processes,

occupations, institutions, products and economics

within and across institutions.

In this research work, the researcher will consider in

chapter one….the introduction of the study which will in

turn considers the following topics. The background of

the study, the statement of research problem, the

objective of the study, significance of the study, the

hypothesis and the structure of the work.

Chapter two focuses on the literature review, this

chapter is where the researcher extract materials from

various books, magazines, news papers and internet

resources. In chapter three, the researcher deals on

research methods while chapter four is data analysis

and presentation. The summary and findings are in

Table of content - - - - - - - viii

CHAPTER ONE INTRODUCTION

1.1 Background of the study - - - - - 1

1.2 Statement of the research problem - - - 14

1.3 Research objectives - - - - - - 20

1.4 Scope of the study - - - - - - 21

1.5 Significance of the study - - - - - 22

1.6 Research questions - - - - - - 23

1.9 Theoretical framework - - - - - 35

CHAPTER TWO LITERATURE REVIEW

2.1 Theoretical literature - - - - - 54

2.1.1The concept of information - - - - 54

2.1.2Types and applications of information - - 56

2.1.3The importance of information- - - - 58

2.2 Empirical literature - - - - - - 63

2.3 Summary of literature and value added - - 72

CHAPTER THREE METHODOLOGY

3.1 Research design - - - - - - 75

3.4 Data collection and instrumentation- - - 77

3.5 Validation of the instrument - - - - 78

3.7 Administration of the research instrument - 79

CHAPTER FOUR DATA PRESENTATION, ANALYSIS

4.2 Presentation and analysis of data - - - 81

4.3 Testing the hypotheses - - - - - 83

4.4 Research findings - - - - - - 86

CHAPTER FIVE SUMMARY AND CONCLUSION

1.1 Background to the Study

The interface between technology, knowledge and

development in today's globalised world cannot be

overemphasize. presently there are four broad classed

of emerging technologies that are exerting deep

ongoing impact on industry, services and the society at

large. These are: