CHAPTER ONE

1.0 1.1 1.1.1 INTRODUCTION DEFINITIONS Traditional Banking

In the traditional banking system, a customer can open any bank account in banks take the facility of saving his money by depositing money in local bank. He can withdraw his money through cheques, counter payment and through bank draft. He can meet the bank manager for solutions to his problems. He can take the physical help for getting loan from bank. 1.1.1a The Pros and Cons of Traditional Banking Even if convenience and time efficiency is at stake particularly for those who love to engage in multi task, some people still prefer traditional banking methods as compared to online banking services. For some, security is always the issue that is why they prefer to actually interact with real tellers. If ever there is a problem. They can easily ask for assistance from a bank representative to sort out their problems although this can take longer time than expected particularly when all hand are busy with various office tasks. Some people also feel comfortable when they actually see the money change hands as compared to online banking wherein all the proof that they get about their transactions is the receipt provided to them by the site after completion of a certain transaction. 1.1.2 E-banking

E-banking means internet banking or modern banking or online bill. In this method ,customer get his bank account ID and password and he can check his account , pay his bill and print his receipt through his home personal computer which is connected with internet. E-banking is development of today banking system. In other words, e-banking is electronic banking whose facility, you can take through your regular broadband internet connection. Internet banking works much like traditional banking. The primary difference is that you are accessing your account and information, making payments and reconciling statement using your computer rather than paper or the phone to complete transaction. Instead of going down to your local branch office when you bank online you can accomplish multiple tasks at once with the click of a button.

Online banking is rapidly becoming more and more popular as consumers recognize the advantages online banking has to offer. For one most banking charge fewer fees if you take advantage of their online banking services. You can also stop receiving paper statement if you like in many cases and conduct 95% of your business over the web when you take advantage of internet banking. 1.1.2a The Pros and Cons of Online Banking The major benefit one can enjoy with online banking is convenience because more often than not, customers can easily complete multiple tasks even without leaving their homes to visit the local branch of their bank. Efficiency and convenience is what sets apart online banking from traditional banking because in internet banking, customers are able to pay their bills, move, deposit, or withdraw money to another account, reconcile multiple bank accounts, and a lot more related services customer can enjoy in order to expedite their bank transactions even when they are just at home. With online banking, various transactions are more efficient and it also saves the valuable time of customers which they can use to other tasks. In seconds, every bank transaction can be complete and the customer can even print his or her receipts for recording purposes. The customer can also enjoy unlimited access to his or her bank account at anytime of the day and including holidays or weekends. In addition to this, even if you are in another country, you can access your account as long as you have an internet connection. Online banking can significantly expedite banking transaction and it is also rather cheap when it comes to bank charges as compared to traditional banking. Most bank with online services offer lesser fees for every online service they offer. Beside, banks often have high interest rates particularly on savings accounts and bank CDs or certificates of deposits and they can also offer added financial services and other related financial product to its customers. And as for customer s, they will not need to buy stamps or envelopes or even rush to post office to send in their payment by mail. This lessens the risk of late payments. Customers can also electrically access their bank statement and reconcile it faster than ever before. The downside to online banking with all the sophisticated software, security programs and tools used by online banks, there is always the risk of theft which can put your account and all thats in it in danger of being hacked. The problem actually do not lie on the online bank itself but rather on user who are not too keen on practicing safety measures in other to safeguards their account information. Aside from identity theft, different threat related to online banking also include hacking and phishing of online bank accounts by expert hackers who are clever enough to penetrate the users computer and person information.
2

1.1.3

Traditional Banking vs. Online Banking

The type of services offered by online banking actually is similar to the services offered by traditional banking. The major difference lies in the convenience offered by online banking particularly when it comes to making payments, obtaining update information of the account, or reconciling account statements. Rather than personally visiting your local bank, you can now access your account and perform your bank transactions using your computer. At the comfort and privacy of your own home, you can be able to complete various bank transactions with just a click of the mouse. But just like any other customer related services, traditional and online banking has its own shares of advantages and drawbacks which should be carefully considered. Choice between internet and traditional banking service depends on the priorities and the lifestyle of the customer. Internet banking works in a similar manner as traditional banking, the major difference being the way one is making payments, accessing his account and personal details, and reconciling statements. Rather than visiting the local branch of his bank, the customer uses his computer to complete transactions. Internet and traditional banking have their pros and cons to consider. The choice of online vs. brick-and-mortar banking is often based on ones lifestyle and priorities. As a major advantage of the internet banking, the customer can accomplish multiple tasks in the comfort of his home. Efficiency is what makes online banking attractive to customers: they can pay bills, move money between different accounts, check multiple accounts, and much more. Banking is fast and saves customers valuable time. Transactions are completed in seconds and can print out receipts of his personal records. The customer may access his account at a given time of the day, even during weekends and holidays. Moreover, the online account may be accessed any place around the world, provided that internet connection is available. Online bank accounts make banking expedient, convenient and inexpensive. Many banks charge fewer fees for the online services they offer. Furthermore, banks have higher rates on savings accounts and certificates of deposit, and offer more financial services and products. Customers dont need to buy envelopes and stamps, run to the post office at the last minute, and risk being late on their payments. Monthly bank statement can be accessed electronically. Finally, online banking employs sophisticated tools that help manage ones money account with ease. Despite increased security measures and the availability of anti-virus and anti-spyware programs, identity theft is still a concern. Other threats associated with online banking include phishing and hacking of online accounts.

Time is among the precious commodities, especially for multi-taskers. On the other hand, some people prefer to visit their local bank and internet with the teller in person. Customers can turn to the banks special account representative or even to the manager. Clients are physically present when cash is handed over to them and when they place valuable items in their safety deposit boxes. Inconvenient locations, fixed schedules, and more limited financial services are some of the disadvantages associated with traditional banking. In contrast to internet banking, customers option for traditional banking services need to draw money before using it. 1.2 SIGNIFICANCE OF THE STUDY

The study uses statistical method to compare traditional banking with e-banking using Skye bank Nigeria Plc. as case study. Hence, the study is significant to the entire member of staff of Skye bank Nigeria Plc. since it will help them identify which banking method to adopt presently and in nearest future. Also, it is beneficial to customer of the bank because it will give them a picture on how banking activities are carried-out in the bank. 1.3 STATEMENT OF THE PROBLEM

The study and application of statistical approach in analysis of banking activities such as comparison cannot be over emphasized. Organization tends to study the market and kind of services they render to see how they can modify or upgrade their services. An important tool for carrying out such a study is using the statistical approach which is done by professional statistician. The major draw-back in this approach is that seasoned statisticians are difficult to come-by. 1.4 1. 2. 3. AIMS AND OBJECTIVES Comparative study of banking techniques. To determine the relationship between the banking techniques. To fit a regression model to the banking techniques.

1.5

SCOPES AND LIMITATION

1.5.1 SCOPE Skye bank Plc. commonly known as Skye bank is a commercial bank based in Nigeria. It is one of the twenty-six (26) commercial banks licensed by the Central Bank of Nigeria, the countrys banking regulator. Skye Bank is a large financial services provider in West Africa and Central Africa. With headquarters in Nigeria, the bank maintains subsidiaries in Sierra Leone, the Gambia ad the republic of Guinea, Liberia, Angola and Equatorial Guinea. As of September 2010, the banks total assets were in excess of USS3.9 billion (NGN: 611.5 billion), with shareholders equity of approximately USS630 million (NGN: 98.4 billion). The origins of Skye Bank data back to 1989 when Prudent Bank Plc., was incorporated as a limited liability company. In 1990, the bank was issued a license as merchant bank. That same year, it rebranded as Prudent Merchant Bank Limited. In 2005 Prudent Merchant Bank Limited merged with four other banks to form Skye Bank Plc., namely: EIB International bank Plc. Bond Bank Limited Reliance Bank Limited Co-operative Bank Plc.

In January 2011, the bank introduced a Naira-denominated MasterCard debit card, called MasterCard., the first of its kind in Nigeria. The bank also offers internet banking and mobile banking. The chairman of the board is Mrs. Moronkeji Onasanya, who chairs the sixteen (16) members Board of Directors. The Chief Executive Officer and Group Managing Director is Kehinde Durosinmi-Etti.
1.5.2 LIMITATION

Getting sensitive data such as this is very cumbersome since it can equally be used to tell the bank performance. Getting the data required time, patience, and finance e.t.c. Also, sourcing for relevant journals proved to be an uphill task. But in all, the knowledge gained is worth it.

1.6

LIETRATURE REVIEW

Many authors, scholars, writers, researchers and individual from different works of life in Nigeria and the world at large have contributed to the study. Some of which includes: Howard (1974) in his article on online banking was of the view that online banking is a system allowing individuals to perform banking activities at home, via the internet. Some online banks are traditional banks which also offer online banking, while others are online only and have no physical presence. Online banking through traditional banks enables customers to perform all routine transactions, such as account transfers, balance enquiries, bill payments, and stop payment requests, and some even offer online loan and credit card applications. Account information can be accessed anytime, day or night, and can be done from anywhere. A few online banks update information in real-time, while others do it daily. Once information has been entered, it doesnt need to be re-entered for similar subsequent checks, and future payments can be scheduled to occur automatically. Many banks allow for file transfer between their program and popular accounting software packages, to simplify record keeping. Despite the advantages, there are few drawbacks. It does not take some time to set up and get used to an online account. Also, some banks only offer online banking in a limited area. In addition, when an account holder pays online, he/she may have to put in a check request as such as two weeks before the payment is due, but the bank may withdraw the money from the account the day that request is received, meaning the person has lost up to two weeks of interest on the payment. Online-only banks only a few additional drawbacks: an account holder has to mail in deposits (other than direct deposit), and some services that traditional banks offer are difficult or impossible for online-only banks to offer, such as travelers checks and cashiers checks. Danforth (1977) in his write-up on choosing a profitable internet banking solution concluded that internet banking software can be rated according to the extent it satisfies increasing level of excellence in user experience. Accuracy is achieved where all information is correct and timely. When the internet banking solution operates in batch mode, near real-time data can be accomplished if the solution performs inter-day memo posts. Accessibility allows you to do what you want to do from the page that you want to do it with maximum effort. Examples include the use of drop-down menus and a page sensitive Help function. Partnership is achieved when the software work with you. White space must be managed so that data is easy to read and data entry boxes are symmetrical. Customer should control certain things such as custom account naming and changing their secret question. A filter page should be included where customers can customize display of their transactions. Ideally, customers could sort the data of any
6

column in ascending or descending order. Advice is the software proactively teaches you. Instead of how-to internet banking instructions, customers can watch online tutorial movies. Richer information related to trends over time for customer balance, debits, credits and payment type should be available. Polis (1978) in his journal on traditional banking summarized that it is the original type of commercial bank that handle customer deposits and made investment loan to businesses. Traditional bank, chartered at the national, state, or local levels, were the only entities legally able to issue checking accounts prior to the 1980s. While still dominant in the banking industry, traditional banks are joined by savings loan associations, credit unions, and mutual savings banks. Poposka et al (1982) in their article on the two faces of banking clearly summarized that the industry is evolving from one that is engaged primarily n traditional activities to one that is engaged in complex risk intermediation. That is not to say that traditional banking will disappear. Indeed, traditional banking remains extremely viable, as illustrated by the high earnings posted by banks of all shapes and sizes over the past decade. The U.S. banking industry seems likely to include both traditional and complex activities for some time to come. According to woods (1986) in his article on maintaining banking standards concludes that banks supervisors must continue to adjust to the growing dominance of complex banks. Focusing simply on changes in the asset concentration of the industry understate the changes necessary in supervision because that approach implies a simple need to relocate the exiting examiner resources as the bank relocate. In contrast, the approach by Allen and Santomero focuses on the expertise that bank examiner must possess to supervise adequately the complex banks of the future. Put another way, the Allen- Santomero framework implies less emphasis on supervising asset quality and more emphasis on supervising market risk exposure and risk management systems. Edwards (1989) in her write-up on the decline of traditional banking outlined the fundamental economic forces that have led to the decline of traditional banking that is the process of making loans and funding them by issuing short-date deposits. The declining competitiveness of traditional banking may threaten financial stability by increasing bank failure and by increasing the incentives of banks to take on more risk, either by making more risky loan or by engaging in nontraditional financial activities that promise higher return but greater risk. This paper argues that nontraditional activities, such as banks acting as derivatives dealers, expose banks to risks and moral hazard problems that are similar to those associated with banks traditional activities, and that these activities can be regulated as effectively as can traditional activities. One regulatory approach to
7

maintain financial stability and strengthen the banking system is to adopt a system of structured bank capital requirements with early corrective action by regulators. An important element in the approach is that market-value accounting principles would be applied to banks and there would be increased public disclosure by banks of the risks associated with their trading activities. With this regulatory structure in place, banks could be permitted greater freedom to expand into nontraditional activities. Yiu (1991) in his journal on the factors affecting the adoption of internet banking in Hong Kong summarized that the rapid development of Internet and Electronic Business has stimulated the banking and financial sectors toward encouraging customers to bank on-line. This paper explores the adoption of internet banking by retail customers in Hong Kong from three angles: (i) (ii) (iii) The current adoption rate of internet banking: The influences of perceived usefulness, perceived ease of use, perceived risk and personal innovativeness in information technology and The potential impacts on the strategic activity of banking organization operation in the Hong Kong market.

The research constructs were developed based on the technology acceptance model and incorporated two additional elements of person innovativeness and perceived risk. Hypotheses were constructed and tested using t-test and persons correlation. It was found that certain factors did have a positive relationship with the adoption of internet banking and such as strategy in the banking services sector can be refined to better meet the demands and profile of the Hong Kong market. Sathye (1993) in his write-up on internet banking on performance and risk profile this paper investigates the impact of the introduction of transactional internet banking on performance and risk profile of major credit union in Australia. Performance was measured using the linear programming technique of data envelopment analysis and regressed on relevant explanatory variable using censored normal regression. Accounting data were used to measure risk profile and regressed on relevant explanatory employing OLS regression. The results show that transactional internet banking did not have a significant impact on any of these. Thus, internet banking has not proved to be a performance-enhancing tool in the contest of major credit onion in Australia. It neither reduces nor enhances risk profile. Chiemeke et al (1995) in their journal on the adoption internet banking in Nigeria this study examine the level of adoption of internet banking in Nigeria. Twelve large on-line banks retained their names after the consolidation were studied in terms of the
8

functionality and interactivity of their websites. The model used to that proposed by Diniz in 1998, with an additional factor on security measures. Main factor that inhabit the adoption of traditional banking in Nigeria are security and inadequate facilities including proper telecommunications and power. The result revealed that internet banking is being offered at the BASIC level of interactivity with most of the bank having mainly information sites and providing little internet transactional services. The level of security of banks was low as most of the banks have not adopted 128 bit Secure Socket Layer (SSL) encryption security measures. Most of the banks perform extremely well in providing up-to date information. However, further improvement on security and provision of key ingredients of internet banking which includes confidentiality, effective communication integrity and availability, should be considered in order to satisfy customers requirements. Sathye (1997) surveyed the state of internet banking in Australia and discovered at the end of September 1997 only two (2) banks had started internet banking services out of 52 banks in Australia. The research surprisingly noted that Australias biggest and most profitable banking bank was yet to start internet banking. He therefore advised that serious attention be given to internet banking, if Australian banking is not look medieval in the just changing world. Diniz (1998) presented a survey of websites of banks in the United State of America (U.S.A). His work divided the functionality of the websites in such a way to give insight on three different opportunities that the technology could bring to banks. The areas are; (i) Information delivery (ii) transaction (iii) customers relationship With 121 banks selected from all over the U.S.A the were already running a website, the study revealed that bigger banks were doing better at the basic intermediary levels, and many banks were offering transaction services at the advanced level. He noted that banks improved in their websites and they are only in the beginning in terms of functionality. Ovia (2001), in his paper on the practices and potential of internet banking in Nigeria, stated that the technology is understandably a very important tool for every banks competitive strategy. He noted that Nigeria banks cannot immediately reap the digital dividends because of poor telecommunication infrastructure. He also submit that the poor in Nigeria are financially forbidden from participating and that he recent rollout of global system of mobile communication (GSM) in Nigeria cannot solve the telecommunication problems, given the high cost of tariff. Furst, et. al. (2002) developed statistical model to explain why banks choose to adopt internet banking and why some choose to offer a relatively wider array of internet
9

banking product and services. They also investigated whether offering internet banking affects a banks profitability. The result revealed several significant differences in the profit of banks that offer internet banking and those that do not. They observed that internet banks rely more heavily in non-interest income and less on core deposits for funding than non-internet banks do. In addition, the study revealed that internet banks have better accounting efficiency ratio and higher return on equity than non-internet banks. Corrochre (2002) investigated the drivers of the adoption of internet banking. In order to understand its role with respect to the traditional activity and to offer a comprehensive picture of the diffusion of such a technology within the sector. The study investigated the relationship between the internet banking and the traditional banking activity in Italy in order to understand if these two systems of financial; services deliveries are perceived as substitutes or compliments by the bank. The study revealed banks seem to perceive internet banking as a substitute for the existing branching structure, although there is also some evidence that banks providing innovative financial services are inclined to adopt the innovation than traditional banks. The research submitted that future research is needed in order to identify more specific issues regarding the adoption of internet banking in the financial sector in general and the pattern of diffusion of such innovation among banks in Italy. Chung & Paynter (2002) surveyed the state of internet banking in New Zealand by examining the websites of seven on-line banks using a tailored electronic-commerce model. The result revealed that most of the banks had up-to-date information on their websites and identified security and complication of internet banking as most of the inhibiting factors. Olatokun (2003) in his article on the adoption of Automatic Teller Machines in Nigeria concluded that this study tested the attributes of the theory of diffusion of innovation empirically, using Automatic Taller Machines (ATMs) as the target innovation. The study was situated in Jos, Plateau state, Nigeria. The population comprises banks customers in Jos who used ATMs. The sample frame technique was applied, and 14 banks were deployed ATMs were selected. Cluster sampling was employed to select respondents for the study. Data collected instrument was a structured questionnaire administered to 600 respondents of which 428 were returned giving 71.3% return rate. Principle Factor Analysis and Multiple Regression were the analytical techniques used. The demographic characteristic of the respondents revealed that most of them were students and youths. From the factor analysis, it was revealed that the respondents believed in their safety in using ATM; that ATMs were quite easy to use and fit in with
10

their way of life; that what they observed about ATMs convinced them to use it and that ATM was tried out before they use it. The constructs Relative Advantage, Complexity, Compatibility, and Trail ability were all found to have a significant impact on the Attitude towards ATM, which in turn had almost the same weight of impact on Attitude; while Observability had the highest impact on attitude. To increase the diffusion of ATMs, it was recommended that banks should ensure enhanced salience of ATM to customers needs, greater compatibility of ATM to customers banking norms and lifestyle, less complex and easy to use. Haung et al. (2003) reports on the experience of first Atlantic bank of Nigeria as it embarked on the implementation and introduction of internet and mobile banking services. The author noted that, being a first mover (the bank pioneered internet banking in Nigeria in November, 2000) in a given market can be crucial, not necessarily because of the immediate commercial benefits, but more because of the opportunity for developing customers trust in order to ensure the success of future innovation. Al-Sahbagh & Molla (2004) explore the drivers and inhibitors of customers internet banking adoption in the sultanate of Oman. The study revealed that in Oman, only two banks offer internet banking services. They however, noted that members of banks in Oman are considering going online, although internet banking is still a relatively recent phenomenon in Arab countries. Khan (2004) tested whether consumer adoption of online banking is affected with ones bank branch. The source of data was the survey of consumers finances (SCF) from the Federal Revenue Board. The research estimated a model for online banking use with household level data from the USA from 1998 to 2001. The result show that in the 1998 SCF, 5% of the respondent report used online banking as a channel for doing business with their main financial institutions. By 2001, this share increase to 17%. The results however reveal that distance to the closest bank branch does not affect likelihood of online banking used by the household and that household income and education positively and significantly affects adoption. Achour & Bensedrine (2005) evaluate the current situation of internet based financial services in Tunisia. The research was carried out in two parts. The first part evaluate internet banking services using the existing Herseys tailored model, while the second part presented the Tunisian online brokerage network. The study revealed that internet based services in the Tunisian financial sectors are still in the early stage of development and significant effort be made in order for the technology to take off. Awemleh & Fernandes (2005) adopted Diniz model to evaluate websites for foreign and local banks in United Arab Emirates (UAE). The study analyzed the websites of banks on the United
11

Arab Emirates using the Diniz model to access the extent of adoption of internet banking. The result revealed that internet banking in the UAE is still in its infancy. The authors want proper development in the design, infrastructure and interface of internet banking in the UAE to be established for customers to be encouraged to take full advantage of this technology. Jun (2006) in his article on key determinant of internet banking service quality focuses on the issues associated with internet banking service quality. Customer anecdotes of critical incident in internet banking were content-analyzed. Identified a total of 17 dimensions of internet banking service quality, which can be classified into three broad categories customer service quality, banking service product quality, and online systems quality. The derived dimensions include: for customer service quality, ten dimensions such as reliability, responsiveness, competence, and continuous improvement; for online system quality, six dimension such as content, accuracy, ease of use, timeless, aesthetics, and security; and for banking service product quality, one dimension of product variety/ diverse features. Also revealed that, terms of frequency of reference to the 17 dimensions, no substantial differences exist between internet-only banks and traditional banks offering internet banking service. The most frequently mentioned dimensions, as the main sources of satisfaction or dissatisfaction, were reliability, responsiveness, access, and accuracy. Some suggestions and recommendation were provided to improve the internet banking service quality and, in turn, customer satisfaction.

12

CHAPTER 2
2.1 METHOD OF DATA COLLECTION

The method of data collection used for this research work is the method of registration. It is a published data because it is for the consumption of both Skye Bank Nigeria and her Customers.
2.2 DATA COLLECTED

2.2.1

Treasury Bill

Treasury bill (T-Bills) is short-term debt obligations, with maturity period up to a year, issued by both the U.S. and Canadian governments. The purchase price is typically deducted from an online account, with the rate of return or interest for your investment, paid directly into your account upon maturity. Treasury bills are fully backed by the governments, and are extremely liquid, making these attractive to both individual and corporate investors seeking a safe haven for their cash. 2.2.2 Cash and dues from Bank

Cash and dues from banks are bank assets that consist of demand and time deposits maintained in other banks to facilitate the transfer of fund. They provides correspondent bank balances that enable the transfer of funds between banks (resulting from the collection of cash item and cash letters) the transfer and settlement of securities transactions, the transfer of participating loan funds, the purchase or sale of federal funds, and many other causes. 2.2.3 Loan to Customers

A loan is type of debt, like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligate to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayment; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower

13

under additional restriction known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent. Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contract such as bonds is a typical source of funding. 2.2.4 Finance Lease

A finance lease or capital lease is type of lease. It is a commercial arrangement where: The lessee (customer or borrower) will select an asset (equipment, vehicle, software); The lessor (finance company)will purchase that asset; The lessee will have to use of that asset during lease; The lessee will pay a series of rentals or installments for the use of that asset; The lessor will recover a large part or all of the cost of asset plus earn interest from the rentals paid by the lessee; The lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price); The finance company is legal owner of the asset during duration of the lease. However the lease has control over the asset providing them the benefit and risk of (economic) ownership 2.2.5 Investment Securities

Securities that are purchased in order to be held for investment. This is in contrast to securities that are purchased by a broker-dealer or other intermediary for resale. Banks often purchase marketable securities to hold in their portfolios. Investment securities held by bank are usually one of two main sources of revenue, along with loans. Investment securities provide banks with a source of liquidity along with the profit from realized capital gain when they are sold. 2.2.6 Investment in Subsidiary

A financial subsidiary is a corporation, limited liability Company, or similar entity, controlled by one or insured depository institutions. A financial subsidiary may conduct activities that are permissible for national banks in addition to those that are financial in nature or incidental to financial activities. Financial subsidiaries are bank subsidiaries that are not operating subsidiaries (that is, operating subsidiaries engaged only in activities the bank may engage in directly under the same terms and conditions applicable
14

to national banks) or subsidiaries that national banks otherwise are specifically authorized by the express terms of a federal statute. For a bank to own an interest in a financial subsidiary the bank and the subsidiary must meet certain requirements and comply with specified safeguards. 2.2.7 Investment in Associates

Associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor. Control (for the purpose of this standard) is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Cost method is a method of accounting whereby the investment is recorded at cost. The income statement reflects income from the investment only to the extent that the investor receives distributions from accumulated net profits of the investee arising subsequent to the date of acquisition. Equity method is a method of accounting whereby the investment is initially recorded at the cost and adjusted thereafter for the post-acquisition change in the investors share of net assets of the investee. The income statement reflects the investors share of the results of the operations of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control over those policies. Subsidiary is an enterprise that is controlled by another enterprise (known as the parent) 2.2.8 Deferred Taxation

Deferred tax is an accounting concept (also known as future income taxes), meaning a future tax liability or asset, resulting from temporary differences or timing difference between the accounting value of assets and liabilities and their value for tax purposes. Modern accounting standards typically require that a company provides for deferred tax in accordance with either the temporary difference or timing difference approach. Where a deferred tax liability or asset is recognized, the liability or asset should reduce over time (subject to new difference arising) as the temporary or timing difference reverses. 2.2.9 Goodwill of the Bank

Goodwill in financial matters is the value of an entity over and above the value of its assets. The term was originally used in accounting to express the intangible but
15

quantifiable prudent value of an ongoing business beyond its assets, resulting perhaps from the reputation the firm enjoyed with its client. It arises when a company is purchased for more then the fair value of the identifiable assets of the assets is by definition the value of the goodwill of the purchased company. The acquiring company must recognize goodwill as an asset in its financial statements and present it as a separate line item on the balance sheet, according to the current purchase accounting method. In this sense, goodwill serves as the balancing sum that allows one firm to provide accounting information regarding its purchase of another firm for a price substantially different from its book value. Goodwill can be negative, arising where the net asset at the date of acquisition, fairly valued exceed the cost of acquisition. Negative goodwill is recognized as a gain to the extent that it exceeds allocations to certain assets. Under current accounting standards, it is no longer recognized as an extraordinary item. For example, a software company may have net assets (consisting primarily of miscellaneous equipment and assuming no debt) valued at $ 1 million, but the companys overall value (including brand, customers, intellectuals capital) is valued at $ 10 million. Anybody buying that company would book $ 10 million in total assets acquired, comprising $ 1 million physical assets, and $ 9 million in goodwill. In a private company, goodwill has no predetermined value prior to the acquisition; its magnitude depends on the two other variables by definition. A publicly traded company, by contrast, is subject to a constant process of market valuation, so goodwill will always be apparent. There is a distinction between two types of goodwill depending on the type of business enterprise: institutional and professional practice goodwill. Furthermore, goodwill in a professional practice entity may be attributed to the practice of itself and to the professional practitioner. It should be noted that while goodwill is technically an intangible asset, goodwill and intangible assets are usually listed as separate items on a companys balance sheet. 2.2.10 Other Asset of the Bank

An asset is a cash or non cash item that can be converted to cash. Assets have both a market value and cash value. The market value of an asset is its dollar value on the open market. For example a stocks market value is the price quoted on stock exchange on particular day, and a propertys market value is the amount it would for on the open market. This may be determined by comparing the property with similar, recently sold property as they do in a professional appraisal.

16

2.2.11

Properties and Equipments

Property and equipment can be easily converted to cash. This can be compared to current asset such as cash or bank accounts, which are described as liquid assets. In most case only tangible asset are referred to as fixed. Moreover, a fixed/ non-current asset can also be defined as an asset not directly sold to a firms consumer/end-user. As an example, banking firms current assets would be its inventory (in this case, flour, yeast, etc.), the value of sale owed by the firm via credit (i.e. debtors or accounts receivable), cash held in banks, etc. its non-current asset would be the oven used to bake bread, motor vehicles used to transport deliveries, cash registers used to handle cash payments, etc. each aforementioned non-current asset is not sold directly to customers. These are items of value which the organization has bought and will use for an extended period of time; fixed assets normally include items such as land and buildings, motor vehicles, furniture, office equipment, computers, fixtures & fittings, and plant & machinery. These often receive favorable tax treatment (depreciation allowance) over short-term assets. According to International Accounting Standard (IAS) 16, Fixed Assets are assets which future economic benefit to flow into the entity, whose cost can be measured reliably. It is pertinent to note the cost of a fixed asset is its purchase price, including important duties and other deductable trade discounts and rebates. In addition, cost attributable to bringing and installing the asset in its needed location and the estimate of dismantling and removing the item if they are eventually no longer needed on the location.

17

CHAPTER THREE
3.0 DATA ANALYSIS

Table 1: Total assets for the five respective years Traditional Banking Years 315,958 273,299 299,208 223,850 197,962 1,310,304
3.1 Test for Normality

E-Banking Years 674,064 622,164 784,878 446,114 171,197 2,698,417

Total 990,022 895,463 1,084,086 669,964 369,159 4,008,721

X 0 1 2 3 4

U=XA C 990022 -2 895463 -1 1084086 0 669964 1 369159 2 4008721 F C FU F =

FU -1980044 -895463 0 669964 738318 -1467225

FU2 3960088 895463 0 669964 1476636 7002151

FU3 -7920176 -895463 0 669964 2953272 -5192403

FU4 15840352 895463 0 669964 5906544 23312323

M11 =

1 (-1467225) 4008721 -0.366 1 (7002151) 4008721 1.7467 1 (-5192403) 4008721 -1.2953

= M21 = C FU2 F =

= M31 = C FU3 F =

18

M41 =

C FU4 = F =

1 (23312323) 4008721 5.8154

M2 = M21 - (M11)2 = 1.7467 (-0.366)2 = 1.6127 M4 = M41 - 4M11 M31 + 6(M11)2 (M21 ) - 3(M11)4 = 5.8154 4(-0.366)(-1.2953) + 6(-0.366)2(1.7467) 3(-0.366)4 = 5.8154 1.8963 + 1.4039 0.0538 = 5.2692
4 = M4 M22 4=

5.2692 (1.6127)2

= 2.026

The lower and upper class limits in the table for departure from normality are 2.83 and 3.18. Hence, 4 = 2.026 does not lie within the limit, we conclude that the data are not normally distributed. This result could equally be obtained using the Pearson chi-square method. Since our data does not follow the normal distribution, we resort to the non-parametric test to achieve our aims. 3.2 Test for Independence

The chi-square test will be adopted to perform this test. According to Spiegel (1972), the chi-square test is used to measure the discrepancies that exist between observed frequencies and expected frequencies using a contingency table. The contingency table is a two-way classification table arranged in rows and columns. The observed frequencies occupy the rows and columns. The total observed frequencies in each row or column are called marginal frequencies. A detailed procedure of the chi-square test is as follows: 1. 2. 3. Formulate the null hypothesis Compute the expected frequencies of the cells

19

Expected frequency Cij = Ri * CJ N N =Ri = Cj =

1 1 r c

= Oij
1 1

Where Ri = ith rows marginal frequencies Cj = jth columns marginal frequencies N = total number of observation 4.
2

Compute the test statistic

= (oij eij)2 1 1 eij

Where

r c

oij = observed frequency eij = expected frequency

4. Decide the -level of significance and read from table Where df = (r-1)(c-1)

2()df

5. 6.

Decision rule: reject Ho if 2 > 2()df and accept if otherwise. Conclude appropriately.

Test of dependency of the banking performance over the years using the chi-square test. Hypothesis: H0 : performance is dependent on the years. H1 : performance is not dependent on the years.

20

Table 3

Traditional Banking Years 315,958 273,299 299,208 223,850 197,962 1,310,304

E-Banking Years 674,064 622,164 784,878 446,114 171,197 2,698,417

Total 990,022 895,463 1,084,086 669,964 369,159 4,008,721

e11 = 990022 * 1310304

4008721 = 323,601.9136

e 21 = 895463 * 1310304
4008721
. . .

= 292,694.0415

e 42 = 669964 * 2698417
4008721 = 450,977.3184

e 52 = 369159 * 2698417
4008721 = 248,494.4503 Table of expected frequencies are shown below to 2d.p Table 4 : Expected Frequencies Traditional Banking years 323601.9136 292,694.0415 354,347.9883 218,986.6818 120,664.5497 E-Banking years 666,420.0864 602768.9585 729,738.0117 450977.3184 248,494.4503

21

(oij eij)2 i j eij

2 = (315958 323601.9136)2 + (273299 292694.0415)2 + (299208 354347.9833)2 +

323601.9136 292694.0415 354347.9833 + (446114 450977.3184)2 + (171197 248494.4503)2 450977.3184 248494.4503

2 = 180.5595 + 1285.1906 + 8580.3162 + 108.0059 + 49516.58 + 87.6766 + 624.066 +

4166.4519 + 52.4458 + 24044.3834

= 88645.6759

2()df = 2(0.05)4 = 9.49

=

2(0.99)4 = 0.297

Decision rule: Reject Ho if 2 > 2()df and accept if otherwise. Conclusion: Since 2 = 88645.6759 < 2(0.05)4 = 9.49, we conclude that at 5% level of significance, the performance depends on the years and even at 1% level of significance. 3.3 Test for Correlation

In statistics, Spearman's rank correlation coefficient or Spearman's rho, named after Charles Spearman and often denoted by the Greek letter (rho) or as rs, is a nonparametric measure of statistical dependence between two variables. It assesses how well the relationship between two variables can be described using a monotonic function. If there are no repeated data values, a perfect Spearman correlation of +1 or 1 occurs when each of the variables is a perfect monotone function of the other. The Spearman correlation coefficient is often thought of as being the Pearson correlation coefficient between the ranked variables. In practice, however, a simpler procedure is normally used to calculate . The n raw scores Xi, Yi are converted to ranks xi, yi, and the differences di = xi yi between the ranks of each observation on the two variables are calculated.

22

If there are no tied ranks, then is given by = 1 - 6di2 n(n2-1)

One has to assign the same rank to each of the equal values. It is an average of their positions in the ascending order of the values. Test to show if the performance correlate Table 5 Traditional Banking (x) Ranks(x) E-Banking (y) Rank(y) 315958 5 674064 4 273299 3 622164 3 299850 4 784878 5 223850 2 446114 2 197962 1 171197 1

Hypothesis: H0 : x and y are correlated ( = 0) H1 : x and y are not correlated ( > 0) Rx Ry di2 di2 = (Rx - Ry)2 2 4 4 1 3 4 3 1 4 4 2 4 5 5 0

di2 = 2
Test statistics rs = 1 - 6di2 n(n2-1) Rs = 1 6 *2 5(25-1) Rs = 0.9 From the table, n = 5 and = 0.05, = 0.9

23

Conclusion: since Rs = 0.2 < = 0.9, we conclude that theres a high correlation between the banking techniques. 3.4 3.4.1 Regression study Linear Regression with one independent variable.

In statistics, linear regression is an approach to modeling the relationship between a scalar variable y and one or more variables denoted X. In linear regression, models of the unknown parameters are estimated from the data using linear functions. Such models are called linear models. Most commonly, linear regression refers to a model in which the conditional mean of y given the value of X is an affine function of X. Less commonly, linear regression could refer to a model in which the median, or some other quartile of the conditional distribution of y given X is expressed as a linear function of X. Like all forms of regression analysis, linear regression focuses on the conditional probability distribution of y given X, rather than on the joint probability distribution of y and X, which is the domain of multivariate analysis. Linear regression was the first type of regression analysis to be studied rigorously, and to be used extensively in practical applications. This is because models which depend linearly on their unknown parameters are easier to fit than models which are non-linearly related to their parameters and because the statistical properties of the resulting estimators are easier to determine. Linear regression has many practical uses. Most applications of linear regression fall into one of the following two broad categories: 1.) If the goal is prediction, or forecasting, linear regression can be used to fit a predictive model to an observed data set of y and X values. After developing such a model, if an additional value of X is then given without its accompanying value of y, the fitted model can be used to make a prediction of the value of y. 2.) Given a variable y and a number of variables X1, ..., Xp that may be related to y, then linear regression analysis can be applied to quantify the strength of the relationship between y and the Xj, to assess which Xj may have no relationship with y at all, and to identify which subsets of the Xj contain redundant information about y, thus once one of them is known, the others are no longer informative. Linear regression models are often fitted using the least squares approach, but they may also be fitted in other ways, such as by minimizing the lack of fit in some other norm, or by minimizing a penalized version of the least squares loss function as in ridge regression. Conversely, the least squares approach can be used to fit models that are not linear models. Thus, while the terms least squares and linear model are closely linked, they are not synonymous.
24

3.4.2

Trend line

A trend line represents a trend, the long-term movement in time series data after other components have been accounted for. It tells whether a particular data set (say GDP, oil prices or stock prices) have increased or decreased over the period of time. A trend line could simply be drawn by eye through a set of data points, but more properly their position and slope is calculated using statistical techniques like linear regression. Trend lines typically are straight lines, although some variations use higher degree polynomials depending on the degree of curvature desired in the line. Trend lines are sometimes used in business analytics to show changes in data over time. This has the advantage of being simple. Trend lines are often used to argue that a particular action or event (such as training, or an advertising campaign) caused observed changes at a point in time. This is a simple technique, and does not require a control group, experimental design, or a sophisticated analysis technique. However, it suffers from a lack of scientific validity in cases where other potential changes can affect the data. 3.4.3 Table 6 X 0 1 2 3 4 5 6 7 8 9 Y 674,064 622,164 784,878 446,114 171,197 315,958 273,299 299,208 223,850 197,962 X -4.5 -3.5 -2.5 -1.5 -0.5 0.5 1.5 2.5 3.5 4.5 X2 20.25 12.25 6.25 2.25 0.25 0.25 2.25 6.2 5 12.25 20.25 XY -3033288 -2177574 -1962195 -669171 -85598.5 157979 409948.5 748020 783475 8908829 Yest 232848.92 270187.4 307525.88 344864.36 382202.84 419541.32 456879.8 494218.28 531556.76 568895.24 Error(ei) 441215.08 351976.6 477352.12 101249.64 -211005.84 -103583.32 -183580.8 -195010.28 -307706.76 -370933.24 Developing regression equation

x =X X,y=Y Y
X = Xi , Y = Yi

X = 4.5 and Y = 400872.1

25

y = (XY)X ( X2 ) Yest = 3080425(X 4.5) + 400872.1 82.5 Yest = 37338.4849X + 232848.9182

ei = -0.03
Yest = 0.4122X + 66.8751

Trend Line Graph

600000 500000 Estimated Total Assets 400000 300000 200000 100000 0 1 2 3 4 5 6 7 8 9 10

The estimates for subsequent years applying the trend line equation developed is given below Years 2011 2012 2013 2014 2015 Estimated Total Assets. 606206.9672 643545.4521 680883.9730 718222.4219 755560.9068

26

CHAPTER FOUR
SUMMARY, CONCLUSION and RECOMMENDATIONS The study focuses on the comparison of traditional banking and e-banking techniques using statistical models. The study revealed that the total amount (profit) made by the bank was dependent on the years the techniques were used. The positive trend line developed depicts the fact that theres increase in the bank returns during the e-banking years coming from the traditional banking. When choosing a particular banking method, you should always take into consideration every single preference you have in order to choose what is really appropriate for you. As long as it meets your banking preferences, every option you have will certainly depend on what you really like. With the modern day trend of e-banking practice, below are recommendations to upgrade it. 1. The Nigerian government should help in reducing the cost of interconnectivity and general Information and Communication Technology (ICT) access. This will ensure public access to cheap and fast telecommunication services. 2. The rising cases of internet related frauds in Nigeria have made the internet banking environment in Nigeria very complex. In addition to regulating cyber activities in Nigeria, there should be restrictions and objective enforcement of necessary electronic banking laws and policies in line with international standards. 3. Acquiring software that would be capable of handling the emerging divergence in the banking system is also a challenging issue as banks are already complaining of the huge cost of integration. Hence, the Central Bank of Nigeria would have to ensure that the cost is not a hindrance in the needed systems integration among the emerging banks, especially since most applications in use, prior to consolidation, lacked the capacity and scope to match the new trend in the industry. 4. The developments of banks websites should go beyond information purposes. Banks should put in place procedures for maintaining and updating their websites, including the various security features and key ingredients of internet banking which includes confidentiality, integrity, availability and effective communication.

27

5. The Nigerian government, in collaboration with the banks, should educate and inform her citizens and customers on the workability and effectiveness of internet banking. This will instill more confidence in the customers and hence guarantee their patronage of internet banking services.

28