DIGITALIZATION OF FINANCIAL SERVICES AND FINANCIAL PERFORMANCE OF BANKS CASE STUDY OF BANK OF KIGALI PLC: PERIOD 2019-2022

Abstract

The main objective of this research was to assess the effect of digital financial system on financial performance in financial institutions. Financial institutions in Rwanda including Bank of Kigali still receive complainants from their customers that they continue to recognize the long queues are still using different branches of banks at a vast rate comparing to the previous one before the implementation of digital financial services. Different concepts, theories and available related literatures published on the variables made this study were used. In this study the researcher adopted descriptive and correlation research design to enable the researcher accomplishes the objectives of the study. The research conducted in Bank of Kigali Rwanda, headquarter. The questionnaires were distributed to the respondents as an instrument for data collection, and data collected was analyzed using SPSS version 22. The findings revealed that the respondents strongly confirmed that digital financial system affect financial performance in financial institutions through ATM services as shown with the overall mean of 3.61 (Table 6), analysis done on mobile banking with the overall mean of 3.70 (Table, 7), and analysis done on online banking with the overall mean of 4.52 (Table, 8). The findings also showed that Bank of Kigali‘s ROA in 2019 is 3.66%. Bank of Kigali‘s ROA in 2020 is 2.95%. In 2021 and 2022, the return on asset ratio is 3.26% and 3.22% respectively means that the BK is investing a low amount of capital into its production while simultaneously receiving high income. BK‘s ROE is 16.9% in 2019. This means that every Rwf of common shareholder's equity earned about Rwf 16.9 in 2019. In other words, shareholders saw a 16.9 percent return on their investment. Table 10 also shows that from 2020 and 2022 the ratio are the following 14.8%, 18.2%, and 18.7% respectively indicates that BK 's return on equity is in positive way; it means its shareholders are winning and gaining value. The net profit margin of bank of Kigali fluctuated from 2019 to 2021. Notice that in terms of Rwf amount, net sales is higher in next year. Nonetheless, in 2019 represents only 39.6% of sales; while in 2020, it represents 34.1%; but in 2021, it represents 38.1%, and 43.3% in 2022. For every 1 Rwf of sales, bank of Kigali made Rwf 0.39 in 2019, Rwf 0.34 in 2020, Rwf 0.38 in 2021, and Rwf 0.43 in 2022. Using the Pearson correlation, the researcher concluded that digital banking system have very high correlation to financial performance in financial institutions due to the fact that equal r= .884** which is very high correlation and the p-value is .006 which is less than 0.05. However, researcher recommends that BK should therefore continue to adopt new technologies which will improve their margins and hence their profitability in order to attract more investors.