ARTIFICIAL INTELLIGENCE (AI) AND THE PROFITABILITY LEVEL OF BANKS IN NIGERIA

ARTIFICIAL INTELLIGENCE (AI) AND THE PROFITABILITY LEVEL OF BANKS IN NIGERIA

ABSTRACT: This study is aimed at ascertaining the relationship between artificial intelligence internet banking services expenditure and banks profitability level in Nigeria; with the focus on UBA Plc. Artificial intelligence-Internet technology holds the potential to fundamentally change banks and the banking industry. Its objective is to examine the relationship between artificial intelligence in mobile banking service expenditure and the profitability of UBA plc. It helps to know whether or not there is a significant relationship between artificial intelligence mobile banking service expenditure and the profitability of commercial banks. Information for this study is gathered from the annual reports of the UBA Plc from the year 2016-2018. The design for the study is the ex-post-factor research design. A regression analysis was prepared and data obtained. The result reveals that there exists a positive and significant relationship between the log of artificial intelligence internet banking services expenses and the return on assets. Based on the following findings of this study, the following policy recommendations are suggested: The empirical results of the study have revealed a significant relationship between the log of artificial intelligence internet banking services expenses(AIIBSE) and return on asset (ROA). We, therefore, advocate for more Artificial Intelligence Models in internet banking.

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CHAPTER ONE

INTRODUCTION

1.1 Overview of the Study

Over the past decade, Nigeria’s banking landscape has transformed from one that relies heavily on cash transactions to one that is driven by internet banking and artificial intelligence (AI), (Herbert Wigwe, 2019).

The coming into existence of the internet has helped to greatly improve the operations of commercial banks in Nigeria. The delivery of electronic services to businesses and consumers has been going on for years now. The internet is a fast-spreading service that allows customers to use computers or any of their internet-enabled devices to access account-specific information and possibly conduct transactions from remote locations such as at home quickly and successfully.

The use of IT applications has changed the entire business environment in an unprecedented manner (Uduji, 2013a). The banking sector, for instance, has benefited tremendously from online business (internet) strategy. E-business is one of the subsets of IT applications and is commonly used for developing, innovating, and strengthening the competitiveness of the banking industry (Oluwatolani, Joshua, & Philip, 2011).

Hasan, Baten, Kamil, and Parveen (2010) argued that technological innovations are parcel and contribute to the distribution channels of the banks.

In recent times, the introduction of artificial intelligence technology in internet banking is a significant step forward in the digitalization and transformation of modern businesses. Artificial intelligence refers to a computer’s capability to acquire and apply knowledge without the programmer’s intervention.

For banks, data is essential to almost all business lines, from traditional deposit-taking and lending to investment banking and asset management. Autonomous data management without human involvement, therefore, offers great opportunities for banks to improve speed, accuracy, efficiency and thus attain a high level of profitability.  To date, AI implementation in internet banking has been modest. AI is being used for real-time identification and prevention of fraud in online banking as well as in know-your-customer (KYC) processes. By increasing labour productivity, AI technologies structurally reduce costs in the banking sector. Rapid implementation of AI technologies is, therefore, central to fighting persistently weak profitability and to remain competitive.

Banks profitability is relevant because it is a measure of the progress and strength of the bank as well as helps in galvanizing the confidence of customers in the bank.

Nigerian banks have already adopted elements of AI technologies including software robots to streamline and automate processes and chatbots that on more advanced platforms like the internet, use AI and machine learning to provide human-like interaction and dynamic banking services via chat conversations. Rule-based chatbots like Diamond Bank’s Ada, Stanbic IBTC’s Sami, Access Bank’s Tamara and UBA’s Leo allows customers to perform basic banking transactions on the go at various levels of sophistication.

Therefore, this study seeks to appraise the integration of Artificial Intelligence (AI) technologies in the business of banking and the profitability level of banks in Nigeria, using UBA Virtual Banker-LEO as a case study.

1.2 Statement of the Problem

AI technology holds the potential to fundamentally change banks and the banking industry. An extreme view speculates that the internet and AI will destroy old models of how bank services are developed and delivered. (DeYoung, 2001).

In their quest to become more efficient, Nigerian banks are exploring AI applications to replace activities that are costly, laborious and repetitive. The focus is on operational risk management gains like fraud detection, KYC processes and on opportunities for cost reduction like chatbots or robot-advisors. AI has contributed to bank profitability in two ways: first, by taking over repetitive tasks from bank employees, autonomous AI software has reduced the demand for less-skilled labour and improved the efficiency of remaining bank staff.

This is crucial, as employee compensation usually represents a large share of banks’ cost base. Secondly, AI has contributed to revenue generation. For example, it has helped banks to develop new products and offer tailor-made products better suited to client preferences.

However, the fact that AI in internet banking is fast gaining acceptance in the Nigerian banking sector does not assuredly signify improved banks’ performance nor would conspicuous use of AI technology as a delivery channel make it economically viable, productive or profitable. This study sought to fill the existing research gap by ascertaining whether AI technology in internet banking services affects the profitability of commercial banks in Nigeria.

1.3 Purpose of the Study

The aim of this study is to examine the impact of AI-internet banking services expenditures (AI-IBSE) on the profitability of commercial banks in Nigeria, using UBA PLC  as a case study. The study includes;

1. To determine the relationship between UBA’S AI-internet banking services expenditures (AI-IBSE) and the Return On Assets(ROA) of UBA PLC.
2. To ascertain the relationship between UBA’S AI-internet banking services expenditures (AI-IBSE) and the Return On Equity (ROE) of UBA PLC.
3. To establish the relationship between UBA’S AI-internet banking services expenditures (AI- IBSE) and the Net Income Margin (NIM) of UBA PLC.

1.4 Research Questions

In light of the objectives of the research, the following research questions were considered pertinent:

1. What is the impact of UBA’S AI-internet banking services expenditures (AI-IBSE) and the Return on Assets (ROA) of UBA PLC?
2. What is the effect of UBA’S AI-internet banking services expenditures on the Return on Equity (ROE) of UBA PLC.
3. What is the impact of UBA’S AI-internet banking services expenditures on the Net Income Margin (NIM) of UBA PLC?

1.5 Research Hypotheses

The following hypotheses are in null form only:

Ho₁: There is no significant relationship between UBA’s AI- internet banking services expenditures (AI-IBSE) and the Return of Asset (ROA) of UBA PLC.

Ho₂: There is no significant relationship between UBA’s AI-internet banking services expenditures (AI-IBSE) and the Return of Equity (ROE) of UBA PLC.

Ho₃: There is no significant relationship between UBA’s AI-internet banking services expenditures (AI-IBSE) and the Net income margin (NIM) of UBA PLC.

1.6     Significance of the Study

1. With this study, commercial banks will be able to understand banking in a new dimension.
2. It will help to highlight the various importance of AI technology in cashless banking and increase profitability if these measures are properly taken care of.
3. This study will serve as a source of literature for students and researchers who will subsequently study this subject.
4. This study is significant to the banking sector and bankers as it addresses issues faced or experienced in the sector.

1.7 Scope of the study

This study covers the Internet and Mobile banking channels and AI-powered Chatbots which is in the internet banking investment and profit after tax on UBA PLC report from the adoption of AI-technology in UBA PLC from 2017-2018.

1.8 Definition of terms

• Artificial Intelligence (AI): Artificial Intelligence or AI refers to the intelligent actions of devices and applications without human intervention.
• Chatbots: This entails a computer program designed to simulate conversation with human users, especially over the internet.
• Internet banking: This can also be known as on-line banking, virtual banking, and e-banking. It is an electronic payment system that enables the customer of a bank to conduct a range of financial transactions through the financial institutions’ website.
• Mobile Banking: This refers to the use of a smartphone or other cellular device to perform online banking tasks remotely.
• Profitability: Profitability is a measure of progress, the strength of the bank as well as help in galvanizing the confidence of customers in the bank.

1.9 Limitations of the study

Other banks could not be covered due to their inadequate disclosure of AI internet banking investment.

1.10 Organization of the study

This study is divided into five (5) chapters;

Chapter one introduces the study, highlights its importance, presents a summary of what the research is all about and it contains the purpose of conducting the research, including the problem the research intends to solve.

Chapter two reviews relevant kinds of literature that relate to artificial intelligence, internet-based investment on bank profitability in Nigeria. Gbe literature is critically reviewed under three sections; the theoretical framework, the conceptual framework, and the empirical review.

Chapter three contains the research methodology. It highlights the research design, population of the study, the sampling procedure/sample size determination and data collection method.

Chapter four contains the presentation and analysis of data. In this chapter, the data collected using the methods in chapter three are clearly stated out together with the results of the analysis. The results are then interpreted and hypotheses are tested.

Chapter five contains a summary, conclusions, and recommendations. In this chapter, everything discovered in the course of the research is summarised, the conclusions arrived at, based on the findings are presented and recommendations are given.

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TABLE OF CONTENTS

Title page i
Declaration iii
Certification iv
Dedication v
Acknowledgment vi
Abstract vii
Table of Content viii
CHAPTER ONE: INTRODUCTION
1.1 Overview of Study 1
1.2 Statement of the Problem 3
1.3 Purpose of Study 4
1.4 Research Questions 5
1.5 Research Hypotheses 5
1.6 Significance of Study 6
1.7 Scope of study 6
1.8 Definition of terms 6
1.9 Limitations of study 7
1.10 Organization of study 7

References 9
CHAPTER TWO: LITERATURE REVIEW
2.1 Conceptual framework 10
2.1.1 Concept of Artificial Intelligence (AI) in banking 10
2.1.2 Forms of Artificial Intelligence Technology in Banks 10
2.1.3 Impact of Artificial Intelligence on Banks 11
2.1.4 Challenges of Artificial Intelligence in Banks 15
2.1.5 Cyber-Crimes Threats on the Nigerian Banking Premises 17
2.1.6 Should the development and deployment of AI and Financial
Technology be regulated? 18
2.1.7 Concept of Bank Profitability 19
2.1.8 Bank Measures of Profitability: Return on Assets and Return
on Owners’ Equity 21
2.2 Theoretical Framework` 26
2.2.1Bank-Focused Theory 26
2.2.2 Bank-Led Theory 27
2.2.3 Non-bank-Led Theory 27
2.2.4 Theory of Planned Behaviour 27
2.2.5 Social Construction Theory 28
2.2.6 Theory of Reasoned Action(TRA) 28
2.3 Empirical Review 28
2.4 Identification of Gap 32
References 33
CHAPTER THREE: RESEARCH METHODOLOGY
3.1Research Design 35
3.2 Sampling Procedure/ Sample Size Determination 35

4.2 Evaluation Based On Statistical Criteria 41
4.3 Student t-Test 42
CHAPTER FIVE: DISCUSSIONS, CONCLUSIONS AND
RECOMMENDATIONS
5.1Summary 44
5.2 Policy Recommendations 45
5.3Conclusion 46
References 48
Appendix 51

LIST OF TABLES
Table 4.1 Regression Result: Artificial Intelligence and the Profitability level of
UBA PLC
Table 4.2 Regression Result: Artificial Intelligence and the Profitability level of
UBA PLC
Table 4.3 Regression Result: Artificial Intelligence and the Profitability level of
UBA PLC
Table 4.4 Summary of the Sign