IT boosts banks' profitability: study

Investment in information technology not only raises the efficiency of banks but also improves their profitability, according to a study of the Bangladesh Institute of Bank Management.

If a Bangladeshi bank invests Tk 1 in its IT systems, it yields more than Tk 136 in output. On the other hand, a single taka of investment for the non-IT segment brings Tk 58 in output.

Every Tk 1 investment in IT can generate Tk 16.49 in income for banks, while non-IT investments can increase the income by Tk 14.24 per Tk 1, showed the BIBM study, which will be unveiled at a programme today.

A three-member team led by Md Mahbubur Rahman Alam, associate professor of BIBM, analysed banking sector data from 2000 to 2015 and interviewed 500 customers from 2013 to 2015 to arrive at the findings.

IT investment in the financial sector can add efficiency that ultimately drives profitability, according to Alam.

“We have huge scope to invest in the IT segment, which can add efficiency to our businesses.”

The study also showed that spending on IT professionals helps increase efficiency. In 2015, the ratio of IT and non-IT employees was a maximum of 1:197 at state-owned banks, 1:506 at specialised banks, 1:80 at private banks, and 1:34 for foreign banks. All branches of foreign and private commercial banks were computerised in 2012.

By the end of 2015, more than 96 percent of the branches of state-owned commercial banks and 31.55 percent of branches of state-run specialised commercial banks were computerised.

Banks invested Tk 1,138 crore for running their IT operations last year, up from Tk 820 crore in 2014, according to the study. The amount does not include IT spending by the central bank.

Since 2000, the sector has invested about Tk 10,450 crore in the IT systems, according to estimates.

The study also found that the overall customer satisfaction score was 61 percent, meaning there is enough room to improve client experience.

Digitisation of banking, improving operational efficiency and after-sales support are important factors in e-banking customer satisfaction, it found.

Banks and other financial institutions have become dependent on the computerised information system over the years for running their business operations.

At the moment, it is impossible to separate IT from these types of business operations, the report said.

At the end of 2015, only 65 percent of the banks were able to provide some sort of internet banking service in the country. It was 64 percent in 2014 and 61 percent in 2013.

A total of Tk 253.9 billion were transferred through internet banking in 2015, up 16.84 percent year-on-year, the report read.

There were 7,371 ATM booths in the country in 2015, of which half were located in Dhaka. Less than 4.84 percent of the cash points are located in rural areas. Of the ATMs, 43 percent are set up by Dutch Bangla Bank alone.

More than Tk 83,912 crore was transacted through the ATMs last year. The total number of transactions was 13.49 crore.

Alam said banks have already invested Tk 30,000 crore, and every year the industry receives another Tk 900 crore to Tk 1,000 crore in new investments.

“The management also needs to understand the importance of securing their investments in the financial sector,” he added.

The total number of plastic cards, including debit, credit and pre-paid cards, stood at 91.92 lakh, according to the study.