evaluating banking productivity and information technology using the ...

Madueme Ifeoma Stella. / International Journal of Engineering Science and Technology Vol. 2(4), 2010, 400-408 

EVALUATING BANKING PRODUCTIVITY AND INFORMATION TECHNOLOGY USING THE TRANSLOG PRODUCTION FUNCTION MADUEME IFEOMA STELLA DEPARTMENT OF ECONOMICS, UNIVERSITY OF NIGERIA, NSUKKA. ENUGU STATE NIGERIA

ABSTRACT This empirical study tried to assess the impact of Information Communication Technology (ICT) on the productivity of the Nigerian banking sector. Impact on Productivity was conceptualized as ability to make positive contributions to output after deductions for depreciation and labour expenses has been made. The Trancendental Logarithimic Production function and the CAMEL rating were used for the study. Results showed that bank output such as loans and other assets increased significantly to changes in expenditure on information communication technology. Information communication technology labour expenses impacted more on bank output more than capital expenditure on ICT gadgets. The recommendation centered on the need to increase investments in information technology in order to increase productivity of banks. This is based on the purview that increased productivity in many instances leads to improved operational efficiency and profitability which are the laudable goals of any banking establishment. KEYWORDS: IMPACT , INFORMATION TECHNOLOGY, BANKING, PRODUCTIVITY INTRODUCTION 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 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 the time taken or resources used to produce it. Production functions involve 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 the 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. The adoption of information communication technology (ICT) in banks is aimed at improving the productivity of banks which will in turn impact on profitability positively. After many years of adopting information technology in Nigeria, it becomes pertinent to assess the impact on banking productivity in the banks. Hence this singular null hypothesis was formulated to guide the study. HO1: There is no significant difference in the productivity of Nigerian banks before and after the adoption of information communication technology. (P