Impact Of Information Technology On Banks In Bahrain

Information technology and permeated almost every aspect of business operations and communications technologies. So it is a one of the most exciting research has been focusing on the wide interest in all parts of the world through the decades, but little was devoted to study the impact of information technology to banks in Bahrain.

This study examines the impact of information technology on organizational performance in the banking sector during the period from 2005 to 2009. The dependent variable used is return on equity ( ROE) while the independent variables are Hard ware, Soft Ware, System Development & Operations, I .T Maintenance, I.T Training , I .T Insurance , I.T Communication, I .T Implementation, I .T Consultancy , I .T Sites and Business Continuity Planning (BCP).

Preliminary data collected through in-depth interviews, official documents and surveys of the field through the top 8 banks in Bahrain, this data has been tested by applying different statistical methods and finance. The research results led to the conclusion that information technology has a positive impact on organizational performance in the banking sector.

CHAPTER ONE

INTRODUCTION

CHAPTER ONE

INTRODUCTION

As an emerged business trend, the use of information technology (I.T) in the economic organizations are immense and measureless. Systems of organization and functions are now considered effortless and unproblematic because of I.T. information technology passes to be the most important one for each financial institution and the banks, particularly, they are one of the greater investors in I. T, Ahli united bank one of these banks that costs them around $ 13 millions. It is an enormous cost of this technology for local and international market.

The existing studies generally have concluded two positive effects concerning the relationship between IT and the financial performance of banks. “First, it can reduce operational costs of banks' (the cost advantage). For example, the Internet helps banks to conduct standardized, low value transactions (e.g. send the bill payments, balance inquiries, account transfers) through the online channel, while focusing its resources on specialized, high value - added transactions (eg small business loans, personal trust services, investment banking) through branches. Second, can facilitate transactions between customers within the same network(the network effect).

As an example, let us consider the case of automated teller machines (ATMs) by banks. If ATMs are geographically dispersed areas available largely over, the advantage of using an atmosphere will increase as customers can access their accounts from any geographic location they want. This would imply that the value of the ATM network increases with number of locations available in the atmosphere, and the value of the network of the a bank to a customer is determined in part by the final size of the network effect bank's network is important in the adoption of the atmosphere.

IT has drawn the attention of many researchers, commissioned to study the impact of IT in the functioning of the bank and that is a goal of many organizations. Some researchers have found positive relationships between IT investment and organizational performance and some of it found it negative.

الاستماع

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Problem Statement

IT investments and its impact on the banking industry is a very important point for both banking managers and IT managers to be able to deal with and justify wither increased spending for investment in IT will lead to increase performance of Bank or not. That will put increasing pressure on managers to asses its business value.

In this study we will examine the key components of IT investments (Hard ware, Soft Ware, System Development & Operations, I .T Maintenance, I.T Training , I .T Insurance , I.T Communication, I .T Implementation, I .T Consultancy , I .T Sites and Business Continuity Planning (BCP) to see if spending in different IT areas as an impacts on bank performances.

Significance and Importance

The importance of this project lies in its ability to shed a light on the Impact of Information Technology on The Financial Performance of Bank sector in kingdom of Bahrain. Furthermore, this study would encourage other Banks in the area to benefit from Bahraini Banks experience and therefore follow their lead.

Purposes

The goal of this study is to:

To determine which type of information system leads to high financial performance of the banks.

Evaluate in what specific ways and to what extent do information systems could eventually lead to high financial performance.

To find out what issues emerges when implementing IT at the bank.

Research Hypothesis

The main Hypotheses

- There is no significant relationship between investing in I.T and the financial performance of Banks of Bahrain.

H01: There is no significant relationship between investing in HW and the financial performance of Banks of Bahrain.

H02: There is no significant relationship between investing in SW and the financial performance of Banks of Bahrain.

H03: There is no significant relationship between investing in SDO and the financial performance of Banks of Bahrain.

H04: There is no significant relationship between investing in Main and the financial performance of Banks of Bahrain.

H05: There is no significant relationship between investing in Trn and the financial performance of Banks of Bahrain.

H06: There is no significant relationship between investing in Insu and the financial performance of Banks of Bahrain.

H07: There is no significant relationship between investing in Comm and the financial performance of Banks of Bahrain.

H08: There is no significant relationship between investing in Imp and the financial performance of Banks of Bahrain.

H09: There is no significant relationship between investing in Con and the financial performance of Banks of Bahrain.

H010: There is no significant relationship between investing in Sit and the financial performance of Banks of Bahrain.

H011: There is no significant relationship between investing in BCP and the financial performance of Banks of Bahrain.

Key Words

Information technology (I.T): any technology that helps to produce, manipulate process, store, communicate, and/or disseminate information.

Information system (IS): is any combination of information technology and people's activities using that technology to support operations, management, and decision-making.

I.T Investment :

Banks of Bahrain: It’s a financial institution located in Bahrain that deals in money and its substitutes and provides other financial services.

ATM: automated teller machine, which allows customers to complete basic transactions without the aid of a branch representative or teller.

Financial Performance: is the overall profitability of the insurance firm.

Study Outline

The paper proceeds as follows: Chapter 2 focuses on the literature review where the work of other researchers and some previous theoretical and empirical studies are mentioned. Chapter 3 is about the methodology used in this study. Chapter 4 discusses the empirical results and findings of the research. Finally, conclusions and recommendations are made in chapter 5.

CHAPTER TWO

BACKGROUND

CHAPTER TWO

BACKGROUND

Introduction

This chapter will specify some aspects of Bahrain’s economy and what attracts foreign and local investors to invest their capital in this country; along with some important features and statistical data regarding the banking industry, we will try to know why It is necessary for the management of the organizations to measure and to evaluate the organization performance. Finally, the literature review will discuss a number of some previous studies related to this topic.

An Overview of Bahrain's Economy

The economy of Bahrain is mainly defined by oil production and refining and production, ship repair, iron pelletization, fertilizers, offshore banking, insurance. The country is trying hard to privatize its economy so that it can reduce the dependence on oil production and that prompted the government to develop other industries as well. For example, in 1970, the government established Aluminum Bahrain (ALBA), an aluminum smelting industry which still remains an important industry. In a further effort at diversification, the government has also promoted tourism.

The government controls the oil and gas, most heavy industry, and the bulk transport and communications, but has made efforts to privatize the economy, bank transfer, light manufacturing, and trade in private hands.

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Bahrain's economy is strong and always improving their sectors to look for a bright future. It was called the fastest growing financial center in the Arab world by the United Nations Economic and Social Commission for Western Asia in January 2006 by the City of London global financial centers index in 2008. In 2004 it signed a free trade an agreement with United States will reduce the trading Which Barriers between the two countries.

Bahrain Was the first Arabian Gulf state to sign such a trading mutual agreement with the United States.

http://www.mapsofworld.com/country-profile/bahrain1.html

https://www.cia.gov

Banking Sector in Bahrain

Bahrain is the home of more than 400 the authorized financial institutions, what represents a rich mix of international, regional and local names. They cover all the range of financial products, with private concentrations in sure, wholesale banking and funds / asset management. The financial sector is now the major sector of the economy represents more than the 27% of the GDP. The financial sector is also the major employer in Bahrain for more than the 80% of the labor.

The sector is regulated and supervised by the Central Bank of Bahrain (CBB) (www.cbb.gov.bh), which since 2002 has functioned as a regulator of the entire financial system. Bahrain’s banking system consists of both conventional and Islamic banks and is the main component of the financial system, which represent over 85% of total financial assets. The conventional segment includes 19 retail banks, 69 wholesale banks, 2 specialized banks and 36 representative offices of foreign banks.

The Islamic segment, offering a series of Sharia Conformity of their products and services include 6 retail and 18 wholesale banks, and the numbers are increasing steadily.

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The banking sector has played a central role in the development of Bahrain as major financial center in the region. As in December 2006, banking sector assets amounted to over U.S. $ 180 billion, more than twelve times annual gross domestic product.

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ओह यार!

πα?αλία

Je parle un petit peu français.

¿Cómo estás?

χ?ησμός

sư tử

Wie gehts?

mijn vriend

?元気????

La voiture

Vær så snill

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hoje está ensolarado

Je ne sais pas !

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The recent increase in the sector has been supported willingly fortune of the industry of the petroleum and the corresponding increases of liquidity. The banks are playing thus a central role in surplus to reinvest the petroleum incomes as well as complying the opportunities of financing in other segments of the economy.

http://www.bahrain1.com/banking.html

Performance Measures

The performance as declared by Wheelen and hunger (2000) is the final result of an activity and a performance organizacional accumulates turned out final of all the organization process and activities. It is necessary for the management of the organizations to measure and to evaluate the organization performance to utilize organizations resources in better form and to win good organization honorableness.

Managers measure and to control organization performance, since conducts to a better management of assets, to a greater capacity to provide value of the client, for improve the measures of organization Knowledge and measure of performance organizacional have an impact on an organization reputation.

Literature review

Many studies had been done in order provide a clear picture of the financial performance of banks.

Gupta, Uma and Collins (1997) investigate the impact of information systems on the efficiency of banks. They were centered in determining the relation among the investments in I.T and bank efficiency; they identified an efficiency measures assembly commonly utilized by the banks and they asked to their respondents to specify if these measures were utilized to evaluate the performance of I.T an investment.

They found that the companies ensure that the investments in technology are deliberately and in a significant way aligned with achieving the strategic, tactical one, and the operational goals of the business is probable that to see a narrower link among I.T investments and improvements of productivity of the organization. Thus I.T performs an important and valuable role in helping to reach objectives organizational, to enlarge the productivity to improve service to the client, and to utilize fully existing system.

Lunardi, Becker and Macada (2003), they evaluated the strategic impact of IT in Brazilian, American, Argentinean, Uruguayan and Chilean banks as perceived by their executives. In order to externally validate the questionnaire, results were analyzed considering, as isolated samples, (a) Brazil, (b) the United States, (c) Argentina, Uruguay and Chile, and, then, (d) as one group merging all data.

The results indicate that (1) Competition, Products and Services, and Borrowers (customers) are the main strategic variables affected by IT; (2) there are no differences between executives of IT and other functional executives regarding their perception of the impacts of IT in strategic variables; and (3) the impact of IT in Competitiveness is significantly related with the impact of IT in Borrowers, Government and Country Requirements, Products and Services, and Cost Structure and Capacity. This study supported banking executives to plan IT strategies, their implementation and to evaluate their use.

Another research had been done by Elena Becalli. (2005) Who investigated whether investment in Information Technology (IT) hardware, software and other IT services - influences the performance of banks by Using a sample of 737 European banks over the period 1993-2000 .

The study found that the impact of different types of IT investment (hardware, software and services) on banks' performance is heterogeneous. Investment in IT services from external providers (consulting services, implementation Services, training and education, support services) appears to have a positive influence on accounting profits and profit efficiency, while the acquisition of hardware and software seems to reduce banks' performance.

Shaukat and Zafarullah. (2009) made a study examined the impact of IT on organizational performance in quantitative terms of Pakistan’s manufacturing and banking sectors over period of 1994-2005 and come with the following result.

I.T changed the character of so much work for the industries and enlarges its performance. This positive impact has shown in indicators of qualitative performance. Significant improvements with regard to the different qualitative variables as customer satisfaction, client/suppliers links, image of the business, employees interest work, shareholders, confidence and among office links/communication they have been observed in both the sectors and banking in Particular .

Akram and Allam. (2010), explored the impression on improving the performance of two forms of matrix. The first is matrix of financial performance which comprises Market Value-Added (MVA), Return on Investment (ROI) and Earning per Share (EPR) and the second is matrix of operational performance, which includes the Net Profit Margin (NPM),

Operating Return on Assets (ORA) and the profit value of the employee (PE). Utilizing IT by Jordanian banks which measured by testing the level of investment in Hardware, Software, Internet Banking, Phone banking, number of ATMs, use of Cyber branches and Banking via SMS.

The results of measurements indicated that there was an impact on the use of MIS in Jordanian banks in the market value added (MVA), Earnings Per Share (EPS), Return on Assets (ROA), Net Profit Margin (NMP).

Keramati, Azadeh and Mehran (2009), discussed and tested empirical to moderate environmental effects of dynamism and branch strategy on the impact of the investment and other efficient variables (number of employees and fixed assets) in the branches. The study sample was comprised of 102 branch offices of the bank Parsian and the empirical results, on the base of a model moderate of decline. Concretely, IT investment seems to have a greater positive impact on performance of the banks when there are greater environmental changes and more proactiva strategy branch.

According to their conclusions, the banks considering that the investment should evaluate their performance environmental contexts and the strategic orientation.

Another investigation has been carried out for Mallick and Shirley (2006). They examined the effects of the information technology (IT) in the banking industry of United States.

They found that IT can improve bank’s performance in two ways: IT can reduce operational cost (cost effect), and facilitate transactions among customers the clients inside the same network (effect network).

They characterized the conditions to identify these two effects and the conditions for the two seemingly positive effects to turn negative in the equilibrium. The results were tested on a panel of 68 US banks over 20 years, and they found that the bank profits decline due to adoption and diffusion of IT investment, reflecting negative network effects in banking Industry.

In this study I will use the same factors used by Akram and Allam (2010) to explain the Impact of Information Technology on The Financial Performance of Bank sector in kingdom of Bahrain.

CHAPTER THREE

METHODOLOGY

CHAPTER THREE

METHODOLOGY

Introduction

In this part of the study, we build the methodology of the study that is characterized in terms of tools and method of measurement and tests for the problem of the study, taking advantage of methods and tools of previous studies, in order to guarantee the access to the methodology to obtain the information more I need and better results.

The key variables will be measured in an intent of practice to identify dependent and independent variables and to explain how the independent variable affects the dependent variable.

Finally, It will also provide a study model and some specifications of the model used to conduct the research.

Population and Sampling

Data Collection

The data was collected through in-depth interviews with the senior managers of finance , and some mangers from I.T Department of Banks in sample and from official documents plus We used several academic journals and articles which have been downloaded online from various websites to collect data for this study. Updating numerical data about the Banking sector and Banks have been collected from the annual reports of each Banks which are submitted on their official websites.

Population

The research population is all locally Banks in Bahrain

Ahli United Bank

National Bank of Bahrain

Bahrain Islamic Bank (BisB)

Bank of Bahrain and Kuwait B.S.C

.

Bank Muscat International (BMI)

Standard Chartered

Kuwait Finance House - Bahrain

Citibank Bahrain

HSBC Bank Middle East Limited

Arab Bank

Table 3.1 : Population

Source: The Researcher

Sample

Ahli United Bank (AUB) & Bank Muscat International (BMI) were selected as research sample to represent this sector. However these Banks were selected because I found that it was easy for me to collect any information needed for this research from these tow Banks since I am working in Ahli united Bank and I Know Manger of IT in Bank Muscat International (BMI) .

Ahli United Bank

. Bank Muscat International (BMI)

Table 3.2 : Sample

Source: The Researcher

The first bank is Ahli United Bank, Bahrain (AUB):

Ahli United Bank BSC (AUB) formed after the 2001 merger of Al-Ahli Commercial Bank and Commercial Bank of Bahrain, It is a full fledged commercial and investment banking group providing Services of 1. Wealth management 2. Retail, corporate 3. Treasury 4. offshore 5. Islamic banking 6. Real estate fund management 7. Structured finance and private banking services. The Group's businesses consist of the operations in Bahrain, a wholly owned subsidiary in the UK and associates in Kuwait, Qatar, Oman, Egypt, Iraq and Libya.

Source: http://www.cbb.gov.bh/page.php?p=banking

The second bank is Bank Muscat International (BMI) :

BMI Bank (previously known as Bank Muscat International), an associate of Bank Muscat the largest financial services provider in Oman today, is a Retail Bank, registered in Bahrain and regulated by the Central Bank of Bahrain offering a full range of retail and commercial banking services. BMI Bank operates in Bahrain through a network of 8 branches and 26 ATMs with net banking for easy access to services.

Source: http://www.bmi.com.bh/AnnualReport/images

Period covered in this research

This research covers the period from 2005 to 2009.

Analysis Plan

Use Regression method to specify the relationship between the independent variables (HW, SW, SDO, MAIN, TRN, Insu, Comm, Imp, Cons, Sit, BCP) and the dependent variable which is the (ROE).

Research Model

Fig (1) the structural variables of the independent and variable dependent.

Independent

I T

Dependent

Performance

Performance

H W

S W

S D O

Main

Trn

Insu

Comm

Imp

Cons

Sit

BCP

R O E

Figure 3.1

The research model

Source: the researcher

Model Specification

This economic model is used to examine the relationship between Independent Variables and Bank’s performance.

Defining Study Variables

The independent variables

Hard ware: Which includes spending on data storage devices, terminals, memory, peripherals, workstations, personal computers and data communications devices, So It is the net investment bank in the computer hardware and equipment in the period. (Akram & Allam 2010)

Soft Ware: which includes spending on packaged software, application Solutions software, application tools, and systems infrastructure software? It is the net investment bank in the software during the period.

(Akram & Allam 2010)

System Development & Operations: Which includes spending on Specific activities related to system development and other expenses for operations management during the period like the network, processing services, backup and archiving. ( Elena Becalli. 2005)

I .T Maintenance :On going operational support of either hardware or software IT assets of an organization. This can be both preventative as well as reactive support.

I.T Training: Includes education used to enhance general knowledge and expand the abilities to use IT during the period. (Elena Becalli 2005)

I .T Insurance: The insurer provides protection of IT assets against fire, theft, flood and accidental damage and protects the firms investment from claims arising out of professional negligence or system failure .

I.T Communication: Providing effective ways for inter application, inter entity communication. Effective IT communication provides the backbone for the working of any next generation application due to centralized and cloud based roadmap towards Information Technology.

I .T Implementation: Which includes spending on a new or changed application systems are needed in order to support the processes, these must first be procured or developed and implemented.

I .T Consultancy: Includes all what they spend to provide product-specific consulting during the period. It is one of the independent variables.

(Elena Becalli. 2005)

I .T Sites: Physical controlled infrastructure support for IT related hardware / data centers. This can be segregated between production and disasters recover sites

Business Continuity Planning (BCP): It is the cost of Planning that identifies to the organization, exposition to external and internal threats and synthesizes soft and hard assets to provide an efficient prevention and the recovery of the organization, during the period. It is one of the independent variables.

The independent variables

ROE: Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. So it is the amount of the net incomes returned like a percentage of the capital stock.  Each bank’s ROE has been obtained for its annual reports and calculated as:

Return on Equity = Net Income/Shareholder's Equity

CHAPTER FOUR

ANALYSIS & TESTING HYPOTHESIS

CHAPTER FOUR

ANALYSIS & TESTING HYPOTHESIS

Introduction

This Section includes tow main topics, the first is about descriptive Analysis of the study variables through various descriptive statistical measures, such as: Central tendency measures, Dispersion measures, Mean, Median, Range and Standard Deviation; to describe the study variables. The Second topic represents testing the study hypotheses, and computing the regression model information.

First topic, Descriptive Analysis

The descriptive analysis table in the appendix shows the following For the

period between 2005 and 2009.

Years

H W

S W

S D O

MAI N

T R N

I N S U

2005

1,257,402

1,085,277

627,493

930,182

133,498

48,220

2006

1,465,400

1,287,888

387,563

1,023,201

142,611

53,042

2007

1,667,850

1,398,955

507,713

1,125,521

180,363

58,346

2008

2,241,285

2,080,455

427,954

1,238,073

147,626

69,963

2009

3,332,204

3,117,740

525,001

1,519,138

94,051

99,966Mean

Standard Deviation

Years

H W

S W

S D O

MAI N

T R N

I N S U

2005

1,078,477

940,060

526,804

805,844

94,048

37,873

2006

939,886

865,657

159,011

886,428

95,303

41,660

2007

1,176,979

991,428

300,220

975,071

140,909

45,826

2008

935,099

805,459

257,453

1,072,578

102,353

42,231

2009

323,436

236,654

35,357

957,440

36,697

13,918

Minimum

Years

H W

S W

S D O

MAI N

T R N

I N S U

2005

494,804

420,554

254,987

360,365

66,996

21,440

2006

800,800

675,776

275,125

396,401

75,221

23,584

2007

835,600

697,909

295,425

436,041

80,725

25,942

2008

1,580,070

1,510,909

245,907

479,645

75,251

40,101

2009

3,103,500

2,950,400

500,000

842,125

68,102

90,125

Maximum

Years

H W

S W

S D O

MAI N

T R N

I N S U

2005

2,020,000

1,750,000

1,000,000

1,500,000

200,000

75,000

2006

2,130,000

1,900,000

500,000

1,650,000

210,000

82,500

2007

2,500,100

2,100,000

720,000

1,815,000

280,000

90,750

2008

2,902,500

2,650,000

610,000

1,996,500

220,000

99,825

2009

3,103,500

2,950,400

500,000

2,196,150

120,000

109,808

Mean

Years

COMM

I M P

C O N S

S I T

BCP

ROE

2005

1,124,045

243,621

63,192

65,307

295,011

16.050%

2006

1,282,500

286,607

32,123

65,307

320,476

17.165%

2007

1,396,404

326,015

38,552

65,307

332,813

16.230%

2008

1,507,605

384,230

55,051

104,500

417,142

13.150%

2009

1,737,626

562,749

95,053

104,500

430,744

9.950%

Standard Deviation

Years

COMM

I M P

C O N S

S I T

BCP

ROE

2005

955,944

188,627

52,055

49,063

247,472

3.606%

2006

1,014,698

164,605

25,283

49,063

244,694

2.920%

2007

1,136,456

189,498

30,332

49,063

262,141

2.503%

2008

1,262,038

241,859

28,213

21,920

179,523

2.475%

2009

1,148,871

60,303

35,281

21,920

198,759

0.495%

Minimum

Years

COMM

I M P

C O N S

S I T

BCP

ROE

2005

448,091

110,241

26,384

30,614

120,022

13.500%

2006

565,000

170,214

14,245

30,614

147,451

15.100%

2007

592,808

192,020

17,105

30,614

147,451

14.460%

2008

615,209

213,210

35,101

89,000

290,200

11.400%

2009

925,251

520,108

70,105

89,000

290,200

9.600%

Maximum

Years

COMM

I M P

C O N S

S I T

BCP

ROE

2005

1,800,000

377,000

100,000

100,000

470,000

18.600%

2006

2,000,000

403,000

50,000

100,000

493,500

19.230%

2007

2,200,000

460,010

60,000

100,000

518,175

18.000%

2008

2,400,000

555,250

75,000

120,000

544,084

14.900%

2009

2,550,000

605,390

120,000

120,000

571,288

10.300%

Table 4.1 Descriptive Analysis

Descriptive Analysis

The descriptive analysis table in the appendix shows the following:

From Table 4.1, which illustrates the use of Bahrain banks for I.T, we notes that average cost of H W in Bahrain banks reached the highest average in year 2009 (3,332,204) and this year was the lowest in the standard deviation (323,436), as well as the year that contains the largest cost for investment (3,103,500), which refers to the rise in investment H W by Bahrain banks.

The second independent factor is the S W, its mean (medium) started with (1,085,277) and we notice that they are on the increase from year to year until it reaches in 2009 to (3,117,740) While the standard deviation of S W started with 940,060 then decrease to (865,657) and increase later in 2007 and again decreased to (805,459) in 2008 and lowest amount (236,654) in 2009. The minimum S W during the research period was (420,554) while the maximum was (2,950,400).

We marked that the third factor which is the S D O had a mean started with ( 627,493 ) and ended with( 525,001 ) and noted that investment in S D O reached the highest value in the years 2005 ( ,000,000) and 2007 ( 720,000 ) while the lowest value was in the year 2008 ( 245,907 ) and the standard deviation started high in first year 2005 ( 526,804 ) and decreased to the lowest in the last year 2009 ( 35,281) .

The M A I N mean (medium) started with (930,182) in 2005 and ended with (1,519,138) in 2009. While the standard deviation started with (805,844) and ended with (957,440). The minimum M A I N during the research period was (360,365) and the largest amount was (2,196,150).

The fifth factor which is the T R N had a mean (medium) of (133,498), (142,611), (180,363), (147,626) and (94,051) the standard deviation started with 94,048 and ended with (36,697), the minimum T R N during the research period was (66,996) while the maximum was (280,000).

The I N S U mean (medium) started with 48,220 in 2005 and ended with 99,966 in 2009 while the standard deviation started with 37,873 and ended with 13,918 the minimum I N S U during the research period was 21,440 while the largest was 109,808.

From the previous table we note that the seventh variable COMM, the average cost in Bahrain banks started with 1,124,045 and continue increased upto (1,737,626). In 2009, the standard deviation started with 955,944 and ended with (1,148,871), the minimum rate during the period reached to the lowest of 448,091 and highest was 2,550,000 in 2009.

The I M P mean (medium) started with (243,621) in 2005 and ended with (562,749) in 2009. The standard deviation started with (188,627) and ended with the (60,303); the minimum rate during the period was (110,241), while the maximum was (60,303).

The ninth factor which is the C O N S had a mean (medium) of (63,192), (32,123), (38,552), (55,051) and (95,053) and the standard deviation started with (52,055) and ended with (35,281), the minimum C O N S during the research period was (14,245) while the maximum was (120,000).

The S I T mean (medium) in the beginning 3 years were the same 65,307 years and in the last 2 years increased to (104,500) while the standard deviation started with 49,063 and ended with (21,920). The minimum S I T during the research period was 30,614 while the maximum reached to (89,000).

The BCP mean (medium) in the beginning year started with (295,011) and ended in the last year with (430,744). While the standard deviation was beginning with (247,472) and decreased in the last year to (198,759). We note the minimum BCP during the research period was (120,022) and the maximum was (571,288).

The dependent variable is the ROE which was marked by the year 2006 the highest revenue between the years of the sample, as it reaches the highest return of 19.230% while the standard deviation was started with 3.606% and decreased later to .495 % in 2009. The year 2009 marked the lowest return on equity, amounting to 9.600%.

Regression Analysis

I used Pooled Data Regression method because I've tie series data (2005-2009) and cross-sectional data (2 Banks).

I have mathematical model of the study is developed as follows:

I used E view's program to analyze the data, I also used pooled regression and multi-regression because we have more than one independent variable verses only one variable which is the R O E. The confidence interval is ( 95 %).

Testing Hypothesis

As stated in the first chapter, these are the null hypothesis for this research

The main Hypotheses

- There is no significant relationship between investing in I.T and the financial performance of Banks of Bahrain.

H01: There is no significant relationship between investing in HW and the financial performance of Banks of Bahrain.

H02: There is no significant relationship between investing in SW and the financial performance of Banks of Bahrain.

H03: There is no significant relationship between investing in SDO and the financial performance of Banks of Bahrain.

H04: There is no significant relationship between investing in Main and the financial performance of Banks of Bahrain.

H05: There is no significant relationship between investing in Trn and the financial performance of Banks of Bahrain.

H06: There is no significant relationship between investing in Insu and the financial performance of Banks of Bahrain.

H07: There is no significant relationship between investing in Comm and the financial performance of Banks of Bahrain.

H08: There is no significant relationship between investing in Imp and the financial performance of Banks of Bahrain.

H09: There is no significant relationship between investing in Con and the financial performance of Banks of Bahrain.

H010: There is no significant relationship between investing in Sit and the financial performance of Banks of Bahrain.

H011: There is no significant relationship between investing in BCP and the financial performance of Banks of Bahrain.

The above hypothesis used to determine whether all the independent variables together, which represent the IT investments, have effect on the dependent variable which reflects the bank’s performance. For this general hypothesis, the f-statistic value is used to reject or accept it. On the other hand, the t-statistic is used to accept or reject all other hypothesizes which measure the relationship between each independent variable and the dependent variable separately.

In order to determine whether to reject the null hypothesis or accept it, the following conditions should be applied to the regression results:

T-statistic > 1.85;

Prob. < 0.05; and

F-statistic > 9.908.

If these conditions are achieved, then there is a significant relationship between the independent variable and the dependent variable.

When we will apply the above rule in order reject the null hypothesis if

T-test ≥ 1.85 and Sig < 0.05 the result will be as follow:

For the first variable which is the H W 5.23 > 1.85 & Sig .00 < 0.05 therefore the null hypothesis is rejected which means that there is no significant positive relation between the H W and the ROE.

For the S W 3.25 > 1.85 & 0.00 < 0.05 then the null hypothesis is rejected and therefore there is no significant inverse relation between the S W and the ROE.

For the SDO 10.50 > 1.85 and 0.00 < 0.05 so again the null hypothesis is rejected and there is significant positive relation between the independent and the dependent variables.

For the MAIN 5.20 > 1.85 and 0.034 < 0.05, so the null hypothesis is rejected and the alternative hypothesis is accepted. Therefore there is a significant positive relation between the investment ratio and the ROE.

For the TRN is 2.85 therefore the alternative hypothesis is accepted and there is significant inverse relationship between the TRN and the ROE.

For the INSU 4.25 > 1.85 & 0.00 < 0.05 then the null hypothesis is rejected and therefore there is significant inverse relation between the INSU and the ROE.

For the COMM 3.56 > 1.85 & 0.00 < 0.05 then the null hypothesis is rejected and therefore there is significant inverse relation between the COMM and the ROE.

For the IMP 4.97 > 1.85 & 0.00 < 0.05 then the null hypothesis is rejected and therefore there is significant inverse relation between the COMM and the ROE.

For the CONS 1.920 > 1.85 & 0.00 < 0.05 then the null hypothesis is rejected and therefore there is significant inverse relation between the CONS and the ROE.

For the SIT 4.850 > 1.85 & 0.00 < 0.05 then the null hypothesis is rejected and therefore there is significant inverse relation between the SIT and the ROE.

For the BCP 1.980 > 1.85 & 0.00 < 0.05 then the null hypothesis is rejected and therefore there is significant inverse relation between the BCP and the ROE.

However for all the variables together the F-statistic is 9.908 which is greater than the F-schedule 1.96 and the Sig is 0.00 < 0.05 so the alternative hypothesis is accepted. Therefore there is a significant relation between the variables (all together) and the ROE .

R square is 0.86 which means that together all the independent variables are responsible for 86% of changes in the ROE.

When economic model is used to examine the relationship between Independent Variables and Bank’s performance we will have :

So the ROE = 17.23 -1.63 (H W) – 2.03 (S W) -.266 (S D O) – 2.81

( M A I N ) + .66 (T RN) + 2.251 (INSU) -.132 (COMM)

+ .649 (IMP) - .047 (CONS) - .767 (S I T) + 1.643 (BCP) +e

By implementing these conditions on the regression results, we reached the statistical results shown in Table 4.3 below.

There is no significant relationship between investing in HW and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in SW and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in SDO and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in MAIN and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in TRN and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in INSU and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in COMM and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in IMP and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in CON and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in SIT and the financial performance of Banks of Bahrain.

Rejected

There is no significant relationship between investing in BCP and the financial performance of Banks of Bahrain.

Rejected

CHAPTER FIVE

CONCLUSION AND RECOMMANDIATIONS

CAHPTER FIVE

CONCLUSION AND RECOMMANDIATIONS

Introduction

In This part of study we will start discussing the findings regarding each null hypothesis as appeared on Table 4.3, and comparing them with the findings of other researchers. Next, a conclusion to the research will be provided along with some limitations that have incurred while conducting the study. Finally, the researcher will suggest some recommendations based on the findings.

Conclusion

In this research, we have begun by studying Bahrain’s economy generally and the banking sector specifically. Then, we have started discussing the several factors that reflect the I.T investment, and how these factors can affect the bank’s performance represented by ROE.

Eight banks have been chosen which are listed on Central bank of Bahrain. The numerical data have been captured for five years (2005-2009), The data was collected through in-depth interviews with the senior managers of finance and I.T Department, also from the annual reports submitted by each bank on its official website.

Since this study sought to establish a relationship between the financial returns of commercial banks in Bahrain and the level of investment in information technology, the questioning might serve as to whether the level of investment in information technology affect the level of improved performance indicators for this vital sector and renewed for the banks?.

In order to achieve these objectives the study proceeded to build a model of study, is designed to analyze that relationship and using appropriate methods of statistical analysis of the study comes out with results adopted by a number of recommendations are as follows :

Limitations

The main limitations are

Time: The time frame within which the study has been conducted was short.

Limitation of data: Most of the banks initially declined to provide any financial (IT expenses and Income) data citing confidentiality and busy schedules as reasons.

Recommendations

1. Based on previous results, the study recommends that the supervisors on the work of Bahraini banks to boost investment in information technology and attract what is modern ones, because of their important role in improving the performance of banks, through the support services of information technology in these banks and supplying them with budgets and human resources qualified and trained so as to enhance the presence of these banks and their role in the development of investment.

2. Regarding future line of research, efforts should be put at increasing the sample size and the time frame in order to have more accurate and reliable results.