THE IMPACT OF BANKS’ DIGITAL TRANSFORMATION ON FINANCIAL PERFORMANCE: A DYNAMIC PANEL DATA ANALYSIS

Abstract

This article examines the impact of digital transformation on financial performance — particularly return on assets (ROA), return on equity (ROE), and credit risk indicators — using panel data from 120 banks in emerging economies over the period 2010–2023. Applying dynamic panel data methodology, including Arellano–Bond GMM estimation, we find that services delivered through digital channels have a significant positive effect on ROA (+0.43%) and an even stronger effect on ROE (+1.87%). At the same time, banks with higher digital transformation exhibit a 0.62 percentage point decrease in the non-performing loan (NPL) ratio. The results confirm that investment in financial technologies strengthens both the stability and profitability of the banking system, reaffirming the importance of prudential regulation.