DIGITAL BANKING SERVICES AND COMMERCIAL BANK PROFITABILITY IN VIETNAM: EVIDENCE FROM SYSTEM GMM

Abstract

This study investigates the impact of electronic banking services on the profitability of Vietnamese commercial banks over the period 2014–2023. Using an unbalanced panel dataset of 25 banks (up to 250 bank-year observations, with missing values in the e-banking index addressed via linear interpolation and trend extrapolation) and applying System Generalised Method of Moments (Sys-GMM) to control for endogeneity and dynamic persistence in profitability, we find that the e-banking index (EBANKIT) exerts a statistically significant negative short-run effect on Return on Assets (ROA) (β = -0.0014, p = 0.016), consistent with the productivity paradox hypothesis. ICT investment has the strongest positive effect (β = 0.2373, p = 0.035), supporting the Resource-Based View. Capital adequacy (CAR), bank size (SIZE), and non-performing loans (NPL) also exhibit expected directional effects. The lagged ROA coefficient (0.711) confirms strong profit persistence. Findings suggest that Vietnamese banks' digital investments require a gestation period before translating into profitability gains, with important implications for management and policymakers.