Bank risks in the era of digital transformation: Insights from Vietnamese joint-stock commercial banks

Abstract

Research on bank risks plays an important role for banks. In particular, lending is the primary activity through which banks generate profits. Interest income is the main source of revenue for banks, alongside other income streams. Therefore, research on lending risk is considered essential for banks, both in theoretical terms and in practical significance. In recent years, banks have actively promoted digital transformation not only to keep pace with the general development trend but also to build long-term competitive advantages. Digital transformation has developed strongly in recent years; however, it does not always generate immediate profits. Investment in digital transformation requires banks to commit substantial time, financial resources, and human capital to implement these activities effectively. This study aims to assess the impact of digital transformation on bank risks, as measured by the Information and Communication Technology (ICT) index, through non-performing loans (NPL) from 2017 to 2024, of Vietnamese joint-stock commercial banks. The results of panel data analysis with SGMM show that ICT at a lag of one year impacts the reduction of NPL. Based on these results, the author also presents some theoretical and practical implications to help improve risk control activities in banks. In particular, investing in IT infrastructure will help reduce NPLs in both the short and long term.