Impact of Digital Transformation on Banking Performance: The Moderating Role of Capital Adequacy in Vietnam

Abstract

Purpose: This study investigates a critical question in the Vietnamese context: does digital transformation (DT) truly improve the performance of commercial banks (CBs), and is this effect contingent upon the strength of equity capital?
Design/methodology/approach: The panel dataset includes 28 Vietnamese CBs from 2009 to 2022, combined with the ICT index (Information and Communication Technologies Index) provided by the Ministry of Information and Communications. Linear regression methods (OLS, FEM, REM, GMM) are employed to address endogeneity issues and capture the dynamics of digitalization.
Findings: The results reveal that DT exerts a positive impact on ROA but does not immediately translate into ROE. Equity capital plays a catalytic role, enabling banks to fully exploit the benefits of DT. Smaller banks may enhance competitiveness through digitalization, yet this requires strengthening equity capital to provide sufficient resources for technology adoption.
Originality/value: This study adds novel empirical evidence on the role of DT in Vietnam and clarifies the moderating effect of equity capital. The findings provide important implications for bank governance in aligning digitalization strategies with stronger financial capacity.