The Impact of Digital Financial Inclusion on Bank Stability in the Context of Financial Development: International Evidence

Abstract

This study investigates the impact of digital financial inclusion on bank stability within the broader context of financial development. The analysis is based on panel data from 58 countries covering the period from 2011 to 2022. Employing a Bayesian estimation approach, the results indicate that digital financial inclusion alone negatively affects bank stability, as measured by the Z-score. However, when considered alongside financial development, digital financial inclusion contributes positively to the stability of the banking sector. Additionally, financial development, economic growth, and institutional quality are found to enhance bank stability. In contrast, higher levels of bank concentration, inflation, foreign direct investment, and unemployment are associated with reduced bank stability. Based on these findings, the study offers policy recommendations aimed at strengthening bank stability in the countries examined.