Assessing the determinants of bank financial stability in ASEAN: Evidence from a combined SGMM and ElasticNet framework

Abstract

This study investigates the determinants of bank financial stability in six ASEAN countries during the period 2010- 2023, a time characterized by heightened macroeconomic volatility and the disruptive effects of the COVID-19 pandemic. The primary objective is to identify key microeconomic and macroeconomic factors that significantly influence the stability of the banking system and to provide relevant policy recommendations that enhance financial resilience. The dataset comprises financial statements from 61 commercial banks, supplemented with macroeconomic indicators sourced from reputable institutions such as the World Bank and the IMF. Methodologically, the study employs the System Generalized Method of Moments (SGMM) to address endogeneity and dynamic panel bias, while integrating the ElasticNet approach to optimize variable selection and mitigate multicollinearity. Empirical findings reveal that equity capital, return on equity (ROE), financial leverage, and technological innovation exert a positive impact on bank stability, whereas bank size, GDP growth, inflation, and the COVID-19 pandemic pose significant negative effects. The combined application of SGMM and ElasticNet not only improves model robustness but also provides methodological value for modern empirical banking research. The study offers important policy implications, including the need to strengthen capital structures, promote technological investment, and develop adaptive regulatory frameworks to foster long-term financial stability in emerging ASEAN economies.