Impact of technology and digitalization on the financial performance of vietnamese commercial banks

The impact of technology and digitalization on the financial performance of Vietnamese commercial banks has become an increasingly important topic of research in recent years.. These cha

INTRODUCTION

Background and context

The financial sector is crucial for economic growth and development, significantly influenced by technology and digitalization In Vietnam, the banking sector has experienced remarkable growth, driven by the adoption of innovative technologies Vietnamese commercial banks are rapidly transforming digitally, utilizing mobile banking apps, online payment systems, and electronic document management systems, thanks to improved technology infrastructure.

The influence of technology and digitalization on the financial performance of Vietnamese commercial banks has gained significant attention in recent years This transformation has led to notable shifts in the banking sector, including evolving customer behaviors, heightened competition, and new regulatory demands As a result, researchers are increasingly exploring the connection between technological advancements and the financial outcomes of these banks.

The impact of technology and digitalization on the financial performance of Vietnamese commercial banks is a debated topic Proponents argue that digitalization enhances financial performance by increasing efficiency and fostering innovation, as supported by various studies (Potapova et al., 2022; Owusu Kwateng et al., 2020; Scott et al., 2017) Conversely, some experts raise concerns about the potential negative risks linked to the implementation of technology in the banking sector (Cao et al., 2022; Jardak and Ben).

Hamad, 2022; Kriebel and Debener, 2019; Ben Naceur and Kandil, 2009)

Vietnam's commercial banks are currently struggling with the digital transformation process due to several challenges, including a lack of awareness about its importance in the 4.0 industrial revolution, inadequate public science and technology standards, and insufficient investment in technological innovation This outdated technology results in low productivity and diminished competitiveness in both domestic and international markets However, embracing digital transformation presents significant opportunities for development, such as boosting competitiveness, enhancing production efficiency, engaging in global value chains, and establishing a sustainable market position.

The research topic is relatively new and primarily conducted by authors from other countries, such as Theiri S and Hadoussa S (2023), Potapova et al (2022),

Agboola et al (2019) highlight the importance of information technology (Awwad and El Khoury, 2021), innovations (Akhisar, Tunay, and Tunay, 2015), and e-banking (Abaenewe, Ogbulu, and Ndugbu, 2013; Oyewole et al., 2013) in the banking sector However, there is a scarcity of comprehensive studies examining the effects of digital transformation on the performance of commercial banks, particularly in Vietnam.

While several studies have examined digital transformation in banking, most primarily review existing literature without analyzing empirical data Some researchers, such as Do et al (2022), have attempted to assess this progress by analyzing figures from banks' annual reports However, there remains a gap in research, as no studies have investigated data from official technological departments of commercial banks or government sources.

This master's thesis aims to explore how technology and digitalization influence the financial performance of Vietnamese commercial banks By identifying the key drivers behind this impact, the study seeks to enhance understanding and provide valuable insights for developing policies and strategies that can improve the financial performance of these banks in the evolving digital landscape.

Significance and motivation

This research is crucial as it provides valuable insights into the global transformation of the banking industry through technology, particularly in Vietnam The adoption of technology and digitalization has revolutionized banking operations, leading to significant improvements in performance Understanding the effects of these technological advancements on banks' financial performance is essential for effectively studying this transformation The findings from this study will contribute to a deeper understanding of these changes.

11 towards a better understanding of the correlation between technology and financial performance within Vietnamese commercial banks

This study introduces a novel variable for digital transformation, sourced from the ICT reports provided by the Ministry of Information and Communications in Vietnam In contrast to previous research, which primarily relied on annual and financial reports from banks (Do et al., 2022; Potapova, Iskoskov, and Mukhanova, 2022; Agboola et al., 2019), this approach offers a fresh perspective on the digital landscape.

This research aims to enhance the existing literature on technology adoption and performance within the banking sector By conducting a thorough review of relevant studies and an empirical investigation into the technological transformation of Vietnam's banking industry, the study will generate valuable insights into the advantages and disadvantages of technology and digitalization, ultimately impacting the overall financial performance of commercial banks.

This research aims to provide practical insights for the financial, technological, and business management sectors As Vietnam's economy advances towards digitalization, the findings will be beneficial for commercial banks looking to improve their market position and performance through the adoption of technology.

This research aims to explore the increasing trend of digitalization within the financial industry, focusing on its potential benefits and risks With the rise of new technologies like online banking platforms and mobile applications, it is essential to assess their effects on profitability and efficiency The study intends to deliver an objective analysis of these developments and highlight any significant implications.

This article explores 12 underlying factors driving changes in Vietnamese commercial banks, offering valuable insights into their impact on the local market and implications for global regions The findings are beneficial for various stakeholders, including banks, policymakers, and regulators Bank executives can leverage this research to pinpoint areas for development and investment to boost financial performance Policymakers can align their strategies with the ongoing digital transformation of Vietnam's banking sector, while regulators can use the insights to create a framework that acknowledges the digital characteristics of the industry and ensures the security of the banking system.

Research objectives and questions

This study aims to investigate the effects of technology and digitalization on the financial performance of Vietnamese commercial banks, identify the challenges and opportunities related to technology implementation and digital transformation, and offer recommendations for enhancing technology adoption and digitalization efforts to boost financial outcomes.

This essay explores the impact of technology and digitalization on the financial performance of Vietnamese commercial banks, examining key challenges and barriers to implementation It also analyzes how the regulatory environment and government policies influence the adoption of these technologies Additionally, the essay addresses potential risks and vulnerabilities associated with technology integration in the banking sector Finally, it discusses future prospects and trends for technology adoption and digitalization within Vietnamese banks.

Scope

This study explores the influence of technology and digitalization on the financial performance of Vietnamese commercial banks from 2016 to 2020 By analyzing key financial indicators like profitability, liquidity, and asset quality, the research aims to clarify how advancements in technology have impacted the banks' financial outcomes during this period.

The study employs academic argumentation to bolster the interpretation of its findings, critically evaluating and comparing them with existing literature and theoretical frameworks This approach aims to enhance the validity and reliability of the results.

14 presenting a compelling case for the observed weak but positive effect of digitalization on the financial performance of Vietnamese commercial banks.

Overview of the structure of the thesis

This chapter introduces the research topic, emphasizing the importance of examining how technology adoption and digitalization influence the financial performance of commercial banks in Vietnam.

This chapter provides a thorough review of the literature regarding the effects of technology adoption and digitalization on the financial performance of commercial banks in Vietnam It synthesizes key findings from relevant studies, highlights existing gaps in the literature, and establishes a theoretical framework to guide the research.

This chapter establishes the theoretical framework essential for the broader context of the study, serving as the thesis's foundation It effectively grounds the research focus within relevant theoretical principles, guiding the inquiry for data analysis and interpretation.

In this chapter, the study's research methodology is explained It covers the design of the research, how data was collected, and the techniques used to analyze the data

Additionally, it explores the strategy for selecting participants and variables for the empirical analysis

Chapter 5: Data Analysis and Results

This chapter analyzes the collected data using suitable statistical techniques, presenting findings that align with the research questions and objectives It features tables, charts, and figures to effectively illustrate the results of the analysis.

This chapter provides a comprehensive discussion and interpretation of the findings from the data analysis The results are compared and contrasted with the existing literature

This chapter delves into the findings derived from the investigation It wraps up by reflecting on the broader importance of the study and its potential impact on the field

This chapter outlines the implications of the findings and offers recommendations for commercial banks in Vietnam to improve their technology adoption and digitalization strategies These recommendations are derived from the study's conclusions and objectives.

This chapter lists some of the limitations of the study The chapter also suggests avenues for future research

The thesis concludes with a comprehensive list of references cited throughout the document, following the appropriate citation style

The appendices section includes supplementary information such as additional statistical analysis, and any other relevant supporting materials.

LITERATURE REVIEW

In recent years, Vietnam's banking industry has experienced transformative changes driven by technological advancements and the growing embrace of digitalization This evolution has significantly influenced the financial performance of commercial banks globally, including those in Vietnam Numerous studies have explored the effects of technology adoption and digitalization on the financial outcomes of commercial banks both internationally and within Vietnam.

Research by Theiri et al (2023) indicates that digital transformation significantly improved the financial performance of Tunisian banks, as shown by higher return on assets and return on equity Key investments in payment solutions, digital channels, and internet security were essential in driving this enhanced performance.

A recent study conducted by Potapova et al (2022) has confirmed the significant potential of digitalization in the banking sector of Russia Through statistical data

17 analysis, the researchers examined 100 commercial banks in Russia for the year

A 2021 study revealed a strong correlation between digitalization levels and individual transactions as well as net commission income in Russian banks Larger banks are experiencing a more significant impact from digitalization than smaller ones, indicating that high digital maturity has become a competitive advantage in Russia's financial sector The findings emphasize the need for major banks to prioritize and invest in digital transformation to stay relevant in an increasingly digital banking landscape This research underscores how technology adoption can enhance operational efficiency and overall business performance in the Russian banking industry As technological advancements continue, it is crucial for all banks, regardless of size, to integrate digitalization into their long-term success strategies.

Through an analysis of 13 joint-stock commercial banks in Vietnam spanning from

From 2011 to 2019, Do et al (2022) highlighted the positive impact of digital transformation on the performance of Vietnamese commercial banks, noting that larger banks experienced greater benefits This indicates that the effectiveness of digital transformation is dependent on the scale and scope of a bank's operations.

According to a study conducted by et al (2022), who analyzed data from 190 small and medium-sized enterprises (SMEs) in the Indonesian province of Banten, it was

Digital finance and digital marketing significantly enhance financial performance To fully leverage the advantages of information technology in business, entrepreneurs must improve their digital literacy skills.

A recent study by Cherkasova and Slepushenko (2021) explored the impact of digitalization on operational efficiency across various industries, analyzing data from 482 companies over three years (2017-2019) using a digitalization index The research considered six key parameters: digital marketing, digital product experience, e-commerce, electronic customer relationship management, and social networks Findings indicated that the effects of digitalization varied by industry, age, and size, with companies exhibiting high digital maturity reaping the most benefits, particularly in finance, technology, and communications The study concluded that while digital transformation can enhance efficiency for all companies, its most significant impact is observed in those with a solid digital foundation, emphasizing that delays in adopting these processes can impede competitive progress.

A recent study indicates that enhancing social networks, leveraging them for business, possessing advanced digital skills, and having experienced senior managers can significantly drive a company's success (Ribeiro-Navarrete et al., 2021) This research emphasizes the strategic use of social networks in achieving business objectives.

19 information systems, in addition to considering factors such as manager's age and gender, as well as company size To conduct this analysis, fuzzy-set qualitative comparative analysis was employed

A study by Ekinci (2021) revealed that digitalization positively impacts the financial performance of commercial banks Analyzing a sample of 26 banks in the Turkish banking sector from 2010 to 2016, the findings were reinforced by a truncated regression model, confirming the beneficial effects of digital transformation on financial outcomes.

The impact of technology and digitalization on financial performance is evident across multiple industries A study of 185 manufacturing firms in the United States and Europe revealed that both digitalization and servitization significantly enhance a company's financial outcomes, as confirmed by empirical research (Abou-foul, Ruiz-Alba and Soares, 2020).

A study by Agboola et al (2019) investigated the effects of digitalization on the performance of commercial banks in Nigeria Utilizing purposive and simple random sampling methods, researchers selected 370 non-managerial employees for analysis The results indicated a significant yet moderate positive correlation between the digitalization process and the performance of commercial banks Furthermore, a strong positive relationship was found between product innovation and the overall performance of these banks.

Research by Yang et al (2018) indicates that the implementation of e-banking can significantly improve the performance of Chinese banks, particularly in terms of Return on Assets (ROA), Return on Equity (ROE), and Operating Margin (OM) However, the effects on Net Interest Margin (NIM) and efficiency ratios remain less clear.

20 e-banking on Chinese bank performance is relatively minor The study focused on five banks in China to arrive at these findings

Research indicates that digital banking services, such as online banking, mobile banking, and ATM banking, positively impact profit margins, return on assets (ROA), and return on equity (ROE) A study by Akhisar et al (2015) analyzed the effects of electronic banking services on bank profitability from 2005 to 2013 in both developed and developing countries, finding a significant relationship between bank profitability and the ratio of branches to ATMs Additionally, the study highlighted the crucial role of electronic banking services in enhancing this relationship.

However, some studies also found a negative relationship or no connection between digitalization and financial performance

A study by Nguyen et al (2023) analyzed annual reports and found that the digital transformation of banks from 2015 to 2021 negatively impacted their performance, as indicated by declines in return on assets and return on equity However, the research revealed a paradox where the COVID-19 pandemic resulted in increased profits for banks These insights have ignited important discussions about the complex relationship between digital transformation and bank performance.

In their 2022 study, Jardak and Ben utilized static and dynamic panel regression models to analyze data from 92 observations of 23 publicly traded companies on the Swedish stock exchange, focusing on a four-year period from 2015 to 2018.

Research findings reveal that digital maturity negatively impacts both Return on Assets (ROA) and Return on Equity (ROE) This inverse relationship is primarily due to the delay between investments in information technology and the attainment of digital maturity, as it requires considerable time for these investments to influence performance metrics.

THEORETICAL FRAMEWORK

The method of this paper is based on the backgrounds of Solow neutral technical progress, technical acceptance model (TAM), diffusion of innovation theory (DIT), and resource-based view (RBV)

The Technology Acceptance Model (TAM), introduced by Davis in 1989, is a key theoretical framework that explores how individuals accept and use technology This model has been adapted across various fields, including finance, and suggests that two main factors influence users' intentions to adopt technology: perceived usefulness (PU) and perceived ease of use (PEOU) (Marangunić and Granić, 2015; Davis, 1989).

Perceived usefulness is the extent to which individuals believe that a specific technology can improve their job performance and overall effectiveness (Lee et al., 2003; Davis, 1989) In Vietnamese commercial banks, this concept plays a crucial role in determining the adoption and integration of new technologies.

27 can be argued that digitalization can improve operational efficiency, customer service, and overall competitiveness This, in turn, can positively impact the financial performance of these banks

Perceived ease of use is the extent to which individuals feel that a technology is simple and effortless to use (King and He, 2006; Davis, 1989) In Vietnamese commercial banks, assessing employees' readiness and ability to adopt digital technologies is crucial If employees find digital tools complex or challenging, it can impede their adoption and effective use, ultimately restricting the technologies' potential to enhance financial performance.

In the context of this paper, the TAM lays the foundation for understanding how digitalization affects the financial performance of Vietnamese commercial banks

By considering the constructs of perceived usefulness and perceived ease of use, the degree to which digitalization is adopted and the potential impact on financial performance can be assessed

Diffusion of innovation theory (DIT):

The diffusion of innovation theory, developed by Rogers and Cartano in 1962, examines how new ideas, products, or technologies are adopted and disseminated within a society This theory highlights the critical roles of communication channels, social systems, timing, and the inherent characteristics of the innovation in influencing its adoption rate and diffusion process.

In this study, the DIT framework is applied to understand the diffusion of digitalization within Vietnamese commercial banks and its impact on financial

28 performance Digitalization can be considered an innovation, representing the adoption and integration of digital technologies and practices within the banking sector

The DIT framework identifies two critical factors that affect the adoption and diffusion of innovations: relative advantage and compatibility Relative advantage highlights the perceived benefits of an innovation over current practices, while compatibility emphasizes how well the innovation aligns with the existing organizational environment.

The diffusion of innovation theory presents the adoption curve, which classifies individuals and organizations into distinct groups according to their readiness and pace in embracing innovations This curve consists of five categories: innovators, early adopters, early majority, late majority, and laggards (Lundblad, 2003; Mustonen-Ollila and Lyytinen, 2003).

The Resource-Based View (RBV) theory, established by Barney in 2001, emphasizes the importance of a company's unique resources and capabilities in achieving competitive advantage By leveraging these distinct assets, firms can outperform their rivals (Kraaijenbrink, Spender, and Groen, 2009; Barney, 2001) This study focuses on how technology adoption and digitalization act as valuable resources that enhance the financial performance of commercial banks in Vietnam, utilizing the RBV framework to analyze the impact of these initiatives.

29 strategic resources for Vietnamese commercial banks, potentially leading to improved financial performance

The Resource-Based View (RBV) suggests that a firm's competitive advantage and financial performance are determined by its unique resources and capabilities, which must be valuable, rare, difficult to imitate, and non-substitutable.

In the era of digitalization, Vietnamese commercial banks are equipped with essential digital resources and capabilities, including sophisticated online banking platforms, data analytics technologies, and a skilled IT workforce These assets empower banks to create competitive advantages and boost financial performance by enhancing operational efficiency, improving customer experience, and fostering innovation.

The Solow model of economic growth offers insights into how technological progress influences economic development, emphasizing that an economy's output is determined by capital, labor, and technology In this framework, technological progress is viewed as an exogenous factor that enhances overall productivity without affecting the relative proportions of capital and labor inputs, a concept known as neutral technological progress This type of progress differs significantly from factor-augmenting technological advancements, which specifically enhance the productivity of certain inputs.

In the context of the study on Vietnamese commercial banks, the application of the Solow neutral technical progress concept helps to elucidate the impact of

Digitalization significantly impacts financial performance by isolating its effects from variations in labor and capital inputs This model serves as an effective tool for comprehending the distinct contribution of technology to the performance of banks.

Solow neutral technology advancements enhance capital utilization while maintaining a consistent labor-to-capital ratio (L/K) These improvements can be integrated into the production function, optimizing efficiency and productivity.

𝑌 𝑡 = 𝑓(𝐴 𝑡 , 𝐾, 𝐿 𝑡 ), where At represents the factor of technical progress

In relation to the capital factor (K), it can be expressed through variables such as capital adequacy ratio and liquidity ratio

As for the technical factor (A), it is represented by digital transformation which serves as the primary variable in this model

In this theoretical framework, A only directly impacts L but not K Therefore, assuming that the labor factor remains constant, this paper will not delve into variables relating to labor.

METHODOLOGY

Research design

This study aims to explore the effects of technology and digitalization on the financial performance of Vietnamese commercial banks By employing a quantitative research design and utilizing secondary data sources, the research will specifically examine how the adoption of digital technology has influenced the financial outcomes of these banks.

The analysis utilized secondary data, which refers to information previously gathered for different projects but deemed valuable for the current research by the investigator (Vartanian, 2011; Church, 2002).

This study utilized annual reports from 22 commercial banks in Vietnam for the period of 2016-2020, which included income statements, balance sheets, and additional information sourced from the banks' official websites Data on digital transformation were manually gathered from annual reports published by the Ministry of Information and Communications Furthermore, macroeconomic variables were obtained from the World Bank's World Development Indicators.

Further, scholarly articles from academic journals, relevant textbooks on the subject and internet search engines were also used

The decision to utilize a time frame of only the most recent five years and a scope of 22 commercial banks for data analysis is rooted in several valid reasons and limitations

The ICT index report is essential for assessing the technology and digitalization levels of commercial banks in Vietnam; however, its annual publication varies in the number of banks included each year This inconsistency leads to gaps in data, which can compromise the robustness of the analysis By excluding these inconsistent data points, the study can achieve a more balanced panel, ultimately leading to more accurate conclusions.

The technology and digitalization landscape is rapidly evolving, causing the relevance of data to diminish over time, especially when assessing its impact on financial performance By focusing on a more recent timeframe, we can capture the current state of technology in the banking sector Analyzing a shorter period can also reduce the influence of external macroeconomic factors on technology adoption and financial performance, leading to a clearer understanding of their relationship This approach enables a more accurate representation of how technology adoption affects financial outcomes.

Furthermore, the chosen banks were those that have a significant presence in the Vietnamese banking industry and have invested heavily in technology and

Banks that have heavily invested in technology and digitalization are expected to better reflect the effects of these advancements on financial performance compared to those that have not prioritized these areas.

Conducting a longitudinal study within a shorter time frame enables a more focused and manageable analysis, essential given the topic's complexity and limited research resources Balancing depth and breadth is crucial, and the choice of a 5-year period with 22 commercial banks is based on practical considerations The research process is inherently time-consuming and resource-intensive; analyzing 8 years of data from over 40 commercial banks in Vietnam would require significantly more time and resources, likely surpassing the thesis's scope.

Research variables

This study employs panel data methodology to assess the impact of technology and digitalization on the financial performance of Vietnamese commercial banks By examining the independent variable of technology and digitalization against the dependent variable of financial performance, the research aims to uncover the relationship between these factors within the banking sector.

Independent Variables: This work includes three types of independent variables: digital transformation (DIGITAL), Bank specificities and Economic variables

Digital transformation (DIGITAL): As the regulatory conditions in Vietnam are very limited, this paper is restricted to one variable:

The ICT Index measures the development level of information and communication technology, indicating the readiness for its application across enterprises, regions, and countries (mic, 2021) In Vietnam, the ICT Index comprises five key categories: technical infrastructure, human capital, IT application, public online services, and evaluation of the local IT industry, utilizing over 100 indicators through independent investigations and assessments This index employs a scale from zero to one to evaluate the degree of technology application and digitalization within organizations in Vietnam.

The ICT index for the commercial banking sector evaluates key components including technical infrastructure, human capital, IT applications, and public online services It assesses the percentage of workstations, Internet bandwidth for banking services, ATM and POS availability, and investments in security solutions and technical staff Additionally, it measures the proportion of IT personnel, full-time information security officers, certified IT professionals, and training expenditures for IT staff Furthermore, the index examines core banking implementation, the deployment of essential applications, online payment systems, and the availability of banking websites and various e-banking services.

A study involving 6,848 banks in 29 European countries reveals that the adoption of SWIFT, a network-based system for global interbank communication, significantly enhances long-term profitability (Scott, Van Reenen, and Zachariadis, 2017).

Smaller banks exhibit more pronounced profitability effects compared to larger institutions, highlighting significant network impacts on their performance Research by Ismail et al (2017) emphasizes the crucial role of information technology infrastructure in enhancing banking performance in Malaysia This relationship between technical infrastructure and banking performance is further corroborated by various studies, including those by Jabbouri et al (2016), Jabbouri and Zahari (2015), and Bankole, Osei-Bryson, and Brown (2014).

A study of 102 branches from Iran's largest private banks reveals that IT costs significantly influence bank performance, particularly in dynamic environments with proactive strategies (Keramati et al., 2012) Branches with more employees and higher IT expenditures tend to perform better, highlighting the importance of investing in IT personnel and training Additionally, research underscores that human capital is vital for attaining sustainable competitive advantage (Badawi, Nugroho and Prihanto, 2020; Arora and Arora, 2013).

The performance of the financial sector in selected Islamic countries, including Iran, Indonesia, Jordan, Kuwait, Malaysia, Egypt, Morocco, Oman, Saudi Arabia, Senegal, Turkey, and the United Arab Emirates, has been significantly impacted by various indicators of electronic payment systems Key factors such as mobile banking services, internet banking facilities, bank card usage, POS machines, and ATMs play a crucial role in this transformation (Torki, Rezaei, and Razmi, 2020) Furthermore, research by Atanda et al (2018) indicates that the integration of electronic payment methods has led to an increase in bank performance across these nations.

36 technologies based on their time dimensional and panel least square models Rono

A study conducted in 2012 revealed a positive correlation between the implementation of core banking systems and online payment solutions, which significantly enhanced bank performance This conclusion was further corroborated by Alzoubi et al (2022), highlighting the critical role of electronic payment systems in improving the overall performance of the financial sector in Islamic countries.

Research in the United Arab Emirates involving 19 banks revealed a strong positive correlation between electronic payment systems and both return on assets (ROA) and return on equity (ROE) (Almashhadani et al., 2023) Additionally, a study by Acharya et al (2008) highlighted that banks with higher website usability scores significantly outperformed those with lower scores Furthermore, e-banking positively influenced the ROE of thirteen banks in Bangladesh from 2003 onward.

2013 (Siddik et al., 2016), as well as increasing profitability in fifteen Pakistani banks (Sumra et al., 2011)

Bank size (SIZE): It is determined by the natural logarithm of its total assets

(Heffernan and Fu, 2008) This metric reflects how the magnitude of a bank's size impacts the integration of new technologies (Nguyen-Thi-Huong et al., 2023;

A 19-year study involving 64 commercial banks in India identified bank size, non-performing loan ratio, and revenue diversification as crucial factors affecting the performance of these banks.

India (Gupta and Mahakud, 2020) These determinants play a significant role in shaping the success or failure of commercial banks operating within India

The Capital Adequacy Ratio (CAR) is a crucial metric for banks, calculated by dividing total equity by total assets It underscores the importance of having adequate capital to mitigate the costs and inefficiencies associated with technology use, as well as the necessary resources to rectify potential errors (Solms, 2021) The CAR also highlights the significance of capital in driving investments in technological advancements (Chan, Koh and Karim, 2016; Cheng, Geng and Zhang, 2016) Furthermore, research indicates that maintaining robust capital adequacy levels positively influences a bank's financial performance (Chhaidar, Abdelhedi and Abdelkafi, 2022; Kenneth, 2013; Ben Naceur and Kandil, 2009).

The loan ratio (LOAN) is a crucial metric that assesses potential credit losses by comparing total debts to total assets, indicating the funds available for banks' transformation (Abdelaziz, Rim, and Helmi, 2020) A study in Nigeria from 2004 to 2009 highlighted that effective credit risk management positively influences a bank's financial performance (Kenneth, 2013) Additionally, research indicates a negative correlation between digital awareness and the richness of digital products with systemic risk in banks (Zhang, Ou, and Chen, 2023) Notably, the digital advancement of banks plays a significant role in reducing systemic risk by enhancing the structure of deposits and loans within these institutions (Zhang, Ou, and Chen, 2023).

Liquidity ratio (LIQ): The liquidity ratio, similar to the bank solvency ratio, analyzes a bank's ability to fulfill its long-term debts and obligations It is computed

38 by dividing total credit by total deposits (Abdelaziz, Rim and Helmi, 2020) Ruziqa

A conducted a study on Indonesian Conventional Banks with assets exceeding 10 trillion Rupiah between 2007 and 2011 The findings revealed that the liquidity ratio had a significantly positive impact on both ROA and ROE (Abdelaziz, Rim and Helmi, 2020) Other studies have also confirmed a positive correlation between liquidity ratios and return on assets (Durrah et al., 2016; Sulieman Alshatti, 2015; Ferrouhi, 2014)

Inflation, measured by the annual GDP deflator, has been shown to negatively correlate with banking sector development and equity market activity, as evidenced by Boyd et al (2001) A study on South Africa's largest commercial banks from 2003 to 2019 found a significant inverse relationship between inflation and return on equity, with only a weak link to exchange rates (Moyo and Tursoy, 2020) Additionally, Bittencourt (2011) identified harmful effects of inflation on financial development during the studied period In contrast, research by Charbonneau et al (2017) indicated that digitalization has not significantly influenced inflation in Canada.

The growth rate of the Gross Domestic Product (GDP) serves as a key indicator of economic performance, reflecting the annual percentage increase in GDP This metric is essential for assessing the overall health and growth trajectory of an economy (Abdelaziz, Rim and Helmi, 2020; Heffernan and Fu).

Hypotheses development

This study aims to explore the connection between technology, digitalization, and the financial performance of commercial banks in Vietnam It specifically examines various hypotheses related to these factors.

Hypothesis 1 (H1) Digital transformation (DIGITAL) has a positive impact on the performance of Vietnamese commercial banks

The hypothesis suggests that the integration of modern technologies and digital innovations significantly enhances the financial performance of Vietnamese commercial banks Recognizing the potential of these advancements, many banks are leveraging them to boost operational efficiency, improve customer satisfaction, and lower costs (Nguyen-Thi-Huong et al., 2023; Agboola et al., 2019; Scott, Van Reenen).

By embracing digital solutions, banks can enhance operational efficiency, automate routine tasks, and provide personalized services, leading to increased customer satisfaction and loyalty The hypothesis suggests that greater investment in technological innovations and digitalization will result in improved financial performance for banks Digital technologies, including online banking platforms, mobile applications, and data analytics, play a crucial role in reducing costs and elevating the overall customer experience.

Digitalization presents potential advantages for financial institutions, yet its impact on financial performance can differ significantly Factors such as technological infrastructure, regulatory frameworks, and organizational readiness play crucial roles in determining the success of digital initiatives In Vietnam, the banking sector appears to be in the nascent stages of digital transformation, grappling with challenges related to technology adoption, infrastructure enhancement, and customer acceptance Consequently, the limited effect of digitalization on the financial performance of Vietnamese commercial banks may stem from these hurdles, as the full benefits of digitalization may require time to be realized.

41 through implementation challenges and optimize the utilization of digital technologies.

Research models and techniques

This research study utilized a quantitative approach to assess the impact of technology and digitalization on the financial performance of commercial banks in Vietnam A regression analysis was performed to determine the correlation between the primary independent variable (DIGITAL) and two dependent variables (ROA and ROE) Data was gathered from the annual reports of the 22 largest banks in Vietnam from 2016 to 2020 Descriptive statistics were employed for data analysis, while multiple regression models were developed to evaluate the influence of digitalization and technology on bank performance.

Bank speciﬁc is represented by SIZE, CAR, LOAN and LIQ for bank (i) in period (t) Macroeconomic condition is proxied by GDP and INF in period (t) for the country

A panel data approach was utilized to enhance the specificity of the results, employing multiple regression analysis to evaluate the financial performance of banks This performance is quantified through two dependent variables: Return on Assets (ROA) and Return on Equity (ROE) for bank (i) during period (t) The primary independent variable, DIGITAL, signifies the extent of digital transformation undertaken by bank (i) in period (t).

To evaluate the impact of digital transformation on bank financial performance over time and space, a panel data technique was employed Various tests were conducted on the data to identify the most suitable estimation method.

Descriptive Statistics and Test for Normality

Descriptive statistics encompass key measures such as mean, median, mode, standard deviation, variance, kurtosis, and skewness of variables For a normal distribution, both skewness and kurtosis should equal zero Additionally, the Jarque–Bera test of normality was conducted using the OLS residuals, as outlined by Hill, Griffiths, and Lim (2018).

The correlation shows two things: first, it shows the direction between two variables; and second, it shows the strength of associations between two variables (Wooldridge, 2013)

Regression Analysis—Pooled OLS, Fixed Effects, Random Effects

Recent research on the link between digital transformation and organizational performance has typically utilized qualitative methods, which overlook firm-specific and temporal factors To enhance the accuracy of findings, this study employs a panel data approach, specifically multiple regression analysis, to evaluate the relationships between dependent variables, such as Return on Assets (ROA) and Return on Equity (ROE), and independent variables, including digital transformation and firm size.

CAR, LOAN, LIQ, INF, and GDP) (Studenmund, 2021; Hill, Griffiths and Lim,

2018) as shown in the following equations:

Bank Performance = f (Digital transformation, bank size, capital adequacy ratio, loan ratio, liquidity ratio, inflation, GDP growth rate)

The financial performance of banks, indicated by Return on Assets (ROA) and Return on Equity (ROE), is analyzed in relation to digital transformation, represented by the ICT index Key bank-specific factors such as size, capital adequacy ratio (CAR), loan portfolio, and liquidity are also considered Additionally, macroeconomic conditions are assessed through GDP and inflation rates within the same period.

To test the main model and to determine in space and time the effect of digital transformation on bank ﬁnancial performance, panel data technique was used.

Ethical considerations

This research proposal is designed to avoid any contentious issues that could impact the physical, psychological, or emotional wellbeing of participants It exclusively aims to assess the financial performance of Vietnamese commercial banks and does not require direct interaction with individuals, even during data collection.

The research utilized data from published sources, minimizing risks to confidentiality and privacy since there was no direct interaction with participants For safety, all data was thoroughly reviewed to remove any personal information prior to analysis After completing the research and finalizing reports, the original data will be securely deleted.

DATA ANALYSIS AND RESULTS

Descriptive statistics

Descriptive statistics help to provide an overview of the data and highlight any notable patterns or trends Descriptive statistics for all variables used in the model

(related to performance, digitalization, banks speciﬁcities and economic variables) are presented in the table below

Table 1: Descriptive statistics for all variables

It is seen from the table that the average values of nine variables are 0.4883, 0.0092,

ROE, SIZE, CAR, LIQ, LOAN, INF, and GDP, respectively The medians for the nine variables in order are: 0.4883, 0.007, 0.1104, 33.0856, 0.0714, 0.8333, 0.9286,

0.024, 0.069 The standard deviations for the nine variables above are 0.1088,

DIGITAL ROA ROE SIZE CAR LIQ LOAN INF GDP nbr.val 110 110 110 110 110 110 110 110 110 nbr.null 0 0 0 0 0 0 0 0 0 nbr.na 0 0 0 0 0 0 0 0 0 min 0.2527 0.0001 0.0008 31.1087 0.0262 0.5435 0.8303 0.0150 0.0290 max 0.7762 0.0306 0.2957 34.9887 0.1697 1.0193 0.9738 0.0440 0.0750 range 0.5235 0.0305 0.2948 3.8799 0.1435 0.4758 0.1435 0.0290 0.0460 sum 53.7101 1.0092 13.1397 3642.2390 8.0237 90.8046 101.9747 3.0140 6.9080 median 0.4883 0.0070 0.1104 33.0856 0.0714 0.8333 0.9286 0.0240 0.0690 mean 0.4883 0.0092 0.1195 33.1113 0.0729 0.8255 0.9270 0.0274 0.0628

CI.mean.0.95 0.0206 0.0015 0.0153 0.1929 0.0047 0.0185 0.0047 0.0021 0.0033 var 0.0118 0.0001 0.0066 1.0422 0.0006 0.0095 0.0006 0.0001 0.0003 std.dev 0.1088 0.0077 0.0811 1.0209 0.0249 0.0977 0.0249 0.0110 0.0172 coef.var 0.2228 0.8416 0.6788 0.0308 0.3416 0.1183 0.0269 0.4027 0.2745 skewness 0.5942 1.0015 0.3237 0.1561 1.3328 -0.4054 -1.3323 0.3624 -1.3690 skew.2SE 1.2893 2.1729 0.7024 0.3388 2.8917 -0.8796 -2.8907 0.7862 -2.9702 kurtosis 0.4797 0.0776 -0.9403 -0.8806 3.0454 -0.1070 3.0483 -1.4754 0.0438 kurt.2SE 0.5248 0.0849 -1.0287 -0.9634 3.3318 -0.1171 3.3349 -1.6142 0.0480 normtest.W 0.9597 0.8865 0.9530 0.9671 0.9083 0.9846 0.9084 0.8342 0.6298 normtest.p 0.0021 0.0000 0.0007 0.0080 0.0000 0.2381 0.0000 0.0000 0.0000

0.0077, 0.0811, 1.0209, 0.0249, 0.0977, 0.0249, 0.0110, 0.0172 respectively which implies that most variables vary only slightly between commercial banks in the study Bank size, which is measured by natural logarithm of total assets, varies the most

Skewness assesses the extent to which a variable’s distribution is symmetrical

Kurtosis is a measure of whether the distribution is too peaked (Hopkins and Weeks,

The analysis reveals that certain variables exhibit skewness outside the acceptable range of -1 to 1, and kurtosis values significantly exceeding 3, suggesting that the distribution is non-normal (Hopkins and Weeks, 2016).

In the Shapiro-Wilk test of normality, all variables accept LIQ are not normally distributed (Thadewald and Büning, 2007).

Auto-correlation test

This analysis measures the strength and direction of the linear relationship between variables

Table 2: Auto-correlation test term ROA ROE DIGITAL SIZE CAR LIQ LOAN INF GDP

Pearson’s correlation coefficient is essential for assessing the collinearity among independent variables, as highlighted by Lee Rodgers and Alan Nice Wander (2012) The correlation analysis presented in the table examines the relationships between Return on Assets (ROA), Return on Equity (ROE), DIGITAL, and other relevant factors.

The analysis reveals a very weak correlation among all independent variables, with the exception of the capital adequacy ratio (CAR) and loan ratio (LOAN), which exhibit a perfect negative correlation of -1 To prevent multicollinearity issues, these two variables will not be included together in the same econometric model; instead, they will be introduced separately in the subsequent models (M1, M2, M3, and M4).

Collinearity check

In regression analysis, variance inflation factor (VIF) detects multicollinearity (Hill, Griffiths and Lim, 2018; Wooldridge, 2013) Variance inflation factors range from

In the analysis, a VIF value between 1 and 5 indicates a moderate correlation among variables, while the CAR and LOAN variables exhibit significantly high VIF values, suggesting they cannot be included together in the same model This finding aligns with the results of the preceding auto-correlation test.

Based on the preliminary check, the following models were proposed:

DIGITAL SIZE CAR LIQ LOAN INF GDP

Breusch–Pagan Lagrange multiplier test and Hausman test

Table 4: Breusch–Pagan Lagrange multiplier test on four models

Lagrange multiplier test chisq df p-value

Table 5: Hausman test on four models

Model M1 - ROA as the proxy for performance

To determine the most suitable model between random effects and pooled regression, the Breusch–Pagan Lagrange multiplier test was conducted, following the methodology established by Breusch and Pagan in 1980 This test evaluates the appropriateness of the chosen model based on specific hypotheses.

- H 0 : Pooled regression model is appropriate

- H 1 : Random effect model is appropriate

The p-value of Breusch and Pagan’s LM test is near zero, so the null hypothesis is rejected, random effect model is more appropriate (Amini et al., 2012)

In the next step, fixed effect and random effect were checked for the more appropriate one To check the appropriateness, the Hausman test was applied with the following hypotheses

- H 0 : Random effect model is appropriate

- H 1 : Fixed effect model is appropriate

The p-value is near zero, so the null hypothesis is rejected Thus, fixed effect model is more appropriate

Both tests show that the pooled OLS and random effect models are not preferred

Hausman test chisq df p-value

Model M2 - ROE as the proxy for performance

The same tests were used as above

The p-value of Breusch and Pagan’s LM test is near zero, so the null hypothesis is rejected, random effect model is more appropriate (Amini et al., 2012)

The p-value is less than 5% Thus, fixed effect model is more appropriate

Both tests show that the pooled OLS and random effect models are not preferred

The same tests were used as above Both tests show that the pooled OLS and random effect models are not preferred

Before running the fixed effect regression, some diagnostic tests were also performed to conﬁrm the choice of the estimation method.

Breusch–Pagan heteroscedasticity test

Table 6: Breusch–Pagan heteroscedasticity test on four models

The Breusch-Pagan test results indicate a p-value of 0.01073, which is below the 5% threshold Therefore, it can be concluded that the regression model does not meet the homoscedasticity assumption, confirming the presence of heteroscedasticity.

Based on the output of this Breusch-Pagan test above, the p-value is 0.2453, which is more than 5% Hence, it can be assumed that the residuals are homoscedastic

Based on the output of this Breusch-Pagan test above, it can be concluded that this regression model violates the homoscedasticity assumption, and that heteroscedasticity exists

Based on the output of this Breusch-Pagan test above, it can be assumed that the residuals are homoscedastic.

Breusch-Godfrey serial correlation test

Table 7: Breusch-Godfrey serial correlation test on four models

Serial correlation test chisq df p-value

All four tests indicate significant autocorrelation among the residuals, as evidenced by p-values below 0.05, confirming the presence of autocorrelation at an order of 5 or lower in each model.

Researchers often utilize generalized least squares (GLS) estimation to address issues of heteroscedasticity and autocorrelation According to Petersen (2009), panel data techniques in financial research frequently involve unobserved fixed effects on firms, and his findings indicate that GLS outperforms ordinary least squares (OLS) in tackling these problems Wallis's method provides an alternative by addressing uncertainties in variables while also managing heteroscedasticity and correlation GLS effectively transforms data to minimize squared deviations, standardizing error scales and "decorrelating" them While OLS is appropriate for datasets with homoscedastic errors and complies with the Gauss-Markov theorem, GLS is considered the superior method as it serves as the best linear estimator (Petersen, 2009).

Model comparisons

Adjusted R², AIC, and BIC are essential metrics for comparing and assessing the quality of regression models (Hill, Griffiths, and Lim, 2018) The four models will be estimated using the GLS method, and these statistical measures will be analyzed to identify the most effective model.

Table 8: Model comparisons on four models

Model M1 and M3 - ROA as the proxy for performance

Both models explain the outcome almost equally, with adjusted R 2 around 0.542

Model three exhibits identical AIC and BIC values when compared to model one Given its superior adjusted R² value, LOAN will be excluded from consideration, while CAR will be included Consequently, the final model selected for estimating ROA as the dependent variable is Model M1.

Model M2 and M4 - ROE as the proxy for performance

Both models explain the outcome almost equally, with adjusted R 2 around 0.392

Model four exhibits identical AIC and BIC values to model two, but with a slightly higher adjusted R² of 0.3916 in model M4 compared to 0.3921 in M2 Consequently, LOAN will be excluded from the analysis, while CAR will be included The final estimation model, using ROE as the dependent variable, is Model M2.

Model estimations

The null hypothesis posits that the coefficient equals zero, indicating no effect, and is assessed using the p-value for each term (Thiese, Ronna, and Ott, 2016) A p-value below 0.05 allows for the rejection of the null hypothesis.

The analysis reveals that digital transformation does not significantly impact a bank's Return on Assets (ROA), as indicated by a p-value above 0.05 Conversely, factors such as bank size, capital adequacy ratio, and liquidity ratio are statistically significant in explaining bank ROA, with p-values below 0.05.

An increase of 1% in a bank's capital adequacy ratio results in a 0.2036% rise in its return on assets (ROA), while a 1% increase in the liquidity ratio leads to a 0.0191% boost in ROA Additionally, a 1% increase in the ICT index may contribute to a 0.0033% enhancement in ROA, assuming all other variables remain constant.

Estimate Std Error t value Pr(>|t|)

Residual standard error: 1.972 on 103 degrees of freedom

F-statistic: 22.6 on 6 and 103 DF, p-value: < 2.2e-16

The null hypothesis posits that the coefficient is equal to zero, indicating no effect, and is assessed using the p-value for each term (Thiese, Ronna, and Ott, 2016) A p-value below 0.05 allows for the rejection of the null hypothesis.

The analysis reveals that the p-value for digital transformation is above 0.05, indicating it does not significantly impact a bank's return on equity (ROE) Conversely, the factors of bank size, capital adequacy ratio, and liquidity ratio show p-values below 0.05, demonstrating that these elements play a statistically significant role in explaining bank ROE.

An increase of 1% in a bank's capital adequacy ratio leads to a 1.3525% rise in its return on equity (ROE), assuming all other variables remain constant Similarly, a 1% increase in the liquidity ratio results in a 0.3001% boost in ROE, while a 1% rise in the ICT index may enhance ROE by 0.0462%, with other factors held constant.

F-statistic: 12.72 on 6 and 103 DF, p-value: 1.066e-10

The analysis of the data indicates that the digital transformation of banks in Vietnam from 2016 to 2020 has a positive yet insignificant effect on Return on Assets (ROA) and Return on Equity (ROE) This finding suggests that digital transformation does not directly enhance the financial performance of commercial banks in Vietnam, contrary to previous studies conducted in other countries that typically report a strong positive impact on revenue generation (Theiri and Hadoussa, 2023; Yang et al.).

Vietnam's focus on digital transformation has intensified in recent years, particularly during the COVID-19 pandemic However, the investment in IT by banks has not yet yielded significant returns, as the benefits of such investments often take years to materialize and reflect in performance indicators.

Digitalization positively influences the financial performance of Vietnamese commercial banks, although its impact is relatively weak and limited Other significant factors, including management practices, market conditions, and regulatory frameworks, also shape financial outcomes Furthermore, the extent of digitalization's positive effects varies among banks, depending on their investment in technology and their proficiency in utilizing digital tools effectively.

Recent findings support earlier research highlighting the importance of adopting a comprehensive and holistic strategy to improve financial performance amid digitalization (Jardak and Ben Hamad, 2022; Kriebel and Debener).

2019) The findings highlight the importance of considering other organizational and environmental factors alongside digitalization efforts to achieve sustained improvements in financial performance

Model estimations with Public Online Services index

The public online services index is a key component of the ICT index, which measures the level of technology application and digitalization in Vietnamese organizations on a scale from zero to one Specifically within the banking sector, this index assesses criteria such as banking websites, internet banking services, additional e-banking services, and overall e-banking activities.

The focus on the public online services index, rather than the broader ICT index, stems from the lack of a statistically significant relationship between the ICT index and financial performance indicators A comprehensive analysis revealed that various sub-variables within the ICT index do not significantly impact financial outcomes In contrast, the public online services index is crucial for understanding the effects of technology and digitalization in the Vietnamese market, particularly given the rapid growth of online services in the banking sector As technology advances and digital platforms gain traction, online services have become vital for enhancing customer engagement, satisfaction, and overall financial performance Vietnamese commercial banks are increasingly investing in their online service offerings to improve customer acquisition, retention, and operational efficiency This targeted approach enables a more in-depth analysis of online services, highlighting their importance in the current financial landscape.

57 deeper into the underlying factors and dynamics that contribute to the observed impact on financial performance

While this study emphasizes online services within the ICT index, it does not diminish the significance of other sub-variables Although the overall index may not show a statistically significant effect on financial performance, specific sub-variables like IT infrastructure could influence certain financial aspects Future research should investigate these individual components to better understand their impacts.

Following a preliminary assessment, new models were introduced, substituting the ICT index (DIGITAL) with the public online services index (OS) The estimation of these two models was conducted using the generalized least squares (GLS) method.

A p-value below 0.05 indicates that public online services significantly impact a bank's Return on Assets (ROA) Specifically, a 1% increase in a bank's public online services index, while keeping other variables constant, can lead to a 0.0054% rise in ROA.

F-statistic: 24.73 on 6 and 103 DF, p-value: < 2.2e-16

A p-value of less than 0.01 indicates that public online services significantly impact a bank's return on equity (ROE) Specifically, a 1% increase in a bank's public online services index, while holding other variables constant, can lead to an increase in ROE of approximately 0.0868%.

To enhance customer satisfaction and loyalty, banks should focus on providing convenient and user-friendly online services, which can lead to improved financial performance Successful technology implementation must prioritize customer needs and preferences By delivering personalized and efficient services, banks can build trust, attract more customers, and ultimately achieve superior financial outcomes.

DISCUSSION

Research results show only a marginal positive impact of digital transformation on ROA and ROE The difficulties in the digital transformation process are related to

F-statistic: 16.66 on 6 and 103 DF, p-value: 2.378e-13

Investing in IT infrastructure is crucial for businesses, particularly in developing countries like Vietnam, where digital transformation requires balancing initial costs with potential benefits Vietnamese banks are facing a "profitability paradox," where, despite increasing efficiency through the use of available technologies under competitive pressure, profits do not necessarily improve (Kriebel and Debener, 2019; Beccalli, 2007).

Digital transformation in banking often leads to gradual improvements in processes and operations, making it difficult to assess its immediate impact on overall performance The limited effects on key metrics like Return on Assets (ROA) and Return on Equity (ROE) indicate that the benefits of technological innovation take time to materialize Furthermore, the significant restructuring costs associated with digital transformation may adversely affect ROA in the short term, highlighting the complexities of measuring success during this transition.

(2017), there is strong evidence that adopting new digital innovations initially leads to reduced long-term returns for up to four years before experiencing positive effects

Relying solely on the ICT index report to evaluate the impact of technology and digitalization on the financial performance of Vietnamese commercial banks may be insufficient Although the ICT index offers a general overview of a bank's technological capabilities, it does not capture the complete picture.

The ICT index report often fails to provide a complete picture of a bank's digitalization, as it may assign high scores based solely on the number of ATMs This limitation highlights the need for a more comprehensive assessment of digitalization processes and their real implications within financial institutions.

The traditional reliance on ATMs as a measure of digitalization in the banking sector is outdated, as modern practices now emphasize mobile applications and digital payment platforms For instance, the Bank for Investment and Development of Vietnam showcases this shift, highlighting that investments in hardware like ATMs often occur without corresponding advancements in software or online services Consequently, the sheer number of ATMs does not accurately represent a bank's current digitalization efforts.

The ICT index report overlooks the effectiveness and adoption of digital payment methods, particularly mobile applications, which are vital for understanding their impact on a bank's financial performance As mobile payment options gain popularity and convenience, they significantly influence consumer behavior and expectations, highlighting the need to incorporate these factors when evaluating a bank's digitalization strategies.

This study emphasizes the significance of customer-centric digital strategies by incorporating the sub-index of online services while omitting the generalized ICT index from the data analysis By focusing on user-friendly online experiences, it highlights the importance of tailoring digital approaches to meet customer needs effectively.

By leveraging 62 platforms, banks can enhance customer attraction and retention through efficient digital services and personalized solutions, ultimately improving their financial performance The strong correlation between online services and financial success underscores technology's impact on operational efficiency Digitalization allows banks to streamline processes, cut costs, and optimize resource allocation, leading to greater operational agility and, consequently, enhanced profitability and sustainability.

The primary objective of technology and digital transformation in the banking sector is to enhance customer service, which in turn drives better business outcomes This underscores the necessity for banks to adopt customer-centric strategies and continually invest in technology to adapt to changing customer expectations The positive correlation between online services and financial performance indicates that Vietnamese commercial banks should prioritize digitalization by developing robust online platforms, secure payment systems, and user-friendly interfaces Moreover, enhancing cybersecurity measures is essential to build trust and confidence among customers.

In Vietnam, successful digital transformation requires significant investment in technology and innovation of transaction protocols While banks have made progress in their digital transformation efforts, they have faced substantial financial, human, and time costs associated with addressing errors during implementation The period of partial digital transformation from 2016 to 2020 showed improved business results; however, the high trade-off costs have obscured the clear profitability of these digital initiatives.

Digitalization's impact on financial performance in the Vietnamese banking sector is influenced by several factors, including management practices, organizational culture, and the regulatory environment Limitations in technological infrastructure and connectivity can hinder the effective use of digital tools, while customer preferences may not fully align with the offerings of commercial banks Additionally, the competitive landscape plays a crucial role, as the digitalization efforts of banks may be affected by the strategies of their rivals, potentially diluting the overall impact on financial performance Collectively, these factors contribute to the limited effect of digitalization in this sector.

Solow neutral technical progress provides a framework for understanding the study's findings within a broader economic context Digitalization positively influences efficiency, operations, and customer experiences, contributing to financial performance However, its weak effect highlights the challenges of converting technological advancements into significant economic changes The neutral aspect of technical progress indicates that digitalization may not fundamentally change the production structure of Vietnamese commercial banks but rather signifies a period of incremental adjustments in the banking sector.

64 adapts to technological changes while maintaining the equilibrium between labor, capital, and technology inputs

The limited impact of digitalization on the financial performance of Vietnamese commercial banks supports the resource-based view framework Although digital resources and capabilities can offer a competitive advantage, the weak correlation indicates that other factors, including the availability and use of complementary resources, competitive dynamics, and external market conditions, may influence the relationship between digitalization and financial performance.

CONCLUSION AND IMPLICATIONS

Research indicates a minimal correlation between digital transformation and bank performance, aligning with the resource-based theory and the profitability paradox in the banking sector Despite competitive pressures to adopt digital technologies, limited infrastructure resources have impeded effective digital transformation, leading to improved operational efficiency but diminished profits This lack of significant impact may stem from the lengthy timeframe required to realize the benefits of IT investments, as well as inadequate management of digital transformation efforts, often due to the absence of a clear digital strategy.

65 new participants in the market, making substantial investments in IT becomes essential to minimize response delays

The study reveals a positive relationship between the adoption of online services and enhanced financial performance in Vietnamese commercial banks This finding is consistent with the global trend, where transitioning from traditional banking to digital ecosystems has effectively improved financial outcomes.

Enhanced service delivery allows banks to achieve superior business outcomes Essentially, technology and digitalization empower banks to meet changing customer demands, optimize operations, and significantly improve financial performance.

This study highlights the significant implications for Vietnam's commercial banking sector and policymakers, revealing that embracing technology and digitalization can enhance long-term financial performance Consequently, it is crucial for stakeholders to prioritize the integration of digital solutions in their strategic plans Achieving this will necessitate substantial investments in both technology and human resources to facilitate the effective implementation of these digital initiatives.

In the short term, digital transformation might not lead to immediate financial improvements for banks However, neglecting technology and digitalization can harm long-term financial performance and risk market exit While initial investments may not show quick returns, they are essential for sustainable growth and competitiveness.

The long-term financial success and competitiveness of banks are increasingly reliant on their capacity to adapt to the digital landscape It is crucial for banks to strike a balance between investing in comprehensive digital transformation strategies and implementing immediate enhancements in customer service through online applications This approach not only strengthens their digital transformation efforts but also secures their competitive edge, ultimately resulting in enhanced financial performance.

The successful integration of technology and digitalization in the banking sector hinges on robust infrastructure, regulatory support, and a skilled workforce Vietnamese commercial banks must embrace technology to remain competitive in today's dynamic market By investing in digital transformation, these banks can unlock growth opportunities, enhance customer satisfaction, and improve financial performance Additionally, policymakers and regulators should foster an environment that encourages the adoption of digital technologies, which includes creating supportive policies, facilitating collaboration between banks and tech firms, and investing in digital infrastructure for a seamless transition to a digital banking landscape.

While technology adoption and digitalization offer significant opportunities, they also present challenges for Vietnamese commercial banks Key issues include cybersecurity threats, data privacy concerns, and the digital divide affecting various customer segments To navigate these challenges, it is essential for banks to invest in strong cybersecurity measures and implement effective risk management strategies.

67 frameworks, and prioritize customer education to mitigate these challenges and ensure the sustainable growth of their digital initiatives

Future research should investigate the specific mechanisms by which digitalization influences financial performance and identify strategies to enhance this relationship It is essential to consider contextual factors and moderating variables, such as corporate and IT governance, to gain a holistic view of technology's impact on financial performance in the Vietnamese banking sector Moreover, since financial performance is a multifaceted concept involving profitability, efficiency, and asset quality, the observed weak effect of digitalization may pertain to specific dimensions Further studies should focus on these dimensions to better understand how digitalization affects financial performance.

RECOMMENDATIONS

Based on the findings from the data model analysis, the following recommendations can be made:

Vietnamese commercial banks must prioritize and strengthen their digital transformation strategies by investing in advanced technologies like artificial intelligence, machine learning, and data analytics This investment aims to enhance operational efficiency, improve customer experience, and boost overall financial performance Additionally, banks should set clear goals and develop comprehensive strategies to guide their digital transformation efforts effectively.

68 for digitalization, aligning them with their specific business objectives and market dynamics

Vietnamese commercial banks must prioritize investment in technology infrastructure to maximize the advantages of digitalization This involves enhancing network security, advancing data analytics capabilities, and developing customer-centric digital platforms.

To effectively harness technology and digitalization, banks must invest in training programs that enhance their employees' digital skills and capabilities By equipping their workforce with essential knowledge, banks can significantly improve their ability to navigate and implement technological advancements.

To enhance financial performance, Vietnamese commercial banks should focus on customer-centric digital initiatives By creating user-friendly online banking platforms, mobile applications, and various digital channels, banks can significantly boost customer satisfaction, engagement, and loyalty.

As digitalization grows in Vietnam's banking sector, it is essential for commercial banks to prioritize cybersecurity and foster customer trust Investing in strong security measures such as encryption, multi-factor authentication, and ongoing monitoring is vital to safeguard customer data and financial transactions Furthermore, banks must actively promote their commitment to security to enhance customer confidence.

69 transparency in data handling and communicate their security measures to instill confidence in customers regarding the safety of their digital banking interactions

Collaborating with fintech firms can significantly boost the digital transformation and financial performance of traditional banks in Vietnam By forming strategic alliances with these innovative companies, Vietnamese commercial banks can harness expertise in cutting-edge technologies like blockchain, artificial intelligence, and big data analytics.

To enhance resilience against emerging threats, Vietnamese commercial banks must develop strong risk management frameworks This involves implementing effective strategies to mitigate cybersecurity risks, safeguard data privacy, and manage operational challenges linked to technological advancements.

To maximize the advantages of digitalization, Vietnamese commercial banks must prioritize employee training and development This investment should encompass robust digital literacy programs and targeted training on emerging technologies and digital tools By empowering employees with essential skills and knowledge, banks can strengthen their digital capabilities and facilitate a seamless transition to a digitally-driven landscape.

Continuously monitor and evaluate digitalization initiatives: To fully understand the impact of technology and digitalization on financial performance, banks should establish robust monitoring and evaluation mechanisms Regular assessments

70 should be conducted to measure the effectiveness of digitalization strategies and make necessary adjustments to maximize benefits

Policy and regulatory support: Policymakers and regulators can play a vital role in shaping the digital transformation landscape of the banking industry They should create an enabling environment that encourages innovation, while also ensuring that adequate regulations are in place to address potential risks associated with digitalization

Digitalization has a weak positive effect on financial performance, highlighting the need for Vietnamese commercial banks to embrace it as an ongoing process rather than a one-time effort By consistently adapting and evolving their digital strategies, banks can meet customer expectations, stay competitive, and achieve sustainable financial growth in the digital age.

LIMITATIONS

This study explores the influence of technology and digitalization on the financial performance of Vietnamese commercial banks, offering valuable insights However, it is essential to recognize specific limitations that may have affected the findings, which should be considered when interpreting the results and generalizing the conclusions.

The research might have been conducted on only 22 commercial banks in Vietnam in 2016-2020, which could affect the generalizability of the findings and could limit

The long-term impact of technology and digitalization on financial performance is challenging to assess due to the varying number of banks included in the ICT index reports each year, which leads to unbalanced panel data.

The analysis is fundamentally dependent on the availability and quality of secondary data, particularly ICT index reports and annual reports from commercial banks The accuracy and reliability of the findings hinge on the quality and completeness of the utilized data.

Due to the constraints of a master's thesis, a comprehensive analysis of the impact of technology and digitalization on financial performance may not be achievable As a result, key aspects such as specific technologies used, customer preferences, and regulatory changes have not been thoroughly examined Additionally, the selected indicators in this study may not completely reflect the overall financial performance of Vietnamese commercial banks, suggesting that alternative indicators or methods could produce varying outcomes.

The study conducted a digital conversion assessment relying solely on a single digitalization variable, the ICT index Due to this limitation, the research suggests directions for future studies, advocating for the use of more recent and comprehensive metrics to enable a deeper evaluation of digital transformation.

The study's design may prevent the establishment of a causal link between technology or digitalization and financial performance Additionally, external factors like regulatory changes and economic conditions could significantly influence the results.

72 managerial decisions, might influence financial performance, making it difficult to isolate the sole impact of technology and digitalization

The influence of technology and digitalization on financial performance is affected by external factors like regulatory frameworks, market conditions, and customer preferences This research specifically examines Vietnamese commercial banks, indicating that the results may not be universally applicable to banks in other countries or regions Caution is advised for researchers when generalizing these findings, and conducting comparative studies could enhance understanding of the contextual nuances in this relationship.

When interpreting the findings of this research, it is crucial to acknowledge its limitations Future studies should involve larger sample sizes, extended timeframes, and a more thorough analysis of financial performance indicators to gain a clearer insight into the effects of technology and digitalization on Vietnamese commercial banks.

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Tiêu đề	Impact of Technology and Digitalization on the Financial Performance of Vietnamese Commercial Banks
Tác giả	Nguyen Le Ngoc Son
Người hướng dẫn	Dr. Nguyen Xuan Quang
Trường học	University of the West of England
Chuyên ngành	Finance
Thể loại	dissertation
Năm xuất bản	2023
Thành phố	Bristol

Định dạng
Số trang	89
Dung lượng	1,13 MB