Impact of Digital Transformation on Bank Profitability and Efficiency in Selected Asia Pacific Countries

Chew, Yit Hao (2026) Impact of Digital Transformation on Bank Profitability and Efficiency in Selected Asia Pacific Countries. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

Text 02 Chew Yit Hao.pdf Restricted to Registered users only Download (855kB)

Abstract

The global banking sector has undergone a profound structural shift over the last decade, driven by the rapid evolution of digital technologies such as big data, AI, cloud computing and blockchain. Digital transformation (DT) is no longer merely an option but a strategic imperative for traditional banks to remain competitive against digitally native entrants. Successful DT can improve bank profitability by diversifying revenue streams and reducing the information asymmetry inherent in traditional lending. Furthermore, DT can also enhance bank efficiency, as automated processes and digital channels significantly lower staff and non-staff expenditures. Therefore, this study aims to examine the impact of DT, i.e., digital orientation (DO), digital intensity (DI) and digital maturity (DM) on bank profitability and efficiency in selected Asia Pacific countries. This research is conducted by collecting data from the listed local banks within 11 countries located across four key sub-regions of Asia Pacific including East Asia, Southeast Asia, South Asia and Oceania for the period of 2010 to 2024. The fixed effects model is used in this research to carry out the analyses. Based on the reported findings, this study concludes that DM has a statistically significant positive relationship with bank profitability. This indicates that profitability is improved once a bank reaches a stage where its digital resources are synchronised with strategic goals and organisational culture. Conversely, DO and DI has a positive but not statistically significant association with bank profitability. In terms of bank efficiency, the results demonstrate that DT acts as a powerful channel for enhancing bank efficiency. All three dimensions of DT, i.e., DO, DI and DM exhibit a negative and statistically significant association with bank efficiency, indicating that they effectively reduce operating expenses relative to income and improve bank efficiency. Several important implications can be drawn from this study. First, this study may assist policymakers to transition from broad digitalisation mandates toward the formulation of a more comprehensive and holistic regulatory framework and policies for DT which includes the distinct phases of DO, DI and DM. Besides, this study may help public listed banks to better comprehend the phases involved in DT and their effects on bank profitability and efficiency. Last but not least, this study may assist investors in making more informed decisions regarding their investments in public listed banks by distinguishing the specific impacts of DO, DI and DM on bank profitability and efficiency.