Enhancing bank stability from diversification and digitalization perspective in ASEAN
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 5 June 2023
Issue publication date: 22 August 2023
Abstract
Purpose
The financial sector's resilience is associated with greater prosperity and a better average income. Banks have evolved their business model and diversified their sources of income, and bank digitalization has become one of the prominent strategies. The purpose of this study is to examine how bank service expansion represented by revenue diversification activities and digital strategy will enhance bank stability in ASEAN countries from 2010 to 2021.
Design/methodology/approach
This study uses information from the Datastream database and banks’ annual reports to measure bank stability, diversification and market power, which also provide information for bank digital strategy. This study uses the two-step system generalized method of moments to investigate the effect of diversification and digitalization on bank stability in ASEAN.
Findings
The results of this study show that bank revenue diversification has no effect on bank stability, and the presence of the chief digital officer and digital disclosure improves banks’ stability. However, alliance strategy with financial technology companies does not significantly impact bank stability and might increase bank risk.
Practical implications
The findings of this study provide relevant policy implications: the regulation should support bank business to diversify the source of income; regulators and policymakers should regulate and enhance the Information and Communication Technology infrastructure; and banks should design their strategy comprehensively.
Originality/value
This study provides new evidence of the essential role of digital strategy in enhancing bank stability in ASEAN. In addition, this study also shows how banks diversify their business in a competitive environment.
Keywords
Acknowledgements
The authors would like to express their gratitude to Professor Paresh Narayan (the guest editor) for his guidance and to the anonymous reviewers for their valuable comments. The authors would also like to thank the discussant and participants at the 16th BMEB International Conference for their comments. All errors remain with the authors.
Citation
Lestari, D., Ma, S. and Jun, A. (2023), "Enhancing bank stability from diversification and digitalization perspective in ASEAN", Studies in Economics and Finance, Vol. 40 No. 4, pp. 606-624. https://doi.org/10.1108/SEF-12-2022-0554
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited