Digital governance, systemic shocks, and banking sector integrity in transition economies

This paper aims to examine the impact of Good Corporate Governance (GCG) practice on bank stability and performance. Governance is measured using the GCG rating that covers eleven aspects. The authors apply instrumental regression to link governance to performance and stability. The study covers a sample of 150 banks. The result shows that bank stability can mediate bank governance and bank performance. On the determinant of bank performance, it can be concluded that the GCG rating is positive and directly influences bank performance. Bank stability is also positive for bank performance indicating the indirect contribution of the GCG rating to bank performance. NPL, LDR, CAR and bank’s size (LASSET) are all negative and significant. The aim of this paper is to provide strong empirical evidence on the importance of governance and stability for performance. The limitations of this paper are the size of the sample and that it only covers public banks which are theoretically required to apply better governance in all aspects of their business by the Capital Market Authority.

The increasing role of digitalization in the banking sector necessitates an in-depth analysis of the impact of information technology (IT) investments on bank profitability. The paper analyzes the influence of IT investments on the profitability of Vietnamese commercial banks. The data were collected from 27 commercial banks in Vietnam between 2010 and 2022. The methodology used in this paper is the Feasible Generalised Least Squares (FGLS) regression. The key results indicate that investment in IT has improved the overall performance of banks, as evidenced by an average increase of 1.8% in Return on Assets (ROA) and 15.3% in Return on Equity (ROE). In addition, the Equity-to-Asset ratio exerts a favorable influence on bank performance, increasing ROA by 15.7% and ROE by 40.9%. Furthermore, bank size also demonstrates a positive correlation with both ROA and ROE, raising it by 0.3% and 2.3%, respectively. Based on these findings, more efficient investment in digital transformation, collaboration with Fintech firms, IT competence enhancement for staff, and communication promotion for Vietnamese commercial banks are recommended. Enabling environments for bank digital transformation should be provided by the Government in building a centralized database and electronic systems, introducing fintech regulations, establishing digital ecosystems, and implementing security solutions.

Acknowlegment
This paper is funded by the National Economics University, Hanoi, Vietnam.
The authors would like to express their gratitude to the comments from chairs, scholars, and audiences at the 19th International Conference on Humanities & Social Sciences 2024 – Applying Humanities & Social Sciences for a sustainable future, Khonkhaen University, Thailand (ICHUSO-011). This paper has been revised significantly after presenting at the IC-HUSO 2024 Conference.

Banking stability is essential to any economy due to its many functions, including intermediation, payment facilitation, and credit creation. Thus, the stability of the banking industry is one of the critical ingredients in economic growth. This paper analyzes how bank capital requirements, credit, and liquidity impact bank solvency using ten major banks that control 90% of the market share in the UK in 2009–2018.
The GMM model indicates a strong association between credit and liquidity risks. That is, when banks finance a risky or distressed project, this will lead to an increase in non-performing loans (NPL), which reduces bank liquidity. Poor liquidity profile of the bank may restrict it from providing financial intermediation role. In addition, the findings indicate that efficiency, asset quality, and economic growth have a significant positive effect on the solvency of banks. The results also show that the regulatory capital (tier1) has a positive significant influence on solvency of the banks. Further, the results indicate that during the economic boom, banks tend to increase their regulatory capital. Therefore, there is a need to ensure that during the “good time”, banks can accumulate enough capital that is genuinely capable of absorbing negative shock. Also, it is important for banks to ensure that they are efficient but also have robust credit appraisal system to reduce NPL. This paper also demonstrates the implication of increased capital requirements. That is, increased capital requirements ensure not only banks are liquid but also solvent which enables them to provide financial intermediation.