COVID-19, Digital Transformation of Banks, and Operational Capabilities of Commercial Banks

Abstract

The development of financial technology has promoted the innovation and digital transformation of commercial banks. Through digital transformation, commercial banks can improve bank efficiency and operational capabilities. Through empirical analysis, this study explored the relationship between digital bank transformation and commercial bank operating capabilities and how COVID-19, bank categories, and enterprise life cycles affect the relationship between digital bank transformation and commercial bank operating capabilities. This study selected data from China’s commercial banks from 2011 to 2021 and used the regression method of fixed effects to conduct an empirical analysis. The research results show that the digital transformation of banks has improved the operational capabilities of commercial banks. Further analysis showed that the emergence of COVID-19 has negatively affected their relationship. At the same time, compared with rural commercial banks and commercial banks in the recession and phase-out periods, non-rural commercial banks and commercial banks in the growth and maturity stages play a more vital moderating role in the impact of the digital transformation of banks on the financial performance of commercial banks. The main research object of this study is Chinese commercial banks, and this study examines the results of banks’ digital transformation and enriches the research on digital transformation. At the same time, this study is helpful to investors who like investment banks and has good practical significance.

Bank Digital Transformation and Enterprise Innovation—Evidence from China

“…On the other hand, previous literature has primarily explored the impact of bank digital transformation on its own operations and performance [6][7][8][9][10], whereas our study takes a distinct perspective by delving into the contribution of bank digital transformation to borrowing companies and the broader real economy. While the focus of the research is on the impact of bank digital transformation on borrowing companies, it indirectly implies potential benefits for banks themselves.…”

“…Second, through the use of digital technology, banks are able to conduct comprehensive monitoring and review of borrowers after loan disbursements [8]. This improves the governance of borrowing companies and helps reduce opportunistic behaviors, such as the misuse of funds by firm management or major shareholders.…”

“…Prior studies have documented the impact of bank digital transformation on banks' stability [6], nonperforming loan (NPL) ratios [7], operational capabilities [8], production efficiency improvement [9], and financial performance [10]. Existing literature has predominantly concentrated on the economic effects of bank digital transformation on the behavior and performance of banks themselves.…”

“…Finally, the established literature on the economic consequence of digital transformation solely concentrates on a single digital transformation entity, for example, listed firms or commercial banks [6][7][8][9][10][11][12]. However, existing research has not fully addressed how bank digital transformation interacts with the digital transformation of their enterprise customers, leaving another significant research gap.…”

How Does the Digital Transformation of Banks Improve Efficiency and Environmental, Social, and Governance Performance?

“…Therefore, in the era of a green economy, it is necessary to study the impact of bank digital transformation on ESG. At the same time, banks' digital transformation is affected by many factors, such as COVID-19, the nature of banks, and the life cycle of enterprises [13]. In addition, at the helm of commercial banks, executives play an essential role in the daily operation and management.…”