Ethics, Institutions, Infrastructure, and Governance in AI National-Level Readiness: A Hidden Driver of Banking Transformation

The growing deployment of artificial intelligence (AI) in banking raises critical questions about whether national-level readiness, defined by ethics, institutions, infrastructure, and governance (EIIG), translates into measurable financial performance gains. This article provides empirical evidence on the link between government AI readiness and banking sector profitability. Using an unbalanced panel dataset of 136 countries covering 2020–2024, the study integrates Return on Assets (ROA) from the IMF with the Government AI Readiness Index from Oxford Insights, which embeds EIIG dimensions of ethical frameworks, institutional quality, infrastructural robustness, and governance capacity. Data preprocessing involved applying Yeo–Johnson transformations to address non-normal distributions, and panel econometric models were estimated using both fixed and random effects, with the Hausman test guiding model selection. The results indicate that stronger national EIIG readiness has a significant positive impact on bank profitability. The fixed effects model indicates that a one-unit increase in the transformed AI readiness index is associated with a 0.524 increase in transformed ROA (p < 0.001). In contrast, the random effects specification produced a negative coefficient (β = –0.126, p < 0.01). The Hausman test (χ² = 42.98, p < 0.001) confirmed fixed effects as the consistent estimator. Robust covariance estimators (clustered by country, clustered by year, and Driscoll–Kraay) further confirmed the stability of the coefficients, which remained consistently positive and significant. Country-specific fixed effects highlight structural heterogeneity: advanced economies such as Germany (α = –4.14) and the United Kingdom (α = –4.15) exhibit structurally lower profitability, while emerging economies, including Malawi (α = +0.72), Ghana (α = –0.59), and Mozambique (α = –0.24) align more closely with or exceed global averages. These findings underscore that ethical safeguards, institutional capacities, digital infrastructures, and governance mechanisms are not peripheral but central in enabling AI readiness to deliver sustainable financial performance.