Examining the impact of digital transformation on bank profitability: Evidence of lagged and nonlinear effects in Vietnam

Type of the article: Research ArticleAbstractDigital transformation is emerging as a key driver reshaping banking operational models. Empirical evidence on the impact of digital transformation on the profitability of commercial banks remains inconclusive, particularly in the context of emerging economies like Vietnam. This study aims to assess the impact of digital transformation on the profitability of Vietnamese commercial banks, while also examining lagged effects, non-linear relationships, and the role of income diversification. The research is grounded in a theoretical framework combining the Resource-Based View and Dynamic Capabilities Theory. This study uses panel data from 16 Vietnamese commercial banks from 2010-2024, totaling 240 observations. The main methodology employed is a two-way fixed-effects model combined with standard errors and robustness testing using Driscoll–Kraay standard errors combined with an alternative specification to check the robustness of the results. Empirical results show that digital transformation has a positive impact on bank profitability, and this impact appears non-linear. Meanwhile, the study has not found empirical evidence of a one-period lagged impact of digital transformation and the moderating role of income diversification. These findings imply that, to effectively leverage digital transformation strategies, banks need not only to invest comprehensively in technology, resources, and data, but also to enhance their capacity to exploit and utilize digital resources and develop a digital ecosystem. The research findings contribute to the empirical evidence regarding the impact of digital transformation on profitability in the banking sector of emerging economies.