Impact of IT investments on bank profitability: Empirical evidence from Vietnam

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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.

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    • Table 1. Descriptive statistics
    • Table 2. Correlation matrix
    • Table 3. Tests for model selection
    • Table 4. Tests for model limitations
    • Table 5. Adjusted FGLS model for ROA
    • Table 6. Adjusted FGLS model for ROE
    • Table 7. Hypotheses vs actual results on the impact of IT investment on bank profitability
    • Table A1. List of commercial banks in the study
    • Data curation
      Le Phong Chau, Tran Minh Khue, Le Thanh Tam
    • Formal Analysis
      Le Phong Chau, Tran Minh Khue, Le Thanh Tam
    • Funding acquisition
      Le Phong Chau, Le Thanh Tam
    • Project administration
      Le Phong Chau
    • Resources
      Le Phong Chau
    • Software
      Le Phong Chau, Tran Minh Khue
    • Visualization
      Le Phong Chau, Tran Minh Khue
    • Writing – original draft
      Le Phong Chau, Tran Minh Khue, Le Thanh Tam
    • Conceptualization
      Tran Minh Khue, Le Thanh Tam
    • Investigation
      Tran Minh Khue
    • Methodology
      Tran Minh Khue, Le Thanh Tam
    • Supervision
      Le Thanh Tam
    • Validation
      Le Thanh Tam