Digitalization and bank performance: the mediator effect of financial stability and moderator effect of nonperforming loans

Abstract

Purpose

Digitalization is a keyword not only mentioned in recent years but also strongly applied by financial institutions. However, the benefits of digitalization for banks remain an issue that needs to be investigated.

Design/methodology/approach

Therefore, this study is conducted to determine the role of digitalization in improving the financial performance of banks in the presence of financial stability as a mediating variable and nonperforming loans (NPLs) as a moderating variable. The research was conducted by African banks between 2000 and 2021.

Findings

Using panel data, the results showed that digitalization has a positive and significant effect on the performance of African banks. Similarly, the results showed that the financial stability of African banks plays a mediating role between digitalization and performance.

Originality/value

However, the effect of digitalization on the performance of African banks goes through their financial stability, which verifies its mediating role. Similarly, this study’s results showed that NPLs have a moderating role between digitalization and bank performance. Indeed, this paper found that NPLs play a braking role that minimizes the effect of digitalization on improving the financial performance of banks.

Citation

Saadaoui, A. and Chouchene, I. (2024), "Digitalization and bank performance: the mediator effect of financial stability and moderator effect of nonperforming loans", Competitiveness Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/CR-01-2024-0012