DIGITAL BANKING ADOPTION AND BANK PROFITABILITY: A COMPARATIVE PANEL ANALYSIS OF COMMERCIAL BANKS ACROSS EMERGING MARKETS

This study investigates whether digital banking adoption is associated with higher profitability among commercial banks in emerging markets. Using an unbalanced panel of 40 commercial banks drawn from eight emerging economies across Asia, Sub-Saharan Africa, Latin America, and Central Asia over the period 2018–2023, banks are classified into High-Digital-Adoption and Low-Digital-Adoption groups based on a composite Digital Adoption Index (DAI) constructed from mobile banking penetration, digital transaction share, and internet banking usage. Profitability is measured through Return on Assets (ROA), Return on Equity (ROE), the non-performing loan (NPL) ratio, and the cost-to-income ratio (CIR), with a fixed-effects panel regression used to isolate the marginal contribution of digital adoption after controlling for bank size, capital adequacy, and asset quality. The results indicate that High-Digital-Adoption banks outperform their Low-Digital-Adoption peers on every metric, posting a higher average ROA (1.8% vs. 1.1%), higher ROE (14.2% vs. 9.6%), a lower NPL ratio (3.1% vs. 4.8%), and a lower cost-to-income ratio (52.4% vs. 61.3%). The panel regression confirms a positive and statistically significant relationship between the Digital Adoption Index and ROA (β = 0.014, p < 0.01), robust across regions, though the magnitude of the effect varies considerably by geography.