FinTech Adoption, Bank Profitability, and Stability: The Mediating Role of Operational Cost Efficiency in Bangladesh's Commercial Banking Sector (arXiv (Cornell University))

Summary

• The study analyzes a balanced panel of 30 commercial banks in Bangladesh from 2015 to 2024, yielding 300 bank-year observations.p.6
• Commercial banks in the sample achieved an average return on equity of 10.36%, ranging between -3.46% and 25.20%.p.10
• The average cost-to-income ratio for the analyzed banks was 49.54%, with values spanning from 15.96% to 87.18%.p.10
• When evaluated with an entropy-weighted index, FinTech adoption showed a statistically significant negative association with return on equity at -0.0570.p.14
• GDP growth rate demonstrated a significant positive effect on return on equity with a coefficient of 0.4002 in the baseline model.p.12

Key insights

1. FinTech adoption presents no statistically significant direct impact on bank profitability, stability, or cost efficiency in the primary System GMM specification.p.1
2. Operational cost efficiency does not significantly mediate the effect of FinTech adoption on bank profitability or stability.p.1
3. Using an entropy-weighted index, FinTech adoption shows a statistically significant negative relationship with return on equity at a coefficient of -0.0570.p.14
4. The entropy-weighted FinTech index is significantly associated with an improved cost-to-income ratio at a coefficient of -0.9209.p.14
5. The average bank stability measure ln(Z-score) across the sample was 3.0789 between 2015 and 2024.p.10
6. GDP growth rate consistently acts as a positive predictor of bank return on equity with a coefficient of 0.4002.p.12
7. Multicollinearity diagnostics yield a mean VIF of 1.40, indicating low correlation among explanatory variables.p.21