Digital finance, bank competition shocks and operational efficiency of local commercial banks in Western China

Abstract

The rise of information technology has triggered the digital financial revolution and reshaped the competitive landscape of the commercial banking industry. This transformation has profoundly affected the operating efficiency of many small and medium-sized traditional commercial banks in Western China. We combine panel data from 130 local commercial banks in Western China from 2008 to 2021 to investigate the impact of digital finance on the operational efficiency of these local commercial banks. Our findings indicate that the overall operational performance of local commercial banks in Western China has declined under the influence of digital finance. Additionally, the intensification of banking competition has disrupted the established traditional market competition structure, with this mechanism exerting a more pronounced weakening effect on the operational performance of these local banks. This research provides rational recommendations for the high-quality development of the banking industry in the Western region, thereby enhancing the quality and efficiency of commercial banks' services to the real economy.