Do financial inclusion and bank competition matter for banks’ stability in Asia?

Abstract

This study investigates the effect of financial inclusion (FI), considering micro and macro indicators as well as micro- and macro-FI separately, on the stability of Asian banks and examines the moderating effect of bank competition (BC) on this relationship. Using data from 2011 to 2021, this study examines the relationship between FI, BC, and bank stability (BS). The hypotheses were tested using a “two-step system-GMM framework”. The findings were also authenticated using the panel OLS approach. The results indicate that FI (considering micro- and macro-indicators) and micro- and macroFI have significant positive effects on the stability of Asian banks. However, the impact of micro-FI is greater than that of macro-FI on the BS in Asia. Furthermore, the results manifest that BC has a significant positive impact on BS and positively moderates the relationship between micro-FI and BS, whereas it negatively moderates the relationship between macro-FI and BS. The findings of this study have practical implications for regulators, bankers, and policymakers involved in formulating strategies to enhance Asian banks’ stability.