Factors Affecting the Financial Performance of Banks in the Era of Digital Transformation: A Perspective from Vietnam’s Banking Industry

Abstract

This study aims to explore the factors influencing the financial performance of banks in Vietnam amidst the on-going digital transformation. In today's dynamic economic landscape, characterised by digital transformation and heightened regulatory standards, banks are compelled to innovate in response to continuous macroeconomic fluctuations. While the importance of increasing financial performance was largely recognised, the development and empirical validation of a financial performance model in the banking digital transformation context is not yet completely addressed, especially in developing countries. Utilising foundational theories, this research employed SMARTPLS 4 software alongside a blend of quantitative and qualitative analyses to assess the influences on the financial performance of banks amid digital transformation. Data were collected from 400 bank employees from all genders across Vietnam by the quota sampling method. Most of the survey participants lived in big cities where many banks were concentrated. The research results showed that there were three main factors directly affecting bank financial performance including Deposit mobilisation, Bank profitability, and Loyalty respectively according to the level of impact. This result highlights the importance of effective deposit mobilisation in achieving the bank's financial goals. The results also indicated that the growth of banks' profits is closely tied to their capacity to maintain loyal customers. Additionally, the study revealed a strong correlation between nine other factors, such as Savings Interest rates, Bank technology, and Inflation, with three intermediary factors. Until now, there are very few studies that have comprehensively evaluated both financial and non-financial factors' effect on bank financial performance as this research. This study also offered compelling insights into the strategies of successful banks in Vietnam today, underscoring the importance of investing in bank technology and presenting valuable recommendations. Based on the findings, banks can specifically focus on managing the identified variables and deploying appropriate business strategies to enhance their financial performance for sustainable development in the digital age.