Abstract
As a result of information asymmetry, banks have generated many non-performing loans, jeopardizing financial stability. This paper investigates the relationship between digital transformation and credit risk and whether financial inclusion plays an interactive role. The paper employs the Generalized Method of Moments (GMM) and data from 116 Chinese banks from 2014 to 2021 to investigate the issue. The results show that digital transformation significantly and dynamically reduces bank credit risks, and inclusive finance plays an interactive role. As financial inclusion increases, this risk-reducing effect will increase, meaning that banks need to combine financial inclusion to promote bank risk reduction better and maximize risk assessment accuracy.
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