Abstract

This study investigates the impact of online banking services on the financial performance of commercial banks in Vietnam, focusing on return on assets (ROA) as a key performance indicator. The rapid advancement of digital technology, particularly in Internet finance and mobile banking, has significantly transformed the financial sector, prompting banks to adapt to evolving customer expectations and competitive pressures. Utilizing a Bayesian state-space model, we analyze panel data from Vietnamese joint-stock commercial banks over the period of 2017 to 2022, excluding 2021 due to data quality concerns. Our findings reveal that specific components of digital banking—namely Internet Banking for Branches and E-Banking Operations—positively and significantly enhance ROA. These results suggest that banks effectively leveraging these services can improve operational efficiency, profitability, and market competitiveness by offering fast, convenient, and reliable online banking solutions. In contrast, other digital banking components, such as website functionality and miscellaneous e-banking services, show no significant impact, highlighting the nuanced effects of digitalization on performance. The study's methodological innovation lies in its application of the Bayesian state-space model, which captures the dynamic, time-varying effects of online banking services, offering fresh insights into their evolving role in Vietnam’s banking sector. These findings underscore the importance of strategic investments in digital transformation for bank management, emphasizing operational enhancements over broad, unfocused digitalization efforts. For policymakers, the results advocate for supportive regulatory frameworks to foster sustainable digital banking growth. This research bridges a gap in the literature by examining an emerging market context, providing practical implications for bank managers aiming to optimize financial performance and policymakers seeking to bolster the digitalized financial industry. Future studies could explore additional performance metrics and cross-country comparisons to further validate and extend these insights.