Vietnam Banks Go Digital, but Profit Story Is More Complicated Than It Seems

Research from Vietnam suggests that the clearest financial connection appears in the cost of running the business, with a less dependable relationship between digital progress and higher profits.

A banking app can put payments, transfers, and account services into a customer's pocket, but what does that digital convenience mean for the bank's own performance? Research from Vietnam suggests that the clearest financial connection appears in the cost of running the business, with a less dependable relationship between digital progress and higher profits.

The study, 'Digital Transformation and Bank Performance in Vietnam: The Moderating Roles of State Ownership and Bank Size,' published in Economies, examines 28 Vietnamese commercial banks between 2012 and 2024. Researchers Yen Thi Hai Nguyen, Minh Hoang Le, and Hang Thi Thu Bui explored whether digital transformation was associated with stronger performance and whether a bank's ownership or size changed that relationship.

Their most consistent finding connects greater digital transformation with better operating cost efficiency, giving readers a more grounded picture of what banking technology can deliver.

Looking Beyond the Banking App

Digital transformation covers much more than introducing mobile banking or adding another online service. The researchers examined how technology appeared across a bank's strategy, internal systems, customer services, and everyday operations.

Their Digital Transformation Index drew on annual reports and official disclosures, covering four equally weighted areas: strategy and organisational resources; core technology and infrastructure; digital channels, products, and services; and process automation, data, and advanced technologies.

A score between zero and one reflected documented digital capabilities, with higher scores indicating more extensive adoption. The team looked for evidence of implementation rather than simply counting references to fashionable technology terms, and previously confirmed capabilities remained recognised unless evidence showed they had been discontinued or materially changed.

The dataset contained 364 bank-year observations, allowing the researchers to follow the same institutions across 13 years. Financial performance was assessed through return on assets, return on shareholders' equity, net interest margin, and the cost-to-income ratio.

The Clearest Connection Is Better Cost Efficiency

In the main statistical model, a 0.10 increase in the digital index was associated with a reduction of around 1.46 percentage points in this ratio. Against the sample's average ratio of 50%, that represents a meaningful difference in operating efficiency. The same increase in the index was associated with a rise of 0.066 percentage points in return on assets, compared with an average return of approximately 0.9%.

The profitability finding became less convincing under checks that accounted for persistent differences between banks and shocks affecting all banks in a given year. The relationship with return on assets was no longer statistically significant under those conditions; the connection with lower cost-to-income ratios remained.

Results for return on equity depended on the model used, including a positive association in an analysis using the previous year's digital score. Evidence connecting digital transformation with net interest margins was weak and inconclusive. Checks excluding the pandemic years of 2020 and 2021, unusual cost-to-income observations, and major merger events broadly reinforced the cost-efficiency finding.

Automated paperwork, simpler transaction processing, and better use of information offer plausible explanations for this pattern. The study did not directly test these mechanisms, and its findings establish associations rather than proof that technology caused the improvements.

Ownership and Size Do Not Guarantee Digital Success

The first analysis suggested that digital development had a weaker connection with some financial benefits in state-controlled banks, including profits earned from assets and operating cost efficiency. Further checks did not consistently support these differences, making it difficult to draw a firm conclusion.

The study included only four state-controlled banks, which limited the strength of the comparison. The most repeated finding involved return on assets, a measure of how much profit a bank earns from what it owns, but this evidence became less convincing after researchers adjusted their tests for the small group.

Larger banks showed more repeated signs of a stronger link between digital development and profits earned relative to shareholders' money, though the results depended on how researchers measured size and analysed the data. There was little reliable evidence that size changed the link between digital development and cost efficiency. The study could not identify a particular size at which digital investment becomes more beneficial.

Large banks may be able to spread technology costs across more customers and transactions, and smaller banks may find it easier to change how they work. The researchers offered these as possible explanations without directly testing them. In the main analysis, larger banks and banks with stronger capital backing generally performed better. Banks with more loans that borrowers were struggling to repay tended to have lower profits and weaker cost efficiency.

What Banks Can Learn, and What Remains Uncertain

The authors recommend pairing technology investment with staff development, redesigned workflows, stronger data governance, cybersecurity, and better decision-making. Banks with fewer resources could consider partnerships with technology providers, shared infrastructure, and systems that can expand with their needs.

Their policy recommendations include stronger frameworks for digital identification, data protection, cybersecurity, and connections between banking systems. Support should reflect an institution's technological readiness and organisational capabilities, since ownership and size alone did not reliably explain its digital outcomes.

Official reports can reflect how well a bank communicates its activities as much as how effectively it implements them. Repeated reviews of the digital scores did not include a formal independent assessment of agreement between coders, and the researchers did not test a separately constructed alternative to their cumulative index.