Domestic Debt Exchange Program Impact on Financial Sector Performance in a Digital Technology Era

Governments economic recovery policy such as domestic debt exchange program (DDEP) significantly influences the patronage of digital financial products, and services in developing economies. This often led to a weakening of financial institutions ' capital and overall performance. Using dual analysis, this study applies both qualitative and quantitative approaches to analyze the impacts of DDEP through the Lense of digital financial technology applications by financial institutions and conducted both regression and data envelopment analysis. Using the smartPLS model, paths were created to identify and analyze key impacting factors. A bootstrapping of 333 samples was carried out using selected financial institutions in a DDE implemented economy, weighing each case, where t = 1.96 significant value was taken and a p-value <0.05 was also considered to be statistically significant. The study assumed that an efficient DEA is achieved if the DMUO has an ideal solution of µ*, v* in model two and µ* > 0 and v* > 0 and includes a Ɵ*, ƛ*, ƛ* ideal solution. The study found that DDEP can have 15 negative impacts on financial institutions' performance. Also, most financial institutions were found to be inefficient in applying technology to mitigate the negative effects DDEP. Further, despite the introduction of advanced technology financial, the study results showed that nonperforming loans increased between 25% to 35% within twelve months of introducing the DDE, meaning financial institutions are unable to collect both principal and interest on loans by capitalizing technology on during the DDE program. Also, the sector collectively can suffer a sharp increase in impairment loss on financial assets by over 92% during DDE program. In addition, DDEP can caused between 48.5% to 5.68% sharp decline to return on assets.