THE EFFECT OF DIGITAL FINANCIAL INCLUSION ON BANKING SECTORS STABILITY IN ETHIOPIA

Abstract The study's main objective was to investigate the effect of digital financial inclusion on banking sectors in Ethiopia. The data were gathered from the World Bank database, IMF, and the National Bank of Ethiopia from 2014 to 2023 to ascertain the specified aim. The generalized method of moments (GMM) econometrics model was used to control the three sources of endogeneity problems. The result of the study shows that the lagged value of a Z-score significantly affects the financial stability of banking sectors. In addition, the main variable of the study is that digital financial inclusion has a substantial and positive impact on the banking sector's stability. Furthermore, the Loan Ratio, Capitalization, and Capital adequacy ratio significantly affect bank-specific variables. Finally, macroeconomic factors such as GDP Inflation, Interest, and Exchange rates also have significant effects. Therefore, to make the banking sector of Ethiopia more financially well-off, it is advisable to adopt the following strategic approaches; Digital financial access, betterment of key psychographic and tangible aspects of the bank, including Loan Ratio and Capital Adequacy and the necessity of paying attention toward external forces like GDP, inflation, interest, and exchange rates.