Digital Transformation and Bank Business Strategies

This paper examines how digital transformation influences banks’ diversification strategies using data from Vietnamese commercial banks. Results indicate that digital transformation enhances diversification in assets, funding and revenue but negatively affects loan portfolio diversification, suggesting that better-digitalized banks may concentrate their lending activities in fewer sectors. We further find that larger banks gain more from digital transformation in diversifying assets, funding and revenues, while smaller banks experience a stronger reduction in loan portfolio diversification. Additionally, the effects of digital transformation are heightened under competitive banking environments and during the COVID-19 pandemic.