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Does Cybersecurity Influence the Impact of AI on Bank Risk-Taking? Evidence from Dual-Banking Countries

Author

Listed:
  • Hasanul Banna

    (Manchester Metropolitan University, United Kingdom and Miyan Research Institute, International University of Business Agriculture and Technology, Bangladesh)

  • Masagus M. Ridhwan

    (Bank Indonesia Institute, Bank Indonesia, Jakarta, Indonesia and Perbanas Institute, Jakarta, Indonesia)

  • Rudy Marhastari

    (Bank Indonesia Institute, Bank Indonesia, Jakarta, Indonesia and Perbanas Institute, Jakarta, Indonesia)

Abstract

Using 5,806 bank–year observations from 17 Asian and African economies over the years 2012–2022, we examine how artificial intelligence (AI) adoption influences bank risk-taking and whether cybersecurity capacity moderates this relationship. We find that AI intensity is associated with higher risk-taking at prevailing adoption levels. We also note that their relationship is concave, suggesting a shift from “risk-ramping†during early deployment to “discipline†as model governance and monitoring mature. We also find that stronger cybersecurity attenuates AI’s marginal risk effect. Heterogeneity is evident: conventional banks exhibit higher turning points, reflecting a longer risk ramp, whereas Islamic banks peak earlier, consistent with stricter governance structures and more risk-averse practices. Results are robust in various sensitivity analyses. The findings suggest that AI scaling in banking requires synchronized advancement in cybersecurity and a model-risk management framework, aligned with evolving supervisory doctrine on digital resilience and AI governance.

Suggested Citation

  • Hasanul Banna & Masagus M. Ridhwan & Rudy Marhastari, 2026. "Does Cybersecurity Influence the Impact of AI on Bank Risk-Taking? Evidence from Dual-Banking Countries," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 12(2), pages 303-326, June.
    • Handle: RePEc:idn:jimfjn:v:12:y:2026:i:2d:p:303-326
    DOI: https://doi.org/10.21098/jimf.v12i2.3476
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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