The Impact of Digital Finance on the Profitability of Commercial Banks: Based on the EVA Methodology

Confronted with the imperative of interest rate liberalization reforms and intensified rivalry from third-party financial service providers, the traditional profit margins of commercial banks are experiencing significant compression, translating into a dwindling net interest income. Consequently, leveraging digital finance as a catalyst for self-innovation has emerged as a paramount strategy for these banks to stay afloat and thrive. By doing so, they can mitigate the pressure on profitability and explore new avenues for growth amidst a dynamic financial landscape. To empirically assess the impact of digital finance on commercial banks’ profitability, this study analyzed 34 banks from 2011 to 2021. It built a mediation effect framework and conducted heterogeneity analysis to study the various types of banks. The results indicated that although the profitability of some banks has decreased year by year, most of them were able to maintain their profitability. Second, the profitability of commercial banks was found to be positively impacted by digital finance, albeit somewhat, when the fixed year effect was taken into account. Third, Digital finance can slightly improve the profitability of commercial banks by enhancing their level of digital transformation, and non interest income completely mitigates the effect of digital finance on commercial banks’ profitability. Fourth, Digital finance has a comparatively positive impact on international and urban commercial banks’ profits. This article offers suggestion aimed at expanding commercial banks’ use of digital finance based on findings from empirical research.