Impact of digital transformation on financial performance of retail banking: Evidence from the Joint Stock Commercial Bank for Investment and Development of Vietnam

This paper examines the impact of digital transformation on the financial performance of retail banking at the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) over the period from 2012Q1 to 2025Q2. Given the time-series properties of the data, the study employs the Autoregressive Distributed Lag (ARDL) model in conjunction with the Error Correction Model (ECM) to assess both short-run and long-run effects of digital transformation. The empirical results indicate that digital transformation exhibits a robust long-run relationship with cost efficiency (proxied by CIR). In addition, digital transformation effects on profitability indicators (ROA and ROE) significantly during the Covid-19 pandemic because banks have strong motives to digitalize. These results suggest that the financial benefits of digital transformation at BIDV are primarily realized through cost optimization, whereas improvements in profitability require a longer time horizon and a higher level of digital maturity. Based on these findings, the paper provides managerial implications emphasizing a digitization-for-efficiency approach, highlighting the importance of process optimization, data-driven governance, and channel restructuring to enhance the financial performance of retail banking.