Publication Details
Abstract
This article empirically assesses the impact of digital transformation processes implemented in Uzbek commercial banks on financial stability, using data for the period 2014–2023. The principal aim of the study is to identify the long-run and short-run relationships between digitalisation and indicators of banking financial stability. Ten variables drawn from the World Bank's World Development Indicators database were employed. To combine four digital indicators (ATM density, internet penetration, mobile subscriptions and fixed-broadband subscriptions) into a single measure, a composite Digital Transformation Index (DTI) was constructed via Principal Component Analysis. The empirical analysis was carried out in Stata 17, applying the ADF unit-root test, Pearson correlation analysis, the ARDL Bounds Testing approach and an Error Correction Model (ECM). The results show that the DTI emerges as a single strong component explaining 93.5% of the total variance and rises by 5.95 standard units over the sample period. The robust regression reveals that digital transformation has a positive and statistically significant association with the non-performing loans ratio (β = +0.498, p = 0.021) a counter-intuitive finding relative to the international literature, which is interpreted through the rapid credit-expansion effect and the inverted-U stage-of-development hypothesis. At the same time, digital transformation is positively associated with the capital adequacy ratio (β = +0.748, p = 0.066). The error correction term ECT(−1) = −1.310 (p = 0.046) confirms the existence of a long-run cointegrating relationship. The study delivers practical recommendations for commercial banks and the Central Bank in the areas of digital credit-risk management and macroprudential policy.