Publication Details
Abstract
This study examines the long-run and short-run effects of digital transformation on the competitiveness of commercial banks in Uzbekistan over the period 2004-2021. Digital transformation is operationalised through a composite Digital Transformation Index (DTI) constructed by principal component analysis from three World Bank indicators - individuals using the internet, mobile cellular subscriptions, and fixed broadband subscriptions - the first component of which captures 86.6% of total variance. Bank competitiveness is proxied primarily by the cost-to-income ratio, an inverse measure of operational efficiency, with the net interest margin and return on assets used as alternative measures. Because the series display a mixture of I(0) and I(1) integration orders, the autoregressive distributed lag (ARDL) bounds-testing approach of Pesaran, Shin and Smith is employed. The bounds F-test confirms a statistically significant long-run (cointegrating) relationship. The estimated long-run coefficient indicates that digital transformation significantly reduces the cost-to-income ratio, thereby enhancing bank competitiveness, while the error-correction term is negative and significant, implying a rapid return to equilibrium after short-run shocks. Robustness checks across alternative competitiveness proxies show that digitalisation also narrows the net interest margin (intensifying competition) but has no statistically significant direct effect on return on assets, suggesting that efficiency gains are largely passed through to bank customers. The findings are robust to alternative lag structures and the model is structurally stable (CUSUM and CUSUMSQ). The results support the continuation of Uzbekistan's banking digitalisation agenda as a lever for a more efficient and competitive banking sector.