[Podcast] Information Communication Technology and Stability of the Banking System
20 August, 2024
Keywords: Information and communication technology, banking stability, banking performance
The stability of the banking system has been a topic of interest to researchers, managers, and policymakers over the past years. However, the question of how the accelerating trend of information and communication technology competition affects the stability of the banking and finance industry remains unclear. The study by the research group from the University of Economics Ho Chi Minh City (UEH) investigated the role of investment in information and communication technology on the stability of the Vietnamese banking system.

Evaluating the impact of ICT investment on the stability of banks being extremely urgent
The stability of banks is an important issue concerning many researchers, managers, and policy strategists over the years. There are many reasons for the instability of banks listed as management and capital, account status, diversification and centralization, and inefficiency in operations. However, the development trend of information communication technology (ICT) companies on the stability of banks has not received much attention. This correlation is meaningful since banking is the industry with the largest IT investment in the world.
ICT investment is an important decision for banks because it is commonly costly and can affect banking strategy. Previous studies have shown that banks spending more on ICT can boost operations and reduce costs. In addition, with the potential development of financial technology companies (Fintech), banks are forced to spend more to update IT applications. New technologies can continuously improve service efficiency, meeting customer experience to retain them. Banks around the world have significantly increased their ICT innovation budget spending since the COVID-19 pandemic. Moreover, ICT investment costs are often very large, however, it is not certain that they will bring stable profits. Therefore, assessing the performance of ICT investment on the stability of banks is increasingly important and urgent. Surprisingly, studies on the relationship between IT investment spending and bank stability are still limited (within the scope of literature that the authors can access). The lack of empirical evidence on IT investment and bank stability is an important motivation for this study.
The current situation of ICT investment in the Vietnamese banking system
The authors chose Vietnam as the research setting for several reasons. First, compared to descriptive and experimental studies on developed economies, the studies on this issue focusing on emerging Asian countries are relatively limited. Second, Vietnam is considered one of the potential markets for digital banking with many favorable factors (listed as its emerging economy, young population compared to the region, high Internet growth rate, potential for cashless payment, and large retail banks). In 2019, the State Bank of Vietnam signed Decision 2655/QD-NHNN approving the strategy for Information Technology Development of Vietnam’s Banking Industry to 2030. Therefore, Vietnamese banks are paying attention to updating basic ICT, especially the number of banks. Therefore, exploring the relationship between ICT spending and bank stability is becoming increasingly important in this emerging country.
Data was collected from audited financial statements of 25 Vietnamese commercial banks from 2010 to 2020. The sample of these 25 banks manifests approximately 90% of the market share of the entire Vietnamese financial system.
The study found evidence that technology investment activities increase the stability of Vietnamese banks. The authors also found that the impact of technology startups on bank stability is inconsistent, based on bank characteristics, listed as bank size, profitability, and stability measures.
The authors’ conclusions are meaningful to the entire banking industry in Vietnam in the face of the negative impacts of ICT activities and to bank managers in making decisions on investing resources in ICT appropriate to their own scale as well as proposing future ICT investment strategies.
Policy implications for Vietnamese banks
Given the analysis results, the authors propose several policy implications for Vietnamese banks as follows:
First, the study found a positive correlation between bank stability and technology investment for large banks. Technology investment activities that improve bank products and services will increase bank stability. Technology investment brings more value to the bank brand and more convenience to customers. In other words, these activities increase the number of potential loyal customers and customer information measurement is also more transparent.
Second, small and medium-sized banks may be more affected by Fintech companies and may face pressure on high-risk management costs. Therefore, to minimize the negative impact of fierce competition from Fintech companies, these banks need to pay more attention to diversifying income sources through multiple channels, simplifying business processes to optimize organizational structure and improving adaptability to changes. Commercial banks need to promote technology investment activities with reasonable investment costs according to the scale or situation of each bank.
Third, although the level of technology investment negatively affects the stability of small and medium-sized banks, the active cooperation between banks and Fintech companies is very important in the current competitive trend. Therefore, the Government needs to issue regulations regulating bank-fintech cooperation activities to stabilize national finance and ensure the safety of the financial market.
The full-text research article on Information Communication Technology and the Stability of the Vietnamese Banking System can be accessed on the UEH website.
Author: Dr. Pham Khanh Duy – University of Economics Ho Chi Minh City (UEH).
This article is part of the research series spreading applied knowledge from UEH with the message “Research Contribution For All – Research for the Community”, UEH cordially invites readers to read the next UEH Research Insights issue.
News, photos: Author, Department of UEH Marketing and Communication

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