This paper aims to investigate how digital financial inclusion (DFI) can be a potential factor to maintain banking stability in Association of Southeast Asian Nations (ASEAN) countries and whether the relationship could bring a possible implication for the post-Covid-19 pandemic era.
Using an unbalanced panel data of 213 banks of 4 ASEAN countries, the study has deployed principal component analysis, ordinary least square, two-step dynamic system generalised method of moments and panel corrected standard errors techniques.
The empirical study finds that the full-fledged application of DFI accelerates the ASEAN banking stability which not only decreases the default risk of the banks but also upturns the financial mobility in the region. The results also suggest that ASEAN banks are, with the implementation of DFI, likely to uphold the banking sector stability by reducing liquidity crisis and non-performing loans during and in the post-Covid-19 era. Therefore, accelerating digital finance in ASEAN countries is considered as one of the significant means for the banking sector stability that subsequently leads to economic and financial resilience even in the face of any crises.
Prevailing studies have mostly investigated the association between financial inclusion and banking stability in different contexts. However, this study is unique to empirically investigate the association between DFI and the ASEAN banking stability.
