Financial Access and Its Socioeconomic Dilemmas: Assessing the Impact on Bank Performance

The financial access may provide opportunities and threats to banking institutions. The paradigm shift from physical financial access to digital access can create trouble because senior citizens hesitate to use online transactions and prefer cash and offline services from banks due to concerns about privacy and security. Fears regarding digital technology may pose challenges for both bankers and customers. Banks must engage in online and offline operations to meet the needs of older and younger clientele. Additionally, older clients and small enterprises may favor sustaining relationships with banking personnel. Consequently, substantial investments in digital technology and the upkeep of offline and online operations may present socioeconomic challenges for banks. Moreover, financial access is crucial for enhancing the performance of banks. This study aims to examine the influence of financial access proxies on the performance of banks in Asian countries, motivated by previous empirical findings that present conflicting results. This study used an unbalanced panel dataset of 25 Asian countries covering 2004-2021. Using ordinary least squares, fixed effects, and random effects estimators, the findings revealed that the expansion of bank branches favorably and significantly affects banks' profitability in Asian countries. This finding supported the first hypothesis, which stated that extending bank branches favorably affects bank performance in Asian countries. Similarly, ATMs favorably and significantly affect bank performance in Asian countries, which supports the second hypothesis, stating that extending ATM facilities favorably affects bank performance in Asian countries. Bank diversification adversely and significantly affects bank performance in Asian countries. The efficiency measure, the cost-to-income ratio, negatively affects the ROA and ROE profitability measures. Similarly, the capital ratio negatively affects banks' performance. This is because holding a higher capital level increases the cost of funds and limits bank lending capacity, leading to lower profitability. Liquidity positively and significantly affects bank performance. This is because the bank's higher level of liquidity can fulfill customer loans and deposit withdrawal demands and minimize liquidity risk. Finally, financial development positively affects banks' profitability in Asian countries. Adopting new technology, favorable regulatory changes, and developing infrastructure for reliable information collection can reduce transaction costs, effectively delivering financial services to diverse populations and promoting financial access.