Productivity growth and technology adoption in banking sector of Thailand

Name: Saowalak Thonglim

keyword: Technology adoption

; Performance

; Productivity growth

; Malmquist index

; Data envelopment analysis

; Bank

Abstract: In recent years, the banking sector in Thailand has significantly advanced in technology adoption, leading to fundamental changes in traditional banking practices. This study assessed the profound influence of technology adoption on the performance of banks operating in Thailand from 2004 to 2019. The time frame covers a critical technology adoption path in the banking sector, following three Financial Sector Master Plan (FSMP) phases. Empirical analysis was done in two stages: 1) Malmquist productivity index (MPI) which was calculated by output-oriented data envelopment analysis (DEA) model was employed to measure performance or total factor productivity (TFP) change of seven banks. The TFP change can be decomposed into the product of technological change (TC) and technical efficiency change (TEC) ; and 2) the fixed effects regression model was performed to verify the performance impact of technology adoption while accounting for relevant bank-specific and country‐specific characteristics in the second stage. First stage results revealed that overall, the Thai banking sector experienced an increase in TFP growth at the rate of less than 1%. Technological advancement was the key driver of the TFP growth, suggesting that there is still substantial room for potential productivity improvements through enhanced efficiency and technological capabilities. In the comparative analysis, Kasikornbank PCL (KBANK), Bank of Ayudhya PCL (BAY), Siam Commercial Bank (SCB) and small banks increased overall productivity, unlike Bangkok Bank (BBL), Krungthai Bank PCL (KTB), and Thai Military Bank PCL (TMB). KBANK progressed the most in overall productivity. The major spur to progress was technological development and efficiency improvement. The lesson learned from this result was that to promote productivity growth, all commercial banks in Thailand should strike a right balance between stimulating technology adoption and increasing technical efficiency. The fixed effects model estimation confirmed the robustness of the results from the first stage. These findings highlight the significant influence of technology adoption on bank performance. Banks that have effectively embraced technologies, specifically digital technologies, in operations during the FSMP phase III boosted performance significantly. This reaffirms the importance of technological advancements in driving productivity gains in the banking industry. Among other important factors, the findings indicate that efficiency of intermediation process had a positive significant effect on bank performance. On the other hand, deposit mobilization and the joint impact between political uncertainty and the volatility of economic growth had a negative significant effect on bank performance. While credit risk and management quality did not seem to be factors influencing bank performance. The empirical evidence of this study has practical implications for policymakers and banks in Thailand. Banks can leverage the insights to develop effective technology adoption strategies and enhance operational efficiency, ultimately leading to improved performance. Policymakers can design supportive frameworks and regulations to encourage banks to embrace technology and foster a favorable environment for innovation

Thammasat University. Thammasat University Library

Address: BANGKOK

Email: preserv@tu.ac.th

Name: Supawat Rungsuriyawiboon

Role: advisor

Created: 2022

Modified: 2024-01-24

Issued: 2024-01-24

วิทยานิพนธ์/Thesis

application/pdf

DOI: 10.14457/TU.the.2022.1141

eng

DegreeName: Master of Economics

Level: Master's Degree

Descipline: Economics

Grantor: Thammasat University

©copyrights Thammasat University

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