Digital Payments And Banking Stability In Pakistan.

ABSTRACT

Digital payment system is the future of transactions of the world. This research investigates the impact of digital transactions on the stability of the banking sector in Pakistan. Banking stability, a critical component of financial wellbeing, is measured using the Z-score, while the independent variables include digital transactions, GDP growth rate, inflation, liquidity, non-performing loans (NPL), capital adequacy ratio (CAR), and COVID-19 as a dummy variable. Employing panel data analysis with fixed and random effects models, this study analyzes the data from 22 banks over the period of 11 years from 2012 to 2022.

The results suggest that digital transactions, including e-banking, internet banking, mobile phone banking, and e-commerce, have a substantial positive impact on banking stability. More precisely, the regression analysis indicates that there is a positive correlation between increasing digital transactions and better Z-scores, which indicates enhanced stability. Macroeconomic variables such as the increase of Gross Domestic Product (GDP) and the availability of liquid assets have a positive influence on the stability of the banking sector, whilst inflation and non-performing loans (NPLs) have a negative impact on it. Furthermore, the Capital Adequacy Ratio (CAR) and the COVID-19 dummy variable exhibit notable and beneficial impacts on the stability of the banking sector.

These findings emphasize the vital importance of digital financial inclusion in enhancing the banking system. Digital transactions enhance the strength of banks by making it easier for people to access financial services and improving the efficiency of their operations. The study recommends that policymakers and regulatory organizations in Pakistan should actively encourage the adoption of digital financial technologies and provide legal frameworks that facilitate their implementation in order to fully utilize their advantages.

Meta Data

Author: Syed Afaq Ali Shah
Supervisor: Ahmed Fraz
Keywords : Banking stability, Cashless transfers, Digital transactions, Mobile payments
Internal Examiner: Farhat Mahmood
External Examiner: Sumayya Fatima Chughtai

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