The Impact of Technology Adoption on the Operational Efficiency of Commercial Banks in Southeast European Countries
The Impact of Technology Adoption on the Operational Efficiency of Commercial Banks in Southeast European Countries

Summary/Abstract: This research investigated the impact of investments in physical banking facilities, specifically the quantity of automated teller machines (ATMs) and branch locations, on the operational effectiveness of commercial banks in 14 Southeast European countries. By employing various analytical techniques such as panel methods (both fixed and random effects), dynamic panel estimation (Arellano-Bond), and population-averaged estimation generalized estimating equation (GEE), it is discovered that on average, an increase in the number of ATMs and branches correlated with a reduction in Bank Net Interest Margin (BankNIMRatio). Specifically, models that account for the overall population indicated that each additional ATM corresponded to a decrease of approximately 0.0945 percentage point in NIM, while each extra branch was linked to a decrease of around 0.1332 percentage point. The results from the Arellano-Bond method lost their statistical significance when dynamic factors were taken into account, implying that some of the observed cross-sectional relationships were influenced by historical performance and persistence. The originality of this study stemmed from (1) its focus on Southeast Europe, a diverse region that is rapidly embracing digital technologies while still maintaining significant traditional branch networks; and (2) its use of multiple complementary econometric techniques to distinguish between immediate and dynamic relationships. The findings suggested important policy considerations, such as emphasizing digital channels in situations where cost-benefit evaluations predicted diminishing returns from additional physical assets, and establishing branches strategically in response to local market dynamics and characteristics of individual banks.

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