Operationalizing Digital Banking Adoption for Global Standard Operational Excellence in the Private Commercial Banking Sector of Bangladesh: Evidence from Panel Econometrics, 2015 to 2024

This study investigates the causal relationship between digital banking adoption and operational performance across Bangladesh's private commercial banking sector, employing a balanced panel dataset of 35 private commercial banks over the period 2015 to 2024. Drawing exclusively on publicly disclosed financial statements, Bangladesh Bank regulatory publications, and World Bank macroeconomic databases, I construct a composite Digital Banking Index that integrates mobile financial service penetration, agent banking outreach, internet banking user density, and digital transaction intensity into a single, principal component weighted indicator. The primary estimation framework deploys fixed effects panel regression, random effects estimation, and a two-step system Generalized Method of Moments specification to address endogeneity arising from the simultaneity between digital investment decisions and bank profitability outcomes. The dependent variable is Return on Assets, complemented by subsidiary estimation using Return on Equity and the Cost to Income Ratio as operational efficiency proxies. Empirical results robustly establish that a one standard deviation increase in the Digital Banking Index is associated with a statistically significant 0.114 to 0.161 percentage point increase in Return on Assets, with the system GMM specification yielding the largest and most credible magnitude after instrumenting for endogeneity. Critically, I document a compounding interaction between elevated non-performing loan ratios, which reached 7.28 percent for private commercial banks by March 2024, and digital adoption inefficacy: banks exhibiting simultaneously high non-performing loan ratios and low Digital Banking Index scores demonstrate Return on Assets values approximately 1.4 standard deviations below the sector median. The analysis identifies systemic fragmentation of core banking infrastructure, regulatory arbitrage by mobile financial service providers, and inadequate cybersecurity governance as the primary structural impediments to digital transformation across the decade under study. Policy recommendations center on mandatory open banking interoperability through the Binimoy Interoperable Digital Transaction Platform, artificial intelligence driven alternative credit scoring for the underserved micro, small and medium enterprise segment, and alignment with Bangladesh Bank's Risk Based Supervision framework effective January 2026. The findings carry substantial implications for financial regulators and bank strategists in comparable emerging market economies confronting the dual challenge of digital modernization under conditions of financial system stress. JEL Classification: G21, G28, O16, O33, C23, C26