Financial Inclusion, Fintech, and Banking Stability in Asia and Pacific Economies

This paper examines the interplay between financial inclusion and FinTech in shaping banking stability, with a focus on Asia Pacific Economies. Using an unbalanced panel from 21 countries from 2000 to 2021, we find that financial inclusion enhances banking stability in the region. However, we find that FinTech adoption affects banking stability adversely perhaps due to regulatory gaps which might be associated with possible rapid expansion of credits. Furthermore, we find that FinTech is likely to moderate the stabilizing effects of financial inclusion, potentially over-leveraging and borrower repayment risks. In addition to these main variables, the paper also finds that variables like regulatory practices, foreign ownership in the banking sector, and monetary policy also play significant roles in influencing banking sector stability in the region. Finally, we find that operational efficiency and risk management emerge as critical channels through which financial inclusion and FinTech impact stability. These findings highlight the empirical relevance of FinTech adoption for policy makers in Asia Pacific while formulating plans to enhance banking sector stability.