Banking efficiency in light of digital transformations – a case study of a sample of banks listed on the Iraq Stock Exchange

Abstract

This research aims to measure and analyze the "banking efficiency" of three Iraqi banks (Al-Ahli, Al-Tanmiya, and Ashur) for the year 2024 in light of "digital transformation." The research utilized modern financial analysis tools such as return on equity (ROE) and economic value added (EVA). The research concluded that there is a strong positive correlation between investment in technology and financial efficiency. Banks with high digital density achieved positive EVA, while traditional banks were unable to cover their cost of capital, resulting in negative EVA despite achieving accounting profits. The global banking sector is undergoing a radical transformation towards digitalization as a result of the Fourth Industrial Revolution. This transformation is no longer a luxury but a strategic necessity for the survival of banks in Iraq. Banks have responded to this transformation in diverse ways.

The research problem can be summarized in the following fundamental question: "To what extent do digital transformations contribute to improving the actual efficiency of Iraqi banks?" Several sub-problems arise from this question, the most important of which are: Why do some banks achieve accounting profits without creating added value for their shareholders? What is the impact of changes in the level of investment in machinery, equipment, and technology on the return on equity?

The concept of efficiency is historically attributed to the Italian economist Vilfredo Pareto, who formulated the formula known as "Pareto optimum." According to him, any allocation of resources is either efficient or inefficient, and any inefficient allocation reflects inefficiency. This concept applies to studying efficiency at the consumer, producer, or overall economic level. The process of distributing goods to consumers is considered optimal according to Pareto if...