The impact of digitalization on credit risk: the mediating role of financial inclusion (National Bank of Egypt (NBE) case study)

Abstract

This article investigates potential direct and indirect impact of National Bank of Egypt (NBE) digitalization and its financial inclusion on credit risk. The methodology used in the study is an empirical technique through the collection of secondary data from the period between 2011 and 2021 in the Egyptian banking sector. To accomplish this, the study developed two hypotheses employing the empirical SEM model for testing whether there is a positive or negative impact for three chosen variables: digitalization, credit risk and financial inclusion. The investigational outcome shows that NBE digitalization has both direct and indirect impact through the mediator variable, financial inclusion. It also provides an understanding of the relationship between digitalization, credit and financial inclusion. The article proposes for future studies the impact of other Fintech factors directly and indirectly using the mediators on credit risk. The authors came up with many findings: first, financial inclusion indices can be built using portable money and banking services activities. Second, digitalization has a negative direct impact on credit risk. Also, digitalization has a positive indirect impact on credit risk through the mediator variable which is referred to as financial inclusion. Third, the model fit is adequate for the data being tested.