Profitability and Bank De-Branching in the Digital Age: Evidence From Russian Regions

Abstract

This study examines the relationship between bank de-branching and profitability in Russian regions depending on the region's internet infrastructure development and financial digital literacy. Using data from 84 Russian regions from 2010 to 2020 and panel data analysis techniques, we test whether the adequacy of internet infrastructure for online banking and financial digital literacy are positively related to bank de-branching and whether they add to bank de-branching efficiency in terms of bank profitability. We show that a higher degree of the region's internet infrastructure development and higher levels of financial digital literacy are positively related to bank de-branching. We observe that banks closing their branches in regions exhibiting higher levels of internet development and financial digital literacy gain more profit from de-branching. This study adds to the literature by being the first to examine whether financial digital literacy and the development of internet technologies enhance the positive effect of bank de-branching on bank profitability.