INFORMATION TECHNOLOGY: AN OPPORTUNITY FOR THE FINANCIAL STABILITY OF TUNISIAN BANKS IN TIMES OF CRISIS

Abstract

As the financial industry becomes more and more reliant on Information Technology (IT), it is extremely policy-relevant to understand the consequences for financial stability of a more intense use of technology in lending decisions. This study examines the impact of IT investment, and its components, on Tunisian bank stability for the period 2008 to 2018 using the Generalized Method of Moments estimates in first difference and in system of the dynamic model, before, during and after Revolution crisis. The study findings reveal that IT investment has a significant positive relationship with bank stability and a negative relationship with non-performing loans (NPLs). The evidence presented in this paper suggests that investing in IT is likely to be beneficial to financial stability. Therefore, our results indicate that IT-adoption helps banks to select better borrowers and produce more resilient loans. Banks that adopted more IT before the crisis have a significantly lower share of NPLs post-crisis than banks with less IT adoption. Our study further demonstrates that Tunisian banks should devote the largest share of their resources to investing in software and services because by combining such investments with investments in hardware, banks will be less affected by a possible increase of NPLs during and after crisis, and then improve their financial stability.