FinTech Disruption and Credit Risk: How Digital Finance Shapes Bank Stability in a Growing Economy

Abstract

This research investigates the determinants of credit risk in the banking sector of Pakistan with a special emphasis on the contribution of financial technology (FinTech). Based on panel data from 14 commercial banks for the period 2013–2023, the analysis includes bank-specific variables and macroeconomic variables, supplemented by a FinTech index. Based on asymmetric information theory, the research investigates the ways in which technological innovation minimizes information asymmetry and remodels credit risk. The findings establish that loan loss provisions sharply raise credit risk, validating their status as symptoms of declining asset quality. Profitability, capitalization, economic expansion, and FinTech penetration have statistically significant impacts in line with theoretical predictions, marking their role in better credit risk management. Bank size, however, proves to be insignificant, indicating Pakistani large-scale institutions are not necessarily more resilient. The results reinforce the significance of provisioning habits and deeper FinTech integration in enhancing banking stability.

Keywords: Credit Risk, FinTech, Bank Capitalization, Economic Growth