Digital transformation and banking competitiveness in MENA: A contingency perspective

Purpose This study aims to investigate the relationship between digital transformation and banks' competitiveness in the Middle East and North Africa (MENA) region. Design/methodology/approach We analyze 176 banks across 13 MENA countries from 2011 to 2022. Competitiveness is measured using the interest rate spread as a proxy for pricing power, while digital transformation is assessed via a multidimensional index compiled through textual analysis. A generalized method of moments system estimator is employed to address potential endogeneity concerns. Findings Results show that digital transformation reduces competitiveness (i.e. competitive intensity) in the MENA banking sector. However, heterogeneity analysis reveals substantial contextual variation: digital transformation strongly decreases competitiveness in Gulf Cooperation Council (GCC) countries but fails to reduce or even increases competitiveness in non-GCC nations. Conventional banks successfully reduce competitiveness through digital transformation, whereas Islamic banks experience increased competitive pressure (higher competitiveness). Additionally, the competitiveness-reducing effects observed pre-pandemic reversed during the COVID-19 period, when digital transformation increased competitive intensity. Finally, institutional ownership positively moderates the digital transformation-competitiveness relationship, weakening banks' ability to reduce competitive intensity and thereby maintaining more balanced market competition. Originality/value This is the first empirical investigation into the impact of digital transformation on banks' competitiveness in the MENA region. It identifies significant contextual heterogeneity, challenging traditional views of digital disruption and showing that results depend on geographic, institutional and temporal factors.