Digital Transformation in Financial Services
Open access
Peer reviewed
Abstract
Abstract
This study examines the relationship between artificial intelligence (AI) adoption, banking profitability, and ICT-related cyber risk across 28 European countries. These countries are selected because of persistent profitability pressures in the banking sector, rising digital transformation costs, and increasing exposure to cyber threats within a context of uneven digital maturity and cyber resilience. Using a recent cross-sectional dataset covering the EU-27 and Norway, we investigate the risk–return implications of AI adoption. Cloud computing is considered both as a key digital infrastructure and as a moderating factor in the relationship between AI adoption, return on equity (ROE), and cyber risk. Methodologically, the study employs a cross-sectional quantitative design combining Hierarchical Cluster Analysis and Bayesian Model Averaging (BMA) to address heterogeneity and model uncertainty. These issues are particularly relevant given substantial differences across countries in digital maturity, institutional capacity, and risk exposure. The empirical analysis is conducted using R version 4.2.2. Our results reveal a strong association between AI adoption and cloud computing. AI adoption is negatively associated with ROE, suggesting that implementation costs, organizational adjustment, and learning frictions may precede profitability gains. In contrast, cloud computing is positively associated with ICT-related cyber risk and strengthens the positive relationship between AI adoption and cyber risk, highlighting a trade-off between digital capability and operational vulnerability. Overall, the study contributes to the AI–finance literature by integrating profitability and cyber-risk perspectives within a digital complementarity framework. The results indicate that the outcomes of AI adoption depend on digital infrastructure, institutional readiness, and cyber resilience, with implications for balanced digital transformation and financial stability.
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@article{Iuga2026cloud,
title = {AI and cloud adoption in European banking: Country-level evidence on the profitability-cyber risk trade-off},
author = {Iulia Cristina Iuga and Syeda Rabab JAFRI},
journal = {International Review of Economics & Finance},
year = {2026},
doi = {10.1016/j.iref.2026.105933},
url = {https://doi.org/10.1016/j.iref.2026.105933}
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