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The financial sector's resilience is associated with greater prosperity and a better average income. Banks have evolved their business model and diversified their sources of income, and bank digitalization has become one of the prominent strategies. The purpose of this study is to examine how bank service expansion represented by revenue diversification activities and digital strategy will enhance bank stability in ASEAN countries from 2010 to 2021.

This study uses information from the Datastream database and banks’ annual reports to measure bank stability, diversification and market power, which also provide information for bank digital strategy. This study uses the two-step system generalized method of moments to investigate the effect of diversification and digitalization on bank stability in ASEAN.

The results of this study show that bank revenue diversification has no effect on bank stability, and the presence of the chief digital officer and digital disclosure improves banks’ stability. However, alliance strategy with financial technology companies does not significantly impact bank stability and might increase bank risk.

The findings of this study provide relevant policy implications: the regulation should support bank business to diversify the source of income; regulators and policymakers should regulate and enhance the Information and Communication Technology infrastructure; and banks should design their strategy comprehensively.

This study provides new evidence of the essential role of digital strategy in enhancing bank stability in ASEAN. In addition, this study also shows how banks diversify their business in a competitive environment.

After the global financial crisis, many countries deregulated their banking sectors. The banking sector has become the major funding supplier in most emerging countries. Bank in Indonesia has provided an essential role as an intermediary institution in matching up surplus and deficit parties with a relatively concentrated market structure. Moreover, banks should innovate and diversify to provide excellent products and services to their customers and win the market. More diversified banks are expected to have better performance and more resilience, especially during a crisis. This study examines the relationship among bank market power, diversification, and bank stability of listed bank companies in Indonesia from 2008 to 2020. This study employs a two-step system GMM to deal with potential endogeneity. This study finds that banks’ market power and diversification affect bank stability, and the presence of crisis encourages banks to be more prudent. The result of this study provides insightful implications for academics and policy-makers.