3.2. Description of variables in research models.
3.2.1. Dependent variables and independent variables.
Based on the main activities of commercial banks in Vietnam, the thesis chooses to study the types of diversification corresponding to banking activities, specifically, for mobilized capital, the diversification of bank deposits is studied; for credit granting activities, the diversification of bank credit is studied; for the efficiency of the debt-equity structure, the diversification of bank assets is studied; and finally, for the income structure, which is an important issue that is always of interest to bank managers, the diversification of bank income is studied. This is the reason why the thesis chooses the dependent variables for the study.
In addition, to evaluate the overall and accurately reflect the nature of the variables of business performance and risk, the thesis measures these two variables using financial ratios and technical production functions drawn from the input and output factors of the bank, specifically measuring business performance using return on total assets (ROA) and inefficiency (Inef); measuring risk using DPTD risk (Loa_loss) and KHQODD risk (Sta_inef).
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Diversify deposits, credits, assets, income (Foc_depo, Foc_loan, Foc_asse, Div_inco).
As presented in chapter 2, there are many ways to measure diversification such as according to Acharya et al. (2006) measured by the level of concentration through the Hirschman Herfindahl Index (HHI), then used by Berger et al. (2010) to measure the diversification of deposits, credit, assets, and geography when studying Chinese banks. In addition, the study of Saghi-Zedek (2016) measured diversification by the concentration index CFRConcentration or the study of Stiroh (2004) based on Herfindahl combined with the study of Thomas (2002), Morgan and Samolyk (2003) proposed a way to measure income diversification. Or the study of Brighi and Venturelli (2014) proposed a way to measure diversification by the sum of squares of the components. With many ways to measure diversification, the author believes that the method of measuring diversification using the HHI concentration index of Berger et al. (2010) is most suitable when applying diversification research in Vietnam, so the diversification of deposits, credit, and assets in the research models (1), (2), (3), (4), (5) is measured using the HHI index.
According to Berger et al. (2010); Acharya et al. (2006), these authors have approached
technical
Measure deposit , asset , and liability dynamics using concentration index
focus
index) , called HHI. This index represents the ratio of the sum of the square roots of each city .
part in each type of DDH. The formula is
show
as follows:
𝐹𝑜𝑐 = ∑ 𝑛 (𝑄 𝑖 ) 2 , where : 𝑄 = ∑ 𝑛 𝑄
𝑖=1 𝑄
𝑖=1 𝑖
Foc: concentration index (opposite meaning to DDH); Q: sum of n components of
each type of DDH; Q i : components of each type of DDH. Depending on the case of each type
The DDH will have separate components .
Q i . Due to
data collection
of commercial banks, all members
part of each type of DDH is
choose
filter
to suit
with data
belong to
Viet
South and based on real research
serious
before Berger and
ctg (2010); Acharya et al. (2006).
Therefore, the study of deposit diversification includes 3 components: bank deposits , total value of customer deposits and other deposits & short - term deposits ; Content diversification includes 3 components : commercial and business credit , retail/consumer credit and other credit; Because credit diversification has been studied , the scope
The study of asset diversification focuses on other types of earning assets, which include three components: deposits at other banks , fixed assets, and other assets . Since bank data does not separate data on deposits at other banks, deposit data from alternative banks is taken .
In addition, Stiroh's (2004) income diversification measurement based on Herfindahl combined with the research of Thomas (2002), Morgan and Samolyk (2003) is suitable for income diversification research in Vietnam and is used in research models (1), (2), (3), (4), (5). This income diversification measurement method has been applied in the study of Sissy et al. (2017) in African banks, period 2002-2013, the study of Lee et al. (2014) in Asia-Pacific banks, period 1995-2009, the study of Mercieca et al. (2007) in Philippine banks, period 1999-2005. According to Thomas (2002), Morgan and Samolyk (2003), Stiroh (2004), Stiroh et al. (2006), measuring income inequality is quite important and is considered
widely used . The meaning of this index reflects the fluctuation of net revenue,
through two components : interest income (NET) and non -interest income (NON) .
Non - interest income includes: service / interest income , service fees, revenue
trading and other non-interest income. The formula is determined as follows:
after:
Div = 1 – (SH 2 NET + SH 2 NON )
In which , SH NET and SH NON are the indexes of NET and NON , respectively .
math like
SH NET
NET NET NON
SH NON
NON NET NON
NET: interest income; NON: non-interest income; SH NET : ratio of interest income to total income; SH NON : ratio of non-interest income to total income. DIV index
grow up , show
income level
high and low
hybrid
Return on Assets (ROA).
Studies on bank efficiency are usually measured by the ratio of profit on total assets (ROA) or the ratio of profit on equity (ROE) or the net interest margin (NIM). If considered from the perspective of direct impact on shareholders' equity, studies use the ratio of profit on equity (ROE) to measure business performance, if considered from the perspective of total profitability compared to the size of assets, studies use the ratio of profit on total assets (ROA) to measure business performance, or if considered from the perspective of bank income and expenses, studies use the net interest margin index (NIM). Within the scope of the study, the thesis considers the profitability on the scale of total assets of the bank and evaluates the fluctuations in business performance due to changes in business strategy as well as the operation of the bank, so the thesis uses the ratio of profit on total assets (ROA) in the study of measuring business performance.
Poor business performance (Inef).
In addition to the bank's business performance measured by the ROA ratio, the study measures the bank's business performance by the Inef through the technical production function, extracted from the bank's input and output factors. As presented in chapter 2, the thesis chooses to measure the bank's business performance by the stochastic frontier analysis (SFA) method instead of the data envelopment analysis (DEA) method.
Credit provision risk (Loa_loss)
According to Miller and Noulas (1997), empirical studies demonstrate that the higher the risk, the lower the impact on bank performance and vice versa. According to Berger and
ctg (2010), DPTD risk is an amount that measures the expected level of risk , the expense set aside as a provision for uncollectible debts from loan repayment. This index is calculated by the ratio of credit losses to assets.
Stable inefficiency risk (Sta_inef).
The study measures banking risk using two representatives, namely DPTD risk using financial ratios and KHQOĐ risk using technical production functions extracted from bank input and output factors. Similar to measuring poor operational efficiency, KHQOĐ risk is presented in chapter 2 and is measured using stochastic frontier analysis (SFA). According to Fang et al. (2011), Tan (2016), KHQOĐ risk is the potential stability level between the current stability level and the maximum stability level under the same economic and legal conditions. Because of the advantages of the KHQOĐ risk index compared to Z-score, KHQOĐ risk is chosen for research. The study of Fang et al. (2011); Tan (2016) developed a model to measure the level of inefficient stable operation in a banking system, creating the possibility of inefficient operation.
3.2.2. Control variables.
The control variables of models (1), (2), (3), (4), (5) are selected based on the characteristics of commercial banks' operations in Vietnam and a review of empirical studies in chapter 2. In addition, the control variables are included in the model because of their significant effects on the dependent variables (Ariss, 2010; Jiménez et al., 2013; Amidu and Wolfe, 2013; Fu et al., 2014; Mensi and Labidi, 2015), specifically:
Bank asset size (Ln_asse).
The size of the bank 's assets . This is a traditional variable that represents the level of capitalization .
The logarithm of assets is used in many empirical studies, typically used in Berger et al. (2010); Acharya et al. (2006); Hamadi and Awdeh (2012).
Total bank credit (Tlo_asse).
Reflecting the relationship between credit to total assets, used in the empirical studies of Stiroh (2004); Maudos and Solís (2009); Valverde and Fernández (2007), is measured as:
Tlo_asse =
Market share (Mar_shar).
Total Credit Total Assets
Measured by the total assets of each bank divided by the total assets of all banks. The significance of this ratio is that the more the market share of the bank increases, the more favorable the conditions for banking activities are. This index is used in the study of Claeys and Vander Vennet (2008).
Mar_shar =
Total assets of each bank Total assets of all banks
Total bank charges (Cos_inco).
The ratio of total expenses divided by total income, is used to measure the quality of bank management efficiency. This index is used in the studies of Maudos and Solís (2009); Hamadi and Awdeh (2012), measured through the formula:
Cos_inco =
Total banking expenses Total income
The ratio shows the relationship between expenses and income. The lower the ratio, the more efficient the bank is and vice versa.
Bank capital (Equ_asse).
The bank capital ratio , measured by the ratio of equity ( book value ) to total assets , is approximately equivalent to the bank's Tier 1 capital ratio . This ratio is widely used in empirical studies, such as Berger et al. (2010); Stiroh (2004) measured by the formula :
Equ_asse =
Equity Total Assets
The higher the ratio, the higher the bank's equity ratio, strong and stable financial structure, low payment risk and high owner responsibility in banking operations and vice versa.
Net bank credit (Nlo_asse).
The ratio of net credit to total assets, according to Valverde and Fernández (2007), Maudos and Solís (2009) is measured through the formula:
Nlo_asse =
Net Credit Total Assets
Banking operating expenses (Exp_asse).
The level of operating expenses on the scale of total assets, according to Berger et al. (2010), is measured by the formula:
Exp_asse =
Bank deposit (Dep_asse).
Operating Expenses Total Assets
Representing the ratio of capital mobilization to total assets of the bank, according to Pennathur et al. (2012), is calculated by the following formula:
Dep_asse =
3.3. Research hypothesis.
Total deposits Total assets
Based on the above mentioned theories and empirical studies at home and abroad, the thesis chooses a research model to estimate the one-way and simultaneous impacts of FDI, business performance and banking risks. To answer the research questions and achieve the research objectives, the thesis proposes 3 groups of research hypotheses:
Hypothesis group 1: hypotheses of one-way impact of FDI on business performance.
Based on the theory of diversification behavior of Sutton (1973), the choice of diversification is considered when the situation is not optimistic. The hypothesis is that managers seek to implement resources (capital mobilization) according to banking business activities. In addition, according to the agency theory - agency costs of Amihud and Lev (1981); Jensen (1986), resource diversification reduces the value of the bank, i.e. increases risk and reduces business performance. Considering the practical situation, Vietnamese commercial banks often focus on exploiting deposits in the traditional customer segment available to
optimize business performance. In addition, the research results of Berger et al. (2010) show that deposit diversification negatively affects business performance at 88 Chinese banks in the period 1996-2006. On that basis, the study puts forward the following hypotheses:
H1a: Deposit diversification has a negative impact on business performance at Vietnamese commercial banks. H1b: Deposit diversification has a positive impact on poor business performance at Vietnamese commercial banks.
According to the study of Acharya et al. (2006), the impact of credit diversification in 105 banks in Italy during the period 1993-1999; Berger et al. (2010), the impact of credit diversification in 88 Chinese banks, during the period 1996-2006; Böninghausen et al. (2010), the impact of credit diversification in 88 Chinese banks, during the period 1996-2006;
Köhler (2015), Credit diversification or loan portfolio does not really bring
Banking business performance at 18 commercial banks and the largest financial intermediary institutions in Germany , 2003-2007 . In addition, Penrose 's growth theory developed in 1959, the view that diversification is an important component affecting the growth of enterprises/banks. Considering the practical credit activities, Vietnamese commercial banks often focus on lending to real estate, securities investment and earn high net interest from lending to increase banking business performance, so the study proposes
Hypotheses:
H2a: Credit diversification has a negative impact on business performance at Vietnamese commercial banks. H2b: Credit diversification has a positive impact on poor business performance at Vietnamese commercial banks.
Based on the resource-based development perspective (RBV) theory of Wernerfelt (1984); Barney (1991), bank resources using assets effectively help to adjust business performance better. Vietnamese commercial banks increase asset diversification activities to manage risks and find solutions to increase asset profitability. In addition, the research results of Berger et al. (2010); Laeven and Levine (2007) show that asset diversification negatively affects business performance. Therefore, the study puts forward the following hypotheses:
H3a: Asset diversification has a negative impact on business performance at Vietnamese commercial banks. H3b: Asset diversification has a positive impact on poor business performance at Vietnamese commercial banks.
Based on the theory of economies of scope of Panzar and Willig (1977), average cost will decrease when the bank expands its services, revenue diversification will have the opportunity to convert resources and share common resources such as skills, operations, technology... In addition, according to the theory of market power of Porter (1980), diversification will
promote enterprises/banks with higher business performance. In addition, studies by Baele et al. (2007) in 17 European countries, period 1989–2004; Mercieca et al.
ctg (2007) at 23 domestic banks and 16 foreign banks in the Philippines, period 1999-2005; Sissy and ctg (2017) at 320 banks of 29 countries
African countries, period 2002-2013, giving the results of positive impact of income inequality
imported to HQHDKD. Therefore, the study puts forward the following hypotheses:
H4a: Income diversification has a positive impact on business performance at Vietnamese commercial banks.
H4b: Income diversification has a negative impact on business performance at Vietnamese commercial banks.
Hypothesis 2: Hypotheses of the one-way impact of FDI on banking risk
Based on Markowitz's portfolio theory (EPT), the content of the theory suggests that the more diversified the portfolio, the more investors can limit risks. In addition, the research results of Templeton and Severiens (1992) at 100 large US banks, the period 1979-1986, diversification reduces banking risks. In terms of practical activities, Vietnamese commercial banks diversify deposits, orienting the development of many deposit channels associated with digital technology to manage risks. Therefore, the study puts forward the following hypotheses:
H5a: Deposit diversification has a negative impact on credit risk at Vietnamese commercial banks. H5b: Deposit diversification has a negative impact on credit risk at Vietnamese commercial banks.
Based on Markowitz's portfolio theory (EPT), portfolio diversification helps investors limit risks. In addition, the study of Baele et al. (2007) in 17 European countries, period 1989-2004 and the study of Stiroh (2004), at community banks, period 1984-2000, debt diversification has a negative and significant impact on bank risks. In the Vietnamese financial market, commercial banks consider credit diversification, avoiding credit concentration in some potentially risky areas: real estate, securities investment business to manage risks, so the study puts forward the following hypotheses:
H6a: Credit diversification has a negative impact on credit risk at Vietnamese commercial banks. H6b: Credit diversification has a negative impact on credit risk at Vietnamese commercial banks.
Based on the investment behavior theory of Cyert and March (1963) and the study of Sissy et al. (2017), DDH negatively affects risk at 320 banks in Vietnam.
29 African countries in the period 2002-2013, meaning that the more DDH increases, the risk decreases significantly .