Consider the risks and performance of banking operations
The balance between risk and business performance is always a difficult problem for bank managers and policy-making agencies. The research results from the simultaneous impact model show that DPTD risks and KHQOĐ risks have a negative impact on business performance, similar to the results of DPTD risks and KHQOĐ risks have a positive impact on poor business performance, meaning that when the risk of Vietnamese commercial banks increases, the bank's business performance decreases and vice versa. Considering the opposite impact, the DPTD index has a negative impact on DPTD risks and KHQOĐ risks, similar to the results of poor business performance index has a positive impact on DPTD risks and KHQOĐ risks. The results of the thesis are consistent with the profit and risk theory of Frank Knight (1895-1973) presenting the relationship between risk and profit rate and are similar to many studies in and outside the banking sector.
Although this research result is very popular and not new, the research result shows the two-way impact between risk and bank business performance, which is studied under the condition of simultaneous impact of DHD, business performance and bank risk, in which business performance and bank risk are measured in two aspects by financial ratios and technical production functions. Thus, risk and bank business performance have a two-way, inverse relationship, that is, when Vietnamese commercial banks increase DPTD risks, KHQOĐ risks will reduce DPTD. DPTD risks directly increase bank costs, that is, reduce bank business performance. In reality, Vietnamese commercial banks need to implement management solutions to reduce DPTD risks , that is, to minimize bad debt, which is to build a scientific, strict credit approval process, cross-control between departments; establish a centralized credit approval model; Issue credit regulations according to local and seasonal characteristics and make timely adjustments when there are economic fluctuations...
Currently, Vietnamese commercial banks always focus all resources on prioritizing the management of reducing DPTD risks because the negative impact of DPTD risks on banking operations is very large, possibly causing bank collapse. According to research results, the increase in the business performance of Vietnamese commercial banks will reduce the risk of bank DPTD, so Vietnamese commercial banks need to strengthen solutions to increase business performance, specifically expanding revenue sources from services.
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services such as account transactions, domestic and international payments, collection, custody... developing links with non-banking services such as insurance, securities, real estate to increase revenue and improve banking business performance.
Control variables
Considering the results of the control variables, the size of bank assets has a positive impact on the performance of bank business, that is, when the size of total assets of Vietnamese commercial banks increases the performance of bank business and vice versa. In recent years, Vietnamese commercial banks have always sought solutions to increase the total size of assets to increase the performance of business, however, due to the many fluctuations in the financial market and policies from state management agencies such as the State Bank of Vietnam stipulating the maximum annual credit growth rate for each commercial bank or regulating the ceiling interest rate for deposits with terms of less than 6 months, Vietnamese commercial banks have limited credit growth and deposits, thereby affecting the increase in asset size.
According to the results of the one-way dynamic model, total bank credit has a negative impact on business performance. Meanwhile, according to the results of the simultaneous impact model, total bank credit has a positive impact on business performance. Thus, the estimation results of the two models are different. This means that when assessing the one-way impact, an increase in total bank credit will reduce business performance and vice versa. On the other hand, when considering the simultaneous impact mechanism, an increase in total bank credit will increase business performance and vice versa.
Bank market share has a negative impact on business performance, meaning that Vietnamese commercial banks with large market shares will have reduced business performance, meaning that profit margins will decrease and vice versa. Considering the impact of market share on risk, from the research results, bank market share has a positive impact on bank risk, meaning that the larger the market share of Vietnamese commercial banks, the higher the bank risk and vice versa. Bank capital has a positive impact on bank business performance, meaning that Vietnamese commercial banks increasing bank capital will increase bank business performance and vice versa. Thus, when commercial banks increase equity, they will increase financial capacity to support business development, bring about bank business performance and also consolidate and increase the CAR ratio in risk management according to Basel standards.
Considering the research results of two control variables, total banking costs and banking operating costs have a positive impact on banking risk, meaning that Vietnamese commercial banks
The increase in operating costs will increase banking risks and vice versa. Therefore, when Vietnamese commercial banks have lower management quality, increasing total banking costs and banking operating costs will increase banking risks, causing damage to banks. The research results of net bank credit have a positive impact on banking risks, meaning that Vietnamese commercial banks increasing net credit will increase banking risks and vice versa. Thus, when Vietnamese commercial banks increase net credit on assets, it will increase banking risks because increased credit in the structure of bank liabilities will cause more risks than the benefits it brings to banks.
In general, in the trend of deep and wide integration , with the increase of many foreign banks entering the Vietnamese market and the policies of the authorities
State management requires more stringent requirements to ensure the operation of Vietnamese commercial banks .
safe, effective. DDH is accepted
as a strategy
necessary and objectively inevitable
that Vietnamese commercial banks use to plan and build business strategies for
The research results have confirmed the impact of FDI on business performance and risks at Vietnamese commercial banks . FDI serves as a reference for
Bank managers aim to exploit limited resources for use.
them in banking operations more effectively and motivate managers
bank strategy selection
suitable banking business. Besides, the result
The research results of the University of Economics help Vietnamese commercial bank administrators consider the quality of bank assets , the ability to mobilize and use capital more effectively . Therefore ,
New Vietnamese commercial banks improve their competitiveness, creating favorable conditions for development .
develop customers, expand market share in Vietnam's financial and banking market.
Chapter 4 Summary
With panel data of 25 Vietnamese commercial banks in the period 2000-2018, the thesis research results from estimating 5 research models include 2 models of one-way impact of diversification on business performance in static and dynamic states; 2 models of one-way impact of diversification on bank risk in static and dynamic states; model of simultaneous impact of diversification, business performance and bank risk. The thesis results help to re-verify previous empirical research results. Then, the research results are discussed in the context of research in Vietnam. Specifically as follows:
The variables of deposits, credit, and assets negatively impacting business performance and the variables of income positively impacting business performance are measured through two variables representing financial ratios and production functions, so the results are stable. The variables of deposits, credit, and assets negatively impacting bank risk and the variables of income positively impacting bank risk are measured through two variables representing financial ratios and production functions, so the results are stable.
With simultaneous impact, the diversification of deposits, credit, assets negatively affects business performance and the diversification of income positively affects business performance measured through two variables representing financial ratios and production functions. This result is similar to the research result of the one-way impact of diversification of deposits, credit, assets, income on business performance in the dynamic model.
With simultaneous impact, the diversification of deposits, credit, assets negatively affects bank risk and the diversification of income positively affects bank risk measured through two representative variables of financial ratios and production function. This result is similar to the research result of the one-way impact of the diversification of deposits, credit, assets, income on bank risk in the dynamic model.
In addition, the thesis also presents the results of the impact of similar control variables in the two dynamic impact methods (FDGMM) and the simultaneous impact method (SUR) such as total assets (Ln_asse) has a positive and statistically significant impact on business performance; market share (Mar_shar) has a negative and statistically significant impact on business performance; market share (Mar_shar) has a positive and statistically significant impact on bank risk; total bank expenses (Cos_inco) has a positive and statistically significant impact on bank risk; bank capital (Equ_asse) has a positive and statistically significant impact on business performance; bank operating expenses (Exp_asse) has a positive impact on risk; bank net credit (Nlo_asse) has a positive and statistically significant impact on bank risk. However, the total bank debt (Tlo_asse) impact on business performance has inconsistent results between the two simultaneous impact methods SUR and the one-way impact method in the dynamic state FDGMM.
CHAPTER 5: CONCLUSION AND POLICY IMPLICATIONS
5.1. Conclusion
Using data from 25 Vietnamese commercial banks in the period 2000-2018, extracted from Bankscope and Orbis bank focus data sources, the thesis finds out issues according to the research objectives such as the one-way impact of 4 types of diversification (deposits, credit, assets, income) on business performance (represented by 2 variables: return on assets (ROA) and poor business performance (Inef)); the one-way impact of 4 types of diversification (deposits, credit, assets, income) on banking risks (represented by 2 variables: DPTD risk (Loa_loss) and KHQODD risk (Sta_inef)); Simultaneous impact of 4 types of diversification (deposits, credit, assets, income), business performance (represented by 2 variables: return on assets (ROA) and business performance risk (Inef)) and banking risk (represented by 2 variables: DPTD risk (Loa_loss) and KHQODD risk (Sta_inef)). To achieve the above 3 objectives, the thesis uses one-way impact estimation methods in static state such as GLS method, Driscoll-Kraay method, one-way impact estimation method in dynamic state FDGMM, simultaneous impact estimation method SUR. Particularly, business performance risk (Inef) and KHQODD risk (Sta_inef) are extracted from the technical production function from input and output factors of Vietnamese commercial banks using SFA method.
Briefly reviewing the fundamental theories in chapter 3, the thesis presents typical theories on the relationship between diversification and bank performance such as "growth theory" developed by Penrose in 1959, diversification is an important component affecting bank growth; "market power theory" by Porter (1980), diversification promotes organizations to achieve higher business performance; Wernerfelt (1984); Barney (1991) developed "resource-based view theory - RBV", according to Barney (1991), bank resources in which efficient use of assets helps to adjust bank performance better; "diversification behavior theory" by Sutton (1973), the choice of diversification is considered when an unoptimistic situation occurs, that is, business performance declines. In addition, the thesis presents the “economies of scope theory” developed by Panzar and Willig (1977), the average cost decreases when the bank expands its services, diversifying its revenue sources. Besides, the typical fundamental theories of the relationship between diversification and banking risk such as “agency-agency cost theory” (Amihud and Lev, 1981; Jensen,
1986), diversification reduces the value of enterprises/banks, increasing risks; "investment portfolio theory" (EPT-Markowitz), the more diversified the investment portfolio, the more limited the risk; "investment behavior theory" branched from the organizational behavior theory of Cyert and March (1963), when facing fierce competition, the current business situation is no longer attractive, then escape the current business situation by diversifying assets with higher profits and reducing risks. Finally, the thesis presents the theory of the relationship between business performance and bank risks, such as "profit and risk theory" of Frank Knight (1895-1973).
The thesis surveys previous empirical studies on the relationship between diversification, business performance and bank risk. Specifically, the results of diversification have a positive impact on business performance, typical studies such as Ashyari and Rokhim (2020); Al-kayed and Aliani (2020); Sissy et al. (2017); Thilakaweera et al. (2016); Curi et al. (2015); Ho Thi Hong Minh and Nguyen Thi Canh (2015); Lee et al. (2014); Baele et al. (2007); Mercieca et al. (2007); the results of diversification have a negative impact on business performance, typical studies such as Duho and Onumah (2019); Chen et al. (2018); Böninghausen and Köhler (2015); Berger et al. (2010); Laeven and Levine (2007); Acharya et al. (2006); Campa and Kedia (2002). Regarding the relationship between diversification and bank risk, previous empirical studies have shown that diversification has a positive impact on bank risk, typical studies such as Liang et al. (2020); Yang et al. (2020); Berger et al. (2010); Baele et al. (2007); Acharya et al. (2006); Stiroh (2004); empirical studies have shown that diversification has a negative impact on bank risk, typical studies such as Moudud-Ul-Huq et al. (2020); Abuzayed et al. (2018); Sissy et al. (2017); Nguyen and Vo (2015); Pennathur et al. (2012); Lepetit et al. (2008); Baele et al. (2007); Mercieca et al. (2007); Stiroh (2004); Templeton and Severiens (1992). In addition, empirical studies on the impact of business performance on risk are also reviewed, with typical studies such as Tehulu and Olana (2014); Messai and Jouini (2013); Zribi and Boujelbegrave (2011). Research on the impact of risk on bank business performance, with typical studies such as Gizaw et al. (2015); Petria et al. (2015); Ayaydin and Karakaya (2014); Zou and Li (2014); Ayanda et al. (2013).
Based on the fundamental theories and previous empirical studies, the thesis builds research hypotheses on the impact of variables on business performance; the impact of variables on risks; the simultaneous impact of variables, business performance and risks. Necessary tests are performed in the thesis such as heteroscedasticity test, multicollinearity test, instrumental and endogenous variable test, and correlation matrix analysis of variables. After that, the thesis chooses appropriate research methods to handle heteroscedasticity, multicollinearity, autocorrelation, and endogeneity to give the most accurate estimation results.
In research models (1), (3), the thesis estimates the impact of DDH on business performance and DDH on risk in a static state. However, when estimating in a static state according to GLS, Driscoll-Kraay still has the potential problem of past impacts on current values and causes biases of serial correlation (Berger et al., 2010; Goddard et al., 2004; Athanasoglou et al., 2008; Naceur and Omran, 2011). To overcome the shortcomings, the thesis evaluates the impact of the variables on business performance and the variables on bank risk by using the first-order difference of generalized moments (FDGMM) technique, introducing the lag factor in the past to handle the potential serial correlation phenomenon and applying the second-order past instrument variable of the endogenous variable to solve the endogenous phenomenon (Anderson and Hsiao, 1981; Arellano and Bond, 1991; Roodman, 2009). To check the robustness, the dependent variables of business performance and bank risk are measured through two representatives by financial ratios and indexes extracted from the technical production function. After analyzing and evaluating the one-way impact of the variables on business performance and the variables on risk in the static and dynamic states, the thesis conducts the estimation and evaluation in the simultaneous impact mechanism. The simultaneous approach arises from the practice in the operating cycle of banking activities. The complex interactions, one factor can potentially estimate the other and vice versa. This is also recommended for the cases of banking and financial markets, which are considered comprehensively and universally (Chen and Steiner, 1999). All three equations are run simultaneously using the “seemingly unrelated regression” (SUR) regression estimation technique of Zellner (1962).
The estimated models in the thesis satisfy most of the necessary tests. For the GLS estimated model, the tests have a significance level of 1% (Pro>chi2). For the Driscoll-Kraay estimated model, the statistical tests have a significance level of 1% (pro>F) in most of the analyzed cases. For the FDGMM estimated model, the test results of the F test (reaching a significance level of 1%) and the Arellano-Bond test for AR of order 1 (reaching a significance level of 1%) and AR of order 2 (not statistically significant) confirm that the model in the dynamic state is appropriate and necessary to be analyzed. Sargan's test is not statistically significant, confirming that the use of lag instrumental variables at order 2 is reasonable, there is no autocorrelation and is correct in the FDGMM model (does not reject any false and inappropriate instrumental variable hypotheses). For the “system of nearly uncorrelated expressions” (SUR) regression estimation technique, the Breusch-Pagan test shows that most of the Breusch-Pagan tests give statistical significance at the 1% level (the lowest is 10%). Therefore, the application of the above estimation technique is necessary and appropriate.
With the above research sequence, the thesis estimates the models and gives results according to the following research objectives:
The results of one-way estimation of the FDGMM model in dynamic state, 3 types of deposit, credit, and asset diversification negatively affect the return on assets (ROA) (all reaching statistical significance), satisfying hypotheses H1a, H2a, H3a. Considering the impact of income diversification, the results reached a high level of statistical significance, having an opposite meaning to the impact results of 3 types of deposit, credit, and asset diversification, that is, income diversification positively affects the return on assets (ROA), satisfying hypothesis H4a. Considering the other representative variable of business performance, which is the dependent variable of poor business performance (Inef), the impact results of credit concentration, deposits, assets and income diversification on poor business performance (Inef), all 4 equations are statistically significant and have negative impacts, that is, the 3 types of deposit, credit, asset diversification have positive impacts on poor business performance (Inef) and income diversification has negative impacts on poor business performance (Inef), satisfying hypotheses H1b, H2b, H3b, H4b. This means that deposit, credit, asset diversification has negative impacts, statistically significant on business performance and income diversification has positive impacts on business performance. This result is similar to the impact results of the 4 types of deposit, credit, asset, income diversification on business performance (ROA). Thus,