Foreign Research on Factors Affecting Commercial Bank Business Performance

The authors conducted research for commercial banks in Southeast Asian countries (selected 5 commercial banks for each country); applied panel regression analysis, fixed effects approach and random effects with 9 factors affecting bank efficiency from inside and outside (scale, capital adequacy, asset quality, income diversification, cost management quality, liquidity, economic growth, inflation and market interest rates). The results showed that the efficiency of commercial banks in Southeast Asia is mainly influenced by internal factors (such as capital adequacy, asset quality, liquidity, cost management quality) and a single external factor, market interest rates. External factors have no statistical significance to the operational efficiency of commercial banks in the region (inflation rate, economic growth, etc.). At the same time, the size of the bank does not affect the performance of commercial banks, in other words, the performance of commercial banks is not compatible with the rate of increase in size.

- The article "Factors affecting the performance of Vietnamese commercial banks" by Trinh Quoc Trung, Nguyen Van Sang [47] uses the Tobit regression model with data from 312 commercial banks in Vietnam (period 2005-2012) to analyze the factors affecting the performance of those commercial banks. The authors use the variables ROE and ROA as dependent variables representing the performance of commercial banks, along with independent variables (such as: operating costs/revenue, equity/total assets ratio, loan/total assets ratio, bad debt ratio, ...) and give the results that: (1) the factors that have a positive impact on ROA and ROE are the variables equity/total assets ratio, loan/total assets ratio; (2) factors that have an opposite effect on ROA and ROE such as operating costs/revenue, bad debt ratio,...).

- The article "Operational efficiency of commercial banks in Thai Nguyen province" by Nguyen Thi Thu Huong [12] evaluates the operational efficiency of commercial banks in Thai Nguyen province in the period 2011-2015. The author uses the DEA method and the Tobit model to show that: the technical efficiency of commercial banks in Thai Nguyen province is mainly affected by technological progress. In addition,

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Factors affecting the technical efficiency of commercial banks in this period include: profit/total assets; bad debt/total outstanding credit; total assets.

2.2. Foreign research on factors affecting the business performance of commercial banks

- Allan N.Berger and colleagues (1997) measured the efficiency of 760 branches of large US commercial banks and showed that many branches achieved cost minimization, the large number of branches facilitated the provision of services to customers, thereby increasing profits [60]. However, the inefficiency X was very large, over 20% of operating costs. The authors also pointed out that two factors that had a great influence on the efficiency results of banks were M&As and branch network.

- Geogios E. Chortareas et al. in the article “Banking sector performance in Latin America: Market power versus Efficiency” [79] studied the performance of the Latin American banking sector through market power and efficiency. The authors conducted the study by testing market power (with two SCP and RMP models) and the theory of efficient structure (X-efficiency and scale efficiency) for 2,500 banks in 9 Latin American countries during the period from 1997 to 2005. The authors used the DEA method to measure the efficiency of banks. The output variables are securities and total loans; the input variables are deposits, labor and capital. The research results obtained are: concentration and efficiency of banks have an inverse relationship; high market share will reduce the profit of banks; The performance of Latin American banks is explained through variables such as: capitalization level, equity/total assets ratio and asset size of the bank, in which the higher the capital, the higher the bank's profit, and larger banks will have higher scale efficiency; factors such as exchange rate, economic growth rate, market interest rate have strong influence on ROA, bank efficiency but in different directions (may be in the same direction or opposite direction); liquidity risk does not clearly show with bank efficiency.

- Yong Tan's article “The impacts of risk and competition on bank profitability in China” [117] tests the impact of risk and competition

on the profitability of the Chinese banking sector (including state-owned commercial banks, joint-stock commercial banks and private commercial banks) during the period from 2003 to 2011. The author, after using the GMM estimation system, concluded that the profitability of Chinese banks is less affected by risk and competitiveness, but is mainly influenced by taxes, costs, labor productivity and inflation.

- Yun Luo and colleagues with the article “Financial openness, risk and bank efficiency: Cross-country evidence” [118] conducted a study on the impact of financial openness on the performance and risk of banks. The authors conducted an experiment on 2007 commercial banks of 140 countries in the period 1999-2011 and showed the results that financial openness directly reduced the profit efficiency of commercial banks.

- Phan Thi My Hanh and colleagues with the article “Bank efficiency in emerging Asian countries” [104] analyzed the relationship between market concentration, bank competition and X efficiency of 6 developing Asian countries (including Bangladesh, India, Indonesia, Malaysia, Philippines and Vietnam) during the period from 2005 to 2012. The authors concluded that the level of market concentration, bank size, and gross domestic product growth have a positive relationship with X efficiency, while competition and liquidity risk have an inverse relationship. Credit risk does not affect X efficiency and market stability (expressed through inflation) has an unclear effect on this bank efficiency.

- The article “The impact of Bancassurance on Efficiency and Profitability of Banks: Evidence from the Banking Industry in Taiwan” by Jin-Lung Peng and colleagues [89] conducted a study on the impact of insurance distribution through banks (Bancassurance) on the efficiency and profitability of banks, with the banking industry in Taiwan as evidence from 2004-2012. The authors conducted a quantitative analysis of cost efficiency (CE), technical efficiency (TE) and allocative efficiency (AE) and concluded that the efficiency and profitability of Taiwanese banks during the study period were affected by Bancassurance. In addition, Bancassurance also increases the value of bank shareholders.

2.3. Summary of researched issues and research gaps for the thesis

2.3.1. Issues studied

Through summarizing domestic and foreign studies on the business efficiency of commercial banks, it shows that:

Firstly, for domestic studies on the business efficiency of commercial banks: The studies have clearly pointed out the basic issues of commercial banks, such as: characteristics, operations of commercial banks, business efficiency of commercial banks, as well as indicators to evaluate the performance of commercial banks from different perspectives (ROA, ROE, profit after tax). In addition, a number of domestic studies have identified factors affecting the business efficiency of commercial banks and analyzed the impact of those factors on the business efficiency of commercial banks through quantitative models (although the number is still limited). From here, the researcher can inherit the theoretical basis of previous studies, as well as inherit the factors affecting the performance of commercial banks that have been mentioned before.

On the other hand, for foreign studies: Studies have clearly shown the impact of factors affecting the efficiency of commercial banks, and many models have been proposed to evaluate different aspects of commercial banks. Studies have concluded that in different countries, at different times and depending on the scale of commercial banks, the factors affecting the efficiency of commercial banks will be different, possibly affecting in the same direction or in the opposite direction.

2.3.2. Research gap

Firstly, most foreign studies are quantitative, while domestic studies are still mainly qualitative. Some domestic quantitative studies have been conducted recently, but there are still limitations in scope and influencing factors.

Second, the research projects have generally assessed the business performance of commercial banks, and can specifically assess each activity of commercial banks. However, the studies have not yet provided a comprehensive assessment of the performance of commercial banks in terms of qualitative and quantitative aspects.

Third, the international and national environmental conditions and the development trends of commercial banks have also gradually changed with the development of science and technology. The criteria for evaluating operational efficiency as well as the application of new international standards for commercial banks (such as Basel II) have not been focused on in the topics.

From there, the thesis orients to continue research with a broader scope on improving the business efficiency of Vietnamese commercial banks, and at the same time, delve deeper into improving the business efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development. At the same time, through using quantitative models to study the impact of factors on the business efficiency of Vietnamese commercial banks, propose solutions to improve the business efficiency of Vietnamese commercial banks in general, and Vietnam Joint Stock Commercial Bank for Investment and Development in particular.

3. Research purpose

- Researching the theoretical basis of commercial banks' business efficiency, analyzing factors affecting commercial banks' business efficiency. Researching experiences in improving business efficiency of commercial banks in the world and some domestic commercial banks.

- Research the current situation, analyze and evaluate the business performance of Vietnam Joint Stock Commercial Bank for Investment and Development in the period of 2007-2018. Use quantitative analysis model to clarify the results achieved and limitations in business performance of Vietnam Joint Stock Commercial Bank for Investment and Development, clarify the causes affecting the business performance of Vietnamese commercial banks in the past time.

- Propose some solutions and recommendations to contribute to improving the business efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development in the coming years.

- Research question:

+ What lessons can the Vietnam Joint Stock Commercial Bank for Investment and Development learn and inherit from other commercial banks in the country and around the world?

+ What are the causes leading to the achievements and limitations in the business efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development during the research period?

+ Has Vietnam Joint Stock Commercial Bank for Investment and Development achieved optimal business efficiency?

+ Is the technical efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development high or low compared to domestic competitor banks?

+ What solutions does the Vietnam Joint Stock Commercial Bank for Investment and Development need to increase business efficiency in the economic integration environment?

+ To achieve the ultimate goal of maximizing the business efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development, what support do relevant agencies need to provide to the bank?

4. Research object and scope

- Research object: Business efficiency of commercial banks.

- Scope of research : Focus on studying the business performance of Vietnam Joint Stock Commercial Bank for Investment and Development in the period of 2007-2018. The thesis chooses the scope of research in this period because this is the period when BIDV has innovative policies, combined with changes in Vietnam's policies in the period of international integration. In addition, the data source of this research period is guaranteed to be consistent, complete and highly reliable.

5. Research methods

- The thesis combines qualitative and quantitative methods to evaluate business performance as well as analyze factors affecting business performance of Vietnam Joint Stock Commercial Bank for Investment and Development.

- Qualitative method: The thesis uses statistical methods to collect data, conduct analysis to create tables, graphs, and charts to describe; perform comparison, induction, synthesis, qualitative analysis combining theory and practice and refer to documents to conduct research to improve business efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development.

+ Data collection method: The thesis uses secondary data. Collecting data on financial reports, annual reports of BIDV and some large commercial banks in Vietnam through the source Finance.stock.vn.

+ Research method and data processing: The thesis inherits, collects, synthesizes, analyzes and evaluates previous research documents to provide a theoretical basis.

theory and practice on the business efficiency of banks. The thesis uses the method of synthesis analysis; through the use of information and reports of commercial banks to evaluate the current status of business efficiency of commercial banks. The thesis also combines the comparative method to conduct a comparative study on the current status of business efficiency of commercial banks over time.

- Quantitative method: The thesis uses the database collected from reports of commercial banks, the State Bank, Vietnam Joint Stock Commercial Bank for Investment and Development; balance sheets; business performance reports in the annual reports of commercial banks to form data used in the analysis. Using econometric models to evaluate the business performance of Vietnam Joint Stock Commercial Bank for Investment and Development (Tobit regression model, DEA data envelopment analysis).

6. Scientific and practical significance

- Systematize and clarify theoretical issues on business efficiency of commercial banks and influencing factors.

- Analyze the current situation and evaluate the business performance of Vietnam Joint Stock Commercial Bank for Investment and Development based on qualitative and quantitative analysis methods to clarify the achievements, limitations and causes of limitations in improving the business performance of Vietnam Joint Stock Commercial Bank for Investment and Development.

- Proposing solutions to perfect the policy framework in management and operation of the Vietnamese banking industry, solutions to contribute to improving the business efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development in the period up to 2025 and 2030.

7. New contributions of the thesis

* In terms of theory: The thesis has systematized and clarified some basic theories about commercial banks, about the business efficiency of commercial banks, factors affecting the business efficiency of commercial banks; and indicators for evaluating the business efficiency of commercial banks. The thesis also synthesizes the experiences of commercial banks in countries around the world on business efficiency, thereby drawing lessons for BIDV.

* In practice:

Firstly, study the experiences of some domestic and international banks to draw some lessons for BIDV, such as: developing the field

retail to increase profits as well as competitiveness for BIDV in the coming period. Develop high-tech services and products to meet customer needs in the context of the 4.0 revolution to increase the business efficiency of commercial banks.

Second, through the synthesis of many research methods, the researcher has clarified the current state of BIDV's business performance in 12 years, evaluating BIDV's business performance according to three major milestones of BIDV: (1) before and after the global financial crisis in 2008; (2) before and after equitization in 2012; (3) before and after the merger of MHB in 2015. In addition, through the DEA method, window analysis and Tobit, the thesis has researched and evaluated BIDV's business performance, thereby indicating whether BIDV's business performance has achieved optimization during its operation or not.

Third, the thesis has proposed some new solutions based on the limitations and causes that BIDV has to face when trying to improve its business efficiency. The solutions are divided into groups related to: increasing the quality of human resources; improving profitability; and improving BIDV's credit and liquidity.

8. Structure of the thesis

In addition to the introduction, conclusion, list of abbreviations, list of tables, graphs, drawings and appendices, references, the thesis content is presented in 3 chapters:

Chapter 1: Theory of commercial banks and business efficiency of commercial banks

Chapter 2: Current status of business performance of Vietnam Joint Stock Commercial Bank for Investment and Development.

Chapter 3: Solutions to improve business efficiency of Vietnam Joint Stock Commercial Bank for Investment and Development.