List of Joint Stock Commercial Banks in the Data Sample

In addition, by using three-factor models along with the profit-making process of Korean banks, Hahm (2004) concluded that the stock returns of Korean banks are highly sensitive to these factors.

As mentioned above, these studies mainly use linear estimation methods, such as OLS and GLS, and do not consider that the sensitivity of banks to market, interest rate, and exchange rate factors is different over time. Due to the ARCH effect, the linear estimation method (OLS) produces biased and inconsistent results and therefore, it would be correct to assume constant volatility over the study period. Based on the assumption of a time-dependent conditional variance, a few studies have used ARCH – GARCH models to capture the time-varying nature of risk in these data. Song (1994), who used the ARCH estimation model, showed that the ARCH model is the most appropriate framework in determining bank stock returns. The empirical paper by Mansur and Elyasiani (1995) investigated the impact of both the level and volatility of interest rates on bank stock returns using an ARCH estimation model, and the results showed that both interest rates and interest rate volatility are likely to affect bank stock returns. Flannery et al. (1997), using a two-factor GARCH model originally developed by Engle et al. (1990), showed that market and interest rate risk have become an important factor in determining non-bank stock portfolios and the effect of interest rate risk has been found to be less strong in bank stock portfolios. Similarly, using GARCH-M models, the findings of Elyasiani and Mansur (1998) showed that changes in interest rates have a negative initial impact while volatility has a negative impact on the distribution of bank stock returns. However, these studies did not include exchange rate risk. Due to the lack of studies on the impact of

exchange rate risk on bank stock returns and further corroborating the previous results on interest rate risk, it is the aim of this paper to provide evidence regarding the joint interaction of market, interest and exchange rates on bank stock returns using both OLS and GARCH models.

Song (1994) proposed a statistical model to study the time-varying risk of the banking industry. The author used a two-factor model including market and interest rate factors based on Merton's ICAPM model. The ARCH model was used to study the change of stocks over time. The results showed that market risk and interest rate risk strongly affected the return of stocks in different periods in the research sample from 1977 - 1987.

Flannery et al. (1997) used the GARCH model studied by Engle et al. (1990) to show that although market and interest rate risks are both factors affecting the return of a non-bank stock portfolio, interest rate risk has little effect on portfolios including bank stocks.

The empirical study of Ryan et al. (2004) exploited the GARCH-M model to explain the impact of market risk, interest rate risk and exchange rate on the return of bank stocks in Australia during 1996-2001. The results of the study showed that short-term and medium-term interest rate risk, interest rate volatility and market risk are important explanatory factors for the return of bank stocks. However, long-term interest rate and exchange rate are not statistically significant in the research model on Australian data.

Although there are many studies in the world conducted on the topic of the impact of interest rates and exchange rates on bank stock returns, there are very few studies conducted in developing countries. The prominent research model in developing countries is the research model of Hooy et al. (2004), the research paper investigates the impact of interest rates and exchange rates on bank stock returns.

Interest rate and exchange rate risk sensitivity of Malaysian bank stocks during the recent financial crisis using GARCH-M. During the pre- and post-crisis periods, bank stock prices became less sensitive to risk, and became more sensitive as the risk exposure of Malaysian banks increased after the capital control policies and bank consolidation policies in Malaysia to avoid the crisis.

Saadet Kasman, Gulin Vardar and Gokce Tunc (2011) studied the impact of interest rates, exchange rates on returns and return volatility of banking stocks in Türkiye using OLS and GARCH estimation models, the data includes closing stock prices of 13 banks in the period from 27/07/1999 – 09/04/2009 listed on ISE stock exchange, exchange rates include major currency basket of Euro and USD, 2-year government bond interest rate, ISEindex 100 index is market index. The first study uses OLS model to determine the impact of market index return volatility, interest rates and exchange rates on the returns of 13 individual bank stocks and Bankindex bank stock portfolio. However, the author has tested the ARCH effect and it is significant in all the research variables, so the author has used the estimated GARCH model because the model is appropriate. In addition to estimating the impact on the rate of return, the study also uses the GARCH (1,1) model to estimate the changes in interest rates and exchange rates on the fluctuations in the rate of return of individual bank stocks and the index of the banking sector stock portfolio. The study results that changes in interest rates and exchange rates have negative (reverse) and significant impacts on the rate of return of banking stocks, in addition, the rate of return of banking stocks is strongly affected by market risk measured by the ISEindex 100 index.

In Vietnam, there are also some authors who research the topic of market influence on stock prices in the Vietnamese stock market such as Nguyen Quyet and Huynh.

The Nguyen in 2013 studied the relationship between interest rates, exchange rates and stock prices in Ho Chi Minh City. The data in the article is a monthly data series from October 2007 to October 2012 in Ho Chi Minh City. The variables used by the author include the average interbank interest rate, USD exchange rate, and stock prices are taken as natural logarithms. The study shows the sensitivity between stock prices and interest rates at the first lag level and exchange rates at the second lag level. In addition, the lag levels 1 and 2 of stock prices also affect themselves.

Another prominent study in Vietnam is Truong Dong Loc (2014) studying the factors affecting the change in stock prices. The author used price series, earnings per share (EPS), lending interest rate, USD/VND exchange rate, gold price and consumer price index (CPI), quarterly frequency in the period from December 31, 2006 to December 31, 2012. The study presented the results showing that EPS, USD/VND exchange rate are positively correlated with stock prices on the HOSE market. On the contrary, fluctuations in gold price and inflation rate are negatively correlated with the return rate of stocks.

From the above studies, it can be seen that there have been many different studies, and the general assessment is the positive or negative impact of exchange rates, interest rates, market variables on the rate of return and the rate of return fluctuations of banking stocks. The research paper by Saadet Kasman, Gulin Vardar and Gokce Tunc (2011) gives results with quite high statistical significance, the method used in addition to the usual OLS, the author also applied the GARCH (1,1) model from which to forecast, bringing accuracy and reasonableness to the research when the ARCH tests are all significant.

Vietnam is considered an emerging market due to the existence of macroeconomic instability as characterized by high volatility in growth and real interest rates, lack of money markets, capital markets, and limited hedging tools. Therefore, it is worthwhile to examine how some of these characteristics affect the survival of

How is the Vietnamese banking system? The choice of Vietnam in the research period from November 1, 2011 to November 30, 2017 assessed most of the fluctuations of the economy through the exchange rate, the instability of market interest rates in the period of 2012, when the overnight interbank interest rate reached nearly 20%/year, in addition, from December 31, 2015, the State Bank applied the central exchange rate mechanism of the Vietnamese Dong with the USD, the cross exchange rate of the Vietnamese Dong with some other foreign currencies. Therefore, to fill the gaps in the research on the rate of return and fluctuations in the rate of return of bank stocks for the market with a developing economy in general and the Vietnamese market in particular, the author conducted this research.

Based on the research paper of Saadet Kasman, Gulin Vardar and Gokce Tunc (2011), the author uses two OLS and GARCH models for estimation. First, data on USD/VND exchange rate, overnight interbank interest rate (the research paper of Saadet Kasman, Gulin Vardar and Gokce Tunc (2011) uses 2-year Government Bond interest rate) because the author assesses that this is the interest rate that has a stronger impact on the banking industry in Vietnam than the 1-year Government Bond interest rate, the VN-INDEX index represents the market index in Vietnam, the author runs the OLS model for estimation, tests ARCH to find models with significant ARCH tests, continues to run the GARCH (1,1) model to forecast the rate of return and volatility of the rate of return of bank stocks in Vietnam.

Chapter 3. Research methods

3.1. Data

3.1.1. Dependent variable data

The study uses a sample of stock return data of eight banks listed on the Hanoi Stock Exchange (HNX) and the Ho Chi Minh City Stock Exchange (HOSE) during the research period from November 1, 2011 to November 30, 2017. These are eight banks that were listed quite early on the HOSE and HNX. These data samples serve the most comprehensive research on the return rate and return rate fluctuations of bank stocks.

The selected banks are those with total assets accounting for a fairly large proportion in the banking industry, located in two banking groups that mainly represent the Vietnamese banking market:

- The group of joint stock commercial banks with large state-owned capital, these banks are often the banks that reference interest rates and exchange rates for the market, the State partly manages and leads the market through these banks, including: Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCB), Joint Stock Commercial Bank for Industry and Trade of Vietnam (CTG).

- The Private Joint Stock Commercial Bank group includes the remaining six banks in the research sample. These banks have large total assets and a wide network in Vietnam.

Table 3.1. List of commercial banks in the data sample

Numerical order

Symbol	Bank	Date - Listing
1	ACB	Asia Commercial Joint Stock Bank	November 21, 2006 - HNX
2	CTG	Vietnam Joint Stock Commercial Bank for Industry and Trade	16/07/2009 - HOSE
3	EIB	Vietnam Export Import Commercial Joint Stock Bank	October 27, 2009 - HOSE
4	MBB	Military Commercial Joint Stock Bank	11/1/2011 - HOSE
5	NVB	National Commercial Joint Stock Bank	September 13, 2009 - HNX
6	SHB	Saigon - Hanoi Commercial Joint Stock Bank	April 20, 2009 - HNX
7	STB	Saigon Thuong Tin Commercial Joint Stock Bank	12/07/2006 - HOSE
8	VCB	Joint Stock Commercial Bank for Foreign Trade of Vietnam	June 30, 2009 - HOSE

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• Pre-tax Profit of Bidv Tien Giang in the Period 2011-2015 zt2i3t4l5ee zt2a3gsnon-credit services, joint stock commercial bank zt2a3ge zc2o3n4t5e6n7ts At that time, the Branch had to set aside a provision for credit risks, which reduced the Branch's income. Chart 2.2. Pre-tax profit of BIDV Tien Giang in the period 2011-2015 Unit: Billion VND 140 120 100 80 60 40 20 0 63.3 80.34 89.29 110.08 131.99 2011 2012 2013 2014 2015 Profit before tax (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) However, through chart 2.2, it can be seen that BIDV Tien Giang's profit is still increasing continuously, and its operating efficiency is currently leaking. This is a contribution of non-credit services, and this service segment will be increasingly focused on growth by BIDV Tien Giang to ensure the highest profit safety because credit activities have many potential risks. At the same time, focusing on developing non-credit services is consistent with one of the contents of restructuring the financial activities of credit institutions in the project "Restructuring the system of credit institutions in the period 2011-2015" approved by the Prime Minister in Decision No. 254/QD-TTg dated March 1, 2012 [14]: "Gradually shifting the business model of commercial banks towards reducing dependence on credit activities and increasing income from non-credit services". 2.2. Current status of non-credit service development at BIDV Tien Giang. 2.2.1. BIDV Tien Giang has deployed the development of non-credit services in recent times. Along with the development of the Head Office, BIDV Tien Giang's products and services are constantly improved and deployed in a diverse manner to ensure provision for many different customer groups in the area: individual customers, corporate customers, and financial institutions. Typical services are as follows: Payment services, treasury services, guarantee services, card services, trade finance, other services: Western Union, insurance commissions, consulting services, foreign exchange derivatives trading, e-banking services,... 2.2.1.1. Payment services: In accordance with the Prime Minister's Project to promote non-cash payments in Vietnam [15], banks in Tien Giang province have continuously developed payment services to reduce customers' cash usage habits through card services and electronic banking services such as: salary payment through accounts, focusing on developing card acceptance points, developing multi-purpose cards, paying social insurance by transfer, paying bills through banks, etc. Chart 2.3. Net income from payment services in the period 2011-2015 Unit: Million VND 6000 5000 4000 3000 2000 1000 0 3922 4065 4720 5084 5324 2011 2012 2013 2014 2015 Net income from payment services (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) Along with the technological development of the entire system, BIDV Tien Giang has a payment system with a fairly stable transaction processing speed, bringing many conveniences to customers. The results of observing chart 2.3 show that the income from payment services that the Branch has achieved has grown over the years but the speed is not high and the products are not outstanding compared to other banks. Domestic payment products such as: Online bill payment, electricity bills, water bills, insurance premiums, cable TV bills, telecommunications fees, airline tickets, etc. bring many conveniences to customers. Regarding international payment, this is an indispensable activity for foreign economic activities, BIDV Tien Giang is providing international payment methods for small enterprises producing agriculture, aquatic food and seafood that have credit relationships with banks in industrial parks in Tien Giang province such as: money transfer, collection, L/C payment. 2.2.1.2. Treasury services: BIDV Tien Giang always focuses on ensuring treasury safety and currency security, always complies with legal regulations, and minimizes risks in operations such as: counting and collecting money from customers, receiving and delivering internal transactions, collecting from the State Bank (SBV) or other credit institutions, receiving ATM funds, bundling money, etc. BIDV Tien Giang's treasury service management department is always fully equipped with modern machinery and equipment such as: money transport vehicles, fire prevention tools, money counters, money detectors, magnifying glasses, etc. to ensure absolute safety in treasury operations, immediately identifying real and fake money and other risks that may affect people and assets of the bank and customers. In addition, implementing regulation 2480/QC dated October 28, 2008 between the State Bank of Tien Giang province and the Provincial Police on coordination in the fight against counterfeit money, in the 3-year review of implementation, BIDV Tien Giang discovered, seized and submitted to the State Bank of Tien Giang province 475 banknotes of various denominations and was commended by the Provincial Police and the State Bank of Tien Giang province [17]. Chart 2.4. Net income from treasury services in the period 2011-2015 Unit: Million VND 350 300 250 200 150 100 50 0 105 122 309 289 279 2011 2012 2013 2014 2015 Net income from treasury services (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) However, as shown in Figure 2.4, income from treasury operations is not high and fluctuates. Specifically, in the period 2011-2013, net income increased and increased most sharply in 2013, then in the period 2013-2015, there was a downward trend. This fluctuation is due to the fact that fees collected from treasury services are often very low and can even be waived to attract customers to use other services. 2.2.1.3. Guarantee and trade finance services: BIDV Tien Giang, thanks to the advantages of the province and the favorable location of the Branch, has continuously focused on developing income from guarantee services and trade finance. Chart 2.5. Net income from guarantee and trade finance services in the period 2011-2015 Unit: Million VND 14000 12000 10000 8000 6000 4000 2000 0 5193 5695 2742 3420 8889 3992 11604 12206 5143 5312 2011 2012 2013 2014 2015 Net income from guarantee services Net income from Trade Finance (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) Through chart 2.5, we can see that BIDV Tien Giang's income from guarantee services and trade finance has grown over the years. The reason is: Among BIDV Tien Giang's corporate customers, the construction industry is the industry with the highest proportion of customers after the trading industry, this is a group of customers with potential to develop guarantee services. The second group of customers is corporate customers in the fields of agricultural production, livestock and seafood processing with high import and export turnover in the area. are the target of trade finance development. In addition, BIDV Tien Giang also focuses on continuously developing these customer groups to increase revenue for many other products and services in the future. 2.2.1.4. Card and POS services: As a service that BIDV Tien Giang has recently developed strongly, it can be said that this is a very potential market and has the ability to develop even more strongly in the future. Card services with outstanding advantages such as fast payment time, wide payment range, quite safe, effective and suitable for the integration trend and the Project to promote non-cash payments in Vietnam. Cards have become a modern and popular payment tool. BIDV Tien Giang early identified that developing card services is to expand the market to people in society, create capital mobilized from card-opened accounts, contribute to diversifying banking activities, enhance the image of the bank, bring the BIDV Tien Giang brand to people as quickly and easily as possible. BIDV Tien Giang is currently providing card types such as: credit cards (BIDV MasterCard Platinum, BIDV Visa Gold Precious, BIDV Visa Manchester United, BIDV Visa Classic), international debit cards (BIDV Ready Card, BIDV Manu Debit Card), domestic debit cards (BIDV Harmony Card, BIDV eTrans Card, BIDV Moving Card, BIDV-Lingo Co-branded Card, BIDV-Co.opmart Co-branded Card). These cards can be paid via POS/EDC or on the ATM system. In addition, with debit cards, customers can not only withdraw money via ATMs but also perform utilities such as mobile top-up, online payment, money transfer,... through electronic banking services. In order to attract customers with card services, BIDV Tien Giang has continuously increased the installation of ATMs. As of December 31, 2015, BIDV Tien Giang has 23 ATMs combined with 7 ATMs in the same system of BIDV My Tho, so the number of ATMs is quite large, especially in the center of My Tho City, but is not yet fully present in the districts. Basic services on ATMs such as withdrawing money, checking balances, printing short statements,... BIDV ATMs accept cards from banks in the system. Banknetvn and Smartlink, cards branded by international card organizations Union Pay (CUP), VISA, MasterCard and cards of banks in the Asian Payment Network. From here, cardholders can make bill payments for themselves or others at ATMs, by simply entering the subscriber number or customer code, booking code that service providers notify and make bill payments. Chart 2.6. Net income from card services in the period 2011-2015 Unit: Million VND 3500 3000 2500 2000 1500 1000 500 0 687 1023 1547 2267 3104 2011 2012 2013 2014 2015 Net income from card services (Source: Report on the implementation of the annual business plan of the General Planning Department of BIDV Tien Giang [24]) Through chart 2.6, it can be seen that BIDV Tien Giang's card service income is constantly growing because the Branch focuses on developing businesses operating in industrial parks, which are the source of customers for salary payment products, ATMs, BSMS. Specifically, there are companies such as Freeview, Quang Viet, Dai Thanh, which are businesses with a large number of card openings at the Branch, contributing to the increase in card service fees [25]. Table 2.6. Number of ATMs and POS machines in 2015 of some banks in Tien Giang area. Unit: Machine STT Bank name Number of ATMs Cumulative number of ATM cards POS machine 1 BIDV Tien Giang 23 97,095 22 2 BIDV My Tho 7 21,325 0 3 Agribank Tien Giang 29 115,743 77 4 Vietinbank Tien Giang 16 100,052 54 5 Dong A Tien Giang 26 97,536 11 6 Sacombank Tien Giang 24 88,513 27 7 Vietcombank Tien Giang 15 61,607 96 8 Vietinbank - Tay Tien Giang Branch 6 46,042 38 (Source: 2015 Banking Activity Data Report of the General and Internal Control Department of the Provincial State Bank [21]) Through table 2.6, the author finds that the number of ATMs of BIDV Tien Giang is not much, ranking fourth after Agribank Tien Giang, Dong A Tien Giang, Sacombank Tien Giang. The number of POS machines of BIDV Tien Giang is very small, only higher than Dong A Tien Giang and BIDV My Tho in the initial stages of merging the BIDV system. Besides, BIDV Tien Giang has a high number of cards increasing over the years (table 2.7) but the cumulative number of cards issued up to December 31, 2015 is still relatively low compared to Agribank, Vietcombank, Dong A (table 2.6). div.maincontent .content_head3 { color: black; font-family:"Times New Roman", serif; font-style: normal; font-weight: bold; text-decoration: none; font-size: 14pt; } div.maincontent .p { color: black; font-family:"Times New Roman", serif; font-style: normal; font-weight: normal; text-decoration: none; font-size: 14pt; margin:0pt; } div.maincontent p { color: black; font-family:"Times New Roman", serif; font-style: normal; font-weight: normal; text-decoration: none; font-size: 14pt; margin:0pt; } div.maincontent .s1 { color: black; font-family:"Courier New", monospace; font-style: normal; font-weight: normal; text-decoration: none; font-size: 14pt; } div.maincontent .s2 { color: black; font-family:"Times New Roman", serif; font-style: italic; font-weight: normal; 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font-family:"Times New Roman", serif; font-style: normal; fo
• Factors affecting credit growth at Vietnam's joint stock commercial banks - 1
• The impact of interest rate and exchange rate fluctuations on profitability and stock return fluctuations at Vietnamese commercial banks - 9
• Current Status of Credit Quality at Vietnamese Joint Stock Commercial Banks
• Increasing capital mobilization from individual customers of commercial banks - Case study of Vietnam Joint Stock Commercial Bank for Investment and Development, Phu Tho Branch - 1

Source: website www.vndirect.com

The rate of return is calculated by taking the daily closing price of each bank stock. The formula for calculating the rate of return at time t, denoted by r t , is calculated by the formula:

r t = 100*ln(p t /p t-1 ) In which:

p t : Price of stock i at time t. p t-1 : Price of stock at time t-1.

The rate of return is calculated using the principle of compound interest with continuous compounding periods. This principle is similarly applied to market indices, interest rates and exchange rates.

3.1.2. Data on independent variables

3.1.2.1. Rate of return of market price index

The author chose the VN-Index to represent the market price index. The VN-Index is an index that shows the price fluctuation trend of all stocks listed and traded on the Ho Chi Minh City Stock Exchange. The VN-Index compares the current market capitalization value with the base market capitalization value on the base date of July 28, 2000, the first day the stock market officially came into operation. The base market capitalization value calculated in the index formula is adjusted in cases such as new listing, delisting and cases of changes in listed capital. This index is calculated using the market value weighting method, that is, based on the dominance level of each value used to calculate the index.

In Vietnam, in addition to the VN-Index representing stocks listed and traded at the Ho Chi Minh City Stock Exchange, there are two other main indices: the HNX-Index (representing stocks listed and traded at the Hanoi Stock Exchange) and the HNX-Index (representing stocks listed and traded at the Hanoi Stock Exchange).