Ownership structure and performance of Vietnamese commercial banks

APPENDIX

Appendix 1: Building a set of corporate governance indicators in Vietnamese banks

Currently, the most widely known corporate governance principles in the world were issued by the OECD in 1999. The principles are considered an international standard for policy makers, investors, companies and other stakeholders worldwide. All corporate governance indexes researched and developed are aimed at complying with the OECD corporate governance principles.

In the case of Nepal, Kumar and Upadhyaya (2011) are among the few researchers who have developed this index for commercial banks. However, their research has only stopped at providing a method and has not been applied in practice. In India, the research of Tuteja and Nagpal (2013) has been applied in practice by sending a set of 38 questions to commercial banks to collect and build an index. The questions focus on the core of corporate governance issues, and therefore, have relatively high information value. In particular, the research has referenced the “Principles for Strengthening Bank Governance” of the Basel Committee (2010). Thanks to that, the level of reliability as well as accuracy has increased significantly compared to the previous case in Nepal.

In Vietnam, corporate governance issues have always attracted the attention of administrators as well as researchers, especially in the recent period, since the 2008 global financial crisis and the subsequent economic restructuring process. However, up to now, there has not been any official or standardized method for a set of corporate governance indicators recognized, especially in the banking sector.

The thesis proposes a method for building a set of corporate governance indexes in commercial banks in Vietnam, based on the research of Tran Thi Thanh Tu and colleagues [21]. In the research, the author argues that the process of building a set of corporate governance indexes in the world is carried out in certain steps:

(1) Refer to regulations, legal documents or reference principles. They can be considered as legal basis, guideline and reference point for building the index set.

(2) Identify the components of corporate governance index. They include activities and different aspects of governance. Identifying these components not only covers all issues related to

management activities, but also helps to determine more accurately the current state of corporate governance. From there, there are measures to prevent, overcome or improve existing problems.

(3) Ask specific questions in the components of the index set. From there, collect information about the current state of governance in enterprises.

(4) Scoring and indexing. This scoring depends on the importance of the issue that the question refers to in relation to other questions and issues. This score will then be put into a calculation process to form the final QTDN index.

Based on this, combined with the set of questions that Tran Thi Thanh Tu and colleagues have built [21], the thesis proposes a set of 35 questions on corporate governance in commercial banks. First of all, some issues that need attention are:

Firstly, the regulations and standards referred to are the Law on Credit Institutions, the Law on Securities, the Law on Investment, the OECD's Corporate Governance Principles, the Basel Committee's principles for enhancing corporate governance in the banking sector, etc.

Second, the components of the index set include: (i) Shareholders and annual general meeting of shareholders; (ii) Board of Directors; (iii) Supervisory Board; (iv) Information disclosure, transparency and audit (internal audit and independent audit).

Third, the form of collecting information to answer the questionnaire: based on information widely published in the mass media. This method helps the sample of results to be random, the collection rate is high instead of sending the questionnaire to commercial banks to wait for feedback. At the same time, the accuracy will also be higher. However, this will also make the research much more difficult.

Fourth, the question types and the scores for each question. The questionnaire uses two question types: True/False and multiple choice. This allows the advantages of both question types to be exploited. The scoring will also be based on the view that the better the management performance, the higher the score.

Fifth, how to calculate the index. After the answers have been assigned their respective points, the scores of all the answers will be added together to obtain the total score for the index. The reason for adding the total score without calculating the weighted average is because the maximum score of each survey question in the questionnaire itself has considered the level of

their importance and influence on the quality of corporate governance in commercial banks. The maximum score for the set of questions is 70 points.

The specific questions are as follows:

I. SHAREHOLDERS AND ANNUAL GENERAL MEETING OF SHAREHOLDERS

1. Does the bank have shareholders who are foreign individuals or organizations? (Maximum: 1 point)

a. No

b. Yes

Choose a: 0 points, b: 1 point

2. Bank plans to list abroad (Maximum: 2 points)

a. Yes

b. Under consideration

c. No

Answer a: 2 points, b: 1 point, c: 0 points

3. Bank governance regulations include (Maximum 6 points)

a. Procedures for convening and voting at the General Meeting of Shareholders

b. Procedures for nomination, candidacy, and dismissal of members of the Board of Directors

c. Procedures for organizing Board of Directors meetings

d. Procedures for appointing and dismissing senior managers

e. Procedure for coordinating activities between administrative agencies

f. Procedures for evaluating reward and discipline activities for administrative agencies

Choose each option for 1 point, not choose: 0 points

4. Resolution of the General Meeting of Shareholders is published on the bank's website (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

5. The percentage of shares owned by a major shareholder is 5% (Maximum 1 point)

a. True

b. False

Choose a: 1 point, b: 0 points

6. The bank's charter complies with the State Bank's Model Charter (Maximum 1 point)

a. Comply with the model charter

b. Comply with and supplement other regulations

c. Non-compliance

Choose a, b: 1 point, c: 0 point

7. Time to convene the annual General Meeting of Shareholders after the end of the fiscal year (Maximum 2 points)

a. Under 2 months

b. From 2 to 4 months

c. Over 4 months

Choose a: 2 points, b: 1 point, c: 0 points

8. Form of information for shareholders about the General Meeting of Shareholders (Maximum 3 points)

a. Letter to each shareholder

b. Announcement on the bank's website

c. Published in newspapers

Choose each option to get 1 point

9. The bank has regulations for organizing the General Meeting of Shareholders (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

10. Bank provides information on voting process (Maximum 2 points)

a. For shareholders

b. On mass media

c. Both

d. Not provided

Choose c: 2 points, a/b: 1 point, d: 0 points

II. BOARD OF DIRECTORS

11. Ratio of non-executive members and independent members among total members of the Board of Directors (Maximum 2 points)

a. Less than ½

b. ½

c. Greater than ½

Answer a: 0 points, b: 1 point, c: 2 points

12. Information on qualifications, training processes/courses and experience of Board members (Maximum 2 points)

a. Published on the website or reports published in the media

b. Announcement at the general meeting of shareholders

c. Publish both

d. Not published

Answer a/b: 1 point, c: 2 points, d: 0 points

13. The Chairman of the Board of Directors is a non-independent member (Maximum 1 point)

a. True

b. False

Answer a: 0 points, b: 1 point

14. The Board of Directors has committees (Maximum 3 points)

a. Personnel Committee

b. Risk Management Committee

c. Other committees

Choose 1 of 3: 0 points. Choose a and b: 1 point. Choose all 3: 3 points

15. Minutes and resolutions of the Board of Directors are announced (Maximum 1 point)

a. True

b. False

Choose a: 1 point, choose b: 0 points

16. The terms of office of the members are different (Maximum 1 point)

a. True

b. False

Choose a: 1 point, choose b: 0 points

17. Banking (Maximum 1 point)

a. Only the audit committee

b. Only internal audit department

c. Both

Choose a or b: 0 points, choose c: 1 point

18. The bank announced at the General Meeting of Shareholders (Maximum 3 points)

a. Information on remuneration of the entire Board of Directors

b. Information on remuneration of each member of the Board of Directors

c. Compensation plan

d. Not published

Choose each option to get 1 point

19. Report of the Board of Directors at the General Meeting of Shareholders includes (Maximum 5 points)

a. Assessment of the bank's performance

b. Results of monitoring the financial and operational situation

c. Results of supervision of the Board of Directors and Senior Management

d. Evaluation of the coordination between the Board of Directors, Board of Supervisors, Board of Management and shareholders

e. Other

Choose each option to get 1 point

20. Bank has process (Maximum 2 points)

a. Selection, appointment and dismissal of members of the Board of Directors

b. Selection, appointment and dismissal of senior management staff

Choose each option to get 1 point

21. Candidate profiles for the position of Board member are announced to shareholders before the General Meeting of Shareholders (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

22. Bank has (Maximum 5 points)

a. Succession policy

b. Announce the number of Board of Directors meetings during the year

c. Announcement of meeting attendance rate during the year

d. Announcement of the work that the Board of Directors members are undertaking

e. Provide training for Board members

Choose each option to get 1 point

III. BOARD OF SUPERVISION

23. There is information to help shareholders assess the appropriateness of training and experience of the members of the Board of Supervisors (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, choose b: 0 points

24. The BKS has a process for performing tasks independently (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

25. The Board of Directors has operating regulations (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

26. Is the number of meetings/year of the Board of Supervisors disclosed (Maximum 1 point)?

a. Yes

b. No

Choose a: 1 point, b: 0 points

27. Does the bank have a procedure for appointing and dismissing members of the Board of Supervisors? (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

28. Are BKS paid based on work results? (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

29. Does the bank have training activities for the Board of Directors? (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

IV. INFORMATION DISCLOSURE, TRANSPARENCY AND AUDIT

30. Banking (Maximum 2 points)

a. Prepare financial statements according to Vietnamese accounting standards

b. Prepare financial statements according to accounting standards or international financial statements

c. Both standards (Vietnamese and international)

Choose a or b: 1 point, c: 2 points

31. Bank announcement (Maximum 6 points)

a. Unaudited annual and quarterly financial statements

b. Audited annual financial statements

c. Consolidated financial statements

d. Annual report

e. Internal transactions

f. Transactions with related parties

Choose each option: 1 point

32. The bank publishes its financial statements according to (Maximum: 2 points)

a. Month

b. Quarter

c. Year

Select all a, b, c: 2 points, b and c: 1 point, the rest: 0 points

33. Does the Bank publish its Financial Statements and Annual Reports on time? (Maximum 1 point)

a. Yes

b. No

Choose a: 1 point, b: 0 points

34. Form of shareholder relations activities (Maximum 3 points)

a. Newsletter for shareholders/investors

b. Shareholders/Investors Conference

c. Other forms

Each option gets 1 point.

35. Bank has its own website (Maximum 2 points)

a. No own website or not updated regularly

b. Continuously updated in Vietnamese

c. Continuously updated in both Vietnamese and other languages

Choose a: 0 points, b: 1 point, c: 2 points

After collecting responses to the questionnaire corresponding to each bank over each year (panel data), the CGI index was used as an independent variable in the regression model measuring the impact of ownership structure on the performance of Vietnamese commercial banks.

Appendix 2: Regression results of the model

1. Model results by GMM method

1.1. Dependent Variable: NPL

Method: Panel Generalized Method of Moments Sample: 2008 2015

Periods included: 8

Cross-sections included: 26

Total panel (unbalanced) observations: 198 2SLS instrument weighting matrix

Instrument specification: NPL C CO STATE FOR CGI CAR LG GDP M2

Variable

coefficient	Std. Error	t-Statistic	Prob.
C	9,526	1.24	7,653	0.000
CO	-0.026	0.01	-3.263	0.001
STATE	0.029	0.01	4,478	0.000
FOR	0.004	0.01	0.428	0.669
CGI	-0.065	0.01	-4.640	0.000
CAR	0.003	0.01	0.307	0.759
LG	-0.003	0.00	-0.763	0.447
GDP	-0.506	0.14	-3.552	0.001
M2	-0.033	0.02	-2.072	0.040

R-squared	0.295	Mean dependent var		2,314
Adjusted R-squared	0.265	SD dependent var		1,368
SE of regression	1,173	Sum squared residue		260.263
Durbin-Watson statistics	1,063	J-statistic		189,000
Instrument rank	10,000	Prob(J-statistic)		0.000

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1.2. Dependent Variable: ROAA

Method: Panel Generalized Method of Moments Sample: 2008 2015

Periods included: 8

Cross-sections included: 26

Total panel (unbalanced) observations: 198 2SLS instrument weighting matrix

Instrument specification: ROAA C CO STATE FOR CGI CAR LG GDP M2

Variable

coefficient	Std. Error	t-Statistic	Prob.
C	-0.967	0.99	-0.979	0.329
CO	0.007	0.01	1,059	0.291
STATE	-0.007	0.01	-1.425	0.156
FOR	-0.006	0.01	-0.805	0.422
CGI	0.025	0.01	2,252	0.026
CAR	0.002	0.01	0.246	0.806
LG	0.005	0.00	1.901	0.059
GDP	0.109	0.11	0.961	0.338
M2	0.008	0.01	0.614	0.540

R-squared	0.070	Mean dependent var		1,266
Adjusted R-squared	0.030	SD dependent var		0.945
SE of regression	0.931	Sum squared residue		163,730
Durbin-Watson statistics	1,684	J-statistic		189,000
Instrument rank	10,000	Prob(J-statistic)		0.000

1.3. Dependent Variable: ROAE

Method: Panel Generalized Method of Moments Sample: 2008 2015

Periods included: 8

Cross-sections included: 26

Total panel (unbalanced) observations: 198 2SLS instrument weighting matrix

Instrument specification: ROAE C CO STATE FOR CGI CAR LG GDP M2

Variable

coefficient	Std. Error	t-Statistic	Prob.
C	-7.866	6.59	-1.194	0.234
CO	-0.068	0.04	-1.611	0.109
STATE	0.056	0.03	1,622	0.107
FOR	0.100	0.05	1,941	0.054
CGI	0.285	0.07	3,826	0.000
CAR	-0.116	0.05	-2.117	0.036
LG	0.027	0.02	1,558	0.121
GDP	0.799	0.75	1,060	0.290
M2	0.164	0.08	1,938	0.054

R-squared	0.197	Mean dependent var		11,754
Adjusted R-squared	0.164	SD dependent var		6,793
SE of regression	6.213	Sum squared residue		7294.561
Durbin-Watson statistics	0.945	J-statistic		189,000
Instrument rank	10,000	Prob(J-statistic)		0.000

2. Panel data regression results – fixed effects

2.1. Dependent Variable: NPL Method: Panel Least Squares Sample: 2008 2015

Periods included: 8

Cross-sections included: 26

Total panel (unbalanced) observations: 198

Variable

coefficient	Std. Error	t-Statistic	Prob.
C	2,977	2.21	1,348	0.180
CO	0.034	0.03	1,085	0.279
STATE	0.053	0.01	4,427	0.000
FOR	-0.023	0.02	-1.360	0.176
CGI	-0.001	0.03	-0.050	0.960
CAR	0.024	0.01	1,672	0.096
LG	-0.001	0.00	-0.435	0.664
GDP	-0.501	0.12	-4.124	0.000
M2	-0.037	0.01	-2.513	0.013
	Effects Specification
Cross-section fixed (dummy variables)
R-squared	0.563	Mean dependent var		2,314
Adjusted R-squared	0.475	SD dependent var		1,368
SE of regression	0.992	Akaike info criterion		2,977
Sum squared residue	161,358	Schwarz criterion		3,541
Log likelihood	-260.690	Hannan-Quinn critic.		3.205
F-statistic	6,392	Durbin-Watson statistics		1,573
Prob(F-statistic)	0.000

Ownership structure and performance of Vietnamese commercial banks - 18

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