MINISTRY OF EDUCATION AND TRAINING
HO CHI MINH CITY OPEN UNIVERSITY
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VO TRAN BINH NAM
SOME FACTORS AFFECTING BANK PROFITABILITY
VIETNAM TRADE
MASTER'S THESIS IN BANKING AND FINANCE
Ho Chi Minh City, 2013
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COMMITMENT
I certify that this thesis “Some factors affecting the profitability of commercial banks in Vietnam” is my own research.
Except where reference is made in the text of this thesis, I certify that this thesis, in whole or in part, has not been previously published or accepted for award of a degree elsewhere.
No other person's work/research is used in this thesis without proper citation.
This thesis has never been submitted for any degree at any other university or training institution.
Ho Chi Minh City, date … month … year 2013
The pledger
Vo Tran Binh Nam
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ACKNOWLEDGEMENTS
To complete this thesis successfully, first of all, I would like to express my sincere thanks to Ho Chi Minh City Open University, which has provided me with specialized knowledge in banking and finance at the master's level. This valuable knowledge has not only been effectively applied by me in the process of writing my thesis but also in my work.
I would like to express my sincere gratitude to my supervisor, Dr. Vo Xuan Vinh - Ho Chi Minh City Open University, who provided guidance, always closely followed and enthusiastically guided me throughout the process of writing the thesis. His scientific capacity, profound professional knowledge and enthusiasm were a great motivation for me to complete my thesis.
Finally, I would like to express my gratitude to my family members who have supported and helped me during my studies and writing of this thesis.
Ho Chi Minh City, date … month … year 2013
Vo Tran Binh Nam
SUMMARY
This thesis studies the factors affecting the profitability of Vietnamese commercial banks. The objectives of the study include: (i) determining the impact of some factors affecting the profitability of Vietnamese commercial banks and (ii) quantifying the impact of factors on profitability. In addition, the study also assesses the impact of the financial crisis on the impact level of the influencing factors. The influencing factors are selected based on previous studies and the characteristics of the Vietnamese banking system.
The study uses data from financial reports, prospectuses of Vietnamese commercial banks and macroeconomic information in the period 2004 - 2011 with 237 observations. Structural Equation Modeling (SEM) is used to assess the causal relationship in the model.
The research results show that management efficiency is the main factor that increases the profitability of banks. In addition, the size of equity also contributes to increasing profitability. On the contrary, market power reduces profitability. The results of this study do not support the SCP and RMP theories. In addition, the financial crisis also affects the impact level of some factors. More specifically, the financial crisis increases the impact level of equity but reduces the impact level of management efficiency on the profitability of banks. At the same time, the crisis changes the statistical significance level of some other influencing factors such as the level of market concentration or the size of the bank. In addition, the research results also show that there is a trade-off between the variables affecting the profitability of banks. Governance efficiency has a direct positive impact on bank profitability, while governance efficiency also increases market power (reducing profitability), increases capital structure (increasing profitability) and increases risk tolerance (reducing profitability).
The study also provides recommendations to help banks increase their profitability as well as limitations and suggestions for future research.
INDEX
COMMITMENT i
ACKNOWLEDGEMENTS ii
SUMMARY iii
TABLE OF CONTENTS v
LIST OF TABLES viii
LIST OF FIGURES ix
CHAPTER 1. INTRODUCTION 1
1.1. Basis for forming topic 1
1.2. Research question 3
1.3. Research objective 3
1.4. Research object and scope 4
1.5. Research methods. 4
1.6. Meaning of topic 4
1.7. Structure of the thesis 4
CHAPTER 2. RESEARCH OVERVIEW 6
2.1. General introduction to Vietnam's banking system 6
2.2. Theoretical basis 10
2.2.1. Bank profitability and factors affecting bank profitability 10
2.2.1.1. Bank profitability 10
2.2.1.2. Factors affecting bank profitability 11
2.2.2. Summary of some previous studies related to influencing factors
to the profitability of banks 12
2.2.2.1. External factors 13
2.2.2.2. Internal factors 17
2.2.3. Research status of factors affecting the profitability of Vietnamese banks 19
CHAPTER 3. RESEARCH METHODOLOGY AND RESEARCH HYPOTHESES21
3.1. Research methods 21
3.2. Research model 24
3.2.1. Variables in the research model and research hypotheses 27
3.2.1.1. Bank profitability 27
3.2.1.2. Risk tolerance 27
3.2.1.3. Capital structure of banks 28
3.2.1.4. Market power 28
3.2.1.5. Bank management efficiency 28
3.2.1.6. Bank size 29
3.2.1.7. Market concentration 29
3.2.1.8. Economic growth rate 30
3.3. Research data 32
CHAPTER 4. RESEARCH RESULTS 34
4.1. Descriptive statistics and correlation matrix 34
4.2. Regression results of structural model 37
4.3. Bootstrap Testing 43
CHAPTER 5. CONCLUSION AND RECOMMENDATIONS 44
5.1. Conclusion 44