Determinants of bank profitability: Evidence from Viet Nam, 2021

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

TRAN THU HIEN

DETERMINANTS OF BANK PROFITABILITY:

EVIDENCE FROM VIETNAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 52340201

HO CHI MINH CITY, 2021

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

TRAN THU HIEN

DETERMINANTS OF BANK PROFITABILITY:

EVIDENCE FROM VIETNAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 52340201

SUPERVISOR

NGUYEN THI MY HANH, Ph.D

HO CHI MINH CITY, 2021

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ACKNOWLEDGEMENTS

In order to research this topic completely, the author would like to express the

sincerest gratitude to the supervisor who has dedicated and worked with the author

throughout the research process.

In addition, the author also would like to express the deepest gratitude to staff,

lecturers teaching many useful knowledge as well as helping me have a better

preparation for this study in Banking University Ho Chi Minh City. However, with

limited knowledge and limited time, the topic cannot avoid mistakes. Hence, I look

forward to receiving guidance and comments from the lectures to complete and

improve my thesis.

Thank you very much!

Ho Chi Minh City, 2021

Author

Tran Thu Hien

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AUTHOR’S DECLARATION

I hereby confirm that this thesis entitled “Determinants of bank profitability:

Evidence from Vietnam ”, is my own work, and none of this work has been published before

submission.

Ho Chi Minh City, 2021

Author

Tran Thu Hien

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ABSTRACT

This study focuses on the impact of macro and micro factors on bank

profitability of Vietnamese commercial banks between 2011 and 2020. The data used

for the study was secondary data, collected from independent audited financial

statements of 28 Vietnamese commercial banks. The macro data is collected from the

World Bank's data warehouse. The study used the Generalized Least Squares model

for panel data to identify factors, including internal and external factors, that affect

the profitability of Vietnamese commercial banks. Specifically, it affects the

profitability on assets (ROA) and the profitability on equity (ROE). The results

showed that the return on equity (ROE) and the return on total assets (ROA) were

favorably correlated with bank size, equity size, deposit size, and inflation and were

inversely correlated with the ratio of non-interest income to total income. These

variables are all statistically significant at the 1% meaning. In addition, the study has

not found a correlation between credit and tax risks, GDP growth rate, and

profitability of Vietnamese commercial banks in the period 2011-2020.

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TABLE OF CONTENTS

LIST OF TABLES...............................................................................................................9

LIST OF PICTURES, GRAPHS......................................................................................10

LIST OF ACRONYMS .....................................................................................................11

CHAPTER 1: INTRODUCTION ....................................................................................12

1.1. Reasons for choosing the topic..........................................................................12

1.2. Research objectives............................................................................................14

1.3. Research questions.............................................................................................14

1.4. Research scope ...................................................................................................14

1.5. Research method................................................................................................14

1.6. Research structure.............................................................................................15

CONCLUSIONS OF CHAPTER 1..................................................................................16

CHAPTER 2: LITERATURE REVIEW ........................................................................17

2.1. Theoretical framework......................................................................................17

2.1.1. Commercial bank...........................................................................................17

2.1.2. Bank profitability...........................................................................................17

2.1.2.1. Bank profitability...................................................................................17

2.1.2.2. Indicators to measure profits of commercial banks...........................21

2.1.3. Factors affecting bank profits of commercial banks..................................23

2.1.3.1. External environment............................................................................23

2.1.3.2. Internal environment.............................................................................25

2.2. Empirical review................................................................................................26

2.2.1. Studies in the world .......................................................................................26

2.2.2. Studies in Vietnam.........................................................................................30

CONCLUSIONS OF CHAPTER 2..................................................................................33

CHAPTER 3: RESEARCH METHOD AND DATA.....................................................34

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3.1. Research method................................................................................................34

3.2. Research models.................................................................................................34

3.3. Research variables and data.............................................................................36

3.3.1. Research variables.........................................................................................36

3.3.1.1. Dependent variables ..............................................................................36

3.3.1.2. Independent variables...........................................................................37

3.3.2. Data .................................................................................................................43

3.4. Data Analysis Methods......................................................................................44

3.4.1. Statistical Description....................................................................................44

3.4.2. Estimation and selection of the appropriate model....................................44

3.4.3. Defect analysis................................................................................................45

CONCLUSIONS OF CHAPTER 3..................................................................................46

CHAPTER 4: RESEARCH RESULTS AND DISCUSSION........................................47

4.1. Situation of bank profitability of Vietnamese commercial banks in the period

2011-2020............................................................................................................................47

4.1.1. Current status of business activities of Vietnamese commercial banks ...47

4.1.2. Current status of the profitability of Vietnamese commercial banks.......49

4.2. Research results.................................................................................................51

4.2.1. Descriptive statistics ......................................................................................51

4.2.2. Determinants of bank profitability (ROE)..................................................52

4.2.3. Determinants of bank profitability (ROA)..................................................58

CONCLUSIONS OF CHAPTER 4..................................................................................65

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS..................................66

5.1. Conclusions.........................................................................................................66

5.2. Recommendations..............................................................................................67

5.3. Limitations of the thesis ....................................................................................68

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REFERENCES ..................................................................................................................70

APPENDICES....................................................................................................................75