Factors affecting the operational efficiency of Vietnamese commercial banks, 2018

STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

NGUYEN LY MINH THU

FACTORS AFFECTING

THE OPERATIONAL EFFICIENCY

OF VIETNAMESE COMMERCIAL BANKS

GRADUATION THESIS

MAJOR: BANKING AND FINANCE

CODE: 52340201

HO CHI MINH CITY, 2018

STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

NGUYEN LY MINH THU

FACTORS AFFECTING

THE OPERATIONAL EFFICIENCY

OF VIETNAMESE COMMERCIAL BANKS

GRADUATION THESIS

MAJOR: BANKING AND FINANCE

CODE: 52340201

INSTRUCTOR

NGUYEN MINH SANG

HO CHI MINH CITY, 2018

i

ABSTRACT

There are many concerns of banking sector in Vietnam, while the effect of

competition and concentration on the efficiency has not been investigated well

enough so far in the literature. The current study contributes to the empirical

literature by testing the impact of competition and concentration in Vietnam

banking sector. Using the TOBIT estimator technique, this study analyzes the

efficiency of 23 commercial banks in Vietnam over the period of 2008 - 2017.

The author‟s efficiency factors include: Loan on Total Assets, Loan on Total

Deposit, Cost Income Ratio, Deposit on Total Assets, Equity Ratio and Bank

Size. These factors allow the author gain insights into what extent identified

factors influencing the efficiency of commercial banks in Vietnam. Furthermore,

it is found that Vietnam commercial banks‟ efficiency is affected by Loan on

Total Assets, Loan on Total Deposit, Cost Income Ratio and Deposit on Total

Assets.

ii

DECLARATION OF AUTHENTICITY

I hereby confirm that this is my own research that I have compiled in my own

words under the guidance of instructor Dr. Nguyen Minh Sang.

With my signature I confirm that all data and reviews of other authors and other

agencies for analysis collected from different sources are documented and

referenced in the references.

Signature of the author

Nguyen Ly Minh Thu

iii

ACKNOWLEDEGMENTS

First of all, I would like to send my most sincere thanks and respect to Mr.

Nguyen Minh Sang for his sharing, understandings and supports so that I can

complete this study.

Secondly, I would like to thank the efforts of my parents for nurturing

encouraging me to grown up every day to discover the world as I am today.

Finally, best regards to my lecturers, my friends, my classmates and my beloved

Banking University HCMC for their sharing and supports during my time at the

university.

Ho Chi Minh City, 24 December, 2018

Nguyen Ly Minh Thu

iv

TABLE OF CONTENTS

ABSTRACT........................................................................................................i

DECLARATION OF AUTHENTICITY ............................................................ii

ACKNOWLEDEGMENTS...............................................................................iii

TABLE OF CONTENTS ..................................................................................iv

LIST OF ABBREVIATIONS .......................................................................... vii

LIST OF TABLES.......................................................................................... viii

LIST OF FIGURESError! Bookmark not defined. ........................................ ix

LIST OF PICTURE...........................................................................................ix

LIST OF APPENDIX........................................................................................ix

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

1.1. Research Background .................................................................................. 1

1.2. Objective of the study .................................................................................. 2

1.3. Questions of the study.................................................................................. 3

1.4. The subject and scopes of the study ............................................................. 3

1.4.1. Subject of the study................................................................................... 3

1.4.2. Scope of the study..................................................................................... 3

1.5. The research methods .................................................................................. 4

1.6. Contributions of research ............................................................................. 4

1.7. Structure of the study................................................................................... 4

v

CHAPTER 2: LITERATURE REVIEW............................................................. 6

2.1. Overview of commercial banks.................................................................... 6

2.1.1. Commercial Banks.................................................................................... 6

2.1.2. Concepts and characteristics of business of commercial banks................ 16

2.2. The operational efficiency and factors affecting the operational efficiency of

commercial banks............................................................................................. 19

2.2.1. Operational efficiency of commercial banks ........................................... 19

2.2.2. Factors affecting the operational efficiency of commercial banks ........... 22

2.3. Methods to assess the performance of commercial banks........................... 25

2.3.1. Traditional method.................................................................................. 25

2.3.2. Marginal effect analysis method ............................................................. 29

2.4. Censored regression model ........................................................................ 30

2.5. The previous empirical studies................................................................... 31

CHAPTER 3: EMPIRICAL MODEL............................................................... 35

3.1. Model of research ...................................................................................... 35

3.2. Research Method ....................................................................................... 37

3.3. Research data............................................................................................. 37

CHAPTER 4: FACTORS AFFECTING THE OPERATIONAL EFFICIENCY

OF VIETNAMESE COMMERCIAL BANKS ................................................. 40

4.1. Status of operation of commercial bank system in Vietnam ....................... 40

4.1.1. Overview of commercial banks system in Vietnam................................. 40

vi

4.1.2. Status of business activities of commercial banks ................................... 47

4.2. Measure the effectiveness and factors affecting the performance of

commercial banks in Vietnam........................................................................... 48

4.2.1. Descriptive Statistic ................................................................................ 48

4.2.2. Correlation Test ...................................................................................... 56

4.2.3. Regression analysis................................................................................. 56

4.2.4. Regression of ROA................................................................................. 57

4.2.5. Regression of ROE ................................................................................. 59

4.3. Discussion ................................................................................................. 60

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS...................... 65

5.1. Conclusion................................................................................................. 65

5.2. Recommendations ..................................................................................... 66

5.2.1. Recommendations for Government and State Bank ................................ 66

5.2.2. Recommendations for Commercial banks............................................... 68

5.3. Limitations ................................................................................................ 70

5.4. Future studies ............................................................................................ 70

REFERENCES................................................................................................. 72

vii

LIST OF ABBREVIATIONS

Acronyms Meaning of acronym

AFAS ASEAN Framework Agreement on Trade in Services

CIR Cost Income Ratio

DTA Deposit to Total Assets

ETA Equity to Total Assets

FEM Fixed Effects Mode

JSBs Commercial Joint Stock Bank

LTA Total Loans to Total Assets

LTD Total Loans to Total Deposit

NII Net Interest Income

NIM Net Interest Margin

NPL Non-performing Loan

REM Random Effects Model

ROA Return on Assets

ROE Return on Equity

SOBs State-Owned Bank

WTO World Trade Organization