The impact of capital structure on the performance of Vietnamese Commercial Banks, 2022

MINISTRY OF EDUCATION STATE BANK OF VIETNAM

AND TRAINING

HOCHIMINH UNIVERSITY OF BANKING

NGUYEN THI MINH NGUYET

THE IMPACT OF CAPITAL STRUCTURE ON THE

PERFORMANCE OF VIETNAMESE COMMERCIAL

BANKS

BACHELOR’S DISSERTATION

SPECIALIZATION: FINANCE – BANKING

CODE: 7340201

HO CHI MINH CITY, 2022

MINISTRY OF EDUCATION STATE BANK OF VIETNAM

AND TRAINING

HOCHIMINH UNIVERSITY OF BANKING

NGUYEN THI MINH NGUYET

THE IMPACT OF CAPITAL STRUCTURE ON THE

PERFORMANCE OF VIETNAMESE COMMERCIAL

BANKS

BACHELOR’S DISSERTATION

SPECIALIZATION: FINANCE – BANKING

CODE: 7340201

INSTRUCTOR

PhD. VUONG THI HUONG GIANG

HO CHI MINH CITY, 2022

i

ABSTRACT

Summary:

Recognizing the importance of capital structure to the business success of banks

in general, and commercial banks in particular. As a result, the author decided to

research "The Impact of Capital Structure on the Performance of Vietnamese

Commercial Banks." The study investigates the degree and direction of influence of

internal and external factors on commercial bank performance, typically,

Capitalization, Size, Loan, Deposit, bank growth, Liquidity, Tangibility, Gross

Domestic Product, and Inflation on the performance of Vietnamese Commercial banks

(ROE, ROA). The topic's research sample covers 31 commercial banks operating in the

Vietnamese market from 2012 to 2021. Using secondary data gathered from audited

financial statements of banks available on each bank's official website.

Following the essay, the researchers applied the following regression methods:

Pooled OLS (Pooled Ordinary Least Squares), REM (Random Effect Model), FEM

(Fixed Effects Model), and GLS (Generalized Least Squares). The findings indicate

that capital structure has a beneficial effect on bank performance. Furthermore, the

study discovered a significant positive association between the bank’s capitalization,

the bank's size, loan ratio, and growth rate on its performance via two metrics,

including the ratio of return on equity and return on total assets, while the deposit rate,

gross domestic product, and inflation have negative effects. According to the study,

banks should consider raising equity capital to improve operational efficiency and

boost financial capability.

Keywords: Capital Structure, Performance, Vietnamese commercial banks.

ii

ASSURANCE LETTER

The author of the essay has an honorary assurance of his college graduation course,

specifically:

My name is: Nguyen Thi Minh Nguyet

Major: Finance - Banking

As an HQ6 – GE05 class student, I am a member of Ho Chi Minh City Banking

University's K34 high-quality training program.

Number of students: 050606180266

“The impact of capital structure on the performance of Vietnamese

Commercial banks" is the research that I conducted under the guidance of Dr. Vuong

Thi Huong Giang.

This dissertation is my own, the content is independent, does not copy any

documents, and has not been published in any previous form. The figures in the tables

for analysis, comments, and assessments collected from different sources are clearly

and transparently stated in the reference section.

In addition, the dissertation also uses some comments, reviews, and figures from

other authors, and other organizations have quotes and annotations of origin. If I find

out that there is any fraud, I take full responsibility for the content of my essay.

Ho Chi Minh City, 2022

Author

Nguyen Thi Minh Nguyet

iii

THANK-YOU LETTER

There is no success used to the support and assistance of others, whether more

or less, directly or indirectly. Since I began exploring the subject, I have received a

great deal of attending great e from teachers, family, and friends. I would like to

express my heartfelt gratitude to the Board of Directors, departments, and faculties in

general, and the teachers of the Faculty of Finance and Banking in particular, of

Banking University of Ho Chi Minh City, who guided, taught, and created all

favorable conditions to assist me throughout the process of studying, researching, and

completing this thesis topic.

I would especially like to thank Ph.D. Vuong Thi Huong Giang – the Lecturer,

personally directed and dedicatedly advised me to carry out the first steps of studying

the topic to complete the entire graduation essay.

Due to the limited conditions of my competence, the research topic is not

immune to weaknesses during the study, therefore I look forward to getting comments

from teachers and friends so that I can gain more experience and the research paper

will be better developed.

Sincerely thank you!

Ho Chi Minh City, 2022

Author

Nguyen Thi Minh Nguyet

iv

TABLE OF CONTENTS

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

ASSURANCE LETTER..................................................................................................... ii

THANK-YOU LETTER.................................................................................................... iii

LIST OF ABBREVIATIONS.......................................................................................... viii

LIST OF TABLES ............................................................................................................. ix

LIST OF PICTURE............................................................................................................. x

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

1.1. REASONABLE FOR RESEARCH...................................................................1

1.2. RESEARCH OBJECTIVES...............................................................................3

1.1.1. General objective of the research .............................................................3

1.1.2. Specific objectives of the research ...........................................................3

1.3. RESEARCH QUESTIONS ................................................................................4

1.4. RESEARCH OBJECTS AND SCOPE ..............................................................4

1.4.1. Research subjects .....................................................................................4

1.4.2. Research scope .........................................................................................4

1.5. RESEARCH METHODOLOGY .......................................................................5

1.6. CONTRIBUTION TO THE TOPIC ..................................................................6

1.6.1. Theoretical aspect.....................................................................................6

1.6.2. Practical aspect .........................................................................................6

1.7. RESEARCH LAYOUT......................................................................................6

CONCLUSION CHAPTER 1............................................................................................. 8

v

CHAPTER 2. LITERATURE REVIEW ............................................................................ 9

2.1. THEORETICAL FOUNDATIONS OF BANK PERFORMANCE.....................9

2.1.1. Bank activities................................................................................................9

2.1.2. Bank performance ........................................................................................10

2.2 THEORETICAL BASIS OF THE BANK'S CAPITAL STRUCTURE .............12

2.2.1 Capital Structure............................................................................................12

2.2.2. Theories of Bank capital structure ...............................................................13

2.2.3. Theories of Corporate capital structure........................................................13

2.2.4. The impact of capital structure on bank performance .................................16

2.3. EMPIRICAL LITERATURE REVIEW.............................................................19

2.3.1 Foreign studies..............................................................................................19

2.3.2 Domestic studies ...........................................................................................22

CONCLUSION CHAPTER 2........................................................................................... 31

CHAPTER 3: RESEARCH METHODOLOGY .............................................................. 32

3.1. DATABASE AND RESEARCH MODEL.........................................................32

3.1.1. Database .......................................................................................................32

3.1.2. Research Model............................................................................................32

3.2. RESEARCH MODEL.........................................................................................34

3.2.1. Dependent variable.......................................................................................34

3.2.2. Independent variables ..................................................................................34

3.3. RESEARCH DATA SOURCE...........................................................................42

3.4. RESEARCH METHODS....................................................................................43

vi

3.4.1. Qualitative research methods.......................................................................43

3.4.2. Quantitative research methods.....................................................................43

CONCLUSION CHAPTER 3........................................................................................... 49

CHAPTER 4: ANALYSIS AND RESEARCH RESULTS.............................................. 50

4.1. DESCRIPTIVE STATISTICS............................................................................50

4.2. CORRELATION ANALYSIS............................................................................58

4.3. MODEL SELECTION........................................................................................59

4.3.1. Data regression model results......................................................................59

4.3.2. Accreditation model selection......................................................................62

4.4 TESTING DEFECTS FOR THE MODEL..........................................................63

4.4.1 Multicollinearity phenomenon test ...............................................................63

4.4.2 Autocorrelation test for ROA and ROE........................................................64

4.4.3 Heteroscedasticity test for ROA and ROE....................................................65

4.5. CORRECTION OF DEFECTS...........................................................................65

CONCLUSION CHAPTER 4........................................................................................... 74

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS.................................... 75

5.1. CONCLUSION...................................................................................................75

5.2. RECOMMENDATIONS ....................................................................................79

5.2.1. For Commercial Banks ................................................................................79

5.2.2. For state leaders............................................................................................81

5.3. LIMITATIONS OF STUDY...............................................................................81

CONCLUSION CHAPTER 5........................................................................................... 83

vii

REFERENCES.................................................................................................................... 1

APPENDIX......................................................................................................................... 6

viii

LIST OF ABBREVIATIONS

OLS Ordinary Least Square

GLS Generalized Least Squares

FEM Fixed Effects Model

REM Random Effect Model

GMM Generalized Methods of Moments

ROA Return on total Assets

ROE Return on total Equity

CAP The ratio of Equity to total Capital

SIZE Bank size

TANG Tangibility

GDP Gross Domestic Product

LIQ Liquidity

INF Inflation

VIF Variance Inflation Factor

PROB P-value

ix

LIST OF TABLES

Table 2.1. Summary of empirical research results on bank performance......................... 23

Table 3.1: The formula is calculated by the author for each variable............................... 33

Table 3.2: Variable’s measurement and expected effect .................................................. 41

Table 4.1. Descriptive statistics of variables..................................................................... 50

Table 4.2: Matrix of correlation coefficients between variables ...................................... 58

Table 4.3: Results of three model regressions (Pooled OLS, FEM, and REM) for ROA

and ROE............................................................................................................................ 59

Table 4.4: Model selection test results.............................................................................. 62

Table 4.5: Multicollinearity phenomenon test results...................................................... 63

Table 4.6: Wooldridge test results with dependent variable ROA ................................... 64

Table 4.7: Wooldridge test results with dependent variable ROE.................................... 64

Table 4.8: Modified Wald test results for ROA................................................................ 65

Table 4.9: LM Breusch and Pagan Lagrangian multiplier test results for ROE............... 65

Table 4.10: FEM model regression results according to GLS for ROA variables........... 66

Table 4.11: REM model regression results according to GLS for ROE variables........... 67

Table 4.12: Summary of research results.......................................................................... 68

Table 5.1: Summary of study results for ROE.................................................................. 76

Table 5.2: Summary of study results for ROA ................................................................. 77