BANKING UNIVERSITY OF HO CHI MINH CITY TIEU QUOC PHONG FACTORS AFFECTING BANK PROFITABILITY OF COMMERCIAL BANKS IN VIETNAM FROM 2008 TO 2020 BACHERLOR THESIS MAJOR FINANCE – BANKING NUMBER 7340201 HCM[.]
MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY TIEU QUOC PHONG FACTORS AFFECTING BANK PROFITABILITY OF COMMERCIAL BANKS IN VIETNAM FROM 2008 TO 2020 BACHERLOR THESIS MAJOR: FINANCE – BANKING NUMBER: 7340201 HCMC, SEPTEMBER 2021 BANKING UNIVERSITY OF HO CHI MINH CITY TIEU QUOC PHONG FACTORS AFFECTING BANK PROFITABILITY OF COMMERCIAL BANKS IN VIETNAM FROM 2008 TO 2020 BACHERLOR THESIS MAJOR: FINANCE – BANKING NUMBER: 7340201 INSTRUCTOR: PH.D NGUYEN THI NHU QUYNH HCMC, SEPTEMBER 2021 ACKNOWLEDGEMENT It is my radiant sentiment to place on record my best regards, deepest sense of gratitude to my supervisor at Banking University in Ho Chi Minh City - Ms Nguyen Thi Nhu Quynh for her patience, motivation, enthusiasm, and immense knowledge She has wholeheartedly helped and guided me in the process of writing this thesis I choose this moment to acknowledge her contribution as she has been supportive of my study and has actively provided me with enormous information to achieve the goal Also I would like to thank all of my friends, who always support and help me through the study together with the inspiration they gave me Author Tieu Quoc Phong TABLE OF CONTENTS LIST OF ABBREVIATIONS i LIST OF TABLES ii CHAPTER INTRODUCTION 1.1 THE NECESSITY OF THE RESEARCH 1.2 RESEARCH OBJECTIVES 1.2.1 General objective 1.2.2 Specific objectives 1.3 RESEARCH QUESTIONS 1.4 SUBJECTS AND THE SCOPE OF THE RESEARCH 1.4.1 Research subject 1.4.2 Research scope 1.5 DATA AND RESEARCH METHODOLOGY 1.5.1 Data 1.5.2 Methodology 1.6 THE THESIS CONTRIBUTIONS 1.6.1 Practical implications 1.6.2 Academy implications 1.7 STRUCTURE OF THE THESIS SUMMARY OF CHAPTER CHAPTER THEORETICAL BASIC AND LITERATURE REVIEW .6 2.1 THEORETICAL FRAMEWORK 2.1.1 Overview of commercial bank 2.1.2 Functions of commercial banks 2.1.3 Measure bank profitability 2.2 EMPIRICAL STUDIES REVIEW 2.2.1 Foreign research 2.2.2 Domestic research 11 2.3 RESEARCH GAP 12 SUMMARY OF CHAPTER 12 CHAPTER DATA AND METHODOLOGY 14 3.1 RESEARCH METHODOLOGY 14 3.2 RESEARCH MODELS 15 3.2.1 Research model 16 3.2.2 Dependent variables 16 3.2.3 Independent variable 19 3.3 RESEARCH DATA 25 SUMMARY OF CHAPTER 25 CHAPTER EMPIRICAL RESULTS 27 4.1 DATA DESCRIPTION 27 4.2 CORRELATION MATRIX 28 4.3 REGRESSION MODELS 30 4.3.1 Model – Dependent variable: ROE 30 4.3.2 Model – Dependent variable: ROA 34 4.3.3 Model – Dependent variable: NIM 38 4.4 DISCUSSION 41 4.4.1 Bank size (SIZE) 41 4.4.2 Capital ratio (CAP) 42 4.4.3 Liquidity (LOAN) 42 4.4.4 Deposit ratio (DEP) 43 4.4.5 Gross domestic product (GDP) 44 4.4.6 Inflation rate (INF) 44 4.4.7 Credit growth rate (CGR) 45 SUMMARY OF CHAPTER 45 CHAPTER CONCLUSIONS AND RECOMMENDATIONS 47 5.1 CONCLUSIONS 47 5.2 RECOMMENDATIONS 48 5.3 RESEARCH LIMITATIONS AND THE NEXT SUGGEST STUDY 49 REFERENCES iii APPENDIX .iv i LIST OF ABBREVIATIONS Abberviation Meaning FEM Fixed effect model REM Random effect model GDP Gross domestic product ROE Return on equity ROA Retuen on asset NIM Net interest margin Pooled OLS Pooled Ordinary Least Squares VIF Variance Inflation Factor INF Inflation FGLS Feasible Generalized Least Squares LIST OF TABLES Table 3.1 Summarizing the formula of variables and the sign expectation 23 Table 4.1 Statistical table describing the variables 27 Table 4.2 Correlation analysis matrix 29 Table 4.3 Fixed effect model of ROE 30 Table 4.4 Random effect model (REM) of ROE 31 Table 4.5 Chi-test valued of FEM and REM of ROE 32 Table 4.6 Autocorrelation diagnostics of ROE 32 Table 4.7 Multicollinearity diagnostics of ROE 33 Table 4.8 Heteroskedasticity diagnostics of ROE 33 Table 4.9 Model fix of ROE 34 Table 4.10 Fixed effect model (FEM) of ROA 34 Table 4.11 Random effect model (REM) of ROA 35 Table 4.12 Model choice beetwen FEM and REM of ROA 35 Table 4.13 Autocorrelation diagnostics of ROA 36 Table 4.14 Multicollinearity diagnostics of ROA 36 Table 4.15 Heteroskedasticity diagnostics of ROA 37 Table 4.16 Model fix of ROA 37 Table 4.17 Fixed effect model (FEM) of NIM 38 Table 4.18 Random effect model (REM) of NIM 38 Table 4.19 Model choice beetwen FEM and REM of NIM 39 Table 4.20 Autocorrelation diagnostics of NIM 39 Table 4.21 Multicollinearity diagnostics of NIM 40 Table 4.22 Heteroskedasticity diagnostics of NIM 41 Table 4.23 Model fix of NIM 41 CHAPTER INTRODUCTION 1.1 THE NECESSITY OF THE RESEARCH One of the characteristics of banks as financial intermediaries in the economy they collected money from the surplus unit and distribute to deficit units, the bank makes a profit from the difference in interest rates between the two financial products And the goal of a bank like all other companies is to maximize profits and minimize costs and possible risks But since Vietnam joined the World Trade Organization (WTO) in 2007, the competition of foreign banks in the market has increased, affecting the profitability of domestic banks In addition, financial institutions, fintech companies that have been growing rapidly in recent years contribute to the amount of credit available in the financial system Furthermore, Vietnamese authorities have also taken steps to liberalize the banking system by lifting interest rate ceilings, phasing out direct lending, and slowly opening capital accounts As the banking restructuring process is still ongoing, it is difficult to conclude how it might affect the performance of the Vietnamese banking system On the other hand, healthy and sustainable profitability is one of the main predictors of financial distress and banking crisis (Demirgỹỗ-Kunt & Detragiache 2000) From the perspective of emerging markets, this article is expected to find out the determinants of bank profitability in Vietnam In addition, examining the factors driving the profitability of banks is an important tool for banking regulators as it aids in prudential analysis From those reasons, the author chooses the topic of analyzing the factors affecting bank profitability to better understand the basic operations of the bank 1.2 RESEARCH OBJECTIVES 1.2.1 General objective The general objective of the study is to focus on analyzing factors affecting the profitability of commercial banks in Vietnam From the research results, the thesis suggests some recommendation to improve the profitability of commercial banks in Vietnam 1.2.2 Specific objectives To achieve the general objective, the thesis conducts these specific objectives following: Find out the factors that can affect the profitability of commercial banks The research assesses the factors affect the profitability of commercial bank in Vietnam The research suggests some recommendations to improve banking profitability 1.3 RESEARCH QUESTIONS Suggests the following research questions: What are the factors affecting the profitability of commercial banks in Vietnam? How is the impact level and direction of the factors on the profitability of commercial bank? What recommendations are there to improve the profitability of commercial banks in Vietnam? 1.4 SUBJECTS AND THE SCOPE OF THE RESEARCH 1.4.1 Research subject The thesis analyzes the factors affecting profitability of commercial banks in Vietnam 1.4.2 Research scope There are a total of 31 commercial banks in Vietnam, but some of them not publish enough data so the thesis choose 25 banks with enough data and according to statistics of the State Bank, as of December 31, 2020, the total assets of commercial banks in Vietnam account for more than 80% of the banking system, so these 25 banks ensure the representativeness of the banking system The time scope: The thesis focuses on analyzing the banking performance’s efficiency commercial banks from 2008 to 2020 Because this is the period that witnessed the competition for profits was very fierce among commercial banks in ...BANKING UNIVERSITY OF HO CHI MINH CITY TIEU QUOC PHONG FACTORS AFFECTING BANK PROFITABILITY OF COMMERCIAL BANKS IN VIETNAM FROM 2008 TO 2020 BACHERLOR THESIS MAJOR: FINANCE – BANKING NUMBER:... From the perspective of emerging markets, this article is expected to find out the determinants of bank profitability in Vietnam In addition, examining the factors driving the profitability of. .. What are the factors affecting the profitability of commercial banks in Vietnam? The author will consider perspectives to determine the bank'' s profitability including net interest margin (NIM),