MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY PHAM KHANH DUY DIVERSIFICATION STRATEGIES, BANK RISK AND PERFORMANCE EMPIRICAL EVIDENCE FROM VIETNAM Major Finance and Banki[.]
MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY - PHAM KHANH DUY DIVERSIFICATION STRATEGIES, BANK RISK AND PERFORMANCE: EMPIRICAL EVIDENCE FROM VIETNAM Major: Finance and Banking Code: 9340201 DOCTORAL DISSERTATION ACADEMIC ADVISOR: Assoc Professor Dr TRUONG THI HONG Ho Chi Minh City - 2021 i STATEMENT OF AUTHENTICATION I solemnly declare that this dissertation, “Diversification strategies, bank risk and performance: Empirical evidence from Vietnam”, is my own research Except for the references cited in this dissertation, I hereby guarantee that the whole or any part of this dissertation has never been published or used to obtain a degree elsewhere Any products/studies of other authors that have been used in this dissertation were properly cited This dissertation has never been submitted to any university or institution Ho Chi Minh City, 2021 ii ACKNOWLEDGEMENT In completing this dissertation, I would like to express my gratitude to the University of Economics Ho Chi Minh City (UEH), which provides an ideal environment and financial support for my research journey At UEH, I have gained valuable academic knowledge and research skills as a lecturer and as a Ph.D candidate My utmost appreciation is to my academic supervisor, Assoc Prof Dr Truong Thi Hong, for dedicated, whole-heartedly coaching and guidance throughout the completion of my thesis My gratitude also goes to my dearest colleagues at the School of Banking and the School of UEH Graduate for their continuously dedicated support, contributions, and guidance, for me in writing this dissertation I want to thank Prof Vo Xuan Vinh for the preliminary research ideas and suggestions My special thanks to Dr Nguyen Huu Huan, Dr Ngo Minh Vu, Dr Phan Chung Thuy, Dr Hoang Hai Yen, and Dr Ngo Minh Hai for their best efforts in helping me with various challenges during my Ph.D candidature Saying thank you is just simply not enough for what they have offered me Finally and most importantly, my beloved family and best friends have always been by my sides, with unconditional love, encouragement, and endless support Without them, this dissertation would have never been written Thank you all for the most profound appreciation Ho Chi Minh City, October 2021 Pham Khanh Duy iii TABLE OF CONTENTS STATEMENT OF AUTHENTICATION i ACKNOWLEDGEMENT ii TABLE OF CONTENTS iii ABBREVIATION LIST vii LIST OF TABLES viii LIST OF FIGURES ix ABSTRACT .x TÓM TẮT xi CHAPTER INTRODUCTION .1 1.1 Research motivation 1.2 Research background .8 1.3 Research gap identification 11 1.4 Research objectives .12 1.5 Research questions 14 1.6 The scope of research 15 1.7 Research procedure and methodology 15 1.8 Research contributions 17 1.9 Structure of the dissertation 19 CHAPTER LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT 22 iv 2.1 Bank diversification definition .22 2.2 Classification of bank diversification strategies .24 2.2.1 Asset diversification in the banking sector 28 2.2.2 Income diversification in the banking sector 30 2.2.3 Funding diversification in the banking sector 32 2.3 Theories of bank diversification .35 2.3.1 Theories of diversification .35 2.3.2 Theories of bank diversification 40 2.4 Concept and measurement of bank risk and performance 43 2.4.1 Concept and measurement of bank risk 43 2.4.2 Concept and measurement of bank performance .46 2.5 Theoretical overview of banking crisis 47 2.6 The impact of diversification on bank risk and performance 50 Although the concern on the impact of diversification on banks' risks and performance is discussed in various articles, the conclusion of this topic is still unclear 50 2.6.1 Asset diversification, bank risk, and performance 52 2.6.2 Income diversification, bank risk, and performance 56 2.6.3 Funding diversification, bank risk, and performance .60 2.6.4 Combinations of diversification strategies .61 2.6.5 Bank diversification, risk and performance in the financial crisis 62 2.6.6 Role of ownership structure in the nexus between diversification, risk and performance 64 2.7 Summary 67 v CHAPTER DATA AND METHODOLOGY .68 3.1 Data sample 68 3.2 Construction of variables 70 3.2.1 Dependent variables – Bank risk and performance 70 3.2.2 Key explanatory variables - Bank diversification measures .72 3.2.3 Control variables 74 3.2.5 The role of financial distress and bank ownership 76 3.3 Econometric models .79 3.4 Robustness check 83 3.5 Conclusion 86 CHAPTER EMPIRICAL RESULTS AND DISCUSSION .87 4.1 Descriptive statistics .87 4.2 Correlation matrix 89 4.3 Empirical results .91 4.3.1 Diversification strategies, bank’s risk and performance 91 4.3.2 Diversification strategy combination, bank risk and performance 102 4.3.3 Diversification, bank risk and performance during the crisis 105 4.3.4 The role of bank ownership structure .109 4.4 Robustness check results 117 4.5 Conclusion 117 CHAPTER CONCLUSION 118 5.1 Summary of research findings 118 5.2 Contributions 119 vi 5.3 Policy implications .120 5.4 Limitations 122 LIST OF PUBLICATION i REFERENCES ii APPENDIX xv vii ABBREVIATION LIST ASEAN Association of Southeast Asian Nations BSI The banking stability index CPI Consumer Price Index DEA Data envelopment analysis FOB Foreign-owned bank GDP Gross domestic product GMM Generalized Method of Moments HHI Herfindahl-Hirschman Index JPoD Joint Probability of Distress JSB Joint-stock bank NIM Net Interest Margin NPL Non-performing Loan PB Policy Bank POLS Pooled Ordinary Least Squared RBV Resources Based View SBV State Bank of Vietnam SGMM System Generalized Method of Moments SOB State-owned Bank US The United States of America WTO World Trade Organisation viii LIST OF TABLES Table 1.1: Descriptive number of banks in Vietnam, 2005-2019 Table 2.1: Summary of hypotheses associated with research questions 66 Table 3.1: Definition of Variables 78 Table 3.2: The expected sign of variables 79 Table 3.3: Testing steps for the hypotheses associated with the research question 85 Table 4.1: Summary statistics of variables 88 Table 4.2: Cross-Correlation Matrix of Variables .90 Table 4.3: Empirical results – Using Pooled OLS estimation Method Basic model of the impact of diversification on banks performance and risks 94 Table 4.4: Empirical results – Using Random effects estimation Method Basic model of the impact of diversification on banks performance and risks 96 Table 4.5: Empirical results – Using Fixed effects estimation approach Basic model of the impact of diversification on banks performance and risks 98 Table 4.6: Empirical results – Using SGMM estimation approach The baseline model of the effectiveness of diversification strategies on banks performance and risks 100 Table 4.7: Empirical Results Using SGMM Estimation Approach 103 Table 4.8: Empirical results Using SGMM Estimation Approach 107 Table 4.9: Regression Results Using SGMM Estimation Approach .111 Table 4.10: Regression Results Using SGMM Estimation Approach Diversification, risk and performance of Foreign banks 113 Table 4.11: Robustness test results 115 ix LIST OF FIGURES Figure 1.1: Diversification indexes of the Vietnam banks from 2005 to 2019 Figure 1.2: Research procedures 17 Figure 2.1: Research conceptual model 67 ... tài hàng năm ngân hàng, lấy từ Bankscope Kết - Kết thực nghiệm cho thấy, nhìn chung, thực tiễn đa dạng hóa lĩnh vực ngân hàng có hiệu việc cải thiện hiệu rủi ro ngân hàng, đặc biệt khủng hoảng ngân. .. hữu ngân hàng: ngân hàng quốc doanh, ngân hàng tư nhân nước ngân hàng nước ngồi Đóng góp - Luận án đóng góp thêm vào nghiên cứu thực nghiệm cách xem xét cách có hệ thống mối quan hệ đa dạng hóa,. .. đa dạng hóa, rủi ro hiệu hoạt động ngân hàng, tùy thuộc vào cấu trúc sở hữu thời kỳ Kết nghiên cứu luận án cung cấp cho nhà quản lý ngân hàng thông tin quan trọng hiệu chiến lược đa dạng hóa nhằm