Bank performance and non interest income evidence from vietnamese commercial banks

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING - - NGUYEN HUYNH MINH CHAU Bank Performance and Non-interest Income: Evidence from Vietnamese commercial banks BACHELOR THESIS MAJOR: FINANCE – BANKING CODE: 34 02 01 HO CHI MINH, 2023 THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING - - Student name: NGUYEN HUYNH MINH CHAU Student code: 050607190061 Class: HQ7–GE15 Bank Performance and Non-interest Income: Evidence from Vietnamese commercial banks BACHELOR THESIS Major: Finance – Banking Code: 34 02 01 ACADEMIC ADVISOR DR DUONG THI THUY AN HO CHI MINH, 2023 i ABSTRACT The thesis has presented the literature reviews and research methodologies used to ascertain the effect of non-interest income streams on the performance of Vietnamese commercial banks With the substantial assistance of the Stata 17 program, the study carries out regressions on a panel of data from 26 commercial banks in Vietnam throughout the years 2011-2021 This study intends to examine as well as clarify the direction and magnitude of the impact of non-interest income on the bank performance to make some recommendations for Vietnamese banks to improve their efficiency This thesis builds the empirical model using return on assets and return on equity as bank performance indicators, non-interest income to total assets representing the ratio of net non-interest income variable, along with nine control variables namely, bank size, asset quality, bank capitalization, loans to assets ratio, deposits to assets ratio, total costs to assets ratio, loan loss provision ratio, the growth rate of gross domestic product, and the rate of inflation Five regression approaches, including Pooled Ordinary Least Squares, Fixed Effect Method, Random Effects Method, Feasible Generalized Least Squares and Generalized Method of Moments, are employed to analyze the data Also, Independent Sample T-Test is conducted to test whether banks with high non-interest income ratio are different from those with low non-interest income ratio or not Hence, the importance of the role that non-interest income plays on bank performance can be confirmed The finding reveals that non-interest income has a favorable effect on bank performance, suggesting the growth of non-interest income is accompanied with an improvement in the bank performance Although it appears that interest from conventional banking operations is still the primary source of income for commercial ii banks, non-interest income from non-traditional banking activities has become more significant in the recent past This thesis attempts to fill in some gaps and contribute to the existing literature to shed some light on the research on the topic from the perspective of Vietnamese commercial banks and enhance the performance of Vietnamese commercial banks iii TĨM TẮT KHĨA LUẬN Luận văn trình bày sở lý thuyết phương pháp nghiên cứu sử dụng để xác định tác động dòng thu nhập lãi đến hiệu hoạt động ngân hàng thương mại Việt Nam Với hỗ trợ đáng kể chương trình Stata 17, nghiên cứu thực hồi quy liệu bảng với 26 ngân hàng thương mại Việt Nam giai đoạn 2011 - 2021 Nghiên cứu nhằm xem xét làm rõ chiều hướng mức độ tác động thu nhập lãi đến hiệu hoạt động ngân hàng để đưa số khuyến nghị cho ngân hàng thương mại Việt Nam nhằm nâng cao hiệu hoạt động Luận văn xây dựng mơ hình thực nghiệm sử dụng tỷ số lợi nhuận tài sản, tỷ suất lợi nhuận vốn chủ sở hữu tiêu đánh giá hiệu hoạt động ngân hàng, thu nhập lãi tổng tài sản thể tỷ lệ biến thu nhập lãi chín biến kiểm sốt quy mơ ngân hàng, chất lượng tài sản, vốn hóa ngân hàng, tỷ lệ cho vay tổng tài sản, tỷ lệ tiền gửi tổng tài sản, tổng tỷ lệ chi phí tài sản, tỷ lệ dự phòng rủi ro cho vay, tốc độ tăng trưởng tổng sản phẩm nội địa, tỷ lệ lạm phát Năm phương pháp hồi quy, bao gồm mơ hình hồi quy gộp, mơ hình tác động cố định, mơ hình tác động ngẫu nhiên, mơ hình bình phương tổng quát khả thi phương pháp hồi quy tổng quát, sử dụng để phân tích liệu Bên cạnh đó, kiểm định mẫu độc lập T-Test thực để kiểm định xem ngân hàng có tỷ lệ thu nhập ngồi lãi cao có khác biệt với ngân hàng có tỷ lệ thu nhập ngồi lãi thấp hay khơng Từ đó, khẳng định vai trị quan trọng thu nhập ngồi lãi hiệu hoạt động ngân hàng Kết cho thấy thu nhập ngồi lãi có tác động thuận chiều đến hiệu hoạt động ngân hàng, cho thấy tăng trưởng thu nhập lãi kèm với với cải thiện hiệu hoạt động ngân hàng Mặc dù tiền lãi từ hoạt động ngân hàng truyền thống nguồn thu nhập ngân hàng, thu iv nhập ngồi lãi từ hoạt động ngân hàng phi truyền thống trở nên quan trọng thời gian gần Luận văn bổ sung số khoảng trống đóng góp vào tài liệu có nhằm làm sáng tỏ nghiên cứu chủ đề từ quan điểm ngân hàng thương mại Việt Nam cải thiện hiệu hoạt động ngân hàng thương mại Việt Nam v DECLARATION I herewith declare that the thesis: “Bank Performance and Non-interest Income: Evidence from Vietnamese commercial banks” is the author's own research work under the guidance of Dr Duong Thi Thuy An This thesis contains no information that has already been published or written by another individual except where proper citation is used to provide appropriate reference Ho Chi Minh city, April 2023 Author Nguyen Huynh Minh Chau vi ACKNOWLEDGMENTS To complete this thesis, the author would like to express sincere thanks to: First and foremost, the author would like to give special thanks to the Board of Directors, Faculty of Finance and Banking, Training Department, other departments, and all teachers at Ho Chi Minh University of Banking who have wholeheartedly taught valuable knowledge as well as supported the author in recent times Next, the author also acknowledges Dr Duong Thi Thuy An, the thesis' academic advisor, for providing specific direction and insightful feedback that helped the author carry out the research in the most effective manner Finally, the author wants to express gratitude to family, relatives and friends who have encouraged the author during the implementation of this study Although many efforts have been made to complete this thesis, shortcomings cannot be avoided The author would like to sincerely embrace the valuable guidance and suggestions from teachers to improve the topic The author sends health wishes to all educators who lead the next generation of talented students Sincerely Ho Chi Minh city, April 2023 Author Nguyen Huynh Minh Chau vii TABLE OF CONTENTS ABSTRACT i TÓM TẮT KHÓA LUẬN iii DECLARATION v ACKNOWLEDGMENTS .vi LIST OF ABBREVIATIONS xi LIST OF TABLES xii LIST OF FIGURES xii LIST OF APPENDICES xiii CHAPTER INTRODUCTION 1.1 The urgency of research 1.2 Research objectives 1.2.1 General objective 1.2.2 Specific objective 1.3 Research questions 1.4 Subject and scope of the research 1.4.1 Research subject 1.4.2 Research scope 1.5 Research methodology 1.6 Contribution of the research 1.7 Research structure viii Summary CHAPTER THEORETICAL BACKGROUND AND LITERATURE REVIEW 10 2.1 Theoretical of the performance of commercial banks 10 2.1.1 Bank performance 10 2.1.2 Approaches to the bank performance measurement 13 2.1.2.1 Traditional measures 13 2.1.2.2 Economic measures 15 2.1.2.3 Market-based measures 17 2.2 Theoretical review of non-interest income 18 2.2.1 Non-interest income 18 2.2.2 Theoretical review on the impacts of non-interest income on the performance of commercial banks 18 2.3 Empirical review 22 2.4 Research gaps 27 Summary 10 CHAPTER DATA AND METHODOLOGY 31 3.1 Estimation procedure 31 3.2 Data collection 32 3.3 Research methodology 34 3.3.1 Model specification 34 3.3.2 Variable description 43 3.3.2.1 Dependent variables 43 xviii Hsieh, M.-F., Chen, P.-F., Lee, C.-C., & Yang, S.-J 2013 How does diversification impact bank stability? 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