THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY TRƯỜNG ĐẠI HỌC NGÀN HÀNG THÀNH PHO HÓ CHÍ MINH GRADUATION THESIS FACTORS AFFECTING VIETNAMESE COMMER[.]
THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY TRƯỜNG ĐẠI HỌC NGÀN HÀNG THÀNH PHO HĨ CHÍ MINH GRADUATION THESIS FACTORS AFFECTING VIETNAMESE COMMERCIAL BANKS’ PROFITABILITY FROM 2012 TO 2020 MAJOR: FINANCE – BANKING CODE: 52340201 Student: Tran Thanh Tam Student ID: 050606180327 Academic advisor: Dr Ho Thi Ngoc Tuyen Ho Chi Minh City, May 2022 i ABSTRACT The purpose of this thesisis to provide an analysis of factors affecting the profitability of 22 commercial banks in Vietnam from 2012 to 2020 using Pooled OLS, FEM, REM, FGLS methods The scope of the study is to aim at finding and analyzing the degree of impact of specific bank factors, industry-specific factors and macroeconomic factors on the profitability of 22 commercial banks in Vietnam The study cannot avoid the limitations because of the selection may not fully reflect the content and the meaning of all factors affect profitability or may not fully represent all commercial banks in Vietnam Understanding the factors influencing the performance of the bank not only receives much attention from scholars, but also from shareholders, administrators and authorities, because it assists policy makers and administrators in formulating strategies and policies to ensure the stability and sustainability of banking system's operation, as well as to avoid the risk of banking system crisis Assessing the profitability of a commercial bank always raises questions, because of their diversity Many researchers consider that profitability can provide a picture of the bank's business results Obtained result showed that ROA of commercial banks in Vietnam was affected positively and statistically significant by liquidity ratio, equity ratio, income diversification ratio, GDP and inflation rate; while non-performing loan, operating cost and loan balance have negative impact on ROA In contrast, Bank size not affect ROA and is not statistically significant Likewise, ROE of commercial banks in Vietnam was affected positively and statistically significant by Bank size, liquidity ratio, income diversification ratio, GDP and inflation rate; while equity ratio, non-performing loan and operating cost have negative impact on ROE By contrast, loan balance not affect ROE and is not statistically significant Keywords: the factors, commercial banks, profitability, ROA, ROE GUARANTEE My name is: TRAN THANH TAM ii Born: January 3rd, 2000 MSSV: 050606180327 Grade: HQ6-GE12 As a 4th class student of the High-quality program of Banking University of Ho Chi Minh City I hereby declare that the thesis is: “FACTORS AFFECTING VIETNAMESE COMMERCIAL BANKS’ PROFITABILITY FROM 2012 TO 2020” Academic advisor: Dr Ho Thi Ngoc Tuyen The thesis is carried out at Banking University of Ho Chi Minh City This thesis is the author's own research work, the research results are honest, in which there are no previously published contents or contents made by others except for the cited quotations Sufficient source in the thesis I take full responsibility for my honorary statement Ho Chi Minh City, May 30th, 2022 Author Tran Thanh Tam ACKNOWLEDGEMENT I would like to express my sincere thanks to the Board of Directors, Faculty of Finance, Faculty of Banking, lecturers, officials of departments and functional departments of Banking University of Ho Chi Minh City for helping me to equip my knowledge, create the most favorable conditions during the study and implementation of this thesis With respect and gratitude, I would like to express my gratitude to Dr Ho Thi Ngoc Tuyen for encouraging, guiding, and helping me throughout the entire process so that the thesis research process can be completed in the best way Best regards! TABLE OF CONTENT ABSTRACT i GUARANTEE ii ACKNOWLEDGEMENT iii TABLE OF CONTENT .iv ABBREVIATION LIST vii LIST OF TABLES viii LIST OF PICTURES ix CHAPTER INTRODUCTION 1.1 1.2 Background of the study Research objectives 1.2.1 General objectives .2 1.2.2 Specific objectives 1.3 Research questions 1.4 Subject and scope of the study .2 1.4.1 Subject of the study 1.4.2 Scope of the study 1.5 Research methodology 1.6 Contribution of the topic 1.7 Structure of the thesis .3 CHAPTER THEORETICAL BASIS AND LITERATURE REVIEW .5 2.1 2.2 Theoretical basis about commercial bank Theoretical basis about commercial bank profitability 2.2.1 Definition of bank profitability 2.2.2 Factors affecting commercialbank profitability 2.3 Theoretical framework 2.3.1 Agency theory 2.3.2 Relative market power 2.3.3 Balance portfolio theory 2.3.4 Trade-off theory 2.4 The meaning of profit assessment 2.5 The indicators reflect the profitability of commercial banks 10 2.5.1 Return on assets – ROA 10 2.5.2 Return on equity – ROE 11 2.6 Literature review 12 2.6.1 Foreign studies 12 2.6.2 National studies .14 CONCLUSION OF CHAPTER 19 CHAPTER RESEARCH METHODS .20 3.1 Research model 20 3.1.1 Research model .20 3.1.2 Method of determining variable .21 3.2 Research hypothesis .22 3.3 Research data 28 3.4 Selection of regression model and tests 29 3.5 Research Process 31 CONCLUSION OF CHAPTER 32 CHAPTER RESEARCH RESULTS AND DISCUSSION 34 4.1 Descriptive statistics 34 4.1.1 Check the correlation between variables 37 4.1.2 Multicollinearity diagnostics 37 4.2 Analysis of factors affecting ROA 38 4.2.1 Regression results 38 4.2.2 Model choice 39 4.2.3 Testing the hypothesisviolations of the FEM 40 4.2.3.1 Heteroskedasticity diagnostics 40 4.2.3.2 Autocorrelation test 41 4.2.3.3 Fix the defects of the model .41 4.2.3.4 Discuss the influence of factors on ROA 42 4.3 Analysis of factors affecting ROE 45 4.3.1 Regression results 45 4.3.1.1 Model choice 47 4.3.2 Testing the hypothesis violations of the FEM 47 4.3.2.1 Heteroskedasticity diagnostics 47 4.3.2.2 Autocorrelation diagnostics .48 4.3.2.3 Fix the defects of the model 48 4.3.2.4 Discuss the influence of factors on ROE 48 CONCLUSION OF CHAPTER 51 CHAPTER 5.1 5.2 CONCLUSION AND RECOMMENDATIONS 52 Conclusion .52 Recommendations 52 5.2.1 Bank size (SIZE) .52 5.2.2 Liquidity ratio (LIQ) .53 5.2.3 Equity ratio (CAP) 54 5.2.4 Loan ratio (TLA) 55 5.2.5 Non-performing loan (NPL) 56 5.2.6 Operating Efficiency (CIR) 56 5.2.7 Income diversification (IDR) 57 5.2.8 Economic growth (GDP) 58 5.2.9 The inflation rate (INF) 58 5.3 Limitation of the study 59 CONCLUSION OF CHAPTER 61 CONLUSION OF THE THESIS .62 REFERENCES 63 APPENDIX ………………………………………………………………………… 69 Abbreviation ABBREVIATION LIST Meaning FEM Fixed effect model GDP Gross domestic product INF Inflation Pooled OLS Pooled Ordinary Least Squares REM Random effect model ROA Return on asset ROE Return on equity LIST OF TABLES Table 2-1 Summary previous studies 16 Table 4-1 Descriptive statistics of variables in the regression model 34 Table 4-2 Correlation matrix between variables 37 Table 4-3 Test results for multicollinearity 37 Table 4-4 Summarize the results of regression analysis with ROA 38 Table 4-5 F test, Breusch -Pagan and Hausman model selection for variable ROA 39 Table 4-6 The results of Heteroskedasticity diagnostics with ROA 40 Table 4-7 Autocorrelation test results of ROA 41 Table 4-8 ROA regression model results after fixing 41 Table 4-9 Summarize the results of regression analysis with ROE 45 Table 4-10 F test, Breusch-Pagan and Hausman model selection for variable ROE 47 Table 4-11 The results of Heteroskedasticity diagnostics with ROE .47 Table 4-12 The results of Autocorrelation diagnostics with ROE .48 Table 4-13 ROE regression model results after fixing 48 LIST OF PICTURES Picture Descriptive statistics 70 Picture Correlation matrix between variables 70 Picture Test results for multicollinearity 70 Picture Pooled OLS output withROA 70 Picture REM output with ROA .70 Picture FEM output with ROA 70 Picture Breusch and Pagan Lagrangian test with ROA 70 Picture Hausman test with ROA 70 Picture Heteroskedasticity diagnostics with ROA 70 Picture 10 Autocorrelation diagnostics with ROA 70 Picture 11 FGLS output with ROA 70 Picture 12 Pooled OLS output withROE 70 Picture 13 FEM output with ROE 70 Picture 14 REM output with ROE 70 Picture 15 Breusch and Pagan Lagrangian test with ROE 70 Picture 16 Hausman test with ROE 70 Picture 17 Heteroskedasticity diagnostics with ROE 70 Picture 18 Autocorrelation diagnostics with ROE .70 Picture 19 FGLS output with ROE 70