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MINISTRY OF EDUCATION HO CHI MINH, SEPTEMBER 2021 THE STATE BANK OF VIETNAM AND TRAINING BANKING UNIVERSITY HO CHI MINH CITY NGUYỄN HOÀNG PHƯƠNG UYÊN Major Banking and Finance FACTORS AFFECTING THE NE[.]
THE STATE BANK OF VIETNAM BANKING UNIVERSITY MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY NGUYỄN HOÀNG PHƯƠNG UYÊN Major : Banking and Finance FACTORS AFFECTING THE NET INTEREST MARGIN OF VIETNAMESE COMMERCIAL BANKS GRADUATE THESIS MAJOR : BANKING AND FINANCE MAJOR CODE: SCIENCE INSTRUCTOR: VO, THI NGOC HA, MSc HO CHI MINH, SEPTEMBER 2021 THE STATE BANK OF VIETNAM BANKING UNIVERSITY MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY NGUYỄN HOÀNG PHƯƠNG UYÊN Major : Banking and Finance FACTORS AFFECTING THE NET INTEREST MARGIN OF VIETNAMESE COMMERCIAL BANKS GRADUATE THESIS MAJOR : BANKING AND FINANCE MAJOR CODE: SCIENCE INSTRUCTOR: VO, THI NGOC HA, MSc HO CHI MINH, SEPTEMBER 2021 ABSTRACT This thesis investigates the factors affecting the net interest margin of Vietnamese commercial banks over the period of 2009 - 2020 suggest some management indications for commercial banks for the next period Based on the theoretical basis and previous empirical studies, the thesis has been selected an appropriate research model, specifically using quantitative methods such as: descriptive statistics, correlation matrix, multicollinearity phenomenon, regression model, Pooled-OLS model, fixed effects model (FEM), random effects model ( REM), generalized least squares (GLS), hausman test, and hypothesis testing to select the most appropriate model Moreover, based on the analysis results, the thesis will also propose some recommendations to improve the net interest margin of commercial banks in Vietnam At the same time, the thesis is also a reference for those who are interested in improving the bank's profit relations in the direction of a new scientific approach Keywords: The net interest margin, commercial banks, factors, Pooled-OLS, FEM, REM, GLS… i PLEDGE My name is Nguyen Hoang Phuong Uyen I am a student of Banking university of Ho Chi Minh city, majoring in Banking and Finance The thesis: “Factors affecting the net interest margin of Vietnamese commercial banks” has been 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 sufficient citations or source citations in thesis The information and data used in the research processes are collected by author from various sources, which is completely truthful and clearly citied in the references Ho Chi Minh, 27th September 2021 Uyen ACKNOWLEDGEMENT A completed study would not be possible without help As a result, the author gratefully acknowledges their assistance and encouragement during the course of conducting this research as a requirement of obtaining my Degree of Banking Finance My special thanks and gratefulness approve to MSc.Vo Thi Ngoc Ha for her kindly support and advices through the process of completing my research Besides, she gave me a lot of advice so that I can complete my chosen topic well, reminding me of time and imparting to me a lot of your experience and knowledge Her comments and suggestions are extremely valuable, helping me to complete this thesis well CONTENTS PLEDGE ii ACKNOWLEDGEMENT CONTENTS .4 LIST OF ABBREVIATIONS LIST OF TABLES AND FIGURES LIST OF CHART CHAPTER 1: INTRODUCTION 10 1.1 Background of study 10 1.2 Objectives 11 1.2.1 General objectives: 11 1.2.2 Specific objectives 11 1.3 Research Questions: 11 1.4 Research’s contribution: 12 1.5 Objects and scope of study: .13 1.5.1 Research objects: 13 1.5.2 Scope of study: 14 1.6 Structure of study: 14 CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW 15 2.1 Theoretical Framework: 15 2.1.1 Commercial banks: 15 2.1.2 Function of commercial banks: 15 2.1.3 The net interest margin: 16 2.1.4 NIM generating financial services: 17 2.2 Literature review: .20 2.2.1 Some typical studies in Vietnam: .20 2.2.2 Some typical studies in the world 21 CHAPTER 3: RESEARCH METHODS 23 3.1 Research model: 23 3.2 Defining and Measuring Variables: 25 3.2.1 Dependence variable: 25 3.2.2 Independence variables: 25 3.2.2.1 Bank size: 25 3.2.2.2 Deposit: 26 3.2.2.3 Capitalization: 26 3.2.2.4 Non-interest income: 27 3.2.2.5 Non-performing loan: 27 3.2.2.6 Cost efficiency: .28 3.2.2.7 Liquidity: .28 3.2.2.8 Implied interest payment: 29 3.2.2.9 Market share: .29 3.2.2.10 Inflation: 30 3.2.2.11 Gross domestic product: 30 3.3 Method of data collection: .33 3.4 Method of data analysis: 35 3.4.1 Descriptive Statistics 35 3.4.2 Testing Pool-OLS, FEM, REMmodels 36 3.4.3 Testing coefficient of regression .37 3.4.4 Testing disability model 38 CHAPTER 4: EMPRICAL RESULT AND DISCUSION 40 4.1 Description statistics: .40 4.1.1 The net interest margin: 40 4.1.2 Liquidity: .41 4.1.3 Capitalization: 42 4.1.4 Size of bank: 43 4.1.5 Non-performing loan: 43 4.1.6 Non-interest income: 44 4.1.7 Cost efficiency: .45 4.1.8 Implied interest payment: 46 4.1.9 Deposit: 46 4.1.10 Inflation: 47 4.1.11 Gross Domestic Product: 48 4.1.12 Market Share: 50 4.2 Correlation analysis between variables and multicollinearity test 51 4.3 Regression Analysis : 53 4.3.1 Pooled-OLS model: 53 4.3.2 Fixed effect model (FEM): 54 4.3.3 Random effect model (REM): .55 4.3.4 Hausman Test: 56 4.3.5 Breusch – Pagan test: 56 4.3.6 Heteroscedasticity Test: 56 4.3.7 Correlation Test: 57 4.3.8 Regression results of research model according to GLS: 57 4.4 Discussing the results of the analysis: 59 4.4.1 INF - Inflation .59 4.4.2 CI – Cost efficiency 60 4.4.3 MS – Market share .60 4.4.4 CAP – Capitalization 60 4.4.5 LIQ – Liquidity 61 4.4.6 DEP – Deposit ratio .61 4.4.7 SIZE – Size of bank .62 4.4.8 NI (Non-interest income) .62 4.4.9 IP (Implied interest payment) .63 4.4.10 GDP (Gross Domestic Product) .63 CHAPTER 5: CONCLUSION AND MANAGEMENT INTERPRETATION 65 5.1 Conclusion: 65 5.2 Recommendations: .65 5.2.1 Concerning about cost efficiency: 65 5.2.2 Managing market share while expendingbank’s size: 66 5.2.3 Capital adequacy management ofcommercialbank: 67 5.2.4 Improve Liquidity capacity: .68 5.2.5 Dealing with macroeconomic: 68 5.3 Limitation: 69 5.4 Directions for further research: 70 FOREIGN REFERENCES I VIETNAM REFERENCES II APPENDIX IV LIST OF ABBREVIATIONS Abbreviation Explanation ADB FEM Asian Development Bank Fixed Effects Model GDP Gross Domestic Product GLS Generalized Least Square IMF International Monetary Fund NIM SBV Net interest margin State Bank of Vietnam OECD OLS Organisation for Economic Co-operation and Development Ordinary Least Squared POLS Pooled Ordinary Least Squared REM Random Effects Model LIST OF TABLES AND FIGURES Figure 1: Research model 24 Table 1: List ofvariables 31 Table 2: List of Banks 33 Table 3: Research method .35 Table 4: Descriptive statistics of research variables 40 Table 5: Matrix of correlation coefficients between variables 52 Table : Test of variance exaggeration factor VIF .53 Table 7:Regression result of Pooled-OLS 53 Table 8:Regression result of FEM .54 Table 9: Regression result .of REM 55 Table 10: Hausman test 56 Table 11: Breusch – Pagan Test result 56 Table 12: Heteroscedasticity Test result .57 Table 13: Correlation Test result 57 Table 14: Regression results of research model ROA 58 Table 15 : Summary of research results 59 LIST OF CHARTS Chart 1: Yearly average NIM 41 Chart 2: Yearly average of LIQ 42 Chart 3: Yearly average of CAP .42 Chart 4: Yearly Average of SIZE 43 Chart 5: Yearly average of NPL .44 Chart 6: Yearly average NI .45 Chart 7: Yearly average of CI 46 Chart 8: Yearly average IP 46 Chart 9: Yearly average of DEP .47 Chart 10: Yearly average of INF 48 Chart 11: Yearly average of GDP 49 Chart 12:Yearly average of MS 50 CHAPTER 1: INTRODUCTION 1.1 Background of study In 2020, the Covid-19 pandemic is seriously affecting global economy However, Vietnam remained a shining spot when we succeeded in rebuilding and boosting the economy Although it is the lowest level in 10 years with 2.91% (General Statistics Office of Vietnam (2021)) economic growth, butVietnam is one of the few countries with positive growth and the highest growth groupin the world Overcoming all barriers, the banking industry continued to operate and develop stably, thereby leading and supporting the recovery and growth of the economy Considering the general