Theneccessityofthereport
19pandemic.Doingbusinessinsomeindustriesandbusinesseswillbesignificantlynegatively affected, commercial banks will also experience certain impacts.
Bankingindustryisalsoanimportantindustrythatplaysanimportantroleinacountry'seconomy. This is a financial intermediary, a backbone industry that helps regulate themarket, circulate money, provide services, products and utilities between actors in theeconomy In addition, commercial banks are also a tool for the State Bank to regulatemonetary and fiscal policies and stabilize the country's microcosm Therefore, if theState Bank does not control and ensure efficient operation of commercial banks, it willcause negative impacts affecting the national economy Moreover, in the context thatthe economy and financial market are opening up, international integration will bringsomechallengesaswellasopportunitiesforthebankingindustry.AccordingtoAthanas oglouetal.
(2005),aneconomyinwhichthebankingindustryoperatesprofitablycanwithstandcrisesand contributetobetterfinancialsystemstability.Effectiveoperations,sustainabledevelopment whileensuringprofitscanhelpcommercial banks overcome challenges, increase their position and competitiveness. Inrecentyears,commercialbankshavealwaysplacedhighemphasisoni n c r e a s i n g profits and minimizing costs in business Therefore, commercial banks need to find outthefactorsthatimproveprofitability.
Not only that, research on factors that help improve profitability of commercialbanksalwaysreceivesgreatconsiderationfrommanagers,shareholdersandstat eagencies From here,the author chooses toresearch the topic
"FactorsAffectingProfitability of Joint Stock Commercial Banks Listed on The
Ho Chi Minh CityStockExchange"astheresearchtopicthesis.
Objectives
OverallObjectives
The overall objective of the study is to evaluate the impact of factors affectingthe profitability of joint stock commercial banks in Vietnam and propose solutions toimprove the profitability of joint stock commercial banks, which listed on the Ho ChiMinhCityStockExchangeintheperiod2010-2020.
SpecificObjective
1 Determiningfactors a ff ect in gp ro fi ta bi li ty ofj o i n t st oc kco mm er cia l ban ks l is ted onHoChiMinhCityStockExchange.
3 Proposesol ut io nsa nd po li cy implicationsf o r i mp ro vi ng th e p r o f i t a b i l i t y ofcommercialbankslistedontheHoChiMinhCityStockExchange.
ResearchQuestion
Subjectandthescope
Thesubject
Thescope
Methodology
Descriptive statistical method: The study uses a method to describe the basiccharacteristics of the data collected through different methods to serve the research,includingcomparison,statisticaldata.
The method of analyzing panel data (Panel Data): The data in the research iscollectedfromjointstockcommercialbankslistedontheHoChiMinhStockExchange The data processing methods used include FEM, and REM models Afterestimating the above models, the author will use the F-Test and Hausamn method toselect the appropriate model Next, the author will test and handle violations of theselectedmodel.
Finally, using the Feasible Generalized Least Squares (FGLS) method to choosethe mostsuitablemodelamongthemodelstogivetheresults.
Contribution ofthereport
Makerecommendationstocontributetoimprovingtheprofitability ofj o i n t stockcommercialbankslistedontheHoChi MinhCityStock Exchange.
In practical terms, the analysis of the factors affecting the profitability of jointstockcommercialbankslisted ontheHoChi Minh StockExchangewill providescientificbasestohelpbankadministratorsmakeprovidingsolutionstoimproveprofi tability,andatthesametimeprovidingresearchtohelpmakeeconomicpolicies suitablef o r t h e d e v e l o p m e n t o f j o i n t s t o c k c o m m e r c i a l b a n k s l i s t e d o n t h e H o C h i MinhCityStockExchange.
TheoreticalBasis
This chapter introduces the reason for choosing the topic, the neccessity of theresearch on the basis of practice and empirical evidence to determine the researchobjectives and research topic of the thesis topic In addition, define the research objectand research scope, clearly present the scientific and practical contributions of thethesis.
Chapter 2 introduces the theoretical basis of profitability of commercial banks,the theoretical basis of macro factors and factors affecting profitability of commercialbanks Based on empirical studies and research hypotheses to determine the model anddeterminetheappropriatefactorsforchapter3toachievetheresearchgoalofthetopic.
The thesis uses Stata software to run regression according to the FEM, REMestimation models Compare models with each other through Hausman test to choosethe most optimal model Next, the author will test and handle violations of the selectedmodel Finally, using the FGLS method to choose the most suitable model among themodelstogivetheresults.
This chapter deal with the empiricial research results, presenting descriptivestatistics,estimatedresultsfromthemodelanddiscussingresearchres ults,analyzing impactd i m e n s i o n s a n d l e v e l s o f f a c t o r s a f f e c t i n g p r o f i t a b i l i t y of a c o m m e r c i a l b a n k listedontheHoChiMinhCityExchange.
Chapter 5 outlines the main findings and provides recommendations to improvethe profitability of commercial banks listed on Ho Chi Minh Exchange, based on theresultso f e s t i m a t i n g t h e p a n e l d a t a m o d e l i n C h a p t e r 4
In this part, the topic will synthesize, analyze and evaluate previous empiricalstudies related to the topic of factors affecting the profitability of commercial banks.From here, provide theoretical bases relatedto explaining the profitability ofb a n k s , and the factors affecting the profitability of commercial banks, helping to build theresearchmodelofthe thesisinchapter3.
Literatureonmeasuringtheprofitabilityofcommercialbanks
Commercial bank profitability measures the profitability of a bank's businessactivities The profitability of commercial banks is defined by many different concepts.AccordingtoresearchbyChanget.al(2010),profitabilityofcommercialbanksreprese nts the bank's management ability to control costs and use resources to createoutputs. The bank's expenses include interest and operating costs, the bank's output isthe total revenue from loan interest and other forms of non-interest service provision.The profitability of a commercial bank is the ability to generate profits while ensuringsafe banking operations and limiting risks Considering the nature of commercial banksas a business, banks operate for the purpose of maximizing profits within the allowablelevel of risk according to Peter Rose (2014) According to
(2014),profitabilityreflectstheamountofmoneyacompanycangeneratewithallitsresources. The ultimate goal of the organization is to maximize profits Meanwhile,research by Yuksel et.al (2018) shows that a bank's profitability is defined as thedifference between the profits extracted from its assets and the costs incurred in theaccountoveritsliabilities.
According to previous research by Hassan et.al (2003) ROA is a measure of acommercial bank's ability to use its assets This index shows the efficiency of eachpenny invested in assets and the ability of management to use financial resources toinvesti n p r o f i t a b l e a s s e t s R O A i s m e a s u r e d a s t h e r a t i o o f p r o f i t a f t e r t a x t o t o t a l assets of the bank The study by Wen (2010) indicates higher ROA shows that the bankis more efficient in using its resources, so ROA is an important indicator to assess thebank'sprofitability.
ROE is a ratio that measures shareholders' return on their equity ROE reflectshow much return a bank can generate on the capital invested by its shareholders ROEis not the best indicator of profitability because ROE does not consider theh i g h l e v e l of risk from using high leverage, is not affected by state regulations related to lever.BankswithhighequityusuallyhavehigherROAbutlowerROE.AccordingtoKhrawis h (2011), ROE is the ratio of net income after tax divided by total equity.ThehighertheROE,thehighertheefficiencyinusingshareholders'sequity
Literatureonfactorsaffectingtheprofitabilityofcommercialbanks
da l o t o f a t t e n t i o n T h i s t o p i c h a s b e e n e x t e n s i v e l y s t u d i e d i n t h e l i t e r a t u r e , usingdifferentcombinationsofmeasuresandmethodologies,anddifference sin observations.Insummary, therearestilldifferencesintheresultsofthestudies.
There are a number of studies focusing on determining the factors affecting theprofitabilityofjointstockcommercialbanksasmeasuredbyROA,ROE,NIM.According to Eissa A Al-Homaidi et.al (2018) indicates that macroeconomic factorscanallnegativelyaffectprofitabilityofIndiancommercialbanks,profitabilityasmeasur ed by NIM is influenced by all factors of a bank excluding the number ofbranches,whileSIZE,numberofbranches,assetmanagementratioandfinancialleverage ratio have a strong influence on profitability as measured by ROA Factorssuch ascreditquality,operational efficiency, bankingsectord e v e l o p m e n t , i n f l a t i o n andindustry concentrationarefoundtobenegativeandsignificantrelatedtotheprofitability of banks according to research by Hongxing Yao et.al (2018).
Moreover,accordingtotheresearchesofArtorR.Nuhiuet.al(2017),OngTzeSan&TehB oon
Heng (2013) on factors affecting profitability of joint-stock commercial banks wereperformedforthefirsttime.KosvoandMalaysianrespectivelyhaveshownthatmacroec onomic factors have no or little impact on profitability of commercial banks.Whilea l l t h e i n t e r n a l f a c t o r s a t M a l a y s i a n c o m m e r c i a l b a n k s a n d f a c t o r s s u c h a s capitalsufficiency,assetquality,andmanagerialeffectively atKosvocommercialbankshaveasignificantinfluenceontheprofitabilityofthebank.
In addition, there aremore studies usingROA, ROE, NIM tomeasure theprofitability of commercial banks such as Menicucci & Paolucci's study (2016) atEuropean and Shrish Gul in Paskistan showed most of the factors used in the model,including SIZE, CAP,LOAN, DEP, LLP andexternal factorsh a v e a p o s i t i v e i m p a c t on the profitability of commercial banks in the study area In addition, study AsadulIslam et.al (2017) in Bangladesh shows that factors such as credit risk, cost efficiency,GDPandrealinterestratehaveanegativeeffectonbankprofitability whiletheopposite was true for capital adequacy, liquidity, size, inflationand stockmarket.Factors such as capital adequacy ratio and effective management have positive effectson profitability of commercial banks while GDP has a negative relationship with ROA,ROAEaccordingtoAn(2018).
The studies of Dietrich et.al (2009) figure out that most of the internal factorsaffect the profitability of commercial banks in Switzerland with the exception of theyearly growth of deposits and the credit quality, banks age, the bank categories. Intermofexternalfactors,taxationandthemarketconcentrationnegativeaffectbankprofitab ility Athanasoglou (2008) showed that with the exception of size, all bank-specific has a considerable impact on bank characteristics profitable in an expectedway. Furthermore, the business cycle has a positive to bank profitable however, there isno evidence to support the SCP theory The study of Le (2020) shows that bank size,creditr i s k , c a p i t a l e q u i t y , o p e r a t i n g e x p e n s e , b a n k i n g c o n c e n t r a t i o n l e v e l , e c o n o m i c growth, and exchange rate affect the profitability of Vietnamese commercial banks asmeasured by ROA In addition, bank size and operating expenses are found to have asignificantpositiveimpactonROE.Furthermore,theresultsshowthatallmacroeconomicse xcepttheinflationratehasasignificantimpactonthebank'sprofitableasmeasuredbyROE.
ThestudiesofSerhatYükselet.al(2018)andTuan(2020)usingROEtomeasure profitability of commercial banks showed that the non-interest income/interestincome ratio rises, it has a beneficial impact on bank profitability in post- In Sovietcountries,theloan-to-GDPratioisnegatively relatedtobankprofitability.Tuan'sresearchpaper(2020)showsthatGDP,SIZE,Liquidity,C reditRiskandCapitalStructure have a positive impact on improving profitability of banks while credit riskhavea negativeimpactonROE.
Chowdhury et.al (2016) shows that most of the factors used in the model have afavorable and significant impact on the profitability of Islamic banks in theGGCregion, while macro factors such as money supply and inflation do not have a negativeimpactontheprofitabilityofcommercialbanksasmeasuredbyROA.Externalmacr oeconomicfactorshavenoimpactonthebankprofitability.While,i n t e r n a l factors including cost, liquidity, size of the banks have been proven to have a positiveand considerable impact on the profitability of Islamic banks in Sudan according toEljelly(2013).
Summaryofpreviousstudies
From the above studies, in order to have a more general view of the overview oftypicalpreviousstudiesthathavestudiedthefactorsaffectingtheprofitabilityo f banks,theauth orhassummarizedintotableasfollows:
Independent variables Empiricalresults Bank-specific factors:LnAS
Macroeconomicfactors can all negativelyaffect (AssetsSize),CAD
(CapitalAdequacy), theprofitabilityof Indiancommercial AQ(AssetsQuality), banks.Theprofitability LIQ(Liquidity),DEP ratioas measuredby
Al-Homaidi, (Deposit),AM(Asset NIMisaffectedbyall
Efficiency),LEV (FinancialRisk), branches.Inaddition, factorssuchasbank
Almaqtari,F BRNCH(Branches) size,numberof
GDP(Economic managementratio,and leverageratiohavea Activity),IF stronginfluenceon (Inflation),EXCH
(ExchangeRate), profitabilityratiosof commercialbanksasINTRT(InterestRate) measuredbyROA.
Bank Size (SIZE),Solvency (SOLV),Credit Quality
(CQ),Liquidity (LIQ),OperationalEff iciency
(OE),Financial Structure(FS), Diversification(DIV), Funding Cost(FC), Operating Cost(OC), LaborProductivity, (LP)BankType(BTYP E),IndustryConcentratio n (IC5),Market Power (MP),GDP Growth(GDPR), Inflation(INF),Gover nment
Credit quality,operational efficiency,banking sectordevelopment, inflationand industryconcentration are foundto be negatively andsignificantly related tothe profitability ofbanks Moreover, thetransition ofthegovernment affects theprofitabilityoftheban k.
Capital adequacyratio, total loans tototal deposit, totalloans to GDP, banksize,Non- interesttointerestincome , interestrate,GDP
The non- interestincome/interest incomeratio rises, it has abeneficial impact onbank profitability inpost-Sovietcountries.Duringexpansions, growthrate,inflationrat e banksaremoreprofitabl e, whereasduring recessions, theyareless profitable.
Furthermore,itisfoundtha t in post-Sovietcountries, there is anegative associationbetween the loans toGDP ratio and bankprofitability The lowquality of loans issuedin post-Soviet countriesisdemonstrated bythis finding.
Capital adequacyratio, Asset quality,Management efficiency,Liquidity, GDP,Inflation
Capital sufficiency,assetquality ,andmanagerialeffectiv eness drivecommercialbankp rofitabilityinKosovo,whi le macroeconomicfactors have littleimpact on commercialbankfinanc ial performance.
Banklevelvariables:cre dit risk, liquidity,capital adequacy,bank size and costefficiency Macro economicvariables:R e a l GDPgrowthrate,inf lationrate, real interest rateandstock market turnover
Creditrisk,costefficienc y,GDPgrowthand real interest ratehave a negative effectonbankprofitabilit y.
While capital adequacy,liquidity, size, inflation,andstockmarketturn over affectprofitabilitypositiv ely.
SIZE (Banks Size),CAP (Capital ratio),LOAN (Loan Ratio),DEP(Deposits), LLP(Loanlossprovisio n)
All the determinantvariables included inthe model have animpact on Europeanbanks' Profitability
Inaddition, SIZE, Capitalratio are independentvariables that have asignificant impact onbank profitability inEurope Moreover,banks with higherdepositsandloans ratiotendtobemore profitable.
/TA, Long TA.Macroeconomicfact ors:
LNDP: The naturallogarithm of GDP,INFL:Inflationr a t e aspercentagetoG DP,M2,MKTCAP/GD P,
Equity financing andbank size have afavorable andsignificant impact onIslamic bankprofitability Theoperating efficiencyratio is negative andstatistically significantin relation to returningon assets Furthermore,factorslikem oneysupply and inflation arenegative for Islamicbank performance, butoil rice has been provento be positive forIslamic bankperformanceinthe GGCregion
EA (Equity/TotalAssets) , LLR (Loanloss Reserves/
TotalAssets), COSR (Costtoincomeratio),L IQ(LiquidAssets/
Macroeconomicvariabl es have noimpact on the bank'sprofitability.Acc ordingto the findings of thisstudyROA.isthebest profitablemeasure.In termFunding),Size(T otal Assets ofBank),GDP(GDP GrowthRate),CPI (ConsumerPriceI ndex) addition, All bank- specificcharacteristicshav e a considerableimpact on bankprofitability.
Size, Capital, Loan,Deposits,GDP, INF,Stock
Banks with largerequity capital, totalassets, loans, deposits,and macro factors suchas economic growth,inflation, and stockmarket capitalizationare seen to be safer,whichcantranslatei nto higherprofitability.
CAP (Total equity/total assets), COST(OperatingExp enses/(Total assets- liquidassets), LIQ (Liquidassets/deposit s),
Externalmacroeconomi cfactorshave no impact on thebankprofitability. While,internalfactorsincl uding
COST,LIQUIDITY,SI ZEof thebankshavebeenpro ven to have apositiveand considerableimpacton
SIZE (logarithm ofthe bank's totalassets),AGE(Ag eofthebanks)
GDPGR:G r o w t h Rate of the grossdomesticprod uct
(GDP), M1 (Growthrate of money supplyin the narrowestdefinition), INF(Annualinflation rate) theprofitabilityofIsl amicbanks
Internal factors:Equityoverto talasset, cost- incomeratio, loan lossprovisions over totalloans, yearly growthof deposits, differencebetween bank andmarketgrowtho f to talloans,banksize, interestincomeshare,
Internal factors like Thecapital ratio,International ownershipof a bank have asignificant impact onbank profitability, Theefficient costmanagement is preexquisite for improvedprofitabilityof Swiss
BankswhileTheyearly bank age, nationality,region,ban kcategory.External
Factors:effective tax rate, realGDP growth, 6- month Libor, stockmarket capitalization,bank concentrationratio growth of deposits andthecreditquality,Bank sAge,the bankcategories,donotha vea statistically significanteffect on bankprofitability
Moreover,As to bank size, thelarger bank is slightlyless profitable thanmedium- sizedbanks.
Banks with a highershare of interest incomerelated to the totalincome are lessprofitable In term ofexternal factors,taxation and the marketconcentrationnegativ ely affects bankprofitability inSwitzerland while theopposite was true forTheGDPgrowth.Finally,theyearlyc hangeinregional populationdoesnot significantlyinfluencet he profitability of abank.
Capital, Credit risk,Productivity Growth,Operating expensesManagement, Size,Ownership,Con centration,Inflatione xpectation,Cyclicaloutput
With the exception ofsize, all bank- specificcharacteristics have aconsiderableimpacton bank profitability in anexpectedway.
Moreover,thebusinesscy cle has a positive tobank profitabilityhowever, there is noevidencetosupportth e
SIZE (Bank size),CAP(CapitalEqui ty),LIQ (Liquidity),COST (OperatingExpenses), DEPO
Bank size, credit risk,capital equity, operatingexpense, bankingconcentration level,economicgrowth,a nd exchangerate affectthe
BANKCON(BankingC oncentration Level),GDPGR (EconomicGrowth), INF(Inflation), EXRATE(Exchange Rate) profitability ofVietnamese commercialbanksasmeas uredbyROA In addition banksize, and operatingexpenses are found tohave a significantpositiveimpa ctonROE Moreover, theresults show that allmacroeconomics exceptthe inflation rate has asignificantimpactonth ebank'sprofitability asmeasuredbyROE.
DP (EconomicGrowth Rate, IR(Interest rate), SIZE(Bank Size), LD(Bank Liquidity),PCL (Credit
GDP,SIZE,LD, LA, andDPhaveapositiveimp act on improvingprofitability asmeasured by ROE Bycontract, PCL has anegative impact onROE, while inflationand liquidity have noimpacton bank profitability.
CA (CapitalAdequacyRat io),AQ(Asset Quality), ME(EfficiencyManag ement),
LM(Liquidity Ratio),GDP (GrossDomestic Product),INF(Inflatio nRate)
CA and ME have apositive impact on theprofitability of banks Inaddition, GDP has anegative relationshipwith ROA, ROE Theremaining variableshave no significantimpact on theprofitabilityof commercialbanks.
The content of Chapter 2 has provided the background theories on the concept,characteristics, and requirements of profitability, in which the author has previousstudies and pointed out the factors that affect profitability Profits of commercial banksinclude ROA, ROE and factors affecting profitability of commercial banks includinginternalfactors(CAR,SIZE,LOA,DEP,LIQ,OPR)and macrofactors(GDP,IF).
On the basis of this theoretical foundation, the author will survey the factorsaffectingprofitabilityandassesstheprofitabilitysituationofcommercialbanks.Ther eby, giving solutions to improve profitability at commercial banks in the nextchapter.
Chapter 3 presents the research model, methods and data to study the impact ofspecific internal factors and macroeconomic factors on the profitability of commercialbanks,listedontheHoChiMinhCityStockExchange.Theauthorp e r f o r m s r egression model including dependent variable is profitability of commercial banks andindependentvariablesinclude:BanksSize,LoanRatio,DepositRatio,Liquidity,EquityRatio,OperatingCost,GrossDomesticProduct,Inflation Rate.
Data
Thed a t a o f t h e t h e s i s i s i n t h e f o r m o f p a n e l d a t a i n c l u d i n g 1 4 c o m m e r c i a l banks listed on theHo ChiMinhCity Stock Exchange for theperiod 2010- 2020collected from the financial statements of commercial banks compiled from financialwebsitessuchashttp://www.cophieu68.vn,http://www.cafef.vn,https://finance.vietstock.vn.
Inthisthesis,thereare8independentvariablesand2dependentvariablesuse dtoconductfactoranalysis,sothenumberofsamplescollectedis154s a m p l e s Choosing
14 banks to list on the exchange, the collection of data is open, transparent,clear and fully presented in the report, the information will be presented accurately andtimelytoreaders,therebytextwill havethebasisforeasyandaccuratecollection.
The data of the study is gathered in the form of panel data to analyze the cross- relationships between commercial banks and time units over the period 2010- 2020.Panel data is a type of data commonly used in empirical studies, in microeconomics,businessandespeciallyinmacroeconomicresearch,whenstudyingc o u n t r i e s , provinces and cities Panel data is a combination of both cross-unit data and timeseriesdata,thiscombinationoffersmanyadvantagesinanalyzingeconomicrelationships,e s p e c i a l l y w h e n y o u w a n t t o a n a l y z e t h e f l u c t u a t i o n s o f t h e r e s e a r c h
0 1 2 3 4 5 6 subjects over time as well as analyzing the differences between the groups of researchsubjects.
The data used in the study of the thesis are used panel data with time series withthe frequency of years to ensure the accuracy of the estimated results The study usespaneldatarelatedtomanyobjectsintime,space,andlocation,leadingtoinconsistenciesi nthedata.Thisfeature-specificpaneldataestimationtechniqueconsiders variables that are subject-specific Panel data can better detect and measureunobservable effects on purely temporal or spatial data, partially avoiding the omissionof significant variables in the mode, helping to detect the difference between differentobjects and different space time Panel data can better detect and measure unobservableeffects over time-only or purely spatial-only data, partially avoiding the omission ofsignificant variables in the model, helping to detect the difference between differentobjects, different time By combining the observation series in time and space, thenumberofobservationsissignificantlyincreased,sothedataprovidesmoreinformation,more diversity, limited panel data is shown to show multicollinearitybetweenindependentvariables,thedegreesoffreedomareincreasedandm oreefficient Panel data can enrich empirical analyzes in ways that may not be possible forpurelyspatialortimeseriesdata.
Research model
From the above Hypothesis, the research model of the study “Factors
AffectingProfitability Of Joint Stock Commercial Banks Listed On The Ho Chi Minh CityStockExchange”
Return on Assets, Return on Equity
Gross Domestic Product (GDP): Bank Size (SIZE)
Throughth ep rev io us m e t a - s t u d y tosy nt hes izes tu di es, c o l l ec t dat a, an d b u i l d on the literature by Zulfikar (2018), Pasiouras and Kosmidou (2007) and
Athanasoglouet.al(2008),DietrichandWanzenied(2011),theauthorpresentsthetheoryofquantita tive analysis of the estimation method used for the data The methods used inthis study are Descriptive Statistics, Correlation Analysis and Panel DataRegression,andFeasibleGeneralizedLeastSquares.
Variableselectionandmeasurement
Internalfactors
According to Athanasoglou et.al (2005) equity is the amount of funds availableto support a bank's business and used in adverse situations.According to Dang (2011),capital adequacy is assessed on the basis of capital adequacy ratio (CAR) Capitaladequacy ratio is directly proportional to the resilience of banks in crisis situations,whichdirectlyaffectstheprofitabilityofbanks.AccordingtoKumarAspalandNa zneen (2014) capital adequacy is also considered one of the indicators related to abank's financial health and is useful in preventing banks from going bankrupt and abank's ability to withstand unforeseen future losses In addition, Abusharba et.al (2013)banks need to have some surplus capital to ensure day-to-day business operations andfuture growth According to Moknen (2015), the capital adequacy ratio is a measure oftheamount ofcapitalabankhasexpressedasapercentageofitscreditrisk.
Qwner’s equity creates liquidity for the bank, reducing the risk of default.Themorerisksabankaccepts,themoreequityitwillrequiretosupportitsoperationsan d cover the potential losses associated with a higher level of risk Capital adequacy is thelevelofcapitalthatissufficientforbankstowithstandthecredit,marketandoperational risks that banks face in order to access their potential and ensure theirliquidity.
The size of a commercial bank is normally measured by the natural logarithm ofthebank'stotalassets.Accordingtopreviousstudies,banksizehasapositiveim pacton bank profitability and there are also studies with the opposite view According toPerra et.al (2007), commercial banks can take advantage of economies of scale, largebankshavetheadvantageofoperatingnetworkanddiversifyingtheirb u s i n e s s acti vitiesbankstoincreasetheprofitabilityofcommercialbanks.
While the opposite view is that large-scale banks can have an impact on theprofitabilityofcommercialbanks.AccordingtoAthanasoglouet.al(2008),andAhamed
(2017), large banks face problems of poor management, moral hazard, andbusiness operations despite the risks thereby reducing their ability to do business andthe profitability of commercial banks The larger the bank, the higher the operatingcosts and the supervisory management will not develop to keep up with the size of thebank, which will bring risks to the business In the current reality, the big banks in VietNam have a high advantage in generating profits In addition, if comparing the totalassetsofcommercialbanksinourcountrywithbanksintheregionandinthewor ld,thesizeofourbanksisalsointherangeofmediumandsmallscale.
Lendingisoneofthemainandlargestincomegeneratingactivitiesforcommercial banks According to studies, the size of a bank's lending activity is oftenmeasured by the ratio of loans to total assets of commercial banks The ratio of loans tototal assets of commercial banks has a positive relationship with the profitability ofcommercialbanksbecausethemorebankslend,themoremoneythey earnfromlending interest, helping to increase profitability of banks according to the research ofTan(2016).
Besides, Bourker (1989), Goddard et.al (2013) suggested that theh i g h e r t h e ratioo f l o a n s t o t o t a l a s s e t s o f c o m m e r c i a l b a n k s , t h e l o w e r t h e p r o f i t a b i l i t y T h e reason is explained by the author that outstanding loans will lead to high credit risk,which is likely to increase bad debt, thereby reducing the bank's profitability Lendingactivities are often associated with liquidity risk from the failure of the bank to reduceits debt or increase its assets In short, the larger the size of the bank, the lower theliquidity of the bank, the bank's operation will be unstable because it has to mobilizecapital at high cost to makeup for the shortfall in liquidity, which reducesbankprofitability.
Deposit ratio (DEP) is the ratio of total mobilized capital to total assets. Totalmobilized capital is determined by the total deposit of customers, deposits and loans toothercreditinstitutions,debtsoftheGovernmentandtheStateBank,funding,investment trust, loans to credit institutions bear the risk According to research byIslam & Rana
(2017), too high a deposit ratio can push a bank into an insufficientliquiditysituationtomeetunscheduledfundingrequirements.Inaddition,inthestudy ofOkun(2012)depositratiohasapositiveandsignificanteffectonROAfor commercia lbanksinKenya.
LIQ is a factor affecting the profitability of commercial banks LIQ is the abilityof a bank to fulfill its obligations, mainly to depositors According to research articlesby Dang (2011), a high level of inspection has a positive effect on bank profitability.According to some studies, the liquidity of a bank is the customer's deposit on the totalamount of the bank's loan. There are also other studies on bank liquidity Research bySaid and Tumin (2011) conducted in China and Malaysia shows that liquidity has norelationshipwithbankactivities.
Int h e c o u r s e o f d o i n g b u s i n e s s , b a n k s h a v e t o b e a r a n u m b e r o f b u s i n e s s operating expenses Accordingly, the types of expenses are expenses that the bankspends in the process of doing business. Therefore, it can be seen that this indicator canbe used as an indicator related to the ability of management to control costs and isexpected to have a negative relationship with the profitability of banks, because themanagement of these costs can be improved (inexpensively) can increase the efficiencyofthebankandthereforeincreaseprofits.AccordingtostudiesPasiourasandKosmi dou (2007), Trujillo-Ponce et.al (2013), have used operating costs tom e a s u r e theperformanceofbanks,whichmeansthemoreefficientbanksare,themorep rofitablethey are.Therefore,itcanbeseenthatoperatingexpenseswillhaveasignificantandnegativeimpactont heprofitabilityofbanks.
GDP is a measure of total economic activity in an economy and is often used asaneconomicindicator.Inpreviousstudies,growthinGDPasameasureofmacroeconomic conditions GDP growth is the annual change in GDP According toDemirguc-Kunt et.al (1999), Bikker et.al (2002), Athanasoglou et.al (2008), Andreasand Gabrielle
(2009), the higher the correlation between economic growth, the higherthe demand. Credit of all sectors of the economy will increase strongly and thus willincreaseinterestincomeforbanks,aswellasimprovebankprofits.Moreover ,whenthe economic growth rate is higher, it will be able to help all economic sectors improvetheir incomesandalsoincreasetheirability to borrow andr e p a y l o a n s T h e r e f o r e , i t can be seen that economic growth will have a significant and positive impact on theprofitabilityofbanks.
In macroeconomics, inflation is the persistent increase in the general price levelof goods and services over time and the loss of value in a currency When the generalprice level rises, a unit of currency buys fewer goods and services than in the past, soinflation reflects a decrease in purchasing power per unit of currency When comparedto other countries, inflation is the decrease in the value of one country's currencyrelativetoothercountries'currencies.Inthefirstsense,oneunderstandsthattheinflation of a currency affects the economy of a country, and in the second sense, it isunderstood that the inflation of a currency affects the whole economy economy usingthat currency The extent of influence of these two components is still a matter ofcontroversyamongmacroeconomists.Theoppositeofinflationisdeflation.Aninflationin dexofzeroorasmallpositiveoneiscalled"pricestability".
Inflation is an important factor in determining bank profitability (Athanasoglouet al., 2006, Pasiouras and Kosmidou, 2007) Bourke (1989) noted that the effect ofinflation on a bank's profitability depends on the bank's salary and other operatingexpenses,whichincreaseratherfasterthaninflationordynamics.Inaddition,Staik ouras and Wood (2003) suggested that inflation can have a direct effect such as anincrease in labor costs and affect indirect effect in bringing about a change in interestrates as well as an increase in delinquent loans (bad loans) in the event of unpredictableinflation and this will affect the bank's profitability Therefore, inflation will have animpactonbankprofitability.
1), KumarAspalandNazneen (2014),Abusharba et.al(2013),Moknen
The naturallogarithm of totalassetsrepresentst hesizeofthebank
Perra et al. (2007),Athanasogl ouetal.
DEP DepositRatio Deposit/TotalAsset - Okun(2012),Islam&Ra na(2017)
Cash&Cashequiv alents/TotalAsset + Dang(2011),SaidandTu min(2011)
Totalasset - PasiourasvasKosmi dou (2007),Trujilo- Ponce(2013)
Consumption +GovernmentSp ending +Investment+Net Exports
(1999), Bikker et al.(2002), Athanasoglouet al (2008), AndreasandGabrielle(20 09)
Athanasoglou et al. (2006),Pasiourasand Kosmidou,(2007) Bourke (1989)Staikourasand Wood(2003)
Research methodology
Descriptivestatisticsareusedtodescribethebasiccharacteristicsofdatacollectedfro mexperimentalstudiesindifferentways.Descriptiveandinferentialstatistics together provide simple summaries of samples and measures Together withsimple graphical analysis, they form the basis of any quantitative analysis of data Tounderstand phenomena and make sound decisions, it is necessary to understand thebasicmethodsofdatadescription followingSternstein and Martin (1996). Int h i s thesis, the author focuses on analyzing data from the following summary table ofstatistical indicators to provide general information about the variables in the researchmodel:Mean, Minimum,Maximum,StandardDeviationandObservations.
The correlation coefficient (r) is a statistical index that measures the correlationrelationshipbetweentwovariables.Thecorrelationcoefficienthasaval uefrom-1to
1 A correlation coefficient of 0 (or close to 0) means that the two variables havenothing to do with each other; Conversely, if the coefficient is -1 or 1, it means that thetwo variables have an absolute relationship If the value of the correlation coefficient isnegative (r < 0) it means that when x increases, y decreases (and vice versa, when xdecreases, y increases); If the value of the correlation coefficient is positive (r > 0) itmeansthat whenxincreases,yalsoincreases, andwhenxincreases, yalsodecreases.
Correlationanalysisisusedtodeterminethedegreeofstrongorweakcorrelation,positi veornegativebetweenthevariablesintheresearchmodelbychecking the correlation coefficient mentioned above If there is a strong correlationbetweenthetwovariables,itshouldbenotedthatthemodelmayh a v e multicolli nearity.
This study examines the factors affecting profitability of banks listed on the HoChi Minh Stock Exchange by estimating a regression model based on tabular data.There are three main types of models used to estimate tabular data: Pooled OrdinaryLeastSquare(PoolelOLSModel),FixedEffectsModel(FEM),RandomE f f e c t s Model(REM).
However, the Pooled OLS model assumes that all regression coefficients areconstantovertimeandacrosscrossunits.Meanwhile,tabulardatacombineobservations over time series and across different economic units, so there are uniquedifferencesbetweenthoseeconomicunits.Therefore,theOLSregressionmethodcann ot be used to estimate panel data because it is not reliable Therefore, in this study,theauthoronly estimatesthepaneldataregressionmodelby fixedeffectsm o d e l (FEM)andvariableeffectmodel(REM),thenusesHausmantesttocom parecomparisonbetweentwomodelsFEMandREM.
To test the research hypotheses about factors affecting profitable joint stockcommercial banks listed on the ho chi minh city stock exchange, the study uses eitherthet-testortheF- testat1%,5%andsignificancelevels,10%todeterminetheconfidenceleveloftheinfluenceo ftheindependentandcontrol variables,andbasedon the coefficient β to explain the trend and the degree of influence of these variableson the dependent variable Multicollinearity will be tested and concluded through theVarianceInflatingFactor(VIF),ifVIFisgreaterthan10,themodelhasseveremulticollinearity and vice versa The present variance of variance will be tested andconcluded by Larange's test The phenomenon of self-correlation will be tested andconcludedthroughtheWooldrigetest.
A popular model that uses panel data is the fixed-effects model (Fixed
EffectModel, FEM When the observed cross-sectional units are heterogeneous, the
𝑌 i𝑡i n t o accounttheidiosyncraticcharacteristicsofeachcross-unitAccordingtoFEM, it is assumed that the partial regression coefficients are the same across the cross- units,buttheregressioninterceptsaredecomposed.differencebetweencrossunits.
With the conditionX i between𝛼 i ,𝑢 i𝑡 are independent and consistent.Therefore, ErrorcomponentsaccordingtoNormaldistribution𝑢 i𝑡 ∼𝑁(0;𝜎 2 𝑢 ).
Basedontheuseofthefixedeffectmodel.Itisconsideredt h a t e a c h commercial bank in Vietnam has its unique features, which may or may not impact itsprofitability.
Because individual bank characteristics might impact profitability, FEMeliminates the effect of time-invariant features to estimate the net effect of independentfactorsonbankprofitability.
Random Effect Model is also known as Error components model Similar toFEM, REM can be determined: (i) different intercepts for each cross unit; (ii) theoverall effect (unchanged by cross-unit) of the explanatory variables However, unlikeFEM, in REM the common intercept coefficients α are constant with respect to objectand time; (ii) and a random variablesi(not correlated withX i𝑡,𝑘 ) is a component of theerrorthatvarieswiththesubjectbutis constantovertime.That'swhythemodelis also callederrorcomponentsmodel.simeasurestherandomdeviationbetweeneachobject's intercept and the overall intercept α Thus, FEM assumes that the cross unitsdiffer at a fixed intercept, while REM assumes that the cross units differ in their error.TheREMmodelispresentedasfollows:
cov(ωit, ωis) = σ2vwith ts [random errors in the same cross unit i at time units arecorrelated]
cov(ωit, ωis)= 0 với i j [random errors of different cross-units over different timearenot correlated witheach other]
cov(si, Xit,k) = 0 [The residualssi, the random effects componento f e a c h c r o s s - unit is not correlated with the variables X’s] This is a different assumption thanFEM.
cov(Xit,k,Vit)=0,cov(Vi,Xit,k)=[𝑣ituncorrelatedwiththevariablesX’s]
Inthepresenceofnonsphericalinnovationswithanunknownc o v a r i a n c e matrix, feasible generalized least squares (FGLS) predicts the coefficients of a multiplelinear regression model and their covariance matrix The key advantage of employingFGLS in a regression model is that it removes the problem of variable variance andautocorrelation In reality,in the case ofautocorrelation,c r o s s - s e c t i o n a l c o r r e l a t i o n , and variable variance in panel data, the author changes the FLGS to estimate thecoefficientsinthemodel.
In this chapter, the author introduced the researchmodel, proposed how tocollect data as well as which data analysis techniques will be applied in the process ofmodel estimation In the research model section, the author has proposed a researchmodel,modeldesign,andproposedamodelforthetopicbasedonthevariableselectio nandmeasure.From there,itservesasabasisfortheimplementation showthe modelandconcludethetopicforthenextchapter.
BID CTG VCB VPB EIB HDB MBB STB TCB TPB VIB ACB LPB MSB Ten-year average ROAs Ten-year average ROAs of commercial banks
Descriptivestatisticsofdata
In this section, the paper presents descriptive statistics of the variables used intheresearchmodel.Butbeforecomingtothisanalysis,thestudyconductsa preliminaryp r e s e n t a t i o n o f t h e a v e r a g e p r o f i t a b i l i t y o f b a n k s i n t h e s a m p l e t h r o u g h twor epresentativesofROAandROErespectivelyinfigure4.1.1and4.1.2
The topic briefly summarizes the status of average profitability of banks in thesample as measured by ROA and presented in figure 4.1.1 Based on figure 4.1.1 it canbe shown that, in 14 commercial banks in the sample, there are about 7 banks that aregeneratingp r o f i t a f t e r t a x o n t h e i r t o t a l a s s e t s h i g h e r t h a n t h e a v e r a g e l e v e l o f t h e banksinthesample.Thesebanksinclude: VCB,VPB,MBB,TCB,VIB,ACB,LPB.
BID CTG VCB VPB EIB HDB MBB STB TCB TPB VIB ACB LPB MSB Ten-year average ROEs Ten-year average ROEs of commercial banks
Specifically, commercial bank TCB is the bank that generates the most profitaftert a x w h e n t h e R O A r a t i o i s 1 5 6 9 % M e a n w h i l e , c o m m e r c i a l b a n k M S B i s t h e bankthatgeneratestheleastprofitaftertaxwhenROAis0.469%.
Next, the study briefly summarizes the status of average profitability of banks inthe sample as measured by ROE and presented in figure 4.1.2 Based on figure 4.1.2, itcanbeseenthat,outof14commercialbankslistedontheHoChiMinhStockExchange,only about7 have generateda h i g h e r p r o f i t a f t e r t a x o n t h e i r t o t a l e q u i t y thant h e a v e r a g e T h e s e b a n k s i n c l u d e : B I D , C T G , V C B , V P B ,
Specifically,c o m m e r c i a l b a n k V P B i s g e n e r a l l y t h e b a n k t h a t g e n e r a t e s t h e most profit after tax when the ROE ratio is 16.62% Meanwhile, commercial bank TPBisg e n e r a l l y t h e b a n k t h a t g e n e r a t e s t h e l e a s t p r o f i t a f t e r t a x w h e n t h e R
After a briefoverviewofthe averagep r o f i t a b i l i t y o f t h e b a n k s i n t h e s a m p l e , the topic presents a statistical description of the variables used in the research model inTable A Based on Table A, the profitability of banks represented by ROA and ROErepresentativeshasanaveragevalueof0.934%and11.866%respectively.
Variables Mean Std.Dev Min Max
Based on the table 4.1.1 there are 154 observations from 14 commercial banksover a period of 10 years The results of descriptive statistics for each variable are asfollows:
For Return on Asset (ROA):Table 4.1.1 shows that the average ROA of
14commercial banks listed on the Ho Chi Minh Stock Exchange during the researchperiod is 0.933%,whichmeans that for every 100VND ofassets, 9.39V N D o f revenue is generated In which, TP Bank's ROA was the lowest in 2011 with the ROAof -5.51% In contrast, TCB bank has the highest ROA of 2.803% in 2020. Besides, thestandard deviation value of 0.0077 represents ROA among commercial banks listed ontheHoChiMinhStockExchange.
For Return on Equity (ROE):Table 4.1.1 shows that the average ROE of
14commercial banks listed on the Ho Chi Minh Stock Exchange during the researchperiod is 11.86%, which means in a 100 dong of equity that the business spends toserve the operation, it earns 11,86 dong With a standard deviation value of 0.0995there is not much difference with ROE ratios between banks In which, TP Bank'slowest ROE in 2011 (Net profit after tax in 2011 was negative leading to negative ROEwas-8.2%,ACB'sROEwasthehighestin2011at26.1 %.
For the ratio of Owner's equity/Total asset (CAR):The CAR variable has anaverage value of 0.0824, in which the bank using the largest owner's equity is TPBbank in 2012 with a ratio of 0.219 while the ratio is 0.219 This is the lowest of BIDbank in 2017 with only 0.0406 In which, the standard deviation is 0.0264, indicatinglowd i s p e r s i o n I n g e n e r a l , d i f f e r e n t b a n k s m u s t s a t i s f y t h e r e g u l a t i o n s o f t h e S t a t e Bank on the ratio of owner's equity/Total asset to ensure sufficient working capital aswellas for lendingandother businessactivities.
Forba nk si ze (S IZE ): B a n ksizerangedfrom16.53to21.13withameanof 19.17 sample size and a sample standard deviation of 0.908 In general, the size ofbanks increased over the years with the largest value of more than 1.5 million billionVNDo f B I D V i n 2 0 2 0 , t h e l o w e s t b e l o n g e d t o T P B b a n k w i t h 1 0 t r i l l i o n V N D i n 2010.
The LOAvariable has an average value of 0.5416, in which the bank with thehighest loan-to-asset ratio is BID bank with a ratio of 0.788 in 2020 and the lowest isTPB in 2011 With a standard deviation of 0.1389 shows that the level of loans/totalassetsishighly dispersed,whichisduetodifferenttypesofbanksandbusinessstrategies of each bank. Depending on the lending regulations of the State Bank appliedexclusivelyto commercial banks.
ForDeposit/Totalassetratio(DEP):Table4.1.1showsthattheaveragedeposit/total asset ratio of 14 commercial banks listed on the Ho Chi Minh StockExchange is 0.63. This data shows that the joint stock commercial banks in the sampleare generally mobilizing customer deposits, accounting for more than 63% of the totalassets held by the bank and the standard deviation is 0.138 In which, the highestDeposit/Total asset ratio was STB in 2015 with the rate of 0.893 and the lowest wasHDBin2014.
For Liquidity/Total Asset ratio (LIQ):The LIQ variable has an average valueof 0.0135, of which STB bank in 2011 has the highest LIQ of 0.0838 and LPB bank in2010 has the lowest LIQ ratio with 0.025 In addition, during this period, the LIQ indexhadarelativelylowstandarddeviationofonly0.013.However,inrecentyears,commercial banks have strengthened policies to ensure liquidity and maintain efficientbusinessoperations.
For the operating cost/Total asset ratio (OPR):The operating cost elementrepresented by COST has a mean of 0.017 and a standard deviation of 0.011. This datashows that commercial banks are incurring operating costs at a rate of 1.7% of the totalassets of the bank In the period of 2011, TPB bank had the highest OPR at 0.051, andthe lowest was EIB at0.078 in 2010 Commercial banks in recent years have proposedmanymeasuresandappliedthem.technologyintothebusinesstosavecosts.
For the Gross Domestic Product (GDP):Gross domestic product is calculatedby a mean GDP of 0.059 and a standard deviation of 0.005 Vietnam's gross domesticproductbyvalueofoutputofgoodsandservicespeakedin2018at0.71.Incon trast,the lowest GDP in 2020 reached 0.029 due to the impact of the Covid pandemic on theeconomyandthecommercialbankingsystem.
For Index Inflation (INF):Inflation calculated by INF has a mean of 0.058 anda standard deviation of 0.048 Inflation was highest in 2011 when this index reached18.7% and lowest at 0.6% in 2015.
ROA ROE CAR SIZE LOA DEP LIQ OPR GDP IF
After the descriptive statistics of the variables in the research model, the thesisproceeds to make a matrix to examine the simple correlation between the pairs ofindependent variables and the dependent variable in the thesis Besides, the topic isbased on the single correlation coefficient between the independent variables to see ifthereisaproblemofmulticollinearityinthethesis.ThisresultispresentedinTa bles
4.1.2.Through Table 4.1.2, it can be seen that factors such as equity, bank size, loanratio, deposit ratio, liquidity are positively correlated with Profits are represented byROA.Incontrast,operatingcosts,grossdomesticproduct,andinflationareallnegatively correlated with profitability as calculated by ROA Besides, it can be seenthat bank size, loan ratio, deposit ratio, liquidity are all positively correlated withprofitability representedbyROE.Contrastequity,operatingcosts,grossdomesticproduct.Inflationshow sanegativecorrelationwithreturnsrepresentedbyROE.
Inaddition,thecorrelationcoefficientsoftheindependentvariablesintheresearchmodel aregenerallylessthan0.8.Whenthecorrelationbetweentheindependent variables is less than 0.8, there is no multicollinearity (Franke, 2010).Therefore, the topic can be concluded that there is no multicollinearity problem in thethesis.
Estimationresultsandregression modeltestingofROA,ROE
After determining the correlation between the independent variables and thedependentvariableROA,ROE,forthepurposeofchoosingasuitablemodelt o conduct research, the author uses regression analysis according to the FEM model,REMthenusesHausmantestwiththefollowinghypothesis:
Source:STATA analyzing dataResearch using Hausman test to choose between 02 models FEM and
Test:H o : d i f f e r e n c e incoefficientsnot systematic chi2(8)=(b-B)'[(V_b-V_B)^(-1)](b-B)=6 9 8 7 Prob>chi2 =0.0000
Test:H o : d i f f e r e n c e incoefficientsnot systematic chi2(8)=(b-B)'[(V_b-V_B)^(-1)](b-B)Q.80 Prob>chi2=0.0000
For ROA:With the significance level of 1%, we have: Prob>chi20.0000chi20.0000chi2= 0.0000
With the significance level α = 1%, the Wald test gives the results Prob > chi2
=0.0000 Thus, Pro