The impact of technology investment on financial performance of commercial banks in vietnam

MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING GRADUATE THESIS THE IMPACT OF TECHNOLOGY INVESTMENT ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN VIETNAM MAJOR: FINANCE – BANKING CODE: 34 02 01 NGUYEN THI MAI LINH HO CHI MINH CITY, 2023 MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING GRADUATE THESIS THE IMPACT OF TECHNOLOGY INVESTMENT ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN VIETNAM MAJOR: FINANCE – BANKING CODE: 34 02 01 Student name: NGUYEN THI MAI LINH Student code: 050607190231 Class: HQ7-GE06 ADVISER DR NGUYEN MINH NHAT HO CHI MINH CITY, 2023 i ABSTRACT Financial performance is an important indicator of a bank's survival and development amid growing international competition Commercial banks are all operating towards profit targets, as a result of their business operations In addition, managers are always interested in this indicator and find ways to improve financial performance In the period 2012 - 2022, the global economy grew slowly due to unstable economic and political situations in the world and the region In particular, the COVID-19 pandemic in 2019 led to a drastic shift as digital banks gradually took over the role and position of traditional products Therefore, an increasing number of Vietnamese commercial banks are focusing on technology investment to improve financial performance The author has conducted a study on the impact of technology investment on the financial performance of commercial banks in Vietnam between 2012 and 2022 Besides, the author also used research methodology, specifically Pooled OLS model, FEM model, REM model, and S-GMM method, which are based on the unbalanced panel data of 26 commercial banks in Vietnam The research results show that financial performance increases as bank size, equity-to-total assets ratio, technology investment, liquidity ratio, and gross domestic product growth rate increase On the contrary, financial performance decreases when the ratio of total deposits and non-performing loans ratio increase In addition, the research results also show that the loans-to-total assets ratio and the inflation rate are not statistically significant for the financial performance of commercial banks in Vietnam Keywords: financial performance, technology investment, commercial banks ii DECLARATION As the author of this graduation thesis, I declare that this thesis with the title " The impact of technology investment on financial performance of commercial banks in Vietnam" is completely made by Nguyen Thi Mai Linh, whose student code is 050607190231 Currently, I am a student in class HQ7 - GE06, majoring in Finance Banking, Ho Chi Minh City University of Banking This is the author's own research work and the process of making and completing this thesis is led by the instructor Dr Nguyen Minh Nhat The results in the thesis are done by myself and the content in the article has never been published except for the citations in the article I am committed to taking full responsibility for this commitment Ho Chi Minh City, August, 2023 Author Nguyen Thi Mai Linh iii ACKNOWLEDGEMENTS First and foremost, during the process of taking and completing the graduation essay, I would like to express my deep thanks to those who have helped me so far In addition, I would like to express my sincere thanks to Dr Nguyen Minh Nhat has accompanied and helped enthusiastically, guided me as well and given many helpful advice to help me this graduation thesis I also would like to sincerely thank Mr and Mrs Board of Directors of Ho Chi Minh City University of Banking for teaching and imparting valuable knowledge and experiences to me during my studying process Besides, I am also grateful to all my friends for being with me and supporting me throughout this thesis Due to my limited practical experience, the content of the graduation thesis cannot avoid some shortcomings, I am looking forward to receiving further advice from lecturers to learn more experiences I believe these experiences are extremely valuable so that I can develop myself well in the future I sincerely thank you! iv TABLE OF CONTENTS ABSTRACT i DECLARATION ii ACKNOWLEDGEMENTS iii TABLE OF CONTENTS iv LIST OF ACRONYMS .vii LIST OF GRAPHICS ix CHAPTER INTRODUCTION 1.1 Reasons for choosing the study 1.2 Research Objectives 1.2.1 General Objectives 1.2.2 Specific Objectives 1.3 Research questions 1.4 The research subject and scope of study 1.4.1 The research subject 1.4.2 Scope of the research 1.5 Research methodology 1.6 Contributions of the research 1.7 Disposition of the dissertation CONCLUSION CHAPTER CHAPTER THEORETICAL FRAMEWORK AND REVIEW OF PREVIOUS EXPERIMENTAL STUDIES 2.1 An overview of technology investment 2.1.1 Definition of technology investment in banks 2.1.2 The benefits of technology for commercial banks in Vietnam 10 2.1.3 Technology investment metrics 11 v 2.2 An overview of financial performance 12 2.2.1 Definition of financial performance in banks 12 2.2.2 Financial performance metrics 12 2.2.3 The impact of technology investment on financial performance of commercial banks 15 2.3 Factors affecting the financial performance of commercial banks 16 2.3.1 The internal (bank-specific) factors 16 2.3.2 Macroeconomic factors 20 2.4 An overview of previous studies 21 2.4.1 Review of domestic researches 21 2.4.2 Review of foreign researches 23 CONCLUSION CHAPTER 30 CHAPTER RESEARCH METHODOLOGY 31 3.1 Implementation process 31 3.2 Research model 32 3.3 Research hypotheses 34 3.3.1 The microeconomic elements 34 3.3.2 The macroeconomic elements 38 3.4 Research data 45 3.5 Research methodology 45 CONCLUSION CHAPTER 52 CHAPTER THE ANALYSIS OF EMPIRICAL RESULTS 53 4.1 Descriptive statistical analysis 53 4.2 Correlation matrix analysis 57 4.3 The analysis of regression results (OLS/FEM/REM Model) 59 4.4 Selection of appropriate models 61 4.5 Test of defects prediction model 62 vi 4.5.1 Multicollinearity test 62 4.5.2 Autocorrelation test 63 4.5.3 Heteroscedasticity test 64 4.5.4 Endogenous test 64 4.6 The results of overcoming the research model by FGLS method 66 4.7 GMM regression model method 67 4.8 Summarize and discuss research results 69 4.8.1 Microeconomic variables 69 4.8.2 Macroeconomic variables 74 CONCLUSION CHAPTER 76 CHAPTER CONCLUSIONS AND RECOMMENDATIONS 77 5.1 Conclusions 77 5.2 Suggestions and recommendations 78 5.2.1 For Vietnamese commercial banks 78 5.2.2 For the State authority 83 5.3 Thesis limitations and future research direction 84 5.3.1 Limitations of the thesis 84 5.3.2 Future research direction 85 CONCLUSION CHAPTER 87 CONCLUSION 88 REFERENCES i APPENDIX v vii LIST OF ACRONYMS Number 10 11 12 13 14 15 16 17 18 19 Acronyms CAP DEP FEM FGLS GDP GMM INF LIQ LOANS NPL NIM OLS REM ROA ROE S-GMM SIZE TE VND Meaning Equity-to-total assets ratio The ratio of total deposits Fixed Effects Model Feasible Generalized Least Squares Gross domestic product Generalized method of moments Inflation rate Liquidity ratio Loans-to-assets ratio Non-performing loans Net interest margin Ordinary least squares Random Effects Model Return on assets Return on equity System generalized method of moments Bank size Technology investment Viet Nam Dong viii LIST OF TABLES Table 2.1 Summary of related studies 25 Table 3.2 Statistics of expected signs of variables in the research model 41 Table 4.1 Statistical results of variables used in the research model 53 Table 4.2 Correlation coefficients between research variables 57 Table 4.3 Results of Pooled OLS, FEM and REM 59 Table 4.4 Selection of models 61 Table 4.5 Results of multicollinearity test 63 Table 4.6 Wooldridge test results 64 Table 4.7 Modified Wald test results 64 Table 4.8 Endogenous and Exogenous variables in the research model 65 Table 4.9 The results of model by FGLS method 66 Table 4.10 GMM endogenous test results 68 Table 4.11 Summary of research results 69