Ownership structure and financial performance of joint stock commercial banks with the state ownership of over 50% charter capital in vietnam

BANKING ACADEMY OF VIETNAM FACULTY OF BANKING - - GRADUATION THESIS OWNERSHIP STRUCTURE AND FINANCIAL PERFORMANCE OF JOINT-STOCK COMMERCIAL BANKS WITH THE STATE OWNERSHIP OF OVER 50% CHARTER CAPITAL IN VIETNAM Student : Pham Ngoc Nguyet Minh Class : K21CLCA Academic year : 2018 – 2022 Student ID : 21A4010886 Supervisor : Assoc Prof Dr Le Van Luyen Hanoi, May 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014128223961000000 BANKING ACADEMY OF VIETNAM FACULTY OF BANKING - - GRADUATION THESIS OWNERSHIP STRUCTURE AND FINANCIAL PERFORMANCE OF JOINT-STOCK COMMERCIAL BANKS WITH THE STATE OWNERSHIP OF OVER 50% CHARTER CAPITAL IN VIETNAM Student : Pham Ngoc Nguyet Minh Class : K21CLCA Academic year : 2018 – 2022 Student ID : 21A4010886 Supervisor : Assoc Prof Dr Le Van Luyen Hanoi, May 2022 DECLARATION I hereby reassure that this thesis is totally my intellectual creation, which I completed with the help of the supervisor It has never been used in any prior application for a degree, in full or in part Wherever contributions of others are involved, every effort is made to indicate this clearly, with due reference to the literature, and acknowledgement of collaborative research and discussions Hanoi, May 2022 Signature Pham Ngoc Nguyet Minh i ACKNOWLEDGEMENTS First of all, I would like to express my deep and sincere gratitude to my supervisor, Mr Le Van Luyen (Assoc Prof Dr.), for helping me in the process of the research and providing invaluable guidance throughout my research Mr Luyen has made suitable suggestions and detailed comments to make my article as complete as possible It was a great privilege and honor to work under his guidance Secondly, I also take immense pleasure in thanking all the lecturers in Banking Faculty at Banking Academy for their lessons and expensive experience during the past four years of my student life as well as the Management Board of Advanced Program for their great care and support for students I wish to thank the lecturer Mr Le Hai Trung, although I was not directly taught by him, his willingness to impart his knowledge inspired me to conduct this thesis paper Thirdly, I would also want to send my gratitude to all of my lovely friends Thank you to the sisters in C1-107 for the happy days of living together filled with laughter Especially, I would like to express my sincere thank to my best friend forever, Phuong Anh for our 10-year friendship, thank you for always being there, caring and supporting me so much Above all, from the bottom of my heart, my appreciation goes out to my family, who are always by my side to give me motivational support and encouragement There were a lot of times I did bear the thought of giving up halfway However, because my family still being there, I was motivated to keep moving forward and reach where I am today Save the best for last, I would like to thank myself for daring to embark on this challenging journey, being persistent, resilient and always striving for excellence Due to time limitations and the restricted capacity of the author, this thesis might contain certain defects Therefore, I would be really open-minded and grateful for any constructive comments to enhance its quality ii TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENTS ii LIST OF ABBREVIATION v LIST OF TABLES vi LIST OF FIGURES vi INTRODUCTION 1 Research problem: .1 Research objectives: 3 Subject and scope: 4 Research method: Value of the study: Research structure: CHAPTER 1: LITERATURE REVIEW OF RELATIONSHIP BETWEEN OWNERSHIP STRUTURE AND BANK FINANCIAL PERFORMANCE .6 1.1 Theoretical basis: 1.1.1 Relationship between ownership structure and firm performance: 1.1.2 Relationship between ownership structure and bank financial performance: .12 1.2 Emprical research papers: 18 CHAPTER 2: REAL SITUATION OF OWNERSHIP STRUCTURE AND FINANCIAL PERFORMANCE OF JOINT-STOCK COMMERCIAL BANKS WITH THE STATE OWNERSHIP OF OVER 50% CHARTER CAPITAL IN VIETNAM FOR THE PERIOD 20092021 .29 2.1 Overview of ownership structure and financial performance of Vietnamese commercial banks: 29 2.1.1 Regulations related to ownership structure in the Vietnamese banking system: 29 2.1.2 Overview of the ownership structure of Vietnamese commercial banks: .34 iii 2.2 Real situation of the impact of ownership structure on the financial performance of Vietnamese joint-stock commercial banks with the State ownership of over 50% charter capital: 39 2.2.1 The process of equitization of Vietcombank, Vietinbank and BIDV: 39 2.2.2 Financial performance of three Vietnamese Joint-stock Commercial banks with the State ownership of over 50% charter capital: 42 2.2.3 Evaluation of the financial performance of Vietnamese Joint-stock Commercial banks with the State ownership of over 50% charter capital in relation to ownership structure: 51 CHAPTER 3: EVALUATE THE IMPACT OF OWNERSHIP STRUCTURE TO FINANCIAL PERFORMANCE OF JOINT-STOCK COMMERCIAL BANKS WITH THE STATE OWNERSHIP OF OVER 50% CHARTER CAPITAL IN VIETNAM FOR THE PERIOD 2009-2021 .54 3.1 Research hypothesis: 54 3.2 Research model: 57 3.2.1 Regression model: 57 3.2.2 The variables selection: 57 3.2.3 Data collection and Research methodology: 60 3.3 Results and Discussion: 61 3.3.1 Summary statistics: .61 3.3.2 Regression results: .62 3.3.3 Discussions: 67 CHAPTER 4: RECOMMENDATIONS .71 4.1 Recommendations for State management agencies: 71 4.2 Recommendations for bank administrators: 75 GENERAL CONCLUSIONS .78 REFERENCES 81 APPENDICES .91 iv LIST OF ABBREVIATION Abbreviation ASEAN Interpretation Association Of South East Asian Nations CAR Capital Adequacy Ratio CEO Chief Executive Officer EPS Earnings Per Share FEM Fixed Effects Model FGLS Feasible Generalized Least Squares GMM Generalized Method Of Moments HOSE Ho Chi Minh Stock Exchange IPO Initial Public Offering LDR Loan-To-Deposit Ratio M&A Mergers and Acquisitions NIM Net Interest Margin NPL Non-Performing Loan OLS Ordinary Least Square REM Random Effects Model ROA Return On Assets ROE Return On Equity SBV State Bank Of Vietnam VIF Variance Inflation Factor WTO World Trade Organization v LIST OF TABLES Table Page Table 2.1: Regulation of share ownership rate for foreign investors in joint-stock 31 commercial banks in Vietnam Table 2.2: Changes in some indicators before and after the equitization of BIDV, 42 Vietinbank and Vietcombank Table 2.3: ROA and ROE of BIDV, Vietinbank and Vietcombank over 2018-2021 49 Table 2.4: Non- performing loan ratio of BIDV, Vietinbank and Vietcombank 50 over 2018-2021 Table 3.1: Variables descriptions 58 Table 3.2: Descriptive Statistics 61 Table 3.3: Correlation Matrix 62 Table 3.4: Pooled OLS regression results 63 Table 3.5: VIF of the independent variables in models 64 Table 3.6: Heteroscedasticity test 65 Table 3.7: Serial correlation test 65 Table 3.8: FGLS regression results 66 LIST OF FIGURES Figure Page Chart 2.1: Total assets growth of BIDV, Vietinbank and Vietcombank over the 43 period 2009 -2021 Chart 2.2: Total equity growth of BIDV, Vietinbank and Vietcombank over the 44 period 2009 -2021 Chart 2.3: Credit growth of BIDV, Vietinbank, Vietcombank over 2018-2021 45 Chart 2.4: Deposit growth of BIDV, Vietinbank, Vietcombank over 2018-2021 45 Chart 2.5: Profit before tax of BIDV, Vietinbank and Vietcombank over 2018- 47 2021 Chart 2.6: NIM of BIDV, Vietinbank and Vietcombank over 2018-2021 vi 48 INTRODUCTION Research problem: The relationship between ownership and financial performance of enterprises has been a topic of research interest since the early years of the last century Studies on the impact of ownership structure on firm performance first appeared in the United States, where the financial market has long been developed Since the mid-20th century, there have been theories developed by scholars to explain this effect Berle & Means (1932) in their famous study mentioned the separation between ownership and management rights and emphasized the ownership structure and performance of corporations in the America Based on that, Jensen & Meckling (1976) developed Agency Theory, stating the conflict of interest arising between owners (shareholders) and business managers Management may be pursuing personal goals rather than focusing on maximizing benefits for the business or the goal of making profits for business owners There are principles and governance practices in place to control asymmetric information conflicts between executives and company shareholders Ownership structure, as an important mechanism in corporate governance, aims to orient managers to work for shareholders' goals instead of self-interest, creating conditions to improve firm operational efficiency On that basis, there have been many studies investigating and evaluating the relationship between ownership structure and performance of different types of enterprises, which it is impossible not to mention studies in the field of the banking sector The banking industry, as a financial intermediary, is considered the backbone of the whole developing economy Through the good performance of its functions: Creating opportunities to access idle capital for businesses, and effectively implementing monetary policy; banks are increasingly asserting their essential role in the development of any economy Since its establishment until now, Vietnam's banking industry has undergone great changes and achieved certain achievements, making positive contributions to socio-economic development In the late 1980s, along with the transformation of the country's economy from a centrally planned mechanism to a socialist-oriented market mechanism, the banking industry also gradually innovated Vietnamese banking sector switched from one-tier model to two-tier model with the State Bank of Vietnam acting as the state-level manager and four state-owned banks including the Agricultural Development Bank, Bank for Industry and Trade, Bank for Investment and Construction, and Bank for Foreign Trade The system of Vietnamese credit institutions has gradually been consolidated and improved its operational capacity based on perfecting the banking sector's legal framework and flexible economic policies in line with the development of the times Until now, in addition to the increase in the number and quality of services as well as the size of the banking network, the emergence of new types of banks or it is the diversification in the ownership structure that is the most remarkable point in the development of the Vietnamese banking system If initially the finance-banking industry was owned by the State, now there has been the presence of the private and foreign sectors, with the banking industry, there are new types of banks such as Joint-stock commercial banks, joint venture banks, banks with 100% foreign investment capital In the context of developing the country's economy according to the market mechanism, the diversity of ownership types is both an opportunity for the banking industry to integrate internationally and poses challenges in the management of the authorities as well as governance in the bank In the past 20 years, restructuring the composition of the economy in general and the banking system in particular, has been a matter of concern and research by State management agencies and banking administrators In the 2000s, the Government proposed to equitize state-owned commercial banks With a lot of effort from the bank itself and the support from the State Bank, in December 2007, Vietcombank made its initial public offering, year later Vietinbank and years later, BIDV has just conducted an IPO However, up to now, together with Agribank, these banks are still an effective arm for SBV to implement the country's macro goals and play a pivotal role in the banking industry, leading the financial market in Vietnam