The impact of ownership structure on profitability of commercial banks listed on vietnam’s stock market

BANKING ACADEMY FACULTY OF FINANCE GRADUATION THESIS TOPIC: THE IMPACT OF OWNERSHIP STRUCTURE ON PROFITABILITY OF COMMERCIAL BANKS LISTED ON VIETNAM’S STOCK MARKET Student : Pham Ngoc Tra My Class : K20CLCC Academic year : 2017 – 2021 Student ID : 20A4050239 Instructor : Dr Nguyen Quynh Tho Ha Noi, May 2021 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014129047221000000 BANKING ACADEMY FACULTY OF FINANCE GRADUATION THESIS TOPIC: THE IMPACT OF OWNERSHIP STRUCTURE ON PROFITABILITY OF COMMERCIAL BANKS LISTED ON VIETNAM’S STOCK MARKET Student : Pham Ngoc Tra My Class : K20CLCC Academic year : 2017 – 2021 Student ID : 20A4050239 Instructor : Dr Nguyen Quynh Tho Ha Noi, May 2021 DECLARATION I declare that this thesis is a presentation of my original works, any information reported in the current paper is the results of my own research and analysis Wherever others’ contributions and ideas are included, I have adequately referenced and cited the original sources in the paper Besides, I also declare that I have adhered to all principles of academic honesty and integrity, have not fabricated or falsified any data in my submission If the paper contains any violation or incompliance with the regulations on ethical standards, I will subject to all disciplinary actions from Banking Academy i ACKNOWLEDGEMENT Throughout this entire process, I am overwhelmed in my deep gratefulness to all those who have assisted me to work on this thesis First and foremost, I would like to express my deep and sincere gratitude to my instructor - Dr Nguyen Quynh Tho for the continuous support, comments, suggestions on my research, as well as for her motivation, enthusiasm, patience, and immense knowledge Her guidance helped me in all the time of researching and writing this study, she directly instructed me from the commence how to choose a topic, how to conduct it, and edit the content with many mistakes This submission is accomplished successfully a great deal because of her valuable directions I could not have imagined having a greater advisor for my graduation thesis Besides, my sincere thanks also go to all the lecturers of Faculty of Finance as well as the Management Board of Advanced Program – Banking Academy for always taking care of students The instruction and imparting financial knowledge as well as life experiences have helped me build a strong foundation in this specialty in order to complete the research Furthermore, I would like to thank Vietnam Prosperity Joint Stock Commercial Bank (VPBank) and the older colleagues at the Small and Medium Enterprise Department (SME) – Hanoi Branch of VPBank for their enthusiastic guidance, assistance, and facilitation for me to have an opportunity to work in such a professional environment During the internship, I have learned a lot of practical knowledge as well as soft skills; as a result, I am becoming more and more mature, confident, and dynamic Last but not least, my thesis could not have been accomplished without the support of my family and friends Their encouragements when the times got rough are highly appreciated and duly noted My heartfelt thanks for their sympathy and companion with me while I was undertaking this study Best regards! ii TABLE OF CONTENTS DECLARATION .i ACKNOWLEDGEMENT .ii LIST OF ABBREVIATIONS v LIST OF TABLES vi LIST OF FIGURES vi CHAPTER 1: INTRODUCTION 1 Rationale Research objectives Subject and scope Methodology Structure of thesis CHAPTER 2: LITERATURE REVIEW ON OWNERSHIP STRUCTURE OF COMMERCIAL BANKS 2.1 Overview of commercial banks 2.1.1 2.1.1.1 Primary functions 2.1.1.2 Secondary functions 2.1.2 2.2 Definition and functions Operations of commercial bank 2.1.2.1 The creation of capital 2.1.2.2 The use of capital 12 Ownership structure of commercial bank 13 2.2.1 Conceptual frameworks 13 2.2.2 The impact of ownership structure on commercial banks profitability 14 2.2.3 Criteria for assessing the ownership structure of commercial banks 17 CHAPTER 3: ACTUAL PERFORMANCE OF COMMERCIAL BANKS LISTED ON VIETNAM STOCK MARKET 20 3.1 Overview of banking industry in Vietnam 20 3.2 Actual performance of commercial banks listed on Vietnam stock market during the period 2011 – 2020 22 3.2.1 Overview of commercial banks listed on Vietnam stock market 22 iii 3.2.2 Actual state of ownership structure and return on assets of commercial banks 24 CHAPTER 4: DATA AND METHODOLOGY 34 4.1 Data collection 34 4.1.1 Primary data 34 4.1.2 Sampling 34 4.2 Methodology 35 4.2.1 Quantitative method 35 4.2.2 Qualitative method 35 4.3 Research model 37 4.3.1 Variables 37 4.3.2 Model 40 CHAPTER 5: RESULTS AND FINDINGS 43 5.1 Descriptive analysis 43 5.2 Correlation analysis 44 5.3 Model testing and research results 45 5.3.1 Model testing and selection 45 5.3.2 Research results 46 CHAPTER 6: CONCLUSIONS AND RECOMMEDATIONS 51 6.1 Conclusions 51 6.2 Recommendations 53 ENGLISH REFERENCES 57 VIETNAMESE REFERENCES 60 APPENDIX 64 iv LIST OF ABBREVIATIONS Abbreviation Explanation HOSE Ho Chi Minh Stock Exchange HNX Hanoi Stock Exchange UPCoM Unlisted Public Company Market JSC Joint Stock Company Q1, Q2, Q3, Q4 First quarter, Second quarter, Third quarter, Fourth quarter SBV State Bank of Vietnam SIBOR Singapore Interbank Offered Rate LIBOR London Interbank Offered Rate VCBS Vietcombank Securities Pooled OLS Pooled Ordinary Least Squares FEM Fixed Effects Model REM Random Effect Model ROA Return On Assets ROE Return On Equitty FO Foreign Ownership DO Domestic Ownership SO State Ownership DEP Deposit ratio EQU Equity ratio SIZE Bank Size LOA Loan ratio EFF Operational efficiency VIF Variance Inflation Factor v LIST OF TABLES Tables Pages Table 4: Model’s variables measurement 40 Table 5.1: Statistical description of variables 43 Table 5.2: Correlation coefficient matrix 44 Table 5.3: Multicollinearity test’s result 47 Table 5.4: Fixed multicollinearity defend 47 48 – 49 Table 5.5: A summary of regression results LIST OF FIGURES Figures Pages Figure 1: Theoretical framework of methodology Chart 3.1: Top 10 banks with the largest capitalization 23 Chart 3.2: ROA of 15 commercial banks (except SCB, Pvcombank) in 2011 and 2020 Chart 3.3: State’s shareholding ratio of state-owned commercial banks in 10 years Chart 3.4: Domestic ownership ratio of private banks from 2011 to 2020 Chart 3.5: Foreign ownership ratio of private banks in the period of 10 years vi 24 28 29 31 CHAPTER 1: INTRODUCTION Rationale Vietnam banking industry has undergone considerable changes since the 1990s and nowadays, it has achieved numerous remarkable results There has been a huge rise in the quantity, size, and quality; especially the appearance of domestic and foreign banks This created advantageous conditions for the banking system to enter the period of international economic integration following the era trend However, the current banking system operation still has a number of issues, particularly the bad debts are at a high level and the profitability accounts quite low One of the underlying causes of instability mentioned above is the widespread cross-ownership problem among banks and the impact of tenures structure Therefore, studying the relationship between proprietorship structure and profitability of commercial banks aims to form a scientific basis for maintaining stability and increasing profitability of Vietnam’s commercial banking system in the current competitive and integrated environment is an urgent research issue So far, this topic has attracted many scholars’ attention around the world as well as in Vietnam However, the results of these studies show conflicting arguments about the impact of possessorship structure on the profitability of commercial bank The first party is researches by Sarkar et al (1998), Berger et al (2004), Bonin et al (2005), Cornett et al (2010), Kobeissi and Sun (2010), Rokwaro et al (2013), Jiang, Yao, and Feng (2013), Nguyen Hong Son et al (2014) KL Lin, Doan, & Doong (2016) used the return on equity (ROE) and return on assets (ROA) to estimate the performance of banks, and they demonstrated that foreign and private ownership had a positive effect on profitability while state possessorship had a negative impact on bank earning Nevertheless, some studies have shown opposite results, such as Bhattacharyya et al (1997) researched that state-owned commercial bank performed better than foreign ones H Semih Yildirim and George Philippatos (2007) demonstrated that foreign banks effectively controlled higher costs, but had lower profits than private domestic and stateowned commercial banks Meanwhile, Lensink, Meesters, and Naaborg (2009) illustrated that there was an inverse relationship between foreign ownership and commercial banks' performance For the third opinion, Rahman and Reja (2015), Haque and Brown (2017) pointed out that foreign tenures did not have a considerable influence on the performance of commercial banks Last but not least, some empirical studies did not find any relationship between proprietorship structure and profitability of commercial banks as research by Micco, Panizza, and Yañez (2007) Therefore, research on the effects of this aspect is a necessary requirement in Vietnam’s current period for these reasons as follows: (1) many different results exist in previous studies, (2) differences in the institutional environment, information environment and the protection of investor’s interests among countries, (3) important implications for state agencies, administrators and investors in terms of restructuring Vietnam’s commercial banking system As a result, being aware of studying and evaluating the importance of this research, the author decided to choose the topic: “The impact of ownership structure on profitability of commercial banks listed on Vietnam’s stock market” to clarify these problems above Research objectives The study aims to obtain three research objectives: - Conceptual framework of commercial banks and their ownership structure on profitability - Analysis and evaluate the impact of tenures structure on profitability of commercial banks listed on Vietnam’s stock market - Propose and recommend solutions for commercial banks to improve profitability on equity and asset Subject and scope Subject: Impact of ownership structure on profitability of commercial banks