THEORETICAL FRAMEWORK AND RESEARCH
Commercial banks introduction
A commercial bank is a financial institution that accepts deposits and provides various types of loans, including business and mortgage loans, alongside basic financial products like savings accounts and certificates of deposit Unlike investment banks, which serve different functions, some commercial banks may operate in both areas While the primary roles of commercial banks involve accepting deposits and offering loans, the specific types of deposits—such as savings accounts, fixed deposits, and recurring deposits—and loans, including cash credit, money at call, overdraft facilities, and bill discounts, can vary significantly between institutions.
In Vietnam, the term "commercial bank" is broadly defined, aligning with the global understanding of the concept As per the 1997 Vietnam Law on Banking, a commercial bank is recognized as a type of credit institution authorized to perform a wide range of banking and related activities These banking activities encompass various financial services essential for economic growth.
The determinants of bank profitability in commercial banks, specifically through an analysis of BIDV in Vietnam, highlight the critical role of monetary business and banking services These services include accepting deposits and utilizing them to offer credit and payment solutions Understanding these factors is essential for improving financial performance and ensuring sustainable growth within the banking sector.
Commercial banks in Vietnam align with international definitions regarding their functions, yet they operate with a broader scope that allows for diversification across various fields This flexibility enables banks like BIDV to serve dual roles as both commercial and investment banks BIDV accepts public deposits and conducts traditional banking activities while also funding significant investment projects and key economic sectors As a major investor for numerous enterprises, BIDV plays a crucial role in driving the growth of the Vietnamese economy.
General review of Bank profitability
The profitability of commercial banks is a crucial indicator of their operational efficiency and competitiveness compared to other institutions, reflecting the quality of management Profitability is influenced by both internal and external determinants; internal factors, or controllable elements, pertain to management practices aimed at achieving expected profits, while external factors, including macroeconomic conditions and specific bank characteristics, are beyond the banks' control This study emphasizes the importance of internal determinants in profitability management at the bank level for enhanced relevance.
This article analyzes the determinants of bank profitability in commercial banks, focusing specifically on BIDV Vietnam It emphasizes the significance of internal factors, which can be derived from the bank's financial statements, to effectively capture relevant data Understanding these internal determinants is crucial for assessing the profitability of commercial banks.
For commercial banks, the profit might come from various sources including transfer fee, interest on bank loan and other banking services (Li &Zou,
In 2014, bank loan services constituted the majority of bank revenue and profit, primarily determined by the net interest income, which is the difference between interest earned on loans and interest paid on deposits While many banks charge interest on loans, some services, like checking account deposits, may not incur interest Typically, commercial banks maintain a higher interest rate on loans compared to what they offer depositors Ultimately, profit is calculated by subtracting operational expenses, such as staffing, rent, and utilities, from total revenue.
The DuPont model serves as an effective framework for analyzing profitability in firm-level management, with Return on Equity (ROE) as its cornerstone, expanding to various profit indicators (Li & Zou, 2014) ROE is further broken down into Return on Assets (ROA), which is divided into asset turnover and net profit margin This research will focus on ROE and ROA as the primary proxies for profitability, as they are crucial components of the DuPont model and are widely utilized in previous studies to represent profitability (Gizaw, Kebede & Selvaraj, 2015; Li & Zou, 2014).
The most common way to measure bank profitability and overcome the limitations of net income is through ROA and Return on Equity (ROE)
The determinants of bank profitability in commercial banks are critical for understanding financial performance This analysis focuses on BIDV, one of Vietnam's leading banks, examining various factors that influence its profitability Key determinants include operational efficiency, asset quality, market competition, and macroeconomic conditions By evaluating these elements, the study provides insights into how BIDV can enhance its financial outcomes and maintain a competitive edge in the banking sector Understanding these factors is essential for stakeholders aiming to improve profitability in commercial banking.
Return on Assets (ROA) and Return on Equity (ROE) are essential metrics for assessing bank profitability, illustrating how efficiently a bank utilizes its assets and equity to generate profits These indicators are calculated to provide insights into a bank's financial performance.
Return on equity (ROE) is a key metric that gauges the profitability generated for each dollar of capital equity provided by shareholders, reflecting how effectively a bank converts capital investments into profits While a higher ROE is preferred by stockholders, striving to maximize it can lead to increased risks, including potential violations of regulatory capital requirements and heightened insolvency risks Therefore, it is crucial to carefully establish ROE levels to strike a balance between profitability and risk management ROE is calculated by dividing net income by total shareholders' equity and multiplying the result by 100.
Return on assets (ROA) is a key financial metric that measures a bank's profitability relative to its total assets, indicating how effectively it converts assets into profit Similar to return on equity, ROA is generally believed to have a positive correlation with profitability during profit maximization; however, this relationship may not always hold true To calculate ROA, divide net income by total assets and multiply by 100.
This article examines the determinants of bank profitability within commercial banks, focusing specifically on BIDV in Vietnam It analyzes various factors that influence the financial performance of this institution, highlighting key metrics and strategies that contribute to its success By investigating both internal and external influences, the study provides insights into how BIDV can enhance its profitability in a competitive banking environment Ultimately, this analysis serves as a valuable resource for understanding the dynamics of bank performance in Vietnam's financial sector.
Return on assets (ROA) and return on equity (ROE) are widely recognized as key indicators of a company's profitability, effectively showcasing its profit-making capacity over a specified period However, these two metrics may not always yield identical results when analyzing the relationship between profitability and related factors Therefore, incorporating both ROA and ROE in the analysis is essential for obtaining a more comprehensive understanding of a business's financial performance.
1.2.3 Internal factors effecting the bank profitability
Non-performing loans (NPLs) refer to payments that remain unpaid after their maturity date, representing a significant issue in financial discussions (Charles, 2001) The non-performing loan ratio, calculated as the ratio of NPLs to total loans, serves as a crucial indicator of credit risk According to Maxwell and Peter (2016), an increasing NPL ratio signals a higher likelihood that banks may struggle to recover outstanding payments As a result, commercial banks facing elevated levels of non-performing loans are likely to experience substantial financial losses, leading to reduced profitability.
A negative relationship exists between bank profitability and the non-performing loan rate, indicating that banks must effectively manage and control bad debt to maintain their financial health (Messai & Jouni, 2013).
In 2009, concerns were raised regarding the relationship between non-performing loans (NPLs) and their measurement, as the complex definition of NPLs can lead to inconsistencies in recording practices across different countries Despite standardized calculation methods, the ambiguous criteria for determining overdue terms contribute to confusion in the assessment of NPLs, particularly when comparing international standards.
The determinants of bank profitability in commercial banks, specifically through an analysis of BIDV in Vietnam, reveal critical factors influencing financial performance According to the International Monetary Fund (2005), a foundational benchmark is established to assess profitability This analysis underscores the importance of various elements, including asset quality, management efficiency, and market conditions, which significantly impact the financial outcomes of commercial banks Understanding these determinants is essential for enhancing the profitability and sustainability of banking institutions in the Vietnamese market.
The recognition period for credit risks varies significantly by country, with a notable difference in non-performing loan recognition timelines In Russia, non-performing loans are recognized after just 30 days, whereas Estonia and Lithuania have a longer recognition period of 60 days This discrepancy highlights the diverse approaches to credit risk management across different nations.
OVERVIEW THE BIDV AND PROFITABILITY OF BIDV16 2.1 Review of BIDV and profitability in 2006-2017 intervals
Introduction to BIDV
BIDV, one of Vietnam's five largest State-owned commercial banks, is ranked 351st among the 500 largest banks in Asia, according to Asia-week magazine Established in 1957 as the Bank for Construction of Vietnam under Decision No 177/TTg by the Prime Minister, it officially adopted its current name in 1990.
BIDV has established a robust presence in Vietnam and internationally, offering a diverse range of financial services, including banking, finance, and insurance Distinct from other commercial banks, BIDV engages in agency funding projects both domestically and globally To maintain its competitive edge in the increasingly fierce banking sector, BIDV has proactively embraced modern technological infrastructure.
2007 onward witnesses the leading position of BIDV in Vietnam ICT Index,
The determinants of bank profitability in commercial banks, particularly in the case of BIDV Vietnam, highlight the significant advancements and adaptability of the bank in the digital era This analysis underscores the critical factors influencing the financial performance of commercial banks, emphasizing the importance of innovation and technology in enhancing profitability As BIDV navigates the evolving banking landscape, its ability to leverage digital solutions plays a crucial role in its financial success and competitiveness.
Brief of BIDV profit making performance in 2006-2017
The charts illustrate the Return on Assets (ROA) and Return on Equity (ROE) of BIDV from 2006 to 2017, highlighting its position as the leading bank in Vietnam with impressive performance Throughout this period, significant fluctuations in these indicators reflect the bank's operational efficiency and growth Figure 1 clearly demonstrates these positive trends in BIDV's financial metrics.
Figure 2.1 – BIDV ROA & ROE from 2006-2017
ROA (Return on Asset) is calculated as net profit divided by total assets
The Return on Assets (ROA) is a crucial financial ratio that reflects the percentage of profit a company generates relative to its resources, indicating the effectiveness of asset management A higher profit correlates with a greater ROA BIDV has consistently maintained an ROA close to 1% over the years, although it experienced a decline from 1.04% in 2009 to 0.63% in 2017, primarily due to challenging business conditions during the economic crisis, which put many companies at risk of bankruptcy Despite these difficulties, the bank's efforts helped sustain its performance.
The determinants of bank profitability in commercial banks, specifically through an analysis of BIDV in Vietnam, highlight the importance of maintaining a stability ratio within acceptable fluctuation levels This reflects the bank's operational effectiveness and its capability to manage assets efficiently Understanding these factors is crucial for enhancing profitability and ensuring sustainable growth in the banking sector.
In addition, because BIDV‟s Total assets increased rapidly in this period also made ROA ratio decrease
Return on Equity (ROE) is a key profitability ratio that assesses a company's efficiency in generating profits from shareholder investments This metric typically fluctuates between 13% and 18%, with notable variations compared to Return on Assets (ROA) Historical data reveals two distinct periods; ROE peaked at 18.41% in 2009 before declining to 17.96% in 2010, even as bank profits surged amid the financial crisis of 2008-2009 Following the completion of the joint stock process in late 2011, an increase in equity, particularly in chartered capital, resulted in a significant drop in ROE to 13.20%, further declining to 12.38% in 2012.
Despite experiencing setbacks, BIDV remains one of the most profitable banks in Vietnam According to Tran (2015), BIDV's reduced profitability can be attributed to the domestic recession of 2011-2012, which has had lasting effects on economic growth This decline was not unique to BIDV, as the average return on equity (ROE) for all commercial banks in Vietnam fell from 14.19% in 2011 to 9.56% in 2012 (KPMG, 2013) Analyzing ROA and ROE reveals insights into the effectiveness of banking operations during this period and highlights significant changes in BIDV's size and structure.
The Return on Assets (ROA) and Return on Equity (ROE) ratios have shown consistent improvement, reaching normal levels, while the income structure has positively evolved Remarkably, the bank's profits surged despite the significant impact of the 2008-2009 financial crisis However, since 2011, BIDV's profits have been experiencing a downward trend.
The determinants of bank profitability in commercial banks, particularly in the case of BIDV in Vietnam, reveal significant insights into its financial performance Despite experiencing a decline in return on equity (ROE) to 12.38% in 2012, BIDV remains one of the most profitable banks in the country This downturn can be attributed to the domestic recession during 2011-2012, which has had a lasting impact on economic growth, as noted by Tran (2015) The overall trend of declining profitability was also observed across the commercial banking sector, which reported an average ROE of 9.56% in 2012, down from 14.19% in 2011 (KPMG, 2013) Nevertheless, BIDV's performance exceeded the sector average, highlighting the bank's effective strategies in maintaining competitiveness during challenging economic times.
Between 2012 and 2017, BIDV achieved impressive and comprehensive growth across all indicators, averaging a remarkable 17% annual increase Key metrics include total assets rising over 2.1 times, capital mobilization increasing 2.5 times, outstanding loans growing 2.6 times, and retail sales surging nearly 4 times, with profit before tax expanding 1.7 times Additionally, BIDV's network expanded significantly, with 182 first-level branches and nearly 800 transaction offices nationwide, marking an increase of 63 branches and 284 transaction offices since 2011.
In the past five years, BIDV has strengthened cooperation with domestic and foreign organizations, "paving the way" in investment activities abroad, strengthening international economic integration and comprehensive
To foster secure and sustainable credit growth, it is essential to proactively engage in both regional and international financial markets Emphasis should be placed on priority sectors such as rural agriculture, exports, supporting industries, SMEs, and high-tech enterprises Addressing bad debts through comprehensive solutions is crucial, alongside the development and diversification of product and service offerings Additionally, establishing and effectively implementing a strategy for international economic integration will enhance overall financial stability and growth.
This article analyzes the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It explores various factors influencing profitability, including financial management practices, economic conditions, and regulatory frameworks The study aims to identify key drivers that contribute to the financial success of BIDV, offering insights that can be beneficial for stakeholders and policymakers in the banking sector Understanding these determinants is crucial for enhancing the overall performance and sustainability of commercial banks in Vietnam.
BIDV are the key factors help BIDV becomes the leading in banking industry and earn more profit every year
After reviewed the ROA and ROE through 10 years, we can see the high quality in BIDV operation ability and especially the positive changes in structure of the bank
This article explores the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It analyzes key factors that influence profitability, including operational efficiency, asset quality, and market competition The study emphasizes the importance of effective management strategies and regulatory frameworks in enhancing the financial performance of banks By examining BIDV's performance metrics, the article provides insights into how these determinants can be leveraged to improve overall profitability in the banking sector.
Table 2.1 - Quality Criteria of BIDV
BIDV CAR NPL LDR LLPR DR
Bank operations inherently involve risks, particularly in credit, deposit, and payment transactions The ability to manage and mitigate these risks, including bad debt, is crucial for maintaining credit quality and overall operational effectiveness in banking.
The NPL ratio for BIDV has consistently remained under control at 3%, with a slight increase to 3.03% in 2012, highlighting the bank's effective management of non-performing loans Additionally, BIDV's equity has seen significant growth during this period, driven by factors such as an increase in chartered capital, substantial growth in bank funds, and positive annual profit contributions, resulting in a CAR that consistently exceeds 8%.
This article explores the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It analyzes various factors that influence the financial performance of the bank, including economic conditions, management efficiency, and market competition The study aims to provide insights into how these determinants impact BIDV's profitability, contributing to a better understanding of the banking sector in Vietnam By examining these elements, the research seeks to identify strategies for enhancing bank performance and sustainability in a competitive environment.
Since 2017, the Capital Adequacy Ratio (CAR) has consistently exceeded 9%, meeting the minimum requirements set by the State Bank Although CAR has not increased, it has remained stable as BIDV strategically utilized its capital to enhance its assets and expand business operations, ultimately driving profit growth.
LDR from 2014 to 2017 around 90%, nearly ensuring the minimum ratio prescribed by the State Bank of Viet Nam
LLDR well controlled, proving that bad debt is strictly controlled
This ratios shows the bank's ability to operate and its credit quality is extremely effective
Comparative review of profitability in BIDV and Vietinbank in the
In 2011, Vietinbank achieved a remarkable 26.74% return on equity (ROE), highlighting its effectiveness in generating profitability However, despite outperforming BIDV that year, Vietinbank's performance declined significantly in subsequent years, with its ROE plummeting to as low as 10% by 2015.
Figure 2.4 – Comparison of BIDV and Vietinbank profitability
(Source: BIDV and Vietinbank annual report)
This section analyzes BIDV's profit-making operations to assess its efficiency in maximizing profitability, using quantitative analysis to identify key variables for Vietnamese commercial banks A comparative evaluation with Vietinbank will be included to highlight the financial performance efficiency of BIDV Notably, a review of the figures indicates a contrasting profit trend between Vietinbank and BIDV.
Comparison of Vietinbankv.s BIDV profitability
BIDV ROA Vietinbank ROA BIDV ROE Vietinbank ROE
This analysis examines the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam Over a 15-year period, BIDV consistently outperformed Vietinbank, with notable exceptions before 2007 and after 2013 The years 2007 to 2013 were particularly significant for BIDV, as the bank experienced sustainable growth by developing innovative credit products and enhancing its credit management model These strategic changes led to substantial improvements in BIDV's financial performance and solidified its position as a leading bank in Vietnam The most significant profit growth for BIDV occurred between 2008 and 2011, driven by a booming stock market that increased demand for investment funds.
Despite capturing a higher profitability than BIDV prior to 2007, the following period saw quite poor performance in Vietinbank with ROE dropped to as low as 10% since 2014
Figure 2.5 – Comparison of BIDV and Vietinbank CAR
(Source: BIDV and Vietinbank annual report)
This article explores the determinants of bank profitability in commercial banks, focusing specifically on the case study of BIDV in Vietnam It analyzes various factors that influence profitability, including financial performance metrics, market conditions, and regulatory frameworks The study aims to provide insights into how these determinants affect the overall success and sustainability of commercial banks in the Vietnamese banking sector By examining BIDV's strategies and outcomes, the research contributes to a deeper understanding of the banking industry's dynamics in Vietnam.
Vietinbank's focus on maintaining high capital adequacy aims to enhance risk coverage; however, it falls short in effectively evaluating credit risk Unlike BIDV, Vietinbank employs a decentralized appraisal mechanism that grants excessive authority to branches in credit decisions, leading to significant reserves for non-performing loans While this decentralized approach allows for greater flexibility and increased lending during economic booms (2008-2011), it also exposes the bank to higher risks Consequently, after the market's peak, many loans became non-performing, severely impacting Vietinbank's profits In contrast, BIDV's centralized appraisal strategy fosters careful lending practices, resulting in lower credit risk and higher average profits, ultimately enabling BIDV to outperform Vietinbank in profitability.
The determinants of bank profitability in commercial banks, particularly in the context of BIDV Vietnam, reveal that minimizing non-performing loans significantly enhances profitability Additionally, during the analyzed period, BIDV's loan loss provisions were notably lower than those of Vietinbank, indicating a more efficient management of credit risk This trend is illustrated in the accompanying figure, which shows that BIDV required a substantially lower reserve amount for covering credit losses compared to Vietinbank throughout most of the period from 2008 onward.
Since implementing a centralized appraisal system in 2014, Vietinbank has improved its credit management, resulting in a significant decrease in both loan loss provisions and the non-performing loan rate.
Figure 2.6 – Comparison of BIDV and Vietinbank NPL & LLR
(Source: BIDV and Vietinbank annual report)
BIDV has faced an increase in non-performing loans since 2014, leading to a significant rise in loan loss provisions in subsequent years This uptick in non-performing loans compared to 2013 has prompted BIDV to allocate more resources to cover potential losses The bank's challenges primarily stem from ineffective market diversification, which has resulted in excessive exposure to certain risks.
Comparison of Vietinbank and BIDV : NPL & LLR
BIDV NPL Vietinbank NPL BIDV LLR Vietinbank LLR
The determinants of bank profitability in commercial banks, particularly in the case of BIDV Vietnam, highlight the impact of centralized appraisal systems on performance While such systems provide short-term security, they can hinder long-term growth and competitiveness, as evidenced during economic recoveries post-crises BIDV's reliance on headquarter decision-making has limited its ability to adapt to rapidly changing market demands and implement effective diversification strategies The lack of local jurisdiction has restricted branches from tailoring marketing campaigns to regional customer behaviors, further affecting profitability Quantitative analysis indicates that factors like bad debt and loan loss provisions significantly influence BIDV's profit-making performance, while capital adequacy ratios primarily ensure stability rather than directly enhancing profitability To improve its low profit performance, BIDV must develop practical solutions that address these challenges.
This article analyzes the determinants of bank profitability in commercial banks, focusing specifically on BIDV Vietnam It highlights the critical role of managing bad debt to ensure the bank's profitability aligns with its objectives The discussion will include practical measures to enhance financial performance, which will be elaborated upon in subsequent sections.
Potential determinants of profitability of BIDV
Based on the above analysis, we can again summarize the factors and their effect on determinants of profit in BIDV as shown in the table below:
Table 2.2 - Dependent variables on profit in BIDV
Non-performing loan rate NPL -
Loan to deposit ration LDR +
Loan Loss Provision ration LLPR -
Bank size (Total assets) TA +
This article explores the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It analyzes various factors that influence the financial performance of the bank, including operational efficiency, asset quality, and market conditions By examining BIDV's strategies and performance metrics, the study aims to provide insights into the key elements that drive profitability in the banking sector Understanding these determinants is crucial for improving financial outcomes and enhancing competitive advantage in the Vietnamese banking landscape.
METHODOLOGY AND DATA ANALYSIS
Chapter introduction
This chapter outlines the research methodology designed to achieve the stated objectives, beginning with an overview of the relevant research paradigm and overall strategies It will detail the planned tactics for data and sample selection, followed by a description of the data analysis methods to illustrate how the collected data will be processed for interpretation Finally, the chapter addresses ethical considerations, ensuring that various aspects of research ethics are adhered to in alignment with ethical principles.
Research paradigm & strategies
Quantitative and qualitative research are two distinct academic approaches, with quantitative research focusing on statistical analysis of numeric data, while qualitative research emphasizes non-statistical measurement and interpretive understanding Qualitative research is grounded in experiential knowledge and event interpretation, reflecting an interpretive viewpoint In contrast, the quantitative approach aligns with positivism, advocating for the quantification of social phenomena to facilitate learning (Krauss, 2005).
As far as the profitability is concerned, the vast majority of past research papers employ positivist paradigm under quantitative research Batten andVo
In 2013, it was suggested that profitability should be viewed objectively, as it is significantly influenced by external factors Therefore, this research adopts a positivist approach, positing that job satisfaction is an objective phenomenon worthy of investigation.
This article examines the determinants of bank profitability in commercial banks, with a specific focus on BIDV (Bank for Investment and Development of Vietnam) It analyzes various factors influencing profitability, including economic conditions, management efficiency, and market competition The study aims to provide insights into how these determinants impact BIDV's financial performance and offers recommendations for enhancing profitability in the Vietnamese banking sector Understanding these factors is crucial for stakeholders looking to optimize banking operations and improve overall financial health.
The research adopts a quantitative approach rooted in positivism, utilizing deductive reasoning to develop theories prior to testing them against real-world data, thereby employing a top-down methodology To achieve a comprehensive understanding, qualitative analysis will complement the quantitative findings, ensuring a thorough confirmation of results This mixed-method approach aims to present a holistic view of the Vietnamese banking sector while offering detailed insights into BIDV.
Data collection & sample selection strategies
The research will primarily utilize secondary data, reflecting the objective nature of the input information Previous studies have also depended on secondary data to explore the relationship between profitability and its drivers, facilitating a more straightforward comparison and contrast of research findings using a consistent data collection method.
To analyze the impact of various bank-specific factors on profitability, this research will extract raw data from BIDV's financial reports Utilizing longitudinal data collection, the study will examine changes over time to test the relationships between variables According to Zeng (2015), this approach enables researchers to focus on variations within a single research subject, making it particularly effective for detailed case studies Consequently, this methodology is well-suited for understanding how factors at BIDV have influenced bank profitability in response to different events over time, with data sourced from the bank's annual reports.
Sampling strategy
This article analyzes the determinants of bank profitability within commercial banks, focusing specifically on BIDV in Vietnam It examines various factors that influence the financial performance of banks, including management efficiency, asset quality, and economic conditions The study aims to provide insights into how these determinants affect BIDV's profitability, offering valuable information for stakeholders and policymakers in the banking sector Understanding these factors is crucial for enhancing the overall performance and sustainability of commercial banks in Vietnam.
The selection of sample size is crucial to produce research quality in general
According to Scheurich (2014), the selection of sampling techniques and determination of sample size significantly impact the reliability and feasibility of a study This research focuses on BIDV, analyzing data from 2006 to 2015, and includes a comprehensive dataset from seven competing commercial banks in Vietnam—Vietinbank, Vietcombank, Eximbank, Saigon-Hanoi Bank, AChaubank, BIDV, Sacombank, and Militarybank—over a span of more than 10 years to establish a robust sample size for quantitative analysis.
80 observations, which is consistent to the assumption of Central Limit Theorem For qualitative part, the study will take account into comparative analysis of BIDV and Vietinbank.
Data analysis methods
To analyze quantitative data for hypothesis testing, this research employs three primary methods: descriptive statistics, correlation analysis, and regression analysis Each of these approaches has been carefully selected and will be justified in the following section.
Descriptive statistics, as defined by Jaggi (2006), is a straightforward technique for analyzing data patterns This simplicity allows researchers to quickly gain an initial understanding of their data sets Moreover, descriptive statistics not only provides a comprehensive overview of the collected data but also serves as a foundational tool for referencing other analytical techniques.
This article explores the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It analyzes various factors that influence the financial performance of banks, including management efficiency, asset quality, and market competition Understanding these determinants is crucial for enhancing profitability and ensuring sustainable growth in the banking sector The study aims to provide insights that can help improve strategic decision-making within BIDV and similar institutions in Vietnam.
Correlation analysis, as described by Sharma (2005), is a technique that provides researchers with insights into the relationships between variables, focusing on both the magnitude and direction of their interactions The magnitude is assessed using the absolute value of the Pearson correlation coefficient, where a value of 0.5 or higher indicates a significant relationship The sign of the value reveals whether the relationship is negative or positive Overall, correlation values range from -1 to +1, leading to four potential scenarios: significantly negative correlation, insignificantly negative correlation, significantly positive correlation, and insignificantly positive correlation.
This research will utilize both the Fixed Effect Method and Random Effect Method to systematically analyze the relationship between dependent and independent variables By combining these two approaches, we aim to achieve fair and accurate results, capitalizing on the strengths of each method while mitigating their weaknesses In cases of inconsistency between the methods, the Hausman test will be employed to identify the more appropriate model The Random Effect method is theoretically favored for its advantages in predicting shrunken residuals and accommodating differential effectiveness through random coefficients models (Borrego, Douglas & Amelink, 2009).
This article explores the key determinants of bank profitability in commercial banks, with a specific focus on BIDV in Vietnam It analyzes various factors that influence the financial performance of the bank, including economic conditions, management efficiency, and market competition By examining these elements, the study aims to provide insights into how BIDV can enhance its profitability and sustain growth in the competitive banking sector Understanding these determinants is crucial for stakeholders looking to improve financial strategies and operational effectiveness within the Vietnamese banking landscape.
CAR NPL LDR LLPR LNTA DR ROA ROE
Overall, the descriptive analysis on 80 observations (data of 8 banks in over
Over the past decade, the capital adequacy ratio of Vietnamese banks has shown significant fluctuations, ranging from a low of 5% to a high of 35% With a mean ratio of 12% and a standard deviation of only 4%, the data indicates a left skew, suggesting that most banks maintain a capital adequacy ratio above the minimum requirement of 8% This reflects a strong adherence to risk management policies among the sampled Vietnamese banks.
Non-Performance Loan or NPL is also the variable varying significantly in a large range of data as the minimum and maximum was recorded at 0.2% and
This article explores the determinants of bank profitability, focusing specifically on BIDV, a prominent commercial bank in Vietnam It analyzes various factors that influence the financial performance of banks, including economic conditions, management efficiency, and market competition By examining BIDV's profitability metrics, the study aims to provide insights into the critical elements that drive success in the banking sector Understanding these determinants can help improve strategic decision-making and enhance overall bank performance in the competitive Vietnamese market.
The non-performing loan ratio in Vietnam's banking sector averaged a low 1.7%, indicating a stable financial environment The standard deviation was maintained at a manageable 1%, reflecting consistent performance across banks However, some outliers in the higher range were anticipated during this period.
Vietnamese banks maintain a loan-to-debt ratio averaging 85%, reflecting a cautious approach to risk management through adequate reserved capital This level signifies a relatively safe lending environment However, the average ratio slightly above 50% highlights the banks' effective lending operations Conversely, instances where the loan-to-debt ratio exceeds this threshold raise concerns about liquidity, suggesting that some banks are lending more than their available capital.
To maintain a low level of bad debt, the average loan loss provision ratio (LLPR) is set at 2%, effectively covering potential losses However, the maximum LLPR can reach as high as 5.3%, which is significantly higher, being ten times the minimum requirement.
The total assets of the banks analyzed in the research exhibited an overall upward trend, primarily driven by favorable economic conditions during the examined period The significant disparity between the minimum and maximum asset levels reflects the varying sizes of the banks, independent of each bank's annual growth rate.
Dividend payment ratio of the firm ranges between 1% and 16%, with the average achieved at 7% The values of dividend payment ratio however varied insignificantly within a small standard deviation of only 3%
The dataset for Return on Assets (ROA) shows a striking similarity to dividend payments, exhibiting a low fluctuation of just 0.6% around an average of approximately 1.3% Additionally, the range of ROA values is narrow, indicating minimal variation between the maximum and minimum figures.
The determinants of bank profitability in commercial banks, specifically through an analysis of BIDV in Vietnam, highlight key factors influencing financial performance Understanding these determinants is crucial for enhancing operational efficiency and strategic decision-making within the banking sector This study provides insights into various elements that affect profitability, including asset quality, management efficiency, and market competition By examining BIDV's performance, we can identify best practices and potential areas for improvement, ultimately contributing to the overall stability and growth of the Vietnamese banking industry.
The average Return on Equity (ROE) stands at 16.7%, with an acceptable fluctuation of 7% around this average Within this interval, the highest recorded ROE reaches 38%, while the lowest drops to just 1%.
Correlation analysis
CAR NPL LDR LLPR TA DR ROA ROE
A correlation analysis reveals that Capital Adequacy, Non-performing Loans, Loan Loss Reserve Provisions, and Total Assets exhibit a negative correlation with profitability proxies, specifically Return on Assets (ROA) and Return on Equity (ROE) This consistent relationship underscores the impact of these financial metrics on overall profitability.
Research indicates that the loan-to-deposit ratio and dividend payout ratio positively impact bank profitability Consequently, highly profitable banks are advised to maintain lower levels of capital adequacy, non-performing loans, and loan loss reserves Notably, smaller banks tend to achieve higher profits compared to their larger counterparts Additionally, a higher loan-to-deposit and dividend ratio is associated with increased profitability.
This article explores the determinants of bank profitability in commercial banks, specifically analyzing BIDV (Bank for Investment and Development of Vietnam) It examines various factors influencing profitability, including operational efficiency, asset quality, and market conditions The study aims to provide insights into how these determinants impact BIDV's financial performance and offers recommendations for enhancing profitability in the competitive banking sector in Vietnam.
The analysis reveals a strong correlation between non-performing loans and loss loan provisions with profit, as indicated by average Pearson Correlation coefficients exceeding 0.5 Additionally, these two dependent variables exhibit a significant positive relationship with each other.
Regression analysis
Number of obs = 80 R-sq: within = 0.6984 between = 0.3337 overall = 0.6246
Obs per group: min = 10 avg = 10.0 max = 10
This article explores the determinants of bank profitability in commercial banks, specifically analyzing the case of BIDV in Vietnam It examines various factors influencing profitability, including financial performance metrics, market conditions, and regulatory frameworks The study aims to provide insights into how these determinants affect BIDV's profitability and offers recommendations for enhancing financial outcomes in the banking sector By focusing on BIDV, the research contributes to a deeper understanding of profitability dynamics within Vietnam's commercial banking landscape.
Obs per group: min = 10 avg = 10.0 max = 10
Table 3.5 - Hausman Test - ROE Hausman Test : ROE
(b) (B) (b-B) sqrt(diag(V_b-V_B)) fe re Difference S.E
DR -.0534235 -.0534235 0 0 b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg
This article analyzes the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It explores various factors that influence the financial performance of banks, including economic conditions, management efficiency, and market competition By examining BIDV, the study aims to provide insights into how these determinants affect profitability and offer recommendations for enhancing financial outcomes in the banking sector Understanding these factors is crucial for stakeholders looking to improve bank performance and ensure sustainable growth in the competitive landscape of Vietnam's banking industry.
Test: Ho: difference in coefficients not systematic chi2(0) = (b-B)'[(V_bV_B)^(-1)](b-B) = 0.00
Number of obs = 80 R-sq: within =0.6372 between = 0.1286 overall = 0.5452
Obs per group: min = 10 avg = 10.0 max = 10
Number of obs = 80 R-sq: within = 0.6372 between = 0.1286
Obs per group: min = 10 avg = 10.0
This article analyzes the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It explores various factors that influence the financial performance of the bank, providing insights into how these determinants impact profitability The findings indicate a significant relationship between specific variables and the overall profitability of BIDV, with an average profitability score of 0.5452 This study contributes to a deeper understanding of banking profitability dynamics within the Vietnamese financial sector.
This article explores the determinants of bank profitability in commercial banks, focusing specifically on BIDV Vietnam It analyzes various factors that influence the financial performance of BIDV, providing insights into the banking sector's dynamics By examining key performance indicators and market conditions, the study aims to identify strategies that can enhance profitability for commercial banks in Vietnam Understanding these determinants is crucial for stakeholders looking to improve financial outcomes and adapt to the evolving banking landscape.
Table 3.8 - Hausman Test - ROA Hausman Test: ROA
(b) (B) (b-B) sqrt(diag(V_b-V_B)) fe re Difference S.E
DR -.0203757 -.0107971 -.0095786 0054994 b = consistent under Ho and Ha; obtained from xtreg
B = inconsistent under Ha, efficient under Ho; obtained from xtreg
Test: Ho: difference in coefficients not systematic chi2(0) = (b-B)'[(V_bV_B)^(-1)](b-B) = 12.79 Prob>chi2 = 0.0254
The determinants of bank profitability in commercial banks are crucial for understanding financial performance This analysis focuses on BIDV, a prominent bank in Vietnam, examining various factors that influence its profitability Key determinants include operational efficiency, asset quality, capital adequacy, and market conditions By investigating these elements, we can gain insights into how BIDV navigates the competitive banking landscape and maintains its financial health Understanding these factors is essential for stakeholders interested in the banking sector's dynamics in Vietnam.
The R-squared index provides insight into the model's validity, with values for both ROE and ROA demonstrating a high range of 0.6 to 0.7, indicating a strong goodness of fit This suggests that the predictors used account for up to 70% of the total variance in the regression analysis While the model shows solid performance, there is still potential for improvement in relevance Previous studies by Sufian & Habibullah (2010) and Menicucci Paolucci (2016) achieved average R-squared values of 0.8, suggesting that certain variables may be more effective in a European context than in Vietnam Identifying and filtering out weakly correlated variables could enhance the accuracy of future research.
The analysis reveals a strong consistency between Fixed Effects Model (FEM) and Random Effects Model (REM) regarding the relationship between dependent and independent variables Both approaches confirm the validity of the relationship between the Non-Performing Loan (NPL) ratio and the Loan Loss Provision ratio in relation to firm performance, as indicated by Return on Equity (ROE) and Return on Assets (ROA) Notably, NPL and Loan Loss Provision play similar roles in influencing profitability indicators, underscoring their significance in financial assessments.
The analysis of BIDV Vietnam reveals that non-performing loans (NPL) are negatively correlated with both return on assets (ROA) and return on equity (ROE), indicating that lower NPL levels are associated with higher profitability This underscores the critical role of effective credit management in mitigating bad debt risks Additionally, a strong negative relationship exists between the loan loss provision ratio and bank profitability, as demonstrated by a significant negative coefficient and a P-value approaching zero This suggests that loan loss provisions act as a barrier to profitability Furthermore, the consistent correlation between NPL and loan loss provisions indicates that NPL not only directly impacts firm profits but also indirectly reduces profitability by increasing loan loss provisions Consequently, the importance of managing NPL has become increasingly significant.
The Loan Loss Provision has a significant negative impact on a firm's profit, as evidenced by P-values falling below the critical threshold of 0.05 across all testing methods This inverse relationship suggests that firms maintaining high reserves to cover potential loan losses tend to experience lower profits Given the substantial nature of this impact, the Loan Loss Provision is a critical concern for banks facing low profitability Consequently, this finding leads to the rejection of the null hypothesis H0 regarding the Loan Loss Provision.
The Loan to Deposit ratio emerged as a significant factor in the model, with P-values ranging from 0.01 to 0.02 in both the Random Effects Model (REM) and Fixed Effects Model (FEM) These values, well below the 0.05 threshold, confirm a notable impact of the Loan to Deposit ratio on the dependent variables Additionally, there was no discrepancy in its relationship with Return on Equity (ROE) or Return on Assets (ROA), underscoring the critical role of the Loan to Deposit ratio in influencing bank profitability, unlike Non-Performing Loans (NPL) and Loan Loss provisions.
This article examines the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It analyzes various factors that influence the financial performance of banks, including economic conditions, management efficiency, and market competition The study aims to provide insights into how these determinants affect profitability, offering valuable implications for bank management and policy-making in the Vietnamese banking sector Understanding these factors is crucial for enhancing the overall performance and sustainability of commercial banks like BIDV.
The positive coefficients in this relationship indicate that banks are likely to achieve higher profits when they increase lending rates compared to deposit rates.
The study reveals that several variables, including capital adequacy ratio and assets, exhibit an insignificant connection with Return on Equity (ROE) and Return on Assets (ROA) Specifically, the capital adequacy ratio negatively impacts bank profits, but its P-value of 0.3 exceeds the critical threshold of 0.05, indicating statistical insignificance Similarly, while assets show a negative influence on profit, the large P-value suggests no valid relationship, leading to the acceptance of the null hypothesis Additionally, there is a discrepancy in the effects of dividend ratio on profit, with Fixed Effect Regression rejecting significance while Random Effect analysis supports it.
The initial test yielded a P-value exceeding 0.05, whereas the subsequent test produced a value just below this threshold To address this inconsistency, it is essential to consult the Hausman test for accurate validation.
The analysis utilized both Fixed Effect and Random Effect models, prompting the implementation of the Hausman test to determine any discrepancies between these methods and to assess the reliability of one over the other.
IMPLICATIONS AND RECOMMENDATIONS FOR BIDV
Development strategy of BIDV in the near future
In 2017, Vietnam's economy experienced significant success, achieving economic growth of 6.81% and a per capita income increase of USD 170 compared to 2016 Foreign direct investments reached a decade-high, while import-export turnover set a record with a trade surplus of USD 2.67 billion The finance and banking sector also made notable strides, including effective inflation control, reduced interest rates amid rising loan totals, and high foreign currency reserves that enabled the State Bank of Vietnam to manage exchange rates effectively These advancements laid the foundation for potential improvements in the country's credit rating and enhanced credit flow within the economy.
BIDV has demonstrated strong business performance, reinforcing its status as a leading financial institution in Vietnam Looking ahead, the bank has outlined key objectives for the 2016-2020 period to guide its development strategy.
The Joint Stock Commercial Bank, with significant State ownership, plays a crucial role in Vietnam's banking sector by maintaining its status as a leading institution in scale, quality, efficiency, and prestige As a major bank with national responsibility, it actively contributes to macroeconomic stability and fosters the country's economic growth.
The determinants of bank profitability in commercial banks are crucial for understanding financial performance, particularly in the context of BIDV Vietnam This analysis explores various factors influencing profitability, including interest rates, operational efficiency, and market competition By examining these elements, the study aims to provide insights into how BIDV can enhance its financial outcomes and maintain a competitive edge in the banking sector Understanding these determinants is essential for stakeholders and policymakers to make informed decisions that promote sustainable growth in the banking industry.
Our goal is to establish ourselves as the leading modern Commercial Bank in Vietnam, excelling in market share for fund mobilization, loans, and retail services Additionally, we aim to rank among the top three market leaders in customer satisfaction, as recognized by independent and reputable organizations.
BIDV aims to enhance its insurance business, both life and non-life, as a secondary focus alongside its banking operations By integrating insurance and banking products, the bank seeks to boost the contribution of its insurance sector to overall income.
To enhance market competitiveness, it's essential to develop and diversify the product and service portfolio This includes maximizing cross-selling opportunities for banking and insurance products, creating tailored closed insurance services, and innovating high-technology offerings that stand out from competitors.
The article emphasizes the importance of actively and thoroughly integrating into the regional banking and financial markets by adopting international standards and practices It highlights the necessity of maintaining the Capital Adequacy Ratio (CAR) in compliance with the State Bank of Vietnam's regulations, while also focusing on strengthening risk management capabilities Furthermore, it underscores the full implementation of Basel II provisions as mandated by the State Bank of Vietnam in 2018.
- Becoming the leading bank in both Vietnam and Southeast Asia in application of information technology to bring convenience, the best service and satisfaction to domestic and international customers
Implementing a governance model that adheres to legal standards while ensuring routine operations, transparency, and efficiency is essential Transitioning to a centralized management structure at the Head Office will facilitate the vertical application of modern banking practices This strategic shift aims to enhance overall business efficiency and productivity.
-Improving the quality, efficiency of traditional distribution channels including branches, transaction offices, subsidiaries, affiliated companies, and promoting the development of modern distribution channels such as Internet
This article explores the determinants of bank profitability in commercial banks, focusing specifically on BIDV in Vietnam It analyzes various factors that influence the financial performance of the bank, including economic conditions, management efficiency, and market competition By examining BIDV's operational strategies and financial metrics, the study aims to identify key elements that contribute to its profitability Understanding these determinants is crucial for enhancing the bank's performance and ensuring sustainable growth in the competitive banking sector.
Banking, Mobile Banking, Contact Center, ATM, POS Actively developing and expanding distribution channels as well as commercial presence in the regional and international markets
To enhance the quality and effectiveness of banking operations in a globalized environment, it is essential to train and develop high-quality human resources that meet international standards This commitment fosters a professional and friendly workplace, providing development opportunities and benefits that result in a per capita income exceeding market averages.
- Spreading BIDV‟s brand awareness extensively throughout domestic and international markets as the leading bank in Vietnam, whose banking and financial services are chosen by individuals and economic organizations
Key targets for the Period from 2016 to 2020
Total assets increase 17%/per year Fund mobilization increase 20%/ per year Outstanding loans increase 20%/ per year Profit before tax increase 19%/ per year NPLs ratio ≤ 3%
Recommendations for BIDV to improve the profitability in the future
Effective debt management is essential for maximizing profits and minimizing losses in the banking sector Given the significant impact of non-performing loans on profitability, BIDV must implement stringent debt management policies, particularly regarding collateral and loan appraisal, to maintain low levels of bad debt.
This article explores the determinants of bank profitability in commercial banks, with a specific focus on BIDV in Vietnam It analyzes various factors that influence the financial performance of the bank, including economic conditions, management efficiency, and regulatory frameworks By examining BIDV's profitability metrics, the study aims to provide insights into the key drivers that impact the bank's success in a competitive market Understanding these determinants is crucial for stakeholders looking to enhance financial performance and strategic decision-making in the banking sector.
The rising non-performing loans significantly impact bank profitability, as they lead to direct losses and necessitate larger loan loss provisions This situation restricts the resources available for profitable investments, creating a trade-off between managing credit risk and pursuing new opportunities Consequently, banks face an economic opportunity cost that hinders their ability to achieve optimal profits Lowering provisions can mitigate this cost, ultimately enhancing profitability The significant relationship between non-performing loans and loan loss provisions underscores the critical importance of effective debt management in commercial banking.
Non-performing loans, commonly referred to as bad debts, significantly impact bank profitability, making it essential for banks to minimize these debts to enhance their profits effectively This raises an important question: how should banks manage loans classified as non-performing? Maxwell and Peter (2016) suggest that proper handling of non-performing loans can improve a bank's performance in subsequent periods, thereby securing long-term profitability Murthy (2017) identifies four strategies for commercial banks to address non-performing loans: write-off, foreclosure, establishing a bad bank, and restructuring troubled loans Writing off loans involves deducting non-performing debts from the bank's balance sheet.
The determinants of bank profitability in commercial banks, particularly in the context of BIDV Vietnam, are significantly influenced by the management of non-performing loans (NPLs) One common practice is the write-off of NPLs, which, while seen as a standard accounting procedure, can adversely impact a bank's profits by recording equal amounts in liabilities, effectively treating these loans as losses (Murthy, 2017) Another method is foreclosure, where banks account for the recovery rate based on collateral securing the loans, distinguishing between banks with recourse—requiring additional collateral due to insufficient present value—and those without recourse, where collateral quality is deemed adequate (Maxwell and Peter, 2016) Although foreclosure can mitigate losses compared to pure write-offs, successful recovery is infrequent Additionally, banks may collaborate with Asset Management Companies (AMCs) to offload weakly secured assets or NPLs, selling them as bonds to other investors While this approach helps cleanse the balance sheet, it does not eliminate the existence of NPLs, and AMCs often serve as a temporary fix due to their limited capacity to absorb bad debt Lastly, restructuring troubled loans by modifying the terms of loan agreements is another proposed solution to improve bank profitability (Murthy, 2017).
The determinants of bank profitability in commercial banks, particularly in the context of BIDV Vietnam, highlight the importance of effectively managing loan restructuring A thorough assessment of the debtor's financial condition and the nature of the loans is essential for successful restructuring This practice is especially crucial for large loans, which often involve significant amounts that are not easily written off.
BIDV's impressive profit figures in recent years can be attributed to its stringent loan management practices and proactive measures to combat non-performing loans By collaborating with the Vietnam Asset Management Company (VAMC), BIDV successfully reduced its bad debt ratio to below 2%, significantly lower than the average for the Vietnamese banking sector This partnership allowed BIDV to alleviate the burden of non-performing loans and redirect resources toward minimizing credit risk at the operational level Additionally, BIDV's efficient credit management system has played a crucial role in keeping losses from non-performing loans at a low level The findings suggest that with an even more effective bad debt management system, BIDV could achieve even greater profitability.
Selling bad debt to the Vietnam Asset Management Company (VAMC) is merely a short-term strategy for banks like BIDV to enhance their liquidity and performance Relying heavily on VAMC is not a sustainable solution, as it merely postpones the inevitable saturation point where VAMC can no longer absorb additional debt, leading to a deadlock for the banks involved To mitigate this risk, commercial banks should proactively adjust interest rates for clients with bad debts transferred to VAMC, as VAMC cannot make such adjustments independently without the banks' consent.
The profitability of commercial banks, particularly BIDV in Vietnam, is significantly influenced by the management of bad debts Despite the challenges posed by the Vietnam Asset Management Company (VAMC) in resolving these debts, BIDV must adopt improved credit management strategies to enhance its profit levels While restructuring bad debts can be an effective solution for addressing non-performing loans, the complex procedures and associated costs make this approach more suitable for larger debts Therefore, optimizing credit management remains crucial for BIDV to mitigate risks and secure better financial outcomes.
BIDV has the potential to enhance its credit management by adopting the successful strategies implemented by Vietinbank, recognized as Vietnam's leading commercial bank in this area Nguyen (2015) highlights that Vietinbank achieved the lowest non-performing loan rates through a significant shift to a centralized appraisal and internal rating system, developed with KPMG's guidance While BIDV's current credit appraisal system is centralized, it primarily adheres to domestic regulations set by the Central Bank, lacking alignment with international standards To improve its credit quality, it is recommended that BIDV collaborates with a consulting firm to establish an internationally recognized credit rating system.
A key finding of the study reveals that capital adequacy may not enhance bank profitability and could, in some instances, even reduce it This contradicts previous research by Olalekan & Adeyinka (2013) and Li & Zou (2014), but is supported by the work of Gizaw, Kebede, and Selvaraj.
In 2015, it was highlighted that capital adequacy primarily ensures the liquidity of banks rather than directly influencing profit levels This suggests a negative relationship, as banks with higher capital adequacy often prioritize retaining earnings over generating immediate profits.
The determinants of bank profitability in commercial banks, particularly in the case of BIDV Vietnam, reveal that maintaining a high capital adequacy ratio may limit profit maximization opportunities Research indicates that capital adequacy is more critical during challenging economic periods; however, Vietnam's economy has generally experienced favorable growth conditions over the past decade The resilience of the Vietnamese economy during the 2008 global financial crisis and the brief domestic recession in 2011 resulted in minimal impacts on the banking system, allowing banks to maintain capital adequacy levels around the regulatory minimum Consequently, the relationship between capital adequacy and profitability appears weak It is recommended that Vietnamese commercial banks, especially BIDV, avoid excessively high capital adequacy ratios and aim for around 9%, as required by the central bank, which still exceeds the minimum standards set by BASEL I, thereby ensuring sufficient liquidity.
4.2.2 Maintaining other ratios that affect bank profitability
The study reveals that total assets, dividend ratio, and loan to deposit ratio are ineffective predictors of bank profitability, particularly in Vietnamese banks Besides the capital adequacy ratio, these factors do not significantly influence profitability For BIDV, the unclear impact of these metrics suggests that their strategies can overlook these elements Notably, total assets primarily reflect a bank's capacity, making it more relevant to investment banking rather than profitability assessment.
The determinants of bank profitability in commercial banks, particularly in the context of BIDV in Vietnam, reveal critical insights into lending practices While the loan-to-deposit ratio is generally viewed as an ineffective profitability indicator, qualitative research indicates that Vietnamese banks, including BIDV, increased lending rates during economic booms, such as in 2008-2009, to stimulate economic activities, leading to a subsequent rise in non-performing loans by 2011-2012 as long-term loans matured This suggests that while the loan-to-deposit ratio may not be a significant factor, it reflects the bank's credit market strategy and should not be disregarded in decision-making processes due to its indirect influence Additionally, a lesson from Vietinbank highlights the risks of setting individual credit objectives that pressure credit officers, potentially compromising credit risk evaluation Therefore, BIDV should prioritize assessing credit officers based on the security of loans rather than the volume of loans processed, aligning their responsibilities with the bank's overall non-performing loan performance.