Tóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt NamTóm tắt: Nghiên cứu tác động của thu nhập ngoài lãi đến hiệu quả hoạt động của các Ngân hàng thương mại tại Việt Nam
MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM1 HO CHI MINH UNIVERSITY OF BANKING PHAN THI THU HANG INVESTIGATION ON IMPACTS OF NON-INTEREST INCOME ON THE OPERATING EFFICIENCY OF COMMERCIAL BANKS IN VIETNAM SUMMARY OF DOCTORAL DISSERTATION ON ECONOMICS HO CHI MINH CITY - 2024 MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM2 HO CHI MINH UNIVERSITY OF BANKING PHAN THI THU HANG INVESTIGATION ON IMPACTS OF NON-INTEREST INCOME ON THE OPERATING EFFICIENCY OF COMMERCIAL BANKS IN VIETNAM SUMMARY OF DOCTORAL DISSERTATION ON ECONOMICS Major: Finance – Banking Code: 9340201 Scientific Instructor: Assoc Prof Dr Phan Dien Vy HO CHI MINH CITY - 2024 1 CHAPTER 1: INTRODUCTION 1.1 Rationale Operational Efficiency (OE) is always put on the top priority of all Commercial Banks (CBs) In order to successfully survive and develop, efficiency must be obtained by the business operations of any enterprise, including CBs Bank income is known as a metrics that reflects the CBs’ operating efficiency Currently, CBs’ incomes are originated from interest and non-interest income However, in reality, evidences from CBs’ financial statements unveiled that the banks’ main income is still interest income with a high proportion over the years Specifically, in the report on SBV’s socio-economic development plan and banking activities in the first quarter of 2023, income from CBs’ credit activities accounted for 79.6% of CBVs’ total income However, with the SBV ceiling-oriented credit growth limit in recent years and in the coming time, interest rates are gradually being reformed towards the market In addition, if traditional credit operations are only focused, CBs will be subject to myriad of risks and serious challenges prior to the economic instability, increasingly cut-throat competition and high pressure to well adapt with impacts of the industrial revolution 4.0 In that context, transformation to well adapt with modern trends and transforming CBs’ income structure are inevitable Recently, changes in income structure have been made by gradually reducing interest income proportion and actively increasing the proportion of non- interest operating income such as service, investment, security, brokerage, consultancy services, etc With the expansion of non-traditional activities, CBs can disperse and reduce risks, promote competition in a broader market segment, and earn income from more and higher sources One of the contents of the credit institution restructuring project approved by the Prime Minister under the Decision No 254/QD-TTg dated March 1, 2012 is that “Step by step shift the business model of commercial banks towards reducing the dependence on credit services and increasing income from non-credit services”, until now CB have always pursued this goal has been always pursued by CBs This unveiled that more attention is gradually paid to non-interest income generating activities According to the author's compiled source on income structure of listed Vietnamese CB groups, the proportion of non-interest income against total income tended to grow by years, namely from 22.7%, 24.5% and 26.3% in 2015, 2016 and 2018 to 31.9% in 2 2022 Therefore, increase in non-interest income is gradually becoming an important strategy and recognized with a great impact on CBs’ OE Theoretically, increasing the non-interest income ratio may generate a more stable source of operating income for banks, thereby improving risk-adjusted business efficiency (Odesanmi and Wolfe, 2007) Alternatively, Chiorazzo et al (2008) and Baele et al (2007) also assumed that increasing non-interest income will increase OE for banks, particularly, large banks would be subject to stronger impacts For Vietnamese CBs, the studies released by Le Long Hau & Pham Xuan Quynh (2016) and Nguyen Minh Sang & Nguyen Thi Thuy Trang (2018) or Van Thi Thai Thu (2022) revealed that non-interest income ratio increase will has a positive impact on Vietnamese CBs’ profitability However, this was not completely supported by some empirical studies The studies launched by Delpachitra and Lester (2013), Lepetit, Nys, Rous, and Tarazi (2008), Li and Zhang (2013), Maudos (2017), and Williams (2016) assumed that non- interest income increases risks incurred by CBs The studies on relationship between non-interest income and profitability of banks such as those carried out by Edirisuriya et al (2015) also showed that non-interest income is disadvantageous for banks to increase their profits Alternatively, the studies on Indian banking system in the period of 2003-2013 conducted by Singh and colleagues (2016) revealed that non-interest income has a negative relationship with both revenue and risk Therefore, the empirical studies released inconsistent results on non-interest income and OE correlation, this impact may be varied by the national conditions and development of the financial system and research phase Moreover, evidences of non-interest income impacts on OE were mostly found by the studies, an almost neglected issue was recognized, that is, the channel of non-interest income impact channel on OE Specifically, non-interest income affected which aspects of commercial banking operations, on which aspects of commercial banking operations have promoted OE For the reasons of the aforesaid issues, the topic “Investigation on impact of non- interest income on the operating efficiency of commercial banks in Vietnam” is selected as the author’s study to learn about the impact of non-interest income on Vietnamese CBs’ OE in the current period 3 1.2 Research objectives The thesis is characterized by overall objective, i.e., evaluation of non-interest income impacts on OE of Vietnamese CBs This study is extremely important to help banks assess impact of non-interest income on CBs’ OE, thereby making non-credit product and service development policies to improve CBs’ OE 1.3 Research questions In order to fulfill the overall objective, the thesis has the following specific goals: - Identify and measure factors affecting non-interest income of Vietnamese CBs - Evaluate non-interest income impacts on Vietnamese CBs’ OE - Recommend the implications of non-interest income improvement policies to ensure the operating performance of Vietnamese CBs In order to achieve the research objectives, following research questions are answered by the thesis: - What are non-interest income and its affecting factors of Vietnamese CBs? - How does non-interest income impact OE of Vietnamese CBs? - What are the policy implications to improve non-interest income to ensure the operating efficiency of Vietnamese CBs? 1.4 Research subjects and scope The selected research subject is non-interest income impact on OE of Vietnamese CBs Scope of research space: The research data was taken from audited financial statements of 32 Vietnamese CBs It excluded joint venture CBs, foreign bank branches and 100% foreign investment CBs Vietnam's macroeconomic indicators were taken from the General Statistics Office of Vietnam and the World Bank Scope of research time: Data was collected from 2012 to 2022 1.5 Research methods To determine the impact of the non-interest income ratio on Vietnamese CBs’ OE, regression methods were applied for table data, in which Pooled - OLS, FEM, REM, SGMM were commonly used regression methods In addition, the model’s validity was also verified by the author through Bayesian analysis 4 1.6 Contributions of the thesis v Argurments The main findings summarized theories on factors affecting non-interest income and non- interest income impacts on CBs’ OE According to the theory, this study has provided the empirical evidence on non-interest income impacts on CBs’ OE in the research context of a developing country, Vietnam Non-interest income impact channel on CBs’ OE was also specified hereof Particularly, non-interest income and its components have shown a positive impact on increasing asset efficiency, while non-interest income generating activities also increased costs However, increase is insignificant against that of asset utilization efficiency Some non-interest income activities were also even recognized with impact on reducing interest expenses and similar expenses incurred by CBs As a result, non-interest income has contributed to increasing CBs’ OE This new result has contributed to a more comprehensive supplement to the research stream on non-interest income and its impact on CBs’ OE v Methods According to data taken from 32 Vietnamese CBs in the period of 2012 - 2022, the author has evaluated the factors affecting non-interest income and its impact on CBs’ OE by using quantitative research methods and Stata 17.0 software The author's inferences on research hypotheses were based on modeling estimation results, using SGMM method of Blundell and Bond (1998), to overcome the endogeneity phenomenon that often occurs in macroeconomic models Furthermore, to obtain really reliable results, Bayes method was combined to determine the probability of hypotheses occurring v Practice The main findings will help planners determine the positive and negative impacts of factors affecting non-interest income and its impacton CBs’ OE, thereby putting forward some possible policies to promote positive factors, control and change negative factors to facilitate non- interest income growth, thereby increasing CBs’ OE Specifically, the author's proposals aim to improve the rate of non-interest income and increase the operational efficiency of commercial banks in Vietnam such as: increasing 5 the rate of customer deposits, reducing and limiting Processing bad debts arising at commercial banks, increasing the ratio of equity capital, expanding the scale of commercial banks' operations, diversifying income, focusing on developing service products non-credit services, diversifying product utilities, improving service quality, focusing on developing new services to attract bank customers, building and developing modern technology, improving High professional level of staff.1.6 Thesis structure The thesis is structured into 5 chapters, namely: Chapter 1: Introduction Chapter 2: Literature review on non-interest income impacts on commercial banks’ operating efficiency Chapter 3: Research methods for the non-interest income impacts on commercial banks’ operational efficiency Chapter 4: Main findings of empirical research on non-interest income impacts on the commercial banks’ operating efficiency and factors affecting non-interest income Chapter 5: Conclusion and policy implications 6 CHAPTER 2: LITERATURE REVIEW ON NON-INTEREST INCOME IMPACTS ON THE COMMERCIAL BANKS’ OPERATING EFFICIENCY 2.1 Overview about banks’ operating efficiency 2.1.1 Concepts CBs’ OE may be construed as the ability to transform inputs into outputs or profitability or minimize costs to increase competitiveness with other financial institutions (System Theory) Another expression of such term was released by Berger and Mester (1997) that CBs’ OE is reflected in revenue and cost relationship of using resources or ability to turn input resources into the best outputs in business operations CBs’ OE may be interpreted under three directions as follows: Firstly, minimizing costs, that is, using the least amount of inputs such as capital, facilities, and labor, etc to create the same outputs as before; Secondly, maintaining the same inputs but generating more outputs; Thirdly, using more inputs, provided that generated outputs amount increases faster than that of inputs 2.1.2 Measurement method 2.1.2.1 How to use financial indicators Group of indicators, reflecting profitability Group of indicators, reflecting business OE Group of indicators, reflecting financial risks 2.1.2.2 Marginal efficiency analysis method A commonly used method in the non-parametric approach is Data Envelopment Analysis (DEA), which is an increasingly popular method to measure the operating efficiency in modern commercial banks (Grigorian, 2002) 2.2 Non-interest income 2.2.1 Concept CBs’ income is divided into 2 types: Interest income and non-interest income, including: Firstly, interest income is income originated from credit activities such as lending interest income, discount interest income, financial lease interest income, guarantee operations, etc Secondly, non-interest income refers to income originated from non-credit activities, including service 7 charge collection (payment, treasury, trust, consultancy services, etc.), revenue from other activities: interest on capital contributions and share purchases; securities trading income; forex exchange revenue; Revenue from debt trading and other extraordinary revenues, etc 2.2.2 Measurement method In order to measure the contribution of non-interest activities, ratio of each source of non- interest income to total operating income was applied According to Chiorazzo et al., (2008), Busch and Kick (2009), Le Long Hau and Pham Xuan Quynh (2017), non-interest income was based on three components, namely commercial income - (COM), trading and investment income - (TRAD), other non-interest income - (OTH), specifically: ICOCOM = COM/(NET+NON) ICOTRAD = TRAD/(NET+NON) ICOOTH = OTH/(NET+NON) ICONON = ICOCOM + ICOTRAD + ICOOTH Where: ICONON is the ratio of net non-interest income; ICOCOM is the ratio of net income from service activities; ICOTRAD is the ratio of net income from business and investment activities ICOOTH is the ratio of net income from other non-interest activities NON is net non-interest income; NET is net interest income If all non-interest net income is found with a negative value during ICONON variable is calculated, it will be considered that ICONON = 0%, the bank’s income will not be diversified (Nguyen Thi Canh et al., 2015) In addition, DeYoung & Rice (2004) revealed that non-interest income is measured by proportion of non-interest income to total assets as follows: Ratio of non-interest income/total assets = non-interest income/total average assets This ratio reflected how much non-interest income a dollar of average asset value of a commercial bank will generate during the period The higher this indicator was, the better scale and efficiency of that CBs’ non-credit service activities would be and vice versa 8 2.2.3 The role of non-interest income Non-interest income reduces dependence on interest income, enhancing banks' competitiveness by providing new products and services, thereby attracting and retaining customers At the same time, Non-interest income also helps improve ROA and ROE ratios, which are two important indicators to evaluate a bank's operating efficiency and profitability Non-interest income plays an important role in ensuring the stability and sustainable development of commercial banks, thereby contributing to overall economic growth 2.2.4 Factors affecting non-interest income Factors affecting non-interest income included external factors such as economic growth, inflation and interest rates and internal factors of the bank such as the bank’s capital structure, bank size, loan balance, customer’s deposit ratio, income diversification, and technology investment, etc 2.3 Non-interest income impacts on commercial bank’s operating efficiency The study launched by DeYoung and Roland (2001) proposed three reasons why non- interest income can increase the volatility of bank earnings First, although most bank loans were subject to credit risk and interest rate fluctuations, loan interest income may be less volatile than non-interest income from fee-based activities Second, the lending operations were characterized by main costs, i.e., interest costs, while the fee-based products and services were mainly included with fixed or semi-fixed costs (labor costs), requiring higher operating leverage than that of traditional credit activities Third, as little or no fixed assets are required to hold by the most fee- based operations, fee-based operations can use higher financial leverage than that of credit operations Besides, the Studies initiated by Delpachitra and Lester (2013), Lepetit, Nys, Rous, and Tarazi (2008), Li and Zhang (2013), Maudos (2017), and Williams (2016) assumed that non- interest income increases risks incurred by CBs The studies on the banks’ non-interest income and profitability relation such as the studies conducted by Edirisuriya et al (2015), Singh et al (2016) or Limei Sun, Siqin Wu, Zili Zhu and Alec Stephenson (2017) also demonstrated that non- interest income is not favor to the banks to increase their profits According to Stiroh and Rumble (2006), no remarkable correlation was found between