The impacts of ownership structure on the financial performance of vietnamese commercial banks

The research employed panel regression analysis of 20 commercial banks during the 2012-2022 period to estimate the relationship between dependent variable measuring financial performance

Introduction

Rationale

Over the past 30 years of financial reform, the Vietnamese banking sector has made remarkable progress, in which ownership structure diversification is one of the most notable changes The single-tier banking system that serves the government's planned economic goals was transformed into a two-tier system with many types of ownership structures like state-owned commercial banks, joint-stock commercial banks, joint venture commercial banks, foreign- owned commercial banks, A diversified ownership structure has created positive developments and favorable conditions for the banking system to enter the period of international economic integration However, it also poses many complex issues that require stringent management by authorities, as well as commercial banks themselves face many challenges in deciding on appropriate governance measures Therefore, knowing the role of ownership in the bank's performance is necessary for safe, sound, and effective structural reforms

The relationship between ownership structure and performance has been an ongoing concern to scholars, management, policymakers, and investors globally since the original paper of Berle and Mean (1932) This concern arises due to the fact that the ownership structure influences a firm’s corporate governance on vital decisions, thus impacting the firm’s financial performance According to Berle and Mean (1932), dispersed ownership could potentially reduce the firm’s performance as the shareholder’s ability to influence managerial decisions is reduced and the agency problems from the separation of ownership and control arise Thus, the firm’s performance is closely tied to the effectiveness of its management and the ability of managers to align their interests with those of the shareholders A concentrated ownership structure is believed to reduce the agency's problems as it promotes shareholder monitoring, refutes moral hazard behavior, and ensures that managers work for shareholder’s interest maximization (Belkhir, 2005) In the case of banking, concentrated ownership was stated to improve bank control and monitoring through a greater flow of information (Ungureanu, 2008) Large equity ownership is also associated with better performance as studies suggest a positive relationship of concentrated ownership with firm value (Morck et al., 2000) as well as with profitability (Claessens et al., 2000; Iannota et al., 2007; Ongore, 2011) In contrast, it is also found to negatively influence performance (Berger et al., 2005) High-concentrated ownership firms are said to be more susceptible to financial distress and crisis The existence of large shareholders with high authority could pose moral hazard behavior where they make decisions that maximize

2 their own profits even though these actions might raise the banks' risks and threaten the institutions' long-term performance and existence (Schwarcz, 2017) Nevertheless, Thomsen and Pedersen (2000), Gursoy and Aydogan (2002), Kao, Lu, and Dinh (2020) argued that the influence of ownership structure on the performance of a firm lies in the types of ownership structure Different types of shareholders come with different priorities, preferences, and objectives (Claessens et al., 2000; Ongore, 2011) and ownership structure types were found to determine firm performance (Port, 2002) Ownership structure indicates the distribution of a firm’s equity and the identity of the owners (Wahl, 2006) The type of ownership structure of a bank determines and provides how much influence and control one has over the management of the bank in decision-making (Gugong, Kumai and Bala, 2015)

Despite the extensive research conducted in the past decades on the relationship between ownership structure and bank performance, the theoretical and empirical evidence remains mixed and contradictory Different ownership structure types were tackled in past literature: foreign ownership, managerial ownership, institutional ownership, family ownership, and government ownership Besides, different determinants of financial performance were examined including return on assets (ROA), return on equity (ROE), and earning per share (EPS) However, past studies provide different and contrasting results when applied to various countries, which indicates that the differences in political, economic, and institutional conditions may alter the relationship between ownership structure and bank performance Thus, the effectiveness of ownership for the banking system should be evaluate in a specific market, as a study in one country does not apply to another As a result, this study is conducted to investigate the influence of ownership structure on the performance of Vietnamese commercial banks The research findings will provide valuable empirical evidence for policymakers, investors, and bank managers on the impact of different ownership structures and contribute as a basis for the restructuring of commercial banks in Vietnam.

Research objectives

This thesis aims to evaluate the impact of ownership structure on the financial performance of selected Vietnamese commercial banks, thereby serving as the basis for some policy suggestions on ownership structure to improve the performance of Vietnamese banks.

Research question

Based on the above objective, the author poses the following research questions:

1 What is the relationship between different ownership structure types and the performance of commercial banks in Vietnam

2 Which ownership structure helps to improve the bank's financial performance in

Research object and scope

Research object: The relationship between ownership structure and the financial performance of Vietnamese commercial banks

Research scope: The performance indicators and ownership structure of 20 commercial banks in Vietnam during the period of 11 years from 2012 to 2022 The selected bank in the sample includes banks with 100% state capital, banks with dominant state ownership (over 50%), joint stock commercial banks, and 100% foreign-owned banks.

Research structure

The study is organized into six chapters as follows Chapter 1 presents the study's rationale, the research questions that will be answered in this study, and the focused scale and scope Chapter

2 provides a review of past literature on ownership structure, profitability as well as the impact of ownership structure on the performance of banks, thereby finding research gaps Chapter 3 describes the conceptual framework, and research hypotheses, explains how to select a sample and collect data, develop a research model, and make assumptions about the expected sign of the variables Chapter 4 overviews the Vietnamese banking system and ownership structure

Chapter 5 presents the results from the regression model, and discusses the research results

Chapter 6 suggests recommendations on the ownership structure of Vietnamese commercial banks to enhance financial performance Chapter 7 presents a summary of the research, outlines limitations, and suggests future research directions related to this field

Literature Review

Theoretical framework

The theoretical framework on the relationship between ownership and corporate governance that was constructed and first published by in 1932 by Berle and Means The authors argued that in large corporations, ownership and control are often separate, with shareholders being dispersed and managers exercising significant control over corporate decision-making This separation allows managers to pursue their own goals rather than maximizing benefits for shareholders As a result, conflicts may arise from the difference between the goals of shareholders and the goals of business managers The level of conflict will depend on the level of separation between ownership and management as well as the differences in the goals of shareholders and managers Eventually, business performance will be affected by the fragmentation between ownership and management

Agency theory originating from the work of Ross (1973) and later developed by Jensen and Meckling (1976) refers to the relationship between owners and agents The agent is representative of owners in business activities and is expected to bring the owner's best interests However, the difference of interest between the owner and the agent can conflict as the manager might not act in the owners’ interest but in their own, thus raising agency costs In most cases, managers are motivated to act contrary to owners' expectations which influences the firm’s financial performance (Vu, Phan, and Le, 2018) Therefore, to counter the conflicts of interest caused by agency problems, governance mechanisms should be set up to restrain managerial self-interest (Tran, Ly, and Nguyen, 2020) The ownership structure as an oversight mechanism was suggested to reduce conflicts between owners and managers by aligning both parties’ interests with the firm's objectives (Jensen and Meckling, 1976) Agency problems are the driving forces behind the ownership structure of many firms and so act as the corporate governance debate points between the board of directors and the company management Provisions of effective ownership structures that focus on minimizing agency costs are suggested for better firm performance (Kao, Hodgkinson, and Jaafar, 2019) The ownership structure reflects the proportion of ownership as well as the owner’s rights in the company (Serly and Zulvia, 2019) It was found to help lower agency costs by regulating how the firm is managed and controlling management decisions (Hartzell, Sun, and Titman, 2014)

Ownership structure of commercial banks

Commercial banks are essentially joint stock companies, so the concept of ownership structure in commercial banks is based on joint stock companies' ownership structure A firm's ownership structure is defined by the distribution of equity regarding voting rights, capital, and the equity owner’s identity (Jensen and Meckling, 1976) It refers as a corporate governance mechanism that oversees the efficient use of a firm's resources to ensure shareholder objectives are met (Imam and Malik, 2007) The ownership structure is a measure of corporate governance and is considered to be determined by country-level corporate governance dimensions such as the depth of the stock market and the nature of government intervention and regulation (La Porta,

1998) The structure can have significant impacts on business decisions, mergers and acquisitions, competition, and the oversight of agency relationships (Wen, 2010) The concept of ownership structure can be viewed in two dimensions: ownership concentration, which refers to the degree to which ownership is held by a small number of shareholders; ownership mix, which refers to the composition of ownership among different types of owners, such as state ownership, managerial ownership, foreign ownership, institutional ownership, etc (Antoniadis, 2010; Wen, 2013) Hence, ownership structure can be understood as the structure of types of shareholders holding shares in commercial banks It provides a degree of influence and control in making important decisions, especially those related to the corporate governance activities of the bank In this study, the researcher approaches the ownership structure in the mixed ownership dimension, focusing on the percentage of state ownership, institutional ownership, and foreign ownership

State ownership refers to the equity or shares owned by government entities at the central or local level (Mamatzakis et al., 2017) The presence of government in business is mainly for developmental purposes, particularly when firms are crucial for the country's economic, social, or strategic interests (La Porta et al., 2002) State-owned banks are often driven by multiple and conflicting objectives that go beyond purely commercial considerations They may not prioritize shareholder return maximization and may operate less independently due to their diversified objectives and government influence (Carney and Child, 2013) In particular, being the owner or majority shareholder, the state can direct and control the institution's operations

6 according to its desired social and political objectives, thus potentially raising conflict among management (Rosalina and Nugraha, 2019) Political interference can cause state owners' interests to be contrary to the firm's goal of profit maximization, resulting in poor financial performance Besides, state-owned banks were found to be associated with inadequate corporate governance and high-risk levels (Shah and Hussain, 2012, Shen and Lin, 2012, Iannotta et al., 2013) Ashraf (2017) suggests that the presence of governmental protection has induced higher risk-taking by government-owned banks Micco et al (2007), Lin and Zhang

(2009), and Davydov (2018) characterize state ownership as ineffective and negatively affecting the performance of banks due to political interference, weak managerial incentives compared to private ownership banks, and weak monitoring efforts

Institutional ownership refers to the ownership of other institutions that own a huge number of the firm stock (Cornett et al., 2008) Institutional ownership can be used to strengthen corporate governance (Bushee et al., 2014) By holding a proportion of capital over an extended period, institutional investors can acquire a higher level of knowledge, which results in more effective monitoring (Lin and Fu, 2017) (Sharma, 2014) also pointed out that increasing institutional ownership proportion helps to prevent managerial fraud Hence, this ownership may result in higher financial performance as it enhances the quality of management and monitoring, provides various opportunities and resources, and reduces other stockholders' expenses (Rose,

2007) Institutional ownership can lead to greater voting power and control, which in turn enhances firm performance (Maury, 2006) In contrast, institutional-owned firms that do not adopt the Code of Best Practice result in a weak and adverse relationship with firm performance (Faccio and Lasfer, 2001)

Foreign ownership often refers to the capital flows in domestic firms from foreign individuals or institutions (Shrivastav and Kalsie, 2017) Foreign owners are expected to create a positive impact on performance as they are less exposed to political pressure and are able to introduce advanced technology, modern techniques, and efficient management skills (Huang and Zhu,

2015) Foreign shareholders also take a more active role in promoting better firm governance, which potentially influences the corporate performance (Gillan and Starks, 2005) Berger et al

(2008), and Lin and Zhang (2009) suggested that the performance of domestic banks was improved after involve with foreign strategic investors In contrast, Liu et al (2017) argued that some foreign owners might deviate from their monitoring roles, enabling managers to

7 misrepresent information for their own interests Additionally, foreign ownership may face restrictions imposed by the government, resulting in limited access to information, legal barriers, and various limitations.

Bank performance

According to Hawary (2011), the operational efficiency of a company in general, and a bank in particular can be seen as a reflection of how the firm utilizes its resources to achieve its goals, thereby, measuring banking performance involves the assessment of the efficiency of resource utilization in achieving goals Since commercial banks are essentially enterprises, the set of criteria used to assess enterprise performance can be applied to evaluate the performance of banks Venkatraman and Ramanujam (1986) present three sets of indicators to assess corporate performance, namely operational performance, financial performance, and effectiveness This research will evaluate commercial banks’ performance based on their financial performance Monitoring the firm’s financial performance is essential to explore which factors can influence its overall performance It provides valuable insights to various users associated with the firm including inside the firm like management, stockholders, and employees, or outside the firm like creditors, financial analysis, and government (Haija and Alrabba, 2017) Indeed, academics, researchers, and analysts are actively engaged in studying the relationship between ownership structures and financial performance to determine the ownership can improve financial performance The common way to measure performance is the use of traditional methods with accounting-based measurements namely return on assets, return on equity, return on investment, and earnings per share (Oudat and Ali, 2021) Thus, in the current study, the financial performance is evaluated using two measurements as dependent variables: return on assets, and return on equity

ROA is a widely used indicator to measure a firm’s performance as it reflects how efficiently the company utilizes its assets to generate profits Among banks with the same asset scale, whichever bank has a high rate of return on total assets proves that the bank has effective business and investment policies ROA can be calculated by taking the firm’s net income divided by its total assets (Hassan and Bashir, 2003)

ROE is used as an important measure of a firm earning performance as it evaluates how effectively shareholders’ money is being employed ROE assess the ability of a firm to generate profits for its shareholders It is calculated by dividing the firm’s net income by its total equity

The higher a company’s return on equity, the better management is at using investors' capital to generate profits (Kijewska, 2016).

Empirical literature review on the impact of ownership structure on bank performance 8 2.5 Other determinants of bank performance

Research by Uwuigbe and Olusanmi (2012) studied the relationship between ownership structure and the performance of 31 companies operating in the financial sector in Nigeria from

2006-2010 The research has ROA as the dependent variable and independent variables include the Board of Directors, foreign ownership, and institutional ownership Research results show that there is a positive effect on shareholders who are members of the Board of Directors on

ROA, foreign shareholders with good management skills and high technology also bring positive effects, and institutional shareholders with good supervision role also makes an important contribution to company performance

Rahman and Reja (2015) studied the ownership structure and performance of 21 commercial banks in Malaysia in the period 2000-2011 The research uses multiple regression models to examine the impact of five ownership structure types, namely government, institutional, family, insider, and foreign ownership The results show that insider and government ownership have a negative influence on ROA and ROE The effect of institutional ownership was found inconclusive In addition, family and foreign ownership have no significant impact on performance

The study by Wen (2010) looked into the relationship between bank structure and the financial performance of 49 banks in China With ROA and ROE as the performance measure, the researcher found that there is no clear correlation between ownership structure and overall bank performance, although state ownership may exhibit a quadratic relationship with ROE

Kiruri (2013) investigated the influence of ownership structure on the profitability of 43 commercial banks in Kenya during the 2007-2011 period The study revealed that ownership concentration and state ownership have an adverse impact on the bank's profitability, particularly ROE Meanwhile, domestic and foreign ownership was found to have a positive impact on the profitability of Kenyan banks The study concludes that higher ownership concentration and state ownership lead to lower profits in commercial banks while higher ownership by foreign shareholders leads to higher profits in commercial banks

The study by Perera and Weerasinghe (2021) examined the impact of ownership structure on the financial performance of 50 commercial banks in Sri Lanka during 2015-2020 The researcher looked into three ownership types including state, private domestic, and foreign

9 ownership, and its impact on ROA and NIM The results show that ownership structure has a significant impact on banks’ financial performance, in which foreign-owned banks perform better than the other two types while state-owned banks have the lowest performance among the three

Oudat et al (2021) conducted a panel regression analysis from 2015 to 2019 to assess the relationship between state, family, and institutional ownership structure and financial performance of Bhrain commercial banks The paper revealed that state ownership positively influences banks’ performance represented by ROE and EPS On the other hand, institutional and family ownership has a positive impact on ROE and a negative impact on EPS

Jarbou, Serdaneh, and Mahd (2018) investigated the impact of ownership structure on 13 commercial banks in Jordan during the 2005-2014 period The study focuses on the influence of ownership concentration and different ownership types namely state, institutional, and foreign ownership on the financial performance of banks measured by ROI and ROE The result revealed that state and foreign ownership significantly and positively affect the performance of banks; meanwhile, institutional ownership has no significant impact

Sanatoso and Santasyacitta (2020) studied the impact of ownership structure on the performance of banks in Indonesian banks during the 2009-2014 period Multiple linear regression analysis was conducted to examine four ownership types (government, family, institutional, and foreign ownership) and banks’ financial performance measured using ROA and ROE The results indicate a positive effect of family and institutional ownership on the financial performance of banks, while government ownership has a negative effect and foreign ownership has no influence

For the Vietnamese commercial banks, Tran (2014) has examined factors that influence the financial performance of 22 Vietnamese commercial banks during the period of 2006-2012 The findings of the study indicated that state ownership had a negative impact on the banks' ROA, ROE, and NIM The macroeconomic factors have a significant impact on the banks’ performance On the other hand, the study did not find any significant influence of foreign ownership on the financial performance of Vietnamese commercial banks

Trinh and Nguyen (2013) studied the factors affecting the performance of Vietnamese commercial banks using the Tobit regression model based on data from 39 banks in the period 2005-2012 With ROA and ROE as the measure of banks' performance, the results show that state-owned banks demonstrate lower efficiency compared to other commercial banks, and the non-performing ratio has a negative relationship with banks’ performance

Nguyen et al (2015) investigated the impact of ownership structure on the performance of commercial banks in the Vietnamese banking system The study uses the data collected from all 44 banks in the banking system during the period of 2010-2012 and adopts ROA and ROE as the measure for bank performance The results revealed that the ownership concentration level, private and state ownership have a positive correlation with banks’ performance, meanwhile, foreign ownership has an insignificant impact Besides, the non-performing ratio has a negative impact on the ROA and ROE of commercial banks

Tran and Le (2016) researched the relationship of ownership type on the performance of 22 Vietnamese commercial banks in the period 2007-2014 The study uses the DEA and SFA to measure the commercial banks’ performance and Tobit's 2-step regression to test the relationship The result demonstrated that different types of ownership structures affect the banks’ performance; particularly state ownership has a positive impact, while foreign ownership and private domestic ownership have an adverse impact

Tran (2018) examined the influence of ownership structure on the financial performance of 30 Vietnamese commercial banks in the 2012-2017 period Using the OLS regression model and ROE as the performance measurement, the researchers revealed that state ownership has an adverse effect while foreign ownership has a positive effect on the performance of banks Institutional ownership has an insignificant impact on banks’ ROE

2.5 Other determinants of bank performance

The age of a firm is expected to affect financial performance as the presence of the firm in the market enables the firm to attain a competitive advantage A higher firm’s age would lead to greater performance due to the accumulated experiences and ability to effectively carry out tasks and responsibilities (Gupta and Mahakud, 2020) The study by Al-Baidhani (2015) on Islamic banks along with 6 GCC countries revealed that age has a significant and positive relationship with ROE and that banks become skilled from their experience The higher ROE observed in older banks may have resulted from the existent market share, long-standing customer relationships, and a strong reputation built over time In contrast, the younger banks tend to prioritize market share rather than profitability, resulting in lower financial performance during the initial years of operation Haddad et al (2020), who examined the performance of

63 banks from 16 countries and ownership structure using the bank age as a control variable, revealed that age has a positive influence on bank performance and found that seniority provides

Research gap

After reviewing previous empirical studies on the influence of ownership structure on bank performance, it can be seen that there are still gaps in the research on this topic In particular, with past studies, the study model tends to focus on the independent variables related to ownership structure, while the examination of control variables like bank-specific factors or macroeconomic factors remains limited Meanwhile, research in Vietnam on this topic mainly focuses on examining state ownership or foreign ownership without much assessment of institutional ownership Therefore, the current paper will focus on various types of ownership structures as explanatory variables, namely, state ownership, institutional ownership, and foreign ownership, combined with micro and macro control variables to assess their impact on the financial performance of banks measured by ROA and ROE This approach will provide a more comprehensive and holistic view of the research topic In addition, the study will also provide updated information, which serves as a basis for regulatory agencies and commercial banks to determine appropriate ownership structures, contributing to increasing the bank's operational efficiency during the restructuring period

Vietnamese Banking System and Ownership Structure

Since the “Doi Moi” economic reform in 1986, there has been a remarkable transformation in the Vietnamese banking sector The banking system has transitioned from a mono-bank pattern, characterized by a single state administrative hierarchy extending from the central level to provinces and districts, to a market-oriented system (World Bank, 2014) Private Banks were accepted after Ordinance No.38/-LCT/HĐNN8 on May 23rd, 1990 on Banking was released Besides, in the context of international integration, enterprises with 100% state capital revealed institutional and structural weaknesses and inefficient operations, which impetus for further reform Therefore, in 2007, the Vietnamese Government issued a Decree on converting 100% state-owned enterprises into joint stock companies Bank for Foreign Trade of Vietnam (Vietcombank) is the first 100% State-owned commercial bank to implement equitization, followed by Vietnam Commercial Bank For Industry And Trade (Vietinbank), Mekong Delta Housing Development Bank (MHB) and Commercial Bank for Investment and Development of Vietnam (BIDV) The equitization of 100% State-owned commercial banks has promoted the diversification of ownership structure and created a premise for the development of Vietnamese commercial banks However, despite the implementation of various reform measures, the banking sector remained inaccessible to foreign investors during the pre-WTO entry period Foreign investors were not permitted to establish fully foreign-owned banks or become shareholders in domestic banks but were only allowed to participate in the banking sector with a limited presence in joint-venture banks or bank branches in Vietnam This was then changed by the entry of Vietnam into the WTO in 2007, which lowered the barriers for foreign investors, increased the presence of foreign banks, and allowed 100% foreign-owned banks to enter the banking sector (Pincus, 2009) The entry also led to further reform aimed at enhancing the competitiveness and effectiveness of domestic banks, which involves granting foreign investors the right to acquire stakes in domestic banks Under current regulation, the foreign ownership ratio in Vietnamese domestic banks is limited to 30% max, and no single investor owns more than a 20% stake This ratio ensures that foreign owners have sufficient rights to participate in the decision-making processes at the banks they own

The participation of foreign investors raised concerns regarding the competitiveness of domestic banks since they faced difficulties due to low efficiency, outdated technology, and limited capital Decree No.41/2006/ND-CP was issued, requiring commercial banks to quickly increase legal capital to 3,000 billion and meet international safety standards Banks that could not meet the requirement by the end of 2010 would be forced to merge, reduce the business

14 scope, or revoke their licenses This has created a wave of consolidation and mergers between commercial banks and attracting domestic and foreign investment capital Cross-ownership situations among banks also arose as the funds from State-owned enterprises, private business groups, and other large banks became logical sources (IMF,2012)

3.1 Number of Vietnamese commercial banks by ownership types

Overall, in the past 30 years of reform, the Vietnamese banking system has developed in scale, ownership form, and managerial capacity to adapt to the business environment In particular, the implementation of the State's policies on equitization and restructuring of the banking system has resulted in significant changes in the ownership structure of Vietnamese banks Private and foreign ownership have notably increased, while the State ownership rate in commercial banks decreased

Commented [HP4]: Put “Table 3.1” in the text

Methodology

Model specification

Based on previous literature, the researcher inherits the research of Rahman and Reja (2015) and Nguyen et al (2015) and proposes the use of a multiple linear regression model to estimate the impact of ownership structure on the financial performance of Vietnamese commercial banks based on the collected panel dataset

The following regression models are estimated as follows:

ROAit = β0 + β1*STATEit + β2*INSit + β3*FORit + β4*AGEit + β5*NPLit + β6*INFit + β7*GDPit

ROEit = β0 + β1*STATEit + β2*INSit + β3*FORit + β4*AGEit + β5*NPLit + β6*INFit + β7*GDPit

In which: i represent the bank in the research sample; t represent the time ranging from 2012 to 2022; β0 stands for intercept; β1, β2, β3 β7 indicate the coefficient of each variable, and u is the error term

ROAit and ROEit represent bank’s financial performance at a given time (t); STATE, INS, FOR are abbreviations for state ownership, institutional ownership, and foreign ownership respectively Besides, AGE, NPL, INF,GDP are abbreviations for control variable Bank’s age, Non-performing loans rate, Inflation and Gross Domestic Product growth rate

Return on assets ROA Net income/Total assets

Return on equity ROE Net income/Total equity

State ownership STATE Percentage of bank’s equity owned by state Institutional ownership

INS Percentage of bank’s equity owned by institutions Foreign ownership

FOR Percentage of bank’s equity owned by foreign individuals and organizations

Bank age AGE Ln (Current Year—Year of Establish)

Non-performing loan NPL Non-performing loans/ Total loans

Inflation INF Annual change in the Consumer Price Index

GDP growth rate GDP Gross domestic product growth rate

4.1 Measurement of variables (Source: Author’s work) The above models will be specified to test the following hypotheses:

Hypothesis 1: State ownership has a negative impact on the return on assets and return on equity

Hypothesis 2: Institutional ownership has a positive effect on the return on assets and return on equity

Hypothesis 3: Foreign ownership has a positive effect on the return on assets and return on equity

Research methodology

The study uses quantitative research methods to examine the impact of ownership structure on the financial performance of Vietnamese commercial banks To analyze panel data, researchers often use three approaches: “Pooled Least Squares” (Pooled OLS), “Fixed Effects Regression”

(FEM), and “Random Effects Regression” (REM)

Among these approaches, Pooled OLS is the simplest and it approaches panel data by stacking all observations together, ignoring the spatial and temporal aspects, and only estimating using the normal OLS model Thus, with OLS estimation, assumptions about multicollinearity, autocorrelation, and heteroskedasticity are not taken into consideration FEM and REM are the two methods suggested to overcome the problem of OLS

FEM helps separate the effects of individual characteristics from independent variables to estimate the real effects on the dependent variable These individual characteristic may represent unobserved factors that are constant over time In other words, they can account for unobserved heterogeneity, which is a limitation of the OLS approach However, FEM also has a disadvantage as it not suitable for assessing the impact of a variable that does not change over time

On the other hand, the REM approach considers that individual characteristics between banks are assumed to be random and uncorrelated with the independent variables The drawback of

Pooled OLS can be addresses using REM However, REM can sometime be bias when there are unobserved independent variables that are related to both the dependent and independent variables

Commented [HP5]: Put “Table 4.1” in the text

In this study, the research will employ all three methods, and conduct necessary tests to ensure the robustness of these models and validate the results For instance, F-test will be adopted to select between Pooled OLS and FEM, and the Hausman test might be used to select the optimal model between FEM and REM In addition, after choosing the appropriate model, to ensure the reliability of the research results, different tests to detect autocorrelation and heteroskedasticity will be performed If the model appears to have defects, the Generalized Least Squares regression model (GLS) will be carried out to overcome the problem, and to ensure effective estimates All the tests will be conducted using the Stata 13 program.

Data

The study sample is panel data of 20 Vietnamese joint stock commercial banks during an 11- year period (2012-2022), comprising 220 observations List of 20 selected banks is in Appendix

1 Out of the 41 commercial banks in Vietnam, not all firms are listed on the stock market or disclose enough information needed for the study Thus, to avoid an unbalanced data set that leads to misinterpretation of results, the researcher takes a sample of 20 banks that fully disclose the statistics Consequently, this research has a strongly balanced panel data The information on banks’ ownership structure is derived from the corporate governance report and banks’ annual report each year The financial performance is collected from the annual financial statements that are public on the firm’s website The macro data such as GDP and inflation are collected from the IMF database and the annual report of the State Bank of Vietnam

Results and Discussion

Descriptive statistics

5.4 VIF test (Source: Author’s work on Stata) 20

5.5 Regression results (Source: Author’s work on Stata) 21

Correlation matrix

5.4 VIF test (Source: Author’s work on Stata) 20

5.5 Regression results (Source: Author’s work on Stata) 21

Over the past 30 years of financial reform, the Vietnamese banking sector has made remarkable progress, in which ownership structure diversification is one of the most notable changes The single-tier banking system that serves the government's planned economic goals was transformed into a two-tier system with many types of ownership structures like state-owned commercial banks, joint-stock commercial banks, joint venture commercial banks, foreign- owned commercial banks, A diversified ownership structure has created positive developments and favorable conditions for the banking system to enter the period of international economic integration However, it also poses many complex issues that require stringent management by authorities, as well as commercial banks themselves face many challenges in deciding on appropriate governance measures Therefore, knowing the role of ownership in the bank's performance is necessary for safe, sound, and effective structural reforms

The relationship between ownership structure and performance has been an ongoing concern to scholars, management, policymakers, and investors globally since the original paper of Berle and Mean (1932) This concern arises due to the fact that the ownership structure influences a firm’s corporate governance on vital decisions, thus impacting the firm’s financial performance According to Berle and Mean (1932), dispersed ownership could potentially reduce the firm’s performance as the shareholder’s ability to influence managerial decisions is reduced and the agency problems from the separation of ownership and control arise Thus, the firm’s performance is closely tied to the effectiveness of its management and the ability of managers to align their interests with those of the shareholders A concentrated ownership structure is believed to reduce the agency's problems as it promotes shareholder monitoring, refutes moral hazard behavior, and ensures that managers work for shareholder’s interest maximization (Belkhir, 2005) In the case of banking, concentrated ownership was stated to improve bank control and monitoring through a greater flow of information (Ungureanu, 2008) Large equity ownership is also associated with better performance as studies suggest a positive relationship of concentrated ownership with firm value (Morck et al., 2000) as well as with profitability (Claessens et al., 2000; Iannota et al., 2007; Ongore, 2011) In contrast, it is also found to negatively influence performance (Berger et al., 2005) High-concentrated ownership firms are said to be more susceptible to financial distress and crisis The existence of large shareholders with high authority could pose moral hazard behavior where they make decisions that maximize

2 their own profits even though these actions might raise the banks' risks and threaten the institutions' long-term performance and existence (Schwarcz, 2017) Nevertheless, Thomsen and Pedersen (2000), Gursoy and Aydogan (2002), Kao, Lu, and Dinh (2020) argued that the influence of ownership structure on the performance of a firm lies in the types of ownership structure Different types of shareholders come with different priorities, preferences, and objectives (Claessens et al., 2000; Ongore, 2011) and ownership structure types were found to determine firm performance (Port, 2002) Ownership structure indicates the distribution of a firm’s equity and the identity of the owners (Wahl, 2006) The type of ownership structure of a bank determines and provides how much influence and control one has over the management of the bank in decision-making (Gugong, Kumai and Bala, 2015)

Despite the extensive research conducted in the past decades on the relationship between ownership structure and bank performance, the theoretical and empirical evidence remains mixed and contradictory Different ownership structure types were tackled in past literature: foreign ownership, managerial ownership, institutional ownership, family ownership, and government ownership Besides, different determinants of financial performance were examined including return on assets (ROA), return on equity (ROE), and earning per share (EPS) However, past studies provide different and contrasting results when applied to various countries, which indicates that the differences in political, economic, and institutional conditions may alter the relationship between ownership structure and bank performance Thus, the effectiveness of ownership for the banking system should be evaluate in a specific market, as a study in one country does not apply to another As a result, this study is conducted to investigate the influence of ownership structure on the performance of Vietnamese commercial banks The research findings will provide valuable empirical evidence for policymakers, investors, and bank managers on the impact of different ownership structures and contribute as a basis for the restructuring of commercial banks in Vietnam

This thesis aims to evaluate the impact of ownership structure on the financial performance of selected Vietnamese commercial banks, thereby serving as the basis for some policy suggestions on ownership structure to improve the performance of Vietnamese banks

Based on the above objective, the author poses the following research questions:

1 What is the relationship between different ownership structure types and the performance of commercial banks in Vietnam

2 Which ownership structure helps to improve the bank's financial performance in

Research object: The relationship between ownership structure and the financial performance of Vietnamese commercial banks

Research scope: The performance indicators and ownership structure of 20 commercial banks in Vietnam during the period of 11 years from 2012 to 2022 The selected bank in the sample includes banks with 100% state capital, banks with dominant state ownership (over 50%), joint stock commercial banks, and 100% foreign-owned banks

The study is organized into six chapters as follows Chapter 1 presents the study's rationale, the research questions that will be answered in this study, and the focused scale and scope Chapter

2 provides a review of past literature on ownership structure, profitability as well as the impact of ownership structure on the performance of banks, thereby finding research gaps Chapter 3 describes the conceptual framework, and research hypotheses, explains how to select a sample and collect data, develop a research model, and make assumptions about the expected sign of the variables Chapter 4 overviews the Vietnamese banking system and ownership structure

Chapter 5 presents the results from the regression model, and discusses the research results

Chapter 6 suggests recommendations on the ownership structure of Vietnamese commercial banks to enhance financial performance Chapter 7 presents a summary of the research, outlines limitations, and suggests future research directions related to this field

Chapter 2: Literature Review 2.1 Theoretical framework

The theoretical framework on the relationship between ownership and corporate governance that was constructed and first published by in 1932 by Berle and Means The authors argued that in large corporations, ownership and control are often separate, with shareholders being dispersed and managers exercising significant control over corporate decision-making This separation allows managers to pursue their own goals rather than maximizing benefits for shareholders As a result, conflicts may arise from the difference between the goals of shareholders and the goals of business managers The level of conflict will depend on the level of separation between ownership and management as well as the differences in the goals of shareholders and managers Eventually, business performance will be affected by the fragmentation between ownership and management

Agency theory originating from the work of Ross (1973) and later developed by Jensen and Meckling (1976) refers to the relationship between owners and agents The agent is representative of owners in business activities and is expected to bring the owner's best interests However, the difference of interest between the owner and the agent can conflict as the manager might not act in the owners’ interest but in their own, thus raising agency costs In most cases, managers are motivated to act contrary to owners' expectations which influences the firm’s financial performance (Vu, Phan, and Le, 2018) Therefore, to counter the conflicts of interest caused by agency problems, governance mechanisms should be set up to restrain managerial self-interest (Tran, Ly, and Nguyen, 2020) The ownership structure as an oversight mechanism was suggested to reduce conflicts between owners and managers by aligning both parties’ interests with the firm's objectives (Jensen and Meckling, 1976) Agency problems are the driving forces behind the ownership structure of many firms and so act as the corporate governance debate points between the board of directors and the company management Provisions of effective ownership structures that focus on minimizing agency costs are suggested for better firm performance (Kao, Hodgkinson, and Jaafar, 2019) The ownership structure reflects the proportion of ownership as well as the owner’s rights in the company (Serly and Zulvia, 2019) It was found to help lower agency costs by regulating how the firm is managed and controlling management decisions (Hartzell, Sun, and Titman, 2014)

2.2 Ownership structure of commercial banks

Commercial banks are essentially joint stock companies, so the concept of ownership structure in commercial banks is based on joint stock companies' ownership structure A firm's ownership structure is defined by the distribution of equity regarding voting rights, capital, and the equity owner’s identity (Jensen and Meckling, 1976) It refers as a corporate governance mechanism that oversees the efficient use of a firm's resources to ensure shareholder objectives are met (Imam and Malik, 2007) The ownership structure is a measure of corporate governance and is considered to be determined by country-level corporate governance dimensions such as the depth of the stock market and the nature of government intervention and regulation (La Porta,

1998) The structure can have significant impacts on business decisions, mergers and acquisitions, competition, and the oversight of agency relationships (Wen, 2010) The concept of ownership structure can be viewed in two dimensions: ownership concentration, which refers to the degree to which ownership is held by a small number of shareholders; ownership mix, which refers to the composition of ownership among different types of owners, such as state ownership, managerial ownership, foreign ownership, institutional ownership, etc (Antoniadis, 2010; Wen, 2013) Hence, ownership structure can be understood as the structure of types of shareholders holding shares in commercial banks It provides a degree of influence and control in making important decisions, especially those related to the corporate governance activities of the bank In this study, the researcher approaches the ownership structure in the mixed ownership dimension, focusing on the percentage of state ownership, institutional ownership, and foreign ownership

State ownership refers to the equity or shares owned by government entities at the central or local level (Mamatzakis et al., 2017) The presence of government in business is mainly for developmental purposes, particularly when firms are crucial for the country's economic, social, or strategic interests (La Porta et al., 2002) State-owned banks are often driven by multiple and conflicting objectives that go beyond purely commercial considerations They may not prioritize shareholder return maximization and may operate less independently due to their diversified objectives and government influence (Carney and Child, 2013) In particular, being the owner or majority shareholder, the state can direct and control the institution's operations

6 according to its desired social and political objectives, thus potentially raising conflict among management (Rosalina and Nugraha, 2019) Political interference can cause state owners' interests to be contrary to the firm's goal of profit maximization, resulting in poor financial performance Besides, state-owned banks were found to be associated with inadequate corporate governance and high-risk levels (Shah and Hussain, 2012, Shen and Lin, 2012, Iannotta et al., 2013) Ashraf (2017) suggests that the presence of governmental protection has induced higher risk-taking by government-owned banks Micco et al (2007), Lin and Zhang

VIF test

When there is a high correlation among the explanatory variables in a model, it results in multicollinearity In order to assess the presence of collinearity issues, the VIF test is conducted

Commented [HP7]: Put “Table 5.2” in the text

Commented [HP8]: Put “Table 5.3” in the text

5.4 VIF test (Source: Author’s work on Stata)

The VIF results in Table 5.4 show that all variables have a VIF value lower than 10, in which the highest value is 2.33 and the average VIF value is 1.5 Therefore, there is no multicollinearity between one variable and the remaining group of variables.

Regression analysis

After running the Pooled OLS (Appendix 2) and FEM (Appendix 3) models, the F-test was used to determine the suitable model among these two The result shows that F = 0.0000 < 5% appears in both ROA and ROE models, thereby FEM is the better model in both cases

After conducting the regression using the REM model (Appendix 4), the Hausman test

(Appendix 5) was performed to select the appropriate model between the FEM and REM The result is P-value = 0.0000 < 5% in both ROA and ROE models, therefore, the FEM model was chosen to be the better model for the research sample

However, the model selection at this step is only intermediate because both the ROA and ROE models appear to have autocorrelation and heteroscedasticity when conducting the Wooldridge

(Appendix 6) and Wald test (Appendix 7) since the P-value in both tests is lower than 0.05

Hence, the Generalized Least Squares (GLS) method was used to overcome these two shortcomings, ensuring robust and efficient estimation

Commented [HP9]: Put “Table 5.4” in the text

5.5 Regression results (Source: Author’s work on Stata)

The results in Table 5.5 clearly show that ‘STATE’ is the only variable that is insignificant in both ROA and ROE models with a P-value higher than 0.05 (0.185 and 0.966, respectively)

Besides, ‘INF’ has a significant impact on the ROA but is insignificant with ROE On the other hand, the rest of the variables are significant at 5% and 1% level Notably, the independent variables show an identical sign in both ROA and ROE models

With the results calculated using the GLS method, the estimated models are identified as follows:

ROA = -0.3263 + 0.0074*INS + 0.0130*FOR + 0.0247*AGE - 0.0388*NPL + 0.0240*INF

ROE = -3.5827 + 0.0739*INS +0.0924*FOR + 0.329*AGE - 0.553*NPL + 0.314*GDP

Discussion of findings

5.5.1 The influence of state ownership on the financial performance of banks

H1: State ownership has a negative impact on the return on assets and return on equity

The P-value of the STATE variable in the ROA and ROE model are 0.185 and 0.966, respectively, which indicates that state ownership has an insignificant impact on the financial performance of Vietnamese commercial banks Therefore, the hypothesis is rejected This result is different from previous studies, which mostly suggested a negative correlation between state ownership and bank performance (Rahman and Reja, 2015; Kiruri, 2013; Sanatoso and

Santasyacitta, 2020; Tran, 2018; Trinh and Nguyen, 2013) This result may be due to the fact that the research sample period is in the period 2012-2022, which is also the period associated with the implementation of the banking system restructuring and the equitization process of the

Commented [HP10]: Put “Table 5.5” in the text

22 state-owned banks Therefore, the fluctuation of state ownership proportion in banks has reduced the impact of state ownership on Vietnamese commercial banks

5.5.2 The influence of state ownership on the financial performance of banks

H2: Institutional ownership has a positive effect on the return on assets and return on equity

The P-value of the INS variable in both ROA and ROE model is lower than 0.05 (at 0.017 and 0.011 respectively), thereby the institutional ownership is revealed to have a significant impact on the bank’s performance Besides, with a coefficient of 0.0074 in the ROA model and 0.0739 in the ROE model, institutional ownership is proven to have a positive correlation with the bank’s financial indicator It indicates that with every 1% increase in institutional ownership, the ROA will increase by 0.0074% while the ROE increase by 0.0739% As a result, the hypothesis 2 is accepted

A similar result was also stated in previous research The study by Oudat et al (2021) in the emerging market (Bahrain) from 2015 to 2019 revealed a positive correlation between institutional ownership and firm performance Sanatoso and Santasyacitta (2020) studied the relationship in Indonesian banks during the 2009-2014 period and also found a positive effect of institutional ownership on banks’ ROA and ROE Uwuigbe and Olusanmi (2012) studied the relationship between ownership structure and firm performance of 31 financial companies in Nigeria has revealed that institutional ownership with a good supervision role has a positive effect on the performance of firms Institutional stockholders possess extensive experience in monitoring management practices, which directly contributes to mitigating the agency's problem and promoting financial performance Institutional shareholders have the capacity to influence board decisions and engage in active ownership As a result, they can effectively discipline management and drive improved performance (Gugong et al., 2014) In addition, institutional shareholders can provide various opportunities and resources, which help the bank to enhance its operation and performance (Rose, 2007)

5.5.3 The influence of state ownership on the financial performance of banks

H3: Foreign ownership has a positive effect on the return on assets and return on equity

With the P-value below 0.05 (0.000 in ROA model and 0.012 in ROE model), FOR variable have a significant effect on the financial performance of banks Besides, foreign ownership has a positive coefficient of 0.0130 and 0.0924 with ROA and ROE respectively In the absence of

23 other changes, an increase of 1% in foreign ownership is associated with an increase of 0.0130% in ROA and 0.0924% in ROE As a result, the hypothesis 3 is accepted

The research result aligns with the past research Kiruri (2013) in the study of 43 commercial banks in Kenya during the 2007-2011 period has revealed that foreign ownership has a positive impact on the profitability of Kenyan banks The higher the ownership held by foreign shareholders the higher the profit in commercial banks Jarbou et al., 2018 also stated that foreign ownership is statistically significant and positively affects the Jordanian banks’ performance when studying 13 commercial banks during the 2005-2014 period A higher proposition of foreign ownership indicates a higher quality of investment In addition, Tran

(2018) when studying this relationship using the sample of 30 Vietnamese commercial banks in the 2012-2017 period also revealed that the entry of foreign investors brought in better capitalization and technical capacity for the banking sector Foreign shareholders not only bring with them financial resources but also advanced technology, expertise, and best practices in various areas of operation (Claessens et al., 2001) This transfer of experience and knowledge contributes to the improvement of product quality and operational efficiency in domestic banks Besides, they also introduce stronger oversight mechanisms and accountability measures, reducing information asymmetry and potential conflicts of interest, which can help mitigate agency costs, and effectively allocate resources within the bank (Jiang et al., 2013) Overall, the study result is consistent with emerging market like Vietnam where foreign investors transfer technology, improve product quality, enhance monitoring to reduce both operational and agency costs, and ultimately improve business performance

The AGE variable has a P-value of 0.017 in the ROA model and 0.011 in the model ROE, which indicates that the bank’s age has a statistically significant impact on the bank’s performance at the 5% significance level The coefficient value also shows a positive correlation between the bank’s age and financial performance, in which with every 1% increase in banks’ age, ROA will rise by 0.0247% and ROE by 0.329% This study result is similar to the past study by Al-Baidhani (2015), Gupta and Mahakud (2020), and Haddad et al (2020) A long-established bank would perform better as they operate with more skills, experiences, and the ability to effective carry out tasks and responsibilities Besides, seniority also provides banks the ability to adapt quickly to contextual changes and significant variations in financial performance

The NPL has a P-value lower than 0.05 in both testing models and negative coefficient values (-0.0388 in the ROA model and -0.553 in the ROE model), thereby it can concluded that NPL has a negative correlation with the performance of Vietnamese commercial banks The higher the bad debt ratio, the lower the bank's financial performance, specifically with every 1% increase in NPL, the ROA decreases by 0.0388% and the ROE decreases by 0.553% This result is similar to the past research by Trinh and Nguyen (2013) and Nguyen et al (2015) When bad debts increase, commercial banks have to increase provisions for risk reserves, leading to a reduction in profitability or the bank’s financial performance A high number of non- performing loans would imply a failure in credit policy and management of banks (Saba et al.,

2020) Therefore, during the restructuring period, tackling bad debts plays a crucial role in enhancing the profitability of commercial banks in Vietnam Nguyen et al (2015)

The INF variable has a P-value of 0.014 in the ROA model and 0.144 in the ROE model, which indicates that the inflation rate has a significant impact on the bank’s ROA, however not significant when it comes to the ROE Besides, the coefficient value in the ROA model is 0.0240, meaning that inflation has a positive influence on ROA at the 5% significance level

An increase of 1% in the inflation rate would result in an increase of 0.0240% in ROA Tan and Floros (2012) also found a similar result in the research, where inflation is significantly positive related to banks’ ROA During the study period, inflation might be anticipated which provides banks with the opportunity to adjust their interest rates accordingly, resulting in revenue growth outpacing cost increases and a positive financial performance

With the P-value lower than 0.01 in both ROA and ROE models, the GDP variable is found to be statistically significant at the 1% significance level Besides, the coefficient of 0.0235 in the ROA model and 0.314 in the ROE model, GDP is proven to have a positive correlation with the financial performance of banks With the increase of 1% in GDP growth rate, the banks’ ROA is expected to increase by 0.314% and ROE increase by 0.314% This research result is consistent with research by Tran (2014) Economic growth can lead to an increase in customer borrowing and their capacity to repay debts As a result, banks may experience improved financial performance

Conclusion and Policy Recommendations

Conclusion

This research investigate the impact of ownership structure on the financial performance of 20 Vietnamese commercial banks during the 2012-2022 period The data used in the research is panel data This study focuses on the impact of three ownership types namely, state ownership, institutional ownership, and foreign ownership on the financial indicators of banks (ROA and ROE) Besides, the paper also take in consider other control variable like the bank-specific factors (Bank’s age and Non-performing loans) and the macroeconomic factors (Inflation and GDP growth rate)

The findings of this study show that for Vietnamese commercial banks, institutional ownership and foreign ownership have a significant and positive impact on ROA and ROE, while state ownership is statistically insignificant Besides, bank’s age and GDP growth rate have a positive correlation with the banks’ performance, while inflation rate only has a significant correlation with ROA and statistically insignificant with ROE Moreover, non-performing loans ratio has a negative effect on the performance of Vietnamese commercial banks.

Policy recommendations

From the research results presented in Chapter 5, the researcher proposes a number of policy recommendations for bank management and regulatory agencies to enhance the financial performance of Vietnamese commercial banks as follows:

6.2.1 Increase institutional ownership in Vietnamese commercial banks

In this study, institutional ownership was shown to have a positive impact on the financial performance of commercial banks in Vietnam, thereby banks are encouraged to increase the percentage of institutional shareholders in their ownership structure Having institutional shareholders will provide the bank with a stable and long-term financial source, helping the bank enhance its ability to provide loans, expand business activities, and meet the financial needs of customers In addition, the participation of institutional shareholders also brings diversity and expertise, helping banks grasp business opportunities, improve management processes, and enhance decision-making ability Therefore, banks are suggested to have appealing policies and mechanisms to attract more institutional shareholders to invest in their business Besides, it is also important for banks to prioritize the publication of comprehensive, transparent, and timely information regarding their business operations and financial outcomes This commitment to disclosure will assist institutional shareholders in making informed

26 investment choices and foster trust among investors toward the bank Moreover, banks should also have cooperative relationships with financial institutions or investment funds to expand their business networks and improve market accessibility, which ultimately creates opportunities to attract institutional shareholders

6.2.2 Increase foreign ownership in Vietnamese commercial banks

Based on the research findings, foreign ownership is observed to have a positive impact on the financial indicators of commercial banks Therefore, Vietnamese commercial banks are recommended to increase the percentage of foreign ownership to further improve their financial performance

According to the provisions stated in Decree 01/2014/ND-CP issued by the Government, the current limit for the share ownership ratio of a foreign strategic investor in a Vietnamese financial institution is 20% of the charter capital Additionally, the total share ownership ratio of foreign investors in a domestic credit institution must not exceed 30% Thus, because of this limitation, many foreign investors did not perceive the attractiveness of Vietnamese commercial banks The low ownership ratio makes the right to intervene in the business management process of foreign investors somewhat limited As a result, there have been cases where foreign investors divest their capital from Vietnamese commercial banks after a certain period of investment On the other hand, with the trend of international integration increasingly deepening, the presence of foreign investors is indispensable Foreign investors contribute not only capital, but also expertise in management, technology transfer, promote transparency in information disclosure, and improve the quality of services and products of Vietnamese commercial banks Consequently, bank management is suggested to expand ownership opportunities for foreign investors, particularly reputable international financial institutions with extensive experience Allowing an increase in foreign ownership in commercial banks is one of the solutions to increase financial resources as well as competitiveness for commercial banks in Vietnam Furthermore, the inflow of external resources contributes to greater economic autonomy, avoiding pressure from debt or financial leverage, thus ensuring sustainability in development

However, it is advisable to increase the foreign ownership ratio only up to a maximum of 50% to ensure that domestic shareholders still have control over operations and protect their capital at commercial banks With an ownership ratio of over 50% and strong financial resources, foreign investors may pose difficulties for domestic shareholders, create information asymmetry, or prioritize the interests of foreign shareholders over domestic ones to maximize

Commented [HP11]: Approval and effective date?

27 their own benefits In addition, when occupying important positions in domestic commercial banks, foreign investors can have a direct influence on the operations of Vietnam's banking sector, which might result in a misalignment between the bank's development goals and the overall development objectives of the country Given the importance of the banking sector, this can pose a significant risk to national economic security

The State should promote the improvement of legislation in the banking industry, implementing robust measures to protect both domestic and foreign investors and ensuring greater transparency and safety in the operations of commercial banks In this regard, the ownership structure of commercial banks should also be addressed There should be regulations in place for regular reporting, monitoring, and supervision of the ownership structure to timely prevent situations where the ownership structure is skewed towards a group of people with common interests, leading to manipulation and increased agency costs Furthermore, strengthening the regulatory framework will contribute to the sustainable operation of commercial banks, thereby creating trust and attracting both domestic and foreign investors

6.2.4 Resolution of non-performing loans (NPL)

According to research results, it has been proven that non-performing loan rates have a significantly negative impact on the financial performance of Vietnam Joint Stock Commercial Banks during the study period As bad debts increase, the financial indicators of commercial banks experience a considerable decline Therefore, to improve performance, commercial banks need to accurately assess the current status of NPL to have effective risk management and control measures Banks with high levels of NPL should strengthen management and control risks in accordance with the growth of their total assets over time Credit analysis measures as well as monitoring customers' ability to repay debt should also be paid attention to and applied effectively Besides, banks should also focus on implementing solutions to decisively address bad debts, such as selling collateral, actively collecting debts, re-evaluating debts or selling debts, etc to reduce credit risk provision costs In addition, enhancing the quality of asset management and customer evaluation to continue lending to trustworthy clients should also receive attention to limit the arising of non-performing loans and minimize their impact on the bank's financial performance

Research limitations

Even though the research is conducted within the scope of data collected from many reliable data sources, it still has some limitations lies in the fact that collected data not really comprehensive in some aspects

Currently, commercial banks in Vietnam are still in the process of development and there is no standardization in reports and information disclosure, leading to a relatively small sample of data This makes it difficult for the researcher to find data on bank ownership structure as not many banks disclose this information Consequently, the data sample for studying is restricted to only 20 out of the total 41 banks within the banking system Besides, the study also did not consider some other aspects of ownership structure such as cross ownership, family ownership, managerial ownership, employee ownership, etc and their relationship on bank performance Furthermore, the impact of corporate governance factors in banks was not mentioned in the research paper

Based on the above limitations, the author suggests that future research should continue to update and expand the data sample to enhance statistical significance Additionally, studies can focus on analyzing the impact of other ownership types such as family ownership, managerial ownership, employee ownership, as well as corporate governance factors on the financial performance of Vietnamese commercial banks

Al-Baidhani, A.M (2014) REVIEW OF CORPORATE GOVERNANCE BUNDLE

Corporate Ownership and Control, 11(4) doi:https://doi.org/10.22495/cocv11i4c2p1

Al-Jafari , M.K and Alchami, M (2014) Determinants of Bank Profitability: Evidence from Syria Journal of Applied Finance & Banking, 4(1), pp.17–45

Antoniadis, I., Lazarides, T., & Sarrianides, N (2010) Ownership and performance in the Greek banking sector International Conference on Applied Economics, 11-21

Ashraf, B.N (2017) Political institutions and bank risk-taking behavior Journal of Financial

Stability, 29, pp.13–35 doi:https://doi.org/10.1016/j.jfs.2017.01.004

Ayaydin, H (2014) The Effect of Bank Capital on Profitability and Risk in Turkish Banking

International Journal of Business and Social Science, [online] 5(1) Available at: https://www.ijbssnet.com/journals/Vol_5_No_1_January_2014/29.pdf

Batten, J and Vo, X.V (2019) Determinants of Bank Profitability—Evidence from Vietnam

Emerging Markets Finance and Trade, 55(6), pp.1417–1428 doi:https://doi.org/10.1080/1540496x.2018.1524326

Belkhir, M (2005) Additional Evidence on Insider Ownership and Bank Risk-Taking Bankers, Markets & Investors (Banques et Marche), 78, 34-43

Berger, A N., Clarke, G R G., Cull, R., Klapper, L., & Udell, G F (2005) Corporate governance and bank performance: A joint analysis of the static, selection and dynamic effects of domestic, foreign and state ownership Journal of Banking and Finance, 29, 2179-2221

Berger, A.N., Klapper, L.F and Turk-Ariss, R (2008) Bank Competition and Financial Stability Journal of Financial Services Research, [online] 35(2), pp.99–118 doi:https://doi.org/10.1007/s10693-008-0050-7

Berle, A A., & Means, G C (1932) The Modern Corporation and Private Property Macmillan

Bushee, B.J., Carter, M.E and Gerakos, J (2014) Institutional Investor Preferences for Corporate Governance Mechanisms Journal of Management Accounting Research, 26(2), pp.123–149 doi:https://doi.org/10.2308/jmar-50550

Carney, R.W and Child, T.B (2013) Changes to the ownership and control of East Asian corporations between 1996 and 2008: The primacy of politics Journal of Financial Economics, 107(2), pp.494–513 doi:https://doi.org/10.1016/j.jfineco.2012.08.013

Chronopoulos, D.K., Liu, H., McMillan, F.J and Wilson, J.O.S (2013) The dynamics of US bank profitability The European Journal of Finance, 21(5), pp.426–443 doi:https://doi.org/10.1080/1351847x.2013.838184

Claessens, S., Demirgỹỗ-Kunt, A and Huizinga, H (2001) How does foreign entry affect domestic banking markets? Journal of Banking & Finance, 25(5), pp.891–911 doi:https://doi.org/10.1016/s0378-4266(00)00102-3

Claessens, S., Djankov, S., & Lang, L H P (2000) The separation of ownership and control in East Asian corporations Journal of Financial Economics, 58, 81-112

Cooper, D.R and Schindler, P.S (2014) Business research methods 12th ed New York, Ny: Mcgraw-Hill/Irwin

Cornett, M., Marcus, A and Tehranian, H (2008) Corporate governance and pay-for- performance: The impact of earnings management☆ Journal of Financial Economics, 87(2), pp.357–373 doi:https://doi.org/10.1016/j.jfineco.2007.03.003

Davydov, D (2018) Does State Ownership of Banks Matter? Journal of Emerging Market Finance, 17(2), pp.250–285 doi:https://doi.org/10.1177/0972652718776862

Dewi Asri Rosalina and Nugraha Nugraha (2019) The Effects of Ownership Structure on Bank Profitability doi:https://doi.org/10.2991/icebef-18.2019.10

Ekinci, R and Poyraz, G (2019) The Effect of Credit Risk on Financial Performance of Deposit Banks In Turkey Procedia Computer Science, 158, pp.979–987 doi:https://doi.org/10.1016/j.procs.2019.09.139

Faccio, M and Lasfer, M (2001) Institutional Shareholders and Corporate Governance: The

Case of UK Pension Funds [online] ResearchGate Available at: https://www.researchgate.net/publication/5010533_Institutional_Shareholders_and_Corporate_Governance_The_Case_of_UK_Pension_Funds

Fidanoski, F., Mateska, V and Simeonovski, K (2013) Corporate Governance and Bank Performance: Evidence from Macedonia - Munich Personal RePEc Archive Uni-muenchen.de [online] doi:https://mpra.ub.uni-muenchen.de/46773/1/MPRA_paper_46773.pdf

Francis, E.M (2013) Determinants of Commercial Bank Profitability in Sub-Saharan Africa

International Journal of Economics and Finance, 5(9) doi:https://doi.org/10.5539/ijef.v5n9p134

Gillan, S and Starks, L.T (2005) Corporate Governance, Corporate Ownership, and the Role of Institutional Investors: A Global Perspective [online] papers.ssrn.com Available at: https://ssrn.com/abstractH0983 [Accessed 8 Apr 2022]

Gugong, B., Kumai and Bala, H (2015) EQUITY FORMATION AND FINANCIAL PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA European Journal of Accounting Auditing and Finance Research, [online] 3(8), pp.25–39 Available at: http://www.eajournals.org/wp-content/uploads/Equity-Formation-and-Financial-Performance- of-Listed-Deposit-Money-Banks-In-Nigeria.pdf

Gugong, B.K., Arugu, L.O and Dandago, K.I (2014) The Impact of Ownership Structure on the Financial Performance of Listed Insurance Firms in Nigeria International Journal of Academic Research in Accounting, Finance and Management Sciences, [online] 4(1) doi:https://doi.org/10.6007/ijarafms/v4-i1/698

Gupta, N and Mahakud, J (2020) Ownership, bank size, capitalization and bank performance: Evidence from India Cogent Economics & Finance, 8(1) doi:https://doi.org/10.1080/23322039.2020.1808282

Gursoy, G., & Aydogan, K (2002) Equity ownership structure, risk taking, and performance Emerging Markets Finance and Trade, 38(6), 6-25

Haddad, A., El Ammari, A and Bouri, A (2020) Impacts of ownership structure on the financial performance of conventional and Islamic banks in the agency theory context

Corporate Ownership and Control, 17(3), pp.46–70 doi:https://doi.org/10.22495/cocv17i3art4

Haija, A.A and Alrabba, H.M (2017) Relationship between ownership structure and financial performance Corporate Ownership & Control, 14(3), pp.393–398 doi:https://doi.org/10.22495/cocv14i3c2art13

Hartzell, J.C., Sun, L and Titman, S (2014) Institutional investors as monitors of corporate diversification decisions: Evidence from real estate investment trusts Journal of Corporate Finance, 25, pp.61–72 doi:https://doi.org/10.1016/j.jcorpfin.2013.10.006

Hassan, M.K., and Bashir, A.H.M (2003) Determinants of Islamic banking profitability In 10th ERF annual conference, Morocco, Vol 7, pp 2-31

Hawary, S.I.S.A (2011) The effect of banks governance on banking performance of the Jordanian commercial banks: Tobin’s Q model [online] ResearchGate Available at: https://www.researchgate.net/publication/289782208_The_effect_of_banks_governance_on_ banking_performance_of_the_Jordanian_commercial_banks_Tobin%27s_Q_model_an_appli ed_study

Huang, W and Zhu, T (2015) Foreign institutional investors and corporate governance in emerging markets: Evidence of a split-share structure reform in China Journal of Corporate Finance, 32, pp.312–326 doi:https://doi.org/10.1016/j.jcorpfin.2014.10.013

Iannota, G., Nocera, G., & Sironi, A (2007) Ownership structure, risk and performance in the European banking industry Journal of Banking and Finance, 31, 2127-2149

Iannotta, G., Nocera, G and Sironi, A (2013) The impact of government ownership on bank risk Journal of Financial Intermediation, 22(2), pp.152–176 doi:https://doi.org/10.1016/j.jfi.2012.11.002

Imam, M.O., and Malik, M (2007) Firm performance and corporate governance through ownership structure: Evidence from Bangladesh Stock Market International Review of Business Research Papers, 3(4), 88-110

International Monetary Fund (IMF) (2012) Vietnam: 2012 Article IV consultation Staff Report,

Informational Annex,Debt Sustainability Analysis, Staff Statement, and Public Information Notice; IMF Country Report 12/165; April 27, 2012 [online] Available at: https://www.imf.org/external/pubs/ft/scr/2012/cr12165.pdf

Jarbou, L., Abu-Serdaneh, J., Osama, amp; and Latif, A (2018) Ownership Structure Impact on Jordanian Banks’ Financial Performance Asian Journal of Accounting and Governance,

[online] 9, pp.1–9 doi:https://doi.org/10.17576/AJAG-2018-09-01)

Jensen, M.C and Meckling, W.H (1976) Theory of the firm: Managerial behavior, agency costs and ownership structure Journal of Financial Economics, 3(4), pp.305–360

Jiang, C., Yao, S., & Feng, G (2013) Bank ownership, privatization, and performance: Evidence from a transition country Journal of Banking and Finance, 37, 3364-3372

Kaaya , I and Pastory, D (2013) Credit Risk and Commercial Banks Performance in Tanzania: a Panel Data Analysis Research Journal of Finance and Accounting, 4(16)

Kao, M.-F., Hodgkinson, L and Jaafar, A (2019) Ownership structure, board of directors and firm performance: evidence from Taiwan Corporate Governance: The international journal of business in society, 19(1), pp.189–216 doi:https://doi.org/10.1108/cg-04-2018-0144

Kijewska, A., (2016) Determinants of the return on equity ratio (ROE) on the example of companies from metallurgy and mining sector in Poland Metalurgija, 55(2), pp.285-288

Kipesha, E.F (2013) Impact of Size and Age on Firm Performance: Evidences from Microfinance Institutions in Tanzania Research Journal of Finance and Accounting, [online]

4(5), pp.105–116 Available at: https://www.iiste.org/Journals/index.php/RJFA/article/view/5091

Kiuri, R M (2013) The effects of ownership structure on bank profitability in Kenya European Journal of Management Sciences and Economics, 1(2), 116-127

Kuo, K., Lu, W and Dinh, T.N (2020) Firm performance and ownership structure: Dynamic network data envelopment analysis approach Managerial and Decision Economics, 41(4), pp.608–623 doi:https://doi.org/10.1002/mde.3124

La Porta, R., Lopez-de-Silanes, F and Shleifer, A (2002) The Regulation of Entry The

Quarterly Journal of Economics, 117(1), pp.1–37 doi:https://doi.org/10.1162/003355302753399436

La Porta, R., Lopez-de-Silanes, F., Shleifer, A and Vishny, R (2000) Investor protection and corporate governance Journal of Financial Economics, 58(1-2), pp.3–27 doi:https://doi.org/10.1016/s0304-405x(00)00065-9

Lee, J.Y and Kim, D (2013) Bank performance and its determinants in Korea Japan and the

World Economy, 27, pp.83–94 doi:https://doi.org/10.1016/j.japwor.2013.05.001

Lin, X and Zhang, Y (2009) Bank ownership reform and bank performance in China Journal of Banking & Finance, 33(1), pp.20–29 doi:https://doi.org/10.1016/j.jbankfin.2006.11.022

Lin, X., & Zhang, Y (2009) Bank ownership reform and bank performance in China Journal of Banking and Finance, 33, 20-29

Lin, Y.R and Fu, X.M (2017) Does institutional ownership influence firm performance? Evidence from China International Review of Economics & Finance, 49, pp.17–57 doi:https://doi.org/10.1016/j.iref.2017.01.021

Liu, C., Chung, C.Y., Sul, H.K and Wang, K (2017) Does hometown advantage matter? The case of institutional blockholder monitoring on earnings management in Korea Journal of International Business Studies, 49(2), pp.196–221 doi:https://doi.org/10.1057/s41267-017-

Madhushani, W.I and Perera, K.H (2021) The Impact of Assets Liability Management on the Financial Performance: Evidence from Licensed Commercial Banks in Sri Lanka International

Journal of Accountancy, 2(1), p.43 doi:https://doi.org/10.4038/ija.v2i1.39

Mamatzakis, E., Zhang, X and Wang, C (2017) Ownership structure and bank performance:

An emerging market perspective Munich Personal RePEc Archive Uni-muenchen.de [online] doi:https://mpra.ub.uni-muenchen.de/80653/1/MPRA_paper_80653.pdf

Mamatzakis, Emmanuel, Zhang, Xiaoxiang, and Wang, Chaoke (2017) Ownership structure and bank performance: An emerging market perspective

Maury, B (2006) Family ownership and firm performance: Empirical evidence from Western European corporations Journal of Corporate Finance, 12(2), pp.321–341 doi:https://doi.org/10.1016/j.jcorpfin.2005.02.002

Micco, A., Panizza, U and Yaủez, M (2007) Bank ownership and performance Does politics matter? Journal of Banking & Finance, 31(1), pp.219–241 doi:https://doi.org/10.1016/j.jbankfin.2006.02.007

Morck, R., Nakamura, M., & Shivdasani, A (2000) Bank ownership structure and firm value in Japan Journal of Business, 73, 539-567

Ndoka, S and Islami, M (2016) The Impact of Credit Risk Management in the Profitability of Albanian Commercial Banks During the Period 2005-2015 European Journal of Sustainable

Nguyen, H.S., Tran , T.T.T., Dinh , X.C., Lai , A.N and Pham, B.K (2015) Impact of Ownership Structure and Bank Performance – An Empirical Test in Vietnamese Banks

International Journal of Financial Research, 6(4) doi:https://doi.org/10.5430/ijfr.v6n4p123

Ongore, V O (2011) The relationship between ownership structure and firm performance: An empirical analysis of listed companies in Kenya African Journal of Business Management, 5(6), 2120-2128

Oudat, M.S and Ali, B.J.A (2021) The Underlying Effect of Risk Management On Banks’ Financial Performance: An Analytical Study On [online] ResearchGate Available at: https://www.researchgate.net/publication/349201367_The_Underlying_Effect_of_Risk_Mana gement_On_Banks%27_Financial_Performance_An_Analytical_Study_On_Commercial_and _Investment_Banking_in_Bahrain

Oudat, M.S., Ali, B.J.A., Hazabr , A and Qeshta, M (2021) Ownership Structure and Commercial Banks Performance: An Empirical Study from Emerging Markets Revista Gestão

Inovaỗóo e Tecnologias, 11(2), pp.1654–1665 doi:https://doi.org/10.47059/revistageintec.v11i2.1788

Pincus, J (2009) Vietnam: Sustaining Growth in Difficult Times Asean Economic Bulletin, 26(1), pp.11–24

Porta, R L., Silanes, F., & Shleifer, A (2002) Government ownership of banks The Journal of Finance, LVII, 265-301

Rachdi, H (2013) What Determines the Profitability of Banks During and before the International Financial Crisis? Evidence from Tunisia International Journal of Economics, Finance and Management, 2(4)

Rahman, A.N.A.A and Reja, B.A.F.M (2015) Ownership Structure and Bank Performance

Journal of Economics, Business and Management, [online] 3(5), pp.483–488 doi:https://doi.org/10.7763/joebm.2015.v3.232

Rose, C (2007) Can institutional investors fix the corporate governance problem? Some Danish evidence Journal of Management & Governance, 11(4), pp.405–428 doi:https://doi.org/10.1007/s10997-007-9038-1

Ross, S A (1973) The Economic Theory of Agency: The Principal’s Problem The American Economic Review, 63(2), 134–139 Available at: http://www.jstor.org/stable/1817064

Saba, I., Kouser, R and Azeem, M (2012) Determinants of Non Performing Loans: Case of

US Banking Sector [online] Available at: http://www.rejournal.eu/sites/rejournal.versatech.ro/files/issues/2012-06-02/556/15- determinantsofnon-performingloanscaseofusbankingsector.pdf

Santoso, A lukman and Santasyacitta, I.G (2020) Ownership Structure and Financial Performance of Islamic Bank In Indonesia [online] ResearchGate Available at: https://www.researchgate.net/publication/352299706_Ownership_Structure_and_Financial_P erformance_of_Islamic_Bank_In_Indonesia

Schwarcz, S.L., (2017) Too big to fool: Moral hazard, bailouts, and corporate responsibility Minn L Rev., 102, p.761

Shah, S Z A., & Hussain, Z (2012) Impact of Ownership Structure on Firm Performance: Evidence from Non-Financial Listed Companies at Karachi Stock Exchange International Research Journal of Finance and Economics, No 84, 6-13

Sharma, V.D (2004) Board of Director Characteristics, Institutional Ownership, and Fraud: Evidence from Australia AUDITING: A Journal of Practice & Theory, 23(2), pp.105–117 doi:https://doi.org/10.2308/aud.2004.23.2.105

Shen, C.-H and Lin, C.-Y (2012) Why government banks underperform: A political interference view Journal of Financial Intermediation, 21(2), pp.181–202 doi:https://doi.org/10.1016/j.jfi.2011.06.003

Shrivastav, S.M and Kalsie, A (2017) The Relationship between Foreign Ownership and Firm Performance in India:An Empirical Analysis Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics, 59(2), p.152 doi:https://doi.org/10.21648/arthavij/2017/v59/i2/164448

Staikouras, C.K and Wood, G.E (2004) The Determinants Of European Bank Profitability

International Business & Economics Research Journal (IBER), 3(6) doi:https://doi.org/10.19030/iber.v3i6.3699

Suu, N.D., Luu, T.Q., Pho, K.H and McAleer, M (2020) Net Interest Margin of Commercial Banks in Vietnam Advances in Decision Sciences, Asia University, Taiwan, vol 24(1), pages 1-27, March

Tan, Y (2016) The impacts of risk and competition on bank profitability in China Journal of

International Financial Markets, Institutions and Money, [online] 40, pp.85–110 doi:https://doi.org/10.1016/j.intfin.2015.09.003

Tan, Y and Floros, C (2012) Bank profitability and inflation: the case of China Journal of Economic Studies, 39(6), pp.675–696 doi:https://doi.org/10.1108/01443581211274610

The State Bank of Viet Nam - Annual report from 2010 to 2022, Information and communications publishing house https://www.sbv.gov.vn/webcenter/portal/vi/menu/rm/apph/bctn?_afrLoop)974078345807 023#%40%3F_afrLoop%3D29974078345807023%26centerWidth%3D80%2525%26leftWid th%3D20%2525%26rightWidth%3D0%2525%26showFooter%3Dfalse%26showHeader%3D false%26_adf.ctrl-state%3Dixjyel8dp_41

Thomsen, S., & Pedersen, T (2000) Ownership structure and economic performance in the largest European companies Strategic Management Journal, 21(6), 689-705

Tran V.D., (2014) Determining factors influencing the profitability of commercial banks in Vietnam Banking Journal, Issue 16, August, 2-11

Tran, P.T and Le, N.Q.H (2016) Tác động của loại hình sở hữu lên hiệu quả hoạt động của ngân hàng thương mại tại Việt Nam Tạp chí Công nghệ Ngân hàng, (125)