Khóa luận tốt nghiệp Tài chính ngân hàng: Factors affecting the performance of the commercial banking system in Vietnam

VIETNAM NATIONAL UNIVERSITY, HANOIUNIVERSITY OF ECONOMICS & BUSINESS FACULTY OF FINANCE - BANKING GRADUATION THESIS Factors affecting the performance of the commercial AUTHOR : Pham Thi

VIETNAM NATIONAL UNIVERSITY, HANOI

UNIVERSITY OF ECONOMICS & BUSINESS

FACULTY OF FINANCE - BANKING

GRADUATION THESIS

Factors affecting the performance of the commercial

AUTHOR : Pham Thi Yen Linh

CLASS : QH-2019E TCNH CLC 2

STUDENT ID : 19050683

SUPERVISOR : DR Trinh Thi Phan Lan

Ha Noi - 2023

VIETNAM NATIONAL UNIVERSITY, HANOI

UNIVERSITY OF ECONOMICS & BUSINESS

FACULTY OF FINANCE - BANKING

Factors affecting the performance of the commercial

banking system in Vietnam

AUTHOR : Pham Thi Yen Linh

CLASS : QH-2019E TCNH CLC 2

STUDENT ID : 19050683

SUPERVISOR : DR Trinh Thi Phan Lan

Ha Noi - 2023

I would like to take this opportunity to express my deep appreciation and gratitude to VNUUniversity of Economics and Business for providing me with the opportunity to pursue myacademic goals at your distinguished institution Being a part of this prestigious universityhas been an honor and a privilege that I will always cherish throughout my life

I am grateful to the Faculty of Finance and Banking for providing me with an excellenteducation in my field of study The high-quality academic programs, supportive environment,and exceptional faculty members have helped me to develop the necessary skills andknowledge to succeed in my career

I would also like to express my sincere appreciation to Dr Trinh Thi Phan Lan for herguidance, encouragement, and support throughout my thesis journey Her invaluableinsights, constructive feedback, and unwavering dedication have been essential to thesuccessful completion of my thesis

Finally, I would like to thank my family and friends for their unconditional love, support, andunderstanding during this challenging period Their constant encouragement has been asource of strength and motivation for me

Once again, thank you so much for everything I look forward to applying the knowledge andskills that I have gained during my studies to make a positive contribution to society

LIST OF ABBREVIATIONS

CAR Capital Adequacy Ratio

CIR Cost-to-Income Ratio

COVID Coronavirus Disease

FD Foreign Direct Investment |

Silicon Valley Bank

LIST OF TABLES

Table 2.1 : Summary table of factors in the CAMEL MOE] -. ccceeseccceeeererreerrrrrrerrrrrrere 8

Table 2.2 : Overview of foreign literature rESCOVCH secsssssessssseessssessssesssssesssssesssssesssssesssssesssssesssaees 17

Table 2.3 : Overview of domestic literature TeSCATCH esesssssscsssesssssessssessssnaissssiissssisesssnissnninsssniees 21Table 3.1 : List of commercial banks listed on HOSE and HÌNX -. -ceccccceeeeerrrrreee 24Table 3.2 : Variable description table cecssescsssscssssssssessssssssussssnsssssnsssssssssssssssssssssarsssnssssassssisssssasessiessnassnnetes

Table 4.1 : Ranking according to each criterion of the CAMEL model

Table 4.2 : Descriptive statistics of the variables in the mOd6ÌL . -s ccsccceeeerrrrrreerrre 37Table 4.3 : Correlation matrix fOr regression ttOđÌ6Ì c ««-cccseerrrkiiirrkriirrrtirrrrriirrrrrrrrree 39Table 4.4 : Variance Inflation Factor test F€SUÏES - -ccceescSccceerrrkiitrrkiirirriiirrriirrrrriirrrrrrriree 40Table 4.5 : POOL model regression results Of ROA vesesssesssssssssssssssesssessssssesssssssnsssssessssnsesssessssasessnssesiarsssnerses 41Table 4.6 : FEM and REM models regression results Of ROA vssssssessssessssssssesssssssssesssssssisessiessassnneses 42Table 4.7 : POOL model regression results Of NIM - c-««ccccetEritrkiitrriirriirrirrrrrrierrre 43Table 4.8 : FEM and REM models regression results Of NIM esssssssssssssssessessssesesssssessssesessssseesssssesssses 45

Table 4.9 : Summary of ROA and NIM model regression r€SUÏĂS ccce«eecccerrrerrrrrrrrrree 46

LIST OF GRAPH

Graph 4.1 GDP growth (annual %) Vietnam and world iN 2021 crrresessssecssereesseessresssneesssneessnnee 29

Graph 4.2 GDP growth (annual %) Vietnam, United States and Thailand in 1995-2021 31Graph 4.3 Inflation, GDP deflator (annual %) Vietnam in 2006-2021 -. - 32

Graph 4.4 Daily new confirmed COVID-19 cases per million people in Vietnam, China and

United StAtes.esssescssssssssssssessssssesesssnssesssnssssssssssessssssessssesessssnsssssssssssssssesssneseesssnsessssssesssauecesssnesesssneesssnssesssnesessssnseesssaes 33Graph 4.5 COVID-19 vaccine does, people with at least one dose, people with a full initial

protocol and boosters per 100 people (Mar 30,20022.3)) -c-es5cesssecererketrrretrrkrrrrrrrrrrree 34

Graph 4.6 NIM and NPL research Danks in 221 -c s«-5ccesetcckeeekrEkrirrrtriirrrtrrrrrrrrrrrrreree 35

1 Reasons for the StUỦV - G1 TH TH ng HH nọ nh và 1

2 Objectives of the Studịy - - cesccenecsseceseeceseecsaeecsaeessaeeeseecseecsaeeesaeeesaeseseeceneeeeneeenaeers 3

3 Object and scope Of the StUdy Gv nHnnHnH Hn H Hườ 3

A Research queStÏOI G1 TH TH HH nọ nọ kh 4

5 The topic `s CONtrIDUTIONS - LH HT nọ nh 4

5,1 Theoretical ContTÍLIfÏOTIS 5 011101191119 vn nh nh nà 4

5,2 Practical ConntTDUIfÏOIIS 3 vn TT TH TH HT HH như 5

6 The structure of the thesis - G1 HH TH HH HH nọ TH cờ 5

CHAPTER 2: THEORETICAL BASIS AND LITERATURE REVIEW - - -G SĂ BS SSsiseieeiey 6

2.1 Theoretical foundatÏOïS - G111 TH ng HH HT nh 6

2.1.1 Definition of commercial bank performance 5 c1 E 133111 Ekskkkskkeeeeeee 6

2.1.2 Criteria to evaluate the performance of commercial BANKS 5 5< s<+<cc<++ 6

2.2.2.1 Return on total assets (ROA) ceescceceseceeeesseeceesneeeeeseecessaeeceenaeeessnaeeceeeaeeesenaeeeeetaeeeees 6

2.2.2.2 Net Interest Margin (NIM|) - -.- - << kh TH HH tk 7

2.2.2.3 CAMELS Rating SVSf€Im - .- c1 nọ ng 7

2.2.2.4 Inflation (Ii)) c1 ng HH Họ TH nh 10

2.2.2.5 Growth of Gross Domestic Product (tGDIP) - - - + + 1E 11911 HH rưy 10

2.2.2.6 Financial leverage (LEV) c6 +1 1119 T HT TH TH re 11

2.2.2.7 Coronavirus Disease (COVID-19)) - - - - c1 SH no ket 11

2.1.3 Theoretical background Of r€S@@TFCÌh + <1 1v vn tk kh 11

2.2 Literature T@VÏ€W - Ặ n nn nn n ọ re 13

2.2.1 Overview Of foreign r€S€@TCÌ Án no tt 13

2.2.2 Overview Of domestiC F€S@@TFCÌH 5 119v ng kh 18

2.2.3 GAPS in the VESCAPCH - G1 E011 TT TT kh 22

CHAPTER 3: RESEARCH METHODS 5 1S TH HH TH ng TH TH TH HH 23

3.1 Qualitative research methods - - - c1 32230111111 111115 11111811111 0111 1n 1H vn rrt 23

3.2 Quantitative researH - - s1 TH TH HH Họ TT kh 23

3.2.1 DACA SOUPCES nen ẻằẦẮẦằẮẦẮa 23

3.2.2 Description Of VATIADIES - «<< xEH n nn nH 24

3.2.2 Research hypothesis and research model proposal - - «5 25s cssseessseeese 26

3.2.2.1 Research hypothesis HH HH HH TH nh 26

3.2.2.2 Proposing research MOdel - «+ x11 1n nọ nh ky 26

3.3 Research Methods - cọ HH TH HH HH HH tk 27

CHAPTER 4 RESEARCH RESULTS - - (SG E113 1511 9111 11511 9 18 11H TH 29

4.1 Overview of performance of Vietnamese banks - - - S11 ng ng vn 29

4.1.1 Overview of Vietnam's ECONOMIC SÏfU(fÏOTN Ặ 5 5 111111511 1E ket 29

4.1.1.1 Gross Domestic Product growth rAf@ - ch TH HH ngư 29

4.1.1.2 Inflation oo ee eee ng HH HH TT cờ 31

4.1.1.3 Coronavirus Disease (COVID-10) - -.- c1 1v v1 nh HH 32

4.1.2 Overview of the operational status commercial Of bansS - 55 «<< <s<+<c<+ 34

4.2 Quantitative research r€SulÏ£S - - - Ă 111122111 kg TH kg 37

4.2.1 DescriptiVe Sf(ÏSÊÍCS - - - 5 TH HH vi 37

4.2.1.1 Description of Variables - - - «+ 11v HT TH nh 37

4.2.1.2 The correlation between the independent variables . 5+ ss++seerseseess 39

4.2.2 Statistical IìŒ]ÏWSÏS - Gv TH KH HH TH HH HH HH ky 40

4.2.2.1 ROA model regression results - G1111 991111930119 1H ng re 40

4.2.2.2 NIM model regression F€SUÏẨS -G c1 1 S1 TH ng HT nh tre 43

4.3 Answer the research queStÏOI - - - - 111191119 1v v.v TH ng 46 CHAPTER 5: CONCLUDING REMARKS AND RECOMMENDATIONS ĂẶẶSĂcSeseereees 48

REFERENCES 50888 50

92:05 Ẽ000001nẼẺẼẺ hố ee -131 53

CHAPTER 1: INTRODUCTION

1 Reasons for the study

The commercial banking sector constitutes a crucial part of the economy that

supports economic growth and development It offers essential financial services to people,organizations, and businesses, enabling them to operate and expand Moreover, the sectorprovides financial services and products such as borrowing, investing, and risk management

to improve company performance In developing nations like Vietnam, the banking and

finance industry is rapidly expanding to meet the expanding financial needs of the populace

and enterprises The management and oversight of the nation's finances by banks further aid

in the maintenance of the nation's monetary and financial stability The National FinancialSupervisory Commission (NFSC) reports that by the end of 2016, the commercial bankingsystem in Vietnam played a significant role in providing capital, accounting for about 68% ofthe total 1.23 million dong for economic development Given the special importance of

developing industries and services, the banking and financial sector is widely considered one

of the most developed economic sectors and is deemed to be an important milestone in thedevelopment of Vietnam's economy

The current state of banking operations worldwide, including in Vietnam, highlightsthe significant potential of banking operations in supporting business and customerexpansion and ensuring long-term economic growth, while also presenting various risks andchallenges The imperative need to increase the efficiency of banking operations to realizethese goals is well-recognized Currently, the banking sector is among the world's mostcritical economic sectors; its continuous transformation and diversification in terms ofbusiness models and services is closely intertwined with the sustained growth of the globaleconomy However, banks worldwide struggle with various challenges, such as fierce

competition, increasing customers’ demands, and risks associated with currency and

information security In the case of Vietnam, the financial business is witnessing firm growth,with a high credit development rate and an expanding market scale The State Bank ofVietnam reports the operation of 30 business banks, five arrangement banks, and 45 foreignbank branches in the country as of the end of 2021 Besides, estimates suggest that the

banking sector's total assets amounted to VND 14,620 trillion, approximately USD 630

billion, marking a year-on-year increase In 2021, the banking sector contributedapproximately 6.8% to Vietnam's GDP Furthermore, the sector played a crucial role inattracting foreign direct investment (FDI) into the country, with estimates suggesting thatUSD 22.61 billion worth of FDI came in as of 2021 However, it is essential to bear in mind

that FDI can be a "two-edged sword." Vietnam's experiences during the 1997 and 2008

financial crises illustrate the severe consequences of a decline in FDI for the nation,emphasizing the need for prudent measures to manage the risks associated with FDI andother external economic factors

The first few months of 2020 saw the international financial market experience the

strongest fluctuations since the Great Depression, rekindling memories of the 2008-2009economic recession The outbreak of the COVID-19 pandemic in China and its fast spreadacross the globe has caused widespread market panic While emergency situations may vary,market activities tend to be repetitive In the search for safe havens, people continue to rush

to sell risky assets The global Gross Domestic Product (GDP) was 2.8% lower in 2020 than

in 2019, equating to USD 2.54 trillion In Vietnam, the impact of the pandemic was felt in three

primary areas: trade, growth, and investment Significant production value chains were

disrupted, while services, tourism, and consumption experienced a sharp decline The globaleconomy was also affected by other factors, such as the Russia-Ukraine conflict, leading toreduced supply of grain, fertilizer, energy, rising inflation, and an increasing likelihood of arecession According to OPEC statistics, Russia was scheduled to become the world's largestexporter of natural gas in 2021, with 241.3 billion m3 and the world's second-largestexporter of crude oil, representing 8.3% of all raw petroleum trades in 2021 Any turbulence

in the stockpile of oil and other energy items from Russia would greatly affect costs, rawpetroleum and the world economy In response to this situation, the Federal Reserve hasbeen repeatedly increasing interest rates in an effort to curb inflation Specifically, as ofMarch 22, 2023, the Fed's interest rate stood at 5%, the highest since 2006 However, thepolicies adopted to control inflation, including the most aggressive interest rate hike in fourdecades, are thought to have contributed to the collapse of Silicon Valley Bank(SVB) Customers of SVB withdrew up to 42 billion USD in a single day on March 10, 2023,prompting the Federal Deposit Insurance Corporation (FDIC) to announce the bank's closure

At the time of the announcement, Silicon Valley Bank was the 16th largest commercial bank

in the United States, boasting assets worth over $200 billion.

Vietnam's economy is inevitably impacted by global economic fluctuations, includingincreasing pressure on interest rates, exchange rates, and inflation Credit expansionresumes as consumer demand returns, making the financial system and Vietnam's bankingsector increasingly crucial to the country's continued expansion in terms of operational scaleand financial capacity The government's policy of supporting interest rates according to itsgoals fuels the economic recovery following the pandemic However, despite these positiveaspects, the banking industry will face significant challenges in the second half of 2022 Theindustry will grapple with a lack of market liquidity due to the interest rate being raised tocontrol inflation and stabilize the exchange rate, as well as dealing with a number ofcorporate bond violations As a consequence, the bad debt ratio tends to rise, while thegrowth momentum of banks slows down.

Therefore, to thrive under these exceptional circumstances, commercial banks need

to find unambiguous directions and solutions to enhance their business productivity This isthe foremost task that motivates every commercial bank in Vietnam in the present period.Thus, studying the factors influencing the performance of the commercial banking system

will help banks develop in the right direction and improve their competitiveness The stable

and efficient development of the financial system will strengthen the country's economic

prowess, generate new employment opportunities, and improve the citizens’ quality of life

2 Objectives of the studyThis thesis aims at the following objectives:

e Determining the factors affecting the performance of commercial banks in Vietnam

e Assess the impact of influence of these factors on the performance of commercial

banks

e Suggesting and proposing solutions to improve the operational efficiency of

commercial banks

3 Object and scope of the study

The thesis studies the performance of 19 commercial banks listed on the Ho Chi Minh

City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) in Vietnam in the period

2006-2021 In which, there are 2 banks on HNX: BAB and NVB, the rest are banks under HOSE.These data are obtained from financial statements, annual reports, financial index reports ofVietstock, financial statements from banks’ homepages and other internal sources Forgroups of macro variables collected through the World Bank

Research scope:

4.

Scope of content: The thesis focuses on studying macro and micro variables In which,the variable representing the macro variable is GDP and INF The variablesrepresenting the micro group are: CAMEL (Capital, Asset, Manager, Equity and

Liquidity) In addition, the thesis proposes some other variables such as: Financial

Leverage and COVID-19 To evaluate the performance of a bank, the study selects thedependent variable as a group of profitability indicators (ROA and NIM) to evaluateSpatial scope: The thesis studies data from 19 banks listed on HOSE and HNX

Time range: The thesis uses macro and micro data for the period from 2006-2021

Research question

With that research objective, the thesis focuses on answering the following questions:

What is the current performance status of commercial banks?

Among the researched factors, which factors affect the performance of commercialbanks in Vietnam?

How do these factors affect the performance of the commercial banking system inVietnam in the period 2006-2021?

5 The topic's contributions

5.1 Theoretical Contributions

Significant theoretical advancements have been made in the research area "Factors

affecting the performance of the commercial banking system in Vietnam" that advanceknowledge of the banking sector and its workings The following are some possibletheoretical contributions to this subject area:

Identifying important elements: The study may be able to pinpoint and emphasize theimportant elements that affect how successfully commercial banks operate This maytake into account variables as Camel, inflation, GDP, financial leverage, and COVID-19.Examining causal relationships: The research may look at the relationships betweenspecific variables and the efficiency of commercial banks' operations

Existing literature synthesis: The study may carry out a thorough analysis and

synthesis of the body of prior research on the subject to spot gaps and contradictions

By synthesizing existing theories and empirical findings, the research can contribute

to the development of more comprehensive and robust theoretical frameworks that

enhance our understanding of the factors affecting the effectiveness of commercialbanks' operations.

5.2 Practical Contributions

The thesis topic "Factors affecting the performance of the commercial banking system

in Vietnam" may offer useful insights into how banking and finance are used in the real world.This study's practical contributions might include the following:

Policy implications: The theory might offer guidance and suggestions to regulatorsand policymakers in the banking sector

Management techniques: To improve the efficiency of their operations, bank

managers and practitioners may find some useful advice in this thesis.

Industry standards: The findings might help the banking sector adopt best practicesand standards For instance, if the study identifies capital adequacy ratio as one of theprimary elements affecting bank operations, it can recommend industry-wideprocedures or benchmarks that banks can use to maintain their efficiency andcompetitiveness The banking sector as a whole may benefit practically from this by

increasing overall operational effectiveness

Making decisions for stakeholders and investors: Investors and other banking sectorstakeholders may benefit from the research's findings When assessing the risks andrewards of their investment decisions, investors might benefit from research that, forinstance, pinpoints variables that affect the financial performance of commercialbanks This can also be relevant for other stakeholders, such as customers, employees,

and regulatory agencies, in understanding the factors that affect the performance of

commercial banks and making informed decisions

6 The structure of the thesis

Chapter 1: IntroduceChapter 2 Literature review and Theoretical basisChapter 3 Research Methods

Chapter 4: Research ResultsChapter 5: Conclusion and Recommendations

CHAPTER 2: THEORETICAL BASIS AND LITERATURE REVIEW

2.1 Theoretical foundations

2.1.1 Definition of commercial bank performance

Evaluation of commercial bank performance involves several points and definitions

It has been widely accepted that the efficiency of commercial banks is a crucial factor indetermining their success or failure (Barr, Seiford, & Siems,1993) In the current globalizedbanking industry, it is vital for commercial banks to develop appropriate business operations

to avoid the possibility of collapse Operating efficiency refers to a company's ability toreduce operating costs while achieving its objectives through the combination of right

people, processes, and technology The proper combination of resources enhances the

productivity of a company’s goods or services (Shawk, 2008) The costs saved as a result of

operational efficiency can be directed toward new opportunities that add value to the

organization Efficiently operating banks channel savings from mobilized deposits towardthose companies with high expected social and economic returns Once distributed, banksmonitor these resources to ensure effective and efficient utilization Conversely, inefficientand wasteful commercial banks slow down economic growth and community welfare(Athanasoglou, Brissimis, and Delis, 2008) An efficient banking system enables thechannelling of financial resources towards the highest productive areas in the economy,thereby contributing to an optimal allocation of resources (Beck, 2010) As a consequence,analyzing the performance of commercial banks is crucial in directing their activities,particularly given the current socioeconomic instability caused by the COVID-19 outbreak,increasing commodity prices, and the possibility of massive inflation

2.1.2 Criteria to evaluate the performance of commercial banks

In the realm of commercial bank governance, there exist various techniques forevaluating performance, including profitability indicators, financial safety, liquidity, andother defined indicators Of these, evaluation based on profitability indicators is believed to

be the most accurate and is thus a primary concern for commercial banks

2.2.2.1 Return on total assets (ROA)

ROA is one of the groups of profitability indicators often chosen to evaluate theperformance of a bank According to the research paper "Operating efficiency of Vietnamesecommercial banks in the context of digital transformation" by Le Thanh Ngoc & Le Thi Huong

Giang ROA shows how much profit a commercial bank can earn for each dollar of assets TheROA is an important indicator of a company's financial health as it reflects how efficiently acompany is using its assets to generate profit In business, ROA can be used to compare thefinancial health of similar companies in the same industry In research activities, ROA can be

used to evaluate the performance of companies over time and to identify trends in financial

performance

2.2.2.2 Net Interest Margin (NIM)

Another important financial indicator is net interest margin (NIM) NIM is a measure

of the difference between interest income earned by a financial institution and the interest

expense paid out to depositors and lenders As a critical indicator of a financial institution's

profitability, NIM is closely monitored by investors and analysts In business, NIM is used byfinancial institutions to identify areas for operational improvement and measureprofitability, while research can utilize it to compare the performance of different financialinstitutions and evaluate the effect of regulatory changes on industry profitability A higher

NIM reflects greater profitability in a bank's lending activities when compared to interest

paid on deposits

2.2.2.3 CAMELS Rating System

The CAMELS model provides a comprehensive framework for analyzing a bank'sperformance and assessing potential risks According to Mr George Gregorash, an Advisor ofthe State Bank of Vietnam's Supervisory Capacity Improvement Project, establishing a riskrating system based on CAMELS standards is not only valuable for the State Bank's Inspectorsbut also serves as an effective hedging tool for commercial banks Experts can utilize theCAMELS rating system to thoroughly examine commercial banks’ financial positions andidentify potential threats, paving the way for effective remedies Mr Nguyen Van Binh, ChiefInspector of the State Bank, has emphasized the evaluation method for commercial banksbased on CAMELS criteria for on-site inspection and remote supervision As such, CAMELS

can serve as a common "language" in the relationship between the Inspector and the

commercial bank, promoting openness and collaboration in the common goal of evaluatingoperational efficiency and mitigating risks for the entire system

The CAMELS analysis method comprises six key elements for analyzing a bank'soperation, including Capital Adequacy, Asset Quality, Management, Profitability, Liquidity,

in the table below Although the sensitivity element is not considered in the thesis, the authorconcentrates on the other five CAMELS model variables in analyzing the performance ofcommercial banks.

Table 2.1: Summary table of factors in the CAMEL model

Key Elements Ingredient Elements

Capital Adequacy | Ratio of Total Equity to Total Assets (TETA)

Ratio of Total Equity to Total Debts (TETD)

Capital Adequacy Ratio (CAR)

Asset Quality Ratio of Total Loans to Total Assets (TLTA)

Loan Loss Provision Coverage ratio (LLPC)

Management Cost-to-income ratio (CIR)

Quality

Ratio of Expenses to Deposits

Earnings Ability Return on Equity (ROE)

Return on Assets (ROA)

Liquidity Cash ratio

Loan-to-Deposit Ratio (LDR)

Sensitivity Measure how changes in interest rates of exchange rates affect the

value of profits

Sources compiled by the author

e Capital Adequacy Ratio: CAR is a financial indicator that measures a bank's ability to

absorb losses in the event of a financial crisis The CAR is an important indicator of abank's financial stability and is closely monitored by regulators In business, the CAR

is used by banks to evaluate their financial stability and to ensure that they haveenough capital to cover potential losses In research activities, the CAR is used tocompare the financial stability of different banks and to evaluate the impact ofregulatory changes on the banking industry.

Asset Quality: Non-performing loans (NPLs) are loans that are in default or at risk ofdefault by the borrower NPLs are considered a measure of financial stability andcredit risk In business, high levels of NPLs can indicate poor lending practices or

economic instability For research activities, analyzing NPLs can provide insights into

credit risk management and the overall health of the financial system Regulators andpolicymakers also use NPL data to identify potential risks and take appropriatemeasures to address them Therefore, the thesis uses the NPL index to represent theasset quality assessment factor

Management: The cost-to-income ratio (CIR) is a measure of a company's operating

cost compared to its revenue CIR is a key financial indicator for business analysis as

it provides insights into a company's efficiency in managing expenses and generatingrevenue For research activities, analyzing CIR can help identify trends andbenchmarks for cost management and revenue generation strategies Therefore, thethesis chooses CIR to evaluate the bank's management activities In addition, investorsand analysts use CIR to evaluate the profitability and financial health of companies.Companies also use CIR data to identify areas for cost reduction and efficiency

improvement.

Return on Equity: ROE is a financial ratio that measures a company's profitability

relative to its shareholder equity ROE value represents the efficiency of 1 dong ofequity commercial banks spend in business activities to bring in profit after tax Inother words, it shows the amount of profit a company generates from the moneyinvested by its shareholders Therefore, commercial banks want to have a high ROEvalue, because it shows that commercial banks get more profit with 1 dollar of equity.However, the higher the ROE value, the better because when the ROE value is muchhigher than the ROA, this shows that the equity capital of the commercial bankaccounts for a very small percentage of the total capital and the commercial bank is at

risk ROE is an important metric for investors as it helps them gauge a bank's financialperformance and growth potential.

e Loan-to-Deposit Ratio: LDR is a financial ratio that measures a bank's ability to meet

its lending obligations using the deposits it has received from customers In otherwords, it indicates the amount of loans a bank has made compared to the deposits ithas received A high LDR suggests that a bank may be taking on more risk by lendingout more money than it has in deposits, while a low LDR indicates that the bank maynot be utilizing its deposits to their full potential LDR is an important metric for banks

as it helps them evaluate their liquidity and risk management strategies

2.2.2.4 Inflation (INF)

Inflation isa macroeconomic concept that denotes the pace at which a nation's general

price level of goods and services increases The Consumer Price Index (CPI), which measuresthe prices of a basket of goods and services over time, is a widely-used tool for assessinginflation by Matthias Doepke (1999) The consequences of inflation on the economy andbusinesses can be both positive and negative For instance, mild inflation can encourage

economic growth by bolstering spending and investment However, high inflation canengender instability and unpredictability by impairing consumer purchasing power and

driving up corporate costs Hence, inflation constitutes a crucial determinant that banks andpolicymakers must observe and manage carefully

2.2.2.5 Growth of Gross Domestic Product (tGDP)

Gross Domestic Product (GDP) is an economic metric that gauges the magnitude andsoundness of an economy It represents the cumulative worth of all goods and servicesproduced within a nation over a given duration A higher GDP growth rate connotesexpansion and the creation of more wealth, while a lower GDP growth rate signifies economicstagnation or recession Thus, GDP growth is a vital measure for businesses and policymakersalike, as it provides a comprehensive assessment of the economic landscape and facilitatesinformed judgments concerning investment and expansion

2.2.2.6 Financial leverage (LEV)

Financial leverage pertains to the utilization of borrowed funds or debt to support acompany's operations or investments While this approach enables companies to amplifytheir returns utilizing borrowed funds, it also intensifies the risk of financial distress should

the company fail to meet its debt obligations A higher level of financial leverage indicates

amplified risk exposure, while a lower level implies that the company may be underutilizingits resources Given the sway of financial leverage on a business's investment and financingdeterminations, this metric merits careful consideration

2.2.2.7 Coronavirus Disease (COVID-19)

The SARS-CoV-2 virus is the causative agent of COVID-19, an infectious respiratorydisease Its profound influence on global health, the economy, and society is undeniable Itsspread has led to disruptions in supply chains, business closures or transitions to remote

work, and significant job losses Nonetheless, it has also catalyzed the adoption of digital

technologies and engendered changes in consumer behavior COVID-19 has exerted aconsiderable impact on Vietnamese enterprises and research institutions, compelling them

to navigate novel opportunities and obstacles in a rapidly changing economic landscape.Companies have had to institute new safety protocols, establish remote work arrangements,and develop innovative strategies to engage consumers Amidst the challenges, the pandemichas presented new avenues for growth, helping banks to address transitional hurdles and

expedite digitization initiatives Hence, a thorough analysis of the ramifications of COVID-19

on banks is imperative in order to accurately assess the impact on the operational efficiency

of commercial banks

2.1.3 Theoretical background of research

Several theoretical frameworks are utilized to analyze the performance of commercialbanks One such framework, the efficiency theory, posits that banks aim to maximize profits

by reducing expenses and augmenting revenues (Berger and Humphrey, 1997) Anotherfoundation, the agency theory, contends that the goals of bank management and

shareholders may not be mutually aligned, thereby potentially engendering conflicts of

interest (Jensen and Meckling, 1976) The Economic Shock Theory, developed by Kydlandand Prescott in 1982, postulates that external shocks to the economy - such as technological

advancements, natural disasters, or political events - can create economic strife and promptbusiness cycles comprising growth phases followed by contractions (Kydland and Prescott,1982) Lastly, the risk-taking theory maintains that banks may be more inclined to undertakegreater risk to achieve larger profits (Demirgti¢-Kunt and Huizinga, 1999) These theoretical

underpinnings afford researchers a framework to investigate the performance of commercial

banks and determine factors that might impact their stability and profitability

The efficiency hypothesis, which was first introduced by Berger and Humphrey in

1997, provides another theoretical foundation for investigating commercial bank

performance This hypothesis posits that banks aim to maximize their profits by reducing

expenses and increasing revenues through the efficient utilization of inputs such as labor andcapital to generate outputs like loans and deposits As per the efficiency hypothesis, banksthat operate with greater efficiency can earn more significant profits and gain a competitiveedge in the market This approach underscores the importance of evaluating and enhancing

bank operations efficiency to promote financial performance and competitiveness.

The Economic Shock Theory of Business Cycles, originally proposed by Kydland and

Prescott in 1982, posits that disturbances originating outside the economy, such astechnological advancements, natural disasters, and political events, rather than internalfactors, such as monetary or fiscal policies, cause economic fluctuations According to thistheory, these external shocks can lead to economic imbalances resulting in business cyclescomprising growth and contraction segments (Kydland and Prescott, 1982) In theVietnamese context, this theory has been utilized to understand the impact of COVID-19,variations in global commodity prices, alterations in trade laws, and natural disasters on thecountry's economy It is crucial for policymakers and businesses to comprehend the effects

of economic shocks so that they can forecast and react to shifts in the economic climate

The agency theory, propounded by Jensen and Meckling in 1976, provides atheoretical framework for studying the performance of commercial banks The theory positsthat conflicts of interest may arise between shareholders and bank management owing to thepotential misalignment of their interests Bank executives may pursue their own goals, whichmay be contrary to shareholder profit, resulting in agency costs such as inefficient operations

or an excessive risk-taking strategy The agency theory emphasizes the significance of

monitoring and managing bank executives' actions to align their interests with theshareholders’ interests to prevent such conflict.

The risk-taking hypothesis, first expounded by Demirgti¢-Kunt and Huizinga in 1999,

provides a theoretical foundation for studying commercial bank performance Thishypothesis suggests that banks may undertake greater risks to earn larger returns whilerecognizing the trade-off between risk and return in banking as excessive risk-taking can lead

to financial insecurity and systemic threats The risk-taking hypothesis emphasizes the

significance of risk management and knowledge in banking operations to prevent unduerisks and promote financial stability Consequently, the ability to effectively manage risk

assumes a Significant role in determining bank profitability and competitiveness

2.2 Literature review

2.2.1 Overview of foreign research

Mr Bekana Dembel (2020) "Factors Affecting the Performance of Commercial Banks

(A Case Study on Commercial Banks in Ethiopia): CAMEL Ratings," was published in the

Research Journal of Finance and Accounting The study aimed to evaluate the factors affectingthe effectiveness and performance of commercial banks in Ethiopia, utilizing an explanatoryresearch design and a quantitative research method employing nine years' worth of audited

financial data (2010-2018) The evaluation of banks’ efficiency and performance in this study

utilized the ROA and efficiency ratios The study assessed the impact of explanatory variablessuch as capital adequacy, asset quality, management capability, earning quality, liquidityposition, GDP, and age through various estimation techniques Arbitrary impact GLSregression results demonstrated that management capability, asset quality, and earningquality significantly impact a bank's performance measured by ROA However, the efficiencyratio of banks is significantly impacted by factors such as age, asset quality, earning quality,

liquidity, and management capability The study suggests that bank managers focus onimproving earning quality and management capability to enhance bank performance In

conclusion, the study aimed to examine the variables affecting the performance of Ethiopiancommercial banks and provide useful insights for enhancing bank profitability and

competitiveness.

Josephat Lotto (2019), "Evaluation of Factors Influencing Bank Operating Efficiency

in Tanzania Banking Sector" was published in the multidisciplinary open access publication,

Cogent Economics & Finance The study aimed to investigate the factors affecting theoperational effectiveness of 36 commercial banks in Tanzania between 2000 and 2017 Itemployed a robust random-effects regression model to estimate the relationship betweenbank operating efficiency and its determinants The study found that bank liquidity and

capital sufficiency have positive correlations with operating efficiency and that investments

in financial innovations and branch networks could help improve profitability Furthermore,the study emphasizes the importance of effective asset utilization to improve earningsprofiles, cautioning banks against lending recklessly to avoid compromising the quality oftheir portfolio These findings suggest that a focus on capital adequacy, liquidity, and

improving earning power could lead to enhanced financial stability, profitability, and

operational efficiency Consequently, banks in Tanzania are urged to carefully screen andevaluate these factors for development to promote their sustainability and further industrygrowth In conclusion, this paper contributes to the understanding of factors influencingbanking operational efficiency in Tanzania and may offer insights to industry stakeholders,policymakers, and academics interested in enhancing banking performance in emerging

markets

Elouali Jaouad Oubdi Lahsen (2018), "Factors Affecting Bank Performance: EmpiricalEvidence from Morocco." The investigation focused on finance, innovation, and informationsystems, with the aim of empirically assessing the performance of Moroccan banks in relation

to their characteristics, governance, financial market structure, and macroeconomic factors

Return on Assets (ROA) and Return on Equity (ROE) were employed as metrics to evaluate

the banks’ performance To achieve the research objectives, the study analyzed data from asample of six Moroccan banks' financial statements from 2010 to 2016, using a panel dataapproach (fixed-effects model) The study found that only the cost-to-income ratio (COST)had highly significant and negative correlations with bank performance, while therelationship between bank size (SIZE) and ROA was statistically significant and positive.However, there was no statistical significance in the effects of the other variables The studyconcludes that the research methods used in this investigation are comparable to those ofother studies in the same field Nevertheless, the results are not entirely reliable due to thelimited sample size of six banks over a period of seven years The study also lacks information

on the significance of the research for Morocco, as it only assesses the correlation betweenthe independent and dependent variables Overall, this research adds to the body of

knowledge on factors affecting bank performance in Morocco and can potentially providemeaningful insights to industry stakeholders, policymakers, and academics interested instudying the performance of banks in emerging markets.

Pasiouras and Tanna (2009), "The impact of banking regulations on banks' cost andprofit efficiency: Cross-Country Evidence.", International Review of Financial Analysis Thisjournal has been rated as an "ABS3" publication by the Chartered Association of BusinessSchools, and is considered a leading academic finance resource The study utilizes stochasticfrontier analysis to provide comprehensive global data on how regulatory and supervisory

frameworks impact bank efficiency The dataset comprises 2853 observations from 615

publicly traded commercial banks operating in 74 different countries between the years

2000 and 2004 The author examined the impact of guidelines connected to the three pillars

of Basel II, such as capital sufficiency requirements, official supervisory power, and marketdiscipline systems, as well as limitations on bank activities, on cost and benefit efficiency of

banks, while controlling for other country-specific attributes The findings reveal that

banking regulations that enhance market discipline and strengthen government supervisory

powers have a positive impact on banks' profitability and cost efficiency Conversely,

restrictions on bank activities have a negative effect, reducing cost efficiency whilst boostingprofit efficiency Capital requirements, however, have a positive effect on cost efficiencywhile decreasing profit efficiency Overall, this study contributes novel insights on the impact

of banking regulations on bank efficiency, which can inform policy-makers, academics, andindustry stakeholders seeking to assess and improve the global banking landscape

Samangi Bandaranayake & Prabhath Jayasinghe (2013), "Factors Influencing theEfficiency of Commercial Banks in Sri Lanka", Sri Lankan Journal of Management, Vol 18, Nos

1 & 2, January - June 2013 The research conducted an investigation into the effects ofoperational environment, bank-specific factors, and bank ownership on Sri Lankan bank

efficiency, as measured by the two efficiency indicators Net Interest Margin (NIM) and Return

on Assets (ROA) The study used a sample of 14 licensed commercial banks and employedthe random effect panel data technique to estimate the parameters based on data collectedover the sample period of 2001-2011 The data was gathered from secondary sources such

as annual reports of domestic licensed commercial banks, CBSL's annual reports, ratingreports, and general articles published by Ram Rating and Fitch Rating Lanka The study

revealed several significant results, including the varying efficiency factors depending on thetype of bank ownership, and the difference in efficiency measures between state banks andprivate and foreign commercial banks The study concluded that ROA is a better efficiencymeasure for state banks, while NIM is more significant for private and foreign commercialbanks The study further highlighted that operating environmental factors tend to becomemore important when efficiency is measured in terms of NIM, while bank-specific factors aremore important when ROA is used as a proxy for efficiency In conclusion, this studycontributes novel findings to the literature on bank efficiency and informs policy-makers,industry stakeholders, and academics seeking to assess and improve the banking landscape

in Sri Lanka

Evidence from Morocco ROE: COST (-)

Pasiouras and | 2009 | The impact of banking Cost and CAR (-)

Tanna regulations on banks’ cost | profit diversification(+)

and profit efficiency: efficiency

Elouali Jaouad | 2018 | Factors Affecting Bank ROA, ROE ROA: SIZE (+), COST

Oubdi Lahsen Performance: Empirical (-)

2.2.2 Overview of domestic research

Duy Khang Le et all (2021), "Factors Affecting the Performance of Vietnamese

Commercial Banks: Does Basel II Matter?", the Journal of Asian Finance, Economics, andBusiness The study investigates the significant variables influencing bank performance inVietnam, a nation undergoing transition, during the implementation of Basel II The authorparticularly focuses on the timing of Basel II implementation and its impact on profitability

to assess its overall performance, compare the strategic plan through 2020 The authoremploys the panel data regression approach to evaluate a sample of 300 bank-yearobservations from 25 commercial banks between 2008 and 2019 The observational findingsshow that the bank size, net interest margin, state ownership, and Basel II considerably affectbank profitability, while the bank age and branch number adversely impact bankperformance Notably, the findings reveal that delaying Basel II implementation increasesprofits for commercial banks However, postponing the adoption of Basel II standards maylead to higher credit and operational risks for commercial banks Thus, the study contributes

to our understanding of how bank management endeavors to enhance profitability,

particularly in the context of a changing economy with Basel II implementation Lastly, thestudy provides policy recommendations for bank directors and regulators to facilitate theconsistent development of the financial system

Nguyen Anh Tu and Pham Tri Nghia (2019), "Marginal Interest Rates of VietnameseCommercial Banks for the Period 2005-2017: An Empirical Study” The paper utilizes paneldata without balance sheet and information from financial statements and macroeconomicindicators to investigate the variables influencing the marginal interest rate (NIM) of 27commercial banks in Vietnam from 2005 to 2017 According to the estimated results of the

fixed-effects model (FEM), credit risk, risk aversion, and loan capital ratio are positively

correlated with NIM, while liquidity and management quality show an inverse correlation.Generally, during the emergency period, the NIM of business banks decreased byapproximately 1.5 times compared to the time of monetary stability The study recommendsbusiness banks to increase capital activation to enhance credit yield It is also advised tobalance the capital allocated to liquid assets with profitable assets to increase NIM

Additionally, appropriate management is needed from the State Bank of Vietnam to direct

the NIM of business banks so that, in the short-term, borrowers may need to bear credit costs

when commercial banks incur obligations In the long-term, adjustments are required toreduce the inflation rate of the economy to promote the development of the real economy.

The advent of Technology 4.0 has had a far-reaching impact on virtually every aspect

of social life and the global community, including areas such as finance and banking In light

of this development, Le Thanh Ngoc and Le Thi Huong Giang (2022), "Performance ofVietnamese Commercial Banks in the Context of Digital Transformation,” seeks to explore thefactors that influence commercial bank performance in the context of digital transformation.The paper employs secondary data that was collected annually from 2010 to 2020, and

quantitative and inferential analysis methods are utilized to investigate this research subject

The study presents the results of three distinct models, namely ROA, ROE, and NIM, assummarized in tabular form The impact of the CAP and AGE variables differ between themodels in this study, especially in the ROA and ROE models The research paper offersvaluable insights into the trend of banks adopting digital transformation and addresses theresearch question at hand

In the current economic climate, it is imperative that commercial banks strive to

enhance their efficiency to maintain competitiveness in further economic integration.Competition, increased market share, and consistent and long-term growth are among theessential outcomes that banks must realize The COVID-19 pandemic has had a damaginginfluence on many aspects of human life, and several economic sectors, including the financialsector, have been underperforming due to this situation Consequently, Dang Thi MinhNguyet et all (2021), "Factors Affecting the Business Performance of State-ownedCommercial Banks in Vietnam Today", the Banking Journal on October 25, 2021 The paperexamines the factors that impact the business performance of state-owned commercial banksover a period spanning from 2005 through 2020, utilizing an irregular impacts model (REM)and fixed effects model (FEM) Based on the findings of the exploration, the FEM model and

the REM model were identified as best suited for the investigation of factors influencing

business performance, with ROAA as the dependent variable The examination resultsdemonstrate that the impact of factors on ROAA and ROEA is similar; bank size (BASZ)adversely affects ROAA and ROEA, while labor productivity (PROD) benefits both variables.Moreover, the findings indicate that the ROEA of commercial banks with state-owned capitalhas been negatively impacted in recent years by the ratio of capital mobilization to total

equity Additionally, the results reveal that ROAA and ROEA are negatively impacted by thebad debt ratio, and that the net return on equity and net profit on total assets of this group ofbanks were not affected by inflation in recent years This study's strengths include that theBig Four banks are roughly equal in size, and the data collection period is lengthy However,

Agribank differs from BIDV, Vietcombank, and Vietinbank as it is a state-owned bank that

operates under different goals and strategies Notably, the research paper did not include theeffects of the coronavirus pandemic in its analysis

Phan Thi Hang Nga (2022) et all, "Effect of Coronavirus on Business Proficiency ofVietnam Business Banks.", Journal of Money-Promoting The purpose of this study is to

examine the impact of the COVID-19 epidemic on the business efficiency of commercial banks

in Vietnam, using return on equity (ROE) and return on assets (ROA) as indicators of businesssuccess The panel data regression approach is utilized with a set of secondary data collectedfrom 21 banks between 2012 and 2021 to examine the influence of COVID-19 on the business

performance of Vietnamese commercial banks According to the study's anticipated outcomes, COVID-19 has a significantly detrimental effect, resulting in lowered business

efficiency in Vietnamese commercial banks Furthermore, the study has demonstrated that

the capacity to manage credit risk costs and the equity to total assets ratio plays a significantrole in influencing the business performance of banks Given that the COVID-19 pandemic islikely to continue, it is suggested that managers formulate appropriate response strategies,such as expanding investment activities, strengthening risk management, and increasing the

size of capital and assets to enhance business efficiency while still ensuring capital support

for organizations and individuals in overcoming challenges The noteworthy feature of thisstudy is that it includes the two-stage analysis of the relapse of ROA and ROE models toclearly demonstrate the impact of the COVID-19 variable on the bank's performance

Table 2.3: Overview of domestic literature research

Depende Impact of

Author's ¬ nt Study | Independent

Year | Topic Title ; ; Name Variable | Period | Variables on

Marginal interest rates of

Nguyen Anh Vietnamese commercial

*ROA: (+) CAP, LIQ,

Performance of LOAN, DIG, INF

Le Thanh ROA,

; Vietnamese commercial 2016- | *ROE: (+) AGE, LIQ,Ngoc & Le Thi | 2022 ; ROE,

; banks in the context of 2020 LOAN, DIG, INF

Huong Giang ¬ - NIM

digital transformation *NIM:(+) CAP, LOAN,

| business efficiency of ROA,

2012-Pham Minh 2022 - - COVID-19 (-)

Vietnam commercial ROE 2021

2.2.3 Gaps in the research

Research on factors affecting the performance of commercial banks in Vietnam is not

a new topic Because banks are one of the most important financial entities that have asignificant effect on an economy's growth As a result, constant research into ways to enhancebanking performance is critical From the above studies, it can be seen that the question ofwhich factors affect the performance of commercial banks has been resolved However, thestudy on this topic in Vietnam lasted just around 10 years and the problem of finding aconsistent conclusion for each factor is still undetermined Because each research paperchooses a different factor and different research time As a result, the study term of this thesishas been increased to 16 years (2006-2021) This will help the proposition by allowing for alarge number of exploratory tests, which are necessary for developing models thatdemonstrates an outline of the influence of variables on financial execution

Not only that, most of the research papers and dissertations collected only use one

research method, which is the quantitative method Specifically, for research papers inVietnam, the research method is regression with research models such as OLS, FEM, REM andFGLS Foreign research papers also use a regression method but there are some other modelssuch as Data envelopment analysis (DEA) The thesis uses the combined method after

analyzing the overview of domestic and foreign documents Specifically, the thesis will use

both qualitative and quantitative research methods For quantitative research, the thesis will

use the research method of OLS, FEM, REM models like research papers in Vietnam combinedwith camel and macro variables like Mr Bekana Dembel (2020) At the same time, the thesisalso proposes to supplement a model with the dependent variable being NIM and theproposed independent variable being financial leverage and COVID-19

CHAPTER 3: RESEARCH METHODS

To achieve the research objectives, the thesis uses a combination of qualitative

research methods and quantitative research methods to solve the specific objectives of theresearch

3.1 Qualitative research methods

The author collects and develops an overview of studies related to evaluating theperformance of commercial banks in the world and in Vietnam From there, evaluate researchmethods and research variables to find research gaps The results obtained by the qualitativemethod are aimed at determining the independent variables of the model From there,evaluate the appropriateness of the independent variables and make adjustments when

Table 3.1: List of commercial banks listed on HOSE and HNX

Name of Commercial Banks

1 |National Citizen Commercial Joint Stock Bank

Bac A Commercial Joint Stock Bank

3 |Asia Commercial Joint Stock Bank

Joint Stock Commercial Bank for Investment and

N

Development of VietnamVietnam Joint Stock Commercial Bank for Industry andTrade (HOSE:CTG)

Vietnam Export Import Commercial Joint Stock Bank

Ho Chi Minh City Development Joint Stock CommercialBank HOSELien Viet Post Joint Stock Commercial Bank HOSE

HOSEHOSE

Vietnam International Commercial Joint Stock Bank VIB

19 |Vietnam Prosperity Joint Stock Commercial Bank PB

-Source: The author collects and synthesizes

s ® co Dd Đ5

Rl RBCo; N

3.2.2 Description of variables

Table 3.2: Variable description table

Variable Sign Formula Data Reference source

source

Dependent variable

Return On | ROA ROA(it) | Net Income / Average | Financial | Le Thanh Ngoc & Le Thi

Assets Total Assets Report Huong Giang (2022)

Net NIM NIM(it) | Interest Paying Financial | Le Thanh Ngoc & Le Thi

Interest Income/ Average Report Huong Giang (2022)

Margin Earning Asset

Independent variables

Camels Capital CAR(it) | (Tier 1 Capital + Tier2 | Financial | Le Thanh Ngoc & Le Thi

factors Capital) / Risk Report Huong Giang (2022)

Weighted Assets

Assets NPL(it) | NPL / Loans Financial | Dang Thi Minh Nguyet,

Report Pham Thu Trang &

Nguyen Bich Ngoc (2021)

Managemen | CIR(it) | Operating Costs/ Financial | Elouali Jaouad Oubdi

t Operating Income Report Lahsen (2017)

Earnings ROE(it) | NetIncome / Average | Financial | Mr Bekana Dembel

Total Equity Report (2020)

Liquidity LDR(it) | Total Loans/ Total Financial | Mr Bekana Dembel

Deposits Report (2020)

Macro Inflationary | INF(it) World Le Thanh Ngoc & Le Thi

economic Bank Huong Giang (2022)

factors

Gross i Samangi Bandaranayake

Domestic & Prabhath Jayasinghe Product (2013)

Financial LEV(it) | Total Debt/ Total Financial | Author's suggestion

Leverage Equity Report

COVID 19 COVID(i | The year Vietnam has a Phan Thi Hang Nga, Pham

t) COVID-19 pandemic, it Minh Tien & partner

will receive a value of (2022)

1 The remaining years

will receive a value of 0

Source: Synthesized and researched author

3.2.2 Research hypothesis and research model proposal

3.2.2.1 Research hypothesis

Hypotheses are formulated based on the general studies However, in order for thehypotheses to be testable, the author has built in a way to generalize the key by a reliable

scientific and quantitative method From there, the research questions, objectives and

problems can be answered The following hypotheses are put forward for the ROA model:

H1: Capital adequacy ratio has a positive impact on the performance of commercialbanks in Vietnam

H2: Non Performing Loan ratio has a positive impact on the performance of

commercial banks in Vietnam

H3: Cost-to-income ratio has a negative impact on the performance of commercialbanks in Vietnam

H4: Return on Equity has a positive impact on the performance of commercial banks

Tri Nghia (2019), LDR has a negative relationship This hypothesis is also supported by the

study of Samangi Bandaranayake & Prabhath Jayasinghe (2013)

3.2.2.2 Proposing research model

The thesis inherits the regression equation of the research papers Le Thanh Ngoc &

Le Thi Huong Giang (2022) and Samangi Bandaranayake & Prabhath Jayasinghe (2013)

ROA¡ = Bo + P,CAR¿ + B2NPLit + B3CIRit + B„ROEi, + BsLDRit + BoINFit + B7GDPit

+ BgLEV;, + 6aCOVID + Eit

NIMit = Bo + Bi CARiz¢ + BoNPLit + B3CIRit + ByROEjt + BSLDRit + BoINFit + B7GDPit

+ BgLEV;, + BoCOVID it + e¡;

INFit: Inflation of bank i at time t

GDPit: Growth of Gross DomesticProduct of bank i at time t

LEVit: Financial leverage of bank i at

In this study, the research methods employed involve a combination of Excel and SQL

to compute and query data The data is then subjected to a thorough cleaning process to

ensure its accuracy and reliability This is followed by regression analysis, utilizing fourdifferent regression models; namely Ordinary Least Squares (OLS), Fixed Effects Model(FEM), Random Effects Model (REM), and Generalized Least Squares (GLS), implementedusing STATA software These models possess varying strengths and limitations whenanalyzing distinct data types, and the study scrutinizes each model's defects and tests the fit

of the model with regard to the data Subsequently, the most suitable model for the research

is selected, based on its capacity to offer significant insights into the relationships betweenthe studied variables, thereby facilitating a deeper understanding of the issue under

investigation.

Pooled OLS Regression Model (OLS): is a standard OLS linear regression model,employed when panel data is used as an ordinary data-cloud In this model, all overlay data,independent of individual cross-units, is used to regress the model However, utilizing thisregression model implies that banks will be regarded as homogenous This assumptionaffects the study's outcomes significantly, as each bank at different moments will possessdistinct features, thus rendering it possible to present inaccurate estimates using this model,while ignoring separate effects.

Fixed Effects Model (FEM): Firms have varied features at different eras, and thesedifferences can alter the explanatory factors As a result, using the FEM model, it is feasible

to manipulate and influence the impacts of these separate explanatory factors in order toestimate the true effects of the independent variable on the dependent variable

Random Effects Model (REM): This model assumes that individual characteristicsacross banks are random and unrelated to the explanatory factors The model incorporateseach bank's residuals as a new explanatory variable, which further enhances theunderstanding of the phenomena under investigation

Feasible Generalized Least Squares(FGLS): a powerful regression method that can

handle the presence of variable variance and autocorrelation in the data, was also used FGLS

provides a means of estimating a weighted covariance matrix of errors, enabling it to addressthe issue of variable variance by capturing the heteroskedasticity in the data Furthermore,FGLS models the correlation between error terms and employs this information to adjust thestandard errors of the coefficients, thereby addressing the issue of autocorrelation By

accounting for both variable variance and autocorrelation in the data, FGLS provides accurate and efficient estimates of the regression coefficients and uncovers critical relationships

between the variables under study