THÔNG TIN TÀI LIỆU
MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY – HOCHIMINH CITY NGUYEN THI ĐOAN TRANG THE IMPACT OF INCOME DIVERSIFICATION ON THE PERFORMANCE OF VIETNAMESE COMMERCIAL BANKS SUMMARY OF PHD THESIS Major: Finance – Banking Code: 34 02 01 Scientific instructor: Assoc.Prof., Dr Nguyen Thi Loan HO CHI MINH CITY - 2020 CHAPTER 1: OVERVIEW OF THE RESEARCH 1.1 The necessary of the research To cope with competition in banking business and to be required by the Government, commercial banks have been expanding from traditional activities such as raising funds, lending to non-interest income activities for bank income diversification As a result, bank performance will be affected accordingly Understanding the relationship between bank’s income diversification and bank performance is important for bank executives, policy makers, and investors because the decisionmakers want to know whether income diversification will increase the bank value There are two competing views on the relationship between bank income diversification and bank performance On one hand, bank income diversification will increase profits and reduce risks for banks There have been empirical studies supporting this hypothesis such as Elsas, Hackethal & Holzhäuser (2010), Gurbuz, Yanik & Ayturk (2013), Meslier, Tacneng & Tarazi (2014), Lee, Yang & Chang (2014), Moudud-Ul-Huq, Zheng, Gupta & Ashraf (2018) On the other hand, bank income diversification will reduce bank profits and increase risks such as DeYoung and Rice (2004), Stiroh and Rumble (2006), Lepetit, Nys, Rous & Tarazi (2008) The current studies on the impact of income diversification on the commercial banks’ performance lead to different conclusions In addition, the explanation of why bank income diversification is different, the causes of income diversification have not been clearly explained although there are also many studies abroad that research on factors influencing bank income diversification (such as Landi & Venturelli (2001), Hahm (2008), Pennathur et al (2012), Nguyen, Skully & Perera (2012), Firth, Li & Wang (2013) ) Murharsito (2015), Meng, Cavoli & Deng (2017), Hamdi, Hakimi & Zaghdoudi (2017), Ozek (2017), Capraru, Ihnatov & Pintilie (2018), Robertho & Wibowo (2018)) In Vietnam, there are some studies on the effects of income diversification on banks' performance These studies show that income diversification increases performance of Vietnamese commercial banks (Ho Thi Hong Minh and Nguyen Thi Canh 2015; Vo Xuan Vinh and Tran Thi Phuong Mai 2015; Le Van Hau and Pham Xuan Quynh 2016; Nguyen Minh Sang 2017) However, when considering the risk factor, the empirical studies have not yet reached a conclusion on the impact of income diversification on the risk-adjustment performance of Vietnamese commercial banks Thus, there are no conclusions about the benefits of income diversification Besides, in Vietnam, there is also very little research on the factors affecting income diversification Especially, there are very few researchs on the impact of income diversification on performance of Vietnamese commercial banks and the factors affecting income diversification of Vietnamese commercial banks, so that these banks have a full assessment of the benefits of income diversification and the factors that influence to income diversification, in order to impact these factors to change the level of income diversification, bringing the highest efficiency to the bank Therefore, the research topic "The impact of income diversification on the performance of Vietnamese Commercial Banks" is necessary to supplement the theoretical basis as well as empirical evidence on the impact of income diversification on bank performance and riskadjusted performance at Vietnamese commercial banks, as well as identifying factors affecting income diversification at Vietnamese commercial banks Hence, it helps Vietnamese commercial banks have a basis to diversify their income accordingly to increase the bank performance 1.2 Objectives and research questions Overall objectives: The objective of this study is to provide more theoretical basis and empirical evidence to conclude about the impact of income diversification on business performance and risk-adjusted performance at Vietnamese commercial banks In addition, in order to increase or decrease the income diversification level for increasing the bank performance, it is necessary to understand the factors that affect income diversification, so that the bank will affect these factors for diversifying bank income Therefore, the dissertation determines the factors affecting income diversification to suggest solutions for Vietnamese commercial banks to change these factors as well as implement appropriate income diversification for increasing bank performance and riskSpecific research objectives: - Evaluate the impact of income diversification on performance and risk-adjusted performance at Vietnamese commercial banks - Evaluate the factors affecting income diversification at Vietnamese commercial banks - Propose solutions to diversify income for increasing performance at Vietnamese commercial banks Research questions: - How does income diversification affect the performance of Vietnamese commercial banks? - How does income diversification affect the risk-adjusted performance of Vietnamese commercial banks? - What are factors affect income diversification at Vietnamese commercial banks? - What are solutions to help Vietnamese commercial banks increase their performance? 1.3 Object and scope of the research Research subject: The relationship between income diversification and bank performance at Vietnamese commercial banks Scope of research: 28 Vietnamese commercial banks Research period: From 2008 to 2018 1.4 Research Methods For the first research objective, the author developed the model of the impact of income diversification on performance of Vietnamese commercial banks from the research of Lee et al (2014) and some related studies This model also is applied for two sets of measurement of income diversification using the Herfindahl Hirschman index and the non-interest rate ratio For the second research objective, the research is based on the research of Hamdi, Hakimi and Zaghdoudi (2017) and some related studies, and adjusted, omitted and added some variables to build research model of factors affecting income diversification in Vietnamese commercial banks Compared to previous studies, this study simultaneously considers risks in banking operations, including bankruptcy risk, credit risk, liquidity risk and adding financial openness variable The author used two-step SGMM (SystemGMM) estimation by Arellano & Bover (1995) and Blundell & Bond (1998), an effective research method to fix the defects of the model for the two above research models For the third research objective, based on the research results of above two models, the author recommends solutions to diversify income contributing to increase performance of Vietnamese commercial banks 1.5 Contribution of the research Compared to previous studies, this study has the following new contributions: - The research approach towards researching both the factors affecting income diversification and the impact of income diversification on performance of commercial banks in Vietnam - The research has systematized empirical studies on factors affecting income diversification and studies on the impact of income diversification on bank performance - The research examines the impact of income diversification on performance, and the impact of income diversification on risk-adjusted performance of Vietnamese commercial banks, while other studies in Vietnam often consider only one aspect The research results confirm the benefits of income diversification - increasing performance and risk-adjusted performance of commercial banks in Vietnam In addition, the study also examines the model in the economic and financial openness of Vietnam and the results show that financial openness has a positive impact on performance and risk-adjusted performance of Vietnamese commercial banks - In the model of factors affecting income diversification at Vietnamese commercial banks, this study has identified and tested all three types of risks in banking operations, including bankruptcy, credit risk and liquidity risk Furthermore, the study also assesses these effects in condition of the financial openness in Vietnam and the results show that financial openness is also one of the factors positively affecting income diversification of Vietnamese commercial banks - In both research models, income diversification was measured in two ways, respectively, the diversification index (DIV) and the non-interest income rate (NON) The research results of these two ways of measurement not conflict with each other, which confirms that these research results are more reliable In addition, in practical terms, this research helps Vietnamese commercial banks to determine the benefits of income diversification on banking performance and identify the factors affecting revenue diversification as well as suggests appropriate policies for the bank to diversify income for increasing bank performance Besides, the study also provides useful information for researchers in the banking sector to continue researching more deeply and broadly on related issues 1.6 Research structure The research topic includes chapters: Chapter 1: OVERVIEW OF THE RESEARCH THESIS Chapter 2: THEORETICAL BASIS AND LITERATURE REVIEW Chapter 3: RESEARCH METHODS Chapter 4: RESEARCH RESULTS AND DISCUSSION Chapter 5: CONCLUSION AND RECOMMENDATION Summary of chapter CHAPTER 2: THEORETICAL BASIS AND LITERATURE REVIEW 2.1 Theoretical basis 2.1.1 Theoretical basis of bank income diversification 2.1.1.1 The concept of bank income diversification 2.1.1.2 The measurement of bank income diversification - Non-interest income ratio - Herfindahl Hirschman index - Share ratio of each type of non-interest income 2.1.2 Theoretical basis of bank performance 2.1.2.1 The concept of bank performance 2.1.2.2 The measurement of bank performance - Financial ratio - Frontier efficiency 2.1.3 The theory of income diversification and bank performance 2.1.3.1 Modern portfolio theory 2.1.3.2 Economies of scale theory 2.1.3.3 Market power theory 2.1.3.4 Efficiency structure theory 2.2 Literature review 2.2.1 Literature review of impact of bank income diversification on bank performance 2.2.1.1 Income diversification has a positive impact on bank performance 2.2.1.2 Income diversification has a negative impact on bank performance 2.2.1.3 Literature review of impact of income diversification on bank performance in Vietnam 2.2.2 Literature review of factors affecting bank income diversification It is seen that the research gap in the topic of income diversification of Vietnamese commercial banks is: - The study does a full range of factors affecting income diversification and the impact of income diversification on Vietnamese commercial banks’ performance to find out factors affecting income diversification and the impact of income diversification on bank performance in order to change these factors and to implement an appropriate income diversification strategy for improving bank performance - The study examines three risk factors in banking operations, namely credit risk, liquidity risk and bankruptcy risk affecting bank income diversification - The study uses the simultaneous income diversification measurement method through the non-interest income rate and the Herfindahl Hirschman index to confirm the conclusions of the study - The study examines the impact of income diversification on bank performance under both profitability and risk perspective - The study adds the financial openness variable in the model of bank income diversification Therefore, this dissertation is done to fill the above research gaps in order to supply more theoretical basis and empirical evidence on the impact of income diversification on Vietnamese commercial banks’ performance The study examines the impact of income diversification on performance by considering its impact on performance and risk- adjusted performance at Vietnamese commercial banks Besides, this research also carries out a study of factors (including the bank performance) that affect income diversification at Vietnamese commercial banks to identify factors affecting income diversification and to implement the appropriate income diversification for improving bank performance To measure income diversification, the study also applied two methods (non-interest income rate and Herfindahl Hirschman index) to compare these results and make conclusions Summary of chapter CHAPTER 3: RESEARCH METHOD 3.1 Research process 3.2 The research model of impact of income diversification on bank performance 3.2.1 The research model of impact of income diversification on Vietnamese commercial banks’ performance Yit = β0 + β1Yit-1 + β2DIVit + β3SIZEit + β4ETAit + β5GROWit + β6LTAit + β7LLPit + β8DTAit + β9OTRit + β10GDPit + β11INFit + β12FOit + λi + ԑit 3.2.2 Research hypothesis Table 3.1: Summary of variables in the research model of impact of income diversification on bank performance Symbol ROA ROE SDROA SDROE DIV SIZE Measurement Data source Research Dependent Variable Profit after Balance Lee et al (2014), Meslier et al tax/Average total sheet, (2014), Vo Xuan Vinh and assets Income Tran Thi Phuong Mai (2015) Profit after statement tax/Average equity ROA/standard Stiroh & Rumble (2006), deviation of ROA Lepetit et al (2008), Chiorazzo et al (2008), Sanya ROE/standard & Wolfe (2011), Gurbuz et al deviation of ROE (2013), Batten and Vo (2016), Nguyen Quang Khai (2016) Independent variables 2 – (INT + NON ) Income Stiroh & Rumble (2006), INT = TNL / TNHĐ statement Chiorazzo et al (2008) NON = TNNL/TNHĐ Ln(total assets) Balance Stiroh & Rumble (2006), sheet Lepetit et al (2008), Chiorazzo et al (2008), Sanya & Wolfe (2011), Gurbuz et al (2013), Lee et al (2014), Meslier et al (2014), Ho Thi Hong Minh and Nguyen Thi Canh (2015), Batten and Vo (2016), Nguyen Quang Khai (2016) Expected Expected sign on sign on ROA, SDROA, ROE SDROE + + + + ETA Equity/Total assets GROW Total assets growth Balance rate sheet LTA Loans/Total assets Balance sheet LLP Balance sheet Balance sheet GDP Loan loss provision/Total assets Deposits from customers/ Total assets Operating expenses/Operating income GDP growth rate INF Inflation rate IMF FO Foreign Direct IMF, Investment/Gross Worldbank Domestic Product (FDI/GDP) DTA OTR Balance sheet Income statement Worldbank Stiroh & Rumble (2006), Lepetit et al (2008), Sanya & Wolfe (2011), Gurbuz et al (2013), Lee et al (2014), Meslier et al (2014), Ho Thi Hong Minh and Nguyen Thi Canh (2015), Nguyen Quang Khai (2016) Stiroh & Rumble (2006), Sanya & Wolfe (2011), Gurbuz et al (2013), Lee et al (2014), Meslier et al (2014), Vo Xuan Vinh and Tran Thi Phuong Mai (2015), Nguyen Quang Khai (2016) Stiroh & Rumble (2006), Lepetit et al (2008), Sanya & Wolfe (2011), Gurbuz et al (2013), Lee et al (2014), Meslier et al (2014), Vo Xuan Vinh and Tran Thi Phuong Mai (2015), Ho Thi Hong Minh and Nguyen Thi Canh (2015), Nguyen Quang Khai (2016) Lee et al (2014) + + + - + - - - Lepetit et al (2008), Lee et al (2014), Vo Xuan Vinh and Tran Thi Phuong Mai (2015) Ho Thi Hong Minh and Nguyen Thi Canh (2015) + + - - Ho Thi Hong Minh and Nguyen Thi Canh (2015) Ho Thi Hong Minh and Nguyen Thi Canh (2015) Simplice Anutechia (2010), Hanh (2010) + + - - + + Source: Synthesis of the author LTD ETA Loans/Deposits from customers Equity/ Total assets Balance sheet Balance sheet LTA Loans/ Total assets Balance sheet LLP Loan loss provision/ Total assets Balance sheet OTR Operating expenses /Operating income Income statement GDP GDP growth rate Hamdi, Hakimi & Zaghdoudi (2017), Meng, Cavoli & Deng (2017) Hahm (2008), Pennathur, Subrahmanyam & Vishwarr (2012), Nguyen, Skully & Perera (2012) Hamdi, Hakimi & Zaghdoudi (2017), Meng, Cavoli & Deng (2017) Hahm (2008), Pennathur, Subrahmanyam & Vishwarr (2012), Murharsito (2015), Hamdi, Hakimi & Zaghdoudi (2017) Hahm (2008), Nguyen, Skully & Perera (2012), Pennathur, Subrahmanyam & Vishwarr (2012), Firth, Li & Wang (2013), Murharsito (2015), Ozek (2017) Hahm (2008), Nguyen, Skully & Perera (2012), Capraru, Ihnatov & Pintilie (2018), Robertho & Wibowo (2018) + - + + Worldbank Hahm (2008), Nguyen, Skully & Perera (2012), Hamdi, Hakimi & Zaghdoudi (2017), Robertho & Wibowo (2018), Capraru, Ihnatov & Pintilie (2018) INF Inflation rate IMF Hamdi, Hakimi & Zaghdoudi (2017), Meng, Cavoli & Deng (2017), Capraru, Ihnatov & Pintilie (2018) FO Foreign Direct IMF, Vithessonthi (2014) + Investment/Gross Worldbank Domestic Product (FDI/GDP) Source: Synthesis of the author 3.4 Research data The study uses secondary data, which are audited financial statements of 28 Vietnamese commercial banks during 11 years from 2008 to 2018 The research data is an unbalanced panel including 307 observations Data for calculating internal variables is obtained from audited financial statements, annual reports of commercial banks Data for calculating external factors in the macro environment is collected from International Monetary Fund (IMF) and World Bank (World Bank) 3.5 Estimation method For the regression model, the study uses two-step SGMM (SystemGMM) by Arellano & Bover (1995) and Blundell & Bond (1998) for perfect estimation Blundell and Bond (1998) demonstrated that SGMM has smaller and more efficient variance, thus improving the accuracy in the estimation Estimation of two-step SGMM is appropriate because the dynamic model with the lag variable of the dependent variable will have endogeneity problems; causal models and income diverfisication variable and bank performance variable can be correlated with error terms; bank’s specific characteristics that are constant over time can also be correlated with error terms; the existence of lagged dependent variable in the model can also cause autocorrelation; The study dataset consists of short time period and relatively longer bank units SGMM is used to solve the endogeneity problem of some explanatory variables through instrumental variables The effectiveness of the estimation depends on the appropriateness of the instrument variable Therefore, the study carried out the Hansen test for instrument over-identification and AR2 test for autocorrelation Summary of chapter CHAPTER 4: RESEARCH RESULTS AND DISCUSSION 4.1 Descriptive statistics of research data 4.2 Research results 4.2.1 The research results on the impact of income diversification on bank performance 4.2.1.1 The research results on the impact of income diversification measured by DIV index on bank performance According to Gujarati (2004), if the correlation coefficient between the independent variables exceeds 0.8, it is likely to lead to high multicollinearity in the model Then the sign of the regression coefficient in the model may be changed, leading to incorrect research results Table 4.5 describes the correlation coefficient matrix between pairs of independent variables in the model, showing that the correlation coefficient of all pairs of independent variables are less than 0.8 Therefore, there is no multi-collinearity that seriously affects the model's estimation In all models, the Hansen test result for over-identification of the tool variables shows that the p-value is greater than 0.05, meaning the tool variable is over-identifying In addition, the second-order autocorrelation (AR2) test result shows p-value is greater than 0.05, so the residue in the model does not exist for second-order autocorrelation Thus, test results for SGMM are good, so estimation found in the model is firm and completely analytical Table 4.3: Regresssion results of impact of DIV on ROA, ROE Variables L.ROA (1) ROA 0.328*** [5.93] L.ROE DIV SIZE GROW ETA LTA (2) ROE 0.00983*** [5.51] 0.00101*** [2.75] 0.00257*** [3.47] 0.0588*** [6.21] 0.0104*** [3.50] (3) ROA (4) ROE 0.256*** [9.82] 0.551*** [8.86] 0.0967*** [5.16] 0.00580 [1.63] 0.0299*** [3.92] 0.0610 [1.01] 0.0787*** [2.67] 0.00975*** [5.51] 0.00142*** [4.73] 0.00151*** [2.70] 0.0621*** [11.03] 0.00415 [1.42] 0.454*** [9.03] 0.0732*** [4.28] 0.0152*** [5.68] 0.0152** [2.15] 0.103 [1.50] 0.0257 [0.90] -0.00314 0.0000141 [-0.89] [0.00] -0.238*** -0.900 LLP [-3.45] [-1.11] -0.000778*** -0.00810*** OTR [-48.35] [-59.03] -0.00914 0.0600 GDP [-0.37] [0.26] 0.0346*** 0.280*** INF [6.29] [3.67] 0.165*** 1.893*** FO [5.34] [7.29] -0.0255*** -0.164** -0.0388*** -0.400*** _cons [-3.67] [-2.52] [-5.95] [-7.37] 28 28 28 28 Number of group 21 21 22 22 Number of instrument 0.489 0.615 0,498 0,548 AR2 0.238 0,300 0,253 0,154 Hansen test *, **, *** represent significance at the 10%, 5%, 1% levels, respectively Source: Calculated from Stata DTA -0.00640* [-1.84] -0.258*** [-3.31] -0.000787*** [-48.93] 0.0422 [1.53] 0.0231*** [3.46] -0.0266 [-0.74] -1.205 [-1.52] -0.00809*** [-81.45] 0.571** [2.26] 0.133 [1.61] Table 4.4: Regresssion results of impact of DIV on SDROA, SDROE (5) (6) (7) (8) Variables SDROA SDROE SDROA SDROE L.SDROA 0.606*** [8.55] L.SDROE DIV SIZE GROW ETA LTA DTA 1.899*** [6.64] 0.153*** [2.69] 0.378** [2.31] 3.868*** [3.28] 2.083*** [3.72] -0.626 [-0.87] 0.500*** [7.11] 0.669*** [11.91] 1.936*** [5.59] 0.0316 [0.43] 0.725*** [3.36] -0.282 [-0.22] 2.004*** [3.59] -0.492 [-0.66] 1.691*** [6.07] 0.314*** [4.86] 0.147 [1.13] 5.598*** [4.59] 1.666*** [2.92] -0.817 [-1.22] 0.583*** [11.76] 1.711*** [4.78] 0.139* [1.81] 0.344 [1.54] 1.134 [0.85] 1.197* [1.95] -0.0363 [-0.05] -22.09 [-1.62] -0.0314*** [-16.80] 9.573* [1.70] 3.274** [2.19] -11.37 -14.80 [-0.97] [-1.24] -0.0296*** -0.0347*** OTR [-11.91] [-13.08] -6.281 6.939 GDP [-1.04] [1.12] 4.601*** 4.350*** INF [3.22] [3.31] 30.81*** 30.57*** FO [4.42] [4.08] -4.551*** -2.510** -8.045*** -5.446*** _cons [-5.06] [-2.17] [-7.04] [-4.32] 28 28 28 28 Number of group 21 21 22 22 Number of instrument 0,540 0,755 0,682 0,679 AR2 0,497 0,481 0,307 0,633 Hansen test *, **, *** represent significance at the 10%, 5%, 1% levels, respectively Source: Calculated from Stata LLP -25.15** [-2.05] -0.0352*** [-19.60] 18.10*** [2.98] 2.375 [1.50] The research results in tables 4.3 and 4.4 show that income diversification has a positive impact on performance (ROA, ROE) and risk-adjusted performance (SDROA, SDROE) of Vietnamese commercial banks in the period 2008-2018 with the significance level of 1% Because the study focuses on the impact of income diversification on the performance of commercial banks in the context of a control variable called financial openness, the study analyzes the results from regression models (3), (4), (7), (8) Research results on the impact of bank income diversification shows that income diversification has a positive impact on Vietnamese commercial banks’ performance and riskadjusted performance In addition, factors such as the lagged variable of bank performance, bank size, growth rate, capital adequacy ratio, loans ratio, inflation, and financial openness also have positive impact, while credit risk, operating expenses ratio to operating income have negative impact on Vietnamese commercial banks’ performance and risk-adjusted performance The study has not found a relationship between the variables of the deposit ratio, economic growth rate and bank performance 4.2.1.2 The research results on the impact of income diversification measured by noninterest income rate on bank performance Variables L.ROA Table 4.6: Regresssion results of impact of NON on ROA, ROE (9) (10) (11) (12) ROA ROE ROA ROE 0.262*** 0.320*** [5.86] [10.33] 0.464*** [9.18] 0.0126*** 0.0113*** 0.0771*** NON [4.34] [3.89] [2.88] 0.00121*** 0.00150*** 0.0151*** SIZE [3.28] [5.08] [5.37] 0.00311*** 0.00207*** 0.0172** GROW [4.51] [3.43] [2.18] 0.0600*** 0.0611*** 0.0870 ETA [5.90] [10.53] [1.15] 0.0112*** 0.00574** 0.0333 LTA [3.78] [2.00] [1.23] -0.00528 -0.00325 0.00197 DTA [-1.52] [-0.91] [0.06] -0.297*** -0.264*** -1.109 LLP [-3.95] [-3.90] [-1.34] -0.000920*** -0.000906*** -0.00902*** OTR [-36.29] [-39.43] [-34.64] 0.0246 -0.0213 -0.0740 GDP [0.94] [-0.84] [-0.35] 0.0259*** 0.0341*** 0.269*** INF [3.67] [6.22] [3.58] 0.148*** 1.825*** FO [4.29] [6.30] -0.0287*** -0.169*** -0.0384*** -0.383*** _cons [-4.20] [-2.67] [-6.19] [-6.77] 28 28 28 28 Number of group 21 21 22 22 Number of instrument 0,624 0,433 0,603 0,420 AR2 0,266 0,299 0,232 0,190 Hansen test *, **, *** represent significance at the 10%, 5%, 1% levels, respectively Source: Calculated from Stata L.ROE 0.552*** [9.14] 0.106*** [3.63] 0.00679** [1.97] 0.0318*** [3.71] 0.0473 [0.72] 0.0898*** [3.31] -0.0214 [-0.61] -1.518* [-1.92] -0.00931*** [-34.13] 0.395 [1.58] 0.132 [1.62] Table 4.7: Regresssion results of impact of NON on SDROA, SDROE (13) (14) (15) (16) Variables SDROA L.SDROA 0.621*** [8.86] SDROE SDROA 0.495*** SDROE [7.26] 0.586*** [12.51] 2.064*** 1.701*** 1.700*** NON [4.87] [4.16] [3.36] 0.190*** 0.338*** 0.148* SIZE [3.34] [5.44] [1.89] 0.423** 0.222 0.416* GROW [2.49] [1.59] [1.85] 4.198*** 5.633*** 0.762 ETA [2.99] [4.20] [0.53] 2.290*** 1.818*** 1.368** LTA [4.07] [3.07] [2.27] -0.646 -0.823 -0.00611 DTA [-0.89] [-1.20] [-0.01] -28.05** -15.42 -20.73 LLP [-1.97] [-1.25] [-1.52] -0.0535*** -0.0491*** -0.0549*** OTR [-13.05] [-11.52] [-10.93] 4.122 -9.187 3.752 GDP [0.75] [-1.60] [0.61] 2.642* 4.378*** 4.169*** INF [1.79] [3.10] [3.08] 30.23*** 30.47*** FO [4.27] [4.01] -4.844*** -2.469** -8.178*** -5.282*** _cons [-5.33] [-2.12] [-7.46] [-4.12] 28 28 28 28 Number of group 21 21 22 22 Number of instrument 0,779 0,554 0,937 0,540 AR2 0,401 0,340 0,268 0,528 Hansen test *, **, *** represent significance at the 10%, 5%, 1% levels, respectively L.SDROE 0.676*** [12.02] 2.102*** [4.08] 0.0468 [0.64] 0.759*** [3.45] -0.547 [-0.40] 2.220*** [4.14] -0.409 [-0.54] -32.30** [-2.41] -0.0589*** [-12.72] 13.88** [2.25] 2.210 [1.34] Source: Calculated from Stata The results in tables 4.6 and 4.7 show that income diversification, measured by the noninterest income rate, has a positive impact on bank performance (ROA, ROE) and risk-adjusted performance (SDROA, SDROE) of Vietnamese commercial banks in the period 2008-2018 at the significance level of 1% This result is similar to the result of the above model with measurement of income diversification by DIV index 4.2.2 The research result on factors affecting bank income diversification 4.2.2.1 The research result on factors affecting bank income diversification measured by DIV index Table 4.9: Regresssion results of factors affecting bank income diversification measured by DIV index (17) (18) (19) (20) Variables DIV DIV DIV DIV L.DIV ROA 0.409*** [11.69] 6.464*** [6.25] 0.435*** [12.72] 0.380*** [8.22] 0.438*** [3.45] 0.0200*** 0.0260*** 0.0259*** SIZE [4.99] [5.78] [5.42] 0.243 0.329** 0.742*** ETA [1.52] [2.01] [5.20] -0.220*** -0.187*** -0.205*** LTA [-3.49] [-4.47] [-4.85] 0.00748 0.0115 0.00841 ZSC [0.59] [0.94] [0.65] -0.00531 -0.0361 -0.0320 LTD [-0.15] [-1.06] [-0.95] 5.004*** 4.640*** 4.307*** LLP [3.65] [4.09] [4.00] 0.000333 -0.000400 -0.00101 OTR [0.44] [-0.47] [-1.05] -2.360*** -2.693*** -2.833*** GDP [-3.04] [-3.65] [-4.01] -0.960*** -0.782*** -0.796*** INF [-6.97] [-6.99] [-6.39] 2.148*** 2.421*** FO [3.46] [3.81] -0.00966 0.00895 -0.224* -0.252* _cons [-0.09] [0.09] [-1.80] [-1.83] 28 28 28 28 Number of group 27 27 28 28 Number of instrument 0,941 0,975 0,993 0,957 AR2 0,075 0,073 0,064 0,063 Hansen test *, **, *** represent significance at the 10%, 5%, 1% levels, respectively ROE 0.588*** [5.36] 0.0183*** [4.45] 0.745*** [4.67] -0.239*** [-3.53] 0.00132 [0.10] -0.00129 [-0.03] 4.518*** [3.62] -0.000359 [-0.42] -2.555*** [-3.15] -1.005*** [-6.46] 0.372*** [8.31] 5.107*** [4.55] Source: Calculated from Stata The research results in Table 4.9 show that factors that have a positive influence on income diversification at Vietnamese commercial banks are: previous income diversification, bank performance, bank size, capital adequacy ratio, credit risk and financial openness Meanwhile, loan ratio, economic growth rate and inflation rate have a negative effects on Vietnamese commercial banks’ income diversification 4.2.2.2 The research result on factors affecting bank income diversification measured by NON index Table 4.10: Regresssion results of factors affecting bank income diversification measured by NON index (5) (6) (7) (8) Variables NON NON NON NON L.NON ROA 0.279*** [7.99] 5.957*** [4.83] 0.0131** [2.50] 0.0508 [0.33] -0.158*** [-2.72] 0.0108 [1.14] -0.0558* [-1.79] 4.511*** [4.56] 0.0126*** [13.89] -1.256** [-2.14] -0.706*** [-6.87] 0.415*** [4.38] 0.0124** [2.51] 0.447*** [3.08] -0.151*** [-3.07] 0.00708 [0.72] -0.0398 [-1.34] 3.505*** [3.81] 0.0110*** [13.95] -1.528** [-2.44] -0.696*** [-6.42] 0.0226 [0.27] 0.0154 [0.18] ROE SIZE ETA LTA ZSC LTD LLP OTR GDP INF 0.343*** [12.56] FO _cons 0.272*** [7.48] 4.371*** [4.38] 0.0193*** [3.99] 0.199 [1.60] -0.140*** [-3.52] 0.0176** [2.05] -0.0759** [-2.35] 4.581*** [4.39] 0.0118*** [13.04] -1.771*** [-2.94] -0.572*** [-5.78] 2.114*** [3.67] -0.205*** [-2.65] 0.312*** [10.24] 0.243*** [3.25] 0.0215*** [4.87] 0.515*** [3.95] -0.146*** [-4.72] 0.0143* [1.80] -0.0670** [-2.26] 3.630*** [3.35] 0.0101*** [14.11] -2.037*** [-3.24] -0.507*** [-5.93] 2.791*** [5.80] -0.283*** [-3.72] 28 28 28 28 Number of group 27 27 28 28 Number of instrument 0,151 0,165 0,139 0,151 AR2 0,083 0,094 0,072 0,081 Hansen test *, **, *** represent significance at the 10%, 5%, 1% levels, respectively Source: Calculated from Stata In the research model of factors affecting Vietnamese commercial banks’ income diversification, when measurement of income diversification by DIV index is replaced by noninterest income rate (NON), there are some additional factors influencing income diversification: bankruptcy risk, liquidity risk and operating expense ratio The two results of the two measurement of income diversification are not inconsistent, but complement each other, making the research more reliable Summary of chapter CHAPTER 5: CONCLUSION AND RECOMMENDATION 5.1 Conclusion This study has provided theoretical basis and empirical evidence to conclude about the impact of income diversification on Vietnamese commercial banks’ performance and riskadjusted performance In addition, the study also identifies the factors affecting income diversification to suggest solutions for Vietnamese commercial banks to appropriately diversify their income for increasing their performance and risk-adjusted performance Specifically, through the research results presented in chapter 4, we can conclude: The impact of income diversification on Vietnamese commercial banks' performance: - Bank income diversification positively affects Vietnamese commercial banks’ performance and risk-adjusted performance during the period of 2008 - 2018 This is consistent with modern portfolio theory - Lagged variable of bank performance (or risk-adjusted performance) has a positive impact on the bank performance (or risk-adjusted performance) - Variables belonging to the bank internal characteristics such as bank size, growth rate, capital adequacy ratio and loans ratio have a positive impact on bank performance In addition to diversification, the bank also needs to focus on lending to increase customer loans and to ensure loan quality to improve risk-adjusted performance - Credit risk has a negative impact on bank performance - Operating expenses rate is inversely related to bank performance - Inflation has a positive impact on bank performance - A new factor in the macro environment that needs to be considered when assessing the factors affecting bank performance is financial openness This variable also has a positive impact on the bank performance - The study has not found a relationship between deposits ratio, economic growth rate and bank performance Factors affecting Vietnamese commercial banks’ income diversification: - The degree of Vietnamese commercial banks’ income diversification depends on the previous income diversification - Variables belonging to the bank internal characteristics such as bank performance, bank size, capital adequacy ratio and credit risk have a positive impact on Vietnamese commercial banks’ income diversification - The ratio of loan to total assets has a negative impact on Vietnamese commercial banks’ income diversification - When bank income diversification is measured by DIV index, no relationship between bankruptcy risk, liquidity risk and ratio of operating expense to operating income and bank income diversification has not been found However, when bank income diversification is measured by non-interest income ratio (NON), bankruptcy risk and liquidity risk have a negative impact on bank income diversification, meanwhile the ratio of operating expenses to operating income has a positive impact on bank income diversification - Variables belonging to macro factors such as economic growth rate and inflation rate, have an inverse relationship with the bank income diversification - A new factor in the macro environment that needs to be considered when assessing factors affecting bank income diversification is financial openness This variable has a positive impact on bank income diversification In Vietnam, economy is being opening and financial openness is higher, the level of bank income diversification will be more higher 5.2 Recommendation From the research results above, the dissertation gives some recommendation as follows: Firstly, Vietnamese commercial banks need to increase income diversification to increase their performance According to this research result, increasing income diversification will increase the bank performance At the same time, when a bank operates effectively, it will promote income diversification Thus, the relationship between income diversification and performance is interactive, so banks need to develop non-interest activities to increase income diversification, and it will also increase their bank performance Currently, the income of Vietnamese commercial banks is mainly from credit activities Therefore, these banks need to diversify products and services, invest in non-interest activities to diversify their incomes, increase income from non-interest activities Secondly, Vietnamese commercial banks need to improve their management ability to reduce operating costs in order to increase the bank performance Lowering operating costs does not mean that banks will cut operating costs by reducing investments in fixed assets and salaries for employees On the contrary, in the first time to increase income diversification, Vietnamese commercial banks need to invest in technology development, improve the quality of human resources to develop products and services bringing non-interest income At the same time, the bank's operating costs will increase However, according to the research results, this will push the non-interest income rate to increase, in other words, income diversification increases Next, the income diversification will improve bank performance and thus compensate for investment costs for non-interest activities Thus, in order to increase income diversification and increase bank performance, banks need to invest in technology development and quality of human resources in parallel with improving the efficiency of management and administration to use human resources and assets effectively Thirdly, Vietnamese commercial banks need to improve credit quality to reduce credit risk because the research results also show that a high loan ratio with low credit risk will increase the risk-adjusted performance Thus, on the one hand, banks need to increase their credit balance, on the one hand, they still have to ensure credit quality in order to increase their performance If only focusing on increasing credit balance and not paying attention to credit quality, bad debt will increase, making provision for risks increase, leading to a decrease in the bank performance In the case of economic depression, credit risk is high, banks should reduce lending activities, focus on improving credit quality and develop other non-interest activities Then, income diversification will increase, bank profits will also increase due to the decrease in loan loss provision, so it has dual effects to improve the bank performance Fourthly, Vietnamese commercial banks need to continue to increase their size and equity because the research results also show that when the size and equity increase, the level of income diversification as well as performance will increase In recent years, it is right for banks to increase their authorized capital or merger because it will help banks to have larger equity and size to develop non-interest activities, to increase income diversification and to improve their performance When increasing authorized capital, the bank will have enough financial capacity to invest in technology, develop new and modern products and services, as well as invest in other areas where the bank has strengths Since then, the size of the bank has also increased rapidly and created a resonance for better bank performance Fifthly, Vietnamese commercial banks need to perform well in liquidity risk management The research results show that liquidity risk has opposite impact with the ratio of non-interest income Therefore, banks need to perform good liquidity risk management because it is not only a mandatory requirement in banking operations but also helps higher income diversification, resulting in better performance Sixthly, Vietnamese commercial banks need to improve their ability to manage their risks to reduce their risk of bankruptcy Research results show that the lower the bankruptcy risk, the higher the ratio of non-interest income Therefore, in order to increase income diversification to increase Vietnamese commercial banks performande, banks need to manage their bankruptcy risk well Seventhly, when the economy grows slowly, Vietnamese commercial banks can take advantage of this suitiation to increase income diversification, thereby improving bank performance According to the research results, economic growth has opposite effects with income diversification Therefore, when the economy is in recession, banks need to focus on developing non-interest activities, increasing income diversification, thereby improving the bank performance Eighthly, Vietnamese commercial banks need to have a good forecast of the inflation rate to increase bank performance in case of high inflation The research results show that inflation is positively correlated with the bank performance Thus, the high inflation rate is not always a problem that adversely affects the bank performance, but the bank needs to have a correct forecast of the inflation rate so that there is suitable interest rate policy as well as business strategies to achieve higher efficiency Ninthly, Vietnamese commercial banks need to take advantage of the financial openness to develop new products and services, which helps to diversify their income and have higher bank performance Currently, Vietnam is increasingly opening, integrating into the world economy, so the financial openness will be higher and higher According to the research results, this is a factor that positively affects income diversification and performance of Vietnamese commercial banks Therefore, this is an opportunity for Vietnamese commercial banks to develop modern banking products and services to meet the needs of customers and increase the income diversification, bringing higher bank performance 5.3 Limitations of research and next research directions In this research, income diversification is measured by Herfindahl Hirschman index and non-interest income ratio Besides, bank performance is measured by financial indicators Therefore, the next research direction is that using the adjusted Herfindahl Hirschman index as the sum of the squares of each type of non-interest income ratio to measure income diversification, and using marginal efficiency to measure of business performance for more completed research results In addition, due to the limitation of research data, this study limits the scope of research to 28 Vietnamese commercial banks, not all Vietnamese commercial banks, as well as not including joint venture banks and foreign banks Therefore, the next research direction is to expand the scope of research to joint venture banks and foreign banks in Vietnam for more fully assessment of the impact of income diversification on bank performance of the Vietnamese commercial banking system Summary of chapter References Appendix ... risk-adjustment performance of Vietnamese commercial banks Thus, there are no conclusions about the benefits of income diversification Besides, in Vietnam, there is also very little research on the factors... riskadjusted performance at Vietnamese commercial banks, as well as identifying factors affecting income diversification at Vietnamese commercial banks Hence, it helps Vietnamese commercial banks have... Vietnamese commercial banks - Evaluate the factors affecting income diversification at Vietnamese commercial banks - Propose solutions to diversify income for increasing performance at Vietnamese
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