Bank restructuring and bank efficiency the case of vietnam

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYEN HUU HUAN BANK RESTRUCTURING AND BANK EFFICIENCY - THE CASE OF VIETNAM DOCTORAL THESIS IN ECONOMICS Ho Chi Minh City – 2019 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY NGUYEN HUU HUAN BANK RESTRUCTURING AND BANK EFFICIENCY - THE CASE OF VIETNAM Industry: Banking and Finance Industry ID: 93.40.201 DOCTORAL THESIS IN ECONOMICS Instructor: AsPro.Dr Tran Huy Hoang AsPro.Dr Vo Xuan Vinh Ho Chi Minh City – 2019 i STATEMENT OF AUTHORSHIP I’m hereby declare that this submission is my own work and except where due reference is made; this thesis contains no material previously published or written by another person(s) This thesis does not contain material extracted in the whole or in part from thesis or report presented for another degree of diploma in University of Economics Ho Chi Minh city or in any other education institution Nguyen Huu Huan July 2019 ii TABLE OF CONTENT STATEMENT OF AUTHORSHIP i LIST OF TABLES vi LIST OF FIGURES vii ABBREVIATION viii ABSTRACT ix TÓM TẮT LUẬN ÁN x CHAPTER INTRODUCTION .1 1.1 OVERVIEW 1.2 MOTIVATIONS AND RESEARCH QUESTIONS 1.2.1 The method of bank restructuring .3 1.2.2 The structure and performance relationship in the banking system .4 1.3 RESEARCH OBJECTIVES .5 1.4 DATA AND METHODOLOGY 1.4.1 Data .6 1.4.2 Methodology .6 1.5 STRUCTURE OF THE THESIS CHAPTER LITERATURE REVIEW 2.1 INTRODUCTION 2.2 BACKGROUND 2.2.1 Background knowledge about restructuring .8 2.2.2 Efficiency Theory .16 2.2.3 The related hypothesis 22 iii 2.3 METHOD OF BANK RESTRUCTURING AND EFFICIENCY .24 2.3.1 The relationship between bank restructuring and efficiency 24 2.3.2 Bank restructuring methods and bank efficiency .28 2.4 THE STRUCTURE AND PERFORMANCE RELATIONSHIP IN BANKING SYSTEM 33 2.5 CHAPTER SUMMARY .37 CHAPTER BANK RESTRUCTURING - THE CASE OF VIETNAM 40 3.1 INTRODUCTION OF THE BANKING SYSTEM- THE CASE OF VIETNAM 40 3.1.1 Context 40 3.1.2 Introduction of the Bank Restructuring in Vietnam 41 3.1.3 Types of bank restructuring in Vietnam 43 3.1.3.1 The change of bank ownership 43 3.1.3.2 Vietnam’s bank restructuring 47 3.1.3.3 M&A Domestic banks sections 50 3.1.3.4 Establishment of Asset Management Company 57 3.1.3.5 Loosen room for foreign investors 59 3.2 CHAPTER SUMMARY .61 CHAPTER DATA AND METHODOLOGY 62 4.1 INTRODUCTION .62 4.2 DATA AND SAMPLE 62 4.3 METHODOLOGY FOR RQ1, RQ2 67 4.3.1 Data Envelopment Analysis .68 4.3.1.3 The Three-Stage Data Envelopment Analysis .71 4.3.1.4 Conclusion 72 4.3.2 Model 72 iv 4.3.2.1 RQ1: The effect of restructuring methods on banking performance 72 4.3.2.2 RQ2: The effects of reform to structure and performance .74 4.3.3 Variables and descriptive statistics 76 4.3.3.1 Variables .76 4.3.3.2 Descriptive statistic 80 4.4 ROBUSTNESS TEST 84 4.4.1 SFA regression 84 4.4.2 Hausman test 86 4.5 CHAPTER SUMMARY .87 CHAPTER RESULTS AND DISCUSSION OF THE RESULTS 89 5.1 INTRODUCTION .89 5.2 EMPIRICAL RESULTS FOR RQ1 89 5.2.1 Stage 1: Initial results .89 5.2.2 Stage 3: DEA results on adjusted data .97 5.3 EMPIRICAL RESULTS FOR RQ2 99 CHAPTER SUMMARY 105 CHAPTER CONCLUSION 107 6.1 INTRODUCTION .107 6.2 REVIEW OF RESEARCH QUESTIONS, HYPOTHESES AND FINDINGS .107 6.2.1 RQ1: How restructuring measures, which were introduced as the government intervention, merger and acquisition of the commercial banks and privatization of the state-owned commercial banks, affect the performance of the commercial banks in the studied period? .107 6.2.2 RQ2: What are the effects of reform on Vietnam's commercial bank structure and performance? 108 6.3 CONTRIBUTIONS 109 6.4 IMPLICATIONS .110 v 6.5 LIMITATIONS 111 6.6 FUTURE RESEARCH DIRECTIONS .111 PUBLICATION 113 REFERENCES 114 APPENDIX 125 APENDIX A - List of banks in the study 125 APPENDIX B - Model for testing the relationship of bank restructuring and efficiency 126 APPENDIX C - Model for testing on structure and performance 129 vi LIST OF TABLES Table 2.1: Summary of the two research questions and their hypotheses 38 Table 3.1: Types of bank in 2003-2007 42 Table 3.2: Joint stock commercial bank after 2007 44 Table 3.3: The operational status of state bank before and after privatization 45 Table 3.4: Banks self-restructured successfully 47 Table 3.5: Result after banking restructuring 48 Table 3.6: M&A of Vietnamese banks .50 Table 3.7: Result after banking after the merger of the authorized capital .51 Table 3.8: Banking bond and bad debt statement in 2013 and 2014 57 Table 4.1: Restructuring measures of Vietnamese banks 63 Table 4.2: The control variables include six country specific factors and bank characteristic 78 Table 4.3: Variables and definition in using model of testing structure and performance of banking system 79 Table 4.4 Descriptive statistics of step and step DEA’s variables .81 Table 4.5: Variables used to estimate the structure-performance interaction 82 Table 5.1: SFA regression step 95 Table 5.2: Condition numbers - testing for multicollinearity 100 Table 5.3: Hausman test results 100 Table 5.4: Market-power vs efficient-structure .101 Table 5.5: Necessary condition estimation for ES hypothesis in stage .102 Table 5.6: The quiet life hypothesis-estimation 103 vii LIST OF FIGURES Figure 3.1 Result after the merger of the authorized capital………………………55 Figure 3.2 Result after banking consolidation and merger in 2015……………….57 Figure 5.1 Average banking efficiency scores in step and step DEA 90 Figure 5.2 The comparing of performances between non-restructured banks and restructured banks) 92 viii ABBREVIATION 2SLS: Two-stage least squares CBs: Commercial banks DEA: Data Envelopment Analysis DMU: Decision unit ESS: Scale-efficiency hypothesis ESX: X-efficiency hypothesis GLS: Generalized least squares IMF: International monetary fund NPL: Non performing loan OLS: Ordinary Least Square QLH: Quiet-life hypothesis RMP: Relative market power ROA: Return on asset ROE: Return on Equity RQ1: Research question RQ2: Research question SBV: State Bank of Vietnam SCP: Structure, Conduct and Performance paradigm SEFF: Scale-efficient hypothesis SFA: Stochastic Frontier Analysis VAMC: Vietnam Asset Management Company XEFF: X-Efficiency ... to strengthen the capitalization of Vietnamese banks None of these studies, on another hand, use hypotheses to examine the effects of the first-stage reform on the bank structure and the performance,... INTRODUCTION OF THE BANKING SYSTEM- THE CASE OF VIETNAM 40 3.1.1 Context 40 3.1.2 Introduction of the Bank Restructuring in Vietnam 41 3.1.3 Types of bank restructuring in Vietnam. .. discusses the theoretical background and the prior literature on the relationship between bank restructuring and efficiency, and the effect of bank reform on bank structure and performance The findings