3.4. Descriptive statistics and correlations analysis
3.4.1. Context of the Vietnamese banking system during the research period
It can be said that the period selected to carry out the current study has highlighted various pivotal issues as well as major changes in the banking system and the economic structure as a whole in Vietnam.
Regarding the economic angle, the economy in Vietnam has witnessed a stable growth during the period 2006-2020 except for the last year which incurred the onset of the Covid-
19 pandemic. As Figure 3.3 below indicates, the average annual value of GDP stood at around 6.5% from the first year of the given period to 2019 before dropping to nearly 3% in the final year. As the assertion of Le & Nguyen (2020) and Phan et al. (2022a), the economic growth
of Vietnam can be seen as one of the fastest-growing economies in the ASEAN region in particular and over the world in general. Also, it is an expectation that this country will may become a next dragon in the Asia area.
Source: Data collected from WB database
Figure 3.3. The economic backdrop of Vietnam
In parallel with growing economy, the inflation ratio of Vietnam has emerged as a salient point. Indeed, the average annual of this indicator still stood at over 7% during the given period, meaning that the interest rate of banks has fluctuated strongly. It is noticeable that in the aftermath of the economic boom during the period 2006-2011 along with a dramatic surge in the credit supply fueled by the banking system, the inflation rate also reached a peak
of the highest value in 2008 and 2011, respectively (see more detail in the thesis of Huỳnh Japan, 2021). Afterwards, the figure was seemingly arrested from 2011 to 2015 before tending
to be steady for the remainder of time.
In fact, it is true that the economic growth in this nation tends to depend much on the development and sustainability of the banking system (Huynh & Dang, 2021; Phan et al., 2022b). The statistics show that the domestic credit to private sector funded by banks increased steadily over the period. More specifically, while this ratio was only around 62%
in the beginning period, it had surged rapidly by nearly half by 2020. This figure also partly demonstrates the argument that the expansion of the banking industry is being considered the key engine for growing and sustaining the economy in Vietnam.
At the same time, it can be said that during the selected period, the banking industry has also witnessed the major and vital reforms, besides, the emergence of many prominent events has marked the important milestones in the progress of Vietnamese economy.
0,00%
5,00%
10,00% 15,00% 20,00% 25,00%
0,00%
20,00%
40,00%
60,00%
80,00%
100,00%
120,00%
140,00%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Domestic credit to private sector by banks (% of GDP) GDP growth (annual % - secondary axis)
Inflation, consumer prices (annual % - secondary axis)
The first and the most noticeable example is the participation in WTO (the World Trade Organization) in 2007. This important event has led to have some direct and indirect consequences for the banking sector. Initially, the appearance of foreign-owned banks may lead the domestic banking market to be more fierce competition. As a result, such these newcomers with higher capacities will have strongly affect the conventional operations of domestic banks, especially the expansion of lending and deposit activities (Le & Nguyen, 2020; Phan et al., 2022b). Additionally, in such scenario, banks have to be forced to adapt to new circumstance and seek out new sources of income (Le & Nguyen, 2020). Besides, it is witnessing a competition in the banking market between private banks and state-controlled ones. In other words, both financial intermediation and non-interest income activities of domestic banks are being impacted by this event. Consequently, as Le & Nguyen (2020) ascertain, banks have to carefully take IC-based strategy into account in the middle- and- long term.
Another compelling event is the announce of the “Decision No.254” in 2012. As Dang (2020) and Huynh & Dang (2021) have stated, the main purpose of this project is to reform and restructure the financial system, especially the banking sector, to enhance the smoothness and stability of the system, which, in turn, will act as the concrete backbone for the economic growth. These authors detail that along with the attempt to resolve the issues related to the bad debts of the banking system, the project also tries to incentivize the banks in expanding and finding different sources of income. As a result, the non-interest income activities of banks are being fueled and enlarged in the recent times.
The given period have also witnessed different events such as the announce of required standards to meet the conditions of Basel in the banking sector, or the technology-oriented development (Phan et al., 2022a; Phan et al., 2022b; Tran, 2022). For instance, the numerous circulars have been announced by the State Bank of Vietnam to meet the Basel standards, including “Circular No.02” and “Circular No.12” in 2013, “Circular No.36” and “Circular No.09” in 2014, “Circular No.41” in 2016 focusing specially on the Pillar I of Basel. Regarding the Pillar II, there are some related regulations presented in the “Circular No.44”
in 2011, “Circular No.10” in 2012, and “Circular No.07” in 2013. In terms of the Pillar III, some relevant regulations consist of “Circular No.16” in 2010, and “Circular No.41” in 2016. Furthermore, the disclosure information, report quality, and transparence of publicized
financial statements have been concerned by national regulators during the given period (see more detail in studies of Tran (2022); Tran Viet Dung et al. (2020)).
Generally, it is concluded that the banking system has become the concrete bedrock of the economy since the equity market in Vietnam remains undeveloped (Huynh & Dang, 2021;
Le & Nguyen, 2020). Hence, it is not surprisingly that a surge in the number of studies has paid special attention to the banks’ operations in the recent years. In this sense, while the role
of IC efficiency in particular and intellectual resources in general is increasingly recognized
as the center engine for banks’ business, the current study will contribute to the existing studies by exploring two major aspects of banking operations, namely financial intermediation and non-interest income activities.
Taken together, based on this period, the findings in the current study are being expected to provide a whole picture of the possible exertion of IC to business operations of the Vietnamese banking system.