CHAPTER 4. IMPLEMENTATION OF THE RESEARCH MODEL AND
4.1. Research Results of the Model
4.1.1. Descriptive statistics of the data
To understand the fundamental characteristics of the research variables, such as the maximum value, minimum value, mean value, and the deviation between the mean values of the variables and the actual values, it is essential to conduct a descriptive statistical analysis of the research sample. The results of the descriptive statistics are presented in Table 4.1 below:
Table 4. 1. Descriptive statistics of the data
Variable Obs Mean Std. dev Min Max
ROA 220 0,0107 0,0167 -0,0070 0,2325
LLP 220 0,0146 0,0360 0,0000 0,4558
LTD 220 0,8832 0,2409 0,0255 2,0514
NPL 220 0,0259 0,0453 0,0000 0,4369
LEV 220 16,6669 24,9046 0,6518 252,1449
SIZE 220 32,9237 1,1462 30,3178 35,3721
GDP 220 0,7804 0,1781 0,4085 1,1296
Source: Extraction of results from Stata 17 software
Table 4.1 presents the statistical values for all eight research variables in the model, based on a sample size of 220 observations. The ROA (Return on Assets) variable, measuring profitability, ranges from a minimum of -0.0070 to a maximum of 0.2325, with a sample mean of 0.0107 and a standard deviation of 0.0167.
Typically, a healthy bank achieves an ROA between 1% and 2%. The average ROA of 1.07 % for the banks studied from 2013 to 2023 indicates suboptimal asset management and income production, suggesting caution against excessively high returns due to associated risks.
31 4.1.1.1. Loan Loss Provision (LLP)
Profitability variations are unavoidable in a rising economy, especially in the banking sector, where cash is the primary business product and is quite liquid. As a result, provisioning for risks, particularly credit risks, is critical. The large range of data, from 0.0000 to 0.4558, demonstrates significant variability in loan loss reserves.
This variety could be related to differences in loan credit quality, borrower company sectors, or other risk considerations. The average score of 0.0146 indicates a low amount of provisioning for potentially hazardous loans. This low average may indicate the banks' conservative approach to credit risk assessment or the high quality of their loan assets. Overall, adequate Loan Loss Provisions (LLP) are critical for banks to reduce possible losses and maintain financial stability.
4.1.1.2. Loan to Deposit (LTD)
The loan-to-deposit (LTD) ratio, which measures the proportion of total loans to total customer deposits, is an average of 88.32%, suggesting that most banks invest up to 90% of their deposits in loans. The minimum percentage of 2.55% illustrates that some banks have a more conservative lending policy. This high average LTD ratio reflects the fact that many banks use nearly all of their customer deposits for lending, which is their principal source of income. With LTD values ranging from 2.55% to 205%, banks have the ability to make significant profits from lending activities. However, this aggressive lending strategy entails considerable risks, including liquidity risk, credit risk, and diminished capital efficiency if diversification into other profitable channels is not feasible. As a result, while the LTD ratio is positively correlated with bank profitability, an overall assessment of a bank's performance must take into account other independent variables in order to provide a thorough review of operational efficiency.
4.1.1.3. Non – performing Loans (NPL)
The Non-Performing Loan (NPL) ratio is a crucial indicator of a bank's loan quality and debt recovery ability. It measures the proportion of non-performing loans to total loans. In this study, the average NPL ratio is 0.0259, indicating relatively low
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levels of bad loans among banks. However, the large disparity between the maximum value of 0.4369 and the minimum value of 0.0000 shows significant differences in credit risk. The standard deviation of 0.0453 further highlights this variation. These differences may stem from varied lending strategies, borrower quality, or other risk factors. Therefore, commercial banks must closely monitor and manage their loan portfolios to maintain profitability and stability, ensuring robust credit risk management to mitigate potential losses and support financial performance.
4.1.1.4. Leverage
The leverage ratio (LEV), also known as the debt-to-equity ratio, measures how much money a bank utilizes compared to its capital. Commercial banks have relatively low leverage, as seen by an average value of 0.6518 (65.18%) and a standard deviation of 24.9046. This prudence in using borrowed money is intended to reduce risk. The standard deviation also shows a large variance in leverage usage between institutions. Some banks employ significantly more leverage than the average, whereas others use far less. The leverage ratio stays steady, demonstrating that banks are effectively using leverage to increase profits by investing in projects with returns that outperform borrowing costs.
4.1.1.5. Bank Size
Bank size (SIZE) is calculated using the natural logarithm of total assets, which ranges from a minimum of 30.3178 to a maximum of 35.3721, with a sample mean of 32.9237. The standard deviation of SIZE is 1.1462, indicating a significant level of data dispersion. Overall, the Vietnamese banking system is marked by a trend of strong capital banks assisting weak capital institutions, with a clear divide between
"rich" and "poor" banks within the same Vietnamese commercial banking system.
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Figure 4. 1. Asset Growth Rate of the 20 Vietnamese Commercial Banks Over the Years
Source: Author’s synthesis
From 2013 to 2023, the total assets of 20 commercial banks increased by 0.192 percent. Large banks including BIDV, Vietcombank, Agribank, and Vietinbank saw comparatively significant asset growth. Smaller banks, such as KienlongBank and OceanBank, remained relatively stable and did not grow significantly. Overall, Vietnam's commercial banking sector is shifting towards stronger-capitalized banks that assist those with lower capital. This subject demands additional research to promote mergers and acquisitions (M&A) for integration and development.
4.1.1.6. GDP Growth (GDP)
Gross Domestic Product Growth (GDP) is a crucial indicator of economic health, influencing bank profitability. Economic growth boosts loan demand from businesses and individuals, leading to higher bank profits. A strong economy also lowers default rates, reducing risk for banks and enabling them to charge higher interest rates or fees, further increasing profitability. Our findings are expected to align with previous research, which has shown positive links between economic growth and bank profitability (Zampara, Giannopoulos, & Koufopoulos, 2017). The average economic growth rate is 0.78043, with the highest value at 1.1296 and the
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lowest at 0.4085. Overall, the variation in economic growth between years is not significant, with a standard deviation of 0.1781. According to Figure 4.2, the GDP growth rate fluctuated during the period from 2013 to 2023. However, following the COVID-19 pandemic, Vietnam's economy experienced a sharp decline in 2020 but showed signs of recovery in 2023, with GDP growing by 8% from 2020 to 2023.
Figure 4. 2. Gross Domestic Product (GDP) and GDP Growth Rate of Vietnam over the sampling years