Bank Competition and Financial Stability: Empirical Evidence in Vietnam

Abstract

The relationship between competition and stability of the commercial banking system has been at the heart of scholarly and policy debates over the past two decades, especially since the 2008 financial crisis. In this study, we focus on analysing the relationship between competition and stability with 24 commercial banks in Vietnam for the period 2008–2016. Our study results show that increasing competition helps Vietnam’s banking system become more stable. However, the relationship between competition and stability is nonlinear. The results of our study also show the impact of competition on the stability of Vietnam’s banking system in a crisis situation. In the context of financial crisis, the instability and NPL of Vietnam commercial banks are increased. At the same time, increased competition can cause instability for the commercial banking system in Vietnam.