Cluster Analysis of Vietnamese Banks

Abstract

The recent global credit and liquidity crisis have underscored the importance of systemic risk, especially in the banking system, which is the risk of the failure of the financial system caused by the default of one banking institution. The challenging environment has weakened Vietnamese banking sector, thus, there exists a worry about bank sector catastrophe. To prevent the domino-like bank failures, identifying and grouping banks and especially grouping problem banks are highlighted in this paper. Specifically, cluster analysis, a classification technique, is run on the sample of 33 commercial banks to test the ability of cluster analysis to recognize vulnerable banks before they break down, as well as find out which characteristics they have in common. Twelve financial ratios are finally selected as variables for classification purpose. Some warning indicators can also be found from the results. Starting from theoretical framework related to systemic risk and cluster analysis, then mentioning some relevant researches in the past, the paper concludes with a summary of findings and recommendation for implication of cluster analysis for restructuring Vietnam banking system.