What Determines the Profitability of Vietnam Commercial Banks?

Duong Thuy Nguyen,Huyen Thanh Ta,Huong Thi Diem Nguyen

doi:10.5539/ibr.v11n2p231

Abstract

Kunt and Detragiache (1999) said that the profitability of the banking system was a good indication in signaling financial crisis. Therefore, studying determinants of bank profitability is necessary for better understanding of the current condition of the banking sector, and then, for launching new policies. The research explored determinants of Vietnamese commercial banks’ profitability. Using Regression Analysis for Panel Data set of 13 Vietnamese commercial banks over the period from 2006 to 2015, the study found that foreign ownership, cost to income and the level of credit risk, negatively influenced on the profitability of Vietnamese banks, whereas state ownership, size of assets, and macroeconomic factors (GDP and inflation) did not indicated statistically significant relations to the profitability and the relationships between capital structure, liquidity risk and the profitability were mixed.

Highlights

The severe impacts of financial crisis and global economic downturn, which the weakness in banking system takes the significant blame for, are still being felt until now and lessons are always being valued
Factors influencing the profitability of Vietnamese banks were divided into two categories: bank-specific factors and macroeconomic factors
- There were no statistically significant relationship between the state ownership and the profitability of Vietnamese banks, whereas the foreign ownership may negatively influence on their profitability

Summary

Introduction

The severe impacts of financial crisis and global economic downturn, which the weakness in banking system takes the significant blame for, are still being felt until now and lessons are always being valued. The robustness of the banking sector is an essential condition to ensure the financial stability, because banking is the key element in financial system and plays an important role for economic development. In order to improve banking performance, the prerequisite is to understand the factors that affect their operation results. Examining those affecting factors has attracted attentions from scholars, and from shareholders, managers and authorities, because it helps policy-makers and administrators in formulating adequate strategies and policies to ensure the sustainability and stability in the banking system, thereby avoiding risks of financial crises. Many researchers have identified that banking profitability may bring an overall picture on banking performance

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Conclusion