The impact of competition on the risks of Vietnam’s commercial banks
Main Article Content
Abstract
This study aims to analyze the impact of competition on the risk of Vietnamese banks using unbalanced panel data, including 390 observations of 30 banks from 2008 to 2020. By method of pooled regression (Pooled OLS), fixed effects model (Fixed Effects Model), random effects model (Random Effects Model), and SGMM method (System Generalized Method Of Moments). This shows that banks tend to take more risks in the face of increased competition, an outcome consistent with the conditions of Vietnam and some countries with emerging banking and financial systems. Excessive competition, while the law is not strict enough to control and regulate, will easily lead to problems of unfair competition, there by increasing bank risks. As a result, the article proposes some ideas for policy makers and bank administrators to help the banking industry become more and more stable.
Article Details
Keywords
Bank risk, Competition, Commercial banks
References
Allen, F., & Gale, D. (2004). Competition and Financial Stability. Journal of Money, Credit, and Banking, 36(3), 453-480.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277-297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51.
Ariss, R. T. (2010). On the implications of market power in banking: Evidence from developing countries. Journal of Banking & Finance, 34(4), 765-775.
Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121-136.
Alihodžić, A., & Ekşi, İ. H. (2018). Credit growth and non-performing loans: evidence from Turkey and some Balkan countries. Eastern Journal of European Studies, 9(2), 229-249.
Anginer, D, A Demirguc-Kunt and M Zhu (2014). How does competition affect bank systemic risk? Journal of Financial Intermediation, 23(1), 1–26.
Batten, J. A., & Vo, X. V. (2016). Bank risk shifting and diversification in an emerging market. Risk Management, 18(4), 217-235.
Batten, J and XV Vo (2019a). Determinants of bank profitability - Evidence from Vietnam. Emerging Markets Finance and Trade, 55(6), 1417–1428.
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2006). Bank concentration, competition, and crises: First results. Journal of Banking & Finance, 30(5), 1581-1603.
Besanko, D., & Thakor, A. V. (2004). Relationship banking, deposit insurance and bank portfolio choice (No. 0411046). University Library of Munich, Germany.
Berger, AN, LF Klapper and R Turk-Ariss (2009). Bank competition and financial stability. Journal of Financial Services Research, 36(2), 157-159.
Blundell, R., Bond, S., & Windmeijer, F. (2001). Estimation in dynamic panel data models: Improving on the performance of the standard GMM estimator. Emerald Group Publishing Limited.
Boyd, J. H., & De Nicolo, G. (2005). The theory of bank risk taking and competition revisited. The journal of finance, 60(3), 1329-1343.
Bromiley, P. (1991). Testing a causal model of corporate risk taking and performance. Academy of Management journal, 34(1), 37-59.
Caminal, R., & Matutes, C. (2002). Can competition in the credit market be excessive? (No. 527.02). Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
Casu, B., & Girardone, C. (2009). Testing the relationship between competition and efficiency in banking: A panel data analysis. Economics Letters, 105(1), 134-137.
Cornelli, G., Frost, J., Gambacorta, L., Rau, P. R., Wardrop, R., & Ziegler, T. (2020). Fintech and big tech credit: a new database, 887.
DeYoung, R., & Rice, T. (2004). Noninterest income and financial performance at US commercial banks. Financial review, 39(1), 101-127.
DeYoung, R., & Roland, K. P. (2001). Product mix and earnings volatility at commercial banks: Evidence from a degree of total leverage model. Journal of Financial Intermediation, 10(1), 54-84.
Dietrich, A., & Wanzenried, G. (2014). The determinants of commercial banking profitability in low-, middle-, and high-income countries. The Quarterly Review of Economics and Finance, 54(3), 337-354.
Fernández, R. O., & Garza-García, J. G. (2015). The relationship between bank competition and financial stability: A case study of the Mexican banking industry. Ensayos Revista de Economía 34(1), 103-120.
Fu, X. M., Lin, Y. R., & Molyneux, P. (2014). Bank competition and financial stability in Asia Pacific. Journal of Banking and Finacce, 38, 64-77.
Goetz, M. (2017). Competition and bank stability. Journal of Financial Intermediation, 35, 145-168.
Gujarati, J. (2012). A Comprehensive Induction System: A Key to the Retention of Highly Qualified Teachers. In Educational Forum (Vol. 76, No. 2, pp. 218-223). Routledge. Available from: Taylor & Francis, Ltd. 325 Chestnut Street Suite 800, Philadelphia, PA 19106.
Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica: journal of the Econometric Society, 50(4), 1029-1054.
Heggestad, A. A., & Mingo, J. J. (1977). The competitive condition of US banking markets and the impact of structural reform. The Journal of Finance, 32(3), 649-661.
Jiménez, G., Lopez, J. A., & Saurina, J. (2013). How does competition affect bank risk-taking? Journal of Financial Stability, 9(2), 185-195.
Keeley, M. C. (1990). Deposit insurance, risk, and market power in banking. The American economic review, 80(5), 1183-1200.
Le, T. (2016). Bank risk, capitalisation and technical efficiency in Vietnamese banking. Australasian Accounting, Business and Finance Journal, 12(3).
Le, T. D. (2021). Can foreign ownership reduce bank risk? Evidence from Vietnam. Review of Economic Analysis, 13(4), 479-500.
Le, T. D. (2017). The interrelationship between net interest margin and non-interest income: Evidence from Vietnam. International Journal of Managerial Finance, 13(5), 521-540.
Le, T. D. (2020). The interrelationship among bank profitability, bank stability, and loan growth: Evidence from Vietnam. Cogent Business & Management, 7(1), 1-18.
Le, T. D. (2021). Can foreign ownership reduce bank risk? Evidence from Vietnam. Review of Economic Analysis, 13(2), 1-24.
Lei, A. C., & Song, Z. (2013). Liquidity creation and bank capital structure in China. Global Finance Journal, 24(3), 188-202.
Lepetit, L., Nys, E., Rous, P., & Tarazi, A. (2008). Bank income structure and risk: An empirical analysis of European banks. Journal of Banking & Finance, 32(8), 1452-1467.
Martinez-Miera, D., & Repullo, R. (2010). Does competition reduce the risk of bank failure? The Review of Financial Studies, 23(10), 3638-3664.
Nguyen, DP, VT Ho and XV Vo (2018a). Challenges for Vietnam in the globalization era. Asian Journal of Law and Economics, 9(1), 1-3.
Nguyen, DP and XV Vo (2017). Determinants of bilateral trade: Evidence from ASEAN+ 3. Asian - Pacific Economic Literature, 31(2), 115–122.
Nguyen, T. H., & Tran, H. G. (2020). Competition, Risk And Profitability In Banking System—Evidence From Vietnam. The Singapore Economic Review, 65(06), 1491-1505.
Palmer, T. B., & Wiseman, R. M. (1999). Decoupling risk taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal, 20(11), 1037-1062.
Pennathur, A. K., Subrahmanyam, V., & Vishwasrao, S. (2012). Income diversification and risk: Does ownership matter? An empirical examination of Indian banks. Journal of Banking & Finance, 36(8), 2203-2215.
Pervan, M., Pelivan, I., & Arnerić, J. (2015). Profit persistence and determinants of bank profitability in Croatia. Economic research-Ekonomska istraživanja, 28(1), 284-298.
Sanders, W. G., & Hambrick, D. C. (2007). Swinging for the fences: The effects of CEO stock options on company risk taking and performance. Academy of Management Journal, 50(5), 1055-1078.
Schaeck, K., & Cihak, M. (2012). Banking competition and capital ratios. European Financial Management, 18(5), 836-866.
Schaeck, K., & Cihák, M. (2014). Competition, efficiency, and stability in banking. Financial management, 43(1), 215-241.
Shim, J. (2013). Bank capital buffer and portfolio risk: The influence of business cycle and revenue diversification. Journal of Banking & Finance, 37(3), 761-772.
Son, T. H., & Liem, N. T. (2020). Financial development, business cycle and bank risk in Southeast Asian countries. The Journal of Asian Finance, Economics, and Business, 7(3), 127-135.
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American economic review, 71(3), 393-410.
Stiroh, K. J. (2004a). Diversification in banking: Is noninterest income the answer? Journal of money, credit and banking, 36(5), 853-882.
Stiroh, K. J. (2004b). Do community banks benefit from diversification? Journal of Financial Services Research, 25(2), 135-160.
Stiroh, K. J., & Rumble, A. (2006). The dark side of diversification: The case of US financial holding companies. Journal of Banking & Finance, 30(8), 2131-2161.
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40(C), 85-110.
Tú, P. T., & Oanh, Đ. L. K. (2021). Tác động của năng lực cạnh tranh đến mức độ ổn định tài chính của các Ngân hàng thương mại Việt Nam trước bối cảnh tham gia Hiệp định CPTPP. Tạp chí Nghiên cứu Tài chính-Marketing, 64(4), 1-14.
Vithessonthi, C. (2014). The effect of financial market development on bank risk: evidence from Southeast Asian countries. International Review of Financial Analysis, 35(C), 249-260.
Vo, XV and DBA Phan (2016). Herd behavior in emerging equity markets: Evidence from Vietnam. Asian Journal of Law and Economics, 7(3), 369–383.
Vo, XV (2018d). M and As in the process of banking consolidation - Preliminary evidence from Vietnam. Asian Journal of Law and Economics, 9(2), 1-6.
Vo, XV and DP Nguyen (2018). Vietnam and other asian countries in the process of globalization. Asian Journal of Law and Economics, 9(1).
Vinh, V. X., & Kiếm, Đ. B. (2016). Năng lực cạnh tranh, lợi nhuận và sự ổn định của các ngân hàng Việt Nam. Tạp chí phát triển kinh tế, (JED, Vol. 27 (12)), 25-46.
Zhao, T., Casu, B., & Ferrari, A. (2010). The impact of regulatory reforms on cost structure, ownership and competition in Indian banking. Journal of Banking & Finance, 34(1), 246-254.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277-297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51.
Ariss, R. T. (2010). On the implications of market power in banking: Evidence from developing countries. Journal of Banking & Finance, 34(4), 765-775.
Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121-136.
Alihodžić, A., & Ekşi, İ. H. (2018). Credit growth and non-performing loans: evidence from Turkey and some Balkan countries. Eastern Journal of European Studies, 9(2), 229-249.
Anginer, D, A Demirguc-Kunt and M Zhu (2014). How does competition affect bank systemic risk? Journal of Financial Intermediation, 23(1), 1–26.
Batten, J. A., & Vo, X. V. (2016). Bank risk shifting and diversification in an emerging market. Risk Management, 18(4), 217-235.
Batten, J and XV Vo (2019a). Determinants of bank profitability - Evidence from Vietnam. Emerging Markets Finance and Trade, 55(6), 1417–1428.
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2006). Bank concentration, competition, and crises: First results. Journal of Banking & Finance, 30(5), 1581-1603.
Besanko, D., & Thakor, A. V. (2004). Relationship banking, deposit insurance and bank portfolio choice (No. 0411046). University Library of Munich, Germany.
Berger, AN, LF Klapper and R Turk-Ariss (2009). Bank competition and financial stability. Journal of Financial Services Research, 36(2), 157-159.
Blundell, R., Bond, S., & Windmeijer, F. (2001). Estimation in dynamic panel data models: Improving on the performance of the standard GMM estimator. Emerald Group Publishing Limited.
Boyd, J. H., & De Nicolo, G. (2005). The theory of bank risk taking and competition revisited. The journal of finance, 60(3), 1329-1343.
Bromiley, P. (1991). Testing a causal model of corporate risk taking and performance. Academy of Management journal, 34(1), 37-59.
Caminal, R., & Matutes, C. (2002). Can competition in the credit market be excessive? (No. 527.02). Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
Casu, B., & Girardone, C. (2009). Testing the relationship between competition and efficiency in banking: A panel data analysis. Economics Letters, 105(1), 134-137.
Cornelli, G., Frost, J., Gambacorta, L., Rau, P. R., Wardrop, R., & Ziegler, T. (2020). Fintech and big tech credit: a new database, 887.
DeYoung, R., & Rice, T. (2004). Noninterest income and financial performance at US commercial banks. Financial review, 39(1), 101-127.
DeYoung, R., & Roland, K. P. (2001). Product mix and earnings volatility at commercial banks: Evidence from a degree of total leverage model. Journal of Financial Intermediation, 10(1), 54-84.
Dietrich, A., & Wanzenried, G. (2014). The determinants of commercial banking profitability in low-, middle-, and high-income countries. The Quarterly Review of Economics and Finance, 54(3), 337-354.
Fernández, R. O., & Garza-García, J. G. (2015). The relationship between bank competition and financial stability: A case study of the Mexican banking industry. Ensayos Revista de Economía 34(1), 103-120.
Fu, X. M., Lin, Y. R., & Molyneux, P. (2014). Bank competition and financial stability in Asia Pacific. Journal of Banking and Finacce, 38, 64-77.
Goetz, M. (2017). Competition and bank stability. Journal of Financial Intermediation, 35, 145-168.
Gujarati, J. (2012). A Comprehensive Induction System: A Key to the Retention of Highly Qualified Teachers. In Educational Forum (Vol. 76, No. 2, pp. 218-223). Routledge. Available from: Taylor & Francis, Ltd. 325 Chestnut Street Suite 800, Philadelphia, PA 19106.
Hansen, L. P. (1982). Large sample properties of generalized method of moments estimators. Econometrica: journal of the Econometric Society, 50(4), 1029-1054.
Heggestad, A. A., & Mingo, J. J. (1977). The competitive condition of US banking markets and the impact of structural reform. The Journal of Finance, 32(3), 649-661.
Jiménez, G., Lopez, J. A., & Saurina, J. (2013). How does competition affect bank risk-taking? Journal of Financial Stability, 9(2), 185-195.
Keeley, M. C. (1990). Deposit insurance, risk, and market power in banking. The American economic review, 80(5), 1183-1200.
Le, T. (2016). Bank risk, capitalisation and technical efficiency in Vietnamese banking. Australasian Accounting, Business and Finance Journal, 12(3).
Le, T. D. (2021). Can foreign ownership reduce bank risk? Evidence from Vietnam. Review of Economic Analysis, 13(4), 479-500.
Le, T. D. (2017). The interrelationship between net interest margin and non-interest income: Evidence from Vietnam. International Journal of Managerial Finance, 13(5), 521-540.
Le, T. D. (2020). The interrelationship among bank profitability, bank stability, and loan growth: Evidence from Vietnam. Cogent Business & Management, 7(1), 1-18.
Le, T. D. (2021). Can foreign ownership reduce bank risk? Evidence from Vietnam. Review of Economic Analysis, 13(2), 1-24.
Lei, A. C., & Song, Z. (2013). Liquidity creation and bank capital structure in China. Global Finance Journal, 24(3), 188-202.
Lepetit, L., Nys, E., Rous, P., & Tarazi, A. (2008). Bank income structure and risk: An empirical analysis of European banks. Journal of Banking & Finance, 32(8), 1452-1467.
Martinez-Miera, D., & Repullo, R. (2010). Does competition reduce the risk of bank failure? The Review of Financial Studies, 23(10), 3638-3664.
Nguyen, DP, VT Ho and XV Vo (2018a). Challenges for Vietnam in the globalization era. Asian Journal of Law and Economics, 9(1), 1-3.
Nguyen, DP and XV Vo (2017). Determinants of bilateral trade: Evidence from ASEAN+ 3. Asian - Pacific Economic Literature, 31(2), 115–122.
Nguyen, T. H., & Tran, H. G. (2020). Competition, Risk And Profitability In Banking System—Evidence From Vietnam. The Singapore Economic Review, 65(06), 1491-1505.
Palmer, T. B., & Wiseman, R. M. (1999). Decoupling risk taking from income stream uncertainty: A holistic model of risk. Strategic Management Journal, 20(11), 1037-1062.
Pennathur, A. K., Subrahmanyam, V., & Vishwasrao, S. (2012). Income diversification and risk: Does ownership matter? An empirical examination of Indian banks. Journal of Banking & Finance, 36(8), 2203-2215.
Pervan, M., Pelivan, I., & Arnerić, J. (2015). Profit persistence and determinants of bank profitability in Croatia. Economic research-Ekonomska istraživanja, 28(1), 284-298.
Sanders, W. G., & Hambrick, D. C. (2007). Swinging for the fences: The effects of CEO stock options on company risk taking and performance. Academy of Management Journal, 50(5), 1055-1078.
Schaeck, K., & Cihak, M. (2012). Banking competition and capital ratios. European Financial Management, 18(5), 836-866.
Schaeck, K., & Cihák, M. (2014). Competition, efficiency, and stability in banking. Financial management, 43(1), 215-241.
Shim, J. (2013). Bank capital buffer and portfolio risk: The influence of business cycle and revenue diversification. Journal of Banking & Finance, 37(3), 761-772.
Son, T. H., & Liem, N. T. (2020). Financial development, business cycle and bank risk in Southeast Asian countries. The Journal of Asian Finance, Economics, and Business, 7(3), 127-135.
Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect information. The American economic review, 71(3), 393-410.
Stiroh, K. J. (2004a). Diversification in banking: Is noninterest income the answer? Journal of money, credit and banking, 36(5), 853-882.
Stiroh, K. J. (2004b). Do community banks benefit from diversification? Journal of Financial Services Research, 25(2), 135-160.
Stiroh, K. J., & Rumble, A. (2006). The dark side of diversification: The case of US financial holding companies. Journal of Banking & Finance, 30(8), 2131-2161.
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40(C), 85-110.
Tú, P. T., & Oanh, Đ. L. K. (2021). Tác động của năng lực cạnh tranh đến mức độ ổn định tài chính của các Ngân hàng thương mại Việt Nam trước bối cảnh tham gia Hiệp định CPTPP. Tạp chí Nghiên cứu Tài chính-Marketing, 64(4), 1-14.
Vithessonthi, C. (2014). The effect of financial market development on bank risk: evidence from Southeast Asian countries. International Review of Financial Analysis, 35(C), 249-260.
Vo, XV and DBA Phan (2016). Herd behavior in emerging equity markets: Evidence from Vietnam. Asian Journal of Law and Economics, 7(3), 369–383.
Vo, XV (2018d). M and As in the process of banking consolidation - Preliminary evidence from Vietnam. Asian Journal of Law and Economics, 9(2), 1-6.
Vo, XV and DP Nguyen (2018). Vietnam and other asian countries in the process of globalization. Asian Journal of Law and Economics, 9(1).
Vinh, V. X., & Kiếm, Đ. B. (2016). Năng lực cạnh tranh, lợi nhuận và sự ổn định của các ngân hàng Việt Nam. Tạp chí phát triển kinh tế, (JED, Vol. 27 (12)), 25-46.
Zhao, T., Casu, B., & Ferrari, A. (2010). The impact of regulatory reforms on cost structure, ownership and competition in Indian banking. Journal of Banking & Finance, 34(1), 246-254.
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