The relationship between diversification, risk and return of Vietnamese commercial banks: Approach from PVAR model
Main Article Content
Abstract
When commercial banks increase the diversification of non-credit activities, it often leads to increased costs but at the same time, it will also increase non-interest income. Otherwise, diversification will cause risks for banks. The study examines the relationship between benefits and risks from diversification activities and approaches using the GMM method on the PVAR model with panel data including 840 observations collected from 21 commercial banks during the above period (2011- 2021). At a lag 1 granger causality test at the 1% significance level, the results provide provides additional statistical evidence that shows two pictures of bank performance with the first picture, the higher the return on assets (ROA) banks, the higher the income from diversification and vice versa. In the second picture, banks with a higher return on equity (ROE) are at risk of reducing non-interest income from diversification activities and vice versa. The study did not find any adverse effects from diversification on bank performance. IRF analyzes show that the impact of "shocks" from diversification to ROA and ROE is powerful and gradually decreases during the four periods, then fades over time.
Article Details
Keywords
Bank efficiency, Bank risk, Income diversification, Panel VAR
References
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AlKhouri, R. and Arouri, H. (2019). The effect of diversification on risk and return in banking sector: Evidence from the Gulf Cooperation Council countries. International Journal of Managerial Finance, 15(1), 100-128. https://doi.org/10.1108/IJMF-01-2018-0024
Ammann M., Hoechle D. and Schmid M. (2012). Is there Really No Conglomerate Discount? Journal of Business Finance et Accounting, 39(1-2), 264-288.
Andrews, D.W.K. and B. Lu (2001). Consistent model and moment selection procedures for GMM estimation with application to dynamic panel data models. Journal of Econometrics, 101(1), 123-164.
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 errorcomponents models. Journal of Econometrics, 68(1), 29-51.
Baele, Lieven, De Jonghe, Olivier, Vander Vennet, Rudi. (2007). Does the stock market value bank diversification? Journal of Banking et Finance, 31(7), 1999-2023.
Belingher, D. (2015). A PVAR model built on the Ricardian approach to deficits in central and eastern Europe. Ecoforum Journal, 4(1), 1-41.
Blundell, R.W., Bond, S.R., 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115-143.
Boyd, J.H. and Graham, S. (1986). Risk, regulation, and bank holding company expansion into nonbanking. Federal Reserve Bank of Minneapolis Quarterly Review, 10(2), 2-17.
Boyd, J.H., Chang, C. and Smith, B.D. (1998), “Moral hazard under commercial and universal banking”, Journal of Money, Credit and Banking, 30(3), 426-468.
Boyd, J.H., Stanley, L.G. and Hewitt, R.S. (1993). Bank holding company mergers with nonbank financial firms: effects on the risk of failure, Journal of Banking Finance, 17(1), 43-63.
Berger, A. N., Hasan, I., & Zhou, M. (2010). The effects of focus versus diversification on bank performance: Evidence from Chinese banks. Journal of Banking & Finance, 34(7), 1417-1435.
Chiorazzo, V., Milani, C., & Salvini, F. (2008). Income diversification and bank performance: Evidence from Italian banks. Journal of Financial Services Research, 33(3), 181-203.
Sims, C. A., & Zha, T. (1999). Error bands for impulse responses. Econometrica, 67(5), 1113-1155.
DeYoung, R. and Torna, G. (2013). Nontraditional banking activities and bank failures during the financial crisis. Journal of Financial Intermediation, 22(3),397-421.
DeYoung, R., & Rice, T. (2004). Noninterest income and financial performance at US commercial banks. Financial Review, 39(1), 101-127.
Duho, K.C.T., Onumah, J.M. and Asare, E.T. (2020). Determinants and convergence of income diversification in Ghanaian banks. Journal of Research in Emerging Markets, 2(2), 34-47, doi:10.30585/jrems.v2i2.499
Dương Thúy Hà (2021). Tác động của sự đa dạng hóa thu nhập tới rủi ro kinh doanh của các ngân hàng thương mại Việt Nam. Tạp chí Khoa học & Đào tạo Ngân hàng, 230, 11-23
Elyasiani, E. and Wang, Y. (2012). Bank holding diversification and production efficiency. Applied Financial Economics, 22(17),1409-1428.
Elsas, R., Hackethal, A., & Holzhäuser, M. (2010). The anatomy of bank diversification. Journal of Banking & Finance, 34(6), 1274-1287.
Hidayat, W.Y., Kakinaka, M., & Miyamoto, H. (2012). Bank risk and non-interest income activities in the Indonesian banking industry. Journal of Asian Economics, 23(4), 335-343.
Hồ Thị Hồng Minh và Nguyễn Thị Cành (2015). Đa dạng hóa thu nhập và các yếu tố tác động đến khả năng sinh lời của các ngân hàng thương mại Việt Nam. Tạp chí Kinh tế và Ngân hàng châu Á, 106(107), 13-24.
Jouida, S. (2018). Diversification, capital structure and profitability: A panel VAR approach. Research in International Business and Finance, 45, 243-256.
Knechel, W.R. (2002). The role of the independent accountant in effective risk management. Review of Business and Economic Literature, 47 (1), 65-86.
Köhler, M. (2015). Which banks are more risky? The impact of business models on bank stability. Journal of Financial Stability, 16,195-212.
Laeven, L., Levine R., (2007). Is there a diversification discount in financial conglomerates? Journal of Financial Economics, 85(2), 331-367.
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.
Lee, C. C., Yang, S. J., & Chang, C. H. (2014). Non-interest income, profitability, and risk in banking industry: A cross-country analysis. The North American Journal of Economics and Finance, 27, 48-67.
Lepetit, L., Nys, E., Roua, P. and Tarazi, A. (2008). Bank income structure and risk: an empirical analysis of European banks. Journal of Banking and Finance, 32(8), 1452-1467.
Lewellen, W.G. (1971). A pure financial rationale for the conglomerate merger. The journal of Finance, 26 (2), 521-537.
Lüutkepohl, H., Saikkonen, P., & Trenkler, C. (2001). Maximum eigenvalue versus trace tests for the cointegrating rank of a VAR process. The Econometrics Journal, 4(2), 287-310.
Mercieca, S., Schaeck, K. & Wolfe, S. (2007). Small European banks: Benefts from diversifcation? Journal of Banking and Finance, 31, 1975-1998.
Meslier, C., Tacneng, R., & Tarazi, A. (2013). Bank diversification, risk and profitability in an emerging economy with regulatory asset structure constraints: Evidence from the Philippines. Archives Ouvertes, 1-55.
Nguyễn Đức Nguyên, Nguyễn Hoàng Nhật Khanh, Trương Quang Thái, Đặng Thu Thủy (2021). Tập trung hay đa dạng hóa danh mục cho vay? Bằng chứng từ một thị trường cận biên. Tạp chí Nghiên cứu Kinh tế và Kinh doanh Châu Á, 32(4), 51-72.
Nguyễn Minh Sáng (2017). Tác động của đa dạng hóa thu nhập đến hiệu quả hoạt động của các ngân hàng thương mại tại Việt Nam. Tạp chí Kinh tế và Phát triển, 241, 40-49.
Nguyễn Minh Sáng và Thái Thị Thùy Linh (2018). Đa dạng hóa thu nhập và quy mô tổng tài sản tại các Ngân hàng thương mại: Nghiên cứu thực nghiệm tại ASEAN. Tạp chí Kinh tế và Phát triển, 257, 48-57.
Ozili, P.K. (2017). Bank earnings management and income smoothing using commission and fee income: A European context. International Journal of Managerial Finance, 13(4), 419-439.
Palich, L.E., Cardinal, L. B., & Miller, C. C. (2000). Curvilinearity in the diversification-performance linkage: An examination of over three decades of research. Strategic Management Journal, 21, 155-174.
Pesaran, M.H. (2007). A simple panel unit root test in the presence of cross‐section dependence. Journal of Applied Econometrics, 22(2), 265-312.
Phạm Duy Phú Thịnh, Phan Thị Mỹ Hạnh, Phan Thu Hiền (2021). Tác động của đa dạng hóa đến khả năng sinh lời của các ngân hàng thương mại Việt Nam. Tạp chí Nghiên cứu Tài chính-Marketing, 63(3), 53-65.
Roy, A. D. (1952). Safety first and the holding of assets. Journal of the Econometric Society, 20(3), 431-449. https://doi.org/10.2307/1907413
Sawada, M., (2013). How does the stock market value bank diversification? Empirical evidence from Japanese banks. Pacific-Basin Finance Journal, 23, 40-61.
Stiroh, K.J. (2004). Do community banks benefit from diversification? Journal of Financial Services Research, 25(2-3), 135-160.
Stiroh, K.J. (2006). New evidence on the determinants of bank risk. Journal of Financial Service Research, 30(8), 237-263.
Stiroh, K.J. & Rumble, A. (2006. The dark side of diversification: the case of U.S. financial holding companies. Journal of Banking and Finance, 30(8), 2131-2161.
Võ Đức Thọ (2017). Đa dạng hóa và rủi ro ngân hàng: nợ xấu và ổn định kém hiệu quả. Tạp chí Khoa học Đại học Mở Thành phố Hồ Chí Minh, 58(1), 128-140.
Võ Xuân Vinh và Trần Thị Phương Mai (2015). Lợi nhuận và rủi ro từ đa dạng hoá thu nhập của ngân hàng thương mại Việt Nam. Tạp chí Phát triển kinh tế, 26 (8), 54-70.
Acharya, V. V., Hasan, I., & Saunders, A. (2006). Should banks be diversified? Evidence from individual bank loan portfolios. The Journal of Business, 79(3), 1355-1412
AlKhouri, R. and Arouri, H. (2019). The effect of diversification on risk and return in banking sector: Evidence from the Gulf Cooperation Council countries. International Journal of Managerial Finance, 15(1), 100-128. https://doi.org/10.1108/IJMF-01-2018-0024
Ammann M., Hoechle D. and Schmid M. (2012). Is there Really No Conglomerate Discount? Journal of Business Finance et Accounting, 39(1-2), 264-288.
Andrews, D.W.K. and B. Lu (2001). Consistent model and moment selection procedures for GMM estimation with application to dynamic panel data models. Journal of Econometrics, 101(1), 123-164.
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 errorcomponents models. Journal of Econometrics, 68(1), 29-51.
Baele, Lieven, De Jonghe, Olivier, Vander Vennet, Rudi. (2007). Does the stock market value bank diversification? Journal of Banking et Finance, 31(7), 1999-2023.
Belingher, D. (2015). A PVAR model built on the Ricardian approach to deficits in central and eastern Europe. Ecoforum Journal, 4(1), 1-41.
Blundell, R.W., Bond, S.R., 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115-143.
Boyd, J.H. and Graham, S. (1986). Risk, regulation, and bank holding company expansion into nonbanking. Federal Reserve Bank of Minneapolis Quarterly Review, 10(2), 2-17.
Boyd, J.H., Chang, C. and Smith, B.D. (1998), “Moral hazard under commercial and universal banking”, Journal of Money, Credit and Banking, 30(3), 426-468.
Boyd, J.H., Stanley, L.G. and Hewitt, R.S. (1993). Bank holding company mergers with nonbank financial firms: effects on the risk of failure, Journal of Banking Finance, 17(1), 43-63.
Berger, A. N., Hasan, I., & Zhou, M. (2010). The effects of focus versus diversification on bank performance: Evidence from Chinese banks. Journal of Banking & Finance, 34(7), 1417-1435.
Chiorazzo, V., Milani, C., & Salvini, F. (2008). Income diversification and bank performance: Evidence from Italian banks. Journal of Financial Services Research, 33(3), 181-203.
Sims, C. A., & Zha, T. (1999). Error bands for impulse responses. Econometrica, 67(5), 1113-1155.
DeYoung, R. and Torna, G. (2013). Nontraditional banking activities and bank failures during the financial crisis. Journal of Financial Intermediation, 22(3),397-421.
DeYoung, R., & Rice, T. (2004). Noninterest income and financial performance at US commercial banks. Financial Review, 39(1), 101-127.
Duho, K.C.T., Onumah, J.M. and Asare, E.T. (2020). Determinants and convergence of income diversification in Ghanaian banks. Journal of Research in Emerging Markets, 2(2), 34-47, doi:10.30585/jrems.v2i2.499
Dương Thúy Hà (2021). Tác động của sự đa dạng hóa thu nhập tới rủi ro kinh doanh của các ngân hàng thương mại Việt Nam. Tạp chí Khoa học & Đào tạo Ngân hàng, 230, 11-23
Elyasiani, E. and Wang, Y. (2012). Bank holding diversification and production efficiency. Applied Financial Economics, 22(17),1409-1428.
Elsas, R., Hackethal, A., & Holzhäuser, M. (2010). The anatomy of bank diversification. Journal of Banking & Finance, 34(6), 1274-1287.
Hidayat, W.Y., Kakinaka, M., & Miyamoto, H. (2012). Bank risk and non-interest income activities in the Indonesian banking industry. Journal of Asian Economics, 23(4), 335-343.
Hồ Thị Hồng Minh và Nguyễn Thị Cành (2015). Đa dạng hóa thu nhập và các yếu tố tác động đến khả năng sinh lời của các ngân hàng thương mại Việt Nam. Tạp chí Kinh tế và Ngân hàng châu Á, 106(107), 13-24.
Jouida, S. (2018). Diversification, capital structure and profitability: A panel VAR approach. Research in International Business and Finance, 45, 243-256.
Knechel, W.R. (2002). The role of the independent accountant in effective risk management. Review of Business and Economic Literature, 47 (1), 65-86.
Köhler, M. (2015). Which banks are more risky? The impact of business models on bank stability. Journal of Financial Stability, 16,195-212.
Laeven, L., Levine R., (2007). Is there a diversification discount in financial conglomerates? Journal of Financial Economics, 85(2), 331-367.
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.
Lee, C. C., Yang, S. J., & Chang, C. H. (2014). Non-interest income, profitability, and risk in banking industry: A cross-country analysis. The North American Journal of Economics and Finance, 27, 48-67.
Lepetit, L., Nys, E., Roua, P. and Tarazi, A. (2008). Bank income structure and risk: an empirical analysis of European banks. Journal of Banking and Finance, 32(8), 1452-1467.
Lewellen, W.G. (1971). A pure financial rationale for the conglomerate merger. The journal of Finance, 26 (2), 521-537.
Lüutkepohl, H., Saikkonen, P., & Trenkler, C. (2001). Maximum eigenvalue versus trace tests for the cointegrating rank of a VAR process. The Econometrics Journal, 4(2), 287-310.
Mercieca, S., Schaeck, K. & Wolfe, S. (2007). Small European banks: Benefts from diversifcation? Journal of Banking and Finance, 31, 1975-1998.
Meslier, C., Tacneng, R., & Tarazi, A. (2013). Bank diversification, risk and profitability in an emerging economy with regulatory asset structure constraints: Evidence from the Philippines. Archives Ouvertes, 1-55.
Nguyễn Đức Nguyên, Nguyễn Hoàng Nhật Khanh, Trương Quang Thái, Đặng Thu Thủy (2021). Tập trung hay đa dạng hóa danh mục cho vay? Bằng chứng từ một thị trường cận biên. Tạp chí Nghiên cứu Kinh tế và Kinh doanh Châu Á, 32(4), 51-72.
Nguyễn Minh Sáng (2017). Tác động của đa dạng hóa thu nhập đến hiệu quả hoạt động của các ngân hàng thương mại tại Việt Nam. Tạp chí Kinh tế và Phát triển, 241, 40-49.
Nguyễn Minh Sáng và Thái Thị Thùy Linh (2018). Đa dạng hóa thu nhập và quy mô tổng tài sản tại các Ngân hàng thương mại: Nghiên cứu thực nghiệm tại ASEAN. Tạp chí Kinh tế và Phát triển, 257, 48-57.
Ozili, P.K. (2017). Bank earnings management and income smoothing using commission and fee income: A European context. International Journal of Managerial Finance, 13(4), 419-439.
Palich, L.E., Cardinal, L. B., & Miller, C. C. (2000). Curvilinearity in the diversification-performance linkage: An examination of over three decades of research. Strategic Management Journal, 21, 155-174.
Pesaran, M.H. (2007). A simple panel unit root test in the presence of cross‐section dependence. Journal of Applied Econometrics, 22(2), 265-312.
Phạm Duy Phú Thịnh, Phan Thị Mỹ Hạnh, Phan Thu Hiền (2021). Tác động của đa dạng hóa đến khả năng sinh lời của các ngân hàng thương mại Việt Nam. Tạp chí Nghiên cứu Tài chính-Marketing, 63(3), 53-65.
Roy, A. D. (1952). Safety first and the holding of assets. Journal of the Econometric Society, 20(3), 431-449. https://doi.org/10.2307/1907413
Sawada, M., (2013). How does the stock market value bank diversification? Empirical evidence from Japanese banks. Pacific-Basin Finance Journal, 23, 40-61.
Stiroh, K.J. (2004). Do community banks benefit from diversification? Journal of Financial Services Research, 25(2-3), 135-160.
Stiroh, K.J. (2006). New evidence on the determinants of bank risk. Journal of Financial Service Research, 30(8), 237-263.
Stiroh, K.J. & Rumble, A. (2006. The dark side of diversification: the case of U.S. financial holding companies. Journal of Banking and Finance, 30(8), 2131-2161.
Võ Đức Thọ (2017). Đa dạng hóa và rủi ro ngân hàng: nợ xấu và ổn định kém hiệu quả. Tạp chí Khoa học Đại học Mở Thành phố Hồ Chí Minh, 58(1), 128-140.
Võ Xuân Vinh và Trần Thị Phương Mai (2015). Lợi nhuận và rủi ro từ đa dạng hoá thu nhập của ngân hàng thương mại Việt Nam. Tạp chí Phát triển kinh tế, 26 (8), 54-70.
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