Thao Nguyen

Supervisors: Prof. Roman MatousekDr. Chris Stewart

12-11-2010

Outline of the presentation1. Objectives2. Vietnamese banking system3. Literature review4. Methodology5. Results6. Conclusions

To examine the Vietnamese banking system from the transition in 1986 until now

To investigate literature review of bank structure in Vietnam.

To apply data of Vietnamese banks (1999-2009) for structure evaluation.

Objectives

Milestones of the development of the banking system of Vietnam

1950 1985 1990 1995 2000 2005

02/1951 SBV was

found

1986 Doimoi reforms

1991 First JSCBs were

established

2002 Passage of

banking reform plan

09/2008 HSBC, SCB

opened wholly

owned units

1997 Asian financial

crisis

1997 Laws on the SBV and FIs wee

issued

01/2007 Vietnam

jointed WTO

2007 Financial crisis hit the

banking system

The Vietnamese banking system(The number of commercial banks from 1990 to 2009)

1990 1995 2000 2005 2009

State Owned Commercial Banks (SOCBs)

4 4 5 5 5

Joint Stock Commercial Banks (JSCBs)

0 36 39 37 37

Branches of Foreign Banks (BFBs) 0 18 26 31 44

Joint Venture Commercial Banks (JVCBs)

0 4 5 5 5

Total 4 62 75 78 91

Challenges for the banking system in VietnamVietnamese banks are affected by the movements in the

economy and governmental policies.

Many banks have not regarded risk management as one of the important targets.

All commercial banks are required to achieve legal capital of 1000 billion VND and 3000 billion VND in 2008 and 2010 respectively.

The banking system, the bridge for economic capital, has been directly influenced by the tightening monetary policy of the government in 2008.

Foreign banks with advance technology, products and professional management seem to be the greatest obstacles to the domestic banking system in the coming years

Most studies, however, have concentrated on banking history, and solutions with applications for a small sample of banks. No study considers bank structure for a large number of banks and long period of time in the system.

Barth (2001): investigated banking structure in 107 countries but data collection in Vietnam made it difficult for researchers to examine the case of Vietnam.

Kousted et al. (2005): used the data of banking deposits before 2000.

Literature reviews

Methodology

To estimate Vietnamese banking structure by Herfindahl-Hirschman Index (HHI) and Concentration ratio

To apply Structure method (profitability –concentration) to estimate the system and the relationship between profit and other regression variables.

Data : 48 Vietnamese banks from 1999 to 2009

Herfindahl-Hirschman Index (HHI) and Concentration ratio

HHI-CL (TA) (CD): HHI index when MS is market Share (Customer Loans, Total Assets and Customer Deposits of bank ith divided by total banking sector Customer Loans, Assets and Customer Deposits respectively in year tth).

CRCL (TA) (CD) 3: Concentration ratio of three banks when market share is Customer Loans, Total Assets and Customer Deposits

CRCL (TA) (CD) 5: Concentration ratio of five banks when market share is Customer Loans, Total Assets and Customer Deposits

n

iiMSHHI

1

2

k

iik SCR

1

Year CRCL3 CRCL5 HHI-CL CRTA3 CRTA5HHI-TA

CRCD3 CRCD5 HHI-CD

1999 0.7976 0.9203 0.2244 0.6819 0.9094 0.2017 0.7293 0.9272 0.2142

2000 0.7679 0.9007 0.2143 0.6825 0.9028 0.1972 0.6999 0.9139 0.2019

2001 0.5517 0.8805 0.2179 0.4781 0.8729 0.1942 0.5269 0.8679 0.2006

2002 0.7542 0.8921 0.2134 0.6769 0.8841 0.1895 0.6319 0.8651 0.1764

2003 0.7347 0.8788 0.2198 0.6772 0.8703 0.1895 0.6533 0.8637 0.1783

2004 0.7001 0.8522 0.2059 0.6582 0.8395 0.1780 0.6462 0.8488 0.1726

2005 0.6741 0.8221 0.1886 0.6185 0.8076 0.1617 0.6327 0.8310 0.1643

2006 0.6283 0.7733 0.1683 0.5770 0.7577 0.1391 0.5864 0.7940 0.1480

2007 0.5411 0.6851 0.1314 0.4770 0.6416 0.1019 0.5278 0.7024 0.1215

2008 0.5427 0.6819 0.1301 0.4741 0.6372 0.1016 0.5220 0.6784 0.1194

2009 0.5066 0.6459 0.1141 0.4100 0.5738 0.0828 0.4610 0.6147 0.0994

Structure model: Concentration-Profitability

πi: bank i’s profits measured as the Return On Assets (ROA); Interest Income On Assets.

MSi: market share. CRj: 3 and 5-firm Concentration ratio. TCTAi: Capital to Asset ratio.CLCDi: Loan to Deposit ratio.LNTAi: Total bank assets. FOREIGNi: it is equal to one if the bank does not has

foreign bank shareholder and zero otherwise.

FOREIGNaLNBRaLNTAaCLCDaTCTAaCRaMSaa iiiiii 76543210

If a1 > 0, a2 = 0: Banks with high market share are more efficient than their rivals and increased market concentration does not result in banks earning any monopoly rents. This supports the efficient hypothesis (see Smirlock, 1984)

If a1 = 0, a2 > 0: Market share does not affect bank rents and that rents reflected in higher profitability are monopoly rents that result from market concentration. This supports the traditional hypothesis.

Dependent variable: LNREVTA Dependent variable: LNINTTA

Normal 1-way Fixed Effect 2-way FE Normal 1-way Fixed Effect 2-way FE

Customer Loans

MSCL3 -0.07937(-0.16095)

-2.56405*(-1.86278)

-1.898(-1.42788)

0.589573(1.143555)

-2.11494(-1.47959)

-1.16407(-0.85458)

CRCL3 -0.57252**(-2.03116)

-1.25083**(-2.59066)

0.210487(0.150351)

-0.97097***(-3.29493)

-1.63758***(-3.26604)

-0.38456(-0.26805)

MSCL5 0.014298(0.028539)

-2.2507*(-1.65341)

-1.94438(-1.46405)

0.671427(1.281363)

-2.00865(-1.417)

-1.22782(-0.90167)

CRCL5 -0.66846**(-2.25311)

-1.62738***(-3.23369)

7.807086(0.692376)

-1.05395***(-3.39662)

-1.86232***(-3.55359)

5.13276(0.44396)

Total Assets

MSTA3 -0.0933(-0.17098)

-0.96849(-0.76052)

-0.00806(-0.00643)

0.567341(0.992217)

-0.69842(-0.52535)

0.845317(0.660153)

CRTA3 -0.58078*(-1.99116)

-1.31634***(-2.98145)

0.090008(0.055053)

-0.92256***(-3.01847)

-1.42054***(-3.08201)

-0.65296(-0.39084)

MSTA5 -0.06343(-0.11393)

-0.67108(-0.5207)

-0.00806(-0.00643)

0.669693(1.149263)

-0.22654(-0.16891)

0.845317(0.660153)

CRTA5 -0.49273*(-1.97063)

-1.33852***(-3.28024)

0.729234(0.055053)

-0.82327***(-3.14593)

-1.55672***(-3.66585)

-5.29021(-0.39084)

Customer Deposits

MSCD3 -0.28338(-0.5366)

-1.53032(-1.18625)

0.10101(0.077753)

0.347871(0.628533)

-1.32198(-0.98653)

0.471614(0.355076)

CRCD3 -0.48415(-1.36028)

-0.99895*(-1.87151)

0.132109(0.070678)

-0.95493**(-2.55999)

-1.41718**(-2.55602)

-0.45497(-0.23808)

MSCD5 -0.06264(-0.11625)

-0.70367(-0.53868)

0.10101(0.077753)

0.587094(1.041159)

-0.47059(-0.34718)

0.471614(0.355076)

CRCD5 -0.57359*(-1.96375)

-1.5096***(-3.29863)

0.86688(0.070678)

-0.95249***(-3.11616)

-1.81935***(-3.83123)

-2.98546(-0.23808)

Other Variables

Dependent variable: LNREVTA Dependent variable: LNINTTA

Normal 1-way FE 2-way FE Normal 1-way 2-wayCustomer Loans and 3-Bank ratio

TCTA 0.446416***(4.475261)

0.477381***(4.062938)

0.426866***(3.747264)

0.378651***(3.630795)

0.429735***(3.521958)

0.392904***(3.365766)

LNTA -0.0854*** (-3.79269)

-0.09789***(-2.6417)

-0.11743***(-3.2294)

-0.10133***(-4.30466)

-0.10865***(-2.82339)

-0.12425***(-3.33424)

LNBR 0.111864***(4.044533)

0.067362(1.252141)

0.038498(0.730093)

0.087268***(3.017968)

0.030398(0.544108)

-0.02039(-0.37738)

Customer Loans and 5-Bank ratio

TCTA 0.435995***(4.354994)

0.446563***(3.790882)

0.422799***(3.709167)

0.370048***(3.534124)

0.4078***(3.324354)

0.389863(3.335753)

LNTA -0.08915***(-3.90806)

-0.11557***(-3.05779)

-0.11796***(-3.24569)

-0.105***(-4.40077)

-0.12075***(-3.06801)

-0.12471(-3.34644)

LNBR 0.111035***(4.030215)

0.059053(1.116025)

0.044903(0.839626)

0.087616***(3.040699)

0.02991(0.542815)

-0.01445(-0.2635)

Total Assets and 3-Bank ratio

TCTA 0.446246***(4.408894)

0.481736***(4.042774)

0.416419***(3.602175)

0.377943***(3.563571)

0.450611***(3.622356)

0.373692***(3.163421)

LNTA -0.08605***(-3.51609)

-0.0976**(-2.48816)

-0.12716***(-3.2763)

-0.10569***(-4.12131)

-0.09897**(-2.41686)

-0.14034***(-3.53863)

LNBR 0.112118***(4.386474)

0.059409(1.151308)

0.018728***(0.366819)

0.095825***(3.577856)

0.037806(0.701802)

-0.03309(-0.63416)

Total Assets and 5-Bank ratio

TCTA 0.44508***(4.381466)

0.464803***(3.891546)

0.416419***(3.602175)

0.369968***(3.479811)

0.422049***(3.395474)

0.373692***(3.163421)

LNTA -0.08649***(-3.50727)

-0.10969***(-2.73424)

-0.12716***(-3.2763)

-0.1085***(-4.20357)

-0.11858***(-2.84032)

-0.14034***(-3.53863)

LNBR 0.112202***(4.38935)

0.04826(0.927609)

0.018728(0.366819)

0.095314***(3.562588)

0.022078(0.407776)

-0.03309(-0.63416)

Customer Deposit and 3-bank ratio

TCTA 0.473668***(4.719674)

0.531974***(4.50805)

0.415204***(3.613196)

0.404308***(3.843893)

0.488408***(3.98449)

0.381319***(3.245657)

LNTA -0.07689***(-3.2184)

-0.07043*(-1.90297)

-0.12814***(-3.4087)

-0.09624***(-3.8436)

-0.07974**(-2.07424)

-0.13441***(-3.49709)

LNBR 0.113797***(4.419636)

0.070505(1.330772)

0.018583(0.3638)

0.096995***(3.594373)

0.03746(0.680677)

-0.03317(-0.63523)

Customer Deposit and 5-bank ratio

TCTA 0.449992***(4.467781)

0.484917***(4.131426)

0.415204***(3.613196)

0.379202***(3.597781)

0.442425***(3.632641)

0.381319***(3.245657)

LNTA -0.08558***(-3.52252)

-0.1036***(-2.73563)

-0.12814***(-3.4087)

-0.10583***(-4.1627)

-0.11258***(-2.86466)

-0.13441***(-3.49709)

LNBR 0.1117***(4.358142)

0.048118(0.918571)

0.018583(0.3638)

0.095395***(3.55671)

0.016902(0.310942)

-0.03317(-0.63523)

ResultsHerfindahl-Hirschman Index (HHI) and

Concentration ratio reduced from 1999 to 2009.In general, MSCL, MSTA and MSCD are all

insignificant while CRCL3(5), CRTA3(5) and CRCD3(5) are significant in normal and 1-way FE; or a1=0, a2>0

Regarding to results between Total Revenues/Total Assets (LNREVTA) and Total Interest Revenues/Total Assets (LNINTTA), LNREVTA has better results.

Variables of Capital-to-Asset ratio, Total Asset, Branch are all statistically significant.

The Vietnamese banking market has sign of collusion and concentration.

State Owned Commercial Banks nearly dominated the whole banking industry while small and medium banks performed well in the period of research.

Banks with high Total Capital to Total Asset ratio and branch networks also have high values of Total Revenues and Total Interest Revenues.

Conclusions