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Thao Nguyen
Supervisors: Prof. Roman Matousek
Dr. Chris Stewart
12-11-2010
Outline of the presentation
1. Objectives
2. Vietnamese banking system
3. Literature review
4. Methodology
5. Results
6. C...
To examine the Vietnamese banking system from
the transition in 1986 until now
To investigate literature review of bank ...
Milestones of the development of the
banking system of Vietnam
1950 1985 1990 1995 2000 2005
02/1951
SBV
was
found
1986
Do...
The Vietnamese banking system
(The number of commercial banks from 1990 to 2009)
1990 1995 2000 2005 2009
State Owned Comm...
Challenges for the banking system in Vietnam
Vietnamese banks are affected by the movements in the economy
and government...
Most studies, however, have concentrated on banking history, and
solutions with applications for a small sample of banks....
Methodology
To estimate Vietnamese banking structure by
Herfindahl-Hirschman Index (HHI) and
Concentration ratio
To appl...
Herfindahl-Hirschman Index (HHI) and
Concentration ratio
HHI-CL (TA) (CD): HHI index when MS is market Share (Customer
Lo...
Year CRCL3 CRCL5 HHI-CL CRTA3 CRTA5 HHI-TA CRCD3 CRCD5 HHI-CD
1999 0.7976 0.9203 0.2244 0.6819 0.9094 0.2017 0.7293 0.9272...
Structure model: Concentration-Profitability
πi: bank i’s profits measured as the Return On Assets (ROA); Interest
Income...
Dependent variable: LNREVTA Dependent variable: LNINTTA
Normal 1-way Fixed Effect 2-way FE Normal 1-way Fixed Effect 2-way...
Other
Variables
Dependent variable: LNREVTA Dependent variable: LNINTTA
Normal 1-way FE 2-way FE Normal 1-way 2-way
Custom...
Results
Herfindahl-Hirschman Index (HHI) and
Concentration ratio reduced from 1999 to 2009.
In general, MSCL, MSTA and M...
The Vietnamese banking market has sign of collusion and
concentration.
State Owned Commercial Banks nearly dominated the...
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  1. 1. Thao Nguyen Supervisors: Prof. Roman Matousek Dr. Chris Stewart 12-11-2010
  2. 2. Outline of the presentation 1. Objectives 2. Vietnamese banking system 3. Literature review 4. Methodology 5. Results 6. Conclusions
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. Challenges for the banking system in Vietnam Vietnamese 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
  7. 7. 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
  8. 8. 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
  9. 9. 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 i iMSHHI 1 2 ∑= = k i ik SCR 1
  10. 10. Year CRCL3 CRCL5 HHI-CL CRTA3 CRTA5 HHI-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
  11. 11. 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 +++++++=π  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.
  12. 12. 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)
  13. 13. Other Variables Dependent variable: LNREVTA Dependent variable: LNINTTA Normal 1-way FE 2-way FE Normal 1-way 2-way Customer 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*** 0.048118 0.018583 0.095395*** 0.016902 -0.03317
  14. 14. Results Herfindahl-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.
  15. 15. 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
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