This document outlines a presentation on examining the structure of Vietnam's banking system from 1986 to 2009. It includes the following key points: - The objectives are to examine the development of Vietnam's banking system and investigate the literature on bank structure in Vietnam. - The methodology uses concentration ratios and the Herfindahl-Hirschman Index to evaluate bank structure, and a structure model to examine the relationship between profitability and other factors. - The results show concentration in the banking sector has decreased over time based on the concentration ratios and HHI. The structure model finds that capital ratios positively impact profitability while bank size and branch networks have mixed effects.

1. Thao Nguyen
Supervisors: Prof. Roman Matousek
Dr. Chris Stewart
12-11-2010

2. Outline of the presentation
1. Objectives
2. Vietnamese banking system
3. Literature review
4. Methodology
5. Results
6. Conclusions

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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