Determinants of bank profitability in Vietnam: does foreign presence matter?

Abstract

The present paper seeks to examine the determinants of bank profitability in Vietnam during the period 2004–2013. The empirical findings suggest that credit risk, non-interest income, operating expense and liquidity variables have a statistically significantly impact on bank profitability. The empirical findings suggest that credit risk and expense preference behaviour are negatively related to banks' profitability, while non-interest income and liquidity have a positive impact. During the period under study, the results suggest that inflation has a negative impact on bank profitability, while the impacts of economic growth and money supply have not significantly explained the variations in the profitability of the Vietnamese banks. Besides, foreign presence from the macroeconomic view and enterprise view do not show the significant relationship with bank profitability. In other words, the opening up policy to allow more foreign entry entering into domestic banking market and relaxing of foreign ownership restriction in local banks are considered unclear for policy implications.