The effects of foreign bank entry, deregulation on bank efficiency in Vietnam

Abstract

This study examines the effects of foreign banks entry to the efficiency of Vietnam‘s domestic banks following the government to initiate deregulation its financial banking. We also review the bank efficiency in term of bank size and ownership structure. There are two principled approaches to assess the efficiency of a bank by data envelopment analysis (DEA) and stochastic frontier analysis (SFA) methods. In this paper, we apply the SFA method which is suggested by Berger et al. (2009), Ahn, Lee & Achmidt (2001) to estimate the cost and profit efficiency of three groups that includes 100% foreign-owned, big four state-owned and other domestic banks. Based on the initial sample which is collected from the BankScope database from Bureau van Dijk and FitchRatings and also annual reports of 37 banks in Vietnam over the period of 2009 to 2015. Results indicate that big four state-owned banks are seemly efficiency on both cost and profit approach while the 100% foreign-owned banks are not the most efficiency overall. However, the 100% foreign-owned banks are able to gain economy of scale in revenue while the big four state-owned and other domestic banks hardly take an advantage of economic of scale. All group of bank obtain the diseconomy of scope but the level is different.