An analysis of the economic efficiency of the banking sector in Vietnam

Abstract

This study measures economic efficiency of commercial banks in Viet Nam and its determinants. The Stochastic Frontier Model is applied for a profit function. We include internal factors (including price of fund, price of physical capital, price of labor, price of loan and price of other earning assets) and macroeconomic factors (economic growth, inflation rate, and other macroeconomic environment variables) in the profit function. The empirical results show that the efficiency of Vietnamese commercial banks seems to be fluctuated steeply over the period 2008-2013. In terms of the efficiency of different groups of commercial banks, the profit efficiency of the State-owned commercial banks and Private commercial banks follow different trend. Particularly, the state owned commercial bank’s group seems to have extremely higher profit efficiency score then private commercial bank.