Bank capital and bank profitability of Vietnam commercial banks

Abstract

The commercial banking system plays an important role in providing capital to businesses and other organizations, so bank capital receives great attention from many different subjects in the economy. This position is even more crucial for Vietnam, a developing country because the corporate bond market is relatively small in comparison to the size of the economy. As a result, commercial bank business efficiency is a problem that requires attention since it has a direct impact on the efficiency with which capital is provided to firms, as well as the market's stability. The research study concerning the effect of bank capital on bank profitability was conducted using data gathered from 22 Vietnam commercial banks from 2011 to 2020, using Pooled OLS, FEM, REM, and GMM methodologies. The results show that bank capital has a negative relationship with profitability. Bank profitability is also positively affected by bank size, credit risk, credit growth, and capital adequacy ratio. This study offers a new understanding of the relationship between bank capital, and bank profitability in Vietnam and proposed implications for Vietnam commercial banks' governance solutions, a country whose financial system depends mainly on banks, has transformed its capital management direction according to Basel 2 guidelines and is preparing for Basel 3 standards.