The Role of Bank Funding Diversity: evidence from Vietnam

Abstract

This paper analyzes the impact of bank funding diversity on bank income and risk in emerging markets. We utilize a data sample which includes 37 Vietnamese banks for the period 2006–2015. We find that banks with diversified funding sources have advantages in improving profitability. However, we also find that banks with higher funding liquidity tend to participate in more risk-taking activities. The findings contradict the notion that banks which have access to diversified funding sources are able to improve profitability without increasing their risk-taking. The study has strong implication for banks managers and prudential authorities in emerging markets.