IMPACT OF OWNERSHIP STRUCTURE ON PROFITABILITY AND RISK OF VIETNAMESE COMMERCIAL BANKS

THE UNIVERSITY OF DANANG VO HOANG DIEM TRINH IMPACT OF OWNERSHIP STRUCTURE ON PROFITABILITY AND RISK OF VIETNAMESE COMMERCIAL BANKS SUMMARY OF DOCTORAL THESIS Major : Finance and Ban

THE UNIVERSITY OF DANANG

VO HOANG DIEM TRINH

IMPACT OF OWNERSHIP STRUCTURE ON PROFITABILITY AND RISK OF VIETNAMESE

COMMERCIAL BANKS

SUMMARY OF DOCTORAL THESIS

Danang, 2022

THE UNIVERSITY OF DANANG

VO HOANG DIEM TRINH

IMPACT OF OWNERSHIP STRUCTURE ON PROFITABILITY AND RISK OF VIETNAMESE

COMMERCIAL BANKS

SUMMARY OF DOCTORAL THESIS

Major : Finance and Banking Code : 62.34.02.01

Supervisors:

1 Assoc.Prof Lam Chi Dung, Ph.D

2 Assoc.Pro Dang Tung Lam, Ph.D

Danang, 2022

INTRODUCTION

1 MOTIVATIONS

Vietnam's commercial banking system is a transformation system, adapting to the transformation of the economy from a centralized management mechanism to a socialist-oriented market economy It can be generalized into two major stages: the transition from a one-tier banking system to a two-tiered banking system; the next stage, forming a system of multi-owned commercial banks with

an increasingly diversified ownership structure The transformation

of ownership structure is carried out according to a consistent policy and follows a strict process However, besides the great achievements contributing to the development of Vietnam's commercial banking system, there are still issues that need to be understood clearly, have scientific and practical bases, which require relatively complete and comprehensive data collection At the same time, conducting reliable research methods to form scientific arguments for perfecting the ownership structure of Vietnam's commercial banking system in the direction of increasing efficiency, accompanied by stability of this system

In terms of academic studies, it can be seen through the empirical research that most of researches focused on studying the impact of ownership structure on either profitability or risk There are only a few studies examining the effects of ownership structure on both profitability and risk In addition, the results of these studies show that there is no consensus for the impact of ownership structure on profitability and risk of commercial banks

In particular, the studies conducted on the subjects of Vietnamese commercial banks have the following main characteristics:

- Previous studies either use descriptive statistics to illustrate the ownership, profitability and risks in banks or quantitative methods with different approaches from this thesis Specifically, these studies are carried out on a small sample (in terms of both observations and periods) and focus on a specific type of ownership such as state-owned or foreign-owned rather than considering different types of ownership in their relationship with bank profitabity and risk;

- The empirical data in previous research does not differentiate between banks and listed companies Given the specific

intermediation characteristics of banks, the results may not be applicable for banks

- Those studies on the effect of ownership on Vietnamese banks’ risk consider a specific risk such as liquidity risk and credit risk while ignoring banks’ overall risk;

- Although there is some research obout the ownership effects on Vietnamese banks profitabilty and risk, the results’ robustness and the endogeneity in the model have not been properly considered

- Previous studies for banks in Vietnam have not properly investigated the mechanism for the impact of ownership on bank profitability and risk

In summary, a study was conducted on the Vietnamese commercial banking system according to a modern, comprehensive approach, with a complete data set and updating; overcoming the limitations in the research gaps, contributing to the diversity of empirical evidence, thereby bringing academic and practical values

is very necessary On that basis, the PhD student selected the topic

"Impact of ownership structure on profitability and risk of Vietnamese commercial banks"

2 RESEARCH PURPOSES

The research purpose is analysing the impact of ownership structure on profitability and risk of Vietnamese commercial banks, thereby proposing useful recommendations for state management agencies and Vietnamese commercial banks

3 RESEARCH QUESTIONS

- In theory, based on which perspective and analysis the ownership structure can be considered? Are there any theories related to ownership structure, profitability, risk of commercial banks?

- How has the ownership structure, profitability and risk of Vietnamese commercial banks changed in recent years?

- Does ownership structure affect Vietnamese commercial banks’ profitability and risk? How specific are the impacts?

- In Vietnam, through which mechanism does ownership structure actually affect commercial banks’ profitability and risk?

- Based on the current situation, what are the necessary recommendations for Vietnam’s state management agencies and commercial banks?

4 RESEARCH OBJECTS AND SCOPES

4.1 Research Object:

The research object is the impact of ownership structure on profitability and risk of Vietnamese commercial banks The research subjects are Vietnamese joint stock commercial banks

4.2 Research Scope:

The research focuses on studying the impact of two forms of ownership structure on profitability and risk of Vietnamese commercial banks: the ownership structure according to (i) characteristics of shareholders: state ownership, foreign ownership, domestic investor ownership and (ii) the degree of ownership concentration of Vietnamese joint stock commercial banks in the period 2007-2019

5 METHODOLOGY

The research mainly uses econometric analysis method based on unbalanced panel data In addition, the thesis also uses some additional methods such as descriptive statistics to help clarify the research problems The conclusions and implications from the study will be based on the results from the analytical models in the thesis

6 CONTRIBUTIONS

From theoretical perspective

First, the impact of ownership structure on profitability and risk

of commercial banks has received considerable amount of attention from scholars in Vietnam and around the world However, there have been very few studies conducted simultaneously the impact of ownership structure on both profitability and risk of commercial banks Simultaneous consideration of the influence of ownership structure on both profitability and risk of commercial banks in the same research topic will allow to place correlations in a whole, thereby contributing to the discussion of research findings and especially considering the implications of the findings in a comprehensive, systematic way, rather than considering them in isolation This will help limit one-sided, or not considering the trade-off between risk and return conclusions Therefore, one of the contributions of this thesis is conclusions from empirical research on the impact of ownership structure on both profitability and risk;

Secondly, research methods in previous empirical studies in

Vietnam have not been given adequate attention To overcome these

issues, the thesis will select the most appropriate regression model with reasonable tests to analyze the impact of different ownership structures on profitability and aggregate risk of commercial banks in Vietnam The research’s sustainability outcomes and endogeneity problems of the model are also verified in this thesis;

Thirdly, a further research on the impact of ownership structure

in the interaction relationship with corporate governance mechanism

on profitability and risk of Vietnamese commercial banks will be studied for the first time in the thesis;

At last, the thesis will analyse the actual database related to 26

commercial banks in Vietnam for the period 2007-2019 By mean of this, the study only focuses on Vietnamese commercial banks and excludes all companies dealing not only in commercial banks fields

It is also noted that the extent of this research subjects are extended, both in terms of time study and in terms of number of Vietnamese commercial banks

From practical perspective

This thesis could be one of the first researches using the context and data of Vietnam to study the impact of ownership structure simultaneously on profitability and risk In addition, although few previous studies examined the effect of ownership structure on profitability or risk of commercial banks in Vietnam, the use of panel data with larger sample size is a new point of the thesis concentrated

on this issue

The main research results of the thesis provide useful recommendations for State management agencies by proposing more practical policies to increase the efficiency, stability and soundness

of the banking system in particular and the financial system in general; also ensure macroeconomic objectives For commercial banks, the thesis’ recommendations, based on scientific basis, concern decisions to improve banking governance by adjusting the ownership structure and/or finding solutions to promote advantages and overcome the limitations of each type of ownership structure; thereby increase the profitability and risk control capacity of commercial banks

7 THESIS STRUCTURE

This thesis is structured into four chapters, detailed as follows: Chapter 1: Theoretical and empirical basis of the impact of

ownership structure on profitability and risk of commercial banks Chapter 2: Research Design

Chapter 3: Research Results

Chapter 4: Discussion and Implications

CHAPTER 1 THEORETICAL AND EMPIRICAL BASIS OF THE

IMPACT OF OWNERSHIP 1.1 Ownership structure, profitability and risk commercial banks

This content introduces approaches to ownership structure, profitability, and risk At the same time, it introduces indicators to measure profitability as well as types of risks in banking business

1.2 Theory of the relationship between ownership structure,

profitability and risk

1.2.1 Theory of the relationship between ownership structure and profitability

- Agency cost theory, public choice theory and ownership theory

1.2.2 Theory of the relationship between ownership structure, and risk

- Agency Cost, Moral Hazard and Social Lending

- The Market Risk Theory and The Soft Budget Constraint Theory

1.3 Empirical studies on the impact of ownership structure on profitability and risk of commercial banks

ownership structure on profitability and risk internationally and domestically Studies show that there are many opposing views on the impact of ownership structure on profitability and risk of commercial banks

1.4 Research gaps

Through the overview of the above research situation, we have obtained a very rich research base at Vietnam and abroad on the impact of ownership structure on profitability and risk of enterprises

in general and banks in particular These studies not only show impact trends but also explain many issues of research methods such

as: the choice of research models, research variables, tests, advantages and disadvantages of different methods

However, in general as well as considering the oriented research problem for the actual operation of the Vietnamese commercial banking system, through analyzing and synthesizing the research process and results of above studies, the following research gaps can be found:

application-(i) Most of these studies either stop at purely descriptive studies;

or quantitative studies but the approach is different from this thesis;

or only research on small data samples, research time is not long enough; or only focus on one form of ownership such as state ownership or foreign ownership affecting profitability and risk of commercial banks, but not really focusing on the influence of other forms of ownership;

ii) Using the data sample of listed companies, including banks, rather than studying the impact of ownership structure on the performance of commercial banks, the empirical results may be true for the sample of listed companies, but not necessarily true for commercial banks - a field of operation with its own characteristics, quite different from other business fields;

(ii) Analysis of the impact of ownership structure on the risk of Vietnamese commercial banks only focuses on a specific type of risk, such as liquidity risk or credit risk, but has not assessed the impact of ownership structure to the overall risk of commercial banks;

(iv) Studies on the impact of ownership structure on profitability and risk of Vietnamese commercial banks so far have not been really interested in testing the sustainability of results and problems endogenous of the model

(v) Previous studies in Vietnamese commercial banks have not paid much attention to studying the mechanism through which ownership structure affects profitability and risk of commercial banks

CHAPTER 2 RESEARCH DESIGN 2.1 Hypotheses on the impact of ownership structure on the profitability and risk of commercial banks

H 1a : State ownership has a negative impact on profitability of Vietnamese commercial banks

H 1b : State ownership has a positive impact on profitability of Vietnamese commercial banks

H 2a : Domestic ownership has a positive impact on profitability of Vietnamese commercial banks

H 2b : Domestic ownership has a negative impact on profitability

of Vietnamese commercial banks

H 3a : Foreign ownership has a positive impact on profitability of Vietnamese commercial banks

H 3b : Foreign ownership has a negative impact on profitability of Vietnamese commercial banks

H 4a : Concentration ownership has a positive impact on profitability of Vietnamese commercial banks

H 4b : Concentration ownership has a negative impact on profitability of Vietnamese commercial banks

H 5a : State ownership has a positive impact on risk of Vietnamese commercial banks

H 5b : State ownership has a negative impact on risk of Vietnamese commercial banks

H 6a : Domestic ownership has a positive impact on risk of Vietnamese commercial banks

H 6b : Domestic ownership has a negative impact on risk of Vietnamese commercial banks

H 7a : Foreign ownership has a negative impact on risk of Vietnamese commercial banks

H 7b : Foreign ownership has a positive impact on risk of Vietnamese commercial banks

H 8a : Concentration ownership has a negative impact on risk of Vietnamese commercial banks

H 8b : Concentration ownership has a positive impact on risk of Vietnamese commercial banks

Profit it = β 0 + β 1 OWN it + β 2 CONTROL it + i +δ t +ε it

The impact mechanism of ownership structure on bank profitability has been modelled as follows:

Profit it =β 0 + β 1 OWN it +β 2 CG it + β 3 OWN it *CG it +

Risk it = β 0 + β 1 OWN it + β 2 CONTROL it + i +δ t +ε it

The impact mechanism of ownership structure on bank risk has been modelled as follows:

Risk it = β 0 + β 1 OWN it + β 2 CG it + β 3 OWN it *CG it +

OWN it : Independent variable to measure the ownership

structure by State ownership, Foreign ownership, Domestic

ownership, Concentration ownership

CG it : is proxy for the corporate governance The board

independence (INDB), board size (BOARD), Female board members

(FEB) is used to measure corporate governance

CONTROL it : control variables

i : bank fixed effect δ t : year fixed effect

ε it : the error term

2.3 The variables

Table 2.1: The variables

No Variables

Symbol for the variable

Description of the variable

Expected sign

+/-

2 Foreign

Percentage of equity shares held by foreign investors/ Total Equity

+/-

3 Domestic

Percentage of equity shares held by domestic investors/ Total Equity

+/-

4 Concentration

Percentage of equity shares held by block ownership/ Total Equity

+/-

Corporate governance variables

1 Board INDB The number of +

No Variables

Symbol for the variable

Description of the variable

Expected sign independence independent members in

board

2 Board size BOARD The number of individuals

serving on the board +

3 Female board

members FEM

Numbers of women present on the board +

Control variables

1 Bank size SIZE Logarithm of total assets +/-

2 Deposit ratio DEP Total deposit/ Total

3 Loan ratio LOA Total loan/ total assets +/-

4 Efficiency

Total operating expenses/

Total operating income +

by Stoxplus

2.5 Methodology

The thesis mainly uses econometric analysis method based on unbalanced panel data In addition, the thesis also uses some additional methods such as descriptive statistics to help clarify the research problems

CHAPTER 3 RESEARCH RESULTS 3.1 Descriptive statistics of data

This section presents the current status of profitability, risk and ownership structure of Vietnamese commercial banks in the period 2007-2019

3.2 Testing the impact of ownership structure on profitability of Vietnamese commercial banks in the period 2007 - 2019

3.2.1 Correlation analysis

3.2.2 The impact of ownership structure on profitability of

Vietnamese commercial banks

Table 3.1.The impact of ownership structure on profitability of Vietnamese commercial banks

Variables ROA ROE ROA ROE ROA ROE ROA ROE

(4.70) (-4.62) (5.65) (-2.69) (4.91) (-4.61) (4.75) (-4.53) Observations 318 318 317 317 317 317 291 291 Year fixed

effect Yes Yes Yes Yes Yes Yes Yes Yes

by adding an interaction coefficient between the ownership structure and corporate governance

Table 3.2: The impact of state ownership and domestic ownership

on risk of Vietnamese commercial banks

(3.60) (2.98) (-1.91) Domestic ownership

0.002*** -0.010** 0.269*** (-2.89) (-1.10) (2.93) (-4.32) (-2.24) (3.92) LOA -0.001 0.022 0.111 -0.002 0.018 0.122