000067781 WHAT SHOULD BE THE OPTIMAL CAPITAL STRUCTURE FOR A COMMERCIAL BANK IN VIETNAM? AN ANALYSIS OF FOUR BIGGEST BANKS IN VIETNAM CƠ CẤU VỐN TỐI ƯU CHO MỘT NGÂN HÀNG THƯƠNG MẠI TẠI VIỆT NAM NÊN LÀ GÌ? PHÂN TÍCH BỐN NGÂN HÀNG LỚN NHẤT VIỆT NAM
Introduction II 2 Literature r e v ie w
Optimal capital structure
Being a familiar and often-used term, there exist a whole lot o f definitions o f capital structure in dictionaries, books and internet links Listed below are from some trustworthy sources.
Capital structure, as defined in The Wall Street Dictionary by R.J Shook and Robert L Shook and published by the New York Institute of Finance, is the basis for comparing a company's debt to its equity In short, it describes how a business finances itself by blending debt and equity, focusing on the debt-to-equity ratio to measure financial leverage.
Know n as o ne o f the Internet's largest sites devoted entirely to investing education, lnvestopedia.com has grown to become a well-respected source for financial information
Capital structure is the mix of a company's long-term debt, short-term debt, common equity, and preferred equity used to finance its operations and growth Debt appears as bonds or long-term notes payable, while equity includes common stock, preferred stock, and retained earnings Short-term debt, such as working capital needs, is also part of the capital structure, reflecting how the firm funds its day-to-day activities alongside longer-term funding sources.
A n o th e r explanation o f capital structure is from authors Ronald W Melitcher, Merle
According to T Welshans and Edgar A Norton in the finance textbook Finance: Introduction to Institutions, Investments, and Management (South-Western College ninth edition), capital structure is defined as the ratio of long-term debt to equity By defining capital structure this way, the authors highlight how a firm's choice between debt and equity financing determines its financial risk, cost of capital, and overall value.
Several experts disagree on the precise definition of capital structure, a debate that persists among economists and researchers Yet all viewpoints share a core idea: capital structure is the mix of debt and equity that a company uses to finance its operations For the purposes of this article, capital structure is defined as the debt-to-equity ratio of the company—the total debt divided by total equity across the entire firm.
2.1.2 Definition o f optim al capital structure
An optimal capital structure, also known as the target capital structure, is the debt-to-equity ratio that best fits a company This ratio minimizes the cost of capital—the expense of financing the company's operations—and, in turn, maximizes shareholder wealth.
Modigliani & M iller theorem (M & M th eo re m )
Named after its authors, Franco Modigliani and Merton Miller, the Modigliani–Miller theorem (M&M) is a foundational tool for examining how various variables influence a firm’s choice of optimal capital structure Completed in 1958, it remains the bedrock for ongoing research and discussion in corporate finance, guiding analyses of leverage, financing decisions, and their impact on firm value under different market conditions.
T h e theorem considers two identical companies which share everything in c o m m o n except for their capital structures Firm U is unleveraged, which is financed by equity
OPTIMAL CAPITAL STRUCTURE 2 0 1 0 only; whereas firm L is leveraged, m ea n in g it is financed partly by debt and partly by equity.
2.2.1 M & M theorem - no tax case: “ P erfect w o r l d ”
The full developm ent o f the M&M theorem starts with a ‘‘perfect w o rld ” , in which som e assum ptions are set:
• Sym m etric information for all participants
2.2.1.1 Proposition I: The value o f the firm leveraged (VL) is equal to the value o f the firm unleveraged (Vy )
• A firm ’s capital structure is irrelevant.
• A firm w eighted average cost o f capital (W A C C ) is the sam e no m atter w hat m ixture o f debt and equity is used to finance the firm.
2.2.1.2 Proposition II: The cost o f equity, R E, is:
Re = + ( ^a ■ ^d) x D/E w here RA is the W A C C , R D is the cost o f debt, and D/E is the debt/equity ratio.
• The cost o f equity rises as the firm increases its use o f debt financing.
• The risk o f equity depends on two things: the riskiness o f the firm ’s operations (business risk) and the degree o f financial leverage (financial risk).
Modigliani–Miller theorem does not stop at propositions based on unrealistic assumptions; it moves toward real-world applicability by incorporating tax effects, showing how taxes influence capital structure decisions and corporate valuation in corporate finance.
2.2.2.1 Proposition 1 with taxes: The value o f the firm leveraged (VL) is equal to the value o f the firm unleveraged (Vu) plus the present value o f the interest tax shield:
VL = V u + T c x D where Tc is the corporate tax rate and D is the am ount o f debt.
• Debt financing is highly advantageous and in the extreme, a firm’s optimal capital structure is 100% debt.
• A firm ’s W A C C decreases as the firm relies on debt financing
2 2 2 2 Proposition II with taxes: The cost o f equity, R E, is:
Re = Ru + (Ru * Rd) x D/E x (I - Tc ) w h e r e R y is the unlevered cost o f capital, i.e the cost o f capital for the firm if it has no de b t.
Im plications o f proposition II with taxes are the same as the case o f no tax.
Static t h e o r y
Under the Modigliani–Miller theorem with taxes, a firm's optimal capital structure would be 100% debt because interest expense is tax-deductible, creating a tax shield that lowers the after‑tax cost of capital However, this debt-driven approach is tempered by bankruptcy costs, which rise with higher leverage Bankruptcy costs come in two forms: direct bankruptcy costs, such as legal and administrative fees incurred during insolvency, and indirect bankruptcy costs, which reflect the operational difficulties and lost opportunities a distressed firm experiences in its day-to-day business.
In practice, there is a trade-off between the tax benefits of debt and the risk that the firm cannot meet its debt obligations Borrowing reduces corporate taxes through the interest tax shield, but higher leverage increases the probability of bankruptcy and financial distress At relatively low debt levels, bankruptcy risk is small, so the tax shield from debt outweighs the costs However, at very high debt levels the potential for financial distress becomes a major challenge, and the costs can exceed the tax benefits This idea lies at the heart of the static theory of capital structure, which suggests that firms borrow up to the point where the marginal tax benefit of an extra dollar of debt exactly offsets the marginal cost from increased financial distress.
Pecking order t h e o r y
Pecking order theory, developed by Stewart C Myers and Nicolas Majluf in 1984, suggests that companies follow a financing hierarchy, preferring internal funds (retained earnings) to external sources and treating equity as a last resort In this framework, firms first use internal financing and only seek external funds when necessary, and when external funds are required, they typically opt for debt over equity The theory also highlights information asymmetry: managers know more about the firm's prospects than external investors, which helps explain the reluctance to issue new equity.
Finance theory centers on maximizing firm value, but when claims are divided between equity and debt, equity holders may pursue their own interests rather than the firm’s overall welfare This leads to agency costs of debt—an incentive misalignment that must be traded off against the benefits of debt when making capital structure decisions.
Historically, there have been numerous empirical studies on capital structure One notable contribution is The Determination of Optimal Capital Structure: The Effect of Firm and Industry Debt Ratios on Market Value by Gay B Hatfield, Louis T W Cheng, and Wallace N Davidson, which investigates how debt levels at both the firm and industry levels influence market value This body of work, along with related research, sheds light on the determinants of an optimal leverage mix and how debt affects firm valuation across different industries.
Key studies on capital structure, including Milton Harris and Artur Raviv's Theory of Capital Structure and Stewart C Myers's Still Searching for the Optimal Capital Structure, have mainly focused on outlining theories or assessing the general effects of capital structure on firms In contrast, Allen N Berger's 2006 work, Capital Structure and Firm Performance: A New Approach to Testing Agency Theory and an Application to the Banking Industry, comes closer to analyzing the relationship between capital structure and firm performance, particularly within the banking industry.
Optimal capital structure in banking hinges on the relationship between capital structure and bank performance Berger (2010) concluded that capital structure affects bank performance, and at the same time, performance influences capital structure, establishing a two-way or bidirectional link between financing choices and outcomes In practical terms, this means leverage decisions and capital adequacy interact with performance metrics, so strategies for funding and risk management should be built around the reciprocal influence of capital structure and performance to enhance profitability and stability in the banking sector.
Within Vietnam, the optimal capital structure is a compelling topic that drives extensive discussion and debate on forums such as kiemtoan.com.vn, saga.vn, idr.edu.vn, voutemplates.com, and bantinsom.com Regrettably, these discussions mainly reflect individual opinions rather than rigorous research, and the publicly available academic work on this issue remains limited Notable contributions include San (2002) on tourism companies and Vu (2003) on HoSE-listed companies, with further attention to the determinants of capital structure by Tran Dinh Khoi Nguyen (2006) and Hung Son (2006).
Despite the distinctive features of capital structure in Vietnam, there have been relatively few studies on its current state, and to date no research in the Vietnamese banking sector has been conducted To address this gap, this thesis analyzes the capital structure of four major Vietnamese banks, including Agribank and BIDV, with the aim of painting a clear picture of how these banks fund their operations and how debt, equity, and leverage interact within the sector.
Research m e t h o d s
As mentioned earlier in the introduction, this paper examines the mix of debt and equity among the four largest banks in Vietnam’s banking system—two state-owned banks and two joint-stock banks—to address key questions about their capital structure and financing strategies within the Vietnamese financial sector.
• Factors affecting capital structure o f a bank? Application to Vietnamese banks.
• W hat are the most recent capital structures o f four biggest banks in Vietnam?
• What is the trend o f capital structure o f four biggest banks in Vietnam over the period 2005-2009?
• Is there a relationship betw een capital structure and performance o f four biggest banks in Vietnam ? If yes, how strong is that correlation?
• C om pare capital structure o f four biggest banks in Vietnam: whether the state- owned ones or the equitized ones are better?
From that, which one is likely to be the optimal capital structure for a commercial bank in Vietnam?
In order to have reasonable answers, Financial statements o f these banks from 2005 to
2009, which c om prises o f necessary data about their debts and equities were collected from official and reliable sources, i.e their websites and database o f auditor firm Ernst& Young For consistency, Financial statements followed Vietnamese Accounting Standard (V A S) were collected for all four banks However, due to the fact that Agribank has not published its latest financial statements o f the fiscal year 2009, the writer would like to thank classm ates and colleagues for their kindness to ask for its Balance sheet, but the Income statement could still not be found Data collected were then checked again to
OPTIM AL CAPITAL STRUCTURE 2 0 1 0 confirm the consistency through the years, whether the balance in last y ear's financial statements is the same as this y e a r’s restated balance If not, the audited and the latest one are referred to As these four banks are big and their annual financial announcem ents attract a great deal o f attention from the public, except for only Agribank, their financial statements were all audited by w e ll-know n international auditor firms, i.e PwC, Ernst& Y oung and K PM G This also serves the purpose o f preparing for equitization (the case o f BIDV ) and ensuring the ac cura cy o f the information delivered to shareholders (the case o f listed banks: V ietcom bank and Vietinbank).
In order to evaluate the operating efficiency o f the banks, two ratios would be calculated:
Net interest margin (NIM) measures the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders, relative to the amount of their total earning assets NIM is a ratio commonly used in the banking industry, so evaluating a bank's performance without considering its NIM would be a big mistake The NIM ratio is calculated as the difference between interest income and interest expense divided by earning assets.
Net interest income is reported in the bank’s income statement Total earning assets comprise all assets that generate income for the bank, including balances with the State Bank of Vietnam, balances with and loans to other financial institutions, trading securities, loans and advances to customers, investment securities, long-term investments, and investments in real estate.
Return on assets (ROA) is the percentage that shows how profitable a company's assets are in generating revenue and tells an investor how much profit a company generated for each dollar of assets It reflects asset efficiency and overall profitability, helping investors compare companies with different asset bases ROA is calculated as Net Income divided by Average Total Assets (ROA = Net Income / Average Total Assets).
In this financial formula, the numerator comes from the Income Statement, while the denominator is the average of total assets shown on the Balance Sheet for the current year and the previous year.
Throughout the thesis, it is acknowledged that classifying debts and equity in bank balance sheets is often unclear, making it difficult to distinguish long-term from short-term obligations and common from preferred shares As a result, the capital ratio is assumed to equal total debts divided by total equity, an assumption consistently used in computing the capital structure of all four banks studied For the debt-to-equity ratio calculation, the analysis relies on debt and equity data extracted directly from the balance sheets of the four banks to ensure simplicity and consistency.
This section conducts a self-classification of deposits and non-deposits within Total Liabilities and computes the ratio of each item to total liabilities Deposits include all funds from individuals, households, and organizations to banks, while non-deposits encompass the remaining liabilities on the balance sheet As deposits are the cheapest source of funds for banks, these ratios serve to evaluate a bank’s efficiency in attracting capital.
Statistical data, then, would be com pared am ong the four banks and over the five-year period o f 2005-2009 Also, in order to check whether there is a relationship between
Optimal capital structure 2010: This study examines banks' capital structure and their performance Regression analysis would be conducted to explore the relationship between capital structure and performance, and if a relationship is identified, the correlation coefficient would be calculated to quantify its strength.
Qualitative analysis: Factors affecting capital structure o f comm ercial banks and
External f a c to rs
Economic conditions should be a key factor in every business decision related to capital structure Under Modigliani and Miller Proposition I with taxes, equity financing is favored in a depressed economy due to its lower risk, while in a strong economy debt financing becomes preferable To illustrate, consider ABC Company, which currently has no debt and is evaluating a restructuring to issue debt and repurchase its outstanding equity; the current and proposed capital structures of ABC are outlined below.
Table 1: Current and proposed capital structures for ABC Company
ABC Company currently has total assets of VNĐ160 billion and 8 million shares outstanding at VNĐ20,000 per share In the proposed restructuring, the company issues VNĐ80 billion in debt to fund a share buyback, reducing outstanding shares to 4 million After the buyback, debt remains VNĐ80 billion and equity is VNĐ80 billion (4 million shares × VNĐ20,000), resulting in a capital structure that is 50% debt and 50% equity, i.e., a debt-to-equity ratio of 1.
To illustrate how capital structure depends on general economic conditions, this analysis examines scenarios of recession and expansion Although the figures are hypothetical and based on assumptions, they roughly reflect the conditions and performance of Vietnamese companies, offering timely insights for strategic financial planning under different macroeconomic environments.
(*)Current capital structure: No debt
Table 2: Capital structure scenarios for ABC Company
During expansion, debt financing appears rational because it can lift key performance metrics such as ROE and EPS, along with other indicators that reflect ABC’s stronger financial performance In contrast, in a downturn an all-equity capital structure tends to perform better for ABC, yielding higher ROE and EPS ratios These observations illustrate the broader link between capital structure decisions and general market conditions, showing how the funding mix adapts to economic cycles to influence financial performance.
2 0 0 8 saw a financial crisis, which w as originated from the housing bubble in the United States in 2005 - 2006, which resulted in the collapse o f the sub-prime mortgage market
During the global financial crisis, the liquidity shortfall in the US banking system led to the collapse of more than 100 banks in the United States by 2010 While the US economy wields vast global influence and the crisis sent spillovers to economies worldwide, Vietnam’s banking sector has remained relatively healthy, at least according to official financial announcements Vietnam’s limited participation in the global market helped shield its economy from the most severe impacts of the crisis, making it among the least affected economies in the region.
The relationship between industry membership and capital structure has drawn substantial scholarly attention Harris and Raviv, in their review of the capital structure literature, observe that firms within the same industry tend to exhibit similar leverage ratios, while leverage varies across industries This insight reflects Jensen and Meckling’s work on agency costs of debt, which suggests that firms with slow or negative growth opportunities rely more on debt, particularly in mature, heavily regulated sectors such as public utilities and banking Schwartz and Aronson similarly find that differences in leverage within industry groups are not statistically meaningful, whereas differences across industries are significant, and that average industry leverage ratios remain fairly stable over time.
A n o th e r detailed research by Bradley, Jarrell and Kim (1984) also asserted strong industry influences on firm leverage ratios, by relying on cross-sectional regressions o f
Exploring optimal capital structure, the study shows that industry classification explains a substantial portion of firm leverage—about 54% of the variation The R-squared value demonstrates strong explanatory power, and when regulated firms are excluded from the sample, it remains meaningful at 25%, indicating that industry factors influence leverage beyond regulatory effects.
Commercial banks, whose core function is to accept deposits and extend credit, are among the most highly leveraged sectors, a point highlighted by Ngo Thi Thanh Huyen in her 2008 graduation thesis analyzing the financial leverage of listed companies on HoSE and HNX Her findings show the Financials sector posting the highest debt-to-equity ratio of 2.001 and the largest standard deviation of 2.229, indicating the greatest variation in capital structures among banks and other financial firms However, because the analysis covers the Financials sector more broadly than just the banking industry, these results should be treated as reference rather than directly applicable conclusions.
Banking is one of the most heavily regulated industries due to its crucial role in national economies and international trade To legally operate, banks must meet a broad range of international and domestic regulatory requirements—covering licensing, supervision, capital adequacy, consumer protection, and risk management—to safeguard financial stability and maintain trust in the financial system.
In terms o f capital requirement, there is a famous and popular so-called the Basel
The Agreement on International Capital Standards was designed primarily to encourage leading banks around the world to maintain strong capital positions and to reduce disparities in capital requirements across countries.
The original Basel capital standards are known today as Basel I, which stipulated an adequately capitalized bank must have:
• A ratio o f core capital (Tier I ) to total risk-weighted assets o f at least 4%; and
• A ratio o f total capital to total risk-weighted assets (CAR) o f at least 8%, with the amount o f Tier 2 capital limited to 100% o f Tier 1 capital.
The second o f the Basel Records is the Revised International Capital Framework, also known as Basel II Its three pillars are:
• Minimum capital requirem ents for each bank are based on its own estimated risk exposure from credit, m arket and operational risks;
• Supervisory review o f each bank’s risk-assessment procedures and the adequacy o f its capital will be done to ensure they are reasonable; and
• Greater public disclosure o f each b a n k ’s true financial condition so that market discipline can becom e a powerful force compelling excessively risky banks to lower their risk exposure.
The Basel III framework, the latest revision of the Basel Accords, was introduced in response to the recent financial crisis It requires Tier 1 equity capital to rise from 4% to 6%, with 4.5% of the capital to be held as common shareholder equity by 2015, and a further 2.5% (totaling 7%) by 2019 Banks that fail to meet these requirements may be barred from paying dividends to shareholders until their balance sheets improve.
T h o u g h most banks are not required, at least initially, to meet the standards o f Basel
A c cords, all banks will likely be affected due to increasing competition The same
The 2010 optimal capital structure framework applies to Vietnamese banks, especially amid the globalization of the financial services market Vietnam has invested in strengthening its legal system and enhancing risk management to progressively align with international standards and practices.
Recently, the State Bank of Vietnam issued Circular 13 on May 20, 2010, and its amendment Circular 19 on September 27, 2010, regulating safety ratios that place pressure on local commercial banks’ capital and hinder efforts to cut interest rates These measures impose stricter requirements on the capital adequacy ratio (CAR) and the loan-to-deposit ratio (LDR) than international capital rules, tightening Vietnamese banks’ capital and liquidity standards.
Under Circular 13, the capital adequacy ratio (CAR) that banks must meet will be 9% from October 1, 2010, higher than the 8% international standard A securities company report indicates that as of 2009, the CAR of most commercial banks in Vietnam was around 8%, with the highest level observed at 26% Due to a lack of data, this article cannot collect and calculate all commercial banks’ CARs to verify the report’s stated creditworthiness.
B ased on the collectible data, C A R o f 10 banks are as below:
Among the ten largest banks by total assets, all except Agribank report a capital adequacy ratio (CAR) above 8%, with Exim Bank’s CAR exceeding 26% This result aligns with the figures in the accompanying report However, these figures pertain only to the top ten banks by assets, and CARs for smaller banks are not available due to data limitations, so a comprehensive view of the entire market cannot be drawn.
Furthermore, LD R at com m ercial banks is limited at 80% by Circular 13, while Basel III puts no restriction on LDR.
Internal f a c to rs
T here are a lot o f firm-specific characteristics that determ ines capital structure, which are different case by case for each bank.
Numerous studies have examined the link between profitability and leverage, but results have often conflicted In Jensen's (1986) free cash flow model, highly profitable firms with ample internal funds are more prone to takeovers, and once such takeovers occur these firms tend to have higher debt-to-equity ratios Supporting the tax-based view, trade-off models argue that profitability makes debt financing attractive because these firms face larger tax burdens yet enjoy relatively low bankruptcy risk, a perspective echoed by Ooi (1999).
Alternatively, the pecking-order theory of Myers and Majluf (1984) states that information asymmetries lead firms to favor internal financing Consequently, more profitable firms tend to have lower leverage ratios Further and later findings by Friend and colleagues support this perspective.
L a n g (1988) and K ester (1986) also figured out a significantly negative relation between profitability and leverage ratios The measure o f profitability used in the regressions was
EBIT divided by total assets serves as a profitability measure Titman and Wessels (1988) and Barton et al (1989) argued that firms with higher profitability, all else equal, would maintain relatively lower debt ratios because they can generate internal funds to finance their operations Empirical evidence from previous studies, including Chittenden et al (1996), supports the notion that higher profitability is associated with lower leverage, highlighting the role of internal financing in shaping capital structure.
C o le m a n and Cole, 1999; Al-Sakran, 2001) appears to be consistent with the pecking o r d e r theory.
Although debate continues, most findings indicate a negative relationship between profitability and debt financing, though this conclusion generally applies to firms as a whole rather than specifically to banks Accordingly, a bank with a very high ROA, such as Vietcombank, would, based on the data to be presented in the forthcoming chapter, be expected to show a high or low level of debt The question of whether profitability and capital structure are related for the four banks will be revisited in the Findings and Discussion section.
A nother factor affecting capital structure decision is size, which has raised controversial arguments M any researchers such as Smith and W arner (1979), Ang and McConnel
Research from 1982 shows that large firms are more diversified than smaller ones and, as a result, are less susceptible to bankruptcy In line with the static trade-off theory, the reduced likelihood of financial distress makes it more feasible for large firms to carry higher debt levels They may also lower the transaction costs tied to issuing long-term debt and enjoy a better ability to attract public investors Berryman (1982) notes that lending to small businesses is riskier because there is a strong negative correlation between firm size and insolvency probability Hall (1995) adds that this disparity may partly reflect lenders' limited portfolio management skills and their attitudes toward smaller borrowers.
O f the opposite opinion, Marsh (1982) and Titm an and Wessels (1988) reported a contrary negative relationship between debt ratios and size o f a business entity Marsh
(1982) argued that small companies, due to their limited access to equity capital market,
Optimal capital structure in 2010 indicates that many firms tend to rely heavily on debt to fund their financing needs Titman and Wessels (1988) explain that smaller firms issue less equity because per-unit issue costs are higher, making equity financing costlier for them Consequently, the relationship between firm size and debt ratio remains an empirical question, with no definitive conclusion reported in the literature.
Internal factors influencing capital structure decisions in commercial banks include management's attitude toward debt and risk, as well as measures such as business risk, debt maturity matching, and earnings stability Yet, in line with the treatment of external factors in Part 4.1, this discussion intentionally concentrates on two internal factors that are largely a matter of management opinion and have a major impact on the bank's capital structure decisions.
This study presents a comprehensive search and analysis of the determinants of capital structure for Vietnamese commercial banks, delivering a qualitative assessment of the factors that influence banks' leverage decisions Among these determinants, legal and regulatory requirements appear to exert the strongest influence on capital structure choices The conclusions are based on qualitative observations and acknowledge the need for more robust evidence and broader research beyond the limited scope of this thesis In the future, the author hopes to return to this topic with expanded data and methodologies to provide deeper analysis and stronger validation of these findings.
I have a reasonable and quantitative conclusion to this, or hopefully this can som ehow raise interest for further researches o f other people w h o have interest in.
Findings and d is c u s s io n
Four biggest comm ercial banks in Vietnam and their summ arized balance sheets
5.1.1.1 Introduction o f Vietnam Bank for Agriculture and Rural
In 1998, the Agricultural D evelopment Bank o f Vietnam was established by Decree No
5 3 /H D B T dated 26 March 1988 o f the Council o f Ministers (now the Government) with the reform o f the financial system and the introduction o f commercial banks in Vietnam
T hrough the years, the bank has changed nam es twice, including Vietnam Bank for Agriculture on 14 N o v e m b e r 1990 and Vietnam Bank for Agriculture and Rural
D evelopm ent (V B A R D ), brand name Agribank on 15 Novem ber 1996.
A gribank is the biggest bank in Vietnam in terms o f assets, num ber o f staff, branch network, and c u sto m e r base As o f December 2009, Agribank had the total assets o f
Agribank, a leading bank in Vietnam, reports total assets of VND 480,962 billion, total equity of VND 19,207 billion, and total fund resources of VND 434,331 billion, with total outstanding loans of VND 354,112 billion The bank employs 35,135 staff, operates 2,300 branches and transaction offices, and maintains 1,034 correspondent banks across 95 countries and territories, serving a customer base of over 13 million.
N a m in term s o f receipt and implementation o f foreign projects, especially from the World Bank (W B ), Asia D evelopment Bank (ADB), French Development Agency
(AFD), and European Investment Bank (EIB) Agribank is currently taking the chairmanship o f Asia Pacific Rural and Agricultural Credit Association (APRACA ).
In the coming years, Agribank aims to be the leading bank in national economic development and the dominant force in the agricultural and rural finance market, delivering tailored services to farmers and rural areas with the ambition that 70% of its total outstanding loans will be in agriculture and rural sectors To sustain this leadership by offering modern, high-quality products and services, meeting customer demand, and increasing non‑credit income, Agribank is prioritizing the renovation and modernization of its banking technology.
A gribank expects to reach the goals for 2010 as follows: the fund resource increases by
Compared with 2009, Agribank reports a growth of 22–25%, with 70% of its lending directed to agricultural and rural areas, non-performing loans (NPLs) below 5%, non-credit income up 20%, and profits rising by 10%, while the capital adequacy ratio (CAR) conforms to international standards and national requirements Nevertheless, a recent National Auditing announcement states that Agribank did not accurately reflect its true financial performance, casting doubt on these targets and their public disclosure.
A gribank is not o f high trustworthiness.
5.1.1.2 Sum m arized balance sheet o f A g rib a n k over the 2005-2009 period
Total liabilities and owner's equity 480,962,685 400,485,183 326,896,862 246,529,869 NA
Table 5: Summarized balance sheet of Agribank (2005-2009)
Becoming the No 1 bank in the market is a challenging goal for any institution, and Agribank has consistently led in nearly every metric The bank surpasses its peers in total assets, total capital, and total loans, underscoring its status as the market leader in the banking sector.
A s financial data o f 2005 following V A S is not available, it is impossible to compare the p erform ance o f Agribank from 2005 to 2006 but as can be seen, the growth rate is most
OPTIMAL CAPITAL STRUCTURE 2 0 1 0 remarkable in 2007 - the chosen turn point Total deposit amount experienced the highest growth during the period, mainly from the deposits o f customers This once again asserts the position o f Agribank in V ietnam ese market, i.e Agribank accounts for about a quarter o f the market share in terms o f deposits Also there was a significant increase in the o w n e r ’s equity, specifically thanks to the contribution o f the G overnm ent and the State Bank o f Vietnam This is understandable, as after jo in in g WTO, finance and banking is a m o n g the most vulnerable industries which are o f great concerns from foreign investors
T h e government has to save the leading advantage to domestic banks, especially state- ow ned banks and also keep its control over these banks As the biggest banks o f Vietnam,
A gribank should be the first one to be applied this policy.
T hanks to the built fame, it is understandable that Agribank has high and quite stable deposits over total liabilities ratio So does the capital structure, which reflect a consistent strategy o f the m anagem ent and not yet has any intention to have a significant change in the com ing time.
B e in g the first to be established am ong four largest State-owned commercial banks in
Bank for Investment and Development of Vietnam (BIDV) was established by Prime Minister's Decision No 177/TTg on 26 April 1957 as the Bank for Construction of Vietnam Over 53 years of development, BIDV has undergone a profound transformation with several name changes, including its original designation as the Bank for Construction of Vietnam from 26 April 1957 to 24 June 1981.
Bank for Investment and Construction o f Vietnam from 24 June 1981 to 14 N ovem ber
1990 and known as BIDV from 14 N ove m be r 1990 up to now.
BIDV operates as a universal commercial bank, delivering a full spectrum of currency, credit, banking, and non-banking services, and acts as an authorized agency to fund projects with sources from domestic and international financial institutions With extensive experience investing in key projects, BIDV leads development investment and project financing in Vietnam.
BIDV's mottos are "Customers' business effectiveness is BIDV's target" and "Cooperation for mutual development," reflecting its focus on customer success and collaborative growth with partners BIDV consistently listens to and welcomes feedback from customers and partners, using it to continuously improve service quality to meet diverse needs With a commitment to supplying customers with products and services of the highest quality and best utility, BIDV operates one of the largest distribution networks in Vietnam's banking system, including 103 branches, nearly 400 transaction points, more than 1,000 ATMs, and tens of thousands of POS points across all provinces and cities BIDV was the first bank to register its trademarks in the United States in 2005 By April 15, 2005, BIDV had relationships with over 800 banks and bank branches worldwide.
5.1.2.2 Sum m arized balance sheet o f BID V over the 2005-2009 period
Total liabilities and owner's equity 296,432,087 246,519,678 204,511,148 161,223,083 121,403,327
Table 6: Summarized balance sheet of BIDV(2005-2009)
2006 and 2007 marked the largest swings in BIDV’s balance-sheet figures within the period In 2006, total assets exceeded US$10 billion for the first time, rising 32.8% year over year, with a major contribution from the issuance of a VND 116,862 billion bond, along with other financing activities.
With government approval, BIDV actively mapped out roadmaps and plans and appointed a dedicated team to manage the equitization project Learning from international experiences, BIDV planned to work with prestigious consulting organizations and selected Morgan Stanley as its equitization adviser The bank earned strong recognition from major financial institutions such as JPMorgan Chase, Citigroup, Boeing, and Airbus, whose interest in partnering with BIDV underscored the growing appeal of its equitization This signaled a significant increase in owners’ equity, rising by more than 54% in 2007 To maintain government control, the state had to invest further to stabilize its stake amid rising market interest in BIDV’s future shares, explaining the continued rise in the bank’s owners’ equity over the year As planned, BIDV’s IPO was scheduled for the fourth quarter of 2010.
Deposits are widely regarded as the cheapest source of funds for banks and thus remain a central concern for bankers BIDV maintains a high and stable deposits-to-total-liabilities ratio, illustrating its ability to mobilize funds from individuals, households, and other financial institutions to support lending activity.
BIDV’s debt-to-equity ratio over the last five years has been high and volatile, fluctuating from around 15x to more than 20x This volatility stems from differing growth rates of debt and equity across periods Overall, the capital structure should remain stable unless the bank’s management pursues a strategic change.
OPTIMAL CAPITAL STRUCTURE 2 0 1 0 case o f BIDV, only a little higher-than-usual leverage ratio in 2006 seems not sufficient to signal a w orrisom e issue for the bank.
Established on 1 April 1963 as a state-owned commercial bank, Vietcombank is Vietnam’s oldest commercial bank focused on external affairs It serves as the interbank foreign exchange and payments center for more than 100 domestic banks and foreign bank branches operating in Vietnam, and was the first commercial bank in Vietnam to deal in foreign currencies Vietcombank has consistently held the largest market share in the interbank forex market and was the first to issue and settle international credit cards such as Visa and MasterCard Today, it remains the largest agent for card payments in Vietnam for Visa and American Express.
In Vietnam, this leading commercial bank partners with global brands like MasterCard and JCB and serves as MoneyGram’s largest payment agent in the country, while also holding the largest share of export‑import payments and guarantees It is the only bank in Vietnam that automatically processes 95% of SWIFT messages in line with American standards, and it has been selected as a major bank to manage the government’s loans, aid programs, and numerous ODA projects The bank leads in trade finance, international payments, and forex dealings, propelled by advanced IT implementation that drives cutting‑edge banking across Vietnam.
Com paring performance o f four banks over the 2005-2009 period
These four banks are widely regarded as the largest in Vietnam, so the efficiency of their operations is of public interest; the first step in determining an optimal capital structure is to identify which bank among the four performs best.
Assessing bank performance involves many profitability ratios and share price indicators, but return on assets (ROA) and net interest margin (NIM) were designated as the representative performance metrics, while the remaining measures were excluded for reasons not specified.
Among these four banks, only two completed IPOs and were listed, so the share prices of the remaining banks, Agribank and BIDV, are unavailable Consequently, share price is not a suitable metric in this context.
• The same reason for RO E, as the denominator o f the formula to calculate
R O E is total equity, which is the m arket value o f num ber o f shares outstanding multiplied
52 with the share prices This ratio is also not appropriate for the objective o f the writing EPS also requires the com m on equity shares outstanding, which is not available.
In banking, interest income is the primary and most important source of revenue, since banks that attract large and plentiful deposits can fund more lending and generate higher interest earnings Therefore, the net interest margin (NIM) is a crucial metric for evaluating how profitably a bank operates, as it captures the spread between interest earned on assets and interest paid on liabilities.
5.2.1 C o m p a rin g R O A o f four banks o ver the 2005-2009 period
As explained in the chapter on Research Methods, the denominator of the ROA calculation is the average total assets, so ROA figures can be calculated for four years and are consolidated in the following figure.
Figure 6: ROA of four banks (2006-2009)
As shown in Figure 6, Vietcombank’s ROA consistently outpaced that of other banks despite notable volatility Over the four-year period, it swung sharply but began to recover in 2009.
Unlike the other joint-stock banks, VietinBank did not achieve a high ROA and was most often ranked third after BIDV This underwhelming performance contrasts with its peers and indicates weaker profitability relative to the rest.
Belonging to the group o f state-owned banks, BIDV experienced a steady increase in
Return on assets (ROA) at BIDV has improved year after year, indicating that the bank generates more profit for each dollar of assets as time passes This steady growth makes BIDV’s ROA the most optimistic trend among the four banks, signaling strong potential for long-term investments.
Because essential data for 2005 and 2009 are unavailable, Agribank's ROA figures cannot be reliably compared with other banks In contrast, the ROA for 2007 and 2008 remained stable at about 0.6%, but these values still represented the lowest level among the remaining banks.
To sum up, Vietcombank asserts its ability to generate most profits for each dollar of assets invested, meanwhile ROA o f BIDV proved its stability and steady improvements over the years
So each group has a representative which has better performance and a not-very-good performer in case o f comparing ROA.
5.2.2 C om paring NIM o f four banks over the 2005-2009 period
Figures o f NIM are m ore sufficient, in which only that o f Agribank in 2005 and 2009 is missing due to data uncollectibility The sum m ary is as follows.
Figure 7: NIM of four banks (2005-2009)
Contrasting with ROA-based conclusions, Agribank emerges as the top performer over the three-year period, supported by a significant and stable NIM By comparison, the other state-owned bank in the group posts the lowest NIM in four of the five years analyzed.
B IDV slightly m oved around the average o f 2.5%.
NIM figures for the group of joint-stock banks are not as high as Agribank's and not as stable as BIDV's, placing them in the middle of the range Vietinbank's NIMs were relatively high most of the time, ranking second only to Agribank, but there was a remarkable drop of more than half from 3.83% to 1.91% in 2009 This decline was driven by a significant decrease in net interest income in 2009, while total earning assets also changed.
OPTIMAL CAPITAL STRUCTURE 2 0 1 0 still could remain its upward trend Volatility is also the trend o f Vietcombank, but not as significant as Vietinbank.
Overall, it is difficult to determine which bank or group of banks performs best, as each bank has its own strengths BIDV demonstrates stability in both ratios, but those ratios are moderate rather than high Agribank shows a stronger NIM; however, when comparing the banks, the overall conclusion remains inconclusive.
ROA analysis indicates that Vietcombank appears to outperform its peers, while a key challenge in assessing banks’ operational efficiency is the limited data available for Agribank, which means that analyses focusing on Agribank itself and its comparison with other banks may be less precise.
Com paring capital structure o f four banks over the 2005-2009 p e r i o d
A fter collecting debt and equity data from balance sheets o f four banks from 2005 to
In 2009, capital structure ratios were calculated and briefly discussed earlier This section provides a comparative overview of the four banks, aiming to determine differences and similarities within the group and across the four institutions The results are presented via a visual comparison that illustrates how each bank’s capital structure, leverage, and funding mix compare against the others.
Agribank BIDV Vietcom bank Vietinbank
Figure 8: C apital s tru c tu re of four banks (2005-2009)
As can be seen, despite sharing the same characteristic as commercial joint stock banks,
V ietcom bank and Vietinbank have totally opposite and different trend in capital structure
Vietcombank shows the most stable trend among the four banks, with its valuation ratios hovering narrowly around 15x and edging just below or above that level This represents the lowest range within the group The tighter band arises from steady earnings and a cautious market outlook that keeps price-to-earnings multiples anchored near the 15x mark.
Vietcom Bank was a pioneer in its group to pursue equitization and completed its IPO in late 2007 On the liabilities and equity side of the balance sheet, owners’ equity makes up a larger share than in many other banks.
VietinBank, a joint‑stock bank that went public with its IPO in 2008, shows leverage‑ratio movements that contrast with Vietcombank’s stability The ratio fell in 2007 when the government injected nearly VND 4,000 billion to boost its ownership in the bank being equitized This low level persisted through 2008 and then improved in 2009 as both deposits and non‑deposit funds rose, leading to a rise in total liabilities.
Excluding 2005 due to limited information, Agribank exhibits the highest debt-to-equity ratio This can be attributed to the bank’s ability to attract a very large pool of deposits from the public, accounting for about a quarter of total market deposits, as shown in Figure 4 This substantial deposit base, together with a sizable amount of non-deposits, forms a large portion of total liabilities that far exceeds owners’ equity Consequently, these factors drive very high capital-structure ratios, not lower than twenty times.
BIDV is another state-owned bank, and its capital structure remains entirely within the range observed among the three other banks, showing no extremes Over the years, BIDV’s capital structure exhibited modest volatility.
Overall, the study finds that although all banks carry relatively high financial leverage, the two groups do not move in the same direction The two state-owned banks, which were expected to enjoy more stable leverage under government control, did not maintain such stability during the examined period By contrast, Vietcombank, a joint-stock commercial bank, shows hardly any change in its capital structure despite a notably successful IPO in 2007 Vietinbank, the other joint-stock bank, exhibits significant volatility, with substantial ups and downs in its leverage over the same period.
T h is can be explained by some reasons.
First, although Vietcombank and VietinBank have already transitioned to joint-stock banks, these changes are relatively recent, occurring at the end of 2007 and in 2008 They have been operating under the new joint-stock model for just over a year by the end of the examined period.
(2009), so the changes may be not o f significance Especially in these years, the stock m ark e t w as down and b a n k s’ stocks are not very attractive to investors.
Furtherm ore, these are biggest banks in Vietnam which hold the leading position in d o m estic banking sector Controls from the government on Agribank, BIDV,
Vietcombank and VietinBank remain key players in driving and implementing the nation’s monetary policy, a role reinforced by the dominance of Vietnam’s two largest state-owned banks, Agribank and BIDV However, the extent of their influence can vary depending on policy objectives and market conditions.
J o in t stock C om m ercial bank for Foreign Trade o f Vietnam - Vietcombank, despite its
Optimal capital structure (2010) indicates substantial government ownership in key banks The government holds roughly 1.1 billion shares of Vietcombank, accounting for about 90.72% of the bank’s owners’ equity For VietinBank, there is no updated information on the government’s exact shareholding; however, compared with Vietcombank’s current ownership, the government stake in VietinBank is unlikely to be as low as the 51% level cited in Vietcombank’s 2007 annual report.
It remains premature to draw a distinction between the two groups of banks, as the goal of comparing the capital structures of Vietnam's four largest banks is to assess whether state-owned banks or equitized banks have the stronger capital posture, but a final conclusion has not yet been reached.
Relationship between capital structure and performance o f four biggest
c o m m e r cia l bank s in V ie tn a m
In order to a n sw e r the last question: “ What should the optimal capital structure for a com m ercial bank in V ie tn a m ? ” , the writer intends to conduct a test to see w hether there e xists a relationship betw een capital structure and performance o f the four discussed banks From that, if they are positively related, the optimal capital structure should be lo n g to the better p e rfo rm e r among the four and vice versa In order to quantify this a nd also to a pply the academ ic theory delivered at university, simple regression and correlation would be conducted The first test is to identify whether there is a relationship betw een perform ance o f banks and their capital structure, while the latter one is to m ea su re the strength o f that linear relationship if any.
A s discussed, perform ance m easurem ents o f banks throughout this thesis were chosen to be RO A and N IM
Overall, six steps o f testing the slope Pi to see if there exists a relationship betw een ROA and NIM with capital structure respectively and if existing, determine the coefficient o f correlation to measure the strength o f that relationship.
• Step 5: Value o f the test statistic
Thanks to Microsoft Excel, the t-statistic can be computed in a second with a simple click, enabling rapid conclusions from your data The first four steps are identical for both analyses, after which the discussion focuses on the two final steps and how they shape interpretation in statistical testing.
5.4.1 R elationship between capital structure and perform ance o f A g rib a n k
As noted earlier, Agribank's financial statements for 2005 and 2009, which follow VAS, are not publicly available and cannot be found in any official or unofficial sources Due to data unavailability, only ROA ratios for 2007 and 2008 and NIM ratios for 2006–2008 could be calculated, which are insufficient to perform the linear regression analysis This data limitation represents a key constraint of the study.
5.4.2 Relationship between capital structure and perform ance o f BIDV
5.4.2.1 Relationship between capital structure and ROA o f BIDV
After running the regression model on Excel, the sum m arized output is as follows:
Table 9: Excel output for t-statistic of BIDV (2005-2009) ( the test of linear relationship between ROA and capital structure)
Since t = -2.03706, |t| < 4.303, do not reject the null hypothesis.
Based on the results, there is insufficient evidence to infer that the null hypothesis is true, or in other words, to conclude that ROA and BIDV’s capital structure are linearly related The scatter diagram does not display a clear linear pattern between return on assets and capital structure, indicating no evident linear association Consequently, we cannot assert a linear relationship between ROA and BIDV’s capital structure, and additional data or alternative modeling approaches would be needed to detect any potential connections or nonlinear effects.
Figure 9: Relationship between ROA and capital stru c tu re of BIDV (2005-2009) i l l
5.4.2.2 Relationship between capital structure and INIM o f BIDV
After running the regression model on Excel, the summ arized output is as follows:
Coefficients Standard Error t Stat P-value
Table 10: Excel output for t-statistic of BIDV (2005-2009) ( the test of linear relationship between NIM and capital stru ctu re)
Since t = 5.91 > 3 1 8 2 , reject the null hypothesis.
Interpreting the results, there is sufficient evidence of a linear relationship between capital structure decisions and BIDV's NIM ratio, indicating that capital structure affects the net interest margin The accompanying scatter diagram visually confirms this relationship, illustrating how changes in capital structure correspond to changes in BIDV's NIM.
Figure 10: Relationship between NIM and capital stru c tu re of BIDV (2005-2009)
To see how strong the relationship is, correlation model w as run on Excel and resulted in r = -0.72549732 This indicates a quite strong negative relationship between N IM and
OPTIMAL CAPITAL STRUCTURE 2 0 1 0 capital structure, m eaning that the higher N1M BIDV can have, the lower debt ratio the bank can achieve.
5.4.3 Relationship between capital structure and perform ance o f Vietcom bank
5.4 3 1 Relationship between capital structure and RO A o f Vietcom bank
After running the regression model on Excel, the sum m arized output is as follows:
Coefficients Standard Error t Stat P-value
Table 11: Excel output for t-statistic o f V ietcom bank (2005-2009)
(the test of linear relationship between ROA and capital stru c tu re )
Since t = -0.35567, |t| < 4.303, do not reject the null hypothesis.
Interpreting the results, there is insufficient evidence to conclude a linear relationship between return on assets (ROA) and Vietcom Bank's capital structure, meaning the null hypothesis of no linear association cannot be rejected based on the data The accompanying scatter diagram does not display a clear linear pattern, which aligns with this interpretation.
Figure 11: R elationship between ROA and capital stru ctu re of V ietcom bank (2005-2009)
5.4.3.2 Relationship between capital structure and NIM o f V ietcom bank
After running the regression model on Excel, the sum m arized output is as follows:
Coefficients Standard Error t Stat P-value Intercept -0.029527445 0.036975827 -0.79856 0.508305524
Table 12: Excel output for t-statistic of Vietcombank (2005-2009)
(the test of linear relationship between NIM and capital structure)
Since t = 1.48 < 3.182, do not reject the null hypothesis.
Interpreting the results shows insufficient evidence to reject the null hypothesis, indicating that Vietcombank's net interest margin (NIM) and its capital structure are not linearly related based on the data, as illustrated by the scatter diagram.
Figure 12: R elationship between NIM and capital stru c tu re of V ietcom bank (2005-2009)
5.4.4 Relationship between capital structure and perform ance o f Vietinbank
5.4.4.1 Relationship between capital structure and RO A o f Vietinbank
After running the regression model on Excel, the summ arized output is as follows:
Coefficients Standard Error t Stat P-value
Table 13: Excel output for t-statistic of V ietinbank (2005-2009) (the test o f linear relationship between ROA and capital stru c tu re )
Since t = -1.899, |t| = 1.899 < 4.303, do not reject the null hypothesis.
Interpreting the results, there is insufficient evidence to conclude that ROA and BIDV’s capital structure are linearly related; in other words, we cannot establish a linear relationship between ROA and BIDV’s capital structure The accompanying scatter diagram does not show a clear linear pattern.
Figure 13: Relationship between ROA and capital stru c tu re of V ietinbank (2005-2009)
5.4.4.2 Relationship between capital structure and NIM o f Vietinbank
After running the regression model on Excel, the sum m arized output is as follows:
Coefficients Standard Error t Stat P-value
T able 14: Excel output for t-statistic of V ietinbank (2005-2009) (the test of linear relationship between NIM and capital stru c tu re )
Since t = -1.18, |t| < 3.182, do not reject the null hypothesis.
Interpreting the results, there is insufficient evidence to reject the null hypothesis, so we cannot conclude that ROA and Vietinbank's capital structure are linearly related The accompanying scatter diagram illustrates the data pattern and shows no clear linear relationship between these variables.
Figure 14: Relationship between NIM and capital stru c tu re of Vietinbank (2005-2009)
Results o f the tests conducted above are sum m ed up as follows:
A gribank BID V V ie tco m b a n k V ie tin b a n k
R e la tio n sh ip b e tw e e n RO A and c a p ita l stru ctu re NA No No No
R e la tio n sh ip b e tw e e n N IM and c a p ita l stru ctu re NA Yes No No
T able 15: Sum m ary o f relationships between perform ance and capital stru c tu re of four b a n k s (2005-2009)
Although data are insufficient to draw a definitive conclusion about whether a linear relationship exists between performance and capital structure among the Big Four banks in Vietnam’s banking sector, most statistical tests fail to find evidence of a significant correlation between these variables.
Data from Agribank could not be collected sufficiently, leaving two of six tests unachievable The results run counter to initial expectations and logical reasoning The short testing window likely limited the sample size for regression analyses of capital structure with ROA and NIM, respectively To robustly test for the absence of a relationship between these variables—and to control for factors such as bank size, management, system, and market conditions—a follow-up regression analysis will use the figures from all four banks over a five-year period This extended analysis aims to reduce the risk that the small sample size distorts the conclusions about the relationship between the variables.
The sum m arized output o f the regression m odels are as follows:
C o e ffic ie n ts S ta n d a r d E rro r t S ta t P -v a lu e
Table 16: Excel output for t-statistic of four banks (2005-2009) (the test of linear relationship between ROA and capital stru ctu re)
Since t = -4.3661, |t| > 2.179, reject the null hypothesis
There is sufficient evidence to infer a relationship between banks' capital structure decisions and their ROA ratios over the year This finding contrasts with the results of the individual tests for each bank, suggesting that the limited sample size may have distorted the final conclusion about the linkage between capital structure and ROA.
The scatter diagram can visualize the relationship.
F igure 15: R elationship between ROA and capital stru c tu re of four banks (2005-2009) The correlation coefficient equals -0.78338, demonstrating a quite strong negative relationship betw een R O A and capital structure.
The result o f this test encouraged the intention to test the relationship betw een N1M and capital structure for all four banks, which has a summary output as follows.
C o e ffic ie n ts S ta n d a rd E r ro r t S t a t P -v a lu e
Table 17: Excel output for t-statistic of four banks (2005-2009)
(the test of linear relationship between NIM and capital stru ctu re)
Since t = 1.879314 < 2.120, do reject the null hypothesis
Interpreting the results, there is insufficient evidence to reject the null hypothesis, i.e., we cannot conclude that NIM and the capital structure of the four banks are linearly related based on the data In other words, the analysis does not show a statistically significant linear association between NIM and capital structure among these banks.
T he visualized scatter diagram is as follows.
H.Uu/O a erằ/ ♦ ♦ j.jUTo a nn°/ _ * j.VJUTo c jU/o ♦ o nno/ ♦
Figure 16: R elationship between NIM and capital stru c tu re of four banks (2005-2009)
Overall, conflicts still arose and the conclusions from the tests o f relationship between capital structure and two performance m easurements (i.e ROA and N1M) are not consistent with each other.
This study evaluates the performance of each bank and conducts a comparative analysis to identify the most efficient bank Based on this performance ranking, the research investigates the relationship between bank performance and capital structure, determining whether they are positively or negatively related From these findings, it aims to outline a feasible range for the optimal capital structure of a commercial bank However, due to the unexpected outcome, the analysis cannot provide a definitive answer to the question of what the optimal capital structure for a commercial bank in Vietnam should be.