Determinants of banking stability - The case of commercial banks in Vietnam
Abstract
This research paper first mentions the recent financial scenario of Vietnamese banking industry in general, which is considered as a rehabilitating and developing sector with improved safety ratios and slightly decreased bad debt ratios after the financial crisis period from 2008 to 2012. It is considered that financial banking stability not only plays an important role in stabilizing prices, but also contributes to the sustainable economic development of the nation. However, in Vietnam, hardly literature of financial banking stability was found; therefore, I take this gap to conduct this research of the determinants of Vietnamese financial banking stability (FBS) measured by Z-score.
The three factors that could have an impact on FBS comprises bank specific factor (BS) computed by income diversity (ID) and size of bank (SB); banking sector factor (BSE) computed by concentration in market (HHI) and P/E ratio (PE); and macroeconomics factor computed by inflation rate (INF) and gross domestic product growth (GDPG). Twenty-six commercial banks in Vietnam was examined throughout the seven-year-period from 2010 to 2016 and the regression models was constructed to recognize the relationship between three factors and financial banking stability. The results demonstrate that all three factors have a significant relationship with financial banking stability in Vietnam, which could imply a better and more specific understanding for Vietnamese supervisors and regulators to propose sufficient risk detection systems in banking sector in order to maintain the banking stability as well as improve the financial health of the whole country.