Factors affecting the profitability of domestic commercial banks in Vietnam

Abstract

This study investigates the relationship between several bank-specific factors and macroeconomic determinants and profitability of domestic commercial banks in Vietnam. This research applies four method including Pooled ordinary least squares, Fixed effects model, Random effects model, and Generalize method of moment model which are employed with balanced panel data on 32 domestic commercial banks, using annual data for the period of 2006 to 2014. The bank-specific determinants such as raising capitalization (CA), diversifying business (NIITA), controlling efficiency ratio (ER), credit risk ratio (CR), and liquidity risk (LR) impacted profitability which are proxied by return on asset (ROA), return on equity (ROE), and net interest margin (NIM). The results reveal that both ratios of profitability of commercial banks had relationships with bank specific and macroeconomic determinants. The results of research can support to help investors, bank managers, and policy makers in the market. Keywords: Domestic Commercial Banks, Bank profitability, Pooled ordinary least squares, Fixed effects model, Random effects model, and Generalize method of moment.