Determinants On Profitability Of Commercial Banks

Abstract

This article investigates the determinants of profitability of commercial banks in Vietnam by examining bank-specific and macroeconomic factors. The study utilizes a balanced panel data set comprising 28 Vietnamese commercial banks from 2015 to 2022. Profitability is assessed through key indicators such as return on assets (ROA), return on equity (ROE), and net interest margin (NIM). The analysis delves into the impact of bank-specific factors, including capital adequacy (CAD), credit risk (CR), liquidity ratio (LIQ), operational efficiency (OPE), and bank size (SIZE). Additionally, the study explores the influence of macroeconomic factors on bank profitability, focusing on GDP and inflation rates (INF). Employing robust statistical models and panel data analysis, this research contributes essential empirical evidence to understanding the relationships between bank-specific and macroeconomic factors affecting profitability. The findings reveal a positive correlation between bank size and profitability. Capital adequacy positively influences return on assets (ROA) and net interest margin (NIM). Surprisingly, operational efficiency shows a negative association with profitability metrics. Liquidity ratio is reported to positively impact ROA and ROE, underscoring its significance for overall profitability. Conversely, credit risk negatively impacts both ROA and ROE but positively influences net interest margin (NIM). Among macroeconomic factors, only GDP demonstrates a significant correlation with profitability measures. Based on the research results, the article is expected to offer practical significance and be a foundational resource for future studies exploring similar topics