top of page
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

Quarterly Reviews

ISSN 2775-9237 (Online)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
crossref
doi
open access

Published: 14 June 2019

Impact of Capital on Profitability of Banks: Evidence from Vietnamese Commercial Banks

Do Hoai Linh, Vu Kieu Trang

National Economics University, Vietnam

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

Download Full-Text Pdf

doi

10.31014/aior.1992.02.02.94

Pages: 379-395

Keywords: Capital, Profitability, Commercial banks, Vietnam

Abstract

This study aims to investigate the impact of capital on bank profitability with evidence from Vietnamese commercial banks. With a sample of 30 Vietnamese commercial banks, the findings show the positive relationship between capital and bank profitability during the period of 2012-2018. Accordingly, the influence of capital is more pronounce in the case of small-sized banks, whereas it exerts insignificant influence on the profitability of large-sized banks. Moreover, a high degree of capital increased the profitability of private-owned banks, the impact of capital is positive and significant for the net interest margin of state-owned banks only.

References

  1. Albertazzi, U., and Gambacorta, L., 2009. Bank profitability and the business cycle. Journal of Financial Stability, 5(4), pp.393-409.

  2. Asteriou, D., & Hall, S. G.(2011). Applied econometrics. New York: Palgrave Macmillan

  3. Altunbas, Y., Carbo, S., Gardener, E.P. and Molyneux, P., 2007. Examining the relationships between capital, risk and efficiency in European banking. European Financial Management, 13(1), pp.49-70.

  4. Berger, A.N. and Bouwman, C.H., 2017. Bank liquidity creation, monetary policy, and financial crises. Journal of Financial Stability, 30, pp.139-155.

  5. Berger, A.N., 1995. The relationship between capital and earnings in banking. Journal of money, credit and Banking, 27(2), pp.432-456.

  6. Berger, A.N., Hanweck, G.A. and Humphrey, D.B., 1987. Competitive viability in banking: Scale, scope, and product mix economies. Journal of monetary economics, 20(3), pp.501-520.

  7. Bitar, M., Pukthuanthong, K. and Walker, T., 2018. The effect of capital ratios on the risk, efficiency and profitability of banks: Evidence from OECD countries. Journal of International Financial Markets, Institutions and Money, 53, pp.227-262.

  8. Bourke, P., 1989. Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking & Finance, 13(1), pp.65-79.

  9. Bikker, J.A. and Hu, H., 2002. Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements. PSL Quarterly Review, 55(221).

  10. Brewer III, E. and Lee, C.F., 1986. How the market judges bank risk. Federal Reserve Bank of Chicago Economic Perspectives, 10(6), pp.25-31.

  11. Bikker, J.A. and Hu, H., 2002. Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements. PSL Quarterly Review, 55(221).

  12. Brown, C.O. and Dinç, I.S., 2011. Too many to fail? Evidence of regulatory forbearance when the banking sector is weak. The Review of Financial Studies, 24(4), pp.1378-1405.

  13. Calomiris, C.W. and Mason, J.R., 2003. Consequences of bank distress during the Great Depression. American Economic Review, 93(3), pp.937-947.

  14. Chortareas, G.E., Girardone, C. and Ventouri, A., 2012. Bank supervision, regulation, and efficiency: Evidence from the European Union. Journal of Financial Stability, 8(4), pp.292-302.

  15. Demirgüç-Kunt, A. and Huizinga, H., 1999. Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), pp.379-408.

  16. De Guevara, J.F., Maudos, J. and Pérez, F., 2007. Integration and competition in the European financial markets. Journal of International Money and Finance, 26(1), pp.26-45.

  17. Demirguc‐Kunt, A., Detragiache, E. and Merrouche, O., 2013. Bank capital: Lessons from the financial crisis. Journal of Money, Credit and Banking, 45(6), pp.1147-1164.

  18. Diamond, D.W. and Rajan, R.G., 2000. A theory of bank capital. The Journal of Finance, 55(6), pp.2431-2465.

  19. Dietrich, A. and Wanzenried, G., 2011. Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions and Money, 21(3), pp.307-327.

  20. Faccio, M., Masulis, R.W. and McConnell, J.J., 2006. Political connections and corporate bailouts. The Journal of Finance, 61(6), pp.2597-2635.

  21. Fiordelisi, F., Marques-Ibanez, D. and Molyneux, P., 2011. Efficiency and risk in European banking. Journal of Banking & Finance, 35(5), pp.1315-1326.

  22. Goddard, J., Molyneux, P. and Wilson, J.O., 2004. The profitability of European banks: a cross‐sectional and dynamic panel analysis. The Manchester School, 72(3), pp.363-381.

  23. Golin, J. and Delhaise, P., 2013. The bank credit analysis handbook: a guide for analysts, bankers and investors. John Wiley & Sons.

  24. Iannotta, G., Nocera, G. and Sironi, A., 2007. Ownership structure, risk and performance in the European banking industry. Journal of Banking & Finance, 31(7), pp.2127-2149.

  25. Jahankhani, A. and Lynge, M.J., 1979. Commercial bank financial policies and their impact on market-determined measures of risk/BEBR No. 556. Faculty working papers; no. 556.

  26. Kennedy, P., A guide to econometrics. 2008. Malden, MA: Blackwell.

  27. Kim, M., Kristiansen, E.G. and Vale, B., 2005. Endogenous product differentiation in credit markets: What do borrowers pay for? Journal of Banking & Finance, 29(3), pp.681-699.

  28. Mayne, L.S., 1972. Supervisory influence on bank capital. The Journal of Finance, 27(3), pp.637-651.

  29. Mehran, H. and Thakor, A., 2011. Bank capital and value in the cross-section. The Review of Financial Studies, 24(4), pp.1019-1067.

  30. Modigliani, F. and Miller, M.H., 1963. Corporate income taxes and the cost of capital: a correction. The American economic review, 53(3), pp.433-443.

  31. Molyneux, P. and Thornton, J., 1992. Determinants of European bank profitability: A note. Journal of banking & Finance, 16(6), pp.1173-1178.

  32. Micco, A., Panizza, U. and Yanez, M., 2007. Bank ownership and performance. Does politics matter? Journal of Banking & Finance, 31(1), pp.219-241.

  33. Lee, C.C. and Hsieh, M.F., 2013. The impact of bank capital on profitability and risk in Asian banking. Journal of international money and finance, 32, pp.251-281.

  34. Pasiouras, F. and Kosmidou, K., 2007. Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21(2), pp.222-237.

  35. Perry, P., 1992. Do banks gain or lose from inflation? Journal of Retail Banking, 14(2), pp.25-31.

  36. Revell, J., 1979. Inflation & Financial Institutions. Financial Times Limited.

  37. Rime, B., 2001. Capital requirements and bank behaviour: Empirical evidence for Switzerland. Journal of Banking & Finance, 25(4), pp.789-805.

  38. Pettway, R.H., 1976. Market tests of capital adequacy of large commercial banks. The Journal of Finance, 31(3), pp.865-875.

  39. Shrieves, R.E. and Dahl, D., 1992. The relationship between risk and capital in commercial banks. Journal of Banking & Finance, 16(2), pp.439-457.

  40. Short, B.K., 1979. The relation between commercial bank profit rates and banking concentration in Canada, Western Europe, and Japan. Journal of Banking & Finance, 3(3), pp.209-219.

  41. Slovin, M.B., Johnson, S.A. and Glascock, J.L., 1992. Firm size and the information content of bank loan announcements. Journal of Banking & Finance, 16(6), pp.1057-1071.

  42. Smirlock, M., 1985. Evidence on the (non) relationship between concentration and profitability in banking. Journal of money, credit and Banking, 17(1), pp.69-83.

  43. Stiroh, K.J. and Rumble, A., 2006. The dark side of diversification: The case of US financial holding companies. Journal of banking & finance, 30(8), pp.2131-2161.

  44. Staub, R.B., e Souza, G.D.S. and Tabak, B.M., 2010. Evolution of bank efficiency in Brazil: A DEA approach. European journal of operational research, 202(1), pp.204-213.

  45. Sufian, F., 2010. The impact of risk on technical and scale efficiency: empirical evidence from the China banking sector. International Journal of Business Performance Management, 12(1), pp.37-71.

  46. Tan, Y. and Floros, C., 2012. Bank profitability and inflation: the case of China. Journal of Economic Studies, 39(6), pp.675-696.

  47. Tan, Y., 2016. The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40, pp.85-110.

  48. Vu, H. and Nahm, D., 2013. The determinants of profit efficiency of banks in Vietnam. Journal of the Asia Pacific Economy, 18(4), pp.615-631.

bottom of page