Factors affecting non-interest income at Vietnamese commercial banks

Overview

This study examines determinants of non-interest income (NII) at Vietnamese commercial banks by synthesizing theoretical frameworks and empirical evidence. The research integrates bank-level microeconomic factors with macroeconomic variables to develop a comprehensive analytical model specific to the Vietnamese banking context. The study addresses identified gaps in the literature regarding NII generation mechanisms in emerging market financial institutions.

Methods and approach

The analysis employs panel regression methodology on an unbalanced dataset comprising 24 Vietnamese commercial banks over the 2011-2023 period. Multiple specification tests were conducted to select the appropriate estimation approach, with the random-effects model identified as optimal. Feasible Generalized Least Squares (FGLS) was applied to address heteroscedasticity in error variance. The empirical framework incorporates both bank-specific variables (size, deposit-to-asset ratio, credit risk provision ratio, income diversification, loan-to-asset ratio, equity ratio, and state ownership) and macroeconomic variables (inflation, real GDP growth, and COVID-19 pandemic effects).

Key Findings

The random-effects FGLS estimation reveals that bank size, deposit-to-asset ratio, credit risk provision ratio, income diversification, inflation, and the COVID-19 pandemic exert statistically significant positive effects on NII. Conversely, loan-to-asset ratio and state ownership demonstrate statistically significant negative associations with NII. Equity ratio and real GDP growth were found to be statistically insignificant determinants of NII in the sample.

Implications

The findings indicate that Vietnamese commercial banks can enhance NII generation through increased asset diversification away from traditional lending activities and improved deposit mobilization strategies. The positive relationship between inflation and NII suggests that banks adjust fee structures and service pricing in response to inflationary pressures. The negative coefficient on state ownership implies that privately-held or partially-privatized institutions generate higher NII relative to state-controlled counterparts, potentially reflecting differences in market orientation and operational autonomy.