Bank size, credit risk and bank profitability in Vietnam

This paper empirically examines the relationship between bank size, credit risk and profitability of Vietnam's commercial banks during the period from 2009 to 2018. By employing off-balance sheet items in the denominator when calculating return on assets, this paper highlights the role of off-b...

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Bibliographic Details
Published in:Malaysian journal of economic studies 2020-12, Vol.57 (2), p.233-251
Main Authors: Thanh Tran, Dieu Thi, Thu Phan, Ha Thi
Format: Article
Language:English
Subjects:
Accounting
Adverse selection
Balance sheets
Bank profits
Banking industry
Banks
Banks and banking
Costs
Credit risk
Data processing
Financial risk management
Hypotheses
Interest rates
Loans
Moral hazard
Nonperforming loans
Profitability
Profits
Return on assets
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Summary:This paper empirically examines the relationship between bank size, credit risk and profitability of Vietnam's commercial banks during the period from 2009 to 2018. By employing off-balance sheet items in the denominator when calculating return on assets, this paper highlights the role of off-balance sheet items in generating non-interest income as well as contributes to the literature on profitability measurement. By utilising the two-step system GMM, the outcomes show that credit risk has adverse impact on profitability and this impact tends to be slighter in large size banks. The negative correlation between bank size and profitability indicates that large banks tend to perform inefficiently rather than small banks. Also, we found evidence of a non-linear relationship between bank size and profitability, suggesting that bank size has improved bank profitability until it reaches the optimal threshold, which then decreases profitability.
ISSN:1511-4554
DOI:10.22452/MJES.VOL57NO2.4