Thesis The Competitiveness and Efficiency of the Vietnamese Banking Sector in the Face of Financial Liberalisation

Nội dung tài liệu: Thesis The Competitiveness and Efficiency of the Vietnamese Banking Sector in the Face of Financial Liberalisation

1. The Competitiveness and Efficiency of the Vietnamese Banking Sector in the Face of Financial Liberalisation Pham Chi Quang Submitted for the degree of Doctor of Business Administration Heriot-Watt University Edinburgh Business School February 2016 The copyright in this thesis is owned by the author. Any quotation from the thesis or use of any of the information contained in it must acknowledge this thesis as the source of the quotation or information.
2. ABSTRACT This thesis provides empirical evidence of the impact of financial liberalisation on the competitiveness and efficiency of the Vietnamese banking sector by applying a combination of non-parametric frontier estimation methods, stochastic frontier methods and Tobit panel data regression techniques. There have been few studies in Vietnam linking financial liberalisation to banking sector competitiveness and efficiency. In the thesis, these parametric and non-parametric methods are applied in a pilot study to measure the allocative efficiency at branch level of the Vietnam Bank for Agricultural and Rural Development (VBARD) – the largest bank in Vietnam in terms of total assets. The technical efficiency of the Vietnamese banking sector at bank level is then estimated using the same methods. The empirical investigation of the thesis is based on the use of branch-level data and bank-level data for a sample of more than 50 branches of VBARD across the country over the period 2004–2008 and around 40 banks over the period 2002–2012. Using data envelopment analysis (DEA) to measure allocative efficiency at branch level and technical efficiency at bank level and using stochastic frontier analysis (SFA) to estimate cost and profit efficiency at branch level, the thesis suggests that the contributions of financial liberalisation to bank efficiency are generally mixed, depending on the measures of bank efficiency used and the sub-periods taken into account. The thesis presents weak empirical evidence of the positive impacts of financial liberalisation on efficiency improvements of the Vietnamese banking sector at both branch and bank level. Banking efficiency is inconsistently increased over the period of financial liberalisation as the financial market is more liberated and the size of the banking sector substantially increased. Hence, industry rationalisation through reconsolidating and restructuring mergers and acquisitions (M&A) is required. The thesis suggests that both financial liberalisation and greater competition contribute to lower profit efficiency and higher costs for banks. The thesis indicates that the Vietnamese banking system is dominated by large banks and that the state-owned commercial banks (SOCBs) are more efficient than the joint stock commercial banks (JSCBs), mainly because of their competitive advantage in terms of size. Furthermore, Vietnamese banking efficiency at both branch and bank levels is significantly improved by high levels of capitalisation, larger size and a better labour i
3. force, while it is hampered by low loan quality. The findings also suggest that the northern banks in Vietnam are more efficient than the southern banks. The empirical evidence of the thesis is also focused on investigating the impact of financial liberalisation on bank technical efficiency and productivity growth, making use of a two-step approach consisting of DEA and Tobit panel data regressions. The analysis conducted across the different location groups (north and south) suggests that the impact on the technical efficiency of banks is more pronounced in the northern areas than in the southern areas. Furthermore, the Tobit estimation takes into account bank-specific differences in terms of total assets, the equity–total assets ratio, the labour–capital ratio and the provision–capital ratio; the evidence suggests that these influences are also mostly significant under financial liberalisation. As a result, the thesis suggests that financial liberalisation reinforces an independent impact on the technical efficiency of banks. ii
4. ACKNOWLEDGEMENTS AND DEDICATION To my wife, Ha, my daughter, Giang, my son, Minh, and my parents for their love. Without their support and encouragement, I could not have completed this thesis. I am grateful to my thesis supervisors, Doctor Christev Atanas and Professor John Simmons for their advice, guidance, wisdom, discipline and encouragement. iii
5. DECLARATION STATEMENT ACADEMIC REGISTRY Research Thesis Submission Name: Pham Chi Quang School/PGI: Edinburgh Business School Version: (i.e. First, Final Degree Sought Doctor of Business Resubmission, Final) (Award and Administration Subject area) Declaration In accordance with the appropriate regulations I hereby submit my thesis and I declare that: 1) the thesis embodies the results of my own work and has been composed by myself 2) where appropriate, I have made acknowledgement of the work of others and have made reference to work carried out in collaboration with other persons 3) the thesis is the correct version of the thesis for submission and is the same version as any electronic versions submitted*. 4) my thesis for the award referred to, deposited in the Heriot-Watt University Library, should be made available for loan or photocopying and be available via the Institutional Repository, subject to such conditions as the Librarian may require 5) I understand that as a student of the University I am required to abide by the Regulations of the University and to conform to its discipline. * Please note that it is the responsibility of the candidate to ensure that the correct version of the thesis is submitted. Signature of Date: February 15, 2016 Candidate: Submission Submitted By (name in capitals): PHAM CHI QUANG Signature of Individual Submitting: Date Submitted: February 15, 2016 For Completion in the Student Service Centre (SSC) Received in the SSC by (name in capitals): Method of Submission (Handed in to SSC; posted through internal/external mail): E-thesis Submitted (mandatory for final theses) Signature: Date: iv
6. TABLE OF CONTENTS Contents Page Abstract i Acknowledgements and Dedication iii Declaration Statement iv Table of Contents v List of Tables, Figures and Appendices xii Abbreviations xviii Chapter 1: Introduction 1 1.1. Background and rationale 1 1.2. Aims and objectives 2 1.2.1. The aims of the thesis 2 1.2.2. The objectives of the thesis 2 1.3. Research methodology 3 1.4. Significance of the thesis 4 1.5. Scope of the thesis 6 1.6. Outline of the thesis 6 Chapter 2: Theoretical Background 8 2.1. Literature review on competitiveness and efficiency 8 2.1.1. Definition of competitiveness 8 2.1.2. Definition of efficiency 9 2.2. Competitiveness measurement approaches 11 v
7. 2.2.1. Multi-attribute decision-making model 12 2.2.2. Industrial competitiveness model 14 2.2.3. Operational competitiveness rating analysis model 16 2.2.4. Cost competitiveness approaches 17 2.2.5. Demand-based competitiveness approaches 18 2.2.5.1. The revenue-based approach 19 2.2.5.2. The client’s choice approach 20 2.3. Efficiency measurement approaches 21 2.3.1. The parametric methods 22 2.3.1.1. Cost efficiency 22 2.3.1.2. Standard profit efficiency 23 2.3.1.3. Alternative profit efficiency 24 2.3.1.4. Function forms of the parametric approaches 25 2.3.1.5. Summary 28 2.3.2. The non-parametric methods 29 2.3.2.1. The two-stage banking model 31 2.3.2.2. Benchmarking 33 2.4. The impact of financial liberalisation on competitiveness and efficiency 33 2.5. Concluding remarks 41 2.5.1. The determinants of efficiency and competitiveness 41 2.5.2. The theoretical linkage between efficiency and competitiveness 44 vi
8. Chapter 3: Overview of the Vietnamese economy and banking sector 49 efficiency 3.1. Vietnam economic overview 49 3.2. Financial liberalisation and the development of the Vietnamese banking 51 sector 3.3. Competitive positioning in the Vietnamese banking sector 58 3.3.1. State-owned commercial banks 59 3.3.2. Joint stock commercial banks 61 3.3.3. Foreign bank branches 62 3.3.4. Banking sector leaders 63 3.4. Literature review on banking efficiency and competitiveness in Vietnam 64 3.4.1. Literature review on banking efficiency in Vietnam 64 3.4.2. Literature review on banking competitiveness in Vietnam 71 Chapter 4: Literature Synthesis 73 4.1. Background executive summary 73 4.2. Suggestions for empirical studies in Vietnam 78 4.3. Research aim, objectives, questions and hypotheses 79 4.3.1. Research aim 79 4.3.2. Objectives 80 4.3.3. Research questions 81 4.3.4. Basic theory 81 4.3.5. Hypotheses 81 4.3.5.1. Research hypothesis 81 vii
9. 4.3.5.2. Operational hypotheses 82 Chapter 5: Research Methodology 84 5.1. Research methods 84 5.1.1. Basic model measuring technical efficiency 84 5.1.1.1. Measuring technical efficiency based on the parametric method 84 5.1.1.1.1. Production function 85 5.1.1.1.2. Cost function 87 5.1.1.2. Measuring technical efficiency based on the non-parametric method 89 5.1.2. Decomposing the impacts of environmental variables on the efficiency 92 estimated by the basic model based on the two-stage model 5.1.2.1. Methodology to take into account the impacts of environmental 92 variables 5.1.2.2. The two-stage model of the thesis 93 5.1.3. Testing the impacts of financial liberalisation on efficiency based on the 96 Malmquist index 5.2. Concluding remarks 99 Chapter 6: Pilot Study 101 6.1. Competitive positioning of VBARD in the Vietnamese banking sector 101 6.2. Competitiveness of VBARD: Awareness of clients 101 6.3. Research aim and objectives of the pilot study 105 6.3.1. Research aim 105 6.3.2. Objectives 106 6.4. Research methods 107 viii
10. 6.4.1. Modified basic model measuring the allocative efficiency of VBARD’s 107 branches 6.4.1.1. Measuring allocative efficiency and its determinants based on the 107 parametric method 6.4.1.2. Measuring allocative efficiency based on the non-parametric method 108 6.4.2. Executive summary of the modified basic model applied for the pilot 109 study 6.4.3. Tests for consistency and correlation among the measured allocative 110 efficiency indicators 6.5. Data description 111 6.5.1. General data specification 111 6.5.2. Data description for the modified basic model 113 6.5.2.1. Data description for the parametric approach 113 6.5.2.2. Data specification for the non-parametric approach 114 6.5.3. Data description for the environmental variables 114 6.6. Empirical analysis 116 6.6.1. Technical and allocative efficiency estimated with the ADEA model 116 6.6.1.1. The impact of financial deregulation on the TFP growth of VBARD 121 branches 6.6.1.2. Efficiency and its environmental variables from the non-parametric 127 method 6.6.2. Technical and allocative efficiency estimated with the stochastic model 130 6.6.2.1. The production efficiency frontier 130 6.6.2.1.1. Return on equity as a proxy for profitability 131 ix