Market structure in the Vietnamese banking system: a non-structural approach
| Date | 12 February 2018 |
| Pages | 103-119 |
| DOI | https://doi.org/10.1108/JFRC-03-2016-0024 |
| Published date | 12 February 2018 |
| Author | Thao Ngoc Nguyen,Chris Stewart,Roman Matousek |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Market structure in the
Vietnamese banking system:
a non-structural approach
Thao Ngoc Nguyen
Nottingham Business School, Nottingham Trent University, Nottingham, UK
Chris Stewart
School of Economics, History and Politics, Faculty of Arts and Social Sciences,
Kingston University, London, UK, and
Roman Matousek
Kent Business School, University of Kent, Canterbury, UK
Abstract
Purpose –This paper aims to examinethe market structure of Vietnam’s banking sector during 1999-2009,
which is after the introductionof the two-tier banking system, using the non-structural(Panzar–Rosse) model.
Design/methodology/approach –The authors considera more comprehensive range of specifications,
in terms of a greater number of environmental covariates and different dependent variables, than in the
previous applications of this model. Further, this is the first study that uses lagged input prices (to avoid
endogeneity), excludesassets (to avoid specification bias) and includes a lagged dependent variable (to avoid
dynamic panelbias) in such a study of the Vietnamese bankingsystem.
Findings –The authorsfind that the Vietnamese banking system operates in monopoly.
Originality/value –The main contributionof this paper is to determine the market structurein the recent
period after the Vietnamese banking system was transformed into a less centralised, two-tier system. This
study is the first to uniquely identify the market structure of this developing economy’s banking system
(using dataonly for Vietnam and not observations fromother countries) in a post-transition period.
Keywords Bank regulation, Central bank, Performance, Banking
Paper type Research paper
1. Introduction
In this paper, we provide a detailed analysis of the degree of market competition in the
Vietnamese banking system using the Panzar and Rosse (1987) non-structural model. This
model suggests that the market is a monopoly if the service offered by a particular bank is
independent and originate.In contrast, the market is competitive if bank services are similar
in the market. We apply the non-structural model to an extensive panel data set of 48
Vietnamese commercialbanks, which includes state owned commercial banksand non-state
owned commercial banks,from 1999 to 2009. Using this procedure, we consider whether the
Vietnamese banking market is best characterised by monopoly, perfect competition or the
intermediate caseof monopolistic competition.
We estimate H-statistics of models that both include and exclude assets with current or
lagged input prices. We also estimate E-statistics to test whether the long-run equilibrium
conditions required for the H-statistics to be valid hold when using the fixed-effects
estimator within the equilibrium approach. A comparison of models using current and
Vietnamese
banking
system
103
Received14 March 2016
Revised22 September 2016
25November 2016
16January 2017
Accepted19 January 2017
Journalof Financial Regulation
andCompliance
Vol.26 No. 1, 2018
pp. 103-119
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-03-2016-0024
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1358-1988.htm
lagged input prices is used to assess whether input prices are endogenous. This is the first
study that uses lagged input prices (to avoid endogeneity) and excludes assets (to avoid
bias) in a study of the Vietnamese banking system. This study also extends the previous
literature (Bikker et al., 2006a,2006b;Bikker and Spierdijk, 2009) by considering new
additional variables such as total assets, capital/assets, loans/deposits and the number of
branches in the model’s specification. In addition, we compare inference using four
alternative dependent variables being revenue/assets, interest income/assets, revenue and
interest income. However, the main contribution of this paper is to determine the market
structure in the recent period after the Vietnamese banking system was transformed into a
less centralised, two-tier system. This study is the first to uniquely identify the market
structure of this developing economy’s banking system (using data only for Vietnam and
not observations from other countries) in a post-transitionperiod[1]. Another novelty of the
paper is to assess the biases that arise from model misspecification, in particular, biases
dues to endogeneity, including assets and not accounting for a potential dynamic
specification.
The rest of this paper is organised as follows: Section 2 deals with developments in the
Vietnamese banking system in theperiod from 1986 to 2009; Section 3 provides a literature
review of the non-structural model in banking; Section 4 discusses methodology and data;
Section 5 presentsour empirical results; and Section 6 concludes.
2. The Vietnamese banking system during 1986-2009
From 1986 to 2009, the Vietnamese banking system was transformed from a mono to two-
tier banking system. The two-tier banking system has the State Bank of Vietnam (SBV) as
the central bank (tier 1) and four specialised state owned banks (tier 2). Table I shows the
number of Vietnamese commercial banks from 1990 to 2009. With extended networks in
almost all provinces and larger cities, state owned commercial banks have a competitive
edge in providing banking services. Although joint stock commercial banks increasedtheir
numbers immediately after their appearance in 1990 (in 2009, there were 37 joint stock
commercial banks), the leading positions in the market still belong to state owned
commercial banks.State owned commercial banks were originally sector departmentsunder
the State Bank of Vietnam, with specified lending programmes to state owned enterprises,
which were based on governmentpolicies.
Non-state owned commercialbanks consist of joint stock commercial banks, branches of
foreign banks, joint venture commercial banks and foreign commercial banks[2]. Unlike
state owned commercial banks, a number of joint stock commercial banks make profits
because of good performance. Joint stockcommercial banks have achieved average returns
Table I.
The number of
commercial banks
from 1990 to 2009[15]
Type of banks 1990 1995 2000 2005 2009
State owned commercial banks 4 4 5 5 5
Non-state owned commercial banks
Joint stock commercial banks 0 36 39 37 37
Branches of foreign banks 0 18 26 31 48
Joint venture commercial banks 0 4 5 5 6
Foreign commercial banks 0 0 0 0 5
Total 4 62 75 78 101
Sources: Dufhues (2003);SBV (2005,2008,2009); VCSC (2008)
JFRC
26,1
104
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