Impact of foreign banks on local banks in

Impact of foreign banks on local banks in Vietnam Lien Thi Dinh Phd Candidate, AEF Department, Griffith University, Nathan Campus

Outline Objective Research design Empirical results Conclusion 2

Objective Purpose of the study: Important financial channel International agreement on liberalization Deregulations increase the competition This issue is silent in literature Measure the impact of foreign banks Whether the impact: spill-over effects or competition effect Spill-over: increase profit, reduce cost Competition: reduce both profit and cost Add the knowledge to literature, especially in case of Vietnam 3

Research Design Measure the impact on bank-specific factors and macro-economic factors Fixed effect model, GMM (robustness check), robust standard error 4

Empirical results Table 1: Description of variables Variables PROFIT COST Description Before tax profit to total assets Overhead expenses to total assets NIM NII EQUITY LOAN DEPOSIT LLP ASSET FBA_D 1, FBA_D 2 FBN 1, FBN 2, FBN 3 FBN 1 r, FBN 2 r, FBN 3 r FBN 2_D 1, FBN 2_D 2 FBN 2 r_D 1, FBN 2 r_D 2 GDP_G INF Net interest margin (net interst income to total assets) Non interest income to total assets Capital equity to total assets Loans to total assets Short term and long term deposits Loans loss provisions to total loans Total assets of bank to total assets of the industry Foreign banks’ assets to total assets Foreign banks’ asset ratio from (D 1) developed and (D 2) developing countries Number of foreign banks (1) without branches, (2) with branches and (3) branches Ratio of number of foreign banks (1) without branches, (2) with branches, (3) branches Foreign bank number w branches from (D 1) developed and (D 2) developing countries Ratio of number of foreign banks from (D 1) developed and (D 2) developing countries GDP growth rate Inflation rate (annual), percentage change in the CPI 5

Table 2: Descriptive data Variable Domestic banks Profit Margin Cost Equity Deposit Loan LLP Nonincome Asset share Foreign banks Profit Margin Cost Equity Deposit Loan LLpro Nonincome Mean Std. Dev. Min Max 0. 016 0. 030 0. 017 0. 124 0. 802 0. 564 0. 028 0. 010 0. 047 0. 012 0. 018 0. 014 0. 116 0. 120 0. 163 0. 107 0. 010 0. 078 -0. 020 -0. 008 0. 003 -0. 007 0. 059 0. 114 0. 000 -0. 008 0. 000 0. 090 0. 200 0. 175 1. 000 0. 955 0. 892 0. 802 0. 110 0. 471 0. 019 0. 031 0. 020 0. 228 0. 728 0. 501 0. 005 0. 014 0. 018 0. 011 0. 133 0. 132 0. 172 0. 003 0. 010 -0. 078 0. 002 0. 091 0. 318 0. 165 0. 000 -0. 001 0. 049 0. 063 0. 052 0. 678 0. 893 0. 833 0. 012 0. 037 6

Profit COST EQUITY DEPOSIT LOAN LLP NII ASSET FBA (1) PROFIT 0. 0641 (0. 550) 0. 0373*** (0. 002) -0. 00471* (0. 096) 0. 00865* (0. 050) -0. 00627 (0. 471) 0. 442*** (0. 000) -0. 0166 (0. 439) 0. 0683* (0. 076) FBN 1 (2) PROFIT 0. 0775 (0. 468) 0. 0380*** (0. 002) -0. 00415 (0. 142) 0. 0101** (0. 027) -0. 00654 (0. 443) 0. 441*** (0. 000) -0. 0116 (0. 567) (3) PROFIT 0. 0845 (0. 427) 0. 0380*** (0. 001) -0. 00359 (0. 212) 0. 0115** (0. 016) -0. 00654 (0. 433) 0. 444*** (0. 000) -0. 00619 (0. 762) (4) PROFIT 0. 0658 (0. 550) 0. 0353*** (0. 004) -0. 00567** (0. 049) 0. 00856* (0. 055) -0. 00745 (0. 394) 0. 441*** (0. 000) -0. 0197 (0. 364) (5) PROFIT 0. 0633 (0. 586) 0. 0333*** (0. 005) -0. 00640** (0. 028) 0. 00795* (0. 071) -0. 00793 (0. 381) 0. 440*** (0. 000) -0. 0221 (0. 334) 0. 000477** (0. 030) FBN 2 0. 000135** (0. 017) FBN 1 r 0. 0301 (0. 275) FBN 2 r 0. 00585 (0. 666) GDP_G INF Observations 7 271 271 271

Profit COST EQUITY DEPOSIT LOAN LLP NII ASSET FBA (6) PROFIT 0. 0854 (0. 381) 0. 0417*** (0. 001) -0. 00241 (0. 377) 0. 00926** (0. 034) -0. 00619 (0. 444) 0. 432*** (0. 000) -0. 00184 (0. 931) 0. 125*** (0. 005) FBN 1 (7) PROFIT 0. 121 (0. 210) 0. 0423*** (0. 001) -0. 00185 (0. 503) 0. 0109** (0. 014) -0. 00718 (0. 370) 0. 428*** (0. 000) 0. 00573 (0. 771) (8) PROFIT 0. 134 (0. 161) 0. 0404*** (0. 001) -0. 00230 (0. 412) 0. 0111** (0. 013) -0. 00754 (0. 354) 0. 432*** (0. 000) 0. 00623 (0. 747) (9) PROFIT 0. 0778 (0. 440) 0. 0410*** (0. 001) -0. 00297 (0. 259) 0. 0103** (0. 024) -0. 00740 (0. 361) 0. 435*** (0. 000) -0. 00389 (0. 854) 0. 000859*** (0. 001) FBN 2 0. 000209*** (0. 001) FBN 1 r 0. 0806** (0. 012) FBN 2 r GDP_G INF Observations (10) PROFIT 0. 0764 (0. 474) 0. 0338*** (0. 003) -0. 00569** (0. 026) 0. 00844* (0. 059) -0. 00887 (0. 294) 0. 431*** (0. 000) -0. 0139 (0. 552) 0. 187*** (0. 003) 0. 000136* (0. 065) 271 0. 220*** (0. 001) 0. 0000988 (0. 178) 271 0. 196*** (0. 002) -0. 00000207 (0. 980) 271 0. 196*** (0. 002) 0. 000167** (0. 027) 271 0. 00743 (0. 588) 0. 115** (0. 032) 0. 000123 (0. 133) 271 8

Net interest margin COST EQUITY DEPOSIT LOAN LLP NII ASSET FBA FBN 1 FBN 2 FBN 1 r FBN 2 r GDP_G INF (1) NIM 1. 427*** (0. 000) 0. 0381*** (0. 002) -0. 00206 (0. 473) -0. 00197 (0. 776) 0. 0000284 (0. 997) -0. 327* (0. 073) 0. 0181 (0. 488) 0. 0999** (0. 035) (2) NIM 1. 446*** (0. 000) 0. 0378*** (0. 002) -0. 00180 (0. 549) -0. 000297 (0. 967) -0. 000767 (0. 926) -0. 328* (0. 070) 0. 0230 (0. 342) (3) NIM 1. 454*** (0. 000) 0. 0379*** (0. 002) -0. 000899 (0. 787) 0. 00197 (0. 781) -0. 000914 (0. 912) -0. 321* (0. 070) 0. 0305 (0. 189) (4) NIM 1. 426*** (0. 000) 0. 0362*** (0. 003) -0. 00318 (0. 275) -0. 00218 (0. 771) -0. 00107 (0. 896) -0. 329* (0. 072) 0. 0141 (0. 596) (5) NIM 1. 354*** (0. 000) 0. 0390*** (0. 002) -0. 00215 (0. 490) -0. 00136 (0. 860) 0. 00175 (0. 833) -0. 301* (0. 099) 0. 00937 (0. 721) 0. 000601** (0. 027) 0. 000176** (0. 012) 0. 0519 (0. 150) 0. 0378* (0. 081) 9

Net interest margin COST EQUITY DEPOSIT LOAN LLP NII ASSET FBA (6) NIM 1. 463*** (0. 000) 0. 0441*** (0. 001) 0. 00131 (0. 678) -0. 000708 (0. 916) -0. 000503 (0. 951) -0. 335* (0. 057) 0. 0389 (0. 141) 0. 186*** (0. 001) FBN 1 (7) NIM 1. 510*** (0. 000) 0. 0434*** (0. 001) 0. 00147 (0. 651) 0. 00123 (0. 858) -0. 00221 (0. 782) -0. 340* (0. 052) 0. 0468* (0. 065) (8) NIM 1. 529*** (0. 000) 0. 0410*** (0. 002) 0. 000966 (0. 775) 0. 00171 (0. 805) -0. 00281 (0. 723) -0. 333* (0. 056) 0. 0479* (0. 058) (9) NIM 1. 448*** (0. 000) 0. 0446*** (0. 000) 0. 00102 (0. 742) 0. 000681 (0. 925) -0. 00127 (0. 874) -0. 331* (0. 053) 0. 0373 (0. 136) 0. 00115*** (0. 000) FBN 2 0. 000285*** (0. 001) FBN 1 r 0. 133*** (0. 002) FBN 2 r GDP_G INF (10) NIM 1. 379*** (0. 000) 0. 0398*** (0. 002) -0. 00117 (0. 698) -0. 00102 (0. 891) -0. 0000977 (0. 991) -0. 310* (0. 077) 0. 0203 (0. 455) 0. 290*** (0. 000) 0. 000178** (0. 037) 0. 322*** (0. 000) 0. 000124 (0. 128) 0. 293*** (0. 000) -0. 0000149 (0. 861) 0. 320*** (0. 000) 0. 000234*** (0. 010) 0. 0432** (0. 039) 0. 213*** (0. 000) 0. 000142* (0. 092) 10

Overhead cost EQUITY DEPOSIT LOAN LLP NII ASSET FBA (1) COST 0. 0106 (0. 139) -0. 00169 (0. 597) 0. 0111*** (0. 002) 0. 00758** (0. 040) 0. 229* (0. 094) -0. 0460** (0. 018) 0. 0297 (0. 236) FBN 1 (2) COST 0. 00859 (0. 254) -0. 00256 (0. 459) 0. 0107*** (0. 005) 0. 00665* (0. 070) 0. 227* (0. 090) -0. 0483** (0. 014) (3) COST 0. 00806 (0. 303) -0. 00285 (0. 438) 0. 0104** (0. 017) 0. 00647* (0. 077) 0. 225* (0. 083) -0. 0495** (0. 014) (4) COST 0. 0111 (0. 104) -0. 00160 (0. 615) 0. 0113*** (0. 001) 0. 00768** (0. 039) 0. 230* (0. 093) -0. 0463** (0. 018) (5) COST 0. 0146** (0. 034) 0. 00000308 (0. 999) 0. 0118*** (0. 000) 0. 0102*** (0. 006) 0. 242* (0. 083) -0. 0458** (0. 018) 0. 0000161 (0. 934) FBN 2 -0. 00000772 (0. 900) FBN 1 r 0. 0256* (0. 059) FBN 2 r 0. 0298*** (0. 000) GDP_G INF 11 Observations R-squared 280 0. 256 280 0. 252 280 0. 260 280 0. 307

Overhead cost 12

EQUITY DEPOSIT LOAN LLP NII ASSET FBA_D 1 FBA_D 2 FBN 2_D 1 FBN 2_D 2 (2) PROFIT 0. 0796 (0. 419) 0. 0402*** (0. 001) -0. 00221 (3) PROFIT 0. 144 (0. 133) 0. 0367*** (0. 001) -0. 00302 (4) PROFIT 0. 133 (0. 187) 0. 0406*** (0. 001) -0. 00206 (5) PROFIT 0. 139 (0. 147) 0. 0400*** (0. 001) -0. 00247 (6) PROFIT 0. 153* (0. 099) 0. 0370*** (0. 001) -0. 00309 (0. 127) 0. 00962** (0. 033) -0. 00678 (0. 435) 0. 407*** (0. 000) -0. 0102 (0. 622) 0. 0553 (0. 327) -0. 291 (0. 348) (0. 427) 0. 0115*** (0. 009) -0. 00687 (0. 359) 0. 454*** (0. 000) -0. 00439 (0. 820) (0. 291) 0. 00966** (0. 013) -0. 00973 (0. 200) 0. 438*** (0. 000) -0. 000176 (0. 992) (0. 446) 0. 0110*** (0. 009) -0. 00834 (0. 294) 0. 397*** (0. 000) 0. 00888 (0. 640) 0. 137** (0. 032) -0. 591** (0. 023) (0. 364) 0. 0111*** (0. 008) -0. 00759 (0. 321) 0. 428*** (0. 000) 0. 00704 (0. 689) (0. 301) 0. 00880** (0. 029) -0. 00989 (0. 198) 0. 438*** (0. 000) -0. 00107 (0. 955) -0. 000566* (0. 066) 0. 000623*** (0. 007) 0. 000354 (0. 375) 0. 000115 (0. 701) FBN 2_R_D 1 -0. 0853*** -0. 0876** FBN 2_R_D 2 (0. 006) 0. 0485*** (0. 033) 0. 0530** (0. 004) (0. 019) 0. 0274 (0. 671) -0. 0000505 GDP_G INF Developed vs. Developing countries COST (1) PROFIT 0. 0552 (0. 601) 0. 0360*** (0. 002) -0. 00399 0. 239*** (0. 000) 0. 0000678 0. 213*** (0. 001) 0. 00000582 13

EQUITY DEPOSIT LOAN LLP NII ASSET FBA_D 1 FBA_D 2 FBN 2_D 1 FBN 2_D 2 (2) NIM 1. 443*** (0. 000) 0. 0419*** (0. 001) 0. 00149 (3) NIM 1. 425*** (0. 000) 0. 0428*** (0. 000) 0. 00150 (4) NIM 1. 475*** (0. 000) 0. 0427*** (0. 001) 0. 00113 (5) NIM 1. 525*** (0. 000) 0. 0414*** (0. 001) 0. 00113 (6) NIM 1. 429*** (0. 000) 0. 0426*** (0. 001) 0. 000872 (0. 486) -0. 00350 (0. 603) 0. 000394 (0. 960) -0. 357* (0. 054) 0. 0158 (0. 553) 0. 123* (0. 060) 0. 195 (0. 521) (0. 650) 0. 00212 (0. 745) -0. 00157 (0. 840) -0. 305* (0. 054) 0. 0335 (0. 116) (0. 646) 0. 00159 (0. 808) -0. 000734 (0. 924) -0. 293* (0. 073) 0. 0311 (0. 132) (0. 699) -0. 000749 (0. 908) -0. 00130 (0. 871) -0. 353** (0. 048) 0. 0392 (0. 126) 0. 242*** (0. 002) 0. 0791 (0. 810) (0. 731) 0. 00168 (0. 795) -0. 00275 (0. 711) -0. 331* (0. 052) 0. 0473** (0. 041) (0. 780) -0. 000330 (0. 960) -0. 00112 (0. 884) -0. 301* (0. 067) 0. 0293 (0. 202) -0. 00101*** (0. 007) 0. 00100*** (0. 001) 0. 000158 (0. 742) 0. 000367 (0. 343) FBN 2_R_D 1 -0. 0514* -0. 0261 FBN 2_R_D 2 (0. 095) 0. 0818*** (0. 483) 0. 0779*** (0. 002) (0. 007) 0. 146*** (0. 008) 0. 00000653 GDP_G INF Developed vs. Developing countries COST (1) NIM 1. 400*** (0. 000) 0. 0363*** (0. 003) -0. 00179 0. 289*** (0. 000) 0. 000175* 0. 278*** (0. 000) -0. 0000217 14

DEPOSIT LOAN LLP NII ASSET FBA_D 1 FBA_D 2 COST 0. 00838 (0. 248) -0. 00265 COST 0. 0129* (0. 061) -0. 00129 COST 0. 00892 (0. 173) -0. 00141 COST 0. 00806 (0. 197) -0. 00234 COST 0. 0118* (0. 065) -0. 00144 (0. 681) 0. 00839* (0. 061) 0. 00893** (0. 016) 0. 207 (0. 128) -0. 0483*** (0. 007) 0. 0658* (0. 068) 0. 387 (0. 352) (0. 429) 0. 0104** (0. 012) 0. 00641* (0. 064) 0. 226* (0. 067) -0. 0492** (0. 010) (0. 675) 0. 0105*** (0. 002) 0. 0108*** (0. 004) 0. 234* (0. 052) -0. 0523*** (0. 003) (0. 627) 0. 00774 (0. 111) 0. 0102** (0. 010) 0. 204 (0. 107) -0. 0544*** (0. 010) 0. 0364 (0. 277) 0. 956** (0. 027) (0. 457) 0. 0103** (0. 023) 0. 00673* (0. 074) 0. 230* (0. 063) -0. 0551*** (0. 009) (0. 642) 0. 0113*** (0. 003) 0. 0107*** (0. 003) 0. 228* (0. 065) -0. 0506*** (0. 004) FBN 2_D 1 -0. 000106 (0. 532) 0. 0000604 (0. 578) FBN 2_D 2 -0. 000812 (0. 112) 0. 000431 (0. 137) FBN 2_R_D 1 0. 0606*** 0. 0766*** FBN 2_R_D 2 (0. 004) 0. 0135 (0. 000) 0. 00210 (0. 222) (0. 823) 0. 0128 (0. 686) 0. 000107 (0. 231) 280 GDP_G INF Observations 276 280 -0. 177*** (0. 006) 0. 000125** (0. 029) 276 -0. 174* (0. 052) 0. 0000317 (0. 721) 280 Developed vs. Developing countries EQUITY COST 0. 0108* (0. 088) -0. 00117 15

EQUITY DEPOSIT LOAN LLP NII ASSET FBN 1 FBN 3 FBN 1 r (2) FE PROFIT 0. 0826 (0. 459) 0. 0348*** (0. 002) -0. 00584** (0. 037) 0. 00838** (0. 045) -0. 00800 (0. 356) 0. 434*** (0. 000) -0. 0185 (0. 364) 0. 0353 (0. 134) -0. 00895 (0. 513) FBN 3 r GDP_G INF Observations IV(no. ) AR 2(p) Hansen(p) (3) FE PROFIT 0. 138 (0. 132) 0. 0327*** (0. 002) -0. 00555** (0. 017) 0. 00774* (0. 053) -0. 00895 (0. 193) 0. 398*** (0. 000) -0. 000688 (0. 968) 0. 00145*** (0. 000) -0. 0000352 (0. 802) 271 0. 257*** (0. 000) 0. 000276*** (0. 001) 271 (4) FE PROFIT 0. 169* (0. 075) 0. 0405*** (0. 000) -0. 00277 (0. 307) 0. 0104*** (0. 010) -0. 0103 (0. 180) 0. 398*** (0. 000) 0. 00932 (0. 608) Subsidiaries vs. Branches COST (1) FE PROFIT 0. 0756 (0. 458) 0. 0327*** (0. 004) -0. 00656** (0. 010) 0. 00730* (0. 073) -0. 00763 (0. 315) 0. 434*** (0. 000) -0. 0203 (0. 330) 0. 000180 (0. 215) 0. 000155 (0. 313) 0. 126*** (0. 000) -0. 0482*** (0. 002) 0. 259*** (0. 000) 0. 000250*** (0. 002) 271 16

EQUITY DEPOSIT LOAN LLP NII ASSET FBN 1 FBN 3 FBN 1 r (2) FE NIM 1. 346*** (0. 000) 0. 0384*** (0. 001) -0. 00237 (0. 396) -0. 00153 (0. 834) 0. 00176 (0. 823) -0. 299* (0. 082) 0. 00796 (0. 747) 0. 0260 (0. 375) 0. 0437* (0. 083) FBN 3 r GDP_G INF Observations (3) FE NIM 1. 510*** (0. 000) 0. 0311** (0. 022) -0. 00350 (0. 234) -0. 00246 (0. 709) -0. 00494 (0. 563) -0. 362** (0. 036) 0. 0341 (0. 205) 0. 00121*** (0. 002) 0. 000184 (0. 318) 280 0. 305*** (0. 000) 0. 000277*** (0. 006) 280 (4) FE NIM 1. 444*** (0. 000) 0. 0446*** (0. 000) 0. 00101 (0. 729) 0. 000657 (0. 922) -0. 00111 (0. 885) -0. 329* (0. 056) 0. 0367 (0. 113) 0. 131*** (0. 000) 0. 00254 (0. 914) 0. 317*** (0. 000) 0. 000229*** (0. 006) 280 Subsidiaries vs. Branches COST (1) FE NIM 1. 433*** (0. 000) 0. 0319** (0. 015) -0. 00443 (0. 155) -0. 00363 (0. 572) -0. 00216 (0. 791) -0. 332* (0. 054) 0. 0137 (0. 612) -0. 000192 (0. 280) 0. 000420* (0. 072) 17

Subsidiaries vs. Branches (1) FE (2) FE (3) FE (4) FE COST EQUITY 0. 00907 (0. 179) 0. 0126** (0. 049) 0. 00919 (0. 170) 0. 0101 (0. 148) DEPOSIT -0. 00220 (0. 443) -0. 000617 (0. 836) -0. 00209 (0. 493) -0. 00160 (0. 626) LOAN 0. 0106*** (0. 002) 0. 0111*** (0. 000) 0. 0111*** (0. 008) 0. 0104** (0. 013) LLP 0. 00704** (0. 030) 0. 0100*** (0. 003) 0. 00774** (0. 026) 0. 0106*** (0. 004) NII 0. 230* (0. 073) 0. 243* (0. 063) 0. 234* (0. 064) 0. 245* (0. 052) ASSET -0. 0467*** (0. 007) -0. 0488*** (0. 005) -0. 0498** (0. 011) -0. 0558*** (0. 005) FBN 1 -0. 000224* -0. 000615 (0. 069) (0. 198) 0. 000222 0. 000234* (0. 195) (0. 052) FBN 3 FBN 1 r FBN 3 r -0. 00374 -0. 0387 (0. 761) (0. 183) 0. 0458*** 0. 0569*** (0. 000) GDP_G INF Observations 280 -0. 115 -0. 112* (0. 127) (0. 054) -0. 0000332 -0. 0000558 (0. 795) (0. 618) 280 18

Conclusion Both spill-over and competition effect exist Domestic banks dominate the market, so they earn excessive profit Domestic banks focus on credit market, similar to FB from developing, and branches Policy implication Foreign entry deregulation: bring benefits than disadvantage Liberalization appears to be successful DB should care about the method to cooperate with foreign banks for technological transfer 19

Thank you Q&A 20