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The Effects Of Competition On Efficiency: The Vietnamese Banking Industry Experience

Author

Listed:
  • THANH PHAM THIEN NGUYEN

    (Business & IT Department/Academic Division, James Cook University, 149 Sims Drive, Singapore 387380, Singapore)

  • SON HONG NGHIEM

    (Institute of Health and Biomedical Innovation (IHBI), Queensland University of Technology, Kelvin Grove, QLD 4059, Australia)

Abstract

Given considerable changes in the Vietnamese banking environment brought about by significant reforms towards liberalization during the last two decades, this study investigates the evolution of competition and efficiency, compares the competition and efficiency of state-owned banks to joint-stock banks, and then tests the “quiet life” hypothesis in this industry over the period 2000–2014. This study employs the efficiency-adjusted Lerner index (i.e., market power) to capture competition, and the cost efficiency estimated by a Fourier-flexible function stochastic frontier analysis (SFA) to capture bank efficiency. This study firstly finds a slight improvement of competition and cost efficiency in the Vietnamese banking sector over the analysis period. Secondly, there are no significant differences in competition and cost efficiency level between state-owned and joint-stock banks. Thirdly, a positive causality running from competition to cost efficiency is documented, providing evidence of supporting the “quiet life” hypothesis. Finally, positive efficiency effects of the banks’ capital ratio and size are found, while insignificant impacts of the growth of GDP per capita and 2007 global financial crisis were observed. The results are strongly robust to a variety of tests. The findings suggest pro-competition, pro-capitalization and pro-size expansion policies in the Vietnamese banking sector if targeting at improving the cost efficiency of Vietnamese banks.

Suggested Citation

  • Thanh Pham Thien Nguyen & Son Hong Nghiem, 2020. "The Effects Of Competition On Efficiency: The Vietnamese Banking Industry Experience," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(06), pages 1507-1536, December.
    • Handle: RePEc:wsi:serxxx:v:65:y:2020:i:06:n:s0217590817500114
    DOI: 10.1142/S0217590817500114
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    Cited by:

    1. Hind Alnafisah & Lama Alwohaibi, 2024. "The Cost Efficiency and Competition Relationship: Evidence from Saudi Arabian Banks and Non-Structural Approaches to Analysis," Economies, MDPI, vol. 12(1), pages 1-13, January.

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