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

2. Outline  Objective  Research design  Empirical results  Conclusion 2

3. 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

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

5. Empirical results VariablesDescription PROFIT Before tax profit to total assets COST Overhead expenses to total assets NIM Net interest margin (net interst income to total assets) NII Non interest income to total assets EQUITY Capital equity to total assets LOANLoans to total assets DEPOSITShort term and long term deposits LLPLoans loss provisions to total loans ASSET Total assets of bank to total assets of the industry FBA Foreign banks’ assets to total assets FBA_D1, FBA_D2 Foreign banks’ asset ratio from (D1) developed and (D2) developing countries FBN1, FBN2, FBN3Number of foreign banks (1) without branches, (2) with branches and (3) branches FBN1r, FBN2r, FBN3r Ratio of number of foreign banks (1) without branches, (2) with branches, (3) branches FBN2_D1, FBN2_D2 Foreign bank number w branches from (D1) developed and (D2) developing countries FBN2r_D1, FBN2r_D2 Ratio of number of foreign banks from (D1) developed and (D2) developing countries GDP_G GDP growth rate INFInflation rate (annual), percentage change in the CPI Table 1: Description of variables 5

6. Table 2: Descriptive data 6 VariableMeanStd. Dev.MinMax Domestic banks Profit 0.0160.012-0.0200.090 Margin 0.0300.018-0.0080.200 Cost 0.0170.0140.0030.175 Equity 0.1240.116-0.0071.000 Deposit 0.8020.1200.0590.955 Loan 0.5640.1630.1140.892 LLP 0.0280.1070.0000.802 Nonincome 0.010 -0.0080.110 Asset share 0.0470.0780.0000.471 Foreign banks Profit 0.0190.018-0.0780.049 Margin 0.0310.0110.0020.063 Cost 0.0200.0110.0020.052 Equity 0.2280.1330.0910.678 Deposit 0.7280.1320.3180.893 Loan 0.5010.1720.1650.833 LLpro 0.0050.0030.0000.012 Nonincome 0.0140.010-0.0010.037 Asset share 0.0050.0030.0010.015

7. Profit (1)(2)(3)(4)(5) PROFIT COST0.06410.07750.08450.06580.0633 (0.550)(0.468)(0.427)(0.550)(0.586) EQUITY0.0373***0.0380*** 0.0353***0.0333*** (0.002) (0.001)(0.004)(0.005) DEPOSIT-0.00471*-0.00415-0.00359-0.00567**-0.00640** (0.096)(0.142)(0.212)(0.049)(0.028) LOAN0.00865*0.0101**0.0115**0.00856*0.00795* (0.050)(0.027)(0.016)(0.055)(0.071) LLP-0.00627-0.00654 -0.00745-0.00793 (0.471)(0.443)(0.433)(0.394)(0.381) NII0.442***0.441***0.444***0.441***0.440*** (0.000) ASSET-0.0166-0.0116-0.00619-0.0197-0.0221 (0.439)(0.567)(0.762)(0.364)(0.334) FBA0.0683* (0.076) FBN10.000477** (0.030) FBN20.000135** (0.017) FBN1r0.0301 (0.275) FBN2r0.00585 (0.666) GDP_G INF Observations271 R-squared0.3700.3800.3910.3630.357 7

8. Profit (6)(7)(8)(9)(10) PROFIT COST0.08540.1210.1340.07780.0764 (0.381)(0.210)(0.161)(0.440)(0.474) EQUITY0.0417***0.0423***0.0404***0.0410***0.0338*** (0.001) (0.003) DEPOSIT-0.00241-0.00185-0.00230-0.00297-0.00569** (0.377)(0.503)(0.412)(0.259)(0.026) LOAN0.00926**0.0109**0.0111**0.0103**0.00844* (0.034)(0.014)(0.013)(0.024)(0.059) LLP-0.00619-0.00718-0.00754-0.00740-0.00887 (0.444)(0.370)(0.354)(0.361)(0.294) NII0.432***0.428***0.432***0.435***0.431*** (0.000) ASSET-0.001840.005730.00623-0.00389-0.0139 (0.931)(0.771)(0.747)(0.854)(0.552) FBA0.125*** (0.005) FBN10.000859*** (0.001) FBN20.000209*** (0.001) FBN1r0.0806** (0.012) FBN2r0.00743 (0.588) GDP_G0.187***0.220***0.196*** 0.115** (0.003)(0.001)(0.002) (0.032) INF0.000136*0.0000988-0.000002070.000167**0.000123 (0.065)(0.178)(0.980)(0.027)(0.133) Observations271 R-squared0.4240.4420.4400.4190.387 8

9. Net interest margin (1)(2)(3)(4)(5) NIM COST1.427***1.446***1.454***1.426***1.354*** (0.000) EQUITY0.0381***0.0378***0.0379***0.0362***0.0390*** (0.002) (0.003)(0.002) DEPOSIT-0.00206-0.00180-0.000899-0.00318-0.00215 (0.473)(0.549)(0.787)(0.275)(0.490) LOAN-0.00197-0.0002970.00197-0.00218-0.00136 (0.776)(0.967)(0.781)(0.771)(0.860) LLP0.0000284-0.000767-0.000914-0.001070.00175 (0.997)(0.926)(0.912)(0.896)(0.833) NII-0.327*-0.328*-0.321*-0.329*-0.301* (0.073)(0.070) (0.072)(0.099) ASSET0.01810.02300.03050.01410.00937 (0.488)(0.342)(0.189)(0.596)(0.721) FBA0.0999** (0.035) FBN10.000601** (0.027) FBN20.000176** (0.012) FBN1r0.0519 (0.150) FBN2r0.0378* (0.081) GDP_G INF Observations280 R-squared0.5510.5550.5650.5470.559 9

10. Net interest margin (6)(7)(8)(9)(10) NIM COST1.463***1.510***1.529***1.448***1.379*** (0.000) EQUITY0.0441***0.0434***0.0410***0.0446***0.0398*** (0.001) (0.002)(0.000)(0.002) DEPOSIT0.001310.001470.0009660.00102-0.00117 (0.678)(0.651)(0.775)(0.742)(0.698) LOAN-0.0007080.001230.001710.000681-0.00102 (0.916)(0.858)(0.805)(0.925)(0.891) LLP-0.000503-0.00221-0.00281-0.00127-0.0000977 (0.951)(0.782)(0.723)(0.874)(0.991) NII-0.335*-0.340*-0.333*-0.331*-0.310* (0.057)(0.052)(0.056)(0.053)(0.077) ASSET0.03890.0468*0.0479*0.03730.0203 (0.141)(0.065)(0.058)(0.136)(0.455) FBA0.186*** (0.001) FBN10.00115*** (0.000) FBN20.000285*** (0.001) FBN1r0.133*** (0.002) FBN2r0.0432** (0.039) GDP_G0.290***0.322***0.293***0.320***0.213*** (0.000) INF0.000178**0.000124-0.00001490.000234***0.000142* (0.037)(0.128)(0.861)(0.010)(0.092) Observations280 R-squared0.6040.6110.6120.6070.593 10

11. Overhead cost (1)(2)(3)(4)(5) COST EQUITY0.01060.008590.008060.01110.0146** (0.139)(0.254)(0.303)(0.104)(0.034) DEPOSIT-0.00169-0.00256-0.00285-0.001600.00000308 (0.597)(0.459)(0.438)(0.615)(0.999) LOAN0.0111***0.0107***0.0104**0.0113***0.0118*** (0.002)(0.005)(0.017)(0.001)(0.000) LLP0.00758**0.00665*0.00647*0.00768**0.0102*** (0.040)(0.070)(0.077)(0.039)(0.006) NII0.229*0.227*0.225*0.230*0.242* (0.094)(0.090)(0.083)(0.093)(0.083) ASSET-0.0460**-0.0483**-0.0495**-0.0463**-0.0458** (0.018)(0.014) (0.018) FBA0.0297 (0.236) FBN10.0000161 (0.934) FBN2-0.00000772 (0.900) FBN1r0.0256* (0.059) FBN2r0.0298*** (0.000) GDP_G INF Observations280 R-squared0.2560.252 0.2600.307 11

12. Overhead cost (6)(7)(8)(9)(10) COST EQUITY0.009520.006780.006230.01040.0143** (0.210)(0.377)(0.402)(0.156)(0.038) DEPOSIT-0.00187-0.00305-0.00337-0.001540.0000215 (0.585)(0.408)(0.356)(0.653)(0.995) LOAN0.0119***0.0112**0.0107**0.0122*** (0.008)(0.017)(0.024)(0.007)(0.004) LLP0.00750**0.00668*0.00650*0.00772**0.0103*** (0.046)(0.081)(0.094)(0.042)(0.009) NII0.230*0.226*0.222*0.231*0.243* (0.091)(0.085)(0.083)(0.091)(0.083) ASSET-0.0464**-0.0507**-0.0525**-0.0454**-0.0458** (0.033)(0.021)(0.015)(0.039)(0.025) FBA0.0111 (0.728) FBN1-0.000164 (0.440) FBN2-0.0000626 (0.258) FBN1r0.0164 (0.388) FBN2r0.0280*** (0.000) GDP_G-0.0571-0.0844*-0.0888**-0.0461-0.0365 (0.246)(0.094)(0.043)(0.326)(0.313) INF0.00003270.00003960.00007390.00003970.00000957 (0.735)(0.657)(0.314)(0.695)(0.922) Observations280 R-squared0.2660.2690.2740.2670.311 12

13. Developed vs. Developing countries (1)(2)(3)(4)(5)(6) PROFIT COST0.05520.07960.1440.1330.1390.153* (0.601)(0.419)(0.133)(0.187)(0.147)(0.099) EQUITY0.0360***0.0402***0.0367***0.0406***0.0400***0.0370*** (0.002)(0.001) DEPOSIT-0.00399-0.00221-0.00302-0.00206-0.00247-0.00309 (0.127)(0.427)(0.291)(0.446)(0.364)(0.301) LOAN0.00962**0.0115***0.00966**0.0110***0.0111***0.00880** (0.033)(0.009)(0.013)(0.009)(0.008)(0.029) LLP-0.00678-0.00687-0.00973-0.00834-0.00759-0.00989 (0.435)(0.359)(0.200)(0.294)(0.321)(0.198) NII0.407***0.454***0.438***0.397***0.428***0.438*** (0.000) ASSET-0.0102-0.00439-0.0001760.008880.00704-0.00107 (0.622)(0.820)(0.992)(0.640)(0.689)(0.955) FBA_D10.05530.137** (0.327)(0.032) FBA_D2-0.291-0.591** (0.348)(0.023) FBN2_D1-0.000566*0.000354 (0.066)(0.375) FBN2_D20.000623***0.000115 (0.007)(0.701) FBN2_R_D1-0.0853***-0.0876** (0.006)(0.033) FBN2_R_D20.0485***0.0530** (0.004)(0.019) GDP_G0.239***0.213***0.0274 (0.000)(0.001)(0.671) INF0.00006780.00000582-0.0000505 (0.331)(0.946)(0.575) Observations267271 267271 R-squared0.3390.4110.4300.3970.4400.433 13

14. Developed vs. Developing countries (1)(2)(3)(4)(5)(6) NIM COST1.400***1.443***1.425***1.475***1.525***1.429*** (0.000) EQUITY0.0363***0.0419***0.0428***0.0427***0.0414***0.0426*** (0.003)(0.001)(0.000)(0.001) DEPOSIT-0.001790.001490.001500.00113 0.000872 (0.486)(0.650)(0.646)(0.699)(0.731)(0.780) LOAN-0.003500.002120.00159-0.0007490.00168-0.000330 (0.603)(0.745)(0.808)(0.908)(0.795)(0.960) LLP0.000394-0.00157-0.000734-0.00130-0.00275-0.00112 (0.960)(0.840)(0.924)(0.871)(0.711)(0.884) NII-0.357*-0.305*-0.293*-0.353**-0.331*-0.301* (0.054) (0.073)(0.048)(0.052)(0.067) ASSET0.01580.03350.03110.03920.0473**0.0293 (0.553)(0.116)(0.132)(0.126)(0.041)(0.202) FBA_D10.123*0.242*** (0.060)(0.002) FBA_D20.1950.0791 (0.521)(0.810) FBN2_D1-0.00101***0.000158 (0.007)(0.742) FBN2_D20.00100***0.000367 (0.001)(0.343) FBN2_R_D1-0.0514*-0.0261 (0.095)(0.483) FBN2_R_D20.0818***0.0779*** (0.002)(0.007) GDP_G0.289***0.278***0.146*** (0.000) (0.008) INF0.000175*-0.00002170.00000653 (0.065)(0.808)(0.945) Observations276280 276280 R-squared0.5240.5890.5930.5710.6120.605 14

15. Developed vs. Developing countries COST EQUITY0.0108*0.008380.0129*0.008920.008060.0118* (0.088)(0.248)(0.061)(0.173)(0.197)(0.065) DEPOSIT-0.00117-0.00265-0.00129-0.00141-0.00234-0.00144 (0.681)(0.429)(0.675)(0.627)(0.457)(0.642) LOAN0.00839*0.0104**0.0105***0.007740.0103**0.0113*** (0.061)(0.012)(0.002)(0.111)(0.023)(0.003) LLP0.00893**0.00641*0.0108***0.0102**0.00673*0.0107*** (0.016)(0.064)(0.004)(0.010)(0.074)(0.003) NII0.2070.226*0.234*0.2040.230*0.228* (0.128)(0.067)(0.052)(0.107)(0.063)(0.065) ASSET-0.0483***-0.0492**-0.0523***-0.0544***-0.0551***-0.0506*** (0.007)(0.010)(0.003)(0.010)(0.009)(0.004) FBA_D10.0658*0.0364 (0.068)(0.277) FBA_D20.3870.956** (0.352)(0.027) FBN2_D1-0.000106-0.000812 (0.532)(0.112) FBN2_D20.00006040.000431 (0.578)(0.137) FBN2_R_D10.0606***0.0766*** (0.004)(0.000) FBN2_R_D20.01350.00210 (0.222)(0.823) GDP_G-0.177***-0.174*0.0128 (0.006)(0.052)(0.686) INF0.000125**0.00003170.000107 (0.029)(0.721)(0.231) Observations276280 276280 R-squared0.2280.2520.3250.2940.2920.336 15

16. Subsidiaries vs. Branches (1) FE(2) FE(3) FE(4) FE PROFIT COST0.07560.08260.1380.169* (0.458)(0.459)(0.132)(0.075) EQUITY0.0327***0.0348***0.0327***0.0405*** (0.004)(0.002) (0.000) DEPOSIT-0.00656**-0.00584**-0.00555**-0.00277 (0.010)(0.037)(0.017)(0.307) LOAN0.00730*0.00838**0.00774*0.0104*** (0.073)(0.045)(0.053)(0.010) LLP-0.00763-0.00800-0.00895-0.0103 (0.315)(0.356)(0.193)(0.180) NII0.434*** 0.398*** (0.000) ASSET-0.0203-0.0185-0.0006880.00932 (0.330)(0.364)(0.968)(0.608) FBN10.0001800.00145*** (0.215)(0.000) FBN30.000155-0.0000352 (0.313)(0.802) FBN1r0.03530.126*** (0.134)(0.000) FBN3r-0.00895-0.0482*** (0.513)(0.002) GDP_G0.257***0.259*** (0.000) INF0.000276***0.000250*** (0.001)(0.002) Observations271 IV(no.) AR2(p) Hansen(p) 16

17. Subsidiaries vs. Branches (1) FE(2) FE(3) FE(4) FE NIM COST1.433***1.346***1.510***1.444*** (0.000) EQUITY0.0319**0.0384***0.0311**0.0446*** (0.015)(0.001)(0.022)(0.000) DEPOSIT-0.00443-0.00237-0.003500.00101 (0.155)(0.396)(0.234)(0.729) LOAN-0.00363-0.00153-0.002460.000657 (0.572)(0.834)(0.709)(0.922) LLP-0.002160.00176-0.00494-0.00111 (0.791)(0.823)(0.563)(0.885) NII-0.332*-0.299*-0.362**-0.329* (0.054)(0.082)(0.036)(0.056) ASSET0.01370.007960.03410.0367 (0.612)(0.747)(0.205)(0.113) FBN1-0.0001920.00121*** (0.280)(0.002) FBN30.000420*0.000184 (0.072)(0.318) FBN1r0.02600.131*** (0.375)(0.000) FBN3r0.0437*0.00254 (0.083)(0.914) GDP_G0.305***0.317*** (0.000) INF0.000277***0.000229*** (0.006) Observations280 17

18. Subsidiaries vs. Branches (1) FE(2) FE(3) FE(4) FE COST EQUITY0.009070.0126**0.009190.0101 (0.179)(0.049)(0.170)(0.148) DEPOSIT-0.00220-0.000617-0.00209-0.00160 (0.443)(0.836)(0.493)(0.626) LOAN0.0106***0.0111*** 0.0104** (0.002)(0.000)(0.008)(0.013) LLP0.00704**0.0100***0.00774**0.0106*** (0.030)(0.003)(0.026)(0.004) NII0.230*0.243*0.234*0.245* (0.073)(0.063)(0.064)(0.052) ASSET-0.0467***-0.0488***-0.0498**-0.0558*** (0.007)(0.005)(0.011)(0.005) FBN1-0.000224*-0.000615 (0.069)(0.198) FBN30.0002220.000234* (0.195)(0.052) FBN1r-0.00374-0.0387 (0.761)(0.183) FBN3r0.0458***0.0569*** (0.000) GDP_G-0.115-0.112* (0.127)(0.054) INF-0.0000332-0.0000558 (0.795)(0.618) Observations280 18

19. 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

20. Thank you Q&A 20