Factors Affecting Banking Performance: The Role of Market Power and Risk in the Context of Vietnamese Commercial Banks Factors Affecting Banking Performance: The Role of Market Power and Risk in the Context of Vietnamese Commercial Banks

Abstract

This study employs panel data from 35 Vietnamese commercial banks over the period 2014–2024 to analyze the determinants of bank performance, with particular emphasis on the effects of risk and market power. Risk is measured using indicators such as the Z-score and loan loss provisions (LLP), while market power is proxied by the Lerner index. In addition, the study incorporates several control variables representing bank-specific characteristics, industry-specific factors, and macroeconomic conditions. Bank performance is examined from three perspectives: return on assets (ROA), return on equity (ROE), and profit before tax (PBT). The empirical analysis is conducted using the two-step system Generalized Method of Moments (GMM). The findings indicate that both market power and risk significantly affect bank performance. Among the bank-specific variables, size, liquidity, ownership structure, operating costs, diversification, and listing status are found to have a substantial impact on performance. Moreover, industry-specific factors and macroeconomic conditions also influence bank efficiency. The author also find the evidence of other factors affecting bank efficiency.