Market structure and bank performance: A comprehensive picture of Vietnam

Abstract

In the context of the fact that the structure of the Vietnamese banking market has undergone many fluctuations, which has had an impact on banking activities, and the fact that many related studies have been carried out, but the answer is still limited and inconsistent, it is necessary to study the impact of the market structure on banking operations in Vietnam. The paper comprehensively examines the impact of market structure on various aspects of bank performance in Vietnam. The study uses three measures of the structure of the banking industry, namely, the total market share of the largest banks, the squared market share of all banks according to the Herfindahl-Hirshchman index, and the Lerner index on market power (inverse bank competition), to ensure the results are not dependent on any specific measure. The paper applies the two-step system generalized method of moments estimator to conduct regression analysis for a sample of 30 banks from 2007 to 2021. All obtained estimates generally show positive effects on bank performance due to greater market power and higher banking concentration. Concretely, more market power and greater concentration improve bank asset quality, management efficiency, bank profitability, and lending capacity. Overall, the findings of this paper all support the bright side of less competition and more concentration, which is essential to derive policy implications related to supervising competitive environments and stimulating consolidated financial systems.