1174 factor affecting bank profitability of commercial banks in vietnam from 2008 to 2020 2021

MINISTRY OF EDUCATION AND TRAINING

STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

TIEU QUOC PHONG

FACTORS AFFECTING BANK PROFITABILITY OF COMMERCIAL
BANKS IN VIETNAM FROM 2008 TO 2020

BACHERLOR THESIS
MAJOR: FINANCE – BANKING
NUMBER: 7340201

HCMC, SEPTEMBER 2021


BANKING UNIVERSITY OF HO CHI MINH CITY

TIEU QUOC PHONG

FACTORS AFFECTING BANK PROFITABILITY OF COMMERCIAL
BANKS IN VIETNAM FROM 2008 TO 2020

BACHERLOR THESIS
MAJOR: FINANCE – BANKING
NUMBER: 7340201

INSTRUCTOR:
PH.D NGUYEN THI NHU QUYNH

HCMC, SEPTEMBER 2021


ACKNOWLEDGEMENT
It is my radiant sentiment to place on record my best regards, deepest sense of
gratitude to my supervisor at Banking University in Ho Chi Minh City - Ms.
Nguyen Thi Nhu Quynh for her patience, motivation, enthusiasm, and immense
knowledge. She has wholeheartedly helped and guided me in the process of writing
this thesis. I choose this moment to acknowledge her contribution as she has been
supportive of my study and has actively provided me with enormous information to
achieve the goal.
Also I would like to thank all of my friends, who always support and help me
through the study together with the inspiration they gave me.
Author

Tieu Quoc Phong


TABLE OF CONTENTS
LIST OF ABBREVIATIONS........................................................................ i
LIST OF TABLES........................................................................................ ii
CHAPTER 1. INTRODUCTION..................................................................... 1
1.1

THE NECESSITY OF THE RESEARCH......................................... 1

1.2

RESEARCH OBJECTIVES.............................................................. 1

1.2.1 General objective........................................................................... 1
1.2.2 Specific objectives......................................................................... 2
1.3

RESEARCH QUESTIONS................................................................ 2

1.4

SUBJECTS AND THE SCOPE OF THE RESEARCH.....................2

1.4.1 Research subject............................................................................ 2
1.4.2 Research scope.............................................................................. 2
1.5

DATA AND RESEARCH METHODOLOGY.................................. 3

1.5.1 Data............................................................................................... 3
1.5.2 Methodology.................................................................................. 3
1.6

THE THESIS CONTRIBUTIONS.................................................... 4

1.6.1 Practical implications..................................................................... 4
1.6.2 Academy implications................................................................... 4
1.7

STRUCTURE OF THE THESIS....................................................... 4

SUMMARY OF CHAPTER......................................................................... 5

CHAPTER 2. THEORETICAL BASIC AND LITERATURE REVIEW.........6
2.1

THEORETICAL FRAMEWORK..................................................... 6

2.1.1 Overview of commercial bank....................................................... 6
2.1.2 Functions of commercial banks..................................................... 7
2.1.3 Measure bank profitability............................................................. 7


2.2

EMPIRICAL STUDIES REVIEW.................................................... 9

2.2.1 Foreign research............................................................................ 9
2.2.2 Domestic research........................................................................ 11
2.3

RESEARCH GAP............................................................................ 12

SUMMARY OF CHAPTER....................................................................... 12
CHAPTER 3. DATA AND METHODOLOGY.............................................. 14
3.1

RESEARCH METHODOLOGY..................................................... 14

3.2

RESEARCH MODELS................................................................... 15

3.2.1 Research model............................................................................ 16
3.2.2 Dependent variables..................................................................... 16
3.2.3 Independent variable.................................................................... 19
3.3

RESEARCH DATA......................................................................... 25

SUMMARY OF CHAPTER....................................................................... 25
CHAPTER 4. EMPIRICAL RESULTS.......................................................... 27
4.1

DATA DESCRIPTION.................................................................... 27

4.2

CORRELATION MATRIX.............................................................. 28

4.3

REGRESSION MODELS................................................................ 30

4.3.1 Model 1 – Dependent variable: ROE........................................... 30
4.3.2 Model 2 – Dependent variable: ROA........................................... 34
4.3.3 Model 3 – Dependent variable: NIM........................................... 38
4.4

DISCUSSION.................................................................................. 41

4.4.1 Bank size (SIZE).......................................................................... 41
4.4.2 Capital ratio (CAP)...................................................................... 42

4.4.3 Liquidity (LOAN)........................................................................ 42


4.4.4 Deposit ratio (DEP)..................................................................... 43
4.4.5 Gross domestic product (GDP).................................................... 44
4.4.6 Inflation rate (INF)...................................................................... 44
4.4.7 Credit growth rate (CGR)............................................................ 45
SUMMARY OF CHAPTER....................................................................... 45
CHAPTER 5. CONCLUSIONS AND RECOMMENDATIONS...................47
5.1

CONCLUSIONS.............................................................................. 47

5.2

RECOMMENDATIONS.................................................................. 48

5.3

RESEARCH LIMITATIONS AND THE NEXT SUGGEST STUDY
49

REFERENCES............................................................................................ iii
APPENDIX.................................................................................................iv


i

LIST OF ABBREVIATIONS
Abberviation

Meaning

FEM

Fixed effect model

REM

Random effect model

GDP

Gross domestic product

ROE

Return on equity

ROA

Retuen on asset

NIM

Net interest margin

Pooled OLS

Pooled Ordinary Least Squares

VIF

Variance Inflation Factor

INF

Inflation

FGLS

Feasible Generalized Least Squares


LIST OF TABLES
Table 3.1 Summarizing the formula of variables and the sign expectation.....23
Table 4.1 Statistical table describing the variables.......................................... 27
Table 4.2 Correlation analysis matrix.............................................................. 29
Table 4.3 Fixed effect model of ROE.............................................................. 30
Table 4.4 Random effect model (REM) of ROE............................................. 31
Table 4.5 Chi-test valued of FEM and REM of ROE...................................... 32
Table 4.6 Autocorrelation diagnostics of ROE................................................ 32
Table 4.7 Multicollinearity diagnostics of ROE.............................................. 33
Table 4.8 Heteroskedasticity diagnostics of ROE........................................... 33
Table 4.9 Model fix of ROE............................................................................ 34
Table 4.10 Fixed effect model (FEM) of ROA............................................... 34
Table 4.11 Random effect model (REM) of ROA........................................... 35
Table 4.12 Model choice beetwen FEM and REM of ROA............................ 35
Table 4.13 Autocorrelation diagnostics of ROA............................................. 36
Table 4.14 Multicollinearity diagnostics of ROA........................................... 36

Table 4.15 Heteroskedasticity diagnostics of ROA......................................... 37
Table 4.16 Model fix of ROA......................................................................... 37
Table 4.17 Fixed effect model (FEM) of NIM................................................ 38
Table 4.18 Random effect model (REM) of NIM........................................... 38
Table 4.19 Model choice beetwen FEM and REM of NIM............................. 39
Table 4.20 Autocorrelation diagnostics of NIM.............................................. 39
Table 4.21 Multicollinearity diagnostics of NIM............................................ 40
Table 4.22 Heteroskedasticity diagnostics of NIM......................................... 41
Table 4.23 Model fix of NIM.......................................................................... 41


1

CHAPTER 1. INTRODUCTION
1.1 THE NECESSITY OF THE RESEARCH
One of the characteristics of banks as financial intermediaries in the economy
they collected money from the surplus unit and distribute to deficit units, the bank
makes a profit from the difference in interest rates between the two financial
products. And the goal of a bank like all other companies is to maximize profits and
minimize costs and possible risks. But since Vietnam joined the World Trade
Organization (WTO) in 2007, the competition of foreign banks in the market has
increased, affecting the profitability of domestic banks. In addition, financial
institutions, fintech companies that have been growing rapidly in recent years
contribute to the amount of credit available in the financial system. Furthermore,
Vietnamese authorities have also taken steps to liberalize the banking system by
lifting interest rate ceilings, phasing out direct lending, and slowly opening capital
accounts.
As the banking restructuring process is still ongoing, it is difficult to conclude
how it might affect the performance of the Vietnamese banking system. On the
other hand, healthy and sustainable profitability is one of the main predictors of

financial distress and banking crisis (Demirgỹỗ-Kunt & Detragiache 2000). From
the perspective of emerging markets, this article is expected to find out the
determinants of bank profitability in Vietnam. In addition, examining the factors
driving the profitability of banks is an important tool for banking regulators as it
aids in prudential analysis. From those reasons, the author chooses the topic of
analyzing the factors affecting bank profitability to better understand the basic
operations of the bank.
1.2 RESEARCH OBJECTIVES
1.2.1

General objective
The general objective of the study is to focus on analyzing factors affecting the

profitability of commercial banks in Vietnam. From the research results, the thesis
suggests some recommendation to improve the profitability of commercial banks in


Vietnam.
1.2.2 Specific objectives
To achieve the general objective, the thesis conducts these specific objectives
following:
Find out the factors that can affect the profitability of commercial banks.
The research assesses the factors affect the profitability of commercial bank in
Vietnam
The research suggests some recommendations to improve banking profitability.
1.3 RESEARCH QUESTIONS
Suggests the following research questions:
What are the factors affecting the profitability of commercial banks in Vietnam?
How is the impact level and direction of the factors on the profitability of
commercial bank?

What recommendations are there to improve the profitability of commercial
banks in Vietnam?
1.4 SUBJECTS AND THE SCOPE OF THE RESEARCH
1.4.1 Research subject
The thesis analyzes the factors affecting profitability of commercial banks in
Vietnam.
1.4.2 Research scope
There are a total of 31 commercial banks in Vietnam, but some of them do not
publish enough data so the thesis choose 25 banks with enough data and according
to statistics of the State Bank, as of December 31, 2020, the total assets of
commercial banks in Vietnam account for more than 80% of the banking system, so
these 25 banks ensure the representativeness of the banking system.
The time scope: The thesis focuses on analyzing the banking performance’s
efficiency commercial banks from 2008 to 2020. Because this is the period that
witnessed the competition for profits was very fierce among commercial banks in


Vietnam. This was also the period when the banking systems had many changes
with the projects implemented by the government such as restructuring the system
of credit institutions during 2011 - 2015.
The project to enhance access to banking services for the economy.
Decision on the approval on proposal for development of banking sector
towards 2008 and orientation towards 2020.
1.5 DATA AND RESEARCH METHODOLOGY
1.5.1 Data
The study is carried out in a range of data including macroeconomic variables
on economic growth, inflation rate, interest rate are derived from General Statistics
Office of Vietnam, the State Bank of Vietnam. The bank-specific variables are
collected from the income statements and the balance sheets published on the
websites of Fiinpro and the State Bank of Vietnam.

1.5.2 Methodology
This study was investigated by quantitative method and for each research
question, there will be a different methodological explanation:
At first, with the question: What are the factors affecting the profitability of
commercial banks in Vietnam? The author will consider 3 perspectives to determine
the bank's profitability including net interest margin (NIM), return on equity (ROE),
return on total assets (ROA), which means there will be 3 dependent variables in the
model. In addition, independent variables such as Bank Specific Factors and
Macroeconomic Factors are added to the model to examine the correlation with the
dependent variable.
Secondly, to answer the question: How is the impact level and direction of the
factors on the profitability of commercial bank? To assess the determinants which
influence on profitability of commercial banks in Vietnam, the study uses panel data
regression technique through STATA software 14. The methods are applied including:
Pooled OLS, FEM, REM. Then, the thesis performs tests to choose the appropriate
regression model. In the case the chosen model has heteroskedasticity and


autocorrelation problems, the research uses FGLS estimator to overcome.
Finally, what solutions improve profitability for commercial banks in
Vietnam? Based on the results from the above questions to summarize and suggest
some recommendations to improve the profitability of commercial banks.
1.6 THE THESIS CONTRIBUTIONS
1.6.1 Practical implications
Firstly, the research contributes to additional practical results on assessing the
profitability of commercial banks in Vietnam. Thesis results can be used to compare
with studies of the same topic along with other approaches.
Secondly, the thesis proposes a number of new recommendations based on
limitations and the reasons that commercial banks in Vietnam has faced when trying
to improve its profitability.

1.6.2 Academy implications
The study provides an empirical evidence in Vietnam on factors affecting the
profitability of commercial banks. In addition, the study also systematizes the theories
and previous studies on the research topic.
1.7 STRUCTURE OF THE THESIS
Chapter 1. Introduction
In chapter 1, this will present the reason for the thesis through its necessity for
the economy. Besides, this chapter gives an overview of the objectives, methods
and contributions of the thesis.
Chapter 2. Theoretical basic and Literature review
Chapter 2 presents the concepts related to commercial banks and the
profitability. In addition, based on the researches, the thesis selects the factors
affecting the profitability of commercial banks and demonstrates the previous
studies
Chapter 3. Methodology
Chapter 3 describes the theories of OLS, FEM, REM models. Through the
theories of regression models, the thesis builds the research models with
independent


variables and dependent variables. The author presents the relevant tests to choose
the appropriate model and finally how to overcome the defects of the model. Also,
the thesis descripts the research data.
Chapter 4. Empirical results
Chapter 4 discusses the results research. Through analyzing the variables
affecting the models, the thesis is based on the actual profitability of commercial
banks in Vietnam to explain the level of influence and direction of impact.
Chapter 5. Conclusions and Recommendations
The final chapter will summarize the research results and make some
recommendations based on these. Finally, this thesis presents limitations and

proposes for future research.
SUMMARY OF CHAPTER
Chapter 1 presents in detail the necessity of research through the current
situation of banks in Vietnam. Questions were asked to contribute to the
achievement of general and specific objectives. Chapter 1 also presents an overview of
the methods used in this thesis. At the end of this chapter, the topic's contributions to
science and practice are presented.


CHAPTER 2. THEORETICAL BASIC AND LITERATURE REVIEW
2.1 THEORETICAL FRAMEWORK
2.1.1 Overview of commercial bank
The financial system is critical to a country's economic growth and
development. A healthy financial system is one in which a country need the most
profitable and efficient industries in order to build a more efficient production
foundation for future growth (Tadesse Wubie Abate and Enyew Alemaw Mesfin,
2019). On the other hand, the financial system's fundamental job is not just to
transmit money from savers to investors, but also to ensure that money is channeled
to the economy's most vital sectors.
Financial institutions contribute significantly to financial stability and economic
growth by mobilizing financial resources across the economy (Masood and Ashraf,
2012). Banks, as financial institutions, operate as financial intermediation
middlemen in the economy, moving financial resources from those economic units
with surpluses to those with deficits. This is a critical function for emerging
economies (Felix Ayadi, 2008 and Zhang, 2013).
According to Raghuram G. Rajan (1998), the commercial bank, which accepts
demand deposits and disburses loans, has outlived its usefulness. Banking plays a
critical role in implementing development activities and serves as a catalyst for
economic progress (Goddard, Molyneux, & Wilson, 2004). Therefore, the primary
banking function of accepting deposits on demand and lending them back by the

same financial organization in order to deliver cash in a short period of time is
referred to as provide liquidity.
While The U.S. Banking Act of 1971 defines the commercial bank as an
institution that offers demand deposits and originates loans. Along with the services
they provide, the institutional structure of banks includes features like government
regulation, government guarantees, and a public lender of last resort.
Commercial banks cause misalignment and hindrance to the economy's
development while also contributing to it (Mongid et al., 2012). Commercial banks


operate in accordance with a country's monetary policies, and they are primarily
responsible for controlling cash flow based on expected rates of return and
emissions (Enna & Lace. 2013).
In summary, the commercial bank used in this study refers to a financial
organization that holds deposits, issues credit to various economic sectors, and helps
a country's economic development.
2.1.2 Functions of commercial banks
Banks operate as financial intermediation, facilitating the flow of funds from
individuals with extra funds to others in need of funds. Additionally, commercial
banks may perform financial activities connected to payment and overseas
commerce smoothly by leveraging infrastructure and services. Banks, on the other
hand, provide fundamental financial services such as accepting deposits, providing
checking account services, and making different loans such as mortgages, vehicle
loans, business loans, and personal loans.
According Dao Binh Thi Thanh, and Kieu Anh Nguyen (2020), some of the
most distinguishing characteristics of developing countries include low per capita
income, which results in low savings and investment rates. The second is that a
large population combined with a high rate of unemployment results in additional
societal concerns. In another vein, emerging nations' economy are mostly dependent
on the non-industrial sector and raw resource exports. Finally, emerging nations

have an immature financial structure that is susceptible to assault during business
cycles and is heavily reliant on government involvement (McConnell, Brue and
Flynn, 2015).
It is classified as a developing economy in Vietnam. Indeed, banks in Vietnam
responded to the pandemic scenario by deploying non-physical payment card
products with money transfer and payment features, similar to debit cards.
2.1.3 Measure bank profitability
Profitability is defined as an accounting record of a bank's performance over a
certain time period, often a twelve-month period. (Kieu Anh Nguyen and Binh Thi
Thanh Dao, 2020). Bank profitability is the most fundamental and often used
statistic,


but it is equally significant when evaluating a bank's performance. Furthermore,
profitability is viewed as a necessary condition for a creative, productive, and
efficient banking sector (Chen and Liao, 2011).
In the existing literature, bank profitability can be proxied in a variety of ways.
The net interest margin (NIM), which is the ratio of net interest revenue to interestbearing assets, is one example (Beck et al., 2000). The ratio of net earnings to total
assets, or ROA, is also utilized in this study to determine robustness. Endogeneity
presents a variety of issues when calculating bank profitability, whether measured
by ROA or NIM: more profitable banks may be able to expand their equity more
readily by holding earnings. The perfect capital markets assumption is relaxed,
allowing for an increase in capital to raise predicted profitability. Another
significant issue is unobserved heterogeneity among banks, which in the Chinese
instance could be rather high due to disparities in corporate governance.
When Tan, Yong, and Christos Floros (2011) use bank profitability as defined
by ROA or NIM, according to authors, these indicators has several issues including
endogeneity: banks are profitable. Retaining earnings allows you to raise equity
more easily. Another significant issue is unobserved bank heterogeneity, which can
be considerable in China due to disparities in corporate governance. Furthermore,

because it considers the returns earned from the assets financed by the bank, ROA is
commonly used to analyze the efficiency and operational performance of banks.
According to Hart and Jaffee (1974), Blair and Heggestad (1978), Edwards
and Heggestad (1979), a number of scholars have analyzed the commercial bank's
decision-making process in terms of rates of return on assets or equity (2977). In the
past, a ROA was commonly regarded as an industry benchmark. At the same time,
return on investment (ROI) is a widely reported and evaluated metric. Regulators
and financial markets have been paying more attention to capital ratios recently,
according to Brewer and Lee (1986).
Borroni and Rossi's (2016) study, on the other hand, defines profitability as an
economic entity's capacity to achieve a positive balance between revenues and
costs.


Additionally, profitability is calculated on a monthly, quarterly, or annual basis or
averaged over a longer time period. when profitability is combined with other
indices to provide market data sets for analysts, researchers, and publicly traded
corporations. The profit of the bank will be studied in this research using three
primary indicators: ROA (Return on asset), ROE (Return on equity), and NIM (Net
interest margin). These measures were chosen because of the commonality of many
factors: their ease of access and calculation, and the simplicity with which it is
possible to interpret their values, stand out. The publication of a bank's balance
sheet is subject to multiple controls, making this indicator reliable and attractive to
researchers for
analysis and wide application.
2.2 EMPIRICAL STUDIES REVIEW
2.2.1 Foreign research
Elisa Menicucci and Guido Paolucci (2016) suggest that bank profitability
should be assessed on both the micro and macroeconomic levels. At the micro level,
business outcomes are used to measure the bank's financial status, strength, and

viability during a period of increased financial market competition. At the macro level,
a successful banking industry is more resilient to negative shocks and contributes to
the financial system's stability. The word "profitability" organization, according to
the author, refers to a business's ability to sustain a profit year after year. Profitability
of banks reflects the management's success and is one of the most crucial performance
metrics for investors.
Additionally, using research that use generalized methodologies of moments
(GMM). Between 2003 and 2009, Yong Tan (2012) examined the effect of inflation
on the profitability of Chinese banks. By using 101 commercial banks, including
state-owned banks, joint-stock commercial banks, and commercial banks. The
research results implies that inflation has a beneficial effect on bank profitability,
although non-traditional activities and excessive taxes might have a negative effect.
Anna P. I. Vong (2009) assess the influence of macroeconomic factors and
financial structure on the bank performance in Macao, the author uses ROA as a


proxy for bank performance. By using FEM and REM estimators, the research
results show that ROA demonstrates the capacity of asset management to create
profits for the bank. Between 1993 and 2007, data from five commercial banks in
Macao were gathered using two models: the random effect model (REM) and the
fixed effect model (FEM). These data reflect about 75% of the total assets of the
country's banking industry. The findings indicate that capital strength is a significant
determinant in determining a bank's profitability, implying that well-capitalized
institutions are less risky and more profitable. Additionally, banks with extensive
deposit-taking networks do not earn more profit than banks with limited deposittaking networks. Finally, inflation has a big effect on a bank's performance.
Mohammad Sofie Abdul Hasan's (2020) concentrated exclusively on the size
and moderating variable of the bank in Indonesia. The unique feature of this study is
that the author chooses net interest margin (NIM) as an independent variable in the
model, rather than as a dependent variable, and the results indicate that it has a
significant impact on the bank's ROE, along with other factors such as the Ratio of

Operational Expenses to Operational Profit, Capital Adequacy Ratio, and Loan to
Deposits Ratio. Additionally, the dependent variable ROA is influenced by the Fed
Rate and Cement Consumption, CAR, BOPO, and Cement Consumption.
Another subject examines commercial banks in three Asian nations, namely
Vietnam, Thailand, and Malaysia, over a four-year period from 2012 to 2016. (Binh
Thi Thanh Dao and Dung Phuong Nguyen, 2020). The most striking resemblance,
when panel data regressions are used, is the substantial negative association
between operational risk and banking profitability. While bank size has a
detrimental influence on the Vietnamese and Thai models, it has no discernible
effect on the Malaysian model. Meanwhile, the most contentious finding is a
negative correlation between CAR and profitability indices, as well as a positive
correlation between credit risk and banks profitability.
Interrelationships between liquidity production, regulatory capital, and bank
profitability in the United States of America (Vuong Thao Tran, Chien-Ting Lin,
Hoa


Nguyen, 2016). This model demonstrates a positive relationship between regulatory
capital and liquidity. This makes sense for small banks and is particularly
appropriate during non-crisis years. On the other hand, banks that create a
significant amount of liquidity typically have a poor profit margin. Finally, the link
between regulatory capital and bank performance is nonlinear and is dependent on
the capitalization level of the bank.
2.2.2 Domestic research
Tu DQ.Le and Thanh Ngo (2020) investigates the determinants of bank
profitability in 23 countries by using panel data structure and a generalized method
of moments estimator (GMM) recommended by Arellano and Bover (1995) to
demonstrate that technology in bank services variables such as number of cards issued,
number of automated teller machines (ATMs), and point of sale (POS) machines
contribute to bank profitability. Simultaneously, the bank's competitiveness suffers.

The Payment System Statistics (Bank for International Settlements, 2017) supplied
statistics on banking technology services, whereas the Financial Development and
Structural dataset (Beck et al., 2000) provided banking information (International
Monetary Fund, 2018). Although these are all worldwide data sources that enable
the author to examine a variety of nations, this study did not examine the link
between bank ownership structure and profitability.
Tu Le (2017) examined the profitability of commercial banks in Vietnam over
a ten-year period from 2005 to 2015. Using GMM was proposed by Arellano and
Bover (1995), the results indicated that banks with greater lending specialization;
banks with lower liquidity risk; banks with a diversified portfolio; smaller banks;
and listed banks can be more profitable. Additionally, the study demonstrates that it
is feasible to increase profitability in a less concentrated banking sector while
simultaneously demonstrating that profitability is impacted by inflation and
economic growth. This is consistent with the existing state of the Vietnamese
market, which currently lacks a wholesale bank.
On the same subject, Duong Thuy Nguyen (2017) conducted an empirical


research with 13 commercial banks from 2006 to 2015, utilizing Regression
Analysis for Panel Data. The findings indicate that state ownership, asset size, and
macroeconomic variables such as GDP and inflation are all statistically
insignificant. On the other hand, foreign ownership, cost of income, and credit risk
all have a detrimental effect on the profitability of Vietnamese commercial banks.
A research on the effect of online banking on bank performance is rarely
mentioned in Vietnam. Van Dinh (2015) research focuses on three key factors:
profitability ratios, noninterest operational expenditures, and earnings of twenty
banks that accounted for almost 70% of total assets of Vietnamese banks between
2009 and 2014. Correlations between variables were determined using a random
effect model (REM) and a fixed effect model (FEM). The findings indicate that
online banking has a little effect on bank profitability and has a lag of more than

three years compared to earlier research.
2.3 RESEARCH GAP
The first flaw in earlier study was the selection of variables for the research
model. Previous researchers were found to be constrained in their ability to
incorporate more macroeconomic aspects into their research models. Previous
research has mostly concentrated on GDP growth and inflation rates, with little
attention paid to other factors such as the exchange rate, credit to GDP, and credit
growth rate. The second constraint is that local researchers did not look at all of
Vietnam's commercial banks. It can be explained by the fact that limited data
sources make it difficult to obtain all financial data from all commercial institutions.
SUMMARY OF CHAPTER
This chapter examines the concepts of commercial banking and bank
profitability. In which the term commercial bank is defined in the thesis as a
financial institution that pays interest to depositors, issues credit to various
economic sectors, and is defined as a financial institution that operates on the basis
of holding deposits, profitability is defined in the thesis as the total of interest
income, and non-facilitates