Degree Name

Doctor of Philosophy


School of Accounting, Economics and Finance


The nexus between finance and economic growth has been theoretically and empirically examined in the literature. A well-functioning financial system is an essential factor that ensures the sustainable development of economies. Measurements of efficiency and productivity can be used to identify good/bad financial systems. In Vietnam, commercial banks dominate and contribute 90% of the total assets of the financial system (IMF, 2014). Thus, the efficiency and productivity of the banking sector is pivotal to the attainment of economic growth and development in Vietnam. In joining the WTO in 2007 Vietnam had to implement reform measures aimed at further liberalising and increasing the competitiveness of the banking sector. Nonetheless, the existing literature lacks a comprehensive and rigorous analysis of the impact of WTO entry on the performance of Vietnamese banks.

The objective of this research is to conduct an empirical investigation of the performance of the Vietnamese banking sector over the years from 2005 to 2012, encompassing the pre- and post-WTO entry periods. Using measures of efficiency and productivity this thesis sheds light on the following questions: (1) How has the Vietnamese banking sector evolved since its transformation from a one-tier to two-tier system in 1988? (2) Which methods can be utilised to measure and analyse the efficiency and productivity of a banking sector? (3) What has been the level of efficiency and extent of productivity changes in Vietnam‘s banks encompassing the pre- and post-WTO entry? (4) What has been the impact of policy changes implemented after WTO entry on Vietnam‘s banks? (5) What are the important sources of inefficiency from the perspective of the Vietnamese banking system?

Using data for Vietnamese banks covering the post-WTO period (2005-2012), it is found that there is no obvious change of efficiency between the pre- and post-WTO era. State-owned bank groups are the most efficient and have the smallest technology gap relative to that of industry technology. By contrast, and contrary to the mainstream view, joint stock banks are the least efficient group and have the biggest gap relative to the meta-frontier. The impact of reform measures such as transforming rural to urban banks and allowing industrial groups to become involved in the banking sector have contributed negatively to bank performance. There is evidence to suggest that SOCBs privatisation has improved their capability to earn profit but has reduced their efficiency in terms of providing loans. The participation of foreign investors has improved the efficiency of joint stock banks. Regardless of ownership the results illustrate a negative relationship between bank capitalisation and performance as well as a positive impact on profitability. Foreign and joint venture banks are found to be less dependent on lending activities and are more diversified in their operations than domestic banks.

viii The responses of various bank types can be different to the same explanatory factors. For example, the income efficiency of state-owned banks is positively related with the loan to asset ratio while a negative relationship is recorded in the case of joint stock banks. While financial soundness facilitates the magnitude of lending in the case of foreign and joint venture banks, we observe a negative relationship in the case of domestic banks. The profitability of foreign rivals is independent of intermediation services but a significant dependence is recorded for domestic banks. The analysis of productivity showed that the banking system witnessed a decline during the period 2007–2012 under both the operating and intermediation approach. This issue can be explained by regression of the technical component while the efficiency component was largely unchanged.

This thesis has created a number of contributions to the literature on efficiency and banking. First, this is the first study to take into account the heterogeneity of the business environment when measuring and analysing bank efficiency. Second, by combining the meta-frontier analysis with double-bootstrap two-stage DEA, the author has provided a new approach to analyse the impact of variables on bank efficiency in separate groups operating under different technology sets. Accordingly, ownership is employed as an ex ante rather than an ex post factor, unlike previous studies, when examining the influence of this environmental variable. Third, outcomes from this study clarify the impact of policy changes‘ on Vietnamese banking performance in the post WTO era. Fourth, this is the first time that the aggregate Malmquist productivity index that allows accounting for the contribution of individual firms to a whole industry‘s productivity has been applied in the context of a banking system. Fifth, from the empirical results, a number of policies have been recommended to improve the performance of Vietnamese banking sector from the ix perspective of economic integration that Vietnam has been officially a member of ASEAN Economic Community at the end of 2015 and the Trans Pacific Partnership agreement has been signed in December of 2015.