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Should Vietnamese Banks Need More Equity? Evidence on Risk-Return Trade-Off in Dynamic Models of Banking

Department of Finance, Banking University of Ho Chi Minh City, Ho Chi Minh City 700000, Vietnam
J. Risk Financial Manag. 2019, 12(2), 84; https://doi.org/10.3390/jrfm12020084
Received: 19 April 2019 / Revised: 9 May 2019 / Accepted: 11 May 2019 / Published: 13 May 2019
(This article belongs to the Section Banking and Finance)
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Abstract

This study employs generalized method of moments (GMM) for dynamic panel data models to deal with the nature of banking behaviour, aiming at investigating the impact of bank equity on the risk and return of Vietnamese commercial banks during the period of 2006–2017. The study finds that increasing bank equity is not always the best strategy to be accompanied by absolute benefits, increasing returns and reducing risks for banks but is a trade-off instead. More precisely, banks with larger capital buffers tend to take less risk but are less profitable. In addition, the study also finds a non-linear relationship revealing that bank risk mitigates the effect of bank equity on profitability. Most estimations show strong robustness checked by some alternative techniques. Based on the findings, the study provides some important policy implications to improve the performance of the banking system in Vietnam as well as in other emerging countries. View Full-Text
Keywords: bank equity; emerging country; return; risk; Vietnam bank equity; emerging country; return; risk; Vietnam
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Dan Dang, V. Should Vietnamese Banks Need More Equity? Evidence on Risk-Return Trade-Off in Dynamic Models of Banking. J. Risk Financial Manag. 2019, 12, 84.

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