Income diversification and financial stability of Vietnamese commercial banks: The role of economic globalization

Abstract

This paper investigates the impact of income diversification on the stability of Vietnamese commercial banks (VCBs), based on secondary data from audited financial reports of 21 VCBs during the period 2013–2020. The study examines the influence of internal bank factors, macroeconomic conditions, and globalization on the stability of commercial banks in Vietnam. The regression analysis results from the generalized method of moments (GMM) show that income diversification does not entirely benefit bank stability and may even reduce stability in certain cases. However, when the economy reaches a high level of globalization, income diversification policies tend to help banks maintain better stability. Additionally, internal bank factors, such as deposit ratio and liquidity, play a crucial role in enhancing financial stability. On the contrary, bank size has a negative impact on stability, indicating that larger banks may struggle to maintain stability under the pressures of globalization and macroeconomic conditions. Based on these findings, the paper provides several recommendations to improve the stability of Vietnamese commercial banks in the context of deepening economic globalization, including adjusting risk management policies and optimizing income diversification strategies.