Effects of banking scale and operating expenses to profit of joint stock commercial banks in Vietnam

Abstract

The operation of the bank is an important economic activity, which has contributed significantly to the development of the national economy over the past years. Therefore, the efficiency in the business operations of joint stock commercial banks is a topic that needs to be addressed, as it directly affects the efficiency in providing capital to businesses, as well as the stability and development of the financial market. Determining the factors affecting the profitability of joint-stock commercial banks will help managers to operate the bank's operations more efficiently. The purpose of this paper is to examine whether the profitability of a joint stock commercial bank in Vietnam is affected by its size and operating costs. All parameter estimates of the regression model are based on regression analysis of the random effects table of REM. Data of the study included 28 joint stock commercial banks in Vietnam for the period of 2012-2019. Empirical research results show that the bank's profit is affected by financial leverage and more particularly, there exists a positive correlation of the bank size and the operating cost on the bank's profit. The fact that larger banks are more competitive has the ability to diversify their asset portfolios, focus on higher profit margins, and spend money to investment, upgrading of service quality and facilities lead to increased operating costs, thereby reducing risks and increasing profits.