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Determinants of net interest margin of commercial banks in Vietnam

Determinants of net interest margin of commercial banks in Vietnam. This study provides an insight into the determinants of net interest margin (NIM) of commercial banks in Vietnam during the recession period. We employ secondary data collected from published audited consolidated financial reports of Vietnamese commercial banks from 2008, the year marking the outbreak of the global financial crisis, to the end of 2012. | Journal of Economics and Development, Vol.17, No.2, August 2015, pp. 69-82 ISSN 1859 0020 Determinants of Net Interest Margin of Commercial Banks in Vietnam Hoang Trung Khanh Albert-Ludwigs-Universität Freiburg, Germany Email: khanhhoangtrung@gmail.com Vu Thi Dan Tra Foreign Trade University, Vietnam Email: vuthidantra.cs2@ftu.edu.vn Abstract This study provides an insight into the determinants of net interest margin (NIM) of commercial banks in Vietnam during the recession period. We employ secondary data collected from published audited consolidated financial reports of Vietnamese commercial banks from 2008, the year marking the outbreak of the global financial crisis, to the end of 2012. Altogether, the data constitute 175 panel-data observations. The regression using the ordinary least squares method yields the result that operating expense, management quality, risk aversion, and inflation rate have a positive effect on NIM, while the banking sector’s market concentration affects NIM negatively. Afterwards, some policy implications are derived from those findings to mitigate and put NIM under control, so that the efficiency of the financial intermediary system can be developed. Keywords: Determinants; net interest margin; commercial banks. Journal of Economics and Development 69 Vol. 17, No.2, August 2015 1. Introduction transferred across the financial intermediaries at a slight expense. On the other hand, a too low NIM causes damage to banks’ profitability (Zuzana and Tigran, 2008). Here exists a conflict of interest between policymakers, whose objective is to optimize the society’s benefit, and bankers, who aim at maximizing profits. Because of this dilemma, there have been plenty of studies on NIM and its determinants around the world in the last three decades, for example Demirgüç-Kunt and Huizinga (1999), Maudos and Fernández de Guevara (2004), Zuzana and Tigram (2008) to name a few. However, such research is still unavailable in Vietnam, .