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Competition and efficiency among Vietnam’s commercial banks

This article investigates the impact of bank competition on cost and profit efficiency in the Vietnam’s commercial banking system during 2005–2014. Based on different testing techniques, our results agree with the findings of Turk-Ariss (2010) that bank competition has a negative effect on profit efficiency and those of Pruteanu-Podpiera et al. | 104 Phan Thi Thom & Than Thi Thu Thuy / Journal of Economic Development 24(1) 104-118 Competition and efficiency among Vietnam’s commercial banks PHAN THI THOM University of Economics HCMC – thomphan2002@gmail.com THAN THI THU THUY University of Economics HCMC – thuynh@ueh.edu.vn ARTICLE INFO ABSTRACT Article history: This article investigates the impact of bank competition on cost and profit efficiency in the Vietnam’s commercial banking system during 2005–2014. Based on different testing techniques, our results agree with the findings of Turk-Ariss (2010) that bank competition has a negative effect on profit efficiency and those of Pruteanu-Podpiera et al. (2008) and Maudos and de Guevara (2007) that bank competition is negatively related to cost efficiency. We also find that inflation and lag of competition are the two factors affecting the competition among these banks. Received: Dec. 10, 2015 Received in revised form: May 26, 2016 Accepted: Dec. 31, 2016 Keywords: Competition Efficiency Commercial banks. Phan Thi Thom & Than Thi Thu Thuy / Journal of Economic Development 24(1) 104-118 1. Introduction The competition–efficiency relation has been known for long through the neoclassical school, which maintains that perfect competition (monopoly) is the most (least) efficient. Oligopoly and monopolistic competition, moreover, are between the two extremes (Boyes & Melvin, 1991; Byrns & Stone, 1995; McEachern, 1994). The initiation of quiet life and efficient–structure hypotheses has made this relation become of more interest to many economists. Adopting Granger causality, a number of empirical investigations attain dissimilar results: (i) competition improves efficiency (Andries & Căpraru, 2014; Schaeck & Cihák, 2008); (ii) competition does certain harm to efficiency (Maudos & de Guevara, 2007; Pruteanu-Podpiera et al., 2008), and (iii) competition does no harm to efficiency (Fungácová et al., 2013). Furthermore, Turk-Ariss (2010) documented that .