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

摘要

This study employs generalized method of moments (GMM) for dynamic panel data modelsto deal with the nature of banking behaviour, aiming at investigating the impact of bank equity onthe risk and return of Vietnamese commercial banks during the period of 2006–2017. The study findsthat 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 withlarger capital buffers tend to take less risk but are less profitable. In addition, the study also finds anon-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 thefindings, the study provides some important policy implications to improve the performance of thebanking system in Vietnam as well as in other emerging countries.