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ABSTRACT
The commercial banking system is considered the backbone of the financial
system in particular and the economy as a whole. Sustainable and stable
development of the banking system will create a solid foundation to support the
development of other industries in the economy, thereby promoting sustainable and
stable economic growth. Vietnam's economy has undergone a boom in
development, especially in the years 2006-2007, along with the wave of establishing
new banks and transforming rural banks into urban banks, which has led to a hot
growth in the number of banks during this period. However, despite the strong
growth in both the number and scale of banks, weak financial and management
capacity has led to difficulties in the financial market, especially during the period
of 2011-2012. In response to this situation, the SBV has restructured the banking
system with the goal of reducing the number of banks, increasing concentration and
enhancing the competitiveness of domestic banks.
This study is conducted to provide additional empirical evidence on the
relationship between industry concentration, competition, and stability of credit
institutions. Through multivariate regression using a Bayesian approach on data
collected from 27 credit institutions listed on the Vietnam stock market during the
period 2011-2021, the research results show that industry concentration does not
play an overly important role in maintaining the stability of the credit institution
system, while the competitive capacity of banks holds an important position in
maintaining the stability of credit institutions. The study also emphasizes the role of
bank scale, capital adequacy ratio, and income diversification in improving the
soundness of the banking system. In addition, the study also shows that policy
interest rates have a negative impact on banking stability, while inflation tends to
improve the stability of the financial system, although this effect is only true in the
short term. Other factors such as credit growth, GDP growth, and the Covid-19
pandemic have a relatively vague impact on financial stability.
Keywords: industry concentration, competition, banking stability