Bank competition and financial stability: the case of vietnamese commercial banks
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Abstract
The main purpose of this research is to investigate the influence of bank
competition on financial stability in Vietnamese commercial banks over the period 2006 –
2016. The Lerner indicator is employed to measure competition while banks’ probability of
failure (Z-score), non-performing loan (hereafter, NPL) ratio and capital adequacy ratio
(CAR) are proxies for financial stability. The estimation results from System Generalized
Method of Moments (SGMM) and robustness checks (ordinary least squares (OLS), Fixed-
effect (FE) and Random effect (RE) regression) indicate that bank competition is positively
related to Z-score and CAR, supported by the “competition - stability” initial view.
Conversely, Lerner index impacts positively the probability of loan non-payment which
documents that expanding lending products enhances the capability of riskier loan
portfolio, supported by the “competition – risk” prevalent view. Otherwise, we further find
strong evidence that the relationship between bank competition and financial stability is
non-linear with U-shape.