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The Impact of Equity Capital on the Bank’s Profitability: Evidence From Vietnam’s Banking System

Author

Listed:
  • Ngo, Thanh Xuan

    (School of Banking and Finance, National Economics University, Hanoi, Vietnam)

  • Bui, Phuong Linh

    (School of Banking and Finance, National Economics University, Hanoi, Vietnam)

  • Le, Minh Huong

    (School of Banking and Finance, National Economics University, Hanoi, Vietnam)

Abstract

From 2008 to 2019, this research examines the effect of equity capital on the profitability of 24 Vietnamese commercial banks. The research findings indicate that, when ROAA and ROAE are used to measure the bank’s profit, the equity capital ratio (CAP) has a statistically significant positive effect on the ROAA while having a negative effect on the ROAE. Between 2013 and 2019, the CAP variable has a positive effect on the ROAA and ROAE, indicating that banks with a larger equity capital ratio achieved higher profitability. Furthermore, the deposits-to-assets ratio (DTA) and loan-loss reserves ratio (LLR) both have a negative effect on both proxies for bank profitability, although bank size (SIZE) has a negligible effect on bank profits in the majority of circumstances. Additionally, the rate of GDP growth and inflation (INF) have a beneficial effect on the bank’s profitability. The study’s objective is to present some critical policy implications for bank executives about the importance of adequate equity capital for the bank’s sustainability development.

Suggested Citation

  • Ngo, Thanh Xuan & Bui, Phuong Linh & Le, Minh Huong, 2021. "The Impact of Equity Capital on the Bank’s Profitability: Evidence From Vietnam’s Banking System," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(16), pages 56-71, December.
    • Handle: RePEc:sgm:jbfeuw:v:2:y:2022:i:16:p:56-71
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    More about this item

    Keywords

    bank equity capital; bank profitability; commercial banks;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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