Market concentration and competition in Vietnamese banking sector

Vietnamese banking system has been playing a vital role in the development and economic growth since the economic renewal campaign namely “Doi Moi” in 1986. However, since the global financial crisis, financial and banking system has been under stress, exposing much weaknesses, severely affecting the whole economy. Additionally, the wave of financial liberalization raise questions about the competitiveness of Vietnamese commercial banks in the competition with the foreigners. The main purpose of this paper is to measure the market concentration using Hirschman-Herfindahl index (HHI) and test for the market competition in Vietnamese banking sector under Panzar – Rossse approach by an unbalanced panel data of 33 commercial banks for the period from 2004 to 2013. Vietnamese banking sector is found to be high-concentration although it is experiencing a decreasing trend. The test for market competition indicate a monopolistic behavior of Vietnamese commercial banks. No surprising, the state-owned commercial banks and foreign banks are found to be superior in the competition with joint-stock commercial banks and domestic banks respectively. In addition, the foreign investment in banks seem to increase competitiveness of a commercial bank.