Optimal capital adequacy ratio: an investigation of Vietnamese commercial banks using two-stage DEA

Phuong Anh Nguyen, Bich Le Tran and Michel Simioni ()
Additional contact information
Phuong Anh Nguyen: VNU-HCM - Vietnam National University, Ho Chi Minh City / Đại học Quốc gia TP. Hồ Chí Minh
Bich Le Tran: VNU-HCM - Vietnam National University, Ho Chi Minh City / Đại học Quốc gia TP. Hồ Chí Minh
Michel Simioni: UMR MoISA - Montpellier Interdisciplinary center on Sustainable Agri-food systems (Social and nutritional sciences) - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - IRD - Institut de Recherche pour le Développement - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro - Montpellier SupAgro - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement

Post-Print from HAL

Abstract: Over the last years the Vietnamese banking system has been struggling to restructure, reform governance, consolidate financial statements and build up merge and acquisition, in line with international standards. The Bank for International Settlements (BIS) proposed BASEL III in 2010, whereby banks must increase their minimum Capital Adequacy Ratios (CAR) year by year with a goal of 10.5% by 2019. The objective of this paper is to address the questions: (1) what are the optimal CAR levels for Vietnamese Commercial Banks (2) whether the minimum required CARs stipulated in the Basel II and III are reasonable for Vietnam banking system? The data set consists of a sample of Vietnamese commercial banks over the six-year period from 2010 to 2015. The optimal CARs of banks are calculated using the nonparametric two-stage Data Envelopment Analysis (DEA) model, with two inputs: fixed assets, employee expense and two outputs: interest income, non-interest income. The findings indicate that 92.4% of the banks have the optimal CAR higher than the minimum ratio 10.5% defined in BASEL III. Moreover, 57.98% of the banks should raise their current level of CAR to reach their optimal ones. To conclude, this paper will provide a guideline for Vietnamese banks to decide their optimal CAR to reach the efficiency frontier.

Keywords: Capital adequacy ratios; BASEL II; BASEL III; Two-stage DEA; Vietnam banking system (search for similar items in EconPapers)
Date: 2021-01-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eff, nep-rmg and nep-sea
Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-03125428v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Cogent Business & Management, 2021, 8 (1), pp.1-20. ⟨10.1080/23311975.2020.1870796⟩

Downloads: (external link)
https://hal.inrae.fr/hal-03125428v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03125428

DOI: 10.1080/23311975.2020.1870796

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().