The Impact of Noninterest Income on the Profitability of Commercial Banks in VietNam: Evidence of Non-Linear Relationship

Khanh Ngoc Nguyen

International Journal of Economics and Finance, 2021, vol. 13, issue 1, 100

Abstract: This paper uses the Generalized Method Of Moments (GMM) to analyze the impact of noninterest income on the profitability of 28 Vietnamese commercial banks in the period from 2010 to 2018. At the same time, the Threshold Regression Model is applied on a panel data to evaluate whether or not there is a non-linear relationship between the noninterest income ratio and bank’s profitability. The results have shown that the optimal diversification benefit can be attained by reaching a certain level of non-interest income proportion. The findings of the study are- (1) The existence of two thresholds shows that there is non-linear relationship, confirming the non-linear relationship between the noninterest income ratio (NII) and profitability (ROA); (2) The noninterest income ratio impacts negatively on profitability (ROA) when NII (≤44.16% and ≥ 46.62%), when the noninterest income ratio is between 44.16% and 46.12% the relationship is positive. The noninterest income ratio ranging from 44.16% to 46.62% is called optimal when this ratio is in a positive correlation with profitability, which means that Vietnamese commercial banks can try to increase their profits by increasing NII and maintaining that level to get exploiting their maximum level of diversification from noncredit income.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ibn:ijefaa:v:13:y:2021:i:1:p:100

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