Diversification, Profitability and Risks: Evidence from Commercial Banks in Vietnam

Abstract

With the explosion in the number of banks and financial companies leading to increasing competition in the credit granting field, banks tend to diversify their revenue sources and seek new sources of income from non-traditional activities. The study uses data from 25 commercial banks in Vietnam from 2009 to 2019 by using the SGMM method (Arellano & Bond, 1991) to test the impact of diversification on the profitability and risks of commercial banks in Vietnam. Research results show that income diversification negatively affects bank profitability and risks. On that basis, the author gives some implications for governance activities and macro management policies to minimize risks for commercial banks in Vietnam.