Geopolitical Risk and Bank Performance: the Case of Vietnamese Commercial Banks

Abstract

Purpose: This study assesses the impact of geopolitical risk, an increasingly prominent factor, on the performance of commercial banks in Vietnam.
Design/methodology/approach: Utilizing data from 28 commercial banks between 2009 and 2023, the research employs FGLS regression (Feasible Generalized Least Squares) and multiple robustness checks.
Findings: Vietnamese commercial banks have adapted exceptionally well to geopolitical instability, effectively leveraging geopolitical risks to enhance their business performance. Geopolitical risk has not only avoided diminishing but has, conversely, augmented the efficiency of Vietnamese banks during the study period. This outcome reinforces the perspective that Vietnamese commercial banks have demonstrated agility in forecasting, planning, and transforming their business models to mitigate the negative impacts of geopolitical instability, such as increasing non-interest income and enhancing competitiveness.
Originality/value: This study contributes an empirical evidence on the positive impact of geopolitical risk on banking performance in an emerging market. This finding opens the door for further theoretical model development that incorporates the crucial role of institutional flexibility, rapid response capabilities, and strategic transformation of commercial banks in converting risk into opportunity.