THE IMPACT OF EQUITY ON PROFITABILITY OF VIETNAMESE COMMERCIAL BANKS

Abstract

Equity is one of the important criteria to evaluate financial strength of bank's business activities according to international practices. In the total business capital of commercial banks, equity accounts for a small proportion in the capital structure but plays an extremely important role for banks. The larger the equity capital, the higher the bank's endurance, especially in the difficult period of business operations, the greater the ability to generate profits because it can diversify income from business operations. This article uses data from financial statements of 31 Vietnamese commercial banks and the General Statistics Office of Vietnam for the period 2008 - 2020 to study the impact of equity on bank’s profitability with the following criteria: profit after tax on average total assets, profit after tax on average equity and net interest margin through generalized method of moments model. The research results show that equity has a positive impact on profit after tax on average total assets and net interest margin, but has a negative impact on profit after tax on average equity. Since then, the study has proposed solutions on equity to increase profit of Vietnamese commercial banks.