The impact of market power on bank stability: Empirical evidence from Vietnam

Abstract

This paper investigates the impact of market power on the stability of Vietnamese commercial
banks using a quarterly unbalanced panel data set of 22 commercial banks in the period from Q2:2015
to Q3:2023, combined with panel data analysis models. Research results show that market power has a
negative impact on the stability of Vietnamese commercial banks, implying that a more competitive banking
market will have higher stability. In addition, a higher non-performing loan ratio, loan-to-deposit ratio and
inflation also make banks less stable, as these factors increase bankruptcy risk, liquidity risk, and credit risk.
On that basis, this paper proposes some policy recommendations to improve the stability of Vietnamese
commercial banks, including creating a favorable banking business environment, encouraging diversification
and innovation in the banking market (such as supporting small banks to increase capital or establish
FinTech in a controlled manner). In addition, commercial banks need to proactively manage their internal
factors such as credit risk and loan to deposit ratio to ensure stability