The impact of diversification on bank performance: Comprehensive evidence from Vietnamese commercial banks

Abstract

In the current context of increasingly deeper & broader integration, Vietnamese commercial banks deal with increasingly fierce competition. Hence, they need to increase performance to meet the needs of customers & maintain market share. Diversification is one of the measures that commercial banks are implementing, and they are currently paying great attention to it. The paper investigates the comprehensive impact of diversification, including income diversification & asset diversification as well as the level of off-balance sheet items on the performance of Vietnamese commercial banks. Using data from 26 commercial banks from 2008 to 2023, the S-GMM estimation method, and various proxies for bank performance, the research results have shown that all activities diversification including assets diversification, income diversification, and off-balance sheet diversification have a positive impact on the performance of Vietnamese commercial banks. In addition, the research also shows that bank size and equity ratio are positive factors in increasing the bank's performance. From the research results, the paper suggests that Vietnamese commercial banks need to have more policy implications to extend fee-based activities such as advising and financial planning for customers, continuing to provide products on bancassurance, investment, payment, etc.