Factors affecting the profitability of commercial banks in Vietnam: Study on the role of digital transformation

This study aims to evaluate the factors influencing the profitability of Vietnamese commercial banks in the context of witnessing economic fluctuations caused by the Covid-19 pandemic and digital transformation, which has been playing a crucial role in transforming and reshaping the operations of Vietnamese commercial banks. Using data from the financial statements of listed commercial banks (19 banks) and macroeconomic data from the World Bank (WB) during the period 2015 - 2022, the study applied a panel data regression model, specifically the fixed effects model (FEM) with the Clustered Standard Errors method (to address the shortcomings of the FEM model for panel data) to examine the relationship between bank-specific factors, macroeconomic factors, and bank profitability. The research results show that the capital adequacy ratio (CAP), economic growth (GDP), and inflation (INF) have a positive impact on bank profitability; of which, CAP has the strongest positive impact. Conversely, the loan-to-deposit ratio (LDR), liquidity (LIQ), cost-to-income ratio (CIR), and digital transformation (DT) have a negative impact on bank profitability; of which, LDR has the greatest negative impact. This study provides important insights for bank managers and policymakers. Specifically, banks should focus on strengthening their capital adequacy ratio, improving cost efficiency, and leveraging economic growth opportunities. At the same time, banks need to be cautious in managing their loan-to-deposit ratio, liquidity, and digital transformation activities to ensure sustainable profitability.