Financial intermediation and profitability of commercial banks in Vietnam: does bank size matter?

Purpose This study examines the implications of bank size for the impact of financial intermediation function on the profitability of commercial banks in Vietnam. Design/methodology/approach We utilized a balanced panel dataset comprising 25 Vietnamese commercial banks from 2009 to 2022. The system-GMM method is used to explore relationships through these data. Findings The estimation results show that the interaction between customer deposits and loans has a positive impact on bank profitability. This means that commercial banks can increase their profitability if they harmoniously perform financial intermediation functions. We also found that bank size plays a moderating role in the impact of the loan-to-asset ratio and deposit-to-asset ratio on profitability. Originality/value Findings show that commercial banks need to focus on managing their scale in accordance with the two core activities of a banking intermediary, including mobilizing deposits and granting credit to customers. Not only that, these two activities need to be closely coordinated with each other. The study has provided reliable evidence on the moderating role of bank size on the relationship between financial intermediation and bank profitability in emerging markets. Our findings are relevant to the context of the continuous changes in size and financial intermediation process of Vietnamese banks after the 2008 global financial crisis. Hence, it may have practical implications for policymakers.