Income diversification and profitability of Vietnamese commercial banks

Abstract

The paper aims to investigate the impact of income diversification on commercial banks’ profitability in Vietnam. Using a panel data set of 33 Vietnamese commercial banks during the period from 2006 to 2020, the empirical analysis shows the more diverse in revenue sources, the higher banks’ financial performance. The research provides some recommendations that banks should look forward to diversifying their income, particularly income from non-traditional activities, in order to improve competitiveness, reduce risk, and raise profitability and policies that encourage banks to diversify their incomes should be enacted. This will not only be beneficial for banks but also helps to mitigate the risk for banking industry and maintain its stability. The main results are robust to a different measure of financial performance and controlling for the period of economic crisis.