Do management practices and competition levels increase commercial bank profits? Evidence from Can Tho, Viet Nam

Abstract

PurposeManagement practices and competition levels have been shown as important factors affecting the performance of enterprises that do not include banks. The paper, thus, aims to measure management practices and to study the effect of management quality and competition level on the performances of the first-level branch of commercial banks in the context of the Viet Nam banking system.Design/methodology/approachThe study employed the approach of Bloom and Van Reneen (2007) to quantify management practices of the commercial banks. The level of competition was measured by the number of competitors suggested by Nickell (1996) and the index suggested by Boone (2008). Finally, the effects of management practices and competition level on the bank performances were jointly estimated through a Cobb–Douglas production function, similar to the one used by Bloom et al. (2014).FindingsThe results show that the management practices score is, on average, above the average. While the management practices are found to positively correlate with profits, the competition level is found to significantly reduce bank profits.Research limitations/implicationsCross-sectional data limit the findings of the paper to a point of time. In the future, studies with panel data are desirable.Practical implicationsThe findings of the study help bank managers to make more informed decisions about management practices. Any policy promoting new entrants to the banking market should be carefully considered.Originality/valueThe paper is the first to measure the management practices of commercial banks and to explore the impacts of management quality and competition level on bank performances.

Competitiveness in Banking Sector: A Systematic Literature Review

“…Government banks, on the other hand, tend to decrease interest rates as the relationship with the borrowers evolves (Ornelas et al 2022). Under high competition, the level of bank management positively affects profit (Ho & Nguyen 2022).…”

“…Yet, competition is positively associated with loan growth (Yang & Shao 2016) and social engagement (Forgione & Migliardo 2020). However, high competition negatively impacts bank profitability (Khattak & Ali 2021, Ho & Nguyen 2022 and the market capitalization of banks (Căpraru et al 2020).…”