The Role of Bank Funding Diversity: Evidence from Vietnam

Published date01 June 2020
Date01 June 2020
AuthorXuan Vinh Vo
The Role of Bank Funding
Diversity: Evidence from Vietnam*
University of Economics Ho Chi Minh City, Ho Chi Minh, Vietnam and
CFVG, Ho Chi Minh City, Vietnam
This paper analyzes the impact of bank funding diversity on bank income
and risk in emerging markets. We utilize a data sample which includes
37 Vietnamese banks for the period 20062015. We nd that banks with
diversied funding sources have advantages in improving protability. How-
ever, we also nd that banks with higher funding liquidity tend to partici-
pate in more risk-taking activities. The ndings contradict the notion that
banks which have access to diversied funding sources are able to improve
protability without increasing their risk-taking. The study has strong impli-
cation for banks managers and prudential authorities in emerging markets.
JEL Codes: G20
Accepted: 8 June 2018
Commercial banks are currently operating under tough competition because of
rapid technological development and nancial deregulation. Consequently,
most banks are following diversication strategies to nd other sources of
income to compensate for the lower income from traditional banking activities
(Gambacorta et al. 2014). Recent studies suggest that bank business model
strongly affect bank performance (Mergaerts and Vander Vennet 2016). How-
ever, the literature remains inconclusive as for the potential benets of bank
diversication in terms of income and risk (Doumpos et al. 2016).
Maintaining funding certainty is clearly important for banks and prudential
authorities around the world. Problem of liquidity crunches becomes obvious
in the recent global nancial crisis (Khan et al. 2017). Recent liquidity problems
create stronger incentives for banks to focus on liquidity management. To
address this important aspect, the current research offers further insight into
the relationship between bank funding diversity and income and risk utilizing
a data set of Vietnamese banks covering the period from 2006 to 2015.
* This research is funded by the University of Economics Ho Chi Minh City, Vietnam. We
acknowledge the research assistance of Buu Kiem Dang, Ha Giang Tran, and Huynh Anh Duong.
Any remaining errors are our own responsibility.
© 2018 International Review of Finance Ltd. 2018
International Review of Finance, 20:2, 2020: pp. 529536
DOI: 10.1111/ir.12215

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