The interrelationship between net interest margin and non-interest income

Evidence from Vietnam

Tu D.Q. Le

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Purpose: The purpose of this paper is to investigate the interrelationship between non-interest income (NII) and net interest margin (NIM) in the Vietnamese banking system between 2006 and 2015. Thereafter, the impact of NII on risk-adjusted returns is also examined.

Design/methodology/approach: Various analysis techniques are used to achieve the research objectives.

Findings: The findings show a negative two-way link between NII and NIM, thus supporting the subsidisation hypothesis. Furthermore, NII is found to have a negative impact on risk-adjusted returns. When observing this relationship in sub-samples, the findings indicate that the negative impact of NII on risk-adjusted returns still holds in the first subsample (2006-2011). The coefficient of NII becomes positive but not significant for the subsequent period (2012-2015). In addition, the Spearman rank-order correlations of returns on assets and NII for both sub-samples are negative. Together, the author concludes that there are no diversification benefits in the Vietnamese banking system.

Practical implications: The evidence suggests a trade-off between non-interest activities and traditional lending ones. In addition, the findings demonstrate that the Vietnamese banks may use NIIs to expand leverage and herd by coordinating NII strategy during the economic downturns. Thus, the banking system may be exposed to a greater risk. The research has implications for bank supervisors, policy-makers and bank managers.

Originality/value: This study is the first attempt to investigate the interrelationships between net NII and NIM in the Vietnamese banking system.

Original languageEnglish
Pages (from-to)521-540
Number of pages20
JournalInternational Journal of Managerial Finance
Volume13
Issue number5
DOIs
Publication statusPublished - 2017

Fingerprint

Interest margin
Interrelationship
Non-interest income
Banking system
Risk-adjusted returns
Return on assets
Leverage
Lending
Politicians
Economic downturn
Design methodology
Diversification benefits
Trade-offs
Coefficients
Supervisors
Managers

Cite this

@article{4cc42014d904499ebcd1acf511cce03d,
title = "The interrelationship between net interest margin and non-interest income: Evidence from Vietnam",
abstract = "Purpose: The purpose of this paper is to investigate the interrelationship between non-interest income (NII) and net interest margin (NIM) in the Vietnamese banking system between 2006 and 2015. Thereafter, the impact of NII on risk-adjusted returns is also examined. Design/methodology/approach: Various analysis techniques are used to achieve the research objectives. Findings: The findings show a negative two-way link between NII and NIM, thus supporting the subsidisation hypothesis. Furthermore, NII is found to have a negative impact on risk-adjusted returns. When observing this relationship in sub-samples, the findings indicate that the negative impact of NII on risk-adjusted returns still holds in the first subsample (2006-2011). The coefficient of NII becomes positive but not significant for the subsequent period (2012-2015). In addition, the Spearman rank-order correlations of returns on assets and NII for both sub-samples are negative. Together, the author concludes that there are no diversification benefits in the Vietnamese banking system. Practical implications: The evidence suggests a trade-off between non-interest activities and traditional lending ones. In addition, the findings demonstrate that the Vietnamese banks may use NIIs to expand leverage and herd by coordinating NII strategy during the economic downturns. Thus, the banking system may be exposed to a greater risk. The research has implications for bank supervisors, policy-makers and bank managers. Originality/value: This study is the first attempt to investigate the interrelationships between net NII and NIM in the Vietnamese banking system.",
keywords = "Bank margins, Bank risk, Diversification, Non-interest income, Three-stage least squares, Vietnam",
author = "Le, {Tu D.Q.}",
year = "2017",
doi = "10.1108/IJMF-06-2017-0110",
language = "English",
volume = "13",
pages = "521--540",
journal = "International Journal of Managerial Finance",
issn = "1743-9132",
publisher = "Emerald Group Publishing Ltd.",
number = "5",

}

The interrelationship between net interest margin and non-interest income : Evidence from Vietnam. / Le, Tu D.Q.

In: International Journal of Managerial Finance, Vol. 13, No. 5, 2017, p. 521-540.

Research output: Contribution to journalArticle

TY - JOUR

T1 - The interrelationship between net interest margin and non-interest income

T2 - Evidence from Vietnam

AU - Le, Tu D.Q.

PY - 2017

Y1 - 2017

N2 - Purpose: The purpose of this paper is to investigate the interrelationship between non-interest income (NII) and net interest margin (NIM) in the Vietnamese banking system between 2006 and 2015. Thereafter, the impact of NII on risk-adjusted returns is also examined. Design/methodology/approach: Various analysis techniques are used to achieve the research objectives. Findings: The findings show a negative two-way link between NII and NIM, thus supporting the subsidisation hypothesis. Furthermore, NII is found to have a negative impact on risk-adjusted returns. When observing this relationship in sub-samples, the findings indicate that the negative impact of NII on risk-adjusted returns still holds in the first subsample (2006-2011). The coefficient of NII becomes positive but not significant for the subsequent period (2012-2015). In addition, the Spearman rank-order correlations of returns on assets and NII for both sub-samples are negative. Together, the author concludes that there are no diversification benefits in the Vietnamese banking system. Practical implications: The evidence suggests a trade-off between non-interest activities and traditional lending ones. In addition, the findings demonstrate that the Vietnamese banks may use NIIs to expand leverage and herd by coordinating NII strategy during the economic downturns. Thus, the banking system may be exposed to a greater risk. The research has implications for bank supervisors, policy-makers and bank managers. Originality/value: This study is the first attempt to investigate the interrelationships between net NII and NIM in the Vietnamese banking system.

AB - Purpose: The purpose of this paper is to investigate the interrelationship between non-interest income (NII) and net interest margin (NIM) in the Vietnamese banking system between 2006 and 2015. Thereafter, the impact of NII on risk-adjusted returns is also examined. Design/methodology/approach: Various analysis techniques are used to achieve the research objectives. Findings: The findings show a negative two-way link between NII and NIM, thus supporting the subsidisation hypothesis. Furthermore, NII is found to have a negative impact on risk-adjusted returns. When observing this relationship in sub-samples, the findings indicate that the negative impact of NII on risk-adjusted returns still holds in the first subsample (2006-2011). The coefficient of NII becomes positive but not significant for the subsequent period (2012-2015). In addition, the Spearman rank-order correlations of returns on assets and NII for both sub-samples are negative. Together, the author concludes that there are no diversification benefits in the Vietnamese banking system. Practical implications: The evidence suggests a trade-off between non-interest activities and traditional lending ones. In addition, the findings demonstrate that the Vietnamese banks may use NIIs to expand leverage and herd by coordinating NII strategy during the economic downturns. Thus, the banking system may be exposed to a greater risk. The research has implications for bank supervisors, policy-makers and bank managers. Originality/value: This study is the first attempt to investigate the interrelationships between net NII and NIM in the Vietnamese banking system.

KW - Bank margins

KW - Bank risk

KW - Diversification

KW - Non-interest income

KW - Three-stage least squares

KW - Vietnam

UR - http://www.scopus.com/inward/record.url?scp=85029890818&partnerID=8YFLogxK

U2 - 10.1108/IJMF-06-2017-0110

DO - 10.1108/IJMF-06-2017-0110

M3 - Article

VL - 13

SP - 521

EP - 540

JO - International Journal of Managerial Finance

JF - International Journal of Managerial Finance

SN - 1743-9132

IS - 5

ER -