Competition and bank financial stability: evidence from an emerging economy

Abstract

This article aims to empirically examine the role of competition and concentration on Vietnamese bank stability efficiency in Vietnam using data from 25 commercial banks from 2007 to 2020 using the Tobit regression method is utilized. The results suggest that banks exhibit greater stability in a highly competitive environment. This connection between competition and the efficiency of Vietnamese banks remains significant even amidst financial crises. Furthermore, we employ various alternative risk indicators and exclude state-owned banks from our sample to reassess the nexus between competition and bank stability efficiency, with results that remain steadfastly robust. This study represents a pioneering endeavor to investigate the impact of competition on bolstering banks’ stability through the utilization of the stochastic frontier approach. Our study findings suggest that the implementation of expansion policies that promote competition can improve the efficiency of bank stability in developing markets.

Keywords

• Competition
• bank risk-taking
• stability efficiency
• Lerner index
• Vietnam
• G21