Journal of Applied Finance & Banking

Profit Efficiency and Productivity of Vietnamese Banks: A New Index Approach

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  • Abstract

    In this paper, we measure and analyse profit efficiency and productivity of Vietnamese banks using a newly developed index approach which is based on the directional distance function. Our findings indicate that the average bank operates quite far below the frontier of the best-practice bank, mainly due to allocative inefficiency rather than technical inefficiency, and that Vietnamese banks experience modest productivity growth. The thrust of this growth is technological progress, and to some degree technical efficiency change, whereas scale efficiency change contributes adversely to productivity growth. We also investigate the effects of the capital-adequacy and deposit-taking regulations on profit efficiency, and find no significant influences.