How do the Banking Systems of Vietnam, China and India Fare?

Abstract

Given that Vietnam, China and India are among the few remaining banking systems which have central bank dependence, state dominance, regulatory restrictions and gradual reforms towards liberalisation, this study examines cost, revenue and profit efficiency and stability of these banking systems. Using DEA Window Analysis, the study found that these banking systems achieved high efficiency levels, with generally increasing efficiency from 1995 to 2011. Cost efficiency was equally driven by technical and allocative efficiencies; revenue efficiency was driven by interest income efficiency more than by non-interest income efficiency; and profit efficiency was equally driven by cost and revenue efficiencies. Furthermore, state banks were found to be more efficient than private banks, but this efficiency gap declined over time. Compared to private banks, state banks appear to have been better at coping with the Asian financial crisis (AFC), but worse at facing the Global financial crisis (GFC). However, banking systems of Vietnam and China were slightly hit by the AFC, while China and India were slightly hit by the GFC.