Productivity and efficiency of Vietnamese banking system: new evidence using Fare-Primont index analysis

This article aims to provide a clearer view on the recent evolutions of the Vietnamese banking system that can be useful to public authority when taking restructuring decisions. This article focuses on the evolution of productivity of Vietnamese banks over the period 2008 to 2012, and on the evolution of the different components of this productivity: technical change, pure technical efficiency and mix and scale efficiency. The methodology draws from very recent developments in index theory in the design of multiplicative-complete economically ideal indexes, using Fare-Primont productivity indexes to measure productivity. This methodology is applied to a balanced panel of Vietnamese banks. The results complement observations usually made on the recent development of the Vietnamese banking system. They show that the State Bank of Vietnam's restructuring policy cannot focus only on either the insufficient size of banks or a better management of these banks in terms of the mix of outputs. Both must be considered simultaneously, not only through bank mergers but also in setting management criteria in line with criteria defined internationally.