Decoding the impact of Vietnam’s central bank monetary policy on commercial bank profitability: A practical insight

Abstract

The study investigates the impact of monetary policy on the profitability of commercial banks in Vietnam, with a particular focus on profit before taxes (PBT). As Vietnam’s banking sector continues to grow, understanding the influence of monetary policy tools has become increasingly crucial. This research examines the relationship between four key monetary policy variables - monetary base, discount rate, required reserve ratio, and policy interest rate - and bank profitability. Data were collected from the 20 largest commercial banks in Vietnam over a six-year period from 2018 to 2023 using publicly available financial reports and monetary policy updates. The study applies quantitative methods, including regression analysis and time-series techniques, to evaluate the effects of monetary policy tools on bank performance. The findings reveal that policy interest rates and discount rates have the most significant impact on profitability, while the monetary base and required reserve ratio demonstrate relatively smaller influences. By providing empirical evidence and theoretical insights, the study contributes to understanding the effectiveness of monetary policy in Vietnam. The study proposes strategies for financial institutions to adapt to policy shifts effectively, ensuring sustainable growth in a dynamic economic environment.