Capital structure and its impacts on bank profitability – the case of vietnam during the Covid-19 pandemic

Abstract

This study investigates the relationship between capital structure and financial performance of Vietnamese commercial banks over the period 2015–2024, with particular attention to the impact of the COVID-19 pandemic. Using a log-linear panel regression model applied to data from 29 banks, the study evaluates how Debt-to-Assets (D/A), Debt-to-Equity (D/E), and Capital Adequacy Ratio (CAR) affect the key profitability indicator: Return on Equity (ROE). The model also incorporates Net Interest Margin (NIM), bank size, state ownership (SOE), and a post-pandemic dummy variable (After_COVID) to capture institutional and macroeconomic influences. The results show that NIM and the post-COVID period are consistently and positively associated with ROE, suggesting that core lending efficiency and strategic adaptation significantly enhance bank profitability. In contrast, D/A has negativel impact on ROE. In addition, D/E, CAR, SOE, and SIZE are not statistically significant, indicating limited explanatory power of traditional capital structure metrics and ownership under Vietnam’s current regulatory regime. The findings provide practical implications for financial managers and policymakers. Research purpose: While extensive literature explores capital structure and profitability in developed markets, empirical evidence from Vietnam remains limited. In particular, the moderating role of state ownership and the regulatory transition to Basel III have not been thoroughly examined, leaving a gap in understanding capital decisions in transitional banking systems. Research motivation: The study adopts a quantitative research design using panel data from 29 Vietnamese commercial banks over the period 2015–2024. Panel regression techniques (OLS, Fixed Effects, Random Effects) were applied, with diagnostic tests ensuring model robustness. Research design, approach, and method: The study adopts a quantitative research design using panel data from 29 Vietnamese commercial banks over the period 2015–2024. Panel regression techniques (OLS, Fixed Effects, Random Effects) were applied, with diagnostic tests ensuring model robustness. Main findings: Results reveal that the debt-to-assets ratio exerts a negative and significant effect on ROE, whereas net interest margin (NIM) and the post-Covid dummy variable positively influence profitability. By contrast, debt-to-equity ratio, capital adequacy ratio, state ownership, and bank size show no significant impact on ROE. Practical/managerial implications: The findings suggest that Vietnamese banks should strengthen liability management by reducing reliance on short-term borrowing and institutionalize resilience strategies developed during the pandemic. Policymakers, meanwhile, should refine capital adequacy regulations and gradually liberalize interest rate ceilings to foster competitiveness without undermining stability