Profit and Cost Efficiency Analysis in Banking Sector: A Case of Stochastic Frontier Approach for Vietnam

By using stochastic frontier analysis (SFA) approach to measure the cost and profit efficiency for data of 45 Vietnam commercial banks over the years from 2007 to 2012, this paper highlights risk and asset quality factors related to cost and profit inefficiency of the banks. Besides, cost inefficiency seems to be strongly related to bank concentration, mergers, and bank ownership. These results suggested mergers and acquisition can gain potential cost inefficiency and foster banks ’ competition in the banking system. Based on test of variance analysis, State owned commercial banks (SCOB) is more efficiency than other domestic, commercial banks (JSCB) and foreign banks in terms of profit efficiency, in contrast to cost efficiency, international banks are leading in cost efficiency than other national banks