Quang Minh Nguyen

Type of the article: Research Article

Abstract
Vietnamese commercial banks enlarged their physical distribution networks throughout the past two decades, at a time when banks in most developed markets were closing outlets. How large a network can become before additional outlets stop paying for themselves has not been settled, partly because existing studies infer non-linearity from the sign of a squared term instead of testing it. This study aims to examine whether a non-linear relationship exists between branch network size and bank profitability in Vietnamese commercial banks and to identify the corresponding turning points. The analysis applies a two-step system generalized method of moments estimator to an unbalanced panel of 28 commercial banks observed from 2008 to 2024 and tests the shape of the estimated relationship formally, requiring the turning point to fall inside the observed range and the slope to change sign across it. Profitability rises with network size up to a threshold and declines beyond it, and monotonicity is rejected at the 10 percent level in every specification. Measured by total transaction points, the threshold is 172 outlets when profitability is assessed against assets and 261 outlets when it is assessed against equity, a gap consistent with the network raising equity returns partly through leverage. About 51 percent of bank-year observations already lie beyond the asset threshold. A bank that judges its expansion capacity by return on equity alone will therefore read it too generously, and slightly more than half of the networks observed here have passed the size at which further outlets add to profitability.

Acknowledgment
This research forms a component of Thi Yen Nhi Nguyen's doctoral dissertation at University of Finance – Marketing. I would like to express my sincere gratitude to Mr. Duc Huy Pham, my supervisor, for his guidance and support throughout this research. This research is funded by the University of Finance – Marketing, Ho Chi Minh City, Vietnam.