Capital adequacy ratio and banks’ performance: Evidence from the commercial banks in Vietnam

Abstract

The purpose of this study is to examine the impact of capital adequacy ratio (CAR) and
performance of commercial banks in Vietnam. The study uses general regression model (GMM) with panel
data of 26 commercial banks in Vietnam from 2011 to 2019 to estimate the impact of capital adequacy
ratio on the performance of commercial banks. The results of the study show that capital adequacy ratio
(CAR) is significant at 5% and negatively related to bank performance (ROE). For every 1% increase in the
capital adequacy ratio, the return on equity decreases by 0.675%. The result implies that managers from
the commercial banks and policy makers from the state of Vietnam should consider to increase the capital
adequacy ratio for the commercial banks in Vietnam.