The Impact of Non-interest Income on Bank’s Operational Efficiency during the COVID-19 Pandemic: Empirical Evidence from Vietnam

Abstract

This paper aims to investigate the impact of non-interest income and operational efficiency in Vietnam banks during the COVID-19 pandemic. For this purpose, two models: the Fixed Effects Model (FEM) and the Random Effects Model (REM) are used. The results indicate a negative relationship between non-interest income and banks' operational efficiency during the pandemic. Additionally, the loan-to-asset ratio has an insignificant effect on operational efficiency, while other factors influence bank efficiency in both positive and negative directions. This study makes notable contributions to existing literature. Firstly, while it is not the first to explore the relationship between non-interest income and bank operational efficiency, it is among the first to introduce COVID-19 as a novel independent variable in examining this relationship. This is particularly relevant for Vietnamese banks, where non-interest income has gained prominence in revenue streams due to technological advancements. However, Vietnam’s banking system remains underdeveloped and vulnerable, especially during crises like the pandemic. Therefore, this study is valuable in highlighting the need for greater focus on non-interest income within the banking system during extraordinary events