Capital adequacy ratio and bank efficiency in Vietnam: DEA-DDF and bayesian tobit approach

This paper focuses on examining and measuring the impact of the capital adequacy ratio (CAR) on the technical efficiency of commercial banks in Vietnam via a two-stage approach. In the first stage, efficiency is measured through data envelopment analysis with the directional distance function (DEA-DDF), which considers loan loss provisions (LLPs) as undesirable outputs and loans, interest income, and noninterest income (NII) as desirable outputs. The evidence shows that bank efficiency is close to the margin and increases significantly from 2018--2023, followed by a slight decrease in 2024. However, the standard deviation (std) shows that there is still variation in efficiency across units within the same year. The standard deviation decreases from 2021 to 2023, indicating that the efficiency gap between units may have narrowed during this period. The second stage, which uses Bayesian Tobit regression, shows that CAR is statistically significant and finds a significant interaction between CAR and ROA. This suggests that the relationship between CAR and bank efficiency is not straightforward but depends on the level of ROA. In addition, the variables NPLs, ROA, Bank size, CIR, LDR, NIM, and INF are statistically significant and have many policy implications.