Effect of Bank Merger on Efficiency using Stochastic Frontier Analysis: The Case of Vietnam

Abstract

Nowadays, the Vietnamese banking system has put more effort into the restructuring program,
which has been drawing plenty of public attention. This paper is written to explore the efficiency
of a sample of 26 domestic banks in the years between 2010 and 2018 by utilizing the Stochastic
Frontier Analysis (SFA) with the support of the distance function. Furthermore, the pre-post
analysis is used to find out whether the merger has any influence on the performance of
Vietnamese banks. Both the intermediation approach and production approach are employed for
the determination of inputs and outputs variables to estimate the efficiency scores. This research
discovered the technical efficiency of banks was 85% on average. The technical efficiency in the
post-merger period can show evidence of improvement under the intermediation approach.
Nevertheless, no such significant growth after the merger was found when applying the
production approach. This paper can provide perceptive findings for policymakers, bank
stakeholders and researchers who work in this field.