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Vietnam is recognized for its deep integration into the global economy, with commercial banks playing a vital role in the national economic system. Against this backdrop, this study examines the impact of economic integration (measured through financial and trade integration) on the financial stability of Vietnamese commercial banks. The panel smooth transition regression model is employed to analyze the threshold effect of economic integration on the stability of 27 commercial banks in Vietnam during 2009–2023. Estimation results suggest that Vietnam’s experience is consistent with the ‘competition-fragility’ hypothesis. Specifically, in the early stage, economic integration appears to weaken the stability of the banking system. However, when financial and trade integration reach sufficient depth and breadth, exceeding a certain threshold 145.6% of gross domestic product (GDP) for financial integration and 167.3% of GDP for trade integration, the negative impacts gradually diminish. Furthermore, the research reveals negative impacts of non-interest income and economic growth on the financial stability of Vietnamese commercial banks, while demonstrating positive impacts of other control variables such as the loan-to-asset ratio, liquid assets to total assets ratio and market concentration.
Tran et al. (Sun,) studied this question.