The Project on Restructuring the Credit Institution System in the first period from 2011 to 2015 and the second period from 2016 to 2020 has emphasized the important role of reducing the relying on traditional activities and increasing the share of income from non-credit services. The level of non-interest income, per contra, varies from state-owned banks to privately-own bank. The paper, therefore, was conducted to examine the relationship between market power and income diversity under the moderating of state ownership by using a sample of 26 Vietnamese commercial banks, listed in Ho Chi Minh Stock Exchange (HOSE), Ha Noi Stock Exchange (HNX), UPCoM and OTC, during 2007 to 2017. The market power was proxied by both the conventional Lerner index and the efficiency-adjusted Lerner index; the quotient of net non-interest income to total operating income represented the income diversity; and state ownership was treated as a dummy variable and a moderator. Additionally, bank characteristics and country characteristics were considered to be control and dummy variables in the research models. Based on panel data analysis with GMM estimators, the results pointed out that the banks with greater market power can generate more non-interest income. This relationship, moreover, was greatly impacted by state ownership. Specifically, this paper also highlighted that state ownership makes stronger on the association between bank market power and its income diversity. The findings are expected to add the gap in the existing literature, lacking of investigating the impacts of market power on bank income diversity, and the moderating role of state ownership in this relation in Vietnamese banking sector, which is ignored or opposite in most recent studies. Thereby, the paper also gives some useful implications for investors, bank managers as well as policy makers to catch up the market fluctuations.

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