Factors affecting vietnamese commercial banks’ deposit growth from 2012 to 2020

The paper uses 198 observations of 22 Vietnamese commercial banks from 2012 to 2020, with dependent variable Deposit growth and independent variables including Profitability, GDP growth,

HO CHI MINH CITY UNIVERSITY OF BANKING

BUI NHU Y

FACTORS AFFECTING VIETNAMESE COMMERCIAL

BANKS’ DEPOSIT GROWTH FROM 2012 TO 2020

GRADUATION THESIS

Major: Finance – Banking Code: 7 34 02 01

HO CHI MINH CITY UNIVERSITY OF BANKING

Student: BUI NHU Y Student ID: 050606180469 Grade: HQ6-GE12

FACTORS AFFECTING VIETNAMESE COMMERCIAL

BANKS’ DEPOSIT GROWTH FROM 2012 TO 2020

GRADUATION THESIS Major: Finance – Banking Code: 7 34 02 01

SUPERVISOR NGUYEN THI MY HANH, PHD

TÓM TẮT

Mục tiêu của bài nghiên cứu là xác định các nhân tố ảnh hưởng đến tăng

trưởng tiền gửi của các ngân hàng thương mại ở Việt Nam Bài viết sử dụng 198 quan sát của 22 ngân hàng thương mại Việt Nam trong giai đoạn từ năm 2012 đến năm 2020, với biến phụ thuộc là Tăng trưởng tiền gửi và các biến độc lập bao gồm Khả năng sinh lời, Tăng trưởng GDP, Tỷ lệ vốn chủ sở hữu, Tỷ lệ cho vay trên tiền gửi, Quy mô ngân hàng, Nợ xấu, tăng trưởng Cung tiền và Lạm phát Các phương pháp ước lượng mô hình hồi quy gộp (Pooled OLS), mô hình hiệu ứng cố định (FEM), mô hình hiệu ứng ngẫu nhiên (REM) và ước lượng tác động ngẫu nhiên (FGLS) được sử dụng để phân tích dữ liệu Kết quả nghiên cứu cho thấy, các biến yếu tố kinh tế vĩ mô như tăng trưởng Cung tiền M2 và tăng trưởng GDP có tác động nghịch đến tăng trưởng tiền gửi của các ngân hàng thương mại Mặt khác, tỷ lệ lạm phát đã được phát hiện là có mối quan hệ cùng chiều nhưng không có ý nghĩa thống

kê Các biến đặc thù của ngân hàng như Khả năng sinh lời có mối tương quan thuận với tăng trưởng tiền gửi, trong khi đó, quy mô ngân hàng và tỷ lệ vốn chủ sở hữu có tác động ngược chiều đáng kể về mặt thống kê Tỷ lệ cho vay trên tiền gửi và Nợ xấu ảnh hưởng không đáng kể đối với tăng trưởng tiền gửi của các ngân hàng thương mại Cuối cùng, nghiên cứu chỉ ra rằng một môi trường kinh tế vĩ mô ổn định là rất quan trọng để giảm tác động của tăng trưởng kinh tế và cung tiền M2 và

từ góc độ ngân hàng cụ thể, tăng khả năng sinh lời là điều cần thiết cho tăng trưởng tiền gửi tại các ngân hàng thương mại ở Việt Nam

Từ khóa: tăng trưởng tiền gửi, yếu tố vĩ mô, biến đặc thù ngân hàng, các

ngân hàng thương mại, Việt Nam.

ABSTRACT

The purpose of this study is to determine the factors affecting deposit growth

of commercial banks in Vietnam The paper uses 198 observations of 22 Vietnamese commercial banks from 2012 to 2020, with dependent variable Deposit growth and independent variables including Profitability, GDP growth, Equity ratio, Loans to Deposits ratio, Bank size, Non-performing loans, Money supply growth and Inflation Pooled OLS, FEM, REM and FGLS methods have been used to analyze the data The result of the study indicates branch macroeconomic factors such as Money supply growth M2 and GDP growth have a significant negative effect on Deposit growth of commercial banks The inflation rate, on the other hand, has been found to have a positive but statistically insignificant relationship The bank-specific factors indicate Profitability has a positive and significant association, while Bank size and Equity ratio have a statistically significant negative effect on deposit growth Loan to Deposit ratio and Non-performing loans have no significant relationship with deposit growth of commercial banks Finally, the study shows that

a stable macroeconomic environment is vital to reduce the impact of economic growth, M2 money supply and from a bank-specific perspective, increasing profitability is essential for the growth of deposits in commercial banks in Vietnam

Keywords: deposit growth, macroeconomic, bank-specific, commercial

banks, Vietnam

AUTHOR’S DECLARATION

I hereby confirm that this thesis entitled “FACTORS AFFECTING VIETNAMESE COMMERCIAL BANKS’ DEPOSIT GROWTH FROM 2012 TO 2020”, is my own work, and none of this work has been published before submission

Ho Chi Minh City, November 2022

Bui Nhu Y

ACKNOWLEDGEMENT

I would like to express my sincere thanks to the Board of Directors, Faculty

of Finance, Faculty of Banking, lecturers, officials of departments and functional departments of Banking University of Ho Chi Minh City for helping me to equip

my knowledge, create the most favorable conditions during the study and implementation of this thesis

With respect and gratitude, I would like to express my gratitude to

Nguyen Thi My Hanh, PhD

TABLE OF CONTENT

ABSTRACT ii

AUTHOR’S DECLARATION iii

ACKNOWLEDGEMENT iv

TABLE OF CONTENT v

ABBREVIATION LIST viii

LIST OF TABLES ix

LIST OF PICTURES x

CHAPTER 1 INTRODUCTION 1

1.1 Rationale 1

1.2 Research objectives 1

1.3 Research questions 2

1.4 Subject and scope of the study 2

1.4.1 Research subject 2

1.4.2 Research scope 2

1.5 Research method 2

1.6 Contribution of the thesis 3

1.7 Structure of the thesis 3

CHAPTER 2 LITERATURE REVIEW 5

2.1 Theoretical framework 5

2.1.1 Commercial bank 5

2.1.2 Commercial Bank Deposit 6

2.1.3 Factors affecting for Deposit growth 7

2.1.3.1 Bank size 7

2.1.3.2 Profitability 7

2.1.3.3 Equity ratio 8

2.1.3.4 Loan to Deposit ratio 8

2.1.3.5 Non-performing loans 9

2.1.3.6 Inflation 10

2.1.3.7 GDP growth 10

2.1.3.8 Money supply growth 11

2.2 Empirical review 11

2.2.1 Empirical Review from abroad 11

2.2.2 Empirical Review in VietNam 14

CONCLUSIONS OF CHAPTER 2 17

CHAPTER 3 RESEARCH METHOD 18

3.1 Research model 18

3.1.1 Research model 18

3.1.2 Research variables 19

3.2 Research hypothesis 20

3.3 Research data 21

3.4 Selection of regression model and tests 21

3.5 Research process 25

CONCLUSIONS OF CHAPTER 3 25

CHAPTER 4 RESEARCH RESULTS AND DISCUSSION 27

4.1 Descriptive statistics 27

4.1.1 Check the correlation between variables 28

4.1.2 Multicollinearity diagnostics 29

4.2 Analysis of factors affecting Deposit Growth 30

4.2.1 Regression results 30

4.2.2 Model choice 31

4.2.3 Testing the hypothesis violations of the FEM 32

4.2.3.1 Heteroskedasticity diagnostics 32

4.2.3.2 Autocorrelation diagnostics 32

4.2.3.3 Fix the defects of the model 32

4.3 Discuss the influence of factors on Deposit Growth 33

CONCLUSIONS OF CHAPTER 4 36

CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS 37

5.1 Conclusions 37

5.2 Recommendations 38

5.3 Limitation of the study 39

CONCLUSIONS OF CHAPTER 5 40

CONCLUSIONS OF THE THESIS 42

REFERENCES 43

APPENDIX 46

ABBREVIATION LIST

Abbreviati

Pooled OLS Pooled Ordinary Least Squares

LIST OF TABLES

Table 2-1: Summary previous studies 15

Table 4-1: Descriptive statistics of variables in the regression model 27

Table 4-2: Correlation matrix between variables 28

Table 4-3: Test results for multicollinearity 29

Table 4-4: Summarize the results of regression analysis with DG 30

Table 4-5: F-test, Breusch-Pagan and Hausman model selection for variable DG 31

Table 4-6: The results of Heteroskedasticity diagnostics with DG 32

Table 4-7: The results of Autocorrelation diagnostics with DG 32

Table 4-8: DG regression model results after fixing 33

Table 4-9: Summary of Hypothesis Test 35

LIST OF PICTURES

Picture 1 Descriptive statistics 53

Picture 2 Correlation matrix between variables 53

Picture 3 Test results for multicollinearity 55

Picture 4 Pooled OLS output with Deposit growth 55

Picture 5 FEM output with ROE 56

Picture 6 REM output with ROE 56

Picture 7 Hausman test with ROE 57

Picture 8 Breusch and Pagan Lagrangian test with ROE 57

Picture 9 Heteroskedasticity diagnostics with Deposit growth 57

Picture 10 Autocorrelation diagnostics with Deposit growth 58

Picture 11 FGLS output with Deposit growth 58

CHAPTER 1 INTRODUCTION

Deposits may be crucial for both developed and developing nations because they allow depositors to earn interest on money they don't need right away Additionally, it gives banks a platform to direct those funds to people and organizations that need them immediately (Boadi, Li and Lartey, 2015) According

to Jaber and Manasrah, (2017) one of the most crucial foundational components of banks, whether Islamic or commercial, is bank deposits A deposit is a contract between a client and a bank whereby the client deposits money with the bank for investment or conservation, and the bank agrees to return the money to the client upon request at a predetermined date and under predetermined terms (Jaber and Manasrah, 2017)

In developing countries, where the banking system contributes 40% to 50%

of gross domestic product (GDP), deposits are key to economic growth because deposits are the basis of capital formation (Duc, N.C., & Nguyen,T.T & Lam, P.T, 2021) The banking system creates idle financial resources by mobilizing capital from deposits of all economic sectors, then providing this capital for production, investment and economic development which brings profit for the bank so deposit mobilization is the core activity of all commercial banks Therefore, banks can earn high profits due to deposits (Gunasekara, H.U and Kumari, P, 2018) However, Commercial banks cannot manage deposits without knowing and controlling the factors affecting it Stemming from that practical need, the author chose the topic

"Factors affecting deposits of Vietnamese commercial banks from 2012 to 2020" as

a research topic

1.2 Research objectives

The objective of the study is to determine factors affecting deposit growth of Vietnamese commercial banks during the period 2012 – 2020 After that, the author

makes implications and suggestions improve Vietnamese commercial banks’ deposit growth

1.3 Research questions

In line with the objectives highlighted above, the two specific research

questions were formulated as follows:

Research question 1: What factors affect deposit growth of Vietnamese commercial banks?

Research question 2: To what extent does factors affect deposit growth of Vietnamese commercial banks?

1.4 Subject and scope of the study

1.4.1 Research subject

The subject of this study is factors affecting deposit growth in bank business

1.4.2 Research scope

Time scope: from 2012 to 2020

Space scope: 22 commercial banks in Vietnam

1.5 Research method

The thesis combines both qualitative research methods and quantitative methods Qualitative research methods: The thesis is based on the collected data and information, conducts comparison, from which to make comments, evaluate research content At the same time, the thesis uses the deductive method to argue and explain the characteristics of each detail in the data analysis process

Quantitative research method: Regression analysis of panel data to determine factors affecting deposit growth of Vietnamese commercial banks, combined with analysis including: ordinary least squares method (Pooled OLS), random effects model (REM), fixed effects model (FEM) The thesis proceeds to build research model, present independent variables and Dependent variables in the model, data sources are taken from financial statements and annual reports of banks and macro variables are taken from the General Statistics Office In addition, the thesis also uses methods such as synthesis, comparison, analysis, inference, description, etc in

order to compare with reality, consider and evaluate factors affecting deposit growth of Vietnamese commercial banks.

1.6 Contribution of the thesis

In practical terms, the research results of the study will provide more empirical evidence for regulators as well as commercial bank managers to understand more about the relationship between macro factors and deposit growth

in Vietnamese commercial banks and assist regulators in making regulatory decisions as well as suggesting to managers important policy implications in the development of mobilized capital

From the previous researches, it is observed that bank deposit growth was determined by macro-economic and bank specific variables But from their findings, it is observed there was no generally accepted relationship between commercial bank deposit growth and its determinants To the knowledge of the researcher, there were a few studies conducted in Vietnam and this study aims to fill

a gap in the research on the determinants of bank deposits in the banking industry in Vietnam, such as macroeconomic indicators related to bank deposit creation such as money supply rate M2

1.7 Structure of the thesis

The research thesis will be presented in five chapters, including:

Chapter 1: Introduction

An overview of the research problem, the reason for choosing the topic, the research problem, the research objective, the object, the research scope and the meaning of the research

Chapter 2: Literature review

This chapter presents the theories related to the thesis such as deposits, deposit evaluation criteria in commercial banks' business activities and factors affecting deposit growth in commercial banks' business activities, and a brief overview of related studies

Chapter 3: Research method

Make initial assumptions about the impact of factors on deposit growth of commercial banks, introduce how to choose data sources, choose appropriate research methods, and set up regression models

Chapter 4: Research results and discussion

The study will conduct descriptive statistical analysis, analyze the relationship between the variables and analyze the regression results to determine the impact of the independent variables on the dependent variable

Chapter 5: Conclusions and recommendations

Summarize the results of the study, outline the limitations of the research topic and suggest future research directions

CHAPTER 2 LITERATURE REVIEW

2.1.1 Commercial bank

Commercial banks are credit institutions that perform all banking activities and other related business activities for profit purposes (Consolidated documents

No 20/2018/VBHN-NHNN, the State Bank of Vietnam)

A commercial bank is a financial institution with two business functions: one

is to federally insure deposits and pay interest to depositors, and the other is to use its charter to make loans, check cash balances, provide clearing services, and underwrite securities (Getter, 2016) Commercial banks play a prominent role in the modern economy by circulating financial resources (Tariq et al., 2014) Another definition of a commercial bank is a financial intermediary that effectively channels idle funds in the market to those who need credit to invest in valuable production, business opportunities, and personal purposes (Tuyishime et al., 2015) Commercial banking is further divided into public sector banking (the bank with the majority of its stake held by the government), private sector banking (the bank with the majority of its stake held by private individuals), and foreign banking (the bank with its head office located in other countries outside of a nation) (Kalpana & Rao, 2017) Commercial banks establish maladjustment and impediments and contribute

to the development of the economy (Mongid et al., 2012) The operation of commercial banks is aligned with the monetary policies of a nation, and they play the main role of controlling cash flow given the expected rate of returns and emissions (Erina & Lace, 2013)

In summary, the term of commercial bank used in the study is defined as a financial institution which operates in the way of holding deposit, paying interests

to the depositors, opening credit to different economic sectors and facilitates economic development of a country

2.1.2 Commercial Bank Deposit

Commercial banks' largest liabilities are deposits with commercial banks According to (Kelvin, 2001), deposits make up about 75% of the liabilities of commercial banks Commercial banks use this liability to lend money and earn interest on deposits, which helps them run their businesses Therefore, if banks are mobilizing more deposits, they will perform better Deposits were also mentioned

by Mahendra (2005) as a foundation upon which banks thrive and expand, as well

as special items on a bank's balance sheet that set them apart from other types of business organizations According to E.A Shaw (1995), the cost of intermediation for mobilizing deposits is a very important component of the overall intermediation cost of the banking system Despite the challenges, deposits are crucial to the banking industry as well as the overall economy

Commercial bank deposits are reliant on customer deposits According to Keynes' theory of money demand, there are three main motives for people to hold money: trading, hedging, and investing To cater to these motives, commercial banks offer different types of deposits: deposits and savings deposits The type of savings deposit meets the needs of people who want to save and earn more money if the deposit is used to carry out daily transactions Depositors in savings accounts also have a hedging motive (Haron, S., Azmi, W N W., & Shafie, S., 2006) Deposits can be viewed from the perspectives of consumers who need an income to cover their living expenses and from the perspectives of entrepreneurs who need money and want to keep it in reserve to carry on their businesses

The majority of the money supply used by the public is made up of bank deposits, and changes in the money supply have a strong positive correlation with changes in the cost of goods and services in the economy Deposit variability is frequently included as one of the important determinants of portfolio strategy; the more volatile a bank deposit is, the more liquid its mix of assets will be Deposit variability affects bank holdings of cash and excess reserves, the distribution of total member bank reserves within the banking system, and thereby the path and speed of

monetary policy action This is why deposits are very important for banks and, as a result, for the economy of a country Banks need to inflow money from the people

so that they can be able to give loans or financing to promote productivity and economic growth and at the same time gain profit for themselves through interest or

margin applied (Ostadi, H., & Sarlak, A., 2014)

There are three different types of deposits: demand or current deposits, fixed

or time deposits or term deposits, and savings deposits Depositors keep their money in banks so they can use it for future endeavors There are motivations to save money, some of which are listed by Bhatt (1970): To cover unexpected expenses, own a home, To finance the marriage and education of children, to plan ahead for old age

2.1.3 Factors affecting for Deposit growth

2.1.3.1 Bank size

The size of the bank is one of the elements that is frequently mentioned as influencing deposit variability According to available data, the size of the bank affects both the quantity and diversity of ownership of individual deposit accounts

as well as the distribution of deposits by type A bank's total assets are used as a representation of a bank's size Previous studies have had mixed conclusions about the impact of bank size on bank deposits In general, larger banks can take advantage of economies of scale, thereby increasing their deposits The findings of Ünvan, Y A., & Yakubu, I N (2020) and Legass, H A., Shikur, A A., & Ahmed, O M (2021) indicated that larger banks with economies of scale and a larger branch network are more efficient at attracting deposits than smaller banks However, Islam, S N., Ali, M J., & Wafik, A (2019) argued that smaller banks, while generating fewer deposits in absolute terms, had relatively higher deposit growth rates than other Large banks, therefore, can be beneficial to small banks in achieving higher deposit growth

2.1.3.2 Profitability

Bank Profitability is an important indicator of bank performance; it represents the rate of return a bank has Profit can be measured as a return on asset (ROA) or return on equity (ROE) The study uses ROA to measure the bank's profitability It is defined as the ratio of profit to assets Bank deposit performance

is best measured by ROA in that ROA is not distorted by high equity multipliers and ROA represents a better measure of the ability of a firm to generate returns on

its portfolio of assets Abebe, M (2019)

According to the studies of Cekrezi,A V (2022), Thao, V T P (2021),

Haddaweea, A H., & Flayyihb, H H (2020), ROA variable has a positive impact

on deposit growth For banks with high a ROA in the previous quarter, deposit growth is faster Higher bank profits tend to signal bank stability, which can make it easier for these banks to attract more deposits However, Ünvan, Y A., & Yakubu,

I N (2020) discovered a negative and statistically significant relationship between

ROA and deposits

on deposits is negative and significant This suggests that banks with a greater capitalization ratio rely less on deposits for operations Banks make no attempts

to raise deposits The findings of Ünvan, Y A., & Yakubu, I N (2020), who discovered a negative but insignificant correlation

2.1.3.4 Loan to Deposit ratio

The loan-to-deposit ratio is used to assess a bank's liquidity by comparing a bank's total loans to its total deposits for the same period A loan-to-deposit ratio shows a bank's ability to cover loan losses and withdrawals by its customers.The

LDR helps investors to assess the health of a bank's balance sheet Loans given to

its customers are mostly not considered liquid meaning that they are investments over a longer period of time Although a bank will keep a certain level of mandatory reserves, they may also choose to keep a percentage of their non-lending investing

in short term securities to ensure that any monies deeded can be accessed in the

short term loan-deposit ratio (Teshome, F., 2017)

If the ratio is less than 1, the bank did not borrow from outside sources in order to fund loans to its customers Instead of relying solely on its own deposits, the bank borrowed money if the ratio was greater than 1, which it then reloaded at a higher rate If the ratio is too low, banks might not be making the best return possible The banks may not have enough liquidity to deal with any unanticipated funding needs or economic crises if the ratio is too high However, the high loan amounts disbursed to customers may cause the banks' total deposits to rise This indicates that a large sum of money is in the hands of the populace

According to Teshome, F (2017) and Vong et al (2009) study findings, there is a positive relationship between loan-to-deposit ratio and deposit And another study of Islam, S N., Ali, M J., & Wafik, A (2019) demonstrate that Loan-to-deposit ratio had positive impact but insignificant correlation on the banks’s deposit growth rate of the private commercial banks in Bangladesh This implies that the more loans we have, the more money is in the hands of the customer, which may lead to an increase in deposit

2.1.3.5 Non-performing loans

Bad loan (NPL) is represented by the ratio of bad debts / total outstanding loans Since a bank's loan portfolio carries the majority of its risk, it is crucial to evaluate the strength and quality of the bank's assets by keeping track on the borrower's financial situation and using the NPL ratio as a proxy for credit quality (Baral, 2005) The credit quality declines as the NPL ratio rises

Research on deposits in Vietnam, Thao, V T P (2021) demonstrated a negative but insignificant relationship between deposit growth and bad debt ratios in banks.The amount of money deposited at the bank is decreased as a

result of the high NPL ratio, which makes depositors feel insecure when making deposits into those banks According to Ikuko & Konishi (2007), one of the elements that has a detrimental impact on deposit growth is the bad loan ratio Deposits will decline for banks that don't adhere to the standards for sound financial management and security

2.1.3.6 Inflation

In many previous empirical studies, the effect of inflation was not clearly

defined; it has different effects on the deposits of commercial banks in different

research samples In some studies, it is found that inflation has a negative relationship with the amount of deposits In times of high inflation, depositors need more cash for expenses and thus leads to withdrawal action or reduces total deposit

in general This negative relationship has been verified through the studies of

Ünvan, Y A., & Yakubu, I N (2020) and Larbi-Siaw, O., & Lawer, P A (2015)

Meanwhile, some other empirical studies suggest that higher inflation will lead to increased savings because depositors will be provided with higher returns, all other things being equal This positive relationship has been verified through the study of Akhtar, B (2015) for conventional bank deposits in case of Pakistan and

Legass, H A., Shikur, A A., & Ahmed, O M (2021)

2.1.3.7 GDP growth

The relationship between economic growth and deposit mobilization has been studied extensively in the literature related to business cycles and bank stability Most of the results of studies showing that the growth of economic activity, as measured by growth in the gross domestic product (GDP), has a positive effect on deposits at banks because it is an increase in income increases, leading to

an increase in savings and investment That means that when the economy is growing, bank deposits increase and conversely when the economy is in recession, bank deposits decrease Economic growth is expected to contribute to bank deposit growth This positive relationship has been verified through the studies of B Akhtar (2017), Thao, V T P (2021)

2.1.3.8 Money supply growth

A measure of the total amount of money in an economy is the money supply The total of money in circulation, deposits, certificates of deposit, and saving deposits is known as the money supply (M2) The broad definition of cash supply (M2) is used, which includes deposits in foreign currencies, demand deposits, quasi-money, and currency in circulation The money-creating activities of the deposit money banks impact directly on funds and as long as the financial institution is liable for controlling funds in an economy, it is important

to understand the role of those banking institutions on the convergence process, Legass, H A., Shikur, A A., & Ahmed, O M (2021) The finding of Ngula (2012) suggests that if money supply is high people can easily find cheap funds

to finance their needs Thus, people tend to decrease saving and increase consumption

According to Terefe, A (2019), Larbi-Siaw, O., & Lawer, P A (2015)

and Akhtar, B (2015) study findings, there is a negative relationship between

money supply (M2) and deposit And another study by Legass, H A., Shikur, A A., & Ahmed, O M (2021), Yakubu, I N., & Abokor, A H (2020) and Islam,

S N., Ali, M J., & Wafik, A (2019), demonstrate that money supply (M2) had

a positive impact on the bank deposit growth rate of commercial banks in Vietnam

2.2 Empirical review

2.2.1 Empirical Review from abroad

The influence of internal and external factors on deposit growth of commercial banks has been studied in foreign studies and nation study In this section, that studies are collected in order to understand how previous research on the topic is The main results, data collection and data methodology are as follows:

Cekrezi,A V (2022) identified the factors that influence the level of deposits at commercial banks in Albania The population comprises secondary data

from six commercial banks operating in Albania between 2009 and 2020 The results indicate that the coefficients of capital adequacy and remittances are negative and significant In contrast, the coefficient of ROA is positive and significant In addition, regression analysis revealed that the GDP growth rate had a negative but not statistically significant effect on commercial bank deposits

Legass, H A., Shikur, A A., & Ahmed, O M (2021) conducted Determinants of commercial banks’s deposit growth evidence in Ethiopia The research used secondary data from 2010-2019 The researcher adopted ordinary least square method estimation showed that branch macroeconomic factors such as broad money supply and inflation significant positive effect on deposit growth of commercial banks.The unemployment rate, Bank size has a positive but insignificant relationship with deposit growth of commercial banks

Yakubu and Abokor (2020) utilized quarterly data for the Turkish banking system from 2000 to 2016 to demonstrate the relationship between bank deposits and six explanatory variables, including bank stability, bank efficiency, branch expansion, broad money supply, GDP growth, and inflation

Ünvan and Yakubu (2020) used a random effect to examine the variables of bank deposits in Ghana from 2008 to 2017 According to the findings, bank profitability, bank size, liquidity ratio, and inflation are significant factors determining bank deposit Meanwhile, capital adequacy and monetary policy have insignificant effect on the volume of deposit

The study by Haddaweea, A H., & Flayyihb, H H (2020) focused on Jordanian banks from 2012 to 2016 The study indicated a substantial positive correlation between deposits and the indicators of profitability (ROA and ROE)

Islam, S N., Ali, M J., & Wafik, A (2019) studied the impact of specific variables and macroeconomic variables on the deposit mobilization of private commercial banks in Bangladesh using panel data regression methodology

firms-In this study, 14 conventional private commercial banks have been observed over ten years (2007-2016) The results of this study provide evidence that total deposit

(as measured by company size) has significant negative impact on the deposit mobilization (as measured by banks’s deposit growth rate) and broad money supply growth rate has significant positive impact on the banks’s deposit growth rate whereas the rest of the selected variables i.e number of banks branches, deposit interest rate, loan-to-deposit ratio, Gross Domestic Products (GDP) growth rate, inflation rate have no significant impact on the banks’s deposit growth rate of the private commercial banks in Bangladesh These results will obviously provide some noteworthy information to researchers, financial analysts, banking policy makers and supervisory authorities

Terefe, A (2019) carried out research with the aim of determining the factors affecting deposit growth of commercial banks in Ethiopia The panel dataset for the study used consisted annual data spanning from 2001 to 2017 The dependent variable used in this study was commercial banks’ deposit growth The explanatory variables used in this study were advertising and publicity, bank branches, exchange rate, inflation, loan and advances, money supply and nominal gross domestic product To determine the effects of the independent variables on the dependent variable fixed effect model was used The Fixed-effect model results show that bank branch, exchange rate, loan and advances and nominal gross domestic product have significant positive effect on commercial banks’ deposit growth However, inflation and money supply found to have significant negative effect on bank deposit growth

Teshome, F (2017) reveals the insight dynamics that determine commercial banks' deposits with reference to Ethiopian commercial banks Regarding quantitative data, the study referenced Ethiopian commercial banks and, on the basis of data, covered the 1999–2015 period Eight banks, out of the eighteen commercial banks in existence in 2014/15, have been purposefully selected for the study The results from using random effect panel least square regression exhibited that the number of branches, deposit interest rate, loan to deposit ratio, annual inflation rate, real gross domestic product, and population number had a significant relationship with commercial banks' deposits

Akhtar, B (2015)examined the impact of selected macroeconomic variables

on deposits in Pakistani conventional and Islamic banks From 2006 to 2011, six years of quarterly data were collected from 30 banks, 25 of which were conventional and 5 of which were Islamic By applying advanced econometric technique, it was revealed that variables such as interest rate of conventional banks, profit of Islamic banks, consumer price index, money supply and base lending rate have different impact on both conventional and Islamic bank deposits

Larbi-Siaw, O., & Lawer, P A (2015) investigated the effects of selected macroeconomic and financial level variables on bank deposits in Ghana The study used time series data of financial and macroeconomic variables for the period 2000

to 2013 The result of the study revealed that inflation and growth of money supply have significant negative short term impact on the bank deposits in Ghana

Abduh, M., Omar, M A., & Duasa, J (2011) examined the impact of macroeconomic variables on Islamic bank deposits fluctuation Using monthly data from January 2000 to December 2010, cointegration test and vector error correction model were utilized to uncover the dynamic relationship between macroeconomic variables and crisis with total deposit of Islamic banking.The results show that changes in interest and profit rate as well as production growth has no significant effects Meanwhile, inflation has negative effect on total deposits of Islamic banks which reflects the changes on depositors’ consumption pattern during the recession

2.2.2 Empirical Review in VietNam

Thao, V T P (2021) research examines the macroeconomic and specific factors influencing bank deposits of 40 Vietnamese banks from 2006 to

bank-2019 Based on panel data analysis, it is suggested that bank-specific factors such as bank size, bad loan, profitability GDP and inflation have a notable effect on bank deposits Among these factors, profitability and GDP showed a positive effect on bank depositsIn contrast, Bank size, bad loan and inflation showed an insignificant effect on bank deposits

Table 2-1: Summary previous studies

Result Variable of model

Effect to deposit growth

GDP growth rate, Profitability, Equity ratio

Positive

Inflation rate,Bank size, NPL

Inflation rate Positive

Islam, S N., Ali,

M J., & Wafik, A

(2019)

Determinants of Deposit Mobilization of Private Commercial Banks: Evidence from Bangladesh

Terefe, A (2019) Factors affecting deposit growth

of commercial banks in ethiopia

Banks Deposit in Ethiopia

Deposits

(Source: The author’s synthesis)

CONCLUSIONS OF CHAPTER 2

In chapter 2, the author has focused on studying the concepts of commercial banks and commercial banks' deposit growth Since then, the author has also researched and learned more about empirical models from previous studies and domestic and foreign research subjects on the factors affecting the profitability of commercial banks, including macro and micro factors that affect the deposit growth

of commercial banks The theoretical basis for the author to consider and select a research model suitable to the topic and the collected data

CHAPTER 3 RESEARCH METHOD

Inherited from the theoretical framework of factors affecting bank deposit growth in Chapter 2 This chapter analyzes the research hypotheses and empirical models of the thesis using pooled OLS, FEM, REM data, and a similar method The fit tests of the model, such as limited F-tests, Hausman tests, etc The purpose

of this chapter is to introduce research methods and models and establish hypotheses to analyze the effects of factors affecting the deposit growth of commercial banks The highlight of this chapter is the detailed presentation of the steps and opinion methods to collect evidence for the research objectives of the thesis Besides, the measurement of variables and data mining sources are also detailed in this chapter

3.1 Research model

3.1.1 Research model

Based on previous studies by the authors Cekrezi,A V (2022); Thao, V T

P (2021); Yakubu, I N., & Abokor, A H (2020); Islam, S N., Ali, M J., & Wafik, A

(2019) on factors affecting bank deposit growth The authors extracted to develop a standard model and thereby can examine the factors affecting deposit growth at Vietnamese commercial banks In order to determine the factors affecting the deposit growth of commercial banks in Vietnam, the Bank Deposit Growth Rate (DG) was used as a dependent variable The independent variables applied in this study include two main groups: internal variables related to banks and macroeconomic variables The research model is built as follows:

DG it =β 0 +β 1 SIZE it +β 2 ROA it +β 3 LDR it +β 4 NPL it +β 5 CAP it +β 6 GDP it +β 7 INF it + β 8 M2GROWTH it + ɛ it , where:

DG it: measure the Deposit growth rate which is a proxy of total deposit at year t minus total deposit at year t-1 divided by total deposit at year t-1 of each commercial bank

SIZE it: variable measure variable Bank size of the “i” commercial bank in year t

ROA it: variable measure the profitability of commercial bank “i” in year t

LDR it: variable measure Loan-to-Deposit Ratio of the “i” commercial bank

GDP it: variable measure Economic growth rate in year t

INF it: variable measure Inflation rate in year t

M2GROWTH it: variable measure Money supply growth rate in year t

e i,t: model error term

3.1.2 Research variables

The factors affecting deposit growth are included in the model: (1) Bank size, (2) Equity ratio, (3) The profitability, (4) Loan-to-Deposit Ratio,(5) Non-performing loans, (6) Inflation rate, (7) Gross Domestic Product growth rate, (8) Money supply growth

Bank size (SIZE) is an independent variable that is calculated as the logarithm of total assets Total assets data is taken from the bank's balance sheet

Calculation formula: SIZE = Log (total assets)

Equity ratio (CAP): is measured by the ratio of equity to total assets of the bank Bank equity and total assets value data is collected from the bank's balance sheet

Calculation formula: CAP = Total equity/Total assets

The profitability (ROA):is expressed in the ROA ratio The profitability of banks can be measured by different ratios, the most common being the ratio of profit after tax to average assets (ROA)

Calculation formula: ROA= Profit after tax/Total assets

Loan-to-Deposit Ratio (LDR): is used to assess a bank's liquidity by comparing its total loans with its total deposits for the same period Loans are listed

as assets while deposits are listed as liabilities

Calculation formula: LDR=Total loans/Total deposits

Non-performing loan (NPL): Ratio of bad debts to outstanding loans This variable reflects the quality of the bank's outstanding loans The data is calculated based on the bank's balance sheet

The inflation rate (INF) raises the price level of the economy It shows the level of inflation of the economy The inflation rate is based on the consumer price index collected from the report of the General Statistics Office

Calculation formula: INF = (CPI t - CPI t-1 )/( CPI t-1 ) * 100%

Economic growth (GDP) is an independent variable collected from the report

of the General Statistics Office

Calculation formula: GDP = (GDP t -GDP t-1 )/( GDP t-1 ) * 100%

Money supply growth (M2 Growth): Money supply is a measure of the total amount of money in an economy Money supply (M2) is the summation of currency in circulation, demand deposit, time deposit and saving deposit The data

is collected from the report of the General Statistics Office

3.2 Research hypothesis

A hypothesis is a provisional answer to a wide research question that is expressed as a clearly defined relationship between an independent (cause) and dependent (effect) variable The following was the study's hypothesis:

 H1: Bank size has a positive impact on banks’ deposit growth rate

 H2: Profitability has a positive impact on banks’ deposit growth rate

 H3: Equity ratio has a positive impact on banks’ deposit growth rate

 H4: Loan-to-deposit ratio has a positive impact on banks’ deposit growth rate

 H5: Non-performing loan has a negative impact on banks’ deposit growth rate

 H6: GDP growth rate has a possitive impact on banks’ deposit growth rate

 H7: Inflation rate has a negative impact on banks’ deposit growth rate

 H8: Money supply growth rate has a negative impact on banks’ deposit growth rate of commercial banks in Viet Nam

of cross-observations, panel data gives us data with more useful information, more bias, less multicollinearity between variables more, more degrees of freedom and more efficient

3.4 Selection of regression model and tests

With the aim of studying the factors affecting deposit growth of Vietnamese commercial banks, the study was carried out with the following process: Using descriptive statistics, correlation analysis, and regression analysis methods of panel data with the help of Stata 14 software to determine study results

Quantitative research model

Pooled OLS –Pooled Ordinary Least Squares

Pooled OLS –Pooled Ordinary Least Squares is a regression model in which all coefficients are constant over time and on individuals This is the simplest approach and the simplest model as it does not consider the space and time of the combined data but only estimates by conventional OLS regression Therefore, this model may give incomplete results and distort reality about the relationship between independent and dependent variables

Pooled OLS model basic table data has the form:

Yit = α + β1X1it + β2X2it + + βnXnit + unit, where:

Yit: The dependent variable of the observation i in the period t

α: Intercept coefficient

β1, β2, , βn: Individual regression coefficients

X1it, X2it, , Xnit: Independent variables of observation I in the period t

Unit: the error term

Fixed Effects Model –FEM

With the assumption that each unit has distinct characteristics that can affect the explanatory variables, FEM analyzes this correlation between the residuals of each unit and the explanatory variables, thereby controlling and separating the influence of these separate characteristics (time-constant) from the explanatory variables so that we can estimate the net effects of the regressor on the dependent variable

The simple FEM model has the form:

Yit = αi + β1X1it+ β2X2it + + βnXnit + unit

The above model has added the index “i” for the intercept coefficient “α” to distinguish the interception coefficient of each different bank that may be different, this difference may be due to the different characteristics of each bank or the difference between management policies and operations of banks

Random Effects Model –REM