Factors affecting the liquidity of commercial banks in vietnam 2010 2020

BANKING UNIVERSITY OF HO CHI MINH CITY NGUYEN MY KHANH FACTORS AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS IN VIETNAM 2010-2020 GRADUATION THESIS SPECIALITY : FINANCE – BANKING NO.: 7

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYEN MY KHANH

FACTORS AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS IN VIETNAM 2010-2020

GRADUATION THESIS SPECIALITY : FINANCE – BANKING

NO.: 7340201

HO CHI MINH CITY, 2021

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYEN MY KHANH

FACTORS AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS IN VIETNAM 2010-2020

GRADUATION THESIS SPECIALITY : FINANCE – BANKING

NO.: 7340201

INSTRUCTOR

Dr NGUYEN DUY LINH

HO CHI MINH CITY, 2021

ABSTRACT

Banking system in Vietnam has made a lot of significant changes since its first establishment on May 6th, 1951 Around 60 years later, in 2010, the banking system has revealed a number of flaws as a result of the global market's influence as well as the consequences of the previous rapid expansion Credit quality had deteriorated, and the system's liquidity had become more unstable than it has ever been As a result, at the beginning of 2012, the commercial banking system began the reforming process in accordance with the Project on restructuring the Credit Institution System from 2011 to

2015 (Project 254) After 5 years of implementation, the project has largely met its objectives, dealt with weak commercial banking operation, and maintained the banking system stability

Liquidity stress of the system during the period 2006 - 2011 occurred 3 phases with different developments and characteristics: First phase was in 2008, then the second one happened in December 2009, and the third phase lasted from October 2010 to November

2011 The cause of liquidity risk of commercial banks during this time is due to many factors, from objective conditions to subjective factors of commercial banks Objective conditions can be mentioned as the effects of the world economic crisis and domestic macroeconomic conditions But the main cause is still the subjective factors of the system where commercial banks do not meet the requirements on ensuring liquidity safety set forth by the State Bank as well as suffering from of handling information crisis related to the banking system The consequences later on affected further to the prestige and influence of the Bank's Board of Directors With such booming evolvement rate alongside the affection of macroeconomic and financial market developments, there has been a huge increase in many banks overall that are exposed to liquidity risk

Many research about liquidity in commercial banking was carried out all over the world Some of the studies are: The management of Liquidity risk in Islamic Banks: The case of Indonesia (Ismal Rifki, 2010); Liquidity risk management by Zimbabwean Commercial Banks (Laurine Chikoko, 2012); Determinants of Banks Liquidity: Empirical Evidence on Turkish Banks (Amer Mohamad, 2016) Some even bring out the specific case study such as: Managing liquidity risk in bank – Case study Rural investment credit bank Cameroon (Anye Paul Tsi, 2018) or Effect of liquidity management on the performance of commercial banks – A case of Stanbic Bank Uganda

Limited (Hillary Businge, 2017) However, these mentioned groundworks mainly talked

about banks in foreign countries, not specifically referred to the current situation of the banking industry in Vietnam

This thesis emphasizes the importance of understanding and constructing comprehensive liquidity frameworks as a means of mitigating liquidity stress The author first chose the research time within 11 years during the period 2010-2020 The reason for this particular time phase is because of the Great Recession in America from 2007-

2009 The 2007-2009 US economic crisis had profound impacts on all aspects of economies around the world It sparked the 2008-2010 global economic crisis The United States and many other countries were suffering heavy losses from this crisis until this days Huge recovery has been witnessed for the past decade, starting from 2010, there were many positive signs and the fact that the economy has started to recover from the swamp of crisis, albeit slowly The financial economy was stepping into a reform period, and within 11 years many fluctuations have been occurred, following by many promulgated laws and adjusted monetary policies The research time is not too long or too short, which perfectly portraits the inclines and declines of the financial trends The lessons and experiences drawn from this crisis will hopefully help the Vietnamese economy in particular and the world in general to develop firmly in the future

Secondly, by using univariate regression model with the dependent variable representing the bank's liquidity and the independent variables which are the significant factors in the banking operations, the author is able to identify clearly the level of impacts

on liquidity in commercial banks Hence, based on the analysis of the data, readers are able to understand thoroughly the existed significant relationship between liquidity and other independent variables that carry specific meanings to commercial banks activities,

in addition to find better ways to reach more availability in liquidity The study's main goal is to determine factors making impact on liquidity in commercial bank, hence giving out suitable solutions and recommendations for the related parties

TÓM TẮT

Ngành ngân hàng được coi là một trong những ngành đầu tiên và ra đời sớm nhất toàn cầu, qua đó thể hiện tầm quan trọng của các dịch vụ tài chính mà ngân hàng mang lại cho nền kinh tế là không thể bàn cãi Trong hầu hết các trường hợp, ngành ngân hàng được dùng để xác định các khía cạnh phát triển của một nền kinh tế Tầm quan trọng của ngân hàng có thể được hiểu rõ hơn khi các nhà kinh tế học luôn đặt các tổ chức tín dụng này nằm ở trung tâm của hệ thống tài chính thế giới "Họ tư vấn cho chúng tôi về các khoản đầu tư mà chúng tôi có ý định thực hiện, giúp hướng dẫn các doanh nghiệp của chúng tôi trong việc huy động vốn trên thị trường vốn và tạo ra các thị trường mà nơi đó tất cả các khoản vay được trao đổi mua bán với mục đích huy động tiền mặt nhằm tạo các khoản vay mới " (Peter Rose và Sylvia Hudgins, 2013, trang 19)

Trong quá trình toàn cầu hóa, đặc biệt dưới bối cảnh xu thế hội nhập ngày càng được quan tâm và chú trọng, các sự kiện kinh tế được xem là điểm nhấn cho sự thay đổi của nền kinh tế Nổi bật nhất có thể kể đến sự kiện Việt Nam chính thức trở thành thành viên của Tổ chức Thương mại Quốc tế (WTO) Vào ngày 30/9/2019, Việt Nam và Hiệp hội các Quốc gia Châu Âu đã chính thức ký kết EVFTA (Hiệp định Thương mại Tự do Việt Nam - EU) và IPA (Cam kết Bảo hộ Đầu tư) và được Việt Nam chính thức phê chuẩn Hiệp định này vào năm 2020 Do đó, nền kinh tế liên tục có sự thay đổi và những biến động từ thị trường tài chính khiến ngân hàng phải đối mặt với nhiều loại rủi ro khác nhau Những rủi ro này bao gồm rủi ro thị trường, rủi ro lãi suất, rủi ro thanh khoản, rủi

ro hoạt động và rủi ro tín dụng (Sensarma and Jayadev, 2009) Ngoài những rủi ro cốt lõi như rủi ro tín dụng trong hệ thống ngân hàng (Fatemi and Fooladi, 2006), rủi ro thanh khoản là một trong những điểm chính yếu cần được giám sát chặt chẽ Ngoài ra, nguồn lợi nhuận mà các ngân hàng thương mại mang lại hàng năm luôn là tâm điểm chú ý Giữa sự cạnh tranh gắt gao của các ngân hàng trong nền kinh tế không ngừng đổi mới,

các ngân hàng đang tồn tại thông qua việc nâng cao hiệu suất và hiệu quả hoạt động của

họ Lợi nhuận của ngân hàng phụ thuộc vào một số yếu tố bên trong và bên ngoài Những yếu tố này chính là nguyên nhân làm thay đổi thu nhập ròng của một ngân hàng Nghiên cứu này do đó đã khảo sát ảnh hưởng của hai yếu tố bên trong là khả năng thanh khoản

và quy mô ngân hàng đến tỷ suất sinh lời trên tài sản (ROA) của các ngân hàng thương

mại được lựa chọn Tính thanh khoản được giải thích là khả năng ngân hàng hoàn thành các nghĩa vụ của mình đúng hạn mà không phải chịu bất kỳ tổn thất ngoài ý muốn nào Theo Shershneva (2020), khái niệm khoa học cơ bản về thanh khoản trong ngân hàng là khả năng đảm bảo thực hiện kịp thời và đầy đủ các nghĩa vụ đối với người gửi tiền, chủ nợ và các bên khác Một ngân hàng thương mại được coi là có tính thanh khoản nếu nó có đủ vốn để đáp ứng các nghĩa vụ của mình Vấn đề thanh khoản của các ngân hàng là một trong những vấn đề chính trong hoạt động quản lý tài chính của họ Việc thiếu hụt tính thanh khoản làm giảm khả năng đáp ứng các nghĩa vụ của ngân hàng và ngược lại, thanh khoản dư thừa có thể là nguyên nhân làm giảm lợi nhuận của ngân hàng

Có nhiều yếu tố có thể ảnh hưởng đến vị thế thanh khoản của ngân hàng hoặc làm gián đoạn hoạt động tài chính của ngân hàng gây mất cân bằng thanh khoản Những yếu tố này có thể là bên trong và bên ngoài Yếu tố bên trong là những yếu tố thuộc quyền quản

lý của ngân hàng và đó có thể là lợi ích mà họ nhận được, chất lượng tài sản, nguồn vốn của ngân hàng, quy mô của ngân hàng, Trong khi đó, yếu tố bên ngoài là những yếu

tố được coi là nằm ngoài trách nhiệm của các nhà quản lý ngân hàng và bao gồm: tăng trưởng kinh tế, tỷ giá hối đoái, lạm phát và lãi suất Tất cả những yếu tố này có sức ảnh hưởng quan trọng đến tính thanh khoản của ngân hàng và sự mất cân bằng thanh khoản trong các ngân hàng Đồng thời, trên thế giới hay ở Việt Nam cũng đã có nhiều công trình nghiên cứu đề cập đến vấn đề thanh khoản của các ngân hàng thương mại Tuy nhiên, những nghiên cứu thảo luận đó vẫn chưa thể hiện đầy đủ nhất đặc điểm cạnh tranh của tất cả ngân hàng thương mại tại Việt Nam Bên cạnh đó, khoảng thời gian của các nghiên cứu trên cũng khá hạn chế do chưa được cập nhật thời gian mới nhất Xuất phát

từ thực tế trên, nghiên cứu này nhằm tìm ra các nhân tố vi mô và vĩ mô ảnh hưởng đến tính thanh khoản của các ngân hàng Từ đó, tìm ra các biện pháp phù hợp để giảm thiểu

các rủi ro thanh khoản thông qua đề tài “Các nhân tố ảnh hưởng đến thanh khoản của

các ngân hàng thương mại Việt Nam 2010-2020” được nghiên cứu dựa trên số liệu của

24 ngân hàng thương mại được niêm yết trên sàn chứng khoán tại Việt Nam từ năm 2010 đến năm 2020

Từ số liệu thu thập được từ các báo cáo tài chính hợp nhất của 24 ngân hàng thương mại, tác giả đã tổng hợp dưới dạng dữ liệu bảng, sau đó dựa trên mô hình gốc từ các nghiên cứu trước đó để phân tích những số liệu được thu thập từ báo cáo tài chính hợp nhất của các ngân hàng thương mại này Để kiểm tra mối tương quan của các biến, trước hết tác giả sẽ sử dụng phương pháp phân tích tương quan Sau đó, sử dụng F-test để chọn giữa các phương pháp ước lượng Pooled-OLS và FEM / REM Tiếp theo, tiếp tục tiến hành kiểm định Hausman để lựa chọn giữa FEM và REM và chọn lọc để đi đến mô hình phù hợp cuối cùng Để tránh sai sót, các kiểm tra về khuyết tật như đa cộng tuyến (multicollinearity), tự tương quan (autocorrelation) và phương sai sai số thay đổi (heteroscedasticity) là rất cần thiết Các khuyết tật trên sau đó sẽ được khắc phục bằng phương pháp ước lượng tác động ngẫu nhiên (FGSL)

Qua cơ sở lý thuyết của các nghiên cứu trước đây trên toàn thế giới, điểm chung của các tác giả là họ chia các biến độc lập thành hai nhóm: vi mô và vĩ mô Từ đó, tùy theo đặc điểm cụ thể về không gian và thời gian có thể rút ra những kết luận khác nhau Qua đó, các nhà phân tích đã đưa ra những giả thuyết về quy mô của ngân hàng, hệ số

an toàn vốn tối thiểu CA, ROA, tăng trưởng kinh tế GDP, tỷ lệ lạm phát, lãi suất ngân hàng có ảnh hưởng tích cực đến thanh khoản ở ngân hàng Ở khía cạnh khác, tỷ lệ NII,

NIM và tỷ giá hối đoái có ảnh hưởng tiêu cực đến khả năng thanh khoản Trong khi đó,

tiền gửi ngân hàng, chất lượng tài sản, hiệu quả hoạt động không cho thấy tác động đến khả năng thanh khoản của ngân hàng thương mại

Từ kết luận trên, kết hợp cùng với nghiên cứu của chính tác giả để đưa ra giải pháp

và khuyến nghị được đưa ra nhằm hỗ trợ hệ thống ngân hàng Việt Nam Tác giả kỳ vọng rằng những phát hiện của nghiên cứu sẽ thực sự hữu ích cho tất cả các bên liên quan như bản thân các ngân hàng nghiên cứu, Ngân hàng nhà nước và nền kinh tế nói chung Nghiên cứu này tuy vậy cũng không tránh khỏi việc thiếu sót do có những hạn chế về cơ

sở dữ liệu của một số ngân hàng do không thu thập được đủ số liệu ở những năm nhất định Do đó, tác giả đã loại trừ các ngân hàng đã hợp nhất với các ngân hàng khác và không có sẵn dữ liệu cho mục đích phân tích, đồng thời chỉ lựa chọn các Ngân hàng thương mại đã được niêm yết trên sàn chứng khoán để đảm bảo độ chính xác cao nhất cho dữ liệu thu thập được Hơn thế nữa, nghiên cứu này còn khuyến nghị các nhà phân tích kinh tế nên tìm hiểu và nghiên cứu xem các vấn đề thanh khoản ở Ngân hàng thương mại có giống nhau đối với từng loại ngân hàng hay không hoặc liệu thanh khoản có tạo

ra bất kỳ vấn đề tác động nào đối với nền kinh tế quốc gia hay không Đặc biệt, điều quan trọng nhất là điều tra xem việc thanh khoản có tạo thêm bất kỳ chi phí nào cho ngân hàng trong thời gian ngắn và trung hạn hay không Nghiên cứu có thể được mở rộng để khám phá tác động của yếu tố bên trong đến khả năng thanh khoản của các ngân hàng như riêng biệt (như tác động đến thanh khoản của các ngân hàng vừa, nhỏ và lớn) Cuối cùng, ngoài sự nỗ lực từ bên trong các ngân hàng thương mại, Nhà nước và Chính phủ cũng cần ban hành các chính sách và văn bản phù hợp để hỗ trợ và thúc đẩy hoạt động kinh doanh ngân hàng Các cơ quan chức năng cũng nên theo dõi các yếu tố nội tại được xác định có ảnh hưởng tiêu cực đến thanh khoản của ngân hàng để giảm nguy cơ rủi ro trong các hoạt động ngân hàng, đưa ra những giải pháp giải quyết kịp thời các khủng hoảng

ASSURANCE LETTER

This thesis is the author's own research work, the research results are honest, in which there are no previously published contents or content made by others except for the cited references Full source in the thesis

Author

Nguyễn Mỹ Khánh

LETTER OF THANKS

First of all, with the deepest and most sincere gratitude, within the given time I have used to complete this thesis, I realized that this is a great opportunity for me to synthesize and systematize what I have learned, and at the same time combine with practice to enhance professional knowledge In addition, the knowledge I have acquired

at Banking University of Ho Chi Minh City have put foundation to my knowledge, also can be consider as extremely valuable assets that was imparted by my teachers Especially, I want to extend a heart-felt gratitute to Dr Nguyen Duy Linh for accompanying, in-depth guidance and prompting with effective solutions for the making

of this dissertation

I would also like to express my sincere thanks to the School Board of Directors and teachers for delivering precious knowledge to me during my study so that I can complete this thesis and putting my proficiency into usage

Due to the limited time and knowledge, the report cannot avoid inaccuracy synthesized information or calculation I’m looking forward to receiving the teachers’s constructive comments for the accretion in my knowledge and overcome any misconceptions occured during this thesis

Finally, I would like to wish all the teachers of Banking University of Ho Chi Minh City to always have good health and success

Thank you sincerely,

Best regards

Nguyễn Mỹ Khánh

TABLE OF CONTENTS

ABSTRACT I TÓM TẮT IV ASSURANCE LETTER VIII LETTER OF THANKS IX TABLE OF CONTENTS X LIST OF ACRONYMS XIV LIST OF TABLES XV LIST OF FIGURES XVI

CHAPTER 1: INTRODUCTION OF THE STUDY TOPIC 1

1.1STUDYNECESSARY 1

1.2THEORITICALFRAMEWORKSANDEMPIRICALSTUDIES 2

1.2.1.Theory framework 2

1.2.2 Empirical studies 2

1.3OBJECTIVES 4

1.3.1 Overall goal: 4

1.3.2 Specific goals: 4

1.3.3 Research questions: 4

QUESTION 1: WHAT FACTORS AFFECT THE LIQUIDITY OF VIETNAMESE COMMERCIAL BANKS? 5

QUESTION 2:HOW ARE THE ABOVE FACTORS RELATED TO LIQUIDITY? 5

QUESTION 3: HOW MUCH DO THESE FACTORS AFFECT LIQUIDITY AT COMMERCIAL

BANKS? 5

1.4RESEARCHSUBJECTSANDSCOPE 5

1.4.1 Research object: 5

1.4.2 Research scope: 5

1.5RESEARCHMETHODOLOGIES 5

1.5.1 Qualitative method 5

1.5.2 Data collection method 6

1.5.3 Data processing method 6

1.5.4 Quantitative methods: 6

1.6CONTRIBUTIONOFTHETOPIC 7

1.6.1 Theoretically 7

1.6.2 Practically 7

1.7STUDYLAYOUT 7

SUMMARYOFCHAPTER1 9

CHAPTER 2 THEORETICAL BASIS ON FACTORS AFFECTING LIQUIDITY OF COMMERCIAL BANKS 10

2.1 THEORIES ON FACTORS AFFECTING LIQUIDITY OF COMMERCIAL BANKS 10

2.1.1 Concept 10

2.1.2 Types of liquidity risks 11

2.1.3 Affections from liquidity risks of commercial banks 11

2.2 THEORY OF LIQUIDITY MEASUREMENTS AND FACTORS AFFECTING THELIQUIDITYOFCOMMERCIALBANKS 12

2.2.1 Internal factors 13

2.2.2 External factors 18

SUMMARYOFCHAPTER2 21

CHAPTER 3: RESEARCH METHODOLOGY AND DATABASE 22

3.1DATABASE 22

3.2DESCRIPTIONOFRESEARCHMETHOD 23

3.3RESEARCHMODEL 24

3.4DESCRIPTIONOFVARIABLES 25

3.4.1 Model OLS, FEM, REM, FGLS 31

3.4.2 Specific analytical procedure 32

SUMMARYOFCHAPTER3 34

CHAPTER 4: RESEARCH RESULTS 35

4.1 PRACTICAL SITUATION OF DETERMINE FACTORS IN COMMERCIAL BANKSINVIETNAM2010-2020 35

4.1.1 Practical situation of liquidity in commercial banks in Vietnam 2010-2020 35 4.1.2 Practical situation of independent factors determine liquidity in commercial banks in Vietnam 36

Liquidity and asset size 36

Liquidity and capital adequacy ratio 37

Liquidity and deposits 38

Liquidity and asset quality 39

Liquidity and ROA 41

Liquidity and operational efficiency 41

Liquidity and NII 43

Liquidity and NIM 44

Liquidity and GDP 45

Liquidity and inflation rate 46

Liquidity and exchange rate 47

Liquidity and interest rate 48

4.2RESEARCHRESULTS 49

4.2.1 Descriptive statistics 49

4.2.3 Models results 55

4.2.3.1 Regression models analysis 55

4.2.3.2 Appropriate model analysis 58

4.2.4 Defects test 58

4.2.4.1 Serial auto correlation test 58

4.2.4.2 Heteroscedasticity test 59

4.2.4.3 Multicollinearity test 60

4.2.4.4 FGSL test 61

4.3RESULTDISCUSSION 64

SUMMARYOFCHAPTER4 69

CHAPTER 5 CONCLUSION, PROPOSAL AND LIMITATIONS 70

5.1SUMMARYOFRESEARCHRESULTS 70

5.2PROPOSAL 70

5.2.1 For commercial banks 71

5.2.2 For the State Banks 72

5.2.3 For the governments 72

5.3LIMITATIONS 73

SUMMARYOFCHAPTER5 75

REFERENCES 76

APPENDIX 80

APPENDIX1.RESEARCHDATA 80

APPENDIX2.REGRESSIONRESULTWITHSTATA14 87

LIST OF ACRONYMS

LIST OF TABLES

variables

53

LIST OF FIGURES

CHAPTER 1: INTRODUCTION OF THE STUDY TOPIC 1.1 STUDY NECESSARY

One of the most specific risks besides credit risk, interest rate risk, market risk, operational risk,… in bussiness banking is liquidity risk This type of risk doesn’t get mentioned frequently when it comes to banking operation, however it can be seen as a very important link in the whole activity chain of commercial banks If a bank has to deal with liquidity risk, it is predictable to have its usual operations being harmed and get exposed to the threat of the entire system breakdown Ever since the global financial crisis occured, financial institutions and banks had experienced some difficulties because they failed to manage liquidity in prudent manners Therefore, liquidity risk management

of commercial banks should always be a matter of special concern by state agencies to carry out management or supervision activities

Over the past two decades, the Vietnamese banking system has implemented major reform process, leading to new development in both quantity and quality However, liquidity risk was never being given proper attention, or even being considered as a real threat to commercial banks A bank with good liquidity, or in other words, a bank without liquidity risk, is when they always make sure to have available expendable fund storage

to meet up with the needs of customers, both requested in advance or pop-up This should also be the duty of the bank managers, to help ensure adequate liquidity for their working banks Commercial banks might be insolvent, lose its reputation, or worse, having little

to no inner resources left to maintain the bank’s operation due to the backfire of being listless to such crucial issue

This has proven that liquidity is an important factor to the economic welfare of banks Banking sector can be vulnerable if the asset price bubbles, hence exacerbating the current finance situation, leading to many unexpected consequences It is essential to

understand the relationships between econometric specifications and liquidity With the mentioned reasons above, author has chosen the topic “Factors affecting the liquidity of commercial banks in Vietnam 2010-2020” to carry out research

1.2 THEORITICAL FRAMEWORKS AND EMPIRICAL STUDIES

commercial banks – A case of Stanbic Bank Uganda Limited (Hillary Businge, 2017)

and many more

According to the study of Anye Paul Tsi (2018), one main reason that affects liquidity so much is through its management The author suggested that due to the unprofessional workers being recruited led to the failure in liquidity management Therefore, it is unable for banks to meet up with customers liquidity needs Bank shouldn’t just focus on loans in particular sectors, they need to have a general control over every issue to satisfied customers’ needs, especially liquidity needs It would be better in his opinion that rural investment credit banks create legit risk management departments that recruited and train their managers properly to analyze and prevent liquidity risks beforehand

On the other hand, Businge Hillary (2017), with the case of Stanbic Bank Limited's

liquidity management practices, stated that cash storage, supply or withdrawal of liquidity consistent desired level of reserve money from market, daily analysis of liquidity conditions, alongside with detailed reports of daily cash flow The study also discovered that liquidity is a requirement for daily operations and may cause banks to miss out on incentives provided by credit, service, and goods suppliers

Through Laurine Chikoko (2012)’s research, whom idea also pointed out that banks

were lacking of the liquidity management frameworks Besides, Laurine mentioned that Banks in Zimbabwe during the 2000-2008 era relied mainly on internal factors to maintain the liquidity risk under warning states With high inflation rates at the time, customers were in high demand of cash withdrawals, which puts local banks in more danger than foreigner banks Banks relied mainly on cash reserves to manage depositor liquidity, hence use it to calculate and analyze withdrawal patterns

With domestic research, Tran Thi Lien (2018) mentioned in her master's thesis in economics using quantitative research method, panel data to analyze the factors Pooled OLS Regression and the model runs 2 effects FEM and REM on STATA application

To overcome the phenomenon of variable variance and autocorrelation, the thesis uses the FGSL method The results show that the factors affecting liquidity were: equity ratio, return on assets, bank market share, operating cost efficiency, inflation rate and economic crisis

By using data from 20 joint stock commercial banks in Vietnam in the period from

2008 to 2017, Vo Nguyen Thao Quynh (2018) uses the ratio of liquid assets to total

assets (LAR) to measure liquidity risk in the period 2008-2017 This is the period when

the Vietnamese banking system has many fluctuations since the economy was witnessing the first stage of the fundamental restructuring process in Vietnam's banking system The estimated results of the regression model are as follows: loan-to-total assets ratio, marginal interest income The author also came to a conclusion that economic growth

rate has a positive impact on liquidity risk, but inflation rate has a negative impact on liquidity risk

Through Nguyen Thi Mong Bao (2018)’s analysis, alongside with her correlation and regression of panel data, the study found the impact of a number of factors on the liquidity of commercial banks Equity ratio, asset size, loan ratio, economic growth rate, are reported to positively correlated with liquidity On the contrary, profitability ratio, inflation rate has negative correlation with bank's liquidity However, this study did not find the effect of bad debt ratio, credit provision ratio on liquidity The research not only helps to objectively identify the factors affecting liquidity but also help bank and the governments to make effective management policies for the banking system

Based on the research purposes and problematics, alongside with the research basis

of previous studies, the specific objectives are:

- Determining the factors affecting the liquidity of commercial banks in Vietnam

- Among the identified factors, classify micro and macro factors

- Measure the influence of those factors

- Find out the correlation between factors

- Make suggestions, recommendations, solutions

1.3.3 Research questions:

Based on the following questions to achieve the research objectives initially set out

Question 1: What factors affect the liquidity of Vietnamese commercial

banks?

Question 2: How are the above factors related to liquidity?

Question 3: How much do these factors affect liquidity at commercial

Á Bank, Kienlongbank, Vietbank, VietcapitalBank, Saigonbank, Nam Á Bank, PGBank The author collected data, secondary data, micro and macro factors from the financial statements of these commercial banks

fluctuations that affected liquidity of banks during the observation period within the 24 chosen research banks

1.5.2 Data collection method

From the financial statements of 24 commercial banks in Vietnam during the period

2010 to 2020, the author collects necessary data to support the determination of internal

factors such as liquidity (LIQ), asset size (LOGAS), capital adequacy ratio(CA), deposits (DP), asset quality (AQ), asset management (AM), return on asset (ROA), operational efficiency (OPEF), non-interest income (NII), net interest margin (NIM) On the other hand, external factors such as GDP growth rate (GDP), inflation rate (INF), exchange rate (EXCH), interest rate (INTRT) were collected from the official website of the World

Bank Moreover, based on the scientific studies on liquidity of commercial banks belongs to authors and scientists globally and nationwide, the author was able to inherited their results to carry further scientific research and come up with an appropriate research model for accurate analysis

1.5.3 Data processing method

The required data will be retrieved from consolidated financial statements, then transform into variables for further calculation After that, calculated variables will be input into econometric models for classifications (choosing between Pooled-OLS, FEM, REM) using software STATA 14

1.5.4 Quantitative methods:

From the data collected from the financial statements, author then synthesizes the above data in the form of panel data, after that based on the original model from previous studies to analyze this data table To check for correlation of the variables, the author will first use the correlation analysis method Then carry out the F-test to choose between Pool-OLS and FEM/REM estimation methods Next, continue to use Hausman test to choose between FEM and REM for the final suitable model It is essential to run tests on multicollinearity, autocorrelation and heteroscedasticity to avoid false results Finally,

the above defects are overcome by using the Feasible Generalized Least Squares (FGLS)

in the period from 2010 to 2020

1.6.2 Practically

Based on the previous studies, with a change in space and time, providing a more complete, up-to-date overview of liquidity in commercial banks in Vietnam and thereby help financial practices to understand more about the factors affecting the liquidity of commercial banks in Vietnam

Moreover, this thesis should work as one of the guidance to help the Government, the State bank and relevant agencies to have timely and effective solutions to the management of liquidity hence hedging any kind of related risk to the topic

1.7 STUDY LAYOUT

CHAPTER 1: INTRODUCTION TO THE TOPIC

1.1 Urgency of the topic

CHAPTER 2: THEORETICAL BASIS AND OVERVIEW OF

EXPERIMENTAL MODELS

2.1 Theoretical basis

2.1.1 Overview of the commercial banking system in Vietnam

2.1.2 Overview of liquidity of commercial banks in Vietnam

2.2 Overview of research related to liquidity at Vietnamese commercial banks

CHAPTER 3: RESEARCH METHODS AND DATABASE

CHAPTER 4: RESEARCH RESULTS

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusion

5.2 Policy implications and suggestions for further adjustments

5.3 Limits of the study and directions for further research

SUMMARY OF CHAPTER 1

This study examines the impact of bank-specific factors and macro-specific factors

on liquidity in Vietnamese commercial banks, for the period of 2010 to 2020, right after the US economy crisis affection from 2007-2009 The thesis also emphasizes the importance of understanding and constructing comprehensive liquidity frameworks as a means of mitigating liquidity stress by using univariate regression model with the dependent variable representing the bank's liquidity and the independent variables are the significant indicators of banks to conduct safety and timely liquidity The thesis was written based on general research opinion from most of the authors, hence inherits and selects the regression model that show clear results that bank liquidity depends not only

on factors inside the banking system such as the size of total assets, capital ratio, profitability but also affected by macroeconomic variables such as economic growth, inflation rate, interest rate and exchage rate

The factors affecting the liquidity of commercial banks are said to be very diverse and impossible to make the most accurate statistics Depending on many different conditions, dissimilar environments and opposed circumstances that lead to unalike results In addition to the result of the data analysis, we can understand thoroughly the existed significant relationship between liquidity, bank specific factors and external factors belong to the economy After that, the state of reserve liquidity will be easier to forecast, hence suitable financial solutions to the growth of commercial banks and the entire economy in general are made

CHAPTER 2 THEORETICAL BASIS ON FACTORS AFFECTING LIQUIDITY OF COMMERCIAL BANKS 2.1 THEORIES ON FACTORS AFFECTING LIQUIDITY OF

v The concept of liquidity risk

Liquidity risk normally happens under the influence of these 2 cases For starters, unwanted events might occur between borrowers and banks, such as borrowers were unable to afford the planned terminated loans from bank Secondly, the bank’s relationship with depositors might not goes well when under the circumstance that depositors decide to redeem their savings but the bank is unable to do so In reality, banks frequently discover asset-liability mismatches (gaps) that must be adjusted to balance because banks receive liquid liabilities for banking activities but most of their investment are illiquid assets

Liquidity risk is primarily dependent on the particular individual features of financial organizations, but under extreme circumstances, it might jeopardize the financial system's liquidity The bank collects a yield that is tied to its profitability since

it operates to transform maturities, which are vulnerable to these risks A larger scale of matching assets can decrease liquidity risks and benefit profitability simultaneously On the contrary, this relationship also works in the reverse direction: when loans are in a desperate state, they have an influence on both profitability and liquidity since predicted cash flows do not materialize Furthermore, there is a link between capital and solvency: more capital lowers liquidity creation but provides greater resilience in the case of financial crises (Manish Kumar,2013)

2.1.2 Types of liquidity risks

There are two sorts of liquidity risk: financing liquidity risk and market liquidity risk (European Central Bank, 2002) The financing liquidity risk is triggered by a maturity imbalance between cash inflows and outflows, as well as the immediate and unscheduled cash requirements owing to unforeseen circumstances On the other hand, the inability to liquidate assets at or near market value can manifest as a price drop, is known as market liquidity risk (Brunnermeier and Pedersen, 2009) In this thesis, we will discuss promptly about the affection of the both mentioned risks on the liquidity in commercial banks, as well as analysing the micro and macro factors that directly impact

on the ability or inability to fulfill monetary obligation

2.1.3 Affections from liquidity risks of commercial banks

The Basel Committee on Banking Supervision in February 2008 has mentioned in its study that even when liquidity was becoming more of a major issue to banking activities, many banks still failed to consider a number of basic concepts of liquidity risk management, which in the end led to unsatisfied contingent obligations These financial intermediaries thought severe and long-term liquidity disruptions were unlikely to happen, therefore they didn't run stress tests that took into account the probability of market-wide stress, which created a huge disruption and lead to unexpected consequences Banks by then will be unable to fulfill any prior lending obligations, formally or informally When a sudden need for funds develops and the bank has no

liquid funds on hand but only assets, unprofitable asset sales are unavoidable Moreover, the amount of the default risk premium that the bank is required to pay for funds may increase Therefore, liquidity will reap the benefits of the central bank's discount window

to borrow money Efficient liquidity management are essential to restrict the use of these facilities Besides, the fact that inflation rates will arise in the economy can’t be ignored More importantly, in order to attract reasonable cost funds, banks must create its own safe and sound reputation Reputation risk is more likely to happen in time with liquidity risk, or just right after, which makes it harder for banks to reach out to fund investors The lack of raising proper money fund on time exposes banks to other serious risks such as bankruptcy and government bailout (Holmstrom and Tirole, 2000) That is why it’s very crucial to do research about factors that influence greatly to liquidity, helps strengthen the banking operation over time to hedge risks This will allow the banks to cope with liquidity pressure, avoid the collapse of the whole banking system in specific and generally let the economy under stable control

2.2 THEORY OF LIQUIDITY MEASUREMENTS AND FACTORS

AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS

Efficient solutions to reduce liquidity risk and measurements of the liquidity occurrence probability are carry out by analyze the following factors, which include the business model indicators of the bank and the macroeconomic conditions data According to Eissa A Al-Homaidi, Mosab I Tabash, Najib H Farhan and Faozi A (2019), liquidity endures strong affection from both internal and external factors Whereby bank-specific determinants comprise of: assets size, capital adequacy ratio, deposits, asset quality, profitability, operational efficiency, non-interest income, on the

other hand, macroeconomic factors are consist of: GDP growth rate, inflation rate,

interest rate, and exchange rate

2.2.1 Internal factors

v Liquidity (LIQ)

In this thesis, liquidity in commercial banks is the main topic to have research on the correlation of related factors In the banking field, liquidity is understood as the ability to meet the withdrawal needs of customers Normally, liquid assets all have a ready and open market for trading This means that all these assets are widely traded all around the world in different exchanges with stable prices As for assets that are illiquid, they are usually not traded on public exchanges but are more often traded privately This means that the prices of liquid assets can change by a large margin and can take a significant amount of time to complete Essentially, the harder it is to turn an asset into cash, the less liquid it is Some central banks in the world have applied quantitative methods in liquidity risk analysis of the commercial banking system to detect and warn about the risk of liquidity of the whole banking system To do this, researchers have built

a set of liquidity indicators of the commercial banking system, and these indicators are considered as one of the warning standards to help policy makers as well as bank governance to have timely response to help prevent liquidity crisis from occurring and spreading Analysis of these liquidity risk in the banking system are being carried through: Stress test model, early warning systems, system liquidity index according to Basel, index analysis of systemic-adjusted liquidity, the developments in the currency market

v Asset size (LOGAS)

Asset size is closely related to the performance of banks because when banks do well and make a profit, expansion will open up new opportunities to recruit consumers, enhancing the bank's liquidity by allowing more deposits to be mobilized Nonetheless,

if the bank's operational activities are unproductive, it will be exposed to significant risks when it is unable to meet the bank's requirements for deposit settlement or payment of past-due obligations As a result, depending on the business state of the bank, increasing

the size of the bank might have a favorable or negative influence on liquidity risk Various research on the impact of asset size on bank liquidity risk have given conflicting conclusions However, the author believes that this particular factor has a broad impact

on liquidity even though it’s not crucial, which is the same idea with Donjeta Morina (2021)’s research Due to how large the scale of the bank is, the price of fund will adjust accordingly, leading to easier access to the available source of wealth, causing less concern to the liquidity Therefore, the following hypothesis will be:

Hypothesis H 1: Asset size has a positive correlation with liquidity in commercial banks

v Capital adequacy ratio (CA)

This is an economic indicator in which reflects the relationship between equity and risk-adjusted assets of a commercial bank closely The lower this ratio indicates, the higher chances that banks use financial leverage, which contains a lot of risk and can reduce the bank's profit with high cost of loan (Munteanu, 2012) As a result, opportunity

to obtain interest income from loans low, which leads to the amount of credit extended

is relatively low, and then end up with low liquidity Research by Tang My Sang (2018)

has shown that CA coefficient is proportional with LIQ, so it changes dependently with

the indicator Therefore, author expect the capital adequacy ratio to be positively correlated with the bank's liquidity Hence, the following hypothesis will be:

Hypothesis H 2: Capital adequacy ratio has a positive correlation with liquidity in commercial banks

v Deposits (DP)

Liquidity risk in banking has been related to transaction deposits and their ability

to trigger issues in banking activities , according to some study of Singh and Sharma (2016), Rashid and Jabeen (2016), Sopan and Dutta (2018), which passively blamed depositor for the bank's struggles Arif and Anees (2012) also raised a concern that banks have to deal with liquidity problems when deposits in these financial institutions are

withdrawn out of the blue It is assumed that an inverse relationship is relevant between deposits and bank’s liquidity, leading to a reduction in liquidity once deposits witnessed

a rise, Dinger (2009) Meanwhile, Gatev and Strahan (2009) also showed that banks employ transaction deposits to minimize the risk of unused loan commitments, which later on turn into a liquidity concern Low-level transaction deposits bank normally will have their stock-return volatility increases with unused commitments In times of limited liquidity, deposit lending strategy becomes significantly stronger Their findings contradict the traditional view of bank liquidity risk Nevertheless, deposits indicator in the bank usually have negative influence on liquidity With that being discussed, the hypothesis will be:

Hypothesis H 3: Deposits has a negative correlation with liquidity in commercial banks

v Asset quality (AQ)

The asset quality of the banks was carry on research in the liquidity risk model, which can be describe as a ratio of Loan over Total Assets, in which a slight reduction

in loan rate can lead to a disturbing decrease in asset quality of banks Furthermore, it can even slow down bank’s ability to generate incomes Therefore, more risks are created which slow down the liquidity process (Sopan and Dutta, 2018) Banks should put more money in liquid assets with high quality if their funding costs rise, as a way of saying that banks should not depend on interbank funds if their liability costs increase, but rather invest in liquid assets that will contribute considerably to liquidity When banks have sufficient liquid assets with great quality, they become less reliant on other external sources of funding Considering to be an explanatory variable, therefore asset quality mainly has positive effect on the liquidity risk in banks, according to Munteanu (2012) The higher the quality, the more valuable the asset is Hence, it is easier to approach liquidity in banking activities This will lead to the hypothesis:

Hypothesis H 4: Asset quality has a positive correlation with liquidity in commercial banks

v Return on assets (ROA)

To measure precisely profitability of the 24 banks, ROA is an important indicator

while carry out the regression model In Moussa (2015)’s idea, the ratio reflects the efficiency of the bank's management in generating assets As a backup in case of sudden withdrawals, banks often reserve liquid assets at a certain level This factor presents its positive affection towards the bank’s liquidity, and has been pointed out by some of the previous studies (Singh and Sharma, 2016; Vodova, 2013) Research by Bordeleau, É., and Graham, C (2010) also stated that the profitability of the Bank of Canada is improved greatly when the bank captures a necessary amount of liquid assets Higher

ROA reflects a high flow of capital to fulfill liquidity requirements, whereas lower ROA

shows less excess capital, which may cause liquidity volatility during demand deposits Besides which, a bank with low profitability ratio prevents potential lenders from providing funds because of the likelihood of the bank to be solvent

Moreover, it is recommended that ROE and ROA indicators should be combine

The combination of this pair of indicators will not only evaluate the efficiency of production activities, but also have a better view of the financial structure of the business However, while running tests, a lot of problems occurred leading to multicollinearity so

author selected only ROA indicator for this thesis ROA indicator throughout many

research has stated its positive affection to liquidity in commercial banks This will lead

to the hypothesis:

Hypothesis H 5 : ROA has a positive correlation with liquidity in commercial banks

v Operational efficiency (OPEF)

Operational efficiency in financial institutions is often focused on optimizing the transaction costs associated with an investment In the study of Berger and Mester (1997), operational efficiency of commercial banks is reflected in the relationship

between output revenue and the cost of using input resources, or the ability to turn input resources into the best outputs in business activities of commercial banks Specifically,

it is effective once commercial banks create the largest output revenue with the smallest input resource value In the framework of this study, commercial banks are considered

to be efficient when they achieve the greatest output through the use of the same amount

of input resources as other commercial banks but the lowest usage costs You can tell if

a bank is under good condition or maintain good position in the field based on how high its operational efficiency The study of Rashid and Jabeen (2016) depicts positive and significant association between banks operational efficiency and banks liquidity It is no doubt that operational efficiency has a positive affection accordingly with the liquidity

in commercial banks because with good level of operational efficiency, banking operation tends to work well, letting liquidity process to occur smoothly As a result, the hypothesis will be:

Hypothesis H 6: Operational efficiency has a positive correlation with liquidity in commercial banks

v Non-interest Income (NII)

Net interest income (NII) is the difference between interest income from the use of

productive asset and cost of the use of debt and also one of the main performance metric

for most financial institution In each bank, NII varies accordingly, especially when it

comes to interest rate implementation, such as employing a floating rate, flat rate, or sliding rate NII can be positive or negative depending on whether the asset is sold for a profit or a loss This indicator has been taken as an important attributes and measures of

bank specifics Therefore, NII has a close correlation with the formation of factors

affecting the bank's liquidity Which then leads the author to this hypothesis:

Hypothesis H 7 : NII has a positive correlation with liquidity in commercial banks

v Net Interest Margin (NIM)

This is the percentage difference between interest income generated by a bank's earning assets (loans and investments) and its main expenses - interest paid to depositors The net ratio between interest earned and interest paid to customers is a key measure of

a bank's profitability In developing countries like Vietnam, with scarce capital markets, individuals and businesses tends to access capital mainly through bank loans with limited information Hence, too much dependence on banks is shown, in which resulted in high NIM when banks lend money A huge increase in cost of loan reduces private investment, inhibits economic development (Martinez Peria and Mody, 2004) Subsequently, a high NIM will lead to high liquidity in commercial banking As mentioned with indicators above, profitability is very important when speaking about liquidity issues in banking system Which is why author expect the net interst margin to have a favourable correlation with liquidity The hypothesis for this indicator is then created:

Hypothesis H 8 : NIM has a positive correlation with liquidity in commercial banks

2.2.2 External factors

Based on the changes in banking system activities and legal deployment though the years, author suggest these external factors should be included in the model that possess clear impact to liquidity in Vietnamese commercial banks, such as:

v Gross domestic product (GDP)

This macro indicator is the total value of all goods and services produced within a country through expected period, moreover can be consider as an important growth indicator A country's GDP is the total value of all final goods and services produced in that country during a given time To measure the prosperity of a country people often

look at the GDP per capita of that country Gross domestic product, according to Bunda

and Desquilbet (2009), has a beneficial impact on a bank's liquidity Chen and Phuong (2014), on the other hand, discussed the opposite influence on a bank's liquidity When the GDP index shows an increase, it means that an economy tends to develop, leading to

an increase in the average income of the subjects in the economy, so it will have a strong impact on the liquidity in banks With these conclusions from the authors, a hypothesis for this indicator is written:

Hypothesis H 9 : GDP has a positive correlation with liquidity in commercial banks

v Inflation rate (INF)

Inflation rate is an important indicator of a country Inflation is the phenomenon of money appearing in circulation, reducing the value of the domestic currency With the large supply of money leads to higher prices, in which change the value of money and affects the source of income of people Inflation occurs when the cost of goods and services rises, causing the national currency purchasing power to fall According to Moussa (2015), banks stay exceedingly portable while witnessing a fall in the economy expansion, which preserve economic stability and portability within the framework well Moreover, when inflation increases, the value of money decreases, which reduces the value of the loan, thereby benefiting the borrower and adversely affecting the lender That’s the reason for a negative correlation with liquidity in commercial banks in author’s point of view Therefore, a hypothesis is then written as:

Hypothesis H 10: Inflation rate has a negative correlation with liquidity in commercial banks

v Exchange rate (EXCH)

View from the aftermath of the 2007-2009’s financial crisis in Vietnam, the role

of liquidity in financial markets has clearly been taken more serious, especially with its affection towards exchange rates In Inoue and Rossi (2012)’s findings, changes in private fund liquidity can predict the exchange rate movements Besides, funding liquidity affects two different aspects of FX market liquidity, transaction costs and market depth, and the relationship is related to the supply and demand for liquidity In this case, it is no doubt that exchange rate and liquidity possess the same correlation with each other Liquidity can be use as a reliable and flexible bank indicator to forecast

exchange rates, not vice versa, but yet not a small impact As a result, the hypothesis will be:

Hypothesis H 11: Exchange rate has a positive correlation with liquidity in commercial banks

v Interest rate (INTRT)

As we have observed and pull out conclusion through Vodová and Republic (2011)’s research, the advantageous impact of intrigued rates on loans emphasizes show that higher lending rates don't always prompt banks to lend more This can

be reliable with the issue of credit crunch and credit proportioning, which has

been illustrated within the Vietnamese commercial bank’s activities In Bonner, C.,

Van Lelyveld, I., and Zymek, R (2015)’s opinion, not only does this factor impact the liquidity states of banks, but also show its affection with every aspect that requires monetary policy The contrast between increase interest rate and decrease in need for credit will resulted in a drop of illiquid assets; nevertheless, if interest rates on deposits rises then liquidity also rises As a result, the hypothesis will be:

Hypothesis H 12: Interest rate has a positive correlation with liquidity in commercial banks

SUMMARY OF CHAPTER 2

In chapter 2, the author mentioned about the theoretical framework on the basic issues of bank liquidity and discuss promptly about liquidity risk The liquidity theoretical framework includes: The theory of liquidity risk of commercial banks, factors affecting liquidity risk of commercial banks, theories of liquidity measurement and factors affecting liquidity of commercial banks

Sourcing funds in commercial banks is never easy, plus they have to deal with high risk factors like tough liquidate assets in banking process Especially, when being put under liquidity pressure, it is unable for banks to find internal or external liquid sources The author then carried out panel regression model with the availble collected bank-related data and based on current economy situation in Vietnam to solve the problems These results from using calculation of micro and macro indicators will possess clearly factors affecting liquidity in Vietnam commercial banks from 2010 to 2020

CHAPTER 3: RESEARCH METHODOLOGY AND

DATABASE 3.1 DATABASE

To analyze the factors affecting liquidity of commercial banks in Vietnam, author uses data collected during the period 2010 to 2020 from reliable sources such as:

International monetary fund (IMF), State Bank of Vietnam (SBV), website of 24

observed joint stock commercial banks, website www.cafef.vn On the other hand, with

modern banking concepts and their strategy to build multi-field corporation nowadays, basic financial statements will not be able to reflect and present entirely financial data and business positions of these banks Therefore, only consolidated financial statements can meet the above objectives so the author chooses to have data collected from these reports due to their thoroughly and accuracy in banking activities representation

Research data including 256 observations of 24 joint stock commercial banks in Vietnam listed on the stock exchange with conduct research time of 10 years from 2010

to 2020

Table 3.1 List of joint stock commercial banks in the research model

3 BID Bank for Investment and Development of Vietnam

5 EIB Vietnam Export Import Commercial Joint Stock Bank

6 HDB Ho Chi Minh City Development Commercial Joint Stock

Bank