Factors affecting the financial stability of viet nam commercial bank

Besides, these studies also analyzed the factors affecting financial stability of commercial banks, imcluding 1 macro factors such as GDP growth rate, inflation rate Bita & Mosab, 2012;

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

NGUYỄN NGỌC BẢO PHƯƠNG

FACTORS AFFECTING THE FINANCIAL STABILITY OF VIET NAM

COMMERCIAL BANKS

GRADUATION THESIS MAJOR: FINANCE AND BANKING

CODE: 52340201

HO CHI MINH CITY, 2021

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

NGUYỄN NGỌC BẢO PHƯƠNG

FACTORS AFFECTING THE FINANCIAL STABILITY OF VIET NAM

COMMERCIAL BANKS

GRADUATION THESIS MAJOR: FINANCE AND BANKING

CODE: 52340201

SUPERVISOR TRẦN NGUYỄN MINH HẢI, PHD

HO CHI MINH CITY, 2021

The author commits an honorary statement about your scientific thesis, specifically as follows:

Full name of the author: Nguyễn Ngọc Bảo Phương

Born on October 6, 2000 in Khanh Hoa, Viet Nam

Hometown: Khanh Hoa, Viet Nam

Currently a 4th year student majoring in Finance and Banking, Banking University Ho Chi Minh City

While studying at Banking University Ho Chi Minh, the author declares that

The thesis: Factors affecting the financial stability of Viet Nam commercial banks

Major in: Finance - Banking

Code: 52340201

Science supervisor: Trần Nguyễn Minh Hải, PhD

This thesis has never been submitted to any anywhere else before The thesis is the author's own research work The research results are reliable, in which there are no previously published contents or contents made by others except for cited sources fully in the thesis

Ho Chi Minh City, September 2021

The Author

Nguyễn Ngọc Bảo Phương

ACKNOWLEDGMENT

Firstly, the author would like to thank the academic staff and support staff of Banking University Ho Chi Minh City because of their dedicated teaching and support It is a great honor and pride for the author to become a student at Banking University Ho Chi Minh City

Secondly, the author would like to express the deep gratitude to the Supervisor, Dr Trần Nguyễn Minh Hải, who wholeheartedly supported, patiently guided and encouraged the author during doing this thesis

Finally, the author would love to express big thank to family and friends who always give unconditional encouragement to the author during studying

Abbreviation Meaning

CIR Cost to income ratio

CD The customer loan balance (before provision) to deposits DEPTA Deposit rate

EAT Earning after tax rate

FEM Fixed Effects Model

GDP Gross domestic product

GLS Generalized Least Squares

IMF International Monetary Fund

INF Inflation rate

LLP The ratio of loan loss provisions to total assets

NIM Net Interest Margin

OLS Ordinary Least Square

OECD Organization for Economic Co-operation Development REM Random Effects Model

ROA Return on Assets

SBV The State Bank of Viet Nam

SIZE The bank size

WB World Bank

WDI World Development Indicators

LIST OF TABLE AND FIGURE

LIST OF TABLE

Table 2.1 Summary of relevant empirical studies 17

Table 2.2 Summary of variables used frequently in relevant studies 20

Table 3.1 Variables in the research model 28

Table 3.2 Data sources of the variables 31

Table 4.1 Descriptive Statistics 36

Table 4.2 Correlation matrix 37

Table 4.3 Test results using GLS model and OLS, FEM, REM 39

Table 4.4 Summary of research results using GLS model 45

LIST OF FIGURE Figure 1 The z-score of Viet Nam commercial banks in the period of 2010 - 2020 29

COMMITMENT i

ACKNOWLEDGMENT ii

LIST OF ABBREVIATIONS iii

LIST OF TABLE AND FIGURE iv

CHAPTER 1 INTRODUCTION 1

1.1 Reasons for choosing the topic 1

1.2 Research objectives and questions 3

1.2.1 Overall research objectives 3

1.2.2 Specific research objectives 3

1.2.3Research question 4

1.3 Research scope and subject 4

1.3.1 Research subject 4

1.3.2 Research scope 4

1.4 Research methodology 5

1.4.1The approach methods 5

1.4.2Data collection methods 5

1.4.3Data processing methods 5

1.5 Framework of the research process 6

1.6 New contributions 6

1.6.1In empirical literature 6

1.6.2In practice 6

1.7 The composition of the thesis 7

CHAPTER 2 LITERATURE REVIEWS 9

2.1 The financial stability of commercial banks 9

2.1.1 Definition 9

2.1.2 The importance of financial stability of commercial banks 10

2.1.3 Factors affecting the financial stability of commercial banks 11

2.2 Measuring financial stability using the z-score model 14

2.2.1 The z-score model 14

2.2.2 The advantages and disadvantages of the z-score model 15

2.3 The relevant emprical studies 17

2.4 The general regression model for population 20

2.5 Summary of chapter 2 21

CHAPTER 3 RESEARCH METHODS 23

3.1 The approach methods 23

3.1.1 Research model of factors affecting financial stability of Viet Nam commercial banks… 23

3.1.2 Research variable selection 24

3.2 Data collection methods 29

3.2.1 Research scope 29

3.2.2 The data sources 30

3.3 Data processing methods 31

3.4 Summary of chapter 3 35

CHAPTER 4 RESEARCH RESULTS AND DISCUSSIONS 36

4.1 Research result descriptive statistics 36

4.2 Research results 38

4.2.1 The final model chosen 38

4.2.2 Test results 39

4.3 Discussions 42

4.4 Summary of chaper 4 45

CHAPTER 5 RECOMMENDATIONS AND CONCLUSIONS 47

5.1 Recommendations 47

5.2.1 Recommendations for commercial banks 47

5.2.2 Recommendations for the State Bank of Viet Nam 49

5.3 Conclusions 49

5.4 Thesis limitations and research direction 51

5.4.1 Limitations of the thesis 51

5.4.2 The research direction 51

5.5 Summary of chapter 5 52

TÓM TẮT KHÓA LUẬN iii

REFERENCES v

APPENDIX 1 xi

APPENDIX 2 xii

APPENDIX 3 xix

CHAPTER 1 INTRODUCTION

The content of chapter 1 identifies the research problem as the factors affecting the financial stability of Viet Nam commercial banks Accordingly, the reasons for choosing the topic, research subjects, research objectives, research scope, research methods, research contributions and research processes are presented in detail in chapter 1

1.1 Reasons for choosing the topic

Commercial banks systems play intermediary role to facilitate saving and capital formation in the economy These activities are involved in transforming maturity of investments and providing insurance to depositors potential liquidity needs which make banks more fragile (Diamond & Dybvig, 1983) History has shown that banks were at the center of the global financial crisis in 2008, and any negative fluctuation in the banksing system has caused enormous damage to the economy in a long time Therefore, countries around the world are always looking for solutions to assess and measure the financial stability of commercial banks in the context of globalization and interconnectedness Studying on financial stability also contributes to a better understanding of the organizational complexity, size, and optimal types of operations commercial banks need

to weather another financial crisis (Kiemo et al., 2019)

Schinasi (2004) expressed that financial stability can be thought of in terms of the financial system’s ability Anginer et al (2014) believed that a banks's financial stability

is a stable state in which the banksing system effectively performs functions such as resource allot, risk dispersion, and income distribution In which, a financial system is in

a range of stability whenever it is capable of facilitate (rather than impeding) the performance of an economy, and of dissipating financial imbalances that arise endogenously or as a result of significant adverse and unanticipated events Boyd & Graham (1986), Hannan & Hanweck (1988) and Hesse & Cihak (2007) introduced z-score as the probability of a banks default to measure the financial stability of commercial banks The z-score is a model of evaluating financial stability performance, it

can be applied to complex financial institutions Z-score also allows for comparison of financial stability among different groups of financial institutions in terms of ownership structure or business objectives Thus, it is widely used when analysing financial stability

on commercial banks Chiaramonte et al (2016) found that 76% probability of banks failure can be predicted well by the z-score Besides, these studies also analyzed the factors affecting financial stability of commercial banks, imcluding (1) macro factors such as GDP growth rate, inflation rate (Bita & Mosab, 2012); (2) micro factors such as bank size, loans to deposit ratio, banks assets, etc (Asli, 2012; Altaee et al., 2013) However, research on financial stability ‘of commercial banks is still in its infancy, and additional research is needed to get an overview (Schinasi, 2004)

In Viet Nam, there are also some studies examining the factors affecting the financial stability of Viet Nam commercial banks coefficients (Nguyễn Minh Hà & Nguyễn Bá Hướng, 2016, Hoàng Công Khanh & Trần Hùng Sơn, 2015; Võ Xuân Vinh & Trần Thị Phương Mai, 2015; Nguyễn Đặng Tùng & Bùi Thị Len, 2015) These studies also used z-score to measure financial stability and analyzed the effects of micro and macro factors on financial stability of commercial banks Some factors have an negative relationship with banks banksruptcy risk such as credit growth, bad debt provision rate, net interest income ratio, equity to total assets, diversification of income, state ownership, economic growth, etc (Nguyễn Minh Hà & Nguyễn Bá Hướng, 2016) Some factors that have a positive relationship with banks banksruptcy risk such as cost management efficiency, banks scale, asset structure, capital adequacy, etc (Hoàng Công Gia Khánh & Trần Hùng Sơn, 2015) However, there is still a lack of relevant empirical studies in the field of financial stability of commercial banks in Viet Nam

At curently, in Viet Nam, financial stability of commercial banks is considered an important and key content in the economy (SBV, 2019) Financial stability of commercial banks in Viet Nam is currently rated lower than that of evolved countries Specifically, Huỳnh Japan (2020) showed that the average z-score of Viet Nam commercial banks from 2007 - 2018 of 24,27 was approximately equal to the average of commercial banks

in China and Eastern Europe, Latin America and Asia 2000 -2012 was 24,61 (Chen et al.,

2017) However, compared to banks in advanced countries like Europe, the z-score for Viet Nam market is still lower Accordingly, the z-score of the leading European commercial banks was 28,22 in the period 2000 - 2015 (Brana et al., 2019) The results for more advanced country banking are highly stable Meanwhile, less developed countries show a lower level of budget stability Thus, improving and maintaining the financial stability of the commercial banksing industry is one of the priorities in the current period (Vũ Thị Phương Liên, 2016) Therefore, the author express to contribute more empirical evidence to help Viet Nam commercial banks have more grounds to maintain financial stability

In short, the author found that the studying on this field is still in its early stage, the number of studies on financial stability is lacking in Viet Nam, especially in factors affecting the financial stability of Viet Nam commercial banks Therefore, doing research

on the factors affecting the financial stability of Viet Nam commercial banks is necessary and meaning in order to strengthen the financial stability of commercial banks As the result, the author decided to choose the topic "FACTORS AFFECTING THE FINANCIAL STABILITY OF VIET NAM COMMERCIAL BANKS" as the graduate thesis Using secondary data of Viet Nam commercial banks in the period 2010-2020, the study conducts the quantitative analysis to evaluate the impact of these factors on the financial stability of Viet Nam commercial banks The research results are used to strengthen recommendations proposed to the State Bank of Viet Nam (SBV) and Viet Nam commercial banks

1.2 Research objectives and questions

1.2.1 Overall research objectives

The thesis analyzes the influence of factors affecting the financial stability of Viet Nam commercial banks The results of the study are used to propose a number of recommendations to improve financial stability for Viet Nam commercial banks

1.2.2 Specific research objectives

- Identifying factors that can affect the financial stability of commercial banks

- Analyzing the influence of these factors on the financial stability of Viet Nam commercial banks

- Proposing recommendations to improve the financial stability of Viet Nam commercial banks

1.2.3 Research question

- What factors can affect the financial stability of commercial banks?

- How do these factors affect the financial stability of Viet Nam commercial banks?

- Which recommendations are proposed to improve the financial stability of Viet Nam commercial banks?

1.3 Research scope and subject

1.3.1 Research subject

The object of the study is the factors affecting the financial stability of commercial banks in Viet Nam In which, the level of financial stability is represented by the banks's banksruptcy risk through the z-score index based on theory and related research

1.3.2 Research scope

1.3.2.1 Space

The study uses secondary data of 28 Viet Nam commercial banks collected from the published annual financial statements of Viet Nam commercial banks for the period 2010- 2020 According to data updated on June 30, 2021, the number of commercial banks currently is 31 banks (SBV, 2021) However, the collection of full public data of some Viet Nam commercial banks in the period 2010 - 2020 is still limited Therefore, only 28 banks out of 31 commercial banks were selected because their data were sufficient for the study (Appendix 1)

1.3.2.2 Time

The study collects secondary data covering 28 Viet Nam commercial banks in the period of 2010 - 2020

1.4 Research methodology

1.4.1 The approach methods

The study acquires and inherits the ideas and results of researches in the world and

in the country such as the study on the risk instability of banks when under the influence

of bad debt (Nguyen, 2013); check the correlation of units measuring bank stability (Swamy, 2014); key factors of bank stability (Diaconu et al., 2014); Lê Ngọc Quỳnh Anh

et al (2020) factors affecting the financial stability of Viet Nam commercial banks These studies are also the foundation for choosing the research direction on financial stability of Viet Nam commercial banks

1.4.2 Data collection methods

The study uses secondary data collected from the published annual financial statements of Viet Nam commercial banks for the period 2010 - 2020 However, the collection of full public data of all Viet Nam commercial banks in the period 2010 - 2020

is still limited Therefore, only 28 banks out of 31 commercial banks were selected because their data were sufficient for the study

1.4.3 Data processing methods

The author uses OLS regression technique on normal panel data with Pooled OLS least squares method to estimate the regression equations and test some hypotheses of the OLS model Then the author estimates by Fixed Effect model (FEM) and Random Effect model (REM) The problems of multicollinearity and heteroskedasticity will be controlled in the model If the residual of the model has a heteroskedasticity, the author will regress the model by the Generalized Least Squares method (GLS) to overcome the phenomenon of heteroskedasticity on the table data Therefore, the author uses the Generalized Least Squares method (GLS) as the main model for the thesis

1.5 Framework of the research process

Table 1.1 Design of research process

Source: Synthesized by the author

1.6 New contributions

1.6.1 In empirical literature

▪ Determining the factors affecting the financial stability of Viet Nam commercial banks

▪ Determine the degree of influence of these factors on the financial stability

of commercial banks in Viet Nam

1.6.2 In practice

▪ The study will provide empirical evidence related to financial stability, better understand the financial stability situation and factors affecting the financial stability of Viet Nam commercial banks in the period 2010- 2020

▪ From there, some recommendations are proposed to SBV and Viet Nam commercial banks to strengthen the financial stability of Viet Nam commercial banks

Step 1: Research problem

Factors affecting the financial stability of Viet Nam commercial banks

Step 2: Determine the theoretical basis and relevant empirical studies

The author bases and theoretical bases and related empirical studies to propose a panel data regression model The collected data is secondary data Quantitative analysis was used with the help of STATA software

Step 3: Collect data

The study uses secondary data collected from the published annual financial statements of Viet Nam commercial banks for the period 2010–2020

Step 4: Conduct quantitative analysis

Data processing steps include (1) descriptive statistics, (2) correlation coefficient matrix analysis, (3) multicollinearity test, (4) regression model analysis of panel data and related tests, (5) explain result

Step 5: Write the report

Analyze the results, draw conclusions and propose some appropriate recommendations

1.7 The composition of the thesis

In addition to the table of contents, list of figures and tables, references and quotations using APA style (The American Psychological Association), the thesis is presented in 5 chapters:

Chapter 1: Introduction

The content of Chapter 1 identifies the research problem as the factors affecting the financial stability of Viet Nam commercial banks Accordingly, the reasons for choosing the topic, research subjects, research objectives, research scope, research methods, research contributions and research processes are presented in detail in Chapter

1

Chapter 2: Literature reviews and related empirical studies

Chapter 2 presents the concepts related to the research problem Specifically, chapter 2 presents (1) the concept of financial stability; (2) explain the importance of financial stability for commercial banks, influencing factors and characteristics of factors affecting the level of financial stability of commercial banks; (3) theoretical basis; and (4) relevant empirical studies from abroad and in Viet Nam to identify research gaps, thereby presenting (5) panel data regression models applied to assess the impact of factors affecting the financial stability of Viet Nam commercial banks Chapter 2 summarizes the core content of chapter 2 and serve as a basis for the implementation of chapter 3

Chapter 3: Research methodology

Chapter 3 presents the research method in order of steps in the research process from (1) approach, (2) data collection method and (3) data processing method Accordingly, through (1) approaching the panel data regression model proposed in chapter 2, the thesis proceeds to build a panel data regression model applied to the secondary data set collected from the report business results and balance sheets of Viet Nam commercial banks Chapter 3 also presents (2) how to collect data Next, chapter 3 presents (3) the meaning and evaluation according to the quantitative analysis steps performed to implement the data processing Chapter 3 summarizes the core content of chapter 3 and serve as a basis for the implementation of chapter 4

Chapter 4: Research results and discussion

Chapter 4 presents the quantitative analysis steps applied to the secondary data set with observed samples collected from the collection from commercial banks, including (1) descriptive statistics; (2) correlation coefficient analysis; (3) multicollinearity test; (4) regression model analysis of panel data and related tests; (5) explain result The results of data analysis will be discussed, including comparison with results from other relevant empirical studies Chapter 4 summarizes the core content of chapter 4 and serve as a basis for the implementation of chapter 5

Chapter 5: Recommendation and conclusions

Chapter 5 presents the direction to improve the financial stability of commercial banks to assess the role of financial stability in the development strategy of commercial banks in Viet Nam Next, based on (1) theoretical foundations, (2) relevant empirical studies, (3) research results and (4) orientation of developing of Viet Nam commercial banks, chapter 5 proposes some recommendations to factors affecting the financial stability of Viet Nam commercial banks Chapter 5 then concludes in general about the role of financial stability and the need to pay attention to the factors affecting the level of financial stability of commercial banks At the same time, chapter 5 also concludes on the extent to which the three initial objectives have been achieved Finally, chapter 5 presents minor limitations in the thesis and future research directions

CHAPTER 2 LITERATURE REVIEWS

Chapter 2 presents the concepts related to the research problem Specifically, chapter 2 presents (1) the concept of financial stability; (2) explain the importance of financial stability for commercial banks, influencing factors and characteristics of factors affecting the level of financial stability of commercial banks; (3) theoretical basis; and (4) relevant empirical studies from abroad and in Viet Nam to identify research gaps, thereby presenting (5) panel data regression models applied to assess the impact of factors affecting the financial stability of Viet Nam commercial banks Chapter 2 summarizes the core content of chapter 2 and serve as a basis for the implementation of chapter 3

2.1 The financial stability of commercial banks

2.1.1 Definition

Defining “financial stability” plays an important role in developing appropriate analytical tools as well as macroprudential operating policies Currently in the world there are many definitions of “financial stability” According to the Bank of England (2001), financial stability implies identifying risks in the financial system and acting to minimize them Wellink (2002) argued that a stable financial system is capable of efficiently allocating resources and absorbing shocks, preventing adverse effects on the economy and financial system The Banks of Australia (2005) defined financial stability

as a state in which financial intermediaries, markets and financial infrastructures allocate capital flows between savings and investment, thereby promoting economic growth Buiter (2008) found that financial stability will be ensured if the following factors are not present: (1) Asset price bubble; (2) Lack of liquidity; (3) The default of financial institutions threatens the stability of the system The European Central Banks expressed that financial stability is the state in which financial institutions are able to absorb shocks, minimizing serious failures that can cause significant harm to the economy the process of allocating investment resources to channels more efficiently (ECB, 2014) The State Bank of Viet Nam defined that financial stability of a system includes many components

such as the stability of financial intermediaries, financial infrastructure and financial markets (SBV, 2021) In particular, the stability of the operation of financial intermediaries is one of the most important factors of the stability of the financial system Commercial banks are one of the most important financial intermediaries in the financial system The monetary business of commercial banks is also affected by many direct and indirect impacts from the internal difficulties of the financial system and the economy as well as external influences Therefore, the financial stability of commercial banks is considered as an important content in the stability of the financial system

Shortly, from a macro perspective, financial stability is a state in which the financial system performs its functions smoothly, contributing to the efficient allocation

of resources of the economy At the level of commercial banks, financial stability can be understood as the state in which the organization operates stably, effectively, and is able

to withstand shocks from the external environment and itself does not cause a shock affecting the background economy

2.1.2 The importance of financial stability of commercial banks

The financial stability of commercial banks is one of the important foundations for the solid and efficient operation of the entire financial system and economy Firstly, the financial stability of commercial banks is essential to minimize the increased impact on the economy and society due to problems from this industry (Swamy, 2014) Secondly, financial stability of commercial banks plays an important role in stabilizing prices to support sustainable economic development The stability will create a favorable environment for investors and depositors, helping to increase the efficiency of financial intermediation and improve resource distribution to develop a healthy financial system, reduce systemic shocks and risks (SBV, 2021) It is the fact that bankruptcy of commercial banks were the cause of the financial crisis The most influential part are depositors, who have orientation in the field of financial stability of commercial banks because of high information asymmetry in the financial sector This is the main reason promoting competition among commercial banks However, their behavior often has a decisive impact on commercial bank of financial stability (Amador et al., 2013)

Consequently, financial system of commercial banks unstable will reduce the effectiveness of monetary policy, weaken the intermediary function of the financial system due to unreasonable resource allocation, slow down the development of the economy, lose people's confidence in the financial system and it will cost a lot to fix the weakness of the financial system (SBV, 2021)

Summarily, for the above reasons, financial stability of commercial banks plays an important role in the economy Countries around the world have paid special attention to the financial stability of commercial banks when implementing their policies, especially

in the context of the emergence of new factors that can cause financial instability such as increasingly close linkages between the financial sectors of countries and the continuous development of financial instrume

2.1.3 Factors affecting the financial stability of commercial banks

In the world, there are many studies that have been carried out to evaluate the factors affecting the financial stability of commercial banks Accordingly, there are two main groups of factors that affect the financial stability of commercial banks, including (1) internal financial factors coming from the bank's operations and (2) external macro factors outside the banks as follows

2.1.3.1 The internal financial factors

▪ The bank size

The bank size, which is reflected in the total assets of the bank, is a risk factor of the bank (Haq et al., 2012) Since it reflects the total value of existing assets of commercial banks, including cash, loans, investments, fixed assets and other assets, it has

a great influence on the performance indicators and profitability of the bank Hesse et al (2007) showed that bank size has both positive and negative relationship with bank's financial stability Rahim et al (2012) concluded that the larger the banks, the higher the financial stability Demirgüç-Kunt & Huizinga (2012) suggested that bank size is negatively related to financial stability, that is the larger the size, the lower the financial stability There are many larger banks often engage in more risky activities than small banks

▪ The ratio of customer deposits to total assets

The ratio of customer deposits to total assets of a bank indicates a bank's ability to use debt The higher the ratio of customer deposits to total assets, the lower the financial stability of commercial banks However (Altaee et al., 2013) suggested that it is positively related to the financial stability of banks Hesse & Čihák (2007), Shayegani & Arani (2012) gave the opposite results, arguing that the higher the ratio of customer deposits to total assets, the higher the financial stability of the commercial banks are lower

▪ The ratio of loan loss provisions to total assets

The ratio of loan loss provisions to total assets is one of the main ratio of the bank which representing the risk sensitivity market It measured by the ratio of loan provisions

to total outstanding loans to customers of commercial banks Therefore, the quantity and quality of credits is extremely important factor in the business activities of banks Yong Tan (2013) showed that the higher the credit risk, the lower the financial stability of commercial banks Rajhi & Hassairi (2013) found that increased credit risk (measured by credit risk ratio of loan loss provisions to total assets) will reduce the financial stability of banks

▪ The ratio of profit after tax to total assets

The ratio of profit after tax to total assets evaluates the quality of commercial banks' business activities The financial analysts often use it as a measure of the bank's profitability commercial Increased profits will add more financial resources to the bank, helping to increase the bank’s financial stability Demirgüç-Kunt & Huizinga (2012) showed that banks with higher profitability have lower financial stability Rajhi & Hassairi (2013) found that the higher the return, the higher the financial stability

▪ The earning after tax rate

The earning after tax rate shows the profitability of banks As the result, when profits increase, it will also increase the bank's capital This high ratio shows that the bank is operating effectively, has good income, and creates trust for customers and shareholders (Kosmidou, 2008) suggested that the relationship between the growth rate

of income after tax and the financial stability of the bank is positive However, the banks are one of the tools to regulate the economy It is difficult for the banking industry to grow steadily because the problem of bad debts still exists, causing banks to have to make high provisions and reduce deposit interest rates This will adversely affect the financial stability of commercial banks (Fu, 2014)

▪ The customer loan balance (before provision) to deposits

The customer loan balance (before provision) to deposits shows the efficiency of banks in using capital, mainly customer deposits If the bank uses capital effectively, it will increase profits, but this also requires the bank to strengthen risk control This variable is expected to be positively correlated with the financial stability of banks (Võ

Minh Long, 2019)

▪ The cost to income ratio

The cost to income ratio is one of the important factors in the effective cost management of a bank It is a measure of the ratio between operating expenses and total expenses in the total revenue of a bank According to efficiency theory, banks that invest more in cost management activities will have higher profitability and thus increase the financial stability of the bank Fu et al (2014) suggested that the higher the ratio of operating expenses to income, the lower the financial stability of banks

2.1.3.2 The external macro factors

▪ The growth rate of GDP

The growth rate of GDP is a commonly used macro indicator when assessing financial stability When banks operate in an underdeveloped economy, with high unemployment, many businesses fail, stability financial banks is also affected Diaconua

& Oanea (2014) found that GDP is an important factor that positively affects the financial stability of banks Mayes & Stremmel (2012) argued that GDP growth helps reduce the risk of bankruptcy for banks In contrast, Leroy & Lucatte (2015) argued that economic growth has a negative impact on financial stability of commercial banks As the fast growth of GDP could cause an imbalance in society, thereby putting pressure on the state budget lead to has a negative impact on the financial stability of commercial banks

Okumus & Artar (2012), Shayegani & Arani (2012) found that the higher the GDP growth rate, the higher the financial stability of the banks because GDP growth is a favorable condition for the business activities of banks

▪ The inflation rate

The inflation of the economy has a direct effect on the operation of commercial banks, when inflation is high, the value of money decreases, leading banks to increase interest rates to prevent investment cash flow through the sector other investment This will increase the cost of the bank, the profit of the bank will decrease, if inflation persists, activities of banks will unstable When inflation rate increases, the price of goods and services increases, reducing the real revenue of banks Rahim & Zakaria (2012) argued that the higher the inflation, the lower the financial stability of banks High inflation has a negative effect on the financial stability of banks (Ivicic et al., 2008)

In summary, there are many factors affecting financial stability from inside and outside, from internal financial factors to external macro factors Some of the factors listed above are the same factors used by theoretical literature as well as empirical studies

to conduct assessments that have a significant impact on financial stability

2.2 Measuring financial stability using the z-score model

2.2.1 The z-score model

To measure the financial stability of banks, the studies by Beck (2008), Kunt & Huizinga (2010), Čihák & Hesse (2008), Okumus & Artar (2012), and many other studies have used the z-score The z-score reflects the standard deviation by which profits fall to the point of exceeding the bank's equity The higher the z-score ratio, the less risky the bank, the lower the probability of bankruptcy, and the higher the stability Runkle (1993) assessed the financial stability of banks, which explicitly compares capital equity and return with risk to determine the solvency of a bank The z- score is one of the most common methods used to measure the stability of financial institutions

The calculation of z-score was proposed by Laeven & Levine (2009), Čihák & Hesse (2007) Accordingly, the higher the z-score, the more stable the banks because it is related to the inverse of the banks's insolvency ratio

z-score = (ROA + EA)

SD(ROA)

where z-score is an estimate of the financial stability of each banks; ROA is the annual rate of return on assets of each banks; EA is the annual equity-to-asset ratio of each banks; SD (ROA) is the standard deviation of the profitability ratio of bank The higher the z- value, the less risky and more financial stability the bank is, it shows the standard deviation of (expected ROA) as equity dries up and the bank loses money ability

to pay

This index also considers all three important aspects of a banks' performance, including (1) the safe capital (equity ratio), (2) the profitability (ROA) and (3) both risk through the standard deviation of ROA, the degree of variation in returns (Roy, 1952)

In summary, the financial stability index z-score can clearly indicate an inverse relationship with the probability of insolvency of credit institutions, that is, the probability that the asset value is lower than the value of the debt A high z-score indicates high financial stability and low risk of insolvency The z here can represent the financial stability of a bank in a country or represent the financial stability of the banking system in a country or a region

2.2.2 The advantages and disadvantages of the z-score model

▪ The advantages

The z-score is the bankruptcy risk coefficient introduced in 1968 by Professor EdWard I.Altman, Leonard N.Stern School of Business, of New York University This indicator has a lot of advantages when using as measurement of bankruptcy risk For example, Altman (1968) suggested that using the z-score model to predict management problems, especially those related to financial management, on that basis, timely decisions can be made to overcome the arising problems to avoid the business falling into bankruptcy In addition, Balcaen & Oogle (2012) believed that the z-score model is still the most widely recognized and used forecasting tool in the world Moreover, Altman & Hotchkiss (2011) suggested that the z-score can predict correctly for most industries and types of businesses and can detect the possibility of fraud on financial statements more

effectively Shortly, the advantage of the z-score model is that it can provide a solution for investors to eliminate the cumbersome and time-consuming process of determining the bankruptcy of a company In addition, the z-score model can be applied to complex financial institutions and allows comparison of financial stability across groups of financial institutions with different ownership structures or business

▪ The disadvantages

Besides the advantages that the z-score offers, it also has some disadvantages For example, the z- score is correct and true only when its input data is correct (Altman, 1968) Side by side, it is also not used much for low-income or no-income companies, because it will give a very low z-score In addition, the z- score does not cover direct cash flow issues, but only uses the capital-to-net working assets ratio Moreover, the z- score

is not fixed but always fluctuates because it depends on data from quarterly reports (Altman & Hotchkiss, 2011) In addition, an important problem with the z-score model is that it is not suitable for all industries Accordingly, industries that operate with high leverage requirements will result in a higher risk of bankruptcy Only industries require a large backlog of working capital such as retail will also result in a high risk of bankruptcy (Balcaen & Oogle, 2004) Summarily, the z-score model also has certain limitations It is not a perfect tool and needs to be calculated and interpreted with care For starters, calculating the z-score can lead to a lot of errors The z-score is correct only when its input data is correct Most notably, the z-score model relies heavily on statistical data The z-score does not address direct cash flow issues, but only the use of capital to create working systems

2.3 The relevant emprical studies

The following table 2.1 focuses on synthesizing and summarizing empirical studies about factors affecting the financial stability of commercial banks in domestic and oversea countries around the world (APPENDIX 2)

Table 2.1 Summary of relevant empirical studies

methods Research results

average assets (ROAA)

Panel data regression model, z- score based on ROAA

The higher banks market strength leads to higher volatility Although banks are better capitalized in less competitive markets, the risk of default is still higher

of equity to total adjusted assets

risk-The score method

z-The financial market development

in Viet Nam tends to increase the banks's risk Factors such as asset structure, capital adequacy, and asset size reduce banks risk Profitability tends to increase banks risk, suggesting that banks tend to engage in high-risk activities in search of higher returns

of years of operation of banks and listed banks

Regression estimation method for panel data, z-score method

Determining the factors affecting the risk of banksruptcy of Viet Nam banks using the z-score method, thereby suggesting appropriate policies to enhance the stability and soundness of the operation of Viet Nam joint stock commercial banks Factors that have a positive relationship with

banks failure risk include cost management efficiency and scale

Regression estimation method for panel data

The results show that the more diversified banks are, the higher the profitability, but the risk-adjusted return decreases

of net interest income to average total assets are positively related to banksing risk; ratio of equity to total mobilized capital; short-term loan- to-deposit ratio is inversely related to banks risk

Regression estimation method for panel data

The increase in equity is a prerequisite to protect the banks against the risk of banksruptcy

ftom WDI, IMF

Risk variables, ownership structure

Regression estimation method for panel data

The consequense showed that concentrated ownership structure is associated with increased banks risk Furthermore, foreign banks have a higher risk than domestic banks; and state-owned banks are more stable For listed banks, family ownership ratio has a positive impact on credit risk For unlisted banks, family and institutional ownership ratios have

a negative effect on credit risk Strobel &

Regression estimation method for panel data, using z-

The result examed the link between z-score and the probability of banks' banksruptcy, helps to provide a more improved measure without imposing subsequent

score model

Using descriptive statistics, Altman z''

40 model

The average z-score index of commercial banks is within the safe limit, the fluctuation decreases over the years and there is a difference between different capital size groups through one way ANOVA test

The research empirical analyzed of the role of cooperative banks in financial stability The result showed that risk variables and ownership structure have negative relationship

The z-score is calculated

as ROA (return before taxes on assets) plus CAP (capital-to-asset ratio) divided by the standard deviation of ROA

Using the z-score to measure the banks's risk level

The ownership structure of Malaysian banks has a positive impact on banks

The influence of large shareholders

in Malaysian banks helps to reduce risk and increase banks stability

Chiaramo

nte et al

(2016)

Research sample of

European banks from

12 countries for the

period 2001-2011

from WB, the Banks

Scope database

Financial stability variables (z-core as proxy), macro variables measure the level of influence

CAMELS model, probit regression model and additional log-log

The results show that the ability to identify and predict risks during the study period (2001 - 2011) and also

in the crisis years (2008-2011)

Source: Synthesized by the author

The above are empirical studies related to measuring the level of financial and banksing stability of domestic and foreign commercial banks In general, these studies have succeeded in identifying the factors affecting financial stability through micro and macro variables Specifically, through table 2.1, it shows that most of the empirical studies from 2007 to 2015 have chosen the z-score method to calculate The results show that factors such as (1) asset structure, (2) capital adequacy and (3) asset size have the positive influence on the financial stability of banks In contrast, the factors such as (1) the factors of ownership structure, (2) bank size have the negative impact on the financial stability of banks The thesis also applies the theoretical literature and previous empirical studies to conduct the study on the factors affecting the financial stability of Viet Nam commercial banks However, the difference of the thesis is that the research scope is 28 Viet Nam commercial banks from 2010-2020 with chosen variables which have the highest frequency of use in related studies

2.4 The general regression model for population

The table 2.2 shows that the variables used frequently the most to analyze the factors affecting the financial stability of commercial banks are nice variables, including (1) the bank size (SIZE); (2) the ratio of loan loss provisions to total assets (LLP); (3) return on assets (ROA); (4) cost to income ratio (CIR); (5) deposit rate (DEPTA); (6) after-tax earnings growth rate (EAT); (7) the customer loan balance (before provision)to deposits (CD); (8) the growth rate of GDP (GDP); (9) inflation rate (INF)

Table 2.2 Summary of variables used frequently in relevant studies

Coefficient

of bankruptcy

(z-score)

Return

on Assets (ROA)

The customer loan balance (before provision)

to deposits (CD)

Bank size (SIZE)

tax earnings growth rate (EAT)

After-The ratio

of loan loss provisions

to total assets (LLP)

Cost to income ratio (CIR)

Deposit rate (DEPTA)

Inflation rate (INF)

The growth rate of GDP (GDP)

Source: Synthesized by the author

From the theoretical literature and related empirical studies, the author synthesizes the general model to express the impact of factors on financial of commercial banks as follows:

Y𝑖,𝑡= 𝛼𝑖 + 𝛽1𝑋𝑖𝑡 + 𝛽2𝑍𝑡+ u𝑖t

In which,

Y i,t is the dependent variable

𝑋𝑖𝑡 is the vector of the banks's intrinsic factors

Z t is the vector of macro factors of the economy

𝛼𝑖 is the constant

𝛽1 , 𝛽2 are the regression coefficients of the model

u𝑖t is the residual of the model

2.5 Summary of chapter 2

In chapter 2, the thesis has systematized the theoretical basis and relevant empirical studies in the period from 2010 - 2020, including the concept, the importance

of financial stability for banks and factors affecting the financial stability of commercial banks In the framework of the research content of chapter 2, the thesis also introduced the criteria used by the researchers to serve as the general regression model for population of the factors that affect the financial stability of commercial banks According to the theory and relevant empirical studies at home and abroad, the factors affecting the financial stability of commercial banks are also analyzed and synthesized according to the z-score model In which, (1) bank size (SIZE); (2) The ratio of loan loss provisions to total assets (LLP); (3) return on assets (ROA); (4) cost to income ratio (CIR); (5) deposit rate (DEPTA); (6) earning after tax (EAT); (7) the customer loan balance (before provision) to deposits (CD); (8) the growth rate of GDP (GDP); (9) inflation rate (INF) are factors recognized by empirical studies on factors affecting financial stability in countries around the world as playing an important role in financial stability of commercial banks (Magnus & Willeson, 2014; Lê Ngọc Quỳnh Anh et al., 2020; Johnson, 2002; Ramskyi et al., 2018)

CHAPTER 3 RESEARCH METHODS

Chapter 3 presents the research method in order of steps in the research process from (1) approach, (2) data collection method and (3) data processing method Accordingly, through (1) approaching the panel data regression model proposed in chapter 2, the thesis proceeds to build a panel data regression model applied to the secondary data set collected from the report business results and balance sheets of Viet Nam commercial banks Chapter 3 also presents (2) how to collect data Next, chapter 3 presents (3) the meaning and evaluation according to the quantitative analysis steps performed to implement the data processing Chapter 3 summarizes the core content of chapter 3 and serve as a basis for the implementation of chapter 4

3.1 The approach methods

3.1.1 Research model of factors affecting financial stability of Viet Nam commercial banks

The study applies the results of international and domestic studies on financial stability of commercial banks such as the studies of the bank's risk instability when affected by the financial crisis bad debt (Nguyen, 2013); the correlation of units measuring bank stability (Swamy, 2014); key factors of bank stability (Diaconu et al., 2014); factors affecting the financial stability of Viet Nam commercial banks (Lê Ngọc Quỳnh Anh et al., 2020) These studies are also the foundation for choosing this research

as well as the reference basis for comparing the research results Accordingly, variables have been extracted to develop the regression model and thereby examine the factors affecting the level of financial stability of Viet Nam commercial banks Hence, the proposed regression model on the sample of panel data considering factors affecting the financial stability of Viet Nam commercial banks is described as follows:

z-scoreᵢ ,t = 𝛼ᵢ + β 1 ROAᵢ t + β 2 CDᵢ t + β 3 SIZEᵢ t + β 4 ∆EATᵢ t + β 5 LLPᵢ t + β 6 DEPTAᵢ t +

β 7 CIR it + β 8 INF t + β 9 GDP t + εᵢ t

In which,

z-score i,t represents financial stability as a dependent variable and measured by the sum of each banks's annual return on assets with each banks's annual equity-to-asset ratio

over the standard deviation of each banks's return of commercial banks i at time t

ROA it represents profitability as an independent variable and is measured by net

return on assets of commercial banks i at time t

CD it represents efficient use capital as an independent variable and is measured by

customer loan to deposit ratio of commercial banks i at time t

SIZE it represents bank size as an independent variable and is measured by the

natural logarithm of total assets represents size of commercial banks i at time t

EAT it represents profitability as an independent variable and is measured by the

ratio of equity to total assets of commercial banks i at time t

variable and is measured by the ratio of loan provisions to total outstanding loans to

customers of commercial banks i at time t

the ratio of customer deposits to total assets of commercial bank i at time t

CIR it represents banks performance as independent variable and is measured by the

ratio of customer deposits to total assets of commercial banks i at time t

INF t explains changes in the inflation rate Measured as % CPI of commercial

banks at time t

GDP t explains gross domestic product growth Measured as a percentage of GDP

growth of commercial banks at time t

εᵢ t is the residual of the model

3.1.2 Research variable selection

The financial stability will facilitate the development of commercial banks and vice versa The study applies the z-score to measure the bank's financial stability Accordingly, the z-score is the dependent variable in the research model It was measured the sum of each banks's annual return on assets (ROA) with each banks's annual equity-to-asset ratio (EA) over the standard deviation (SD(ROA)) (Laeven & Levine, Čihák &

Hesse, 2007) The higher the z-score, the more stable the bank because it is related to the inverse of the bank's insolvency ratio This index also considers all three important aspects of a bank's performance, including capital adequacy (via equity ratio), profitability (via ROA) and both risk (through the standard deviation of ROA, the degree

of variation in returns) (Roy, 1952) Chiaramonte et al (2016) showed that 76% probability of failure of banks can be well predicted by the z-score From the selection of factors to consider their impact on financial stability of commercial banks, the study conducts the hypotheses as follows

Hypothesis 1: The return on assets (ROA) has a positive impact on financial stability of commercial banks

Return on assets (ROA) is a measure of the efficiency of equity use in the enterprise The higher the ROA, the higher the profit a banks generates related to its assets Nguyễn Hữu Tài & Nguyễn Thu Nga (2017) showed that credit risk can reduce the banks's performance This demonstrates an inverse relationship between ROA and credit risk (Nguyễn Hữu Tài & Nguyễn Thu Nga, 2017) Accordingly, the impact of ROA on financial stability is expect to have a positive impact (Fernandez de Guevara et al., 2005) Therefore, this study proposes the hypothesis 1 that return on assets (ROA) has

a positive impact on financial stability of commercial banks

Hypothesis 2: The customer loan balance (before provision) to deposits (CD) has a positive impact on financial stability of commercial banks

Customer loan balance (before provision) to deposit is the prudential ratio in operations that banks and foreign banks branches must regularly maintain This indicator shows the efficiency of banks in using capital, mainly customer deposits If the banks uses capital effectively, it will increase profits, but this also requires the banks to strengthen risk control This variable is expected to be positively correlated with the financial stability of banks (Võ Minh Long, 2019) Therefore, this study proposes the hypothesis 2 that customer loan balance (before provision) to deposits has a positive impact on financial stability of commercial banks

Hypothesis 3: The bank size (SIZE) has a negative impact on financial stability of commercial banks

The bank size is a natural logarithm of total assets is the total assets This is one of the important indicators to assess the financial strength in the banks's business in accordance with international practices (Fernandez de Guevara et al.,2005) In this study, asset size was assessed using the natural logarithm of banks' total assets to reduce the gap between banks Tabak et al (2012) found that a negative relationship between credit risk and bank size Therefore, this study proposes the hypothesis 3 that the natural logarithm

of total assets has a negative impact on financial stability of commercial banks

Hypothesis 4: The after-tax earnings growth rate (EAT) has a positive impact

on financial stability of commercial banks

After-tax earnings growth rate is net profit in accounting This indicator shows the

profitability of banks; When profits increase, it will also increase the capital of the banks Accordingly, the relationship between EAT and the banks's financial stability is proposed

to be positive (Kosmidou, 2008) Therefore, this study proposes the hypothesis 4 that after-tax earnings growth rate has a positive impact on financial stability of commercial banks

Hypothesis 5: The ratio of loan loss provisions to total assets (LLP) has a positive impact relationship with financial stability of commercial banks

The ratio of loan loss provisions to total assets is the index of loan provisions to total outstanding loans to customers Karimiyan et al (2013) showed that there is a positive relationship between LLP and future earnings and profitability However, Mustafa et al (2012) found that credit risk provision (LLP) has a negative relationship with financial stability of commercial bank Therefore, this study proposes the hypothesis

5 that the ratio of loan loss provisions to total assets has a positive impact on financial stability of commercial banks

Hypothesis 6: Deposit rate (DEPTA) has a positive impact on financial stability of commercial banks

The deposit ratio represents a bank's ability to use its debt and is measured as the ratio of customer deposits to total assets Okumus & Artar (2012) found that the ratio of customer deposits to total assets (DEPTA) has a positive relationship with financial stability of commercial banks Therefore, this study proposes the hypothesis 6 that deposit ratio has a positive impact on financial stability of commercial banks

Hypothesis 7: The cost to income ratio (CIR) has a negative impact on financial stability of commercial banks

The cost to income ratio shows the relationship between the bank's expenses and its income This ratio gives investors a better view of the organization's performance; The smaller the ratio, the more efficient the bank is Fu et al (2014) believed that the higher the cost to income ratio, the lower the financial stability of banks Therefore, this study proposes the hypothesis 7 that cost to income ratio has a negative impact on financial stability of commercial banks

In addition, the author uses more macroeconomic factors of the economy that affect the financial stability of banks

Hypothesis 8: The inflation rate (INF) has a negative impact on financial stability of commercial banks

Inflation rate is the price level growth rate of the economy It shows the inflation level of the economy Rahim et al., (2012) found that the higher the inflation, the lower financial stability in the banks Therefore, this study proposes the hypothesis 8 that inflation rate has a negative impact on financial stability of commercial banks

Hypothesis 9: The growth rate of GDP (GDP) has a positive impact on financial stability of commercial banks

The Growth rate is the standard measure of the value added created through the production of goods and services in a country during a certain period Okumus & Artar (2012), Leroy & Lucatte (2015) found that the higher the GDP growth rate, the higher the financial stability of the banks because GDP is a favorable condition for business activities of banks Therefore, this study proposes the hypothesis 9 that growth rate has a positive impact on financial stability of commercial banks

The Tabel 3.1 shows the summary of variables in the research model and eight hypotheses related in order to explain the impacts of the factors on the financial stability

of commercial banks as follows

Table 3.1 Variables in the research model

CD Võ Minh Long (2019) +

Represent efficient use capital as an independent variable and is measured by customer loan to deposit ratio of commercial banks i at time t

EAT Kosmidou, K (2008) +

Represent profitability as an independent variable and is measured by growth rate of income after tax of commercial banks i at time t

LLP Fu et al (2014) +

Represent the ratio of loan loss provisions to total assets as

an independent variable and is measured by the ratio of loan provisions to total outstanding loans to customers of commercial banks i at time t

DEPTA Mili et al (2017),

Mahama (2015) +

Represent the deposit ratio is an independent variable and is measured by the ratio of customer deposits to total assets of commercial bank i at time t

CIR Fu et al (2014) -

Represents banks performance as independent variable and

is measured by the ratio of customer deposits to total assets

of commercial banks i at time t

INF Delis (2012) - Explain changes in the inflation rate Measured as % CPI of

commercial banks at time t

GDP Delis (2012) + Explain gross domestic product growth Measured as a

percentage of GDP growth of commercial banks at time t

Source: Synthesized by the author

3.2 Data collection methods

3.2.1 Research scope

This study focuses on the sample of secondary data of 28 Viet Nam commercial banks during the period from 2010 to 2020

Figure 1 The z-score of Viet Nam commercial banks in the period of 2010 - 2020

Source: Extracted from the research results of the author

According to Figure 1, it shows that the financial stability of Viet Nam commercial banks from 2010 to 2020 through the bankruptcy coefficient (z-score) In general, the financial stability of commercial banks is influenced by micro factors in the banking sector, showing fluctuations from 2010-2020 Specifically, in the period 2012 –

2017, the interbank market for capital mobilization has caused many banks to lose liquidity, leading to a decline in financial stability when the State Bank of Viet Nam (SBV) tightened monetary policy to prevent financial loss against inflation This led to low economic growth, corporate restructuring, debt leverage reduction, stock market and real estate decline have caused banks' credit to increase not much in the years 2012 -

2.5 2.6 2.7 2.8 2.9 3 3.1 3.2 3.3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2017 with the coefficient z- score dropping below 2,8 However, starting from the end of

2017 and the beginning of 2018 to 2020, the financial stability of commercial banks has improved; the market was consolidated, liquidity was abundant, interbank interest rates remained low (SBV, 2020) Especially in 2020, the commercial banking industry will continue to operate stably and achieve many important achievements such as the common deposit interest rates at banks falling from 0,9% – 1,5% (short term) and about 0,6% – 1,5% (medium and long term) compared to the beginning of the year; lending interest rates also decreased rapidly, about 0,5% - 2% compared to the beginning of the year; exchange rate continued to be stable, the value of VND was enhanced; the foreign exchange reserves continued to be replenished, helping to ensure national monetary and financial security and strengthen credit rating of Viet Nam (SBV, 2020) Therefore, the z-score increased from about 2,79 to 2,95 in the period of 2018 - 2020 Along with the recovery and growth of the economy, the financial stability situation at commercial banks has recorded many positive signs in recent years The strong financial stability is attributed to the resonance of a series of factors affecting the economy and the expectation of the recovery of all production and business industries as well as the population's income in particular

In short, the financial stability of Viet Nam commercial banks in fluctuated strongly from 2012-2017 and showed positive signs in recent years 2018-2020 This is also an opportunity to consider, analyze and assess the impact of factors affecting the financial stability of Viet Nam commercial banks in the period 2010-2020

3.2.2 The data sources

The set of secondary data is the pannel data retrieved from reliable data sources, including (1) financial statements of 28 Viet Nam commercial banks and (2) international organizations such as the International Monetary Fund (IMF) as showed in the Table 3.2

In particular, the set of secondary data for internal variables is collected from the audited annual financial statements of Viet Nam commercial banks which have been publicly and transparently disclosed on their websites However, there are some banks that have not yet published their financial statements on their websites for several reasons Therefore,

there are not enough data to calculate the indexes for those banks Hence, the research data sample includes only 28 Viet Nam commercial banks with a total of 305 observations in the period 2010 - 2020 For the set of secondary data of external factors

in the macro environment, the author collected from official sources such as the data set the World Economic Outlook (WEO) of the International Monetary Fund (IMF)

Table 3.2 Data sources of the variables

Coefficient of bankruptcy z-score Point SBV, bank’s websites Return on asset ROA % SBV, bank’s websites Customer loan balance (before provision) to deposits CD % SBV, bank’s websites Bank size SIZE % SBV, bank’s websites After-tax earnings growth rate EAT % SBV, bank’s websites The ratio of loan loss provisions to total assets LLP % SBV, bank’s websites Deposit rate DEPTA % SBV, bank’s websites Cost to income ratio CIR % SBV, bank’s websites Inflation rate INF % WB, IMF

The growth of GDP GDP % WB, IMF

Source: Extracted from the research results of the author

3.3 Data processing methods

The author approached the quantitative method to analyze the impact of factors on the financial stability of Viet Nam commercial banks The set of secondary data is The dataset is cleaned and removed outliers and missing variables before being processed by STATA 14

The author applied the z-score model, which is being used commonly in studies on the financial stability of banks around the world to measure the financial stability of Viet Nam commercial banks The z-score index has been widely used in the studies of large organizations such as the International Monetary Fund (IMF) and the World Bank (WB)

to study financial stability in financial systems globally Some studies applying the score model in analyzing the financial stability of banks can be mentioned such as the studies of Wassim & Slim (2013), Rahim et al (2012), Altaee et el (2013), Cihák & Hesse (2008)