THE STATE BANK OF VIETNAM BANKING UNIVERSITY MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY LÊ NGUY NỄ QU CỐ TOÀN MAJOR BANKING AND FINANCE DETERMINANTS AFFECTING THE LIQUIDITY OF COMMERCIAL BANK[.]
THE STATE BANK OF VIETNAM BANKING UNIVERSITY MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY LÊ NGUYỄN QUỐC TOÀN MAJOR: BANKING AND FINANCE DETERMINANTS AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS GRADUATION RESEARCH PAPER MAJOR: BANKING AND FINANCE MAJOR CODE: 7340201 HO CHI MINH, SEPTEMBER 2021 THE STATE BANK OF VIETNAM BANKING UNIVERSITY MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY LÊ NGUYỄN QUỐC TOÀN MAJOR: BANKING AND FINANCE DETERMINANTS AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS GRADUATION RESEARCH PAPER MAJOR: BANKING AND FINANCE MAJOR CODE: 7340201 SCIENCE INSTRUCTOR: Dr NGUYEN MINH NHAT HO CHI MINH, SEPTEMBER 2021 ii ABSTRACT The main purpose of this study is to explore the determinants affecting the liquidity of commercial banks in Vietnam Including internal bank factors and external macro factors Liquidity (LIQ) is measured using total liquid assets divided by total deposit balances The study used secondary databases collected from 27 commercial banks over a ten-year period from 2011 to 2020 Using regression method OLS-FEM-REM to obtain results The study shows that the equity use efficiency (ROE) is positively correlated with liquidity, has a significant impact on the variable LIQ The liquidity of commercial banks is completely unaffected by equity ratio (CAP), non-performing loan (NPL), bank size (BS) and economic growth (GDP) Meanwhile, profitability (EA) and loan on deposit ratio (LDR) have a negative impact on the variable LIQ With macro variables, inflation (INF) has a positive impact on the bank's liquidity; Economic growth has no impact on the liquidity of commercial banks Keywords: commercial bank, liquidity, loan on deposit ratio, non–performing loan, bank size, equity ratio, equity use efficiency, profitability, economic growth, inflation PLEDGE My name is Le Nguyen Quoc Toan I am a student of Banking university of Ho Chi Minh city, majoring in Banking and Finance The research paper: “Determinants affecting the liquidity of commercial banks” has been carried out at Banking university of Ho Chi Minh City This research is the author's own research work, the research results are honest, in which there are no previously published contents or contents made by others except sufficient citations or source citations in research paper The information and data used in the research processes are collected by author from various sources, which is completely truthful and clearly citied in the references Ho Chi Minh, 25th Sep 2021 Lê Nguyễn Quốc Toàn CONTENTS CHAPTER INTRODUCTION 1.1 Background of study 1.2 Objectives 1.3 Research questions 1.4 Significant of the study 1.5 Objects and Scope of study 1.6 Structure of paper Chapter summary CHAPTER THEORETICAL FRAMEWORK AND LITTERATURE REVIEW 2.1 Theoretical framework 2.1.1 The concept of liquidity 2.1.2 Liquidity positions 10 2.1.3 Liquidity risk 11 2.1.4 Liquidity risk management in Vietnam’s banks 13 2.2 Measurement of liquidity 14 2.3 Specific factors affecting commercial banks’ liquidity 19 2.3.1 External factors 19 2.3.2 Internal factors 20 2.4 Literature review 25 Chapter summary 31 CHAPTER DATA AND METHODOLOGIES 32 3.1 Data collection methods and techniques 32 3.2 Research Models 33 3.3 Data analysis methods and techniques 39 Chapter summary 44 CHAPTER EMPIRICAL RESULTS AND DISCUSSIONS .45 4.1 Descriptive statistics and correlation coefficient matrix 45 4.2 Regression results 49 Chapter summary 60 CHAPTER CONCLUSION AND MANAGEMENT INTERPRETATION 61 5.1 Conclusion 61 5.2 Recommendations 63 5.3 Limitations 66 Chapter summary 66 REFERENCE 67 APPENDIX 72 LIST OF ABBREVIATIONS Abbreviation Explanation SBV State Bank of Vietnam NPL Non-performing loan ATM Automatic Teller Machine SOCB State-Owned Commercial Bank PJSCB Private Joint-Stock Commercial Bank CB Commercial Bank Obs: Observations Std Dev Standard deviation OLS Ordinary Least Squared REM Random Effects Model FEM Fixed Effects Model ROE Returns On Equity LIST OF FIGURE AND TABLES Figure 1: Specific factors affecting commercial banks’ liquidity .24 Table Summary of variables in the research model 38 Table The results of the descriptive statistics of the variables in the research model 45 Table Matrix of correlation coefficients between research variables 47 Table 4: Test of variance exaggeration factor VIF 48 Table 5: Regression results of research model LIQ 49 Table 6: Check the autocorrelation test for OLS model 53 Table Breusch and Pagan Largrangian test to check the heteroskedasticity and choose OLS or REM 53 Table Hausman test to select REM or FEM 54 Table Regression results by using REM method 55 Table 10: Summary of research results 57 Table 11 Liquidity reserves of commercial banks 61 CHAPTER INTRODUCTION 1.1 Background of study In banking operations, while influencing factors such as credit risk, exchange rate, interest rate, often have a certain lag, bank liquidity is instantaneous, very rarely at a time In banks, the total demand for liquidity is equal to the total supply of liquidity Therefore, regularly dealing with a liquidity deficit or surplus is always a constant factor at commercial banks If the lack of capital is available for a long time, slow remediation may damage the bank's reputation in the market, reducing its ability to raise capital and profitability And more serious when the bank has to face the situation where depositors conduct massive withdrawals in the system without the amount of available capital being guaranteed; this can push commercial banks to the brink of bankruptcy, be sold or merged and can eventually lead to the collapse of a country's banking and financial system Liquidity is a vital factor determining the safety of any credit institution Any bank is subject to liquidity risk Therefore, measuring and ensuring liquidity is an important and necessary issue that managers must always grasp to make appropriate adjustments to each period of the bank In addition, not only bank administrators must grasp liquidity risk, but the State Bank's authorities must also grasp to adjust through the issuance of policies to stabilize liquidity of the entire banking system From the reality of the global financial crisis in 2008, many economic experts believe that the cause of the crisis is the weakness of the financial system, the main point being the lack of liquidity of commercial banks Many commercial banks, even though their business is profitable, can still face difficulties in managing assets and capital effectively, leading to a liquidity crisis Along with the above statement, according to the Basel Committee on Banking Supervision (BCBS, 2008), the root cause of the financial crisis is the liquidity issue of commercial banks that has not been paid enough attention in recent years and then later The financial crisis itself has the opposite effect on bank liquidity The crisis showed that banks that relied heavily on short-term money markets to finance their operating assets tended to suffer from huge liquidity problems Since the above crisis, most commercial banks have paid attention to the issue of liquidity because it is a vital issue of banks in the current period In Vietnam, over the past two decades, since the Vietnamese banking system implemented the reform process, commercial banks have made a new development in both quantity and quality, but the issue of liquidity does not seem to be concerned The main purpose of this study is to determine the influence of specific factors on the liquidity of commercial banks in Vietnam over 10 years, starting from 2011 to 2020 Dependency is investigated as liquidity (LIQ) The independent variables include equity utilization efficiency, equity ratio, bad debt, profitability, bank size, debt-to-deposit ratio, inflation rate, economic growth The selection of these 10 years was based on the explosive growth of the banking sector in the country and the availability of adequate data for that period The study focuses on specific factors affecting the liquidity of banks In this study, the research scope is all 27 commercial banks listed on the Vietnam stock exchange in the 10 years from 2011 to 2020 The research paper has applied the disclosure approach by using a set of tables Research data design to achieve the set goals The data were analyzed using multiple linear regression models to show the influence of specific factors on the liquidity of commercial banks during that research period Findings are ... level of accuracy of the study In terms of practical significance, the research results will show the group of factors affecting the liquidity of Vietnamese commercial banks and the degree of influence... the liquidity of commercial banks in Vietnam? How are the factors affecting the liquidity of joint-stock commercial banks in Vietnam? Proposing necessary policies or solutions to manage the liquidity. .. model of factors affecting the liquidity of commercial banks for 2011- 2020 Thirdly, the paper will determine specific impact of factors and the results of the empirical evaluation model of liquidity