Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.KIEÅM SOAÙT TOÅN THAÁT STATE BANK OF VIETNAM MINISTRY OF EDUCATION BANKING UNIVERSITY HO CHI MINH CITY Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.Tài chính toàn diện, ổn định ngân hàng và chất lượng thể chế Nghiên cứu ở các nước ASEAN.NGUYEN DANG HAI YEN FINANCIAL INCLUSION, BANK STABILITY AND INSITUTIONAL QUALIY – RESEARCH IN ASE.
STATE BANK OF VIETNAM MINISTRY OF EDUCATION BANKING UNIVERSITY HO CHI MINH CITY NGUYEN DANG HAI YEN FINANCIAL INCLUSION, BANK STABILITY AND INSITUTIONAL QUALIY – RESEARCH IN ASEAN COUNTRIES DOCTOR OF PHILOSOPHY IN ECONOMICS THESIS SUMMARY Major: Finance – Banking Code: 9.34.02.01 Scientific instructor: Assoc Prof., Dr Hạ Thị Thiều Dao HO CHI MINH CITY- 2023 CHAPTER BACKGROUND OF THE STUDY 1.1 THE URGENCY OF THE THESIS The banking system plays the role of the economy's lifeblood (Baum & ctg., 2021; Davies & ctg., 2010) So, banking stability ensures the economy's stability, so studies worldwide are very interested in factors affecting banking stability to find solutions to increase the stability of the banking system Factors affecting bank stability include asset size, equity size, competition, income diversification, and management efficiency (Ahamed & Mallick, 2017; Albaity & ctg., 2019; Beck & ctg., 2013; Bermpei & ctg., 2018; Goetz, 2018); macroeconomic factors such as inflation, economic growth rate, unemployment, etc However, research on banking stability in other countries currently focuses mainly on internal aspects of banks and macro factors and less on institutional quality and financial inclusion There are many controversies about the direction of impact Promoting financial inclusion will change the structure of the financial system and affect banking stability (Ozili, 2020) Financial inclusion helps banks increase savings (Cull & ctg., 2012; Hannig & Jansen, 2010; Hawkins, 2006), diversify loans (Khan, 2011), and reduce the probability of default, helping maintain stability banking system However, García (2016) argues that banks will promote financial inclusion without a strict control mechanism by bypassing regulations, lowering lending standards, and lending to risky projects, to risk to offset high transaction costs, which will reduce bank stability In addition, institutional quality is also seen as a factor that improves bank stability (Bermpei & ctg., 2018; Dutta & Saha, 2019; Fang & ctg., 2014; Uddin & ctg., 2020) This effect is explained by the good institutional quality that reflects the government's formulation and implementation of appropriate policies that guide economic activities, leading to a reduction in adverse effects from financial shocks and ensuring normal and efficient economic activities (Fazio & ctg.,2018) and (Klomp & De Haan, 2014) Institutional quality also reduces the negative impact of competition on bank stability or the adverse effect of bank marketization on bank stability (Tandelilin & Hanafi, 2021) There are few studies on financial inclusion, institutional quality, and bank stability in academic literature Ahamed Mallick (2019), Saha Dutta (2022) are two quite comprehensive studies on this issue With a large dataset of 2635 banks in 86 countries in 2004 - 2012, Ahamed & Mallick (2019) have shown the positive impact of financial inclusion on banking stability and emphasized that this impact will be further reinforced when implemented in an environment of good institutional quality Agree with Ahamed Mallick (2019), Saha Dutta (2022) gives similar results when studying this issue with country-level datasets However, the bank stability in the two studies of these authors is only measured in one way In this study, to reflect on bank stability, the thesis uses many methods of measurement and comparison and compares the results of different measures more accurately and thoroughly ASEAN (Association of Southeast Asian Nations) is a model for rapid economic growth, with an average annual growth rate of more than 5% (Scherpf, 2015) In recent years, ASEAN countries have had remarkable economic development However, that rapid growth has many risks due to ASEAN's relatively large openness, current trade openness is 107.65%, and financial openness is 0.16447%, with relatively low and volatile banking stability in ASEAN countries In addition, since the 20082009 global financial crisis, financial inclusion has become a priority policy of ASEAN countries In 2009, the Central Bank of Malaysia Act stipulated that the primary function of BankNegara Malaysia (BNM) is to develop and promote financial inclusion; in 2012, Indonesia announced its national strategy for financial inclusion (Rahman, 2015); In 2011, Thailand also launched a national plan for financial inclusion (Tambunlertchai, 2015) Furthermore, ASEAN is a reasonably diverse region with a bank-dependent economy It is forecast to become the fifth-largest trading region globally, and its role in the global financial system is growing and increasing (Nguyen, 2022) In the context that the impact of financial inclusion on banking stability is still an unanswered question, the fact that an economic region has low banking stability and is potentially contagious to other economies, the shift to focus on promoting financial inclusion raises questions that need to be answered: (1) Does promoting financial inclusion increase banking stability in developing countries? (2) Does this effect vary with different institutional qualities? (3) And for each aspect, how does the institutional quality affect that impact? Answering these questions also provides suggestions for ASEAN's inappropriate policy adjustment This research contributes to the literature in several ways This study adds empirical evidence to the controversial relationship between the impact of financial inclusion on bank stability Our study has many points of inheritance of the two studies mentioned above and has the following differences: (1) adding two additional aspects in building a financial inclusion index; (2) measuring bank stability by multiple measures instead of just Zscore, which is considered an imperfect indicator because it can mask the risks of countries (Wu & ctg., 2020); (3) evaluate the effect of each aspect of institutional quality individually on the impact of financial inclusion on banking stability; (4) check the robustness of the results using another method (attach dummy variables to the institutional quality variable); (5) chose ASEAN to tell a story about financial inclusion, banking stability, and institutional quality in a region with a banking-dependent economy 1.2 RESEARCH OBJECTIVES AND QUESTIONS The overall objective of the thesis is to study the impact of financial inclusion and institutional quality on banking stability and evaluate the influence of institutional quality on the effects of financial inclusion on the stability of banks in ASEAN countries From there, the thesis makes policy implications related to financial inclusion and institutional quality to increase the stability of the banking system in countries in the ASEAN region The specific objectives of the study: - Assessing the impact of financial inclusion on banking stability in ASEAN countries - Assessing the impact of institutional quality on banking stability in ASEAN countries - Assessing institutional quality's influence on financial inclusion's impact on banking stability in ASEAN countries - Policy implications related to institutional quality and financial inclusion to contribute to the stability of the banking system in ASEAN countries Answering the specific objectives, research questions raised the following: - How does financial inclusion affect banking stability in ASEAN countries? - How does institutional quality affect banking stability in ASEAN countries? - How does institutional quality affect the impact of financial inclusion on banking stability in ASEAN countries? - What policy implications related to institutional quality and financial inclusion are suggested to contribute to the stability of the banking system in ASEAN countries? 1.3 OBJECT AND SCOPE OF THE STUDY 1.3.1 The object of the study The object of the thesis is the impact of financial inclusion and institutional quality on banking stability and the influence of institutional quality on the effects of financial inclusion on banking stability in ASEAN countries 1.3.2 The scope of the study - Spatial scope: The research scope of the thesis includes 157 banks in ASEAN countries, including Singapore, Malaysia, Indonesia, Philippines, Thailand, Vietnam, Laos, and Cambodia - Scope of time: The thesis conducts research from 2010 to 2020 - Scope of content: The thesis researches the topic with the following limitations on the content: Firstly, the thesis only studies the one-way impact of financial inclusion on the banking stability of ASEAN countries Second, the thesis only studies the one-way effect of institutional quality on the banking stability of ASEAN countries Third, according to Samar (2012), financial inclusion is studied from the banks' perspective (i.e., financial institutions that provide formal financial services) Because banking inclusion is also referred to as financial inclusion, policymakers can more favorably adjust financial inclusion policies through banks Fourth, regarding the banking system's stability, the thesis only studies the stability of banks individually because the banking system becomes stable only when each bank in the system is stable 1.4 RESEARCH METHODS AND DATA 1.4.1 Research Methods The thesis combines both qualitative and quantitative methods to solve the research problem 1.4.2 Data The thesis data is collected from reliable sources such as the Database of the World Bank, International Money Fund, and Focus Oris Bank 1.5 CONTRIBUTION OF THE THESIS - Theoretical contributions The thesis adds empirical evidence on the impact of financial inclusion on banking stability and the influence of institutional quality on this effect in ASEAN countries, which previous studies have not paid much attention to The thesis verifies the empirical evidence through various bank stability measures such as normalized Z-score and non-performing loan ratio - Practical contribution The practical contribution of the thesis has provided a theoretical argument and a policy message for the management agencies of the banking and finance industry in particular and the government in general about the role of institutions in strengthening the impact of financial inclusion on banking stability 1.6 RESEARCH STRUCTURE The thesis has five main contents as follows: Chapter 1: Introduction to the study Chapter 2: Theoretical overview and Literature review Chapter 3: Research Methods Chapter 4: Research results and discussion Chapter 5: Conclusion – Policy Implications CHAPTER SUMMARY Chapter introduces the reasons for choosing the topic, objectives, questions, objects, scope, methods, data, and contributions of the study CHAPTER 2: THEORY OVERVIEW AND LITERUARE REIVEW 2.1 THEORETICAL BASIS ON BANK STABILITY 2.1.1 The concept of bank stability Bank stability is a state in which a bank can respond well to internal and external impacts, both now and in the future, especially shocks of the economy, while still maintaining its ability to pay for due debts, maintain normal operations, and avoid the risk of bankruptcy 2.1.2 Measuring bank stability - Univariate analysis method - Multivariate analysis - Method of combining indicators - Another index 2.1.3 Several factors affect bank stability Factors affecting bank stability are divided into two main groups: internal factors and external factors Internal factors include the following main elements: Bank size, equity size, competition, income diversification, management efficiency, and provision for credit risks; External factors include inflation, economic growth, etc 2.1.4 Theory of bank stability Based on theories on financial instability and financial stability, bank stability theory is considered in terms of financial stability in banking activities to force the bank out of financial instability Most financial stability studies were found to evaluate "financial instability" as an approach to assessing "financial stability." Since then, the research has focused on financial instability as the opposite state of stability Theories of economic instability have been researched and developed, such as the financial instability theory of the Monetarist, the financial instability theory of Minsky, and Koo's According to Keynes (1936), short-run rapid fluctuations expressed by phenomena such as inflation, unemployment, or economic growth are the causes of fluctuations in the financial system Therefore, in a short time to intervene in the economy, governments need to harmonize the two fiscal and monetary tools Supporting Keynes's ideas, developed according to Minsky's view, phase is a time of risk because investors increase debt leverage through borrowing from financial intermediaries When the debt leverage exceeds the risk tolerance, the financial bubble will burst, leading to a debt crisis Investors lose their ability to repay loans, hurting the economy's capital Therefore, the role of financial intermediaries at this stage is vital Commercial banks began to regulate the amount of loan capital based on the assessment and analysis of money supply and demand in the economy The government also needs to provide credit under the credit limit regulation for commercial banks with appropriate monetary instruments to reduce the pressure on the financial bubble in the future to maintain profitability for investors while ensuring stability for the financial system With their increasingly large and diversified development, financial institutions, especially banks, have always been considered an abundant source of capital for investors in the economy During phase of the "Minsky Moment," investors tend to raise bank loans more to finance investment opportunities when wanting to increase debt leverage However, when the economy is unstable, the expected interest rate of investment opportunities is no longer, and investors tend to sell a series of assets to pay off debt At this time, the price of financial support also decreased because the valuation of commercial banks decreased before the economic fluctuations The sudden decline in the value of financial assets seriously affects the stability and solvency of investors The financial crisis (phase 3, "Minsky moment") led to "instability i" the banking system due to customers' reduced ability customers loans At this time, when the financial bubble burst, it led to a difficult situation for commercial banks; even banks were at risk of bankruptcy because they did not collect loans for investment loans that were too risky Banking instability is widespread and could exacerbate instability in the economy Modern economists have provided much empirical evidence of banking instability There, banks are considered a part of the financial market, so they are always directly and profoundly affected by fluctuations in the national financial system and the economy in general According to Davis (2003), there are three types of financial instability: market failure, volatile market prices, and collapses resulting in market liquidity Therefore, banking stability plays a crucial role in financial stability When banking activities are restored, leading to the recovery of the financial system, then the capital flow of the economy will be opened up, and business activities will gradually stabilize 2.2 THEORETICAL BASIS OF FINANCIAL INCLUSION 2.2.1 The concept of financial inclusion Financial inclusion is understood as all initiatives and measures to provide formal financial services conveniently, at a reasonable cost, and in line with the needs of all citizens With this concept, the thesis approaches financial inclusion in three aspects: penetration, availability, and use 2.2.2 Measuring financial inclusion - Individual indices - Comprehensive indices + Multidimensional financial inclusion index using the simple average of the Eculidian distances + Multidimensional financial inclusion index by principal component analysis method (PCA) Considering the advantages and disadvantages of the methods, the thesis decided to use the PCA method to determine the comprehensive financial index based on three aspects: penetration, availability, and use 2.2.3 The theory of financial inclusion In fact, according to the thesis research, there currently needs to be a clear theory on financial inclusion Still, Ozili (2020) proposed an idea to indicate the beneficiaries of financial inclusion According to Ozili (2020), when the government implements financial inclusion, which should target vulnerable sections of society, such as low-income people, young people, and the elderly Since this section is most affected by financial crises and economic recessions, according to this theory, it is easy to identify the causes that lead to the type of financial loss for members, such as income, gender, and age In addition, according to Ozili (2020), when implementing financial inclusion will improve the performance of economic systems, components in the financial system, such as commercial banks, will benefit Agreeing with Ozili (2020), Bhandari (2018) believes that low-income people are the ultimate beneficiaries of financial inclusion, while others think that women and the economy and the financial system are the beneficiaries (Ghosh & Ghosh, 2014; Swamy, 2014; Kim & Ghosh, 2014; Mehrotra & Yetman, 2015) Since there is no clear theory about financial inclusion, the thesis relies on Ozili's point of view (2020) to explain that when implementing financial inclusion changes the structure of customers in the finance system, especially many low-income customers This change can benefit or harm a bank's operations (Cohen & Nelson, 2011) 2.3 THEORETICAL BASIS ON INSTITUTIONS 2.3.1 The concept of institutions There are many different concepts, but generally, the institution is a system of rules made and implemented by people to regulate their behavior This is essential to sustainable, stable, and equitable development Institutional quality is the traditional values and institutions by which a country's authority is exercised Institutional quality reflects the government's capacity to formulate and implement policy, control corruption, and how it is selected and monitored (Kaufmann et al., 2011) 2.3.2 Measuring institutional quality There are many ways to measure institutional quality - Worldwide Governance Indicator – WGI - Global Competitiveness Index – GCI - Index of Economic Freedom – IEF - Ease of Doing Business Index – EBDI - Corruption Perceptions Index – CPI - Global Financial Integrity Index – GFI 2.3.3 Institutional Theory The thesis focuses on presenting the institutional theory of the new school of institutional economics because its content is suitable to explain the research problem of the thesis From the study of North (1990) and North (1993), "New Institutional Economics" is considered a branch of modern economics to understand social institutions within human activities, which neoclassical economics has built Although old institutional economics negate neoclassical economic theories, the formation and development of new institutional economics are based on expanding these theories, with the expectation of answers to the problems posed in economics in general and theories of economic growth and stability theory From the perspective of new institutional economics, institutions support order, promote information search and save costs Order is a systematic, nonrandom, and predictable pattern of behaviour and events Within the framework of order, the subjects easily plan and predict the results, operate, and invest with peace of mind because of low risk and not be arbitrarily appropriated North (1991) argues that, throughout history, humans designed institutions to maintain order and minimize instability in economic activity Performance depends on existing physical and technological conditions and understanding of institutions (Urpelainen, 2011) Institutions provide information about appropriate, encouraged behaviour in certain situations Through information search, institutions make an essential contribution to cost reduction The value and truthfulness of the data determine transaction costs North (1993) argues that transaction costs reflect the complexity of institutions, economic operating rules, and social regulation A lack of information creates opportunities for opportunistic and manipulative behaviours To prevent this, institutions in different countries need to develop a reliable and always up-to-date legal information system for stakeholders, which will reduce transaction costs However, humans tend to be selfish and can therefore create disastrous consequences for the wellbeing, freedom, and values of others, and the deterioration of the system of rules may lead to economic and social recession Institutions, especially the punishments associated with them, allow people to make credible commitments Cooperation among people often requires an institutional framework that prevents opportunism, reinforcing the habit of cooperation for mutual benefit 2.4 IMPACT OF FINANCIAL INCLUDES ON BANK STABILITY - On the one hand, financial inclusion has a positive impact on bank stability: The thesis is based on Akerlof's information asymmetry theory, published in 1970 (Akerlof, 1970), and Harry Markowitz's Modern Portfolio Theory, published in 1959 (Markowitz, 1976) explains the positive impact of financial inclusion on bank stability - On the other hand, financial inclusion harms on bank stability 2.5 IMPACT OF INSTITUTIONAL QUALITY ON BANK STABILITY Institutions with issued rules, laws and constraints will regulate the activities of the economy and affect the economy and the stability of organizations in different directions (Aron, 2000; Kaufmann et al., 1999) In this context, the thesis uses the game theory of John Von Neumann, published in 1928, Freeman's stakeholder theory in 1984, combined with Akerlof's information asymmetry theory, published in 1970, together with previous empirical studies as the basis to explain the impact of institutional quality on bank stability 2.6 THE EFFECT OF INSTITUTIONAL QUALITY ON THE IMPACT OF FINANCIAL INCLUSION ON BANKING STABILITY Institutions are essential factors in helping businesses reduce costs and improve competitiveness to improve their operations Therefore, in the content of this section, the thesis uses the transaction cost theory developed by Williamson in 1975, combining previous empirical studies to explain the influence of institutional quality on the impact of the transaction The impact of financial inclusion on banking stability 2.7 LITERATURE REVIEW 2.7.1 Review of studies on the impact of financial inclusion on bank stability 2.7.2 Review of studies on the impact of insititutional quality on bank stability 2.7.3 Review of studies on the effect of institutional quality on the impact of financial inclusion on bank stability 2.7.4 Research gap Reviewing the studies, the thesis draws the following conclusions: Firstly, Studies on the impact of financial inclusion on banking stability have yet to be appropriately and thoroughly studied in ASEAN countries However, these countries have been significant development in recent years; income has attracted the attention of researchers worldwide The research sample of scholars on the world focuses on emerging economies, Europe with its sociocultural, economic, and political characteristics, unlike Southeast Asian countries In ASEAN, the level of financial coverage is similar with a similar age structure; the economy is mainly banking, not the financial system Therefore, the conclusions from the sample of countries above may not apply to ASEAN Therefore, the conclusions from the sample of the above countries may need to be more suitable for application in ASEAN Besides, the views of economists and world financial experts on the impact of financial inclusion on banking stability are different from one another Therefore, 13 Model 2: Assessing the influence of institutional quality on the impact of financial inclusion on banking stability in ASEAN countries The impact of financial inclusion on banking stability also depends on the quality of the institutions of each country In this section, to assess the influence of institutional quality on the impact of financial inclusion on bank stability (question 3), the thesis uses the interactive approach of Herrera-Echeverri et al (2014) by adding the interaction variable between financial inclusion and institutional quality of each country into the 3.1 model The 3.1 model is rewritten as follows: 𝐵𝑆𝑖𝑗𝑡 = 𝛼1 𝐵𝑆𝑖𝑗𝑡−1 + 𝜃1 𝐼𝑁𝑆𝑗𝑡 + 𝛽1 𝐼𝐹𝐼𝑗𝑡 + 𝛿1 𝐼𝐹𝐼𝑗𝑡 ∗ 𝐼𝑁𝑆𝑗𝑡 + 𝛾1 ∑ 𝐵𝑖𝑗𝑡 + 𝛿1 ∑ 𝑀𝑗𝑡 + 𝜀𝑖𝑡 (3 2) 3.2.2 Variables - Bank stability The thesis uses the Z-score to measure bank stability This index is widely used in the studies of (Čihák & Hesse, 2010; Čihák et al 2016; Delis, 2012; Goetz, 2018; Jiménez et al., 2013) Z-score is calculated according to formula 3.3: 𝑍 − 𝑠𝑐𝑜𝑟𝑒𝑖𝑡 = 𝐸 𝑅𝑂𝐴𝑖𝑡 + 𝑖𝑡 𝑇𝐴𝑖𝑡 𝜎𝑅𝑂𝐴𝑖𝑡 (3.3) Which ROA is the return on average assets of the bank at the time i, 𝐸𝑖𝑡 /𝑇𝐴𝑖𝑡 is the ratio of total equity to total assets of bank i at time t Finally, earnings volatility reflects a bank's risk-taking strategy as measured by the standard deviation of ROA over a period The higher the Z-Score is interpreted as reduced risk, the more stable the bank is (Beck et al., 2013; Louhichi et al., 2020) Moreover, this index has a high deviation, so according to the suggestion of (Beck & ctg., 2013), (Houston & ctg., 2010), (Laeven & Levine, 2009), the thesis uses natural logarithms of the Z-Score - Financial inclusion The thesis uses the PCA method to build a comprehensive financial index synthesized from aspects (including six sub-indices), specifically: + The bank penetration aspect (𝑌𝑝 ) is determined by the following metrics: Bank branches per 100.000 adults (BBPoP) and ATMs per 100.000 adults (ATMPoP) + The availability aspect (𝑌𝑎 ) is measured by the ratio of bank branches per 1.000 square kilometers (BBKM) and ATMs per 1.000 square kilometers (ATMKM) + The usage aspect (𝑌𝑢 ) is determined by the ratio of deposits to GDP (ODC) and the ratio of private credit to GDP (OLC) These indicators have been used extensively in previous studies (Ahamed & Mallick, 2019; Amidžic et al., 2014; Gupte et al., 2012; Lenka et al., 2016; Sarma, 2016) The following formula determines the financial inclusion index: 14 IFI = 0,499*BBKM + 0,502*ATMKM - 0,019*BBPoP + 0,029*ATMPoP + 0,497*ODC + 0,498*OLC - Instituitonal quality Like the financial inclusion index, the thesis also uses the PCA method to build a composite institutional quality index from sub-indices, including control of corruption (CC), government efficiency (GE), political stability (PS), regulatory quality (RQ), the rule of law (RL), voice, and accountability (VA) The formula determines the aggregate institutional quality index by the following formula: INS = 0,464*CC + 0,462*GE + 0,284*PS + 0,460*RQ + 0,461*RL + 0,245*VA - Market power (competition) According to Berger et al (2017), the Lerner index is the only measure of market power calculated at the bank level The Lerner index is understood as the inverse of competition The higher the index, the greater the pricing power, which implies less competitive market conditions This index is calculated according to the formula 3.4: Lernerit = (Pit – MCit)/Pit (3.4) Where: + Pit is the price of total assets calculated as the ratio of total revenue to total assets of bank i at time t + MCit is the marginal cost of producing one more unit of output 3.3.3 Data research The research data of the thesis is the data in the secondary form, which is synthesized from reliable data sources Specifically, the thesis collects data from 157 banks in countries ASEAN from Focus Oris Bank data sources The final sample contains 1727 observations for the period from 2010 to 2020 Next, the indicators used to determine the composite financial inclusion index are taken from the Financial Access Survey (Financial Access Survey) – FAS) of the International Monetary Fund (IMF) Indicators of institutional quality (the rule of law, government efficiency, political stability, control of corruption, and regulatory quality) are collected from the set of Global Governance Indicators – WGI) of the World Bank (Worldbank) Finally, variables related to macroeconomic characteristics, such as economic growth rate, and inflation, are gathered from IMF data sources 3.4 Estimation method The thesis uses the two-step SGMM (System GMM) method of Arellano & Bover (1995), Blundell & Bond (1998) to get perfect estimates In addition, the thesis performs the tests: multicollinearity, autocorrelation, and variable variance 15 CHAPTER SUMMARY Chapter presents research hypotheses and models and explains how to measure variables In addition, this chapter also offers data sources, estimation methods, and necessary tests for the model 16 CHAPTER 4: RESEARCH RESULTS AND DISCUSSION 4.1 ASSESSMENT OF THE BANKING STABILITY, FINANCIAL INCLUSION, AND INSTITUTIONAL QUALITY OF ASEAN COUNTRIES 4.1.1 Banking stability in ASEAN countries This analysis shows that the level of stability of the banking system in different countries is different, and there have been fluctuations over the years However, the general trend, especially in recent years, is that the banking system of ASEAN countries has improved in stability; with the ZScore raised, the bad debt ratio reduced (except in 2020 heavily affected by the Covid-19 epidemic, most of the stability levels of banks have decreased) 4.1.2 Financial inclusion in ASEAN Countries Each ASEAN country has different policies to promote financial inclusion appropriate to the context of that country Therefore, these countries' financial inclusion level is also different Countries with a high level of financial inclusion include Singapore and Malaysia Those with low financial inclusion are Cambodia and Laos However, in general, all countries have tried to develop financial inclusion, so the financial inclusion index has improved over the years 4.1.3 Insitutitonal quality in ASEAN Countries Generally, for all eight ASEAN countries in the period 2010-2020, all aspects of institutional quality are low, of which the weakest indicators are voice and accountability, corruption control, and the rule of law; Indicators at the highest average level are government efficiency and regulatory quality, respectively Among ASEAN countries, Singapore has the best institutional quality 4.2 FINANCIAL INCLUSION, INSTITUTIONAL QUALITY AND BANK STABILITY 4.2.1 Descriptive statistics of research data With the panel data approach, which combines cross-sectional data from 157 banks and time series data over 11 years, this study has 1727 observations, sufficient for econometric analysis 4.2.2 Examining the impact of financial inclusion and institutional quality on banking stability Tests on autocorrelation and multicollinearity support using variables in the model to include in the analysis After checking for multicollinearity, the thesis implements model 3.1 regression by the SGMM method to assess the impact of financial inclusion and institutional quality on bank stability Table 4.16 shows Firstly, financial inclusion reduces Z-Score, normalized Z-Score, and increases NPL at the 99% confidence level with regression coefficients of -1,288, respectively; -0,330; 0,206 This means that financial inclusion will increase lousy debt, leading to reducing the bank's stability 17 Second, institutional quality (INS) influences Z-Score, adjusted Z-Score, and NPL with regression coefficients of 0,617, respectively, 0,307, and -0,166, which means that INS reduces lousy debt and increases bank stability Table 4.16 Impact of financial inclusion, institutional quality on bank stability Z-Score LZ-Score Z-Score_n NPL 0,357*** LZ-Score_n 0,326*** LNPL 1,497*** INS 0,617*** 0,307*** -0,166*** IFI -1,288*** -0,330*** 0,206*** LTA 1,590*** 0,523*** -0,150*** SIZE 0,334*** 0,052** 0,024* LER 0,489*** 0,651*** 0,198*** LLPL 0,001 -0,007*** 0,020*** MQA 0,534*** 0,290*** -0,085* ETA 1,664*** 0,647*** -0,033 DIV 0,028 -0,038*** -0,011** INF 0,051*** 0,016*** -0,015*** GDP -0,084*** -0,023*** -0,013*** _cons -3,059*** -0,557*** 0,203*** 157 157 157 66 57 77 AR (2) 0,113 0,276 0,318 Sargan 0,491 0,347 0,582 Hasen 0,577 0,895 0,432 Number of groups Number of instrumental variables ***, **, and * correspond to the statistical significance level of 0,01; 0,05 and 0,1 respectively Source: Results from Stata 16 software In addition, the Hansen and AR2 tests have p-value coefficients greater than 0.05, showing that the instrumental variables in the model satisfy over-identifying and the residuals of the model not exist 2nd order autocorrelation, which response to the set conditions, so the results found in the model are stable and can be used for analysis 18 4.2.3 Examining the influence of institutional quality on the impact of financial inclusion on banking stability Tests on autocorrelation and multicollinearity support the using variables in the model to include in the analysis After checking for multicollinearity, the thesis implements model 3.2 regression by the SGMM method to assess the influence of institutional quality on the impact of financial inclusion on banking stability Table 4.19 shows that the interaction between IFI and INS is statistically significant with all three dependent variables at the 99% confidence level with the regression coefficient of 0,567; 0,089 and - 0,057, respectively This regression coefficient means that IFI*INS has the effect of reducing bad debt and increasing bank stability Table 4.19 Effect of institutional quality on the impact of financial inclusion on bank stability Z-Score Z-Score_n NPL LZ-Score 0,309*** LZ-Score_n 0,202*** LNPL 0,473*** IFI -1,052*** - 0,187*** 0,084** INS 0,401* 0,107** -0,064* IFI*INS 0,567*** 0,089* - 0,057** LTA 2,836*** 0,397*** - 0,046 SIZE 0,300** 0,161*** -0,005** LER -0,537*** -0,091** 0,050* LLPL -1,050 0,207 0,061*** MQA -0,181 0,513** -0,030 ETA 3,106*** 0,457*** - 0,045*** DIV - 0,166*** - -0,071*** 0,542*** INF -0,055 - 0,015 0,048** GDP 0,061*** 0,013*** - 0,010*** _cons -3,591*** -1,005*** -0,290*** 157 157 157 39 37 94 Number of groups Number of instrumental variables 19 AR (2) 0,213 0,100 0,318 Sargan 0,523 0,332 1,000 Hasen 0,612 0,409 1,000 ***, **, and * correspond to the statistical significance level of 0,01; 0,05 and 0,1 respectively Source: Results from Stata 16 software The Hansen and AR2 tests have p-value coefficients greater than 0.05, showing that the instrumental variables in the model satisfy over-identifying, and the model's residuals not exist in second-order autocorrelation in response to the set conditions So the results found in the model are stable and can be used for analysis To check the robustness of the results, the thesis uses another method by replacing the continuous value of the institutional quality variable in the interaction variable between financial inclusion and institutional quality with the dummy variable in model 3.2 Currently, countries with good institutional quality (value than average) get a value of 1; otherwise, the value of The results are presented in Table 4.20 Table 4.20 Effect of institutional quality on the impact of financial inclusion on bank stability Z-Score LZ-Score Z-Score_n NPL 0,366*** LZ-Score_n 0,381*** LNPL 0,712*** IFI - 4,286** - 2,058*** 0,459*** INS 0,471*** 0,258*** -0,036* IFI*INS 4,271** 2,076*** - 0,568*** 157 157 157 67 30 82 AR (2) 0.131 0,074 0,319 Sargan 0,449 0,145 1,000 Hasen 0,328 0,298 0,530 Number of groups Number of instrumental variables ***, **, and * correspond to the statistical significance level of 0,01; 0,05 and 0,1 respectively Source: Results from Stata 16 software