203 factors affecting the liquidity risk of joint stock commercial banks on stock exchanges in viet nam bachelor thesis of banking and finance 2023

MINISTRYOFEDUCATION ANDTRAINING STATEBANKOFVIETNAM BANKINGUNIVERSITYOF HOCHIMINHCITY NGUYENTHUNGÂN FACTORS AFFECTING THE LIQUIDITY RISK OFJOINTSTOCKCOMMERCIALBANKSONSTOCK EXCHANGESINVIETNAM GRADUATION DISSERTATIONSPECIALIZED:BANKING ANDFINANCECODE:52340201 HOCHI MINHCITY,JANUARY2020 MINISTRYOFEDUCATION ANDTRAINING STATEBANKOFVIETNAM BANKINGUNIVERSITYOF HOCHIMINHCITY NGUYENTHUNGÂN FACTORS AFFECTING THE LIQUIDITY RISK OFJOINTSTOCKCOMMERCIALBANKS ONSTOCK EXCHANGESINVIETNAM GRADUATION DISSERTATIONSPECIALIZED:BANKING ANDFINANCECODE:52340201 INSTRUCTOR: ASSOC.PROF.,PH.DÐN GVĂNDÂN HOCHI MINHCITY,JANUARY2020 ABSTRACT Liquidityproblemsarere-emphasisedasVietnamesecommercialbanksaremaking aneffort in deployingBasel IIf o r h o p i n g a g r e a t e r s t a b i l i t y a n d d e c r e a s e the likelihood of repeating the financial crisis events in 2007 Therefore, the aim ofthisresearchistoidentifyfactorsthataffectliquidityriskof17Jointstockcommercial banks listed on stock exchanges in Vietnam and the data covers theperiodfrom 2010to2018.Multivariateregressionmodels(Pooled-OLS,FEM,REM) wereusedtotesttheeffectsandlevelsofdeterminants;andafterbeingselected by F-test and Hausman test, REM was the most appropriate However,REM had heteroscedasticity in variance of error and plus, autocorrelation in thedataset.Therefore,FGLSregressionmodelisusedtofixautocorrelationandunconstan tvarianceoferrortoensureaconsistentandeffectiveestimation The result reveals thatfrom 2010 to 2018,size oft h e bank and the r a t i o o f equity to total assets have positive effects on liquidity risk and this can be explainedby the famous “too big to fail” theory that big banks are seemed to secure againstliquidityriskexposurenotbyholdinghighliquidity,butbyassistancefrominterbank marketorLenderofLastResort(Vodova,2013);plus,equityisconsidered as one of the last defense, a shield that against many kinds of risk Ifbanks see themselves as “big banks”, their motivation to hold liquidity is limited.Besides, the relation between liquidity risk and return on equity, non- performingloanratioandprovisioncreditlossesratioisambiguous Fromtheresultobtained,thestudyproposesconclusionsandanumberofrecommendations to banksthemselvestoincreasetheefficiencyandimprovetheliquidity of Vietnamese commercial banks, as well as to the themanagementofthebankingsysteminthecomingperiod Governement on SUMMARY Inrecentyear,alongwiththeemergenceofglobalizationandfreetrade,economicindiv idualshavecreatedanenvironmentofgrowthandcompetition.Financialmarketsarenoexcep tion,particularlythecommercialbanks–intermediaries companies and that connect other individuals, institutions together,keeptheeconomygoing.Inadditiontocompetitionfromdomesticfinancialinsti tutions,banksalsofaceforeignfinancialoneswhichenterVietnamgradually Banking industry is obviously one of the most sentimental activities not just inVietnambutworldwideandplaysanextremelyimportantroleineconomicdevelopment Banksnotonlyinfluencebutalsopromotetheintegrationo f economicactivitiessuchasr esourcemobilization,developmenta c t i v i t i e s , allocation of public finance and even social welfare distribution The administrationof banking is therefore always a matter of particular concern for the government tocarry out its management and supervisory activities Banks need to adapt, thrive andevolve effectively to survive in harsh environments,iftheydonot,theywillbeeliminated With a default of one bank, it could lead to the collapse of the entirefinancial and economic system due to its interconnectability Global financial crisisthat happened in 2007 could be a typical example of the banks’ strong influence onthe economy that led to a series of bankruptcy, pushing the economic stagnation toitspeak Besides, the stock market in Vietnam is still quite young, the financial system isnot really healthy and open, creating difficulties and barriers for banking activities.Thus, as liquidity problems are re-emphasised as Vietnamese commercial banks aremaking aneffort in deployingBasel IIf o r hoping stability agreater and d e c r e a s e thelikelihoodofrepeatingthefinancialcrisiseventsin2007.Moreover,afte rjoiningtheASEANEconomic Communityin2015,Vietnamhascommitteditse lftoalleviatingrestrictionsinthebankingsector,givingthissectormanyoppoturnities;but alsomanychallengessuchascompetitivepressurefromregional banks and international banks, in particular with regard to the limited financialpotentialofVietnam comparedtootherbanksinothercountries Therefore, the aim of this research is to identify factors that affect liquidity riskof Joint-stock commercial banks listed on stock exchanges in Vietnam If the bankshave strong liquidity, this not only helps to stabilize the financial market but alsohelps to grow the economy in Vietnam Thus, to determine and evaluate the level ofimpactofthesedeterminantsandgiveconclusionsandrecommendationfromtheobtainedresults Thisresearchsystematizedthetheoreticalframeworkincludingtheorydefinitionsand liquidity riskimpactstothecustomers,thebankitselfandtheeconomy;andthenevaluatedthefactorsaf fectingliquidity riskinVietnamesecommercial banks and give empirical evidence based on previous studies There aretwobasictypesofdeterminantsofliquidityriskwhichareobjectivefactors andsubjectivefactors.However,duetolimitedtime,theauthoronlyfocusedonsubjective factors without considering the affect of factors on “market” level andgovernment policies on bank liquidity Model of this research is based on Vodova(2011)and TrươngQuangThông (2013) paneldataregression modelsasfollows: 𝐿𝑅i𝑡=𝛽0+𝛽1𝐸𝑇𝐴i𝑡+𝛽2𝑁𝑃𝐿i𝑡+𝛽3𝑅𝑂𝐸i𝑡+𝛽4𝐿𝑛𝑆𝐼𝑍𝐸i𝑡+𝛽5𝑃𝐶𝐿i𝑡+si𝑡 Inwhich,LRisliquidityriskasadependentvariable;ETA,NPL,R O E , LnSIZE,PCL is ratioofequity to assets,non-performing loan ratio, returno n equity, size of the bank, provision for credit losses respectively as independentvariables;sis error term;𝑡is the 17 joint-stock commercial banks according to thelist on the Government’s website;iis the year from 2010 to 2018 The data wascollected from financial statements of 17 Join-stock commercial banks that listed onstockexchangesin Vietnam.Theestimatedeffectshavealsobeenpresentedwithapositive correlation between LR and ROE, LnSIZE, PCL and a negative correlationbetweenLRandETA,NPL Stata software was then used to describe statistically the dataset and test thecorrelation matrix between variables and the result was that ETA has a negativecorrelation with LR, whereas ROE and LnSIZE has a positive correlation with LR.Multivariate regression models (Pooled-OLS, FEM, REM) were used to test theeffects and levels of determinants; and after being selected by F-test and Hausmantest, REM was the most appropriate Although REM did not have multicollinearityphenomenon,itstillhadheteroscedasticityinvarianceoferrorandplus,autoc orrelation in the dataset Therefore, FGLS was used to fix autocorrelation andunconstant variance of error to ensure a consistent and effective estimation Theresultisas follows: 𝐿𝑅i𝑡= − 5 +0.7145𝐸𝑇𝐴 i𝑡+ 0.0712𝐿𝑛𝑆𝐼𝑍𝐸 i𝑡+ si𝑡 Due to the characteristics of FGLS, the R2value does not count as meaningfulwhen it comes to measure the suitability of the model, however, it can be used tocalculate statistical values as above Whereby, both ETA and LnSIZE has positiveeffects on LR Firstly, the higher bank’s size, the higher liquidity risk exposurewhich is consistent with hypothesis H This result can be explained by the “Too bigtofail”theoryasbigbanksareseemedtosecureagainstliquidityriskexposurenotby holding high liquidity, but by assistance from interbank market or Lender of LastResort(Vodova,2013).Secondly,thereis a strong positive effect of the ratio ofequity-to-assetstoliquidityriskmeaningwhentheratioofequitytoassetsdecreases,liquidityriskwilldecreaseaswell.Thisresultisinconsistentwithhypoth esis H1, but suprisingly consistent with the result on the influence of thebank’s size on liquidity risk Equity is considered as one of the last defense, a shieldthatagainstmany kindsofrisk.Ifbanksseethemselvesas“bigbanks”,theirmotivation to holdliquidityislimited.ThisresultisinlinewiththeresultofTrươngQuangThông(2013).However,therelationbetweenliquidityriskand returnonequity,non-performing loanratioandprovisioncreditlossesratioisambiguous Fromtheresultobtained,thestudyproposesanumberofconclusionsandrecommendationst oincreasetheefficiencyandimprovetheliquidityo f Vietnamesecommercialbanksinthe comingperiod Particularly,duetobanks’reliancetoomuchontheGorvernment,theGovernment has enacted the LawA m e n d m e n t s t o s o m e a r t i c l e s o f t h e L a w o n Credit Institutions(Law No 17/2017/QH14),iseffectivefrom January 15,2 that banks can be able to go bankrupt if they are poorly operating and are put underspecial control by the Government, which has changed entire situation Therefore,banks need to rely more on themselves than on passive strategies as they used to,which is why the author then gave some recommendations to banks themselves toimprovetheirliquidityandoperationalmanagement,aswellassomerecommendations to the Governement on the management of the banking system Inparticular,banksneedtostrengtheninternalcontrolsystem,ensurecapitalmobilization, prepare specific plans for upcoming risk cases from the best to theworst The Government needs to their leadership role for banks, inspect and controlbankingactivitieseffectively,improvetheorganizationalstructureandapplyeffe ctivelytheBasel’sprinciplesonmanagingliquidity However, there still exists some limits of this research such as: this research isonly conducted on join-stock commercial banks, not the whole banking system inVietnam; the author only used one measurement to measure liquidity of the bank;the result of FGLS model can not be given out R-squared value to measure thesuitability of the model; this study only conducted internal determinants Therefore,theauthorhopestostudyfurthertoprovideamoregeneralmeasuremento f liqu idity risk, plus to build a better model to make it a more useful reference forstudents’extensiveresearches ASSURANCELETTER I assure that the “factors affecting liquidity risk of joint-stock commercial bankson stock exchanges in Vietnam” dissertation is my own report The figures andsources of information in this research are derived clearly and honestly from thebanks'consolidatedfinancialstatements.Inaddition,thetestswereconductedpublicly and transparently with no intervention to correct the results of regressionmodels, in which there are no previously published content byothersexceptforfullcitationsinthereport Author NguynThuNgn or content made THANKYOULETTER I would like to thank the teachers and friends in the Banking University in HoChi Minh city; and with the deepest gratitude, I would like to send to the personnelin the Department of Finance and Department of Banking the most sincere thanksfor the knowledge and dedication, who has devoted to us during our school time.Especially in the program of implementing the graduation dissertationwith theguidance of Association Professor and Doctor of Philosophy Ð ng Văn Dân, I havebeen helped a lot in choosing the topic, writing the research, as well as in-depthguidanceinhowtoworkproperly Finally, I would like to thank my family, friends and relatives who have alwaysbeentheretosupportandencouragemeto completemygraduation dissertation Isincerelythank! INDEX ABSTRACT .i SUMMARY .ii ASSURANCELETTER vi THANKYOULETTER vii INDEX viii LISTOFACRONYMS .xii LISTOFTABLES xiii LISTOFGRAPHS xiv CHAPTER1 INTRODUCTION .1 1.1 Introduction 1.2 Previousstudies 1.3 Researchobjectives 1.4 Researchquestions .4 1.5 Researchsubjectsandscope 1.5.1 Researchsubjects 1.5.2 Researchscope .5 1.6 Methodology .5 1.7 Contributionofthestudy 1.8 Dissertationstructure CHAPTER2 2.1 THEORETICALFRAMEWORK Theoryofliquidityriskofjoin-stockcommercialbanks 2.1.1 JointstockCommercialbanks 2.1.2 Bankliquidityrisk