HO CHI MINH, SEPTEMBER 2021 AND TRAINING HO CHI MINH CITY LÊ NGUYỄN QUỐC TOÀN MAJOR BANKING AND FINANCE DETERMINANTS AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS THE STATE BANK OF VIETNAM BANKING UNIVE[.]
THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION BANKING UNIVERSITY AND TRAINING HO CHI MINH CITY LÊ NGUYỄN QUỐC TOÀN MAJOR: BANKING AND FINANCE DETERMINANTS AFFECTING THE LIQUIDITY OF COMMERCIAL BANKS HO CHI MINH, SEPTEMBER 2021 GRADUATION RESEARCH PAPER MAJOR: BANKING AND FINANCE MAJOR CODE: 7340201 HO CHI MINH, SEPTEMBER 2021 MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM HO CHI MINH CITY BANKING UNIVERSITY 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 1 4 7 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 theheteroskedasticity 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