685 The Impact Of Liquidity Creation On Bank Profitability Empirical Evidence From Vietnamese Commercial Banks 2023.Docx

MINISTRYOFEDUCATION ANDTRAINING STATE BANKOFVIETNAM BANKINGUNIVERSITYOFHOCHIMINH CITY  NGUYỄNNGỌCTHANHTRÚC THE IMPACT OF LIQUIDITY CREATION ON BANKPROFITABILITY EMPIRICAL EVIDENCE FROMVIETNAMESE CO[.]

BACKGROUNDOFTHERESEARCH

Commercial banks are an important intermediary financial institution for theeconomyofeachcountry.Banksserveaspaymentmediators,assistinginthetransfer of funds from a state of surplus to a state of scarcity The commercialbanking system ensures financial supply for the economy and works capital anddistributescapitaltoguaranteethatacountry'sfinancesgrowsteadilyandsustainably. Therefore, the banking industry has always been concerned by the Stateso that it can continuously update developments and make appropriate adjustmentsin the context of constantly changing financial markets The State Bank and thegovernment pay particular attention to the banking process and ensure that suitableand timely supervision and monitoring strategies are implemented It is because ofthe necessity and implementation ofmany important functions that commercialbanksconcentrateinthebankingindustryinVietnam.

In recent years, in Vietnam, in the period of accelerating development andintegrationintotheworldeconomy.Thatcontributestopromotingtherapiddevelopm entofthebankingsystemintermsofscaletopromptlyandcomprehensively meet the needs of the economy Therefore, in the economy ingeneral and commercial banks in Vietnam in particular, they are very focused onhow to maximize annual profits.

In addition, helping the bank to develop in afiercely competitive market, not only by strong domestic competitors but also byforeignb a n k s j o i n i n g t o d a y b e c a u s e o f g l o b a l i z a t i o n t a k i n g p l a c e m o r e q u i c k l y

Since financial tasks will add to making manageable benefits and expanding bankstrength.Inreality,administratorscanperceivethateventhoughthebankingbusines sin Vietnam isexpanding, itis still small incomparison too t h e r b a n k s i n theregion.Banksaredealingwithaslewofissues,includingassetquality,significant bad debt, liquidity issues, and low profitability In the past, in Vietnam,the problem of determining the factors affecting the profitability of commercialbanks has received much attention Specifically, in the following research studies oncommercial bank profitability of foreign authors in countries around the world:Dietrich and Wanzenried (2011); Saif- Alyousfi (2022), … In Vietnam, there arestudies such as: Dietrich and Wanzenried (2011); Saif-Alyousfi (2022) In Vietnam,therearestudiessuchas:Đạt(2019);Hiền andHà(2021);andHùng(2016).

Creating liquidity is not a strange concept in the banking sector.I t c a n a l s o be seen as the liquidity conversion activity of banks in their business activities.Liquidityis c r e a t e d w h e n b a n k s h o l d i l l i q u i d i t e m s f o r n o n - b a n k e r s T h o s e i t e m s are then provided to them with highly liquid liabilities, whereby liquidity creation iscreated In general terms, the main factors that banks pay attention to are capital orthe ability to create liquidity for the bank.

This is explained because of its effect onthefinancialperformanceofthebank.Previousresearchintheworldhasalladdressedliq uidity,liquidityrisk,andhow tomanage it.

According to the current theory of financial intermediation,BergerandBouwman(2009)liquiditycreationandrisktransferaret w o f undamental tasks and activities that banks perform in the economy In some ways,banks' ability to perform those two roles is essential for their success. Liquidity,liquidity risk, and how to manage it have all been addressed in previous research.There is rare research on liquidity creation, particularly its influence on commercialbank profitability in Vietnam Studying the impact of capital, and liquidity creationonb a n k p r o f i t a b i l i t y i n V i e t n a m T h à n h , N h ƣ , a n d H ƣ ơ n g ( 2 0 1

6 ) , t h e i m p a c t o f liquidity creation Phạm Thị Thanh Xuân, Nguyền Thị Mỹ Linh (2021) and theliquidity channel Dan and Japan (2022); and Dang (2020) as a result of monetarypolicyadjustments.

Over the years, a range of studies on liquidity creation and its influence onbanks have been carried out in nations all over the world Liquidity creation byBerger and Bouwman (2009) has earlier been studied; although there is a negativeassociation between liquidity creation and bank capital in the risk-reward trade-off,liquidity creation is growing in various banks The impact of liquidity creation oncommercialbankprofitability hasreceivedfarlessattention,andthereis littleresearch in the field in Vietnam Moreover, there are few studies regarding the studyoncommercialbanks'liquidity creationaffectbankprofitinVietnam.Findingappropriate ways to prevent the negative factors impact of profit improvement andenhancementforcommercialbanksinVietnamisthusessentialatalltimes.Furthermor e, as the Vietnamese economy continues to integrate deeper and deeperinto the global economy, commercial banks in Vietnam haveg r e a t e r o p p o r t u n i t i e s to perform a variety of activities and earn more profits But at the same time, thereare also many potential risks and challenges, which require commercial banks inVietnam to constantly innovate and improve their financial and profit capacity.

Tonoto n l y as s is t t h e m i n r e m a i n i n g s t e a d y b u t a l s o t o r e a s s e r t t h e i r p o s i t i o n i n t h e areaandworldwideinsupportofthecountry'sstableandsustainablegrowthban kingsystem.Thearticleexaminestherelationshipbetweentheeffectsofliquidity creation in the same direction or in the opposite direction, from whichappropriate recommendations are made Various factors impact bank profitability,includinginternalelementsoffinancialinstitutions,andeconomicissues.A dditionally, while examining the variables affecting bank profitability in Vietnam,theauthorfoundthattheliquiditycomponentisseldomresearchedandacknowle dged, but commonly refers to liquidity risk Accordingly, the author choseto write about " The impact of liquidity creation on bank profitability: EmpiricalevidencefromVietnamesecommercialbanks"in thisarticle.Tofindou twhether toincreaseornotincreaseliquiditycreation,theauthorconductsresearchwitht hemainvariablebeingliquiditycreation.

OBJECTIVES OFTHERESEARCH

Generalobjectives

The main objective of the study is to analyse the impact of creating a bank’sliquidity, at the same time, bank-specific factors and macro factors affecting theprofitability of 23 commercial banks in Vietnam in the period 2009-2020 From theresearchresults, makesuggestionsto helpcommercial banksincrease profits.

Specificobjectives

The research needs to contain the necessary particular objectives to aim forthat majorgoal:

 Determining the factors affecting the performance of twenty- threecommercialbanksinVietnam.

RESEARCHQUESTIONS

RESEARCHSUBJECTSANDSCOPE

Researchsubject

Researchscope

 Scopeofcontent:This thesismainlyfocusesonresearchingissuesrela tedto the banking sector, namely liquidity creation Focusing on analysing liquiditygenerationanditsimpactoncommercialbank profitability.

 Spatialscope:The study wasperformedinVietnamwithtwenty- threecommercialbanks.Becausethesetwenty- threecommercialbanksprovidetransparent and complete disclosure of the data the author requires for the research,theauthor haschosenthem.

 Scopeoftime: The studywascarried outinthe periodfrom2009-2020.

RESEARCHMETHODOLOGY

The author uses both theoretical framework and quantitative methodologiestocompletethethesis:

The theoretical framework: The study utilizes synthetic methodologies andtheoretical foundations to organize concepts and topics linked to bank liquidity andprofitability At the same time, the thesis is based on local and international researchontheissuetoidentifythefinancialelementsthatinfluencetheprofito f Vietname sec o m m e r c i a l b a n k s C o m b i n i n g t h e o r y a n d e x p e r i m e n t w i t h r e s e a r c h and reference to previous research papers, combined with the author's method toconductresearch, therebyanalyzing regression results.

Quantitative study methodology: Based on the secondary data from twenty- threecommercialbanks' annualconsolidatedfinancialstatementsfrom 2009to2020.

Thedataofthethesisispaneldata:Research usingthemultivariableregressionmo del.TheauthorstartsbyrunningPooledordinaryleasts q u a r e s (Pooled OLS), next moves on to the FEM and REM model The author selects thesuitable model for the research using the Hausman test after using the F-test tochoose the POLS andFEM models Finally, to find out the effect of the factorsaffecting the dependent variable, test the study's hypotheses The study uses thefeasiblegeneralizedleastsquares(FGLS)toassessissuesincludingthe

Heteroscedasticity phenomenon and autocorrelation phenomenon Finally,comparethe results of the models as well as the tests to make a decision whether to accept orrejectthe proposedhypotheses.

CONTRIBUTIONOFTHERESEARCH

Literature gap

Theresearchgapofthepreviousstudiespresentedhas3mainpoints.Fir st,to the best of my knowledge, there have been no studies that directly measure the"cat fat" liquidity creation on the profitability of commercial banks in Vietnam.Regarding this research direction, most of the previous studies in Vietnam analysethe impact mainly on liquidity creation analysis according to the "LTG" measure oronly calculate the liquidity creation without incorporating them e a s u r e m e n t b a s e d on "cat fat" and bank profits Second, compared with previous studies in Vietnam,there is no specific empirical evidence on three separate liquidity factors: asset-sideliquidity (LCA), liabilities-side (LCL), and creating off-balance sheet (LCOBS) Atthe same time, consider the influence of these three factors on the profitability ofVietnamesecommercialbanksintheperiod2009-2020.Third,currently,inVietnam, there are not many policy implications and recommendations on creatingliquidity in order to promote the development of banking activities, contribute tostabilityandincreaseefficiencyforVietnamesecommercialbanks.

To fill these gaps, the thesis will develop a measure of "cat fat" as well as itsthree individual components for the liquidity generating variable in Vietnam, basedon research by Berger and Bouwman (2009) At the same time, based on previousresearch Duan and Niu (2020), we will build a liquidity generating variable (LC) todividetotalassetsand performregressionthroughfourresearchmodels.

Compared with previous empirical studies, the thesis's topic has some newcontributions The study incorporates a measure of liquidity creation based on the"cat fat" method and also find mixed results on how liquidity creation affects bankperformance Through variables LCA, LCL, LCOBS to directly assess the extent towhicht h e s e p a r a t e f a c t o r s o f l i q u i d i t y c r e a t i o n a f f e c t b a n k p r o f i t a b i l i t y F i n a l l y , from research results, the graduate thesis suggested some policy implications andrecommendations about liquidity creation to help increase profits of commercialbanksinVietnam.

Newcontributions

The graduate thesis contributes to the theoretical and practical significanceoftheresearchtopic:

Scientific significance: Based on previous studies, the author has reviewedthe theoretical foundations of liquidity creation and how to measure it thanks to theresearch of domestic and foreign researchers Thereby, the study has focused toexamine the impact ofthe liquidity measure on the profitability ofc o m m e r c i a l banksa n d b u i l d a t e s t m o d e l t o e v a l u a t e t h e i n f l u e n c e o f l i q u i d i t y a n d f a c t o r s relatedtothe profitabilityofVietnamesecommercialbanks.

Practical significance: Our research contributes to the literature on liquiditycreation by commercial banks in Vietnam focused on the results of the study on theinfluence of liquidity creation on bank profitability in Vietnam It will also beeligible for reimbursement administrators to assess the impact of liquidity creationon bank profitability to some extent The study also helps to the creation of liquidityintheVietnameseeconomythroughcommercialbanksandtheirparticularpillars.

STRUCTURE OFTHERESEARCH

The author will raise concerns to be explored as well as the importance of thetopic in the present framework in this chapter This part will include informationsuch as the scientific basis for the research issue, explanations of the research topic'saims,andresearchquestionstoachievetheobjectives.

The theoretical background of liquidity creation, as well as previous locallyandi n t e r n a t i o n a l l y c o n d u c t e d s t u d i e s o n t h e i n f l u e n c e o f l i q u i d i t y c r e a t i o n o n a bank’s performance, will be presented in Chapter 2 As a basis, the theoreticalgroundwork for this study's hypothesis is presented Furthermore, summarizing andevaluatingpreviousrelevantstudiestogivequantitativefactorsaffectingprofitability to set up an empirical model linking liquidity creation, banking- specificfactors,andmacrovariablesoncommercialbankprofitabilityinVietnam.

Based on the theoretical basis stated, Chapter 3 will present the researchmodel,researchhypothesis,methodsofvariableidentification,dataprocessing methods, and quantitative methods to estimate the level of impact Specifically,specific research steps such as how to determine the sample, collect data, selectfactors, and apply the specific model according to the conditions of Vietnam arecovered From there, the author runs the data regression according to the model andtest, and the way to choose the appropriate model will be presented specifically andclearly The author will present the steps to build liquidity measurement variablesandestimation methodstoachievetheresearchobjectivesandresearchquestions.

TheresultsoftheestimatedmodelwillbepresentedinChapter4,aswellasdescrip tives t a t i s t i c s f o r t h e v a r i a b l e s i n t h e r e g r e s s i o n m o d e l E x a m i n e t h e associati onbetweenthevariablesinthemodel,andexplaintheresults.Theauthorutilizesthe quantitativeanalysistoolStata15toestimatetheregressioncoefficientsinthemo delbasedonthepreviousempiricalresearch.Theauthorwillcomparetheoutcomesofthe estimationswithpriorresearchinordertounderstandtheinfluenceof liquidity creation on the financial performance of commercial banks in Vietnam.Chapter5:Conclusionandrecommendations

The content of Chapter 5 gives a summary of the topic's research findingsbased on the research questions and research objectives that were specified at thebeginning.Theauthorthenmakesproposespoliciestoassistbankstoboostprofitabilit y by increasing the amount of liquidity they create Furthermore, theauthor'si d e a s a r e a r e f e r e n c e s o u r c e f o r p l a n n e r s a n d l e a d e r s o n h o w t o r e s t r i c t liquiditycreationinordertooptimizecommercialbankprofits.

In this chapter, the author has introduced an overview of the research of thegraduate thesis so that readers can initially visualize the research The thesis inChapter 1 shows why the author decided to explore the issue of the"Impact ofliquidity creation on the profit of Vietnamese commercial banks" A brief overviewof the research process on liquidity creation of banks is presented through whichresearch gaps are introduced based on the lack of research on liquidity creation andbank profitability.Thes u b j e c t , o b j e c t s , s c o p e , a n d a p p r o a c h e s a r e i d e n t i f i e d t o serve as a framework for the rest of the chapters, as well as the process of accuratelyseeking and collecting data The author will stick to the specified orientation in thesubsequent chapters of the thesis, achieving the original goal and answering thequestionsaskedstepbystep.

Inchapter2,theauthorwillpresentbankingtheories,t h e o r e t i c a l foundation s, and empirical studies related to the topic of the impact of liquiditycreationontheprofitabilityofcommercialbanks.Therefore,thischapterwilldisc uss how to identify research gaps and design orientation for the research modelforthetopic.

DEFINITIONOFCOMMERCIALBANK

According to Berger and Bouwman (2015), commercial banks in the US actas the organizations that receive loans and deposits from customers. Commercialbanks can only conduct and trade off-balance sheet operations that are regulated andsupervised by a certain authority In addition, this is an organization with a largenumber of assets as well as liabilities such as guarantees and off-balance sheetcommitments A commercial bank, according to Rose (2002), is a type of financialorganization that offers the biggest range of financial services, particularly credit,savings,andpaymentservices.

Commercial banks also produce capital for business, investment, and lendingoperationsthroughissuingbonds,andstocks,borrowingfromothercreditinstitutions

; and borrowing from the central bank Commercial banks employ thatcapital to create money for themselves, while also calculating how to deploy capitalefficiently, offset borrowing costs, and make money Idle money spread acrosssociety will be mobilized thanks to this system of intermediate financial institutionsto satisfy the capital demands of other companies and individuals for the goal ofeconomicgrowthinsecureandsustainableways.

PROFITSOFCOMMERCIALBANKS

Theconceptofbankprofitability

A commercial bank's operational efficiency is often assessed in terms ofprofitability.A c c o r d i n g t o t h e c o m m e r c i a l b a n k b u s i n e s s t h e o r y b y B e r g e r a n d

Bouwman (2009), operational efficiency may be defined in two ways: one is theability to turn raw resources into completed goods or profitability, and the other isthe ability to reduce expenses to increase profitability The bank's competitivenesswith other financial institutions comes in second, followed by the likelihood of asafe operation According to Menicucci and Paolucci (2016), the theory of bankprofitability is that profitability is one of the important indicators that investorsshould pay attention to This is the profit level that commercial banks sustain fromyear to year, indicating the bank's level of business and managerial efficiency Thebank's yearly retained earnings will provide for additional flexibility in financinginvestment operations Therefore, banks will be able to make greater investments toincreaseprofits andmarketcompetitiveness.

Profits are constantly of interest to company owners and investors, and theyplay a vital part in the bank's reputation and long-term existence If a bank has goodbusiness performance, its reputation will be enhanced, people will feel more secureintheirdecisiontodepositmoneyatbanksandborrowmoneyfrombanks.Therefore , by helping the bank's working capital increase, the bank will have theopportunity and ability to expand the scale of business activities, contributing toincreased profits Commercial banks are also a type of enterprise, so the profit ofcommercial banks can be considered as the performance of an enterprise doingbusiness in the monetary field Within the scope of this study, the author considersthe profitability of commercial banks to be maximizing profits while minimizingcostsascapital.

Profitmeasurementcriteriaofcommercialbanks

 Absolute profit value: The volume of the value is represented by absoluteprofit figures, which might include the following criteria: Revenue before incometax andprofit after income taxare two different things from netprofit.Whencomparing banks of various sizes, it is clear that absolute figures have the drawbackof not reflecting the bank's real business efficiency The absolute values of profit arefrequently usedinbankingoperationstosummarizethebank'sbusinessactivitiesas a measurement to set out the bank's business plan for the following year Because ofthis disadvantage, academics rarely use absolute profit values in scientific studies,preferringtouserelativeprofitevaluationcriteriainstead.

 Relative profit value: The ratio of return on equity (ROE) and return ontotal assets (ROA), are indicators commonly used by the authors when researchingprofits:

Banks evaluate the efficiency ofasset uset h r o u g h R O A

T h e h i g h e r t h e ratio, the higher the bank's profitability This is not only an important and verypopular indicator to measure the profitability of banks, but is also used to measurethe profitability of businesses in general in the current market. ROA is a measure ofthe effectiveness of a bank's management Rose and Hudgins

In addition, the study by Dietrich and Wanzenried (2011), shows how muchprofit a dollar of assets will generate When this indicator is larger, the quality ofassetmanagementthemoreeffectivetheproduct.Thisindicatormeasurestheefficiency of commercial banks' investment Consider how likely they are to earn areturn on their investment in the property as a percentage ROA helps managers, aswell as investors, see the bank's comprehensive ability to generate net income fromassets.

In profitability studies such as those of the authors, ROE is often used toassess profitability per dollar of equity: (Le and Ngo, 2020; Mergaerts and VanderVennet, 2016),… Return on equity is an important ratio for shareholders, whichmeasurestheprofitabilityofeachdollarofcommonstockholders'equity:

AccordingtotheauthorAhsan(2013),ROEcanbeunderstoodconceptually astheprofitaftertaxpaidtoshareholdersasapercentage.Atthesametime,thisisa ratio that many investors always pay attention to and watch carefully Because it isused as a measure to reflect how much value a business creates for its owners -shareholders.

CREATELIQUIDITYOFCOMMERCIALBANKS

Definitionofliquiditycreationofcommercial banks

ModernfinancialintermediationtheoryBergerandBouwman(2015)recognizes that banks provide liquidity, which adds to its playing an important rolein the economy For banks, creating liquidity is a necessary and important task toprovidefortheeconomy.By usingrelatively liquidliabilitiessuchasdeposits,Jiang, Levine, and Lin (2016), the customer then uses them to finance illiquid assetssuch as loans, thereby creating liquidity When turning illiquid assets into liabilities,the bank's liquidity creation function was demonstrated in economic terms in thestudy by (Beck, Demirgỹỗ- Kunt, Laeven, and Maksimovic, 2006; Diamond andDybvig, 1983) Customer deposits, Sahyouni and Wang (2019), are one source ofliquidity, as they will be used to fund the bank's long-term lending activities To putit in other words, it's the mismatch in a bank's liquidity creation between long-term(illiquid)assetsandshort- term(liquid)debts.Whenissuinglong- termloans,increasingthequantityofcashonhandreducesthebank'scapacitytocreateliqui dity.

According to W A Boot, I Greenbaum, and V Thakor (1993), it has beenrecognized that commercial banks have long held illiquid assets that are customerdeposits The liquidity of deposits is created when there is a combination of assetconversion services such as insurance depositors and the central bank acting as thelender of last resort In addition, the article also refers to activities such as loanguaranteesandoff- balancesheetcommitments.Itisalsoconsideredtocreateliquidityforbanks,therebyhelpi ngbusinessesdevelopandmakelong-terminvestments moreeffectively.

Liquiditycreationtheories

Previousstudiesfocusedondifferentaspectsoftheliquiditycreatingcategories of the balance sheet, such as the asset side, the liability side, or both theasset side and the capital side Given the focus on liabilities on bank balance sheets(Bryant, 1980; Diamond and Dybvig, 1983), liquidity creation is viewed as a safetynet for consumers who are unsure about the timeliness of their deposits and takemoney out of the bank The client's timely withdrawal request creates liquidity inthis case. The importance of both assets and liabilities is also highlighted in thestudy In the paper Donaldson, Piacentino, and Thakor(2015), they look at whenbanks focus and are active on assets when they lend so that the economy is investedmorefromthatcashflow.

Accordingtotheliquidity creationtheoryBergerandBouwman(2009),bankscreateliquidityfortheirclientsbycon vertingliquidassetsintoilliquidliabilities or financing illiquid assets with liquid liabilities This approach to thetopic of liquidity creation is similar to Berger and Bouwman (2015), and in thethesis, the author also explains liquidity creation based on the understanding andreasoning. Banks convert illiquid loans, such as business loans, into deposits, whichare often referred to as highly liquid liabilities The creation of liquidity on theirbalancesheetfor the generalpubliccontinues fromthere.

As per the previously discussed theory, banks have recognized that an off- balance sheet item is comparable to loan commitments, loan guarantees, guarantees,and similar needs with liquidity funds to create liquidity (Holmstrửm and Tirole,1998; Kashyap, Rajan, and Stein, 2002) Consequently, the consumer can withdrawmoney from the bank under the same terms as before Bank lending commitmentsBerger and Bouwman(2016), are similar toi l l i q u i d b a n k l o a n s f r o m t h e b a n k ' s pointofview.Banksaresimilarinthattheybothmustsupplythecapitaltoconsumer s when they need it Customers regard loan commitments as transactionaldepositsbecauseoftheirliquidity;customersmay withdrawatanymoment,butthe duration of the commitment - from the customer's perspective - determines howlengthy the commitment is Therefore, to create liquidity, a bank that holds a loancommitmentmustholdsomethingilliquidandatthesametimeprovidet h e customer with something liquid Much of the liquidity required to create off-balancesheet liquidity requiresbanksto hold loan commitments andsimilar requirementsfor liquidity funds.On-balance sheet and off-balance sheet liquidity creation havesynergy(GatevandStrahan,2009;Kashyapetal.,2002).

Createliquidityand metrics

Banks operate and simultaneously perform many important functions of acountry, of which two main functions stand out That is, Al-Khouri and Arouri(2019) act as financial institutions and also contribute to the transfer of risk in theeconomy.Moreover, banksarerecognizedasentities thatplay anintimat eroleinthe role of liquidity generators and providers When banks create liquidity, theytransfer resources beneficially and efficiently Because of the receiving of highlyliquid short-term debt as a result of deposits and the development of illiquid long- termcredit,movementsoccurprimarilyinthetransitionfromsavingstoinvestments.Asac onsequence,Levine(1991)thebankfacilitateseffectiveproductionand consumption operations.

Liquidity creation, on the other hand, has an impact on banks since it needsthem to have accessible cash and access to their financial resources Banks willproviderapidliquidity ifcertainconditionsaremet,suchasifobligationsareconvertedsmoothlyandpromptly,orifth eyarenot.Bankswillcreatequickliquiditywhenitmeetsitemssuchas:Ifcommitmentsarecon vertedtocashefficiently, quickly or they will not suffer losses In addition, the fragility of thecapital structure of banks can occur when there is a discrepancy between a bank'sassets and liabilities Short-term sources of strong liquidity combine to become asource of capital to maintain business operations, making it more sustainable tosupporttheeconomythroughcreditandpaymentchannels,thankstoliquidity creation from working highly liquid capital sources to finance illiquid assets Small- scale and short-term capital will continue to be a source of unused and illiquidcapital scattered across the economy if banks do not engage in these liquidity-creatingactivities.Inaddition,Jiangetal. (2016)bankscanimprovecapitalallocationand accelerateeconomicgrowthbycreating liquidity.

Sofa r, i nt hes tu di es onl iq ui di ty creation, dep en di ng on the po in to f v i e w and the characteristics of the research paper, the measurement method of liquiditycreation of commercial banks will be used Accordingly, it was first developed on abank's ability to create liquidity as a measure built by Deep and Schaefer (2004) Inthis study, the ability to generatedrill rods is calculated through the "liquiditytransformationgap"- (LTG)formula:

LTG=(Liquidliabilities –Liquid assets)/Totalassets( 2 3 ) The study's findings revealed that LTG accounted for around 20% of the totalassets of a group of large banks in the United States, leading to the conclusion thatthese banks did not provide much liquidity for the economy This measure mainlymeasures long-term, examines loans less than one-year liquid and conversely overoneyearilliquid, andclassifiesassetsandliabilitiesbasedonmaturity.

The LTG is an intuitive measure, but according to Berger and Bouwman(2009) research, it is not comprehensive enough to more accurately reflect a bank'sliquidity creation ability Therefore, Berger and Bouwman (2009) developed newliquidity creation measures on the basis of inheriting the "LTG" research platformsofDeepandSchaefer(2005).Therearefourmethodsofmeasuringliquididycrea tion, including: “cat fat”, “mat fat”, “cat nonfat” and “mat nonfat” In particular,two categories, "cat fat" and "cat mat" focus on classifying items on and off thebalance sheet by category, by nature of the bank's operations (Category - Cat) or bymaturity( M a t u r i t y -

M a t ) T h e o t h e r t w o c a t e g o r i e s a r e “ c a t n o n f a t ” a n d “ m a t nonfat”w h i c h e x c l u d e t h e b a n k ' s o f f - b a l a n c e s h e e t i t e m s w h e n c a l c u l a t i n g t h e bank's ability to create liquidity.These four-liquidity calculation methods have beenfurther refined when considering the effect of all banking activities on liquiditycreation.

The four methods of calculating liquidity Berger and Bouwman (2009) arerecognizedandwidelyusedinmanysubsequentstudiesbyresearchstudyingliquidity around the world "Cat fat" is considered the most advantageous methodbecause it classifies loans by the category "cat", instead of by the term (mat) In thestudy, the

“cat fat” measure was themeasure that wasmentally closest to thefinancialintermediationtheories.Inthisfinalthesis,theauthorwilluse"catfat"a sa measure of the liquidity creation factor of commercial banks in Vietnam This

Step 1: Classify activities such as assets, liabilities, equity, and off-balance sheetactivitiesforeachclassintoliquid,semiliquid,orilliquidcategories.

The classification of all banking activities is based on information on thebank's productsandservices.

Thebasisfortheallocationofweightsistheliquidity theory argument.According to theory, on balance sheets, banks' liquidity creation occurs when theyconvertilliquidassetsintohighlyliquidliabilities.Whenliquidliabilities areusedto finance illiquid assets such as business loans or illiquid OBS, liquidity is created.Therefore, a positive weight is applied to both illiquid assets and illiquid OBS, aswell as liquid liabilities Similarly, negative weights are assigned to liquid assets,liquid OBS, and illiquidity liabilities suchas liabilities and equity.A dollar ofliquidity, is destroyed when a dollar of illiquid liabilities or equity is transferred to adollar of liquid assets or liquid OBS activities The magnitude of the weights isbasedonsimpleconstraintsBergerandBouwman(2015).Forexample,

$1ofliquiditywillbecreatedwhenabankconverts$1ofilliquidassetsinto$1ofliquid debt When banks convert a dollar of liquid assets into an illiquid debt, an illiquiddollarisdestroyed.Theweightof1/2isappliedtoilliquidassetsandliquidliabilities based on this situation, whereas a weight of -1/2 is allocated to liquidassets and illiquid liabilities The weighting of the average liquidity items betweenliquidandilliquidactivitiesiszerothatisassignedtothesemiliquidassets ,

Table2.1Classificationofassetsandequity onandoffthebalance sheetofVietnamesecommercialbanksby liquidity semiliquidliabilitiesandsemiliquidguarantees.

Amounts due to theGovernmentandtheStat e Banks Tradingliabilities

Fundsforfinance,entrustedinve stmentsandentrusted loans Valuablepapersissued

= 1/2 × (Illiquid assets + Liquid liabilities + Illiquid off-balance sheet guarantees) +0×(Semiliquidassets+Semiliquid liabilities+ guarantees)

– 1/2 × (Liquid assets + Illiquid liabilities and in step 1 has been completed, their weights are assigned to include weights forliquid, semi-liquid and illiquid asset classes, liabilities plus equity, off-balance sheetguaranteesandderivatives.Classificationofassetsandequityonandofft h e balance sheet of Vietnamese commercial bankswith liquidity.( S t e p 1 c o m b i n e d withstep2).

Based on that classification, the author makes adjustments to the payableswith the customer's deposited items classified as coefficientẵDan and

Japan(2022) when studying the case of the banking industry in Vietnam It is also basedonXuânetal.,(2021) researchtoadjustittosuittheresearchsituationinVietnam.

Table2.2Catfat measureofLC combining equity+Liquid off-balancesheetguarantees).

Then the liquidity creation variable(LC)will be calculated by dividing thetotal assets by the calculated in the formula This is also explained by traditionalbank liquidity, which focuses on base ratios such as the use of only a proportion ofthe bank's assets and/or liabilities A bank's liquidity capacity, on the other hand,measureshowmuchliquidityitprovidesforitscustomersandt h e e c o n o m y , m aking it less liquid in the process To make the dependent variables meaningfulcomparisonsa c r o s s b a n k s , a n d t o a v o i d g i v i n g t o o m u c h w e i g h t t o t h e l a r g e s t banks:

LC=Liquidity creation“Catfat”/Totalassets (2.5)

Note:Normalized liquidity creation (liquidity creation divided by assets) provides amore direct and extensive measure of a bank's illiquidity, as well as an inversemeasureofabank's liquidity.

 Ontheasset-side(LCA)=((0.5×(Illiquidassets)+0×(Semiliquidassets)-

 On the side of liabilities (LCL) = ((0.5 × Liquid liabilities + 0 × (Semiliquidliabilities)−0.5×(Illiquidliabilitiesandequity))/Totalassets( 2 7 )

Theoff-balance-sheet-sideliquiditycreationsection(LCOBS)

 On theoff-balancesheet (LCOBS)=((0.5× Illiquid off− b a l a n c e s h e e t items + 0 × (Semiliquid off − balance sheet items) − 0.5 × (Liquid off −balancesheetitems)) / Totalassets (2.8)

EMPIRICAL STUDIES ON

Foreignstudies

Research on bank liquidity creation Berger and Bouwman (2009), this is theresearch that lays the groundwork for the measurement of liquidity factors includingoff-balance sheet items, and makes the measurement more accurate The articleshows that banks that generate more liquidity also have a higher ratio of marketreturn to market price In addition, the article also demonstrates that banks thatcreatemoreliquidityarefavouredbyinvestors,resultinginincreasedprofitability.

According to Duan and Niu (2020) research, there are a total of 412082quarterly data observations in the United States from 2001 to 2016. Accordingt o the FEM estimation technique, the collected data to study the relationship betweenliquidity creation and bank profitability The research examines it from a variety ofperspectives, including the period before the crisis - through and after the globaleconomic crisis of 2009 and the size of the bank In addition, the examination alsoincludesthevariouspillarsofliquiditycreation.Thefindingsofther e s e a r c h sugg est that: for the cases investigated by the author, banks of various sizes innormal times as well as during crises showed that the larger the liquidity creation,thehigherthebank'sprofitability.Individualfactorssuchasliquidity creation,liabilities,andoff-balance sheetcompany operations all havea p o s i t i v e i n f l u e n c e onprofit,whilsttheassetsidehasa negativeimpact.

SahyouniandWang(2018)havefocusedonhowliquidity affectsbankprofitability in developing and emerging markets all over the world. The authorsexplore the amount of liquidity these banks create, how they create liquidity andother macro factors that impact bank profitability The study's empirical evidenceshows that the amount of liquidity produced by banks has risen in recent years Inthe study, with a sample of six developed and five emerging countries, the resultsshow that creating liquidity has a negative effect on bank profitability, which isconsistentwiththeauthor'shypothesis.initialguess.Thatisthee x p e c t e d bankruptc y cost hypothesis If the bank increases liquidity creation, it will increasethelevelofliquidity riskforthebank,whichinturnwillincreasethebank'sprobability of bankruptcy Reducing the profitability of the bank Banks that createmore liquidity have lower established returns Markets are affected differently bymacroissues.Furthermore,operationalefficiencyandcreditqualityhaveadetrimental effectonbankprofitability.

Sahyouni and Wang (2019) performed a study in the Middle East and NorthAfrican countriesfrom 2011to 2016 toexamine theliquidity creation ofI s l a m i c and conventional banks, as well as the relationship between liquidity creation andbank performance This paper investigated a sample of Islamic and conventionalbanks in the Orbis Bank Focus dataset, which includes panel data from acrosseighteen Middle Eastern and North African nations The study's empirical findingssuggest that conventional banks create more liquidity than Islamic banks At thesame time, regression analysis reveals a correlation between bank profitability andliquidity creation They have a positive association and utilize a return on averageequity to evaluate bank profitability In contrast, the researcher found no correlationbetweentheprofitabilityofMiddleEasternandNorthAfricanbanksandtheprofit abilityscaleusingthereturnonaverageassets.

The findings of this study Abbas, Iqbal, and Aziz (2019) consider the effectsof bank capital, bank liquidity, and credit risk on commercial bank profitability.ComparedthebankingindustryinrichAsiannationstothebankingbusin essinthe

United States during the post-crisis period from 2011 to 2017 According to thefindings, liquidity has a negative impact on profitability for big US commercialbanksbuthasapositiveimpactonprofitabilityforcommercialbanksw i t h e conomicexpansioninAsiainthepost-crisisperiod.Accordingtothestudy,liquidity has a greater impact on profitability than capital, regardless of the size ofthe bank Furthermore, the author also shows that credit risk has a negative effect onbankprofitabilitywhileliquidityandbankcapitalhaveapositiveimpact.

Commercialbanksineightyfourcountriesthroughoutthew o r l d Yusgiantoro, Soedarmono, and Tarazi (2019), comprising five hundred and fiftyeight commercial banks It is also regarded as the first cross-national study of theinterplaybetweenregulatorycapital,liquidity,bankprofitability,andfinancialstabilit y Not only does the author look at how much liquidity these banks havegeneratedovertime,buthealsolooksathowcapital,liquidity,andbankprofitability interact Using the Cat fat measure as the independent variable, whichrepresents the bank's liquidity creation, and the bank's factors as the dependentvariable, which includes ROA and ROE, as well as several other macro variables.Theauthors'researchresults,showthatcreatingliquidityleadstolowerbankprofit ability and higher financial instability At the same time, banks in higher- growthcountriesexhibithigherliquiditygenerationcapacity.

Fortheperiod1996to2013,thisstudy byThao,Lin,andHoa(2016)explores the interrelationships between US liquidity creation, regulatory capital, andbank profitability, it does so for each year separately The findings of the studyrevealthatduringnon- crisisperiods,abank'scapitalregulationandliquiditycreation have a positive impact on each other, which is especially true for smallbanks They discovered that banks create greater liquidity while having a higher riskofi l l i q u i d i t y h a d p o o r e r p r o f i t a b i l i t y T h e i r f i n d i n g s h a v e a w i d e r a n g e o f p o l i c y and regulatory consequences for policymakers and regulators Overall, the authorsdiscover a negative association between liquidity generation and bank performance,whichisconsistentwiththeirtheory'sestimatedbankruptcycost hypothesis.

OTHER

The performance of commercial banks is influenced by a variety of bank- specific factors and macro factors The author of this paper concentrates on thefollowingtypicalcharacteristicsthathavebeencitedinmanyearlierstudies:

Asset size is a result of the use and allocation of capital in the bank When abank has large assets, it will have an advantage in terms of experience in loanmanagement anddiversification of products and services For that reason, it ispossible to provide services at a lower cost and possibly increase profits (Akhavein,Berger, and Humphrey (1997) and Elsas, Hackethal, and Holzhọuser

(2009) Otherstudies, on the other hand, reveal that when commercial banks grow larger, theyneed spend more money on operations and advertising, resulting in asymmetricinformation.Therefore,profitabilityandbanksizeshouldhaveanegativerela tionshipAladwan(2015)andTan(2016),thebiggerthebanks,thelessprofitabletheyare. Meanwhile,Henny(2021)researchonfactorsaffectingprofitability from commercial banks in Indonesia shows that size has a positiveimpact on profitability with the representative variable being ROA while having anegativeimpactonROE.

According to a research opinion from Berger and Bouwman (2013), it isassumed that banks will be more profitable if they raise the equity ratio From there,it will help them increase their tolerance when losses arise from risks in businessactivities, especially creditrisks Capitalimprovestheoperationalefficiency ofcommercial banks and helps banks survive in many situations of financial crisis andvolatile markets It also reduces the probability of bankruptcy, has a positive impacton the profitability of small banks The capital ratio, Trung

(2020) represents thesolvency ofcommercialbanksthisvariablehasapositiveeffectonROAratiobuta negative effect on ROE As for the ROE ratio, it is explained by the portfolio theoryof risk-return trade-off When commercial banks raise the equity ratio, the overallrisk of commercial banks will be minimized, thereby the expected return is not ashighasinthecaseoftheequityratio.

Accordingto researchon bank liquidity and profitability,Duanand Niu(2020a) they use this ratio to examine a bank's business and specialization in itstraditional lending business This is also considered a factor used to consider thelevel of liquidity risk of banks that occurs when they lend too much, leading to theinability to pay their debts or to finance growth assets on the balance sheet At thesame time, the lending market includes consumer loans with a higher level of riskthan government bonds, so the return from this item is expected to be higher andpositively correlated with profitability Research by Sufian, Muzafar, Habibullah,and Sufi An (2009) shows a positive relationship between profitability and loan-to-total assets ratio However, Bourke (1989) implies that the safer the bank, the lowerthe cost of capital, implying that this commercial bank will have lower liquidity riskandbetterprofitability.However,credit activitiesalsohavemanyrisks.

The study on liquidity risk and bank performance Arif and Nauman Anees(2012) in the period 2004-2009, shows a positive impact on the performance of thebank It is explained by banks that they will not have to depend on central banks orrepo markets to meet the needs of other depositors, other borrowers At the sametime, there is also an amount of money available to satisfy borrowers without thecost of borrowing from other credit institutions Moreover, the bank can use thisdepositor's money as efficiently as investing in other activities while still ensuringthe capital adequacy ratio that Basel offers The ratio of deposits to total assetsRamlan and Adnan (2016), was also found to have a positive effect on profitabilityin Malaysian banks, studying a sample of fifteen Pakistani commercial banks

2.5.1 Bank-specificfactors

Macrofactors

The author developed (The annualized growth rate of real GDP) variable toinvestigatethemacroinfluenceontheprofitability ofVietnamesecommercialbanks. According to research by Gul, Irshad, and Zaman (2011), it shows that GDPgrowth rate has a positive impact on profit target The study of banks' businessperiods and the variation of this rate by Petria, Capraru, and Ihnatov (2015) showsthatGDPhasadirectandsignificantimpactonbankprofitability.

The author uses short-term interest rates, specifically Treasury bill rates toconsider the level of influence From a macro perspective, interest rates in generalalso exist as a component, in which short-term, long-term interest rates and yieldcurvatureplayanimportantrole,indeterminingtheprofitabilityofbanks.According to research papers Borio, Gambacorta, and Hofmann (2017) on monetarypolicy and its effect on bank profitability indicators According to the results, theyanalysed the effect of interest rates on different profitability indicators, typicallypositiveeffectsonreturnonassets.TheresearcherPasiourasa n d K o s m i d o u (2007b) considers that the larger the slope of the term, the higher the rate of return,so interest rates have a positive effect on returns That is explained by the commonreasonthattermmismatchesandrevaluationfrictionareresponsibleforthereduc tion in profits Meanwhile, the Bolt, de Haan, Hoeberichts, an Oordt,andSwank(2012)includeseffectsondifferentprofitability indicators,arguingthatshort- terminterestratesnegativelyaffectnetinterestincome.

Chapter 2 presents the theoretical basis of liquidity creation, and how tomeasure it In addition, the theory of profitability of commercial banks is alsopresented with related concepts and criteria for measuring the profitability of banks.Reviewingthetheoriesofliquiditycreationandbankprofitabilitya l o n g w i t h rela ted previous studies from domestic to foreign countries on the topic of liquiditycreation's impact on the profitability of banks Using previous empirical studies as afoundation to build models, research methods, and variables including liquidity riskvariables affecting profitability for commercial banks in Vietnam This chapter isalso a basic premise for the author to continue implementing the next chapter In thenext chapter 3, the author will present in more detail the research sequence andresearchmethods.

 The measure of the dependent variable for liquidity has not been widely usedinVietnambecauseofitspopularityinrecentyears.

 The difference in liquidity generation affecting commercial banks' profits isnotthesameincountriesaroundtheworld.

 Therefore, inheriting and applying it to reality, Vietnam, a country that is onthe way to developing with a young banking system, bank management in general,andliquiditymanagementinparticularisgraduallyintegratingandimproving.co mplete The purpose of this study is to establish a similar research model to testtherelationshipbetweenliquiditycreationandprofitability.

In general, to the extent of the author's knowledge, most of the studies onliquidity in Vietnam mainly look at liquidity risk and sound liquidity management.There are very few studies on the liquidity creation ofcommercial banks,andespeciallyanin- depthunderstandingoftherelationshipbetweenliquidityandprofitability of commercial banks Based on the world's previous research results ontherelationshipbetweenliquidityandbankprofitability,thefollowingconclu sions

Step 1: Defining and reviewing background theory, previous studies

Step 2: Building research models and methods

Step 3: Analysis of the impact of liquidity creation on the profitability of commercial banks in Vietnam

Step 5: Analyze regression results and discuss research results

Step 6: Conclusion and suggestions canbedrawn.

InCha pte r 3 , t he a u t h o r m a i n l y focuseso n t h e d a ta co ll ect io n p r o c e s s and themethodsofdataevaluationaftercollection.Toanswerthetworesearchquestion sandresearchobjectivesstatedinthefirstchapter.Also,statethetheoreticalframeworkuse dintheresearchandtheexpectationswiththevariables.

RESEARCHPROCESS

Step1 : T h ea u t h o r w i l l c h o o s e a r e s e a r c h t o p i c w h i l e a l s o r e v i e w i n g t h e background theory around the production of liquidity and bank profitability At thesametime,theauthorexaminesactualresearchontheinfluenceofb a n k profitabilitya crosstheworld,includinginVietnam.Theauthoridentifiestheresearchproblemastheimp actofliquiditycreationontheprofitabilityofcommercialbanks.

Step 2:Based on theory and related studies in the first step, the author buildsa research model and applies appropriate research methods to analyze the impact ofliquiditycreationonbankprofitability.

Step 3:From associated studies, the author learns and examines variables toconstruct a research model The author collects data from twenty-three Vietnamesecommercial banks from the financial statements of the banks and macroeconomicdata is collected on the website of the World Bank, each year for the period 2009-2020 Then, after collecting and calculating variables for the suggested study model,theauthorutilizesthequantitativeanalysisapplicationStata15toperformquantitati ve estimatetechniques:

To begin,use variable descriptive statistics to characterize and comprehendthestudydataset'sattributes.

Second,in the quantitative analysis model, do correlation analysis amongvariables to determine the linear correlation between the dependent variable and theindependentvariables, aswellasbetweentheindependentvariables.

Finally,the study model employs panel data that is regressed using one ofthree methods: POLS regression, FEM model, or REM model Perform the test tochoose the best model among the three models: OLS, FEM, and REM Perform theF-Test to choose Pool OLS or FEM At the same time, the author performs theHausmantesttochoosebetweenFEMandREM.

Step 4:With the support of the Hausman test, the thesis chooses the mostsuitable model Test the regression model to ensure reliable research results,theauthorperformsimportanttestssuchasautocorrelation,multicollinearity,andHeteros cedasticitytestbasedonthemodelthatisdecidedtobethemostsuitable.

Based on that basis, perform the defect test of the selected model to detect thephenomenon of autocorrelation test of the model The model that is expected to beusedifthereisadefectphenomenonistheFGLSmodel.

Step 5:Discuss the study findings after analysing the regression results usingthe suitable model in step four The study findings on the influence of liquiditycreation on commercial bank profitability in Vietnam are presented in this thesis.The author examines and contrasts the findings of prior studies that have beenconducted.

Step 6:Conclusions and recommendations: the author presents conclusionsont h e r e s e a r c h t o p i c , a n d p r o p o s e s r e c o m m e n d a t i o n s o n t h e c r e a t i o n o f l i q u i d i t y andprofitabilityofcommercialbanks inVietnam.

RESEARCHMODELANDRESEARCHHYPOTHESIS

Based on the theoretical basis and the research presented in Chapter 2, theauthor usesROAandROEto measure the profitability of commercial banks This isamodelusedforanalysisandresearchrelatedto“Liquiditycreationa n d profitability of banks” In the scope of the study, inheriting the study of Ying Duan,Jijun Niu

(2020), the author will consider the impact of liquidity creation on bankprofitabilitythroughestimationaccordingtothefollowinggeneralmodels.

ROA it = β 0 +β 1 *LC it + β 2 *SIZE it + β 3 *CAP it + β 4 *LOANS it + β 5 *DEP it + β 6 *COST it + β 7 *LLP it + β 8 *GDP it + β 9 *TB it +sit(1)

Models 2: Measure the impact of individual pillars of liquidity creation ROA it = β 0 +β 1 *LCA it + β 2 *LCL it + β 3 *LCOBS it + β 4 *SIZE it + β 5 *CAP it + β 6 *LOA

NS it + β 7 *DEP it + β 8 *COST it + β 9 *LLP it + β 10 *GDP it + β 11 *TB it +sit(2)

ROE it = β 0 +β 1 *LC it + β 2 *SIZE it + β 3 *CAP it + β 4 *LOANS it + β 5 *DEP it + β 6 *COST it

+β 7 *LLP it + β 8 *GDP it + β 9 *TB it +sit(3)

Models 4: Measure the impact of individual pillars of liquidity creation ROE it = β 0 +β 1 *LCA it + β 2 *LCL it + β 3 *LCOBS it + β 4 *SIZE it + β 5 *CAP it + β 6 *LO

ANS it + β 7 *DEP it + β 8 *COST it + β 9 *LLP it + β 10 *GDP it + β 11 *TB it +sit(4)Where:Β0:c o n s t a n t t e r m ; β 1 , , β 11 :R e g r e s s i o n c o e f f i c i e n t s f o r t h e i n d e p e n d e n t variables;si sa nerrorphrase;iisthelistoftwenty- threecommercialbanks;twastheyearfrom2009to2020.

Forthedependentvariable,theauthoruses:Returnontotalassets(ROA),Retur n onequity(ROE)representingtheprofitabilityof23commercialbanks.

For the independent variables, the author uses: LCto represent

Liquiditycreation by cat fat divided by total assets (%),LCArepresents The asset – sideliquidity creation section dividedby the total assets (%),LCLi s T h e l i a b i l i t i e s –side liquidity creation section divided the total assets (%),LCOBSrepresents Theoff-balance sheet – side liquidity creation section divided the total assets (%),SIZEis Natural logarithm of total assets in Vietnam dong , CAPis The ratio of total equitydivided by total assets (%), LOANSis Total loan and leases divided by total assets(%), DEPis Customer deposit ratio divided by total assets (%), COSTis Ratio ofnoninterestexpensedividedbytotaloperatingincome(%), LLPr e p r e s e n t sProvi sion ratio for loans divided by total loans and leases (%) GDPandTB, whichstandforGrossdomesticproductgrowthandThetreasurybillinterestrate,respectiv ely,w e r e e m p l o y e d a s a d d i t i o n a l i n d e p e n d e n t v a r i a b l e s i n t h e r e s e a r c h (%).

In general, it can be said that banks hold illiquid assets such as loans andcreditcommitments.They provideliquidityandeconomicgrowthforfinancialmarkets Banks' working capital and lending activities are a continuous process ofcreatingliquidityfortheeconomy,whiletheyalsoperformriskconversionactivities.Cr eatingliquidityisalwaysanissuethatnotonlybanksbutalso governmentsarecautiouslyconcernedaboutbecauseliquidityrepresentst h e process of money movement in the economy Measured by the "cat fat" indicator,the method was developed to be more comprehensive and used in later studies tomeasure liquidity Berger and Bouwman (2009) there are view that when a bankcreates liquidity and thereby profits, shareholders will also receive value Therefore,the creation of liquidity must be associated with the market value of the bank.Agreeing with that view, according to research by Duan and Niu (2020b), higherliquidity tends to bring higher profits In this study, the author believes that banksthatcreatemoreliquiditywillmakehigherprofits.

Based on the research, author hypothesizes about three separate pillarsofliquidity creation is LCA,LCLandLCOBS Liquidity creation - consists of:

This is one of the three pillars of a bank's liquidity creation Through thisliquidity is created on the side of the bank's assets This is explained by Bordeleauand Graham (2010) that banks that can reduce the risk of insolvency and default byholding more liquid assets As a consequence, Sahyouni and Wang (2019) bankswithahigheramount of liquid assetstendtoface lowerfunding costsan dhighernet income Based on previous research results the author expects the variableLCAtohavea negative impactoncommercialbankprofitability.

Hypothesis H 2 : The asset – side liquidity creation has a negative effect (-) on bankprofitability.

On the liabilities side of the bank, this is how liquidity is created In the studyLeetal.,(2020),indicatesthatthereisaquadraticrelationshipbetweenbankliquidity and profitability for US commercial banks Their research also emphasizesthat when banks increase liquidity in the early stages, they have seen improvedprofitability.Theexplainedincreaseinprofitabilitycanbeattributedtot h e enh ancedp e r f o r m a n c e o f b a n k s a s t h e y become m o r e e f f i c i e n t i n m o b i l i z i n g a n d distributing capital The author expects the variableLCLto have a positive impacton the profitability of commercial banks, similar to the results of previous studies(Berger&Bouwman,2009b;Duan&Niu,2020b).

Hypothesis H 3 : The liabilities – side liquidity creation has a positive effect (+) onbankprofitability.

It is one of the three main pillars that a bank uses to create liquidity Jiang etal., (2016) TheLCOBSmeasure shows the ability to generate liquidity off thebalancesheet.Bankscreateliquidityoff- balancesheetsbyprovidingloancommitments and creating similar claims for solvency funds According to a studyon banks in the US Duan and Niu (2020), the positive results ofLCOBSaffect thedependentvariableROA,ROE.BergerandBouwman(2009),foundthatt h e creation ofadditionalo f f - b a l a n c e s h e e t – s i d e l i q u i d i t y w o u l d i n c r e a s e t h e a m o u n t ofn e t s u r p l u s s h a r e d b e t w e e n t h e s t a k e h o l d e r s a n d t h e n o n - b a n k p u b l i c , i n t h i s sense creating liquidity would have a positive effect on the value of the banks.Therefore, in the article, the author expectsLCOBSto have a positive impact on theprofitabilityindicatorsofcommercialbanks.

Hypothesis H 4 : The off-balance sheet – side liquidity creation section has a positiveeffect (+)onbankprofitability.

The value of total assets is used to measure the size of the bank, and thisnumber is converted to the natural logarithm (Ln) to suit the research model. Thismeasureisoftenusedtomeasurebanksizeinresearchoncommercialbankprofitabilit y(Pradhan,2017; Tharu andShrestha,2019).

(3.1)Abank'sscaleindicatesitslevel,developmentstate,andorganizationalsize. Largerb a n k s , a c c o r d i n g t o S t e v e r ( 2 0 0 7 ) c a n e x p a n d t h e i r o p e r a t i o n s i n t e r m s o f bothc l i e n t n u m b e r s a n d o p e r a t i o n a l n e t w o r k s b y t a k i n g a d v a n t a g e o f l o w e r - c o s t funding.Large- scalecommercial ba nk s, o ft en haveamore competitiveadvantage when operating as well as diversifying their asset portfolio compared to smaller- sized commercial banks Meanwhile, small commercial banks will have to look forcustomers with low credit risk or they will need to require more collateral to ensurecapital adequacy in their business operations According to studies by domesticauthors such asTrung(2020),whenabankhasalargescale,itwill haveanadvantage in working capital because it offers low-interest rates, so it attracts morecustomers as well as lower input costs By providing customers with services at alower fee when compared to smaller banks Typically, large-scale banks in Vietnamwill have more advantages in working capital at low costs because they rely on anetwork of branches and operating locations and diverse products and services.From these statements and based on the current situation of Vietnamese banks, theauthorhopesto considerthepositive impactofbanksize onoperatingprofit.

Thecapitalratiosarefrequentlyusedtoevaluateabank'sstrengtha n d market position The ability of a bank to tolerate and recover from economic shocksreflects its stability When asset values fall, equity protects the bank and helps tolessen the danger of insolvency Therefore, banks with a high capital adequacy ratioarelessriskyandmore efficient intheiroperations Whencapitallevels arehigh,thebankwillrequirelessexternalfundingandincurlowerexpenses.Wh encapitalis scarce, however, the bank will require more external funding and incur highercosts Therefore, the greater the equity-to-total-assets ratio, the less concerned thebankandits executives willbe aboutoperational risks.Onthatbasis,this ratio isthe basis for banks to expand their business activities and bring in higher operatingprofits Based on research

Pradhan (2017) about Nepalese commercial banksshowsthattherelationshipbetweenbankcapitalratioispositivelycorrelatedwithpro fitability The higher this ratio, the larger the bank's capital, which promoteshigher profitability by creating confidence for customers to come to trade PasiourasandKosmidou(2007b), andto preventbusiness risks that canprovideexcesscapital intheformofloans.

CAP= Total Totalasse ts equity (3.2)

Banking risk, particularly liquidity risk, has a significant impact not only onthebank'ssafeoperation,butalsoonthecountry'sfinancialsystem.T h e commercial banking system is the main source of money for economies in countrieswhere the capital market has notyet developed, such as Vietnam.C o m m e r c i a l banks have quite a large source of income from lending interest income in theircustomers' revenue and it is also one of their main sources of income The larger thecredit balance, the more interest income will be, which will have a positive impacton the bank's profitability The study Huong and Long (2021) found a positiverelationship between the ratio of loans to total assets and profitability in Vietnamfrom 2014 to 2018 It's also regarded as an asset structure that assesses revenue andthe ability to repay loans and advances If all factors remain constant, the moredeposits are converted into loans, the higher the expected profits will be and that isalsothetopgoalofcommercialbanks.Consideredasanindicatorreflectingliquidity risk in banking activities This ratio, Roman and Şargu (2013) also has adirectrelationshipwithcapitaladequacyasinmostcasessolvencyriskisdeterminedbyth edeclineintheasset'sprice.Inthisstudy,theloanr a t i o i s expected to have a positive impact on the profitability of commercial banks; thehighertheratio,themorestablethebank'slendingactivity.

Hypothesis H 7 : The ratio of Total loans and leases to total assets has a positiveeffect(+)onbankprofitability.

The increase in the deposit-to-total-asset ratio Dezfouli, Hasanzadeh, andShahchera (2014) will assist banks in improving their competitiveness and strengthwhileprovidingservicestoclients.Forthisreason,operationalincomew i l l incr ease,givingstockholdersmorevalue.Banks,ontheotherhand,willbevulnerable to liquidity risk if they become excessively reliant on this source of cashand do not diversify their sources of funding Banks do not borrow from other creditinstitutions to supplement their capital Therefore, they are unable to reduce interestexpenses through tax shelters A rise in the deposit ratio, on the other hand, mightlead to an increase in bank profitability by obtaining funds from the differencebetweentheinterestpaidondepositsand theinterestcollectedonloans.

HypothesisH 8 :Deposit ratiohas apositiveeffect(+)onbankprofitability.

Thisisanindexcommonlyusedtomeasuretherisksassociatedwithcommercial banks' operations Researching on factors affecting bank profitability,domestic and foreign research (Binh and Anh, 2020; Muriithi, Robert, and Muigai,2017) has discoveredthe negative correlation between the ratioofnon-interestexpenses divided by operating income from business activities with revenue andprofit of the bank. considered in both the long and short term This is explained indetail because as this ratio increases, it will affect and relate to factors such as: staff,rent, and other operating expenses, or a decrease in income can also cause problemsthatmake bank profitsdecrease.Therefore, it is expected in them o d e l t h a t t h e r e willbenegativecorrelationbetween thecost- to-incomeratioand bankprofitability.

HypothesisH 9 :Cost-to-incomeratiohas anegativeeffect(-)onbankprofitability.

This is considered a measure when considering capital risk in general andcredit risk in particular When banks lend with high-risk loans, and at the same timedo business in a potentially risky environment, there is a lack of highly qualifiedmanagers tocontrol their lending activities.Therefore, ul Mustafa, Ansari, andYounis(2012)theymayhavetoincreasetheprovisionforhigherloanstocompensate for this part of the risk The higher the ratio, the more stable the bank'slending activity, the higher the bank's profit However, when lending too muchwithout strict control and management, it is likely to create bad debts that affectbank profits Therefore, in the study, the ratio of loan provisions to total loans andleasesthisrelationshipisinverselyrelatedtoprofitability.Thisvariablei s calculated based ontheformula:

LLP= Loan loss provisions Totalloansa ndleases

In the thesis, the author uses the annual published realGDPindex to controlfor economic cycles outside the bank The increase in banking activity is one ofmanyeffectsoftheeconomy'sexpansion,asmeasuredbyGDPgrowth.Theincreasing

GDPgrowth rate over the years is a good sign, it shows that businessopportunities are improved, credit demand will increase and thus the bank's profitswill increase even higher Most of the research papers mentioned that the economicgrowth rate is a factor affecting the profitability of banks Research Al-Harbi (2019)looking atGDPgrowth suggests that higher economic efficiency can be associatedwitheconomicgrowth,thus leadingtobetterprofits.Theauthoro f t h i s t h e s i s argues that because the banking industry seems to be very sensitive to the overallstate of the economy, economic growth will have a beneficial impact on the bank'sperformance.

DATACOLLECTION

Only twenty-three commercial banks have been used by the author to collectdata The reason for this is that there is a bank that publishes missing informationduring the thesis research process Research using statistical software Stata 15 toconduct regression estimation of panel data The author uses data collected from theannualfinancialstatementsoftwenty- threecommercialbanksselectedintheVietnamese commercial banking system from

2009 to 2020 The reports presentedbytheauthorarecollectedfromtheconsolidatedfinancialstatements,theconsol idated audit reports, theannual reportsfollowingt h e a c c o u n t i n g s t a n d a r d s and these reports are presented on the official websites of the bank.

At the sametime, by 2021, the financial environment will have changed dramatically as theworld deals with and is affected by the COVID-19 epidemic, causing the bank toexperiencenumeroussignificantchanges,whichcouldcauseinterferencewhenemployed in research For economic variables outside the bank, GDP growth data iscollected from World bank website, treasury bill data is collected from CEIC Datawebsite.

In this chapter, the author introduced in detail such contents as researchprocess, research data, and research models In the introduction to the model, theauthorhasdesignedamodelforthetopicbasedonthetheorypresentedinChapter

2 Besides, the thesis also identifies independent variables and dependent variablesthrough the presentation of the formula, meaning and sign expectation table of thevariables.Fromthere,asabasisfortheimplementationofthem o d e l a n d conclusio n of the topic for the next chapter At the same time, the author has alsodescribedindetailthedataandhowtocollectresearchdata in the thesis.

The thesis lists two research models: (1), (3) studying the impact of liquidityonthebank'sprofitindicators,representedbyROAandROE,respectively Models

(2) and (4) study the impact of individual pillars of liquidity creation on bankprofitabilityratios.

In this chapter, the author will present the results of empirical research inVietnamese banks after using Stata 15 software to process the collected data andestimatei t b y a p p r o p r i a t e m e t h o d s T h e t h e s i s i n c l u d e s d e s c r i p t i v e s t a t i s t i c s a n d runsregressionmodels.Fromtheresearchresultsobtained,thischapt era l s o presentstherelatedanalysis.

DESCRIPTIVES T A T I S T I C S R E S U L T F R O M T H E V A R I A B L E S 44 1 Returnontotalassets(ROA)

The author used descriptive statistical analysis on two hundred and seventy- six observations in this section (twenty-three commercial banks and thirteen years).Descriptive statistics will assist offer the mean, standard deviation, minimum value,andmaximumvalueofeachvariablegatheredinpreviousstudygeneratingestimati ons The author will then be able to discover the various observations thatexistin the studysamplesize byofferinga thoroughperspective ofthedata.

Thestudymodelwasprovidedintheprecedingchapter,withROAandROE ast h e d e p e n d e n t v a r i a b l e s a n d t w o g r o u p s o f i n d e p e n d e n t f a c t o r s M o r e specifically, the first group includes bank-specific variables, including Liquiditycreation(LC), The asset – side liquidity creation(LCA), The liability side liquiditycreationsection(LCL),Theoff- balancesheetsideliquiditycreationsection(LCOBS), Bank size(SIZE),Capital ratio(CAP), Total loans and leases to totalassets(LOANS),Depositratio(DEP),Cost- to- incomeratio(COST),Loanlossprovisions( L L P ) T h el a s t g r o u p r e p r e s e n t s m a c r o e c o n o m i c v a r i a b l e s , i n c l u d i n g : theannualizedgrowth rateofrealGDP(GDP),andTreasurybillrates(TB).

Thedescriptivestatisticsinthissectiondisplaythemostimportantinformation about the Mean values, Minimum values, Maximum values, StandardDeviation, and number of observations for each variable The data were processedwithStata15software,andthedescriptive statisticsofthe variable sareshownintheTable4.1.

Variable Obs Mean Std.Dev Min Max

From the data, the author will analyse the data of each variable during theresearchperiod(2009–2020),specificallyasfollows:

From the Table 4.1 results, we can see that the dependent variableROAhasan average value of 0.010 The minimum value is -0.005 belongs to TPB bank in2011 and the maximum value is 0.052 belongs to SGB bank in 2010 The standarddeviationofROAis0.008.

Looking at Figure 4.1, it can be seen that the profitability of the whole systemin general decreased sharply from 2009 to 2015 from the highest level of 1.58% to0.64%.Theec on om y inVietnamalsocannot avoidthe im pac to ft he outbre akof

Figure 4.1 Average profitability ratio of Vietnamese commercial banks intheperiod2009-2020

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 the world economic crisis, so the year 2009 had a strong impact on the profitabilityof banks In addition, in the period from 2010 to 2012, the system of commercialbanks once again had to struggle with unexpected events, such as lawsuits, recordlow credit growth and increased bad interest rates leading to profits so bank profitsfellsharply.

The bank's business has not improved, resulting in a considerable drop in thebank's earnings Following that, the bank's profitability ratio began to recover againin2 0 1 5 R O A o fb a n k s i n 2 0 1 5 a n d 2 0 1 6 w a s l o w e r t h a n t h e averageo f 1 % (0.601%and0.637%,respectively),profitincreased.Withaverageprofitab ilityratios of 1.22% and 1.25% higher than the average values in recent years 2019 and2020.Vietnamesecommercialbankshavedemonstratedexceptionaleffortsinenhanci ngoperationalefficiency.

Table 4.1 indicates that theROEof commercial banks in Vietnam is greatestin

2010, at 35.82 % for SGB bank, and lowest in 2011, at -8 % for TPB bank. Thedistinction between banks, the greatest and lowest values demonstrate tremendousrivalryintheworldwidemarket,wherebanksarealwaysseekingmethods to

Figure4.2Average returnonequity ofVietnamesecommercialbanksover theyears maximizetheirreturnperreturnofinvestment invested.

8.79%representingaremarkabledegreeofvariability,duetotheunevenprofitability of Vietnamese commercial banks when them a j o r i t y o f t h e m a r k e t share belongs to state-owned commercial banks with large capital and businesscapacity is much different from that of small and medium commercial banks.T h i s isagoodsignthat ROEinrecentperiodhasgraduallyimprovedsignificantly.

According to Figure 4.2, the maximum average value ofROEis 17.53% in2009, the smallest value ofROAis 7.8% belongs to 2015 At the same time, in theperiod 2009-2020, the ratio of profit after tax to total assets of commercial banks inVietnam has an uneven growth rate Specifically, in the period 2009- 2013,ROEdecreased from 17.53% to the low level of 8.14% and then increased slightly in2014.From2015-2020,thisratecontinuedtoincreaseslightlytoover15%.

Table 4.1 depicts the issue over twenty-year period, commercial banks thatcreateliquidity ontotalassets(LC)haveanaveragevalueof9.63%,witha standardd e v i a t i o n o f 0 1 7

Figure 4.3 Average ratio of liquidity creation to total assets of

Unit:VND lowestis-58.91%(ABBin2020).Onlyaround10%ofliquidmoney(depositsor short-termloans)hasbeenshiftedtoinvestinlessliquidassets(usuallylong- termloansorlong-terminvestments).

Figure 4.3 depicts the average value of liquidity created by the system oftwenty-threebanks inVietnam from 2009to 2020 During theg l o b a l f i n a n c i a l crisis, which lasted until the economy rebounded in 2012 and continued to developrapidly until 2020, commercial banks in Vietnam had a limited ability to provideliquidity.Conversely,the general tendency over thelast12years hasbeen animprovement in liquidity creation The figure increased from less than 200,000billion VND during the crisis period to more than 20,000 billion VND in 2012-

2013astheeconomybegantorecover.Particularlysince2017,therehavebeensig nsof progress, with liquidity creation more than doubling compared to 2012 Despite thechangingsituation,thenumberhasincreasedsignificantly tomorethan65000billionVNDby2020,butbankscontinuetoperformwellintheirfinanci alintermediaryrole.

Source: Author compiled and calculated from ExcelFigure4.4showsthatt h e a v e r a g e l i q u i d i t y c r e a t i o n t o t o t a l a s s e t s o f commercialb a n k s i n V i e t n a m f l u c t u a t e d b e t w e e n 2 0 0 9 -

2 0 2 0 T h e h i g h e s t w a s i n 2014with15.58%,thelowestin2011was0.99%,thisma ybebecausebankswereaffected bytheglobal economic crisis in2009.Until recentyears,2020 the situation liquidityhasbeenimproved,reaching7.21%.

According to Table 4.1, the liquidity side of assets(LCA)has an averagevalue of around -11.82 % with a standard deviation of about 0.07 The minimumvalue is around -26.82 %, while the maximum value is approximately 19.66 %. Itillustratest h a t , o v e r t h e s t u d y p e r i o d o f 2 0 0 9 -

2009 2020 generate a great deal of liquidity, especially when the average value of this variablereacheda negative value.

According to the descriptive statistics in Table 4.1, the average value ofliquidity creation on the liabilities side (LCL)is 23.64 % The lowest and highestproportions are -26.83% and 40.41 %, respectively When compared to the assetsand off-balance-sheet sides, creation of liquidity on the liabilities side has a higheraveragevalue.

Off-balance-sheet liquidity creation averaged (LCOBS)-2.03 %, according toTable 4.1 Meanwhile, the standard deviation is 13.43 %, and the greatest andminimumvaluesare98.68% (ofTPBank in2009)and-64.68%(ABBin2020).

From Table 4.1, it can be seen that the result was consistent, the standarddeviation is not more than the mean and the total size of banks has risen steadilythroughout the years Representing the size of banks,SIZEvariable has an averagevalue of 32.28, the minimum, maximum values are 28.83 (in 2009 of BVB bank)and3 4 9 5 ( i n 2 0 2 0 o f B I D b a n k ) , r e s p e c t i v e l y T h e s t a n d a r d d e v i a t i o n i s 1 2 4 ,

A B B AC BB ID B V B CT GE IB H D B KL BM BB M SB N AB NV BP GB SC B S G B SH B S T B T C B T PB V A B VC BV IB

Source: Author compiled and calculated from ExcelFigure4.5showsthet o t a l a s s e t s o f t w e n t y - t h r e e c o m m e r c i a l b a n k s i n Vietnam,r e f l e c t i n g t h e d i f f e r e n c e i n b a n k s i z e , w h i c h i n c r e a s e d s h a r p l y b e t w e e n 2009- 2020.Specifically,in2020BIDV,CTGandVCBarethethreeleadingbanksintermsofs caleandgrowthrateoftotalassetswithtotalassets.Thebankwiththehighesttotalasset sizewas BIDVwith1, 516,685 billionVND, followedbyCTGwith1,228,542 billionVNDandVCBwith1,341,436billionVND.Besides, SGBbankh a s t h e l o w e s t t o t a l a s s e t s w i t h 2 3 , 9 4 2 b i l l i o n d o n g , f o l l o w e d b y B V B a n d KLB.I ngeneral,state- ownedcommercialbanksareleadingintermsoftotalassetscomparedtobanksinthesys tem.However,theincreaseinassetsshowsthatbanksare pursuing capital adequacy strategy to meet Basel's minimum capital requirements.

4.6, that indicates banks' average asset levels will continue to rise indefinitely. Morethan400trillionVNDis expectedtobereachedby 2020.Accordingto2020statistics, HDBank (HOSE: HDB) has risen at the quickest pace among the bankslisted on the Vietnam Stock Exchange, with a rate of more than 39%, followed byVietBank (UPCOM: VBB) also, which targets a total asset growth rate of greaterthan33%.

During the period 2009-2020, the capital ratio(CAP)among Vietnamesecommercial banks averaged 0.095, with a standard deviation of 4.48 %. Table 4.1shows that SCB had the lowest capital ratio of about 2.62 % in 2018, with the mainreasonbeingthatthebank'stotalassetsincreasedsteadilyovertime,butt h e increase incapital(mainlychartercapital)facedmanydifficulties,reachingamaximumof33.24% (VietcapitalBank)in2019.

Ingeneral,thecapitalratioofVietnamesecommercialbanksdeclinedsteadily, from 11.11 % to 8.13 % in 2020, in Figure 4.7 A potential explanation isthatasVietnambecomesmoreintegratedwiththerestoftheglobe,majorcommercialban ksareraisingtheircapitalproportionatelyfasterthansmallcommercialb a n k s , r e s u l t i n g i n a m i n o r f a l l i n t h e a v e r a g e c a p i t a l r a t i o acrosscommercialbanksyearovery ear.

Source: Author compiled and calculated from ExcelCommercialbanks'variablecapitalincreaseisar e s u l t o f c h a r t e r c a p i t a l re gulation.Creditinstitutionsarerequiredtomaintainacapitaladequacyratioofatleast9

CORRELATIONANALYSIS

The results of the correlation matrix between the variables according to theattachedappendixshowthatthecorrelationcoefficientsarealllessthan0.8,however, except for the correlation ofDEPandLOANSvariables, which are largerthan 0.8. Since then, the author reviewed the variables in the view model that weresuitable to be included in the research model and ensured that multi-collinearity didnot exist in the explanatory variables Therefore, the author performed a system test.Thegraduationthesisispresentedwithtwodependentvariables,ROAandROE.

SIZE, CAP, LOAN, andTB, all of which have a positive correlation withcommercial bank profitability In this case, the capital to total assets ratio(CAP)hasthehighestcorrelationcoefficient,indicatingthatthisvariablehasthecloses trelationshipwithR O A.T h e remaining v a r i a b l e s , suchas the deposit tototal asset ratioDEP,COST, LLP,andGDP,are negatively correlated withROA,andt h e linearrelationshipisweak.

 For the ROE dependent variable:There are only four independent variablesthat have a positive correlation with the profitability of banks, includingLCOBS,SIZE,LOAN,TB,inwhichSIZEistheindependentvariableth athasthestrongest

ROA ROE LC LCA LCL LCOBS SIZE CAP LOANS DEP COST LLP GDP TB ROA 1.000

MULTI-COLLINEARITYTEST

Toexamineifthefourmodelsinthestudyexhibitsubstantialmulti-collinearity, the researchers calculate the correlation coefficient and the varianceinflation factor (VIF) The empirical model has multi-collinearity if the correlationcoefficient between the two independent variables is larger than 0.8 or the VIFcoefficientisgreaterthan10(othermorerigorousviews suggestitis4).

Table 4.3 demonstrates that no VIF of any explanatory variable in the testresults of models (1) and (2) over 10, with an average VIF value of 1.73 for allsamplesofcommercialbanks.Asaresult,certainly,thephenomenaofmulti- collinearitydonotexistintheresearchdata.FromTable4.3onthecorrelationof variables in the model presented, it can be seen that the variables andLOANShave aclosecorrelation andthereis a possibilityofmulti-collinearity.

Source: Author calculated from ExcelCheckingfromTable4.4,showsthattheVIFofmodels(3),

COST 1.27 0.787687LLP 1.04 0.958678GDP 1.03 0.974202MeanVIF 1.73 collinearity occurs quite seriously Therefore, in the next step, to overcome thisphenomenon, the author removed theDEPvariable from the researchm o d e l

The author removes theDEPvariable from the research models (3), (4). Theresults of the multi-collinearity test after removing the independent variableD E P areas followsTable4.5:

Table 4.5 Multi-collinearity VIF fixed after removing the DEP variable fromthemodel(3),(4)

TB 1.91 0.523287 LCL 1.86 0.537698 LCA 1.34 0.743714 COST 1.33 0.751918 LCOBS 1.24 0.806507 LLP 1.05 0.948565 GDP 1.04 0.962363 MeanVIF 1.65

Source: Author calculated from ExcelItcanbeseenthatafterremovingtheDEPvariablefromtheoriginal(3),

(4)researchmodels,themulticollinearity wasnolongersignificant.Theexa ggerationcoefficientsofthevariablesareatasmalllevel,allbelow3,theaverageVIFval ue of1.65hasbeensignificantlyimproved.

REGRESSION ANALYSIS

The author gives the findings of the regression of the variables in the fourresearch models after assessing the correlation between the variables and checkingthe autocorrelation The author applies the following methods to better understandthedirectionofimpactofthe independent variableson thedependentvariableinthe models:P o o l e d O L S , F E M , a n d R E M , b e f o r e i d e n t i f y i n g t h e m o s t s u i t e d m o d e l The author will present the regression results of four research models in turn asfollows:

Note:The order (1), (2), (3) of the models represent Pooled OLS, FEM, and REMmethods, respectively In the study the DEP variable has a high correlation with theLCLvariable,sotheauthordecidedtoremovetheDEPvariable inmodels(2),(4).

Table4.6EstimatedModel1(Pooled OLS, FEMandREM)

This paper uses Pooled OLS, FEM, and REM regression to examine theimpactofliquiditycreationoncommercialbanks.Inmodel(1),totestthehypothesisab outrelationship,statisticalsignificanceat1%,5%,and10%todeterminetheconfidencelev elabouttheinfluenceof theindependentvariables.

Table4.7EstimatedModel2(Pooled OLS, FEMandREM)

All independent factors, exceptGDP,show a statistically significant impacton theROAvariable in all three techniques (Table 4.7) Both OLS and FEM modelshaveR- squaredsignificance40%.OnlytheLCAvariableissignificantintheresearch model of the pillar invariants of the liquidity creation method, the FEMestimation method, whereas the twoLCLandLCOBSvariables are not Except forLCL, LCOBS, DEP,

LLP,andGDP, the Pooled OLS model with variablesSIZE,CAP,LOANS,andCOSThadaconfidencelevelof99%.

Table4.8EstimatedModel3(Pooled OLS, FEMandREM)

In the Pooled OLS model, Table 4.8 shows the variablesLCAandLCLhavean impact onROE The three model’s variablesSIZE, COST,andLOANSall have aconfidence level of 99%, butGDPandDEPdo not affectROE. OnlyLCOBSissignificant in the FEM model among the three pillars of liquidity creation, whereasonlytheLCAvariableissignificantintheREMmethod.

Only theLCAvariable has research importance in the REM approach, asshown in Table 4.9 FEM produces different findings when using the Pooled OLStechnique.T h eL C A v a r i a b l e sa r e s i g n i f i c a n t a t t h e 1 % l e v e l i n t h e P o o l e d O L S technique, while theLCLis significant at the 10% level OnlyLCOBSis statisticallysignificant in the FEM model, whereas the other two liquidity creation factors arenot.

Table4.9Estimated Model4(PooledOLS, FEMandREM)

I t is neces sary to select and testther egres sionmodelafterselectionduetodifferencesinregressionresultsandtoensurethe regression model isstable,unbiased,andefficient.

Model1(ROA) Model2(ROA) Model3(ROE) Model4(ROE)

F(9,266)'.31 F(10,265)&.60 F(9,266) 54 F(10,265)!.10 R-squared=0.480 R-squared=0.500 R-squared=0.410 R-squared=0.443 Prob>F=0.000 Prob>F=0.000 Prob>F=0.000 Prob>F=0.000

Source: Author's calculation and synthesisF- testr e s u l t s o f a l l f o u r m o d e l s a r e s h o w n i n T a b l e 4 1 0 , w i t h t h e significancelevelof5%,itcanbeseenthat:Prob=0.000hypothesisH0isrejected.Model1 , m o d e l 2 , m o d e l 3 , a n d m o d e l 4 a l l a c h i e v e t h e s a m e r e s u l t s I n o t h e r words,theFEMmodelismoresuitableforthestudythanthePooledOLSmodelin all4models.

We have run both FEM and REM models, after choosing a more suitableFEM model than Pooled OLS, in order to choose the best model to study betweenthese two models, the author continues to perform the Hausman test. Hypothesis H0:REM modelismoresuitablethantheFEMmodel.

Table 4.11 Hausman test results of four models with dependent variables

ROA,ROE Model1(ROA) Model2(ROA) Model3(ROE) Model4(ROE)

Test:H o : d i f f e r e n c e incoefficientsnot systematic chi2(9).19 chi2(10)9.63 chi2(9)=4.78 chi2(10)v.90

Prob>chi2=0.335 Prob>chi2=0.000 Prob>chi2=0.852 Prob>chi2=0.000

Source: Author's calculation and synthesisHausmantest resultsare showninT a b l e 4 1 1 a t t h e 5 % s i g n i f i c a n c e l e v e l , showingt h a t P r o b > F = 0 0 0 0 i n m o d e l s ( 2 ) a n d ( 4 ) , s o t h e h y p o t h e s i s H0i s rejected.Incontrast,inmodels(1) and(3),Prob =0.335,0.852 ata5%significance level,respectively,sothehypothesisH0isaccepted.

In summary:At the 5% level of significance, for models (2) and (4), either thehypothesisH0ortheFEMmodelismoresuitable.Atthe5%levelof significance,f o r t h e m o d e l s ( 1 ) ,

HETEROSCEDASTICITYANDAUTOCORRELATION TEST

To test Heteroscedasticity, Wald test is used in FEM models (2) and (4) andWaldtestinREMmodels(1)and(3).Wooldridgetestisusedt o t e s t autocorrelationi n bothFEM, REMmodels.

Model1(ROA) Model3(ROE) Model2(ROA) Model4(ROE) chibar2(01)x.90 chibar2(01).89 chi2(23)77.03 chi2(23)H2.83

In all models of the study, based on the test of variance with a significancelevelof5%,Prob>chi2=0.000Fissmallerthanalpha,sorejectthehypothesisH0.Therefore,mo dels havea Heteroscedasticityproblem.

From the results in Table 4.12, it shows that the value Prob>F = 0.000 issmaller than the given significance level of 5%, The Woodridge test results showthat the model has autocorrelation So has to reject H0, or in other words, there hasautocorrelationin the panel data.

Conclusion:Through thetests,itisshownthatthemodelshavemany defects.

To solve these problems well, the author choosesto overcome the phenomenamentioned, theresearchwillperformregressionaccordingtoFGLS.

FIXRESEARCHMODELS

The author runs four POOLED OLS, FEM, REM, and FGLS models withROA and ROE dependencies as the basis of this research However, as previouslymentioned,theFGLSmodelcansolvethemodel'sissues.Asaresult,theexperi mentaldecision-makingmodelwaschosenastheFGLS model.

Note:(1), (2), (3), (4) respectively correspond to the ordinal number of the model inthestudywiththedependentvariableROA,ROE.

ROA it = -0.050-0.005* LC it + 0.001* SIZE it + 0.078* CAP it - 0.005*COST it -

0.033*LLP it + 0.044*TB it (1) ROA it = -0.056-0.015*LCA it - 0.007*LCL it + 0.001*SIZE it + 0.080*CAP it -

0.005*COST it - 0.031*LLP it + 0 0 3 4*TB it (2) ROE it = - 0.548-0.057*LC it + 0.020*SIZE it + 0.086*LOANS it -

0.058*COST it - 0 4 2 0*LLP it+0 6 7 9*TB it ( 3 ) ROE it =-0.574-0.156* LCA it – 0.083* LCL it + 0.020*SIZE it + 0.117*LOANS it

-0 0 5 7*COST it - 0 4 0 2*LLP it + 0 5 9 5*TB it (4)

Iti s a c h i e v a b l e t o a s s e s s t h e r e l a t i o n s h i p betweent h e bank- specifica n d macrofactorsofcommercialbanks,using theresultsoftheFGLS.

DISCUSSINGRESEARCHRESULTS

After descriptive statistics analysis to get an overview of the research dataand check the phenomenon ofmulticollinearity betweent h e i n d e p e n d e n t v a r i a b l e s in the model Research using Stata 15 softwaret o p e r f o r m r e g r e s s i o n m o d e l w i t h thelastselectedmethodisFGLS.TheFGLSmodelwillovercomeHeteroscedastic ityandautocorrelationphenomena.

Note:Models(2)and(4)inthethesisexclusivelyfocusonexplainingthevariablesLCA, LCL and LCOBS to learn more fully about the individual effects ofthethreepillarsofliquiditycreationvariables.However,whenanalyzingthe author only uses the results of these two models to explain the variables LCA, LCLandLCOBSwhichare3different pillars oftheliquiditycreationvariable(LC).

According to the bankruptcy cost hypothesis, this is completely consistent asliquidity creation(LC)tends to have a negative impact on bank profitability inVietnamwithFGLSmodels.

Source: Calculation results from Stata softwareAccordingtoTable4.13,statistically significantat1%l e v e l f o rR O A , R O E modelsandtruetoexpectationunderhy pothesisH1.Whenotherfactorsareconstant,whenthevariableLCAincreasesby1

%,thebank'sprofitrepresentedbyROA,ROEofbankdecreasesby0.005%,0.057% ,respectively.Thereasonforthisisthatwhencommercialbanksincreasetheirabilitytoc reateliquidity,itcanincreasetheriskofdefault.Atthattime,thebeneficiarybankhast obearahigherrisko f i l l i q u i d i t y , s o t h e i m p a c t o f d e f a u l t r i s k i s h i g h e r , s o h i g h e r c o s t s r e d u c e profits.T h e r e f o r e , r e d u c i n g t h e o p e r a t i o n a l e f f i c i e n c y o f t h e b a n k I n a d d i t i o n , accordingt o B o r d e l e a u a n d G r a h a m ( 2 0 1 0 ) s t u d y , w h e n h i g h l y l i q u i d a s s e t s a r e heldbybanks,itreducestheb ank'sliquidityrisk,sotheprobabilityofdefaultmayoccur.ResearchFungacova,Turk,a ndWeill(2021)suggeststhat thereisanegativecorrelationb e t w e e n p r o f i t a b i l i t y a n d l i q u i d i t y c r e a t i o n o f b a n k s e x p l a i n e d b y t h e trade- offbetweenprofitability andcapitaladequacyofbanks.Creatingmore liquiditymakestheprobabilityofbanksmorelikelytofail.

Creating liquidity on the asset side has a negative impact on Vietnamesecommercialbanks' results.TheLCAcontrolvariable's FGLSstandardd e v i a t i o n withROAandROEis 0.002 and 0.027, respectively. When the issuingLCAratiorises by 1%, the bank's profit decreases by -0.015% and -

0.156%, respectively, intermsofROA,ROE.Liquidityhasbeenprovidedfortheeconomybybanksconverting illiquid assets into liquid obligations, while liquidity risk has increased,resulting in lower profits, consistent with the research (Duan and Niu, 2020b; Thaoet al.,

2016) Furthermore, Bordeleau and Graham (2010) when a commercial bankholds a large number of highly liquid assets, the opportunity cost of holding moreliquidassetsoutweighsthebenefitsoflowerdefaultrisk.

WiththesignificantvariableLCLata5%levelin2models(2),( 4 ) according to the estimation results, the liquidity variable has the opposite effect.When other factors remain unchanged, creating debt liquidity increases by 1%, thebank'sprofittargetswilldecreaseby0.007%withROA,0.083%withROE,respectivel y.Accordingtotheestimationresults,theliquidityvariablehastheopposite effect when the significant variableLCLis set to 5% in two models (2) and(4) When all other factors remain constant, increasing debt liquidity by 1% reducesthe bank's profit targets by 0.007% withROAand 0.083% withROE, respectively.The variableLCLhas a higher impact onROEthanLCA, contrary to the author's H2hypothesis Increasing credit risk has a negative influence on commercial bankprofits since illiquid liabilities are placed with a negative sign on the liability sideand account for a larger amount when compared to liquid liabilities My resultsdiffer from my research and expectation in hypothesis H2 Duan and Niu (2020b)who find that the liabilities – side liquidity creation section has a positive impact onthe profitability of the bank In my unconfirmed analysis, it was found that thedifference was probably due to a number of problems in the data and methodology.Can be explained by they estimate a model in which a bank's profitability for thesame quarter On the contrary, in our model, profitability is affected by liquidity forthesameyear.

In both research models of off-balance sheet liquidity creation, this ratio isnotstatisticallysignificantintheresearchmodel.Thatmaybeb e c a u s e commitment sandguaranteesincommercialbanksdonotaccountforahighproportion of the bank's liquidity creation activities In addition, foreign exchangecommitments account for a large proportion of the off-balance sheet item, which ispositively weighted, but guarantees also account for a large proportion and areassigned a coefficient of 0, so that liquidity outside the balance sheet has almost noeffectonthebank'sliquiditycreationcomparedtotheothertwoitems.

Atthestatisticalsignificancelevelof1%,thevariablebanksizehasapositivecorrelati onwithROAandROEinthemodels,indicatingthatbanksizehasapositiveimpactonth eprofitabilityoftwenty-threebanksinthestudy.T h e findings of this analysis confirm the study's expectations hypothesis H4and add tothe empirical evidence supporting the theoretical basis of the influence of bank sizeontheprofitabilityoftwenty- threeVietnamesecommercialbanks.Morespecifically, increasing the bank size(SIZE)by one unit raises profit byROA, ROEis 0.001 dong, and 0.020 dong, respectively Commercial banks will be able to gainan advantage in consumer trust, money, and human resources if they operate withlarger- scaleresourcesthantheircompetitors.Thisresultalsoagreeswiththeexperimental studies of (Akhavein et al., 1997; Elsas et al., 2009) The company'sperformance will improve Furthermore, the "Scale Effect" of large banks shouldcreatemoreopportunitiestodiversifytheloanportfolio,accordingtot h e hypothe sis In fact, because of accumulated market strength, big-scale banks inVietnam, such as VCB, BIDV and CTG,can attract a large amount of capitalmobilized from state corporations and large corporations at low-interest rates andlow expenses. However, when the network expansion and scale achieve maximumefficiency,commercialbanksshouldpreparespecificplans.Specifically,ininc reasing capital as well as improving the quality of services of the bank andmanagingcapital,therebybringingprofitstocommercialbanks.

Theratioofequity size(CAP)hasstatisticalsignificanceat1%forthedependent variableROA, but not for the dependent variableROE, according to theregression results in Table 4.13 This finding supports hypothesis H6, which statesthatCAPhas a positive impact on commercial bank profitability Commercial banksprofit from raising their equity ratio by getting capital to lend to individual andcorporatecustomerswithouthavingtoborrowcapitalfromthestateb a n k , according totheexplanation.Therebysavinginterestexpenseondepositsandwhen equity increases by 1%, revenue increases, leading to an increase in profit on assetsof the bank by 0.078% Furthermore, the requirement for equity as a funding sourcehelps protect the bank in the event of circumstances that force clients to withdrawlarge sums of money, exposing the bank to operational hazards. Commercial bankscan strengthen their reputation among consumers and investors. During the researchperiod, most banks expanded their equity to better their financial risk tolerance, andtheiroperationsgrewaswell,resultingin ariseinprofitreportedasROA.

According to FGLS, the regression coefficient of the independent variableLOANSfor theROEin Table 4.13 is 0.086 with a significance level of 5%. Itdemonstrates that the ratio of loans to total mobilized capital has a positive impacton commercial bank profitability, which is consistent with the author's hypothesisH7 The dependent variableROA, on the other hand, has little research importance.Credit is one of the bank's main tasks, consequently, according to the findings of theresearch Thi Lan Huong Hoang, Hoang Long Nguyen (2021) Because the morereliablethebank'scredit provisionis,themoreclientsitattracts.

The author predicted thatDEPvariable of commercial banks would have abeneficial impact on profitability before evaluating the findings. TheD E Pvariableis not statistically significant at the 5% level of significance for both independentvariablesROAandROEmodels (1), (3) This result is also similar to the study Lu etal.(2013) demonstrate thatDEPdoesnotaffectbankprofitability.

Toexamineandmeasuretheperformanceofcommercialbanks,theindependentva riablecost-to-incomeratioisincorporatedintothem o d e l Regression results show that for the dependent variablesROAandROE, when otherfactorsareconstant,theratiooftotalunprofitableexpensesdividedbytotaloperatinginc omeincreasesby1%,theprofitabilityofbankswilldecreaseby0.005%a n d 0 0 5 8 % , r e s p e c t i v e l y W h e n c o m m e r c i a l b a n k s h a v e a g r e a t e r noninterest expense-to-operating income, it means they're not as efficient as theycould be This ratio depicts bank performance, with a low value indicating highperformance If a bank intends to boost profits, the first step is to keep expendituresto a minimum, Pasiouras and Kosmidou (2007b) including both operating and non-operating expenses, and to use them efficiently This matches the findings of thestudy.

The regression coefficient according to FGLS of the independent variableLLPin Table 4.13 shows that the ratio of loan provisions to total loans and leaseshas a negative effect on the profitability of commercial banks in Vietnam. Based onthe results, when other factors remain unchanged, the credit risk provision ratio onloans increases by 1%, the profitability ratio ofROAandROEof the bank willdecrease by 0.033%, and 0.420% respectively The variableLLPhas a negativeinfluence at the 5% level of significance, which is similar to the author's expectationas well as earlier studies by John and Mary (1990) The credit risk that a bank faceswhile making a loan is measured using loan loss provisions This effect can beexplained by the fact that when a bank has both more loans and bad debts, it isrequired to make higher-risk provisions, which reduces profitability This meansthat, to cover costs, the bank's risk must rise because the bank must keep on payinginterest on money that is not profitable As a result, the lesser the profit, the largerthe credit risk The influence of this variable on theROEof large Vietnamesecommercial banks demonstrates that risk provisioning has a significant impact onbankp r o f i t a b i l i t y C o n t r o l l i n g c r e d i t q u a l i t y a n d m i n i m i z i n g b a d d e b t r i s k s c a n boostc o m m e r c i a l b a n k p r o f i t a b i l i t y s i g n i f i c a n t l y T h e r e f o r e , w h e n b a n k s h a n d l e bad debts well and improve credit quality, it is a problem for commercial banks tostep by step sustainably handle bad debts, limit the increase of bad debts in order toensurethesafetyofbankingoperations,andpromotecreditgrowthandb a n k profits.

The results of this study do not find the relationship and the significance ofthemacroeconomic variableGDPtoexplainthe performanceofb a n k s f o r b o t hROAandROEmodels, with 3 levels of significance 1%, 5%, 10% This result iscompletely different from the author's expectation from hypothesis

H10thatGDPwill have a positive effect on the profitability of banks This result was also found instudiesof

Fajriana, Roni, and Syamni (2021) This suggests that economic growth may notfullyreflecttheimprovementofthebankingsectoroverthestudiedperiod.Vietnam's growing economy can bring benefits to different sectors, but differentfrom the author's expectations, factors such as regulation in the banking sector, andthe advancement of technology can be factors that hinder banks from resonatingwith economic growth In addition, this may also indicate that due to the inability ofbanks to accurately predict the level ofinflation, they havemissedt h e o p p o r t u n i t y tobenefitfromtheinflationaryenvironmenttoincreaseprofits.

The author predicted the variable to have a positive impact on commercialbankprofitabilitybeforeconductingthemodel.Whenallothervariablesarec onstant, the treasury bill interest rate rises by 1%, while theROAandROErise by0.044% and 0.595%, respectively Because this is the short-term interest rate, it canbe used asa channel to consider thebank's deposit interestrate.So whent h i s interest rate increases, it will be more difficult for banks to mobilize capital fromgovernmentc h a n n e l s , b u t o n t h e c o n t r a r y , i d l e s a v i n g s w i l l b e a t t r a c t e d m o r e Therefore, the bank can take these mobilized assets to meet the increasing demandforloans,thusincreasingthebank'sprofits.

Inc h a p t e r 4 , t h e a u t h o r p r e s e n t e d a n d a n a l y z e d t h e r e s e a r c h r e s u l t s T o begin, the author ran descriptive statistics for each variable individually With asignificance level of 5%, this chapter assessed the factors affecting the bank's profitbothi n s i d e a n d o u t s i d e t h e b a n k T h e a u t h o r u s e d d e s c r i p t i v e s t a t i s t i c s t o a s s e s s , run, and compare regression models Different rules are used to test the model'sflaws Testing models such as OLS, FEM, and REM, and then running the FGLSregression model to find the best model for the study The main research resultsshowthatliquiditygenerationhasanegativeimpactontheprofitabilityofcommerc ial banks, more specifically in models (3), (4) the author has studied moreabout the individual components of the commercial banks Liquidity The resultsshow that at the 5% level of significance, in the model (2) with the dependentvariableROA, only variablesLCAandLCLhave a negative impact For model (4)with the dependent variableROE, only theLCAhas a negative effect and theLCLandLCOBShave nosignificancefortheresearchmodel.

The following chapter will investigate the findings of the research questionsand give recommendations based on the influencing factors that have been tested inthis chapter, to assist commercial banks in improving profitability in the currentcontext.

Inthischapter,theauthorwillsummarizetheresearchresultsstudyinChapter4.Si multaneously,makerecommendationsbasedontheresearchfindingstoassistn otonlystateagenciesbutalsobankadministratorsinimprovingoperational efficiency.Finally, the author also presents the limitations of the topicandresearch orientationinthedirectionofextensiveresearchfor futuretopics.

CONCLUSIONS

Understandingandexaminingthesourceofcommercialbankprofitsisimportantn o t o n l y f o r b a n k a d m i n i s t r a t o r s , b u t a l s o f o r s h a r e h o l d e r s , i n v e s t o r s , state banks, and the government If bank executives and managers are aware of this,they can develop policies to increase bank profits in the future The specific periodofprofitability ofbanksinthesecontextsmay differduetodissimilari m p a c t factors.Thisarticleinvestigatesthefactorsinfluencingc ommercialbankprofitability in Vietnam from 2009 to 2020 The panel data used by the author in thestudyispaneldatafromtwenty- threecommercialbanksovertwelvey e a r s beginning in 2009 and ending in 2020. Based on the theoretical basis and empiricalevidence presented in the previous chapters, the study has proposed the design of aresearch model and the selection of a research method suitable to the nature of theresearchdataaswellastheobjectivesresearchofandresearchquestions.Thedat ais studied in tabular form, so when performing the author test, using models fromsimple to complex, after OLS, FEM, REM Finally, FGLS, is the most suitableresearch method for the topic The topic has discovered the results of empiricalresearchinChapter4onthefactorsaffectingtheprofitabilityofVietnamesecom mercialbanksusingtheFGLSapproach.

The research questions have been answered, and the chapter 1 goals wereachieved.Thestudy'sconclusionshavesummarizedthefollowing issues:

 Toa c h i e v e t h e f i r s t s t u d y o b j e c t i v e,t h e r e s e a r c h s h o w e d t h a t t h e l i q u i d i t y factor had a negative impact on dependent variables,ROAandROE, which measurecommercial bank profitability At the same time, examine each individual pillar ofliquidity creation and its impactdirection.To study the influence ofp a r t i c u l a r pillars of liquidity creation, the author concentrates on three pillars of liquidityproduction in models

(2), (4) The results demonstrate that the asset-side liquiditycreation(LCA)andtheliability- sideliquiditycreationsection(LCL)h a v ea negative impact on theROAvariable, which represents profit in the model Only theasset-side liquidity creation(LCA)variable has a negative impact onROEin themodel (4) The off-balance sheet-side liquidity creation section(LCOBS)has noeffectinbothmodels.

 For the second objective, in addition to the main variable of the thesis,which is to create liquidity, the study also explores the direction of impact of bank-specificvariablesandmacrovariablesonprofitability ofcommercialbanksinVietnam Influencing factors and the extent of their influence on the profitability ofVietnamese commercial banks At a 5% significance level, in models (1), (3) thefollowing independent variables have the same impact onROA, ROE: Liquiditycreation(LC), Cost-to-income ratio(COST),Loan loss provisions(LLP)have anegative impact on profitability, while the remaining variables are Bank size(SIZE),Treasurybillrates(TB)haveapositiveimpact.However,fortheprofitrepresentativev a r i a b l eROA,t h ev a r i a b l e T o t a l l o a n s a n d l e a s e s t o t o t a l a s s e t s

(LOANS)has no research significance, Capital ratio(CAP)has a positive effect.Remaining with the profit representative variableROE, the variable Loans to assets(LOANS)hasapositiveimpact,whilethevariableCapitalratio(CAP)hasnosignificance. For both models, the variable Deposit ratio(DEP)and the annualizedgrowthrateofrealGDPare not significant.

 For the last objective of the research isto provide solutions to improveprofitability, recommendations for bank administrators In general, banks shouldreduce the level of liquidity creation and have a reasonable level of liquidity soprofitscanbestablewhilelimitingcapitalrisks.Increaseinsize,capital,increasein loan and lease ratio to total assets, Treasury bill interest rate as well as decrease loanprovision over total assets and non-interest expenses can contribute to increase bankprofitability.Specificsolutionsforresearchfactorsispresentedinsection5.2.

SOMER E C O M M E N D A T I O N S T O I M P R O V E P R O F I T A B I L I

Liquidity creation (LC): In general, creating liquidity has a negative impacton profitability, so banks have to balance creating too much liquidity, which willlead to a lack of safety, which leads to reduced profits In Vietnam, the secondarycredit market has not yet been formed (excluding debt trading companies), so thelegality of performing securities transactions on loans has not yet been established.However, when performing the calculation to create liquidity, the lender accountsfor a large part of the total assets, most of which are classified as medium liquiditywith a coefficient of 0, so the total value of liquidity created is very small If thesecondarycreditmarketandsecuritiesbusinesscanoperateanddevelopi n Vietnam, the loans held by banks will be easier to transact helping to increase thesupply ofsecuritiestotheeconomy.Butinthestudy,thenegativeimpactofliquidity creation is due to the trade-off between operational safety and profitability.Therefore, commercial banks need to create liquidity at a lower level to circulatecapital for the economy They need to reduce the liquidity creation from highlyliquid assets such as cash into illiquid debts such as personal loans, other creditinstitutions If a bank lends too much from deposits at the State Bank or derivativesthat exceedinputmobilization, the higherthe liquidity creation, the higher theliquidity risk Developing an effective framework for transforming illiquid assetsinto liquid liabilities is critical for commercial banks to boost their profitability.Regulators or state banks can adopt policies to limit excessive liquidity creation bybanks.However,itisnecessary tocalculate specifically and putin place suchnecessary policies that can have a positive impact on a bank's profitability This willbe especially severe during a financial crisis if regulation is too strict, when bankshavehighliquidityriskbutlowprofitability.The creationofliquidityisth eresultofi n c o m p a t i b i l i t y b e t w e e n l o n g - t e r m a s s e t s ( i l l - l i q u i d ) a n d s h o r t - t e r m l i a b i l i t i e s

((liquid) liabilities, so commercial banks in Vietnam can reduce their ability tocreateliquiditybyIncrease cash balance through the issuanceoflong-termdebts.

Bank size (SIZE): The size of a commercial bank has a positive link withprofitability; the larger the scale, the better the profitability Commercial banks canbenefit from increased scale by increasing their ability to attract mobilized capitalwhilel o w e r i n g f i x e d e x p e n s e s M a n a g e r s s h o u l d a l s o c o n s i d e r w h e n t h e b a n k ' s scalegrowsyetitisunabletocontrolit,resultinginnumerousma nagementchallenges, a lack of rigor, and other operating costs that may damage the bank'smanagement Increasing capital is one of the methods for commercial banks toexpand their scale, allowing them to develop and strengthen their financial capacityand competitiveness in comparison to industry competitors Increasing the bank'ssize through the merger between large banks that have effective operations andbanks that are facing difficult situations to avoid causing consequences for theeconomy Therefore, the bank's leadership should also focus on attracting domesticandforeigninvestmentcapital.

Capital ratio (CAP): From the findings, an increase in equity contributes to agrowth in the bank's profitability in general In addition to the additional internaleffects of boosting retained earnings, banks can enhance their capital Furthermore,commercial banks can issue several forms of shares to raise capital through theissuanceofvarioustypesofshares.Accordingtorecenttrends,banksareincreasinglyin volvedinmergersandacquisitionsandconsolidationactivities.

Total loans and leases to total assets (LOANS): Chapter 4 shows that thehigher the loan ratio, the higher the profit To ensure this operation is safe, banksshoulde s t a b l i s h c r e d i t r u l e s a n d p r o c e d u r e s , a n d t r a i n s t a f f t h o r o u g h l y t o e n s u r e that the credit stages in the credit process are followed Moreover, diversifying thetargetcustomerswithpreferentialpolicieswillalsopromotestrongerlendingactivities.

Loan loss provisions (LLP): To minimize credit risk, banks should diversifytheirc r e d i t p o r t f o l i o s a n d d i s t r i b u t e t h e i r i n v e s t m e n t m o n e y a c r o s s a v a r i e t y o f types of consumers in different locations This not only distributes risk, but alsobroadens the scope of operations that the bank might engage in to improve itsreputation.

Cost-to-incomeratio(COST):The increaseinnon-interestoperatingexpenses, according to the research, will lower the bank's earnings Commercialbanks can reduce this cost by cross-selling items including insurance and services,which reduces costs Additionally, the trend of digitalization in commercial bankingactivity is currently developing Banks will benefit from being able to produce newproducts or improve old ones as technology advances Investing in contemporarytechnology would enable the bank to deliver goods to consumers faster while alsoreducingoperating expenses suchas salariesandoffice rental.

Treasurybillrates(TB):According tothestudy'sfindings,thisvariablehasap o s i t i v e i m p a c t o n b a n k p r o f i t a b i l i t y B e c a u s e c o m m e r c i a l b a n k s o p e r a t e o n a basis of trust, the government must stabilize the macroeconomic climate If themarket is volatile, several dangers will damage customer trust, putting the entiresystem at risk Banks get a higher return when they have a higher interest ratebecause of the difference between the rate the bank pays the customer and the ratethe bank can earn on an investment The economy is on the rise That means moreconsumers are looking for loans, helping banks benefit from the spread between therates they've raised. different channels to satisfy their loans Due to the increasedcapital demand but slower growth, commercial banks now mobilize cheap capitalthroughmanyotherchannels,suchasgovernmentbondsatverylowlevels,stoc ks,

Reasons for mobilization decreased due to slow capital turnover and reduceddeposits Banks can raise lending rates when raising deposit interest rates create ayield curve attractive enough to depositors to allow banks to mobilize capital forloans However, an increase in deposit rates may lead to an increase in costs, whichmaygoagainstthecurrentpolicyofreducinglendingrates.

5.3 LIMITATION OF THE THESIS AND FUTURE

In addition to the results that have been achieved, the research topic still hascertain limitations The research period is restricted; the thesis only focuses only atyears 2009 to 2020 and does not go back further than that Ith a s n o t b e e n u p d a t e d in recent years, making it difficult to monitor the bank's performance progress aswell as 2021, to witness the bank's metamorphosis in the aftermath of the Covid-19epidemic's broad expansion Aside from theaccomplishments, theresearchi s s u e stillhasaconstraint.Theresearchonlycollecteddatafromt w e n t y

- t h r e e commercialbanks,excludingstate- ownedbanksandcommercialbanksw i t h foreign elements, in terms of sample data gathering As a result, the survey did notcover the whole banking business in Vietnam Regarding the factors affecting theprofitability of commercial banks, there are only a few specific factors and twomacro factors, not to mention factors such as net profit margin, operating expenseratioontotal revenue.

Althoughthestudyhasachievedcertainresults,therearestilllimitations init.Thefollowingauthorevaluatesthelimitations,creatingabasisformakingsuggestionsforf utureresearch:

First,by increasing the number of observation years, expanding the samplingperiodwillimprovetheaccuracyoffuturestudyoutcomes.Simultaneously,broad eningthescopeofcommercialbankresearchinordertoexaminetheVietnamese banking system more fully In addition, the study can be extended to alarger sample such as on liquidity creation for banks in Southeast Asia or morebroadlyinAsiaandothercountriesintheworld.

Second, in addition toROAandROE, which are two generally used measuresto describe bank profitability, the study can also include NIM, ROI, ROCE,andothervariablestoindicatebankprofitability.Theinfluenceoffactorsaffect ingthe bank's earnings can then be compared using dependent variables to create a morecomprehensiveandaccuratemodel.

Third,b e s i d e s t h e f a c t o r s i n s i d e a n d o u t s i d e t h e b a n k u s e d f o r t h e t h e s i s , otherindependentvariablescanbeaddedthataffectbankprofitability suchasmonetarypolicy,non- interestincome,financialleverage,andi n d u s t r y concentration, … The issue will then explore the independent variables impactingcommercialbankprofitabilityinsignificant detail.

Chapter5additionallyofferssuggestionsandrecommendationsf o r enhancing commercialbank earnings basedonthe research findings Theb a n k ' s size should be increased, liquidity creation should be reduced, the equity should beincreased,andtheloanratioshouldbeincreased,amongotherthings.Simultaneouslyti me,theauthor'srecommendationswillencouragethebank'sadministrators in identifying the appropriate economic path for future profit growth.In addition, this effort assists researchers in furthering the development of thisdiscipline Finally, based on these limitations, makes recommendations for futureresearchareas.

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