MINISTRY OF EDUCATION AND TRANING HO CHI MINH UNIVERSITY OF BANKING GRADUATION THESIS IMPACT OF BASEL II MINIMUM CAPITAL REQUIREMENTS ON OPERATIONAL EFFICIENCY OF VIETNAM COMMERCIAL BANKS Major Bankin[.]
MINISTRY OF EDUCATION AND TRANING HO CHI MINH UNIVERSITY OF BANKING GRADUATION THESIS IMPACT OF BASEL II MINIMUM CAPITAL REQUIREMENTS ON OPERATIONAL EFFICIENCY OF VIETNAM COMMERCIAL BANKS Major: Banking - Finance Code: 7340201 HO DANG NHU Y Ho Chi Minh City, June 2023 Tai ngay!!! Ban co the xoa dong chu nay!!! MINISTRY OF EDUCATION AND TRANING HO CHI MINH UNIVERSITY OF BANKING GRADUATION THESIS IMPACT OF BASEL II MINIMUM CAPITAL REQUIREMENTS ON OPERATIONAL EFFICIENCY OF VIETNAM COMMERCIAL BANKS Major: Banking - Finance Code: 7340201 Student name: HO DANG NHU Y Student code: 050607190678 Class: HQ7-GE14 ACADEMIC ADVISOR: DUONG THI THUY AN, PHD Ho Chi Minh City, June 2023 ii ABSTRACT The thesis analyzes the impact of the minimum capital requirement under BaselII on the operational efficiency of commercial banks in Vietnam in the period 2008 2022, secondary data is accessed from annual reports, financial statements of banks, statistical data of the World Bank and the General Statistics Office In which, the variables measuring the operational efficiency of commercial banks are return on assets (ROA) and return on equity (ROE) The variable that represents the minimum capital requirement under Basel-II is the capital adequacy ratio (CAR) The variables showing macro factors are: annual economic growth rate (GDP) and inflation rate (INF); micro variables representing bank internal factors are: bank size (SIZE), operating expenses (CIR), equity to total assets (CAP), total loan ratio on total deposits (LOANDEP) and non – performing loan (NPL) Regression analysis using the Generalized method of moments (GMM) estimation method as suggested by Arellano and Bover (1995) shows that variables such as bank size, ratio of equity to total assets, gross domestic product and inflation rate have a positive impact on bank operational efficiency Meanwhile, variables of non – performing loan ratio, operating expenses and minimum capital requirements have a negative impact on the operational efficiency of Vietnamese commercial banks Based on the research results, the study provides policy implications for commercial banks to increase operational efficiency at Vietnamese commercial banks iii DECLARATION This thesis with the topic “Impact of Basel II minimum capital requirements on operational efficiency.” This thesis is the author's own research work, the research results are honest, in which there are no previously published contents or contents made by others except for the cited quotations fulling source in the thesis The author will be responsible for may declaration Ho Chi Minh City, June 2023 Author Ho Dang Nhu Y iv ACKNOWLEDGE During the process of doing this thesis, I received a lot of attention and help from teachers and friends With great respect and gratitude, first of all, I would like to express my sincere gratitude to the person who directly guided and supported me during the course of the thesis, PHD Duong Thi Thuy An Her knowledge and experience helped me to complete my thesis Thank you very much for helping me finish this thesis! I would like to thank the Administrators of Ho Chi Minh of Banking University City and all the teachers at the school for creating conditions, teaching and imparting knowledge and experience to me from the most basic subjects to help me have knowledge and background about my major in Finance - Banking Thank you sincerely! I would like to thank my family and friends who have always supported and encouraged me throughout the process of writing this thesis! However, my knowledge is still limited, so the thesis cannot avoid shortcomings I look forward to receiving more suggestions and guidance from teachers to be able to complete the thesis more complete Thank you sincerely! Ho Chi Minh City, June 2023 Author Ho Dang Nhu Y v TABLE OF CONTENTS ABSTRACT ii DECLARATION iii ACKNOWLEDGE iv LIST OF ABBREVIATIONS viii LIST OF TABLES ix CHAPTER 1: INTRODUCTION 1.1 RESEARCH BACKGROUND 1.2 RESEARCH OBJECTIVES 1.2.1 General objective 1.2.2 Specific objectives 1.3 RESEARCH QUESTION 1.4 RESEARCH SUBJECT AND SCOPE 1.4.1 Research subject 1.4.2 Research scope 1.5 RESEARCH METHODOLOGY 1.5.1 Research methods 1.5.2 Data collecting and progressing 1.6 CONTRIBUTION OF THE THESIS 1.7 RESEARCH STRUCTURE CHAPTER SUMMARY CHAPTER 2: LITERATURE REVIEW 10 vi 2.1 THEORECIAL LITERATURE REVIEW 10 2.1.1 The concept operation efficiency of commercial bank 10 2.1.2 Indicators to evaluate the operation efficiency of commercial bank 11 2.1.3 Factors affecting the operation efficiency of commercial bank 13 2.2 OVERVIEW OF MINIMUM CAPITAL REQUIREMENTS UNDER BASEL II 17 2.2.1 Perspectives on capital adequacy ratio 17 2.2.2 Regulations on minimum capital requirements 18 2.3 EMPIRICAL LITERATURE REVIEW 24 2.3.1 Relevant empirical research 24 2.3.2 Research gap 26 CHAPTER SUMMARY 31 CHAPTER 3: RESEARCH METHODOLOGY 32 3.1.RESEARCH MODELS 32 3.1.1 Overview of research models 32 3.1.2 Research hypothesis 33 3.2 RESEARCH PROGRESS 41 3.3 SAMPLE AND RESEARCH DATA 43 3.2.1 Research sample 43 3.2.2 Research data 44 3.2.3 Research tools 44 3.4 RESEARCH METHODOLOGYS 44 3.4.1 Qualitative method 44 3.4.2 Quantitative methods 45 CHAPTER SUMMARY 48 vii CHAPTER 4: EMPIRICAL RESULT 49 4.1 DESCRIPTIVE AND CORRELATION 49 4.2 REGRESSION 54 4.3 DISCUSSION OF RESEARCH RESULTS 62 CHAPTER SUMMARY 68 CHAPTER 5: CONCLUSION AND IMPLICATIONS 69 5.1 CONCLUSION 69 5.2 RECOMMENDATION 70 5.3 LIMITATION AND RECOMMENDATION FOR FUTURE RESEARCH 77 CHAPTER SUMMARY 78 APPENDIX 1: BANKS IN RESEARCH SAMPLE 87 APPENDIX 2: REGRESSION RESULTS 88 viii LIST OF ABBREVIATIONS Abbreviations Meaning CAP The Ratio Of Equity To Total Assets CAR Capital Adequacy Ratio CIR The operating cost to operating income ratio CPI Consumer Price Index FEM Fixed Effects Model GDP Gross Domestic Product GMM Generalized Method Of Moments INF Inflation LOANDEP The Ratio Loan-To-Deposit NIM Net Interest Margin NPL Non-Performing Loan Pool - OLS Ordinary Least Squares REM Random Effects Model ROA Return On Asset ROE Return On Equity SIZE Bank size VIF Variance Inflation Factor ix LIST OF TABLES & PICTURE LIST OF TABLES Table 2.1 Summary of related previous studies 29 Table 3.1 Statistics of significance and expected signs of variables in the model 41 Table 4.1 Descriptive statistics 49 Table 4.2 Correlation matrix of – ROA 51 Table 4.3 Correlation matrix of – ROE 52 Table 4.4 Multicollinearity 54 Table 4.5 Pooled OLS and REM regression analysis results 54 Table 4.6 F-Test to choose between models Pooled OLS and FEM 55 Table 4.7 FEM and REM regression analysis results 55 Table 4.8 Hausman test to choose between models FEM and REM 56 Table 4.9 Multicollinearity 56 Table 4.10 Heteroskedasticity test of REM 57 Table 4.11 Worldridge test of REM 57 Table 4.12 Estimated results from GMM regression 58 Table 4.13 Experimental test results by estimating GMM method with ROA 60 Table 4.14 Experimental test results by estimating GMM method with ROE 61 LIST OF PICTURES Picture 3.1.Research Process 42 83 28 Keeley, M C., & Furlong, F T (1990 ) A reexamination of mean-variance analysis of bank capital regulation Journal of Banking & Finance, 69 - 84 29 Khana, M S., Scheule, H., & Wu, E (2017) Funding liquidity and bank risk taking Journal of Banking and Finance, 203- 2016 30 Khrawish, A H (2011) Determinants of commercial banks performance: Evidence from Jordan International Research Journal of Finance and Economics, 148-159 31 Kim, D., & Santomero, A M (1988) Risk in Banking and Capital Regulatio The Journal of Finance, 1219 - 1233 32 Lotto, J (2018) The Empirical Analysis of the Impact of Bank Capital Regulations on Operating Efficiency International Journal of Financial Studies, - 11 33 Meriläinen, J.-M (2016) Lending growth during the financial crisis and the sovereign debt crisis: The role of bank ownership type Journal of International Financial Markets, Institutions & Money, 168-182 34 Miller, M H (1995) Do the M & M propositions apply to banks? 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