MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM HO CHI MINH UNIVERSITY OF BANKING DANG VAN CHI DETERMINANTS OF THE CAPITAL ADEQUACY RATIO OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM THE BACHEL[.]
MINISTRY OF EDUCATION STATE BANK OF VIETNAM AND TRAINING HO CHI MINH UNIVERSITY OF BANKING DANG VAN CHI DETERMINANTS OF THE CAPITAL ADEQUACY RATIO OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM THE BACHELOR’S THESIS MAJOR: BANKING – FINANCE CODE: 7340201 Ho Chi Minh City, 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! MINISTRY OF EDUCATION STATE BANK OF VIETNAM AND TRAINING HO CHI MINH UNIVERSITY OF BANKING DANG VAN CHI DETERMINANTS OF THE CAPITAL ADEQUACY RATIO OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM THE BACHELOR’S THESIS MAJOR: BANKING – FINANCE CODE: 7340201 RESEARCH INSTRUCTOR PhD NGUYEN THI NHU QUYNH Ho Chi Minh City, 2022 i DECLARATION The thesis “Determinants of the capital adequacy ratio of joint stock commercial banks in Vietnam” is my independent study under the guidance of Dr Nguyen Thi Nhu Quynh The results of analysis and evaluation are all done by me and not copy the results of others In the course of carrying out the study, I consulted some other relevant research papers, the information cited in the thesis is clearly stated the origin I take full responsibility to the school if any wrongdoing is found in this subject Ho Chi Minh City, June 2022 Author DANG VAN CHI ii APPRECIATION First of all, I would like to express my deep gratitude to PhD Nguyen Thi Nhu Quynh – who directly guided me throughout the graduation course, dedicatedly instructed me, helped me find the direction of research, find documents and data to serve the completion of this course In addition, I also thanked the lectures at Banking University of Ho Chi Minh City for imparting useful knowledge about banking and finance as well as other skills in life, as the foundation for my future career Finally, I would like to sincerely thank my family and friends, who encouraged me so that I could complete this graduation thesis in the best way The limitation of research time, knowledge and experience, errors in the article are inevitable Therefore, I look forward to the receive advice from the lectures so that I can see the shortcomings, improve my knowledge and complete this thesis perfectly Best regards iii ABSTRACT In recent years, the world and Vietnam have experienced unpredictable economic changes Banks must increasingly ensure stable development and be able to withstand potential risks in order to not only motivate but also stabilize a country's markets and social security As a result, maintaining a reasonable capital adequacy ratio (CAR) is a critical requirement for commercial banks Therefore, this thesis is conducted with the purpose of identifying factors affecting Vietnamese joint stock commercial banks' capital adequacy ratios In order to achieve the stated goal, the thesis collects secondary data from 24 commercial banks in Vietnam from 2012 to 2021 The study conducted regression of panel data in methods Pooled OLS, FEM, REM, then performed tests to select the most suitable model and examined the existence of defects in the model, including heteroscedasticity and autocorrelation To overcome those defects, the author uses feasible generalized least squared method (FGLS) to ensure the effectiveness of the model The estimated result indicates that financial leverage (LEV) and economic growth (GDP) have the positive impact on CAR In contrast, return on assets (ROA), loans (LOAN), operating cost (CIR), and exchange rate (EXR) has negative relationship with CAR Bank size (SIZE), customer deposits (DEP), loan loss reserves (LLR) and liquidity (LIQ) have no statistical relationship with CAR Based on the findings, the thesis makes some recommendations to adjust and maintain the appropriate CAR of joint stock commercial banks in Vietnam, bring efficiency not only to the banking system and but also the economy Keyword: Capital adequacy ratios, Joint stock commercial bank, Feasible generalized least squared method iv CONTENTS ABBREVIATIONS LIST viii TABLES AND FIGURES LIST .ix CHAPTER INTRODUCTION 1.1 THE NECCESITY OF THE RESEARCH 1.2 OBJECTIVES AND RESEARCH QUESTIONS .3 1.2.1 Objectives 1.2.2 Research questions 1.3 RESEARCH SUBJECTS AND SCOPE 1.3.1 Research subjects 1.3.2 Research scope 1.4 DATA AND RESEARCH METHODOLOGY 1.5 CONTRIBUTION OF THE THESIS 1.6 STRUTURE OF THE THESIS SUMMARY OF CHAPTER CHAPTER THEORETICAL BASIC AND LITERATURE REVIEW 2.1 THEORETICAL BASIS OF CAPITAL ADEQUACY RATIO 2.1.1 Concept of capital adequacy ratio .8 2.1.2 Standard for measuring capital adequacy ratio 2.1.2.1 The Basel Accords 2.1.2.2 Legal framework in Vietnam .13 2.1.3 The role of capital adequacy ratio 15 2.2 OVERVIEW OF RELATED STUDIES 16 2.2.1 Foreign studies 16 2.2.2 Vietnamese studies 21 v 2.2.3 Research gap 23 2.3 FACTORS AFFECTING THE CAPITAL ADEQUACY RATIO 24 2.3.1 Internal financial criteria of banks 24 2.3.1.1 Bank size 24 2.3.1.2 Customer deposit 24 2.3.1.3 Loans 25 2.3.1.4 Financial leverage 26 2.3.1.5 Liquidity .26 2.3.1.6 Loan loss reserves 27 2.3.1.7 Profitability 28 2.3.1.8 Operating cost 28 2.3.2 The macroeconomics factors 29 2.3.2.1 Economic growth rate 29 2.3.2.2 Exchange rate .30 SUMMARY OF CHAPTER 31 CHAPTER RESEARCH METHODOLOGY 32 3.1 RESEARCH PROCESS 32 3.2 METHODOLOGY .34 3.2.1 Regression model 34 3.2.1.1 Pooled ordinary least square (Pooled OLS) 34 3.2.1.2 Fixed effect model (FEM) 35 3.2.1.3 Random effect model (REM) .35 3.2.2 Model selection test .36 3.2.3 Check the defects of the model .37 3.2.3.1 Detecting multicollinearity in the model .37 vi 3.2.3.2 Checking heteroscedasticity in the model 37 3.2.3.3 Testing for autocorrelation 37 3.2.4 Overcome the model's defects .38 3.3 RESEARCH MODEL 38 3.4 DATA 43 SUMMARY OF CHAPTER 44 CHAPTER ANALYSIS THE RESEARCH RESULTS 45 4.1 DESCRIPTIVE STATISTICS 45 4.1.1 Descriptive statistics 45 4.1.2 Correlation analysis 50 4.1.3 Multicollinearity test .51 4.2 REGRESSION RESULT 52 4.2.1 Regression result by Pooled OLS, FEM and REM 52 4.2.2 Evaluate the suitability of the model .54 4.2.2.1 F-test .54 4.2.2.2 Hausman test 55 4.2.2.3 Testing defects in the model 55 4.2.3 Estimated result by feasible generalized least squared (FGLS) method .57 4.3 DISCUSSING RESEARCH RESULTS 58 SUMMARY OF CHAPTER 62 CHAPTER CONCLUSIONS AND RECOMMENDATIONS 64 5.1 CONCLUSION 64 5.2 RECOMMENDATION .65 5.2.1 Recommendations commercial banks .65 5.2.2 Recommendations for government and central banks 67 vii 5.3 LIMITATIONS OF THE STUDY AND SUGGESTIONS FOR FUTURE RESEARCH 68 SUMMARY OF CHAPTER 69 REFERENCES i APPENDIX vii APPENDIX viii viii ABBREVIATIONS LIST Abbreviation Meaning BCBS Basel Committee on Banking Supervision CAR Capital adequacy ratio FEM Fixed effect model FGLS Feasible generalized least squares GDP Gross domestic product OLS Ordinary least squares REM Random effect model SBV The State bank of Vietnam 69 to accurately assess the impact of each factor on capital adequacy ratios Moreover, future paper can gather more data State-owned banks, 100% foreign-owned banks, joint venture banks, increasing observation patterns to be able to make the most accurate comments on the capital adequacy ratio of banks Secondly, the future studies can use a variety of ways to further identify variables in the model to enhance the level of meaning and more accurately explain the impact of each variable on the capital adequacy ratio At the same time, it is possible to separate research variables into different categories such as internal banking factors, industry factors, economic factors to be able to more accurately assess the factors affecting capital adequacy ratios Thirdly, future studies may use other regression models such as GMM to select the optimal regression model, control endogenous factors, and consider data latency, or non-linear relationships to achieve accurate and highly effective results SUMMARY OF CHAPTER Based on the results of regression in Chapter 4, Chapter gives some suggestions and policy implications for increasing the capital adequacy ratio of joint stock commercial banks in Vietnam This chapter outlines the limitations of the subject, which in turn gives suggestions for the next direction of research i REFERENCES Abba, G O., Okwa, E., Soje, B., & Aikpitanyi, L N (2018) Determinants of capital adequacy ratio of deposit money banks in Nigeria Journal of Accounting & Marketing, 7(2), 1-7 Ahmad, R., Ariff, M., & Skully, M J (2008) The 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