The impact of liquidity on commercial banks performance in vietnam

BANKING ACADEMY BANKING FACULTY – ADVANCED PROGRAM  GRADUATION THESIS Topic: The impact of liquidity on commercial banks performance in Vietnam Student name : Thuy Linh Nguyen Class : K20 CLCB Course : 2017 - 2021 Student ID : 20A4010357 Advisor : MCom Thu Hang Do Hanoi, May 2021 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014129089271000000 Banking Academy of Vietnam Graduation thesis DECLERATION  I hereby declare that the graduation thesis with the topic "The impact of liquidity on commercial banks performance in Vietnam " is my research work, with the support of my supervisor MCom Thu Hang Do The data and results in the thesis are honest and have never been published in any other works I will be responsible for the content I have presented in this thesis Hanoi, May 23th 2021 Student Thuy Linh Nguyen Student: Thuy Linh Nguyen i Banking Academy of Vietnam Graduation thesis ACKNOWLEDGEMENTS  First of all, I would like to sincerely thank to the professors and teachers of Banking Academy, Faculty of Banking - Advanced Program who has dedicated teaching and impart knowledge, valuable experience during my school years I would like to express my deepest gratitude to MCom Thu Hang Do, for her constant encouragement and guidance She has walked me through all the stages of writing this research Without her consistent and illuminating instruction, this research could not have reached its present form Last but not least, my thanks would go to my beloved family and friends for all their encouragement and intellectual supported that has made this report possible Hanoi, May 23th 2021 Student Thuy Linh Nguyen Student: Thuy Linh Nguyen ii Banking Academy of Vietnam Graduation thesis TABLE OF CONTENTS  DECLERATION i ABBREVIATION vi LIST OF TABLE vii LIST OF APPENDIX i INTRODUCTION 1.The necessity of selected topic .1 Literature review 2.1 Foreign research .1 2.2 Domestic research 3.Research objectives The subject and scope of the study Method of research 6 Research structure CHAPTER 1: THEORETICAL OVERVIEW OF LIQUIDITY IMPACTS ON COMMERCIAL BANK PERFORMANCE 1.1 Liquidity in Commercial Banks .7 1.1.1 The concept of liquidity 1.1.2 The role of liquidity for commercial banks: 1.1.3 Measurement of liquidity of commercial bank 10 1.2 Bank performance 16 1.2.1 The concept of bank performance .16 1.2.2 Criteria for evaluating the performance of commercial banks 18 1.3 The impact of liquidity and other factors on commercial banks performance 20 Student: Thuy Linh Nguyen iii Banking Academy of Vietnam Graduation thesis 1.3.1 The impact of liquidity on bank performance 20 1.3.2 The effect of other factors on commercial banks' performance 21 CHAPTER 2: RESEARCH METHODS AND RESEARCH DATA 26 2.1 Actual situation of commercial banks in Vietnam from 2010 to 2020 26 2.2 Research model 32 2.2.1 Dependent variables 34 2.2.2 Independent variables and research hypotheses: .34 2.3 Research methodology 38 2.4 Data Description 39 CHAPTER 3: MODEL OF TESTING THE IMPACTS OF LIQUIDITY ON COMMERCIAL BANK PERFORMANCE 42 3.1 Analysis of autocorrelation 42 3.1.1 Autocorrelation matrix 42 3.1.2 Multi-collinearity VIF test .43 3.2 Regression results 44 3.2.1 The results of the OLS, REM and FEM regression for model (ROA) 44 3.2.2 The results of the OLS, REM and FEM regression for model (ROE) 45 3.3 Evaluation of the suitability of the regression model 45 3.3.1 Heteroscedasticity test .47 3.3.2 Wooldridge serial correlation test .47 3.3.3 Estimated according to the GLS method 48 3.4 Discuss the regression results 51 3.4.1 Liquidity status (LIQ) 51 3.4.2 Bank size (SIZE) .52 3.4.3 Nonperforming loans (NPLs) 52 Student: Thuy Linh Nguyen iv Banking Academy of Vietnam Graduation thesis 3.4.4 Equity to assets (ETA) 53 3.4.5 Deposit to assets (DTA) 53 3.4.6 Loans to assets (LTA) .54 3.4.7 Inflation growth (INF) .55 3.4.8 GDP growth (GDP) 55 CHAPTER 4: CONCLUSION AND SOME RECOMMENDATIONS ON LIQUIDITY MANAGEMENT AND ENHANCING COMMERCIAL BANKS PERFORMANCE 57 4.1 Conclusion .57 4.2 Recommendation .58 4.2.1 Increase highly liquid assets 58 4.2.2 Increasing equity .60 4.2.3 Increase deposit mobilization 60 4.2.4 Expanding the size of bank assets .61 4.2.5 Promote credit activities 62 4.2.5 Controlling credit risk .63 4.2.6 Controlling macro factors 64 4.3 Research limitations and suggestions for future research .64 REFERENCES 66 APPENDIX 72 Student: Thuy Linh Nguyen v Banking Academy of Vietnam Graduation thesis ABBREVIATION  Abbreviation Completed script GDP Gross domestic product ROA Return on assets ROE Return on equity OLS Ordinary Least Squares REM Random Effect Model FEM Fixed Effect Model IMF International Monetary Fund TPBank Tien Phong Commercial Joint Stock Bank VIB Vietnam International Commercial Joint Stock Bank SaigonBank Saigon Bank For Industry And Trade ACB Asia Commercial Joint Stock Bank GLS General Least Squares Student: Thuy Linh Nguyen vi Banking Academy of Vietnam Graduation thesis LIST OF TABLE  Table Table Diagram 2.1 Diagram 2.2 Diagram 2.3 Diagram 2.4 Diagram 2.5 Table 2.6 Caption Summary of previous studies Total asset growth in banking industry, 2010 – 2019 (% year by year) Credit and deposit growth in banking industry, 2010 - 2019 Liquidity assets to total assets in banking industry, 2010 – 2019 (% year by year) Non-performing loans growth in banking industry, 2010 – 2019 (% year by year) ROA and ROE growth in banking industry, 2010 – 2019 (% year on year) Dependent variables and independent variables in the study Page 26 27 29 30 31 33 Table 2.7 Descriptive statistics 39 Table 3.1 Autocorrelation matrix among variables 42 Table 3.2 Multi-collinearity VIF test 43 Table 3.3 The results of OLS, REM and FEM for model 44 Table 3.4 The results of the REM and FEM for model 45 Table 3.5 F-test and Hausman test for model 46 Table 3.6 F-test and Hausman test for model 46 Table 3.7 Heteroscedasticity test 47 Table 3.8 Wooldridge serial correlation test 48 Table 3.9 General Least Squares (GLS) regression 48 Table 3.10 Summary of the results 49 Student: Thuy Linh Nguyen vii Banking Academy of Vietnam Graduation thesis LIST OF APPENDIX  Appendix Caption Page Appendix List of Vietnamese commercial banks in the sample 72 Appendix Descriptive statistics table 73 Appendix Autocorrelation matrix 73 Appendix VIF test of multi-collinearity 74 Appendix Ordinary Least Square Regression (OLS) for ROA/ROE 75 Appendix Fixed Effect Regression (FEM) for ROA/ROE 76 Appendix Random Effect Regression (FEM) for ROA/ROE 77 Appendix Hausman test for ROA/ROE 78 Appendix Heteroscedasticity Test 79 Appendix 10 Serial Correlation Test 79 Appendix 11 Generalized Least Squares (GLS) Regression For ROA/ROE 80 Appendix 12 Datasets of 25 Commercial Banks in the research, 2010 -2020 81 Student: Thuy Linh Nguyen i Banking Academy of Vietnam Graduation thesis INTRODUCTION 1.The necessity of selected topic The global financial crisis of 2007 - 2008 brought a huge challenge to international economic development because that leads to the collapse of a series of banking systems and financial institutions Bad debts make banks increasingly lose money and lose their solvency and seriously, affect the profits and operations of commercial banks in the US Many banks have to conduct mergers or declare bankruptcy because they cannot afford liquidity or recover debts Liquidity risk has become one of the most dangerous and contagious, leading to a breakdown in the system Therefore, liquidity issues and liquidity risk management are decisive factors to the safety and efficiency of business operations of any commercial bank After the crisis, the liquidity and its impact on the performance of commercial banks are of great interest to many commercial banks in Vietnam Over the past time, due to lack of liquidity, many banks have lost a large number of customers, affecting the business performance and the bank's reputation Therefore, the problem is how to increase banks' liquidity while still achieving the desired operating efficiency From the reason above, the thesis chooses the topic "The impact of liquidity on commercial banks performance in Vietnam" for research to evaluate the current situation and proposing some solutions to improve liquidity as well as improve the commercial banks performance in Vietnam Literature review 2.1 Foreign research There are a few number of previous studies that were specifically investigate the impact of liquidity on bank performance Most of studies focused on analyzing the determinants of banking performance, including liquidity factors The link between liquidity and banking performance is quite complicated Some studies believed that liquidity is positively related to bank performance, while Student: Thuy Linh Nguyen Page