Khóa luận tốt nghiệp: The effects of bank’s capacity according to CAMEL system on the volatility of bank share prices in Vietnam

Studying the relationship between bank capacity variables and the price of bank shares on the Vietnamese stock market will give investors and other stakeholders a better understanding of

VIETNAM NATIONAL UNIVERSITY

UNIVERSITY OF ECONOMICS AND BUSINESS

GRADUATION THESIS

SUPERVISOR: PhD Vu Thi Loan

STUDENT: Nguyen Thi Anh Thu

STUDENT CODE: 19050737

CLASS: TCNH CLC4 QH2019 E

Hanoi, 2023

VIETNAM NATIONAL UNIVERSITY

UNIVERSITY OF ECONOMICS AND BUSINESS

GRADUATION THESIS

THE EFFECTS OF BANK’S CAPACITY ACCORDING TO CAMEL SYSTEM ON THE

VOLATILITY OF BANK SHARE PRICES IN VIETNAM

SUPERVISOR: PhD Vu Thi Loan

STUDENT: Nguyen Thi Anh Thu

STUDENT CODE: 19050737

CLASS: TCNH CLC4 QH2019 E

Hanoi, 2023

This is my senior thesis, I hereby state The research findings and data are authentic and

were not plagiarized The study also includes a number of references that have been notedand clearly cited Before the department, faculty, and school, I would like to fully accept

responsibility for this promise

Hanoi, May 14, 2023

Confirmation of student: Confirmation of instructor:

Nguyen Thi Anh Thu PhD Vu Thi Loan

A completed study would not be done without any assistance Therefore, the author who

conducted this research gratefully gives acknowledgement to their support and motivationduring the time of doing this research as a requirement of completing my thesis

The author would like to thank the Board of the University of Economics and Business

-Vietnam National University for creating favorable conditions for the author to complete

this thesis

The author also would like to thank the lecturers of the Faculty of Finance and Banking,

University of Economics and Business - Vietnam National University for their help the

author in the thesis implementation process

In particular, i would like to express my endless thanks and gratefulness to my supervisor

PhD Vu Thi Loan Her kindly support and continuous advice went through the process of

completion of my thesis Her encouragement and comments had significantly enriched andimproved my work Without her motivation and instructions, the thesis would have been

impossible to be done effectively.

Thank you very much!

Hanoi, May 2023

Table of contents

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LIST OF TABLES 1111757 8

IEX93391600/1201125 ẽ 9

INTRODUCTION 01— 10

1 Reasons 05001) na 10

2 Objectives, research tasks and research Questions - - 5 22+ SS*nsrrererrrrrrree 11 2.1 Objectives of the StUdy - Án HT HH Hà TT HT HT nh HT TT HH TH 11 VN Ð (aôôaôa g.gA.aưAAiIđiđitẳẢỎẢỎẢÕỐẢỔẢỒẢẦỶ 11

2.3 Questions Of the Study 00 cece ố 12

3 Scope Of the 0n 12

4 Methodology of the StUdy - Án TH TH TH HH HH TT Thọ TH TH HH Hà Tưng hệt 12 5 Expected contribution of the study - Á- SG 1212 S* SH TT TH TH TH H rkey 12 CHAPTER 1: LITERATURE REVIEW AND THEORETICAL FRAMEWORK - 555cc scssexss 14 1.1 Literature review cece e 14

1.1.1 Overview of foreign studleS - 6 cà HH HH HT nh Tho TT HH Hàng rệt 14 1.1.2 Overview of research in Vieft'a1m - - - - c1 nh HH 15 1.1.3 Research ØaD - - 5 HH TH HH TH TT TH TH HH HH TT TT HH HH tư Tư hệt 17 1.2 Theoretical Dasis naa - 17

1.2.1 Theory of factors affecting Stock Prices 0.0 - (ng TH HH rệt 17 ID 0ì 0v) -lJy ƯŒAitiẢ 21

1.2.2 Theoretical foundations of commercial banks and shares of commercial banks 23

1.2.3 Overview of Banking Capacity - - Gà HH HH HT HT TH TT Hà Hàn HH giết 24 CHAPTER 2: RESEARCH METHODOLOGY 5 + 21 19121 911511 1103 T1 TH TH TH nghệ 29 2.1, Research Gesign oo ố 29

2.2 Research sample and data collection method - - 5 55 55 2+ *E*EEseEeereeeeereereexee 30

2.3 Research me ÌS - 6 1 St 219119119020 HH HH HT TT TH HH HH HH hờ 30 2.4 Description of the research variaÌ;; - - - SH TH TH TH TH ng Hưng rry 32

2.4.1 Dependent variable? - - - 5 6 sọ TT TH TH HH HH TH 32

2.4.2 Independent Variables - - -G- Á + 1T nh nh Thọ Tho TT nh TH TH HH nh nh 33

CHAPTER 3: EMPIRICAL RESŨ LÏT, - - 27 52 52 22 2211212311211 11 112 1H10 HT TT TT TH TH HH HH 41

3.1 Overview of the capacity of commercial banks in Vietnam - 6c 41 3.2 Overview of bank stocks on Vietnam stock marKet 5 5 + + sxssssrrerrerserrsee 45 3.3 Statistical results describing the variables - «6 Sàn HH Hiệp 50 3.4 Regression model analysis F€SIÏLS - G + 1S nh nh nh TT HH Hàn Hàng 51

3.4.1 Research data test F€SUÏS 5 Ghi HH Hàng hệt 51 3.4.2 Regression model r€SuÏfS - - G6 + S4 112 1 3111 1T HT Hàn nh HT Hành 56 4.1 ConCÏUSỈOTNS - (TT HT Thọ TT TH TH HH HH HT TT Ti HH HH Hà cư tư kt 62

4.2 Recommendations for investors, securities issuers and managerS - 64

4.2.1 FOr ÏIV€SĂOTFS - Án TH Thi 64

4.2.2 For those who issue S€CUFÏĂÏ€S Án TH TH TH HH TH TH HH 64

4.2.3 For the maI'I4BT - G5 1n TH TH TT HH HH TH TT TH HH hư 65 4.3 Limitations of research and development orientationn - - «Sàn 66

)302)3)/0501157 5 67 [300860 70

LIST OF ABBREVIATIONS

Capital Adequacy Ratio

Risk-Weighted Assets

Cost to Income Ratio

Non performing loan

Profit after tax

Random effect model

International Monetary Fund

LIST OF TABLES

Table name Number of pagesTable 2.1 Dummy variables of BIG4 37Table 3.1 Statistical results describing the variables 47Table 3.2 Analysis of Variance ANOVA 48Table 3.3 Model Summary 49Table 3.4 Coefficient results 50

Table 3.5 Table Coefficients after removing 5 variables violating 51multicollinearity

Table 3.6 Summary table of regression model results 54

LIST OF FIGURE

Figure nameFigure 2.1 Research design

Figure 2.2 Role of controlled variables

Figure 3.1 Profit growth of Vietnamese commercial banks in 2022

Figure 3.2.TOI structure

Figure 3.3 LDRs of all banks increased significantly compared to

2021

Figure 3.4 NIM evolution by bank

Figure 3.5 Credit expense ratio until the end of 2022

Figure 3.6 CAR of Vietnamese commercial banks (data updated at

the end of the second quarter of 2022)

Figure 3.7 Changes in bank prices at the end of 2022 compared to

the beginning of the year

Figure 3.8 Bank share capitalization as at December 30, 2022 (Unit:

Billion Dong)

Figure 3.9 Foreign banking transactions in 2022

Figure 3.10 Changes in bank stock prices, changes in the bad debt

ratio of the whole industry

Number of pages

26363939

1 Reasons for the study

The gauge that receives the most attention on the stock markets from both investorsand researchers is always the stock price The group of banking stocks is part of a unique

industrial group among the variety of industries represented on the stock market because

of the sensitive nature and commercial traits of the banking sector Compared to many

other listed firms, these are large-cap companies The banking sector is one of those in the

economy that receives the strictest regulation, especially in developing nations like

Vietnam, where listed banks are required to strictly abide by the rules of the State

Securities Commission and the State Bank of Viet Nam The banking sector is generally

regarded as a key sector to ensure the smooth operation of the national economy, so this

sector is of particular interest to the governments of the countries As a result, bank stocksare also crucial in driving and supporting the market

In Vietnam, bank stocks are regarded as the "king" stock both in terms of share

count and the share of the banking sector in the overall market capitalization The overall

capitalization of banks as of December 2022 was 1.55 trillion dong, or around 25% of the

market capitalization This serves to stabilize the market against abnormal movements andbring the VNIndex to a level of balance The evidence on the Vietnamese stock market

supports this claim For instance, in early 2022, real estate equities on the Vietnamese

stock market concurrently fell rapidly, causing the VnIndex to fall as much as 20 points

However, the green color has now steadily returned due to the banking market's demand,bringing the Vnindex to a stable level The 2019 Decision No 242 on the Project

"Restructuring the Stock Market and Insurance Market to 2020 and orientation to 2025"

approval underlines the significance of banking sector stocks once more Therefore, the

research of bank stocks and the evaluation of the elements that produce bank stock price

changes are of greater importance than ever in order to govern and stabilize the stock

market However, it is obvious that banks and bank stocks have different features As a

result, while examining bank stocks, investors may need to apply more criteria and

particular evaluations rather than just financial statistics

On the other hand, the CAMEL framework has been formally used in the Vietnamesebanking system since 2006 as a flexible instrument to analyze the performance and

capacity of banks in order to supervise the banking sector Although CAMEL is a collection

of dependable and synthetic indexes, there are currently few studies and other pieces of

data that show how these indexes relate to the stock market, particularly the volatility of

banking stock prices

Therefore, based on the CAMELS capacity assessment, the study will offer afoundation and empirical evidence on the relationship between the parameters indicatingthe bank's capacity and the volatility of that bank's stock price Studying the relationship

between bank capacity variables and the price of bank shares on the Vietnamese stock

market will give investors and other stakeholders a better understanding of the situation

and a solid foundation for making decisions that will promote the steady rise of bank stockprices in particular and the stock market in general

On that basis, the author chose the topic “The effects of bank’s capacity according toCAMEL system on the volatility of bank share prices in Vietnam” as the topic of my thesis

2 Objectives, research tasks and research questions

2.1 Objectives of the study

Determine how the CAMEL assessment framework's elements that show the bank'scapabilities affect the volatility of bank stock prices on the Vietnamese stock market

2.2 Tasks of the study

Organize the theoretical underpinnings of the stock market and the variablesillustrating the bank's capability that influence the share price of the bank

Gather information, assess, examine, and test the impact of specific banking industryindicators on the market and the price of the bank's shares

Give advice to market participants on how to decide whether or not to trade

securities.

2.3 Questions of the study

How does the bank's capacity affect the bank's share price?

Which of the factors representing the bank's capacity according to the CAMEL frameworkaffects the bank's share price?

What are the recommendations for investors, issuers, regulators, the Ministry of Finance

and the State Securities Commission?

3 Scope of the study

The analysis covered 27 commercial banks that were listed on three Vietnamesestock markets between 2013 and 2023: HOSE, HNX, and UPCOM

4 Methodology of the study

The study combines two qualitative research techniques with one quantitativetechnique:

Qualitative method: To obtain in-depth knowledge about the research object, theauthor will first go to gather credible materials and consult prior research papers relevant

to the research issue so creating a sound theoretical foundation and line of reasoning for

the subject

Quantitative method: The team will test and model the capacity variables according

to the CAMEL framework that affect stock prices by multivariate regression model, to seewhich bank characteristics cause stock prices to move the most over a specific time period,once they have sufficient basic data and a large enough data set

5 Expected contribution of the study

In reality, there are numerous variables that influence stock prices, making itchallenging for investors, particularly novice ones, to choose the most crucial information

As a result, the author suggests the CAMEL model as a tool to assist investors in making

decisions more easily based on 5 characteristics that represent the capability of the bank.The study, which uses historical data from 27 commercial banks listed on the stock market

in Vietnam, reveals the average price fluctuation in each quarter in light of the market's

various historical contexts and develops a number of rules for how the share price is

mobilized in relation to factors like capital adequacy, asset quality, governance capability,cost of income, and bank liquidity Due to this, the study serves as a foundation for furtherresearch on the swings of bank stock prices as well as a reference for issuers, regulators,and investors.

CHAPTER 1: LITERATURE REVIEW AND THEORETICAL FRAMEWORK

1.1 Literature review

1.1.1 Overview of foreign studies

According to a study by Cooper et al from 2003, which used data on bank holdingcompanies (Bank Holding Company - BHC) in the US from June 1986 to December 1999,

earnings per share, non-interest income, credit allowance, earnings, equity ratio, and

standby letter of credit commitments all have an impact on bank shares Bank size and theratio of book value to market value, meanwhile, were not significantly impacted The studyalso demonstrates that this effect is attributable to the underreact of investors to the

change of bank features

According to another study by Al-Shubiri (2010), he conducted a simple andmultiple regression analysis on data from 14 banks on the Amman Stock Exchange in

Jordan and discovered a highly significant positive relationship between market price of

stock and net asset value per share, a significant negative relationship between market

price of stock dividend percentage gross domestic product, and a significant negative

relationship between inflation and lending interest rate on the Amman Stock Exchange in

Jordan Additionally, Al-Qenae, Li, Mukherjee, Naka (1995) and Wearing's (2002)

conclusions are supported by the negative coefficient of the loan interest rate An effectiveinstrument for influencing the economy is the lending interest rate When the interest rate

is high, investors’ access to capital is restricted, which has a negative effect on stock prices

Virza Ilham Zaini, Isfenti Sadalia, and Khaira Amalia Fachrudin's (2018) studyexplores how internal and external factors, including return on assets, debt on total equityratio, non-performing loans, and net profit margin, affect stock return with price to book

value as a moderating variable in banking companies listed on the Indonesia Stock

Exchange Based on the findings of the test with a p-value more than, it was determined

that the stock was negatively yet significantly impacted at the same time by inflation,

interest rates, the rupiah exchange rate, return on assets, the debt to total equity ratio, performing loans, and NIM (Net Interest Margin) At the same time, partially inflation,

non-interest rate, and NIM had significant influence on stock return Reversely, Exchange Rate,

ROA, DER, NPL and the type of firm ownership did not have any significant influence on

to Almumani's (2014) analysis of data from banks listed on the Amman Stock Exchange

between 2005 and 2011, EPS, book value of shares, P/E, and Size are the four variables that

have the greatest impact on stock prices Uddin et al (2013) use data from 2005 to 2010 to

analyze the factors influencing stock prices at financial companies listed on the Dhaka

Exchange (Bangladesh) and come to the conclusion that there is a positive correlation

between stock price and net asset value per share, earnings per share, and P/E ratios

The study by Moeljadi et al (2020) on the Indonesian stock market also examinesthe elements influencing the firm value (as determined by stock price and stock return) of

30 listed banks in the period period 2015-2018 The findings demonstrate that NIM and

the equity to total assets ratio have a direct impact on stock price but have no impact on

stock return

Other factors that have been examined for their effects on stock prices includebanking regulations (Fotios Pasiouras, Sailesh Tanna, and Constantin Zopounidis, 2008),

changes in dividend policies (Silvio John Camilleri, Luke Grima, and Simon Grima, 2018),

and the business models, funding sources, and health indicators of banks (Haiyan Yin &

Jiawen Yang, 2013)

1.1.2 Overview of research in Vietnam

Studies on the variables influencing the stock prices of banks listed on theVietnamese stock market have been conducted quite a bit in Vietnam up until this point

The research article by Nguyen Thi Thieu Quang and Ha Xuan Thuy, which examines the

effect of bank characteristics on the profitability of stocks, is one example of a typical

research endeavor Banking in Vietnam during the COVID-19 era Fixed Effects Model

(FEM) regression results demonstrate a negative association between liquidity, credit

quality, and loan balance and stock price volatility

Author Nguyen Phu Ha's research from 2022 combines qualitative and quantitativemethods using panel data and a robust standard error regression model (Robust S.E.) to

measure the impact of various variables on the stock price volatility of listed banks

between Q1 2009 and Q4 2020 The findings indicate that parameters such as GDP growth,the consumer price index (CPI), asset efficiency (ROA), and stock beta have a positive

impact on the stock price volatility of 13 listed banks, but VnIbor interest rate, exchange

rate, and NPL have a negative impact Other elements include the M2 money supply, gold

price, IIP index of industrial production, stock volatility, EquityC, liabilities, ROE, and EPS

have varying degrees of impact on banking groups, according to the study.

Nguyen Thi Van Hanh and Vo Van Dut (2021) conducted a study on the use of SPV tomeasure bank stock price volatility The paper examines the effects of bank liquidity on theSPV of 17 commercial banks listed on the Vietnam stock market, including the provision for

credit risks, P/E, exchange rate, and GDP The REM regression model's findings

demonstrate that the financial gap (FGAP) has a favorable effect on the volatility of bank

stock prices While the quantity of total assets and changes in exchange rates are two

factors that have opposing effects on the change of bank shares, big financial gaps, or low

bank liquidity, and high stock price volatility exchange rates for the commercial banks'

listed shares on the Vietnamese stock exchange

Studies also uncover the effects of earnings-to-price ratio (EPS), interest rates,exchange rates, gold prices, inflation (Truong Dong Loc, 2014), investor sentiment (NguyenVan Diep, 2017), and COVID-19 (Nguyen Van Diep & Le Duy Khang, 2021) These factors

are in addition to conventional ones like size, value, profitability, stock price trends, and

suggestions for enhancing the viability and performance of the Vietcombank company, withthe urgent need for pilot projects to increase capital and raise NIM A study from Uyen

Dang (2011) explores whether the CAMEL framework is important for banking oversight

According to the findings, the CAMEL rating system is a helpful supervisory tool in the US,

but it has drawbacks in that it didn't closely monitor the Vietnamese bank at the time,

ignoring interactions with the bank's top management, general provisions, and allowance

for loan loss ratios

1.1.3 Research gap

It is evident that there have been several studies conducted thus far on the variablesinfluencing changes in bank stock prices, and it is indisputable that these studies serve as

crucial sources of information for the author The author discovers that the factors

influencing the stock price movements analyzed, particularly the financial indicators, are

still somewhat dispersed It is unclear from the standpoint of the investor what criteria andelements must be taken into consideration while investing in bank stocks Financial

indicators on their own don't provide much insight or suffice to guide investors in makinginformed decisions There is no theoretical foundation for the characteristics of the bank'soperations, and some studies on the characteristics of banks expressed through financial

parameters affecting stock prices have not been adequately explained They have also

neglected to mention the distinction between the form of state ownership or the

percentage of foreign ownership, despite the fact that it is obvious that banks differ greatly

in those two characteristics The proportion of foreign ownership and the type of state

ownership are two features that can help limit the effects of other variables on stock price

movements.

1.2 Theoretical basis

1.2.1 Theory of factors affecting stock prices

The majority of investors make decisions using three different approaches: marketsentiment, technical analysis, and fundamental analysis Investors don't use a single

approach when picking stocks, but all three techniques have an impact on their investment

behavior (Hayat et al., 2011) The three criteria for making specific investment decisions

are:

1.2.1.1 Technical analysis

Stock valuations are what investors that use technical analysis are mostly interested

in The foundational elements of company analysis and value analysis make up the typical

valuation process (Le Minh Loc, Nguyen Thu Hien, 2011)

> Business analytics

Investors will evaluate the economy's development potential at the initialfundamental analysis stage of the valuation process, possibly focusing on historical data

and macroeconomic projections for key economic indicators including economic growth,

inflation, and interest rates You can then choose businesses and industries that have

significant demand, a possibility for rapid market expansion, little to no direct competition,steady input costs, etc Then proceed to select potential companies According to Shefrin

and Statman (1995), investors prefer to choose large enterprises with a solid reputation forproducing high-quality goods that are competitively priced and have good customer

service The valuation stage is the next and most crucial one; it aids investors in

determining if the stock is overvalued or undervalued before making a purchase decision

> Valuation analysis

Investors frequently use the capital asset pricing model (CAPM) to determine thevalue of a publicly traded company William Sharpe (1964), John Lintner (1965a,b), Jack

Treynor (1962), and Jan Mossin (1966) separately introduced the CAPM, which was based

on Harry Markowitz's idea of portfolio diversification The formula of CAPM is:

as spending on investments in buying new assets or investing in projects) are all significantfactors that affect discount rates in asset pricing (Fisher, 1930).

In contrast to the Discounted Cash Flow Technique, which attempts to predict theintrinsic value of a stock based on cash flow estimates, discount rates, and growth rates,

Comparative Valuation Techniques claim that it can be determine the value of a financial

asset (a bond, stock, or security) by comparing similar assets on the basis of relative ratiosbetween variables that are believed to affect and explain value of these assets such as

income, cash flow, book value, sales Price/earnings, Price/cash flow, Price/book value, and

Price/sales are among the variables that are thought to have an impact on stock prices; P/E

ratios are the most often used of these variables The selection of comparable organizations

is essential for this strategy to be truly beneficial and to produce accurate valuation

findings (Vu Phuc Thinh & Nguyen Thu Hien, 2010)

The Liquidation Valuation Method, also called the asset-based valuation method andbased on the idea that a company is basically a collection of various assets, is another

method that investors use to evaluate companies As a result, when the company is

liquidated, its worth will be equal to the value of its assets As a result, the following

formula is used to determine the company's share price:

Share price = (Net Asset Value + Advantage Value) / Total outstanding shares

However, no matter how properly calculated, the net asset value of the businessonly shows its value upon liquidation, whereas for investors purchasing stock, the

business' future holds the greatest interest (Le Minh Loc, Nguyen Thu Hien, 2011)

1.2.1.2 Fundamental analysis

Using corporate data, annual financial statements, and financial indicators to predictprices and the stock's future rate of return, fundamental analysis is a popular technique fordetermining the intrinsic worth of stocks Furthermore, macroeconomic and

microeconomic factors that influence stock prices must be taken into account by

fundamental analysts Quantitative and qualitative market methodologies exist for

fundamental analysis in stock investment

> Qualitative analysis

Investors must gather information and assess qualitative elements based on theirown opinions because they cannot be precisely computed Future industry growth

potential, business kind, competitive advantage, business hazards, and management and

governance vision are a few of them

fundamental stocks and long-term gains with the proper percentage (%)

Assets and capital sources, including capital structure, asset structure, workingcapital, debt ratio, cash, ratio Investors can discern the inherent strength of the firm theyselect based on the capital and assets of the business Companies and firms with a lot of

capital can dominate their field by investing heavily, advertising their brand, producing

goods, and inventing new ones As investors build confidence, the stock prices of these

companies will likewise rise steadily

Cost of capital, dividend policy, and free cash flow CAPEX Investors can bettercomprehend the extent of the business's activity and investment plans by calculating the

cash flow Choose the company's shares that have the best business plan for you from

there

These two indices, Market Price Index P/E and P/B, assist investors in identifyingshares of potential businesses that are cheap in relation to their genuine value By doing

this, you can make wise trading choices and earn big gains

A long-term stockholder who wishes to invest should use fundamental analysis

When using fundamental analysis in investment, there are numerous prosperous stock

billionaires like Warren Buffett, Peter Lynch, and others The benefit of fundamental

analysis is that it allows investors to grasp a variety of business-related topics through thefinancial statements, particularly the intrinsic value of the company, and it protects themfrom being overly impacted by transient swings.

1.2.1.3 Market Sentiment

The mindset of investors has a significant impact on their behavior; for instance,venture capitalists always favor choosing stocks with high returns (high price, full of risk)

The majority of wise investors like medium-sized, highly steady, low-risk securities The

thrifty investor has no interest in pricey stocks

The behavioral finance hypothesis developed by American economist Eugene Fama

is the foundation of investor psychology It discusses the psychology of exaggeration,

regret, failure fear, cognitive inconsistencies, and the consequences of crowd psychology

These reasons are sometimes what lead competent, everyday investors to act in highly

irrational ways, such as having unrealistic expectations for market growth or holding ontolosing equities for an extended period of time Additionally, psychological aspects like

awareness level, age, gender, etc have an impact on investors

In addition, social elements including market knowledge, the legal system,governmental macroeconomic management strategies, etc., have an impact on psychologyand investment Investors will need to employ unofficial information, such as news in themedia, professional advice and recommendations of brokers and analysts, the advise of

some friends, and family when making investment decisions in a market where

information asymmetry exists Investor trust will decline if the legal system isn't completeand synchronous and permits situations like speculation, price manipulation, fake news,

etc to harm the market

1.2.2 Other theories

1.2.2.1 Efficient market theory

The idea of efficient markets is crucial in the study of stock prices because it allowsfor the expression of intrinsic value in stock prices Eugene Fama first proposed the

efficient markets hypothesis (EMH) in 1970 He contends that "a market in which prices

always reflect available information is called an efficient market." A capital market is said

to be efficient, according to Malkiel (1992), if it accurately and completely reflects all

pertinent information when deciding stock prices

The following list of traits of an effective market can be summed up:

(1) All market information is timely and accurate, and investors receive it all at once.(2) In an efficient market, the market price of securities always and accurately reflectsthe information in the financial statements of those securities as well as the informationavailable on the market

(3) Securities shall be traded and exchanged at par on stock exchanges in an efficientmarket

(4) The price of securities rises or falls for the sole reason that the stock priceresponds to newly available information

1.2.2.2 Fama and French's three-factor model

Introduced in 1993, the Fama-French three-factor model (1993) suggests that thereturn of a portfolio or a particular stock depends on three factors: market factors, weak

firm size factor and book-to-market factor BE/ME

The model is described as follows:

E(Ri ) - Rf =c + Bi [(E(RM) - Rf] + si(SMB) + hi(HML)

Where:

- Rf: Risk-free profit

- E(Rf) : The expected return of the entire market

- SMB: Average of the historical difference between the return of the small companystock portfolio and the return of the large company stock portfolio

- HML: Average of the historical difference between portfolio returns of companieswith a high book-to-market ratio and those of low-value companies

- Bi : Regression coefficient for market factor

- si: Regression coefficient for factor SMB.

— hi: Regression coefficient for HML factor

According to the three-factor Fama-French model, taking on more risk is rewardedwith higher returns The influence of two factors, SMB and HML, on the return of the

portfolio i is measured by the coefficients si and hi, respectively

Meir Statman (2017) asserts that the following 5 pillars support traditional finance:

(1) Reasonable investors

(2) People build portfolios that are solely comprised of investments with high

projected returns and minimal risk, as stated by the medium variance portfolio theory.

(3) According to the conventional life-cycle theory, people save and spend inafashion that is easy for them to recognize and put into practice

(4) The conventional asset pricing theory is used to compute the expected return oninvestments, and it stipulates that the sole factor affecting the expected return is the

through deposit collection and using that capital simultaneously to make loans, discount

transactions, offer payment options, and offer banking services to clients in the economy

(Nguyen Dang Don, 2010) In contrast to non-bank credit organizations, whose legal capital

is restricted to 500 billion VND in accordance with Decree 10/2011 and operating period islimited to 50 years, the Bank's operational scope is significantly broader and all banking

activities are implemented within the boundaries set by the Credit Law

The definition of a commercial bank is given in Clause 3 of Article 4 of the Law onCredit Institutions of 2010: "Commercial bank is a type of bank that is permitted to carry

out all banking activities and other business activities in accordance with this Law for the

purpose of profit." Clause 12 of Article 4 of this Law states further that "banking activities

are the regular business and provision of one or more of the following operations: a)

Receiving deposits; b) Granting credit; and c) Providing payment services through

accounts." A commercial bank is a firm that trades in commodities, primarily money, for

profit A commercial bank's primary job is to act as an intermediary financial organization,circulating capital to fuel the economy Through lending and investment activities, the Bankcarries out this transition from capital mobilization and prudent capital allocation to the

economy Additionally, the State Bank uses commercial banks as tools to enact and controlmacroeconomic regulation programs

1.2.2.2 Stocks of commercial banks

A sort of equity investment issued by banks is called bank stock Shareholders of a

bank are individuals who purchase bank shares When the banking sector gets listed on the

stock market, it will differ greatly from other industries and have unique traits

- Money and services related to money are business banking goods;

- Banks exert significant influence over other economic sectors;

- They are strictly governed by the government, which makes their equitization

extremely reputable and transparent;

- And their capitalization rate has accounted for the capitalization of the entire stock

market

The bank has a high reputation and is transparent because it is managed by theState with tremendous rigor Therefore, bank stocks are now one of the attractive

investment channels for domestic and foreign investors.

1.2.3 Overview of Banking Capacity

According to Budisantoso and Triandaru (2005), the definition of a bank's capacity

is very broad because it encompasses a bank's ability to be healthy enough to conduct all of

its banking business operations and be able to carry out all of its obligations in a way that

complies with applicable regulations The ability to raise money from the public and from

other organizations is one of these actions The capacity of the bank is the outcome of

qualitative and quantitative study on many factors that affect a bank's state or performancethrough the evaluation of risk profile characteristics, corporate governance, earnings,

capital, and assets The status, evolution, and projections of the bank's financial ratios are

all evaluated quantitatively A qualitative assessment examines the variables that

contribute to the outcomes of quantitative evaluations, the use of risk management, and

bank compliance Financial indicators typically provide the best indication of an

organization's operating capacity

1.2.3.1 Models for assessing organizational capacity

Currently, a variety of models are employed to evaluate the effectiveness andcapability of organizations, such as the Moody's scale, which ranks companies according totheir estimated risk and ability to make interest payments As a result, Moody's ratings for

bonds, preferred stocks, and governmental institutions are closely scrutinized by investors

all over the world Or the 10 criteria used in Japan's FIRST bank rating model include

business management, legal compliance, management of client protection, comprehensiverisk management, capital management, etc The FIRST approach gives non-financial

management issues more focus While CAMEL is based on financial statements and

emphasizes capital analysis, asset quality, management, profitability, and liquidity, it is not

The CAMEL framework has been formally used in the Vietnamese financial sectorsince 2006, out of all the models The CAMEL approach has the advantage of being highly

objective and being simple to apply throughout numerous successive time periods with

distinct and recognizable target audiences These indications will undoubtedly be very

reliable and of high caliber for both investors to rely on as a basis and standard for makingstock buying decisions if the Vietnamese banking system adopts CAMEL as a tool to

monitor and reflect risks in banking activities

1.2.3.2 Banking capacity according to CAMEL model

Most nations in the globe have used the CAMEL analysis model since it wasdeveloped and researched by the IMF (Tran Minh Hieu, Nguyen Phuong Linh, 2022) The

criteria of the banking system as determined by the income statement, in accordance withthe CAMEL framework, are a useful instrument to represent the capability and

performance of banks Many academics, like B Nimalathasan (2008), Tesfasion Sahlu Desta(2016), Nguyen Dang Don (2010), and Phan Thi Cuc (2009) in Vietnam, employ a wide

range of measures to gauge the performance of the bank

CAMEL stands for 5 factors: C (Capital Adequacy) - A (Asset quality) - M

(Management ability) - E (Earning) - L (Liquidity).

* Capital adequacy

The bank's ability to raise enough capital to support its operations is known as

capital adequacy Determining the soundness of financial institutions against shocks or

pressures on their balance sheets requires ensuring capital sufficiency and availability

According to Nguyen Thi Canh (2009), adequate capital adequacy ratios throughout time

demonstrate the ability to lessen or ameliorate the major issues that financial institutions

have been dealing with The share price is more volatile when the capital adequacy ratio isbeing monitored in the context of challenging economic conditions (Nguyen Phu Ha, 2023).Currently, the minimum capital adequacy ratio in use is 8%, in accordance with Basel

quality really improves (VnDirect Research, 2023)

Indicators representing asset quality: NPL ratio; Allowance for credit losses; Creditrisk weight.

sources (Le Thi Huyen Dieu, Nguyen Trung Hau, 2011)

Measures of managerial effectiveness include the Cost-to-income ratio and the

Profit-after-tax ratio for each employee.

* Earnings and profit

The most crucial factor determining whether a business will survive is its ability tomake a profit Investors anticipate making large profits based on how profitable the

company is In addition to other considerations, profit maximization is the primary

objective of commercial banks since, in contrast to other factors, it has a direct impact on

business performance, position, and market share According to Balasundaram N, 2009,

profit analysis serves as the foundation for investors' decision-making

The ratios show the index of income and profit: Interest Margin Ratio (NIM), Return

on Equity (ROE), and Return on Total Assets (ROA)

* Kha nang thanh khoan

The ability of commercial banks to meet their immediate cash needs, such asextracting deposits and disbursing committed credits, paying operating costs or other

financial commitments, is referred to as their liquidity Other currency payments are

required (Do Hoai Linh, Lai Thi Thanh Loan, 2018) A criteria for evaluating the caliber andsoundness of a bank's operation is liquidity Customers’ needs for withdrawals won't be

met by banks that lose liquidity, which will undermine their faith At the same time that

requests for credits cannot be granted

Representative costs include the Cash Reserve Ratio and the Loans to Deposits (LDR)

ratio.

CHAPTER 2: RESEARCH METHODOLOGY2.1 Research design

The research process is divided into 3 main steps First, the author identifies the problem to be analyzed through market research, specifically by reviewing the articles,

news, research articles read Then, based on the overview to choose choose the research

variable as well as the appropriate model The next step is to collect secondary data and

feed it into the model And the last step, the research synthesizes the results and makes

recommendations suitable for the Vietnam market.

Figure 2.1 Research design

2.2 Research sample and data collection method

The study draws on secondary data sources, specifically historical information onthe financial metrics of 27 commercial banks listed over a ten-year period from 2013 to

2023 on the HOSE, HNX, and UPCOM stock markets in Vietnam Quarterly data that is

retrieved from the FinnPro database and provided as imbalanced tabular data with the

organization displayed in an aggregate structure is the information on the parameters of

the bank's financial statements Data that is out of balance represents several time periods

with varying quantities of crossover units The cause is that some short-term financial

statements of select commercial banks were flawed throughout the data collection

procedure

For banks listed on the exchange for less than 10 years, the author uses historicaldata from when that bank was listed on the exchange For example, for a bank , the authortakes historical data for 10 years The final dataset consists of 27 bank stocks with 502

observations

2.3 Research models

The author uses descriptive statistical methods and regression analysis to performquantitative research to examine the variables influencing the stock price volatility of jointstock commercial banks in Vietnam The dependent and independent variable's observedresult sets are best fit by this equation The benefit of this model is that it makes it possible

to estimate the relationship between the variables as realistically and accurately as

possible Based on the known value of the independent variable (the known factor), one

can anticipate the dependent variable (the unknown factor) from this estimable equation

> Sampling method:

The sampling process used a random method When the likelihood of selecting allunits fairly exists, random sampling, sometimes referred to as probability sampling, is a

sampling technique This approach is thought to be efficient and requires less work than

other approaches to find and choose a sample that is likely to reflect the study population

In order to get the sample size n for a regression model, Tabachnick & Fidell (2007) state

that the formula n 50 + 8p (p: number of independent variables) should be used Thus,

research can be done with a sample size of at least 90 The group's sample of 502

observations will undoubtedly produce more accurate forecasts because the larger the

sample size, the more accurate the results

> Descriptive statistics method:

The author performs descriptive statistics of variables through SPSS to summarize

or describe a set of data, a research sample in the form of numbers or visual charts The

numerical tools used for description are the mean and standard deviation and the

histograms

> Multiple regression method:

In fact, there are many economic problems—both in business and in economics—

that require multivariate regression An economic indicator is affected at the same time bymany positive or negative factors On the other hand, among the factors, there is also an

intrinsic linear correlation with each other Regression analysis helps us both to re-test thehypothesis about the influencing factors and the degree of influence, and to quantify the

economic relationships between them From there, it serves as the foundation for

predictive analysis and appropriate and effective decisions to promote growth

The advantage of the Multiple Linear Regression (MLR) method is that it is possible

to use data from the past research to identify and define the scope of the study Besides, themethod has high accuracy for multi-sample data files for analysis Multivariable regressionequation in linear form:

y = 80 + B1X1 + B2X2+ B3X3+ +BiXi+ E

Where:

- yis the dependent variable

- 0 is the origin

- Bi are the slopes of the equation according to the variables Xi

- Xiare the variables (influential factors)

- €are the errors

dispersion from the difference between the two We accept the premise that the mean

values are significantly different if F is high and the p-value is less than 0.05

The fit of the independent variable is tested through the coefficient R2 The more

closely this index approaches 1, the more significant the model is; conversely, the closer itapproaches zero, the less significant the model is In addition, first-order series

autocorrelation is tested using the Durbin-Watson index DW has a value between 0 and 4;

if it is near to 0, residual correlation is positive; if it is close to 4, residual correlation is

negative.

The variance magnification factor VIF calculates the multicollinearity test

Multicollinearity is a phenomenon that leads to the skewed distribution of numerous

quantitative indicators because the independent variables have a very strong correlation

with one another Utilizing the formula VIF = 1/ (1-Ri)2, one may determine VIF As a

result, multicollinearity will be a phenomenon for VIF > 2

Utilize the significance level (Sig.) to examine the partial correlation of theregression coefficients If the significance level is more than 5%, there is no statistically

significant relationship between the independent factors and the dependent variable, andthere is also no correlation between the variables

Finally, the histogram of the normalized residual frequency is used by the author toverify the residuals’ normal distribution

2.4 Description of the research variable;

2.4.1 Dependent variable:

Stock Price Volatility (SPV) is the variation, rise or fall in price by measuring thedistance between a security's highest and lowest price around the average price for a

period of time (average of the highest and lowest prices) This coefficient will be greaterthe more drastically the stock price varies, and smaller the more subtly the stock price

fluctuates In this study, the marginal value approach proposed by Parkinson's (1980) isused to calculate stock price changes Later research have employed this method to

calculate stock price changes, including Baskin (1989), Allen & Rachim (1996), Rashid &Rahman (2009), Nazir et al (2010), Khan (2012), and Vinh (2014)

Accordingly, the formula for calculating stock price fluctuations is:

Capital Adequacy Ratio (CAR)

The capital adequacy ratio is a fundamental metric used by managers (centralbanks) to evaluate the stability of banks' finances The central bank must order a bank toclose if it is determined to be insecure and incapable of carrying out regular business

Banks are required to consistently maintain a CAR of at least 8% in accordance with

Circular 41/2016/TT-NHNN, which is calculated using the following formula:

cCAR = x 100%

RWA + 12,5 (Kor + Kur)

Where:

- C: Own capital;

- RWA: Total assets based on credit risk;

- KOR: Capital required for operational risk;

- KMR: Capital required for market risk.

Capital adequacy ratio is directly proportional to the bank's resilience to crisissituations, so investors prefer banks with good capital adequacy ratio (Sangmi &

Tabassum, 2010)

Hypothesis 1 (H1): CAR has a positive relationship with bank stock price volatility

Owner's Equity/Total Assets (OE/TA)

The equity to total assets ratio reveals the bank's actual capital position as well asthe stability and soundness of the financial system When the equity-to-total assets ratio islow, it indicates that the bank is using excessive financial leverage, which carries a lot of

hazards and has a high financial risk, according to research by Altunbas (2007), Goddard

(2011), and colleagues The bank's actual capital position as well as the stability and

soundness of the financial system are shown by the equity to total assets ratio According to

research by Altunbas (2007), Goddard (2011), and coworkers, when the equity-to-total

assets ratio is low, it denotes that the bank is using excessive financial leverage, which

involves a lot of risks and has a high financial risk

Hypothesis 2 (H2): The Owner’s Equity/Total Assets index and the volatility of bank

stock prices are positively correlated.

Payables / Owner's Equity

The ratio of total debt to equity is a measure of how financially strong a firm is Itprovides information on the proportion between the two fundamental capital sources

(debt and equity) that a company utilizes to fund its operations These two capital sourceshave different qualities, and the relationship between them is frequently utilized to

evaluate a company's financial situation

The total debt-to-equity ratio provides investors with a general understanding ofthe business's financial health, financial structure, and ability to fund operations The

working capital adequacy level of the bank increases as this ratio rises

Hypothesis 3 (H3): The Payables / Owner's Equity ratio has a positive relationshipwith the stock price volatility of banks.

> Assets

Allowance for credit losses

Credit institutions can more accurately assess the quality of their credit portfolioand their assets by using provisions for credit risks, which are accounting estimates for

potential losses that could arise in their credit activities (Nguyen Hoang Vinh Loc, Phan

Ngoc Minh, Dinh Van Hoa, 2021) One of the key variables in predicting the volatility of

bank stocks is FCRER

Hypothesis 4 (H4): The volatility of bank stock prices is inversely correlated with theAllowance For Credit Losses index

Credit Risk Weight (CRW)

Credit Risk Weight (CRW) is often used between 0% and 150% In somecircumstances, a coefficient of up to 200% is used, such as when a credit grant is used to

finance a project involving real estate or when the company fails to give financial

documents to the bank so that it can assess the risk

Hypothesis 5 (H5): Volatility of bank stock prices is inversely correlated with the CRWindex

Non-performing loans (NPL)

When interest and/or principal payments are past due for 90 days or more, havebeen restructured for a grace period of 90 days or more, are less than 90 days past due, orare not made at all, a loan is deemed bad debt, according to the IMF (2004) Bad loans aresignificant because they have an impact on the commercial banks' ability to provide

financial intermediation, which is their primary source of income, and, ultimately, the

financial stability of an economy (Klein et al., 2013) NPLs are frequently brought on by

banks' ineffective oversight, shoddy legal framework, and ineffective debt collection tactics(Adhikari, 2007)

Hypothesis 6 (H6): The NPL index and bank stock price volatility have a negativerelationship.

> Management

Cost-to-Income Ratio

The cost-to-income ratio displays the proportion of a bank's overall operatingexpenses to its total revenue From there, it demonstrates the degree of operational

efficiency in the bank The following method is used to calculate the CIR index:

CIR = Total operating expenses/Total income

CIR aids investors in choosing wise investments A CIR that is abnormally high or

abnormally low suggests issues with business performance, people resources, and

investment plans Because CIR is the focus of many analysts and investors interested in

bank performance, this ratio is frequently seen as a crucial benchmark, especially amongpublicly traded banks (Asher, 1994)

Hypothesis 7 (H7): The CIR index and bank stock price volatility have a negative

association.

Per capita profit after tax

The after-tax profit to head ratio is understood as an effective ratio used todetermine the after-tax profit generated per individual working at a company Main

concern for the shareholders is the amount of profit because profit gives that is indication

of thecompany's success Pani (2008), Adesola and Okwong (2009) and Ahmed and Javed(2009) also used PAT in their studies and found positive relation between PAT and stock