Nghiên cứu căng thẳng khu vực tài chính tại việt nam tt tieng anh

MINISTRY OF EDUCATION AND TRAINING STATE BANK ÒF VIETNAM BANKING ACADEMY OF VIETNAM VU THI KIM OANH RESEARCH ON FINANCIAL STRESS IN VIETNAM Major: Finance - Banking Code number: 9340201 SUMMARY OF PHD THESIS HA NOI – 2019 MINISTRY OF EDUCATION AND TRAINING STATE BANK ÒF VIETNAM BANKING ACADEMY OF VIETNAM VU THI KIM OANH RESEARCH ON FINANCIAL STRESS IN VIETNAM Major: Finance - Banking Code number: 9340201 Reviewer 1: …………………………… Reviewer 2: …………………………… Reviewer 3: …………………………… The thesis was defended in front of the thesis committee at on 2020 at Banking Academy of Vietnam The thesis can be found at: - Library of Banking Academy of Vietnam - National librabry Ha Noi, 2019 INTRODUCTION The necessity of the thesis The financial sector with complex structure has close links, interacting with areas of the real economy in each country The financial crisis, which began in July 2007 in the US, has pushed up credit costs, making businesses, individuals and financial institutions more cautious, pushing the US economy down into the most serious recession since the Great Depression, threatening the stability of the global economy In emerging economies such as Vietnam, as Vietnam has just integrated into the world and regional economies, there will be many external shocks so the financial sector will be more volatile Moreover, the Vietnam economy is a bank-based market, the size of non-bank financial institutions and the stock market are still very small, so when credit activities grow slowly, it will seriously affect the ability to provide capital to the economy At the same time, from the perspective of ability to absorb capital, the disclosed internal weaknesses of enterprises have really restricted the enterprises from receiving credit capital Therefore, it is necessary for the study of financial stress, how to construct finnancial stress index to identify periods of financial stress, assess the impact of financial sector stress on the real economy, thereby making policy recommendations that contribute to preventing financial stress, ensuring financial stability That is the reason I choose the topic "Research on financial stress in Vietnam" as the research topic of the PhD thesis Literature review 2.1 Literature review in the world There are many studies on financial stress about how to build financial stress index and to assess the impact of financial stress on economic activities Notably, there are some studies as followings:: Illing and Liu (2006) were the first to study financial stress They built a financial stress index for Canada based on the results of a survey with experts on stress levels of 41 different events over the past 25 years Through the survey, the study has selected the variables reflecting expected losses; risk and uncertainty The research has shown that the FSI is a meaningful measurement method in the financial system As the FSI rises, it reflects the level of increasing financial stress Research by Cardarelli, Elekdag, Lall (2010) on "Financial stress and economic activities" in which the financial stress index is aggregated from indicators reflecting the stress of the banking sector, stock market and foreign exchange market The study looked at financial stress in 17 countries and showed that financial stress caused by banking sector stress would lead to a deeper and more lasting decline than those caused by stress in stock market and forex market Hakkio and Keeton in their paper "Financial Stress: What it is, how it is measured, and why it matters" has developed a new financial stress index - Kansas City Financial Stress Index (KCFSI) 11 variables were selected, collecting data on a monthly basis to reflect the fluctuations in the money market, stock market, banking sector and foreign exchange market The KCFSI index has been successful in pointing out periods of financial stress over the past 20 years in the United States and making good forecasts of changes in economic activities in the United States 2.2 Literature review in Vietnam In Vietnam, there has not been much research on financial stress PhD thesis of Nguyen Khac Quoc Bao on "System of preventing financial crisis for Vietnam in the integration process" The dissertation approaches in the direction of presenting a theoretical system of financial crisis to explain the causes of the crisis in 2008 The thesis has just assessed the risk of crisis happening in the period from 1998 to 2008 The discussion of Monetary Policy Department, SBV on "Financial stability and macrofinancial linkages" showed the channels of impacts of the financial sector on the real economy, financial stress can lead to economic downturns, even financial crises The seminar only suggested a very small issue related to the thesis topic In the article “Construct stress index of financial sector in Vietnam” by Nguyen Chi Duc and Ho Thuy Ai in the Journal of Monetary and Financial Markets (2017), the authors evaluated the financial stress in Vietnam through the construction of financial stress index for Vietnam with monthly frequency data The variables chosen include CMAX and the volatility of stock prices; government bond yield gap, fluctuation of government bond yield; fluctuations of interbank interest rates for month period; forex market pressure index (EMPI); beta for banking sector and CMAX for banking sector stock price After that, the authors used two methods of equal variance weight and the principal component analysis (PCA) to build the composite index The research results have shown that the FSI periods with extremely high values are from mid-2008 until early 2009 2.3 Research gap and research question From the review of foreign and domestic studies on financial stress, it can be seen that there are many studies on building financial stress index and assessing the impact of stress of financial sector However, at present, domestic research on this issue is very limited and not comprehensive The thesis addresses the following basic research questions: - What is financial stress and how does financial stress affect the real economy ? - In Vietnam, if there is financial stress or not, what are the causes of financial stress in Vietnam? - How does financial stress affect Vietnam's real economy? - How to construct financial stress index for Vietnam? - What policy recommendations are needed to be able to limit the financial stress and minimize the impact of financial stress on the real economy in Vietnam in the near future? Research objectives The thesis objective is to study the stress of the financial sector in Vietnam in the recent period to build the financial stress index and to examine the impact of financial stress on the economy Later on, the thesis proposes some policy recommendations to maintain financial stability and prevent financial stress in the future Research methodology - The thesis used various methods and tools to achieve the research objectives Traditional ones are statistics, comparison, analysis, synthesis, interpretation, inductive to assess the situation of financial sector tension in Vietnam and the impact of financial sector stress on the real economy - Quantitative methods include: The method of equal variance weight to build financial stress index From the variables that reflect the stresses of each region / financial market, a synthetic stress index is constructed by the method of equal variance weight The author then used the HP filter to determine the financial stress period To examine the impact of financial stress on the real economy, the thesis uses the threshold vector auto regression model - TVAR by selecting the financial stress index variable as the threshold variable The thesis assesses the impact of financial sector stress on the real economy in two regimes when the financial stress index is higher than the threshold and when this index is lower than the threshold Subject and scope of research  Subject of research: The thesis focuses on researching financial sector tension, including banking sector, stock market, currency and foreign exchange markets, and impacts of financial sector stress on Real economy  Scope of research: - Scope of space: The thesis studies the financial stress and the impact of financial stress on the real economy in Vietnam - Time range: The thesis studies the financial stress and the impact of financial stress on the real economy from 2005 to 2017 Contributions of the thesis Firstly, the author has formulated a theoretical framework on financial stress and the impact of financial stress on the real economy Secondly, the author summarizes studies on financial stress in some countries, thereby showing the countries' experience in managing financial stress This is the basis for the author to make recommendations for Vietnam Thirdly, by qualitative research, the author has assessed the state of financial stress in Vietnam from 2005-2017 Fourth, the author has built a financial stress index in Vietnam through the use of an equal variance weight method; At the same time, TVAR model is also used to assess the impact of financial stress on the economy Fifthly, the thesis proposes policy recommendations to prevent financial stress and minimize the impact of financial stress on the real economy, towards stable development of financial markets Thesis structure In addition to the introduction, conclusion, list of references, the thesis content is structured into chapters: Chapter 1: Theoretical framework on financial stress Chapter 2: Current situation of financial stress in Vietnam from 2005 to 2017 Chapter 3: Policy recommendations to prevent financial stress and ensure macro stability - CHAPTER 1: THEORETICAL FRAMEWORK ON FINANCIAL STRESS 1.1 Overview of financial sector 1.1.1 Definition The financial sector plays a particularly important role in the economy of each country, such as the central nervous system of the market economy (Crockett et al., 2011) The financial sector is a comprehensive group of redundant and capital deprived entities, financial institutions, financial markets in mobilizing and effectively allocating capital sources in the economy The healthy and sustainable development of financial markets and financial intermediaries is an essential factor to ensure macroeconomic stability, contributing to the promotion of sustainable economic growth 1.1.2 Components of financial sector The financial sector consists of: (1) savers and investors, (2) financial markets, (3) financial institutions In the economy, capital is transferred from the place of capital surplus to the place of lack of capital through two channels: direct capital channel and indirect capital channel Depending on the characteristics of each country, the financial structure can be developed in the direction of bank-based market or market-based market 1.1.3 Role of financial sector The financial sector provides the following basic functions: (1) value exchange - a way of making payments; (2) intermediaries - a way of transferring resources from savers to borrowers; (3) risk transfer - means for pricing and distribution of risks; (4) liquidity means of converting assets into money without undue value 1.2 Financial stress 1.2.1 Definition Source: Illing Liu (2003) Diagram 1.1: Schematic of financial stress Financial stress can be interpreted as the state when the functions and integrity of the financial system are changed, due to the effects of exogenous or endogenous shocks on the financial system The degree of stress depends on the interaction between the financial vulnerability and the size of the shock The more fragile the financial conditions are, the more vulnerable the market is, the more likely the shock will lead to financial stress When a shock is large or when financial conditions are weak, a shock can lead to a crisis and extreme stress 1.2.2 Characteristics of financial stress Each financial stressful situation has its own characteristics However, studies on financial stress in developed and developing countries have all pointed out the main characteristics of financial stress, in which five characteristics are highlighted: i) Increasing uncertainty about the value of the underlying asset; ii) Increasing uncertainty about investor behavior; iii) Increasing the status of asymmetric information; iv) Reducing willingness to hold risky assets and v) Reducing willingness to hold less liquid assets 1.2.3 Causes of financial stress 1.2.3.1 External factors a The appearance of capital inflows b The spillover effects of the crisis through trade and financial links 1.2.3.2 Internal factor a Monetary market risk b Banking risk c Capital market risk d Foreign exchange market risk e External debt f Regulatory factors 1.2.4 Measuring financial stress 1.2.4.1 Stress in monetary market - Risk premium - Euribor months / T-bill Germany months 1.2.4.2 Stress in banking sector * Balance sheet data: - Deposit gap - Lending gap - Bank's profitability (Profit margin) - NPL ratio - Loan to deposit ratio (LDR) * Market data: - Market price of bank shares (bank stock index) - Specific risks of bank stock prices - CDS difference - Risk difference 1.2.4.3 Stress in capital market - Stock market price - Volatility of stock market - Earning per share (EPS) 1.2.4.4 Foreign exchange market risk 1.2.4.5 Debt market - Bond yield difference - Difference of government bonds 1.2.4.6 Measure financial sector stress with the FSI financial stress index Equal variance weights: This is a commonly used method of constructing composite indices that reflect financial stress, including combining standardized variables into one indicator, where each variable is assigned an equal weight: ∑ ̅ in which: k – number of variables ̅ – mean of variables Xi - standard deviation of the variables Xi Principal Component Analysis (PCA) This method has two basic purposes: (i) reducing the number of variables, and (ii) discovering the structure in the relationship between variables Credit weight This method determines the weights of the variables corresponding to the size of the market they represent Transformation method using empirical CDFs The variables are converted into percentile percentages based on the sample cumulative distribution function (CDF), so that the maximum value corresponding to the highest stress level is defined as the 99th percentile 1.3 Impact of financial stress on the real economy 1.3.1 Financial stress has reduced new investment activities 1.3.2 Financial stress depresses economic activities leading to a decline in output 1.4 International experience on financial stress 1.4.1 Singapore’s experience 1.4.1.1 Singapore’s economic context Since independence in 1965, Singapore has achieved rapid economic development Singapore is a prime example of a small country with an open economy and a very high GDP and GDP growth per capita Singapore is one of the major financial centers in the world, in addition to many large and diverse domestic banks, Singapore also attracts many large international banks offering a wide range of banking and non-banking services 1.4.1.2 Financial stress period Financial stress in Singapore occur firstly due to the effects of the global financial crisis Much of the shock came to Singapore through the commercial sector and capital and financial flows to the real economy The periods of 1998 and 2008 were the periods with the highest FSI, reflecting the financial stress of Singapore 1.4.1.3 Effects of financial stress The spread of trade and finanial channels has affected real economy, reflected in Singapore's industrial production index (IPI) From March 2008 to February 2009, IPI for the entire manufacturing sector fell by 28% The worst affected area was electricity, decreased by 40%, followed by chemistry (33%), and the textile and apparel industry also dropped by 24% As industrial production decreases, businesses' confidence also decreases and investment decreases According to Singapore's statistics agency, the indexes in the fourth quarter of 2008 dropped sharply: expectations of businesses decreased by 57%, labor by 28%, production by 52%, new orders by 39% All these fluctuations caused real GDP growth to decline from 6.7% in the first quarter of 2008 to -4.1% in the fourth quarter of 2008 The growth rate of investment capital decreased from 30% in the first quarter of 2008 to -10% in the fourth quarter of 2008 and -10.2% in the first quarter of 2009 The growth of public and private consumption also decreased to 0.9% and 0% in the fourth quarter of 2008 1.4.1.4 Singapore’s solution * Solutions to maintain the stability of the financial system Firstly, in order to maintain the stability of financial institutions, MAS has strengthened the supervision of financial institutions through close monitoring of financial health, regularly discussed with management, auditors of financial institutions; for foreign financial institutions, often discuss with managers in the host country and auditors of the headquarters Secondly, implement solutions that ensure the proper functioning of market functions Thirdly, take measures to maintain the confidence of investors in Singapore as Singapore is an international financial center Fourth, the policy of MAS is adjusted to maintain the medium-term orientation and ensure the stability of the Singapore dollar, especially in the period of financial stress * Solutions to support economic growth The first is the USD5.1 billion job creation plan in which the government subsidizes employers by paying 12% of the first $ 2,500 of the monthly salary of each worker to avoid dismissing workers The second policy measure to ensure the maintenance of credit flow for businesses is a special risk-sharing plan for bank loans The third measure is to reduce income tax for businesses through reducing tax rates from 18% to 17% The fourth is to increase the competitiveness of workers, the government will pay up to 90% of the cost of re-training workers Fifthly, the government spends USD4.4 billion to improve infrastructure conditions on health, housing 1.4.2 China’s experience 1.4.2.1 China’s economic context Since China carried out economic reforms in early 1979, the Chinese economy has experienced incredible economic growth and has become the second largest economy in the world However, from 2011 up to now, the growth rate of this country has slowed down significantly and this situation is expected to continue in the future 1.4.2.2 Financial stress periods Nguồn: Sun Huang, 2016 Figure 1.12: China Financial Stress Index 1.4.2.3 Effects of financial stress China's export sector was severely affected by the global crisis and financial stress which occurred domestically when the demand of the world economy showed signs of decline China's GDP growth dropped sharply from 14.2% in 2007 to 9.6% in 2008 and 9.2% in 2009 1.4.2.4 China’s solutions * Solutions to maintain the stability of the financial system Firstly, China has made strong strides towards market-oriented financial system, including reforms such as restructuring the capital of the banking system, creating new capital markets, introducing sustainable legal structures mechanism, opening up financial markets following the accession to WTO and gradually reforming interest and exchange rate policies Secondly, to break the vicious cycle of the RMB depreciation, capital outflows from China increased, in 2016, the Chinese government had to apply stricter capital controls and reserve requirements for RMB deposits from foreign credit institutions Thirdly, for the securities sector, leading companies have been restructured, a plan to protect investors has been established * Solutions to support economic growth Firstly, in order to avoid the economic downturn, the Chinese government has launched big bailouts to restore the economy's growth momentum Secondly, to promote economic growth, from September to December 2008, interest rates were cut down times, on November 26, 2008 it decreased of 108 basis points Thirdly, the government has implemented tax incentives such as increasing VAT refunds for exports, reducing taxes for small businesses by reducing the tax rate from 6% to 3%, increasing the family allowances in monthly income from 5,000 CNY to 10,000 CNY 1.4.3 Lessons for Vietnam 11 billion was left, despite a newly increased 53% of listed shares in that year At the end of 2007, HNX capitalization reached VND 130,633 billion and in 2008, VND 50,400 billion remained During 2011s 2011 was a difficult year for Vietnam's economy, the stock market was a barometer of the economy, also reflected this trend with the main and major downtrend From the beginning of the year to the end of the year, VNINDEX dropped sharply by 27.46% to 350 points at the end of 2011, 62% of codes on both exchanges were below the par value 2.2.4 Stress on foreign exchange market The negative impact of global crisis and domestic macroeconomic instability has caused the foreign exchange market and VND/USD exchange rate to be constantly fluctuated Only in 2008, the SBV extended the exchange rate band times, taking measures to control the foreign exchange market to mobilize foreign currencies on banks However, the supply and demand of USD remained seriously imbalanced, the foreign exchange market became extremely stressful, the exchange rate of VND/ USD was most unstable when the exchange rate at the beginning of 2008 was around 15,000 to 16,000VND/USD, by the end of 2008 this figure nearly reached VND 19,500 In order to stabilize the foreign exchange market as well as the VND/USD exchange rate, in addition to monetary and administrative policy measures, the SBV had to use the foreign exchange reserve fund to intervene in the market, foreign exchange reserves showed signs of sharp and continuous decline from the end of 2008 to 2011, from 23.9 billion USD at the end of 2008 to 12.2 billion USD in the first quarter of 2011, equivalent to 1.5 months imports, lower than the 3-4-month safe threshold recommended by the IMF (IMF, 2000) 2.2.5 Measuring Vietnam's financial stress with the FSI 2.2.5.1 Criteria for selecting variables for Vietnam FSI to determine periods of financial stress The variables selected to construct a financial stress index for Vietnam should meet the following criteria: financial system coverage, ability to express stress in each component of the financial system, the availability of financial data, and the variables must be related to the real economy 2.2.5.2 Develop financial stress index a Selecting variables The financial stress index is designed to measure financial stress in Vietnam in the period of 2005-2017, including indicators reflecting the stress of four market sectors: money market, banking sector, stock market and foreign exchange market 12 * Monetary market The author uses the difference between the interbank interest rate and the treasury bill interest rate for the 3-month term (TED_spread) 6.000 4.773 2.969 4.000 1.676 2.000 -2.000 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 000 TED_spread Source: Author’s calculation from SBV data Figure 2.22: TED_spread in Vietnam monetary market during 2005-2017 * Banking sector The balance sheet data used in the study is the loan/deposit ratio at commercial banks According to Sun and Huang (2016), the increase of this ratio reflects the stress and default risk of the banking sector The graph shows that durring the period 2011-2012 the loan/deposit ratio was approximately 1, reflecting the stresses in the banking sector This is also entirely consistent with developments in credit growth and deposit growth during these periods 2017Q4 2017Q1 2016Q2 2015Q3 2014Q4 2014Q1 2013Q2 2012Q3 2011Q4 2011Q1 2010Q2 2009Q3 2008Q4 2008Q1 2007Q2 2006Q3 2005Q4 2005Q1 1.5 0.5 Loan_Deposit Source: Author’s calculation from commercial banks’ balance sheet Figure 2.23: Loan/deposit ratio at some commercial banks of Vietnam during 2005-2017 * Stock market One of the common variables used to assess stock market risks is realized volatility The volatility of VNINDEX (sd_vni) is the standard deviation of VNINDEX in each quarter 13 2017Q4 2017Q1 2016Q2 2015Q3 2014Q4 2014Q1 2013Q2 2012Q3 2011Q4 2011Q1 2010Q2 2009Q3 2008Q4 2008Q1 2007Q2 2006Q3 2005Q4 2005Q1 150.000 100.000 50.000 000 sd_vni Nguồn: Tính tốn tác giả Figure 2.24: The volatility of VNINDEX * Foreign exchange marrket To reflect stress in the foreign exchange market, the author used exchange rates and changes in foreign exchange reserves to calculate the EMP According to Elekda and Selim (2009) EMP is determined as follows: In which, e (dEX) and RES (dFEX) are the quarterly percentage change of the nominal exchange rate between the local currency and the US dollar and foreign exchange reserves  and  are the mean and the standard deviation of the two component determining EMP -5 2005… 2005… 2006… 2006… 2007… 2007… 2008… 2008… 2009… 2009… 2010… 2010… 2011… 2011… 2012… 2012… 2013… 2013… 2014… 2014… 2015… 2015… 2016… 2016… 2017… 2017… EMP Nguồn: Tính tốn tác giả Figure 2.25: Exchange market pressure during 2005-2017 Figure 2.25 shows the EMP and the foreign exchange reserves are in the opposite relationship, and completely consistent with the developments in the foreign exchange market During the period of 2008-2011, due to the great fluctuations from the world economy together with the instability of the internal economy of Vietnam, the forex market fluctuated sharply The State Bank has repeatedly used foreign exchange reserves to intervene in the market, causing the size of foreign exchange reserves to decrease sharply and continuously from the end of 2008 to 2011 b Constructing financial stress using equal variance weight According to Balakrishnan et al (2009 and 2011), variables are normalized according to the following formula: Standardized variables = ̅ 14 1.5 0.5 -0.5 -1 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 FSI Source: Author’s calculation Figure 2.26: Vietnam financial stress index during 2005-2017 According to Yiu, Ho and Jin (2010), the simplest method to determine the stress period is when the FSI is at its peak, while the relatively low FSI is when the financial sector is relatively stable The graph shows that the time when the financial sector experienced the most stress was in the first quarter of 2011 and continued until the third quarter of 2012 to show signs of decline Another way to identify periods of financial stress is to compare FSI with the long-term trendline 1.5 3.4 Cycle FSI Trend 2017Q4 2017Q1 2016Q2 2015Q3 2014Q4 2014Q1 2013Q2 2012Q3 2011Q4 2011Q1 2010Q2 2009Q3 2008Q4 -1 2008Q1 -0.5 2007Q2 1.4 2006Q3 2005Q4 2.4 2005Q1 0.5 0.4 -0.6 1SD+trend Source: Author’s calculation Figure 2.27: The long-term trendline of FSI and the deviation from the trendline After determining the trend line, the authors refer to the criteria of Balakrishnan et al (2009 and 2011) and Cardarelli, Elekdag, and Lall (2008 and 2011) to determine the period of financial stress when FSI has a deviation from the trend from 1-1.5 times the standard deviation (of the trend) Thus, both the event method and the quantitative method comparing FSI with the above long-term trend line indicate that the period of 2011-2012 is the most obvious period of financial stress 2.2.6 The causes of the stress on Vietnam's financial sector 2.2.6.1 External causes The sharp increase in capital inflows in the period before 2009 can be considered as a basic cause of financial sector stress in Vietnam Spillover effects of the world financial crisis on Vietnam's economy 2.2.6.2 Internal causes 15 The structure of the financial system is still unreasonable The lack of flexibility in operating policies of regulatory agencies, the institutional framework and the safety regulations and legal provisions are not consistent with the fluctuations, especially before 2010, partly causing financial sector stress to occur and leading to negative effects on the real economy The inspection and supervision capacity of the State Bank of the previous period still had some limitations No agency has yet implemented a comprehensive macro safety supervision of the entire financial system 2.3 Impacts of financial stress on real economy 2.3.1 Impacts of financial stress on investment 50.000% 40.000% 30.000% 20.000% 10.000% 000% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Tỷ lệ đầu tư/GDP Tốc độ tăng vốn đầu tư Linear (Tốc độ tăng vốn đầu tư) Source: General Statistics Office Figure 2.33: Growth rate of investment capital, investment/GDP ratio during the period of 2005-2017 Figure 2.33 shows that the movements in the growth rate of investment capital over the years are relatively consistent with the theory of the impact of financial sector stress on investment activities When the financial sector experienced stress and instability, investment activities decreased sharply In 2008, due to the impact of the global economic crisis, businesses felt uncertain about future prospects, the decline of aggregate demand made the financial situation of enterprises weakened, investment activities decreased The growth rate of investment capital was below the trend line, only increasing by 15.91% compared to 2007 In 2011, 2012 and 2013, the growth rate of investment capital was still below the trend line, the ratio of capital investment over GDP decreases about 30% of GDP 16 100.000% 60.000% 40.000% 50.000% 20.000% Vốn đầu tư/GDP 000% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 000% Khu vực có vốn đầu tư nước ngồi Kinh tế ngồi nhà nước Kinh tế Nhà nước Kinh tế Nhà nước Kinh tế ngồi nhà nước Khu vực có vốn đầu tư nước Nguồn: Tổng cục thống kê Figure 2.34: The investment capital to GDP by economic sectors in the period of 2005-2017 Figure 2.35: Investment capital structure by economic sectors in the period of 2005-2017 The structure of investment capital/GDP shows that the ratio of investment capital to GDP peaked at 42.68% in 2007, in 2008 the scale of investment capital/GDP dropped sharply to below 40% and this strong downward trend continued in three years of 2011, 2012 and 2013, of which in 2013, the ratio of investment capital/GDP dropped to the lowest level at 30.54% 40 20 -20 2005-01 2005-07 2006-01 2006-07 2007-01 2007-07 2008-01 2008-07 2009-01 2009-07 2010-01 2010-07 2011-01 2011-07 2012-01 2012-07 2013-01 2013-07 2014-01 2014-07 2015-01 2015-07 2016-01 2016-07 2017-01 2017-07 Mức tăng số sản xuất công nghiệp (%) Source: CEIC Figure 2.37: Industrial production index Figure 2.37 shows the evolution of the industrial production index during 2005 - 2017 It can be seen that the time when the growth rate of industrial production index received negative value was December 2008 (-0,915 %), February 2010 (-1,028%), January 2012 (2,407%) and the lowest growth rate was February 2013 (-10.1%) These are also the times when Vietnam's financial sector witnessed stress in the stock market, monetary market, foreign exchange market and the banking sector 2.3.2 Impact of financial sector stress on economic growth The development of credit growth in Vietnam is relatively consistent with the theory of the impact of financial stress The period of 2007-2010 was a period of rapid credit 17 growth in Vietnam, with credit growth reaching over 30%, but in 2008, the credit growth dropped sharply from 49.79% ( 2007) to 27.6% (2008) and rebounded to 45.32% (2009) Since 2011, credit growth has shown signs of slowing down, especially in 2011 and 2012, credit / GDP growth decreased to -11.58% and -4.8% Stress in the financial sector caused credit growth to decline, investment activities of enterprises tended to narrow, the risk of losing jobs, and income declines in the context of the slow economic recovery The majority of households and individuals tighten their consumption Private consumption has been continuously decreasing over a long period of time from the 2008 peak of 70.87% of GDP to the bottom of 64.5% of GDP in 2012 The reduced size of investment capital, and the inefficient use of investment capital is one of the causes affecting Vietnam's economic growth 2.3.3 Assess the impact of financial sector stress on the real economy using the threshold regression vector model 2.3.3.1 Research model To assess the impact of financial sector stress on the real economy in Vietnam in the period of 2005-2017, the thesis uses the threshold vector auto regression model - TVAR used in Roye's studies (2012), Li & St-Amant (2012), Ahma et al (2014) 2.3.3.2 Selecting variables Based on theory and previous studies on variables when considering the impact of FSI on real economy, the author chooses the following variables in TVAR model: GDP, CPI, INT, FSI 2.3.3.3 Results Table 2.10: The estimation result of TVAR model to GDP with threshold variable is the financial sector stress index (FSI) Number of observations Regime Regime FSI(-1) < 0.3062018 FSI(-1) >=0.3062018 42 obsservations (82,4%) observations (17,6%) coefficient t p-value coefficient t p-value C 0.023236 2.544423 0.014800 0.100173 3.565756 0.000900 GDP(-1) 0.652164 4.962285 0.000000 -0.331978 -2.313395 0.025800 FSI(-1) -0.005913 -0.702597 0.486300 -0.130317 -4.726012 0.000000 CPI(-1) -0.076877 -1.160887 0.252400 -0.218805 -1.264406 0.213200 INT(-1) 0.000639 0.580002 0.565100 0.005917 1.415519 0.164500 Nguồn: Tính tốn tác giả từ phần mềm thống kê 18 Table 2.10 shows the result of TVAR model with FSI as threshold variable In the two regimes shown by the model, the impact of FSI on the real economy through the impact on GDP is statistically significant in the second regime, while not statistically significant in the first regime At the same time, the number of observations with FSI above the threshold accounts for 17.6% (9 observations), because the research goal is to consider how financial sector stress affects the real economy so the thesis analyzes the economy's response to FSI shocks in the second regime Below the threshold of 0.3062018, the model has not found clear evidence of the impact of financial sector stress on economic growth, inflation or interest rates (impact is not statistically significant) Above the threshold, the increase in financial sector stress will have a negative impact on GDP, as shown by the negative correlation coefficient of the FSI variable at 1% significance level with the regression coefficient of -0.130317 The negative effect of FSI on GDP is consistent with theoretical studies and is also seen in empirical studies by Roye (2012), Li & St-Amant (2012), Ahma et al (2014) 2.3.4 Assessment of the impact of financial stress on the real economy Over the past few years, Vietnam's financial sector has performed relatively well as a channel of capital and capital allocation to the economy, an important contribution to Vietnam's economic growth in recent years However, Vietnam's financial sector has also experienced periods of stress, starting with the stress that occurred on the stock market right from the beginning of 2007, with Vietnam's accession to the WTO, the inflows of capital increased sharply, the stock index soared to over 1000 points, then it dropped very sharply in 2008 This stress situation remained dull throughout the period from 2008-2011 and in 2011, financial stres become more extreme with stress occurring on all four regions/markets at the same time: banks, securities, foreign exchange and money markets The causes of financial stress in Vietnam are visible stemming from both internal and external factors External factors might be the strong inflow of net capital inflows in the period before 2009 and the spillover effect of the world financial crisis Along with the impacts of external factors on the financial sector, the internal factors that contribute to the increase in the stress in the financial sector are the unreasonable structure of the financial system and the dependence of the economy on capital supply from the banking system, with over 60% of capital supplied to the economy coming from commercial banks; the lack of flexibility in operating policies of regulatory agencies, safety regulations, legal regulations ; no macroeconomic safety supervision agency of financial system Increasing stress in the financial markets has led to negative effects on the real 19 economy through increasing uncertainty in the financial markets and economic prospects This directly depresses consumption and investment and thus negatively affects economic growth Qualitative analysis in the thesis has shown that during periods of financial stress, investment, consumption, credit and Vietnam's economic growth tends to slow down Using the threshold vector autoregression model, the thesis has determined the threshold of the financial stress index and research result has shown that when there is financial stress (FSI higher than the threshold), FSI has a negative impact on the economy through the decrease of GDP, while the financial stress index is lower than the threshold, the impact of FSI on economic growth is not statistically significant CONCLUSION OF CHAPTER In chapter 2, the author outlined the development of Vietnam's financial system, which focused on the period from 2005 to 2017, and considered the current state of financial stress in Vietnam and discussed impact of financial stress on the real economy By qualitative analysis and method of constructing financial stress index based on equal variance weight, the author has pointed out the period that Vietnam's financial sector experienced the most stress, especially from beginning of 2011 to the end of 2012 With qualitative analysis, the thesis has pointed out the negative impact of financial stress on the real economy through the impact of reducing consumption, investment and economic growth (GDP) during periods of high FSI By using the threshold regression vector model (TVAR), the author once again pointed out the impact of financial stress on the real economy, when financial stress is greater than threshold The increase of FSI will have a negative impact on economic growth 20 CHAPTER 3: POLICY RECOMMENDATIONS TO PREVENT FINANCIAL STRESS, LEADING TO FINANCIAL STABILITY 3.1 Orientation for healthy development of Vietnam's financial sector 3.2 Policy recommendations 3.2.1 Policy recommendations related to the formation of early warning indicators for financial stress Exchange rate fluctuations and foreign exchange reserves decline The difference between interbank interest rates and the risk-free rates respectively Credit growth Lending / deposit ratio of the banking sector Volatility of stock index Financial stress index 3.2.2 Policy recommendations related to the stable development of the financial system 3.2.2.1 Policy recommendations related to the stable development of the monetary market Firstly, improving the legal framework for the market through reviewing and completing the current regulations on the issuance of instruments on primary market (such as commercial paper and certificates of deposit in the direction of standardization in accordance with international practice) to facilitate these tools to trade in the secondary market Secondly, developing and improving the structure of manetary market through research and consideration in order to build a complete Vietnam metary market Thirdly, urgently formulate and develop market makers Fourthly, diversify transactional goods and at the same time increase the attraction of members participating in the monetary market with the focus on fully developing important tools and products on the market such as repos, commercial papers, certificates of deposit (CDs) which can be traded in the secondary market, creating a legal corridor, developing secondary markets so that monatery tools can develop to meet the needs of the market Fifthly, strengthen the management, administration, inspection and supervision activities of the State Bank of Vietnam 3.2.2.2 Policy recommendations related to the stable development of the banking market Firstly, continue to improve mechanisms, policies and legal documents according to international standards on debt classification and risk provisioning; lending, investment and payment limits, valuing non-credit assets, reviewing the real capital of commercial banks to monitor the minimum capital adequacy ratio, implementing risk management according to Basel II Secondly, accelerate the restructuring of the banking system associated with cross- 21 ownership handling Thirdly, diversify banking services 3.2.2.3 Policy recommendations related to stable development of the stock market Firstly, perfecting the legal framework and improving the management and supervision capacity with the main task of completing the revised Securities Law, along with continuing to complete the synchronous legal framework to guide the Securities Law in the direction of applying international practices Secondly, continuing to promote equitization and divestment of state capital in enterprises associated with the improvement and promotion of share auction activities associated with listing and registration for trading on the stock market; Thirdly, developing new products such as derivative products, bond products, to minimize risks or diversify types of investment funds in order to increase the market supply to meet the diverse needs of investors Fourthly, improve and develop the bond market: Diversify government bond products (Government bonds); Deploying the project of developing corporate bonds; Complete the plan to organize the corporate bond market and the preparation to enable the market for corporate bond transactions to operate effectively Fifthly, develop and improve the capacity of the system of market intermediaries 3.2.2.4 Policy recommendations related to the stable development of the foreign exchange market Firstly, continue to maintain the central exchange rate policy in order to achieve the goal of stabilizing the foreign exchange market Secondly, the State Bank needs to strengthen the supervision of the foreign exchange market and timely take reasonable measures to regulate the market 3.2.2.5 Policy recommendations to improve the capacity of Vietnam's current financial monitoring system Firstly, Vietnam needs to gradually shift from a distributed supervising model to an integrated supervising model Secondly, the agency with the responsibility of supervising macro-safety of the entire financial system should have the necessary comprehensive, independent and autonomy to supervise Thirdly, Singapore's experience also shows that, besides the role of the unified supervising body, it is necessary to enhance the role of market participants, so that market members can carry out cross-supervision This requires the unified supervisory authority to coordinate and listen to feedback from market members during the monitoring process Fourthly, in the context of deeper financial integration, it is necessary to improve safety monitoring standards in the system, accounting standards and risk assessment 22 according to international practices in order to properly assess the situation of financial institutions 3.2.3 Policy recommendations for effective management of inflows 3.2.3.1 Continue to attract and improve the efficiency of attracting and using foreign capital 3.2.3.2 Implement measures to manage foreign investment capital flows 3.2.4 Policy recommendations to minimize the impact of financial stress 3.2.4.1 Recommendations related to operating macro policies 3.2.4.2 The policy for businesses and households and towards sustainable growth CONCLUSION OF CHAPTER In chapter 3, the author outlined the orientation for development of the financial sector in Vietnam, the author made policy recommendations to prevent financial stress and ensure macro stability The policy recommendations include groups: (1) policy recommendations related to the formation of early warning indicators for financial stress, (2) Policy recommendations related to stable development financial system, (3) Policy recommendations to effectively manage capital inflows and (4) Policy recommendations to minimize the impact of financial stress 23 GENERAL CONCLUSIONS Within nearly 160 pages of research, the thesis has solved basic objectives including: Firstly, chapter has built a theoretical basis for financial stress The concept and characteristics of financial stress have been carefully considered in order to study the causes of financial regional stress, as well as the effects of financial stress on the economy reality The experience of Singapore and China in managing financial stress was also studied to draw valuable lessons for Vietnam Secondly, in chapter 2, the author has generalized the development of Vietnam's financial market, which focuses on the period from 2005 to 2017 By qualitative analysis and method of constructing financial sector tension index based on equal weight of variance, the author has pointed out the period that Vietnam's financial sector experienced the most stress, especially from beginning of 2011 to the end of 2012 Using the self-regression vector model (TVAR), the author also pointed out the negative impact of financial sector stress on the real economy Thirdly, in chapter 3, the author generalized the orientation of development of financial sector in Vietnam The policy recommendations include groups: (1) policy recommendations related to the formation of early warning indicators for financial sector stress, (2) Policy recommendations related to stable development financial system, (3) Policy recommendations to effectively manage inflows and (4) Policy recommendations to minimize the impact of financial stress LIST OF PUBLISHED SCIENTIFIC WORKS RELATED TO THE THESIS A Scientific papers Oanh Vu Thi Kim, “Detecting financial stress and its impacts in Vietnam”, International Conference on Banking and Finance ICBF 2019, accepted papers Nhan Nguyen, Yen Vu and Oanh Vu, “Assessing the Determinants of Interest Rate Transmission in Vietnam”, accepted papers for the ECONVN’2020 Springer volume Vu Thi Kim Oanh, Nguyen Thanh Nhan, 2019, “Situation of financial sector in Vietnam and recommendations for early warning indicators”, Journal of Monetary and Financial Markets No 15, 2019 Vu Thi Kim Oanh, 2018, “The stress in the banking sector from the financial statements of commercial banks”, Journal of Banking Training Science No 195, 8/2018 Vu Thi Kim Oanh, 2018, “Building financial stress index - International experience and lessons for Vietnam”, Journal of Banking Training Science No 191, 4/2018 Vu Thi Kim Oanh, Vu Hai Yen, Nguyen Thi Thu Trang, Bui Huy Trung, 2018, “A Framework for Macro Stress-testing the Credit risk of Commercial Banks: The Case of Vietnam”, Asian Pacific Financial Markets Vu Thi Kim Oanh, Vu Hai Yen, Nguyen Thi Thu Trang, Bui Huy Trung, 2016, “Building a model for credit risk stress testing - From theory to practice in Vietnam”, Banking Journal, 11/2016 Vu Thi Kim Oanh, Vu Hai Yen, Nguyen Thi Thu Trang, Bui Huy Trung, 2016, “International experience on credit risk stress testing – Policy recommendations”, Developing financial market in international integration context 3570-19/QĐXB/NXBDT Vu Thi Kim Oanh, Tran Viet Dung, 2015, “Methods to determine credit boom”, Journal of Banking Training Science No 159, 2015 10 Vu Thi Kim Oanh, Nguyen Thanh Tung, 2014, “State management of credit operations - From the perspective of bad debts”, Journal of Monetary and Financial Markets No 23, 2014 11 TS Nguyen Thuy Duong, ThS Vu Thi Kim Oanh, 2014, “The role of bank credit to the development of Vietnam's economic sectors in the period of 2010-2013”, Journal of Banking Training Science No 147, 8/2014 12 Vu Thi Kim Oanh, 2014, “Credit default swap - Effective risk prevention tool for commercial banks”, Banking Journal No 8, 2014 B Scientific projects To Kim Ngoc, 2019, “Study the trade-offs of the impossible trinity and suggestions for Vietnam”, member Vu Thi Kim Oanh, Vu Hai Yen, “Develop a model for credit risk stress testing of the banking system under fluctuations of macro factors”, Second Prize, 2018, co-leader Do Thi Kim Hao, 2015, “Credit boom and the effects on the health of Vietnamese commercial banks”, member Nguyen Thi Hong Hai, 2016, “Research on model to assess market risk tolerance of Vietnamese commercial banks”, member Nguyen Thuy Duong, 2014, “Assess the current status of credit Orientation and executive solutions for the period from now to the year 2015”, secretary To Kim Ngoc, 2017, “Credit policies and solutions for households in new rural construction”, secretary ...MINISTRY OF EDUCATION AND TRAINING STATE BANK ÒF VIETNAM BANKING ACADEMY OF VIETNAM VU THI KIM OANH RESEARCH ON FINANCIAL STRESS IN VIETNAM Major: Finance - Banking Code number: 9340201 Reviewer... 2011 2012 2013 2014 2015 2016 2017 000% Khu vực có vốn đầu tư nước ngồi Kinh tế ngồi nhà nước Kinh tế Nhà nước Kinh tế Nhà nước Kinh tế ngồi nhà nước Khu vực có vốn đầu tư nước Nguồn: Tổng cục... Interest Rate Transmission in Vietnam”, accepted papers for the ECONVN’2020 Springer volume Vu Thi Kim Oanh, Nguyen Thanh Nhan, 2019, “Situation of financial sector in Vietnam and recommendations for