Bank liquidity and its determinants in Viet Nam: Bachelor thesis of Banking and Finance / Vo Thi Nhu Quynh ; Le Ha Diem Chi supervisor

MINISTER OF EDUCATION STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

GRADUATE THESIS

BANKING AND FINANCE

Major ID: 52340201

BANK LIQUIDITY AND ITS DETERMINANTS

IN VIET NAM

Student’s Name: Vo Thi Nhu Quynh

Student ID: 030631150287

Supervisor: PhD Le Ha Diem Chi

Tp.Hồ Chí Minh, October, 2019

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ABSTRACT SUMMARY

This research is taken to achieve the particular goals followed by: (i) Finding out

and examining the determinants of liquidity of Vietnam commercial banks.(ii) Proposing

practical recommendations and policies for improving liquidity system of Vietnam

commercial banks. The sample of the research was collected from financial report

Vietnamese commercial banks in the period from 2010-2018. The research using the

method of description, synthesis, comparison, analysis to raise the factors affecting the

liquidity of commercial banks and build a research model. Quantitative method:

Implementing the multivariate regression model, the regression process uses multivariate

regression analysis for panel data including: Implementation of Pooled OLS, FEM, REM

and FLGS models.

The estimation results show that the variables have a positive impact on the bank

liquidity such as return on asset, operating expenses, size, deposit and gross domestic

product. Besides, the variables that have the opposite effect on the bank liquidity are the

loans. In general, it can be seen that the return on asset variable has the most powerful

impact on the bank liquidity. This shows that when the commercial banks operate

effectively, the profits of banks will increase. When the profit of a commercial bank

increases, the quality of its liquidity system will be guaranteed, which makes the bank

liquidity of commercial banks increase.

This research contributes to build an academic document by examining the

determinants and what extent to Vietnam commercial banks’ liquidity. According to the

estimated results, research also suggests recommendations and policies to enhance the

liquidity quality, thence to mitigate loan default, bankruptcy and improve bank operation

efficiency.

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DISCLOSURE

This thesis is belong to the author's own research, the result is honest and there is

no previously published content or the content done by other people except the citations

which are fully cited in the thesis.

Tp Hồ Chí Minh, Day … Month … 2019

Author of thesis

Vo Thi Nhu Quynh

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ACKNOWLEDGMENTS\

The author would like to thank the teachers from Ho Chi Minh City Banking

University for admitting valuable knowledge to me during the previous time, that

knowledge is not only the foundation that not only helps me. It can help carry out this

research project but also be useful for my work in the future. I would like to express my

most sincere thanks to PhD. Le Thi Diem Chi, who has been dedicated to giving me

guidance, leadership, and suggestions during the course of the dissertation, from the

implementation of the proposal, the search for talent, data until the completion of this

thesis statement. According to the limited knowledge, it is challenging to avoid

shortcomings in the dissertation process, I look forward to receiving further advice and

suggestions from teachers to help me superlative and achieve better as a result.

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COMMENTS OF SUPERVISOR

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Tp. HCM, day …… month …… year ……

Supervisor

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CONTENTS

CHAPTER 1: INTRODUCTION ....................................................................................1

1.1. INTRODUCTION .................................................................................................1

1.2. THE RECOMMENDATION OF RESEARCH .................................................2

1.3. OBJECTIVES OF THE STUDY ........................................................................2

1.3.1. GENERAL OBJECTIVE .....................................................................................2

1.3.2. PARTICULAR OBJECTIVE ..............................................................................3

1.4. RESEARCH QUESTIONS...................................................................................3

1.5. RESEARCH’S SUBJECT AND RANGE ...........................................................3

1.5.1. RESEARCH SUBJECT........................................................................................3

1.5.2. RESEARCH MODEL...........................................................................................3

1.6. RESEARCH METHODOLOGY.........................................................................4

1.7. RESEARCH CONTENT......................................................................................5

1.8. MAJOR THEMES OF THE RESEARCH.........................................................5

CHAPTER 2: LITERATURE REVIEW........................................................................7

2.1 THEORETICAL FOUNDATIONS OF BANK LIQUIDITY...............................7

2.1.1 THE DEFINITION OF BANK LIQUIDITY .....................................................7

2.1.2 THE ROLE OF BANK LIQUIDITY FOR VIETNAMESE COMMERCIAL

BANKS ...............................................................................................................................7

2.1.3 SUPPLY AND DEMAND OF LIQUIDITY AND NET LIQUIDITY

STATUS................................................................................................................................

7

2.1.3.1 The supply of liquidity ......................................................................................8

2.1.3.2 Liquidity demand ..............................................................................................8

2.1.3.3 Net liquidity status.............................................................................................9

2.2 FACTORS AFFECTING ON BANK LIQUIDITY.............................................10

2.2.1 GROUP OF FACTORS INSIDE THE BANK .................................................10

2.2.1.1 External Funding Dependence (EFD) ...........................................................10

2.2.1.2 Equity to Total Assets (ETA)..........................................................................11

2.2.1.3 The the weight of operating expenses compared to total assets (CEA)......11

2.2.1.4 Loans loss provision to total loans (LLPTL).................................................11

2.2.1.5 T deposite (TDES) ...........................................................................................11

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2.2.1.6 Return on Equity (ROE).................................................................................11

2.2.1.7 Return on asset (ROA)....................................................................................12

2.2.1.8 Bank size (SIZE)..............................................................................................12

2.2.1.9 Net Interest Margin (NIM).............................................................................12

2.2.2 GROUP OF FACTORS OUTSIDE THE BANK.............................................12

2.2.2.1. M2 money supply.............................................................................................12

2.2.2.2. Economic growth (GDP).................................................................................12

2.2.2.3 Inflation (INF)......................................................................................................13

2.3 LITERATURE REVIEW.......................................................................................13

2.3.1 DOMESTIC RESEARCH ..................................................................................13

2.3.2 FOREIGN RESEARCH ....................................................................................14

3.1 PROPOSING A RESEARCH MODEL OF THE FACTORS AFFECTING ON

LIQUIDITY OF COMMERCIAL BANK VIET NAM...............................................17

3.2 DESCRIPTION OF VARIABLES ........................................................................18

3.2.1 THE DEPENDENT VARIABLE.......................................................................18

3.2.1.1 THE BANK LIQUIDITY (LIQ) ....................................................................18

3.2.1.2 THE RETURN ON ASSET (ROA)................................................................18

3.2.1.3 BANK SIZE (SIZE).........................................................................................18

3.2.1.4 THE PERCENTAGE OF LOANS IN RELATION (TLA).........................18

3.2.1.5 THE WEIGHT OF OPERATING EXPENSES (CEA)...............................18

3.2.1.6 THE SHARE OF DEPOSITES (TDES)........................................................19

3.2.1.7 THE GROWTH ECONOMY (GDP) ............................................................19

3.2.1.8 THE RATE OF INFLATION ( INF).............................................................19

3.3 RESEARCH METHODOLODY...........................................................................20

3.3.1 DETERMINE THE SAMPLE SIZE .................................................................20

3.3.2 METHODOLOGY..............................................................................................23

3.3.2.1 FUNDAMENTAL OF PANEL DATA..........................................................23

3.3.2.2 TECHNIQUES USED FOR PANEL REGRESSION .................................23

3.3.2.3 VERIFY MODEL SELECTION ...................................................................25

3.3.2.4 DEFECTIVE TESTING OF MODELS ........................................................26

4.1 INTRODUCTION ABOUT COMMERCIAL BANKS IN VIET NAM............28

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4.2 ACTUAL SITUATION OF BANK LIQUIDITY OF VIETNAMESE

COMMERCIAL BANKS FROM 2010 TO 2018 .........................................................29

4.3 RESEARCH RESULTS..........................................................................................32

4.3.1 ANALYSIS OF DESCRIPTIVE STATISTICS ...............................................32

4.3.2 TEST OF MULTICOLLINEARITY ................................................................34

4.3.2.1 MULTICOLLINEARITY TEST...................................................................35

4.3.3 ESTIMATION RESULTS OF 3 MODELS POOLED OLS, FEM, REM.....35

4.3.3.1 ESTIMATION RESULTS OF POOLED OLS MODEL ............................35

4.3.3.2 ESTIMATION RESULTS OF FEM MODEL .............................................36

4.3.3.3 ESTIMATION RESULTS OF REM MODEL.............................................37

4.3.4 CHOOSE BETWEEN TWO MODELS POLS AND FEM.............................37

4.3.5 HAUSMAN- TEST..............................................................................................37

4.3.6 FEM TEST FOR THE ERRORS OF FEM......................................................38

4.3.6.1 AUTOCORRELATION TEST......................................................................38

4.3.6.2 TEST FOR HETEROSKEDASTICITY.......................................................38

4.3.7 FGLS REGRESSION .........................................................................................38

4.4 DISCUSS THE RESEARCH RESULTS ..............................................................39

4.4.1 THE CORRELATION BETWEEN ROA AND LIQ ......................................40

4.4.2 THE CORRELATION BETWEEN TLA AND LIQ.......................................40

4.4.3 THE CORRELATION BETWEEN SIZE AND LIQ......................................41

4.4.4 THE CORRELATION BETWEEN CEA AND LIQ.......................................43

4.4.5 THE CORRELATION BETWEEN TDES AND LIQ.....................................43

4.4.6 THE CORRELATION BETWEEN INF AND LIQ ........................................44

4.4.7 THE CORRELATION BETWEEN GDP AND LIQ.......................................46

5.1 CONCLUSION ABOUT THE IMPACT OF THE MICRO AND MACRO

FACTORS ON THE BANK LIQUIDITY OF VIETNAMESE COMMERCIAL

BANKS AND GIVE SOME PROPOSES TO IMPROVE THE BANK LIQUIDITY.

...................................................................................................................................47

5.2 SUGGESTING SOLUTIONS TO IMPROVE BANK LIQUIDITY FOR

VIETNAMESE COMMERCIAL BANKS ...................................................................47

5.2.1 INCREASING THE QUALITY OF BUSINESS ACTIVITIES.....................48

5.2.2 CREATING A STRONG BANK SIZE.............................................................48

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5.2.3 SETTING PROVISION FOR CREDIT RISKS...............................................48

5.2.4 INCREASE COSTS THAT ARE BENEFICIAL TO THE OPERATION OF

THE BANK AND CUT DOWN UNNECESSARY EXPENSES. ...............................49

5.2.5 INCREASING CAPITAL MOBILIZATION FROM DEPOSITS OF

INDIVIDUAL AND CORPORATE CUSTOMERS....................................................49

5.3 LIMITATIONS OF THE TOPIC AND THE NEXT RESEARCH

DIRECTION ........................................................................................................................

50

5.3.1 LIMITATIONS OF THE TOPIC......................................................................50

5.3.2 THE NEXT RESEARCH DIRECTION ...........................................................51

REFERENCE...................................................................................................................52

APPENDIX.......................................................................................................................57