Bank-specific and macro-economic factors affect the liquidity risk of Commercial Banks in VietNam, 2022

MINISTRY OF EDUCATION AND TRADING THE STATE BANK OF

VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

GRADUATE THESIS

SPEACIALITY: FINANCE – BANKING

TOPIC:

BANK-SPECIFIC AND MACRO-ECONOMIC FACTORS

AFFECT THE LIQUIDITY RISKS OF COMMERCIAL BANKS

IN VIETNAM

Author: Vo Thi Hoang Thu

Student code: 050606180400

Instructor: Dr. Le Ha Diem Chi

HO CHI MINH CITY, JULY 2022

MINISTRY OF EDUCATION AND TRADING THE STATE BANK OF

VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

GRADUATE THESIS

SPEACIALITY: FINANCE – BANKING

TOPIC:

BANK-SPECIFIC AND MACRO-ECONOMIC FACTORS

AFFECT THE LIQUIDITY RISKS OF COMMERCIAL BANKS

IN VIETNAM

Author: Vo Thi Hoang Thu

Student code: 050606180400

Instructor: Dr. Le Ha Diem Chi

HO CHI MINH CITY, JULY 2022

i

ABSTRACT SUMMARY

The thesis "Bank-specific and macroeconomic factors affect the liquidity risks of

commercial banks in Vietnam" conducts a study on the group of micro factors and the

group of macro factors affecting the liquidity risk of Vietnamese commercial banks in

the period. period 2010 – 2020, including Dependence on external financing source

ratio (EFD); Loan to total assets ratio (TLA); Earning quality (NIITA); Loan to total

deposit ratio (LDR); Size of the bank (SIZE); Return on equity (ROE); Money supply

growth (M2); Economic growth rate (GDP) and Inflation rate (INF).

The research topic applies Pooled-OLS, FEM, and REM models, but the obtained

results show that the research model encounters autocorrelation and variable variance,

so the author continues to apply the model. FGLS model to overcome the research

model. Then, the author applies the GMM model to test the endogenous phenomenon

occurring in the research model and receives high accuracy research results, so the

author receives the analysis results from the GMM model as the final result.

The research results show that the research factors affect bank liquidity risk, in

which the variables NIITA, SIZE, and M2 have a negative impact on bank liquidity

risk, on the contrary, the variables EFD, TLA, LDR, ROE, GDP, and INF have the

same effect on liquidity risk, only variable M2 is not statistically significant.

After receiving the research results from the GMM model, the author discusses

the research results affecting the liquidity risk of Vietnamese commercial banks in the

period 2010 - 2020 and makes recommendations for the bank. Commercial banks and

risk managers can limit the weak liquidity position of Vietnamese banks.

ii

DISCLOSURE

I hereby declare that the thesis "Bank-specific and macro-economic factors

affect the liquidity risks of commercial banks in Vietnam" is the author's research

work, and the research results received are truthful. The information, data, and content

cited are collected by the author from many different sources, have high reliability, and

are cited in the reference section.

Ho Chi Minh City,…….. 2022

Author

Vo Thi Hoang Thu

iii

THANK YOU

First of all, with deep sincere gratitude, I would like to thank the teachers who are

lecturers at the Banking University of Ho Chi Minh City, and the school's management

board for creating favorable conditions for teaching and guiding me a lot of knowledge

about the banking industry, teaching both soft skills and ethical training during my

study here.

I would like to express my deep gratitude to the person who guided me in the

process of completing my thesis – Dr. Le Ha Diem Chi, who oriented, guided,

supported, and encouraged me throughout the process of completing my research

thesis.

Finally, I would like to express my gratitude to my family and friends around me

for helping me, sharing my experiences, and encouraging me when I faced difficulties

in completing my essay.

Ho Chi Minh City,……..2022

Author

Vo Thi Hoang Thu

iv

CONTENTS

ABSTRACT SUMMARY...............................................................................................i

DISCLOSURE................................................................................................................ii

THANK YOU ............................................................................................................... iii

CONTENTS...................................................................................................................iv

LIST OF ACRONYMS................................................................................................vii

LIST OF TABLES ..................................................................................................... viii

LIST OF GRAPHICS...................................................................................................ix

CHAPTER 1. INTRODUCTION TO THE RESEARCH TOPIC............................1

1.1. Reasons for choosing the topic .................................................................................1

1.2. Research objectives...................................................................................................1

1.3. Research question......................................................................................................2

1.4. Subject and scope of the study..................................................................................2

1.4.1. Subject of the study................................................................................................2

1.4.2. Scope of the study ..................................................................................................2

1.5. Contribution of research............................................................................................2

1.6. Structure of research .................................................................................................3

CONCLUSION CHAPTER 1 .......................................................................................4

CHAPTER 2. THEORETICAL BASIS AND OVERVIEW OF PRIOR STUDIES

..........................................................................................................................................5

2.1. Basic concept overview.............................................................................................5

2.1.1. The concept of liquidity and liquidity risk.............................................................5

2.1.2. Measure liquidity risk ............................................................................................6

2.2. Factors impacting liquidity risk ................................................................................7

2.2.1. Bank – specific factors...........................................................................................7

2.2.2. Macroeconomic factors..........................................................................................9

2.3. An overview of previous studies.............................................................................10

v

2.3.1. Review of domestic research ...............................................................................10

2.3.2. Review of foreign research ..................................................................................12

CONCLUSION CHAPTER 2 .....................................................................................14

CHAPTER 3. RESEARCH MODELS AND METHODS .......................................15

3.1. Research model .......................................................................................................15

3.2. Measurement of research variables.........................................................................16

3.2.1. FGAP (Funding Gap)...........................................................................................16

3.2.2. EFD (Dependence on external financing source ratio)........................................16

3.2.3. TLA (Loan-to-total assets ratio) ..........................................................................16

3.2.4. NIITA (Earning quality) ......................................................................................16

3.2.5. LDR (Loan to total deposit ratio).........................................................................17

3.2.6. SIZE (Size of the bank)........................................................................................17

3.2.7. ROE (Return on Equity).......................................................................................17

3.2.8. M2 (Money Supply).............................................................................................17

3.2.9. GDP (Economic Growth Rate) ............................................................................18

3.2.10. INF (Inflation Rate)............................................................................................18

3.3. Research hypothesis................................................................................................18

3.4. Research data and research methods.......................................................................22

3.4.1. 3.4.1. Research data .............................................................................................22

3.4.2. Research Methods................................................................................................23

CONCLUSION CHAPTER 3 .....................................................................................26

CHAPTER 4. RESEARCH RESULTS AND DISCUSSION ..................................27

4.1. Descriptive statistical analysis ................................................................................27

4.2. Correlation analysis.................................................................................................29

4.3. Estimating the regression model and testing the regression hypotheses ................30

4.3.1. Compare Pooled model – OLS and Fixed Effects Model (FEM)........................30

4.3.2. Compare the FEM model and the REM model....................................................32

vi

4.3.3. Check for multicollinearity ..................................................................................32

4.3.4. Check for autocorrelation.....................................................................................33

4.3.5. Test for the phenomenon of autocovariance change............................................34

4.4. Overcoming the research model and GMM regression model method ..................35

4.4.1. The results of overcoming the research model ....................................................35

4.4.2. GMM Regression Model Method ........................................................................36

4.5. Summarize and discuss research results .................................................................38

CONCLUSION CHAPTER 4 .....................................................................................46

CHAPTER 5. CONCLUSIONS AND RECOMMENDATIONS ............................48

5.1. Conclusion of the results obtained from the research. ............................................48

5.2. Recommendations on bank liquidity risk................................................................49

5.2.1. The bank should have a policy on the development and use of capital in each

period..............................................................................................................................49

5.2.2. The bank need to control lending activities and control the use of lending

sources............................................................................................................................49

5.2.3. The bank needs to increase total existing assets..................................................50

5.2.4. The bank need to develop a policy to use reasonable profits. .............................50

5.2.5. Vietnamese commercial banks need to manage liquidity in the face of changes in

lending interest rates and money supply growth............................................................50

5.2.6. In addition to the liquidity risk control policies, the bank has built a team to

monitor, forecast, and promptly handle signs of liquidity risk occurring......................51

5.3. Limitations of the research and suggestions for new research directions...............51

5.3.1. Limitations of the research topic..........................................................................51

5.3.2. Proposing new research directions.......................................................................51

CONCLUSION CHAPTER 5 .....................................................................................52

REFERENCES.............................................................................................................53

APPENDIX ...................................................................................................................56

vii

LIST OF ACRONYMS

No. Acronym Meaning

1 OLS Pooled OLS regression model

2 FEM Fixed Effects Model

3 REM Random Effect Model

4 FGLS Feasible generalized least squares model

5 GMM Generalized Method of Moments