Factors affecting capital adequacy ratio of joint stock commercial banks in Vietnam: Bachelor thesis of Banking and Finance / Bui Thi Ngoc Khuyen ; supervisor Le Thanh Ngoc

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

HO CHI MINH UNIVERSITY OF BANKING

BUI THI NGOC KHUYEN

FACTORS AFFECTING CAPITAL ADEQUACY RATIO OF

JOINT STOCK COMMERCIAL BANKS IN VIETNAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 7340201

HO CHI MINH CITY - 2022

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND

TRAINING HO CHI MINH UNIVERSITY OF BANKING

BUI THI NGOC KHUYEN

FACTORS AFFECTING CAPITAL ADEQUACY RATIO OF

JOINT STOCK COMMERCIAL BANKS IN VIETNAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 7340201

INSTRUCTOR

PHD. LE THANH NGOC

HO CHI MINH CITY - 2022

i

ABSTRACT

The capital adequacy ratio is one of the important criteria to assess the

operational safety of banks. Banks' compliance with the minimum capital adequacy

ratio has become more and more stringent in recent years. Therefore, this thesis

aims to study the factors affecting the capital adequacy ratio of Vietnamese joint￾stock commercial banks. The thesis is made based on panel data collected from

financial statements and regular reports of 25 Vietnamese commercial banks in the

period 2010-2020. The study studies 10 factors affecting the dependent variable and

uses Pooled OLS, FEM, REM models, and finally chooses the REM model.

The research results show that leverage ratio, loan loss reserves ratio, and

economic growth, have a positive impact on the capital adequacy ratio of

Vietnamese joint-stock commercial banks. In contrast, bank size, return on assets

ratio, and liquidity ratio negatively affect the capital adequacy ratio of Vietnamese

joint-stock commercial banks. While the deposits ratio, loans ratio, inflation rate,

and net interest margin are not statistically significant. On that basis, the author has

proposed solutions to improve the capital adequacy ratio at Vietnamese joint-stock

commercial banks.

Key word: Capital adequacy ratio, Basel, Joint Stock Commercial Banks, Vietnam.

ii

DECLARATION OF AUTHENTICITY

My name is Bui Thi Ngoc Khuyen, a student in class HQ6–GE11, student

number: 050606180168, Ho Chi Minh University of Banking.

I hereby declare that the topic of this thesis is the author's research work, the

research results are truthful, in which there are no previously published contents or

contents made by others, except for the fully cited citations in the thesis.

Ho Chi Minh City, December 26th, 2022

Bui Thi Ngoc Khuyen

iii

ACKNOWLEGEMENTS

Firstly, I would like to express my gratitude towards Ph.D. Le Thanh Ngoc

for his dedication, patience, and support with me with good advice and guidance in

the process of this study.

Secondly, I would like to thank all Ho Chi Minh University of Banking's

lecturers who have provided me with valuable knowledge as well as experience to

help me obtain a solid academic foundation for future research, career practice, and

workflow.

Finally, I would like to thank my friends and my family for their sharing and

support throughout my Bachelor's program.

However, due to the limitation of experience and time, the study cannot

avoid certain drawbacks. All the comments and advice contributed by the examiners

are gratefully welcomed and appreciated.

Ho Chi Minh City, December 26th, 2022

Bui Thi Ngoc Khuyen

iv

CONTENTS

ABSTRACT................................................................................................................ i

DECLARATION OF AUTHENTICITY................................................................... ii

ACKNOWLEGEMENTS......................................................................................... iii

LIST OF ABBREVIATIONS................................................................................. viii

LIST OF TABLES AND CHARTS.......................................................................... ix

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

1.1. Reason for choosing the topic .......................................................................1

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

1.2.1. Overall objectives................................................................................1

1.2.2. Detailed objectives ..............................................................................1

1.3. Research questions ........................................................................................2

1.4. Objects and research scope............................................................................2

1.4.1. Research object....................................................................................2

1.4.2. Research scope ....................................................................................2

1.5. Research methods..........................................................................................3

1.6. Scientific and practical significance ..............................................................3

1.6.1. Scientific significance .........................................................................3

1.6.2. Practical significance...........................................................................3

1.7. Structure of the thesis....................................................................................3

1.8. Research gap..................................................................................................4

CONCLUSION OF CHAPTER 1...............................................................................5

v

CHAPTER 2. THEORETICAL BASIS AND OVERVIEW OF PRIOR

STUDIES 6

2.1. theoretical basis of the capital adequacy ratio...............................................6

2.1.1. The concept of the capital adequacy ratio...........................................6

2.1.2. Basel Accord .......................................................................................7

2.1.3. Measure the capital adequacy ratio .....................................................8

2.1.4. Legal documents of the State Bank of Vietnam on CAR ...................8

2.1.5. Meaning of the capital adequacy ratio ..............................................10

2.2. Previous studies...........................................................................................11

2.2.1. Studies in the world...........................................................................11

2.2.2. Domestic studies................................................................................13

CONSCLUSION OF CHAPTER 2 ..........................................................................18

CHAPTER 3. RESEARCH METHODS ..............................................................19

3.1. Research process..........................................................................................19

3.2. Research model............................................................................................20

3.3. Variable measurement and research hypothesis..........................................22

3.3.1. Bank size (SIZE) ...............................................................................22

3.3.2. Return on assets (ROA).....................................................................22

3.3.3. Liquidity ratio (LIQ) .........................................................................23

3.3.4. Loan loss reserves (LLR) ..................................................................23

3.3.5. Deposits (DEP)..................................................................................24

3.3.6. Loans (LOA) .....................................................................................24

3.3.7. Leverage (LEV).................................................................................25

3.3.8. Net interest margin (NIM).................................................................25