Factors affecting the financial stability of Viet Nam commercial bank, 2021

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

NGUYỄN NGỌC BẢO PHƯƠNG

FACTORS AFFECTING

THE FINANCIAL STABILITY OF VIET NAM

COMMERCIAL BANKS

GRADUATION THESIS

MAJOR: FINANCE AND BANKING

CODE: 52340201

HO CHI MINH CITY, 2021

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

NGUYỄN NGỌC BẢO PHƯƠNG

FACTORS AFFECTING

THE FINANCIAL STABILITY OF VIET NAM

COMMERCIAL BANKS

GRADUATION THESIS

MAJOR: FINANCE AND BANKING

CODE: 52340201

SUPERVISOR

TRẦN NGUYỄN MINH HẢI, PHD.

HO CHI MINH CITY, 2021

i

COMMITMENT

The author commits an honorary statement about your scientific thesis, specifically as

follows:

Full name of the author: Nguyễn Ngọc Bảo Phương

Born on October 6, 2000 in Khanh Hoa, Viet Nam

Hometown: Khanh Hoa, Viet Nam

Currently a 4th year student majoring in Finance and Banking, Banking University Ho

Chi Minh City.

While studying at Banking University Ho Chi Minh, the author declares that

The thesis: Factors affecting the financial stability of Viet Nam commercial banks

Major in: Finance - Banking

Code: 52340201

Science supervisor: Trần Nguyễn Minh Hải, PhD

This thesis has never been submitted to any anywhere else before. The thesis is the

author's own research work. The research results are reliable, in which there are no

previously published contents or contents made by others except for cited sources fully in

the thesis.

Ho Chi Minh City, September 2021

The Author

Nguyễn Ngọc Bảo Phương

ii

ACKNOWLEDGMENT

Firstly, the author would like to thank the academic staff and support staff of Banking

University Ho Chi Minh City because of their dedicated teaching and support. It is a great

honor and pride for the author to become a student at Banking University Ho Chi Minh

City.

Secondly, the author would like to express the deep gratitude to the Supervisor, Dr. Trần

Nguyễn Minh Hải, who wholeheartedly supported, patiently guided and encouraged the

author during doing this thesis.

Finally, the author would love to express big thank to family and friends who always give

unconditional encouragement to the author during studying.

iii

LIST OF ABBREVIATIONS

Abbreviation Meaning

CIR Cost to income ratio

CD The customer loan balance (before provision) to deposits

DEPTA Deposit rate

EAT Earning after tax rate

FEM Fixed Effects Model

GDP Gross domestic product

GLS Generalized Least Squares

IMF International Monetary Fund

INF Inflation rate

LLP The ratio of loan loss provisions to total assets

NIM Net Interest Margin

OLS Ordinary Least Square

OECD Organization for Economic Co-operation Development

REM Random Effects Model

ROA Return on Assets

SBV The State Bank of Viet Nam

SIZE The bank size

WB World Bank

WDI World Development Indicators

iv

LIST OF TABLE AND FIGURE

LIST OF TABLE

Table 2.1 Summary of relevant empirical studies............................................................. 17

Table 2.2 Summary of variables used frequently in relevant studies................................ 20

Table 3.1 Variables in the research model ........................................................................ 28

Table 3.2 Data sources of the variables............................................................................. 31

Table 4.1 Descriptive Statistics......................................................................................... 36

Table 4.2 Correlation matrix ............................................................................................. 37

Table 4.3 Test results using GLS model and OLS, FEM, REM ....................................... 39

Table 4.4 Summary of research results using GLS model ................................................ 45

LIST OF FIGURE

Figure 1. The z-score of Viet Nam commercial banks in the period of 2010 - 2020........ 29

v

CONTENT

COMMITMENT ................................................................................................................i

ACKNOWLEDGMENT...................................................................................................ii

LIST OF ABBREVIATIONS..........................................................................................iii

LIST OF TABLE AND FIGURE....................................................................................iv

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

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

1.2 Research objectives and questions.......................................................................... 3

1.2.1 Overall research objectives.................................................................................. 3

1.2.2 Specific research objectives................................................................................. 3

1.2.3 Research question ................................................................................................ 4

1.3 Research scope and subject ..................................................................................... 4

1.3.1 Research subject .................................................................................................. 4

1.3.2 Research scope..................................................................................................... 4

1.4 Research methodology ............................................................................................. 5

1.4.1 The approach methods......................................................................................... 5

1.4.2 Data collection methods....................................................................................... 5

1.4.3 Data processing methods ..................................................................................... 5

1.5 Framework of the research process........................................................................ 6

1.6 New contributions..................................................................................................... 6

1.6.1 In empirical literature........................................................................................... 6

1.6.2 In practice............................................................................................................. 6

1.7 The composition of the thesis .................................................................................. 7

CHAPTER 2. LITERATURE REVIEWS ...................................................................... 9

2.1 The financial stability of commercial banks.......................................................... 9

2.1.1 Definition............................................................................................................. 9

2.1.2 The importance of financial stability of commercial banks............................. 10

2.1.3 Factors affecting the financial stability of commercial banks........................... 11

2.2 Measuring financial stability using the z-score model........................................ 14

2.2.1 The z-score model.............................................................................................. 14

vi

2.2.2 The advantages and disadvantages of the z-score model .................................. 15

2.3 The relevant emprical studies............................................................................... 17

2.4 The general regression model for population...................................................... 20

2.5 Summary of chapter 2 ........................................................................................... 21

CHAPTER 3. RESEARCH METHODS....................................................................... 23

3.1 The approach methods .......................................................................................... 23

3.1.1 Research model of factors affecting financial stability of Viet Nam commercial

banks…....................................................................................................................... 23

3.1.2 Research variable selection ............................................................................... 24

3.2 Data collection methods......................................................................................... 29

3.2.1 Research scope................................................................................................... 29

3.2.2 The data sources ................................................................................................ 30

3.3 Data processing methods....................................................................................... 31

3.4 Summary of chapter 3 ........................................................................................... 35

CHAPTER 4. RESEARCH RESULTS AND DISCUSSIONS.................................... 36

4.1 Research result descriptive statistics.................................................................... 36

4.2 Research results...................................................................................................... 38

4.2.1 The final model chosen...................................................................................... 38

4.2.2 Test results......................................................................................................... 39

4.3 Discussions.............................................................................................................. 42

4.4 Summary of chaper 4............................................................................................. 45

CHAPTER 5. RECOMMENDATIONS AND CONCLUSIONS................................ 47

5.1 Recommendations.................................................................................................. 47

5.2.1 Recommendations for commercial banks.......................................................... 47

5.2.2 Recommendations for the State Bank of Viet Nam .......................................... 49

5.3 Conclusions............................................................................................................. 49

5.4 Thesis limitations and research direction ............................................................ 51

5.4.1 Limitations of the thesis .................................................................................... 51

5.4.2 The research direction ....................................................................................... 51

5.5. Summary of chapter 5 .......................................................................................... 52