The impact of credit and liquidity risk on financial stability at Vietnamese commercial banks, 2022

STATE BANK OF VIETNAM MINISTRY OF EDUCATION & TRAINING

HO CHI MINH UNIVERSITY OF BANKING

TRUONG THANH NGUYEN

THE IMPACT OF CREDIT AND LIQUIDITY RISK ON FINANCIAL

STABILITY AT VIETNAMESE COMMERCIAL BANKS

GRADUATION THESIS

THE MAJOR: FINANCE – BANKING

CODE: 7 34 02 01

HO CHI MINH CITY, YEAR 2022

STATE BANK OF VIETNAM MINISTRY OF EDUCATION & TRAINING

HO CHI MINH UNIVERSITY OF BANKING

STUDENT: TRUONG THANH NGUYEN

STUDENT ID: 050606180265

CLASS: HQ6-GE10

THE IMPACT OF CREDIT AND LIQUIDITY RISK ON FINANCIAL

STABILITY AT VIETNAMESE COMMERCIAL BANKS

GRADUATION THESIS

THE MAJOR: FINANCE – BANKING

CODE: 7 34 02 01

SUPERVISOR

Dr. LE HA DIEM CHI

HO CHI MINH CITY, YEAR 2022

i

ABSTRACT

The thesis " the impact of the credit risk and liquidity risk on financial bank stability

of Vietnamese commercial banks in 2011 – 2021" including non-performing loans

ratio (NPLR ); Loan to total assets ratio (TLA); Loan loss provision ( LLP );

Leverage (LEV); Loan to total deposit ratio (LDR); Size of the bank (SIZE); Return

on equity (ROE); Capital adequacy ratio (CAP); Growth Revenue (IGR);

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

The research topic applies Pooled-OLS, FEM, and REM models. However, the

results show that the research model encounters autocorrelation and variable

variance, so the author continues applying 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. Hence, the author receives the analysis results from the GMM model as the

final result.

Research on the impact of credit and liquidity risk on financial stability at

Vietnamese commercial banks for 2011-2021, in which the group of internal factors

that harm the bank's stability is NPLR, ROE, CAP, and LEV. The factors LDR,

TLA, and LLP, have a positive impact on the financial stability of the bank. The

remaining variables are not statistically significant in the model not statistically

significant in the model.

ii

COMMITMENT

I hereby declare that the thesis " the impact of credit and liquidity risk on financial

stability at vietnamese commercial banks" 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

Truong Thanh Nguyen

iii

ACKNOWLEDGMENT

First of all, I would like to thank the teachers who are lecturers at Banking

University of Ho Chi Minh City, the school's Board of Directors for creating

favorable conditions for teaching and guiding me with a lot of knowledge about

banking and teaching. taught both soft skills and moral training during my time

here.

I would like to thank and send kind words to the person who guided me in the

process of completing the thesis - Dr. Le Ha Diem Chi, who oriented, guided,

helped and encouraged me throughout the process of completing the thesis. into a

research thesis.

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

helping and encouraging me when I faced difficulties in the process of completing

my thesis, and at the same time, I would like to sincerely thank my colleagues in the

organization. my authority. They gave me a lot of practical knowledge while

working here.

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TABLE OF CONTENTS

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

COMMITMENT...................................................................................................... ii

ACKNOWLEDGMENT ........................................................................................ iii

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

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

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

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

1.1. Reason for Research.......................................................................................1

1.2. Objective of study ...........................................................................................1

1.2.1. General objective....................................................................................1

1.2.2. Specific objective ....................................................................................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. Contributions ..................................................................................................3

1.6 Structure of reasearch.....................................................................................3

SUMMARY OF THE CHAPTER 1........................................................................5

CHAPTER 2. REVIEW OF THE LITERATURE................................................6

2.1. Overview of basic concept..............................................................................6

2.1.1. The concept of credit risk ......................................................................6

v

2.1.2 The concept of liquidity risk...................................................................6

2.2 The relationship of credit risk and liquidity risk..........................................7

2.3. An overview of previous studies....................................................................8

SUMMARY OF THE CHAPTER 2......................................................................10

CHAPTER 3 RESEARCH MODEL AND METHODOLOGY.........................11

3.1. Reasearch model ...........................................................................................11

3.2 Mesurement of research variables...............................................................12

3.2.1. Z- Score ( Bank Stability Ratio)..........................................................12

3.2.2. LDR (Loan to deposit ratio) ................................................................12

3.2.3. NPLR (Non-Performing Loans Ratio) ...............................................12

3.2.4. IGR ( Revenue growth rate)...............................................................12

3.2.5. SIZE (Bank size)...................................................................................13

3.2.6. ROE (Return on equity).......................................................................13

3.2.7. TLA ( Total Loan to Asset ).................................................................13

3.2.8. CAP ( Capital adequacy ratio)............................................................13

3.2.9. LLP ( Loan loss provisions).................................................................13

3.2.10. LEV (Leverage ) .................................................................................14

3.2.11. INF (Inflation).....................................................................................14

3.2.12. GDP (Economic growth)....................................................................14

3.3. Research hypothesis......................................................................................14

3.4. Research data and research method...........................................................18

3.4.1. Research data........................................................................................18

3.4.2 Research Methods .................................................................................18

vi

SUMMARY OF THE CHAPTER 3.....................................................................21

CHAPTER 4: RESEARCH RESULTS AND DISSCUSSION...........................22

4.1. Descriptive statistical analysis. ....................................................................22

4.2 Correlation Matrix ........................................................................................24

4.3. Estimating the regression model and testing the regression hypotheses.26

4.3.2. Compare the FEM model and the REM model.................................29

4.3.3. Check for multicollinearity..................................................................29

4.3.4. Check for autocorrelation....................................................................30

4.4. Overcoming the research model and GMM regression model method...32

4.5. Summarize and discuss research result......................................................34

SUMMARY OF THE CHAPTER 4......................................................................42

CHAPTER 5. CONCLUSION AND RECOMMENDATION............................43

5.1. Conclusion of the result obtain from the research ....................................43

5.2. Recommendation on financial stability of bank ........................................43

5.2.1 Solutions to increase business efficiency .............................................43

5.2.2.Credit growth solutions.........................................................................44

5.2.3. Solutions to ensure capital safety........................................................45

5.3. Limitations of the topic ................................................................................45

5.4. Further research directions.........................................................................46

SUMMARY OF THE CHAPTER 5......................................................................46

REFERENCES........................................................................................................47

APPENDIX..............................................................................................................51