Impact of foreign ownership and foreign bank presence on liquidity risk: Evidence from Viet Nam

Nguyen Duy Suu; Ho Thuy Tien; Do Thi Thanh Nhan; Shin-Hung Pan; Wing-Keung Wong

doi:10.47654/v27y2023i1p23-44

Authors

Nguyen Duy Suu Faculty of Finance and Banking, Ton Duc Thang University (TDTU) Author
Ho Thuy Tien Faculty of Finance and Banking, University of Finance - Marketing (UFM) Author
Do Thi Thanh Nhan Faculty of Finance and Banking, Ton Duc Thang University (TDTU) Author
Shin-Hung Pan Department of M-Commerce and Multimedia Applications Asia University Author
Wing-Keung Wong Department of Finance, Fintech Center, and Big Data Research Center, Asia University Corresponding Author

DOI:

https://doi.org/10.47654/v27y2023i1p23-44

Keywords:

Foreign Ownership, Foreign Bank, Liquidity Risk, Commercial Bank, Credit Risk

Abstract

Purpose: This study examines the impact of foreign ownership and foreign bank presence on the liquidity risk of Vietnam commercial banks.

Design/Methodology/Approach: We use Pooled Ordinary Least Square Model, Fixed Effects Model, and Random Effects Model to analyze the panel data. Additionally, to overcome the limitations of the model, the Generalized Least Squares method is applied.

Findings: The study found that an increase in the foreign ownership ratio reduces the liquidity risk of Vietnam commercial banks, which means that it can help reduce the liquidity risk. Conversely, an increase in foreign bank presence has a positive effect on the liquidity risk of Vietnam commercial banks, leading to higher liquidity risk. The study also highlights the positive impact of credit risk on the liquidity risk of commercial banks.

Research limitations/implications: Research data is limited because some Vietnam commercial banks did not fully disclose information over the period that we do not study in our paper. Therefore, a few factors have not yet been considered in the research model, so future research could expand the scope of the study by increasing the sample size to get better reliability of the research results. Furthermore, future research should include other commercial banks in other countries for comparison.

Practical implications: This study has several significant practical implications for commercial banks regarding the impact of foreign ownership and foreign bank presence liquidity risk to maintain stability in the bank’s operations. The inference from our findings to investors is that they should consider the risk management activities of commercial banks to make reasonable decisions. Finally, the State bank of Vietnam should monitor the activities of commercial banks in order to have support policies that can prevent major risks to the banking system.

Originality/value: The findings in our paper provide empirical evidence of the role of foreign shareholders in the liquidity risk management in commercial banks and the presence of foreign banks has an impact on the liquidity management of commercial banks in Vietnam. Our findings are news in the literature.

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