DOES BANK LIQUIDITY RISK LEAD TO BANK’S OPERATIONAL EFFICIENCY? A STUDY IN VIETNAM
DOI:
https://doi.org/10.47654/v25y2021i4p46-88Keywords:
liquidity risk, commercial banks, Vietnam, total assets, Credit to mobilized capital, Equity to total assets ratio, Return on Total Assets, Return on Equity, Net Profit MarginAbstract
This paper studies the factors affecting liquidity risk and examines the impact of liquidity risk on the operational efficiency of commercial banks in Vietnam in the period from 2010 to 2020. We find that the bank's liquidity risk measured by the difference between credit and mobilized capital on total assets, credit to mobilized capital, and equity to total assets ratio is mainly influenced by banks’ both internal and macro variables but internal variables are more important. At the same time, the performance of Vietnamese commercial banks is presented by using return on total assets, return on equity, and net profit margin. We also find that rising income from interest increases liquidity risk, suggesting that banks with growth in credit activities tend to increase liquidity risk. If there is an unexpected shock, the bank will fall into a liquidity shortage and increase liquidity risk. In general, if the risk of rising inflation is forecasted, Government will impose policies to control the money supply and inflation and require commercial banks to control liquidity and ensure banking activities strictly. In addition, we find that liquidity risk could have the opposite effect. All the above findings are our contributions to the literature. Our findings are useful in making recommendations for banks in creating strategies to improve operational efficiency towards the sustainable development of banks.
References
Abbas, F., Ali, S., Yousaf, I., Wong, W.K. 2021. Economics of Risk-taking, Risk-based capital, and Profitability: Empirical Evidence of Islamic Banks. Asian Academy of Management Journal of Accounting & Finance, forthcoming.
Adjei-Frimpong, K., Gan, C., & Hu, B. (2013). Efficiency and competition in the Ghanaian banking industry: A panel granger causality approach. Annals of Financial Economics, 8(01), 1350004.
Alghalith, M., Guo, X., Wong, W. K., & Zhu, L. (2016). A general optimal investment model in the presence of background risk. Annals of Financial Economics, 11(01), 1650001.
Anis, S., & Rashid, A. (2017). Optimal Bank Capital And Impact Of The Mm Theorem: A Study Of The Pakistani Financial Sector. Annals of Financial Economics, 12(02), 1750008.
Aspachs, O., Nier, E. W., & Tiesset, M. (2005). Liquidity, banking regulation and the macroeconomy. Working paper.
Al-Jafari, M. K., & Alchami, M. (2014). Determinants of bank profitability: Evidence from Syria. Journal of Applied Finance and Banking, 4(1), 17.
Al-Mekhlafi, A. M., Abdul-Ghani, R., Al-Eryani, S. M., Saif-Ali, R., & Mahdy, M. A. (2016). School-based prevalence of intestinal parasitic infections and associated risk factors in rural communities of Sana'a, Yemen. Acta tropica, 163, 135-141.
Almumani, M. A. (2013). Impact of managerial factors on commercial bank profitability: Empirical evidence from Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(3), 298-310.
Anbar, A., & Alper, D. (2011). Bank specific and macroeconomic determinants of commercial bank profitability: Empirical evidence from Turkey. Business and economics research journal, 2(2), 139-152.
Arif, A., & Anees, A. N. (2012). Liquidity risk and performance of banking system. Journal of Financial Regulation and Compliance.
Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions and Money, 18(2), 121-136.
Ayaydin, H., & Karakaya, A. (2014). The effect of bank capital on profitability and risk in Turkish banking. International Journal of Business and Social Science, 5(1).
Basel Committee on Banking Supervision (2008) “Principles for sound liquidity risk management and supervision,” Bank for International Settlements (BIS) Publications, http://www.bis.org/publ/bcbs144.htm.View at: Google Scholar
Berger, A. N. (1995). The relationship between capital and earnings in banking. Journal of money, credit and Banking, 27(2), 432-456.
Bonfim, D., & Kim, M. (2012). Liquidity risk in banking: is there herding. European Banking Center Discussion Paper, 24, 1-31.
Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking & Finance, 13(1), 65-79.
Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008. The Journal of economic perspectives, 23(1), 77-100.
Bunda, I., & Desquilbet, J. B. (2008). The bank liquidity smile across exchange rate regimes. International Economic Journal, 22(3), 361-386.
Chan, M. L., Lin, C. M., Liang, H. Y., & Chen, M. H. (2014). Does CEO incentive pay improve bank performance? A quantile regression analysis of US commercial banks. Annals of Financial Economics, 9(02), 1440005.
Chen, H.J.; Kuo, C.J.; Shen, C.H. (2001). Determinants of net interest margins in Taiwan banking industry. Journal of Financial Studies, 9, 47–83.
Cucinelli, D. (2013). The relationship between liquidity risk and probability of default: Evidence from the euro area. Risk governance and control: financial markets and institutions, 3(1), 42-50.
Delécha, C., Henao, C., Muthoora, P., & Vtyurina, S. (2012). The Determinants of Banks' Liquidity Buffers in Central America. IMF working paper.
Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408.
Demsetz, H. (1973). Industry structure, market rivalry, and public policy. The Journal of Law & Economics, 16(1), 1-9.
DeYoung, R., & Jang, K. Y. (2016). Do banks actively manage their liquidity? Journal of Banking & Finance, 66, 143-161.
Diamond, D. W., & Dybvig, P. H. (1983). Bank runs, deposit insurance, and liquidity. Journal of political economy, 91(3), 401-419.
Diamond, D. W., & Rajan, R. G. (2001). Liquidity risk, liquidity creation, and financial fragility: A theory of banking. Journal of political Economy, 109(2), 287-327.
Dietrich, A., & Wanzenried, G. (2014). The determinants of commercial banking profitability in low-, middle-, and high-income countries. The Quarterly Review of Economics and Finance, 54(3), 337-354.
Duttweiler, R. . (2011). Managing liquidity in banks: a top down approach. John Wiley & Sons.
Esmaeil, J., Rjoub, H., & Wong, W. K. (2020). Do Oil Price Shocks and Other Factors Create Bigger Impacts on Islamic Banks than Conventional Banks?. Energies, 13(12), 3106.
Gasbarro, D., Wong, W. K., & Zumwalt, J. K. (2012). Stochastic dominance and behavior towards risk: The market for iShares. Annals of Financial Economics, 7(01), 1250005.
Gillian, B., Anne, C., Mary, M., Peter, A., & Michael, G. (1984). Exposure and anxiety management in the treatment of social phobia. Journal of consulting and clinical Psychology, 52(4), 642.
Goddard, J., Molyneux, P., & Wilson, J. O. (2004). The profitability of European banks: a cross‐sectional and dynamic panel analysis. The Manchester School, 72(3), 363-381.
Haq, M., & Heaney, R. (2012). Factors determining European bank risk. Journal of International Financial Markets, Institutions and Money, 22(4), 696-718.
Horváth, R., Seidler, J., & Weill, L. (2012). Bank capital and liquidity creation: Granger-causality evidence. Journal of Financial Services Research, 45(3), 341-361.
Kaufman, G. G. (2014). Too big to fail in banking: What does it mean? Journal of Financial Stability, 13, 214-223.
Kosmidou, K., Tanna, S., & Pasiouras, F. (2005). Determinants of profitability of domestic UK commercial banks: panel evidence from the period 1995-2002. In Money Macro and Finance (MMF) Research Group Conference, 45, 1-27.
Kutsienyo, L. (2011). The determinant of profitability of banks in Ghana. A Thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Commonwealth Executive Masters of Business Administration (CEMBA).
Lee, C. C., Yang, S. J., & Chang, C. H. (2014). Non-interest income, profitability, and risk in banking industry: A cross-country analysis. The North American Journal of Economics and Finance, 27, 48-67.
Lee, J. Y., & Kim, D. (2013). Bank performance and its determinants in Korea. Japan and the World Economy, 27, 83-94.
Lu, R., Yang, C. C., & Wong, W. K. (2018). Time diversification: Perspectives from the economic index of riskiness. Annals of Financial Economics, 13(03), 1850011.
Lucchetta, M. (2007). What do data say about monetary policy, bank liquidity and bank risk taking? Economic notes, 36(2), 189-203.
Khalid, M.S., Hossain, A., & Rashed, M. (2019). The Impact of Liquidity Risk on Banking Performance: Evidence from the Emerging Market. Global Journal of Management and Business Research, 19(4), 47-52.
Miller, K. D., & Bromiley, P. (1990). Strategic risk and corporate performance: An analysis of alternative risk measures. Academy of Management Journal, 33(4), 756-779.
Dezfouli, M.H.K., Hasanzadeh, A., & Shahchera, M. (2014). Inspecting the effectiveness of liquidity risk on banks profitability. Kuwait Chapter of Arabian Journal of Business and Management Review, 3(9), 191-207.
Munteanu, I. (2012). Bank liquidity and its determinants in Romania. Procedia Economics and Finance, 3, 993-998.
Ndoka, S., Islami, M., & Shima, J. (2017). The impact of liquidity risk management on the performance of Albanian Commercial Banks during the period 2005-2015. International Journal of Social Sciences and Education Research, 3(1), 70-76.
Nguyen, H. M., & Nguyen, T. C. (2012). Hiệu quả hoạt động của ngân hàng tại các nước Đông Nam Á và bài học kinh nghiệm cho Việt Nam [Performance of banks in Southeast Asian countries and lessons for Vietnam]. Tạp chí Kinh tế và Chính trị thế giới, 11, 199.
Nguyen, T. D. T., & Vo, D. H. (2019). The Determinants of Systematic Risk in Vietnam. Advances in Decision Sciences, 23(2), 1-21.
Nhan, D. T. T., Pho, K. H., ANH, D. T. V., & McAleer, M. (2021). Evaluating The Efficiency Of Vietnam Banks Using Data Envelopment Analysis. Annals of Financial Economics, 16(02), 2150010.
Obrimah, O. A., & Ebere, C. E. (2015). Consolidation within the banking sector and savings deposits: effects on liquidity, output, and profitability within the Nigerian economy. Annals of Financial Economics, 10(01), 1550001.
Olweny, T., & Shipho, T. M. (2011). Effects of banking sectoral factors on the profitability of commercial banks in Kenya. Economics and Finance Review, 1(5), 1-30.
Mustafa, O.A.O. (2019). The Conflict between Liquidity and Profitability and its Impact on the Banking Finance, an Empirical Investigation from Sudan (2000-2018). Global Academic Journal of Economics and Business, 1(1), 27-32.
Osborn, O., & Olefsky, J. M. (2012). The cellular and signaling networks linking the immune system and metabolism in disease. Nature medicine, 18(3), 363.
Peltzman, S. (1977). The gains and losses from industrial concentration. Journal of Law and Economics, 20(2), 229-263.
Pho, K. H., Van Anh, D. T., & McAleer, M. (2021). The Safety of Banks in Vietnam Using CAMEL. Advances in Decision Sciences, 25(2), 158-192.
Poposka, K., & Trpkoski, M. (2013). Secondary model for bank profitability management–test on the case of Macedonian banking sector. Research Journal of Finance and Accounting, 4(6), 216-225.
Shen C., Chen Y., Kao L. & Yeh C. (2009). Bank liquidity risk and performance. Working Paper. Department of Finance, National University of Kaohsiung, 1_37.
Siaw, S. (2013). Liquidity risk and bank profitability in Ghana. Doctoral dissertation, University of Ghana.
Skully, M. T., & Perera, S. (2012). Bank Market Power and Liquidity: Evidence from 113 Developed and Developing Countries. Paper presented at the 25th Australasian Finance and Banking Conference.
Sufian, F., & Chong, R.R. (2008). Determinants of Bank Profitability in a Developing Economy: Empirical Evidence from the Philipinnes. Asian Academy of Management Journal of Accounting & Finance, 4(2), 91-112.
Suu, N. D., Luu, T. Q., Pho, K. H., & McAleer, M. (2020). Net Interest Margin of Commercial Banks in Vietnam. Advances in Decision Sciences, 24(1), 1-27.
Thị Xuân Hương, T., & Thị Thanh Nga, T. (2018). Các yếu tố ảnh hưởng đến rủi ro thanh khoản ngân hàng: trường hợp các quốc gia Đông Nam Á. Tạp chí Kinh tế và Ngân hàng châu Á, (146), 78-92.
Tiến, N. V. (2005). Quản trị rủi ro trong kinh doanh ngân hàng. Hà Nội: Nhà xuất bản thống kê.
Tran, D. V. (2020). Bank earnings management and dividend policy under agency problem contexts. Annals of financial economics, 15(02), 2050005.
Trenca, I., Petria, N., & Corovei, E. A. (2015). Impact of macroeconomic variables upon the banking system liquidity. Procedia Economics and Finance, 32, 1170-1177.
Umo, A. N., Asuquo, A. E., Abia-Bassey, L. N., & Moses, A. E. (2015). Prevalence of latent tuberculosis infection among health workers resident in Akwa Ibom State. South-South Nigeria. International Journal of TROPICAL DISEASE & Health 12(3), 1-7.
Viet, H. L., Van, D. D., Huynh, G. L., & Minh, T. D. (2018). Evaluation Of RV165-2 Engine Performance. In 2018 4th International Conference on Green Technology and Sustainable Development. In 2018 4th International Conference on Green Technology and Sustainable Development (GTSD), 1-7.
Vo, D. H., Van Tuan, Q., & Pham, T. V. T. (2019). Sectoral risks in Vietnam and Malaysia: A comparative analysis. Advances in Decision Sciences, 23(1), 1-25.
Wasiuzzaman, S., & Tarmizi, H. A. B. A. (2010). Profitability of Islamic banks in Malaysia: an empirical analysis. Journal of Islamic Economics, Banking and Finance, 6(4), 53-68.
Williams, B. (2014). Bank risk and national governance in Asia. Journal of Banking & Finance, 49, 10-26.
Wilson, A. (2010). Knowledge power: Interdisciplinary education for a complex world. Routledge, 349.
Yale-Brozen, Y. B. (1982). Mergers in perspective. American Enterprise Institute.
Yurdakul, F. (2014). Macroeconomic modelling of credit risk for banks. Procedia-Social and behavioral sciences, 109, 784-793.
Published
Issue
Section
How to Cite
Scientific and Business World