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.
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