Factors affecting capital adequacy ratio of joint-stock commercial banks in Vietnam

Vinh Hoang Le1, Anh Hoang Nguyen1, Thuy Minh Thi Le2, Vien Bich Cao3
1 University of Economics and Law, Vietnam National University Ho Chi Minh City, Ho Chi Minh City, Vietnam
2 Banking University of Ho Chi Minh City, Ho Chi Minh City, Vietnam
3 An Giang State Treasury, Long Xuyen City, Vietnam

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Abstract

This paper aims to empirically examine the factors affecting the capital adequacy ratio by using the data collected from the audited financial statements of 24 joint-stock commercial banks in Vietnam over the period from 2009 to 2019 and the generalized least squares (GLS) estimation method. The results show that financial leverage, deposits from clients, loans to customers, liquidity, and profitability negatively affect the capital adequacy ratio. In addition, the paper also recognizes that the difference between the actual capital adequacy ratio and the prescribed minimum ones can be explained by the negative influence of bank size, financial leverage, loans to customers, liquidity, and profitability. The study provides empirical evidence and useful information for bank managers to make rational decisions in maintaining and adjusting their level of capital adequacy.

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