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31/07/2022
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Nguyen, M. T., Tran, T. N., & Nguyen, T. H. (2022). Liquidity risk, macroprudential regulation and bank performance: empirical evidence from Vietnamese commercial banks. Journal of International Economics and Management, 22(2), 1-24. https://doi.org/10.38203/jiem.022.2.0045
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Liquidity risk, macroprudential regulation and bank performance: empirical evidence from Vietnamese commercial banks
Main Article Content
Abstract
This paper attempts to bridge the gap in the literature on the effects of liquidity risks and macroprudential policies on the performance of domestic banks in Vietnam. The two-way fixed effects and fixed effects generalized least squares methods were employed to analyze panel data from 31 Vietnamese commercial banks from 2006 to 2020. The results show that the liquid assets to total assets ratio has a positive effect on bank performance, which is measured by net interest margin. Stricter macroprudential regulations, which are represented by the short-term funding for mid-to-long-term loans ratio, improve domestic banks’ performance when taking the increase of foreign bank presence into account.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
Bank performance, Liquidity risk, Short-term funding for mid-to-long-term loans, Regulation, Vietnam
References
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Ayadi, R., Naceur, S. B., Casu, B. and Quinn, B. (2016), “Does Basel compliance matter for bank performance?”, Journal of Financial Stability, Vol. 23, pp. 15 - 32.
Baele, L., De Jonghe, O. and Vander Vennet, R. (2007), “Does the stock market value bank diversification?”, Economic Systems, Vol. 31, pp. 1999 - 2023.
Barth, J.R., Nolle, D.E., Phumiwasana, T. and Yago, G. (2003), “A cross-country analysis of the bank supervisory framework and bank performance”, Financial Markets, Institutions & Instruments, Vol. 12, pp. 67 - 120.
Barth, J.R., Caprio, G.Jr. and Levine, R. (2006), Rethinking bank regulation: till angels govern, Cambridge: Cambridge University Press.
Batten, J. and Vo, X.V. (2019), “Determinants of bank profitability - Evidence from Vietnam”, Emerging Markets Finance and Trade, Vol. 55, pp. 1417 - 1428.
BCBS. (2000), Sound practices for managing liquidity in banking organizations, Bank for International Settlements.
Beltratti, A. and Stulz, R.M. (2009), “Why did some banks perform better during the credit crisis? A cross-country study of the impact of governance and regulation”, NBER Working Papers 15180, National Bureau of Economic Research.
Ben Naceur, S. and Kandil, M. (2009), “The impact of capital requirements on banks’ cost of intermediation and performance: the case of Egypt”, Journal of Economics and Business, Vol. 61, pp. 70 - 89.
Bessis, J. (2015), Risk management in banking, John Wiley & Sons.
Boar, C., Gambacorta, L., Lombardo, G. and Pereira Da Silva, L.A. (2017), “What are the effects of macroprudential policies on macroeconomic performance?”, BIS Quarterly Review September.
Borio, C. and Shim, I. (2007), “What can (macro-)prudential policy do to support monetary policy?”, BIS Working Paper No. 242, Bank for International Settlements.
Bourke, P. (1989), “Concentration and other determinants of bank profitability in Europe, North America and Australia”, Journal of Banking & Finance, Vol. 13, pp. 65 - 79.
Chen, Y.-K., Shen, C.-H., Kao, L. & Yeh, C.-Y. (2018), “Bank liquidity risk and performance”, Review of Pacific Basin Financial Markets and Policies, Vol. 21, 1850007.
Chortareas, G.E., Girardone, C. and Ventouri, A. (2012), “Bank supervision, regulation, and efficiency: evidence from the European Union”, Journal of Financial Stability, Vol. 8, pp. 292 - 302.
Claessens, S., Demirguc-Kunt, A. and Huizinga, H. (2001), “How does foreign entry affect domestic banking markets?”, Journal of Banking & Finance, Vol. 25, pp. 891 - 911.
Cornett, M.M. and Saunders, A. (2003), Financial institutions management: a risk management approach, McGraw-Hill/Irwin.
Demirguc-Kunt, A. and Detragiache, E. (2002), “Does deposit insurance increase banking system stability? An empirical investigation”, Journal of Monetary Economics, Vol. 49, pp. 1373 - 1406.
Demirguc-Kunt, A. and Huizinga, H. (1999), “Determinants of commercial bank interest margins and profitability: some international evidence”, The World Bank Economic Review, Vol. 13, pp. 379 - 408.
Demirguc-Kunt, A., Laeven, L. and Levine, R. (2003), “The impact of bank regulations, concentration, and institutions on bank margins”, Policy Research Working Paper Series 3030, The World Bank.
Dietrich, A. and Wanzenried, G. (2014), “The determinants of commercial banking profitability in low-, middle-, and high-income countries”, The Quarterly Review of Economics and Finance, Vol. 54, pp. 337 - 354.
Elsas, R., Hackethal, A. and Holzhauser, M. (2010), “The anatomy of bank diversification”, Journal of Banking & Finance, Vol. 34, pp. 1274 - 1287.
Fungacova, Z. and Poghosyan, T. (2011), “Determinants of bank interest margins in Russia: does bank ownership matter?”, Economic Systems, Vol. 35, pp. 481 - 495.
Fungacova, Z., Solanko, L. and Weill, L. (2010), “Market power in the Russian banking industry”, International Economics, Vol. 124, pp. 127 - 145.
Gaganis, C., Galariotis, E., Pasiouras, F. and Staikouras, C. (2021), “Macroprudential regulations and bank profit efficiency: international evidence”, Journal of Regulatory Economics, Vol. 59, pp. 136 - 160.
Goddard, J., Molyneux, P. and Wilson, J.O.S. (2004), “The profitability of European banks: a cross‐ sectional and dynamic panel analysis”, The Manchester School, Vol. 72, pp. 363 - 381.
Gopalan, S. and Rajan, R.S. (2017), “Does foreign bank presence affect interest rate pass-through in emerging and developing economies?”, Journal of Macroeconomics, Vol. 54, pp. 373 - 392.
Gujarati, D. (2003), Basic econometrics, Fourth Edition, Singapura: McGraw-Hill.
Hong, D.T.T. and Tuan, N.H. (2021), “Tac dong cua Fintech toi hieu qua hoat dong cua ngan hang thuong mai”, Tap chi Thi truong Tai chinh Tien te, So 1+1, tr. 51 - 58.
Huber, P.J. (1967), “The behavior of maximum likelihood estimates under nonstandard conditions”, Proceedings of the Fifth Berkeley Symposium on Mathematical Statistics and Probability, Vol. 1, pp. 221 - 233.
IMF. (2011), “Durable financial stability: getting there from here”, IMF Global Financial Stability Report April /11.
Klein, P.G. and Saidenberg, M.R. (2000), “Diversification, organization, and efficiency: evidence from bank holding companies”, Performance of Financial Institutions, Cambridge University Press, Cambridge, pp. 153 - 173.
Kosmidou, K. (2008), “The determinants of banks’ profits in Greece during the period of EU financial integration”, Managerial Finance, Vol. 34, pp. 146 - 159.
Kosmidou, K., Tanna, S. and 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, pp. 1 - 27.
Le, H.N.Q., Nguyen, T.V.H. and Schinckus, C. (2021), “Bank efficiency, market structure and strategic interaction: evidence from Vietnam”, Research in International Business and Finance, Vol. 56, 101371.
Lopez-Espinosa, G., Moreno, A. and De Gracia, F.P. (2011), “Banks’ net interest margin in the 2000s: a macro-accounting international perspective”, Journal of International Money and Finance, Vol. 30, pp. 1214 - 1233.
Ly, K.C. (2015), “Liquidity risk, regulation and bank performance: evidence from European banks”, Global Economy Finance Journal, Vol. 8, pp. 11 - 33.
Manlagnit, M.C.V. (2011), “The economic effects of foreign bank presence: evidence from the Philippines”, Journal of International Money and Finance, Vol. 30, pp. 1180 - 1194.
Matz, L. and Neu, P. (2007), Liquidity risk measurement and management: a practitioner’s guide to global best practices, John Wiley & Sons (Asia) Pte Ltd, Singapore.
Maudos, J. and Solis, L. (2009), “The determinants of net interest income in the Mexican banking system: an integrated model”, Journal of Banking & Finance, Vol. 33, pp. 1920 - 1931.
Maudos, J.N. and Fernandez De Guevara, J. (2004), “Factors explaining the interest margin in the banking sectors of the European Union”, Journal of Banking & Finance, Vol. 28, pp. 2259 - 2281.
Naceur, S.B. and Omran, M. (2011), “The effects of bank regulations, competition, and financial reforms on banks’ performance”, Emerging Markets Review, Vol. 12, pp. 1 - 20.
OECD. (2021), Strengthening macroprudential policies in emerging Asia, The Development Dimension, OECD Publishing, Paris.
Pasiouras, F. and Kosmidou, K. (2007), “Factors influencing the profitability of domestic and foreign commercial banks in the European Union”, Research in International Business and Finance, Vol. 21, pp. 222 - 237.
Phan, D.H.B., Narayan, P.K., Rahman, R.E. and Hutabarat, A.R. (2020), “Do financial technology firms influence bank performance?”, Pacific-Basin Finance Journal, Vol. 62 , 101210.
Saleh, I. and Abu Afifa, M. (2020), “The effect of credit risk, liquidity risk and bank capital on bank profitability: evidence from an emerging market”, Cogent Economics Finance, Vol. 8, 1814509.
SBV. (1999), Decision no. 297/1999/QD-NHNN5 of august 25th, 1999, on the promulgation of the regulation on prudential ratios in the activities of credit institutions.
SBV. (2018), Annual report 2018.
SBV. (2019), Circular No. 22/2019/TT-NHNN on November 15, 2019, limits and prudential ratios of banks and foreign bank branches.
Shen, C.-H., Kuo, C.-J. and Chen, H.-J. (2001), “Determinants of net interest margins in Taiwan banking industry”, Journal of Financial Studies, Vol. 9 No. 1, pp. 47 - 83.
Stiroh, K.J. (2004), “Diversification in banking: is noninterest income the answer?”, Journal of Money, Credit and Banking, Vol. 36, pp. 853 - 882.
Tan, Y. (2016), Efficiency and competition in Chinese banking, Chandos Publishing.
Tho, T.N., Tuan, N.H. and Minh, N.T. (2017), “Foreign bank’s presence and domestic bank’s performance: empirical evidence from Vietnam”, Journal of Finance and Marketing, Vol. 42, pp. 2 - 15.
Tho, T.N., Tuan, N.H. and Minh, N.T. (2019), “The impacts of competition and risk taking on performance of Vietnamese commercial banks”, The Asian Journal of Economics and Banking, Vol. 165, pp. 19 - 36.
Trang, N.T.N. and Tuan, N H. (2015), “The nonlinear linkage between interest margin and non-interest income of Vietnam’s commercial banks”, Journal of Economic Development, Vol. 26 No. 12, pp. 30 - 52.
Vinh, N.T.H. and Thao, L P.T.D. (2016), “Effects of bank capital on profitability and credit risk: the case of Vietnam’s commercial banks”, Journal of Economic Development, Vol. 23, pp. 117 - 137.
Vu, H. and Nahm, D. (2013), “The determinants of profit efficiency of banks in Vietnam”, Journal of the Asia Pacific Economy, Vol. 18, pp. 615 - 631.
WB. (2008), “Global development finance 2008: the role of international banking”, Review, Analysis, and Outlook, Vol. 1.
White, H. (1980), “A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity”, Econometrica, Vol. 48, pp. 817 - 838.
White, H. (1982), “Maximum likelihood estimation of misspecified models”, Econometrica, Vol. 50, pp. 1 - 25.
Wooldridge, J.M. (2002), Econometric analysis of cross section and panel data, MIT Press.
Athanasoglou, P.P., Brissimis, S.N. and Delis, M.D. (2008), “Bank-specific, industry-specific and macroeconomic determinants of bank profitability”, Journal of International Financial Markets, Institutions and Money, Vol. 18, pp. 121 - 136.
Ayadi, R., Naceur, S. B., Casu, B. and Quinn, B. (2016), “Does Basel compliance matter for bank performance?”, Journal of Financial Stability, Vol. 23, pp. 15 - 32.
Baele, L., De Jonghe, O. and Vander Vennet, R. (2007), “Does the stock market value bank diversification?”, Economic Systems, Vol. 31, pp. 1999 - 2023.
Barth, J.R., Nolle, D.E., Phumiwasana, T. and Yago, G. (2003), “A cross-country analysis of the bank supervisory framework and bank performance”, Financial Markets, Institutions & Instruments, Vol. 12, pp. 67 - 120.
Barth, J.R., Caprio, G.Jr. and Levine, R. (2006), Rethinking bank regulation: till angels govern, Cambridge: Cambridge University Press.
Batten, J. and Vo, X.V. (2019), “Determinants of bank profitability - Evidence from Vietnam”, Emerging Markets Finance and Trade, Vol. 55, pp. 1417 - 1428.
BCBS. (2000), Sound practices for managing liquidity in banking organizations, Bank for International Settlements.
Beltratti, A. and Stulz, R.M. (2009), “Why did some banks perform better during the credit crisis? A cross-country study of the impact of governance and regulation”, NBER Working Papers 15180, National Bureau of Economic Research.
Ben Naceur, S. and Kandil, M. (2009), “The impact of capital requirements on banks’ cost of intermediation and performance: the case of Egypt”, Journal of Economics and Business, Vol. 61, pp. 70 - 89.
Bessis, J. (2015), Risk management in banking, John Wiley & Sons.
Boar, C., Gambacorta, L., Lombardo, G. and Pereira Da Silva, L.A. (2017), “What are the effects of macroprudential policies on macroeconomic performance?”, BIS Quarterly Review September.
Borio, C. and Shim, I. (2007), “What can (macro-)prudential policy do to support monetary policy?”, BIS Working Paper No. 242, Bank for International Settlements.
Bourke, P. (1989), “Concentration and other determinants of bank profitability in Europe, North America and Australia”, Journal of Banking & Finance, Vol. 13, pp. 65 - 79.
Chen, Y.-K., Shen, C.-H., Kao, L. & Yeh, C.-Y. (2018), “Bank liquidity risk and performance”, Review of Pacific Basin Financial Markets and Policies, Vol. 21, 1850007.
Chortareas, G.E., Girardone, C. and Ventouri, A. (2012), “Bank supervision, regulation, and efficiency: evidence from the European Union”, Journal of Financial Stability, Vol. 8, pp. 292 - 302.
Claessens, S., Demirguc-Kunt, A. and Huizinga, H. (2001), “How does foreign entry affect domestic banking markets?”, Journal of Banking & Finance, Vol. 25, pp. 891 - 911.
Cornett, M.M. and Saunders, A. (2003), Financial institutions management: a risk management approach, McGraw-Hill/Irwin.
Demirguc-Kunt, A. and Detragiache, E. (2002), “Does deposit insurance increase banking system stability? An empirical investigation”, Journal of Monetary Economics, Vol. 49, pp. 1373 - 1406.
Demirguc-Kunt, A. and Huizinga, H. (1999), “Determinants of commercial bank interest margins and profitability: some international evidence”, The World Bank Economic Review, Vol. 13, pp. 379 - 408.
Demirguc-Kunt, A., Laeven, L. and Levine, R. (2003), “The impact of bank regulations, concentration, and institutions on bank margins”, Policy Research Working Paper Series 3030, The World Bank.
Dietrich, A. and Wanzenried, G. (2014), “The determinants of commercial banking profitability in low-, middle-, and high-income countries”, The Quarterly Review of Economics and Finance, Vol. 54, pp. 337 - 354.
Elsas, R., Hackethal, A. and Holzhauser, M. (2010), “The anatomy of bank diversification”, Journal of Banking & Finance, Vol. 34, pp. 1274 - 1287.
Fungacova, Z. and Poghosyan, T. (2011), “Determinants of bank interest margins in Russia: does bank ownership matter?”, Economic Systems, Vol. 35, pp. 481 - 495.
Fungacova, Z., Solanko, L. and Weill, L. (2010), “Market power in the Russian banking industry”, International Economics, Vol. 124, pp. 127 - 145.
Gaganis, C., Galariotis, E., Pasiouras, F. and Staikouras, C. (2021), “Macroprudential regulations and bank profit efficiency: international evidence”, Journal of Regulatory Economics, Vol. 59, pp. 136 - 160.
Goddard, J., Molyneux, P. and Wilson, J.O.S. (2004), “The profitability of European banks: a cross‐ sectional and dynamic panel analysis”, The Manchester School, Vol. 72, pp. 363 - 381.
Gopalan, S. and Rajan, R.S. (2017), “Does foreign bank presence affect interest rate pass-through in emerging and developing economies?”, Journal of Macroeconomics, Vol. 54, pp. 373 - 392.
Gujarati, D. (2003), Basic econometrics, Fourth Edition, Singapura: McGraw-Hill.
Hong, D.T.T. and Tuan, N.H. (2021), “Tac dong cua Fintech toi hieu qua hoat dong cua ngan hang thuong mai”, Tap chi Thi truong Tai chinh Tien te, So 1+1, tr. 51 - 58.
Huber, P.J. (1967), “The behavior of maximum likelihood estimates under nonstandard conditions”, Proceedings of the Fifth Berkeley Symposium on Mathematical Statistics and Probability, Vol. 1, pp. 221 - 233.
IMF. (2011), “Durable financial stability: getting there from here”, IMF Global Financial Stability Report April /11.
Klein, P.G. and Saidenberg, M.R. (2000), “Diversification, organization, and efficiency: evidence from bank holding companies”, Performance of Financial Institutions, Cambridge University Press, Cambridge, pp. 153 - 173.
Kosmidou, K. (2008), “The determinants of banks’ profits in Greece during the period of EU financial integration”, Managerial Finance, Vol. 34, pp. 146 - 159.
Kosmidou, K., Tanna, S. and 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, pp. 1 - 27.
Le, H.N.Q., Nguyen, T.V.H. and Schinckus, C. (2021), “Bank efficiency, market structure and strategic interaction: evidence from Vietnam”, Research in International Business and Finance, Vol. 56, 101371.
Lopez-Espinosa, G., Moreno, A. and De Gracia, F.P. (2011), “Banks’ net interest margin in the 2000s: a macro-accounting international perspective”, Journal of International Money and Finance, Vol. 30, pp. 1214 - 1233.
Ly, K.C. (2015), “Liquidity risk, regulation and bank performance: evidence from European banks”, Global Economy Finance Journal, Vol. 8, pp. 11 - 33.
Manlagnit, M.C.V. (2011), “The economic effects of foreign bank presence: evidence from the Philippines”, Journal of International Money and Finance, Vol. 30, pp. 1180 - 1194.
Matz, L. and Neu, P. (2007), Liquidity risk measurement and management: a practitioner’s guide to global best practices, John Wiley & Sons (Asia) Pte Ltd, Singapore.
Maudos, J. and Solis, L. (2009), “The determinants of net interest income in the Mexican banking system: an integrated model”, Journal of Banking & Finance, Vol. 33, pp. 1920 - 1931.
Maudos, J.N. and Fernandez De Guevara, J. (2004), “Factors explaining the interest margin in the banking sectors of the European Union”, Journal of Banking & Finance, Vol. 28, pp. 2259 - 2281.
Naceur, S.B. and Omran, M. (2011), “The effects of bank regulations, competition, and financial reforms on banks’ performance”, Emerging Markets Review, Vol. 12, pp. 1 - 20.
OECD. (2021), Strengthening macroprudential policies in emerging Asia, The Development Dimension, OECD Publishing, Paris.
Pasiouras, F. and Kosmidou, K. (2007), “Factors influencing the profitability of domestic and foreign commercial banks in the European Union”, Research in International Business and Finance, Vol. 21, pp. 222 - 237.
Phan, D.H.B., Narayan, P.K., Rahman, R.E. and Hutabarat, A.R. (2020), “Do financial technology firms influence bank performance?”, Pacific-Basin Finance Journal, Vol. 62 , 101210.
Saleh, I. and Abu Afifa, M. (2020), “The effect of credit risk, liquidity risk and bank capital on bank profitability: evidence from an emerging market”, Cogent Economics Finance, Vol. 8, 1814509.
SBV. (1999), Decision no. 297/1999/QD-NHNN5 of august 25th, 1999, on the promulgation of the regulation on prudential ratios in the activities of credit institutions.
SBV. (2018), Annual report 2018.
SBV. (2019), Circular No. 22/2019/TT-NHNN on November 15, 2019, limits and prudential ratios of banks and foreign bank branches.
Shen, C.-H., Kuo, C.-J. and Chen, H.-J. (2001), “Determinants of net interest margins in Taiwan banking industry”, Journal of Financial Studies, Vol. 9 No. 1, pp. 47 - 83.
Stiroh, K.J. (2004), “Diversification in banking: is noninterest income the answer?”, Journal of Money, Credit and Banking, Vol. 36, pp. 853 - 882.
Tan, Y. (2016), Efficiency and competition in Chinese banking, Chandos Publishing.
Tho, T.N., Tuan, N.H. and Minh, N.T. (2017), “Foreign bank’s presence and domestic bank’s performance: empirical evidence from Vietnam”, Journal of Finance and Marketing, Vol. 42, pp. 2 - 15.
Tho, T.N., Tuan, N.H. and Minh, N.T. (2019), “The impacts of competition and risk taking on performance of Vietnamese commercial banks”, The Asian Journal of Economics and Banking, Vol. 165, pp. 19 - 36.
Trang, N.T.N. and Tuan, N H. (2015), “The nonlinear linkage between interest margin and non-interest income of Vietnam’s commercial banks”, Journal of Economic Development, Vol. 26 No. 12, pp. 30 - 52.
Vinh, N.T.H. and Thao, L P.T.D. (2016), “Effects of bank capital on profitability and credit risk: the case of Vietnam’s commercial banks”, Journal of Economic Development, Vol. 23, pp. 117 - 137.
Vu, H. and Nahm, D. (2013), “The determinants of profit efficiency of banks in Vietnam”, Journal of the Asia Pacific Economy, Vol. 18, pp. 615 - 631.
WB. (2008), “Global development finance 2008: the role of international banking”, Review, Analysis, and Outlook, Vol. 1.
White, H. (1980), “A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity”, Econometrica, Vol. 48, pp. 817 - 838.
White, H. (1982), “Maximum likelihood estimation of misspecified models”, Econometrica, Vol. 50, pp. 1 - 25.
Wooldridge, J.M. (2002), Econometric analysis of cross section and panel data, MIT Press.