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Holdings of sovereign bonds by commercial banks in Vietnam

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  • Van Dan Dang
  • Japan Huynh
  • David McMillan

Abstract

The study examines the bank-specific determinants of sovereign bond holdings and how such holdings affect bank lending of the banking market in Vietnam. Using annual financial data of commercial banks from 2007 to 2018 and alternative regression techniques for both dynamic and static models, we attribute the motives of sovereign bond holdings to the liquidity reserves, profitability improvement, and risk-shifting. At odds with our expectation, we find no evidence in favor that Vietnamese banks purchase government bonds to increase capital adequacy ratio. Furthermore, to clarify the economic impact of sovereign bond investment, we also offer evidence to reject the notion that purchases of government bonds are detrimental to banks’ core function in normal times captured by bank lending and liquidity creation. All estimates are robust across alternative regression techniques in both dynamic and static panel models. Overall, our findings have important policy implications for Vietnam and some emerging economies with similar backgrounds.

Suggested Citation

  • Van Dan Dang & Japan Huynh & David McMillan, 2020. "Holdings of sovereign bonds by commercial banks in Vietnam," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1818409-181, January.
    • Handle: RePEc:taf:oaefxx:v:8:y:2020:i:1:p:1818409
    DOI: 10.1080/23322039.2020.1818409
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    Cited by:

    1. Dang, Van Dan & Dang, Van Cuong, 2021. "Liquidity injection, bank lending, and security holdings: The asymmetric effects in Vietnam," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).

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