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Does Bank Liquidity Risk Lead To Bank'S Operational Efficiency? A Study In Vietnam

Author

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  • Le Ngoc Thuy Trang

    (Undergraduate Studies Department, Ton Duc Thang University, Ho Chi Minh City, Vietnam)

  • Do Thi Thanh Nhan

    (Faculty of Finance and Banking, Ton Duc Thang University, Ho Chi Minh City, Vietnam)

  • Nguyen Thi Nhu Hao

    (Foreign Trade University, Ho Chi Minh City Campus, Vietnam)

  • Wing-Keung Wong

    (Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taiwan)

Abstract

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.

Suggested Citation

  • Le Ngoc Thuy Trang & Do Thi Thanh Nhan & Nguyen Thi Nhu Hao & Wing-Keung Wong, 2021. "Does Bank Liquidity Risk Lead To Bank'S Operational Efficiency? A Study In Vietnam," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(4), pages 46-88, December.
  • Handle: RePEc:aag:wpaper:v:25:y:2021:i:4:p:46-88
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    More about this item

    Keywords

    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 Margin;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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