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Excess liquidity and net interest margins: Evidence from Vietnamese banks

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  • Nguyen, Thai Vu Hong
  • Pham, Tra Thi Thu
  • Nguyen, Canh Phuc
  • Nguyen, Thanh Cong
  • Nguyen, Binh Thanh

Abstract

This study analyzes the impacts of excess liquidity in association with monetary policy rates on commercial banks’ performance – as indicated by their net interest margins (NIMs) – in Vietnam. The study finds that excess liquidity compresses NIMs and attenuates the positive impacts of policy interest rates on NIMs. The study argues that excess liquidity induces banks to reduce lending interest rates so as to facilitate credit expansion, making tightening monetary policy less effective. The study extends the monetary policy transmission literature to the context of an emerging economy with excess liquidity.

Suggested Citation

  • Nguyen, Thai Vu Hong & Pham, Tra Thi Thu & Nguyen, Canh Phuc & Nguyen, Thanh Cong & Nguyen, Binh Thanh, 2020. "Excess liquidity and net interest margins: Evidence from Vietnamese banks," Journal of Economics and Business, Elsevier, vol. 110(C).
    • Handle: RePEc:eee:jebusi:v:110:y:2020:i:c:s0148619519301304
    DOI: 10.1016/j.jeconbus.2020.105893
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    More about this item

    Keywords

    E40; G21; Excess liquidity; Net interest margin; Monetary policy rate; Emerging market; Vietnamese banks;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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