The stability of Vietnamese commercial banks -  Does liquidity creation matter?

Linh Thi My Nguyen; Oanh Thi Kim Tran

doi:10.46223/HCMCOUJS.econ.en.15.1.3145.2025

Authors

Linh Thi My Nguyen nguyenlinh@ufm.edu.vn
University of Finance - Marketing, Ho Chi Minh City, VN

https://orcid.org/0000-0002-3321-8845
Oanh Thi Kim Tran
University of Finance - Marketing, Ho Chi Minh City, VN

DOI:

10.46223/HCMCOUJS.econ.en.15.1.3145.2025

Keywords:

bank stability; Bayesian approach; liquidity creation

JEL Classification:

B26; G21; G31; G32

Abstract

The study offers insights into whether liquidity creation, capital growth rate, and their interaction have affected the stability of Vietnamese commercial banks by employing the Bayesian method for a sample of 25 commercial banks during 2008 - 2022. Our empirical findings reveal that the more liquidity a bank creates and the higher the capital growth rate is, the more stable the bank is. Especially the results show that capital growth has a moderating role, as it allows banks to absorb potential loss due to liquidity risks in the course of liquidity creation. Moreover, other bank-specific factors, including the Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Cost to Income Ratio (CIR), Net Interest income (NIM) ratio, Liquidity Ratio (LIR), Loan To Deposit ratio (LTD), and marco ecomomic factors including GDP growth and inflation are determinants of bank stability. The study suggests some implications for the State bank of Vietnam with regard to liquidity creation policies to maintain the stability of the Vietnamese banking sector.

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