Impacts of liquidity risk and regulation on bank. Performance in Vietnam

Abstract

This paper studies the impacts of liquidity risk and regulation on bank performance in Vietnam. We designed a multivariate linear model to analyze those effects, using data thirty-one domestic commercial banks in the years 2006-2018, alongside various estimation methods such as FE-GLS, random effect and GMM. The results show that liquidity risk has a positive relationship with bank performance when measured by the liquid on total assets ratio. We also found that the macroeconomic regulation, represented by the short-term funding for mid-to-long-term loans (SFML) ratio, exhibits a negative relationship with bank performance. Furthermore, if the SFML decreases and foreign bank presence increases, domestic banks’ performances will improve, while in the case where both the SFML and foreign bank presence increase, domestic banks’ performances will decline.