Funding liquidity and bank lending: Evidence from Vietnam

Abstract

This study examines the impact of funding liquidity on bank lending in terms of loan growth, using a dataset of commercial banks in Vietnam, an emerging country over the period from 2003 to 2017. The empirical results by GMM estimator to control dynamic nature of panel data model show that banks owning higher funding liquidity measured by higher ratios of deposit tend to lend more. Further analysis also strongly suggests that bank capital usually mitigates the impact of funding liquidity on loan growth. In addition, this study gives some evidence that bank size tends to strengthen the impact of funding liquidity on loan growth. These empirical findings are still robust with an alternative regression technique. The study adds some arguments to the debate about the role of funding liquidity on bank lending behaviour in emerging markets, particularly considering the interaction impact of bank specific characteristics. Bank managers as well as policymakers could rely on presented implications to improve the banking regulatory and practical framework to better operation.