Abstract
This study investigates the impact of liquidity on bank profitability. Particularly, bank profitability is measured by return on assets (ROA) while liquid assets to total assets (LATA) and total loans to total deposits (TLTD) are indicators of bank liquidity. A panel data of 26 Vietnamese commercial banks are obtained over the period 2013-2018. The GMM estimation is adopted to test the significant effect of liquidity on profitability of Vietnamese commercial banks. The results reveal that profitability (ROA) was negatively influenced by liquid asset ratio (LATA) and positively correlated to loan-to-deposit ratio (TLTD). Further, bank profitability was also affected by macroeconomic control variables like economic growth (EG) and inflation (INF). The results are not only essential for bank managers but also provide scholars a valuable reference.
Highlights
Bank liquidity has received more attention since the global financial crisis in 2007
The results reveal that profitability (ROA) was negatively influenced by liquid asset ratio (LATA) and positively correlated to loan-to-deposit ratio (TLTD)
Liquidity is measured by liquid assets to total assets (LATA) in most empirical studies while Ibe (2013), Rasul (2013), Shah et al (2018) employed loan-to-deposit ratio (TLTD) as a proxy of liquidity, which is frequently adopted in many studies because it can demonstrate liquidity risk
Summary
Bank liquidity has received more attention since the global financial crisis in 2007. The casual relationship between liquidity and bank profitability has been examined in a big number of empirical studies. It is stated that liquidity helps banks withstand shocks to the economy, thereby boosting their performance (Bordeleau & Graham, 2010; Ibe, 2013; Lartey et al, 2013; Nimer et al, 2013; Rasul, 2013; Bui, 2019a; Nguyen et al, 2020). The correlation between liquidity and bank profitability is an interesting research topic for the analysis and essential for countries with a nascent banking sector like Vietnam. The author examines the influence of liquidity on bank profitability in Vietnam. It is expected to reveal unprecedented findings which are useful to bank management as well as researchers
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