Innovations and liquidity risks: Evidence from commercial banks in Vietnam

Abstract

Our study examines the relationship between innovations and liquidity risk of 37 commercial banks in Vietnam over 2010 – 2020. We employ the Ordinary Least Squares and dynamic system Generalized Method Moments to analyze a sample of 349 annual observations. Our findings show that innovations help commercial banks to reduce liquidity risk. For instance, commercial banks with mobile banking applications have a 0.24% higher liquidity than those without. Moreover, one percentage increase in training and development expenses generates additional 0.1451% liquidity. The impact of mobile banking applications is robust even if we employ alternative risk proxies such as RROA and Loan Loss Provision. Our study recommends that banks should develop mobile banking applications, and improve workforce and service quality via training and development programs.

Study on liquidity risk of commercial banks

“…In addition, the financial sector needs to be developed in regions with fewer financial institutions, such as securities, investments, and trusts. This, coupled with the fact that the financial sector is less developed in some regions and that there are fewer financial institutions, such as securities, investment, and trusts, has left these banks without sufficient channels to carry out a large amount of interbank business cooperation and innovation, which will inevitably bring certain risks to the banking system (Tran et al, 2022).…”

“…Ramlall (2018) argued that interbank business innovations are exposed to liquidity risk from maturity mismatches and credit risk from credit structure mismatches, which inject liquidity into the market, increase the money multiplier and liquidity speed, and increase the risk of financial contagion. Tran et al (2022) examined the relationship between innovation and the liquidity risk of 37 commercial banks in Vietnam from 2010 to 2020. The results show that innovation helps commercial banks reduce liquidity risk.…”