The influence of market power on liquidity creation of commercial banks in Vietnam

Abstract

PurposeThis research examines the relationship between market power and liquidity creation in the specific context of bank profitability in the Vietnamese banking sector.Design/methodology/approachThe study applies the methodology proposed by Berger and Bouwman (2009) to demonstrate the creation of bank liquidity through a three-step procedure for investigating the relationship between market power and liquidity creation. The three steps include non-fat liquidity (NFLC), fat liquidity (FLC) and system generalized method of moments estimation for panel data.FindingsThis study finds that liquidity creation increases when a bank has high market power. Further, highly profitable banks positively impact the market power of banks with regard to liquidity creation, relative to less profitable banks. Moreover, bank size, capital, economic growth and interest rate negatively influence bank liquidity creation, while credit risk positively relates to bank liquidity creation.Research limitations/implicationsMeasurements used in this study are based on the works of Berger and Bouwman (2009). There are specific variations, relative to Basel III. In addition, other variables significantly impact bank liquidity creation that have not been considered in the models, and a quadratic model should have been considered to measure market power and bank liquidity creation.Practical implicationsThis study suggests that managers should control the liquidity of their banks by supervising vulnerable characteristics that have been mentioned herein and emphasizing improvements in profitability. Further, the government may consider encouraging banks to generate more liquidity by modifying regulations concerned with market power or reinforcing policies about improving the transparent business environment.Originality/valueThis study characterizes an attempt to examine the influence of market power on the liquidity creation of banks in Vietnam, which represents one of the most dynamic systems in Asia, with several varied participating banks. The current study also examines the same within the specific context of the modifying impact of the profitability of banks.

Liquidity creation channel of monetary policy transmission in India: Do bank characteristics matter?1

“…Similarly, return has a negative and statistically insignificant effect, contrasting with the finding of Nguyen et al. (2022) who found a positive impact of profitability of banks on LC.…”

“…This may be possible because of multi-collinearity due to the high correlation between risk and return explained earlier. Similarly, return has a negative and statistically insignificant effect, contrasting with the finding of Nguyen et al (2022) who found a positive impact of profitability of banks on LC. Now we come to the role of bank ownership in the LC channel of monetary transmission.…”

Bank capital and liquidity creation in Sub-Saharan Africa: the role of quality institutions

“…On the other hand, inflation adversely affects bank growth since it increases the price of general goods and services and declines purchasing power, leading to crises (e.g. Azam and Khan, 2022; Atigala et al ., 2022; Nguyen et al ., 2022a, b).…”

“…Fidrmuc et al ., 2015; Berger and Sedunov, 2017; Beck et al ., 2022), affects bank capital (see, e.g. Horváth et al ., 2014; Evans and Haq, 2022), increases banks profitability (see, Duan and Niu, 2020; Nguyen et al ., 2022a, b; Kusi et al ., 2022) influences banks market power (see, Bawazira et al ., 2018; Dang, 2022; Nguyen et al ., 2022a, b). Many of these empirical studies focus on advanced countries with well-developed financial markets and banks (see, Berger and Bouwman, 2017; Berger et al ., 2018).…”