Liquidity Hoarding and Bank Profitability in Vietnam: The Impact of the Covid-19 Pandemic

Abstract

This study examines the relationship between liquidity hoarding and bank profitability and is among the first to analyze how this relationship evolved during the Covid-19 pandemic. The study utilizes data from 33 commercial banks in Vietnam over the period 2012–2023 and employs two-step system GMM estimation on a dynamic panel model. The findings indicate an inverse relationship between liquidity hoarding and bank profitability, implying that excessive holdings of liquid assets may reduce bank profitability. During the Covid-19 pandemic, the link between liquidity hoarding and bank profitability weakened, suggesting that banks experienced a less pronounced decline in profitability when accumulating more liquidity during this period. These findings highlight the importance of prudent liquidity hoarding management in designing preventive measures to safeguard banks during crises, such as the Covid-19 pandemic.