The impact of Basel III liquidity management on the credit activities of Vietnamese commercial banks

Abstract

This study examines the impact of liquidity management under Basel III, measured by the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), on the credit activities of Vietnamese commercial banks. The analysis is based on quarterly data from 27 Vietnamese CBs over the period 2013Q1- 2024Q4, employing the fixed-effect regression method. The results indicate that LCR has a positive effect on credit growth and contributes to reducing credit risk. In contrast, NSFR is positively associated with credit growth but also increases credit risk, reflecting a trade-off between long-term funding stability and loan quality. Overall, the findings suggest that strengthening Basel III-based liquidity management can support credit expansion while enhancing risk control; however, implementation should be aligned with market conditions and individual banks’ capacities, and accompanied by effective supervisory mechanisms to mitigate unintended adverse effects on credit quality.