The effect of liquidity creation activities on the profitability of Vietnamese commercial banks

Abstract

This study investigates the effect of liquidity creation activities on the profitability of Vietnamese commercial banks. The research sample includes 308 observations from 28 commercial banks in Vietnam from 2012 to 2022. The estimated results from models with random effects (REM), fixed effects (FEM), and feasible generalized least squares (FGLS) show that liquidity creation (LC) has a negative impact on the profitability of commercial banks in Vietnam. Further analysis shows that liquidity creation on the asset side (LCA), liquidity creation on the liability and equity sides (LCC), and liquidity creation on the off-balance sheet side (LCOBS) have a negative effect on the profitability ratio of Vietnamese commercial banks. This study provides some policy implications for bank managers regarding profit maximization strategies in Vietnamese commercial banks.