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Disssertation evaluation of liquidity risk management

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Disssertation evaluation of liquidity risk management

  1. 1. Dissertation Evaluation of liquidity risk management in Vietnamese commercial banks Table of Content Chapter 1. Introduction..................................................................................................................6 1.1 Rationale for Chosen Topic .........................................................................................6 1.2 Research Objectives and Scope of Work.....................................................................7 1.3 Research Methodology ................................................................................................7 1.4 Research Implementations...........................................................................................8 1.5 Structure of the study...................................................................................................8 Chapter 2. Literature Review.......................................................................................................10 2.1 Risk management in banking business ......................................................................10 2.1.1 Definition of risks ........................................................................................................10 2.1.2 Risks in banking business............................................................................................10 2.1.3 Risk management in banking business........................................................................10 2.1.4 Reasons of risks in banking business...........................................................................11 2.1.5 Impacts of risks ..........................................................................................................11 2.2 Liquidity risk management ........................................................................................11 2.2.1 Definition.....................................................................................................................11
  2. 2. 2 2.2.2 Content of liquidity risk management.........................................................................11 2.3 Causes for liquidity risks ...........................................................................................11 2.3.1 Supply and demand for liquidity..................................................................................12 2.3.2 Adjust the liquidity position.........................................................................................12 2.3.3 Liquidity management strategy....................................................................................12 2.4 Hypothesis Development...........................................................................................12 Chapter 3. Methodology..............................................................................................................13 3.1 Research Strategy.......................................................................................................13 3.1.1 Scientific method .........................................................................................................13 3.1.2 Research Approach ......................................................................................................13 3.2 Data collection ...........................................................................................................13 3.3 Data Processing..........................................................................................................13 Chapter 4. Results and Discussions.............................................................................................14 4.1 Hypothesis Reliability Test........................................................................................14 4.2 Charter Capital and the coefficient CAR...................................................................14 4.3 Hypothesis Testing.....................................................................................................14 4.3.1 Coefficients H1 and H2 ...............................................................................................14 4.3.2 Cash position H3..........................................................................................................14 4.3.3 Index of lending capacity H4.......................................................................................14 4.3.4 Index Total credit loans/customer deposits H5............................................................14 4.3.5 Index of liquidity securities H6....................................................................................14 4.3.6 Index of net liquidity position H7................................................................................14 4.3.7 Index (Cash + Deposits at the Credit Agency)/Customer Deposits H8.......................14 4.4 Discussion..................................................................................................................14 4.5 Summary....................................................................................................................14 Chapter 5. Conclusion and Recommendation .............................................................................15 References Error! Bookmark not defined.
  3. 3. List of Tables Table 4-1 Descriptive Statistics ..........................................Error! Bookmark not defined. Table 4-2 One-Sample Statistics for H3 .............................Error! Bookmark not defined. Table 4-3 One-Sample Test for H3.....................................Error! Bookmark not defined. Table 4-4 One-Sample Statistics for H4...........................Error! Bookmark not defined. Table 4-5 One-Sample Test for H4.....................................Error! Bookmark not defined. Table 4-6 One-Sample Statistics for H5 .............................Error! Bookmark not defined. Table 4-7 One-Sample Test for H5.....................................Error! Bookmark not defined. Table 4-8 One-Sample Statistics for H6 .............................Error! Bookmark not defined. Table 4-9 One-Sample Test for H6.....................................Error! Bookmark not defined. Table 4-10 Charter capital and coefficient CAR (on 31st December, 2011).............. Error! Bookmark not defined. Table 4-11 Coefficients H1 and H2 (on 31st December 2010; 31st December 2011) Error! Bookmark not defined. Table 4-12 Customer deposits, deposits and loans from other Credit Agencies ........ Error! Bookmark not defined. Table 4-13 Index of cash position.......................................Error! Bookmark not defined. Table 4-14 Index of lending capacity (on 31st December 2010 and 31st December 2011) ..................................................................................................Error! Bookmark not defined.
  4. 4. 4 Table 4-15 Total credit loan/Customer Deposit (31st December 2010; 31st December 2011) ........................................................................................Error! Bookmark not defined. Table 4-16 Index of liquidity securities (on 31st December 2010; 31st December 2011) ..................................................................................................Error! Bookmark not defined. Table 4-17 Index of net liquidity position for Credit Agency (on 31st December 2010; 31st December 2011).......................................................................Error! Bookmark not defined. Table 4-18 Index (Cash + Deposits at the Credit Agency)/Customer Deposits H8 ... Error! Bookmark not defined.
  5. 5. List of Figures Figure 2-1 Risks in Banking Sector ....................................................................................10 Figure 2-2 Risk management in banking sector..................................................................11 Figure 2-3 Causes for liquidity risk ....................................................................................11 Figure 3-1 Steps in Scientific Method ................................................................................13
  6. 6. 6 Chapter 1. Introduction 1.1 Rationale for Chosen Topic Liquidity and liquidity risk management are the key factors for the safety of business operations in any commercial banks (Bertram, 2011). Recently, many banks are facing the problem of liquidity strain when severe competition about how to attract deposits forces the banks to find other sponsors (Smith et al., 2012). Unreasonable liquidity is the first sign of financial instability (Schinasi, 2011). Together with the development of finance market, opportunities and risks in liquidity management of commercial banks will also meet a correlative increase. This shows the importance of planning the liquidity needs by the methods with high stability and low cost in order to sponsor for business operations of commercial banks in the global growing competition. With the relatively high growth and the position that is more and more recognized and strengthened in the world, Vietnam has become an attractive destination for foreign investments (Pham, 2012). Making great contributions to the success, the role of banks cannot be denied, which are considered as the life-blood of the economy. However, in the trend of deeper integration into the regional and the global economy, and together with what has happened in Vietnamese currency market in late 2011 and in early 2012, it is shown that liquidity and liquidity risk management in commercial banks have the urgency in both theory and practice. On the basics of applying the theories in the master training course – Ho Chi Minh Economic University - into Vietnamese conditions, the research of “Evaluation of liquidity risk management in Vietnamese commercial banks” has been proposed.
  7. 7. 1.2 Research Objectives and Scope of Work This is an overview about commercial banks, risk management in banking business and liquidity risk management, liquidity and liquidity management of Vietnamese commercial banks; the weaknesses and the limitations in this field and the solutions to improve the efficiency of liquidity risk management in Vietnamese commercial banks. Scope of the study According to Nguyen (2012), by the end of 2011, there are four state-owned commercial banks, thirty-seven joint stock commercial banks, in which three banks have just been licensed to establish and operate, including Bao Viet, Tien Phong and Lien Viet. 38 out of 41 banks have been in operation with historical data, but four of them have not had annual reports and financial reports in their websites: Bac A, Global Petro, De Nhat, Vietnam Thuong Tin, hence there is no data to be collected. However, these banks do not have large economy of scales as well as considerable differences in comparison with the others, and thus, there is no effect on the result of the analysis. The thesis will do the investigation about 34 out of 41 domestic commercial banks, ignoring joint ventures and the branches of foreign banks. 1.3 Research Methodology Some methods are used in the thesis such as: 1. Descriptive and explanatory method: This research type can be defined as a method or style of research in which the principal objective is to know and understand the trait and mechanisms of the relationship and association between the independent and dependent variable. The focal point in this type of research is to seek and provide an explanation between two or more phenomena.
  8. 8. 8 2. Comparative method: Comparative method is defined as “a method of discovering empirical relationship among variables”. Scholars have been discussing the relations between comparative method and comparative politics, its strengths and weaknesses, and examples of study that used it as a method of inquiry. 3. Data analysis: it is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making. Data analysis has multiple facets and approaches, encompassing diverse techniques under a variety of names, in different business, science, and social science domains. 4. Hypothesis test: A statistical hypothesis is an assumption about a population parameter. This assumption may or may not be true. Hypothesis testing refers to the formal procedures used by statisticians to accept or reject statistical hypotheses. 1.4 Research Implementations 1. There is an analysis about the basic contents of risk management in banking business and liquidity risk management. 2. The thesis has evaluated the liquidity and liquidity risk management, and found out the limitations, the weaknesses as well as the solutions in order to complete those activities in Vietnamese commercial banks in the near future. 1.5 Structure of the study In order to archive the study purposes, the dissertation is structured as followings: 1. Chapter 1: Overview about the dissertation
  9. 9. 2. Chapter 2: General theory of risk management in banking sector and liquidity risk management 3. Chapter 3: Present the research methodology in order to achieve the study purpose 4. Chapter 4: Demonstrate the study results and discussion on liquidity risk management in Vietnamese banking sector 5. Chapter 5: Conclude observations and achievement throughout the study as well as proposal of orientation and some solutions.
  10. 10. 10 Chapter 2. Literature Review 2.1 Risk management in banking business 2.1.1 Definition of risks 2.1.2 Risks in banking business Source: http://www.grin.com/ Figure 2-1 Risks in Banking Sector 2.1.3 Risk management in banking business
  11. 11. Source: http://riskbooks.blogspot.com/ Figure 2-2 Risk management in banking sector 2.1.4 Reasons of risks in banking business 2.1.5 Impacts of risks 2.2 Liquidity risk management 2.2.1 Definition 2.2.2 Content of liquidity risk management 2.3 Causes for liquidity risks Source: https://eweb.afponline.org/ Figure 2-3 Causes for liquidity risk
  12. 12. 12 2.3.1 Supply and demand for liquidity 2.3.2 Adjust the liquidity position 2.3.3 Liquidity management strategy 2.4 Hypothesis Development
  13. 13. Chapter 3. Methodology 3.1 Research Strategy 3.1.1 Scientific method Source: http://www.experiment-resources.com/ Figure 3-1 Steps in Scientific Method 3.1.2 Research Approach 3.2 Data collection 3.3 Data Processing
  14. 14. 14 Chapter 4. Results and Discussions 4.1 Hypothesis Reliability Test 4.2 Charter Capital and the coefficient CAR 4.3 Hypothesis Testing 4.3.1 Coefficients H1 and H2 4.3.2 Cash position H3 4.3.3 Index of lending capacity H4 4.3.4 Index Total credit loans/customer deposits H5 4.3.5 Index of liquidity securities H6 4.3.6 Index of net liquidity position H7 4.3.7 Index (Cash + Deposits at the Credit Agency)/Customer Deposits H8 4.4 Discussion 4.5 Summary
  15. 15. Chapter 5. Conclusion and Recommendation On the basis of applying many different research methods, and all the theories which are approached in higher education curriculum – Ho Chi Minh Economics University into real conditions in Vietnam, the thesis has mentioned the following contents: 1. Firstly, analyze the basic content of risk management in banking business and liquidity risk management. 2. Secondly, assess the liquidity and liquidity management, and find out the limitations, the weaknesses, and some recommendations in order to finish this activity in Vietnamese commercial banks in the future. The history of banking sector all over the world has undergone several hundred years. During that time, human beings have seen fast development of banking sector although there are sometimes failures. Commercial banks are neutral financial institutions which do the business by the money of other people such as loans from the public, the Credit Agency, and domestic and foreign Central Banks. Accordingly, the collapse of any banks will possibly be spread and have great impacts on the collapse series of other commercial banks. Together with the ups and downs in banking system, the theory of liquidity management has achieved constant development and been supplemented to match with the practical changes. The problem is that the success from the application of one liquidity management strategy in one bank does not bring the same success to another bank. This is the problem that strategic makers in general and liquidity managers in private of the banks must pay more attention to. The Government and the State have the policy to develop the socialist-oriented market economy with the purpose of “Prosperous people, a strong country, social justice, democracy and civilization”. In order to achieve the economy efficiency, it is necessary to develop a
  16. 16. 16 strong banking and financial market in order to supply adequate capital for the process of industrialization and modernization. In recent time, the system of Vietnamese commercial banks has made huge contributions to the socio-economic development of the country. However, in order to achieve sustainable development and continue supplying adequate capital to meet the needs of economic growth in the context of wider and deeper integration into regional and global economy, liquidity and liquidity management in the banks should be taken into consideration. This document is provided by: VU Thuy Dung (Ms.) Manager Center for Online Writing Resources Facebook : https://www.facebook.com/vu.thuydung.5076 Email : assignmentsource@gmail.com Blogger : http://assignmentsource.blogspot.com/ Website : http://assignmentsource.com/

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