“The impact of liquidity on profitability – evidence of Vietnamese listed commercial banks”

Profitability is a matter of concern for all economic organizations, including banks. The economic problem always poses for banks in maintaining growth and ensuring sustainable stability. Liquidity is always a concern of banks in maintaining profit- ability. The article aims to test the relationship between liquidity and profitability of Vietnamese listed banks. Data include 18 Vietnamese listed commercial banks for a period of 9 years from 2011 to 2019. The article uses the time series method with the ordinary least square. The results show that liquidity has a positive relationship with the profitability of listed banks including return on assets, return on equity, and net interest margin. As for net interest margin, the liquidity ratio of loans to deposit plus short-term borrowings and short-term bills payable has the opposite effect. To contribute to the stable and sustainable growth of the banking system, the article proposes the policies for the Vietnamese banking system by fully implementing the regulations on liquidity based on the Bank for International Settlements and should forecast the financial developments in the region and the world to have flexible responses to avoid uncertainties, as well as the need to form and maintain funds to timely support for liquidity in the entire banking system.


INTRODUCTION
The bank system was formed and developed in association with the growth of the commodity economy to solve the needs of capital distribution, payment, and expansion of production and business of economic organizations and individuals. Liquidity refers to a bank's ability to meet its obligations, especially those of depositors. The appropriate level of liquidity will contribute to increasing the bank's profitability (Ongore & Kusa, 2013). Managing liquidity requires a flexible adaptation to circumstances and conditions. The poor liquidity is the main reason leading to risks and losses for the bank. Liquidity risks will affect the profitability of banks (Almazari, 2014). Liquidity is important to the success of the bank because of the specificity of the business lines of money. It is a measure of the ability of a bank's liquid assets to be easily sold and to get cash quickly (Elliot, 2015). A measure of a bank's performance is often determined by a bank's profitability. Profitability is the creation of a profit by earning more income than operating expenses (Kamande, 2017).
In that context, Vietnam is a developing country in Asia, and some financial crises have arisen in the banking system recently. Some commercial banks went bankrupt due to bad debts. The Central bank of Vietnam was forced to acquire and merge those commercial banks with state-owned banks. The main reason is the loss of liquidity in business operations (Central bank of Vietnam, 2018a). This shows that, in recent years, the credit growth of commercial banks has been hot due to investment in real estate so it has led to difficulties for banking and finance. Moreover, Vietnam needs to comply with the regulations in the banking and financial system according to international standards. The liquidity regulation requires banks to determine the amount of their capital that may affect their ability to obtain liquidity. Banks must supervise and control liquidity risks. Basel III specifies the liquidity coverage ratio and liquidity risk monitoring tools (Basel Committee on Banking Supervision, 2013). These are the major challenges to achieving banking regulatory standards related to liquidity. To closely monitor liquidity, the State bank of Vietnam has issued a liquidity regulation in the supervision of the banking system (Central bank of Vietnam, 2020). That contributes to the development and stability of the national banking system that is in the stage of maturity. Therefore, the relationship between liquidity and profitability of banks should be taken into account to have a valid view of harmonizing economic problems. This is even more meaningful in the global economic situation with certain difficulties, complicated fluctuations, and unpredictable developments.

LITERATURE REVIEW
Stemming from the liquidity risks of the banking system, Basel Committee on Banking Supervision (2013) issued Basel III with some regulations on the liquidity coverage ratio and liquidity risk monitoring tools. This is an important template to help ensuring safety in the banking sector. Liquidity ensures that banks have sufficient quality liquid assets that can be easily and instantly converted into cash to meet their liquidity needs. The development and stability of the banking system must be in conditions to ensure its liquidity.
Recently, the Central bank of Vietnam (2020) has issued regulations on limits and guarantee ratios in bank operations. Accordingly, commercial banks must manage credit assets, debt assets and ensure the maintenance of their solvency and liquidity ratios; managing liquidity, controlling the maturity difference of assets, debt assets based on cash inflow, cash flow; identifying, measuring, monitoring, and controlling risk information about solvency and liquidity; early warning criteria about the risk of lack of solvency and liquidity. The Central bank of Vietnam is concerned with the liquidity reserve ratio. A liquidity reserve ratio intended to hold highly liquid assets for the reserve to meet your payment needs and unexpected arising payments. The liquidity is determined according to seven items specifically: 1) cash, gold; 2) payment deposits (including compulsory reserves), overnight deposits, and collateral deposits at the State bank; 3) types of securities used in transactions of the State bank; 4) money on the current account, overnight deposit at correspondent banks, minus amounts committed for specific payment purpose; 5) demand deposits, overnight deposits at other credit institutions, foreign bank branches in the country and abroad, except for amounts committed or agreed to use for specific purposes; 6) bonds, bills issued or underwritten by governments, the Central banks of countries rated AA and above; 7) corporate bonds rated AA-or above and listed on the market.
The measure of liquidity is mentioned in several studies. Vodová (2011) reviewed four different liquidity ratios of Czech commercial banks such as L1 should give information about the general liquidity shock absorption capacity of a bank; L2 uses the concept of liquid assets as well; L3 measures the share of loans in total assets and L4 re-lates illiquid assets with liquid liabilities. For the liquidity ratio relating to liquid liabilities, L2 refers to deposits and short-term borrowings, while L4 refers to deposits and short-term financing. Accordingly, the liquidity ratio related to the liquid liabilities of L2 and L4 is used to measure deposits, short-term borrowings, and bills payable. However, according to the regulations of the Central Bank of Vietnam, the liquidity ratio relating to liquid liabilities is measured by deposits, short-term borrowings, and short-term bills payable (Central Bank of Vietnam, 2018b).
There are many views on profitability, depending on the research field. Fry (2005) said that profitability is the result achieved in economic activity by the difference between the result achieved and the cost to get it. All are based on cost savings and increased income. In terms of measuring the profitability of the banking sector. Mishkin  The theories related to economic efficiency are mentioned from many different points of view. Keynes (1883Keynes ( -1946 mentioned the theory of economic growth. This theory is intended to maintain and promote economic growth. Keynes's theory considers growth, economic efficiency, and the gain of economic units. This theory refers to key contents such as the balance of the economy to ensure optimal levels, the role in increasing output of the economy to maintain stable development, and the main policies on the management and control for economic growth (Keynes, 1936).
Keynes's application of growth theory to explain issues related to the content of the profitability in Vietnamese listed commercial banks. Accordingly, economic efficiency must be considered in a harmonious relationship between liquidity and profitability of these banks. This ensures stability and maintains growth.
Previous studies have looked at the relationship between liquidity and the profitability of banks. Some studies show that this relationship is in the same direction. Lall (2014)  The results show that the three factors that the ratio of total operating costs to total revenue, lending to total assets, and equity to total assets have the opposite effect, while the value of an investment in machinery equipment and software applied on total assets have a positive impact on ROE.

METHODOLOGY
The article uses quantitative methods and OLS through the data panel time series (data panel) to test the regression model. SPSS 20 software is used to test the regression model. The data of this study are collected from the website of the State securities commission in Vietnam.
Currently, Vietnamese 18 commercial banks are listed at the stock exchange of Vietnam. The data use all information of these listed banks. The time series include the last 9 years, from 2011 to 2019. Therefore, the research data include 180 samples.
The independent variables of the model that are described and measured and identified in the previous studies related to each variable are summarized in Table 1.
Currently, previous studies consider the factors affecting the profitability of banks, among those factors that mention liquidity. The consideration of separate variables on liquidity affecting the profitability of banks has not been interested in research. According to some experts of the State Bank of Vietnam and Vietnamese managers listed commercial banks, it is necessary to have a proper perception of this relationship separately. Liquidity is important to the financial business of banks. This has important implications for the growing financial system of a developing country like Vietnam. This will be by Vietnamese characteristics and economic conditions as well as Vietnamese listed commercial banks' regulations. Therefore, the multivariate regression model is designed as follows: ( )

RESULTS
The statistical results of

LIQUID_ assest
The ratio of liquid assets to total assets Liquid assets / Total assets, 100% Vodova (

LOANS_ assest
The liquidity ratio of loans to total assets Loans / Total assets · 100% Vodova (2011), Cekrez (2015) LOANS_ liabilities The liquidity ratio of loans to deposit plus short-term borrowings and shortterm of bills payable Loans / (Deposits + Short -term borrowings + Short -term of bills payable), 100% Vodova ( Horn & Johnson (1994) said that F-test in variance analysis was the hypothesis of the suitability of the overall linear regression model. This test considers the linear relationship between all independent variables and the dependent variable. The results from Table 4 show the significances corresponding to PROFIT (ROA, ROE, NIM) were 0.000 less than 0.05. This showed that hypothesis H0 was rejected. So, the model of PROFIT (ROA, ROE, NIM) ensured reliability.
On the basis of ensuring the relevance of the model, the article performed a regression analysis with five independent variables related to liquidity, specifically: The results of regression in Table 5 show that LIQUID_reserve has a positive effect on PROFIT (ROA, ROA, NIM). Furthermore, LOANS_liabilities have a negative effect on PROFIT (NIM). The specific results are as follows: Overall, the research results show a positive relationship between liquidity and profitability of Vietnamese listed banks. This result is similar to some previous studies such as Nkegbe     Vietnamese listed commercial banks. This result is a consistent reflection of the operational status of the banking industry and the situation of Vietnam's economic development during the past 9 years. The past world financial crises have been widespread and lengthy. This affected the generally difficult situation of the economy, so bad debts were formed and gradually increased. As a result, maintaining liquidity has helped listed commercial banks be efficient. This is even more meaningful when the Central bank of Vietnam in 2020 had to issue a regulation on liquidity in the banking system. This supports ensuring growth, stability, and sustainability. This result has reflected exactly the characteristics of the economy of Vietnam, a developing country with a growing financial market, so its stability should be considered and ensured. This result may differ from some previous studies because developed countries have different financial policies by the development direction of their financial markets.
For LOANS_liability, this liquidity has an inverse relationship with PROFIT (NIM) of Vietnamese listed commercial banks. This shows that in the difficult situation of the economy, the capital absorption of economic organizations is limited. Therefore, listed commercial careful loans. Increasing loans from listed commercial banks will increase interest expenses and this reduces NIM. Therefore, the listed commercial banks need to be carefully considered for loans during this period.

CONCLUSION
Liquidity is always a concern of banks. The harmonious balance between the profitability of banks and safety as well as sustainability is always a difficult problem for the banking industry. The article is based on an empirical survey of 18 Vietnamese listed commercial banks over 9 years from 2011 to 2019. The results show that the liquidity and profitability of listed banks have a supply relationship by ROA, ROE, and NIM. Particularly LOANS_liability has a negative impact on NIM. On that basis, the article proposes that the Central bank of Vietnam should issue liquidity regulations under Bank for International Settlements, namely Basel III; regularly supervise liquidity in the entire banking system; set up a budget fund to promptly solve unpredictable reactions. This creates stability and sustainability for the national financial system. Vietnamese listed commercial banks need to strictly comply with liquidity regulations; increase judgment on financial developments in the region and the world to have flexible responses; be careful with loans and can restructure these loans to be more suitable. This contributes to ensuring the profitability of listed banks while maintaining stable and long-term sustainable growth.

Policy recommendations
From the above experimental research results, the article proposes some policy recommendations for the Central bank of Vietnam as well as the Vietnamese listed commercial banks to ensure the profitability of banks but ensuring stability and sustainable growth. Whereby, the Central bank of Vietnam needs to fully applies regulations under Basel III as well as issues related to the liquidity of the Bank for International Settlements. This supports the growing banking system of Vietnam to ensure stability and avoid uncertainties that cause financial crises in the banking sector. Next, the Central bank should strengthen inspection and supervision of the enforcement of the liquidity regulations of listed commercial banks in particular and commercial banks in general. This will ensure the strictness of financial supervision to avoid instability for Vietnam's financial market in the face of fluctuations. Furthermore, the Central bank should form and maintain a fund budget to timely support the commercial banks when there are financial crisis fluctuations. It helps in stable and long-lasting stability. Finally, the Central bank should accurately forecast the macroeconomic to prepare the spirit for the financial and monetary market fluctuations.
Vietnamese listed commercial banks should strictly comply with liquidity regulations. In the wake of economic hardship, listed commercial banks require special attention in terms of liquidity. The profitability of banks is essential, but in the long term, it is necessary to create stability and sustainability for growth. Listed commercial banks should avoid immediate benefits as credit growth can easily lead to unpredictable consequences. Listed commercial banks are always interested in the balance of daily cash flows to control liquidity well. Managers of listed commercial banks need to speculate on regional and international financial developments to come up with timely plans to handle the uncertain situations that may arise. Managers of listed commercial banks should carefully review the loans that are suitable for each period and can restructure loans to ensure safety and suitability for business operations.