RESEARCH METHODS AND DATA SOURCES
Research analysis framework
The research analysis framework provides the most general research process on how the author conducts the research, which will help the author answer the research objectives set out in chapter 1. The research process is presented in Figure 3.1 as follows:
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fit
Model Establishment
Data Collection
Are not
Data Processing
Fit
Regression research model
research and selection of analytical methods
Real model testing
best fit
Discuss the results, give
draw conclusions and recommendations
Figure 3.1 Research method process
β The research process is carried out with the establishment of initial hypotheses and the establishment of research models based on the initial hypotheses. From the establishment of
To establish a regression model, the author will collect data and process the initial raw data to calculate the variables in the regression model. From there, the author will estimate the model according to 03 quantitative methods including Pooled OLS regression, fixed factors model (FEM), random factors model (REM). From these 03 regression models, the author will choose the most suitable model for the data case. In addition to choosing the most suitable regression model, the author will also consider whether the regression model meets the assumptions or not (done through testing the assumptions ) . If the regression model does not meet the model's assumptions, the author will choose another regression model among the regression methods. This process will be repeated until a good model is selected. If all 03 models do not meet the assumptions, the author will redo from the regression model establishment step. Finally, after the model has met the assumptions, the author will analyze the regression results, discuss the research results and then propose solutions and recommendations.
Research data sources
In this study, for internal variables of banks, the author uses secondary data from annual reports, audited financial statements of domestic joint stock commercial banks listed on the Ho Chi Minh City Stock Exchange (HSX) and Hanoi Stock Exchange (HNX). In addition, the author also collects financial statement data of domestic commercial banks not listed on stock exchanges (OTC transactions). In this thesis, the author has tried to collect data of Vietnamese joint stock commercial banks in the period 2007 - 2018. The author has collected data of 20 joint stock commercial banks (Appendix 1) with complete data in the above period. The source of financial statement data is taken from the websites http://www.cophieu68.vn/ and http://vietstock.vn/."
For macro data, the author collected data from the following data sources: thomsonreuters.com and International Financial Statistics (IFS).
Basis for building regression models
β In this thesis, the author will examine and evaluate the impact of factors on the capital adequacy ratio of commercial banks from two aspects: the internal aspect of banks and the macro aspect of the economy. Through a review of studies in the world and based on the operational characteristics of Vietnamese commercial banks, the author finds that there are many similarities in economic activities between Vietnam and Nigeria such as:
- These are all small economies (developing economies) that have opened up and strongly integrated with the world in recent times.
- The banking systems in Nigeria and Vietnam are both quite dependent on the Government.
government
- The commercial banking systems of Nigeria and Vietnam have both developed.
explosive growth in the period after 2000.
From the above similarities, the author finds that the research model on factors affecting capital adequacy of the Nigerian commercial banking system can be applied to the Vietnamese commercial banking system. Therefore, the author will use the empirical research model of O.Olarewaju & J.Akande (2016) to evaluate the impact of internal factors and macro factors affecting capital adequacy of Vietnamese commercial banks. Specifically, on the macro-economic aspect, the author will consider the impacts of real GDP and inflation rate on capital adequacy. On the internal aspect of banks, the author will use the variables of bank size, return on total assets (ROA), return on equity (ROE), credit risk, liquidity structure, customer deposits to consider the impact on capital adequacy ratio of Vietnamese commercial banks.
3.3.1. Research hypothesis
From identifying internal factors of banks and macroeconomic factors of the economy that can affect capital safety, based on an overview of research documents and a summary of research results (Table 2.1), the author will put forward corresponding hypotheses for the following impact variables:
- Regarding the impact of economic growth: Most studies show that GDP has a negative or no impact on capital adequacy. Therefore, the author will hypothesize the impact of GDP on capital adequacy as follows:
H1: Economic growth (real GDP value) has a negative or no impact on the capital adequacy level of commercial banks.
- Regarding the impact of inflation: Most studies show that inflation has no impact on capital adequacy; but there are also a few studies showing that inflation can have a negative impact on capital adequacy. Therefore, the author will hypothesize the impact of inflation on capital adequacy as follows:
H2: Inflation rate has no impact or little impact on the capital safety level of commercial banks.
- Regarding the impact of bank size: Most studies show that bank size has a negative impact on capital adequacy. A few other studies show that bank size has a positive impact or no impact on capital adequacy. Therefore, the author will hypothesize the impact of bank size on capital adequacy as follows:
H3: Bank size has a negative impact on the capital adequacy level of commercial banks.
- Regarding the impact of return on assets (ROA): Most studies show that ROA has a positive impact on capital adequacy. A few other studies show that ROA has a negative impact or no impact on capital adequacy. Therefore, the author will hypothesize the impact of ROA on capital adequacy as follows:
H4: Return on total assets has a positive impact on the capital adequacy of commercial banks.
- Regarding the impact of return on equity (ROE): Most studies show that ROE has a negative impact on capital adequacy. A few other studies show that ROE has a positive impact or no impact on capital adequacy. Therefore, the author will hypothesize the impact of ROE on capital adequacy as follows:
H5: Return on equity has a negative impact on the capital adequacy of commercial banks.
- Regarding the impact of deposit ratio: Most studies show that the deposit ratio (deposit structure) has a positive impact on capital adequacy. A few other studies show that the deposit ratio has a negative impact or no impact on capital adequacy. Therefore, the author will hypothesize the impact of the deposit ratio on capital adequacy as follows:
H6: Customer deposit ratio has a positive impact on the capital safety level of commercial banks.
- Regarding the impact of liquidity: Most studies show that liquidity does not affect capital adequacy. A few other studies show that liquidity has a positive impact on capital adequacy. Therefore, the author will hypothesize the impact of liquidity on capital adequacy as follows:
H7: Liquidity has no impact or positive impact on the capital adequacy level of commercial banks.
- Regarding the impact of credit risk: Most studies show that credit risk does not affect capital adequacy. A few other studies show that liquidity has a negative impact on capital adequacy. Therefore, the author will hypothesize the impact of credit risk on capital adequacy as follows:
H8: Credit risk has no impact or negative impact on the capital adequacy level of commercial banks. β
3.3.2. Description of variables of the research model
3.3.2.1. Dependent variable
- The dependent variable in the thesis is the capital safety variable of commercial banks. In this thesis, the author uses the calculation of capital safety according to Basel I standards. The reason is that at the time of implementation, most Vietnamese banks have not met the capital safety standards according to Basel II. Therefore, it would be more reasonable to use Basel I standards in assessing the impact of factors on safety.
capital of Vietnamese commercial banks. According to the study of O.Olarewaju & J.Akande (2016), the capital adequacy variable is calculated as follows:
Capital Adequacy Ratio (ETA) = πππππ‘ππ£πππππ
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3.3.2.2. Independent variables
- β For internal variables of the bank, the author uses secondary data from annual reports, audited financial statements of domestic joint stock commercial banks listed on the Ho Chi Minh City Stock Exchange (HSX), Hanoi Stock Exchange (HNX) and on over-the-counter (OTC) exchanges for unlisted banks. The research sample is 20 joint stock commercial banks that are continuously operating in the period from 2007 to 2018. According to statistics, the total number of domestic joint stock commercial banks with financial statements is 20 banks. Thus, the total number of observations in the research when conducted is 240 observations. According to the study of O.Olarewaju & J.Akande (2016), the internal variables used in the thesis will be calculated and processed as follows: β
+ Bank size (SIZE): Take the logarithm value of total assets
+ Return on total assets (ROA) = πΏππππ’ππ‘ππ π‘βπ’ππ‘ππ
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+ Return on equity (ROE) = πΏππππ’ππ‘πππ‘οΏ½ ...
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+ Credit risk (CR) = π·ππ₯π’ ...
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In which bad debt includes total outstanding debt of groups 3, 4, 5 of commercial banks.
+ Customer Deposit Ratio (DEP) = Deposit Balance
Total assets
+ Liquidity (LIQ) = Total outstanding credit
Total deposit balance
- For macro data, according to the study of O.Olarewaju & J.Akande (2016), the author collected data as follows:
+ Economic growth: Data on Vietnam's real GDP value (real_gdp) is taken from nominal GDP adjusted by CPI price index (taking 2010 as the year).
Inflation rate data are also taken from the CPI, taking 2010 as the base year.
Table 3.1. Description of variables and expected signs of independent variables in the model
study
Name
variable
Sign effect | How to calculate | Strange sign hope | Data source | ||
Dependent variable | |||||
Safe capital | ETA | The explosion was completely destroyed. | http://www.cophieu68.vn/ and http://vietstock.vn/ | ||
fruit explosion | |||||
Independent variable | |||||
Bank size row | SIZE | Take the logarithm of total assets | - | http://www.cophieu68.vn/ and http://vietstock.vn/ | |
Return on total assets (ROA) | ROA | Wife before marriage fruit explosion | + | http://www.cophieu68.vn/ and http://vietstock.vn/ | |
Return on equity (ROE) | ROE | Wife before marriage The price was so high that it fell down. | - | http://www.cophieu68.vn/ and http://vietstock.vn/ | |
Credit risk | CR | fear of death Explosion like a ghost | (-) or not | http://www.cophieu68.vn/ and http://vietstock.vn/ | |
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Customer deposit rate row | DEP | Deposit Balance Total Assets | + | http://www.cophieu68.vn/ and http://vietstock.vn/ |
Liquidity | LIQ | Total credit balance Total deposit balance | (-) or no effect dynamic | http://www.cophieu68.vn/ and http://vietstock.vn/ |
Economic growth | GDP | Take nominal GDP value adjusted by CPI, taking 2010 as the base year | (-) or no effect dynamic | Websitethomsonreuters.com |
Inflationary | INF | Calculated by the growth rate of the consumer price index (CPI), taken as 2010 is the base year | No impact | International Financial Statistics (IFS) |
Source: Author's synthesis
3.3.3. Research model
A specific research model with 8 independent variables to examine the impact on the dependent variable of capital safety will be proposed as shown in Figure 3.2 as follows: