Exploring the effect of Fintech on Liquidity creation of banks: Evidence from Vietnam

In the context of increasing concern about financial stability and the role of technology in shaping the banking sector, there is growing interest in understanding the impact of Fintech on liquidity creation among banks, particularly in emerging markets like Vietnam. This paper explores the impact of Fintech adoption on banks’ liquidity creation in Vietnam. The analysis is based on a panel dataset at the bank level, encompassing 23 listed commercial banks in Vietnam from 2010 to 2022, comprising 276 firm-year observations. Through text analysis, we construct a Fintech index using Python to extract keywords from the banks’ annual reports. Using a two-way fixed effect regression model, the results suggest that fintech adoption enhances and has a notable positive impact on the liquidity creation capabilities of Vietnamese listed banks. Banks with higher FinTech adoption levels generated more liquidity creation on the asset side, liability side, and total liquidity creation. Heterogeneity analysis suggests the association between fintech adoption and bank liquidity creation is not dependent on the bank's size, capital ratio, or market power. The study contributes by uncovering the substantial positive influence of fintech adoption on liquidity creation in Vietnamese listed banks, offering policymakers insights to promote fintech adoption and advance regulatory frameworks to support innovation in the banking sector.