Factors affecting non-performing loans of commercial banks: The role of bank performance and credit growth

Kieu Oanh Dao, Thi Yen Nguyen, Sarfraz Hussain and V.C. Nguyen

No 6ykd8, OSF Preprints from Center for Open Science

Abstract: The recent crisis of non-performing loans in the banking system has hit the Vietnamese economy hard. The GDP has been fallen down, while the bad debt ratio in the banking system has risen dramatically to 17.2 percent, and it takes more time to restore the economy and banking system. This research aims to define aspects that impact non-performing commercial bank loans in Vietnam. It covers the period of 2008–2017 using 200 identified banks of Ho Chi Minh City Stock Exchange and Hanoi Stock Exchange, and applies methods based on the regression of pooled ordinary least squares, fixed and random effects models, in particular, generalized least squares to confirm the stability of the regression model. The results show that non-performing loans this year will positively affect those in the next year. In addition, a raise in bank performance and credit growth also leads to the reduction in non-performing loans from banks. Regarding macroeconomic factors, higher interest rates would have a major and beneficial influence on failed loans in terms of macroeconomic dynamics, and, therefore, little effect on economic activity and inflation. Therefore, Vietnamese banking system should reduce the systematic risk and improve monitoring processes, drawing on the experience of global banks with extensive experience in risk management.

Date: 2020-08-12
New Economics Papers: this item is included in nep-fdg, nep-mac, nep-rmg, nep-sea and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:osf:osfxxx:6ykd8

DOI: 10.31219/osf.io/6ykd8

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