Merton Model as a Tool to Detect Default Risk via Visualized Banking Network: Vietnamese Evidence

Nguyen Thi Minh Hue, Do Phuong Huyen (), Takuya Kaneko, Masato Hisakado and My Nguyen
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Nguyen Thi Minh Hue: National Economics University, School of Banking and Finance
Do Phuong Huyen: Vietnam National University, International School
Takuya Kaneko: International Christian University
Masato Hisakado: Fintech Lab
My Nguyen: CMC University

A chapter in Proceedings of the 11th International Conference on Emerging Challenges: Smart Business and Digital Economy 2023 (ICECH 2023), 2023, pp 179-193 from Springer

Abstract: Abstract The paper investigates banking networks in Vietnam with a focus on default probability. Distance-to-Default (DD) and Conditional Probability of Default (PD) based on Merton model are used to create visualized banking networks. Some specific circumstances of Vietnamese bank network are used to test the proposed model. The results seem to be consistent with the expectations and support the model’s effectiveness. The model helps to recognize the most important banks of the banking network and to warn the problematic banks, the implications of which may be useful to policy makers. Some other testing contexts are the “Before Covid 19 context” and “the fourth wave of Covid19 context”, Vietnam’s most severe wave. Both contexts show the two distinct clusters of the banking network, may also refer to some policy implications.

Keywords: Banking networks; Distance-to-Default; Probability of Default (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-348-1_16

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DOI: 10.2991/978-94-6463-348-1_16

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