MONETARY POLICY INTEREST RATES AND BANK RISKRETURN TRADEOFF: HOW DOES BANK COMPETITION MODERATE THIS RELATIONSHIP?

Japan Huynh ()
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Japan Huynh: Ho Chi Minh City Open University, Vietnam

Bulletin of Monetary Economics and Banking, 2025, vol. 28, issue 2, 173-198

Abstract: This study empirically examines the moderating effect of bank competition on the link between monetary policy interest rates and bank risk-return dynamics in Vietnam from 2007 to 2019. The findings suggest that during monetary expansion, marked by decreasing interest rates, banks typically employ a more conservative strategy regarding their credit portfolios, thereby minimizing risk exposure. Nonetheless, this risk avoidance incurs reduced interest margins, decreased overall profitability, and compromised stability. Furthermore, the research utilizing both traditional and funding-adjusted Lerner indices indicates that increased market concentration, or diminished bank competitiveness, mitigates the impact of monetary policy interest rates on the trade-off between bank risk and return.

Keywords: Bank competition; Bank performance; Interest rates; Market power; Monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:28:y:2025:i:2a:p:173-198

DOI: 10.59091/2460-9196.2011

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