Does a Higher Level of Capital Ensure Lower Risk for a Bank? Evidence from the Vietnamese Banking System

Dung Tien Nguyen () and Hien Thi Kim Nguyen ()
Additional contact information
Dung Tien Nguyen: Faculty of Finance-Banking and Business Administration, Quy Nhon University
Hien Thi Kim Nguyen: Faculty of Finance-Banking and Business Administration, Quy Nhon University

Malaysian Journal of Economic Studies, 2018, vol. 55, issue 2, 245-265

Abstract: The relationship between bank capital and risk is one of the conventional and highly debatable issues in banking literature. In the context of this paper, we apply the two-step generalized method of moments (GMM) technique for dynamic panels for the Vietnamese banking sector over the 1999-2014 period to investigate how risk is sensitive to capital regulations. As controlling both bank-specific characteristics and macroeconomic variables, we found a negative relationship between capital and risk which is proxied by two alternative Z-score measurements. Our findings not only support the moral hazard hypothesis where banks have incentives to exploit explicit and implicit deposit insurance schemes but also reveal the first direct beneficiaries from the regulations following Basel I standards in Vietnam that domestic banks with a higher capital level are more likely to avoid default and risk. However, increasing capital and improving operations management should be complementary criteria to ensure financial system safety.

Keywords: Bank capital; dynamic panel; risk; Vietnam (search for similar items in EconPapers)
JEL-codes: C23 G21 G32 (search for similar items in EconPapers)
Date: 2018
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mjr:journl:v:55:y:2018:i:2:p:245-265

DOI: 10.22452/MJES.vol55no2.6

Access Statistics for this article

Malaysian Journal of Economic Studies is currently edited by Lim Kian Ping

More articles in Malaysian Journal of Economic Studies from Faculty of Business and Economics, University of Malaya & Malaysian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Malaysian Economic Association ().