Factors affecting credit risk: Case of Vietnam commercial banks

Abstract

The study aims to assess the factors that can affect credit risk, as measured by the non-performing loan ratio, of the commercial banking system in Vietnam. Using a research sample of 16 banks in the period 2009 - 2019, applying the 2-step SGMM estimation method to dynamic balanced panel data. The results show that, for the internal elements, the bank size and non-interest income have negative relations, but loan loss provision and lagged non-performing loan ratio has positive relations with the non-performing loan ratio. Besides, GDP growth is an external factor that has a negative relation with credit risk. However, the impacts of debt leverage, ROA, and inflation rate on the non-performing loan ratio of the banking system are not clear. These results may have important implications for banking managers in Vietnam.