THE EFFECT OF CREDIT RISK ON THE PERFORMANCE OF COMMERCIAL BANKS IN VIETNAM: EMPIRICAL EVIDENCE

Abstract

The commercial banking system in Vietnam plays a crucial role in supplying capital to the economy. However, the supply of credit may be risky and adversely affects the performance of these banks. The paper empirically investigates the effect of credit risk on the performance for a balanced panel data of 20 commercial banks in Vietnam over the period 2005 – 2018 via the system GMM Arellano-Bond estimators. The estimated results indicate non-performance loan and loan loss provision stimulate while loan asset ratio reduces the performance of these banks. Furthermore, capital adequacy ratio and bank size are also significant determinants. These findings suggest some important implications relating to the activities of credit risk prevention of commercial banks in Vietnam.