CREDIT RISK AND BANK PROFITABILITY: A PANEL ANALYSIS

Abstract

This study tries to ascertain the effect of credit risk on the financial performance of commercial banks in Vietnam. A panel data of all 31 joint-stock commercial banks from 2008 to 2019 was investigated under the fixed effects model. The results depict that three indicators of credit risk (i.e. non-performing loan ratio, loan to deposit ratio and loan loss provision ratio) have significant positive influence on banks’ profitability, signifying that commercial banks in Vietnam obtain high profitability despite exposure to high credit risk. Also, there is a positive relationship between the bank size and bank performance, suggesting that banks might obtain cost advantage and become more profitable due to the economies of scale.