Bank specific and macroeconomic determinants of credit risk in Vietnam banks: Bachelor thesis of Banking and Finance / Nguyen Thi Thuy Dung ; supervisor Le Ha Diem Chi

STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND

TRAINING

HOCHIMINH UNIVERSITY OF BANKING

GRADUATION THESIS

MAJOR : FINANCE – BANKING

TOPIC: BANK SPECIFIC AND MACROECONOMIC

DETERMINANTS OF CREDIT RISK IN VIETNAM BANKS

Author: Nguyen Thi Thuy Dung

Student code: 050606180061

Instructor: DR. LE HA DIEM CHI

HCM, 11th April, 2022

STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND

TRAINING

HOCHIMINH UNIVERSITY OF BANKING

GRADUATION THESIS

MAJOR : FINANCE – BANKING

TOPIC: BANK SPECIFIC AND MACROECONOMIC

DETERMINANTS OF CREDIT RISK IN VIETNAM BANKS

Author: Nguyen Thi Thuy Dung

Student code: 050606180061

Instructor: DR. LE HA DIEM CHI

HCM, 11th April, 2022

i

ABSTRACT

Of all the profitable business activities in the bank, credit activities always play the

most important role, contributing a lot in the financial sector for banks. Although this has

been a traditional activity for centuries, today credit activities become essential and

affected by many impacts that lead to the most risks and complexities. Credit risk has a

profound impact on most business activities in banks, which can affect the reputation of

banks. Today there are many experts at home and abroad who have been studying many

aspects of each other and more than that, the study of credit risks affected by micro and

macro factors. Therefore, the topic "Bank specific and macroeconomics determinants of

credit risk in Vietnam banks" uses data from 31 commercial banks on a sample of table

data from 2011 to 2020. The independent variables are CAP (equity-to-asset ratio), SIZE

(natural log of total assets, and LIQ (liquidity), GROW (credit growth rate), ROA (return￾to-asset ratio), COL (Collateral), CIR (quality management), while dependent variables

are CRI (credit risk). Besides, GDP (economic growth) and INF (inflation) are macro

parameters. The goal of this study is to find and quantify the impact of common factors

on the financial performance of commercial banks in Vietnam.

The S-GMM regression model was used in this study to look at factors affecting the credit

risk of 31 banking trade in Vietnam between 2010 and 2020.

Keywords: Credit risk , impact factor, Vietnam Commercial Bank.

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DECLARATION OF AUTHENTICITY

My name is NGUYEN THI THUY DUNG, a student of

Hochiminh University of Banking in class HQ6-GE11, number:

050606180061.

I would like to assure you that the thesis "Bank specific and

macroeconomics determinants of credit risk in Vietnam banks”

majoring in Finance - Banking is my own research work by Dr. Dr. Le

Ha Diem Chi works as a scientific advisor. The data and research

results in this thesis are truthful, with no previous publications or made

by others except for the quotes fully cited in the dissertation.

HCM, April 11, 2022

Author

iii

ACKNOWLEGEMENTS

First of all, I would like to thank the teachers of Ho Chi Minh

City Banking University for communicating my valuable knowledge

throughout the four years of university. Thank you for giving me the

opportunity to meet and study at the Ho Chi Minh City University of

Banking.

Next, I will come to my expression sincerely thanking Dr. Le Ha

Diem Chi who guided you throughout the process of making the

graduation course. Thank you for always taking the time and dedication

to guide me every foot of the road. Besides, there we precious

comments and suggestions to improve my research paper.

Finally, I would like to extend my sincere thanks to my family

and friends who have always helped, accompanied and supported me

throughout the years. With the limits of understanding and the case, this

thesis cannot avoid many errors. Therefore, I look forward to receiving

the guidance of my teachers so that I can improve my knowledge and

serve my work in the future.

Thank you very much to everyone!

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TABLE OF CONTENT

ABSTRACT ................................................................................................................................. i

DECLARATION OF AUTHENTICITY ................................... Error! Bookmark not defined.

ACKNOWLEGEMENTS............................................................ Error! Bookmark not defined.

LIST OF ACRONYMS............................................................................................................. ix

LIST OF TABLES AND FIGURES ......................................................................................... x

CHAPTER 1: INTRODUCTION ........................................................................................... 12

1.1 Reasons for choosing a research topic .......................................................... 12

1.2 Research objectives....................................................................................... 14

1.2.1 Common Goal......................................................................................... 14

1.2.2 Specific objectives.................................................................................. 14

1.3 Research Questions....................................................................................... 14

1.4 Objects and scope of study ........................................................................... 15

1.4.1 Study subjects......................................................................................... 15

1.4.2 Scope of Study........................................................................................ 15

1.5 Search for learning methods ......................................................................... 15

1.6 Scientific and practical implications............................................................ 16

1.7 Structure of research paper ........................................................................... 16

CONCLUSION OF CHAPTER 1:.......................................................................................... 18

CHAPTER 2: THEORETICAL BASIS, RELEVANT EMPIRICAL RESEARCH

AND RESEARCH MODEL.................................................................................................... 19

2.1 Theoretical basis ........................................................................................... 19

2.1.1 Overview of credit activities of commercial banks................................ 19

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2.1.1.1 Concept of Bank Credit...................................................................19

2.1.1.2 Bank Credit Characteristics.............................................................20

2.1.1.3 The role of bank credit operations...................................................21

2.1.2 Overview of Credit Risk......................................................................... 22

2.1.2.1 Concept of Bank Credit Risk ..........................................................22

2.1.2.2 Measurement of credit risk level.....................................................23

2.1.2.3 Causes of Credit Risk ......................................................................24

2.2 Overview of factors affecting previous empirical credit risk ....................... 26

2.2.1 Foreign Studies....................................................................................... 26

2.2.2 Domestic studies..................................................................................... 30

2.3 Factors affecting credit risk .......................................................................... 32

2.3.1 Micro elements inside the bank.............................................................. 32

2.3.2 Macro factors.......................................................................................... 35

CONCLUSION CHAPTER 2 ................................................................................................. 37

CHAPTER 3: RESEARCH METHODS ............................................................................... 38

3.1 Research Model............................................................................................. 38

3.2 Data and research variables .......................................................................... 40

3.2.1 Data collection........................................................................................ 40

3.2.2 Model variables ...................................................................................... 41

3.2.2.1 Bank Credit Risk (CRI)...................................................................41

3.2.2.2 Non-Performing Loans (NPL) ........................................................42

3.2.2.3 Capital Ratio (CAP) ........................................................................42

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3.2.2.4 Collateral (COL).............................................................................42

3.2.2.5 Credit Growth (GROW)..................................................................43

3.2.2.6 Return on Assets (ROA)..................................................................44

3.3.2.7 Bank tissue (SIZE) ..........................................................................44

3.2.2.8 Liquidity (LIQ)................................................................................45

3.2.2.9 Ratio of operating expenses to operating income ratios (CIR).......45

3.2.2.10 Inflation rate (INF)........................................................................45

3.2.2.11 GDP growth (GDP).......................................................................46

3.3 Research process........................................................................................... 51

3.4 Research method ........................................................................................... 52

3.4.1 Common Smallest Square (OLS) ........................................................... 52

3.4.2 Fixed Effect Model (FEM)..................................................................... 52

3.4.3 Random Effect Model (REM)................................................................ 53

3.4.4 Squares at least generally feasible (FGLS) ............................................ 53

3.4.5 System General Moment Model (S-GMM) ........................................... 53

3.4.6 Test to choose the right model................................................................ 54

CONCLUSION CHAPTER 3 ................................................................................................. 57

CHAPTER 4: RESULTS OF RESEARCH AND DISCUSSION........................................ 58

4.1 Descriptive statistics ..................................................................................... 58

4.2 Correlation Analysis ..................................................................................... 61

4.3 Multi-line inspection..................................................................................... 63

4.4 The result of the usual smallest square (OLS).............................................. 64

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4.5 The result of the fixed effect model (FEM).................................................. 66

4.6 Results of random effect model (REM)........................................................ 68

4.7. Estimation of regression models using OLS, FEM, REM synthesizes

methods .......................................................................................................................... 71

4. 8 Misaligned and similar orientations............................................................. 74

4.8.1. Similar testing of the correlation and variance of model 1 ................... 74

4.8.2 Analog testing and variance of model 2 ................................................. 75

4. 9 Estimate regression model by GLS.............................................................. 76

4.10 GMM regression model estimate................................................................ 78

4.10.1. GMM results of model 1 and model 2................................................. 78

4.11 Study results and discussion of study results............................................. 81

4.11.1 Credit Growth Rate............................................................................... 83

4.11.2 Capital ratio .......................................................................................... 83

4.11.3 Ratio of return on assets ....................................................................... 86

4.11.4 Bank size............................................................................................... 87

4.11.5 Liquidity ratio ....................................................................................... 88

4.11.6 Management Quality ............................................................................ 89

4.11.7 Inflation rate ......................................................................................... 90

4.11.8 Economic growth rate........................................................................... 91

CONCLUSION CHAPTER 4 ................................................................................................. 93

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ........................................ 94

5.1. Conclusion ................................................................................................... 94

5.2. Resolution .................................................................................................... 95

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5.2.1. Improvement of collateral ..................................................................... 95

5.2.2. Key credit growth .................................................................................. 95

5.2.3. Expansion of bank size .......................................................................... 95

5.2.4. Interested in economic growth .............................................................. 96

5.2.5. Limit inflation........................................................................................ 96

5.2.6. Limit liquidity risk................................................................................. 96

5.3. The limitations of the study ......................................................................... 96

Conclusion of Chapter 5 .......................................................................................................... 97

REFERENCES ......................................................................................................................... 98

English reference sources.................................................................................... 98

Vietnamese reference sources........................................................................... 103

ADDENDUM .......................................................................................................................... 106

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LIST OF ACRONYMS

Acronyms English

CRI Credit risk

NPL Bad debts

ROA Return on assets

CAP Ratio of equity to assets

GROW Rate of credit increase

SIZE Natural logs of total assets

LIQ Liquidity

CIR Management quality

INF Inflation rate

GDP Economic growth

OLS Smallest squared

PTHH Fixed Effect Model

REM Random Effect Model

VIF Variance Inflationary Factors

FGLS The square is at least feasible.

GMM General method of the moment