Credit risk determinants: evidence from Vietnamese Commercial Banks, 2022

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

HOCHIMINH UNIVERSITY OF BANKING

NGUYEN PHUONG DINH NHI

“CREDIT RISK DETERMINANTS: EVIDENCE FROM

VIETNAMESE COMMERCIAL BANKS”

GRADUATION DISSERTATION

MAJOR: BANKING AND FINANCE

CODE: 7340201

HO CHI MINH CITY, 2022

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

HOCHIMINH UNIVERSITY OF BANKING

GRADUATION THESIS OUTLINE

SPEACIALITY: FINANCE – BANKING

TOPIC:

CREDIT RISK DETERMINANTS: EVIDENCE FROM

VIETNAMESE COMMERCIAL BANKS

Author : Nguyen Phuong Dinh Nhi

Student code: 050606180277

Instructor : Dr. Le Ha Diem Chi

Ho Chi Minh City, Junly 2022

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ABSTRACT

The purpose of this study is to investigate the effects of macroeconomic and

bank-specific factors on the credit risk of Vietnamese banks. The article illustrates

significant patterns using data from Vietnamese commercial banks report between

2010 and 2021 and various estimation techniques/models. Specifically, the estimating

methods used in this thesis are generalized least square (GLS) and generalized

method of moments (GMM). It is discovered that that both the bank – specific and

macroeconomic determinants have a profound impact on CreRisk. In particular,

faster deposit growth rate (DGR), higher earning before loan loss allowance ratio

(EBP) and greater the real estate market growth rate (ESI) tend to raise credit risk. At

the same time, the economic growth (GDP) is negatively associated with credit risk.

In other words, the more developed the market economy, the lesser the credit risk that

Vietnamese commercial banks suffer. Besides, although operating efficiency (OPE)

and inflation (INF) variables are correlated with CreRisk as the expected direction,

their overall explanatory power is found to be low.

Keywords: Credit risk, loan loss provision, GLS, GMM methods

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GUARANTEE

My name is Nguyen Phuong Dinh Nhi, student of class HQ6 – GE12, student

number 050606180277, Banking University of Ho Chi Minh City.

I hereby undertake the research “CREDIT RISK DETERMINANTS:

EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS” is my own research

paper. Except for the material cited in the thesis, I guarantee that the full text of this

thesis has never been published or used for qualification elsewhere. No other person’s

product has been used in this thesis that has not been properly cited. The data in the

thesis is collected from the clear, reliable, and honestly and objectively processed. I

confirm that the thesis is my own project.

HO CHI MINH CITY, day …… month ……, 2022

Author

Nguyễn Phương Đình Nhi

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ACKNOWLEDGEMENTS

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

Banking, who have imparted valuable knowledge to me during my four years there.

Next, I would like to express my sincere thanks to Ms. Le Ha Diem Chi who

is the instructor guiding me throughout the process of making my graduation thesis.

Thank you for always taking the time and dedication to guide me every step of the

way. Besides, there are valuable comments and suggestions to improve my research

paper.

Finally, I would like to thank my family and friends who stand by my side and

are willing to support me. With limited knowledge and conditions, it is inevitable that

this thesis includes some shortcomings. Therefore, I look forward to receiving the

guidance of the teachers so that I can improve the knowledge that serves my career.

Sincerely thank everyone!

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TABLE OF CONTENTS

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

GUARANTEE ................................................................................................ ii

ACKNOWLEDGEMENTS........................................................................... iii

TABLE OF CONTENTS............................................................................... iv

LISTS OF ACRONYMS .............................................................................. vii

LIST OF TABLES AND GRAPHS ............................................................ viii

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

1.1. Reasons for choosing the topic............................................................1

1.2. Research objectives.............................................................................2

1.3. Research question................................................................................2

1.4. Subject and scope of research .............................................................2

1.5. Research contribution..........................................................................3

1.6. Structure of research............................................................................3

CONCLUSION CHAPTER 1..........................................................................5

CHAPTER 2: THEORETICAL BASIS AND REVIEW OF PREVIOUS

STUDIES ....................................................................................................................6

2.1. Credit of commercial banks ................................................................6

2.1.1. The concept of bank credit.............................................................6

2.1.2. Basic characteristics of Bank credit ...............................................6

2.2. Credit risk ............................................................................................7

2.2.1. The concept of credit risk...............................................................7

2.2.2. Credit risk classification.................................................................8

2.2.3. Credit risk measurement.................................................................9

2.3. Review of the previous study ............................................................10

2.3.1. Review of domestic research .......................................................10

2.3.2. Review of foreign studies.............................................................12

2.4. Factors affecting the banks’ credit risk .............................................15

2.4.1. Bank – specific factors.................................................................15

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2.4.2. Macro factors................................................................................17

CONCLUSION CHAPTER 2........................................................................18

CHAPTER 3: RESEARCH METHOD .........................................................19

3.1. Research method ...............................................................................19

3.1.1. Dependent variables......................................................................19

3.1.2. Independent variables....................................................................19

3.2. Research data.....................................................................................26

3.3. Research process ...............................................................................27

3.4. Research method ...............................................................................28

3.4.1. Panel data regression....................................................................28

3.4.2. Data regression methods ..............................................................28

CONCLUSION CHAPTER 3........................................................................31

CHAPTER 4: RESEARCH RESULT AND DISCUSSION.........................32

4.1. Analysis results of research samples.................................................32

4.2. Results of Pairwise correlation analysis between the variables........34

4.3. Test results of multi-collinear phenomena ........................................36

4.4. Estimating the regression model by OLS, FEM, REM methods......37

4.5. Test of variance and autocorrelation .................................................38

4.6. Estimating the regression model by GLS..........................................40

4.7. Estimating the regression model by GMM .......................................41

4.8. Research results and discussing research results...............................43

4.8.2. Earning before provision ratio (EBP) ..........................................45

4.8.3. The growth rate of real estate market (ESI).................................46

4.8.4. Economic growth (GDP)..............................................................47

CONCLUSION CHAPTER 4........................................................................49

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS ...................50

5.1. Conclusion.........................................................................................50

5.2. Recommendations .............................................................................51

5.2.1. Deposit growth rate (DGR)..........................................................51

5.2.2. Earning before provision ratio (EBP) ..........................................52

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5.2.3. The growth rate of real estate market (ESI).................................52

5.2.4. The economic growth (GDP).......................................................54

5.3. Limitation of study and suggestions for further research..................54

CONCLUSION OF CHAPTER 5 .................................................................56

REFERENCES...............................................................................................57

APPENDIX....................................................................................................63

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LISTS OF ACRONYMS

No. Symbol Full name

1 FEM Fixed Effect Model

2 OLS Ordinary Least Square

3 REM Random Effect Model

4 GLS Generalized Least Square

5 GMM Generalized Model Moments