Factors affecting credit risk of commercial banks in Vietnam, 2021

I

THE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HCMC

GRANDUATION THESIS OUTLINE

SPECIALITY : FINANCE - BANKING

TOPIC:

FACTORS AFFECTING CREDIT RISK OF

COMMERCIAL BANKS IN VIETNAM

GRADUATION THESIS

SPECIALITY: FINANCE – BANKING

CODE: 7340201

Instructor

DR. LÊ HÀ DIỄM CHI

HCMC, year 2021

II

THE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HCMC

GRANDUATION THESIS OUTLINE

SPECIALITY : FINANCE - BANKING

TOPIC:

FACTORS AFFECTING CREDIT RISK OF

COMMERCIAL BANKS IN VIETNAM

Performed by: Nguyễn Hoàng Châu

Student code : 050606180041

Instructors :Dr. LÊ HÀ DIỄM CHI

HCMC, year 2021

III

ABSTRACT

Factors affecting credit risk of commercial banks in Vietnam” using data from 31

commercial banks on a panel data sample from 2010 to 2020. The independent variables are

Capital ratio (CAP), Collateral (COL), Credit Growth (GROW), Profitability Ratio (ROA), Cost

Effective Operations (INEF),. Economic growth (GDP) and inflation rate (INF) are macro

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

credit risk of banks. commercial goods in Vietnam. S-GMM regression model is used in this

study to examine the factors affecting credit risk of 31 commercial banks in Vietnam from 2010

to 2020. The results show credit growth (GROW) and GDP (economic growth) have a positive

impact on CRI, NPL. In contrast, capital ratio (CAP) was not statistically significant for NPL,

but it had a positive effect on CRI at 1% significance level. Collateral (COL) has a negative

impact on CRI, but not significantly on NPL. Profitability Ratio (ROA) has a positive effect on

CRI but a negative effect on NPL. Cost-effective operation (INEF) is the opposite of profitability

ratio (ROA) when it comes to CRI and NPL. Finally, inflation rate (INF) has a positive effect on

NPL but not on CRI. On that basis, the author has proposed solutions to limit credit risks at

commercial banks in Vietnam.

Key word: Credit risk, S-GMM , Commercial Banks, Vietnam.

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GUARANTEE

My name is Nguyen Hoang Chau, student of class HQ6 – GE011, student number:

050606180041, Banking University of Ho Chi Minh City.

I here by declare that the thesis topic "Factors affecting credit risk of commercial banks

in Viet Nam", majoring in Finance - Banking is my own research work and under scientific

guidance of Dr. Le Ha Diem Chi. The data and research results in this thesis are honest, in which

there are no previously published contents or contents made by others except for fully cited

citations in the thesis. .

HCM city, year 2021

Auhtor

Nguyễn Hoàng Châu

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ACKNOWLEDGEMENTS

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

Minh City - who have imparted valuable knowledge to me during the four years of the

University. Thank you for giving me the opportunity to meet and study at Banking University of

Ho Chi Minh City.

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

instructor who guided me throughout the process of making my internship report until 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 have always helped,

accompanied and supported me during the past time. With limited knowledge and conditions,

this thesis many shortcomings cannot be avoided. Therefore, I look forward to receiving the

guidance of the teachers so that I can improve my knowledge and serve my work in the future.

Sincerely thank everyone !

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CONTENTS

ABSTRACT.................................................................................................................................III

GUARANTEE.............................................................................................................................IV

ACKNOWLEDGEMENTS ........................................................................................................ V

CONTENTS.................................................................................................................................VI

LIST OF ACRONYMS ..............................................................................................................IX

LIST OF TABLES AND GRAPHS...........................................................................................XI

CHAPTER 1: INTRODUCTION TO THE RESEARCH TOPIC ........................................ 13

1. Research problem.............................................................................................................. 13

2. Research objectives........................................................................................................... 13

2.1. Overall objectives....................................................................................................... 13

2.2. Detail objectives......................................................................................................... 13

3. Research question ............................................................................................................. 14

4. Object and scope of research ............................................................................................ 14

4.1. Research object........................................................................................................... 14

4.2. Research scope ........................................................................................................... 14

5. Research Methods............................................................................................................. 14

6. Research significance........................................................................................................ 14

7. Structure of the topic......................................................................................................... 15

Conclusion Chapter 1 ................................................................................................................. 16

CHAPTER 2: THEORETICAL BASIS AND REVIEW OF PREVIOUS STUDIES.......... 17

2.1. Credit of commercial banks............................................................................................... 17

2.1.1. Credit bank concept .................................................................................................... 17

2.1.2. The role of credit for commercial banks..................................................................... 17

2.2. Credit risk........................................................................................................................... 18

2.2.1. The concept of credit risk ........................................................................................... 18

2.2.2. Credit risk measurement ............................................................................................. 18

2.3. Review of previous studies on factors affecting the bank's credit risk.............................. 19

2.3.1. Review of domestic research ...................................................................................... 19

2.3.2. Review of foreign studies ........................................................................................... 21

2.4. Factors affecting the bank's credit risk .............................................................................. 24

2.4.1. Bank specifics............................................................................................................. 24

2.4.2. Macro factors.............................................................................................................. 26

Conclussion chapter 2................................................................................................................. 27

CHAPTER 3: RESEARCH METHODS.................................................................................. 28

VII

3.1. Research model.................................................................................................................. 28

3.2. Research data & variables.................................................................................................. 29

3.2.1. Data collection ............................................................................................................ 29

3.2.2. Model variables....................................................................................................... 30

3.2.2.1. Credit risk of the bank ..................................................................................... 30

3.2.2.2. Non-Performing Loan (NPL) .......................................................................... 31

3.2.2.3. Ratio of capital (CAP)..................................................................................... 31

3.2.2.4. Collateral (COL).............................................................................................. 31

3.2.2.5. Credit Growth (GROW).................................................................................. 32

3.2.2.6. Return on assets (ROA)................................................................................... 32

3.2.2.7. Cost-effective operation (INEF)...................................................................... 32

3.2.2.8. Inflation rate (INF) .......................................................................................... 33

3.2.2.9. Economic growth (GDP)................................................................................. 33

3.3. Research process............................................................................................................ 38

3.4. Research method ............................................................................................................ 38

3.4.1. Ordinary Least Squares (OLS).................................................................................... 38

3.4.2. Fixed Effect Model (FEM) ..................................................................................... 39

3.4.3. Random Effect Model (REM) ................................................................................ 39

3.4.4. Feasible Generalized Least Square (FGLS)............................................................ 39

3.4.5. System Generalized Model of Moments (S-GMM) ............................................... 39

3.4.6. Check for suitable model selection ......................................................................... 40

Conclusion Chapter 3 ................................................................................................................. 43

CHAPTER 4: RESEARCH RESULTS AND DISCUSSION................................................. 44

4.1. Descriptive statistics .......................................................................................................... 44

4.2. Correlation analysis ........................................................................................................... 45

4.3. Multicollinearity test.......................................................................................................... 46

4.4. Result of the Ordinary Least Squares (OLS)..................................................................... 47

4.5. Result Of The Fixed Effect Model ( FEM)........................................................................ 49

4.6. Result Of The Random Effect Model (REM).................................................................... 51

4.7. Estimating the regression model by Pooled OLS, FEM, REM methods........................... 53

4.8. Test of variance and autocorrelation.................................................................................. 55

4.8.1. Test for autocorrelation and variance of model 1 ....................................................... 55

4.8.2. Test for autocorrelation and variance of model 2 ....................................................... 56

4.9. Estimating the regression model by GLS .......................................................................... 56

4.10. Estimating the regression model by GMM...................................................................... 58

4.10.1. The GMM results of model 1.................................................................................... 58

4.10.2. The GMM results of model 2.................................................................................... 60

VIII

4.11. Research results and discussing research results............................................................. 61

4.11.1. Ratio of capital (CAP) .............................................................................................. 62

4.11.2. Collateral (COL)....................................................................................................... 63

4.11.3. Credit growth ( GROW) ........................................................................................... 64

4.11.4. Return on assets (ROA) ............................................................................................ 65

4.11.5. Cost-effective operation ( INEF) .............................................................................. 66

4.11.6. Inflation (INF)........................................................................................................... 67

4.11.7. Economic growth (GDP) .......................................................................................... 68

Conclusion Chapter 4 ................................................................................................................. 71

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS........................................... 72

5.1. Conclusion ......................................................................................................................... 72

5.2. Recommendations.............................................................................................................. 73

5.2.1. Collateral improvement .............................................................................................. 73

5.2.2. Maitain credit growth.................................................................................................. 73

5.2.3. Cost-effective operations............................................................................................ 73

5.2.4. Concerned about economic growth ............................................................................ 73

5.2.5. Limit inflation ............................................................................................................. 74

5.3. Limitations of the research................................................................................................. 74

Conclussion Chapter 5................................................................................................................ 75

REFERENCES............................................................................................................................ 76

APPENDIX.................................................................................................................................. 81

IX

LIST OF ACRONYMS

Acronyms English

CRI Credit risk

NPL Non-performing loan

CAP Ratio of capital

COL Collateral

GROW Credit growth

ROA Return on assets

INEF Cost-effective operating

INF Inflation

GDP Economic growth

OLS Ordinary Least Squares

FEM Fixed Effect Model

REM Random Effect Model

VIF Variance Inflation Factors

FGLS Feasible Generalized Least Square

GMM Generalized method of moments