The impact of credit growth on profit ability of vietnamese commercial banks

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

*********************

PHAM QUANG HUY

THE IMPACT OF CREDIT GROWTH ON

PROFITABILITY OF VIETNAMESE COMMERCIAL

BANKS

GRADUATE THESIS

MAJOR: BANKING AND FINANCE

CODE: 7340201

HO CHI MINH CITY, 2022

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

*********************

PHAM QUANG HUY

THE IMPACT OF CREDIT GROWTH ON

PROFITABILITY OF VIETNAMESE COMMERCIAL

BANKS

GRADUATE THESIS

MAJOR: BANKING AND FINANCE

CODE: 7340201

SUPERVISOR

Assoc. Prof. Dr. DANG VAN DAN

HO CHI MINH CITY, 2022

i

EXECUTIVE SUMMARY

The thesis studies the impact of credit growth on profit of Commercial banks

in Vietnam. Data is collected on 17 banks in the period from 2011 to 2020 using

panel data analysis methods such as OLS regression, fixed effects model (FEM) and

random effects model (REM). I have drawn some important conclusions. Firstly,

credit growth has a statistically significant positive relationship with current year

profits measured by the ROA of banks. Second, when considering lagging into the

model, the author finds that a lag of up to 2 years in credit growth is still positively

correlated with bank profit. Third, a lag of up to 3 years of reverse credit growth is

correlated with bank profit but is not statistically significant. From the analysis of

the results from the random-effects model, the author draws some important

conclusions and from that makes suggestions and recommendations for the

operation of commercial banks in Vietnam.

ii

DECLARATION

I hereby declare that this is my research work, and the research results

presented in the thesis are honest and objective. The sources of information cited in

this thesis are clearly indicated. I am responsible for my thesis.

Signature

Pham Quang Huy

iii

ACKNOWLEDGEMENT

First of all, I am grateful and would like to send my sincerest and special

thanks to my supervisor, Assoc. Prof. Dr. Dang Van Dan for helping me to finish

this challenging thesis. Despite my defects throughout the process of performing the

thesis, he always showed his carings and enthusiasm to support me to overcome.

Without Mr. Dang Van Dan conscientious guidance and support, this thesis cannot

be successfully accomplished.

Next, I would like to express my deepest gratitude to the teachers who are

teaching at the Banking University of Ho Chi Minh City, who have spread the fire,

passion and knowledge about economics from the most basic subjects, helping me

to have a background in finance - banking.

Finally, I would like to thank to my family, friends, and colleagues who have

always encouraged and helped me in the process of studying and researching the

topic. Although I have tried a lot, the thesis is not free of shortcomings. I hope to

receive the sympathy, guidance, help, and support of my colleagues.

iv

TABLE OF CONTENTS

EXECUTIVE SUMMARY....................................................................................... i

DECLARATION...................................................................................................... ii

ACKNOWLEDGEMENT...................................................................................... iii

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

LIST OF INITIALISMS......................................................................................... vi

LIST OF TABLES ................................................................................................. vii

LIST OF FIGURES .............................................................................................. viii

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

1.1. The urgency of the thesis .................................................................................1

1.2. Research objectives and questions...................................................................3

1.3. Object and scope of the research......................................................................4

1.4. Methodology ....................................................................................................4

1.5. Contribution of the thesis.................................................................................5

1.6. Structure of the thesis.......................................................................................5

CONCLUSION CHAPTER 1 ..................................................................................7

CHAPTER 2 LITERATURE REVIEW.................................................................8

2.1. Credit growth of commercial banks.................................................................8

2.1.1. Bank credit ................................................................................................8

2.1.1.1. Conception..........................................................................................8

2.1.1.2. Characteristic......................................................................................9

2.1.1.3. Classify.............................................................................................11

2.1.1.4. Role ..................................................................................................13

2.1.2. Credit growth of commercial banks........................................................15

2.2. Profits of commercial banks...........................................................................17

2.2.1. Concept....................................................................................................17

2.2.2. Role .........................................................................................................18

2.2.3. Measurement criteria...............................................................................18

2.3. Theoretical framework for the impact of credit growth on profitability of

commercial banks..................................................................................................20

2.4. Empirical study on the impact of credit growth on profitability of commercial

banks......................................................................................................................21

CONCLUSION CHAPTER 2 ................................................................................25

v

CHAPTER 3 RESEARCH METHODS ...............................................................26

3.1. Research process............................................................................................26

3.2. Variables measurement ..................................................................................27

3.2.1. Research model design............................................................................27

3.2.2. A measure of a bank's profit....................................................................28

3.2.3. Variables measuring bank credit growth.................................................28

3.2.4. Control variables .....................................................................................29

3.3. Data sources and research samples ................................................................30

3.4. Data regression methods ................................................................................31

3.4.1. Introduction to panel data........................................................................31

3.4.2. Some estimation models in panel data regression...................................32

3.4.2.1. Pooled least-squares model (Pooled OLS) .......................................32

3.4.2.2. Fixed Effects Model – FEM...........................................................33

3.4.2.3. Random Effects Model – REM......................................................33

3.4.3. Selecting a regression model...................................................................34

3.4.4. Check the fit of the regression model......................................................35

CONCLUSION CHAPTER 3 ................................................................................36

CHAPTER 4 RESEARCH RESULTS..................................................................37

4.1. Descriptive statistics.......................................................................................37

4.2. Correlations matrix analysis...........................................................................40

4.3. Estimation of regression model and model selection.....................................42

4.4. Check the model's defects..............................................................................48

4.5. Discuss regression results...............................................................................51

CONCLUSION CHAPTER 4 ................................................................................53

CHAPTER 5 CONCLUSIONS, RECOMMENDATIONS AND DISCUSSION

...................................................................................................................................54

5.1. Conclusions....................................................................................................54

5.2. Recommendations..........................................................................................55

5.3. Limitations of the thesis.................................................................................60

CONCLUSION CHAPTER 5 ................................................................................61

CONCLUSION........................................................................................................62

REFERENCES..........................................................................................................1

APPENDIX ................................................................................................................4

vi

LIST OF INITIALISMS

INITIALISM MEANING

SBV State Bank of Vietnam

OLS Ordinary Least Square

FEM Fixed effects model

REM Random - effects model

LM - test Breusch and pagan Lagrangian

Multiplier test

VIF Variance Inflation Factor

ROA Return On Equity

GLS Feasible Generalized Least Squares