The impact of private sector credit by banks on economic growth : the case of Viet Nam: Bachelor thesis of Banking and Finance / Trần Võ Tường Vi ; Trần Nguyễn Minh Hải supervisor

MINISTRY OF EDUCATION & TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

TRẦN VÕ TƯỜNG VI

THE IMPACT OF PRIVATE SECTOR CREDIT BY BANKS

ON ECONOMIC GROWTH: THE CASE OF VIET NAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 7340201

Ho Chi Minh City, 2021

MINISTRY OF EDUCATION & TRAINING STATE BANK OF VIET NAM

BANKING UNIVERSITY HO CHI MINH CITY

TRẦN VÕ TƯỜNG VI

THE IMPACT OF PRIVATE SECTOR CREDIT BY BANKS

ON ECONOMIC GROWTH: THE CASE OF VIET NAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 7340201

STUDENT NUMBER: 030805170084

CLASS: HQ5-GE03

SUPERVISOR

TRẦN NGUYỄN MINH HẢI, PhD.

Ho Chi Minh City, 2021

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ABSTRACT

The graduation thesis entitled ―THE IMPACT OF PRIVATE SECTOR CREDIT

BY BANKS ON ECONOMIC GROWTH: THE CASE OF VIET NAM‖ will focus on

the relationship between domestic credit provided by banks to the private sector and

Vietnamese economic growth. This relationship was concluded positive nexus by many

writers that interested in this topic. Therefore, this study re-examines this connection,

however, in the case of Viet Nam. This paper determines the effect of domestic credit

provided by banks to the private sector on the economic growth between 1995 and 2019

in Viet Nam. Specifically, this paper is going to collect secondary data from reliable

organizations to analyze the effect of domestic credit provided by banks to the private

sector on economic development by using three variables, which is popular and suitable

with research objectives, as independent variables include domestic credit provided by

banks to the private sector (CPS); gross capital formation (INV); lending interest rate

(RATE), and the economic growth is represented by gross domestic product (GDP) that

based on a synthesized of the variables analyzed in the previous studies. This study

approaches the Autoregressive Distributed Lag (ARDL) model to determine the long￾term as well as the short-term relationship between the domestic credit provided by banks

to the private sector and the growth of the Vietnamese economy. The findings result

show that all independent variables have significance in the economy. Particularly,

domestic credit provided by banks to the private sector positively impacts the economic

enhancement in the long-run period. However, it is inverse in the short run. Finally, this

study also suggests some recommendations to the State Bank of Viet Nam about the

effect of factors under this study based on (i) the development orientations; (ii) the

theoretical framework; (iii) the empirical result of the impact of the domestic credit

provided by banks to the private sector on the growth of Viet Nam economy about each

factor included in the domestic credit provided by banks to the private sector, the

domestic investment, and the interest rate. This study also presents limitations and

research direction of the topic.

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COMMITMENT

The author undertakes an honorable commitment to this graduation thesis,

specifically as follows:

Full name: Trần Võ Tường Vi, class: HQ5-GE03, student number:

030805170084.

I am is currently a full-time university student with a high-quality program

at the Banking University of Ho Chi Minh City.

The graduation thesis was completed under the guidance of Trần Nguyễn

Minh Hải, Ph.D.

Major: Finance – Banking

Code: 7340201

This graduation thesis is the author's research, the research results are

truthful, in which there are no previously published contents or content made by

others except for cited citations in the graduation thesis.

Ho Chi Minh City, April , 2021

The author‘s signature

Trần Võ Tường Vi

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ACKNOWLEDGEMENT

The author would also like to express my deep gratitude to the instructors Trần

Nguyễn Minh Hải, PhD., and the teachers of the Banking University of Ho Chi Minh

City, as well as family has dedicatedly instructed, helped, and created the best conditions

for the author to complete this graduation thesis.

Because of the limited time and knowledge of the senior student, it will have some

certain mistakes. I look forward to receiving comments and suggestions to improve the

graduation thesis.

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ABBREVIATIONS

ADB Asian Development Bank

AFDB African Development Bank

ARDL Autoregressive Distributed Lag

EIB European Investment Bank

FAO Food and Agriculture Organization of the United States

FTA Free Trade Agreement

FTA Free Trade Agreement

GCF Green Climate Fund

GDP Gross domestic product

GEF Global Environment Facility

GNI Gross national income

GSO General Statistics Office of Vietnam

HDI Human Development Index

IDB Inter-American Development Bank

IMF International Monetary Fund

MPI Ministry of Planning and Investment

PQLI Physical Quality of Life Index

R&D Research and Development

SME Small and Medium Enterprise

VCCI Vietnam Chamber of Commerce and Industry

WTO World Trade Organization

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LIST OF TABLES AND FIGURES

LIST OF TABLES

Table 1.1. Design of research process .................................................................................4

Table 2.1. Classification of the Private Sector.....................................................................7

Table 2.2. Separation of the Private and Public Sectors Conceptually ...............................8

Table 2.3. Domestic credit provided by banks to the private sector from 1989 to 2018 (%

of GDP) according to income category .............................................................................10

Table 2.4. Summary of empirical literature about the relationship between domestic

credit provided by banks to the private sector and economic development......................17

Table 2.5. Summary of the variables from empirical studies............................................23

Table 2.6. Summary of hypothesis and expected sign.......................................................24

Table 3.1. Data sources......................................................................................................30

Table 4.1. Augmented Dickey Fuller Test.........................................................................34

Table 4.2. The optimal lag based on AIC..........................................................................35

Table 4.3. Bound test .........................................................................................................35

Table 4.4. Long run coefficient estimation using ARDL model .......................................35

Table 4.5. Short run regression analysis using error correction model (ECM).................36

Table 4.6. The international Free Trade Agreement in Viet Nam.....................................37

Table 4.7. Domestic credit growth in Viet Nam from 2003 to 2010 (%)..........................42

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LIST OF FIGURES

Figure 2.1 The importance of economic growth................................................................14

Figure 4.1. Number of new business registration in Viet Nam from 2000 to 2019 ..........39

Figure 4.2. Four foundations leading to an innovative economy ......................................40

Figure 4.3. Domestic credit provided by banks to the private sector in Viet Nam and

Lower middle - income countries from 1995 to 2019 (% of GDP)...................................41

Figure 4.4. Channels affecting inflation ............................................................................41

Figure 4.5. Fixed and Total asset accumulation in Viet Nam from 2000 to 2018 (% of

GDP) ..................................................................................................................................43

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TABLE OF CONTENTS

ABSTRACT........................................................................................................................ ii

COMMITMENT................................................................................................................ iii

ACKNOWLEDGEMENT..................................................................................................iv

ABBREVIATIONS .............................................................................................................v

LIST OF TABLES AND FIGURES ..................................................................................vi

TABLE OF CONTENTS................................................................................................. viii

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

1.1. Reasons for selecting the topic..................................................................................1

1.2. Research objectives and questions............................................................................2

1.2.1. Overall research objectives.................................................................................2

1.2.2. Specific research objectives ...............................................................................3

1.2.3. Research questions .............................................................................................3

1.3. Research scope and subjects .....................................................................................3

1.3.1. Research subject .................................................................................................3

1.3.2. Research scope ...................................................................................................3

1.4. Research methodology..............................................................................................3

1.4.1. The approach methods........................................................................................3

1.4.2. Data collection methods.....................................................................................4

1.4.3. Data processing methods....................................................................................4

1.5. A framework of the research process........................................................................4

1.6. Contribution of the research......................................................................................5

1.6.1. Literature contribution........................................................................................5

1.6.2. Practical contribution..........................................................................................5

1.7. The composition of the study....................................................................................5

CHAPTER 2: LITERATURE REVIEWS...........................................................................7

2.1. The private sector......................................................................................................7

2.1.1. Definition............................................................................................................7

2.1.2. The important role of the private sector.............................................................8

2.2. Domestic credit provided by banks to the private sector........................................10

2.2.1. Definition..........................................................................................................10