Net interest margin, bank risks and business cycle: evidence from Vietnam

Abstract

The purpose of the study is to explore the relationships between net interest margin, bank risks, and business cycle as well as examine the role of business cycle on the relationship between bank risks and net interest margin in Vietnam. By investigating the behavior of bank net interest margins over business cycle in the period 2007-2016, the results show that net interest margins are countercyclical, i.e. they significantly increase in recessions. In addition, business cycle also significantly affects the association between credit risk and net interest margins. Banks with higher credit risk have higher net interest margins and the positive effects of credit risk on net interest margins are greater in booms than in recessions. The empirical findings of the study also show that bank-specific and industry indicators are closely contributed to the bank net interest margin