Determinants of non-performing loans in Vietnamese banking system

Abstract

Credit risk is one of the elements impact on the health of banking systems and performance of economic activities. Non-performing loans is the general factor presents for this bank’s credit risk. There are previous researches indicate the close relations between bad debts and factors from macroeconomic environment and bank specifications. This is the motivations for this paper to examine both macro and micro variables of 30 Vietnamese banks from 2006 to 2016. This dynamic panel data is estimated by the System Generalized Method of Moments. The regression results support the strong evidence for the impact of macro indicators on problem loans. The testing results are in accordance with several papers which indicated the negative relation with economic growth and positive correlation with lending interest rate and government debts of problem loans. However, due to the type of labor force, the increase of unemployment rate will lead to the increase in bad loans in Vietnam. In addition, with bank-specific factors, tests of skimping hypothesis, diversification (with proxy is banks’ size) hypothesis and procyclical credit policy hypothesis have the statistical significance in Vietnam.