Default predictors in retail banking – an empirical study in Vietnam

Abstract

Due to intense competition, over-lending and economic turmoil, banking system in Vietnam is suffering a huge amount of non-performing loans. Given the considerable growth of retail banking market, an exploration of risk predictors becomes crucial more than ever. This paper investigates key factors that influence loan repayment performance among individual customers. The survey covers a representative sample of personal loans from one of the largest Vietnamese commercial banks. A logistic regression technique is employed to evaluate the relationship between delinquency and borrower characteristics and loan features. The regression results reveal that borrower characteristics, e.g. borrowing history, bankaccount holding and education level, rather than loan factors, such as purposes, duration and credit limit, have stronger effects on the default outcome. This suggests that bankers apply appropriate adjustments to borrower characteristics to minimize default risk.