Credit growth and its determinants: the case of commercial banks in Vietnam

Abstract

The study examines the factors influencing credit growth in 27 joint-stock commercial banks in Vietnam from 2010 to 2023. The authors employ traditional panel data analysis techniques, including Pooled OLS regression, the Fixed Effects Model (FEM), and the Random Effects Model (REM). Besides, the Generalized Method of Moments (GMM) is utilized to address model deficiencies and endogeneity issues. The study considers both macroeconomic factors, such as Economic Growth (GDP) and Lending Interest Rates (IR), and bank-specific characteristics, including Deposit Growth Rate (DGR), Non-Performing Loans (NPLs), Return on Assets (ROA), Capital Adequacy Ratio (CAR), Cost to Income Ratio (CIR), Solvency Ratio (SOL), and Crisis. The findings indicate that credit growth is significantly correlated with GDP, IR, DGR, CAR, and the SOL. In more detail, two macroeconomic factors influence credit growth: GDP has a positive effect while Lending Interest Rates have a negative effect. Among the internal bank-specific factors, Non-Performing Loans (NPLs) and the Solvency Ratio negatively impact credit growth, whereas Deposit Growth Rate (DGR) and CAR contribute positively. These insights offer valuable guidance for policymakers and bank managers in formulating strategies to foster sustainable credit expansion in Vietnam’s banking sector.