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  1. UEH Digital Repository
  2. JABES (2018 - Now) | JED (1994 - 2017)
  3. JABES in English

The impact of non-performing loans on bank profitability and lending behavior: evidence from Vietnam

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Issue Date
2017
Author
Nguyen Thi Hong Vinh
Host Item
Journal of Economic Development
ISSN
1859 -1124
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Issue Date
2017
Author
Nguyen Thi Hong Vinh
Metadata

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Metadata Views

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Abstract

The aim of this study is to investigate the impact of non-performing loans on profitability and lending behavior, using an empirical framework that examines whether an increase of NPLs can lead banks to reduce their profitability and lending activity. To account for profit and lending persistence, the paper applies the Generalized Method of Moments technique for dynamic panels using bank-level data for 34 Vietnamese commercial banks over the period from 2005 to 2015. Throughout the whole sample, we find some evidence that the non-performing loan has a statistically significant negative effect on Vietnamese commercial banks profitability and lending behavior. The estimation results also show that other bank specific and macroeconomic determinants affect bank profitability and lending behavior significantly in the anticipated way. These findings will be helpful for bank managers and policy makers to improve the performance and lending behavior of Vietnamese commercial banks.

Keywords
Non-performing loan, Profitability, Lending behavior, GMM estimation
URI
http://digital.lib.ueh.edu.vn/handle/UEH/55180
http://jabes.ueh.edu.vn/Home/SearchArticle?article_Id=69a29499-5c82-40c9-bf55-df9e4b92dc4d
Publisher
Trường Đại học Kinh tế Tp. Hồ Chí Minh
DOI
http://doi.org/10.24311/jed/2017.24.3.06
Reference
Akhavein, J. D., Swamy, P. V., & Taubman, S. B. (1997). Ageneral method of deriving the efficiencies of banks from a profit function. Journal of Productivity Analysis, 8(1), 71–93.

Alhassan, A. L., Brobbey, F. O., & Aamoah, M. E. (2013).Does asset quality persist on bank lending behavior? Empirical evidence fromGhana. Global Journal of Management and Business Research Finance, 13(4), 1–8.

Altunbas, Y., Liu,H., Molyneux, P., & Seth, R. (2000). Efficiency and risk in Japanesebanking. Journal of Banking & Finance, 24(10), 1605–1628.

Amador, S., Gòmez-Gonzàlez, E., & Pabon, M. (2013). Loansgrowth and banks’ risk: New evidence. Borradoresde Economia, 763.

Arellano, M., & Bover, O. (1995). Another look at theinstrumental-variable estimation of error-components. Journal of Econometrics, 68(1),29–52.

Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D.(2008). Bank-specific, industry-specific and macroeconomic determinants of bankprofitability. Journal of InternationalFinancial Markets, Institutions and Money, 18(2), 121–136.

Blundell, R., & Bond, S. (2000). GMM estimation withpersistent panel data: An application to production functions. Econometric Reviews, 19(3), 321–340.

Banker, R., Chang, H., & Lee, S. (2010), Differentialimpact of Korean banking system reforms on bank productivity. Journal of Banking & Finance, 34(7),1450–1460.

Berger, A. N., &DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks.Journal of Banking & Finance, 21,849–870.

Bernanke, B., Gertler, M., & Gilchrist, S. (1994). The financial accelerator and the flight toquality. Retrieved March 5, 2016 from http://www.nber.org/papers/w4789.pdf

Berger, N., & Humphrey, B.(1992).Measurement and efficiency issues of commercial banking. In Z. Griliches (Ed.),Output measurement in the servicessectors (pp. 245–279). National Bureau of EconomicResearch Studies in Income and Wealth.University of Chicago Press, Chicago.

Berger, A. N., & Udell, G. F. (2004). The institutionalmemory hypothesis and the procyclicality of bank lending behavior. Journal of Financial Intermediation, 13(4), 458–495.

Berrospide, J. M., & Edge, R. M. (2010). The effects of bank capital on lending: Whatdo we know, and what does it mean?Financialand Economics Discussion Series. Federal Reserve Board. Washington, DC.

Borio, C., & Drehmann, M. (2009). Assessing the risk ofbanking crises-revisited. BIS Quarterly Review, 29–46.

Borio, C., Furfine, C., & Lowe, P. (2002). Procyclicality of the financial system andfinancial stability: Issue and policy options. BIS Working Papers 1, 1–57

Casu, B., & Girardone, C. (2006). Bank competition,concentration and efficiency in the single European market. The Manchester School, 74(4), 441–468.

Cucinelli, D. (2015). The impact of non-performing loans onbank lending behavior: Evidence from the Italian banking sector. Eurasian Journal of Business and Economics,8(16), 59–71.

Demirgu¨c-Kunt, A., & Huizinga, H. (1999). Determinantsof commercial bank interest margins and profitability: Some internationalevidence. The World Bank Economic Review,13(2), 379–408.

Doytch, N., &Uctum, M. (2011). Does the worldwide shift of FDI from manufacturing toservices accelerate economic growth? A GMM estimation study. Journal of International Money and Finance,30(3), 410–427.

Driffill, J.,Psaradakis, Z., & Sola, M. (1998). Testing the expectations hypothesis ofthe term structure using instrumental variables. International Journal of Finance and Economics, 3(4), 321–325.

Fan, L., &Shaffer, S.(2004). Efficiency versus risk in large domestic USbanks. Managerial Finance, 30(9),1–19.

Foos, D., Norden, L., & Weber, M. (2010). Loan growth andriskiness of banks. Journal of Banking & Finance, 34(12), 2929–2940.

Fu, X., & Heffernan, S. (2009). The effects of reform onChina’s bank structure and performance.Journal of Banking & Finance, 33(1), 39–52.

García-Herrero, A.,Gavilá, S., & Santabárbara,D. (2009). What explains the low profitability of Chinese banks? Journal of Banking & Finance,33(11),2080–2092.

Girardone, C.,Molyneux, P., & Gardener, E. P. (2004). Analysing the determinantsof bank efficiency: The case of Italian banks. Applied Economics, 36(3), 215–227.

Goddard, J., Molyneux, P., & Wilson, S. (2004). Theprofitability of European banks: A cross-sectional and dynamic panel analysis. The Manchester School, 72(3), 363–381.

Hannan, T. H., & Berger, A. N. (1991). The rigidity ofprices: Evidence from the banking industry. AmericanEconomic Review, 81(4), 938–945.

Heggestad, A. A. (1977). The competitive condition of USbanking markets and the impact of structural reform. Journal of Finance, 32(4),649–661.

Hou, Y., & Dickinson, D. (2007). The non-performing loans: Some bank-level evidences. ResearchConference on Safety and Efficiency of the Financial System, August 2007.

Hughes, P., &Mester, J. (1993). A quality and risk-adjusted cost function for banks:Evidence on the ‘too-big-to-fail’ doctrine. Journal of Productivity Analysis,4, 293–315.

Karim, M. Z. A.(2010). Bank efficiency and non-performing loans: Evidence from Malaysia andSingapore,Prague Economic Papers,2, 118–132.

Karminsky, A. M., & Kostrov, A. (2014). The probabilityof default in Russian banking. EurasianEconomic Review, 4(1), 81–98.

Kiyotaki, N., & Moore, J. (1995). Credit cycles. Retrieved March 10, 2016 fromhttp://www.nber.org/papers/w5083

Keeton, W. R. (1999). Does faster loan growth lead to higherloan losses? Economic Review, 84(2), 57–75.

Kwan, S., &Eisenbeis, R. (1995). An analysis of inefficiencies in banking. Journalof Banking and Finance, 19(3–4),733–734.

Le, C.(2016).Macro-financial linkages andbank behaviour: Evidence fromthesecond-round effects of theglobal financial crisis on EastAsia.Retrieved 30 May, 2016 fromhttps://www.researchgate.net/publication/295084778

Lee, C., & Hsieh, F. (2013). Beyond bank competition andprofitability: Can moral hazard tell us more? Journalof Financial Services Research, 44(1), 87–109.

Lu, D., Thangavelu, S. M., & Hu, Q. (2005). Biasedlending and non-performing loans in China’s banking sector. Journal of Development Studies, 41(6), 1071–1091.

Marius, A. (2011). Thedeterminants of bank efficiency and productivity growth in the Central andEastern European banking systems. Eastern European Economics, 49(6),38–59.

Neumark, D., & Sharpe, S. A. (1992). Market structure andthe nature of price rigidity: Evidence from the market for consumer deposits. QuarterlyJournal of Economics, 107(2),657–680.

Ph?m, T. (2013). Effect of bad debts on bank profitability. Economic Research, 424, 34–39.

Short, K. (1979). The relation between commercial bank profitrates and banking concentration in Canada, Western Europe and Japan. Journal of Banking and Finance, 3(4), 209–219.

Tomak, S. (2013). Determinants of commercial bank’ lendingbehavior: Evidence from Turkey. Asian Journal of Empirical Research, 3(8), 933–943.

Trujillo-Ponce, A. (2013).What determines the profitability of banks? Evidence from Spain. Accounting & Finance, 53(2), 561–586.

Windmeijer, F. (2005). A finite sample correction for thevariance of linear efficient two-step GMM estimators. Journal of Econometrics, 126(1),25–51.

Wheelock, C., &Wilson, P. W.(1995). Explaining bank failures: Depositinsurance, regulation, and efficiency. Review of Economics and Statistics,77, 689–700.

Akhavein, J. D., Swamy, P. V., & Taubman, S. B. (1997). Ageneral method of deriving the efficiencies of banks from a profit function. Journal of Productivity Analysis, 8(1), 71–93.

Alhassan, A. L., Brobbey, F. O., & Aamoah, M. E. (2013).Does asset quality persist on bank lending behavior? Empirical evidence fromGhana. Global Journal of Management and Business Research Finance, 13(4), 1–8.

Altunbas, Y., Liu,H., Molyneux, P., & Seth, R. (2000). Efficiency and risk in Japanesebanking. Journal of Banking & Finance, 24(10), 1605–1628.

Amador, S., Gòmez-Gonzàl...
See More
Appears in Collections:JABES in English

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The impact of non-performing loans on bank profitability and lending behavior: evidence from Vietnam

TweetLikeShare# Shares: 0

Metadata Views

52

Content Views

0

Issue Date
2017
Author
Nguyen Thi Hong Vinh
Host Item
Journal of Economic Development
ISSN
1859 -1124
Metadata

Show full item record


Issue Date
2017
Author
Nguyen Thi Hong Vinh
Metadata

Show full item record

Metadata Views

52

Content Views

0

Abstract

The aim of this study is to investigate the impact of non-performing loans on profitability and lending behavior, using an empirical framework that examines whether an increase of NPLs can lead banks to reduce their profitability and lending activity. To account for profit and lending persistence, the paper applies the Generalized Method of Moments technique for dynamic panels using bank-level data for 34 Vietnamese commercial banks over the period from 2005 to 2015. Throughout the whole sample, we find some evidence that the non-performing loan has a statistically significant negative effect on Vietnamese commercial banks profitability and lending behavior. The estimation results also show that other bank specific and macroeconomic determinants affect bank profitability and lending behavior significantly in the anticipated way. These findings will be helpful for bank managers and policy makers to improve the performance and lending behavior of Vietnamese commercial banks.

Keywords
Non-performing loan, Profitability, Lending behavior, GMM estimation
URI
http://digital.lib.ueh.edu.vn/handle/UEH/55180
http://jabes.ueh.edu.vn/Home/SearchArticle?article_Id=69a29499-5c82-40c9-bf55-df9e4b92dc4d
Publisher
Trường Đại học Kinh tế Tp. Hồ Chí Minh
DOI
http://doi.org/10.24311/jed/2017.24.3.06
Reference
Akhavein, J. D., Swamy, P. V., & Taubman, S. B. (1997). Ageneral method of deriving the efficiencies of banks from a profit function. Journal of Productivity Analysis, 8(1), 71–93.

Alhassan, A. L., Brobbey, F. O., & Aamoah, M. E. (2013).Does asset quality persist on bank lending behavior? Empirical evidence fromGhana. Global Journal of Management and Business Research Finance, 13(4), 1–8.

Altunbas, Y., Liu,H., Molyneux, P., & Seth, R. (2000). Efficiency and risk in Japanesebanking. Journal of Banking & Finance, 24(10), 1605–1628.

Amador, S., Gòmez-Gonzàlez, E., & Pabon, M. (2013). Loansgrowth and banks’ risk: New evidence. Borradoresde Economia, 763.

Arellano, M., & Bover, O. (1995). Another look at theinstrumental-variable estimation of error-components. Journal of Econometrics, 68(1),29–52.

Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D.(2008). Bank-specific, industry-specific and macroeconomic determinants of bankprofitability. Journal of InternationalFinancial Markets, Institutions and Money, 18(2), 121–136.

Blundell, R., & Bond, S. (2000). GMM estimation withpersistent panel data: An application to production functions. Econometric Reviews, 19(3), 321–340.

Banker, R., Chang, H., & Lee, S. (2010), Differentialimpact of Korean banking system reforms on bank productivity. Journal of Banking & Finance, 34(7),1450–1460.

Berger, A. N., &DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks.Journal of Banking & Finance, 21,849–870.

Bernanke, B., Gertler, M., & Gilchrist, S. (1994). The financial accelerator and the flight toquality. Retrieved March 5, 2016 from http://www.nber.org/papers/w4789.pdf

Berger, N., & Humphrey, B.(1992).Measurement and efficiency issues of commercial banking. In Z. Griliches (Ed.),Output measurement in the servicessectors (pp. 245–279). National Bureau of EconomicResearch Studies in Income and Wealth.University of Chicago Press, Chicago.

Berger, A. N., & Udell, G. F. (2004). The institutionalmemory hypothesis and the procyclicality of bank lending behavior. Journal of Financial Intermediation, 13(4), 458–495.

Berrospide, J. M., & Edge, R. M. (2010). The effects of bank capital on lending: Whatdo we know, and what does it mean?Financialand Economics Discussion Series. Federal Reserve Board. Washington, DC.

Borio, C., & Drehmann, M. (2009). Assessing the risk ofbanking crises-revisited. BIS Quarterly Review, 29–46.

Borio, C., Furfine, C., & Lowe, P. (2002). Procyclicality of the financial system andfinancial stability: Issue and policy options. BIS Working Papers 1, 1–57

Casu, B., & Girardone, C. (2006). Bank competition,concentration and efficiency in the single European market. The Manchester School, 74(4), 441–468.

Cucinelli, D. (2015). The impact of non-performing loans onbank lending behavior: Evidence from the Italian banking sector. Eurasian Journal of Business and Economics,8(16), 59–71.

Demirgu¨c-Kunt, A., & Huizinga, H. (1999). Determinantsof commercial bank interest margins and profitability: Some internationalevidence. The World Bank Economic Review,13(2), 379–408.

Doytch, N., &Uctum, M. (2011). Does the worldwide shift of FDI from manufacturing toservices accelerate economic growth? A GMM estimation study. Journal of International Money and Finance,30(3), 410–427.

Driffill, J.,Psaradakis, Z., & Sola, M. (1998). Testing the expectations hypothesis ofthe term structure using instrumental variables. International Journal of Finance and Economics, 3(4), 321–325.

Fan, L., &Shaffer, S.(2004). Efficiency versus risk in large domestic USbanks. Managerial Finance, 30(9),1–19.

Foos, D., Norden, L., & Weber, M. (2010). Loan growth andriskiness of banks. Journal of Banking & Finance, 34(12), 2929–2940.

Fu, X., & Heffernan, S. (2009). The effects of reform onChina’s bank structure and performance.Journal of Banking & Finance, 33(1), 39–52.

García-Herrero, A.,Gavilá, S., & Santabárbara,D. (2009). What explains the low profitability of Chinese banks? Journal of Banking & Finance,33(11),2080–2092.

Girardone, C.,Molyneux, P., & Gardener, E. P. (2004). Analysing the determinantsof bank efficiency: The case of Italian banks. Applied Economics, 36(3), 215–227.

Goddard, J., Molyneux, P., & Wilson, S. (2004). Theprofitability of European banks: A cross-sectional and dynamic panel analysis. The Manchester School, 72(3), 363–381.

Hannan, T. H., & Berger, A. N. (1991). The rigidity ofprices: Evidence from the banking industry. AmericanEconomic Review, 81(4), 938–945.

Heggestad, A. A. (1977). The competitive condition of USbanking markets and the impact of structural reform. Journal of Finance, 32(4),649–661.

Hou, Y., & Dickinson, D. (2007). The non-performing loans: Some bank-level evidences. ResearchConference on Safety and Efficiency of the Financial System, August 2007.

Hughes, P., &Mester, J. (1993). A quality and risk-adjusted cost function for banks:Evidence on the ‘too-big-to-fail’ doctrine. Journal of Productivity Analysis,4, 293–315.

Karim, M. Z. A.(2010). Bank efficiency and non-performing loans: Evidence from Malaysia andSingapore,Prague Economic Papers,2, 118–132.

Karminsky, A. M., & Kostrov, A. (2014). The probabilityof default in Russian banking. EurasianEconomic Review, 4(1), 81–98.

Kiyotaki, N., & Moore, J. (1995). Credit cycles. Retrieved March 10, 2016 fromhttp://www.nber.org/papers/w5083

Keeton, W. R. (1999). Does faster loan growth lead to higherloan losses? Economic Review, 84(2), 57–75.

Kwan, S., &Eisenbeis, R. (1995). An analysis of inefficiencies in banking. Journalof Banking and Finance, 19(3–4),733–734.

Le, C.(2016).Macro-financial linkages andbank behaviour: Evidence fromthesecond-round effects of theglobal financial crisis on EastAsia.Retrieved 30 May, 2016 fromhttps://www.researchgate.net/publication/295084778

Lee, C., & Hsieh, F. (2013). Beyond bank competition andprofitability: Can moral hazard tell us more? Journalof Financial Services Research, 44(1), 87–109.

Lu, D., Thangavelu, S. M., & Hu, Q. (2005). Biasedlending and non-performing loans in China’s banking sector. Journal of Development Studies, 41(6), 1071–1091.

Marius, A. (2011). Thedeterminants of bank efficiency and productivity growth in the Central andEastern European banking systems. Eastern European Economics, 49(6),38–59.

Neumark, D., & Sharpe, S. A. (1992). Market structure andthe nature of price rigidity: Evidence from the market for consumer deposits. QuarterlyJournal of Economics, 107(2),657–680.

Ph?m, T. (2013). Effect of bad debts on bank profitability. Economic Research, 424, 34–39.

Short, K. (1979). The relation between commercial bank profitrates and banking concentration in Canada, Western Europe and Japan. Journal of Banking and Finance, 3(4), 209–219.

Tomak, S. (2013). Determinants of commercial bank’ lendingbehavior: Evidence from Turkey. Asian Journal of Empirical Research, 3(8), 933–943.

Trujillo-Ponce, A. (2013).What determines the profitability of banks? Evidence from Spain. Accounting & Finance, 53(2), 561–586.

Windmeijer, F. (2005). A finite sample correction for thevariance of linear efficient two-step GMM estimators. Journal of Econometrics, 126(1),25–51.

Wheelock, C., &Wilson, P. W.(1995). Explaining bank failures: Depositinsurance, regulation, and efficiency. Review of Economics and Statistics,77, 689–700.

Akhavein, J. D., Swamy, P. V., & Taubman, S. B. (1997). Ageneral method of deriving the efficiencies of banks from a profit function. Journal of Productivity Analysis, 8(1), 71–93.

Alhassan, A. L., Brobbey, F. O., & Aamoah, M. E. (2013).Does asset quality persist on bank lending behavior? Empirical evidence fromGhana. Global Journal of Management and Business Research Finance, 13(4), 1–8.

Altunbas, Y., Liu,H., Molyneux, P., & Seth, R. (2000). Efficiency and risk in Japanesebanking. Journal of Banking & Finance, 24(10), 1605–1628.

Amador, S., Gòmez-Gonzàl...
See More
Appears in Collections:JABES in English

There are no files associated with this item.



Citation

APA    Vinh, N. T. H. (2017). The impact of non-performing loans on bank profitability and lending behavior: evidence from Vietnam. (Journal Article). http://digital.lib.ueh.edu.vn/handle/UEH/55180
   
MLA    Nguyen Thi Hong Vinh. The impact of non-performing loans on bank profitability and lending behavior: evidence from Vietnam. 2017. Trường Đại học Kinh tế Tp. Hồ Chí Minh. Journal Article. http://digital.lib.ueh.edu.vn/handle/UEH/55180
   
Chicago    Nguyen Thi Hong Vinh. "The impact of non-performing loans on bank profitability and lending behavior: evidence from Vietnam. "(Journal Article, Trường Đại học Kinh tế Tp. Hồ Chí Minh, 2017)
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