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• The Effect of Credit Risk on the Financial Performance of Commercial Banks in Vietnam

  Dang Thi Hai Yen, Pham Le Thao Trang, Nguyen Thi Huong, Dao Thi Hoang Anh

  Received: Dec 15, 2023 / Published: Jun 28, 2024

   Abstract PDF

  Creating credit is the main income-generating activity for banks. However, granting credit always comes with risks. Credit risk is the risk of losing part or all of a debt due to failure to pay on time or default. Credit risk is considered the most important risk affecting banking performance. Therefore, this study measured the effect of credit risk on the financial performance of Vietnamese commercial banks. The research sample was made up of 30 commercial banks in Vietnam during the period from 2017 to 2022. There were a total of 180 observations in the balanced data panel. To control for unobserved individual effects, this study used a fixed effects model (FEM) with adjusted standard errors. Return on equity (ROE), return on asset (ROA), and net interest margin (NIM) were the indicators for bank financial performance. The non-performing loan (NPL) rate variable represented credit risk. The control variables were cost to income ratio (CIR), equity to asset (ETA), total loans to total assets (LTA), GDP growth (GDP), and Covid. The research results showed that credit risk had a negative and statistically significant effect on the banks' financial performance. This can be explained by the increase in the NPL ratio, causing banks to increase provisions for loan losses, thereby reducing profits. Reduced profits were also because of poor risk management, information asymmetry, and moral hazards. The study also provided a number of solutions and recommendations to improve bank financial performance.

• Determinants of Liquidity Risk in Vietnamese Commercial Banks

  Nguyen Thi Huong, Dang Thi Hai Yen

  Received: Dec 12, 2022 / Published: Mar 29, 2024

   Abstract PDF

  Liquidity risk, which tends to compound other risks such as credit and market risks, has become one of the principal risks in banks. Thus, this study examined the determinants of liquidity risk measured by the loan deposit ratio (LDR). The sample included 30 commercial banks in Vietnam based on secondary data coverage from 2017-2021. Descriptive statistics were used to determine the general situation of the banks' assets, liabilities, and business performance. The random effects model (REM) was chosen to determine factors affecting liquidity risk. The results show the huge gap in the business performance of the four state-owned banks and the rest of the joint-stock commercial banks, and the state-owned banks always accounted for over 50% of the total credit, assets, and deposits of the whole banking system. The average banks’ credit and profit growth rates were around 17% and 30%, respectively, and the bad debt ratio was about 2%. Increasing a bank’s credit growth rate and profitability would push up its liquidity risk. On the other hand, holding several liquid securities that banks could sell immediately to meet solvency requirements and maintaining a high capital adequacy ratio (CAR) would reduce their liquidity risk. These findings are valuable to the banks in understanding how to minimize liquidity risk, such as controlling the credit growth rate and CAR, setting appropriate profit targets, and investing in liquid securities. Additionally, by conducting monetary policies, the State Bank should regulate market liquidity and bank liquidity for the safe operation of the financial system.