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The impact of credit risk on the financial stability of commercial banks in Vietnam

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  • Nguyen Quoc Anh

    (University of Economics Ho Chi Minh City, Vietnam)

  • Duong Nguyen Thanh Phuong

    (University of Economics Ho Chi Minh City, Vietnam)

Abstract

This study investigates the impact of credit risk on the financial stability of Vietnamese commercial banks. The paper uses the Z-score to proxy the financial stability of banks. We use the data of 27 Vietnamese commercial banks on BankScope, during 2010 - 2019. The paper applied a dynamic panel data approach; the selected method is the difference GMM (DGMM). The key question discussed is which factor impacts on Z-score. Analysis results show the negative effect of non-performing loans on the financial stability of banks. When commercial banks have higher non-performing loans, the lower the financial stability is. Additionally, bank-specific variables such as equity on asset ratio, the return on equity, the size of the bank and set of macroeconomic variables affect the bank’s financial stability. Based on the analysis results, we imply relevant policies for the State Bank of Vietnam and commercial banks.

Suggested Citation

  • Nguyen Quoc Anh & Duong Nguyen Thanh Phuong, 2021. "The impact of credit risk on the financial stability of commercial banks in Vietnam," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ECONOMICS AND BUSINESS ADMINISTRATION, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 11(2), pages 67-80.
    • Handle: RePEc:bjw:econen:v:11:y:2021:i:2:p:67-80
    DOI: 10.46223/HCMCOUJS.econ.en.11.2.1421.2021
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    References listed on IDEAS

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