Non-performing loans and capital adequacy ratio in Vietnamese commercial banks: moderating effects of ownership structure - a dynamic GMM analysis

This study examines whether non-performing loans erode the capital adequacy ratio of Vietnamese commercial banks and whether government ownership moderates this relationship. Using a panel data of 34 banks during 2010-2024, with 490 bank-year observations after screening, the study employs descriptive statistics, diagnostic tests, feasible generalised least squares for robustness, and two-step system GMM as the main estimator to address capital persistence, unobserved heterogeneity, heteroskedasticity, autocorrelation, and endogeneity. The results consistently show that non-performing loans are negatively associated with capital adequacy. In the preferred GMM model, lagged capital adequacy is positive and significant, confirming adjustment persistence; bank size and government ownership increase capital adequacy; and the interaction between non-performing loans and government ownership is negative and significant. The findings indicate that government ownership strengthens the adverse effect of credit risk on bank capital, highlighting ownership structure as a boundary condition in emerging banking markets and policy-relevant banking research debates.