Credit Risk and Financial Performance of Vietnamese Commercial Banks: During and After the Financial Crisis
Main Article Content
Abstract
This study examines the influence of credit risk on the financial performance of commercial banks, as measured by the bad debt ratio and the credit risk provision ratio, with and without the participation of macro factors. This study also investigates the effect of the financial crisis on these relationships. Estimates of the generalized two-step systems method (GMM) are used with financial data of 24 commercial banks in Vietnam for the period 2008-2017. The results find that the credit risk of banks has a negative impact on financial performance. Surprisingly, the bad debt ratio is found to enhance the financial performance of commercial banks, while the ratio of provision for credit losses keeps dragging down financial performance significantly during the financial crisis years.
Keywords:
Credit risk, bad debt, credit risk provisions, financial performance.
References
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Musyoki, D., & Kadubo, A. S. (2012). The impact of credit risk management on the financial performance of banks in Kenya for the period (2000-2006). International Journal of Business and Public Management, 2(2), 72-80.
Nguyen, H. T., & Nguyen, T. N. (2017). The influence of credit risk on bank performance from non-parametric approach. Banking Review, 17(1), 13-21 (in Vietnamese).
Nguyen, T. T. H., & Phan, G. Q. (2018). Monetary Policy, bank competitiveness and bank risk-taking: Empirical evidence from Vietnam. Asian Academy of Management Journal of Accounting and Finance, 14(2), 137-156. doi:10.21315/aamjaf2018.14.2.6
Ozili, P. K., & Uadiale, O. (2017). Ownership Concentration and Bank Profitability. Future Business Journal, 3(2), 159-171. doi:10.1016/j.fbj.2017.07.001
Pham, H. H. T. (2013). The impact of bad debt on bank profitability. Journal of Economic Studies, 424(9), 34-38 (in Vietnamese).
Poudel, R. P. (2012). The impact of credit risk management on financial performance of commercial banks in Nepal. International Journal of Arts and Commerce, 1(5), 9-15.
Roodman, D. (2009). How to do Xtabond2: An introduction to difference and system gmm in Stata. The Stata Journal, 9, 86-136. doi:10.1177/1536867X0900900106
Saeed, M., & Zahid, N. (2016). The impact of credit risk on profitability of the commercial banks. Journal of Business & Financial Affairs, 5(2). doi:10.4172/2167-0234.1000192
Suela, K. (2013). Efficiency of the Albanian banking system: Traditional approach and stochastic frontier analysis. International Journal of Business and Economic Sciences Applied Research (IJBESAR), 6(3), 61-78.
Sufian, F., & Habibullah, M. S. (2009). Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh. Journal of Business Economics and Management, 10(3), 207-217. doi:10.3846/1611-1699.2009.10.207-217
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40, 85-110. doi:10.1016/j.intfin.2015.09.003
Wireko, D., & Forson, A. (2017). Credit risk management and profitability of selected rural banks in Upper East Region. Journal of Excellence, Leadership, & Stewardship, 6(2), 43-55.
Amin, M. A. M. et al. (2014). Inverse relationship of financial risk and performance in commercial banks in Tanzania. Investment Management and Financial Innovations, 11(4), 279-291.
Apanga, M. A. N. et al. (2016). Credit risk management of Ghanaian listed banks. International Journal of Law and Management, 58(2), 162-178. doi:10.1108/ijlma-04-2014-0033
Gadzo, S. G. et al. (2019). Credit risk and operational risk on financial performance of universal banks in Ghana: A partial least squared structural equation model (PLS SEM) approach. Cogent Economics & Finance, 7(1). doi:10.1080/23322039.2019.1589406
Goddard, J. et al. (2013). Do bank profits converge? European Financial Management, 19(2), 345-365. doi:10.1111/j.1468-036x.2012.00578.x
Gujarati, D. N. (2009). Basic Econometrics. New Delhi: McGraw-Hill Education.
Haq, M., & Heaney, R. (2012). Factors determining european bank risk. Journal of International Financial Markets, Institutions and Money, 22(4), 696-718.
Islam, M. A., & Rana, R. H. (2017). Determinants of bank profitability for the selected private commercial banks in Bangladesh: A panel data analysis. Banks and Bank Systems, 12(3), 179-192. doi:10.21511/bbs.12(3-1).2017.03
Kaaya, I., & Pastory, D. (2013). Credit risk and commercial banks performance in Tanzania: A panel data analysis. Research Journal of Finance and Accounting, 4(16), 55-63.
Kamarudin, F., Sufian, F., & Nassir, A. M. (2016). Global Financial crisis, ownership and bank profit efficiency in the Bangladesh's state owned and private commercial banks. Contaduría y Administración, 61(4), 705-745. doi:10.1016/j.cya.2016.07.006
Kolapo, T. F., Ayeni, R. K., & Oke, M. O. (2012). Credit risk and commercial banks’ performance in Nigeria: A Panel Model Approach. Australian Journal of Business and Management Research, 2(2), 31-38.
Kosmidou, K. (2008). The determinants of banks' profits in greece during the period of EU financial integration. Managerial Finance, 34(3), 146-159. doi:10.1108/03074350810848036
Luong, D. Q. (2015). Determinants of banking crisis: The case of Vietnam. Journal of Science Ho Chi Minh City Open University, 4(64-81).
Musyoki, D., & Kadubo, A. S. (2012). The impact of credit risk management on the financial performance of banks in Kenya for the period (2000-2006). International Journal of Business and Public Management, 2(2), 72-80.
Nguyen, H. T., & Nguyen, T. N. (2017). The influence of credit risk on bank performance from non-parametric approach. Banking Review, 17(1), 13-21 (in Vietnamese).
Nguyen, T. T. H., & Phan, G. Q. (2018). Monetary Policy, bank competitiveness and bank risk-taking: Empirical evidence from Vietnam. Asian Academy of Management Journal of Accounting and Finance, 14(2), 137-156. doi:10.21315/aamjaf2018.14.2.6
Ozili, P. K., & Uadiale, O. (2017). Ownership Concentration and Bank Profitability. Future Business Journal, 3(2), 159-171. doi:10.1016/j.fbj.2017.07.001
Pham, H. H. T. (2013). The impact of bad debt on bank profitability. Journal of Economic Studies, 424(9), 34-38 (in Vietnamese).
Poudel, R. P. (2012). The impact of credit risk management on financial performance of commercial banks in Nepal. International Journal of Arts and Commerce, 1(5), 9-15.
Roodman, D. (2009). How to do Xtabond2: An introduction to difference and system gmm in Stata. The Stata Journal, 9, 86-136. doi:10.1177/1536867X0900900106
Saeed, M., & Zahid, N. (2016). The impact of credit risk on profitability of the commercial banks. Journal of Business & Financial Affairs, 5(2). doi:10.4172/2167-0234.1000192
Suela, K. (2013). Efficiency of the Albanian banking system: Traditional approach and stochastic frontier analysis. International Journal of Business and Economic Sciences Applied Research (IJBESAR), 6(3), 61-78.
Sufian, F., & Habibullah, M. S. (2009). Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh. Journal of Business Economics and Management, 10(3), 207-217. doi:10.3846/1611-1699.2009.10.207-217
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40, 85-110. doi:10.1016/j.intfin.2015.09.003
Wireko, D., & Forson, A. (2017). Credit risk management and profitability of selected rural banks in Upper East Region. Journal of Excellence, Leadership, & Stewardship, 6(2), 43-55.