MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF ECONOMICS
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LUONG NGUYEN THANH VAN
FACTORS AFFECTING CREDIT RISK OF VIETNAMESE COMMERCIAL BANKS
Major: Finance - Banking Code: 60340201
MASTER'S THESIS IN ECONOMICS
SCIENTIFIC INSTRUCTOR:
Dr. Nguyen Thanh Phong
Ho Chi Minh City – 2015
COMMITMENT
I hereby certify that the thesis " FACTORS AFFECTING CREDIT RISK OF VIETNAMESE COMMERCIAL BANKS" is my own work.
Independent scientific research and work with my own serious spirit. The research content and research results are independent, not copied from any documents and have not been published in any work up to now. The data used for running the model is honest, collected by the author himself and has a clear and transparent origin; other data for analysis, comments and evaluation are collected from different cited sources and are listed in the reference section.
I take full responsibility for my commitment.
Ho Chi Minh City, November 9, 2015 Thesis author
Luong Nguyen Thanh Van
INDEX
Cover page
Commitment Table of Contents
List of tables and figures
CHAPTER 1. INTRODUCTION TO MASTER'S THESIS IN ECONOMICS 1
1.1. Reasons for conducting the study 1
1.2. Research objective 2
1.3. Research object and scope 3
1.4. Research method 3
1.5. Structure of research paper 4
1.6. Significance of research topic 5
CHAPTER 2. OVERVIEW OF FACTORS AFFECTING CREDIT RISK AT COMMERCIAL BANKS 6
2.1. Credit and credit risk 6
2.1.1. Credit activities of commercial banks 6
2.1.1.1. Concept of bank credit 6
2.1.1.2. Bank credit products 7
2.1.2. Credit risk at commercial banks 9
2.1.3. Credit risk assessment criteria 10
2.1.3.1. Bad debt 10
2.1.3.2. Credit growth 11
2.1.3.3. Credit risk provision 11
2.1.3.4. Marginal interest income 12
2.1.4. Causes and consequences of bank credit risk 13
2.1.4.1. Objective causes 13
2.1.4.2. Subjective causes 14
2.1.4.3. Consequences of credit risk 14
2.2. Factors affecting credit risk 16
2.2.1. Macroeconomic factors group 16
2.2.1.1. Economic growth 16
2.2.1.2. Inflation 16
2.2.1.3. Unemployment 17
2.2.2. Factors related to the bank 17
2.2.3. Customer factors 18
2.2.3.1. Financial factors 18
2.2.3.1. Non-financial factors 19
2.3. A brief review of empirical studies in the world on factors affecting credit risks of commercial banks 20
2.4. Conclusion of chapter 2 24
CHAPTER 3. CURRENT SITUATION OF CREDIT RISK AND FACTORS AFFECTING CREDIT RISK AT VIETNAMESE COMMERCIAL BANKS 25
3.1. Credit risk assessment at Vietnamese commercial banks 25
3.1.1. Bad debt 25
3.1.2. Credit growth 27
3.1.3. Credit risk provision 28
3.1.4. Marginal interest income ratio 29
3.2. Impact of factors on credit risk at Vietnamese commercial banks 29
3.2.1. Credit growth and credit risk 30
3.2.2. Bank size and credit risk 31
3.2.3. Credit risk provision and credit risk 32
3.2.4. GDP growth and credit risk 33
3.2.5. Inflation and credit risk 35
3.4.6. Unemployment and credit risk 37
3.5. Conclusion of chapter 3 39
CHAPTER 4. TESTING FACTORS AFFECTING CREDIT RISK AT VIETNAMESE COMMERCIAL BANKS 40
4.1. Building a research model 40
4.1.1. Identify research variables 40
4.1.1.1. Bad debt ratio 40
4.1.1.2. Credit growth 41
4.1.1.3. Bank size 41
4.1.1.4. Credit risk provision 42
4.1.1.5. GDP growth 42
4.1.1.6. Inflation 44
4.1.1.7. Unemployment rate 44
4.1.2. Choosing a research model 44
4.1.3. Building research hypotheses 47
4.2. Research methods 48
4.4. Discussion of research results 49
4.5. Conclusion of chapter 4 58
CHAPTER 5. SOLUTIONS FOR FACTORS AFFECTING CREDIT RISK TO CONTRIBUTE TO LIMITING CREDIT RISK AT VIETNAMESE COMMERCIAL BANKS 59
5.1. Development orientation of Vietnamese commercial banks 59
5.2. Solutions to control factors affecting credit risks of Vietnamese commercial banks 65
5.2.1. Solutions for commercial banks 65
5.2.1.1. Solutions for GDP growth, inflation and unemployment rate 65
5.2.1.2. Solutions for bank scale 67
5.2.1.3. Solutions for credit risk provisioning 67
5.2.1.4. Solutions for safe and effective credit growth 68
5.2.2. Solution for customers 69
5.2.3. Support solutions 70
5.3. Recommendation 73
5.3.1. For the Government 73
5.3.2. For the State Bank 74
5.4. Limitations and recommendations for further research: 76
5.4.1. Limitations 76
5.4.2 Future research directions 77
5.5. Conclusion of chapter 5 78
CONCLUSION 79
List of references Appendix
LIST OF TABLES
Table 3.1. Summary of RRTD assessment indicators at Vietnamese commercial banks in the period 2006 - 2014
Table 4.1. Summary of research factors
Table 4.2. Descriptive statistics table of observed variables (Appendix 2) Table 4.3. Detailed correlation results between independent variables Table 4.4. Multicollinearity test results
Table 4.5. Results of estimating the influencing factors according to Pooled OLS, FEM, REM Table 4.6. Summary of test results
Table 4.7. Conclusion of statistical hypotheses
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LIST OF DRAWINGS
Figure 3.1. Correlation between credit growth and credit risk Figure 3.2. Correlation between bank size and credit risk
Figure 3.3. Correlation between credit risk provisions and credit risk Figure 3.4. Correlation between GDP growth and bad debt ratio
Figure 3.5. Correlation between inflation and credit risk
Figure 3.6. Correlation between unemployment rate and credit risk
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CHAPTER 1. INTRODUCTION TO MASTER'S THESIS IN ECONOMICS
1.1. Reasons for conducting the study
Banks are the most important type of financial intermediary, playing an important role in the development of the national economy. Basically, the current source of bank revenue comes from four main activities: Interest income from loans, service fees, financial investment, and foreign exchange trading. Of which, income from interest income accounts for the largest proportion compared to other activities. This shows that although today, banking activities have become much richer and more diverse, credit still accounts for a large proportion in the operations of Vietnamese commercial banks. Most banking crises are directly caused by improper credit risk management (Wahlen, JM, 1994). This affirms the leading important role of forecasting and managing credit risks in banking activities.
Due to the importance of banking credit activities to the economy, this activity is also affected by many internal and external factors. There have been many studies on this issue in the world and have produced many meaningful empirical results, focusing on factors affecting credit risks from many different research perspectives. The impact results of the factors may be similar or different depending on the geographical location, country and banking characteristics. The comments of previous researchers strongly affirm the correctness of qualitative arguments about factors affecting bad debt in the banking system and show that credit activities are a major issue that needs to be studied in any economy. In Vietnam, the problem of increasing bad debt and potential risks at commercial banks in recent years has also been frequently mentioned and studied quite a lot with the aim of identifying it and making policy suggestions to improve the situation. Most of the studies are descriptive, analyze the development of bad debt and propose solutions. Some studies analyze the causes leading to bad debt based on tables and numbers.