The impact of credit risk on business performance of Vietnamese commercial banks

MINISTRY OF EDUCATION AND TRAINING

HO CHI MINH CITY UNIVERSITY OF ECONOMICS

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NGUYEN QUOC ANH

IMPACT OF CREDIT RISK ON BUSINESS PERFORMANCE OF VIETNAMESE COMMERCIAL BANKS

DOCTORAL THESIS

Ho Chi Minh City, 2016

MINISTRY OF EDUCATION AND TRAINING HO CHI MINH CITY UNIVERSITY OF ECONOMICS

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NGUYEN QUOC ANH

IMPACT OF CREDIT RISK ON BUSINESS PERFORMANCE OF VIETNAMESE COMMERCIAL BANKS

MAJORITY: FINANCE - BANKING

CODE: 62.34.02.01

DOCTORAL THESIS

SCIENCE GUIDE

Assoc.Prof.Dr. NGUYEN DANG DON

Ho Chi Minh City, 2016

COMMITMENT

I hereby certify that the topic “The impact of credit risk on business performance at Vietnamese commercial banks” is the author’s research work. The information and data used in the topic are honest, accurate and reliable. The quoted content is collected by the author from various sources with the source clearly stated in the reference section.

Ho Chi Minh City, September 22, 2016

Author

Nguyen Quoc Anh

INDEX

COVER PAGE STATEMENT OF GUARANTEE TABLE OF CONTENTS

LIST OF ABBREVIATIONS LIST OF TABLES AND FIGURES LIST OF CHARTS

CHAPTER 1: INTRODUCTION 1

1.1 REASONS FOR CHOOSING TOPIC 1

1.2 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS 5

1.3 SUBJECTS AND SCOPE OF RESEARCH 6

1.4 RESEARCH METHODS 6

1.5 TOPIC STRUCTURE 7

CHAPTER 2: THEORETICAL BASIS 8

2.1 CREDIT RISK 8

2.1.1 Concept 8

2.1.2 Causes of credit risk 9

2.2 BUSINESS PERFORMANCE OF COMMERCIAL BANKS 10

2.2.1 Concept of commercial bank business efficiency 10

2.2.2 Indicators reflecting business performance 15

2.3 IMPACT OF CREDIT RISK ON BUSINESS PERFORMANCE OF COMMERCIAL BANKS 17

2.3.1 Credit risk affects the profits and risks of commercial banks 17

2.3.2 Credit risk affects business performance 18

2.3.3 Credit risk affects macroeconomic factors 18

2.4 OVERVIEW RESEARCH ON THE IMPACT OF CREDIT RISK ON BUSINESS PERFORMANCE OF COMMERCIAL BANKS 19

2.4.1 Research on factors affecting RRTD of commercial banks 20

2.4.2 Impact of RRTD on business performance of commercial banks 30

CHAPTER 3: RESEARCH METHODOLOGY 38

3.1 RESEARCH MODEL OF FACTORS AFFECTING RRTD 39

3.2 MODEL OF IMPACT OF CREDIT RISK ON BUSINESS PERFORMANCE OF COMMERCIAL BANKS 48

3.3 DATA 50

CHAPTER 4: RESEARCH RESULTS AND DISCUSSION 52

4.1. MACROECONOMIC SITUATION 52

4.2 CURRENT STATUS OF CREDIT RISK AND BUSINESS PERFORMANCE OF VIETNAMESE COMMERCIAL BANKS 57

4.2.1 Credit risk 57

4.2.2 Business efficiency of commercial banks in Vietnam 62

4.3 IMPACT OF CREDIT RISK ON BUSINESS PERFORMANCE OF VIETNAMESE COMMERCIAL BANKS 63

4.3.1 Credit risk reduces profits 63

4.3.2 Increased credit risk provisions reduce profits 64

4.3.3 Restructuring banks to limit credit risks and improve business efficiency

................................................................ ................................................................ .......................... 65

4.4 RESEARCH RESULTS 68

4.4.1 Factors affecting credit risk 68

4.4.1.1 Descriptive statistics 68

4.4.1.2 Correlation coefficient analysis 69

4.4.1.3 Multicollinearity test 70

4.4.1.4 Regression results analysis 74

4.4.2 Impact of credit risk on business performance of commercial banks 77

4.4.2.1 Descriptive statistics 77

4.4.2.2 Correlation coefficient analysis 79

4.4.2.3 Multicollinearity test 79

4.4.2.4 Regression analysis 83

CHAPTER 5: CONCLUSION AND SUGGESTED SOLUTIONS 89

5.1 CONCLUSION 89

5.2 SOLUTIONS FROM RESEARCH RESULTS OF MODEL 93

5.3 MACROECONOMIC STABILIZATION SOLUTIONS 95

5.4 SOME SOLUTIONS TO LIMIT CREDIT RISK OF VIETNAMESE COMMERCIAL BANKS 96

5.4.1 Strengthening credit risk management 96

5.4.2 Building a credit risk management system according to Basel 97 standards

5.4.3. Controlling credit processes and improving credit appraisal 99

5.4.4 Monitoring, checking and overcoming the consequences of credit risks 100

5.5 SOLUTIONS TO IMPROVE BUSINESS EFFICIENCY OF NHTM 101

5.5.1 Completing the legal framework for credit granting activities of commercial banks 101

5.5.2 Perfecting the organizational structure of banking operations 101

5.5.3 Increasing the size of banks 102

5.6 NEW CONTRIBUTIONS OF TOPIC 103

5.7 LIMITATIONS AND FURTHER RESEARCH DIRECTIONS 104

5.7.1 Limitation 104

5.7.2 Future research directions 104

CONCLUSION 106

LIST OF PUBLISHED SCIENTIFIC RESEARCH PROJECTS REFERENCES

APPENDIX

LIST OF ABBREVIATIONS

STT

Acronym	English	Vietnamese
1	ADB	Asian Development Bank	Asian Development Bank
2	AEG	Advisor Expert Group	Advisory Group of the United Nations United Nations
3	BCBS	Basel Committee on Banking Supervision	Basel Committee on Banking Supervision row
4	Financial Statements		Financial report
5	FEM	Fixed Effects Model	Fixed effects model
6	FGLS	Feasible Generalized Least Squares	Generalized least squares feasible
7	GDP	Gross Domestic Product	Gross domestic product
8	GDPGR	Gross Domestic Product Growth	Gross domestic product growth internal
9	GMM	Generalized Method of Moments	Total moment regression model shout
10	HQKD		Business performance
11	IER	Interest expense rate	Interest expense ratio
12	INFLA	Inflation	Inflationary
13	IMF	International Monetary Fund	International Monetary Fund
14	LGR	Loan Growth Rate	Credit growth
15	LR	Loan Rate	Debt ratio
16	Commercial Bank		Commercial Bank
17	Joint Stock Commercial Bank		Joint Stock Commercial Bank
18	State Bank of Vietnam		State Bank
19	NII	Non-interest income	Non-interest income ratio
20	NPL	Non-performing loan	Bad debt ratio
21	OLS	Ordinary Least Squares	Least square method best

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REM	Random Effects Model	Random effects model
23	ROE	Return on equity	Return on equity have
24	ROA	Return on asset	Return on assets
25	RRTD		Credit risk
26	SIZE	Size	Bank size
27	TCTD		Credit institution
28	TTS		Total assets
29	VAMC	Vietnam Asset Management Company	Asset Management Company
30	VCSH		Equity

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