1 MINISTRY OF EDUCATION AND TRANING THE STATE BANK OF VIETNAM HO CHI MINH UNIVERSITY OF BANKING ĐỖ NGUYỄN HIỀN HOA FACTORS AFFECTING CREDIT RISK OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM GRADUATION T.
MINISTRY OF EDUCATION AND TRANING THE STATE BANK OF VIETNAM HO CHI MINH UNIVERSITY OF BANKING ĐỖ NGUYỄN HIỀN HOA FACTORS AFFECTING CREDIT RISK OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 HO CHI MINH CITY, 2022 MINISTRY OF EDUCATION AND TRANING THE STATE BANK OF VIETNAM HO CHI MINH UNIVERSITY OF BANKING ĐỖ NGUYỄN HIỀN HOA FACTORS AFFECTING CREDIT RISK OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 7340201 Instructor DR LÊ HÀ DIỄM CHI HO CHI MINH CITY, 2022 ABSTRACT “Factors affecting credit risk of joint stock commercial bank in Vietnam” using data from 25 commercial banks on a panel data sample from 2010 to 2020 The independent variables are CAR (capital adequacy ratio), CAP (ratio of capital), ROA (ratio of profitability), SIZE (bank size), NPL (non-performing loan), GROW (credit growth), UPR (unemployment rate), GDP (GDP growth) and INF (inflation) are macro dependent variables on credit risk The goal of this study was to examine the impact of common factors o the credit risk of commercial banks in Vietnam The S - GMM regression model is used in this study to examine the factors affecting the credit risk of 25 commercial banks in Vietnam from 2010 to 2020 Keywords: Credit risk, Commercial Bank, Vietnam GUARANTEE My name is Do Nguyen Hien Hoa, and I am a student at the Banking University of Ho Chi Minh City, class HQ6 – GE11, student number: 050606180116 I hereby declare that the thesis topic "Factor affecting the credit risk of joint stock commercial banks in Vietnam" majoring in Finance - Banking, is my own research work that I directed Dr Le Ha Diem Chi's scientific advisor The data and research findings in this thesis are honest, with no previously published or made by others except for fully cited citations in the thesis HCM City, June, 2022 Author DO NGUYEN HIEN HOA ACKNOWLEDGEMENT First and foremost, I would like to thank my research supervisors, Dr Le Ha Diem Chi Without her assistance and dedicated involvement in every step throughout the process, this paper could have never been accomplished I am extremely grateful to you for supporting and understanding me during the past time I would also like to show gratitude to the teachers of Ho Chi Minh City University Of Banking - who have imparted valuable knowledge to me during the four years of the University Thank you for giving me the opportunity to meet and study at Ho Chi Minh City University of Banking Getting through my dissertation required more than academic support, and I have many, many teachers to thank for listening to and, at times, having to tolerate me over the past four years Finally, I would like to express my heartfelt appreciation to my family and friends, who have always helped, accompanied, and supported me over the years With limited knowledge and circumstances, this thesis cannot avoid many flaws As a result, I am looking forward to receiving teacher guidance so that I can improve my knowledge and serve my work in the future Sincerely thank everyone! HCM City, June, 2022 Author Do Nguyen Hien Hoa Contents ABSTRACT GUARANTEE THANK YOU Error! Bookmark not defined LIST OF ACRONYMS 10 LIST OF TABLES AND DIAGRAMS 11 CHAPTER 1: INTRODUCTION 12 1.1 REASONALE FOR RESEARCH 12 1.2 RESEARCH OBJECTIVES 12 1.2.1 Overall objectives 12 1.2.2 Detail objectives 12 1.3 RESEARCH QUESTIONS 13 1.4 OBJECTS AND RESEARCH SCOPE 13 1.4.1 Research object 13 1.4.2 Research scope 13 1.5 SCIENTIFIC AND PRACTICAL SIGNIFICANCE 13 1.5.1 Scientific significance 13 1.5.2 Practical significance 14 1.6 RESEARCH GAP 14 1.7 RESEARCH METHODS 14 1.8 CONTENT OF THESIS 15 CONCLUSION CHAPTER 17 CHAPTER 2: LITERATURE 18 2.1 OVERVIEW OF CREDIT RISK OF JOINT STOCK COMMERCIAL BANKS 18 2.1.1 Definition of credit risk 18 2.1.2 The indicators reflect the credit risk of commercial banks: 19 2.2 FACTORS AFFECTING THE CREDIT RISK OF JOINT STOCK COMMERCIAL BANKS 22 2.2.1 Macro factor 22 2.2.2 Bank specific 24 2.3 Overview of the studies to the thesis 26 2.3.1 Domestic studies 26 2.3.2 Forgein studies 27 CONCLUSION CHAPTER 31 CHAPTER 3: RESEARCH METHODS 32 3.1 DATA COLLECTION: 32 3.2 RESEARCH MODELS 33 3.3 DESCRIPTION VARIABLE AND RESEARCH HYPOTHESIS 34 3.3.1 Dependent variable 34 3.3.2 Independent variables 35 3.4 RESEARCH PROCESS 42 3.5 RESEARCH METHODS 44 3.5.1 Ordinary Least Squares (OLS) 44 3.5.2 Fixed Effect Model (FEM) 44 3.5.3 Random Effect Model (REM) 44 3.5.4 Feasible Generalized Least Square (FGLS) 44 3.5.5 System Generalized Model of Moments (S-GMM) 45 3.5.6 Check for suitable model selection 45 CONCLUSION CHAPTER 48 CHAPTER 4: RESEARCH RESULTS AND DISCUSSION 49 4.1 DESCRIPTIVE STATISTICAL 49 4.2 CORRELATION ANALYSIS 51 4.3 MULTICOLLINEARITY TEST 52 4.4 ESTIMATED THE POOLED OLS, FEM, REM MODELS 53 4.5 SELECTION TEST OF MODELS POOLED OLS AND FEM 55 4.6 ESTIMATED THE FGLS 56 4.7 ESTIMATING THE REGRESSION MODEL BY GMM 57 4.8 DISCUSSION 58 4.8.1 Bank size (SIZE) 60 4.8.2 Non-performing loan (NPL) 61 4.8.3 Ratio of Profitability (ROA) 62 4.8.4 Ratio of capital (CAP) 63 CONCLUSION OF CHAPTER 65 CONCLUSIONS AND RECOMMENDATIONS 66 5.1 CONCLUSION 66 5.2 RECOMENDATION 67 5.3 LIMITATIONS OF THE TOPIC AND RESEARCH DIRECTIONS 68 5.3.1 Limitations of the research 68 5.3.2 Further research directions 68 CONCLUSSION CHAPTER 69 REFERENCES 70 APPENDIX 73 LIST OF ACRONYMS Acronyms English CRI Credit risk CAR Capital adequacy ratio CAP Ratio of capital EP Earning Power ROA Ratio of Profitability SIZE Bank size COL Collateral NPL Non – Performing loan GROWTH Credit growth UPR Unemployment rate GDP GDP growth INF Inflation rate OLS Ordinary Least Squares FEM Fixed Effect Model REM Random Effect Model VIF Variance Inflation Factors FGLS Feasible Generalized Least Square GMM Generalized method of moments 10 CONCLUSIONS AND RECOMMENDATIONS 5.1 CONCLUSION The biggest risk that commercial banks always face when setting credit growth targets is credit risk, not only causing financial losses, reducing the market value of bank capital, but also making operations The bank's business suffers losses, even goes bankrupt The study examines the impact of the credit risk of the Vietnam banking system for the period from 2010 to 2020 with factors including capital adequacy ratio (CAR), ratio of capital (CAP), ratio of profitability (ROA), bank size (SIZE), non — performing loan (NPL), credit growth (GROW), unemployment rate (UPR), GDP growth (GDP) and inflation (INF) From the regression results, the FEM model is selected as the most suitable model to analyze the impact of factors on the CRI To manage model faults, the study uses the FGLS regression estimation method on panel data, and the S - GMM method to handle endogenous problems The following are the findings of the study: Firstly, this thesis has identified a number of factors affecting the credit risk of commercial Joint stock banks in the Vietnamese banking system We can see, variables such as non - performing loan, ratio of profitability and unemployment rate have a positive impact on the capital adequacy ratio of Vietnamese joint-stock commercial banks In contrast, credit growth and inflation have a negative of Vietnamese joint- stock commercial banks Besides, bank size, ratio of capital, capital adequacy ratio and GDP rate are not statistically significant Then, this study has determined the level of impact of factors on the credit risk of commercial joint stock banks in Vietnam For example, the factor impacting highest is unemployment rate with an impact coefficient of 3.5167 Meanwhile, credit growth is the weakest impact coefficient of 0.0210 Thirdly, the study proposes some recommendations to limit the credit risk in commercial banks in Vietnam effectively Therefore, commercial banks commercial banks 66 can both ensure the maintenance of an appropriate credit risk while ensuring compliance with regulations and at the same time realizing the objectives 5.2 RECOMENDATION 5.2.1 Banks should ensure sustainable credit growth Banks need to ensure sustainable credit growth, which is reflected in close supervision during the appraisal stage, credit granting decisions as well as post-credit monitoring Banks should avoid excessive credit granting, lowering credit standards; it is necessary to develop and clearly define the risk appetite, thereby proactively building a credit portfolio with the expected distribution proportions and choosing the appropriate plan with profit goals and loss tolerance of the bank 5.2.2 Control bank’ non - performing loan at a reasonable level According to the results of the study, non - performing loan is the factors that influence and has a positive relationship with the credit risk of commercial banks in Vietnam Therefore, banks need to control bank‘ non - performing loan at a reasonable level to be able to grow stably The bank needs to complete policies related to credit risk management, build credit limits by industry/economic field, or by geographical area, avoid rampant credit Investment situation, lack of control in some industries such as real estate business, securities business or lending to cross owned In addition, the bank also carries out credit risk assessment such as evaluation, customer classification and credit ranking through internal credit rating systems, thereby classifying debts and providing provisions according to true to the nature of the debt and in accordance with the regulations of the state management agency 5.2.3 Having a stable and sustainable operating strategy In order to help profitability rates grow steadily to limit bad debts, commercial banks should choose a stable and sustainable operation strategy, avoid hot credit growth, and at the same time credit activities must be closely linked closely with strict credit management tools to prevent credit risks 67 5.2.4 Banks need to proactively respond to changes in the economy Macro factors really affect credit granting activities and debt repayment ability of customers Macro variables are often beyond the control of commercial banks Therefore, banks need to proactively respond to changes in the economy to preserve their assets Banks need to pay more attention to macro variables This not only helps banks proactively respond to shocks of the economy, but also helps banks forecast risk provisions From there, banks can come up with reasonable development strategies, both ensuring profitability and preserving the bank's assets 5.3 LIMITATIONS OF THE TOPIC AND RESEARCH DIRECTIONS 5.3.1 Limitations of the research Firstly, the data of this study includes only 25 joint stock commercial banks in Vietnam including 274 observations, so the sample size is not large enough to fully represent the entire banking system Vietnamese trade and lack of some variable indicators in some banks Secondly, the result model's estimate may be affected if the bank's statistics are unreliable due to the data collected by the author from the banks' annual financial statements on the website Thirdly, the research model is incomplete Authors included in the research model are not all variables affecting full proportion capital There are still many other factors affecting credit risk that the author has not mentioned as collateral… 5.3.2 Further research directions Firstly, the author needs to expand the sample size, increase the study time to reduce the error in the estimation results Second, the author should add independent variables related to credit risk to risk such as collateral, interest rate, to determine, evaluate more accurately and fully about credit risk with the fluctuations inside and outside the bank 68 CONCLUSSION CHAPTER This chapter of the study assesses the topic's research findings, limitations, and future development directions Fromthere, the study has given some recommendations to help limit the credit risk for joint stock commercial banks in Vietnam In addition, chapter of the study also recognize limitations that need to be resolved and overcome for next research in the future 69 REFERENCES List of Vietnamese references Lê Khương Ninh Phan Thị Bích Ngọc (2012) Rủi ro tín dụng cho vay doanh nghiệp nhỏ vừa chi nhánh Ngân hàng đầu tư phát triển Việt Nam đồng sông Cửu Long Tạp chí Cơng Nghệ Ngân hàng, trường Đại học Cần Thơ Lê Thái Học (2018) Phân tích nhân tố ảnh hưởng đến rủi ro tín dụng doanh nghiệp Agribank thành phố Cần Thơ Tạp chí khoa học trường Đại học Kinh tế Thành phố Hồ Chí Minh Nghị số 51/2001/QH10 (2010) Luật Tổ chức Tín dụng Luật số: 47/2010/QH12 Trương Đồng Lộc Nguyễn Thị Tuyết (2011) Các nhân tố ảnh hưởng đến rủi ro tín dụng Ngân hàng thương mại cổ phần Ngoại Thương chi nhánh tỉnh Cần Thơ Tạp chí Ngân hàng, trường Đại học CầnThơ Võ Thị Qúy Bùi Ngọc Toản (2014) Các yếu tố ảnh hưởng đến rủi ro tín dụng hệ thống Ngân hàng thương mại Việt Nam Tạp chí khoa học, trường Đại học Mở TP.HCM Thảo, H T H (2019) Ảnh hưởng rủi ro tín dụng đến hiệu hoạt động ngân hàng thương mại Việt Nam Tạp chí Khoa học & Đào tạo Ngân hàng Số List of English references Athanasoglou, P., Brissimis, S N., and Delis, M D (2008) Bank-specific, industry-specific and macroeconomic determinants of bank profitability Journal of International Financial Markets, Institutions and Money, 18(2), 121–136 70 Aver, B.,(2008) An Empirical Analysis of Credit Risk Factors of the Slovenian Banking System.Managing Global Transitions (3), 317-334 Brown, K., & Moles, P (2014) Credit risk management K Brown & P Moles, Credit Risk Management, 16 Zamore, S., Ohene Djan, K., Alon, I., & Hobdari, B (2018) Credit risk research: Review and agenda Emerging Markets Finance and Trade, 54(4), 811-835 Gilchrist, S., Ortiz, A., & Zakrajsek, E (2009) Credit risk and the macroeconomy: Evidence from an estimated dsge model Unpublished manuscript, Boston University, 13.) Mileris, R (2012) Macroeconomic determinants of loan portfolio credit risk in banks Engineering Economics, 23(5), 496-504 Havidz, H B H., & Obeng-Amponsah, W (2020) Banking Industry Specific and Macroeconomic Determinant of Credit Risk nternational Journal of Advanced Engineering Research and Science (IJAERS), 1-8 Schönbucher, P J (2000) Factor models for portofolio credit risk (No 16/2001) Bonn Econ Discussion Papers Berger, A N., and DeYoung, R (1997) Problem loans and cost efficiency in commercial banks, Journal of Banking and Finance, 21(6), 849–870 10 Blaschke, G and Peria, M (2001) Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Esperiences IMF Working Paper, WP/01/88 11 Daniel, F and Martin, W (2010) Loan growth and riskiness of banks Journal of banking and finance, (34), 217-228 71 12 Ghosh, A (2017) Sector-specific analysis of non-performing loans in the US banking system and their macroeconomic impact Journal of Economics and Business, 29-45 13 Hazimi and William (2020) Banking Industry Specific and Macroeconomic Determinant of Credit Risk International Journal of Advanced Engineering 14 Research and Science (IJAERS) 72 APPENDIX Appendix 01 Descriptive statistics Appendix 02 Correlation matrix between variables 73 74 Appendix 03 VIF Appendix 04 Pooled OLS regression results 75 Appendix 05 FEM regression results 76 Appendix 06 FEM regression results Appendix 07 Hausmna test 77 Appendix 08 FGLS Appendix 09 Breusch and Pagan tetst 78 Appendix 10 S – GMM 79 80 ... banks in Vietnam 1.2.2 Detail objectives Determining factors affecting credit risk of joint stock commercial banks in Vietnam 12 Evaluate of influence of these factors on credit risk of joint. .. credit risk of joint stock commercial banks 2.1.1 Definication of credit risk 2.1.2 The indicators reflect the credit risk of commercial banks 2.2 Factors affecting credit risk 2.2.1 Macro factors. ..MINISTRY OF EDUCATION AND TRANING THE STATE BANK OF VIETNAM HO CHI MINH UNIVERSITY OF BANKING ĐỖ NGUYỄN HIỀN HOA FACTORS AFFECTING CREDIT RISK OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM