Credit risk determinants evidence from vietnamese commercial banks

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING HOCHIMINH UNIVERSITY OF BANKING NGUYEN PHUONG DINH NHI “CREDIT RISK DETERMINANTS EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS” GRADUATION DISS[.]

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING HOCHIMINH UNIVERSITY OF BANKING NGUYEN PHUONG DINH NHI “CREDIT RISK DETERMINANTS: EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS” GRADUATION DISSERTATION MAJOR: BANKING AND FINANCE CODE: 7340201 HO CHI MINH CITY, 2022 THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING HOCHIMINH UNIVERSITY OF BANKING GRADUATION THESIS OUTLINE SPEACIALITY: FINANCE – BANKING TOPIC: CREDIT RISK DETERMINANTS: EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS Author : Nguyen Phuong Dinh Nhi Student code: 050606180277 Instructor : Dr Le Ha Diem Chi Ho Chi Minh City, Junly 2022 i ABSTRACT The purpose of this study is to investigate the effects of macroeconomic and bank-specific factors on the credit risk of Vietnamese banks The article illustrates significant patterns using data from Vietnamese commercial banks report between 2010 and 2021 and various estimation techniques/models Specifically, the estimating methods used in this thesis are generalized least square (GLS) and generalized method of moments (GMM) It is discovered that that both the bank – specific and macroeconomic determinants have a profound impact on CreRisk In particular, faster deposit growth rate (DGR), higher earning before loan loss allowance ratio (EBP) and greater the real estate market growth rate (ESI) tend to raise credit risk At the same time, the economic growth (GDP) is negatively associated with credit risk In other words, the more developed the market economy, the lesser the credit risk that Vietnamese commercial banks suffer Besides, although operating efficiency (OPE) and inflation (INF) variables are correlated with CreRisk as the expected direction, their overall explanatory power is found to be low Keywords: Credit risk, loan loss provision, GLS, GMM methods ii GUARANTEE My name is Nguyen Phuong Dinh Nhi, student of class HQ6 – GE12, student number 050606180277, Banking University of Ho Chi Minh City I hereby undertake the research “CREDIT RISK DETERMINANTS: EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS” is my own research paper Except for the material cited in the thesis, I guarantee that the full text of this thesis has never been published or used for qualification elsewhere No other person’s product has been used in this thesis that has not been properly cited The data in the thesis is collected from the clear, reliable, and honestly and objectively processed I confirm that the thesis is my own project HO CHI MINH CITY, day …… month ……, 2022 Author Nguyễn Phương Đình Nhi iii ACKNOWLEDGEMENTS First of all, I would like to thank the teachers at Ho Chi Minh University of Banking, who have imparted valuable knowledge to me during my four years there Next, I would like to express my sincere thanks to Ms Le Ha Diem Chi who is the instructor guiding me throughout the process of making my graduation thesis Thank you for always taking the time and dedication to guide me every step of the way Besides, there are valuable comments and suggestions to improve my research paper Finally, I would like to thank my family and friends who stand by my side and are willing to support me With limited knowledge and conditions, it is inevitable that this thesis includes some shortcomings Therefore, I look forward to receiving the guidance of the teachers so that I can improve the knowledge that serves my career Sincerely thank everyone! iv TABLE OF CONTENTS ABSTRACT i GUARANTEE ii ACKNOWLEDGEMENTS iii TABLE OF CONTENTS iv LISTS OF ACRONYMS vii LIST OF TABLES AND GRAPHS viii CHAPTER 1: INTRODUCTION 1.1 Reasons for choosing the topic 1.2 Research objectives .2 1.3 Research question 1.4 Subject and scope of research .2 1.5 Research contribution 1.6 Structure of research CONCLUSION CHAPTER CHAPTER 2: THEORETICAL BASIS AND REVIEW OF PREVIOUS STUDIES 2.1 Credit of commercial banks 2.1.1 The concept of bank credit .6 2.1.2 Basic characteristics of Bank credit .6 2.2 Credit risk 2.2.1 The concept of credit risk .7 2.2.2 Credit risk classification 2.2.3 Credit risk measurement .9 2.3 Review of the previous study 10 2.3.1 Review of domestic research .10 2.3.2 Review of foreign studies .12 2.4 Factors affecting the banks’ credit risk .15 2.4.1 Bank – specific factors 15 v 2.4.2 Macro factors 17 CONCLUSION CHAPTER 18 CHAPTER 3: RESEARCH METHOD 19 3.1 Research method .19 3.1.1 Dependent variables 19 3.1.2 Independent variables 19 3.2 Research data .26 3.3 Research process .27 3.4 Research method .28 3.4.1 Panel data regression 28 3.4.2 Data regression methods 28 CONCLUSION CHAPTER 31 CHAPTER 4: RESEARCH RESULT AND DISCUSSION 32 4.1 Analysis results of research samples 32 4.2 Results of Pairwise correlation analysis between the variables 34 4.3 Test results of multi-collinear phenomena 36 4.4 Estimating the regression model by OLS, FEM, REM methods 37 4.5 Test of variance and autocorrelation 38 4.6 Estimating the regression model by GLS 40 4.7 Estimating the regression model by GMM .41 4.8 Research results and discussing research results .43 4.8.2 Earning before provision ratio (EBP) 45 4.8.3 The growth rate of real estate market (ESI) 46 4.8.4 Economic growth (GDP) 47 CONCLUSION CHAPTER 49 CHAPTER 5: CONCLUSION AND RECOMMENDATIONS 50 5.1 Conclusion 50 5.2 Recommendations .51 5.2.1 Deposit growth rate (DGR) 51 5.2.2 Earning before provision ratio (EBP) 52 vi 5.2.3 The growth rate of real estate market (ESI) 52 5.2.4 The economic growth (GDP) .54 5.3 Limitation of study and suggestions for further research 54 CONCLUSION OF CHAPTER 56 REFERENCES .57 APPENDIX 63 vii LISTS OF ACRONYMS No Symbol FEM Full name Fixed Effect Model OLS Ordinary Least Square REM Random Effect Model GLS Generalized Least Square GMM Generalized Model Moments viii LIST OF TABLES AND GRAPHS List of tables Table 3.1 Variable description .25 Table 4.1 Descriptive statistics of the research sample 32 Table 4.2 Correlation coefficient matrix between variables Table 4.3 Test of the multicollinearity of the variables 36 Table 4.4 Estimating the result by OLS, FEM, REM 37 Table 4.5 Modified Wald test table – Check the variance of model .39 Table 4.6 Wooldridge test – Autocorrelation test of model 39 Table 4.7 Estimating the FGLS of Model 40 Table 4.8 Estimating the GMM of Model .41 Table 4.9 Research results of Model 43 List of figures Figure Research process 27 Figure 4.1 Relationship between CreRisk and DGR .44 Figure Relationship between CreRisk and EBP .45 Figure 4.3 Relationship between CreRisk and ESI 46 Figure 4.4 Relationship between CreRisk and GDP 47 ... credit risk of Vietnamese commercial banks?  What model and method to measure the credit risk of Vietnamese commercial banks?  How is the impact of the credit risk of Vietnamese commercial banks? ... decided to choose the topic ? ?CREDIT RISK DETERMINANTS: EVIDENCE FROM VIETNAMESE COMMERCIAL BANKS? ?? as a graduate thesis Using secondary data of Vietnamese commercial banks in the period 2010-2021,... of credit risk? 1.4 Subject and scope of research  Subject and scope The object of this research is the credit risk of commercial banks, the factors affecting the credit risk of commercial banks