Impacts of Macroeconomic Policies on Non-Performing Loans: Empirical Evidence in Vietnam

Abstract

Through data of 30 Vietnamese commercial banks for the 2008-2018 period, the author assesses the impacts of macroeconomic policies on non-performing loans (NPL) of the commercial banking system. Research results show that when the State Bank of Vietnam (SBV) increases the policy interest rate to curb inflation, the banks NPL ratio also tends to increase. For fiscal policy, when the government increases the budget spending, it will cause an overwhelming effect on the private sector, resulting in increased NPL ratio of the banking system. In addition, the study also conducted an impact analysis of two macroprudential policy instruments are Limits on Domestic Currency Loans and Time-Varying/Dynamic Loan-Loss Provisioning. The research results demonstrate that both of these tools are quite effective in controlling the NPL of the commercial banking system. Besides, the study also considers the effects of two macroeconomic factors, economic growth and inflation. The results show that both factors have negative relationships with the NPL ratio. Finally, the author also analyzes the effect of equity on total assets as an intrinsic factor of commercial banks on NPL. The result reveals that banks have lower equity/total assets, the NPL ratio tends to decrease faster during the study period.