The Effects of Liquidity and Credit Risks on Bank Stability: A Case of Commercial Banks in Vietnam

Abstract

This study aims to analyze the effects of liquidity and credit risks on the stability of 25 Vietnamese commercial banks in 2008-2022. The study uses the two-stage least squares (2SLS) method and panel vector autoregression method (Pvar) to analyze the relationship between credit risk and liquidity risk. Then, study the impact of these two types of risks on the bank’s stability through a Generalized Method of Moments (GMM). The findings suggest that credit risk and liquidity risk have a causal relationship and have a parallel impact on bank stability. In which credit risk has a direct and adverse effect on bank stability. In contrast, liquidity risk indirectly impacts bank stability by combining the interaction variable between risk liquidity and credit risk. The results are the basis for policymakers to make banking risk management policies in the future.