Capital and Risk-Taking of Vietnamese Commercial Banks: A Non-Linear Approach

Abstract

The article uses data from 27 Vietnamese commercial banks from 2011 to 2022 to evaluate the non-linear relationship between bank capital and risk-taking, represented by the Z.Score ratio. By estimating SGMM, the results are obtained as an inverted U shape of the relationship held between bank capital and Z.Score, implying that increasing capital reduces the bank's risk-taking level, surpassing the threshold point if capital continues to grow, will lead to an increase the level of risk-taking. Compared with reality, the article finds that the relationship between capital and risk-taking of Vietnamese commercial banks is in the left branch of the inverted U shape. The research results reinforce the correctness of policies that require increased capital to bring the banking system to stable, safe, and healthy development.