Factors Affecting Non-Performing Loans of Vietnamese Commercial Banks

Abstract

Based on the research data of 27 commercial banks, the article aims to determine the factors affecting the bad debts of Vietnamese commercial banks over the period 2010–2021. The author uses Pooled models OLS, FEM, and REM and chooses the suitable model as FEM. In addition, the regression estimation method by the GMM model is also implemented to overcome the defects and endogenous phenomena of the model. Research results show that there are five factors of banking characteristics and three macro factors affecting non-performing loans of Vietnamese commercial banks. The bank's characteristics, including the NPL ratio of the previous year (NPLt-1), provision ratio for credit risk (LLR), and credit growth rate (LGR) has a positive impact on NPLs. In contrast, bank size (SIZE) and return on equity (ROE) negatively affect NPLs. For the macro variables, the author determined that the economic growth rate (GDP), the inflation rate (INF) and the exchange rate have a positive correlation with bad debt, unemployment rate (UNL) has no impact on the bad debts of Vietnamese commercial banks. Based on these results, the author proposes some recommendations for the managers of commercial banks and the State Central Bank of Viet Nam to manage the bad debt ratio and promote the sustainable development of the banking industry.