The Impact of Monetary Policy on Credit Risk: The Case of the Vietnamese Commercial Banks

Abstract

This study evaluates the impact of monetary policy on the credit risk of Vietnamese commercial banks from 2009 to 2022. Using the refinancing rate as a proxy for monetary policy and the non-performing loan ratio as a proxy for credit risk, FGLS regression estimates indicate that the policy interest rate positively impacts commercial banks’ credit risk. Thus, when the State Bank of Vietnam increases the policy interest rate, it may lead to a rise in the non-performing loan ratio among commercial banks. These results necessitate that commercial banks enhance their forecasting capabilities to appropriately respond to the policy actions of the State Bank of Vietnam. Additionally, the State Bank of Vietnam needs to exercise caution in its decisions to adjust the policy interest rate, as such adjustments can affect the non-performing loan ratio and, consequently, the banking system's stability.