The impact of credit risk management on profitability of Viet Nam commercial banks

Abstract

Effective credit risk management is vital to the health of banks because it can the ability to destroy or secure the bank’s maintenance and growth. The article studies the impacts of credit risk management measured by bad debt ratio, capital adequacy ratio, expense ratio, liquidity ratio, loan-to-deposit ratio on profitability as measured by return on total assets (ROA) of Vietnamese commercial banks. Using bank-level data collected from 27 Vietnamese commercial banks’ financial reports from 2016 to 2021 and Fixed effect model (FEM), from the regression results show the negative relationship of the non-performing loans ratio on return on assets, the positive relationship of the expense ratio and liquidity ratio on return on assets, while capital adequacy ratio and loan-to-deposit ratio are not significant factors as it is not significant statistically. On that basis, the study makes some recommendations on credit risk management in order to improve the
profitability of commercial banks.