The impact of diversification and credit risk on the profitability of people’s credit funds in Binh Thuan province

Abstract

This study analyzes the impact of income diversification, cost diversification, and credit risk on the profitability of People’s Credit Funds (PCFs) in Binh Thuan Province. The Two-Stage Least Squares (2SLS) method is applied to a panel dataset consisting of 2,016 observations collected from the monthly balance sheets of 24 PCFs over the period 2018 to 2024. The results indicate that income diversification and credit risk exert opposite effects on PCFs' profitability, whereas cost diversification positively influences profitability. The study also highlights the interactive effect of credit risk. The findings are consistent following the implementation of robustness tests on both the primary results and the expanded analysis of the interaction effects of credit risk. The results provide important implications for the management and operation of People’s Credit Funds, suggesting the consideration of diversification strategies, effective cost management, and credit risk control to enhance profitability.