Nhom01 L01 BankManagement

MINISTRY OF EDUCATION AND TRADING STATE BANK OF VIETNAM
BANKING UNIVERSITY OF HO CHI MINH CITY
SUBJECT: BANK MANAGEMENT

TOPIC: FACTORS AFFECTING CREDIT RISK
OF COMMERCIAL BANKS IN VIETNAM
Instructor: Dr. Le Ha Diem Chi
CLASS: L01
GROUP 1
GROUP MEMBERS
Name Student code
Tran Do Nhu Ha 050608200319
Nguyen Hoang Bao Chau 050608200259
Nguyen Quynh Nhu 050608200545
Tran Ly My Ngoc 050608200494
Huynh Kim Thoa 050608200668
Ngo Thi Kim Phuoc 050608200568
Nguyen Hieu Kien 050608200077
Nguyen Le Ngoc Linh 050608200419
HO CHI MINH CITY, 2022

ABSTRACT SUMMARY
The thesis "Factors Affecting Credit Risk Of Commercial Banks In Vietnam” uses data
from 28 commercial banks on a sample of table data from 2011 to 2021, including Credit
risk (LLP), NPL (bad debt), Economic growth rate (GDP), Inflation rate (INF),
Capital adequacy ratio (CAP), Total loan assets (TLA), Return on assets (ROA),
Economic growth rate (GROW) and Cost-effective operation ( INEF).
The research topic applies Pooled-OLS, FEM, and REM models. However, the results
show that the research model encounters autocorrelation and variable variance, so the
author continues applying the model. FGLS model to overcome the research model.
Then, the author applies the GMM model to test the endogenous phenomenon occurring
in the research model and receives high-accuracy research results. Hence, the author
receives the analysis results from the GMM model as the final result.
THANK YOU
My team would like to thank and send kind words to the person who guided us in the
process of completing the thesis - Dr. Le Ha Diem Chi, who oriented, directed, helped,
and encouraged us throughout the process of completing the thesis into a research
thesis.
TABLE OF CONTENT
LIST OF ACRONYMS .......................................................................................................... i

LIST OF TABLES AND FIGURES ...................................................................................... ii
CHAPTER 1. INTRODUCTION TO THE RESEARCH TOPIC ........................................... 1
1.1. Reason for Research .................................................................................................... 1
1.2. Objective of study ....................................................................................................... 2
1.2.1. General objective.................................................................................................. 2
1.2.2. Specific objective ................................................................................................. 2
1.3. Research question ....................................................................................................... 2
1.4. Objects and scope of the study .................................................................................... 2
1.4.1. Study objects ........................................................................................................ 2
1.4.2. Scope of the study ................................................................................................ 2
1.5. Contributions .............................................................................................................. 3
1.5.1 Search For Learning Methods ................................................................................ 3
1.5.2 Research process ................................................................................................... 3
1.6. Expected Contributions ............................................................................................... 3
1.7 Structure of reasearch ................................................................................................... 4
CONCLUSION CHAPTER 1 ................................................................................................ 6
CHAPTER 2. REVIEW OF THE LITERATURE .................................................................. 7
2.1. Theoretical basis related to factors affecting credit risk of Commercial banks ............. 7
2.1.1. Overview of credit activities of Commercial banks ............................................... 7
2.1.2. The definition of credit risk at Commercial Bank ................................................. 8
2.1.3. Factors affecting the credit risk of commercial banks.......................................... 10
2.2 An overview of previous research .............................................................................. 12
2.2.1 Review of domestic research ............................................................................... 12
2.2.2. Review of foreign research ................................................................................. 14
2.2.3. Research gap ...................................................................................................... 15
CONCLUSION CHAPTER 2 .............................................................................................. 17
CHAPTER 3 RESEARCH MODEL AND METHODOLOGY ............................................ 18
3.1. Reasearch model ....................................................................................................... 18
3.2. Research data and research methods .......................................................................... 19
3.2.1. Research data ..................................................................................................... 19
3.2.2 Model variables ................................................................................................... 19
3.3. Research process ....................................................................................................... 22
3.4 Research Hypothesis .................................................................................................. 22
CHAPTER 4: RESEARCH RESULTS AND DISCUSSION ............................................... 27
4.1. Descriptive statistics.................................................................................................. 27
4.2 Correlation Matrix...................................................................................................... 28
4.2.1 Correlation matrix of model 1.............................................................................. 28
4.2.1 Correlation matrix of model 2.............................................................................. 30
4.3.Check for multicollinearity......................................................................................... 31
4.4. Estimating the regression model ................................................................................ 32
4.4.1. The result of Ordinary Least Square (OLS)......................................................... 32
4.4.2. The result of Fixed Effects Model (FEM) ........................................................... 33
4.4.3. The result of Random Effects Model (REM) ...................................................... 34
4.5. Estimation of regression models using OLS, FEM, REM synthesizes methods .......... 35
4.5.1. Evaluate results using OLS, FEM, REM of model 1 ........................................... 35
4.5.2. Evaluate results using OLS, FEM, REM of model 2 ........................................... 36
4.6.Test of variance and model autocorrelation ................................................................ 37
4.6.1 Test of variance and autocorrelation of model 1................................................... 37
4.6.2. Test of variance and autocorrelation of the 2 model ............................................ 38
4.7. Estimate regression model by GLS............................................................................ 39
4.7.1 Estimate regression model 1 by GLS ................................................................... 39
4.7.2 Estimate regression model 2 by GLS ................................................................... 43
4.8. GMM regression model estimation............................................................................ 45
4.8.1 GMM regression model 1 estimation ................................................................... 45
4.8.2 GMM regression model 2 estimation ................................................................... 47
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS ........................................... 51
5.1 Conclusion ................................................................................................................. 51
5.2 Recommendations ...................................................................................................... 51
5.3 The limitations of the research ................................................................................... 52
REFERENCES ...................................................................................................................... 1
i
LIST OF ACRONYMS
Acronyms English
LLP Credit Risk
NPL Non-performing Loans
CAP Ratio of Capital
TLA Ratio of Loans to Assets
GROW Credit Growth
ROA Ratio of Profitability
INF Inflation rate
GDP Economic Growth
INEF Cost-effective Operating
OLS Ordinary Least Squares
FEM Fixed Effect Model
REM Random Effects Model
GLS Feasible Generalized Least Square
GMM Generalized Model of Moments
ii
LIST OF TABLES AND FIGURES
Table 4.1: Statistics of variables used in the research model................................................. 27

Table 4.2: Correlation coefficients between research variables of model 1 ........................... 28
Table 4.3: Correlation coefficients between research variables of model 2 ........................... 30
Table 4.4:Variance inflation factor....................................................................................... 31
Table 4.5: Smallest binary squared estimate of model 1 ....................................................... 32
Table 4.6: Smallest binary squared estimate of model 2 ....................................................... 32
Table 4.7: Fixed effects estimate of model 1 ........................................................................ 33
Table 4.8: Fixed effects estimate of model 1 ........................................................................ 33
Table 4.9: Estimation of the proportional effect of model 1 .................................................. 34
Table 4.10: Estimation of the proportional effect of model 2 ................................................ 34
Table 4.11: Evaluate results using OLS, FEM, REM of model 1 .......................................... 35
Table 4.12: Evaluate results using OLS, FEM, REM of model 2 .......................................... 36
Table 4.13: Wald test - Verification of variance of the model 1 ............................................ 37
Table 4.14: Wooldridge test - Autocorrelation test of the model 1 ........................................ 38
Table 4.15: Wald test - Verification of variance of the model 2 ............................................ 38
Table 4.16: Wooldridge test - Autocorrelation test of the model 2 ........................................ 38
Table 4.17: FGLS estimate of model 1 ................................................................................. 39
Table 4.18: Study results by FGLS of model 1 ..................................................................... 40
Table 4.19: FGLS estimate of model 2 ................................................................................. 43
Table 4.20: Study results by FGLS of model 2 ..................................................................... 44
Table 4.21: GMM estimate of model 1................................................................................. 45
Table 4.22: GMM estimate of model 2................................................................................. 47
Table 4.23: Study results by GMM of model 2..................................................................... 48
Figure 4.1: The relationship between GDP and LLP ............................................................ 40

Figure 4.2: The relationship between CAP and LLP............................................................. 41
Figure 4.3: The relationship between ROA and LLP ............................................................ 42
Figure 4.4: The relationship between INEF and LLP............................................................ 43
Figure 4.5: The relationship between INF and NPL ............................................................. 44
Figure 4.6: The relationship between ROA and NPL............................................................ 45
Figure 4.7: The relationship between GDP and NPL ............................................................ 49
Figure 4.8: The relationship between TLA and NPL ............................................................ 49
1
CHAPTER 1. INTRODUCTION TO THE RESEARCH TOPIC
1.1. Reason for Research

A bank's business is vital in the economy because it performs special functions that are
impossible for regular economic organizations to complete. In the increasingly
integrated, quickly expanding, and highly competitive economic environment, banks
must constantly deal with a variety of risks during their operations, including credit risk,
liquidity risk, interest rate risk, etc. However, credit risk is regarded as the risk type that
makes up the largest portion and is a natural component of the bank's core operation.
This is also the main business, providing the main source of income for commercial
banks.
The fluctuations in the world economy and the country's difficulties, as well as the
weakness and inefficiencies in the management of the banks themselves have negatively
impacted the operations of commercial banks. All commercial banks must act urgently
to minimize credit risk, especially given the current high bad debt ratio that has many
negative effects on the economy and poses significant hazards for the entire banking
system. financial system. If credit risk is not properly controlled, it will cause the rate of
loans to lose capital to rise too quickly, and commercial banks may face bankruptcy,
resulting in a number of bad effects on the growth of the economy. Therefore, in view
of the goal to evaluate the sources of credit risk in order to provide ways to minimize
credit risks and give some recommendations to find a scientific solution, we choose to
research the subject of "Factors affecting credit risk of commercial banks in
Vietnam."
Currently, in the context of the dynamic development of the world economic situation
and the growing financial crisis, as a country with an open economy, Vietnam cannot
avoid the influence of the world economy. As a result, all Vietnamese commercial banks
must enhance their credit risk management.
In reality, the bad debt ratio of Vietnamese commercial banks has just risen to its highest
level in four years. The cost of making provisions for credit risks rose due to the rise in
bad debts, which was followed by a dramatic fall in banks’ profits. The rise in bad debts
increased the cost of provisioning for credit risks, causing banks' profits to plummet
drastically. As a result of this reality, it is crucial to identify the influencing elements in
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order to figure out solutions and increase the effectiveness of Vietnamese commercial
banks' credit risk management.
1.2. Objective of study
1.2.1. General objective

This study investigates these factors and analyzes their effect on credit risk with the
sample of 28 Commercial banks listed in Vietnam in the period between 2011 and
2021.
1.2.2. Specific objective

In order to achieve these goals, we need to complete the following specific objectives:
• Identifying factors affecting the credit risk of commercial banks in Vietnam.
• Measuring the level and determining the impact of these factors on the credit risk
to the system of commercial banks in Vietnam.
• Based on the research results, propose some solutions to minimize credit risk at
Vietnamese commercial banks.
1.3. Research question

To achieve the stated research objectives, the thesis focuses on answering the
following research questions:
1. What factors affect the credit risk of Vietnamese commercial banks?
2. How do the level and the impact of these factors affect the credit risk in
commercial banks in Viet Nam?
3. How many solutions to prevent credit risk in commercial banks in Viet Nam?
1.4. Objects and scope of the study
1.4.1. Study objects

The research topic is aimed at factors affecting the credit risk of commercial banks in
Vietnam.
1.4.2. Scope of the study

Research space: The research sample used is based on the data of 28 joint stock
commercial banks in Vietnam through financial statements.
Study time: Research data are taken from 2011 to 2021.
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1.5. Contributions
1.5.1 Search For Learning Methods

The study mainly used quantitative methods. Specifically, in this study, the following
research methods are used:
• Use 2 software, EXCEL and STATA to analyze factors affecting credit risk.
• Data collection: Studying the credit risk situation of 28 joint stock commercial
banks in Vietnam from 2011 to 2021, this method reflects the credit risk situation
of commercial banks.
• Data processing method: Using the OLS regression model, the FEM fixed effects
model, and random effects model (REM), the FEM and the REM models to test
the impact of factors affecting credit risk, from which the appropriate model can
be selected for research. The author uses tests such as F-test,Pagan and the
Hausman test to determine the best model based on table data regression.To
address issues such as changes in variable errors and correlation analogies, the
study applies the S-GMM strategy to solve the endogenous problem.
1.5.2 Research process

The research topic follows the defined research objectives and questions, so the
following implementation process is required:
Step 1: Identify the research problem
Step 2: Synthesize the theory and overview of previous studies
Step 3: Define the research model
Step 4: Data collection
Step 5: Data processing
Step 6: Present the results and discuss
Step 7: Conclusions and recommendations with policy implications
1.6. Expected Contributions

The research topic has scientific and practical significance, as shown below:
In terms of science, they are analyzing fundamental theories related to the topic and
criteria to select an appropriate model systematically and thoroughly, completing studies
on the factors affecting the credit risk of commercial banks. From that basis, the research
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provided is complete, and domestic and foreign studies have been published to identify
the research gaps related to selecting the most suitable model for the topic.
In practical terms, the study shows the influence levels of factors inside the bank and
the fluctuations of the economy affecting credit risk. Thereby helping commercial banks
develop credit risk control strategies, contributing to improving the performance of
Vietnamese commercial banks in the future.
1.7 Structure of reasearch

The thesis consists of 5 chapters; each chapter includes an introduction and conclusion.
In addition, it also includes sections such as a table of contents, a list of tables and
figures, a list of abbreviations, appendices, and references.
Chapter 1: INTRODUCTION TO THE RESEARCH TOPIC
This chapter will talk about an overview of the research topic, such as the reason for
choosing the case, the issue's urgency, the identification of the general research
objectives, and the specific research objectives of the topic. From there, research
questions, objectives, scope, and methods identify. At the end of the chapter are the
case's contribution and the topic's structure so the reader can overview the whole study.
Chapter 2: LITERATURE REVIEW
Chapter 2 presents the theoretical basis and concepts related to the research topic, such
as the concept of bank credit, credit risk, the role of credit, and the impact of credit risk
on bank operations commerce. Synthesize domestic and foreign studies on factors
affecting credit risk, thereby identifying research gaps and serving as the basis for
proposing a research model for the topic.
Chapter 3: RESEARCH MODEL AND METHODOLOGY
Based on the foundation of Chapter 2, Chapter 3 presents in detail the content of the
research model, research variables, research data, research process, detailed description
of collected data, and selected research methods to find a suitable model for the research
topic, demonstrating the reliability of the research results.
Chapter 4: RESEARCH RESULTS AND DISCUSSION
This chapter presents the calculation steps using descriptive statistical methods of the
variables in the model and testing the research model. Based on the results of the
research model, showing the level and direction of the variables' impact analyzes the
5
correlation between the variables in the model and the factors affecting the credit risk of
commercial banks.
Chapter 5: CONCLUSIONS AND RECOMMENDATIONS
Chapter 5 will talk around conclude, synthesize, and evaluate the research results of the
topic, thereby proposing solutions and recommendations to help commercial banks
minimize the factors affecting credit risk. In addition, it points out the limitations of the
research topic, thereby giving directions for future research.
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CONCLUSION CHAPTER 1
Chapter 1 gives an overview of the research topic. After analyzing the necessity of the
topic, the author outlined the research objectives, clearly defined the subject and scope
of the study, the research method, and finally the composition of the thesis consisting
of 5 chapters.
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CHAPTER 2. REVIEW OF THE LITERATURE
2.1. Theoretical basis related to factors affecting credit risk of Commercial banks
2.1.1. Overview of credit activities of Commercial banks

2.1.1.1. The concept of Commercial Banks
The country’s system of commercial banks always acts an important role. Therefore, a
Commercial bank has been defined in many different ways.
A commercial bank is an organization that deals in money, receives deposits from actors
in the economy, then makes loans and provides a variety of financial services to actors
in the economy, according to (Nguyen Viet Hung, 2008).
(Le Thi Tuyet Hoa et al., 2016) mentioned that a commercial bank is a financial
intermediary that raises capital from entities with excess capital and makes loans to
entities lacking capital.
According to The Law on Credit Institutions of Vietnam, Commercial bank is a type of
bank that is allowed to conduct all banking operations and other business activities under
the law for profit. Banking operations such as: receiving money from an organization or
individual as demand or term deposit, savings deposit; credit extension to individuals
and organizations; providing via-account payment services (2010).
In short, as a financial intermediary, commercial banks convert idle capital into loans
for individuals and organizations to conduct business, with the goal of profit.
Simultaneously, commercial banks are an important factor in the market for
government-issued bills and bonds to finance community programs.
2.1.1.2. The concept of Commercial bank credit
Bank credit is the banking operation that transfers the right to use assets to customers in
a determined period on the repayment principle (return value is greater than the original
value) that mentioned by (Bui Dieu Anh et al., 2013).
According to the Law on Credit Institutions of Vietnam, Credit extension means an
agreement allowing an organization or individual to use a sum of money or a
commitment allowing the use of a sum of money on the repayment principle by such
professional operations as lending, discount, financial leasing, factoring, bank
guarantee, and other credit extension operations (2010).
In general, bank credit has basic characteristics as (i) credit is a temporary transfer of
the right to use capital (short, medium, or long term) and customers are responsible for
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repaying loan principal and interest on time; (ii) The credit relationship is based on trust
and confidence between the bank and the customer. If one of these two characteristics
is affected, it can lead to the bank's credit risk.
2.1.1.3. The role of Commercial bank credit operations
The income of commercial banks primarily comes from credit operations. Therefore,
this is the main activity of the bank. The roles of bank credit include:
Providing capital: Bank credit acts a role in modifying the supply-demand relationship
related to the economy's capital, thanks to raising idle capital in society and
redistributing capital with the repayment principle to organizations and individuals
lacking capital. As a result, it contributes to improving the production and business
efficiency of organizations in the market.
Enhancing the bank's brand: The target customers of bank credit are wide, including
individual and corporate customers. Therefore, the development of credit operations will
help expand the scale and enhance the bank's brand in the industry market.
Dispersing the bank's risks: Developing credit activities contribute to helping the bank
diversify its credit portfolio, and minimizing the risk of the portfolio. For each customer
group, the bank can provide different types of credit, which helps the bank to spread the
risk when customers become illiquid or defaulted.
2.1.2. The definition of credit risk at Commercial Bank

2.1.2.1. The definition of credit risk
According to (Thomas P. Fitch, 1997), Credit risk is the type of risk that occurs when
the borrower fails to pay the debt according to the contractual agreement, leading to a
delay in the repayment obligation. Along with interest rate risk, credit risk is one of the
major risks in a bank's lending operations.”
(Phillppe Jorion, 2009) opined that credit risk is the risk of loss to the economy
beginning from the borrower's inability to perform according to the contract. This risk
is measured by the cost of alternative cash flows if the borrower goes bankrupt.
According to (Circular 02/2013/TT-NHNN of the State Bank of Vietnam, 2013)
stipulating the rate of deduction, method of allowance for credit losses, and the use of
provisions to handle risks in the organization. Foreign bank branches said that: “Credit
risk in banking operations is a possible loss to the debt of credit institutions and foreign
9
bank branches when customers not perform or inability to perform its obligations under
the commitment”.
In conclusion, we can see that Credit risk can cause financial loss to the bank due to
customers' failure or inability to fulfill their obligations for debt repayment and loan
interest. In other words, credit risk occurs when the expected income from the bank's
profitable assets may not be repaid on loan and interest within the term. This is the most
serious reason that affects the profit and capital of the bank.
2.1.2.2. The impact of credit risk on commercial banks
Bank credit risk is an important issue for the performance of commercial banks in
Vietnam. On the other hand, efficient banks contribute to the country's economic
development. Therefore, the increased credit risk at commercial banks leads to serious
impacts on the development of the national economy, especially in the process of
economic integration.
• The impact of credit risk on bank liquidity
When bad debts arise, the bank still meets the payment obligations of due debts and
deposits of customers, leading to the bank facing the risk of insolvency. According to
(Imbierowicz and Rauch, 2014), studying the relationship between credit risk and
liquidity risk on the data of commercial banks in the US From 1998 to 2010, the study
proved the existence of a relationship with relationship between credit risk and liquidity
risk of banks in a stable period and crisis period in particular.
• The impact of credit risk on the bank's performance
(Karim et al., 2010), higher NPLs lead to inefficient banking performance when
considering the impact of NPL ratio on bank performance in Singapore and Malaysia.
According to (Petria et al., 2015), studying the factors affecting bank profitability of 27
EU countries from 2004 to 2011 using the return on equity (ROE) variable and the return
on total assets (ROA) as a dependent variable showing that the business performance of
10 banks and bad debt ratio representing credit risk. The research results show that credit
risk negatively affects banking performance.
• Credit risk can lead to bank failure
Bad debt has a serious effect on the bank's assets, if bad debt is high, it will lead to bad
effects like reducing the bank's reputation, customer trust and lead to reduce the ability
to mobilize capital of the bank. For example, no one wants to deposit money in a bank
10
with poor credit quality and causing a lot of loss. A consistently losing bank, often
insolvent, leads to a mass withdrawal crisis and bankruptcy (Swinburne et al., 2007).
In addition, credit risk also limits the lending capacity of commercial banks. The demand
for individuals in the economy is very large, causing stagnation in production, rising
unemployment, etc., which has serious impacts on economic growth.
In conclusion, bank administrators need to take active measures to contribute to the
management of banking activities and have appropriate solutions to minimize credit
risks.
2.1.3. Factors affecting the credit risk of commercial banks

2.1.3.1. Factors characteristic of banking activities
• Return on total assets
The ratio of profitability (ROA) is an indicator that represents the rate of return on assets.
This indicator represents the ratio of return on assets put into production and business
activities to evaluate the efficiency of using the assets of enterprises.
• Capital ratio
According to (Van and Roy,2003), the ratio of capital (CAP), a bank's equity, is
measured as the ratio between equity and total assets. The ratio of equity to total assets
is used as a quantity for the bank's risk avoidance. A higher equity ratio than total assets
represents a greater level of risk and reflects higher profit margins.
• Total loan assets
According to (Gestel and Baesens, 2009), assets are accepted by lenders to secure the
loan (paying full principal and interest at the time of the agreement) then the lender can
seize the total loan assets and resell it to cover the loss.
• Bank size
Expressed in the size of the bank's assets. An increase or decrease in total assets means
that the bank is in a period of expansion or contraction, which greatly affects banking
activities, especially lending and deposit-raising activities that affect credit risk.
• Credit growth
According to (Luc Leaven and Giovanni Manoni, 2002), the percentage (%) of the
increase in the number of loans to individuals and organizations this year compared to
the previous year. Credit growth represents the size of capital supplied to the economy.
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A number of previous studies have shown that the ratio of overdue and bad debt is
related to credit growth rates.
• Return on equity
The return on equity (ROE) measures the return on equity of common stockholders. The
ratio shows how well a company uses investment funds to generate income growth.
• Bad debt
Non-performing loans (NPL), "bad debt", "doubtful debt" for problem loans (Berger &
De Young, 1997), or unpaid debts that banks cannot profit from ( Ed. & Young,
2004). Currently, there is no uniform rule or standard when it comes to bad debt.
• Liquidity
Liquidity (LIQ) is the ratio of liquid assets to liabilities, offsetting liquidity risks faced
by banks. The bank's non-term liabilities are backed by liquid assets, the lower the bank's
liquidity risk and profit margin.
• The Cost of income ratio (CIR)
The Cost of income ratio (CIR) measures operating expenses as a percentage of
operating income, which is used to evaluate efficiency and productivity for banks. A
lower rate indicates higher efficiency, several factors can affect this rate.
2.1.3.2. Macroeconomic factors
• GDP growth rate:
According to (Floros and Tan, 2013), GDP is the total dollar amount of goods and
services produced in a country, the total amount of money spent in the economy whether
it is consumption, investment, government spending, and net exports. The percentage of
GDP is the percentage change of GDP over a given period, usually a year.
• Unemployment Rate
The unemployment rate (UPR) is one of the most closely watched statistics as the rising
rate is seen as a sign of a weakening economy, which may require a rate cut.
• Exchange rate:
According to (Nkusu, 2011) and (Castro, 2013), the exchange rate can have a positive
or negative effect depending on the nature of economic activity in the country. A
positive correlation can occur when a rising exchange rate weakens export-oriented
enterprises due to the inability to repay debts. Negative relationships can occur when
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loans are made in foreign currency, so currency appreciation improves borrowers' ability
to repay loans.
• Inflation rate (INF)
The variable inflation rate calculated as the inflation rate of the observed year. As
inflation rises, consumers reduce their spending demand, resulting in low consumption
of goods, and businesses face difficulties due to stagnant business activities that make
profits lower than expected.
2.2 An overview of previous research
2.2.1 Review of domestic research

The research of (Le Hoang Vinh, Ngo Thanh Phu, and Le Hai Phuoc, 2021) analyzed
“Factors affecting credit risk in lending activities of joint-stock commercial banks in
Vietnam”. Data is collected from audited financial statements of 23 banks and
microeconomic data from the General Statistics Office of Vietnam in the period 2009-
2019. This study uses the GMM method which is carried out by using R programming
language and the results show that credit risk of the previous period, profitability, and
inflation have positive effects on credit risk, while bank capital, bank size, economic
growth, and loans to deposits ratio have negative ones. Besides, the result shows the
nonlinear effects of loan growth on credit risk with U shape relationship, at the same
time, this study also calculates the relative importance of each variable.
(Nguyen Phuong Anh and Dinh Thi Thuy Trang, 2021) in the research “Factors affecting
bank risks in Vietnam” used data from 25 commercial banks within 10 years from 2008
to 2017. The selected research methods are OLS, Fixed Effect Model (FEM), and
Random Effect Model (REM). In this study, the independent variables are bank size,
bank capitalization, return on asset (ROA), return on equity (ROE), liquidity, loan loss
provision, capital adequacy ratio, inflation rate, and GDP growth rate. In contrast, non-
performing loans and Z-score are the dependent variables. The empirical results show
that all factors have an effect on bank risks except the liquidity ratio.
(Nguyen Quoc Anh and Duong Nguyen Thanh Phuong, 2021) research “The Impact of
Credit Risk on the Financial Stability of Commercial Banks in Vietnam”. The study uses
the Z-score to represent the financial stability of banks. The group of authors use the
data of 27 Vietnamese commercial banks on BankScope, during 2010-2019. The paper
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applied a dynamic panel data approach; the selected method is the difference
GMM (DGMM). The main problem is discussing which factors impact a Z-score. The
result of the study shows that non-performing loans have a negative effect on the
financial stability of banks. When commercial banks have higher non-performing loans,
the lower the financial stability is and vice versa. Besides, bank-specific variables such
as equity on asset ratio, the return on equity, the size of the bank, and a set of
macroeconomic variables also affect the bank’s financial stability. Through the results,
the authors make some suggestions for relevant policies for the State Bank of Vietnam
and commercial banks.
In the study, the authors (Nguyen Thi Hong Vinh and Nguyen Minh Sang, 2018)
conducted an investigation “Researching the impact of macro and bank-specific factors
on non-performing loans: Empirical evidence of Southeast Asia commercial banks”.
The study uses the data from 204 international banks in Southeast Asia countries during
2010-2015, the research method chosen is the differential GMM estimate to measure
and estimate the impact factors. The research results show that the non-performing loans
of commercial banks of countries in Southeast Asia are affected by both macro and
specific factors. An increase in non-performing loans will increase the credit risk of
banks. Specifically, the current high of non-performing loans of Southeast Asia banks
is due to the impact of past non-performing loans, low-profit margin, low credit growth,
big equity, and bank size. Macro factors have a significant impact on bank lending
quality. This study will help policymakers in designing fiscal policies and
macroeconomic stabilization.
(Vo Thi Quy and Bui Ngoc Toan, 2014) conducted research on "Factors affecting credit
risk of Vietnam's commercial banking system". The study used a dataset of 26
commercial banks from 2009 to 2012. The research methods chosen are the OLS method
to measure the influence on credit risk and the GMM method to overcome the first-order
autocorrelation between errors and endogenous variables. The results of the study show
that the credit risk of commercial banks in the past with a lag length of one year has a
positive impact on credit risk, meanwhile, the credit growth rate and GDP growth rate
with a lag length of one year have a negative effect on credit risk.
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2.2.2. Review of foreign research

(Nor Hayati Ahmad & Mohamed Ariff, 2007), a comparative study of all factors
contributing to the credit risk of commercial banks in a multi-country setting: Australia,
France, Japan, and the United States represent the developed economy while the
emerging economy banking systems are represented by India, Korea, Malaysia, Mexico,
and Thailand. The study selected 8 potential factors affecting the credit risk of banks
that were combined in 2 test models to see which factors contributed to the main
problem. The main findings can be summarized: for any banking system, there exist two
to four important determinants of credit risk. The study found that regulatory capital is
important for a banking system that provides a wide range of products and that
management quality is important in cases where banks dominate loans, for example in
emerging economies. They found that an increase in loan loss provision always appears,
as in previous studies, to be an important determinant of potential credit risk. Contrary
to theory and some previous studies, the authors found that leverage was not related to
the credit risk of banks in some economies during the experimental period.
(Vitor Castro, 2013), the research analyzes the link between macroeconomic
development and bank credit risk in a specific group of countries - Greece, Ireland,
Portugal, Spain, and Italy (GIPSI) – which were both affected by unfavorable economic
and financial conditions during the study period. The dataset covers a group of five
European countries (GIPSI) spanning the period from the first quarter of 1997 to the
third quarter of 2011. The conclusion of the study shows that the credit risk of banks is
greatly influenced by the macroeconomic environment: credit risk increases when the
GDP growth index, stock price index, and housing price decrease; unemployment rate,
interest rate, and credit growth increase; at the same time it is also positively affected by
the appreciation of the real exchange rate.
(Funda Yurdakul, 2014), this study aims to explore the relationship between bank credit
risk and macroeconomic factors. Non-performing loans (NPL) ratio was used to
represent credit risk. The independent variables used include the inflation rate, interest
rate, ISE-100 index, exchange rate, growth rate, the percentage change in money supply
M2 and unemployment rate. Research results show that an increase in the ISE index and
growth rate leads to a decrease in bank credit risk. On the other hand, an increase in the
15
money supply, exchange rate, unemployment rate, inflation rate, and interest rate
increases a bank's credit risk.
(Hasna Chaibi & Zied Ftiti, 2015), the authors chose a dynamic panel data approach to
examine the factors affecting the NPLs of commercial banks in a market-based
economy, compared with a bank-based economy, represented by France and Germany,
respectively, between 2005 and 2011. The study is prompted by the hypothesis that
macroeconomic and bank's specific variables have an effect on loan quality and that
these effects are different when banking systems are different. The authors find that all
macroeconomic variables, especially GDP growth, interest rates, unemployment and
exchange rates have a strong impact on both economies. This analysis emphasizes that
credit risk in a market economy is higher than in a bank-based economy and this higher
risk is borne out by a larger number of bank-specific factors in France (as provisions for
credit risks and inefficiencies) than in Germany (as leverage).
(Faridah Najuna Misman & M. Ishaq Bhatti, 2020), this study aims to examine
important issues related to credit risk at selected Islamic banks in 9 countries from the
Association of Southeast Asian Nations (ASEAN) and the Gulf Cooperation Council
(GCC) regions. It uses generalized least squares panel data regressions, to estimate
financing inefficiencies to total finance as dependent variables and bank-specific
variables to determine credit risk. The general findings suggest that financial quality has
a substantial and positive impact on credit risk. It is observed that larger Islamic banks
own more assets with lower credit risk than smaller banks. The age of the bank is also a
significant factor affecting the level of credit risk. Furthermore, regulatory capital
remarkably reduces credit risk, so compliance with minimum regulatory capital
requirements helps Islamic banks to manage their credit risk. It was also observed that
Islamic banks were not affected by the global financial crisis, due to less credit risk than
conventional banks.
2.2.3. Research gap

Domestic studies are focusing a lot on specific and micro variables that have an impact
on the credit risk of commercial banks in Vietnam. For foreign studies, the research level
is more in-depth, and there is a clearer division between the two groups, including
specific factors of banking activities (such as profitability ratio, LLP, scale,...) and
macro factors (such as GDP growth index, stock price index, unemployment rate,
16
interest rate, real exchange rate, inflation rate,...). Besides, the authors have researched
commercial banks in their country and a few other countries for short periods.
Thereby, it can be seen that the time implementation period of the research has not been
extended, only a few studies have been carried out in a few other countries and the rest
are mostly focused on domestic research. In addition, future studies need to study and
add many other macro factors when analyzing the factors affecting the credit risk of
banks so that the research results are objective and have many perspectives.
17
In chapter 2, the author presents the theoretical definition and role of credit activity in
commercial banks as well as the credit risk of commercial banks. Besides that, some
factors affecting the credit risk of commercial banks are presented. At the same time,
the author presents domestic and foreign studies that have been studied related to the
topic. It is presented to serve as a background and identify research gaps to overcome
when implementing the topic. These factors will be the basis for the analysis and
construction of the experimental model in chapter 3.
18
CHAPTER 3 RESEARCH MODEL AND METHODOLOGY
3.1. Reasearch model

In this study, a pooled data regression model is used. The heterogeneity problem will be
solved in the 28 banks chosen for the study using the pooled data estimation technique.
Therefore, the research model is presented below by the author:
Y = β0 + β Xit + ɛit
In there:
Y is the dependent variable.
β0 is a constant.
Β is the coefficient of the explanatory variables.
Xit is the vector of explanatory variables.
ɛit is the error of the model.
The influence of credit risk on the operation of commercial banks has been estimated
using the following regression equation when using the prescribed econometric model,
particularly in this study:
Y: includes LLP, NPL
X: CAP, TLA, ROA, GROW, INEF, GDP, INF
In particular, the proposed research model:
Model 1:
LLPit = β0 + β1 GDPit + β2INFit + β3CAPit + β4 TLAit +β5 ROAit + β6GROWit + β7 INEFit + ɛit
Model 2:
NPLit = β0 + β1 GDPit + β2INFit + β3CAPit + β4 TLAit +β5 ROAit + β6GROWit + β7INEFit + ɛit
In there:
Dependent variables
LLPit : is the credit risk of the commercial bank (i) at a time (t).
NPLit : is the bad debt of the commercial bank (i) at a time (t).
19
Independent variables
GDPt : Economic growth at the time (t)
INFt: Inflation rate at the time (t)
CAPit: Capital adequacy ratio of the commercial bank (i) at the time (t)
TLAit: Total Loan Assets of the commercial bank (i) at the time (t)
ROAit: Return on assets of the commercial bank (i) at the time (t)
GROWit: The economic growth rate of the commercial bank (i) at a time (t).
INEFit: The cost-effective operation of the commercial bank (i) at a time (t).
3.2. Research data and research methods
3.2.1. Research data
From 2010 to 2021, the study collects panel data as well as observation samples from
28 Vietnamese commercial banks. Bank data is gathered from consolidated financial
statements, consolidated audit reports, and annual reports prepared in accordance with
accounting standards; these reports are posted on the bank's official website.
Furthermore, data is gathered from financial websites such as vietstock.vn, Vietnamese
commercial banks’ websites, the General Statistics Office, WorldBank, etc.
3.2.2 Model variables
3.2.2.1. LLP - Credit Risk
𝐏𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧𝐬 𝐟𝐨𝐫 𝐥𝐨𝐚𝐧𝐬 𝐭𝐨 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬

𝐋𝐋𝐏 = 𝐱𝟏𝟎𝟎
𝐋𝐨𝐚𝐧𝐬 𝐭𝐨 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬
Credit risk, the risk that banks face, is one of the financial risks affecting the bank's
business. According to Thomas P. Fitch (1997), credit risk occurs when the borrower
fails to pay the debt according to the contractual agreement, leading to a delay in the
repayment obligation. However, credit activities are still the basic activities of banks
and are also the primary sources of revenue for commercial banks.
3.2.2.2. NPL - Bad debt
𝐓𝐨𝐭𝐚𝐥 𝐛𝐚𝐝 𝐝𝐞𝐛𝐭

𝐍𝐏𝐋 = 𝐱𝟏𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐥𝐨𝐚𝐧 𝐛𝐚𝐥𝐚𝐧𝐜𝐞
20
Bad debt is one of the problems that commercial banks face because bad debt can affect
the performance and profitability of the bank. According to Bholat et al (2016), bad debt
is defined as an amount for which a borrower has failed to make scheduled payments
within at least 90 days. An increase in bad debt will increase banks' credit risk,
negatively impacting banks' financial stability. The bad debt to total outstanding balance
(NPL) ratio represents credit risk.
3.2.2.3 GDP - GDP growth
(𝐆𝐃𝐏 𝐲𝐞𝐚𝐫 𝐭 − 𝐆𝐃𝐏 𝐲𝐞𝐚𝐫 𝐭 − 𝟏)

𝐆𝐃𝐏 = 𝐱𝟏𝟎𝟎
𝐆𝐃𝐏 𝐲𝐞𝐚𝐫 𝐭 − 𝟏
During periods of economic growth, individual and business borrowers need adequate
capital to pay their debts, but during a recession, the ability to repay the loan decreases.
According to (Vithessonthi, C.2016), research shows that economic growth reduces

bank profitability, thus increasing credit risk. Therefore, the negative relationship
between GDP growth and credit risk ratio is expected to be negative.
3.2.2.4 INF - Inflation rate
The inflation rate is calculated as the inflation rate of the year of observation. According
to Filip (2015), there is a positive relationship between credit risk and the current year's
inflation rate. The hypothesis about the relationship between inflation rate and credit
risk is as follows: Inflation has a positive impact on credit risk.
3.2.2.5. CAP - Bank's capital ratio
𝐄𝐪𝐮𝐢𝐭𝐲
𝑪𝐀𝐏 =
𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬
Bank capital is the bank's capital, including owner's equity and additional capital from
the amounts set aside and retained from operating profit. Bank capital is considered an
important source that can bring financial strength to banks. According to research by Le
Hoang Vinh, Ngo Thanh Phu, and Le Hai Phuoc (2021), bank capital harms credit risk,
and the balance between equity and total assets measures the bank capitalization ratio.
Therefore, the hypothesis about the relationship between the bank's capital ratio and
credit risk is negative.
21
3.2.2.6. TLA – Total loan assets
𝐓𝐡𝐞 𝐥𝐨𝐚𝐧 𝐚𝐦𝐨𝐮𝐧𝐭

𝐓𝐋𝐀 =
𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬
A total loan assets is an asset a lender accepts as security for a loan. According to Gestel
and Baesens (2009), if the borrower fails to meet the fulfillment obligations on the loan,
the lender can seize the total loan assets and resell it to cover the loss. Research by Gestel
and Baesens (2009) shows that total loan assets harms credit risk. Therefore, the
hypothesis about the relationship between total loan assets and credit risk is considered
negative.
3.2.2.7. ROA - Return on Assets
𝐏𝐫𝐨𝐟𝐢𝐭 𝐚𝐟𝐭𝐞𝐫 𝐭𝐚𝐱

𝐑𝐎𝐀 = 𝐱𝟏𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
The rate of return on total assets is an indicator showing the correlation between a
company's profit and its assets to evaluate the efficiency of the enterprise's asset use and
the bank's efficiency in generating revenue profits by exploiting that bank's assets.
According to research by Le Hoang Vinh, Ngo Thanh Phu, and Le Hai Phuoc (2021),
profitability ratios positively impact credit risk. Therefore, the hypothesis about the
relationship between bank profitability and credit risk is positive.
3.2.2.8 GROW - Credit growth

𝐓𝐨𝐭𝐚𝐥 𝐨𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐛𝐚𝐥𝐚𝐧𝐜𝐞 𝐲𝐞𝐚𝐫 𝟏 − 𝐓𝐨𝐭𝐚𝐥 𝐨𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐛𝐚𝐥𝐚𝐧𝐜𝐞 𝐲𝐞𝐚𝐫 (𝐭 − 𝟏)
𝑮𝑹𝑶𝑾 = 𝒙𝟏𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐨𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐛𝐚𝐥𝐚𝐧𝐜𝐞 𝐲𝐞𝐚𝐫 (𝐭 − 𝟏)
Credit growth is determined by calculating the difference between the total value of
bank credits provided in the calculation period, so with the comparison period, the
growth rate is more or less reflected in absolute value. Moreover, credit growth can be
in an extended or closed state.
(Nguyen Van Tien, 2013) also said that credit growth is the use of policies by
commercial banks to increase mobilized capital to demand credit activities for entities
in the economy, thereby seeking profits and enhancing their position in the economy.
3.2.2.9 INEF – Cost-effective operation
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐜𝐨𝐬𝐭𝐬
𝑰𝑵𝑬𝑭 = 𝒙𝟏𝟎𝟎
𝐎𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐢𝐧𝐜𝐨𝐦𝐞𝐱
22
The empirical study of (Berger, A. N., and DeYoung, 1997) shows that the relationship
between operating cost efficiency in banks and credit risk is positive and negative.
Research results show that being out of the control of the bank and the bank will spend
a lot of money to deal with bad debts, leading to low operating efficiency, the
relationship between operating cost efficiency and bad debt. is negative. With the
hypothesis that when banks cut costs in the short term, leading to a decrease in loan
quality in the long term, the relationship between these two factors is positive.
3.3. Research process

Step 1: Overview of foundational theory and previous studies
Step 2: Build a research model and methodology
Step 3: Analyze the impact of factors affecting credit risk on the banking business
• Build and design variables
• Data collection and processing
• Regression analysis
Step 4: Test the regression model
Step 5: Analyze regression results, discuss research results
Step 6: Policy conclusions and suggestions
3.4 Research Hypothesis

• Economic growth rate (GDP)
Economic growth rates are used to assess the relative health of an economy over time
while also forecasting the negative or positive effects on economic circumstances that
may harm the economy. According to previous research of (Zaghdoudi and Hakimi,
2017) has a positive effect on liquidity risk shows that GDP has a positive impact on
credit risk, however, studies of (Luc Laeven and Giovanni Majnoni, 2002), (Nguyen Thi
Hong Vinh, 2015) shows the opposite results. Therefore, the author expects GDP will
have a negative impact on bank credit risk, and the research hypothesis is posed as:
Hypothesis H1: The economic growth rate has a negative impact on bank's credit risk.
23
• Inflation rate (INF)
The inflation rate demonstrates the rate of increase in prices over a given period of time.
And it is an important factor in assisting regulators and state banks in making appropriate
financial policy decisions. According to previous research, (Nguyen Thi Hong Vinh,
2015) finds that INF has a negative impact on credit risk, (Naceur and Kandil, 2009)
and (Ayaydin and Karakya, 2014) find the opposite. As a result, the author expects INF
to have a positive impact on the bank's credit risk, and the research hypothesis is as
follows:
Hypothesis H2: Inflation rate has a positive impact on bank's credit risk.
• Capital ratio (CAP)
Capitalization ratio measures the total amount of debt in a company's capital structure
relative to its two capital sources, equity or debt. According to previous research, while
(Zribi, N., & Boujee Belgrave, Y, 2011) shows a negative impact on credit risk,
(Fungáčová, Zuzana; Poghosyan, Tigran, 2011) shows a positive impact on credit risk.
Therefore, the author expects CAP will have a positive impact on bank credit risk, and
the research hypothesis is posed as:
Hypothesis H3: The capitalization ratio has a positive impact on bank's credit risk.
• Loan-to-total assets ratio (TLA)
The loan-to-total asset ratio (TLA) shows a bank's ability to generate profit from lending
activities based on a bank's total assets, which is a measure of how efficiently it is using
its total assets. The empirical study of (Nga, 2019), and (Zaghdoudi and Hakimi, 2017)
shows a positive relationship between TLA and bank liquidity risk, however, according
to the study of (Moussa, 2015), the research results are opposite to the above studies. As
a result, the author expects TLA to have a positive impact on liquidity risk in this
research model, and the research hypothesis is constructed as follows:
Hypothesis H4: The loan-to-asset ratio has a positive impact on bank's credit risk.
• Return on assets (ROA)
ROA measures a bank's management's efficiency in earning a profit from its economic
resources or assets on its balance sheet. According to previous research, (Kolapo et al,
2012) finds that ROA has a negative impact on credit risk, however, (Zribi,
24
N., &Boujelbegrave, Y, 2011) finds the opposite. Therefore, the author expects ROA
will have a positive impact on bank credit risk, and the research hypothesis is posed as:
Hypothesis H5: The profitability of assets has a positive impact on bank's credit risk.
• Credit growth (GROW)
Credit growth is measured as the annual percent change in total outstanding loans of
individual banks. This is an important indicator of economic activity. According to
previous studies, (Keeton, 1999) finds that GROW has a negative impact on credit risk,
however, (De Lis, Pagés & Saurina, 2001) finds the opposite. As a result, the author
expects GROW to have a negative impact on the bank's credit risk, and the research
hypothesis is as follows:
Hypothesis H6: Credit growth has a negative impact on bank's credit risk.
• Cost-effective operation (INEF)
There is an empirical link between credit risk and cost-effective operation. According
to previous research of (Berger, A. N., and DeYoung, R, 1997), INEF has both negative
or positive effects on credit risk. However, the author expects INEF will tend to have a
positive impact on bank credit risk, and the research hypothesis is posed as:
Hypothesis H7: The cost-effective operation has a positive impact on bank's credit risk.
No Symbol Variable Expectation Paper

Name
1 GDP Economic - Zaghdoudi and Hakimi, 2017; Luc Laeven and

growth rate Giovanni Majnoni, 2002; Nguyen Thi Hong
Vinh, 2015
2 INF Inflation rate + Nguyen Thi Hong Vinh, 2015; Naceur and
Kandil, 2009; Ayaydin and Karakya, 2014
3 CAP Capital ratio +/- Zribi, N., & Boujelbegrave, Y, 2011;

Fungáčová, Zuzana; Poghosyan, Tigran, 2011
4 TLA Loan-to-total + Nga, 2019; Zaghdoudi and Hakimi, 2017;

assets ratio Moussa, 2015
5 ROA Return on + Kolapo et al, 2012; Zribi,

assets N., &Boujelbegrave, Y, 2011
25
6 GROW Credit growth + Keeton, 1999; De Lis, Pagés & Saurina, 2001
7 INEF Cost-effective +/- Berger, A. N., and DeYoung, R, 1997

operation
26
In chapter 3, the author introduces the research model and points out the theoretical
foundations of the variables in the model. Besides, in chapter 3, the
process of collecting the data used in the thesis and research hypothesis also
mentioned.
27
CHAPTER 4: RESEARCH RESULTS AND DISCUSSION
4.1. Descriptive statistics

Table 4.1: Statistics of variables used in the research model
Variable Obs Mean Std. Dev. Min Max
LLP 295 0.0133 0.0045 0.0055 0.0286
NPL 295 0.0217 0.0127 0.0019 0.0883
GDP 295 0.0571 0.0143 0.0258 0.071
INF 295 0.0514 0.0476 0.006 0.187
CAP 295 0.0929 0.0609 0.0293 0.9077
TLA 295 0.556 0.1234 0.1448 0.7881
ROA 295 0.008 0.0077 -0.0599 0.0365
GROW 295 0.193 0.1678 -0.301 1.0682
INEF 294 0.5352 0.1404 0.095 0.9274
(Source: Analysis results from STATA software)
According to Table 4.1, the descriptive statistics of variables results, all variables in the
research model are panel data. During the period of study from 2010 to 2021, we found
that there were 295 total observations of each model variable from 28 commercial banks.
As follows:
The credit risk (LLP) of 28 Vietnamese commercial banks from 2010 to 2021 has an
average value of 0.0133, a standard deviation of 0.0045, and the minimum and
maximum values are 0.0055 and 0.0286, respectively Saigon Commercial Joint Stock
Bank in 2014 and Southeast Asia Commercial Joint Stock Bank in 2012. As a result, it
is clear that there is a significant difference between banks, particularly between large
and small banks.
Bad debt (NPL): average value is 0.0217, standard deviation is 0.0127, minimum and
maximum values are 0.0019 and 0.0883 respectively for Kien Long Commercial Joint
Stock Bank in 2021 and Saigon - Hanoi Commercial Joint Stock Bank in 2012.
Economic growth (GDP): average value is 0.0571, standard deviation is 0.0143,

minimum value is 0.0258 in 2021 and maximum value is 0.071 in 2012 for An Binh
Commercial Joint Stock Bank.
Inflation rate (INF): average value is 0.0514, standard deviation is 0.0476. The
minimum value is 0.006 in 2015 and the maximum value is 0.187 in 2011 for An Binh
Commercial Joint Stock Bank.
28
Capital ratio (CAP): average value is 0.0929, standard deviation is 0.0609, minimum
value is 0.0293 and maximum is 0.9077 for Saigon Commercial Joint Stock Bank in
2019 and Joint Stock Commercial Bank for Foreign Trade of Vietnam in 2021.
Total loan assets (TLA): average value is 0.556, standard deviation is 0.1234, minimum
value is 0.1448 and maximum is 0.7881 for Tien Phong Commercial Joint Stock Bank
in 2011 and Joint Stock Commercial Bank for Investment and Development of Vietnam
in 2020.
Return on assets (ROA): average value is 0.008, standard deviation is 0.0077, minimum
value is 0.0599 and maximum value is 0.0365 for Tien Phong Joint Stock Commercial
Bank in 2011 and Vietnam Technological and Commercial Joint Stock Bank in 2021.
Credit growth (GROW): average value is 0.193, standard deviation is 0.1678, minimum
value is 0.301 and maximum is 0.0682 for Tien Phong Commercial Joint Stock Bank in
2011 and Kien Long Joint Stock Commercial Bank 2015.
4.2 Correlation Matrix

A correlation matrix is a statistic that measures the correlation relationship between two
variables. The correlation coefficient can range from -1 to +1, with -1 indicating a
perfect negative correlation, +1 indicating a perfect positive correlation. A variable that
is correlated with itself will always have a correlation coefficient of 1. A correlation
coefficient of 0 (or close to 0) means that the two variables have nothing to do with each
other. If the value of the correlation coefficient is negative, it means that as x increases,
y decreases (and conversely, when x decreases, y increases).
4.2.1 Correlation matrix of model 1

Table 4.2: Correlation coefficients between research variables of model 1
Variables LLP GDP INF CAP TLA ROA GROW INEF
LLP 1.0000
GDP -0.1426 1.0000

**
INF 0.1561 0.0566 1.0000
***
CAP 0.1455 -0.1352 0.1379 1.0000
** ** **
TLA -0.2779 -0.0587 -0.3836 -0.0130 1.0000
*** ***
29
ROA 0.0289 -0.1713 0.1101 0.2385 0.1898 1.0000

*** * *** ***
GROW -0.1357 0.1094 -0.1093 -0.0189 -0.0727 0.1874 1.0000
** * * ***
INEF -0.1421 0.1889 -0.1161 -0.1913 -0.1790 -0.6825 -0.0113 1.0000
** *** ** *** *** ***
*** p<0.01, ** p<0.05, * p<0.1
The variable GDP has a negative correlation with bank credit risk of 0.1426 which
shows a negative relationship between GDP and LLP, so the higher the GDP growth
rate, the lower the credit risk of the bank.
The variable INF has a positive correlation with bank credit risk of 0.1561, showing a
positive relationship between INF and LLP, so the higher the inflation rate, the higher
the bank's credit risk.
The variable CAP has a positive correlation with bank credit risk of 0.1445, showing a
positive relationship between CAP and LLP, so the higher the bank's capital ratio, the
higher the bank's credit risk.
The variable TLA has a negative correlation with bank credit risk of 0.2779, showing
an inverse relationship between TLA and LLP, so the higher the bank's total loan assets
ratio, the lower the credit risk.
The ROA variable has a positive correlation with the bank's credit risk of 0.0289,
showing a positive relationship between ROA and LLP, so the higher the profitability
ratio, the higher the credit risk of the bank.
The variable GROW has a negative correlation with bank credit risk of 0.1357, which
shows an inverse relationship between GROW and LLP, so the higher the credit growth
rate of the bank, the lower the credit risk.
The variable INEF has a negative correlation with bank credit risk of 0.1421, which
shows an inverse relationship between INEF and LLP, so the higher the bank's effective
ratio, the lower the credit risk.
30
4.2.1 Correlation matrix of model 2

Table 4.3: Correlation coefficients between research variables of model 2
Variables NPL GDP INF CAP TLA ROA GROW INEF

NPL 1.0000
GDP -0.0557 1.0000
INF 0.2011 0.0566 1.0000

***
CAP 0.1257 -0.1352 0.1379 1.0000
** ** **
TLA -0.1862 -0.0587 -0.3836 -0.0130 1.0000
*** ***
ROA -0.0919 -0.1713 0.1101 0.2385 0.1898 1.0000
*** * *** ***
GROW -0.0310 0.1094 -0.1093 -0.0189 -0.0727 0.1874 1.0000
* * ***
INEF 0.1976 0.1889 -0.1161 -0.1913 -0.1790 -0.6825 -0.0113 1.0000
*** *** ** *** *** ***
*** p<0.01, ** p<0.05, * p<0.1
The variable GDP has a negative correlation with the bank's bad debt of 0.0557, which
shows the negative relationship between GDP and NPL, so the higher the GDP growth
rate, the lower the bad debt of the bank.
The variable INF has a positive correlation with bank's bad debt of 0.2011, showing a
positive relationship between INF and NPL, so the higher the inflation rate, the higher
the bank's bad debt.
The variable CAP has a positive correlation with the bank's bad debt of 0.1257, showing
a positive relationship between CAP and NPL, so the higher the capital ratio of the bank,
the higher the bad debt of the bank.
The variable TLA has a negative correlation with the bank's bad debt of 0.1862 showing
an inverse relationship between TLA and NPL, so the higher the bank's total loan assets
ratio, the lower the bad debt.
The variable ROA has a negative correlation with the bank's bad debt of 0.0919,
showing a negative relationship between ROA and NPL, so the higher the profitability
ratio, the lower the bank's bad debt.
31
The variable GROW has a negative correlation with the bank's bad debt of 0.0310,
showing an inverse relationship between GROW and NPL, so the higher the credit
growth rate of the bank, the lower the bad debt.
The variable INEF has a positive correlation with the bank's bad debt of 0.1976, showing
a positive relationship between INEF and NPL, so the higher the bank's effective ratio,
the higher the bad debt.
Based on Table 4.2 and 4.3, we see that all pairs of variables have correlation
coefficients below 0.5, it can be concluded that there is no correlation between
independent variables. Therefore, the data of these independent variables can be used
for regression analysis to explain the dependent variable of the model.
4.3.Check for multicollinearity

Multicollinearity is a phenomenon in which the independent variables in the model are
linearly correlated with each other. The research model ensures that no high
multicollinearity occurs. Multicollinearity can cause the standard error or confidence
interval of the estimate to be large, and may even cause the estimate to be erroneous.
Multicollinearity occurs when the absolute value of the correlation coefficient is higher
than 0.9 (Kennedy, 2008). Therefore, the study has tested the hypothesis that there is no
multicollinearity phenomenon by using VIF (Variance Inflation Factor) criteria.
Table 4.4:Variance inflation factor

VIF 1/VIF
ROA 2.1275 0.47
INEF 1.9344 0.517
INF 1.3304 0.7517
TLA 1.269 0.788
GROW 1.0974 0.9113
CAP 1.096 0.9124
GDP 1.0886 0.9186
Mean VIF 1.4205 .

Table 4.3 shows the model results, the VIF of the independent variables is less than 4 so
multicollinearity in the model is assessed as not serious. Therefore, when the variables
included in the model are considered suitable, these variables can be used to conduct
research regression analysis.
32
4.4. Estimating the regression model
4.4.1. The result of Ordinary Least Square (OLS)
Table 4.5: Smallest binary squared estimate of model 1

LLP Coef. St.Err. t-value p-value [95% Conf Interval] Sig
GDP -0.0337 0.0178 -1.89 0.0594 -0.0688 0.0014 *
INF 0.0008 0.006 0.13 0.8988 -0.0111 0.0126
CAP 0.0077 0.0042 1.82 0.0695 -0.0006 0.016 *
TLA -0.012 0.0023 -5.28 0 -0.0165 -0.0076 ***
ROA -0.0606 0.0546 -1.11 0.268 -0.1681 0.0469
GROW -0.0039 0.0016 -2.51 0.0125 -0.007 -0.0008 **
INEF -0.0071 0.0024 -2.93 0.0037 -0.0119 -0.0023 ***
Constant 0.0262 0.0024 10.73 0 0.0214 0.031 ***
Mean dependent var 0.0133 SD dependent var 0.0045

R-squared 0.1645 Number of obs 294
F-test 8.0417 Prob > F 0.0000
Akaike crit. (AIC) -2375.8942 Bayesian crit. (BIC) -2346.4255
*** p<.01, ** p<.05, * p<.1

Table 4.4 presents the OLS results of model 1, the author found that total loan assets
(TLA) and cost-effective operation of banks (INEF) are statistically significant at 1%.
Credit growth (GROW) is statistically significant at 5%. Capital ratio (CAP), and GDP
growth (GDP) are statistically significant at 10% and the remaining variables have no
statistical significance.
Table 4.6: Smallest binary squared estimate of model 2
NPL Coef. St.Err. t-value p-value [95% Conf Interval] Sig
GDP -0.0963 0.0507 -1.90 0.0583 -0.196 0.0034 *
INF 0.0602 0.0171 3.52 0.0005 0.0266 0.0938 ***
CAP 0.0301 0.012 2.52 0.0124 0.0065 0.0536 **
TLA -0.0087 0.0065 -1.34 0.1804 -0.0214 0.004
ROA -0.2761 0.1551 -1.78 0.0761 -0.5814 0.0292 *
GROW 0 0.0044 0.00 0.9982 -0.0087 0.0087
INEF 0.0145 0.0069 2.10 0.037 0.0009 0.028 **
Constant 0.0207 0.0069 2.99 0.0031 0.0071 0.0344 ***

F-test 6.7441 Prob > F 0.0000
*** p<.01, ** p<.05, * p<.1
For model 2, the author found that the inflation rate (INF) is statistically significant at
1%. Capital ratio (CAP) and cost-effective operation of banks (INEF) are
statistically significant at 5%. Return on assets (ROA), and GDP growth (GDP) are
33
statistically significant at 10%. The remaining variables are significant >10%, so there
is no statistical significance.
4.4.2. The result of Fixed Effects Model (FEM)

Table 4.7: Fixed effects estimate of model 1
GDP -0.0438 0.0153 -2.86 0.0046 -0.0741 -0.0136 ***
INF 0.0052 0.0057 0.91 0.3652 -0.006 0.0163
CAP 0.0146 0.004 3.67 0.0003 0.0068 0.0225 ***
TLA -0.0083 0.003 -2.81 0.0053 -0.0141 -0.0025 ***
ROA -0.1088 0.0568 -1.91 0.0566 -0.2208 0.0031 *
GROW -0.0038 0.0015 -2.49 0.0133 -0.0068 -0.0008 **
INEF -0.0005 0.0025 -0.19 0.8474 -0.0053 0.0044
Constant 0.0207 0.0025 8.16 0 0.0157 0.0257 ***

F-test 7.3604 Prob > F 0.0000
*** p<.01, ** p<.05, * p<.1

According to the FEM results of model 1 shown in Table 4.5, Return On Assets (ROA)
is statistically significant at 10%, while the statistical significance of Credit Growth
(GROW) is 5%. In addition, GDP growth (GDP), Capital Ratio (CAP), and Total loan
assets (TLA) are statistically significant at 1%. The remaining variables are not
statistically significant.
Table 4.8: Fixed effects estimate of model 1
GDP -0.0999 0.0463 -2.16 0.032 -0.1911 -0.0086 **
INF 0.061 0.0172 3.56 0.0004 0.0272 0.0948 ***
CAP 0.0125 0.012 1.04 0.2992 -0.0112 0.0362
TLA -0.0049 0.0089 -0.55 0.5841 -0.0224 0.0127
ROA -0.1848 0.1716 -1.08 0.2825 -0.5227 0.1531
GROW 0.0078 0.0046 1.70 0.0897 -0.0012 0.0168 *
INEF 0.0176 0.0074 2.36 0.0189 0.0029 0.0322 **
Constant 0.0165 0.0076 2.16 0.0319 0.0014 0.0315 **

F-test 5.3157 Prob > F 0.0000
*** p<.01, ** p<.05, * p<.1
For the FEM results of model 2 in table 4.6, Credit Growth (GROW) is statistically
significant at 10%, whereas the statistical significance of GDP Growth (GDP), and Cost-
34
effective operation (INEF) is 5%. Besides, the Inflation Rate (INF) is statistically
significant at 1%. The remaining variables are not statistically significant.
4.4.3. The result of Random Effects Model (REM)

Table 4.9: Estimation of the proportional effect of model 1
GDP -0.0397 0.0157 -2.52 0.0116 -0.0705 -0.0089 **
INF 0.0028 0.0056 0.51 0.6132 -0.0081 0.0137
CAP 0.0125 0.004 3.15 0.0016 0.0047 0.0203 ***
TLA -0.0101 0.0026 -3.91 0.0001 -0.0151 -0.005 ***
ROA -0.0822 0.0543 -1.51 0.1302 -0.1887 0.0243
GROW -0.0037 0.0015 -2.49 0.0127 -0.0066 -0.0008 **
INEF -0.0028 0.0024 -1.19 0.2344 -0.0075 0.0018
Constant 0.0227 0.0024 9.32 0 0.018 0.0275 ***

Overall r-squared 0.1423 Number of obs 294
Chi-square 51.6399 Prob > chi2 0.0000
R-squared within 0.1571 R-squared between 0.1317
*** p<.01, ** p<.05, * p<.1
After performing regression model 1 according to the Random Effects Model (REM),
we collect the following results: Total loan assets (TLA) has a negative impact on Loan
Loss Provision (LLP) at 1%, similar to 2 variables are GDP growth (GDP) and Credit
growth (GROW) but at 5%. Besides, Capital ratio (CAP) has a positive impact on LLP
at 5%. The other variables as Inflation rate (INF), Return on Assets (ROA), and Cost-
effective operation (INEF) are statistically significant above 10%, cannot be put into the
model.
Table 4.10: Estimation of the proportional effect of model 2

GDP -0.0977 0.0466 -2.10 0.0361 -0.189 -0.0064 **
INF 0.0605 0.0164 3.69 0.0002 0.0283 0.0926 ***
CAP 0.0202 0.0117 1.73 0.0842 -0.0027 0.0431 *
TLA -0.0064 0.0075 -0.85 0.3938 -0.021 0.0083
ROA -0.2199 0.1593 -1.38 0.1675 -0.5322 0.0924
GROW 0.0043 0.0044 0.98 0.3265 -0.0043 0.0129
INEF 0.0163 0.007 2.31 0.0208 0.0025 0.0301 **
Constant 0.018 0.0071 2.52 0.0116 0.004 0.032 **

Overall r-squared 0.1360 Number of obs 294
Chi-square 41.4156 Prob > chi2 0.0000
R-squared within 0.1222 R-squared between 0.1598
*** p<.01, ** p<.05, * p<.1

35
For model 2, we collect the following results: Inflation rate (INF) has a positive impact
on Loan Loss Provision (LLP) at 1%, similar is Cost-effective operation (INEF) but at
5%, and Capital ratio (CAP) at 10%. Besides, GDP growth (GDP) has a negative impact
on LLP at 5%. All the other variables as Total loan assets (TLA), Return on Assets
(ROA) and Credit growth (GROW) are statistically significant above 10%, not put into
the model.
4.5. Estimation of regression models using OLS, FEM, REM synthesizes methods
After analyzing the correlation coefficient to determine the relationship between
variables in the model, this study continued regression analysis with the goal of
measuring the direction and extent of the impact of independent variables affectingthe
dependent variable. By methods such as: POOLED OLS, FEM, REM and perform tests
to choose the appropriate regression method.
4.5.1. Evaluate results using OLS, FEM, REM of model 1

Table 4.11: Evaluate results using OLS, FEM, REM of model 1
F-test Hausman test Breusch-Pagan test
Pooled OLS &

FEM & REM OLS & REM
FEM
There is no
The Pooled-OLS
correlation between Errors of estimates do not
H0 model is more
the independent include deviations
Hypothesis suitable for the
variables and the between objects
research variables
residual
Statistical
F(27, 259) = 5.36 chi2(7) = 17.85 chibar2(01) = 82.61
value
P-value Prob > F = 0.0000 Prob>chi2 = 0.0127 Prob > chibar2 = 0.0000
36
Significance 5% 5% 5%
Conclusion Reject H0 Reject H0 Reject H0
Choose FEM FEM REM
FEM model is appropriate
4.5.2. Evaluate results using OLS, FEM, REM of model 2
Table 4.12: Evaluate results using OLS, FEM, REM of model 2
F-Test Hausman Breusch & Pagan
OLS & FEM FEM & REM OLS & REM
There is no correlation
between the
The Pooled - OLS
independent variables Errors of estimates do
H o model is more
and the residual, not include deviations
hypothesis suitable for the
which means that the between objects
research variables
REM model is more
suitable
Statistical
F(27, 259) = 3.65 Chi2(7) = 8.34 Chibar2(01) = 40.65
value
P-Value Prob > F = 0.0000 Prob > Chi2 = 0.3033 Prob > chibar2 = 0.0000
Significance 5% 5% 5%
Conclusion Reject H0 Accept H0 Reject H0
Choose FEM REM REM
REM model is appropriate

37
From the resulting regression table of OLS, FEM, REM pools with models 1 and
2, we compare and select the model as follows:
The F-test is used to select between ols and FEM models with the H0 hypothesis
that there is no difference between objects or different timelines. The results of
both models show a p-value of <5%, so we reject H0 to infer the appropriate FEM
model.
The Hausman test is used to select between the FEM and REM models with the H0
hypothesis that there is no correlation between the characteristic errors between the
subjects and the explanatory plates for the model 1 result with the dependent
variable with a p <5% value, therefore, this shows that the FEM model is more
suitable. Comparing the model 2 results with NPL dependent variables with a p> 5%
value with a H0 acceptable basis suggests that the selection of REM model is
appropriate.
Breusch and Pagan testing is used to choose between pool OLS and REM models,
the results of both models have a value of p <5% so this shows that REM model is more
suitable.
4.6.Test of variance and model autocorrelation
4.6.1 Test of variance and autocorrelation of model 1

Table 4.13: Wald test - Verification of variance of the model 1
Modified Wald test for groupwise heteroskedasticity in fixed effect regression
model
H0: sigma(i)^2 = sigma^2 for all i
chi2 (28) = 1501.89
Prob>chi2 = 0.0000

To check whether model 1 has the phenomenon of variance or not by performing the
Wald test with two hypotheses are posed:
H0: The model has no variance phenomenon.
H1: The model has a variance phenomenon.
38
The above results show Prob > chi2 = 0.0000 < 5%. Therefore, model 1 rejects
hypothesis H0, accepting H1. Thereby, the model has a variable variance phenomenon.
Table 4.14: Wooldridge test - Autocorrelation test of the model 1

Wooldridge test for autocorrelation in panel data
H0: no first-order autocorrelation
F( 1, 27) = 50.796
Prob > F = 0.0000

To check whether model 1 has autocorrelation of variance or not by performing the
Wooldridge test, the research test hypothesis is set as follows:
H0: Research model has no autocorrelation.
H1: The research model has autocorrelation.
If the test result is obtained with Prob > F = 0.0000 < 5%. Therefore, model 1 rejects
hypothesis H0; the research model has an autocorrelation phenomenon.
4.6.2. Test of variance and autocorrelation of the 2 model

Table 4.15: Wald test - Verification of variance of the model 2
Modified Wald test for groupwise heteroskedasticity in fixed effect regression
model
H0: sigma(i)^2 = sigma^2 for all i
chi2 (28) = 2670.72
Prob>chi2 = 0.0000
To check whether model 2 has the phenomenon of variance or not by performing the
Wald test with 2 hypotheses posed as:
H0: The model has no variance phenomenon.
H1: The model has a variance phenomenon.
The results of Table 4.4, show that Prob>chi2 = 0.0000 < 5%. So reject H0, accept H1.
Therefore, the model has a variable variance phenomenon.
Table 4.16: Wooldridge test - Autocorrelation test of the model 2
Wooldridge test for autocorrelation in panel data
H0: no first-order autocorrelation
39
F( 1, 27) = 11.100
Prob > F = 0.0025

To test whether model 2 has autocorrelation by performing the Wooldridge test, the
research test hypothesis is set as:
H0: Research model has no autocorrelation.
H1: The research model has autocorrelation.
After performing the Wooldridge test, the results of Table 4.5 show that the coefficient
Prob>F = 0.0025 < 0.05, rejecting the hypothesis H0: there is no autocorrelation, so
model 2 also has the same phenomenon in mandarin
4.7. Estimate regression model by GLS
4.7.1 Estimate regression model 1 by GLS

Table 4.17: FGLS estimate of model 1
GDP -.0345 .0127 -2.7136 .0067 -.0595 -.0096 ***
INF -.0016 .0049 -.3255 .7448 -.0113 .0081
CAP .0161 .0023 6.9198 0 .0115 .0206 ***
TLA -.0035 .0025 -1.4165 .1566 -.0084 .0014
ROA -.0801 .043 -1.8621 .0626 -.1644 .0042 *
GROW -.0009 .0011 -.8016 .4228 -.0031 .0013
INEF -.0039 .0016 -2.3906 .0168 -.0071 -.0007 **
Constant .0181 .002 9.1511 0 .0142 .022 ***

Number of obs 294 Chi-square 69.471
*** p<.01, ** p<.05, * p<.1
From the table of FGLS test results, the author finds that the variables of GDP growth
(GDP), capital ratio of the bank (CAP), return on assets (ROA) and cost-effective
operation (INEF) has a statistical significance, in which the bank's capital ratio (CAP)
has a positive effect on loan loss provision (LLP), the remaining variables have a
negative relationship to LLP. Inflation rate (INF), total loan assets (TLA) and credit
growth (GROW) are variables that are not statistically significant. From the resulting
table there is a model as follows:
LLP = 0.0181 - 0.0345***GDP - 0.0016INF + 0.0161***CAP - 0.0035TLA -

0.0801*ROA - 0.0009 GROW - 0.0039**INEF + ɛit
40
Table 4.18: Study results by FGLS of model 1

LLP dependent variables
Independent Hypothesis Results Conclusion section
variables
GDP H1: Negative -0.0345*** Accept the
hypothesis
CAP H3: Positive 0.0161*** Accept the
hypothesis
ROA H5: Positive -0.0801* Refute the
hypothesis
INEF H6: Positive -0.0039** Refute the
hypothesis
Economic growth rate (GDP) : The economic growth rate (GDP) of model 1 has
a negative relationship with credit risk (LLP) at the significance level of 1%. The
research results are completely consistent with the research hypothesis proposed by
the author, the research results are also consistent with the following studies: (Luc
Laeven and Giovanni Majnoni, 2002) and (Nguyen Thi Hong Vinh, 2015). The
negative relationship between GDP and LLP is presented by the author in the chart
below:
Figure 4.1: The relationship between GDP and LLP

41
The negative result between GDP and LLP shows that if the economic growth rate
(GDP) increases by 1 unit, credit risk (LLP) will decrease by 0.0345 units and vice
versa. It can be said that if the economy develops, people's income is guaranteed
and stable, and they have a higher amount of excess money, from which they will
save and deposit more in banks. Besides, in terms of capital users, the developed
economy creates many investment opportunities for businesses, increasing the
demand for loans as well as increasing the debt repayment capacity of enterprises.
That will help reduce the bank's credit risk.
Capital ratio (CAP): The research results show that Capital Ratio (CAP) has a
positive impact on the Credit Risk ratio (LLP) of commercial banks in Vietnam at
the significance level of 1%. This is in contrast to the research position of (Van and
Roy, 2003), (Berger et al, 2013), who believe that equity capital helps to reduce risk,
and increase the financial stability of banks. The positive relationship between CAP
and LLP is presented by the author in the chart below.
The positive results between CAP and LLP show that if the Capital ratio (CAP) rises
by 1 unit, the Credit risk ratio (LLP) will rise by 0.0161 units and vice versa. When
banks have excess capital, they tend to expand their portfolio and invest in high-
return (high-risk) assets. As a result, loans are increased and credit risk is increased.
Figure 4.2: The relationship between CAP and LLP

Return on assets (ROA): The research model, with a significance level of 10%,
shows that ROA negatively impacts credit risk (LLP). This result is inconsistent
42
with the original hypothesis of (Zribi, N., Boujee Belgrave, Y, 2011), so the theory
is rejected. The negative relationship between ROA and LLP is presented by the
author in the chart below.
Figure 4.3: The relationship between ROA and LLP

A negative impact between ROA and LLP shows that if the return on equity (ROA)
increases by 1 unit, credit risk decreases by 0.0801 and vice versa. In fact, a high
and stable ROA shows the operational efficiency and financial stability of the
business, so the higher the profitability ratio, the lower the credit risk.
Cost-effective operation (INEF):

The financial performance (INEF) of model 1 harms credit risk with a significance
level of 5%. The research results are not consistent with the hypothesis proposed by
the author (reject the hypothesis). . The results are also consistent with the following
study: (Berge and DeYoung, 1997). The negative relationship between INEF and
LLP is also presented by the author in the following model
The negative result between INEF and LLP shows that financial performance
(INEF) increases by 1 unit, credit risk (LLP) decreases by 0.0039 units, and vice
versa. This proves that when financial activities are inefficient, it will lead to low
profits or even losses, increasing credit risk for banks.
43
Figure 4.4: The relationship between INEF and LLP
4.7.2 Estimate regression model 2 by GLS

Table 4.19: FGLS estimate of model 2
GDP -.043 .0307 -1.4026 .1607 -.1031 .0171
INF .0421 .0112 3.757 .0002 .0202 .0641 ***
CAP .0099 .0071 1.3946 .1631 -.004 .0238
TLA -.004 .0055 -.7262 .4677 -.0149 .0068
ROA -.2966 .1154 -2.5706 .0102 -.5228 -.0705 **
GROW .0013 .0024 .5375 .5909 -.0034 .006
INEF .008 .0054 1.4834 .138 -.0026 .0185
Constant .0197 .0053 3.7023 .0002 .0093 .0301 ***

Number of obs 294 Chi-square 36.449
*** p<.01, ** p<.05, * p<.1
Looking at the FGLS estimation results of model 2, it is found that the variables of
GDP growth (GDP), capital ratio of banks (CAP), total loan assets assets (TLA), credit
growth (GROW), activity The cost-effectiveness (INEF) effect is not statistically
significant because there is a P-value greater than 10%. In addition, the variables of
inflation rate (INF) and bank profitability (ROA) have a statistically significant level,
in which, the variable inflation rate (INF) has a positive impact on credit risk. use
(NPL) while the bank's return on investment (ROA) has a negative effect. From the
resulting table there is the following model:
NPL=0.0197 - 0.043GDP - 0.0421***INF + 0.0099CAP - 0.004TLA - 0.2966**ROA +
0.0013 GROW - 0.008INEF + ɛit
44
Table 4.20: Study results by FGLS of model 2

NPL dependent variables
Independent Hypothesis Results Conclusion section
variables
INF H2: Positive 0.0421*** Accept the hypothesis
ROA H5: Positive -0.2966*** Refute the hypothesis
Inflation rate (INF): The inflation rate (INF) of model 2 has a positive effect on non-
performing loans (NPL) at 1% significance level. The research results are completely
consistent with the research hypothesis proposed by the author (the hypothesis is
accepted), and the research results are also consistent with the following studies:
(Naceur and Kandil, 2009) and (Ayaydin and Karakya, 2014). The positive
relationship between INF and NPL is also presented by the author in the following
model.
The positive result between INF and NPL shows that if INF increases by 1 unit, NPL
will increase by 0.0421 units and vice versa. When inflation increases, consumers
reduce spending demand, causing low consumption of goods, businesses face
difficulties due to stagnant business activities, leading to lower-than-expected profits.
There is a loss that affects the debt repayment ability of the enterprise, which causes
bad debts of banks to increase and vice versa.
Figure 4.5: The relationship between INF and NPL

Return on assets (ROA): The research model, with a significance level of 10%,
shows that ROA negatively affects bad debt (NPL). This result is inconsistent with
45
the original hypothesis of the authors (Nguyen Quoc Anh and Duong Nguyen Thanh
Phuong, 2021), so the theory is rejected. The negative relationship between ROA and
NLP is presented by the author in the chart below:
Figure 4.6: The relationship between ROA and NPL

The negative result between ROA and NLP shows that if the return on investment
(ROA) increases by 1 unit, the lousy debt decreases by 0.0801 and vice versa. When
ROA is high, the incentive to generate income for commercial banks will be reduced,
reducing high-risk loans. In contrast, inefficient banks will have to create credits with
significant risk.
4.8. GMM regression model estimation
4.8.1 GMM regression model 1 estimation
Table 4.21: GMM estimate of model 1

Number of groups 28
Number of instruments 23
Arellano-Bond test for AR(2) in first
Pr > z = 0.636
differences
Sargan test of overid. restrictions Prob > chi2 = 0.708
Hansen test of overid. restrictions Prob > chi2 = 0.749
46
LLP Coef. St.Err. t-value p- [95%

value Conf Interval] Sig
L .8782 .1814 4.84 0 .506 1.2505 ***
GDP -.0169 .0102 -1.66 .1085 -.0378 .004
INF .0403 .034 1.19 .246 -.0294 .11
CAP .0256 .0059 4.37 .0002 .0136 .0376 ***
TLA -.0106 .0065 -1.62 .1171 -.024 .0028
ROA -.1736 .0516 -3.36 .0023 -.2796 -.0677 ***
GROW -.0035 .005 -0.71 .4841 -.0138 .0067
INEF -.0122 .0049 -2.48 .0196 -.0223 -.0021 **
Constant .0146 .0043 3.44 .0019 .0059 .0234 ***
The GMM regression model shows that the number of research instruments does not
exceed the number of research groups (23<28), and the P value in the Arellano-Bond
test is 0.636 > 0.1, showing that the model has no autonomic phenomenon chain
correlation. Next, the P value in the Sargan test is 0.708 > 0.1 so that the instrumental
variable is appropriate and an endogenous phenomenon occurs. Finally, the Hansen test
for a P value of 0.749 > 0.1 proves that the instruments in the model are suitable. The
GMM regression model that met these 4 conditions shows that model 1 is appropriate,
effective, and has high accuracy.
With the results of Table 4., the author finds that the cost-effective operation of banks
(INEF) has statistical significance at 5%. Capital ratio (CAP) and return on assets (ROA)
have statistical significance at 1% and found no statistical significance in the remaining
variables. Regarding correlation, the table presents that there is a negative relationship
between cost-effective operation (INEF) and return on assets (ROA) to Loan loss
provision (LLP). In contrast, capital ratio (CAP) has a positive relationship with Loan
loss provision (LLP). From the table of GMM test results, the author obtains the
following model:
LLP = 0.0146 + 0.8782***L - 0.0169GDP + 0.0403INF + 0.0256***CAP -

0.0106TLA - 0.1736***ROA - 0.0035GROW - 0.0122**INEF + ɛ it
47
4.8.2 GMM regression model 2 estimation

Table 4.22: GMM estimate of model 2
Number of groups 28
Number of instruments 23
Arellano-Bond test for AR(2) in first
Pr > z = 0.611
differences
Sargan test of overid. restrictions Prob > chi2 = 0.107
Hansen test of overid. restrictions Prob > chi2 = 0.533
NPL Coef. St.Err. t-value p- [95%
value Conf Interval] Sig
L .3116 .117 2.66 .0129 .0716 .5515 **
GDP -.0323 .0182 -1.77 .0872 -.0696 .005 *
INF -.0077 .0648 -0.12 .9058 -.1406 .1252
CAP -.0051 .0154 -0.33 .742 -.0368 .0265
TLA -.0323 .0085 -3.81 .0007 -.0497 -.0149 ***
ROA -.4362 .2384 -1.83 .0784 -.9254 .053 *
GROW -.025 .0101 -2.48 .0198 -.0458 -.0043 **
INEF .0116 .0081 1.43 .1644 -.0051 .0282
Constant .037 .0097 3.82 .0007 .0171 .0569 ***

The GMM regression model shows that the number of research instruments does not
exceed the number of research groups (28<23), and the P value in the Arellano-Bond
test is 0.611 > 0.1, showing that the model has no autonomic phenomenon chain
correlation. Next, the P value in the Sargan test is 0.107 > 0.1 so that the instrumental
variable is appropriate and an endogenous phenomenon occurs. Finally, the Hansen test
for a P value of 0.533 > 0.1 proves that the instruments in the model are suitable. The
GMM regression model that met these 4 conditions shows that model 1 is appropriate,
effective, and has high accuracy.
According to the results in Table 4.2, the model has effective performance variables in
Asset (TLA) that is statistically significant at 1%. Credit Growth (GROW) is statistically
significant at the 5% level, otherwise, economic growth (GDP) and terms of
return (ROA) variables are statistically significant at the 10% significance level. The
remaining variables are not statistically significant. Regarding the correlation, we see
that there is a negative correlation between the dependent variables GDP, INF, CAP,
TLA, ROA and GROW to bad debt. In contrast, INEF had a positive effect on NPL. So,
from the regression table, we get the following research model:
48
NPL=0.037 – 0.0051CAP – 0.323TLA*** – 0.025GROW** – 0.4362ROA* –

0.0077INF -0.0323GDP* + 0.0116INEF+ ɛ it
Table 4.23: Study results by GMM of model 2

NPL dependent variables
Indepent variables Hypothesis Results Conclusion section
Accept the
GDP H1: Negative -0.0323*
hypothesis
Refute the
TLA H4: Positive -0.0323***
hypothesis
Economic growth rate (GDP) : The economic growth rate (GDP) of model 2 has a
negative relationship with non-performing loans (NPL) at 1% significance level. The
research results are consistent with the research hypothesis proposed by the author and
the following studies of (Luc Laeven and Giovanni Majnoni, 2002) and (Nguyen Thi
Hong Vinh, 2015). The negative relationship between GDP and NPL is presented by
the author in the chart below:
The negative result between GDP and NPL shows that if the economic growth rate
(GDP) increases by 1 unit, non-performing loans (NPL) will decrease by 0.0323 units
and vice versa. It can be said that if the economy develops, the incomes of people and
businesses are guaranteed and maintained in a stable state, and they will have an
increased ability to pay their debts if they have loans from banks. This will help reduce
the bad debt ratio of the bank.
49
Figure 4.7: The relationship between GDP and NPL

Loan-to-total assets ratio (TLA): The research results present that the total loan
assets assets ratio (TLA) has a negative impact on the Non-Performance loans ratio
(NPL) at the significance level of 1%. This result is consistent with the study of
(Gestel and Baesens, 2009) on total loan assets has a negative impact on bank credit
risk. The negative relationship between TLA and NPL is presented by the author in the
chart below:
Figure 4.8: The relationship between TLA and NPL

The negative results between TLA and NPL show that if the Total loan assets (TLA)
rises by 1 unit, the Non-Performance Loans ratio (NPL) will decline by 0.0323 units and
vice versa. That means the more assets used to secure loans, the lower the Non-
Perfornmace Loans ratio (NPL).
50
Through chapter 4, the author in turn presents the results of analysis of the
estimated results of regression models to test the research hypotheses. In addition, the
content of this chapter also discusses the relationship of factors affecting credit risks of
joint stock commercial banks in Vietnam in the period of 2011-2021.
51
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
In this study, we present the analysis results by estimating the models in order to select
a suitable model while also testing the research hypotheses. From there, we can see the
relationship between factors influencing commercial banks' credit risk in Vietnam, as
well as the direction of influence of these factors on the banking business.
To avoid negative consequences for commercial banks in particular, and the Vietnamese
banking system in general, it is critical to understand the factors influencing risk,
particularly the bank's credit risk. Data is processed and analyzed using STATA
software based on a data table containing 295 observations from 28 Vietnamese
commercial banks from 2011 to 2021. In order to answer the research question, the thesis
synthesized and studied 7 factors affecting the credit risk of Vietnamese banks:
capitalization ratio (CAP); loan to total assets ratio (TLA); credit growth (GROW); asset
profitability (ROA); inflation rate (INF); economic growth rate (GDP); and cost-
effective operation (INEF). As a result, the research findings are presented in the form
of descriptive statistical analysis, correlation analysis, and estimation methods through
OLS, FEM, and REM model methods and the research findings are tested to provide the
best and most reliable research findings. Using estimation and testing methods, the
thesis produced research findings concluding factors affecting the credit risk of
Vietnamese banks between 2011 and 2021.
5.2 Recommendations
For growth rate (GDP): the research results show that growth rate (GDP) is negatively
related to banks' credit risk. With the trend of global integration, the demand for banking
services is increasing, and the market competition is getting fiercer, so commercial
banks need to have policies for customers, policies on size, and credit limit and interest
rate policies to limit risks, maintain the bank's profitability and improve profitability.
For the inflation rate (INF): The State Bank needs to implement appropriate monetary
policies to help control inflation and minimize bad debts.
For capital ratio (CAP): Establish appropriate credit policies, including customer
policy, credit size, and limit policy, interest rate policy. Besides diversifying customers
and lending facilities to spread risks, do not accept high-risk contracts.
52
For total loan assets (TLA): The more total loan assets, the lower the credit risk.
Therefore, total loan assets plays an essential role in the lending activities of businesses,
helping to ensure the safety of loans. Commercial banks must promote the active part of
total loan assets and use total loan assets tools when reasonably lending to businesses.
For return on assets (ROA): More attention should be paid to credit quality and
maintaining banking operations at a reasonable scale. At the same time, keep the ratio
of equity to total assets in line with the bank's objectives and control liquidity risk in the
present to minimize the bank's credit risk.
For cost-effective operation (INEF): it is necessary to implement effective operational

cost management and improve the management ability of the bank's business activities.
If these expenses are not managed effectively, it can lead to under appraisals, increasing
bad debts.
5.3 The limitations of the research

Firstly, the research object only focuses on commercial banks and doesn’t include other
types of banks as 100% foreign-owned banks and joint-venture banks, contributing to
affecting the result of the model.
Secondly, the commercial banking system in Vietnam has a total of 31 banks, but only
28 banks have complete data from 2011 to 2021, the other banks are missing data in
some years. Due to the limited research time, the author has difficulty finding research
data and information, so many internal and external factors cannot be measured.
Therefore, this is also one of the limitations that the research topic encountered.
Finally, it is necessary to supplement the impact factors in the study when analyzing the
influence on the credit risk of commercial banks such as exchange rates, interest rates,
etc. Thus, contributing to the research orientation when analyzing and reviewing model
results.
53
This chapter evaluates the results of the study, the limitations and the future direction
of development of the topic. From there, make recommendations for commercial
banks in Vietnam to contribute to limiting the credit risks of joint stock
commercial banks in Vietnam, while also recognizing the limitations that need to
be addressed and overcome for future research
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MINISTRY OF EDUCATION AND TRADING STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

SUBJECT: BANK MANAGEMENT

Name Student code

Tran Do Nhu Ha 050608200319

Nguyen Hoang Bao Chau 050608200259

Nguyen Quynh Nhu 050608200545

Tran Ly My Ngoc 050608200494

Huynh Kim Thoa 050608200668

Ngo Thi Kim Phuoc 050608200568

Nguyen Hieu Kien 050608200077

Nguyen Le Ngoc Linh 050608200419

HO CHI MINH CITY, 2022

LIST OF ACRONYMS .......................................................................................................... i

LIST OF TABLES AND FIGURES

Table 4.1: Statistics of variables used in the research model................................................. 27

Figure 4.1: The relationship between GDP and LLP ............................................................ 40

CHAPTER 1. INTRODUCTION TO THE RESEARCH TOPIC

1.1. Reason for Research

1.2. Objective of study

1.2.1. General objective

1.2.2. Specific objective

1.3. Research question

1.4. Objects and scope of the study

1.4.1. Study objects

1.4.2. Scope of the study

1.5.1 Search For Learning Methods

1.5.2 Research process

1.6. Expected Contributions

1.7 Structure of reasearch

CHAPTER 2. REVIEW OF THE LITERATURE

2.1.1. Overview of credit activities of Commercial banks

2.1.2. The definition of credit risk at Commercial Bank

2.1.3. Factors affecting the credit risk of commercial banks

2.2 An overview of previous research

2.2.1 Review of domestic research

2.2.2. Review of foreign research

2.2.3. Research gap

CHAPTER 3 RESEARCH MODEL AND METHODOLOGY

3.1. Reasearch model

Y is the dependent variable.

Β is the coefficient of the explanatory variables.

Xit is the vector of explanatory variables.

ɛit is the error of the model.

Y: includes LLP, NPL

X: CAP, TLA, ROA, GROW, INEF, GDP, INF

In particular, the proposed research model:

GDPt : Economic growth at the time (t)

INFt: Inflation rate at the time (t)

3.2. Research data and research methods

3.2.1. Research data

3.2.2 Model variables

3.2.2.1. LLP - Credit Risk

𝐏𝐫𝐨𝐯𝐢𝐬𝐢𝐨𝐧𝐬 𝐟𝐨𝐫 𝐥𝐨𝐚𝐧𝐬 𝐭𝐨 𝐜𝐮𝐬𝐭𝐨𝐦𝐞𝐫𝐬

3.2.2.2. NPL - Bad debt

𝐓𝐨𝐭𝐚𝐥 𝐛𝐚𝐝 𝐝𝐞𝐛𝐭

3.2.2.3 GDP - GDP growth

(𝐆𝐃𝐏 𝐲𝐞𝐚𝐫 𝐭 − 𝐆𝐃𝐏 𝐲𝐞𝐚𝐫 𝐭 − 𝟏)