Abstract
This paper concentrates on examining the impact of the credit boom (2007-2010) on the soundness of the commercial banking system in Vietnam by using qualitative and quantitative methods. The results show that the credit boom in the period 2007-2010 had made Vietnam's banking system face many uncertainties such as difficulties in liquidity, increased non-performing loans... The influence of the credit boom on Vietnam's banking system is assessed on basic aspects such as asset quality, profitability, liquidity, capital adequacy... The quantitative analysis of the impact is made through the regression model using variables that show the characteristic of individual commercial bank and the volatility of the economy. The data is collected from 18 commercial banks in Vietnam in the period from 2005 to 2013, taken from the database BankScope and supplemented by information from the annual financial reports of the banks. Finally, in order to avoid the possibility of credit booms in the future and their effects on bank soundness in Vietnam, some recommendations related to credit growth are proposed for the authorities and the commercial banks.
Highlights
In countries with underdeveloped financial markets like Vietnam, bank lending is considered as one of the important sources of capital for investment and development
The assessment of the impact of the credit boom between 2007 and 2010 on the soundness of Vietnamese commercial banks is reflected in the some aspects such as asset quality, profitability, capital adequacy, and “distance to default” (z-score), as well as other variables that depend on the characteristics of individual commercial bank and the economy
In terms of capital structure (CAP), similar to the results from the research equation for the whole study period, there is no statistical significance in the impact of capital structure on the credit boom, though it appears that commercial banks with a higher risk will be more willing to grow credit
Summary
In countries with underdeveloped financial markets like Vietnam, bank lending is considered as one of the important sources of capital for investment and development. The internal turmoil of the economy has emerged such as increased trade deficit, budget deficit, rising public debt, high inflation and slow economic growth This has partly caused the banking system of Vietnam to face many uncertainties, including liquidity problems and non-performing loans (Quach Manh Hao, 2012; KPMG, 2013). A large amount of credit flowing into stock and real estate trading has created bubbles in the real estate and stock markets This is the reason why bad debt has been accumulated in a long time and the banking system has faced risks when these markets have gradually adjusted to real value after the period of excessive credit growth. The system has focused too much on the expansion of total assets through credit growth without regard to the quality of bank lending and bank governance
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