Abstract
Non-performing loans has always been a serious concern for the banking system in Vietnam over the years, especially after the financial crisis year 2008. The huge volume of non-performing loans may lead to severe consequences for the whole economy at both macroeconomic and microeconomic level. The determinants of the NPLs problems are identified by building up models that explain non-performing loans by macroeconomic factors and bank-specific factors which are adjusted from the earlier studies to fit with the context in Vietnam. In short, the level of NPLs is primarily contributed by bank-specific factors. Also, it is recommended that banks should improve lending policies to prevent the increase in non-performing loans. Last but not least, it is urgent for the State Bank of Vietnam in general and banks themselves in particular to conduct a strict procedure in implementation, control, management, and supervision of all activities in order to carry out solutions in time before the problems are getting worse. Keywords: NPLs, macroeconomic, banks DOI: 10.7176/EJBM/12-6-03 Publication date: February 29 th 2020
Highlights
It is undeniable that banks play an important role in the economy system of each country across the globe, especially in Vietnam, where more than 100 banks are operating according to figure from State Bank of Vietnam in year-end 2018
5.3 Discussion of findings 5.3.1 Effect of macroeconomic factors on non-performing loans (NPLs) According to the result from EViews 10, inflation rate (INF) has a significantly positive relationship with NPL in the current year, which is the same as the expectation, 1% increase in inflation rate leads to 0.09% increase in NPL
During recession, to deal with unemployment issue, banks tend to tighten the borrowing policies such as setting stricter requirements for potential borrowers, increasing loan provision and capital adequacy ratio (CAR), so that they can lower the amount of bad debt. 5.3.2 Effect of bank-specific factors on NPLs It can be seen that NPL from the previous year (NPLs(-1)) is the most significant variable with an extremely small p-value
Summary
It is undeniable that banks play an important role in the economy system of each country across the globe, especially in Vietnam, where more than 100 banks are operating according to figure from State Bank of Vietnam in year-end 2018. Credit risk is always extremely important to banking industry since its core business is formed by lending operations. Credit risk or default risk depends on the quality of assets, and it is reflected through the volume of non-performing loans (NPLs). It is essential to determine the factors causing NPLs and develop an effective resolution for the overall banking industry in general, and listed banking sector in particular
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