How Credit Growth and Political Connection Affect Net Interest Margin of Commercial Bank in Vietnam: A Bayesian Approach

Abstract

AbstractThis paper aims to analyze the impact of credit growth rate and political connection on commercial banks’ net interest return (NIM) in Vietnam in 2003–2020. We employ the Bayesian linear regression method through the Gibbs sampling algorithm to overcome the asymptotic, a property that can hinder when using frequentist methods in small-sample contexts. The empirical results indicate that the lending growth rate and political connection have a robust negative effect on NIM. In addition, we also figure out that higher bank funding diversity lowers the spread of commercial banks in Vietnam while higher bank liquidity creation pushes higher NIM. Moreover, the gross domestic product (GDP) growth, the growth of money supply M2 (M2GR) impact positively on NIM. Finally, our study figures out that Covid-19 has adverse impacts on NIM. Our findings are helpful for bank managers and market supervisors to maintain the sustainable growth of the financial market.KeywordsBayesian linear regressionNIMPolitical connectionCredit growth rateGDP growthM2Banks