Non-Performing Loans of Commercial Banks, and Their Causes: Evidence from Vietnam

Abstract

Non-Performing Loans (NPLs) are a significant issue for all banks in Vietnam, attracting considerable attention from scholars. Our research aims to nd out the factors that affect the NPLs of Vietnamese commercial banks. The study uses Pooled Ordinary Least Square (OLS), Fixed effect, Random effect, and Generalized Least Square to examine secondary data of 28 commercial banks annually for the period 2008-2019. Consistent with previous research, the main finding shows that macroeconomic and microeconomic factors impact NPLs. Remarkably, provision for credit risk (PCR) has a significantly positive effect on the NPL ratio. Besides, foreign investor ownership (FOR) and bank size (SIZE) negatively affect the NPL ratio. Especially, for the positive correlation between foreign investor ownership and bank performance, the commercial bank should expand to enhance operational efficiency. Regarding macro factors, the results conclude that gross domestic product (GDP) growth and the unemployment rate (UEP) have a significantly negative relationship on NPLs. Therefore, the State Bank of Vietnam and the banks need to understand the leading causes as they directly relate to the banks in the context of the prevailing economic environment.

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