Credit risk management and performance of commercial banks - Evidence in Vietnam

Abstract

In banking industry, the importance of credit management has increased more and more as time pass. This phenomenon is accounted by the process of applying Basel II into the general standard for managing credit risk for the Vietnamese banks as a whole not just commercial banks or investment banks. With the continuous expansion in the variety and gravity of credit risk in modern economic environment. As commercial banks are opened for business, commercial banks have to face with many type of risks and the biggest threat for commercial banks is credit risk since 90s to date. By considering about the main source of revenue for commercial banks that is grating credit. Therefore, the allowance of resources for managing credit risk, heavily affect performance of commercial banks. This research is conducted with the mission to find an up to date and precise information regarding the relationship and the effects of the said relationship between performance of Vietnamese commercial banks and credit risk management. The model of this research is based on DuPont model which use Return on Equity (ROE) and Return on Assets (ROA) as the representatives that represent performance of Vietnamese commercial banks, while Capital Adequacy Ratio (CAR), Non-Performing Loan Ratio (NPLR) and Loan Loss Provision Ratio (LLP) are chosen as the representatives to study about credit risk management. The data of this study come from 13 listed commercial banks that available on Ho Chi Minh Stock Exchange (HOSE) and Ha Noi Stock Exchange (HNX) from the time period of 2015 – 2019. This research is a quantitative research, therefore in order to answer for the main question of the research, 2 hypotheses are formed with STATA 15 is chosen as the mean to analyze the collected data. This study reveals that CAR, NPLR and LLP have negatively significant relationship with performance of Vietnamese commercial banks. Since, all of the credit risk indicators have negatively significant relationship with both of the representatives for performance.