The relationship between bank credit growth and economic growth : The case of Vietnam

Abstract

This study is conducted with an aim to clarify the relationship between Vietnam’s economy growth and banks performance, focusing on banks’ main task of giving out credit. Data about bank credit growth and real GDP growth rate from Q1/2004 to Q4/2011 is collected and Granger causality is employed to examine their relationship. The findings suggest that there is no causal relationship between real GDP growth rate and bank credit growth in the case of Vietnam. Possible explanation for the absence of causal relationship between these two variables in Vietnam is provided with the main reason coming from the fact that funds were not allocated to their most productive uses, high credit growth went together with inefficient credit management leading to increasing NPL ratio.