The Impact Of Credit Risk Management On The Financial Performance Of Commercial Banks In Vietnam

Abstract

The banking system is vital to the expansion of the country's economy. A nation's financial stability is determined by the efficacy and productivity of its banking industry over time. From 2017 to 2022, the results of managing credit risk were analyzed to see how they affected the financial outcomes of 19 commercial banks in Vietnam. Using data collected through panel approaches consisting of pooled ordinary least squares, fixed effects and random effects estimators, and generalized least square regression, we investigated the connection between credit risk handling (as measured by NPLR and CAR) and financial success (as measured by ROA and ROE). To begin with, a strong correlation between financial results and adequate capitalization has been established. Second, the data demonstrated that non-performing loans were inversely related to the profitability of banks as measured by return on assets and return on equity. Third, outcomes show that a bank's size was associated with better financial results. Next, the leverage ratio was discovered to be negatively correlated with bank profitability. In the end, the growth ratio did not influence banks' bottom lines in any significant way. Commercial banks in Vietnam could benefit from better credit risk management practices, which would help bring the percentage of non-performing loans lower. In addition, they need to keep a healthy level of capital on hand to prevent the kind of capital loss that might result in a lack of liquidity or even insolvency due to non-performing loans.