The Effects Of Credit Risk And Liquidity Risk On Bank Stability: Empirical Evidence From Vietnamese Listed Commercial Bank

Abstract

This study looks at the relation between credit risk and liquidity risk and how those two factors interact to impact Vietnamese banks' stability. Using data from 20 commercial banks listed on HOSE and HNX between 2010 and 2022, we perform Pooled OLS, 2SLS, and GMM models to investigate these relationships. Our results validate a strong positive correlation between credit risk and liquidity risk, confirming earlier findings that changes in one risk will lead to changes in the other. But with bank stability proxied by Z-score, only liquidity risk significantly harms bank stability. This implies that while credit risk is related to liquidity risk, credit risk does not directly impact stability of the banks. This also suggests that maintaining sufficient liquidity is essential for guaranteeing bank stability. The study also investigates the effects of some macroeconomic and bank-specific control variables; however, none is shown to have a major effect on bank stability. In order to improve risk management procedures and advance financial stability, bank managers and policymakers in Vietnam can benefit from the insights this research offers.