The Country Governance Index And Bank Credit Risks: Empirical Evidence From Vietnamese Commercial Banks Listed On Hochiminh And Hanoi Stock Exchanges

Abstract

The intricate relationship between the Country Governance Index (CGI) and credit risk within Vietnamese commercial banks, alongside an exploration of the influence exerted by various bank-specific and macroeconomic variables, becomes an interest for Vietnamese researchers. Drawing upon a sample comprising 20 Vietnamese commercial banks listed on the HOSE and HNX stock exchanges spanning the years 2010 to 2022, encompassing 160 bank-year observations, the research employs both the Fixed Effects Model (FEM) and Random Effects Model (REM). The study's regression models incorporate the dependent variable, namely credit risk measured by the Loan Loss Reserve Ratio (LLRR) and Non-Performing Loan Ratio (NPLR), juxtaposed against the primary independent variable, the Country Governance Index. Additionally, the analysis accounts for a suite of bank characteristics (including bank size, return on assets, capital-to-asset ratio, loan-to-deposit ratio, credit growth, and state ownership) and macroeconomic factors (such as GDP growth rate and interbank interest rate) as control variables. The findings unveil a statistically significant negative association between CGI and NPLR, thereby substantiating my thesis hypothesis and suggesting that enhancements in country governance harbor the potential to assuage non-performing loans, consequently mitigating overall credit risks within Vietnamese commercial banks. Moreover, the analysis highlights the significant impact of bank size and two macroeconomic variables (GDP growth rate and interbank interest rate) on credit risk, urging policymakers, regulators, and banking practitioners to strengthen governance frameworks to enhance financial stability and mitigate credit risks in Vietnamese banks