Vietnamese (VN)English (UK)

Collateral liquidity and loan default risks: the case of Vietnam

(A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS, VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS)

By Nguyen Le Hieu (VNP 21)

Academic Supervisor: Dr. Le Ho An Chau

ABSTRACT:

This thesis investigates the impact of the liquidity level of collaterals on the probability of default of individual loans and examines the channels through which collaterals affect default risks. Binominal logit model is applied on the data from individual loan accounts of a medium – size commercial bank in Vietnam. The empirical results suggest the significant and negative impact of collaterals’ liquidity on loans’ probability of default, supporting the dominance of borrower selection effect and risk shifting effect over lender selection effect. Moreover, the finding also implies that bank has not applied carefully and thoroughly screening process on loans that are fully secured by low liquid collaterals and therefore impaired the credit quality of loan portfolio.

Keywords: Collaterals, non-performing loans, loan risk, logit model.

Abbreviations: PD – Probability of default; NPL – Non-performing loan.

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Full version is available at Library of Vietnam- Netherland Progamme: 1A Hoang Dieu, Phu Nhuan Dist, Ho Chi Minh city, Vietnam.