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Determinants of nonperforming loans the case of Vietnamese banking sector

(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 Truong Ngoc Thanh (VNP 19)

Academic Supervisor: Dr. Nguyen Thi Thuy Linh

Abstract:

The main purpose of this study is to examine the determinants of non-performing loans (NPLs) in the case of Vietnamese banking sector by analyzing the unbalanced panel data of 30 Vietnamese banks over the period of 2008 – 2012. Both of macroeconomic and bank-specific determinants are employed when modeling the regression of NPLs’ determinants. Macroeconomic factors including Gross Domestic Product (GDP) growth rate, unemployment rate, real lending interest rate and sovereign debt are exogenous variables that effect on NPLs. Besides that, return on equity, inefficiency rate, proportion of non-interest income, leverage ratio, credit growth are the endogenous variables which effect to NPLs. In addition, the effects of government intervention and foreign investment on NPLs are also examined in this study by investigating the difference in NPLs of state-owned banks and fully foreign-owned banks. The fixed effect of unbalance panel data is employed to test these hypotheses. Regarding bank-specific factors, the inefficiency rate and credit growth rate statistically affect on NPLs. However, return on equity, non-interest income rate, leverage ratio do not statistically significant effect on NPLs. In addition, as the regression result, all of macroeconomic determinants including GDP growth rate, unemployment rate, real lending interest rate and sovereign debt statistically significant affect on NPLs. Moreover, the regression shows that return on equity and leverage ratio are affected in state-owned bank that lead to higher NPLs. However, the effect of foreign investment in fully foreign-owned banks on NPLs is not supported in this study.

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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.