Credit Risk and Financial Performance of Vietnamese Commercial Banks: During and After the Financial Crisis

This study examines the influence of credit risk on the financial performance of commercial banks, as measured by the bad debt ratio and the credit risk provision ratio, with and without the participation of macro factors. This study also investigates the effect of the financial crisis on these relationships. Estimates of the generalized two-step systems method (GMM) are used with financial data of 24 commercial banks in Vietnam for the period 2008-2017. The results find that the credit risk of banks has a negative impact on financial performance. Surprisingly, the bad debt ratio is found to enhance the financial performance of commercial banks, while the ratio of provision for credit losses keeps dragging down financial performance significantly during the financial crisis years.