The relationship between profitability and loan growth in commercial bank of Vietnam
Main Article Content
Abstract
This study surveyed 30 Vietnamese commercial banks from 2007 to 2019, through unbalanced panel data, with a total of 353 observations. The study investigates the two-way relationship between profitability and loan growth from Vietnamese commercial banks. By estimating the equation simultaneously with 3SLS (three-stage least squares) estimation. Research has shown that the relationship between profitability and loan growth is positive. Besides, the results also show that there is a nonlinear relationship in loan growth. It is recommended that bank managers should carefully pursue a strategy of massive lending growth and that policymakers should keep a close eye on Vietnam's banking market when lending is growing too fast.
Article Details
Keywords
3SLS, Bank profitability, Loan growth
References
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Baron, M., & Xiong, W. (2017). Credit expansion and neglected crash risk. The Quarterly Journal of Economics, 132(2), 713-764.
Belsley, D. A. (1988). Two-or three-stage least squares? Computer Science in Economics and Management, 1(1), 21-30.
Berger, A. N., & Udell, G. F. (2004). The institutional memory hypothesis and the procyclicality of bank lending behavior. Journal of financial intermediation, 13(4), 458-495.
Bhowmik, P. K., & Sarker, N. (2021). Loan growth and bank risk: empirical evidence from SAARC countries. Heliyon, 7(5), e07036.
Borio, C., & Lowe, P. (2002). Asset prices, financial and monetary stability: exploring the nexus. Bank for International Settlements.
Borio, C. (2009). Ten propositions about liquidity crises, BIS Working Paper, No 293. Bank for International Settlements.
Dang, V. (2019). The effects of loan growth on bank performance: Evidence from Vietnam. Management Science Letters, 9(6), 899-910.
Dash, M. K., & Kabra, G. (2010). The determinants of non-performing assets in Indian commercial bank: An econometric study. Middle Eastern Finance and Economics, 7(2), 94-106.
Dell'Ariccia, G., & Marquez, R. (2006). Lending booms and lending standards. The Journal of Finance, 61(5), 2511-2546.
Dietrich, A., & Wanzenried, G. (2014). The determinants of commercial banking profitability in low-, middle-, and high-income countries. The Quarterly Review of Economics and Finance, 54(3), 337-354.
Fahlenbrach, R., Prilmeier, R., & Stulz, R. M. (2018). Why does fast loan growth predict poor performance for banks? The Review of Financial Studies, 31(3), 1014-1063.
Foos, D., Norden, L., & Weber, M. (2010). Loan growth and riskiness of banks. Journal of Banking & Finance, 34(12), 2929-2940.
Gul, S., Irshad, F., & Zaman, K. (2011). Factors Affecting Bank Profitability in Pakistan. The Romanian Economic Journal, 39, 61–87
Igan, M. D., & Pinheiro, M. (2011). Credit growth and bank soundness: fast and furious?. International Monetary Fund.
Jordà, Ò., Schularick, M., & Taylor, A. M. (2013). When credit bites back. Journal of money, credit and banking, 45(s2), 3-28.
Kashif, A. R., Zafar, N., & Arzoo, F. (2016). Impact of agricultural credit and its nature on agricultural productivity: a study of agriculture sector of Pakistan. Journal of Environmental & Agricultural Sciences, 9, 59-68.
Kwan, S., & Eisenbeis, R. A. (1997). Bank risk, capitaliza-tion, and operating efficiency. Journal of Financial Services Research, 12(2), 117–131.
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Le, T. D. (2018). Bank risk, capitalisation and technical efficiency in the Vietnamese banking system. Australasian Accounting Business & Finance Journal, 12(3), 42-61.
Le, T. D. (2019). The interrelationship between liquidity creation and bank capital in Vietnamese banking. Managerial Finance, 45(2), 331-347.
Le, T. D. (2020). The interrelationship among bank profitability, bank stability, and loan growth: Evidence from Vietnam. Cogent Business & Management, 7(1), 1-18.
Le, T. D., & Pham, X. T. T. (2021). The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies. Managerial Finance, 47(8), 1149-1167.
Laeven, L., & Majnoni, G. (2003). Loan loss provisioning and economic slowdowns: too much, too late?. Journal of Financial Intermediation, 12(2), 178-197.
Lepetit, L., Nys, E., Rous, P., Tarazi, A. (2008). Bank income structure and risk: an empirical analysis of European banks. Journal of Bank. Finance, 32(8), 1452-1467.
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Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115.
Nguyen, J. (2012). The relationship between net interest margin and noninterest income using a system estimation approach. Journal of Banking and Finance, 36(9), 2429-2437.
Nguyễn Thành Đạt, Thi Thị Mỹ Duyên (2021). Tác động của rủi ro tín dụng đến hiệu quả hoạt động của các ngân hàng thương mại Việt Nam. Tạp chí Nghiên cứu Tài chính-Marketing, 63(3), 66-75.
Negara, I. P. A. A., & Sujana, I. K. (2014). Pengaruh Capital Adequacy Ratio, Penyaluran Kredit dan Non Performing Loan Terhadap Profitabilitas. E-Jurnal Akuntansi, 9(2), 325-339.
Paul, K. T., Matata, K., & Simiyu, A. (2016). Effect of Loan Portfolio Growth on Financial Performance of Commercial Banks in Kenya. Imperial Journal of Interdisciplinary Research, 2(11), 2113–2119
Rossi, S.P., Schwaiger, M.S., Winkler, G. (2009). How loan portfolio diversification affects risk, efficiency and capitalization: a managerial behavior model for Austrian banks. Journal of Bank. Finance 33(12), 2218–2226.
Rossi, S., Borroni, M., Piva, M., & Lippi, A. (2019). Abnormal Loan Growth and Bank Profitability: Some Evidence from the Recent Crisis. International Journal of Business and Management, 14(7), 36-53.
Reinhart, C. M., & Rogoff, K. S. (2009). The aftermath of financial crises. American Economic Review, 99(2), 466-72.
Salas, V., & Saurina, J. (2002). Credit risk in two institutional regimes: Spanish commercial and savings banks. Journal of Financial Services Research, 22(3), 203-224.
Schularick, M., & Taylor, A. M. (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008. American Economic Review, 102(2), 1029-1061.
Soedarmono, W., Sitorus, D., & Tarazi, A. (2017). Abnormal loan growth, credit information sharing and systemic risk in Asian banks. Research in International Business and Finance, 42(C), 1208-1218.
Sharma, P., & Gounder, N. (2012). Determinants of bank credit in small open economies: The case of six Pacific Island Countries (No. finance: 201213). Griffith University, Department of Accounting, Finance and Economics.
Wooldridge, J. M. (2001). Applications of generalized method of moments estimation. Journal of Economic perspectives, 15(4), 87-100.
Amador, J. S., Gómez-González, J. E., & Pabón, A. M. (2013). Loan growth and bank risk: New evidence. Financial Markets and Portfolio Management, 27(4), 365-379.
Antoni, A., & Nasri, M. (2015). Profitability Determinants of Go-Public Bank in Indonesia: Empirical Evidence after Global Financial Crisis. International Journal of Business and Management Invention, 4(1), 37-46.
Baron, M., & Xiong, W. (2017). Credit expansion and neglected crash risk. The Quarterly Journal of Economics, 132(2), 713-764.
Belsley, D. A. (1988). Two-or three-stage least squares? Computer Science in Economics and Management, 1(1), 21-30.
Berger, A. N., & Udell, G. F. (2004). The institutional memory hypothesis and the procyclicality of bank lending behavior. Journal of financial intermediation, 13(4), 458-495.
Bhowmik, P. K., & Sarker, N. (2021). Loan growth and bank risk: empirical evidence from SAARC countries. Heliyon, 7(5), e07036.
Borio, C., & Lowe, P. (2002). Asset prices, financial and monetary stability: exploring the nexus. Bank for International Settlements.
Borio, C. (2009). Ten propositions about liquidity crises, BIS Working Paper, No 293. Bank for International Settlements.
Dang, V. (2019). The effects of loan growth on bank performance: Evidence from Vietnam. Management Science Letters, 9(6), 899-910.
Dash, M. K., & Kabra, G. (2010). The determinants of non-performing assets in Indian commercial bank: An econometric study. Middle Eastern Finance and Economics, 7(2), 94-106.
Dell'Ariccia, G., & Marquez, R. (2006). Lending booms and lending standards. The Journal of Finance, 61(5), 2511-2546.
Dietrich, A., & Wanzenried, G. (2014). The determinants of commercial banking profitability in low-, middle-, and high-income countries. The Quarterly Review of Economics and Finance, 54(3), 337-354.
Fahlenbrach, R., Prilmeier, R., & Stulz, R. M. (2018). Why does fast loan growth predict poor performance for banks? The Review of Financial Studies, 31(3), 1014-1063.
Foos, D., Norden, L., & Weber, M. (2010). Loan growth and riskiness of banks. Journal of Banking & Finance, 34(12), 2929-2940.
Gul, S., Irshad, F., & Zaman, K. (2011). Factors Affecting Bank Profitability in Pakistan. The Romanian Economic Journal, 39, 61–87
Igan, M. D., & Pinheiro, M. (2011). Credit growth and bank soundness: fast and furious?. International Monetary Fund.
Jordà, Ò., Schularick, M., & Taylor, A. M. (2013). When credit bites back. Journal of money, credit and banking, 45(s2), 3-28.
Kashif, A. R., Zafar, N., & Arzoo, F. (2016). Impact of agricultural credit and its nature on agricultural productivity: a study of agriculture sector of Pakistan. Journal of Environmental & Agricultural Sciences, 9, 59-68.
Kwan, S., & Eisenbeis, R. A. (1997). Bank risk, capitaliza-tion, and operating efficiency. Journal of Financial Services Research, 12(2), 117–131.
Le, T. D. (2017). The interrelationship between net interest margin and non-interest income: evidence from Vietnam. International Journal of Managerial Finance, 13(5), 521-540.
Le, T. D. (2018). Bank risk, capitalisation and technical efficiency in the Vietnamese banking system. Australasian Accounting Business & Finance Journal, 12(3), 42-61.
Le, T. D. (2019). The interrelationship between liquidity creation and bank capital in Vietnamese banking. Managerial Finance, 45(2), 331-347.
Le, T. D. (2020). The interrelationship among bank profitability, bank stability, and loan growth: Evidence from Vietnam. Cogent Business & Management, 7(1), 1-18.
Le, T. D., & Pham, X. T. T. (2021). The inter-relationships among liquidity creation, bank capital and credit risk: evidence from emerging Asia–Pacific economies. Managerial Finance, 47(8), 1149-1167.
Laeven, L., & Majnoni, G. (2003). Loan loss provisioning and economic slowdowns: too much, too late?. Journal of Financial Intermediation, 12(2), 178-197.
Lepetit, L., Nys, E., Rous, P., Tarazi, A. (2008). Bank income structure and risk: an empirical analysis of European banks. Journal of Bank. Finance, 32(8), 1452-1467.
Miller, S. M., & Noulas, A. G. (1997). Portfolio mix and large-bank profitability in the USA. Applied Economics, 29(4), 505-512.
Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of Banking & Finance, 16(6), 1173-1178.
Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115.
Nguyen, J. (2012). The relationship between net interest margin and noninterest income using a system estimation approach. Journal of Banking and Finance, 36(9), 2429-2437.
Nguyễn Thành Đạt, Thi Thị Mỹ Duyên (2021). Tác động của rủi ro tín dụng đến hiệu quả hoạt động của các ngân hàng thương mại Việt Nam. Tạp chí Nghiên cứu Tài chính-Marketing, 63(3), 66-75.
Negara, I. P. A. A., & Sujana, I. K. (2014). Pengaruh Capital Adequacy Ratio, Penyaluran Kredit dan Non Performing Loan Terhadap Profitabilitas. E-Jurnal Akuntansi, 9(2), 325-339.
Paul, K. T., Matata, K., & Simiyu, A. (2016). Effect of Loan Portfolio Growth on Financial Performance of Commercial Banks in Kenya. Imperial Journal of Interdisciplinary Research, 2(11), 2113–2119
Rossi, S.P., Schwaiger, M.S., Winkler, G. (2009). How loan portfolio diversification affects risk, efficiency and capitalization: a managerial behavior model for Austrian banks. Journal of Bank. Finance 33(12), 2218–2226.
Rossi, S., Borroni, M., Piva, M., & Lippi, A. (2019). Abnormal Loan Growth and Bank Profitability: Some Evidence from the Recent Crisis. International Journal of Business and Management, 14(7), 36-53.
Reinhart, C. M., & Rogoff, K. S. (2009). The aftermath of financial crises. American Economic Review, 99(2), 466-72.
Salas, V., & Saurina, J. (2002). Credit risk in two institutional regimes: Spanish commercial and savings banks. Journal of Financial Services Research, 22(3), 203-224.
Schularick, M., & Taylor, A. M. (2012). Credit booms gone bust: Monetary policy, leverage cycles, and financial crises, 1870-2008. American Economic Review, 102(2), 1029-1061.
Soedarmono, W., Sitorus, D., & Tarazi, A. (2017). Abnormal loan growth, credit information sharing and systemic risk in Asian banks. Research in International Business and Finance, 42(C), 1208-1218.
Sharma, P., & Gounder, N. (2012). Determinants of bank credit in small open economies: The case of six Pacific Island Countries (No. finance: 201213). Griffith University, Department of Accounting, Finance and Economics.
Wooldridge, J. M. (2001). Applications of generalized method of moments estimation. Journal of Economic perspectives, 15(4), 87-100.
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