The determinants of Vietnamese banks’ lending behavior

Abstract

Purpose – The purpose of this paper is to theoretically and empirically examine the lending behavior of Vietnamese banks. Design/methodology/approach – A firm-banking model was established, considering risk-taking behavior and the regulatory environment. Based on the theoretical model, a simultaneous equation system was specified that considered loan growth and deposit growth as endogenous variables to empirically investigate lending behavior in Vietnam’s banking sector. Two-stage least square estimators were employed using a micro-level panel data set comprising 39 Vietnamese commercial banks. Findings – The empirical results demonstrate the divergence in the lending behavior of private and state-owned banks. The regressions results support the predictions of the theoretical model on the positive effect of economic growth and the negative effect of the government bond rate on bank lending. The results also suggest that deposit growth and liquidity constraint significantly influence loan supply in private banks, while equity growth is the determinant of lending behavior in state-owned banks. Nevertheless, the banks’ non-performing loan rate, which proxies for the expected default probability of loans, is found to not significantly affect loan supply. Research limitations/implications – Despite the efforts to capture the idiosyncratic characteristics of the Vietnamese banking system, this study does not fully take into account distinctive nature of the Vietnamese banking system. Practical implications – The paper suggests implications for the government monetary policy. Originality/value – The contribution of this paper is twofold. First, it introduces a firm-banking theoretical model that allows banks offering different lending rates and modeled under different aspects of modern banking such as risk-taking behavior and regulatory environment. Second, it is a very first study empirically investigating the lending behavior of Vietnamese banks.

Determinants of Micro-, Small- and Medium-Sized Enterprise Loans by Commercial Banks in Indonesia

“…Behr et al (2017) use panel data from around 800 German banks spanning the period from 1987 to 2007. They investigate whether the cyclicality of lending depends on government involvement in German banks Finally, this paper also contributes to the existing literature on the determinants of bank lending behavior (e.g., Panagopoulos & Spiliotis, 1998;Micco & Panizza, 2006;Pham, 2013;Vo, 2018). Previous papers show that the bank lending behavior depends on both exogenous factors, such as gross domestic product and inflation (Molyneux et al, 1998;Dinc, 2005;Joen et al, 2006;Micco & Panizza, 2006;Guo & Stepanyan, 2011;Allen et al, 2013;Chen & Wu, 2014;Yudaruddin, 2017) and bank-specific (Gambacorta & Marques-Ibanez, 2003;Guo & Stepanyan, 2011;Pontines & Siregar, 2014;Choi, et al, 2013;Fungáčováa et al, 2013;Chen & Wu, 2014).…”

Abnormal loan growth and bank risk-taking in Vietnam: A quantile regression approach

“…Lastly, only a few studies have examined this topic in the Vietnamese market in recent years. In contrast to the study of Sarath and Pham (2015) which shows the determinants of Vietnamese bank's lending behaviors or the study of Le (2020) investigates the association between the annual loan growth and bank stability, we explore the impacts of abnormal loan growth on bank risktaking by using a panel data from 30 Vietnamese banks over a relatively long period (2007)(2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015)(2016)(2017)(2018)(2019). This aims to provide more comprehensive evidence of the influence of excessive lending in Vietnam as an emerging market.…”

Economic growth constraints in Vietnam: A study using the growth diagnostic approach

“…A large gap between the lending and savings rates often results from two sources; that banks do not operate efficiently or that the structure of the banking industry enables banks to make a monopoly profit. In a study on Viet Nam's banking sector, S. Delpachitra and P. V. Dai (2015) showed that the banking sector demonstrated the characteristics of monopolistic competition with a low concentration of the market compared to other economies. For example, the market shares in terms of the total assets held by the three largest commercial banks in Viet Nam was 35% at the end of 2011, compared to 46% in India, 44% in Indonesia, 54% in Malaysia, 49% in the Philippines, and 54% in Thailand.…”