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http://dx.doi.org/10.13106/jafeb.2021.vol8.no2.0373

Bank Capital and Lending Behavior of Vietnamese Commercial Banks  

DANG, Van Dan (Department of Finance, Banking University of Ho Chi Minh City)
LE, Thi Tuyet Hoa (Department of Finance, Banking University of Ho Chi Minh City)
LE, Dinh Hac (Department of Postgraduate, Banking University of Ho Chi Minh City)
NGUYEN, Hoang Dieu Hien (University of Economics and Law)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.2, 2021 , pp. 373-385 More about this Journal
Abstract
The objective of the study is to empirically investigate the impact of bank capital on the lending behavior of Vietnamese commercial banks from 2007 to 2019. Lending behavior is captured by two dimensions, including the quantity (loan growth) and quality (credit risk) of loans. Instead of investigating loan growth and credit risk separately, we combine these two aspects in our study and further develop the interaction term between capital buffers and credit risk to capture the asymmetric impact. We apply the dynamic model (regressed by the generalized method of moments) and the static models (regressed using the fixed effects, random effects, and the pooled regression approach) to perform regressions. The results show that banks with higher capital ratios tend to expand lending more, while the risk of credit portfolios is controlled at lower levels at these banks. Further analysis reveals that credit risk mitigates some aspects of the relationship between bank capital and loan expansion. The patterns remain robust across alternative measures and econometric techniques. The study provides insightful policy implications for bank managers and regulators in the process of upgrading capital resources to ensure the safety and soundness of the banking industry in an emerging country.
Keywords
Capital; Credit Risk; Emerging Market; Loan Growth; Vietnam;
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