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Does loan growth impact on bank risk?
Shih-Wei Wu1, Manh-Thao Nguyen1, Phi-Hung Nguyen1,2
1Department of Business Management, National Taipei University of Technology, Taipei, Taiwan.
Heliyon
|September 1, 2022
Summary
Loan growth impacts banking risk in Vietnam, reducing non-performing loans and liquidity risk while increasing returns. The study highlights varying effects based on bank size and loan growth rates, offering strategies for risk reduction.
Area of Science:
- Banking and Finance
- Risk Management
- Financial Economics
Background:
- Increasing competition from foreign banks poses risks to domestic banking sectors.
- Understanding the dynamics between loan growth and banking risk is crucial for financial stability.
Purpose of the Study:
- To assess the effect of loan growth on banking risk in Vietnam.
- To provide insights for banks to mitigate risks through strategic loan growth.
Main Methods:
- Panel data analysis using Generalized Least Squares (GLS).
- Data collected from 29 Vietnamese banks listed on the stock exchange (2010-2020).
- Comparative analysis based on bank size and loan growth rates.
Main Results:
- Loan growth negatively impacts Non-Performing Loans (NPL) and Equity on Asset (ETA) liquidity risk.
- Loan growth positively influences Return on Assets (ROA).
- The impact of loan growth on banking risk varies significantly with bank size and growth rate.
Conclusions:
- Loan growth is a significant determinant of banking risk in Vietnam.
- Banks can manage risk by adjusting their loan growth strategies.
- Heterogeneity in bank characteristics necessitates tailored risk management approaches.
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