Relationship between Credit Risk and Bank Stability of Vietnam Commercial Bank: A BK Approach

Through the secondary data collected from 2005 to 2019, we used the BK approach in which, Pooled OLS, FEM, REM, and GMM methods and Sobel’s test are used to check the relationship between bank credit risk and bank stability of Vietnam commercial bank system. The results show that bank credit risk, profitability, and bank stability have a direct relationship and have a partial indirect relationship. The size and profitability of the previous period have a positively correlated with bank profitability, nonperforming loan, loan loss provision, non-interest income, efficiency, and bank credit growth have a negative impact on bank profitability, bank profitability has no impact on bank credit risk. Profitability and bank stability of the previous period have an impact on current bank stability. Nonperforming loans, non-interest income hurt bank stability, loan loss provision and bank stability of the previous period have a positively correlated with current bank stability. Finally, banks need to build and perfect the risk management system to comply with Basel II standards. Identifying and forecasting credit risks are one of the areas that need to be improved and carried out regularly and continuously.