Slide: DETERMINANTS OF LOAN LOSS PROVISIONS OF VIETNAMESE COMMERCIAL BANKS

DETERMINANTS OF LOAN LOSS PROVISIONS OF
VIETNAMESE COMMERCIAL BANKS
Author: Pham Thi Thanh Yen
Academic Supervisor: MA. Nguyen Thu Hang


Outline
1. Motivations
2. Research questions and hypotheses
3. Literature review
4. Data
5. Methodology
6. Regression results
7. Economic implications


1. Motivation
 Bad loans remain the biggest problem of the banking system,
causing financial burdens of provisions.
 High provisions result in considerable loss in banks’ profit and
government revenue.
 Vietnamese banks’ weakness in capital buffers.
 Vietnam’s membership of Trans-Pacific Partnership and
Vietnam-European Union free trade agreement since 2015.


2. Research questions

How to control
loan loss
provisions at

suitable level?

What are the drivers
behind provisioning
decisions?


3. Literature Review
Bikker, J. A. and Metzemakers, P. A. J., 2005
Bouvatier, V. and Lepetit, L., 2008
Bushman, R. and Williams, C., 2012
Cavallo, M. and Majnoni, G., 2002
Fonseca, A. R., and Gonzalez, F., 2008
Laeven, L., and Majnoni, G., 2003
…


3. Literature Review
Bank-specific
factors
Macroeconomic
factors

•
•
•
•
•

Lag of loan loss provisions

Income smoothing
Capital management
Signaling
Others

• GDP
• Inflation
• Global financial crisis


4. Methodology
• With unbalanced panel and lagged independent variable, GMM

regression method is employed.

• The model is modified from the works of Bouvatier and Lepetit
(2008), Packer and Zhu (2012), and Adzis et al. (2015).
The model is:
=


5. Data

39 banks’
financial
information

8 years’
macroeconomic
data

Data sample
(312 observations)


6. Regression results
Independent variables

Predicted signs
+

EBTP
CAP
SIGN
SZ
NPL
LG

+
-_
+
+/_
+
+/_

OLS

FEM

GMM

0.5456***

0.3570**

0.5073**

(7.28)

(2.34)

(2.52)

11.1454***

8.8730

12.5048**

(3.28)

(1.36)

(2.60)

-0.6494*

0.2716

-0.5964

(-1.70)

(0.31)

(-1.41)

0.0798***

0.0619

0.0832**

(3.29)

(1.50)

(2.54)

-0.0497

-0.1229

-0.0485

(-1.57)

(-0.94)

(-1.04)

0.0358

0.0056

0.0398*

(1.30)

(0.21)

(1.86)

-0.4605

-0.4498

-0.4563*

(-1.58)

(-1.13)

(-1.97)


7. Economic implications
Vietnamese commercial banks regularly set current loan loss
provisions based on the previous year’s provisions.
Vietnamese commercial banks regularly use provisions to

reduce the fluctuation in annual income streams.
Vietnamese commercial banks use provisions to inform
outsiders of banks’ financial strength.
Provisioning decisions are dependent on bad loans and loan
growth.


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