Determinants of Credit Risk under Basel II Accord: Case of Vietnam Banking Sector

DOI

10.2991/978-94-6463-348-1_17How to use a DOI?

Keywords

Credit risk; Commercial bank; Basel II Accord; Expected Loss; Unexpected Loss

Abstract

Research purpose:

In this research study, the credit risk of the Vietnamese commercial banking system is assessed by investigating its underlying determinants. From there, propose solutions to support risk management in Vietnam banking sector.

Research motivation:

The research propose the new measurement towards credit risk of Vietnam Banking sector, which include not only Expected Loss but also Unexpected Loss factors based on the Basel II Accord. This new measurement method is different from previous research such as using non-performing loans by Chaibi and Ftiti (2015). Based on the methodology and results obtained, this study has been compared with state-of-the-art research relating to the factors which have impacts on the credit risk of Banking sector, specifically in Vietnam proportion updated by time.

Research design, approach, and method:

Applying a quantitative research method using regression models, this study integrates the Basel II Accord to identify factors impacting the expected loss and unexpected loss values. The data used in the study comes from both primary and secondary sources, which spanned from 2010 to 2021.

Main findings:

Using measurements of the “Expected Loss” and “Unexpected Loss” metrics aligned with the Basel II Accord, the findings reveal that these two indicators can be mainly explained by 3 bank performance factors, including “Asset Composition”, “Structure Owner”, “Bank Size”, and a macroeconomic factor, “Exchange Rate”.

Practical/managerial implications:

Large banks sustain viability through sufficient capital reserves, risk management, and international peer tracking. Stress testing across exchange rate scenarios and diverse loan portfolio currency types mitigate exchange rate risk. Prudent loan-to-assets ratio, diversified loans, and vigilant credit assessment alleviate concentration risk. Active monitoring of macroeconomics, internal changes, and quantified impact safeguards against expected and unexpected losses, fostering an adaptable risk management framework.

Copyright

© 2023 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Ngo Thu Giang
AU  - Nguyen Duc Anh
AU  - Vu Thi Thao Chi
AU  - Nguyen Bao Anh
AU  - Nguyen Tai Quang Dinh
PY  - 2024
DA  - 2024/02/05
TI  - Determinants of Credit Risk under Basel II Accord: Case of Vietnam Banking Sector
BT  - Proceedings of the 11th International Conference on Emerging Challenges: Smart Business and Digital Economy 2023 (ICECH 2023)
PB  - Atlantis Press
SP  - 194
EP  - 205
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-348-1_17
DO  - 10.2991/978-94-6463-348-1_17
ID  - Giang2024
ER  -