Vo Minh Long et al.

Ho Chi Minh City Open University Journal of Science, 10(2), 83-93 83

Factors affecting Non-Performing Loans (NPLs) of banks:

The case of Vietnam
Vo Minh Long1*, Nguyen Thi Yen2, Pham Dinh Long1
1
Ho Chi Minh City Open University, Vietnam
2
Ho Chi Minh City Department of Finance, Vietnam
*
Corresponding author: [email protected]

ARTICLE INFO ABSTRACT

DOI:10.46223/HCMCOUJS. This study aims to identify factors affecting Non-

econ.en.10.2.967.2020 Performing Loans (NPLs) of commercial banks in Vietnam. To
address the research problem, data of commercial banks in
Received: May 30th, 2020 Vietnam from 2008 to 2017 were collected. This study applied a
Revised: July 31st, 2020
fixed-effects model in comparison with a random-effects model
on a panel data of 200 observations. Results from the firmly
Accepted: August 15th, 2020 fixed-effects model indicated that NPLs were positively affected
by its lag of the previous year, capital structure, and interest rate.
Additionally, returns on asset, inflation rate, and credit growth
Keywords: were found to have negative impacts on NPLs. However, impacts
Non-Performing Loans, of firm size and gross domestic product were not found across the
longitudinal data, models. Based on the results, this research suggested several
commercial banks, firmly policy recommendations for the management of NPLs in the
fix-effects model commercial banks.

1. Introduction
Badar and Javid (2013) assumed that it is difficult for a country's economy to develop
sustainably if its financial system is inefficient and unstable and it is expressed largely through the
operation of the state budget. To limit this weakness, the Government and the State Bank of
Vietnam (SBV) are very concerned with the bad debts of banks, especially joint-stock commercial
banks. Therefore, the SBV has issued the legal and policy framework which is proposed to be
implemented by commercial banks; at the same time, banks also introduced many procedures to
control internal procedures in the process of credit extension to limit bad debts.
For commercial banks, bad debts can affect liquidity risks, reduce operating profits, and
the bank's reputation with customers. Non-Performing Loans (NPLs) are referred to as the "blood
clot" of the economy, when rising bad debts put banks in danger of bankruptcy, which has been
done in research by some typical authors, such as Demirgüč-Kunt (1989), Barr and Siems (1994)
on the cause of bankruptcy of a bank.
Currently, research on NPLs is still being carried out by scientists and researchers due to
its enormous impact on the economy in general and the banking system in particular, such as crisis,
GDP growth, inflation, exchange rate, interest rate, unemployment, capital adequacy, return on
assets, credit growth, bank size, loan loss reserves. Therefore, it is essential to understand the
factors that influence the bad debts in the banking system.
For those mentioned reasons, there is an emerging need for the research topic that what
84 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93

factors determine non-Performing Loans (NPLs) of commercial banks. Addressing this research
question might help policymakers and bank administrators to devise policies and solutions to
minimize risks, limit non-performing debts, and improve the efficiency of banking operations.
2. Literature review
According to Bank for International Settlements (2004), Non-Performing Loans are loans
that customers that not meet the bank's ability to repay debts for more than 90 days. Also, the
International Monetary Fund - IMF (2009), referred bad debts as any loan with interest and
principal payments overdue for more than 90 days; or more than 90 days with the interest rate
being refinanced, restructured or delayed as agreed. However, Agíc and Jeremić (2018)
emphasized that there does not exist a general definition of bad debts and it is considered that these
loans can be considered in the broad and narrow sense. In a narrow sense, they are loans that are
overdue and not repaid for more than 90 days. In a broad sense, they are low-value loans (Bexley
& Nenninger, 2012). According to Circular No. 02/2013/TT-NHNN dated January 21, 2013, bad
debts are debts of group 3, group 4 and group 5. Therefore, the bank bad debt data with groups 3,
4, and 5 were used in this research.
There are several causes of bank bad debts. This was evidenced from empirical studies
conducted by Messai and Jouini (2013), in the research of micro and macro determinants of non-
performing loans with a sample of 85 banks in three countries, Italy; Greece; and Spain, from 2004
through 2008. Using FEM estimates, the research results indicated that the macroeconomic
variables represented by GDP growth harm on non-performing loans, whereas the unemployment
rate and the real interest rate have opposite results and all variables are statistically significant.
Besides, bank-specific variables measured by return on assets have a negative impact on non-
performing loans, but loan loss reserves have a positive impact on non-performing loans. In
addition, there is no statistical evidence of the relationship between changes in loans and non-
performing loans.
In the research on determinants of non-performing loans, the case of Eurozone, Makri,
Tsagkanos, and Bellas (2014) used the final sample consisted of an unbalanced panel of 14
countries with 120 observations for the period 2000-2008 and the generalized method of the
moments (GMM) estimation. The study had proved that with the literature as, in terms of bank-
specific variables, the rate of non-performing loans of the previous year (NPLit-1), the capital ratio
(CAP) and return on equity (ROE) appear to exert a powerful influence on the non-performing
loans rate. At the same time, from a macroeconomic perspective, variables such as public debt
(DEBT), GDP, unemployment (UNEMP) rate, inflation rate (INF), and government budget deficit
or surplus as % of GDP (FISCAL) affected on the NPL. Particularly, GDP has a negative
correlation with NPL, whereas public debt and unemployment rate have a positive relation with
NPL. In addition, variables such as the loans to deposit ratio (LTD), return on assets (ROA),
FISCAL, and INFL is not statistically significant in all research models.
In Vietnam, Doan and Hoang (2016) used panel data analysis estimation for 29 Vietnamese
commercial banks for the period from 2005 to 2014 with Pooled OLS, FEM and REM models
found out that last year NPL (NPLt-1), inflation rate (INF), and last year short-term loan (STL-1)
have a positive effect on NPLs. In contrast, growth rate (GDP), ROE, loan-to-deposit ratio (LTD),
credit growth (CREDIT), and short-term loans (STL) are statistically significant and negatively
related to NPLs. Size and Equity have no significant correlation with NPLs.
This is an important basis for the authors to devise a research model to analyze the factors
affecting Non-Performing Loans (NPLs) of the commercial banks in Vietnam.
 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93 85

3. Research method
3.1. Research model
Based on the theory of non-performing loans and the empirical research model of Messai
and Jouini (2013), Makri et al. (2014), the authors have adjusted several independent variables to
suit the reality of the situation of the commercial banks in Vietnam and proposed two general
research models to test the impact of factors on NPLs of 20 the commercial banks of Vietnam in
the 2008-2017 periods.
Model 1: General model affecting NPLs dependent variables and independent variables:
P_NPL, SIZE, ROA, CAP, INF, GDP, IR
NPLi,t = β0 + β1*P_NPLi,(t-1) + β2*SIZEi,t + β3*ROAi,t + β4*CAPi,t + β5*INFt + β6*GDPt + β7*IRt + uit (1)
In addition, to consider whether the impact of the credit growth variable (CGR) has affected
the NPLs or not, the article takes the addition of the NPLs variable and removes the economic
growth (GDP) variable from the model 1. According to the authors, as economic growth, banks
will increase loans to enterprises. These two variables often have very high correlations, so these
two variables will be included in two different models with other independent variables
unchanged.
Model 2: General model affecting NPL dependent variables and independent variables:
P_NPL, SIZE, ROA, CAP, INF, CGR, IR
NPLi,t = β0 + β1*P_NPLi,(t-1) + β2*SIZEi,t + β3*ROAi,t + β4*CAPi,t + β5*INFt + β6*CGRt + β7*IRt + uit (2)
The dependent and independent variables are measured and summarized in Table 1.
Table 1
Measurement of variables
Variable name Formula Variable Authors
(loan balance group 3 + Fofack (2005); V. T. T. Dinh (2012); The
loan balance group 4 + bank of Viet Nam (2013); Doan and
NPLs NPL
loan balance group Hoang (2016)
5)/Total loan balance
Salas and Saurina (2002); Makri et al.
Previous year’s A lagged variable of
P_NPL (2014); V. T. H. (2015); Doan and Hoang
NPLs NPL
(2016); Raiha (2016)
Tarron and Sukrishnalall (2009); V. T. H.
Bank size Ln(Total Asset) SIZE Nguyen (2015); Rifat (2016); Gabeshi
(2017)
Al-Smadi and Ahmad (2009); Messai and
Return on assets Profits /total asset ROA
Jouini (2013); Agíc and Jeremić (2018)
Equity capital /total Salas and Saurina (2002); Makri et al.
Capital structure CAP
asset (2014); Bui and Dang (2015)
Bui and Dang (2015); V. T. H. Nguyen
Inflation rate (CPIt - CPIt-1)/CPIt-1 INF
(2015); Doan and Hoang (2016)
The growth rate Salas and Saurina (2002); Saba Kouser,
of Gross (GDPt - GDPt-1)/GDPt-1 GDP R., and Azeem (2012); Messai and Jouini
domestic (2013); Makri et al. (2014); Baholli, Dika,
86 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93

Variable name Formula Variable Authors

product and Xhabija (2015); Doan and Hoang
(2016); K. T. Nguyen and P. H. Dinh
(2016)
(loan balance t - loan
Salas and Saurina (2002); V. T. H.
Credit growth balance (t-1)/ loan CGR
Nguyen (2015); Agíc and Jeremić (2018)
balance (t-1)
Tarron and Sukrishnalall (2009); Dash
The real interest rate at
Interest rate IR and Kabra (2010); Messai and Jouini
year t
(2013); Bui and Dang (2015)
Source: The researcher’s data analysis

3.2. Data collection

The study used balance panel data (collected by subjects and time) with secondary data
and collected from annual financial statements (audited) of 20 listed and unlisted the commercial
banks on Vietnam's stock market are in operation by the end of the accounting year 2017 on
reputable websites: www.hsx.vn, www.hns.vn. Thus, the article has 200 observed variables (20
banks * 10 years = 200), which have been synthesized, processed, and designed using Excel
software for estimation by Stata 14.0 software by the following methods REM, FEM tests and
eventually use FEM with robust estimates.
4. Data analysis and findings
4.1. Descriptive analysis
The results in Table 2 show that most of the variables have relatively low dispersion.
However, the CGR variable produces the opposite result with dispersion in the range of -0.9554
to 1.2203 and the standard deviation is 0.2714 with an average value of 0.2481, which can be
explained: As the economy grows, motivate borrowers to expand business activities or consumer
loans, and this makes credit growth of banks more signals.
Table 2
Descriptive statistics
Variable Obs Mean Std. Dev. Min Max
NPL 200 0.0241 0.0183 0.0034 0.1622
P_NPL 200 0.0232 0.0185 0.0008 0.1622
BSIZE 200 13.9826 0.5046 12.4682 15.08
ROA 200 0.0087 0.0060 0.0002 0.0473
CAP 200 0.0985 0.0495 0.0346 0.3563
CGR 200 0.2481 0.2714 -0.9554 1.2203
INF 200 0.0851 0.0675 0.0088 0.2312
GDP 200 0.0601 0.0053 0.0525 0.0681
IR 200 0.1085 0.0355 0.0696 0.1695
Source: Data analysis result of the research
 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93 87

4.2. Correlation analysis

The results in Table 3 show that among the pairs of independent variables, the correlation is
very low. This can be said that variables in the model have no collinear phenomena with each other.
Table 3
Correlation coefficients
P_NPL BSIZE ROA CAP CGR INF GDP IR
P_NPL 1.000
BSIZE 0.0422 1.000
ROA -0.2293 -0.1932 1.000
CAP -0.0515 -0.7243 0.3538 1.000
CGR 0.0148 -0.0708 0.1455 -0.0790 1.000
INF -0.1679 -0.3335 0.3105 0.2557 -0.0790 1.000
GDP -0.0838 0.2526 -0.1126 -0.1912 -0.0492 -0.3124 1.0000
IR -0.1271 -0.3018 0.3578 0.2241 -0.0340 0.4199 -0.3353 1.000
Source: Data analysis result of the research

4.3. Regression analysis

After performing the tests, the results showed that all data series of each variable stopped
and were statistically significant. However, it also reveals that there is a phenomenon of variance
change and autocorrelation so the article using Fixed Effects Model estimation (FEM-firm
estimates) is most suitable, therefore, analysis of results also follows this estimate.
Table 4
Results of regression analysis

Non-performing REM FEM FEM (Firm estimates)

loans Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
P_NPL 0.297*** 0.303*** 0.187** 0.199*** 0.187* 0.199**
(-4.34) (-4.51) (-2.51) (-2.74) (-2.05) (-2.21)
SIZE 0.00136 -0.00045 0.00992 0.00533 0.00992*** 0.00533
(-0.37) (-0.12) (-1.32) (-0.75) (-3.06) (-1.27)
ROA -0.658*** -0.531** -0.727** -0.564* -0.727*** -0.564***
(-2.70) (-2.13) (-2.58) (-1.94) (-10.43) (-4.97)
CAP 0.0409 0.019 0.0947* 0.0734 0.0947*** 0.0734***
(-1.02) (-0.46) (-1.95) (-1.49) (-9.07) (-3.84)
INF 0.00017 -0.00184 -0.00087 -0.00301** -0.000870** -0.00301***
(-0.21) (-1.46) (-0.99) (-2.16) (-2.24) (-4.20)
GDP 0.00042 -0.00091 -0.000908
(-0.17) (-0.33) (-0.92)
88 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93

Non-performing REM FEM FEM (Firm estimates)

loans Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
CGR -0.00968** -0.0101* -0.0101**
(-2.06) (-1.97) (-2.45)
IR 0.00102** 0.000922** 0.00118** 0.00102** 0.00118*** 0.00102***
(-2.52) (-2.39) (-2.59) (-2.22) (-10.02) (-6.33)
Cons -0.0137 0.0186 -0.129 -0.0656 -0.129*** -0.0656
(-0.24) (-0.33) (-1.24) (-0.62) (-3.09) (-1.09)
2
R 0.0966 0.1165 0.1120 0.1309 0.1120 0.1309
Note: *, ** and ***denote the level of significance at 10%, 5% and 1%, respectively. Statistical value t in ()
Source: Data analysis result of the research
5. Discussion
To clarify how the variables in the model affect NPLs, the independent variables are
divided into three groups to discuss research results.
5.1. The variable group has a positive effect on NPLs (Table 5)
The previous year’s NPLs (P_NPLs): The research results in models 1 and 2 both have
the same results. Previous year’s NPLs positively affect the current NPLs and significant level of
10% and 5%, respectively. This means as the previous year’s NPLs (P_NPLt-1) increased by 1 unit
and the other variables in the model remained constant, NPLs increased by 0.187 units (model 1)
and 0.199 units (model 2). This may explain that if bad debts of the previous periods are not
handled well, they will affect bad debts of the next period. This implies that the credit process of
some banks is incomplete, inconsistent, and the risk management capacity is limited, so bad debts
arise in lending. In addition, during the research period, banking policies were not stable, interest
rates and inflation changed rapidly, leading businesses to have difficulties in the process of
production and business activities affect their ability to repay debts, so some customers evade debt
repayment obligations. This is consistent with the studies of Salas and Saurina (2002), Makri et al.
(2014), Bui and Dang (2015), V. T. H. Nguyen (2015), Doan and Hoang (2016) and Raiha (2016).
The bank size (SIZE): The research results in models 1 show bank size has a positive
impact on NPLs and has a 99% confidence level. This means, the size of the bank (SIZE) increases
by 1 unit and the other variables in the model remain constant, the bad debt increases by 0.00992
units. Usually larger banks, in terms of assets, tend to lend as much. So if the bank does not
effectively control and manage loans effectively, NPLs will increase. However, the research
results in model 2 show that there is not enough statistical evidence of the impact of the bank size
(SIZE) on NPLs. This result is also consistent with the studies of Raiha (2016) and Kotiso (2018).
The capital structure (CAP): The research results of the two models indicate that the
capital structure has a positive impact on NPL with a 99% confidence level. This means that if the
capital structure (CAP) increases by 1 unit and the other variables in the model remain constant,
non-performing loans increase by 0.0947 units (model 1) and 0.0734 units (model 2). Banks with
high equity, often have a “dependency” mentality so they can relax credit quality, lack of strict
lending conditions for customers ... NPLs will be likely to arise. This result is in line with the
expectations of the authors.
The interest rate (IR): The research results of the two models show that the interest rate
has a positive impact on NPLs with a 99% high confidence level. This means when the Interest
 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93 89

rate (IR) increases by 1 unit and the other variables in the model remain constant, the NPLs
increases by 0.00118 units (model 1) and 0.00102 units (model 2). When the NPLs have not been
completely resolved, the liquidity of banks is reduced, especially small banks are required to
mobilize high-interest rates. As a result, lending interest rates must also be higher, and it makes it
impossible for borrowers who previously borrowed to repay debts, leading to a rise in NPLs.
Moreover, in the periods of 2015 - 2017, the Federal Reserve System (FED) decided to raise
interest rates, the global USD interest rate will increase, including the USD exchange rate in
Vietnam. There have been significant impacts on importing enterprises, especially those whose
loans are denominated in this currency, increasing the liabilities of enterprises, leading to reduce
repaying debts to banks. This result is supported by several authors such as Messai and Jouini
(2013), Bui and Dang (2015), and it is also consistent with the expectations of the authors.

Table 5
The variable group has a positive effect on NPLs

Non-performing REM FEM FEM (Firm estimates)

loans Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
P_NPL 0.297*** 0.303*** 0.187** 0.199*** 0.187* 0.199**
(-4.34) (-4.51) (-2.51) (-2.74) (-2.05) (-2.21)
SIZE 0.00136 -0.00045 0.00992 0.00533 0.00992*** 0.00533
(-0.37) (-0.12) (-1.32) (-0.75) (-3.06) (-1.27)
CAP 0.0409 0.019 0.0947* 0.0734 0.0947*** 0.0734***
(-1.02) (-0.46) (-1.95) (-1.49) (-9.07) (-3.84)
IR 0.00102** 0.000922** 0.00118** 0.00102** 0.00118*** 0.00102***
(-2.52) (-2.39) (-2.59) (-2.22) (-10.02) (-6.33)
Note: *, ** and ***denote the level of significance at 10%, 5% and 1%, respectively
Source: Data analysis result of the research
5.2. The variable group has a negative effect on NPLs (Table 6)
The return on assets (ROA): The research results in models 1 and 2 both reveal that return
on assets hurts NPLs with a 99% reliability. It is understood that when the return on assets
increases by 1 unit and the other variables in the model remain constant, the NPLs decreases by
0.727 units (model 1) and 0.564 units (model 2). This problem shows that ROA is considered as a
"source of life" to enhance the prestige and bank value. Also, comprehensive restructuring of the
banking system is an important foundation for reforming banks, diversifying products, ensuring
liquidity, improving quality of control, managing credit operations, and actively handling bad
debts. In addition, when the bank has a high ROA, the employees’ income including salary and
additional income will be improved and the credit experts will examine the application more
carefully, as well as actively remind and collect loans. These contribute to reduce the NPL. This
finding is in line with the expectation of the authors and is supported by other researchers such as
Messai and Jouini (2013) and Agíc and Jeremić (2018).
The inflation rate (INF): The research results of the two models show that the inflation
rate harms NPLs. It means when the inflation rate goes up by 1 unit and the other variables in the
model remain constant, the NPLs decreases by 0.000870 units (model 1) and 0.00301 units (model
2). This can be explained that the global economic recession has a strong influence on Vietnam.
90 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93

To stabilize the macroeconomy, the State Bank of Vietnam has implemented tight monetary policy
and reduced interest rates. Besides, the government stimulated consumption, expanded investment,
and the State Bank of Vietnam proposed measures and tools to handle NPLs such as the
establishment of Vietnam Asset Management Company (VAMC), requiring banks to sell bad
debts to VAMC, and increase provisioning risks. As a result, bad debts are reduced. However, this
finding does not match the expectations of the authors.
The credit growth (CGR): Research results in model 2 show that credit growth has a
negative impact on NPLs at a level of 5%. It is understood that as credit growth increases by 1 unit
and the other variables in the model remain constant, the NPLs decreases by 0.0101 units. Banks'
credit largely depends on production, business, real estate, agriculture, and rural areas... to stabilize
the market, stimulate economic growth. The State Bank of Vietnam has flexibly used monetary
policy instruments as well as required joint-stock commercial banks in particular and the banking
system in general to improve credit quality. Therefore, ineffective projects will not be allowed to
lend but effective projects are encouraged to lend. Borrowers operate effectively and raise income,
thereby, they will pay the principal and interest to the bank when it is due. This helps to reduce
bad debts. This result is supported by authors such as Doan and Hoang (2016), K. T. Nguyen and
P. H. Dinh (2016), and Gabeshi (2017).
Table 6
The variable group has a negative effect on NPLs
Non-performing REM FEM FEM (Firm estimates)
loans Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
ROA -0.658*** -0.531** -0.727** -0.564* -0.727*** -0.564***
(-2.70) (-2.13) (-2.58) (-1.94) (-10.43) (-4.97)
INF 0.00017 -0.00184 -0.00087 -0.00301** -0.000870** -0.00301***
(-0.21) (-1.46) (-0.99) (-2.16) (-2.24) (-4.20)
CGR -0.00968** -0.0101* -0.0101**
(-2.06) (-1.97) (-2.45)
Note: *, ** and ***denote the level of significance at 10%, 5% and 1%, respectively
Source: Data analysis result of the research
5.3. The variable group has no significant correlation on NPLs (Table 7)
Research results show that there is not enough scientific evidence on the influence of the
economic growth measure by the growth rate of gross domestic product (GDP) on NPLs. This result
is also consistent with the research of Rifat (2016), Kotis (2018), and Agíc and Jeremić (2018).
Table 7
The variable group has no significant correlation on NPLs

Non-performing REM FEM FEM (Firm estimates)

loans Model 1 Model 2 Model 1 Model 2 Model 1 Model 2
GDP 0.00042 -0.00091 -0.000908
(-0.17) (-0.33) (-0.92)
Note: *, ** and ***denote the level of significance at 10%, 5% and 1%, respectively
Source: Data analysis result of the research
 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93 91

6. Conclusions and policy implications

6.1. Conclusions
The paper highlighted theoretical bases as well as empirical studies on the factors affecting
bank non-performing loans. The research results have provided important information on the effect
of several factors such as bank-specific characteristics and macro-economic on NPLs. The study
results showed that there are three bank-specific factors including the previous year’s NPLs, bank
size, and capital structure and only one macro variable (interest rates) has a positive effect on NPLs.
Also, the research results also show that there are two bank-specific factors including return
on assets and credit growth along with a macro variable (inflation rate) has a negative effect on
NPLs. Especially important macro factors such as the growth rate of GDP hurts NPLs but it is not
statistically significant. Based on that, the article proposes several policy implications in selecting
factors with the aim of both controlling loan risks and reducing bad debt, contributing to improving
the efficiency of bank operations in particular and the banking system in general.
6.2. Policy implications
The study on determinants of NPLs has greatly affected not only the state policies in
general but also the bank administrators in particular. If NPLs in Vietnam banks increase,
businesses, borrowers will be hard to access bank loans to ensure production and business activities
as well as family spending, this will make it difficult for the economy to develop stably. Based on
the research results to reduce NPLs for banks, the authors mentioned some related policy
implications for commercial banks and the State Bank of Vietnam.
The commercial banks in Vietnam
According to the research results, the NPLs of the previous year had a positive effect on
the NPLs of the following year. So, to reduce the risk of non-collection of debts as well as an
increase of NPLs, joint-stock commercial banks should manage credit risk in line with asset size
which is constantly increasing over time. In addition, they also need to conduct in-depth analysis
before granting credit and monitoring borrowers' ability to pay debts effectively. Vietnamese
commercial banks need to set up a task force to collect debts methodically and scientifically,
ensuring a balance between profit and risks which to reduce bad debts. In case, customers are late
paying debts due to their insolvency or lack of cooperation, banks should coordinate with
functional agencies to handle according to regulations.
The State Bank of Vietnam
From the findings of this research, several suggestions for the management of the State
Bank of Vietnam are recommended. First, the SBV should have an appropriate monetary policy
to control inflation at a reasonable level with the goal of both stimulating the economic
development and reducing bad debts. Second, the SBV needs to require banks to implement a
uniform interest rate policy as well as reduce costs to reduce lending rates and contribute to
reducing bad debts. Third, restructuring the financial system is a particularly important task of the
SBV in particular and the Government in general. Fourth, a very important issue is that the SBV
needs to coordinate closely with joint-stock commercial banks to actively build institutions and
strategies to deal with bad debts in the long term and transparency in public dealing with bad debts,
being ready to eliminate/merge weak-performing banks from the industry to reduce bad debts and
reduce instability to the national finance. Finally, the SBV proposed the Government to develop a
legal framework for Asset-Backed Security (ABS), in this way, allowing banks to consolidate
smaller bad debts and sell them to one unit, turning illiquid assets into high liquidity securities,
contributing to reducing bad debts.
92 Vo Minh Long et al. Ho Chi Minh City Open University Journal of Science, 10(2), 83-93

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