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Macroeconomic determinants of credit risk in the ASEAN banking system

(A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS, VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS)


By Nguyen Chi Thanh (VNP 21)

Academic Supervisor: Dr. Nguyen Vu Hong Thai



The impact of credit risk, which is caused by the increase in the non-performing loans (NPLs), on the performance and stability of banking system as well as economic activities have recently raised many interests from researchers and policy makers. Motivated by the close connection between the NPLs and macroeconomic environments as proposed by many researchers, this paper will empirically examine the determinants of non-performing loans in commercial banking systems of the five ASEAN countries in the period of 2002 to 2015. The research uses a sample of 162 banks in these countries with 11 variables of macroeconomic and bank-specific factors and applies the System Generalized Method of Moments estimator (SGMM) for dynamic panel models. The empirical results in this paper indicate that the movement of NPLs in the commercial banks of the five studied countries is associated with both macroeconomic variables and bank-specific factors. For the macroeconomic condition, an increase in unemployment rate and the appreciation of domestic currency are found to significantly increase the NPLs. In addition, bank with higher returns on asset and leverage ratio and low ratio of equity to total assets will have lower rate of NPLs. Moreover, with the application of additional statistical analyses, the results indicate that the findings of the main model of this paper are consistent and robust.

Keywords: Credit risk, Macroeconomic factors, ASEAN Banking system, Dynamic panel data.

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