Macroeconomic determinants of non-performing loans: A quantile regression approach evidence from Vietnam's banking system

Abstract

This study investigates the impact of economic growth, inflation, money supply, and real interest rates on non-performing loans (NPLs) in the Vietnamese banking system. To achieve the research objective, we employ Ordinary Least Squares and Quantile regression methods to estimate models with data collected from the World Bank on the Vietnamese banking system for the period 2000-2020. The Ordinary Least Squares estimation results do not find a significant impact of economic growth on NPLs, but Quantile regression estimation results reveal that economic growth has a negative effect on NPLs for the lower quantile groups, with this effect being insignificant for the quantile groups above 0.3. Furthermore, the study's findings indicate that inflation and real interest rates have a negative impact on NPLs across most quantile groups, while the money supply has a negative impact on NPLs only in the medium quantiles (0.4 and 0.5) and high quantile groups (above 0.7). Additionally, we found a stable equilibrium between NPLs and economic growth, inflation, money supply, and real interest rates, with a positive long-term impact of economic growth, inflation, money supply, and real interest rates on NPLs. The research findings propose several policy implications for controlling NPLs in the Vietnamese banking system.