This paper employs dynamic panel data to assess the effects of bankspecific factors on nonperforming loans (NPLs) of Vietnam’s commercial banks between 2004 and 2014. Using two-step GMM estimator besides other macro variables, we find that the nonperforming loans are affected by various factors, including management quality and moral hazard along with their negative impacts. | Bui Duy Tung & Dang Thi Bach Van / Journal of Economic Development 23(3) 125-142 125 Effects of Internal Factors on Nonperforming Loans of Vietnam’s Commercial Banks BUI DUY TUNG University of Economics HCMC – tungbd@ DANG THI BACH VAN University of Economics HCMC – bachvan@ ARTICLE INFO ABSTRACT Article history: This paper employs dynamic panel data to assess the effects of bankspecific factors on nonperforming loans (NPLs) of Vietnam’s commercial banks between 2004 and 2014. Using two-step GMM estimator besides other macro variables, we find that the nonperforming loans are affected by various factors, including management quality and moral hazard along with their negative impacts. The results are consistent with previous theoretical suggestions. Particularly, ownership concentration reveals opposite results to the proposed theories, and no evidence can be found on the hypothesis that diversification of banking activities may reduce the level of nonperforming loans. Received: Mar. 10 2015 Received in revised form: Oct. 08 2015 Accepted: June 20 2016 Keywords: Nonperforming loans, dynamic panel data, GMM, Vietnam, dynamic panel data methods. 126 Bui Duy Tung & Dang Thi Bach Van / Journal of Economic Development 23(3) 125-142 1. Introduction Credit institutions, in their operations, inevitably incur nonperforming loans (NPLs) now that lending activities always entail risk. Since the 2007–2008 financial crisis, the issue of NPLs has attracted rapt attention of researchers and policy makers (Guy, 2011), whereas according to Reinhart and Rogoff (2010), Nkusu (2011), and Louzis et al. (2012), they are regarded as being indicative of future’s financial crisis if not sufficiently tracked and promptly solved. In recent years the quality of assets, notably nonperforming assets, is a topmost concern in determining banking efficiency (Karim et al., 2010). In Vietnam the commercial banking system plays a significant role in free circulation of .
