The aim of this study is to investigate the impact of non-performing loans on profitability and lending behavior, using an empirical framework that examines whether an increase of NPLs can lead banks to reduce their profitability and lending activity. | Nguyen Thi Hong Vinh / Journal of Economic Development, 24(3), 27-44 27 The impact of non-performing loans on bank profitability and lending behavior: Evidence from Vietnam NGUYEN THI HONG VINH Banking University of Hochiminh City – vinhnth@ ARTICLE INFO ABSTRACT Article history: The aim of this study is to investigate the impact of non-performing loans on profitability and lending behavior, using an empirical framework that examines whether an increase of NPLs can lead banks to reduce their profitability and lending activity. To account for profit and lending persistence, the paper applies the Generalized Method of Moments technique for dynamic panels using bank-level data for 34 Vietnamese commercial banks over the period from 2005 to 2015. Throughout the whole sample, we find some evidence that the nonperforming loan has a statistically significant negative effect on Vietnamese commercial banks profitability and lending behavior. The estimation results also show that other bank specific and macroeconomic determinants affect bank profitability and lending behavior significantly in the anticipated way. These findings will be helpful for bank managers and policy makers to improve the performance and lending behavior of Vietnamese commercial banks. Received: Aug., 15, 2016 Received in revised form: Apr., 28, 2017 Accepted: June, 30, 2017 Keywords: Non-performing loan Profitability Lending behavior GMM estimation 28 Nguyen Thi Hong Vinh / Journal of Economic Development, 24(3), 27-44 Vietnam banking sector was 12 % by the end 1. Introduction 2 The issue of non-performing loans (NPLs) has recently become a cause for concern in Vietnam. The ratio of NPLs in Vietnam sharply increased in the year of 2012. SBV reported that the ratio of NPLs to total loans was by the third 1 quarter of 2012. IMF and World Bank (2014) estimate the ratio of NPLs for of 2012. Meanwhile, Moody (2014) showed that the ratio of NPLs to total assets in .
