CREDIT RISK AMID BANKING UNCERTAINTY in VIETNAM

Abstract

Using a new measure of micro uncertainty based on the cross-sectional dispersion of bank-level shocks, we analyze the impact of banking uncertainty on credit risk in Vietnam during the period 2007-2019. We document that a higher level of banking uncertainty may increase credit risk, and this unfavorable impact is mitigated at larger, better capitalized, and more liquid banks. As compared to private-owned banks, stateowned banks experience higher credit risk during periods of uncertainty. Further analysis supports the "search for yield" hypothesis and helps to better understand why credit risk increases amid uncertainty.