The effects of loan growth on bank performance: Evidence from Vietnam

Abstract

The study examines how loan growth affects performance of banks, in the form of credit risk, bank profitability and bank solvency in Vietnam during the period from 2006 to 2017. Overall, the regression results by both static and dynamic panel data models provide some evidence that loan growth indicators could have the great impacts on bank performance. In particular, growth in lending increases loan loss provisions from 2 to 3 subsequent years, lowers bank capital ratio the next year; while bank profitability gains positive effects from loan growth both in the short term and long term. These findings show the robustness when applying alternative estimation techniques. The study emphasizes the importance of caution in expanding lending activities aggressively as well as it provides implications for banks in terms of risk governance and capital management.