Citation:

Thieu Huyen Trang "Determinants of Vietnamese Commercial Bank Stability: The Roles of Capitalization, Credit Risk, and Bank Size" International Research Journal of Economics and Management Studies, Vol. 5, No. 10, pp. 59-75, 2026. Crossref. https://doi.org/10.56472/25835238/IRJEMS-V5I10P108

Abstract:

This paper examines how capitalization, credit risk and bank size are related to the stability of Vietnamese commercial banks. Using consolidated financial statements of 28 commercial banks over 2015–2024 (256 bank year observations), we measure stability with the natural logarithm of a time-varying Z-score whose denominator is the standard deviation of quarterly return on assets over a rolling three-year window. Capitalization enters with a one-year lag to avoid the mechanical link between the equity ratio and the Z score. F, Breusch–Pagan and Hausman tests favor a two way fixed effects model with bank clustered standard errors. Credit risk is the one robust correlate of stability. A one percentage point rise in the non-performing loan ratio is associated with a Z score about 19% lower. The estimate is significant at the 1% level and stays negative and significant with Driscoll–Kraay standard errors, with a risk-adjusted return measure, under nine treatments of outliers and of the quarterly data, and without the most distressed bank. In 2020–2021 the association is roughly halved. This pattern is consistent with loan classification forbearance keeping problem loans out of the reported ratio, but its size depends on how outliers are treated. Once bank and year effects are controlled for, neither lagged capitalization nor bank size is significantly associated with stability. The results suggest that supervisors and bank managers should prioritize the early recognition and resolution of problem loans, and that reported asset quality during forbearance periods should be read with caution.

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Keywords:

Bank Size, Bank Stability, Capitalization, Non Performing Loans, Vietnam, Z Score.