The impact of real estate default risk on bank efficiency and financial stability: Evidence from Vietnam

Abstract

The purpose of this study is to examine the impact of real estate default risk on the efficiency and stability of Vietnamese commercial banks during the period from 2007 to 2022. By applying the two-step System Generalized Method of Moments (SGMM) regression method, Panel Vector Autoregression (PVAR), and Granger Causality tests, combined with unbalanced panel data, the author investigates how real estate default risk influences the profit efficiency and stability of 35 Vietnamese commercial banks over this period. The research results indicate that real estate default risk negatively affects the profit efficiency and stability of Vietnamese banks. Additionally, there is a causal relationship between profit efficiency and bank financial stability. Control variables such as bank capital, size, bad debts, technology, the impact of COVID-19, economic growth, and inflation all influence profit efficiency and bank stability. Meanwhile, non-interest income primarily affects the financial stability of Vietnamese commercial banks. The findings of this study have significant practical implications for investors, business managers, banks, and policymakers, providing valuable insights into the factors affecting bank performance and stability in Vietnam.