Determinants of Banks' Lending Growth in Vietnam

Vietnam experienced a rapid credit growth in the period of privatization of banks and the opening to the entry of foreign banks. This paper identifies and estimate the determinants of lending growth in Vietnam, considering both demand and supply side factors but putting more emphasis on bank diversification strategies. It is found that banks' geographical and income diversification strategies are beneficial in terms of their ability to maintain growth rate in credit supply. As for demand factors, economic growth has a positive impact on loan growth, while inflation poses a negative influence on loan growth. Surprisingly the impact of 2008-2009 global financial crisis does not show any significant impact on the lending growth. As expected, an increase in banks' deposit leads to higher credit growth. The study further confirms that strong banks' balance sheets, in terms of low non-performing loans and low solvency ratio has a positive effect on credit supply.