THE CAUSAL RELATIONSHIP BETWEEN PROFITABILITY AND RISK OF VIETNAM COMMERCIAL BANKS

Abstract

The study analyzes the causal relationship between profitability and banks risk. Research data includes 32 Vietnamese commercial banks, period 2002-2020. Profit is measured by ROA and ROE ratios. The risk is considered by the Zscore index. The author uses PVAR estimation method and Granger Causality test to estimate the model. Research results show that there is always a two-way causal relationship between profitability (ROA) and bank risk. However, there exists only a one-way causal relationship between ROE return on credit risk and no opposite effect. This result provides some practical policy implications for investors and bank administrators.