IMPACT OF DEFAULT RISK IN THE REAL ESTATE SECTOR ON BANK PROFITABILITY AND STABILITY: EVIDENCE FROM VIETNAM

Abstract

This study investigates the impact of real estate sector default risk on the profitability and financial stability of Vietnamese commercial banks in the period 2010-2023. The author uses an integration of three approaches including panel data estimates by POLS, FEM, REM, 2S-GMM; Quantile regression, PVAR & Granger causality test and Zmijewski X-SCORE model to measure default risk in the real estate sector. The results show that default risk in the real estate sector has a negative impact on bank profitability and stability, but the impact varies across different quantiles. Besides, the findings also show that bank profitability and stability have a positive and two-way causal relationship. In addition, bank-specific and macroeconomic control variables all have an impact on bank profitability and/or stability in the general regression function as well as all quantiles considered. Our findings have important implications for business managers, bank managers and policymakers.