Bank loan growth under uncertainty in Vietnam: Does bank diversification matter?

Uncertainty has become a critical concern for economists and policymakers worldwide, especially following the global financial crisis and the COVID-19 pandemic, both of which have underscored its significant economic implications. This study delves into the impact of banking uncertainty on loan growth, with a particular emphasis on the moderating role of bank diversification. Diversification is evaluated across three key dimensions: assets, funding sources, and income streams. The analysis is based on a panel dataset comprising 40 Vietnamese commercial banks over the period from 2010 to 2023. To address potential endogeneity, the study employs a dynamic model estimated using the generalized method of moments (GMM). The findings reveal a negative relationship between banking uncertainty and loan growth, indicating that uncertainty adversely affects banks’ lending activities. The results also highlight that banks with higher levels of diversification are better positioned to cushion the negative effects of uncertainty, with this mitigating effect being consistent across all three dimensions of diversification. These insights suggest that diversification strategies can play a vital role in enhancing banks’ resilience to economic shocks and uncertainties. AcknowledgmentThis research is part of Tan Phuc Nguyen’s PhD thesis conducted at the Ho Chi Minh University of Banking under the supervision of Van Dan Dang.