How does corruption shape lending practices in commercial banks’ governance?

Corruption negatively affects lending by commercial banks since it increases credit risk, reduces transparency, and misallocates loans, leading to inefficient capital allocation. Banks can lower borrowing in the case of a highly corrupt environment due to increased risk or engage in unethical practices, ultimately undermining financial stability and economic growth. The article aims to understand the impact of corruption on lending activities. The research sample includes 27 Vietnamese commercial banks in the period from 2012 to 2023. The data was collected from the audited financial statements of commercial banks, the World Bank, and Transparency International. The results from the system generalized method of moments (SGMM) estimate show that the Corruption Perception Index (CPI) has a positive relationship with the loans to total asset ratio and the growth rate of loans. This one-way relationship implies that raising awareness of corruption helps improve the transparency of the business environment, thereby increasing the lending activities of commercial banks in Vietnam. In addition, it provides pioneering evidence of the relationship between corruption perception and lending activities of commercial banks in Vietnam. The findings provide policy implications for bank managers and macro policymakers regarding transparency in the business market by raising awareness of corruption and improving lending practices.