Critical Factors Affecting Bank Credit Risk: A Case Study of Commercial Banks in Vietnam

Background: Credit risk is most concentrated in the bad debt ratio. Risk is undesirable for state credit management agencies and direct lending financial institutions but challenging to avoid, especially given the many complex economic developments in domestic and foreign macroeconomics in Vietnam in the past and today. Objective: The study aims to explore the critical factors influencing bank credit risk at commercial banks in Vietnam. Methodology: The authors conducted a group discussion with 15 commercial bank managers of 15 commercial banks based on the qualitative method. Also, primary data were collected directly from the sample size of 500 bank staff related to credit risk activities from 100 bank branches from Ho Chi Minh City, Dong Nai Province, Binh Duong Province of Vietnam. This was done using a random sampling technique and online serving, while the structural equation model was used to analyse the data gathered. Result: The results show that five key factors affect bank credit risk at commercial banks in Vietnam with a significant level of 0.01. These are legal environment and credit policy (LECP), quality of management and internal control processes (QMIC), macroeconomic and political environment (MPE), technology and risk management systems (TRMS) and quality of assets and customer characteristics (QACC). Among these, legal environment and credit policy strongly impact. Conclusion: The researcher concludes that the legal environment and credit policy are essential for sustainable bank development, especially in a volatile world. Unique Contribution: This study's results have provided empirical data for understanding factors that influence credit risk management in the financial sector. Key Recommendation: To improve generalizability, more countries or financial sectors could be included in future studies.