The Impact of Non-Performing Loans on the Profitability of Vietnamese Commercial Banks

This paper examines the impact of non-performing loans on the profitability of Vietnamese commercial banks by developing a panel-data analytical framework that incorporates bank-specific, macroeconomic, and technology-related determinants. The study uses annual data for 18 Vietnamese commercial banks over the period 2016–2024. Profitability is measured by return on equity (ROE), while the explanatory variables include the non-performing loan ratio (NPL), loan loss reserves (LLR), bank size (SIZE), the cost-to-income ratio (CIR), economic growth (GDP), inflation (INF), and information and communication technology adoption (ICT). The empirical strategy begins with pooled ordinary least squares, fixed effects, and random effects estimators, followed by model-selection and diagnostic tests, and then applies feasible generalized least squares to address heteroskedasticity and autocorrelation. The results show that NPL and CIR are negatively associated with ROE, whereas SIZE, GDP, and ICT exert positive effects. LLR and INF are not statistically significant in the preferred specification. These findings suggest that bank profitability in Vietnam depends not only on credit quality but also on operating efficiency, macroeconomic conditions, and technological capability. The study concludes with implications for credit-risk governance, cost discipline, and digital investment in commercial banking.