Crisis, credit risk, and productivity: lessons from the Vietnamese banking sector during COVID-19

This study investigates how an unprecedented systemic shock, the COVID-19 pandemic, reshaped bank productivity and intermediation efficiency in Vietnam, one of the fastest-growing emerging economies. We develop a novel risk-adjusted total factor productivity (TFP) measure based on the by-production Luenberger–Hicks–Moorsteen (LHM) indicator, which incorporates non-performing loans as undesirable outputs to better capture credit-risk dynamics. Using a balanced panel covering both the pre-pandemic and pandemic periods (2016–2022), our results show that Vietnamese banks experienced a general decline in productivity before and during COVID-19, driven largely by reductions in technical and scale efficiency. However, foreign and state-owned banks recorded stronger technological progress during the pandemic, reflecting accelerated digital transformation and operational adjustment. Regression results reveal a positive relationship between the COVID-19 period and productivity, suggesting that crisis-driven innovation and policy intervention helped offset negative shocks. Conversely, credit growth, loan-loss provisioning, bank size, and deposit dependence are all negatively associated with productivity, underscoring the importance of prudent risk management, optimal scale, and funding diversification for sustaining performance under stress.