THE EFFECT OF CREDIT RISK ON THE PROFITABILITY OF VIETNAMESE COMMERCIAL BANKS

Credit risk management has become a critical concern for commercial banks in emerging economies, particularly in Vietnam, where the banking sector plays a central role in financial intermediation and economic stability. This study explores the effect of credit risk on the profitability of Vietnamese commercial banks through a qualitative and descriptive analysis based on secondary data from official reports of the State Bank of Vietnam (SBV), World Bank statistics, and financial statements of leading banks during the period 2015–2023. The analysis reveals that although Vietnam’s banking system has improved its credit risk management frameworks, profitability remains highly sensitive to changes in credit quality. The ratio of non-performing loans (NPLs) and the level of loan loss provisions have shown a close association with fluctuations in bank profits. In years when credit risk indicators increased particularly during the COVID-19 pandemic, bank profitability indicators such as Return on Assets (ROA) and Return on Equity (ROE) tended to decline. Despite these challenges, the adoption of digital technologies, stronger regulatory oversight, and gradual compliance with Basel II standards have contributed to more effective credit monitoring and risk mitigation in recent years. The study concludes that managing credit risk is essential for maintaining the stability and long-term profitability of Vietnamese commercial banks. A strong credit governance framework, diversification of loan portfolios, and the integration of technology into risk assessment are crucial for improving financial performance. The findings also provide practical implications for policymakers and financial managers in enhancing the resilience of the banking sector amid increasing economic uncertainty.