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Top1. Introduction
Commercial banks are the crucial financial intermediary, which their operation will significantly affect the benefits of stakeholders. Therefore, when making investment activities, such as lending, leasing, commercial banks need to ensure the interests of related parties, especially owners, managers, and other parties. Empirical research studies tend to focus either on the disciplinary in extending shareholders’ value or owner-manager agency problems because these issues may lead to the consequences of inefficiency and bankruptcy in the banking sector. From the practical point of view, owners’ constraints have related to management and operation ability. It is compulsory to hire managers to deal with entity activities, including increasing performance and earning per share steadily. The managers’ presence in the entity has accelerated the conflicts of interests between owners and managers (Shah, 2014). That is considered a platform of agency theory found by Jensen and Meckling (1976) and developed later by Fama & Jensen (1983). A bank manager is appointed to run day-to-day business operations through the management and supervision of risks incurring in those activities.
Credit granting to customers is one of the important activities in the banking sector. Although there has been a shift from credit activities to non-credit activities, the generated income from loans still substitutes a large proportion of the total income. Therefore, credit risk is always a concern of bank managers, economists, and researchers. According to Arunkumar and Kotreshwar (2005) study, credit risk accounts for 70% of bank risk in general, while the remaining balances include market risk and operational risk. So, credit risk has raised a big concern for the managers and regulators because it has created a significant domino effect on the economies in the world.
The banking system of many developed and developing countries has implemented strategies to manage and control credit risk prudently. The management objective of banks is to maximize risk-adjusted returns by maintaining credit risk at an acceptable level. The regulatory approach to credit risk management (CRM) is not always perfect; therefore, the banks need to enforce the managers’ self-management rules to increase the owners’ and investors’ value. Besides, many studies have analyzed the impact of factors on credit risk, which are divided into two groups: macro factors and bank-specific factors. For the macro-factors, a number of domestic and foreign studies have mentioned their influence on credit risk, including gross domestic product growth, unemployment rate, industrial production index, consumer price index (inflation rate), interest rate, and growth rate of the money supply. In terms of bank-specific factors, the following factors have a significant impact on credit risk are the latency of credit risk, capital adequacy ratio, bank performance, management policies, the rule of law, accountability, credit growth, loan loss provision, quality of the bank's debt management, ownership characteristics, bank size, bank age, competition, credit risk latency, liquidity ratio, leverage, personal loan balances, total savings deposits, operating expenses.
In Vietnam, credit risk has arisen for many years and is always the top concern of researchers and banking leaders. After the global crisis, Vietnam's financial system was also affected, and credit risk increased sharply from the end of 2011 (Chau, 2017) to 2020. As of August 2019, the credit risk ratio of banks' balance sheets was 1.91%. By the end of 2019, the economy has been going down because of the impact of the infection SARS-CoV-2 (COVID-19). Since then, the ability to repay loans and cash flows in the businesses of bank-borrowing customers has been significantly impacted. Specifically, according to the State Bank of Vietnam (2020), under the impact of the COVID-19 epidemic, the non-performing loan ratio increased to 3.67% by the end of 2020 from 1.89% in 2019 (Phu Hung Fund Management Joint Stock Company, 2020). This proves that credit risk can be a danger and affect the stability and financial health of the Vietnamese banking system. So, the government issued a circular about the internal control and internal audit requirements on March 30, 2020 (Circular 06/2020/TT-NHNN) to establish effective monitoring, reporting, and internal information exchange mechanism to prevent risks and serve the appropriate and effective management and administration of credit activities.