Does Capital Affect Bank Risk in Vietnam: A Bayesian Approach

In this study, the effects of capital on bank risk in Vietnam are investigated over the period 2007–2017. Loan losses reserves/total assets (LLR) and nonperforming loans/total loan (NPL) are considered as the proxies for bank risk. We also analyzed the effect of macroeconomic factors on the risk of bank besides capital that is measured by ratio of equity to total assets and the value of equity. Based on the Bayesian approach and with a dataset of annual reports of 30 banks, this paper reveals that bank capital and bank risk have a negative relationship. In addition, macroeconomic factors also have a relatively significant influence on the risk of bank.