Determinants of Bank Lending to Microenterprises: Evidence from Vietnam’s Commercial Banks
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Abstract
Microenterprises largely rely on bank loans for external funding. In an
emerging market such as Vietnam, the role of commercial banks in providing loans to
micro-firms is even more crucial. The present paper examines the question of what the
determinants of bank lending to microenterprises are. This study conducts a two-step
system generalised method of moments (GMM) estimation to investigate the relationship
between bank-specific variables, macroeconomic factors, and bank industry characteristics
on bank loans to microenterprises using the panel data from 26 Vietnamese commercial
banks from 2011 to 2020. The results show that the microenterprise loan growth rate
depends on bank-specific variables and macroeconomic factors. However, bank-specific
variables and banking industry characteristics determine microenterprise lending
propensity. This paper also contributes to the debate concerning microenterprise
lending as the best approach, and which type of commercial banks would most often
choose this alternative. Interestingly, it was demonstrated that larger banks had higher
microenterprise loan growth rates, and smaller banks experienced a greater proportion
of microenterprise loans in their total business loans.
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