The Safety Threshold of Vietnam's Banks During Covid-19

Pham Thi Thanh Xuan, Trung Duc Nguyen, Ho Huu Tin, Le Thi Thanh Huyen


Using the stress test, we measured the Comercial banks' withstand under pressure caused by the outbreak of COVID-19, which led to a freeze of the real estate market, a fall of the stock market, and an increase of non-performing loans (NPLs). The findings show positive and hopeful signs. Even though the real estate and stock markets fell by 40%, resulting in a significant devaluation of the banks' loan collaterals, banks do not need to supplement provisions for credit risk. The high number of NPLs, which lead to increased provisioning, erodes net earnings, reducing the capital adequacy ratio (CAR). Banks can still meet both the 9% minimum CAR requirement and the 3% maximum NPL requirement. The study also identifies the maximum safety threshold of the Vietnamese banking system, which averaged up to a 50% increase in NPLs. Two of the country's top 10 banks are even able to maintain a CAR greater than 9% and an NPL ratio below 3%, although NPLs increase to 450% and 215% compared to these before the shock, respectively.

JEL: E50, G21


Banking stress test; credit risks; COVID-19; capital adequacy ratio; non-performing loans; safety threshold

Full Text:



Acharya, V. V., Berger, A. N., & Roman, R. A. (2018). Lending implications of U.S. bank stress tests: Costs or benefits? Journal of Financial Intermediation, 34, 58–90.

Başarır, Ç., & Toraman, C. (2014). Financial Stability Analysis in Banking Sector: A Stress Test Method. Muhasebe ve Finansman Dergisi, 129–144.

Baudino, P. (2020). Stress-testing banks during the Covid-19 pandemic.

Baudino, P., Goetschmann, R., Henry, J., Taniguchi, K., & Zhu, W. (2018). Stress-testing banks—A comparative analysis.

Bird, A., Karolyi, S., Ruchti, T., & Sudbury, A. (2015). Bank Regulator Bias and the Efficacy of Stress Test Disclosures. SSRN Electronic Journal.

Blaschke, W., Jones, M. T., Majnoni, G., & Peria, M. S. M. (2001). Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and Fsap Experiences.

Borio, C., & Restoy, F. (2020). Reflections on regulatory responses to the Covid-19 pandemic.

Cornett, M. M., Minnick, K., Schorno, P. J., & Tehranian, H. (2020). An examination of bank behavior around Federal Reserve stress tests. Journal of Financial Intermediation, 41, 100789.

Cortés, K. R., Demyanyk, Y., Li, L., Loutskina, E., & Strahan, P. E. (2020). Stress tests and small business lending. Journal of Financial Economics, 136(1), 260–279.

Covas, F. (2018). Capital Requirements in Supervisory Stress Tests and Their Adverse Impact on Small Business Lending.

Fernandes, M., Igan, D., & Pinheiro, M. (2020). March madness in Wall Street: (What) does the market learn from stress tests? Journal of Banking & Finance, 112, 105250.

Flannery, M., Hirtle, B., & Kovner, A. (2017). Evaluating the information in the federal reserve stress tests. Journal of Financial Intermediation, 29, 1–18.

Frame, W. S., Gerardi, K. S., & Willen, P. S. (2015). The Failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO. In Working Papers (No. 15–4; Working Papers). Federal Reserve Bank of Boston.

Genberg, H., Martinez, A., & Salemi, M. K. (2014). The IMF / WEO Forecast Process. https://www .semanticscholar .org/paper/The-IMF-%2F-WEO-Forecast-Process- Genberg-Martinez/f823150b974fe540a9862f7e5e88ac3eb75c15ad

Goldstein, I., & Leitner, Y. (2018). Stress tests and information disclosure. Journal of Economic Theory, 177, 34–69.

Ikeda, Y., Kerry, W., Lewrick, U., & Schmieder, C. (2021). Covid-19 and bank resilience: Where do we stand?

Judge, K. (2020). Stress Testing During Times of War. Handbook of Financial Stress Testing, J. Doyne Farmer, Alissa Kleinnijenhuis, Til Schuermann & Thom Wetzer, Eds., Cambridge University Press, Forthcoming; European Corporate Governance Institute (ECGI) Law Working Paper No. 529/2020; Columbia University School of Law, The Center for Law & Economic Studies Working Paper No. 622.

Kapinos, P., Martin, C. A., & Mitnik, O. A. (2015). Stress Testing Banks: Whence and Whither?

Lewrick, U., Schmieder, C., Sobrun, J., & Takáts, E. (2020). Releasing bank buffers to cushion the crisis—A quantitative assessment.

Moretti, M., Stolz, S., & Swinburne, M. (2009). Stress-testing at the IMF. In M. Quagliariello (Ed.), Stress-testing the Banking System: Methodologies and Applications (pp. 297–317). Cambridge University Press.



  • There are currently no refbacks.

Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: +62 813-3180-1534

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0