The credit risk management of agribank’s bien hoa branch

Microsoft Word F69703116 doc MEIHO UNIVERSITY Graduate Institute of Business and Management MASTERS THESIS The Credit Risk Management of Agribank’s Bien Hoa Branch In partial fulfillment of the requirements for the degree of Masters of Business Administration Advisor Dr Ching Wen Mo Co advisor Dr Pham Duy Hieu Graduate Student Nguyen Hoang Thanh Phi December, 2010 I ACKNOWLEDGMENTS I am very grateful indeed to the Ho Chi Minh city Industrial University’s the managing boards, and Meiho University.

MEIHO UNIVERSITY Graduate Institute of Business and Management

MASTERS THESIS

The Credit Risk Management of Agribank’s Bien Hoa Branch

In partial fulfillment of the requirements for the degree of

Masters of Business Administration

Advisor: Dr Ching-Wen Mo Co-advisor: Dr Pham Duy Hieu Graduate Student: Nguyen Hoang Thanh Phi

December, 2010

I

ACKNOWLEDGMENTS

I am very grateful indeed to the Ho Chi Minh city Industrial University’s the managing boards, and Meiho University, Taiwan My thanks to Ph.D Ching-Wen Mo in Meiho University, Taiwan for instructing me during the time of doing my research Thanks to Ph.D Pham Duy Hieu to give me valuable experience Thanks also to the professors in Meiho University and in Ho Chi Minh city Industrial University

As ever, I am grateful to all the staff in the Agricultural and Rural Development Bank in Bien Hoa City Thanks to all my classmates of EMBA2 class to give me helpful advice to finish my research

II

The Credit Risk Management of Agribank’s Bien

Hoa Branch ABSTRACT

Banks play an important role as the channel of mobilizing and circulating capital and become financial intermediaries in the market economy The process of globalization has strengthened the inter-dependence among the economies in the world In 2008, the credit crisis in the USA affected the global economy crisis, the financial fields suffered sharply from this event as well as banking sector Nowadays, one of the risks which the banks need to consider is the credit risks, since the credit system is such important, complicate but vulnerable

By combination of theories and practical operation, we have collected the real data as many banks through questionnaires and then used comparison and analysis methods to have comments to evaluate and true credit activities and credit risk management tasks From the empirical results, we have suggested some realistic solutions

to improve the quality of credit risk management tasks And the banks may apply these solutions to control risks as lowest rate as possible Moreover, we learned from the research that credit growth is very necessary; however it needs to be linked with safety and effectiveness On the other hand, besides the outside causes, the subjective causes are more important to credit risks Although banks gained success in the process of managing credit which there is still limitations and slots left to make room for credit risks to sprout

Here are some our suggestions developed during the time of investigating the credit risks management tasks

- Building an effective credit operational procedure

- Upgrading the quality of checking tasks inside the banks

- Managing and supervising credit risks in and after the time of offering loans

- Setting up and upgrading the IT system inside the banks

- Improving the quality for the human resources

- Building an internal credit risks control department

- Considering all environmental factors in loans regulations

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We believed that if banks implement these solutions properly, they will avoid most

of credit risks problem at the lowest rate as they can

Keywords: Financial Intermediaries, Credit Risks, Internal Control

IV

The Credit Risk Management of Agribank’s Bien

Hoa Branch Contents

ACKNOWLEDGMENTS I ABSTRACT II Contents IV Tables VI Figures VIII

Chapter1 Introduction 1

1.1 Motivation 1

1.2 Research Objective, Research Questions 2

1.2.1 Reasearch objective 2

1.2.2 Research questions 2

1.3 Research Scale, Objects for Research and Limit Research 3

1.4 New Characteristics of the Thesis 3

Chapter2 Reasoning Basis in Managing Credit Risks 4

2.1 Managing Risk in the Banking Business 4

2.1.1 Generalizing about risk 4

2.1.2 Risks and managing risks in the banking business 4

2.1.3 Influence of risks to banking operations and social economy 8

2.2 Overview of Managing Credit Risks of the Bank 8

2.2.1 Credit concept 8

2.2.2 Credit risks 9

2.2.3 Credit risk management 14

2.3 Introduction of the Bien hoa Agribank and Rural Development 19

Chapter3 Research Methodology 21

3.1 Research Process 21

3.2 Research Methods 23

3.3 Designing the Questionnaire Structure 23

3.4 The Accuracy of the Data 26

3.5 Validity and Reliability of Research Data 27

Chapter4 Research Results and Analysis 28

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4.1 To Analyze the General Information of Investigated Persons 28

4.2 To Analyze the Causes of Credit Risk in Banks 29

4.2.1 The reasons causing credit risk (the outside causes) 29

4.2.2 The credit risk be caused from customers 30

4.2.3 The credit be caused from the weakness of risk management of bank 31

4.3 Comparisons Analysis 36

4.3.1 Comparing three groups of causes of credit risk among the size of credit deposit 36

4.3.2 Comparing three groups of causes of credit risk among working experience in bank 41

4.3.3 Comparing three groups of causes of credit risk among professional degree 46

4.4 Multiple Regression 48

Chapter5 Implications, Conclusions and Recommendations 51

5.1 Orientation Development of Agribank’s Bien Hoa Branch in 2010 51

5.2 Solutions to Increase Efficiency of Credit Risk Management in Agribank’s in Bien Hoa Branch 51

5.2.1 Setting up the effective credit policies 51

5.2.2 Improve the quality of checking tasks inside the banks 52

5.2.3 Manage and supervise the credit risk in and after loans offer 53

5.2.4 Building and upgrading the it system internal 53

5.2.5 Improve the quality of human resources 54

5.2.6 Building risk managing culture 54

5.2.7 Consider environmental factors in terms of loans 54

5.3 Recommendations 55

5.3.1 The recommendations to Agribank Vietnam 55

5.3.2 Recommendations to state banks 56

5.3.3 Recommendation to the state 58

5.4 Conclusion 60

References 61

VI

Tables

Table 2-1 Results of the Bank’s Business Activities during the Years 20

Table 3-1 Reliability of the Questionnaire 27

Table 4-1 The Size of Credit Deposit 28

Table 4-2 About Your Working Experience in Bank 28

Table 4-3 Professional Degree 29

Table 4-4 The Reasons Causing Credit Risk 29

Table 4-5 The Credit Risk Be Caused From Customers 30

Table 4-6 The Credit Risk Be Caused From the Weakness of Risk Management of Bank (1) 31

Table 4-7 The Credit Risk Be Caused From the Weakness of Risk Management of Bank (2) 32

Table 4-8 The Credit Risk Be Caused From the Weakness of Risk Management of Bank (3) 33

Table 4-9 The Credit Risk Be Caused From the Weakness of Risk Management of Bank (4) 34

Table 4-10 ONE – WAY ANOVA – Descriptives of the 3 Group of Causes among the Size of Credit Deposit 36

Table 4-11 Test of Homogeneity of Variances – among the Size of Credit Deposit for Each Group of Causes 36

Table 4-12 ANOVA 37

Table 4-13 ANOVA 38

Table 4-14 Multiple Comparisons 38

Table 4-15 ANOVA 39

Table 4-16 Multiple Comparisons 39

Table 4-17 ANOVA 40

Table 4-18 Multiple Comparisons 40

Table 4-19 ONE – WAY ANOVA – Descriptives of the 3 Group of Causes among Working Experience in Bank 41

Table 4-20 Test of Homogeneity of Variances – Among Working Experience in Bank for Each Group of Causes 41

Table 4-21 ANOVA 42

VII

Table 4-22 ANOVA 43

Table 4-23 Multiple Comparisons 43

Table 4-24 ANOVA 43

Table 4-25 Multiple Comparisons 44

Table 4-26 ANOVA 44

Table 4-27 Multiple Comparisons 45

Table 4-28 ONE – WAY ANOVA – Descriptives of the 3 Group of Causes among Professional Degree 46

Table 4-29 Test of Homogeneity of Variances – Among Professional Degree for Each Group of Causes 47

Table 4-30 ANOVA 47

Table 4-31 Correlations Matrix of the Predictors and Predicted Variable 48

Table 4-32 Model Summary for Credit Deposit Regression 49

Table 4-33 ANOVA(b) of the Credit Deposit Model 49

Table 4-34 Coefficients(a) of Predictors for Credit Deposit 49

VIII

Figures

Figure 2-1 Categorizing Risks in The Banking Business 5

Figure 2-2 The Steps of Managing Risks in Operation of Bank 6

Figure 2-3 Credit form Shows in the Following Exhibit 8

Figure 2-4 Credit Risk Pattern 9 Figure 3-1 The Process of Research Themes Can Express Through the Following Steps 22

1

The Credit Risk Management of

Agribank’s Bien Hoa Branch Chapter1 Introduction

Contents of Chapter1 includes: (1) Motivation; (2) Research objective, research questions; (3) Research scale, objects for research and limit research; (4) New characteristics of the thesis

1.1 Motivation

Bank is one of the important channels of raising and regulating capital and increasingly becomes a vital financial institution in the market economy

Globalization increases the mutual levels among the economies in the world In the financial sectors, the bank is in the same circumstance The credit crisis influenced the economy significantly In the past, the credit crisis in the U.S is the beginning source of the worldwide economical crisis Many countries had to reform, construct financial management system and the mechanism of preventing international finance risks and make them public, clear in the bank operations to prevent the crisis of the financial market, operate based on the common rule of the market In the current Vietnam financial market scene, although the banks are increasing the receipt from service such as risk fees, the credit operations is still a business field bringing the biggest receiving source to the banks Especially, the earnings from the credit service of commercial banks are mainly making up 60 - 80% of the earnings of the banks (Mai Thao, “Narrow personal credit”,

http://www.vinacorp.vn/news/thu-hep-tin-dung-ca-nhan/ct-362519) However, this operation always potentiate high risks, especially in the developing countries such as Vietnam, because the information system lack of the clearness and adequateness, the level

of managing risks is limited and the profession of the banking staffs are not high

In credit field, the potential risks cannot eliminate; they can only identify and control strictly to restrict the risks to the lowest losses when they occur In 2008, fast increasing circumstance in credit had many high risks in the operation of banks In 2009, the increasing in credit went down a little; however, the bad effects of the fast increasing

in credit of the year 2008 appeared and they created the pessimistic signals In the operation of the bank, the operation of monetary and credit business field has a close

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relationship with the customers and the economy through the process of doing the business transactions

Credit risk always remains unsettled and non-performing load (thereafter, NPL) is

an obvious practice at any bank, including the top banks of the world because there are some risks out of the control of the human If the credit risk occurs, there will be a huge effect and direct influence to the existence and development of every credit organization,

or in higher level, there will be influence to the entire banking system, financing structure and economic development However, the basic difference among the banks is the ability

to managing NPL at an acceptable ratio based on the constructing an effective managing credit risk pattern which is suitable to the operation environment to eliminate the subjective credit risks coming from the human factor and other manageable credit risks Realizing the important role in the credit operations, evaluating the level of risks, identifying the cause to suggest the effective solution, constructing a credit risk-managing pattern that is appropriate with Vietnamese conditions are urgent demands to guarantee the restriction of risks in the operation of providing credit, to incline towards international standards of managing risks Therefore, we chose the thesis "The credit risk management

of Agribank’s Bien Hoa branch" as the researching purpose

1.2 Research Objective, Research Questions

1.2.1 Reasearch objective

To complete, reinforce the knowledge of credit risk management from applying into practice at Bien Hoa Agribank

To do research deeply, make survey in managing the practice of credit risks at Bien Hoa Agribank in recent years To find the cause of the credit risks, the things have done and have not done in the past based on the previous bases

From the above causes, suggesting the whole and suitable solutions to the operations of Bien Hoa Agribank to improve the effectiveness of managing credit risks at Bien Hoa Agribank

1.2.2 Research questions

(1) How to reduce the possible risks to ensure credit activities?

(2) What are the measures to improve of using capital to increase profits for the banks based on “safety, effectiveness, and stable development”?

(3) What are the necessary abilities to handle credit risks on time in order to avoid the bank’s loss?

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(4) How to improve the quality of doing business of the banks to strengthen the competition in the global integration trend?

1.3 Research Scale, Objects for Research and Limit Research

Due to limited time, the writer has only done a survey on 100 staff and experts in Agribank Bien Hoa and in other banks in Bien Hoa and the writer collected information

to analyze, evaluate about the credit activities and credit risk management to find out many practical solutions to improve the quality credit risk management tasks in Agribank Bien Hoa

1.4 New Characteristics of the Thesis

The thesis of managing credit risks is a rather new thesis to economical researchers

in Vietnam and now Vietnam is going international The thesis will clarify the basic reasons of credit, credit risk, and identifying and managing credit risk

Based on the basic analysis of the credit operations of Bien Hoa Agribank, we will proposes some signals showing the problematic debts sooner, detects some causes to suggest the effective and possible solutions

The most important here is that the thesis researches in details in credit risks, gives out the criteria of managing credit risks at Bien Hoa Agribank, which has not researched previously