Tiểu luận môn rm solutions to enhance effectiveness in credit risk management of commercial banks in vietnam

credit risk management efficiency in commercial banks...10 Chapter 3: Research design and methods...15 3.1 Methods of data collection...15 3.2 Methods of data processing...15 3.3 Analyti

Bộ tài chính Học viện tài chính Viện đào tạo quốc tế IIFE -

TIỂU LUẬN MÔN RM

SOLUTIONS TO ENHANCE EFFECTIVENESS IN CREDIT RISKMANAGEMENT OF COMMERCIAL BANKS IN VIETNAM

Người thực hiện: Nguyễn Quang Hiển

Lớp: DDP0501

Mã SV: DDP0501007

Giảng viên hướng dẫn: TS Lê Đình Hải & TS Lưu Quốc Đạt

Hà Nội 2022

Table of contents

Chapter 1: general introduction 3

I, The urgency of the subject 3

II, objectives of research and research tasks 3

Chapter 2: overview of research, theoretical and practical research activities of commercial banks in vietnam 5

1 credit risks in the operation of commercial banks 5

2 credit risk management efficiency in commercial banks 10

Chapter 3: Research design and methods 15

3.1 Methods of data collection 15

3.2 Methods of data processing 15

3.3 Analytical methods 15

Chapter 4: Actual situation of effective credit risk management of commercial banks in Vietnam 27

4.1 Credit risk issues at commercial banks in Vietnam 27

4.2 Operational solutions 29

4.3 Current status of credit risk management in commercial banks 31

Chapter 5: Proposing solutions to improve the efficiency of credit risk management of commercial banks in Vietnam 33

5.1 Completing the organization of the credit granting apparatus and credit process 33

5.2 Building an effective credit policy 34

Chapter 1: general introduction

I, The urgency of the subject

Credit risk management plays an important role in securing bank credit and contributing to minimizing risks in banking operations

The widening integration of the vietnamese economy into the world economyhas facilitated the country' s financial activity, the banking market has many sắc, marking the new development of the vietnamese banking

system However, with the characteristic of a sensitive business area, the influence of many direct and indirect factors, banking risk is inevitable and potentially a serious risk of affecting the sustainable development of the bank, the financial market, and the economy in general However, today' s credit risk management work in vietnam' s commercial banks remains khe, the maximum efficiency in reducing credit risk Because credit risk

management plays an important role in securing bank credit and contributing

to reducing risks in banking operations “SOLUTIONS TO ENHANCE EFFECTIVENESS IN CREDIT RISK MANAGEMENT OF

COMMERCIAL BANKS IN VIETNAM” to be able to find out, research the measures to increase the effectiveness of credit risk management in Vietnam

II, objectives of research and research tasks

1 research objectives

The heading towards achieving the following research objectives:

Identifying factors affecting credit risks in the commercial banking system in vietnam

Proposed solutions for contributing to improving credit risk management in vietnam' s commercial banking system

2 research tasks

To achieve the objectives, the subjects of the following research tasks:

· Overview of credit risk management in commercial banks

· Clarify the rationale / theory of credit risk management

· Analysis of factors affecting credit risks in commercial banks

· Assessment of the situation in credit risk management in commercial banks

Which measures to reduce credit risk in commercial banks in vietnam

4 subjects and scope of study

Space coverage: commercial banks in vietnam

Content scope: credit risk management

5 contributions of subjects

5 1 technically

+ rõ of credit risk management practices in vietnam

+ to clarify the factors affecting credit risk management at commercial banks

Research results have implications for strategic solutions for commercial banks in the management of credit risks from which to find appropriate solutions to the problems of credit risk management and effectiveness of credit risk management At the same time the topic is more enriching than thetheoretical basis and the practice of credit risk management in commercial banks, as a reference for similar research topics.

6 structure of the subject

Chapter 1: general introduction

Chapter 2: overview of research, theoretical and practical research activities

of commercial banks in vietnam

Chapter 3: design and methodology

Chapter 4: effective situation of credit risk management by commercial banks

in vietnam

Chapter 5: propose solutions to enhancing credit risk management by commercial banks in Vietnam

Chapter 2: overview of research, theoretical and practical research activities

of commercial banks in vietnam

1 credit risks in the operation of commercial banks

In the market economy, providing credit is the basic economic function of thebank The risk in banks tends to focus mainly on credit portfolios This is the biggest and often occurring risk When the bank falls into serious financial state, the common cause arises from credit activities

Based on the causes of risks, credit risks are divided into two types of transaction risk (transaction risk) and category risk (portfolio risk).

Diagram 1 1: credit risk classification

-Transaction risk: is a form of credit risk that causes it due to limitations in transactions and lending, customer reviews The transaction risk has three main components:

+The risk risk is the risk associated with the evaluation and analysis of credit,when the bank selects effective borrowing options to make decisions for lending

+The risks arising from the standards of guarantee such as the terms in the loan contract, the types of assets guaranteed, the subject guarantee, the method of ensuring and lending on the value of the collateral

+Professional risks are risks related to loan management and lending activities, including the use of risk rating systems and handling of problems with problems

-Category risk: is a form of credit risk that causes the cause of the bank' s lending portfolio management Category risks are divided into 2 categories: internal risks and concentration risks

+Internal risk (intrinsic risk) comes from factors, features that are specific, unique inside of each borrower or sector, economic sector It comes from the characteristics of activities or the use characteristics of borrowing

customers 16

+The concentration risk (concentration risk) is the case that the bank is invested in a lot of loans for some customers, lending through many

businesses operating in the same sector, a field of economic, in a certain geographical area, or a high - risk loan

Credit risk forms:

credit risks may occur in 4 cases for interest and principal debts as follows: not earning the right interest on time, not fully earning profits, not earning capital on time, and not fully capital The case in which the bank accounts fordifferent tracking items such as hanging or overdue debts

When it is not collected on time, risk risks are at a low level and need to be put into suspended interest If the bank can' t collect enough interest, it will have a frozen interest item, except for the cases where such interest is reduced to the enterprise

When the capital is not collected on time, the bank shall have overdue debts However, this has not yet been considered a complete loss of the bank'

s loss because of some reason, the enterprise slowly pays the debt repayment and will pay after the commitment of the contract If this loan is not able to recover (for example, a bankrupt enterprise), the bank is now at a high level

of credit at a high level because the debt is not likely to be recovered, except for special cases, the capital - borrowing enterprise is likely to be considered

to remove the debt to the enterprise

credit risk exists in many forms, which are always changing to each other, which is the last level of debt that is not able to recover When studying creditrisks people often focus on risks of risks such as the actual interest rates, especially the debt arising, the frozen interest and the overdue debt are not likely to be seen as the real risk situation, which is often considered to be addressed

1 3 bases for determination of credit risks

1 3 1 classification

According to article 6, article 7 decided 493 / 2005 / qd - nhnn dated april 22,

2005, by the governor of the state bank' s 493 / 2005 / qd - nhnn on the amendment of a number of articles of 493 / 2005 / qd - nhnn issued by the governor of the state bank (qđ 18), the credit institution classification of debts

into 5 groups (qđ 18 / qd - nhnn dated april 25, 2007) of the governor of the state bank (qđ 18 / qd - nhnn dated april 25, 2007).

At present, pursuant to decision no 780 / qd - nhnn dated april 23, 2012 (the state bank of vietnam), the debt - related debt - controlled debt term, the debt

- extending debt extension of the customer' s credit institutions tends to be good and the debt - repayment capability shall be retained in accordance withthe deadline for adjusting the debt repayment period, the debt extension shall

be retained

1 3 2 overdue debts and bad debts

-Overdue debts: overdue debts are debts that a portion or whole of the principal or / or interest has expired In other words, overdue debts are non - refundable credits, not allowed and ineligible for extension To ensure strict management, the bank' s overdue debts are divided into four groups (from group 2 to group 5)

-Or bad debts (or problems with problems, bad debts, bad debts,…) are overdue debts from 91 days or more without requiring and refund.Bad debts have characteristics: customers who have failed to fulfill their debt repaymentobligations with the bank' s termination of the financial situation of the customer' s financial situation and have a bad tendency to lead to the bank' s inability to recover interest and ; collateral is considered the value of non - trang

In vietnam, bad debts include: overdue debts or non - payable; debts related

to lawsuits, lawsuits which have been instituted but cannot be recovered, owing to the handling of assets that are not handled by the government

1 4 causes credit risk

The causes of credit risk vary widely, from the customer side, from the bank (subjective causes) and objective causes

1 4 1 objective

It is the non - will of customers and banks such as: natural disasters, fire ; due

to the change of economic management policies, such as regional planning,

… Since then, the enterprise has goodwill but still cannot pay bank debts

1 4 1 the cause of the client

It is an internal cause of each customer such as a poor financial ability, weak operating capacity, inefficient business governance system, customer' s management level leads to poor use of loans or loss, affecting solvency It may also be due to the lack of goodwill in debt repayment or by the customerdeliberately.

1 4 2 causes from the bank

-Bank officials are not strictly serving credit and lending conditions

-Policies and procedures for non - strict loans, which have no effective risk management process, have not focused on customer analysis, credit risk classification to calculate loan conditions and solvency

-The capacity to forecast, analyze and evaluate credit, detect, and handle a loan with a problem of credit officials, especially for high - level knowledge -intensive sectors leading to errors in lending decisions

-Lack of information about the customer or the lack of reliable credit information, timely, accurate and accurate, before granting credit

-The capacity and ethical qualities of a number of credit officers, including the supervision leaders are not enough and the management of the bank, the improper use of the bank is the cause of credit risks

1 5 consequences of credit risk

1 5 1 for banks

When the credit is at risk, the bank does not collect credit capital allocated and loan interests, but the bank must pay capital and interest to the mobilized money when it is due, which causes the bank to lose balance When the debt

is not collected, the turnover of the credit capital is slowed down as an inefficient business bank and may lose liquidity This reduces the trust of depositors, serious influence on bank credit

1 5 2 for the economy

Banking activities involve many individuals, enterprises, many fields in the economy So, when a bank is at risk of credit or bankruptcy, the wild sender fears and each other to withdraw money from the bank but also in other banks, making the entire banking system difficult The bankruptcy bank shall affect the production and business situation of enterprises owing no wage

payment or purchase of raw materials The price of goods will be increased

by this time, the purchasing power,the economy in recession credit risks can spark a financial crisis, affecting the country and possibly the whole area

2 credit risk management efficiency in commercial banks

2 1 credit risk management

2 1 1 concept

Credit risk management is the process of building and implementing strategies and policies for management and business in credit activities to achieve safe and sustainable objectives and development In which the emphasis is on enhancing the overdue debt prevention and control measures, bad debts in credit activities Thereby increasing revenue, reducing costs and enhancing the efficiency of commercial bank credit

2 1 2 objectives

Planning and plan for prevention of credit risks How much credit risk can occur, in which condition, what causes, and how the consequences of the prevention of credit risk in a scientifically controlled way are intended to achieve specific objectives, the safety threshold and the acceptable extent To develop professional programs and mechanisms for control of credit risk prevention and control, and to take over 21 and responsibility for each member, to select technical and preventive measures for credit prevention andrisk prevention and risk handling

by credit risks to minimize the damage, which means maximizing profits and maximizing the value of the shareholders

2 2 credit risk management efficiency

2 2 1 concept

Governance is the level of attainment in the process of executing and implementing the proposed governance strategies and strategies, strategies and models The regular managers evaluate the management of the

administration to find out that such efficiency is considered by the process of managing the governance process, which is hampered by the ; of tools, governance methods, or should be modified, sung;…

Credit risk management is the level of attainment in the process of executing and implementing the policies, strategies and models of credit risk Credit risk management is only effective if the risk management mechanism is built

on experimental science

2 2 2 means the effectiveness of credit risk management

For commercial banks: improving credit risk management efficiency contributed to and increasing the potential for debt recovery, and other cost - free banking services, the cost of providing credit, and other financial costs, and other cost - of - the - market damage, the cost - of - lending, and other financial costs, is likely to increase the availability of credit as well as ;, the cost - of - lending, and other - cost - of - lending - related banking costs, is n' tlikely to be leveraged,' said the commercial bank for commercial banks;For the economy: improving credit risk management efficiency helps the banking system operate safely and effectively improve the capacity of the financial system from the negative impact of the world financial

market Helping businesses to access capital more easily, develop production,service production, create more wealth for society Since then creating jobs, reducing unemployment, raising social welfare

2 2 3 factors affecting credit risk management efficiency

There are many reasons why this has the following elements:

- Legal system: legal risk is a very difficult risk to control, the constant change of legal documents in a short period of time that banks don' t get phó; or overlap, not consistent with legal documents

- The development of the financial market: the development of the financial market, especially the capital market, also greatly affects credit risk management

- Human resources: this is a very important factor and decide other factors in credit risk management The human resources that especially

the board of management and the management board have high education and expertise will provide modern and pro - bank strategies, strategies and objectives, tien advanced and consistent with the world' sdevelopment trend, the staff of the paper.

- Technology: technology is not equally important in improving credit risk management, it' s a useful support tool in credit risk

management A bank with weak, outdated technology will have a huge impact on all activities

- Credit policy: credit policy on loan categories, interest rates, property valuation, … if not scientifically constructed, suitable to the practice that will affect credit risk management

- Credit risk management method: credit risk management methods include the method, tools, and credit risk management models that managers use to identify, analyze, measure and assess credit risk risks

- Database systems and customer information: data management programs and customer information supply are also critical and fundamental in credit risk management activities

- Other factors: the mạnh; competitive environment is the policy of paying wages according to the scale, profit, banking, banking, …, …,

…, and the first of the world' s first assets, which are not particularly important to the extent to which the person focuses

2 2 4 of the credit risk models

* Moody' s ratings model and standard & poor' s risk in lending and investment are often represented by ratings and loans This rating is made by some private ranking services including moody s and standard & poor s are ‟ ‟the best services For moody s top ratings from aaa, but with standard & ‟poor s, it' s aaa.‟ The rating gradually fell from aa (moody s) and aa (standard‟

& poor s) later to reflect the risk of non - refundable risks.‟ In which the securities (loan) in 4 types of first - four types, the bank should invest (), loans and securities) below the lower ranking, the bank does not invest (lending) But in fact, to consider the relationship relationship between risk and profit, the securities (loan) are ranked low (the risk of high - risk loans), but there is a high yield that banks sometimes accept investments in the securities

* The z - point model (z score – credit model) is finding a tool to detect a warning sign that the customer' s bankruptcy break is always a top concern

for risk researchers Many tools have been developed, in which z is

recognized and widely used The number z was invented by professor edward

i altman, the leonard n stern business school, of new york university, based

on a fairly elaborate study on many different companies in the u s and developed independently by professor richard taffler and other

researchers So far, most countries still use because it has quite high

reliability

2 3 basel treaties on credit risk management

2 3 1 summary of the basel accords

The basel committee on banking supervision (basel committee on banking supervision –) was established in the year 1974 by a group of central and central banks of 10 developed countries (b, canada, france, germany, italy, japan, the netherlands, in 1987, in 1987, in 1987 to find a way to stop the mass collapse of banks in the 1980' s, switzerland, in 1987, in 1987, in 1987,

in 1987 to find ways to stop the mass collapse of banks, in 1987, in 1987, in

1987, in 1987 to find ways to prevent mass collapse After a period of operation, the committee has studied and provides the agreements on capital safety as follows:

In 1988: issue the basel i treaty, amended in 1996

In 1999: 25 basic banking supervision guidelines

In 2004, the basel ii treaty came into effect from december 2006

In 2010: issue the basel iii treaty, effective january 2013

* the basel i treaty: according basel i, banks need to determine the minimum capital adequacy ratio (capital adequacy ratio – car) to offset the risk

*hiệp ii: in order to overcome basel i' s limitations, encouraging the bank to implement advanced risk management methods, basel ii consists of

monitoring standards to improve risk management techniques and be structured in three pillars:

+First pillar: requirements for minimum capital requirements

+Second pillar: provide instructions relating to bank supervision

+The third pillar: ask transparent banks to information related to capital, risk

to encourage market principles

-Similarly, basel i, basel ii still regulates the proportion of car ≥ 8%.

* the basel iii treaty: to the explosion of the world financial crisis, september

12, 2010, the basel iii treaty with stricter regulations for the banks of 27 countries has been issued with a roadmap from 1 / 2013 and completed in 2019

2 3 2 principles of the basel risk administration

These principles focus on the following basic contents:

-To build appropriate credit environment (3 principles): committee): request the board of directors to conduct periodical approval of policies, consider credit risks and build a strategy throughout the bank' s operation (bad debt rate, level of risk acceptance),…)

-A healthy credit granting (4 principles of bank): must clearly define the healthy credit criteria (the target market, customer object, terms and

conditions for granting credit for credit,…).The bank needs to build credit limits for each type of customer and customer group to create different types

of credit risk, but can be compared and monitored on the internal credit ratingfor customers in various sectors, trades The bank must have a clear process

of credit approval, 39 - use credit modifications with participation of marketing, credit division and credit division, and clear responsibilities of participants At the same time, it is necessary to develop experienced credit management staff, knowledge to provide cautious evaluations in the assessment, approval and credit risk management The granting of credit needs to be conducted on a fair transaction between the parties, especially having a reasonable and reasonable consideration and evaluation for the credits to customers with relations

-To maintain a process of managing, measuring and monitoring the credit (10principles of bank): need to have an updated system for credit portfolios, including the credit profile updates, the collection of current financial information, the draft document, such as the loan contract, according to the scope and the complexity of the bank

Chapter 3: Research design and methods

3.1 Methods of data collection

Information and data used in the study are mainly sources of information and data secondary Information is collected from a number of financial reports and annual reports related to the topic, thereby clarifying the theoretical basis and issues related to capital mobilization activities of commercial banks Vietnam

3.2 Methods of data processing

- Processing method: The topic uses the collected information in combinationwith the method of comparison and contrast, synthesizing information between data sources together from which to select and remove invalid data .Build the necessary statistical tables from which to make judgments about theeffectiveness of credit risk management

- Tools used to process information and data: Excel software

Through statistics on bad debt balance as well as bad debt ratio, we see that

up to 14 banks have increased bad debt balance In which, there are 8 banks with high bad debt balance (~25%-41%) With the bad debt ratio, in general, the above banks did not increase too high, but the above figure is still significant given the credit business of banks, especially VPBank, Vietbank and Techcombank Out of the total bad debt ratio, the above banks only increased by 0.02% In general, banks have implemented bad debt control, however, there are some banks that do not control the bad debt ratio well Thereby, we can see that the ability to manage credit risks has not been highly effective, there are still many problems and inadequacies If the above situation is not improved, it will lead to many bad consequences for the commercial banking system in Vietnam

Table 1.2 ROE Ratio at Vietnamese commercial banks

From 2015-2020, the ROA ratio has not changed over the years, along with the ROE ratio has grown steadily over the years, especially in the period 2018-2020 The above figure shows us the ability to use capital from shareholders or to harmonize shareholder capital with borrowed capital to exploit competitive advantages in the process of raising capital and

the customers and perform better credit rating From there, the effectiveness

of credit risk management will be enhanced

Table 1.4 Number of credit information reports provided by CIC to credit institutions 2016-2020

The number of credit information reports provided by CIC to credit

institutions increased sharply in the period 2016-2020 According to Table 1.3, the increase in customer profile means that CIC will have more credit information to provide to credit institutions This is convenient for

commercial banks in retrieving customer information, lending credit ratings, and strictly controlling bad debts The above figures also show that CIC is growing and improving, playing an important role in controlling bad debts and increasing the effectiveness of credit risk management

Table 1.5 credit risk provisions of some banks

The risk provisions of banks are mainly big banks with high provisioning amounts such as BIDV, Viettinbank, Vietcombank, VPbank In the remaining banks, the provisioning is not high That shows that banks in Vietnam have done a good job of controlling loans and assessing customers' loan records