BANKING ACADEMY ADVANCED PROGRAM ------- - GRADUATION THESIS IMPROVING CREDIT RISK MANAGEMENT AT HO CHI MINH CITY DEVELOPMENT COMMERCIAL BANK HDBANK STUDENT NAME: TRAN DONG THAI H
Problem Discussion
Under the pressure of the process of integration and development, the establishment and operation of banks play the role of the lifeblood of the economy Commercial banks serve as intermediaries to bring money and currency into circulation in the economy, assisting society's development through activities such as capital mobilization, credit granting, international payment, foreign currency exchange, and other services
Credit operations account for the majority of credit activities in commercial banks, and they play a critical role in deciding the bank's income stream because they generate primarily revenues for the bank However, because of the numerous potential risks of failure and debt recovery for banks, credit risk management practices must be well- executed and tightly regulated in order to mitigate and avoid losses, boost credibility, and generate competitive advantages, allowing banks to expand sustainably
Over the years of its establishment and growth, HDBank has demonstrated its economic potential as well as its successful credit activity, making a significant contribution to the country's economic development However, due to the uncertainty of the socioeconomic situation as well as the raging epidemic, HDBank is having a lot of trouble managing credit risks, possible risks of bad debts, and overdue debts, which are directly affecting the bank's growth and credibility As a result, the author chooses the thesis research topic "IMPROVING CREDIT RISK MANAGEMENT AT HO
CHI MINH CITY DEVELOPMENT COMMERCIAL BANK (HDBANK)" with the aim of connecting credit risk management theories to the actual activity of the bank and proposing solutions to improve management here.
Research purpose
The aim of this research is to systematize and explain the basic theoretical issues surrounding credit risk management in commercial banks The study starts with a theoretical foundation and delves into clarifying the market situation as well as the bank's credit risk management practices, identifying the real triggers and proposing ways to enhance and improve credit risk management HDBank's credit management is extremely effective.
Object and scope of research
Research subject: Credit risk management activity in HDBank
- About space: at Ho Chi Minh City Commercial and Development Bank (HDBank)
Orientation of activities and propose solutions to improve credit efficiency in the next
Research Methodology
The research was conducted using a qualitative approach, with the following key components:
- Collect and synthesize actual data on HDBank's market operations and credit management based on financial reports for the years 2018, 2019, and 2020
- Gather knowledge and feedback from bank credit officers and risk management officers about the difficulties and drawbacks of HDBank's credit management mechanism
- The author analyzes and evaluates credit management practices at HDBank using statistical and comparative approaches based on statistical data and information gathered from within the bank
- Provide HDBank with solutions and guidelines for improving credit risk management.
Structure of the thesis
In addition to the introduction, conclusion and categories, the research paper is divided into three basic parts as follows:
Chapter 1: Credit in Commercial Bank
Chapter 2: Situation of credit risk management of Ho Chi Minh City Development Commercial Bank (HDBank)
Chapter 3: Solutions to complete credit risk management at Ho Chi Minh City Development Commercial Bank (HDBank).
Literature review
Credit activities act as the backbone and primary source of banks’ revenue Credit comes with a lot of risks because it is a source of profit Risks in credit practices are unavoidable in practice, so the subject of credit risk management is often a hot topic that attracts a lot of interest and study, not just from students, but also from economists Several notable research projects on this subject have been completed in recent years:
The PhD thesis in economics of Banking Academy's Le Thi Huyen Dieu (2010) focuses on theories of credit risk management from the viewpoint of transaction risk in a scientific argument on "Determining credit risk management model in Vietnam's commercial banking system" At this time, the author's thesis provides highly realistic economic advice, but there are still some drawbacks since the study has only been conducted on one aspect, which has not yet been thoroughly examined Other sources of risk are accumulating Many legal documents have been supplemented and modified to accommodate the business economy, so the thesis' material no longer corresponds to the structure and operational activities of banks
In his paper "Improving the effectiveness of credit risk management at Nam Viet Commercial Joint Stock Bank (NAVIBANK)", Nguyen Hong Luan (2010) stated that credit activities must adhere to basic principles in order to ensure safety and reduce credit risk There is no way to absolutely eradicate credit risk The Bank can only take steps to strengthen its ability to prevent and handle credit risks in order to better monitor credit risks and avoid large losses
Nguyen Thi Ngoc Diep (2018), Master's thesis in Banking and Finance, "Credit Risk
Management at National Commercial Joint Stock Bank," has taken lessons from international corporate governance principles credit risk assessment and analysis of the experience of a variety of domestic and international banks, with NCB as a guide
In the study orientation program for the Master's thesis in Banking and Finance, Ha Thuy Duong (2017) chose the subject "Credit Risk Management at Tien Phong Commercial Joint Stock Bank," which highlighted the causes of credit risk Credit risk exists at this bank for the following reasons: the credit mechanism is arbitrary, post- lending regulation is ineffective, and credit risk assessment is inaccurate The author suggests that TPBank improve the quality of knowledge and credit apparatus, enhance post-lending monitoring, and provide successful risk analysis and forecasting processes as a result of this
The master thesis of non-traditional security management, "Credit risk management at
Vietnam Joint Stock Commercial Bank for Industry and Trade - Hoang Mai branch," by Mai Bac My (2020), divides risks into three major categories: credit risk, market risk, and operational risk The thesis has deepened and recognized the causes and assessed the current status of Viettinbank Hoang Mai's operations by using a variety of research methods that closely match the functional basis, thus providing solutions to help Improve the bank's credit risk management standard
“Credit risk management at BIDV - Thang Long Branch” has come up with solutions to complete the credit risk management process, which stems from limitations and causes backlog in banking business,” says Trieu Nguyet Minh (2020) Specifically, the solution to complete the customer information system using an information technology platform to synchronize and store customer information through "digitization," assisting in the unification and speeding up of information access The thesis also suggests that the BIDV Thang Long branch's internal credit rating system and credit management organization model be improved
Jeitshko and Jeung (2005), “Incentives for risk-taking in banking: A unified approach”, Journal of Banking and Finance, discovered a number of factors that explain why portfolio-management models have different consequences for the responsiveness of bank portfolio risk to capital regulation The results are dependent on whether banks are value-maximizing or utility-maximizing companies, bank ownership (if limited liability), and whether banks operate in full or partial asset markets Furthermore, the effects of capital regulation on portfolio decisions, and thus on the banking system's safety and soundness, are ultimately determined by which perspective prevails in principal-agent interactions among insurers, shareholders, and managers
Hosna, Manzura and Juanjuan (2009) in “Credit Risk Management and Profitability in
Commercial Banks in Sweden” obtained from the results of the regression model shows that the results of the regression model indicated that credit risk management has a fair impact on profitability, with NPLR and CAR having a 25,1% chance of predicting the variance in ROE As a result, the credit risk management approach determines the degree of profitability to a large extent The NPL number, in particular, appears to be adding the most weight to that, as opposed to CAR However, Handelsbanken’s implied that NPLR and CAR are either ineffective or unable to predict the variance in ROE This means that other predictors or variables impact ROE more consistently than NPLR and CAR in this bank's profitability
Samy and Magda (2009), “The impact of capital requirements on banks' cost of intermediation and performance: The case of Egypt”, investigate the effect of capital regulations on bank performance and find that a collection of independent variables can estimate 45.6% of variances in ROE They used 15 independent variables, their research indicates that a higher capital requirement boosts bank profitability By using more independent variables in our regression model, they might have increased the predicting capacity (R2) of ROE by independent variables
Sharma Poudel R (2012) in “The impact of credit risk management on financial performance of commercial banks in Nepal” pointed out that Credit risk management is critical to bank profitability because it has a direct relationship with it and accounts for up to 22.6% of the bank's overall performance Default rate management is the single most important predictor of bank performance among risk management metrics, while cost per loan asset is not a significant predictor of bank performance To reduce loan risk and maximize profitability, banks must devote more resources to default rate management and strive to maintain just the right degree of capital adequacy
Abiola I and Samuel Olausi A (2014), “The impact of Credit risk management on the
Commercial Banks performance in Nigeria” According to the research, commercial banks with a higher capital adequacy ratio will advance more loans and absorb credit losses more effectively, resulting in higher profitability The regulator should focus more on banks' adherence to applicable provisions of the Bank and Other Financial Institutions Act 1991 and prudential guidelines; Commercial banks are thus recommended to develop sound and knowledgeable credit risk management units that follow risk management best practices such as establishing a consistent loan policy and adhering to underwriting authority and limits
Ali Sulieman Alshatti (2015) illustrate in the article “The effect of credit risk management on financial performance of the Jordanian commercial banks” that The non-performing loans/gross loans ratio is used to assess a bank's credit risk management efficacy and suitability The empirical findings indicate that non- performing loans have an effect on bank profitability The report makes the following recommendations based on the results of the empirical review to improve credit risk management and play a more effective role in achieving profitability: consider indicators such as non-performing loans/gross loans, provision for facility losses/net facilities, and leverage ratio; design an effective credit risk management system by conducting sound credit evaluation before granting loans to borrowers; develop proper credit risk management strategies by conducting sound credit evaluation before granting loans to borrowers
In previous studies, the authors analyzed the role and provided orientations for the banking system Some solutions have been and are being necessity of credit risk management in business activities, and applied in bank operations, however the majority of the studies described are relatively old and no longer in use The following are some new points in the thesis' content:
- Clarifying the general theoretical issues of credit process management and risk management in banking credit activities
- Draw out achievements, limitations and sources leading to risks in credit activities at HDBank
- Based on the aforementioned restrictions, the author provides strategies to improve credit risk management in banks, hence guiding future business development for banks The answers are based on the restrictions of HDBank in particular, as well as lessons learned from other banks in general The solution to create a system of early warning indications for credit concerns in banks, in particular
The results of the study can be considered and applied in business operations and practical credit risk management of HDBank.
CREDIT IN COMMERCIAL BANK
Bank credit and the role of bank credit in the market economy
1.1.1 The concept of bank credit
Credit is a category in the economy and is a product of the commodity economy Over time, credit exists in many different forms, so in fact, there are many definitions and views about credit, but to understand in the most general way, credit represents the relationship of credit exchange between borrowers and lenders This economic relationship arises when two parties have a contractual agreement with each other that an individual or organization transfers a quantity of value in money or in kind to another individual or organization with certain conditions Compulsory conditions on interest rate, repayment period of principal and interest, form of loan, etc
According to Clause 14, Article 4 of the Law on Credit Institutions, passed by the National Assembly of the Socialist Republic of Vietnam, term VII, 47/2010/QH12, explains: “Credit is an agreement to organize, an individual who uses a sum of money or commits to allow the use of a sum of money on the principle of being repaid by lending, discounting, finance leasing, factoring, bank guarantee and granting services other credit.”
In banking activities, bank credit can be understood as a loan-repayment relationship arising from the needs of the borrower, the bank uses its capital to carry out the credit granting process to individuals or economic organizations with certain conditions agree on the interest rate as well as the repayment period of principal and interest between two parties
Credit activities in banks have five characteristics:
- Compulsory credit activities based on the principle of repayment and principle of time
- The repayment value is always greater than the loan value
- Credit activities are extremely sensitive to economic, political, and social situations
- Under the strict supervision of the Law
- Credit activities are always risky
Loan purpose is one of the indispensable conditions in implementing the credit granting process to customers The bank needs to consider what the person or business intends to use the loan for, the feasible conditions, and the ability to generate a profit using the loan Basically, this base is divided into the following categories:
- Real estate lending: this is a type of loan related to the purchase, construction, and investment of real estates such as houses, land, real estate lending in economic fields such as industry, services, and commercials
- Industrial and commercial loans: These are short or medium-term loans to supplement working capital for businesses to carry out commercial transactions in services or purchase and sell equipment for the production process industry
- Agricultural loan: is a type of loan to support farmers to temporarily pay expenses for the production process such as pesticides, fertilizers, animal feed, varieties of seeds crops, fuel, etc
- Personal loan: this is a type of loan to meet the needs of daily life purchases such as car loans, home loans, home repairs, etc
- Lending to financial institutions: including providing credit to banks, financial institutions, credit funds, insurance companies, and several other financial institutions
- Leasing to financial institutions: includes operating leasing and financial leasing Assets used for lease include real estate (such as houses, land, ) and movable property (such as machinery and equipment serving the production and business process, )
1.1.2.2 In terms of a time limit
A term loan is a type of loan that is decided based on the borrower's time and ability to pay Includes three types:
- Short-term loans: are loans with a maximum loan term of 12 months
- Mid-term loans: loans with a term from 12 months to 60 months according to current regulations of the State Bank of Vietnam
- Long-term loans: are loans with a loan term of more than 5 years These loans can lend up to 20-30 years depending on the nature of each project and investment license
Medium and long-term credit are loans mainly used to buy and sell fixed assets, expand production and business scale, improve or renew tools and equipment for production and house construction, works, or projects of small and medium scale ensure a fast payback period
Previously, short-term credit was the traditional business of commercial banks Over time, banks have innovated and expanded their general business, one of the new goals of commercial banks is to increase the proportion of medium and long-term loans, bringing high economic profits to the bank
Unsecured loans: are loans without collateral, also known as unsecured loans The granting of credit is mainly based on the creditworthiness of the customer and the creditworthiness of the bank In addition, it is also based on the financial capacity, the customer's ability to pay, the ability to generate effective and feasible profits of the investment plan
– Secured loans: are loans based on customer's secured assets or secured by collateral, mortgaged loans with third-party assets, or loans with assets formed from loans Collateral can be real estate, equipment, machinery in production, automobile registration, economic contracts, receipts - debt collection rights from economic organizations,
In the 1990s, banks were only allowed to lend with collateral, except for state-owned enterprises that operated effectively and loaned to farmers with incomes below 5 million dong
Since 1999, the Government has issued Decree No 178/1999/ND-CP on loan guarantees for credit institutions In this decree, unsecured lending is expanded more than before, but for banks or financial institutions to accept unsecured loans, customers must fully meet the following criteria:
- Having credibility with the lending institution in using the loan capital and fully repaying the loan on time, both principal and interest
- The plan for investment and expansion of production and business is highly feasible, the project conducted must conform to the provisions of law
- Have sufficient financial capacity to fulfill debt repayment obligations
- There is a commitment to implement security measures with fixed assets if the borrower uses the loan capital, not by the credit contract
1.1.2.4 In terms of refund method
According to this form, the lending by commercial banks is divided into two types:
- Term loans: loans with multiple repayment terms, also known as installment loans, are types of credit in which the two parties agree on a period of interest payment in the contract real estate loans, loans to purchase machinery and equipment, commercial services
– Indefinite loan: A loan with many repayments but no debt term, specifically, the repayment depends on the financial ability of the borrower or the loan is applied under overdraft The bank may allow the borrower to repay the loan at any time, but the repayment must be notified within a reasonable period agreed in the credit contract
Direct lending: This is a form of lending in which the bank provides capital directly to the borrower, and the borrower is the person who directly repays the principal and interest to the bank
- Indirect lending: is the acquisition of contracts or debt documents that have arisen and are still within the payment term
1.1.3 The role of bank credit in the market economy
1.1.3.1 Credit satisfies capital requirements and encourages capital focus on productive activities
Credit risk in banking activities
1.2.1 Concept of risk and risk in credit activities
Credit risk is an unexpected event that occurs in credit activities that causes a loss in the bank's assets, reduces profits compared to the expected amount, or incurs an additional cost to be able to recover get the job done
According to the Basel Committee: “Credit risk is the possibility that the borrower or counterparty will not be able to fulfill its obligations under the agreed terms.” A bank's risk of loss under Basel is "contract default by the obligor", which is defined as any serious breach of a contractual obligation upon principal repayment and profit
According to Fitch T (1997): “Credit risk is a type of risk that occurs when a borrower fails to pay a debt according to a contractual agreement, leading to a delay in the repayment obligation.” Along with interest rate risk, credit risk is one of the main risks in banks' lending activities
Bessis J (2015) clarified the concept of credit risk in Risk Management in Banking:
“Credit risk is the most important risk in banking It is the risk that the counterparty will default on its repayment obligation According to the regulations, credit risk is divided into several components: default risk, reputational loss risk; risk exposure, i.e uncertainty about the future value of money that is likely to lose at the time of default is unknown; default losses are usually less than the amount payable by third-party guaranteed or mortgaged recovery; Counterparty risk is a specific form of credit risk derived from derivatives, which can be converted from one counterparty to another." [p 50, pp.42-43]
Saunder, A and Lange, H (1995) give their view that: “Credit risk is the potential loss when a bank grants credit to a customer, that is the ability to stream expected income brought from the bank loan could not be fully realized in both quantity and time.” [p
According to Greuning H and Bratanovic S (2003): Credit risk is defined as "the risk that the borrower will not be able to pay interest or repay the principal compared to the time limit specified in the credit agreement.” This is an inherent attribute of banking operations Credit risk means that payments are delayed, or worse, not paid in full This causes problems with cash flow and affects the liquidity of the bank
In business operations, credit is the main business activity that brings profits to the bank, but it also contains many great risks Previous statistics illustrated that credit is an activity that accounts for nearly 70% of the risk in banks Credit risk became one of the main causes of serious loss and affected the quality of business as well as revenue of the bank Therefore, commercial banks need to have preventive measures and credit risks in their business to overcome and limit the losses it causes
1.2.2.1 Based on the cause of credit risk
Transaction risk: The cause of transaction risk comes from limitations in the transaction process and the process of evaluating customers for loan approval Transaction risk consists of three parts:
- Selection risk: this is a form of risk related to the credit evaluation and analysis process when choosing a loan option to decide on credit granting
- Security risk is a form of risk that arises from security standards such as terms in loan contracts, types of special assets, methods of guaranteeing, and lending levels based on the value of collateral, etc
- Business risks arising from loan management and lending activities, use of risk management systems, and handling of problem loans
Portfolio risk: is the risk arising from shortcomings in the management of the bank's loan portfolio, including:
- Intrinsic risk: Derived from the factors and characteristics of each borrower
It comes from operational characteristics namely: the business field, the purpose of using the borrower's capital,
- Concentration risk: When the bank concentrates too much loan capital for a few customers; lending capital to a large number of enterprises operating in the same industry, economic sector, or in the same geographical location, the same type of high-risk loan
Operational risk: is the risk of loss coming from the bank's staff in the process of handling and the internal system is not good or due to external events affecting banking operations
1.2.2.2 Depending on the customer's debt repayment ability
Risk of not repaying the loan on time: When establishing a credit relationship, the bank and the customer must agree on the loan repayment period The risk of not repaying the loan on time occurs when the customer does not pay in full and the bank has not yet recovered the loan
Risk of insolvency: In case the borrowing enterprise is insolvent, the bank must liquidate the collateral assets of the enterprise to recover the debt
Risks not limited to lending activities: This is the risk that comes from other activities of the bank's credit nature such as guarantees, trade finance, commitments, interbank market lending, credit hire purchase, co-finance
Credit risk has the following basic characteristics:
Indirect: Risk in the business activities of customers is one of the main causes of credit risk in banks When the bank transfers the right to use capital, credit risk occurs when customers experience losses and failures in the process of using capital, thus not being able to repay the bank's debt
Diverse and complex nature: Due to the characteristics that banks are financial intermediaries dealing in currency, this is diverse and complex, so when preventing and dealing with credit risks, attention must be paid to all signs of risk, stemming from the causes and consequences of credit risk to take appropriate preventive measures
The inevitability of credit operations in commercial banks: The banking business is essentially a business of risk at an appropriate level and corresponding profit The situation of asymmetric information has made it difficult for banks to capture risk signals comprehensively, which makes loans potentially risky for banks
1.2.4 Basis for determining the level of credit risk
Some issues about credit risk management in commercial banks
1.3.1 Signs of ineffective credit and credit policies
Table 1.1: Signs of ineffective credit and credit policies
Signs of a Poor Credit Score Signs of a bank's ineffective credit program
Payments on the loan are not being made on time Inaccurate assessment of client risk
The loan term is subject to change on a regular basis
Lack of sensitivity to the changing economic environment
Collateral with no qualifications Incomplete credit record
Interest rates that are unusually high
(trying to offset high risk)
The repayment plan for each loan is not clearly defined
Accounts receivable or consumer inventory that has accumulated in an unexpected way
Provide large credit to customers outside of the bank's market area
The debt-to-equity leverage ratio rises
Loans by customers who promise to maintain a large deposit
(particularly the bank's financial statements)
Granting large credits to internal members of the bank (employees, directors, or shareholders)
Requesting a loan extension is futile
(the principal before each renewal does not decrease much compared to the previous one)
Tends to be overly competitive (granting credits to customers so they won't go to another bank even though the loan will be in trouble)
Awaiting the revaluation of commodity properties to raise equity
Lack of sensitivity to the changing economic environment
There are no cash flow statements or forecasts available
Customers who depend on uncommon sources of funding to fulfill their payment obligations
1.3.2 Credit risk management policies in commercial banks
1.3.3 Process of credit risk management and handling in commercial banks
Credit risk management and handling are one of the most important jobs for every bank To facilitate risk prevention and handling, banks need to have strategies and implement them according to specific processes, including the following steps:
Step 1: Determine the risk of the contract
The first thing that banks need to do is assess the risk of each disbursement including assessing the financial situation of the customer, analyzing the industry characteristics of the borrower, analyzing the competitiveness and product consumption compared to competitors in the market, analysis of systemic risks, risks of the economic situation, In addition, bank staff also need to consider and evaluate the leadership capacity who leads and coordinates the business activities of the enterprise
After assessing the risk, the bank needs to use analytical tools, analytical reporting indicators to calculate and measure the potential risks shown through the numbers in the financial statements, cash flow statements money transfer, balance sheet, etc
Enterprise management and supervision is a very important job to check whether the lending enterprise is using the loan appropriately, its production and business activities are efficient and profitable If there are signs that the enterprise has used the capital for the wrong purpose, it is necessary to stop the disbursement and request the enterprise
Step 4: Provide a method to deal with risks and losses
No disbursement for contracts that do not comply with financial conditions
Do not accept high-risk contracts (Unsecured collateral, unclear investment field )
Credit risk causes difficulties for banks, so it is necessary to have a reasonable process of handling and preventing credit risks to limit as well as overcome the losses caused.
The necessity of credit risk management in commercial banks
Credit risk is one of the problems that all commercial banks face Especially with high-value corporate loans if losses occur and unrecoverable loans can cause great damage to the bank's capital Preventing and limiting credit risk will help the bank reduce costs, improve profits, and preserve capital; in addition, it also creates trust for customers and investors; is the premise to expand the market and increase the brand position as well as market share for the bank
Besides, well-implementing activities also to prevent and limit credit risk will bring benefits to the whole economy In the market economy of the 21st century, financial institutions have a close relationship with each other, if a commercial bank has problems, it will immediately affect other banks Therefore, credit risk management brings safety and stability to the market.
CONCLUSION
Credit risk in a bank is an objective and unavoidable necessity Therefore, banks can only control, minimize and limit credit risk to an acceptable level The theoretical basis in Chapter 1 has outlined the basic issues of credit risk as well as mentioned models and measures to ensure credit risk reduction, as the basis for the next chapters.
SITUATION OF CREDIT RISK MANAGEMENT OF HO CHI MINH
Overview of HDBank
2.1.1 History of formation and development
HDBank was established on February 11, 1989 with the initial name of Ho Chi Minh City Housing Development Commercial Joint Stock Bank, then renamed "Ho Chi Minh City Development Commercial Joint Stock Bank" Over 30 years of operation, the bank has demonstrated its ability to develop sustainably, outstanding asset quality, and market capitalization among the leading banks in the banking and securities markets With a development plan focused on retail and SME markets and an outstandingly fast growth rate, HDBank is currently at the top of the leading banks in banking field
According to the 2020 Annual Report, HDBank has total consolidated assets of VND 319,127 billion, an increase of 39.1% over the same period in 2018 Equity recorded a figure of VND 24,704 billion Profit before tax reached 5,818 billion, up 15.9% over the previous year and the highest level ever; Return on average assets (ROAA) and return on average equity (ROAE) reached 1.69% and 20.61%, respectively; The individual bad debt ratio is tightly controlled at less than 0.98%, etc With these figures, HDBank is in the group with the lowest bad debt ratio in the whole industry
HDBank is dynamic with the main function as a retail bank HDBank aspires to be the industry leader, with a privileged network that includes airlines, retailers, telecommunications, and M&A capabilities choose to address and represent clients in a range of sectors, such as insurance, investment, retail, consumer, and aviation, with goods and services customized to each target market, each value chain, and addressing user expectations based on geographic location, business characteristics, and income level Thereby, HDBank becomes a finance broker, assisting companies and individuals in mobilizing unused resources and providing credit to locations in need of cash, as well as performing payment functions between individuals and firms This helps to reduce the costs incurred and promotes the circulation between economic sectors and brings more convenience to customers
Mobilizing short, medium, and long-term capital from companies and individuals in Vietnamese dong and foreign currencies, publishing useful documents, borrowing capital from the State Bank and other credit agencies, and collecting investment and growth confidence capital from domestic and international organizations, all in accordance with State Bank and HDBank regulations, other forms of capital mobilation according to HDBank’s regulations
Credit: Loans to finance import and export, joint venture, association, cooperation, co- financing, short, medium, and long-term loans to organizations and individuals depending on the nature and capacity of capital sources Other forms of credit extension according to regulations of the State Bank and HDBank
Discount commercial paper, bonds, and other valuable papers provide payment and treasury services Making payment services between banks, performing collection and payment services, collecting, and distributing cash to customers, performing other payment services according to regulations of the State Bank
Business other banking services: Foreign currency trading and money market services, capital markets, conducting gold and silver trading and international payment, guarantee activities Providing financial and credit advice to customers, acting as a correspondent bank, a bank serving the Government's capital, economic and financial institutions, mass organizations, and individuals by the law
Socio-economic tasks: HDBank is "greening" the quality of its operations with a methodical investment in research and application of technology into products and services; Go ahead, embrace 4.0 technology in the field of finance banking HDBank also always aims for sustainable development, connecting with the community to bring the highest benefits to customers, shareholders, partners, and employees
2.1.3 The organizational structure of HDBank's management apparatus:
Table 2.1: Organizational structure of HDBank's management
2.1.3.2 Functions and duties of the departments:
Customer Relations Department: has the responsibility of building, leveraging, and maintaining robust customer relationships in order to deliver both goods and services to consumers
Department of Financial Institutions Relations and Currency Business: Establishing, leveraging, and maintaining extensive relationships with domestic and foreign financial, banking, and non-banking institutions is part of the job description
- Being in charge of assessing and appraising loan and investment plans in order to sustain the bank's credit and investment activities
- Determine the feasibility of investment projects and business plans by analyzing, evaluating, and assessing them
Credit and Investment Analysis Department:
- Having the responsibility of evaluating and appraising loan and investment programs in support of the bank's credit and investment activities
- Analyze, appraise, and assess investment programs and business strategies for profitability
Finance - Accounting Department: has the responsibility for the bank's financial reporting and accounting
- Overseeing risk management in the banking industry
- Create processes, policies, and procedures; establish framework thresholds, limits, norms, and prices, among other things, to manage risks and ensure the safety of customers' banking transactions
- Identify, assess, measure, and evaluate risks; ensure risk management by monitoring compliance with limits and limits
Internal Control Department: has the responsibility of conducting internal control, which includes controlling and inspecting the bank's activities
Personal customer service Department: is responsible for dealing with banking transactions that arise during the provision of banking services to groups of customers
The organizational customer service department's job is to handle banking transactions that arise as a result of delivering banking services to two types of customers: companies and financial institutions.2.1.4 Main credit products and services:
2.1.4.1 Credit products for individual and household customers:
In recent years, HDBank has succeeded in developing products with attractive incentive packages for customers, specifically as follows:
Loans to support medium and long-term family economic development
Loan to supplement working capital
- Borrowing with collateral is a savings card
- Loan for construction, home repair
- Borrow to purchase machinery and equipment, invest in factories
2.1.4.2 Credit products for corporate customers:
- Financing for business customers to build and install rooftop solar power projects
- Chain financing of Petrolimex and PVOIL
- Sponsoring businesses to supply Pharmaceuticals and medical supplies to Hospitals/ Departments of Health
- Sponsor motorcycle dealers related to HDSaison
- Providing credit for standard products for SMEs
Medium and long-term funding
- Incentives to buy cars for customers
- Guarantee for investors in the sale and lease-purchase of houses to be
2.1.5 Overview of HDBank's business situation
Banks, like other manufacturing businesses, have profit as their primary target Profit is the most important indicator of a bank's success To increase income, banks must effectively manage their assets, especially loans and investments, reduce costs, and concentrate on closely controlling spending, business fees, and other expenses HDBank has made excellent efforts in recent years to enhance the quality of its products and services while also expanding its market share, allowing the bank to improve its position and competitiveness with other banks in the banking field The bank's financial reports clearly reflect this:
Table 2.2: Income Statement of HDBank
Through the data table, HDBank demonstrates that the bank is quite efficient:
The total income of the bank has continuously increased in the last 3 years Specifically, the income in 2019 was 11,388,988 million VND, up 1,947,633 million VND (equivalent to 20.63%) from the previous year This index is expected to reach VND 12,779.435 million (up 21% compared to 2019)
Over the years, HDBank's gross expenditures were VND 4,441,456 million, VND 5,080.492 million, and VND 6,172,829 million The bank's operating costs have decreased by 21.5 percent in 2020, which is noteworthy The cause of this fluctuation is the Covid-19 outbreak, which causes interest rates on deposits and loans to fluctuate in the economy The Bank's income was impacted by adverse market conditions, outstanding debts, and a sharp rise in consumer bad debts
The bank managed to keep its activities running smoothly despite the challenging influenza situation and the volatile economic condition The estimated revenue for 2019 is 5,018,413 million dong, up more than 25% from 2008, with a profit after tax of 4,201,511 million dong The successful business results show that the Board of Directors, the Board of Management, and all employees gave it their all to overcome challenges and grow long and large
Valuation Ratio Valuation Ratio Valuation Ratio
Due to and borrowings from other credit institutions
Derivatives and other financial liabilities
Grants, entrusted funds and loans exposed to risks
II Other liabilities 4,595,362 2,13% 5,004,085 2,18% 6900216 2,16% 408.723 8,89% 1896131 37,89% III Owners’ equity 16,828,140 7,79% 20,381,116 8,88% 24704048 7,74% 3.552.976 21,11% 4322932 21,21%
Total liabilities and owners’ equity
In general, the bank's capital has steadily grown over time, with total capital of 216,057,406 million VND in 2018 and 229,477,262 million VND in 2019, representing a growth rate of 106 percent (increased by 6.21 ) relative to 2018 In 2020, gross capital rose noticeably by 1.4 times over the previous year, reaching 319,127,480 million dong This has validated the bank's efforts in capital mobilization, as well as its efforts to overcome the challenges and effects of the global economic crisis and the Covid-19 epidemic outbreak in Vietnam
The majority of the bank's mobilized capital is short-term capital, derived primarily from customer deposits (accounting for more than
Credit risk management at HDBank
Table 2.5: Credit granting process at HDBank
TIME DOCUMENTATION BUSINESS UNIT REEVALUATION VALUATION CPD HO
- Call Report/Biz in pipeline
- Credit application form / Request for change of conditions (if any)
- Receipt of credit application documents
- Report on property valuation results (according to the re-evaluation process of relevant departments)
- Credit application form for SMEs
- Application for appraisal of SMEs
- Re-appraisal report (if any)
6 2 hours - Notification of approval results
- Notice of granting credit to customers
- Documents according to regulations on business management and operation and current regulations of HDBank
Control/Approval Prepare a reassessment report
Receive notification of approval results Notice to customers Notification of approval results
Disbursement, debt collection, post-disbursement management
3 Start/end of record keeping process
4 Path to the next step/or back to the previous step
(1) Credit granting process at business units
(2) Credit granting process for documents that must be transferred to a credit center without actual re-appraisal
(3) Credit granting process for documents that must be transferred to a credit center assigned for actual re-evaluation
2.2.2 Current status of credit risk at HDBank
Table 2.6: Outstanding balance of HDBank
From the financial statements, HDBank's credit balance in 2019 was recorded at 146 trillion dong, 23 trillion dong higher than in 2018, equivalent to 18.84% Credit balance by economic sectors in 2019 increased by 23 trillion dong compared to the previous year, outstanding loans according to which more than half came from personal loans (11.7 trillion dong) and focused on growth in the short term (12.1 trillion dong) This is the success of credit growth, especially in VND growth, which was 22 trillion VND (19.53%), foreign currency outstanding loans still accounted for a small percentage, only 1.1 trillion VND
HDBank's total credit balance in 2020 is VND 178 trillion, an increase of nearly 32 trillion VND (21.87%) compared to 2019 2020 is a breakthrough year for HDBank in terms of outstanding loans according to economic organizations with a high level of outstanding loans The outstanding growth of 32.05%, equivalent to 23.7 trillion dong, the short-term growth rate of 24.7% (nearly 19.6 trillion dong), outstanding loans in VND reached more than 29 trillion dong, increased by 21.79% over the previous year
Table 8: Credit quality of HDBank
In 2018, the bad debt ratio reached 1.53% and tended to decrease markedly in 2019 when it was less than 1%, this is a remarkable number in the entire banking industry, however by 2020 the ratio saw a slight increase, which is caused by the outbreak of the Covid-19 epidemic at the end of 2019 and erratic movements, resulting in business activities of client businesses and banking businesses However, with this number, HDBank is still proving that the bank is doing well in credit risk management
Practical experience shows that the growth and expansion of credit often come with many potential risks that may occur in the future and consequences on the rate of overdue debt and bad debt in the following years, HDBank is not an exception to this mechanism In the period 2018-2020, HDBank's ratio of overdue debts and bad debts has always been maintained at a low level, below 2% of the total outstanding loans, meeting the standards of the State Bank (NPL ratio below 3%) according to Circular 19/2017/TT-NHNN and Circular 23/2020/TT-NHNN
2.2.3 Credit risk management process at HDBank
Table 9: Flowchart of credit risk management process
Lending unit leader Credit room leader Credit officer/debt handling officer Customers Head office’s Debt handling department Competent authorities directed by the General Manager not approved not approved submit
Construct project sign for approval
Coordinate implementation Monitor sign for approval
Overall assessment of credit risk management at HDBank
From the above data, business activities, as well as credit risk management, have made great progress Credit balance and a large number of customers have continuously increased in the past 3 years
Firstly, the ratio of bad debt and risk in the credit structure is always maintained at a low level (below 1.6%) Credit activities in banks are always the items that account for a high proportion and play a crucial role in determining the efficiency of the bank's business activities HDBank has always shown its strong development and stable economic potential, reflected in the way the bank strictly controls its business activities In terms of credit risk portfolio, group 1 debt always accounts for the highest proportion, HDBank's risky debt always focuses mainly on group 2 debt
Secondly, monitoring the use of loans is always done regularly and seriously, to prevent unfortunate events from happening The bank's supervision and monitoring process is always carried out closely by the Customer Service, Risk Management, and Credit Management departments to prevent risks to the credits that HDBank has provided to customers In addition, the bank always sets up risk provisions to prevent and protect the bank in the rare case of credit risks According to statistics from the consolidated financial statements of the fourth quarter of 2020, HDBank is in the top 9 in 10 banks with the largest risk provision expense in 2020 with a provision of 1,788 billion dong Being able to foresee bad debts and potential risks with loans due to unpredictable fluctuations of the Covid-19 epidemic, HDBank is still managing its business very well and well prepared for all possible risks happen
Thirdly, HDBank always timely updates and applies changes in regulations on measurement and credit risk management of the State Bank In the process of improving and developing the banking system, new legal documents, as well as new laws, are constantly being changed by the State Bank to suit the economy, HDBank has quickly absorbed and adjusted to suit the needs of the economy accordance with the regulations and applied to the bank's operations In addition, HDBank also built an internal credit rating system for the SME segment Corporate customers, which is a model that is considered to have great potential and keeps up with international practices
Fourthly, the appraisal work at transaction offices and branches of HDBank is always carried out transparently and thoroughly Identifying potential risks in credit activities is always an important step affecting the efficiency of credit activities and banking business, so to develop credit, banks need to follow the regulations submit strictly and strictly HDBank trains its staff not only with high expertise but also always reminding them of professional ethics, not because of sales pressure to making mistakes, shortening the appraisal process as well as granting credit Therefore, the bank always achieves a commendable minimum capital adequacy ratio in the whole banking industry
Fifthly, HDBank soon completed all three pillars of Basel II on the banking governance system according to international standards, according to Circular 41 and Circular 13 of the State Bank of Vietnam In October 2019, Ho Chi Minh City Development Joint Stock Commercial Bank (HDBank - stock code HDB) was granted a decision to apply Circular 41/2016/TT-NHNN by the Governor of the State Bank (SBV) regulated on capital adequacy ratio for banks and foreign bank branches (the standard method of Basel II) approved the application of pillar 1 (calculation of capital adequacy ratio - CAR) and pillar 3 (illustration of capital adequacy ratio) information transparency) In 2020, HDBank officially implemented the International Capital Adequacy Assessment Process (ICAAP) - pillar 2 of Basel II This event contributes to affirming the economic potential and development ability of the bank During the time the economic situation in the country and the world was affected by natural disasters and the Covid-19 epidemic, HDBank was still rated B1 by international credit rating agency Moody's and highly appreciated on capital capacity, risk control, and long-term development ability
2.3.2 The shortcomings in credit risk management at HDBank
Besides the remarkable achievements that the bank has achieved in recent years, it cannot be denied that HDBank itself still has certain limitations
Firstly, the implementation of credit risk assessment and measurement still faces many shortcomings The application of credit risk quantification methods such as using mathematical formulas, Z-score model to calculate the probability of occurrence of risks, debt recovery rate has not been applied by HDBank for assessment Banks and credit officers themselves have not paid attention to applying logical calculation methods or models at least for bussiness to the process of assessing customers' risks and potentials
Secondly, post-lending supervision is not effective For example: Negligence and irresponsibility of credit officers in loan checking Officers do not properly follow the process and check the reality according to the time prescribed by HDBank, leading to the risk of not monitoring business activities and the purpose of using loans of customers
Thirdly, the credit risk analysis information is not gathered comprehensively
Identifying customer information and assessing potential customers is an extremely important job in the bank's credit-granting process Accurate and quality information will help banks analyze, evaluate, and measure the level of risk in the credit granting process However, the fact that the source of information is still small and of low quality has posed significant challenges for banks in evaluating and deciding whether or not to lend to customers
Fourthly, fraud risks sometimes happen due to aiding in falsifying the bank's books
To detail, because of running sales, many bank employees have made up books and accounting documents, business results of enterprises have met the requirements of the bank to be approved for loans
2.3.3 Causes of credit risk at HDBank:
2.3.3.1 Objective reasons: a Social and economic conditions
Natural factors play a role in credit risk As mentioned above, the cause of credit risk is not only of HDBank but also of the entire banking industry may come from natural factors (natural disasters, epidemics, ) specifically the complicated evolution of the not only affects neighboring countries such as Vietnam but also causes heavy damage to the world economy, causing a serious economic crisis, the domestic and foreign industries suffered considerable losses
Credit risk can also arise as a result of financial liberalization and foreign integration, which has resulted in a fiercely competitive environment and stringent market regulations, exposing the bank's clients and businesses to the risk of failure and the likelihood that the debt will not be recovered In addition, the arrival and growth of international banks in Vietnam has created a fierce competition climate, putting domestic banks in a difficult position
Inadequacies in the enactment of credit legislation Many laws and documents have been provided by the government and the State Bank to guide the enforcement of laws relating to banking credit activities However, several challenges remain in the implementation of banking operations, such as certain documents on debt collection compliance Commercial banks, after all, are an economic entity, not a government agency, with no coercive power to compel borrowers to hand over collateral to the bank for handling, or to pass secured assets loan guarantees to the court for litigation, among other laws that have resulted in commercial banks being unable to settle unpaid debts and assets
CIC’s information to check customers’ credit is still limited Although it has been continuously improved, there is no non-financial data or assessment of a company's or individual's leadership results Besides, the amount of data provided is limited to outstanding loans at credit institutions, individuals and businesses without credit agreements with credit institutions have their details not updated The information source provided by the Credit Information Center of the State Bank (CIC) is still small, and the information source provided by CIC is still passive, with several flaws, not updated in a timely manner, … creating difficulties in the processing of looking up the credit history of the bank's customers b Customers
Customers lack awareness and responsibility in complying with the conditions in the credit contract Individual and corporate customers intentionally use the loan incorrectly according to the original loan application purpose, making it difficult for the credit officer to check the loan and easily leading to inefficient business activities and loss of credit ability to repay the capital to the bank
- Customer's business activities are difficult
- The customer has an unexpected event that causes the debt repayment to the bank to be used for other things
CONCLUSION
The thesis' second chapter focuses on assessing and reviewing the existing state of credit risk management at HDBANK, including a list of the bank's accomplishments and outcomes, as well as elucidating the shortcomings and reasons As a result, there are flaws in credit risk control
In Chapter 3, the author suggests several remedies for the bank, as well as proposals for the Government and the State, based on an overview of the causes of shortcomings in credit management at HDBANK.
SOLUTIONS TO COMPLETE CREDIT RISK MANAGEMENT AT
Development orientation of HDBank
3.1.1 Development orientation in business activities
HDBank will continue to develop internal management systems with the help of IT and scientific resources in the coming years, based on the concept of safety and in accordance with relevant laws and regulations
- Implementing retail banking strategy to expand network and improve operating performance of branches and departments
- Establishing an investment bank model, focusing on capital and currency trading using the resources of HDBank's associated businesses, such as securities firms and fund management firms Develop investment strategies for high-efficiency financing into other industries, and diversify investment models
- Creating a professional and synchronous brand in the framework, with the aim of making it a strong brand in the finance - banking sector
3.1.2 Development orientation of credit activities in the coming time:
HDBank has been doing well in its mission as a pioneer bank in the movement to green credit lines by implementing programs that aid in environmental conservation Solar power financing packages in the market are examples of typical green credit items Roof voltage, in particular, will benefit from standardized products The bank accepts the solar power system as collateral for the loan and creates relationships with manufacturers, designers, installers, testers, and maintenance companies to provide high-quality choices and peace of mind to customers Along with that, HDBank is expected to continue to maintain a high growth momentum by exploiting the privileged customer ecosystem with more than 30 million customers of HDBank, HDSaison, and Vietjet Air
HDBank also strongly implemented closed-chain financing packages, from sponsoring distributors to sponsoring suppliers of nearly 30 supply chains; connect and help Vietnamese businesses develop sustainable global chains; contributing to orient Vietnamese enterprises to the green trend of the world, reducing emissions to the environment, meeting strict production criteria from big-name distributors in the world; optimizing the supply chain will help businesses save in terms of business costs; improve the quality of products and services provided to customers; indirectly improve the competitive advantages of Vietnamese enterprises in domestic and international markets.
Solutions to improve the quality of credit risk management at Ho Chi Minh City
3.2.1 Solutions to prevent credit risks at HDBank:
One of the mandatory conditions for determining credit limits for consumers is customers classification For each customer with different industry characteristics, the bank will also apply its criteria to evaluate businesses in the most accurate and reasonable way
For enterprises that are joint-stock companies that have been listed on the stock market, the trend of stock price fluctuations of the company is also considered as a reference index to rank enterprises
For foreign-invested enterprises, the financial capability and business activities of foreign investors also become one of the criteria for evaluating credit-granting enterprises
To classify and rank credit, banks rely on the following basic criteria:
- Customer's loan history (look up via CIC and other information sources)
- The level of risk and characteristics of the client's business line
- Responsibility and reputation of the borrower
- Feasibility of business strategies and quality of business activities of enterprises
- Level of risk and quality of collateral
HDBank's leadership needs to pay attention to building a credit information system management mechanism, as well as assessing and predicting consumer risks in the following areas:
- Creating teams, organizations, and divisions tasked with analyzing and evaluating consumer risks in each business line
- Determine credit limits, debt limits, and sector-specific characteristics for each market
- Collecting resources on both financial and non-financial knowledge about consumers, such as input quality, management and operating processes, customer loyalty, learning about customers using the model 5C, and so on The aim is to provide the most precise and impartial appraisal of the enterprise's economic practices in order to provide the bank with the most appropriate credit policies
3.2.1.3 Building and constantly improving the quality of human resources
In any activity and organization, people are still the most important factor HDBank's workforce has always performed admirably in their roles, thanks to a group of young, dynamic, quick-learners, and highly educated employees However, because of their young age in the industry, a portion of the workforce also lacks professional knowledge, which may lead to mistakes and problems when dealing with credit circumstances As a result, HDBank must concentrate on human resource concerns such as:
- Investing in human capital, promoting and enhancing their productivity, and providing opportunities for workers to study, train, and gain realistic knowledge and challenging circumstances in banking operations
- Allocate employees with the right strengths, with the right expertise according to the "right person, right job" criterion, so that employees can promote their capacity properly, avoiding waste of human resources
- Encourage officials and employees to deepen their knowledge and participate in skill classes to improve professional knowledge as well as practical skills such as managing and appraising investment projects, updating information about the law, knowledge of business accounting, foreign languages, informatics,
- Supplementing human resources in important areas, such as market analysts, risk analysts in banks, to hedge credit risk in the most effective way
- Always train the bank staff's ethics, perfect the staff management to meet both intellectual capacity and ethical qualities Paying attention to nurturing staff with high professional qualifications and supporting them in important positions, creating conditions for employees to promote their full potential
3.2.1.4 Applying banking technology in the credit granting process
The application of information technology has become one of the indispensable things in the banking business, bringing certain benefits such as:
- Enhance the efficiency of financial institutions, customer care, and assistance
- Reduce costs, risks of money loss, theft in cash transactions
- Increase market financial literacy, maximize understanding through internet applications, and provide consumers with the most convenience
3.2.1.5 Improve the quality of customer credit scoring
The results of scoring credit quality and debt repayment ability of customers are the basis for deciding whether to lend or not and which lending policy is the most effective To best accomplish this task, the bank needs:
- Adding new stages, creating independent divisions specialized in reviewing and reviewing customer information to improve the credit scoring quality of customers
Thanks to this separation, each department will perform its function, the information after being collected will be transferred to the verification stage for re-checking, so the bank can reduce errors and losses incurred during the granting of credit
- Train credit officers, risk management staff regularly and focus on the accreditation process, updating credit scoring methods After building an information system and customer information source, HDBank needs to train its staff and disseminate knowledge on time Effective investment in information exploitation is essential for the bank, this is also an opportunity for new and inexperienced staff to be exposed to a professional environment and learn from senior staff
3.2.1.6 Building a system of early warning indicators of credit risk:
The credit risk early warning system has been effectively applied early in several large banks such as Vietcombank, This is a system that automatically reviews debts and detects potential deterioration in quality within the next 6 months, thereby helping the bank to take effective measures to manage the quality of its credit
The operational function of this risk management system is based on the set criteria, compared with the customer's risk signals and loans such as financial indicators, business situation, customer's cash flow for debt repayment, adverse fluctuations from the market, etc Through current calculation techniques, situation statistics from the collected data, the system will make a list of predicted customers who are likely to have difficulties and have problems repaying debts within the next 6 months
This is one of the effective tools to automatically detect risks, update and manage credit portfolios for banks early, evaluate customers most objectively, help credit officers provide timely and effective risk management measures
3.2.2 Solutions to limit losses when credit risks occur
To improve credit quality in the bank, HDBank must continue to reinforce credit risk control in order to avoid undue defaults, as well as actively track and take steps to improve credit quality, including the resolution of past-due debts and the avoidance of problem debts
Despite the fact that some efficiencies have been attained and default risk is poor in comparison to the entire banking sector, HDBank's credit operations do have certain limits As a result, banks must strictly adhere to the lending mechanism by following the steps below:
Recommendations
3.3.1 To the Government of the Socialist Republic of Vietnam
The Government and the State Bank are two important agencies that play the role of creating the economy and promoting business activities of organizations, individuals, and commercial banks To create a business environment and healthy competition for commercial banks, the Government needs to take reasonable and timely measures such as:
Completing the legal environment in business activities of commercial banks, creating safety in bank credit, building a stable economy and business environment The Government needs to coordinate with relevant ministries and sectors to speed up the process of completing legal procedures, in addition to creating conditions for the development of potential markets such as credit insurance, improving the investment attraction environment foreign investment in the domestic economy Furthermore, the legal issues regarding the process of handling and recovering the loan's special assets have not been completely resolved To solve this problem, the Government, ministries, and agencies need to agree on regulations, speed up the debt collection and settlement process, and increase the power for commercial banks to proactively handle the sale of assets to recover bad debts
Building a system of industry average indicators The integrated and developed economy leads to the expansion and diversity of business types and industries The current internal credit rating system and information center of banks still face many difficulties in identifying and finding useful information in the process of assessing creditworthiness and rating customers, especially those who pursue unfamiliar businesses in Vietnam Therefore, it is really necessary for the Government to consider building a system of average indicators of each type of industry, serving the maximum in the process of customer evaluation, creating favorable conditions for banks to limit minimize the risks that occur in the credit granting process
Strengthen internal supervision and mandatory audit activities for enterprises In Vietnam, although the form of providing financial accounting information and periodic audits has been implemented for enterprises listed on the stock market, the accuracy and timeliness of the information level of this activity is still a huge problem The audit and supervision of state finances is a prerequisite for creating a motivation to establish a healthy financial environment for businesses This is also an activity that helps the Government and the State control the activities of the economy more effectively
3.3.2 For the State bank of Vietnam:
3.3.2.1 Improve the quality of management and administration:
To be able to successfully complete the credit risk management process, the SBV needs to have a detailed plan before issuing legal documents applicable to the entire banking industry, to limit as much as possible the situation of wrongdoing In addition, the State Bank also needs to quickly complete and unify documents related to bank credit
Continue to improve lending regulations and guarantee loans on the basis of ensuring the safety of credit activities The SBV needs to have specific guiding policies, perfecting professional processes such as granting credit, classifying debts, setting up risk provisions so that commercial banks and credit institutions are more proactive in handling customers' assets row
Issue regulations and requirements for the credit risk management system The SBV needs to be more specific in the process of controlling activities in the bank, managing assets, and liabilities, and the credit risk management system The SBV needs to create legal limits for financial institutions, namely: limits on regulations on the use of mobilized capital, regulations on credit balance limits, and application of sanctions for cases of non-compliance in the process of reporting overdue debts, misjudging collateral, lending more than the customer's capital ratio, etc
Propose solutions to minimize unfair competition among commercial banks, avoid cases where banks lower standards, lower prices, and interest rates, lower loan conditions to retain customers customers, ultimately causing a serious credit risk situation for the bank
3.3.2.2 Improve operational efficiency of credit information center (CIC):
Create a high-quality CIC credit information system To meet the requirements of accessing the credit history of commercial banks for customers, credit information centers need to provide comprehensive, complete, and timely information to serve the needs of information review of State Bank
Besides, CIC also needs to improve the quality of credit information sources by stipulating and requiring commercial banks to properly perform their responsibilities in the process of participating in data supply, providing complete and accurate data, strictly comply with the regulations on information supply and use, avoiding the situation of low-quality information sources and disturbing the data system
CIC needs to consider making more assessments about the business ability and capacity of the business owner The credit information center of the SBV not only needs to provide information about customers' credit history and scoring but also needs to add specific and objective assessments of potential as well as the business ability and business performance customer debt repayment
Completing the inspection process from central to local levels The work of credit inspection and control of banking operations should be arranged regularly and continuously, in addition to fostering and supplementing professional knowledge for inspectors to improve the quality of control and detect errors and risks in banking credit activities, thereby taking timely and accurate measures Besides, the supervision and inspection process should be made transparent and clear, avoiding the situation of
"turning a blind eye" to bad cases leading to credit risks occurring throughout the banking system
Strengthen supervision of economic sectors, minimize negative activities and adversely affect the general business environment In order to create a healthy business environment and stable production for customers, it is necessary to closely inspect and supervise to avoid cases of negative business activities that seriously affect society such as evasion taxes, smuggling, counterfeit goods, etc
Credit is the operation that accounts for the highest proportion of a commercial bank's net assets and is the bank's primary source of revenue Credit operations carry such uncertainties and possible risks as a result of their high profit margins As a result, the efficacy of credit risk control practices in commercial banks becomes a major concern The research subject "IMPROVING CREDIT RISK MANAGEMENT AT HO CHI MINH CITY DEVELOPMENT COMMERCIAL BANK (HDBANK)" was conceived with the goal of identifying and addressing realistic needs that are important for HDBANK's long-term success The following are some of the basic problems addressed in the thesis:
First and foremost, the study aims to explain the fundamental theoretical problems surrounding fraud and credit risk control in commercial banks Lessons gained from commercial banks in Vietnam have been taken based on a study of credit management practice
Second, conduct an independent, truthful, and scientific analysis and evaluation of