ABSTRACT To complete this internship report, I practiced at Risk Management Center, Petro Vietnam Finance Joint Stock Corporation abbreviates as PVFC within four months from Jun 01st 201
COMPANY BACKGROUND
Key Factors of the Company
Company name: Petro Vietnam Finance Joint Stock Corporation
Head Office: 22 Ngo Quyen Street, Hoan Kiem District, Ha Noi - Viet Nam
Website : http://www.pvfc.com.vn
E-mail: pvfc@pvfc.com.vn
Company development history
Petro Vietnam Finance Joint Stock Corporation (PVFC), established on June 19, 2000, as Petro Vietnam Finance Company, has played a vital role in the robust growth of Petro Vietnam, contributing significantly to its development as a leading non-banking financial institution.
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In the past year, PVFC has emerged as a leading financial institution within Petro Vietnam, recognized as one of the fastest-growing non-banking financial entities in the country The PVFC brand has established a strong presence in the domestic financial and monetary markets and has made its initial foray into the global market.
PVFC is dedicated to financing the development of Petro Vietnam by effectively utilizing financial resources to maximize profits and creating innovative financial instruments that support the Petro Vietnam Group The company has introduced a range of competitive services, including co-financing, lending trust, investment trust, investment advisory and brokerage, and restructuring advisory services, which have strengthened its position in the financial market Additionally, PVFC provides financial consulting on monetary issues and financial restructuring for enterprises within the oil and gas sector This rapid and robust growth underscores PVFC's role as a leading financial institution for Petro Vietnam.
On March 18, 2008, PVFC transitioned from a fully state-owned entity to a corporation, with 78% of its shares held by PVN and 10% by foreign strategic partner Morgan Stanley This restructuring significantly changed its operational and management mechanisms, providing a solid foundation for PVFC to strengthen its business operations with the aim of becoming a commercial bank by 2013.
PVFC is actively working towards becoming a commercial bank by expanding its network both nationally and internationally The organization is diversifying its business activities, enhancing its management capabilities, and improving the relationships between the Corporation and its subsidiaries to achieve full operational professionalism.
The integration and globalization trends present both opportunities and challenges for PVFC However, driven by confidence and ambition, PVFC aims to establish itself as a leading commercial bank with a strong regional and international brand presence This vision reflects not only the aspirations of the organization but also the pride of all its members.
Corporation's milestones and awards which PVFC has received for its achievements
- March 30 th 2000: Minister – Head of Government Office signed Decision No
04/2000/QD/VPCP on setting up Petro Vietnam Finance Company (PVFC);
- June 19 th 2000: Vietnam National Oil and Gas Group’s Board of Directors signed
Decision 903/ QD-HDQT on setting up PVFC;
- October 1 st 2000: PVFC officially established it’s headquarter at 34B Han Thuyen –
Year 2004: received quality management system in conformity with standard ISO 9001:
2000 granted by Swedish SGS organization;
Year 2005: be ranked the First State-owned Company; received the reward of
Vietnamese land medal star; and received the Trademark and Label Medal Cup;
In 2007, the company achieved significant recognition by winning two prestigious awards: the "2007 Director" and the "ISO 2007 Gold Cup." Additionally, it received the trademark and label medal cup, as well as the "Gold Global" award for excellence in the finance sector The company was also honored with the title of "Vietnam's Powerful Trademark" and earned a spot on the list of the "Top 50 Recruiters in Vietnam."
In 2008, the company achieved significant recognition, including the prestigious Golden Brand award and the 3rd Vietnam Gold Star Award, ranking among the top 100 It was honored with the Flag of Achievement in Business and Production Emulation from the Vietnam Government for its contributions in 2007, leading the emulation movement initiated by the Ministry of Industry and Trade Additionally, the company received the Business Star Prize as one of the top 10 Successfully Integrating Corporations and was granted the Top Trade Service Award for 2007.
In 2009, the company achieved significant recognition, ranking among the top 500 business corporations in Vietnam and securing the 11th position among the 23 largest finance organizations, as rated by VNR It was honored with the Top Trade Service Award, placing 4th in the top 10, and earned the Vietnam Leading Stock Brand title, ranking in the top 20 Additionally, the company received the prestigious Vietnam Gold Star Award, marking its 4th win in five years.
In 2010, the company was honored with the prestigious Vietnam Gold Star Award for the fifth consecutive year, recognizing its significant contributions to the national economy and brand development Additionally, it received the 2nd Class State Labor Medal from the Vietnam National Assembly in celebration of its 10th anniversary.
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Year 2011: be granted the Vietnam Gold Star Award (6 years in a row);
Year 2012: be granted Top 50 Effectively Operating Companies Award 2012.
Sector of activity
- Meet the credit demands of PVN and its member and other the organizational and individual customers as prescribed by law;
- Receiving deposits with a term of 1 year or more of organizations and individuals;
- Issuance of bills, bonds, certificates of deposits and other valuable papers to raise domestic and foreign capital;
- Release bond agent for PVN and its member and other the organizations as prescribed by law;
- Negotiate and sign the domestic and foreign loan contracts for PVN and its member and other the organizational and individual customers;
- Receipt and use the domestic and foreign capital of trust investment, including trust investment mandated by the State, PVN and its member and other the organizations and individuals;
- Perform other financial and monetary services as prescribed by law.
Main customers
PVFC plays a crucial role in advancing the oil and gas industry by prioritizing its customers within the Vietnam National Oil and Gas Group and its affiliates Additionally, PVFC serves other organizations and individuals in key sectors such as energy, natural resources, and infrastructure, fostering strong partnerships with both Petro Vietnam and the broader industry.
However, to match the orientation of converting into commercial banks, PVFC has begun to expand to other customers segments besides the traditional customers.
Products and Services
PVFC specializes in providing comprehensive package services that include credit, investment, and financial services Its core offerings encompass financial investment and advisory services, while additional key services like fund arrangement, capital and asset management, appraisal, and private financial services are continuously improved to meet the evolving needs of clients.
It can be said that PVFC’s products and services are as diverse as of a commercial bank However, being financial institution, PVFC has no payment function and card services
PVFC offers a range of financial solutions, including capital arrangement, asset management, appraisal, factoring, and various financial services Their standout products have established PVFC's brand and reputation in the Vietnamese financial market, featuring services such as co-sponsored loans, entrusted investments, consulting, investment brokerage, and enterprise equalization consulting.
Products and services of PVFC are highly appreciated PVFC serves both the organizational and individual customer segments and offers services listed below:
1.6.1 Corporate Finance: Products and Services for Corporate Finance including
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- Installment loans for house purchase
- Installment loans for car purchase
Employee statistics
As of December 31, 2012, PVFC employs 1,249 individuals, with over 90% holding graduate or postgraduate degrees The workforce comprises experienced professionals in finance and banking, predominantly consisting of young talents who have graduated from esteemed domestic and international universities.
Employees in 2012 were little changed and become more stable compared to in 2011 as seen in the table 1
Total number of employees 1,253 (employees) 1,249 (employees)
Average compensation per month 15.3 (million VND) 14.6 (million VND)
Overall review of key financial data
PVFC has consistently increased its charter capital since 2004, enhancing its financial capacity and ensuring compliance with minimum capital safety ratios This strategic growth has effectively narrowed the financial gap, positioning PVFC for greater stability and success in the market.
8/40 financial capacity and technology among institutions More and more, PVFC becomes a strong financial powerful
Figure 1: Diagram of PVFC’ charter capital from 2004 to Oct 2013
From 2009 to 2012, PVFC experienced a consistent increase in total assets during periods of economic growth, while the total assets gradually stabilized during challenging economic conditions.
Figure 2: Diagram of PVFC’ total assets from 2009 to Oct 2012
1.8.3 Profit and Profit after tax:
In 2012, PVFC experienced a decline in profit and profit after tax compared to previous years, primarily due to significant provision expenses This downturn was influenced by the challenging economic conditions in Vietnam, prompting the company to make substantial provisions for hedging to ensure compliance with legal regulations and maintain operational safety.
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Figure 3: Diagram of PVFC’ profit and profit after tax from 2009 to Oct 2012
COMPANY STRUCTURE AND ORGANIZATION CHART
Organizational Structure Chart
Figure 4: PVFC’s organizational structure chart
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Organization chart explaination
PVFC is in the restructuring process The new organizational structure was built, ensuring a fair independence to avoid conflicts amongst Front Office, Middle Office and Back Office
To effectively manage the operations of all units within the system, the PVFC structure is organized in a vertical and centralized manner, where the Head Office oversees vertical management functions for subordinate branches and transaction offices.
The General Shareholders Council serves as the supreme governing body of the organization, responsible for making critical decisions regarding strategic direction, capital management, and significant structural changes such as mergers, splits, or legal conversions Additionally, it oversees the organization and functioning of both the Board of Directors and the Board of Supervisors.
The Board of Directors at PVFC is tasked with the effective management, conservation, and development of the company’s capital while overseeing business policies and long-term planning This board, consisting of five members—four full-time directors and one part-time director who also serves as CEO—provides guidance, monitors progress, and supports the Executive Board in executing duties assigned by the General Shareholders Council, ensuring the company's operations are conducted safely and in compliance with regulations.
- Board of Supervisors: Board of Supervisors performs the work as assigned by the
The General Shareholders Council is responsible for overseeing the legality, integrity, and prudence of the Board of Directors and the Executive Board in their management and operational activities It proposes solutions and amendments to enhance organizational management and business execution processes Additionally, the Board of Supervisors plays a crucial role in providing direction, management, supervision, and consultancy for the Internal Audit operations This Board consists of three members: one Chief Supervisor, one full-time member, and one part-time member.
The Executive Board is accountable to the Board of Directors for overseeing the organization's daily operations, ensuring they are conducted safely and in accordance with regulations Comprising six members, including one CEO, the Executive Board plays a crucial role in steering and managing the organization's operations effectively.
12/40 general in charge and 05 Vice Presidents who assist to the CEO in the different functions
The organizational structure of PVFC Headquarters is divided into three distinct divisions—Front Office, Middle Office, and Back Office—each serving a specific function This division ensures independence among the units and minimizes potential conflicts Units with similar functional roles are grouped together within each division for streamlined operations.
- Trade Division (Front Office): includes 03 centers and 03 transaction offices, theirs operations generate revenues and profits for company
The Trade Supporting Division, also known as the Middle Office, comprises six centers that play a crucial role in supporting trade business units While these centers do not directly generate revenue or profits for the company, they provide essential functions and services that enhance overall operational efficiency and effectiveness.
The Management Division, also known as the Back Office, comprises six centers dedicated to overseeing management tasks that facilitate the seamless operation of the company This division is instrumental in implementing strategic orientation activities aimed at enhancing the safety and efficiency of unit operations.
The table below lists the functional units according to their roles in the organization Each unit has its own duties and powers
Treasury Center Appraisal Center Planning Center
Center Business Development Center Accounting Center
Core-banking Project Management Center
Lang Ha Transaction Office Information Technology
Office Training Center Legal Center
Collection Center Risk Management Center
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With over 12 years of growth, PVFC has established a robust operational network across major cities and provinces in the country, featuring 10 branches that serve as its extended arm and 3 affiliates specializing in fund management, securities, and tourism The organizational structure of these affiliates and branches is designed to be compact and tailored to the unique characteristics of each unit and its clientele.
The Intern’s Position
During my internship at the Risk Management Center under the Management Division, which commenced on June 1st, 2013, I gained insight into the pivotal role this unit plays within the company As a key department, the Risk Management Center is responsible for establishing and implementing policies, rules, regulations, processes, and guidelines for other functional units within the Trade and Trade Supporting Divisions The Center sets limits, monitors compliance, and evaluates unit activities through reporting mechanisms, enabling timely identification of key risks and implementation of corrective measures to mitigate potential threats Additionally, the Center calculates provisions for risks and ensures safety in accordance with regulatory requirements, underscoring its critical function in maintaining organizational stability.
The center comprises three functional departments: Market Risk Management, Credit Risk Management, and Investment Risk Management, but lacks an Operational Risk Management Department Consequently, I was assigned to collaborate with an individual responsible for overseeing operational risk management activities We operate under the direct guidance of the head of the center and do not belong to any specific functional department.
During my four-month internship at The Risk Management Center, I discovered it to be an excellent professional environment The team is not only highly cooperative and responsible but also friendly and eager to assist one another This supportive atmosphere allowed me to effectively apply my theoretical knowledge in practical situations.
THE MISSION: ASSIGNED TASKS & GOALS
Assigned task
I was assigned to coordinate with Mr Tran Manh Phong, who designated to take in charge of operational risk management activities in the center, with 3 stages:
1 Review status of the operational risk management activities in PVFC
2 Research to develop policies, procedures and operational risk management tools in accordance with the situation of PVFC which is shifting to commercial bank model
3 Implement the developed policies, procedures and tools in order to effectively operate operational risk management mechanism at new bank
When I came to the company for internship, the first stage has been almost completed, the second stage was ongoing and scheduled, and the third stage will be immediately applied as soon as PVFC successfully shifting to new operation model of commercial bank Therefore, I mainly participate in the second stage We proactively divided that each person is in charge of a segment but both of us will mutual support and facilitate when needed
So that, in order to complete the second stage, tasks assigned to my position are the following works:
1 Research and study the international standards references on operational risk management; Research implementation experience of some commercial banks
2 Study organization of PVFC and its actual situation of operational risk management through results of the first stage
3 Propose solution appropriate to PVFC’ actual situation based on the understanding in the document research.
The link between the subject matter with mission
Among 3 mentioned stages above, the second stage plays a decisive role for the success of the implementation of risk management activities in a new bank My assigned tasks in this stage have a close link with the subject matter which is implementation of operational risk management at PVFC:
1 What I have got from researching and studying of the international standards references helps me to have a background in operational risk management So, theoretical
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15/40 knowledge is equipped when I performs this task helps me to find out solution I learn from implementation experiences of some commercial banks to apply suitably to PVFC
2 Perform the second task help me to understand PVFC’s operation and its operational risk management From that, I find out appropriate policies, procedures for PVFC
3 My given proposed solutions contribute to the implementation of the operational risk management activities in PVFC
Successfully completing the outlined missions is essential for advancing to the second stage and effectively implementing operational risk management at PVFC, significantly contributing to the overall success of the initiative.
The goal to reach
The second stage is crucial in the implementation of operational risk management activities To effectively achieve the objectives during this phase, I developed a detailed plan outlining specific tasks and goals to be accomplished on schedule.
No Tasks Goals How to reach
Research and study the international standards references, implementatio n experience of some commercial banks
- Understand the basic concepts such as operational risk, operational risk management processes
- Understand how the operational risks are managed
- Understand operational risk management tools and operational mechanisms of these tools
- Read, refer and study the specialized materials, international organizations
- Refer to other domestic and foreign commercial banks to know how to operate, ways of organizing
- Understand the characteristics and operational risk management activities of PVFC
- Study the results of the first stage to understand the actual operational risk management of PVFC’s situation
- Study the way of organizing of operational risk management to understand PVFC’s characteristics
- Study the operational risk which occurred in PVFC
- Find out and propose the suggested solution in accordance with PVFC’ situation
- List all methods to be used in operational risk management
- Apply stakeholders’ matrix to analyze expectations of stakeholders before giving PVFC the suitable suggested solution
- Apply SWOT to analyze PVFC’s strengths, weaknesses and opportunities, threats to PVFC as well to find PVFC’s advantages
- Match results of analysis above with PVFC’s actual situation which was studied in the second task to propose the suggested solution.
The results which contribute to the company
Because I involved timely in the critical and decisive stage, so my contributions to the company might be remarkable When I fulfilled the assigned tasks, I had to read a lot of documents references and updated specialized knowledge in the operational risk management field from internet, professional organizations and associations All such knowledge and information are new to me and the financial company After reading, I re-systematized that knowledge in order to serve myself for this internship subject, but also to share these materials with the members of Center From that, people can understand more about
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17/40 operational risk, operational risk management or the methods, tools which help effectively management activities
If I deploy successfully my tasks, it means that I have created the initial foundation for the company to gradually deploy the other risk management activities in order to consolidate and improve the risk management apparatus more completely and efficiently.
Apply theoretical knowledge to practice
The AMI program's academic subjects significantly contributed to my internship experience by equipping me with essential skills The extensive reading and studying required to complete courses enhanced my ability to reference documents and search for information effectively These skills proved invaluable during my internship, allowing me to conduct document research efficiently, ultimately saving both time and costs Additionally, the presentation techniques I developed while preparing individual assignments in Word and PowerPoint greatly aided my performance throughout the internship.
During my internship, I effectively applied both the skills and theoretical knowledge I gained throughout my studies While many subjects contributed to my experience, I have highlighted a few key areas that were particularly relevant to my work.
During my internship, I applied the theoretical knowledge I gained from this subject, which emphasized the importance of planning It taught me how to create detailed plans outlining the tasks to be completed, the goals to be achieved, and the strategies to reach those goals This structured approach allowed me to visualize the necessary steps and manage my time effectively, ensuring that I completed my work on schedule By the end of my internship, I recognized the significant impact that this subject had on my overall efficiency.
This is my favorite subject when I studied in MBA program And surprisingly, among the subjects, the theoretical knowledge of this subject helped me the most in fact It
The course 18/40 taught me how to effectively identify and address problems by asking critical questions such as: What is the problem? Why is it occurring? Where is it happening? Additionally, I learned to navigate real-life situations by determining who is responsible, how to manage the issues, and how to prioritize which problems need resolution By analyzing the nature of the problems and evaluating their strengths and weaknesses, I can solve them by maximizing advantages and minimizing disadvantages This theoretical knowledge is closely linked to my practical application in fulfilling my responsibilities.
This subject equips individuals with essential knowledge for effective communication and business practices across various countries Additionally, I utilized valuable skills gained from this subject to enhance my interactions with people in a new environment during my internship.
In my internship, I utilized various technical analyses, including the SWOT matrix and stakeholders' matrix, which proved to be highly effective in guiding my decision-making process These analytical tools significantly enhanced my ability to evaluate different aspects of the projects I worked on.
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DEVELOPMENT
How the operational risk is managed in general
Operational risk, as defined by Basel II of the Basel Committee, refers to the risk of loss—both direct and indirect—stemming from inadequate or failed internal processes, personnel, systems, or external events This definition highlights four primary causes of operational risk.
Table 4: Classification of operational risk by causes
No Internal causes External causes Examples
1 People - Flaws of staffs; lack of suitable employees; loss of key person;
2 Processes - Inadequate or failed internal processes; no/without process;
3 Systems - Systems failures; network failure; hardware/software failure; computer viruses; breaches of security systems;
Disaster: flood, terrorist activities, earthquake; Economic downturn; Changes in government policy…
Beside, they also categorized operational risk into seven event types which are presented as table bellow:
Table 5: Classification of operational risk by event types
No Event-type Category Examples
1 Internal fraud Unauthorized activities: did not report intentionally transactions;
Bribes; Kickbacks; Misappropriation of assets; or Fraud; Theft
2 External fraud Theft; Robbery; Hacking damage; Theft of information
3 Employment practices and workplace safety
All discrimination types; working environment is unsafe;
Leakage of customer information; Money laundering; Defects Products or complicated products;
Natural disaster or other events damage to physical assets;
6 Business disruption and system failures
Disruptions of hardware, software, telecommunications or other utility outage
Miscommunication; model or system failed; delivery failure; Incorrect client records; disputes with vendor
And to manage the operational risk, the organizations often construct framework for their management of operational risk including the following activities:
- Construct the system of regulatory documents such as policy, regulations, procedures and guidelines as well
- Invest in technology platform to support managing
- Invest in personnel to manage operational risk
Due to limited internship time, I decided that I would focus on studying deeply the operational risk management procedure Refer to the documents from the commercial banks,
Organizations have established their own unique procedures for operational risk management; however, a generally effective approach commonly used across the board is outlined below.
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Figure 5: The operational risk management in general
This article outlines the significance of each step in the procedure, detailing the necessity for organizations to implement these steps and recommending specific tools or methods for each one.
1 Identification: This step is very important It helps organization and units of the organization in knowing how and where risk occurs in There are a number of recommended methods which often are used to identify operational risk such as: using risk self assessment tool which is considered to be the most effective tool to identify operational risk; or the organization may use audits or review methods; or historical loss data analysis method can also helps organization identify risks, etc…
2 Measurement/Assessment: While measurement is applied to the quantitative risk which is measurable, assessment is applied to the qualitative risk which is immeasurable The organization always consists of both qualitative risks and quantitative risk, so it needs to apply both measurement and assessment for each different risk type Risk measurement helps organization to know the extent of damage or loss which are caused by operational risk Organizations can use the loss data collection tool to know how much loss are caused by a risk and what type of risk often cause damage or loss most From that
Organizations can effectively manage risks by prioritizing them through risk assessment, which evaluates their potential impact A commonly used tool for this process is the risk self-assessment tool, enabling organizations to identify and rank risks according to their urgency for resolution.
3 Mitigation: Once the risk is identified, an organization or units of the organization must take action to reduce losses or the negative impact of the risk This step is very important and indispensable in the operational risk management procedure It helps to reduce the damages which organization has to suffer The organizations can perform this step through reducing the likelihood of the risk occurring; reducing the negative impact; or providing remedy or recovery plan The organizations can also use the measures of risk transfer such as outsourcing, insurance, financial reserves; even discontinue activities causing risk
4 Monitoring: This step is fulfilled through the reporting mechanisms or the feedback mechanisms with the support of information technology systems The action plans, the remedies are updated and monitored to ensure these actions are deployed as plan Monitoring helps organization to focus on the sectors which have a high level of risk
Organizations can employ various tools and methods, either simultaneously or selectively, to navigate the iterative process from risk identification to risk measurement, mitigation, and monitoring Typically, different units within the organization handle steps one through three, while the final monitoring step is usually managed by the risk management department.
PVFC’s actual situation and how PVFC manages operational risk
PVFC, a finance company, currently lacks a dedicated operational risk management department, resulting in an absence of formal operational risk management activities However, through observations and discussions with various professional departments, it became evident that some operational risk management practices are being inadvertently implemented within PVFC, although the units involved may not recognize these activities as part of a structured operational risk management framework.
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23/40 activities PVFC’s operational risk management activities are deployed spontaneously and sporadically at the units Those activities are manifested through:
- The periodic self reviews of the units ;
- The limits are set up, the preventive controls or detective controls are designed in the specific functional procedure of each unit
All of them above help PVFC to prevent errors, inaccuracy or fraud before they occur
PVFC lacks a dedicated operational risk management department, resulting in uncertainty about who oversees the implementation of operational risk management activities This absence of a clear unit leads to inadequate monitoring of operational risks, insufficient guidance for units in identifying risks, and poor tracking of loss events Consequently, PVFC is unaware of the common types of operational risks, their frequent locations, the risks that lead to the most significant damages or losses, and the extent of these losses.
Because, there is no a specifically department which records operational risk events, so, it was difficult to know systematically about these events which occurred in the past Therefore,
Based on the periodic internal audit inspection report from 2009 to June 2013, I analyzed the most frequent types of operational risk events at PVFC, identifying their occurrence patterns and the specific units most affected This analysis highlights which operational risk events resulted in the highest losses and quantifies the financial impact across various units within the organization.
Upon reviewing the operational risk reports, I categorized the events based on their types as defined by Basel II and analyzed the distribution of these occurrences by event type and sector Additionally, I aimed to assess the distribution of losses associated with operational risk events, segmented by event type and sector However, due to limited access to information regarding the damages or losses incurred, I was unable to identify which operational risk types resulted in the most significant losses or which units experienced the highest financial impact from these risks.
Figure 6: Distribution of Number of operational risks by events type
The chart above shows that among the occurred operational risks, the risks which related to the execution, delivery & process management type occurred most
Figure 7: Distribution of Number of operational risks by business sector
The chart illustrates that operational risk events are predominantly associated with the credit sector, indicating that units within this sector experience the highest frequency of such risks.
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Why PVFC need to implement the operational risk management activities? Or what
Operational risk is a critical concern that affects all aspects of a company's activities, including PVFC, where incidents have led to notable losses Currently, PVFC has not identified the specific areas and impacts of operational risk within its units To address this gap, it is essential for PVFC to implement effective operational risk management strategies, which include establishing comprehensive procedures, selecting appropriate management tools, and developing technological solutions for professional operational risk management.
The benefits when PVFC implements the operational risk management are analyzed and put in table bellow:
Table 6: Benefits when PVFC implement operational risk management
1 PVFC - PVFC’s reputation is enhanced and raised
- PVFC’s risk management are more comprehensive due to it focuses on emphasizing to operational risk besides credit risk and market risk
- Minimize operational risks occur, limit the harmful effects which are caused by operational risk, PVFC’s operation is safer and effective
2 Managers - Identify proactively current and potential operational risks at their unit
- Minimize the effects, damage or loss caused by operational risk at their unit
3 Employees - Understand their role and duty, know exactly what they have to comply and perform to reduce operational risk
- Be methodically trained on operational risk
4 Customers - Trade with a reputable organization with fewer cases of fraud occurs
5 Government - PVFC contributes to improving the safety of the banking system.
The suggested solution for PVFC
Before suggesting PVFC suitable solutions, I apply the stakeholders’ matrix to explore the expectations of stakeholders when PVFC applies operational risk management
Table 7: Stakeholders’ matrix STAKEHOLDERS’ MATRIX
- PVFC’s operation is more safe and effective
- PVFC’s reputation is enhanced and raised
- Minimize the harm effects, damage or loss caused by operational risk
- Customer trust and trade more, number of customer increase by 10% after one year
- To get better remuneration, they want to have ability to identify operational risks and minimize the effects, damage or loss caused by operational risk of their unit
- Be supported by technology systems to manage
- Be methodically trained on operational risk
- Be guided to identify proactively current and potential operational risks of their units
- Know exactly what types of operational risk exist or occurred at their unit
- Know exactly where the operational risks often exist or occurred in their unit
- A mechanism to help them minimize the effects, damage or loss caused by operational risk of their unit
- Understand their role and duty to perform task
- Be supported by technology systems to conduct the task
- Be methodically trained on operational risk
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Achieving a score of 27 out of 40 without errors requires clear guidance on compliance and task execution Understanding their specific responsibilities enables individuals to perform their duties effectively and minimizes the likelihood of mistakes.
4 Customers - Trade with reputable organization
- To be safe in transaction
- Fewest cases of fraud occurring as possible
- Few errors, few failures, few mistakes
- Narrow gap among institutions about ability of management, technology systems
- The operation of banking system is safe
The stakeholders' matrix outlines the expectations of various parties involved in the implementation of operational risk management at PVFC, serving as a crucial reference for developing proposed solutions.
In addition to utilizing a stakeholder matrix, I employ SWOT analysis to assess PVFC's strengths, weaknesses, opportunities, and threats related to operational risk management Based on this analysis, I will propose effective solutions for PVFC to enhance its management of operational risks.
- Information technology system more and more developed
- Many opportunities to learn experience of the operational risk management from the previous banks
- There has been no regulatory documents in the field of risk management activities from the State management authorities
- PVFC’s leaders understand the importance of operational risk management
- PVFC’s staffs are young, enthusiastic and not afraid of difficulties, challenges in applying the new experimental process
- PVFC’s staffs are willing to learn and willing to participate in operational risk management training courses
- PVFC has not been set up the specialized functional department to take in charge of operational risk management activities
- PVFC’s operational risk management activities are deployed spontaneously and sporadically
- The coordination between the units of PVFC about operational risk management is still week
- PVFC’s staffs are lack of knowledge about operational risk management
- PVFC’s staff has not been methodically trained in operational risk management
- PVFC’s staff has not been aware of the importance of operational risk management activities yet
- PVFC has no technology platform to support the operational risk management activities
- The operational risk management activities are done manually, thus, it takes much time and manpower and difficulty to implement these activities
4.4.3 The suggested solution for PVFC’s implementation of operational risk management
To enhance comprehensive risk management in line with international standards, PVFC should initiate a thorough analysis based on SWOT and stakeholder expectations This involves developing a foundational framework for operational risk management to ensure a professional and methodical approach Key activities within this framework will be essential for achieving effective risk management.
1 Establish the functional department to take in charge of the operational risk management activities to ensure consistency throughout the whole system, avoid the
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29/40 operational risk management being deployed amateur, spontaneously and unprofessionally
2 After having the functional department, PVFC needs to develop the regulatory documents system such as regulations, policies, procedures, guidelines as well the basis for the units implementing the operational risk management activities
3 Study and develop the tools, the methods to support the operational risk management
4 Invest in technology infrastructure, buy or develop the software solution to support the implementation of operational risk management tools
5 Train the staff including new staff to raise theirs awareness of operational risk, help them understand their role and duties within the company
All these works need to cover all aspects of the company such as people, processes, systems and external events
4.4.4 The suggested solution for PVFC’s operational risk management procedure
Given the current limitations in resources and time, it is impractical for PVFC to implement all proposed activities simultaneously As PVFC transitions to commercial banking, a gradual deployment of these activities is essential A preparatory phase is necessary for PVFC to adapt effectively to standard management practices, aligning with its existing resources and needs This paper focuses on developing a tailored procedure to address the daily operational risks that result in losses and damages for the company.
I would like to propose solution for operational risk management procedure This procedure is shorted compared to the standard procedure, as follows:
Figure 8: The shorted procedure of operational risk management in PVFC
This shortened procedure is explained as below:
1 Identification: to identify operational risk, units of PVFC base on 4 the causes of operational risk or 7 the signs of operational risk event-types or whenever a loss event is detected
2 Mitigation: after identification step, the units can go straight to mitigation step The units conduct immediately the mitigation or temporary remedies without conducting the measurement or assessment step Because, the units have not been trained in the measurement or assessment methods, and they have never done this before And these methods are also complex and difficult for implement Moreover, ultimate aim of the unit is to minimize the damage or losses which caused by operational risk, so this step is more important than the measurement or assessment step Therefore, the measurement or assessment step of identified risks is temporary omitted to avoid the unnecessary complexity
Base on 04 the causes of operational risk and 07 the signs of operational risk events-types to identify
The risk mitigation need to be implemented immediately without the measurement or assessment
Report periodically the identified risk and report immediately the detected loss and the action plan to the risk management department for monitoring and controlling timely
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3 Monitoring: the units of PVFC report periodically the identified risk, report immediately the detected loss and the action plan for mitigation to the Risk Management Center to control and monitor timely
Step 1 and step 2 are conducted by the units of PVFC, step 3 is conducted by the Risk Management Center base on coordination and feedback between the Risk Management Center and the units of PVFC
4.4.5 The advantages and disadvantages when PVFC applies the suggested shorted procedure
Implementing this streamlined procedure will offer numerous benefits to PVFC, meet the majority of shareholders' expectations, leverage PVFC's strengths, and mitigate the impact of its weaknesses.
PVFC empowers its units and managers to proactively identify both current and potential operational risks, enabling them to understand the specific types of risks that frequently arise and their locations within the organization.
PVFC prioritizes the comprehensive collection, recording, and timely reporting of loss events and damages to the appropriate personnel or departments This process is crucial for developing a robust loss database that highlights prevalent operational risks and provides valuable lessons for units across the system Consequently, it enables PVFC to concentrate on high-risk sectors, enhancing overall risk management and operational efficiency.
This streamlined procedure simplifies measurement and assessment methods, making them accessible to all It enables PVFC and its units to implement effective remedies and action plans to mitigate risks Additionally, it assists PVFC in managing ongoing operational risks that can lead to losses and damages.
The guidelines assist PVFC staff and managers in comprehending their roles and responsibilities, ensuring they are equipped to minimize risks effectively However, the abbreviated procedures have not fully adhered to international operational risk management standards, resulting in a lack of proper measurement.
32/40 assessment step So PVFC does not arrange the identified risks in order of priority to handle
Overall, it has not been a perfect solution yet but it matches with PVFC’s capacity and transitional period while waiting for a further perfected procedure would be perfected continuously
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Have the goals been reached
Back to the goals which were set in Chapter 3:
- Understand the basic concepts such as operational risk, operational risk management procedure, etc
- Understand operational risk management tools and operational mechanisms of these tools
- Understand how the operational risks are managed
- Understand the characteristics and operational risk management activities of PVFC
- Propose the suggested solution in accordance with PVFC’ situation
Upon reviewing the set goals, I am pleased to report that I have not only met but exceeded my expectations I gained valuable knowledge about operational risk management, including a solid understanding of its fundamental concepts and procedures I learned what operational risk entails and the significance of each step in the management process Additionally, I explored various tools that effectively support operational risk management, gaining insights into their functionality and impact Throughout my research, I developed a comprehensive overview of how operational risks are managed and the key elements involved in the operational risk management process.
Studying past operational risk events at PVFC and analyzing previous colleagues' results has enhanced my understanding of the company's operational risks and their interplay with other risk types Engaging in discussions with the Risk Management Center and various departments has provided me with deeper insights into the current state of operational risk management and the collaborative dynamics within the organization As a result, I have gained a comprehensive understanding of PVFC's structure, unique characteristics, and operational risk management status.
Understanding risk management, particularly operational risk management, is crucial for PVFC Based on a comprehensive analysis of PVFC's current situation and its strategic shift towards commercial banking, I propose the most appropriate solutions These recommendations take into account the advantages and disadvantages of implementing this approach, ensuring alignment with PVFC's operational goals.
The major interests and important elements for the company
In just four months, from the initial inquiry to the delivery of final solutions, the outcomes of my internship have been impressive Despite my limited practical experience, my contributions have significantly benefited the company, although there are still areas that require improvement.
1 My suggested solutions create the basic framework for operational risk management activities It helps the company and its employees to grasp how to organize and operate the structure and activities to manage the operational risk The creation of a closed operational risk management procedure helps the individuals, the departments in the company understand the works need to be done by them to take part in the procedure, understand their role and their contribution in each step of the operational risk management procedure Therefore, it paved the way and generated generate premise for the operational risk management activities in PVFC
2 I shared the knowledge what I get to the staffs of the Risk Management Center, this helps them understand more about operational risk From that it helps the company and its employees raise awareness of the harm and losses which caused by operational risk and they realize that the operational risk management activities which had not been paid attention before are essential
3 The suggested operational risk management procedure was shortened, the unnecessary complexity of measurement or assessment methods was minimzed Therefore, it helps the units and their staffs to be easier to approach and deploy the operational risk management, this also is accordance with the transitional period of PVFC
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4 The sharing of my knowledge, my analysis about PVFC’s advantages and disadvantages, the strengths and weaknesses also the opportunities and threats would be a source of references to help PVFC build and deploy continuously operational risk management activities later My suggestions were the basis background for the company to consider, review continuously to complete additionally the operational risk management activities
Despite I tried my best efforts, but my internship work are unavoidable the shortcomings :
1 Because my internship period lasted only 4 months, the necessary information and data for analysis of the company were quite limited and very difficult to access, so I had not been able to research fully all aspects of the operational risk management yet Although
In selecting an appropriate tool for effective operational risk management during the transitional phase at PVFC, I have yet to finalize my recommendations for measurement and assessment tools Consequently, the solutions I propose may not be fully comprehensive.
2 Besides the aforementioned limitations, the other objective reasons such as the specialization limitations of employees, the level of complexity in applying the tool to support to the deployed operational risk management procedure, made the suggested solution for the operational risk management procedure was shortened, it still is lack of the measurement, assessment step Thus, it has not obeyed entirely to the international standards of operational risk management yet
3 Moreover, just only one solution for procedure was given without any other option in case this solution is not implemented is also a shortcoming.
Recommendations
The proposed solution established a foundation for operational risk management activities; however, I recognized its limitations Furthermore, as PVFC continues to expand, its range of products and services is set to increase significantly.
36/40 diverse and complex when it switch into a commercial banks, so in the long run, PVFC needs to deploy and improve continuously the suggested solutions:
PVFC must improve its risk management framework by establishing a dedicated operational risk management department This initiative is crucial for effectively and professionally addressing operational risks, which are among the primary challenges facing Vietnam's banking system today.
To enhance operational risk management, it is essential for specialized functional departments to systematically organize risk management activities by developing consistent policies, procedures, and specific provisions This structured approach enables PVFC to align with international standards and practices, ensuring effectiveness, safety, and consistency in their risk management efforts.
To strengthen its organizational structure and regulatory document system, PVFC must also focus on researching and developing tools and methods that support operational risk management, utilizing long-term data for more effective decision-making.
To enhance operational risk management at PVFC, it is essential to prioritize training activities for human resources Investing in personnel with specialized knowledge in operational risk management and technology systems will significantly support the effectiveness of these initiatives.
The proposed solution for operational risk management serves as a temporary measure during the transitional phase before PVFC fully transitions into a commercial bank To enhance this procedure and align with international standards, further research on risk assessment and measurement techniques is essential for effective operational risk management.
By addressing and enhancing the aforementioned aspects, PVFC can effectively mitigate operational risks and manage their impacts systematically This proactive approach will lead to improved control and management within the organization.
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For comprehensive insights into PVFC's financial performance and shareholder relations, visit their official website at http://pvfc.com.vn/ Access detailed annual reports and financial information through the dedicated sections for shareholders, ensuring you stay informed about the company's fiscal health and strategic direction.
The 2013 annual general shareholders meeting of PVFC highlighted key financial insights and strategic developments For comprehensive information, stakeholders can access relevant publications and documents through various financial institutions, including Techcombank and MBBank Additionally, the Bank for International Settlements (BIS) offers valuable resources on banking standards and operational risk management, which are essential for asset managers For further research, the Global Association of Risk Professionals (GARP) and the Operational Riskdata Exchange Association (ORX) provide significant insights and best practices in operational risk management.
Table 4: Classification of operational risk by causes 19
Table 5: Classification of operational risk by event types 20
Table 6: Benefits when PVFC implement operational risk management 25
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Figure 1: Diagram of PVFC’ charter capital from 2004 to Oct 2013 8
Figure 2: Diagram of PVFC’ total assets from 2009 to Oct 2012 8
Figure 3: Diagram of PVFC’ profit and profit after tax from 2009 to Oct 2012 9
Figure 4: PVFC’s organizational structure chart 10
Figure 5: The operational risk management in general 21
Figure 6: Distribution of Number of operational risks by events type 24
Figure 7: Distribution of Number of operational risks by business sector 24
Figure 8: The shorted procedure of operational risk management in PVFC 30