Credit risk management in agribank – thai nguyen province

To minimize the risk of credit performance, managers must assess the risk of credit products and factors affecting credit risk.. What is the assessment of the managers and staffs of Agri

PREFACE

In this summary dissertation, all figures and tables are numbered as presented in the

dissertation

Activities of banks currently face many difficulties due to the economic crisis Specifically, these crises affect the business results of all economic sectors Before the integration trend, banks have been facing stiff competition as well as various types of risk

Until now, the risk management of banks in Vietnam is almost left open and has not invested in contruction in a satisfactory and professional manner This is the reason why the bad debt ratio and many problems have occurred due to inability to control the occurrence of management problems that remained an urgent issue which has not been resolved The management of credit risk has become vital significance for the development of the banks, particularly Bank of Agriculture and Rural Development To minimize the risk of credit performance, managers must assess the risk of credit products and factors affecting credit risk

Thus, the researcher has chosen the topic "Credit Risk Management at Bank of Agriculture and Rural Development - Branch of Thai Nguyen, Vietnam"

The structure of dissertation includes 5chapters

CHAPTER I: INTRODUCTION

Background of study

This dissertation assessed the status of the level of credit risk of the Bank for Agriculture and Rural Development, Thai Nguyen province through the risk assessment of the debts which were

categorized by criteria: segment structure, type of borrowers, type of guarantee , and outstanding accounts

Through survey results, the data were collected to determine the credit risk of debt through the use of Likert scale

Thesis reviews are the factors affecting credit risk through two (2) groups of objectives and subjective factors

Statement of problem

Based on the objectives of the thesis, the research questions are as follows:

1 What is the profile of the respondents in terms of:

a) Age

b) Gender

c) Civil status

d) Education

e) Year in service

2 What is the assessment of the managers and staffs of Agribank Thai Nguyen credit risk management in terms of:

a) Segment structure

b) Types of customers

c) Types of guarantee

d) Account outstanding

3 What is the assessment of the managers and staffs of Agribank Thai Nguyen on the credit risk management in terms of:

a) Overdue Debt

b) Undue Debt

c) Debt requiring attention

d) Under qualified Debt

e) Doubtful Debt

f) Frozen Debt

g) Bad Debt

4 What is the assessment of managers and staff on the factors affecting credit risk management of Agribank Thai Nguyen in terms of:

a) Subjective creteria

b) Objective creteria

5 What design improvement on the credit risk management of Agribank Thai Nguyen can

be proposed to minimize credit risk?

6 Is there a significant difference in assessment of two groups of respondents on credit risk management and factors affecting the limitation of credit risks of the bank?

Significance of the Study

The results of this research will benefit the following:

To the Manager This will provide them with valued information concerning the credit risk

management of the branch In this regard they will be able to adapt their development programs to help the bank reduce credit risk management

To the Researcher The researchers as an employee of bank and as a candidate for Doctor of

Business Administration Degree, this study will enhance his knowledge that he can use and apply to the bank in the future

To Future Researchers This can serve as reference materials for future researches similar to

this

Scope and Delimitation

This study chose the topic on the credit risk management at the Bank for Agriculture and Rural Development in Thai Nguyen province

The researcher studied the present situation of credit risk in terms of bad debts, undue debts, overdue debts, debts requiring attention, under qualified debts, doubtful debts and frozen debts as perceived by managers and staff of the Agribank, and from that, the researcher

recommended the appropriate solutions to limit credit risk in effective ways in bank

The study was conducted at bank branches of Agriculture and Rural Development of Thai Nguyen The survey period was from 9/2012 to 3/2013 The data gathered about the operation of the bank covered the fiscal years 2011 and 2012 The study only focused on credit risk activities, not to mention the risk of other activities at the bank

CHAPTER II REVIEW OF LITERATURE AND RELATED STUDY

This section presents the basic concepts, the contents related to credit operations of banks sorted

by the variables studied

Conceptual Framework

Research Framework describes briefly how to define the problem, to which the authors propose

solutions to mitigate credit risk based on the selected variables

CHAPTER III METHODOLOGY

Research design

The research design was chosen with the purpose of gathering data regarding the credit risk in Agribank and how to limit this Moreover, the researcher analyzed the remained issues, assessed them and founbd out the best way to handle these and how to limit the credit risk in the Agribank system

The research used the descriptive method which included quantitative and qualitative

analysis of data And the main source of data was deetermined from the questionnaire The respondents were managers and staff of Agribank Thai Nguyen The Managers were chief of some departments and members of the management board in Agribank Apart from the questionnaire, the researcher also used the information and data from the Financial and

Accounting Department, Investment and Planning Department, including data from financial statements, profit and loss statements, etc

Population and Sampling

Due to the large number of population, the Slovin’s formula was used to identify the sample size:

N

 where n = A sample size

N = Population size

e = Probability of error committed due to the use of sample instead of population With the total population equal to 415 people If the confidence interval is 95%, e is 5%:

n = (415/(1+ 415/ 0,052)) = 203.6 Given the population and sample size, and due to the limitation of time and resource, the sample of 203 is acceptable and recommended

Research Instruments

The research study made use of a questionnaire which is divided into two parts as follows:

- Part I: Respondent’s profile as to age, gender, working position, working experiences

- Part II: This part measures the assessment of the respondents on the risk management and factors affecting to credit risk management of Agribank Thai Nguyen

The researcher also utilized the 5 Likert Scale to present and interpret the responses based

on their averages

Statistical treatment

To provide interpretation to the data gathered, the study applied statistical tools,

including:

- The qualitative and quantitative factors regarding the remaining problems on the limit

of credit risk in Agribank Thai Nguyen were calculated by frequency distribution or percentage

- The 5 points questionnaire to assess the present conditions of the limit of credit risks in Agribank Thai Nguyen and the statistical data were calculated by frequency distribution or percentage

- Using T - test analysis

CHAPTER IV

PRESENATION, ANALYSIS AND INTERPRETATION OF DATA

In this chapter, the survey results are shown in the table are arranged in the order of the variables analyzed Through the data, the general level of risk of credit products as well as the factors affecting credit risk were assessed

Profile of respondent

Table 1 Frequency and Percentage of respondent’s profile

Frequency Percentage

(%) Gender

Civil Status

Frequency Percentage

(%)

Age

Education

Doctor

Years in Services

Assessment of managers and staff on Credit risk management of Agribank Thai Nguyen

From Table 2 and Table 5 showed that the survey data were at the average values The data on the table showed the evaluation of the respondents on the extent of the risk assessment of credits as follows:

The credit is divided field of activities, the partners lend the borrowers personal loans for consumers with the highest level of risk (3.8) and business services sectors have the lowest risk level (3.2)

Based on the type of customer, the business organization which were classified as large companies have strong economic potential, with low risk level (3.1) However, considering many factors such as the business results of each period, commodity products business, most businesses were evaluated by respondents at the lowest level of risk than the customers of the small and medium enterprises and individual customers Moreover, individual customers revealed that the managers have high risk assessment level than the assessor But the customer asserted that they have better personal financial capacity and business capability than most unprofessional business organizations, with highest risk level

According to the type of guarantee, the loan secured with the property as collateral may bring lower-risk loans than without collateral Thus, although the procedure in facilitating the implementation of customer’s loans was easy, but the banks still need to have strict legislation for the evaluation of such new asset limit risks on loans

Under the term of the loan, the term loans have a higher risk level of medium and long-term loans This can be understood by the long-term loans maturing rapidly, but if the object borrowing operations are not effective in the short term, the ratio of overdue loans short term

showed high Banks should offer testing policy, often control the financial situation of the borrower, for an effective policy assessment of the capacity of partners to pay On that basis, reasonable recovery policies will be implemented to minimize the risk of losing money from the bank

Assessment of managers and staffs on the factors affecting the limitation of Credit Risks of Agribank Thai Nguyen in terms of subjective criteria and objective criteria

Tables 13 and 14 shows the subjective and objective factors affecting the management of credit risk For the group of subjective factors, the survey showed that subjects

The credit policy can significantly affect the level of credit risk On the Assessment process, lenders comply with the provisions of the State Bank which may affect the implementation of procedures for the loan However, compliance has a positive impact on the management of credit risk in the Bank Regarding the evaluation factors, the quality of information about the bank is only rated moderate at best This means that the financial appraisal should be given due attention to help ensure that the elements of credits meet the requirements

of the loan, as well as helping banks recover debts, considering the time and place that the losses occurred

For the internal control, the object being investigated on the internal control system showed that the operation management unit has to meet the necessary requirements However, the level of evaluation 3.7 / 5 by managers, and 3.5 / 5 of the staff, the internal control system has to enhance the control and tighter management of lending activities Always ensure that the loan amount is consistent with the capacity to pay of the loan, a collateral loan only once There is so new mitigate credit risk for the bank further

Design Improvement on the Credit Risk Management of Agribank Thai Nguyen Proposal

to Minimize Credit Risk

Develop, improve the policies and processes of credit

Concerning the improvement of the mechanism on decentralization and delegation of powers in the system of banks, the objectives are as follows: the decentralization and delegation

of powers have to ensure the compliance with the provisions of law and policies of the bank of credit operations which ensure safety, quality and effectiveness; must define self-responsibility

of all levels operating in credit activities, and must conform to the characteristics of each unit, in accordance with the capacity of the decentralized authorization To achieve the above objectives, Agribank Thai Nguyen system followed the criteria based on the capacity of the Branch (Board

of Directors, Credit personnel, outstanding, overdue loan ratio of the branch ) of the level of risk project (loan amount, loan duration, location, industry ) decided to split the lending authority of the grant (General Director, Deputy General Director, Council of Credit, Branch Manager)

Expand guarantee loans

To ensure minimum risks, especially risks and ethical limit losses when the risk occurs, Agribank system needs to step up expansion of loans However, Agribank should not make similar / or follow all loan projects with same conditions of a loan Agribank should require customers for additional loan security assets if necessary

Improve the appraisal of borrowers and their projects

To be able to improve the appraisal of borrowers and their projects, the evaluation work should have radical changes based on the credit management by customers, not just project

management To improve the quality of evaluation, credit staff should have enough quality, capability, experience in the evaluation of works, holding regular seminars and courses in project evaluation to update information and method of evaluation Concurrently, Agribank Thai

Nguyen should focus on collecting and handling information on projects, loans; applying the evaluation criteria such as NPV, IRR, sensitivity analysis and need special attention to

evaluation ability, reputation, financial capability of client / owner…

Develop and improve the information systems of risk prevention

To be able to implement effective measures to limit the risks, Agribank should build up and improve the information systems of risk prevention through the strengthening of collecting information about customers, projects, information of socio – economic conditions through various information sources At the same time, Agribank Thai Nguyen should refine, handle and store scientific information and increase investment to upgrade the system of information technology, professional software to expeditiously implement the payments to customers

Strengthen inspection and supervision, debt management loan

The enhancement of inspection, supervision and debt management are important

measures to limit risks processing for banks, especially the ethical risks when customers use the loan for wrong purposes To strenthen this task, the requirement is that the loan must be

transferred directly to beneficiaries The disbursement must be made through payment systems

of Agribank Thai Nguyen; Agribank Thai Nguyen should analyze and assess the financial

situation of enterprises, strengthen inspection of using loans, cash assets guaranteed loans and production status of customers especially delinquency and suspension interest