LV thạc sỹ_Improving credit quality of GP bank

LIST OF ABBREVIATIONSBOD - Board of Directors BE - Board of Executives GP-Bank - Global Petro Joint Stock Commercial Bank HSBC - Hongkong and Shanghai Banking Corporation Petro Vietnam –

This thesis would not have been possible without the supports of MBA …

I would also like to thank all of lectures and tutors at National EconomicsUniversity in general and Advanced Program in particular who not only have bestowedtheir valuable knowledge, hands-on experience to me, but also have created the favorableopportunities for me to complete the thesis on time

…

Lastly but not least, I would especially like to thank all of my friends in AdvancedFinance Intake 49 for all their motivation and intellectual support that has made thisthesis completed

LIST OF ABBREVIATIONS

BOD - Board of Directors

BE - Board of Executives

GP-Bank - Global Petro Joint Stock Commercial Bank

HSBC - Hongkong and Shanghai Banking Corporation

Petro Vietnam – Vietnam Oil and Gas Corporation

SB – State Bank of Vietnam

Vietinbank – Vietnam Joint Stock Commercial Bank for Industry and TradeVietcombank – Vietnam Joint Stock Commercial for Foreign Trade

VIBank – Vietnam International Bank

VND - Vietnam Dong

TABLE OF CONTENTSACKNOWLEDGEMENT

1.1 Bank Credit in the Market-based Economy

1.1.1 Definition of Bank Credit1.1.2 Classification of Bank Credit1.1.3 Role of Bank Credit in the market-based Economy

1.1.3.1 Definition of market-based Economy1.1.3.2 Strengths and Weaknesses of market-based Economy1.1.3.3 Role of Bank Credit in market-based economy

1.2 Credit Quality of Commercial Banks

1.2.1 Concepts about Credit Quality of Commercial Banks

1.2.2.1 Qualitative Indicators1.2.2.2 Quantitative Indicators1.2.3 Factors influencing Credit Quality

1.2.3.1 Objective Factors1.2.3.2 Subjective Factors

CHAPTER 2: Current Situation of Credit Activities in Global Petrol Joint Stock Commercial Bank – GP-Bank

2.1 Overview of Global Petrol Joint Stock Commercial Bank

2.1.1 Formation and Development Process of GP-Bank2.1.2 Organizational Structure

2.1.3 Business Achievements of GP-Bank between 2007 and 2010

2.2 Current Situation of Credit Quality at GP-Bank

2.2.1 Essential Credit Activities of GP-Bank2.2.2 Current Situation on Credit Activities at GP-Bank

2.2.2.1 Qualitative Evaluation2.2.2.2 Quantitative Evaluation

2.3 Evaluation on Credit Quality of GP-Bank

2.3.1 Business Attainments2.3.2 Existing Problems and Causes

CHAPTER 3: Solutions to Enhance the Performance of Credit Operation in Global Joint Stock Commercial Bank – GP-Bank in coming years

3.1 Business Orientation of Global Petrol Joint Stock Commercial Bank

3.2 Solutions for Improving Credit Quality at Global Petrol Joint Stock Commercial Bank – GP-Bank

3.2.1 Strengthening Capital Mobilization3.2.2 Improving Customer Evaluation Quality and Business Plans3.2.3 Building Appropriate Lending Interest Rate Policies

3.2.4 Improving Quality of Human Resources3.2.5 Preventing, Limiting, and Handling Short-term and Bad debts3.2.6 Strengthening Inspection and Internal Control

3.2.7 Using appropriate marketing policies and strengtheningrelationships with customers

3.2.8 Modernizing Bank and Expanding Business Area

LIST OF TABLES, GRAPHS AND FIGURES

Diagram 1.1 Organizational Structure of GP-Bank

Table 2.1 Capital Mobilizing activity of GP-Bank from 2007 to 2010Table 2.2 Lending Activity of GP-Bank from 2007 to 2010

Table 2.3 Income Situation of GP-Bank during 2007-2010

Table 2.4 Pretax Profit of GP-Bank stage 2007-2010

Table 2.5 Loan sales according to objective

Table 2.6 Outstanding debts of GP-Bank during 2007-2010

Table 2.7 Overdue and Bad Debts Rates of GP-Bank

1 Rationale

After officially joining the World Trade Organization WTO (from November

7th, 2006), Vietnam's economy has increasingly integrated into the world economy,which has created not only an equal playing field and brought about manyopportunities, but also held potential risks and great challenges to Vietnam economy

In order to overcome the difficulties and challenges, the Vietnamese commercialbanks have actively improved their competitive advantages through measures such as:business expansion; management capacity enhancement; financial strength andbusiness efficiency improvement; modernization and technologicalinnovation Among them, credit activity proves one of essential operations in bankingindustry, which mainly contribute to the bank’s profit

As one of the leading joint stock commercial bank in Vietnam's bankingsystem, Global Petrol Joint Stock Commercial Bank - GP-Bank is equipped with a widebusiness network, diversified and high quality banking products, modern computer andcommunication systems, and advanced banking information processing technology Along with this, GP-Bank has gained prestige from its customers nationally andinternationally, and hence, its reliability and creditability are increasing clearly In fact,the credit activity holds a very important role in bringing revenues as well as profits forthe bank although just coming into being since 1990s

Notwithstanding, credit activity in GP-Bank still remains a host of restrictionsrelating to loans procedures, appraising process, legal framework, and limited operationalscale…Therefore, the research on credit activity proves crucial in order to work out somesolutions and measures to get to the bottom of existing problems for the development and

growth of the bank Because of these reasons, I am going to choose the following as topic for

my thesis “Improving Credit Quality of Global Joint Stock Commercial Bank”.

2 Research Questions

This study will aim at answering the following questions

 What is credit activity included?

 What are issues of credit activity performance of GP-Bank?

 What are solutions and recommendations for improving credit activity

5 Research Scope

Object of the research: performance of credit activities in GP-Bank

Scope of the research: the real situation and performance improvements ofcredit quality in GP-Bank in recent years

6 Research Structure

This thesis is constituted by three main parts: Introduction, Body, andConclusion Of which the body includes three chapters as follows

Chapter 1: General Discussion on Credit Quality of Commercial Banks

This chapter systematically analyzes and synthesizes the basic issuesrelating to credit and credit quality, which holds a crucial role in providing the frameworkfor the bank to evaluate and give pertinent measures to both get to the roof of theproblems and improve credit quality of GP-Bank

Chapter 2: Current Situation of Credit Activities in Global Joint Stock Commercial bank – GP-Bank.

This chapter is going to analyze and value the real circumstance of creditquality in GP-Bank, which actually evaluates Credit activities performance through somecriteria and clarifies its achievements, restrictions, and causes in credit activities of thebank

Chapter 3: Solutions to enhance the performance of credit Operation in Global Joint Stock Commercial Bank – GP-Bank in coming years.

This chapter offers a wide variety of measures and solutions for GP-Bankand recommends Government, State Bank of Vietnam to have pertinent policies topromote the quality of credit activities among commercial banks

CHAPTER I: General Discussion on Credit Quality of Commercial

Banks

1.1 Bank Credit in the Market-based Economy

1.1.1 Definition of Bank Credit

The terminology credit originates from Credo demonstrating reliability andcredibility In fact, credit is understood in various meanings and even in the financialrelations, but depending on specific contexts that credit has its particular features.Nevertheless, credit in general is the process of transferring capital in forms of moneyand things from an organization or individuals to another business entity or individualswho are going to use it in a certain period of time relying on the principles of repayment Bank credit, in particular, is a highly developed type of credit relationship, which is

a trading relationship between a bank and agents such as legal persons, business entities,social institutions as well as individuals For banks, credit is one of core activities,bringing most of the bank’s income, and hence, it is necessary to meliorate the quality ofcredit in the operation of bank at current time Admittedly, the more the economy grows,the higher the volume of bank credit is implemented Bank credit has three majorcharacteristics:

 There is a transferrable right to use funds from the owner (banks) to the user

 The transferring is existed in a given period of time

 The transferring is included with interest rate

1.1.2 Classification of Bank Credit

Actually, there are a set of ways to categorize the bank credit, but the mostcommonly-used would be certainly as follows

 Relying on credit term

 Short-term: within one year

 Medium-term: from two years to five years

 Long-term: above 5 years or 60 months

 Relying on the customers’ credibility

 Loans are backed by properties

 Loans are not secured by properties

 Relying on types of customers

 Lending is given to personal customers or individuals

 Lending is provided to businesses or organizations

 Relying on customers’ purpose of using capital

 Loans are given for goal of business

 Loans are given for purpose of consumption Besides to this, there are also other manners of classifying bank credit, ranging fromforms of loans and diversification of products and services to methods of repayments

1.1.3 Role of Bank Credit in the Market-based Economy

Recently, the bank has become more and more crucial and considered the vessel of the economy, especially for the purpose of constructing our nation in the newage as well as the successful implementation of the industrialization and modernization.Therefore, commercial banks are extremely important factors contributing significantly tothe development of the country in general and the economy in particular The importance

blood-of the bank in fostering the economy is actually expressed in a wide number blood-of key roles

as follows:

At first, bank credit is an important lever to provide capital for businesses to expand their production and business, and at the same time improve business performance

 In the market-based economy, in order to expand the scale of production, thecorporations are entailed huge amounts of capital to renovate plants andequipment, supersede backward technology, and utilize effectively modern

scientific progresses In such conditions, on the one hand, commercial bankstake responsibility of both providing, meeting the prompt shortage of capital

to address payment-related services and others and helping enterprises tofollow their plans smoothly On the other hand, via credit operations,payments and currency, the banks contribute significantly to strengtheningthe efficiency in production and business of the corporate

Secondly, the commercial banks hold an active role to push the process of accumulation and concentration of capital for the production activities

 As a financial intermediary between savers and borrowers, the banks haveturned idle capital into the concentrated funds through which they canreconcile the demand and supply of money in the society and meet the mostsatisfactory needs for the customers

 By using different forms, the banks have done very well the work offocusing the idle capital from individuals or social organizations and throughthose interim funds, banks will definitely exercise their strategies to exploitand utilize most effectively and efficiently, aiming to meet most of capitalneeds helping the production process continuously as well as speeding up theprocess of reproduction

Moreover, bank credit is one of tools to regulate money circulation through which

to harmonize macro-economic

 In fact, in the market economy, the development of production of productsand services are tied strictly to money circulation, and it is thanks to banks’advantageous characteristics that bank credit plays an indispensible role inthe circulation of currency

 Plus, by dint of an actual growth in the number of those people openingaccounts and carrying out their transactions through the banks regularly aswell as the lending and collecting debts of the banks associated with themovement of goods and materials in the process of production and

circulation, it can create objective conditions for the State via the bankingsystem to use credit instruments to regulate currency circulation replacingcash flow.

 The development of credit operations along with non-cash payments hasobviously reduced amounts of cash flowing which are hardly handled by theState, contributing to the stability of currency circulation Nonetheless, itshould be noticed that the commercial banks actively need to reconcile fromthe capital surplus to the shortage, helping to harmonize macro-economy aswell as to stabilize the entire economy

Fourthly, bank credit is an important tool to promote the expansion of international exchanges amongst economies.

 As economies in the world are tied closer together, economic development is

no longer confined within each nation instead it will definitely spread to alarger scale – worldwide, simultaneously exchanges and cooperation amongeconomies will exhibit much deeper and more powerful Thanks to these,bank credit proves a very effective means of connecting all economiesaltogether To specify, it encourages both export and import of products andservices, to modernize the economy since these activities are always required

a huge amount of capital, especially in terms of foreign currency like U.Sdollars that individuals or institutions cannot possess adequately Only going

to commercial banks are fund’s needs able to satisfy fully

 The development of credit activities between Vietnam and internationalfinancial institutions, monetary funds, and foreign banks has contributedconsiderably to the development of our economy as well as the process ofintegration and globalization

1.2 Credit Quality of Commercial Banks

1.2.1 Concepts about Credit Quality of Commercial Banks

For the purpose of evaluating the power and potential of a specific business, theanalyst relies on three important criteria, namely, quality, quantity and price of products.

In fact, in the fiercely competitive market economy, the quality improvement of creditactivities proves a necessity and demonstrates the importance for the sustainable growth othe enterprise, and the commercial banks cannot also be out of this circle It is believedthat the credit quality is considered as the ability to satisfy customers’ needs and ensureboth the existence and development of banks in accordance with the economic and socialgrowth However, to clarify this, it should be taken into account the following aspects

For customers, the credit quality is shown clearly in the amount of budget beinglent to meet funds’ needs timely and adequately with reasonable interest rates, which caneasily bring the most satisfactory feeling for the customers while ensuring the credit’srequirements set up by the State Bank of Vietnam Besides this, it can create favorableconditions for the production processing to take place smoothly, generating more profits

For bank itself, bank credit is the most crucial aspect needed to be scrutinized toimprove the quality of their products and services because banks are also one form ofbusiness enterprises which are running business in a special field Hence, bank credit can

be determined by a number of following features

 It can contribute to the development of business sectors and locals as well,which is regulated according to the orientation of the State as well as thebanks to match the real circumstances

 The amounts of bank credit given by the commercial banks must befollowed principles, objectives, and reliabilities

 Credit amounts must be collected timely, including both principal andinterest, minimize the overdue debts, bad debts to increase the capital cycleand make more profits

As mentioned-above, on the one hand the credit quality is a specific term because

it can be determined by a number of quantitative indicators like profit and loss statementsand overdue debts On the other hand, it is also an abstract concept when being evaluated

by qualitative indicators Therefore, to have profound understanding the essence of thequality, appropriate analysis and assessments, and main causes affecting the quality ofcredit can help banks to ferret out the most effective measurements to meliorate thequality and increase the performance dealing effectively with the competitive market liketoday.

1.2.2 Evaluation of Credit Quality

1.2.2.1 Qualitative Indicators

Through above analysis, it is easy to see that the quality of credit is demonstratedclearly by the bank’ ability to expand credit activities tied with the ability to meet thecapital needs of borrowers, which aims to ensure the existence and growth of the banks,contributing to the development of the whole economy Actually, qualitative indices can

be judged through a number of factors as follows

At first, the quality of credit is good once the banks gather debts in time andgenerate profits In other words, credit activities should generate profits so that the bankscan have the income to cover expenses, minimize risks, and enjoy profits This is not only

to depend on the bank themselves, but also be affected heavily by the customers Toillustrate, an amount of credit is effective whether lending procedures are being followedstrictly, ranging from the use of loans for the right purposes with high economicefficiency to repayment of principal and interest on time It is thanks to the strictobservance of credit’s principles, the responsiveness in doing business, and valuablehelps from commercial banks that the corporate are able to generate profits, fulfillpayment obligations, and ensure its existence and growth

Secondly, the quality of credit is evaluated as good once the bank meets timelycapital needs of customers In fact, this is a cornerstone for the development of the bankbecause the bank cannot bring a sustainable standing without significant contributionsfrom their customers To be more specific, for the enterprise itself, a sense of goodquality demonstrates from simple procedures and convenience, but ensuring the

principles of minimum safety proving the funds promptly, quickly, and safely.Notwithstanding, they are initial requirements in the competitive market-based economywhich is always volatile, and hence, it entails the commercial banks have to become moreand more active in order to satisfy the rise in both the quality and quantity of the creditactivities Thus, to achieve this goal, apart from having the ability to response to capitalneeds, the bank are needed to be friends, to be ready to give helps, and share financialburden with their customers For instance, during the time of appraising the projectfinding any inappropriate and not feasible, the bank should comment on, advice, providereasonable adjustments as well as providing useful information in terms of markets,technology instead of refusing these.

Thirdly, the quality of credit must contribute to the socio-economic growth of thespecific regions, locals and the whole nation as well This is manifested in the stability offinancial market, the improvement of production capacity, and the technologicalimprovement for the enterprises, tackling job-related problems, raising income,meliorating living standards of the residents However, when assessing these criteria, itshould rely on specific circumstances at the certain period of time For example, on theone hand, there are a host of projects including renovation of equipment, plant, andtechnology to both help businesses to increase the productivity and at the same timetrigger unwanted repercussion like narrowing the employment of workers On the otherhand, a number of projects prove ineffective temporarily, but have long-term worth forthe society Therefore, in these situations, in order to judge accurately the credit quality,the banks should take into account multifaceted involvements In a word, credit quality isthe synthesizing indicator being evaluated through three major partners consisting ofbanks, businesses and the economy Moreover, it is concluded that the qualitativeindicators are mere background in assessing the credit quality in general, and hence, therewill need quantitative indicators to make accurate and clear adjustments

1.2.2.2 Quantitative Indicators

 Credit scale indicators

- Loan sales: these criteria reflect the scale of proving credit of the bank the customers

those people who need the capital in a certain period of time, often yearly In fact, thelarger the credit scale and the higher the growth of credit are, the better the operation ofcredit activity in the banks Yet, this merely manifests the quantity not the quality of thisactivity As the purpose of commercial banks is their profitability, the rise in the number

of loan sales needs to be followed by the increase in the sales of debt recovery with thelatter having at least equal growth rate with the former in order for the encouragement ofthe development of credit activity

- Credit outstanding balance: this is the amount of funds given for the customers

at a certain period of time Despite it could be regarded as the higher this criterion is, thebetter the credit quality is, it still cannot provide accurate assessments, stemming from anumber of potential risks involved in

- Profitability: in general, bank’s revenues stem from a number of sources, but in

particular, credit operation contributes the most important part to the profit of the bankhelping it to survive and grow These amounts of profit not only include principals, butalso cover the interest rate as well Moreover, the reduction on the overdue and bad debtsshould be accompanied by the increase in the revenues from credit activity

- Capital Adequacy Ratio (CAR): A measure of a bank's capital It is expressed as

a percentage of a bank's risk weighted credit exposures

According to the decision number 493 about the classification of debts andprovisions against risks issued by the Governor of the State Bank of Vietnam, stating tocategorize the debts of commercial banks as follows

o Group 1: Current

o Group 2: Noticed

o Group 3: Sub-prime

o Group 4: Doubtful

o Group 5: Bad debts

- Overdue loans: debts incurs whether the borrowers fail to implement the

payment obligation on time, and these are categorized in groups 2, 3, 4, and 5 in whichthe overdue loan ratio is determined by the following formula

Overdue loan ratio =

overdueloans totaloutsandingloans

In terms of its nature, credit is essentially a refund, and hence, the ability of safety

is prioritized To specify, once a loan cannot be paid timely without any appropriatereasons or exceeds time allowed to make differed payment, it will then transfer to theoverdue loan which is not expected by both the banks and customers themselves In fact,the higher this ratio is, the more difficult the bank has to deal with In addition to this,some of these loans are certainly able to categorize as the bad debts, triggering loss ofcapital for the bank

- Bad debt: that is an amount that is written off by the business as a loss to the

business and classified as an expense because the debt owed to the business is unable to

be collected, and all reasonable efforts have been exhausted to collect the amount owed.This is calculated by subtracting the overdue loans from noticed loans, and therefore, thisincludes those loans of group 3, 4, and 5 Actually, bad debt ratio is a very crucialcriterion in assessing the credit quality of the commercial banks Not only does it haveadverse influence on the bank, but it also carries higher ability to move down to riskierdebts, leading to the loss of capital easily quickly It is determined by the followingformula:

Nonperforming loans (NPL) ratio =

BadDebts TotalOutsandingLoans-Loans group 5: these loans are extremely concerned by the bank because it

reflects the fact that the higher the ratio is, the easier the bank has to cope with the

possibility of capital loss, including overdue loans over 360 days, loans waiting processed

by the government…In fact, they have great impact on the business situation of the bankbecause for these loans, the bank always has to provide 100% the provision against therisk, affecting its profitability and deteriorating the bank’s creditability Thus, the bankreally needs to ferret out measures to ward off from these types of loans, which require,the bank’ s efforts on many aspects

- Capital efficiency

Capital efficiency ratio=

totalouts tan dingloans totalcapitalmobilizing

This indicator is allowed the analyst to judge the bank’s capital aiming to meetthe credit needs of the economy To illustrate, once this ratio approaches closely to 1,meaning that most of credit amounts given by the bank is utilized properly for the goal oflending This can ensure and construct an optimal capital structure for the bank in terms

of risk prevention Also, it demonstrates how expansionary credit of the bank is whether

it follows positive or negative trend

1.2.3 Factors influencing Credit Quality

1.2.3.1 Objective Factors – PEST analysis

 Economic Environment

In general, any kinds of business forms are influenced by the environmentsurrounding it whether it is big or small, but in particular, economic aspects actuallycause no little impact on business activities of commercial banks, especially in creditoperation They are factors affecting the financial health of borrowers In other words, asthe economic environment becomes unfavorable, then it will not only have greatinfluence on the payment obligation of the borrower, but it also reveals adverse effects onthe corporate, leading to significant reduction on their profits as a consequence ofinstability of economic elements

In fact, a stable economy is always considered as the sustainable cornerstone forbanks which utilize their strategies to run business effectively and efficiently, giving theopportunity for the improvement of credit activity By contrast, for an unstable economy,such factors like inflation, unemployment, and crisis are obstacles to hamper banks fromimplementing their operations in a productive way, causing big loss for the banks.

Besides, the economic growth cycle also has undeniable impact on the creditoperations To specify, during the stagnated economy, because the production andbusiness activities are narrowed down, then the credit operations will be affected greatly

in a number of fields, and hence, the demand for capital will be reduced and the paymentability of the borrowers is definitely poor Whereas in contrast, during the time the nation

is beyond the peak of the economic growth, not only is higher demand for funds seen, but

it also indicates much improvement in the credit activity However, it should be noticedthat the bank should not eliminate the possibility of increasing in capital due tospeculation

In addition to these, inflation also holds great effect on the demand for funds,actually triggering negative influence on the commercial banks’ credit activity Toillustrate, the staggering increase in the price of all goods results in the higher demand oncredit During the inflation period, financial companies and individuals will tolerate theseeffects and bear the cost of those loans

Moreover, the relevance of bank’s interest rate and corporations’ profitability inthe economy has significant influence on the credit quality of the banks To specify, asthe interest rates of the banks’ loans are set up higher than the enterprises’ profits, thenthe enterprises certainly find hard to carry out their payment obligations, affecting theproduction process of the enterprises in particular as well as the whole economy ingeneral Plus, as the economy becomes increasingly globalized, the exchange rate alsotriggers no little difficulties for enterprises while dealing with multilateral economicrelations In fact, the corporate cannot anticipate accurately all changes of market andhardly handle these fluctuations For instance, when borrowing the foreign currencies to

trade in the international market, the corporate will cope with the changes of foreigncurrencies whether they appreciate or depreciate, which directly affect their profitability.

 Legal Environment

Banks must actually operate their businesses under the strictest legal framework

in comparison with any types of businesses Hence, the more complete, uniform andunity the legal system is, the more efficient banks’ operations are, proving the conditionsfor improvement of credit quality and guarantee the credit quality between the banks andthe corporate Whereas in contrast, once the legal system is unstable, the banks certainlyundergo the adverse result Only when having the cooperation between two partners do

we see the improvement in the credit quality

 Unexpected factors

These factors may be able to include natural disasters, fires, floods, andearthquake, which are uncontrolled risks for the banks, leading to huge financial loss forthe borrowers, and then direct affecting the banks’ profitability

1.2.3.2 Subjective factors

 For the banks

 Credit Policy

This is essential factor to determine whether the banks can operate successfully

or not In fact, credit policy covers a system of measures related to the extension and

shrink of the credit in order to achieve predetermined goals of the banks and restrictpotential risks in carrying out the credit activity In addition to this, the credit policy mustconform to the State’s policy in terms of the economic development, and at the same timeharmonize the rights and liabilities of participants like borrowers, banks, and depositors.Actually, an appropriate credit policy will lure a great number of customers involving in,expand credit activity, and reduce risks Credit policies have great influence on the creditquality of the banks.

 Credit Information

It is thanks to assessing information that management team can be able to makedecisions associated with loan, its management, its related risks, and improvement in thecredit quality Credit information can be collected from the existing sources of the banks,customers, and other direct and indirect sources, law agencies…

 Organization of Commercial Banks

In fact, this factor not only affects the credit quality but also has influence onbanks’ operations To illustrate, for those banks which are organized with clear taskdelegations among personnel and cooperation among divisions, then they can meet fundcustomers’ fund needs promptly and find it easy to manage other credit amounts Hence,because of its importance, during the operating time, the banks need to pay attention toperfect their organizational structures in order to create the most favorable conditions forthe improvement of credit activity

 The quality of Human Resources

The facts have shown that human is an essential factor in determining thesuccess or failure in business, especially in the banking sector As the banking activitiesbecome increasing developed and there are an increase in the number of modernequipment used, then the role of personnel is also highly regarded to both facilitateworking process and to be representatives for the banks It is because of its requirementsthat the improvements in the human resources prove essential in banking activities in

particular For instance, banks’ personnel should possess ethics and professional workingstyle to help the bank away from unwanted risks.

 The Internal Control

This task is needed to be done frequently by any banks for the goal ofmaintaining the quality and efficiency consistent with predetermined policies,requirements, and plans This work to be done well can push the process of melioratingthe credit quality quickly as long as the implementation is entailed to complete correctly

 Capital Mobilizing

Actually, once the banks’ ability to attract investors is highly regarded, then thecredit expansion proves much easier In addition to this, the bank will not be able toapproach the efficiency and effectiveness in credit activities without the pertinentcollaboration between raising capital and loans, then resulting in risks

 For the Customers

 The financial situation of the enterprises

In order to achieve the safety in the credit activities, the banks should also takecare of the financial health of their customers – enterprises To be more specific, whetherthese customers are able to generate profits during the business process, it can be possibly

to evaluate that they will implement their payment obligation including paid forprincipals and interests on time whenever any loans are done Therefore, it is obviouslyimportant for the banks to have understanding about their customers’ financial abilitybefore deciding whether or not to make loans

 Capacity and Management of Customers

It is certain that there are no any enterprises which carry the business withoutpursuing profits However, on the one hand, due to the capacity and management level ofsome customers that they utilize loans from the banks in ineffective ways, leading tohuge loss for both participants On the other hand, if the management ability of the

confidence on loans given to their customers This factor then contributes no little to theimprovement of credit quality.

In a word, as a financial intermediary in the financial market, the banks musttake into consideration a number of factors to determine whether or not the grantingcredit is appropriate In fact, via understanding fully and analyzing the operationalmechanisms of these interrelated factors that the banks are able to make smart measures

to improve credit quality, restrict unwanted risks, and maximize the role of intermediarylevers in the economy

CHAPTER 2: Current Situation of Credit Activities in Global

Petrol Joint Stock Commercial Bank – GP-Bank

2.1 Overview of Global Petrol Joint Stock Commercial Bank

2.1.1 Formation and Development Process of GP-Bank

GP-Bank originated from Rural Commercial Joint Stock Bank Ninh Binhaccording to the Decision No 216/QD – State Bank of Vietnam on 13th November 1993,and has officially transformed the operation from a rural bank to an urban and modernbank from 7 November in 2005 On 9th February 2007, the Governor of State Bank ofVietnam issued the Decision No.372/QD – SB of Vietnam approved to change GlobalJoint Stock Commercial Bank into Global Petro Joint Stock Commercial Bank

Although having difficulties as a new banking paradigm shift, under the wiseleadership and full consensus of the Board of Directors and Board of Executives, thebusiness performance in 2007 was a breakthrough in the growth period of GP-Bank withimpressive numbers such as total assets of 7,214 billion of dong The victory in 2007 was

an important stepping stone for the bank to develop its entire system, to improve servicequality, increase value for customers, and improve operational efficiency

In 2008, despite facing with adverse situations from the world financial downturnand general economic difficulties inside our country, GP-Bank has steadily developedwith total assets of over 8,000 billion of dong

In 2009, the year that the commercial bank has started to recover from theeconomic crisis and GP-Bank included as well For 2009, GP-Bank operated its business

at more stable level than in 2008, proving by the facts that the bank’s charter capital wasabove double to reach 2,000 billion of dong, total assets reached nearly 17,348.525billion of dong

Starting its business operation with less than 10 members as a task force Hanoi inNovember 2005, recently, GP-Bank has built a strong and potential staff with above1,000 employees serving for business activities in the bank In addition, the bank has alsobuilt 67 branches and transactional offices around key economic cities and provinces inVietnam like Hanoi, Ho Chi Minh City, Hai Phong, Vung Tau, Da Nang, Ninh Binh…

Over time, GP-Bank has currently confirmed its maturity and makes an impressiveaffirmation on its presence in the financial market in the competitively cut-throat market

in Vietnam Not only does GP-Bank enhance the opportunity to cultivate the currentprofessional human resources, but it also emphasizes on the attraction and development

of new human resources, in which newly trained staff from universities and experiencedones are more favored to add on the recent staff of GP-Bank

Now, over 97% of GP-Bank’s employees has possessed the university degrees,postgraduate education, and has professional proficiency Plus, GP-Bank is one of thefirst commercial banks has successfully implemented the core banking system softwareT24 (Core Banking) provided by Temenos in Switzerland with the ability to process over10,000 transactions per second which can meet most of customers’ requirements andimprove the service quality On 25th November 2009, GP-Bank was ranked for 86th on thetop 500 largest private enterprises in Vietnam which was a great result evaluated basing

on the criteria of revenue and profitability, total assets, growth, and number ofemployees… all of above-mentioned shows that the business performance of GP-Bank in

2009 had a big breakthrough, contributing to strengthening the position of the bankdespite the bank just shifted its form of running business from 2005

GP-Bank has possessed strengths and certain advantages from the most powerfulcorporation, Petro Vietnam, known as a strategic shareholder of the bank With compactstructure, professionalism, highly trained staff, GP-Bank promises to become one ofpotential commercial banks in the Vietnamese banking field

2.1.2 Organizational Structure

2.1.2.1 General Introduction

GP-Bank is still a new banking paradigm shift in the competitive financial market,and hence, a host of important tasks is needed to be done by the bank, including learningprecious business experience from well-known and mature banks like VietinBank,Vietcombank, VIBank, and HSBC, and going along with valuable advice of economicexperts at home and abroad as well so that GP-Bank can enable itself to set up modelingbusiness activities both simple and effective

Nevertheless, thanks to its late creation GP-Bank is able to approach and take overthe best modern technology from the top banks More importantly, those technologiescould be considered as a significant factor contributing to helping the bank to cultivateappropriate organizational structure and operate more effectively, and simultaneously,can certainly guarantee a firm standing for the bank in the financial market

2.1.2.2 Organizational Structure

GP-Bank has established a scale organization with strict delegations of power,tasks and responsibilities amongst staff and employees in order to reduce its bureaucraticevil To specify, those departments working directly with the General Assembly ofShareholders, Board of Directors, Board of Executives will be then divided into sixblocks corresponding to six business operation fields of the bank like corporate bankingblock, retail banking, capital and foreign exchange, block for synthetic accounting andfinance, operations, and investments Each of those blocks continues to be divided intotwo to four specific offices or departments attaching with apparent accountabilities, taskdivisions, and powerful boundary so that the entire organization will be going to workproductively and profitably The following diagram illustrates the organizational structure

of GP-Bank

(Source: Extract from administrative office of GP-Bank)

Diagram 1.1 Organizational Structure of GP-Bank