Applying Basel II to Sacombank is not only to meet the expectations of the State Bank but also to perfect the risk management system according to international standards. Although there have been previous domestic and foreign research projects on the application of Basel II to risk management in general, credit risk management in particular, but with its own characteristics in terms of capital scale, risk management culture and especially Sacombank is still in the restructuring stage with difficulties and challenges in terms of technology level, human resources, financial resources, it is necessary to study the current status of risk management activities, the progress of Basel II implementation, from the limitations in the implementation process and lessons learned, the thesis proposes solutions to promote Sacombank to meet Basel II standards on schedule. That is the reason for the research of the thesis with the topic "Applying Basel II to credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank". To solve the above problem, the thesis uses a combination of qualitative and quantitative research methods. The results show that after implementing Basel II, bad debt has decreased and credit quality has improved. However, there are still limitations in terms of database, human resource quality, level of technology application in credit risk management activities, internal credit rating system has not met the advanced IRB approach, etc. Thereby, the thesis suggests solutions for Sacombank's managers. Researchers and interested people can refer to it to better understand issues related to credit risk management on the basis of the Basel II agreement.
ABSTRACT
Applying the Basel II standard is not only to follow the project of the State Bank of Vietnam (SBV) but also to improve the risk management system according to international standards. Although in the past, there have been many researches on the application of Basel II in risk management in general and credit risk management in particular, but with specific characteristics of capital scale risk management culture and Sacombank is still in the restructuring phase along with difficulties and challenges of technological level, human resources and financial resources. Therefore, it is necessary to study the status of risk management and actual progress of Basel II implementation. Learning from the experience of others and the limitations in the process of applying Basel II, the thesis suggests solutions to promote Sacombank to achieve Basel II standards in accordance with the roadmap. That is the reason for the study of the thesis with the topic "Applying Basel II to credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank". To solve the above difficulties, the thesis uses qualitative research method combining quantitative, and the results show that after applying Basel II, bad debt decreased and credit quality was improved. However, limitations on database, quality of personnel, the level of technology application in credit risk management and internal credit rating system have not met the advanced IRB approach. Thus, this thesis brings an overview or suggested solutions for Sacombank's managers and researchers, and they can understand Basel II content on credit risk management. From there, we can study further or learn from experience that help banks are or will be implementing Basel II in the future.
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CHAPTER 1: TOPIC INTRODUCTION
1.1 Necessity of research problem
In the context of an integrated economy, the financial market in general and the banking system in particular play an important role in promoting economic development. Despite its positive contributions, the Vietnamese banking system is facing many difficulties and challenges. RRTD, along with operational risks and market risks, are the main risks that commercial banks have to face. Recently, the Vietnamese commercial banking system has encountered major risks causing losses, especially RRTD occurring with a fairly high frequency and large value, showing that the banking system needs to pay more attention to RRTD management in business and RRTD management activities in Vietnam need to be standardized on the basis of applying governance models according to international standards, of which the Basel principles on RRTD management are the foundation.
The Basel Committee sets safety standards for banking operations. These standards are studied and applied by most banks in the world to their risk management systems. By meeting the three pillars of Basel II, banks can improve the safety, operational efficiency and competitiveness of the banking system.
In Vietnam, the implementation of Basel II in the banking system has been oriented by the State Bank of Vietnam as one of the important tasks of the banking sector in the Project "Development of Vietnam's banking sector to 2010 and orientation to 2020" issued on May 24, 2006 under Decision 112/2006/QD-TTg of the Prime Minister. According to the orientation, the State Bank has issued a roadmap for implementing Basel II and selected 10 domestic banks to pilot the implementation, including Saigon Thuong Tin Commercial Joint Stock Bank - one of the large-scale banks in the joint stock commercial banking system in Vietnam.
After more than two years since February 2016 when Basel II was piloted, Sacombank is also in the restructuring phase, dealing with bad debt after merging with Phuong Nam Bank.
Nam has just made efforts to meet Basel II standards according to the roadmap of the State Bank. Sacombank is currently facing many difficulties and challenges. Therefore, it is necessary to study the current status of credit risk management activities, the progress of applying Basel II to credit risk management at Sacombank, and at the same time study lessons from outside to have an overview and appropriate orientation to help increase the effectiveness of risk management in general, credit risk in particular, promoting Sacombank to soon achieve Basel II according to the roadmap set by the State Bank. That is the reason why I chose the topic "Applying Basel II to credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank".
1.2. Academic overview
Denis et al. (2007) pointed out that in order to better manage credit risk and ensure capital safety, using data according to Basel II standards will be more effective than data from the bank's internal management model. However, implementing credit risk management according to Basel II standards is very costly and requires banks to have certain conditions, so for optimal efficiency, banks need to integrate the use of data according to Basel II and the bank's internal management system. In the research paper on Bank Risk Management according to Basel II by Vasile and Roxana (2010), it is mentioned that credit risk management according to Basel II is necessary and effective for banks. RRTD management applying the internal rating method (IRB) according to Basel II allows banks to determine capital requirements according to risk levels, specifying risk components: probability of default (PD), estimated loss ratio (LGD), total outstanding customer debt at the time of default (EAD) and effective maturity (M). Banks implementing RRTD management according to Basel II will minimize losses and improve banking performance.
In Vietnam, there have been some studies on this issue, such as the study by Dang Quang Tuyen (2017) using qualitative methods based on data from 10 banks selected to pilot Basel II concluded: improving control capacity
RRTD for commercial banks, gradually approaching Basel II standards is a necessary step at present. The implementation of Basel II in the control of RRTD of Vietnamese commercial banks is a complex process, sensitive to many difficulties and challenges, especially in the context of limited financial potential of commercial banks. Tran Viet Dung (2016) in his thesis Applying Basel II Capital Accord: International Experience and Implications for Vietnam said that Basel II has been widely evaluated and recognized in capital management and risk management in banks. Many countries including member countries and non-member countries of the Basel Supervisory Committee have applied Basel II, in which Japan and China have not only succeeded in applying Basel II but have also switched to applying Basel III. In fact, the application of Basel II in China has helped to improve the position of banks, increase profits, stabilize the financial system, and promote economic development. Currently, the application of Basel to risk management at Vietnamese commercial banks is facing difficulties in building a risk management model, a risk measurement model, and financial capacity to comply with the CAR ratio. Risk management and monitoring capacity at both state banks and commercial banks is also one of the obstacles that need to be resolved.
The research overview shows that applying Basel to credit risk management is necessary and the implementation of credit risk management according to Basel II is facing many difficulties and challenges. Although there have been research projects in the world and in Vietnam, each bank has its own capital scale, customer characteristics, capacity and technology level, so it is necessary to study "Applying Basel II to credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank", one of 10 banks selected to pilot Basel application to evaluate the implementation process and propose appropriate solutions.
1.3 Research objectives and questions
Assess the current status of credit risk management and the level of Basel II application in credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank to find out the remaining shortcomings in credit risk management.
From the above assessments, propose solutions to implement RRTD management for Saigon Thuong Tin Commercial Joint Stock Bank on the basis of meeting the requirements of Basel II.
1.4 Research methods
To have scientifically based analysis, arguments and assessments of the research topic, the thesis uses qualitative research methods combined with quantitative methods in analyzing and evaluating the current situation of RRTD management at Saigon Thuong Tin Commercial Joint Stock Bank in the period from 2012 to 2018.
For qualitative research:
Qualitative research was conducted using observation methods: Observing signs of RRTD through RRTD assessment indicators such as: bad debt, bad debt ratio, RRTD coefficient, ... reflecting information on RRTD management activities at Saigon Thuong Tin Commercial Joint Stock Bank. Scientific thinking methods: analysis, synthesis, comparison, induction, deduction, systematization of collected data to reveal basic theories on RRTD management and the current status of RRTD management at Saigon Thuong Tin Commercial Joint Stock Bank.
For quantitative research:
Statistical method: collecting primary and secondary data related to RRTD management activities at Saigon Thuong Tin Commercial Joint Stock Bank according to time series from documents, texts, data on financial reports, information on the website of the State Bank, commercial banks, ... combined with practical research at Saigon Thuong Tin Commercial Joint Stock Bank.
Through the research results, propose solutions to reduce the gap between Sacombank and Basel II requirements, thereby increasing the effectiveness of credit risk management activities at the bank.
The research method is carried out based on the following steps:
First, review domestic and foreign studies on credit risk management and apply Basel to credit risk management.
Second, collect data to serve the analysis of the current status of risk management.
Third, through information analysis and synthesis, identify limitations and causes.
Finally, suggest policies and solutions for the research problem.
1.5 Research object and scope
Research object : The thesis focuses on the contents related to credit risk management based on Basel standards, mainly Basel II, and the application of Basel regulations to credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank.
Research scope : Risk management activities at Saigon Thuong Tin Commercial Joint Stock Bank in the period from 2012 to Quarter 1/2019.
1.6 Scientific and practical significance of the topic
Based on the analysis and general assessment of the effectiveness of credit risk management activities and the progress of applying Basel II standards to credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank, the thesis brings the following meanings:
Scientific significance: Based on the system of basic issues on credit risk management according to Basel II, the thesis points out the necessity of credit risk management according to Basel II at commercial banks in general, Sacombank in particular and the conditions for implementing Basel II in credit risk management. Researchers, managers and interested people can refer to it to better understand the content of Basel II on credit risk management and the implementation of credit risk management.
implementing Basel II in credit risk management. In addition, the thesis also studies lessons learned from a number of domestic and foreign commercial banks related to implementing credit risk management according to Basel II.
Practical significance: The thesis contributes to providing managers of Saigon Thuong Tin Commercial Joint Stock Bank with a comprehensive and comprehensive view of the current status of credit risk management and the level of compliance with Basel II on credit risk management at Sacombank. In addition, the thesis proposes solutions to improve credit risk management activities based on the application of Basel II at Saigon Thuong Tin Commercial Joint Stock Bank to achieve the goal set by the Board of Directors: "Strategic orientation to become a bank with safe - effective - sustainable development". For Sacombank, implementing Basel II is not only to meet domestic regulations as expected by the State Bank, but more importantly, to improve the bank's own management system according to international standards.
1.7 Structure of the thesis
Chapter 1: Topic introduction
Chapter 2: Saigon Thuong Tin Commercial Joint Stock Bank and warning signs of credit risk
Chapter 3: Theoretical basis of credit risk management and regulations on credit risk management according to Basel standards
Chapter 4: Current status of credit risk management and initial results of applying Basel II to credit risk management at Saigon Thuong Tin Commercial Joint Stock Bank"
Chapter 5: Proposed solutions to improve the effectiveness of credit risk management activities and apply Basel II to credit risk management activities at Saigon Thuong Tin Commercial Joint Stock Bank.