analytical methods, such as taking monthly data from the time of establishment, so that the forecast results are accurate, have less variance and are more likely to be closer to reality.
- With the forecast data in the essay being debt that is likely to lose capital in the next quarter, the Bank can expand to calculate overdue debt or bad debt to set up risk provisions, or adjust lending activities, appraisal processes and risk management to ensure that debts are safe, in accordance with the regulations on overdue debt ratio and bad debt ratio of the State Bank.
- The essay assumes that group 5 debt is irrecoverable debt. However, in reality, through banking operations, debt can still be recovered. Therefore, the Bank should apply accurate data on irrecoverable debt and off-balance sheet debt so that the forecast data is more objective and accurate.
- With the results calculated in the methods and forecasts that the level of debt with the potential to lose capital may increase in the next quarter, the Bank should immediately implement measures to prevent and mitigate risks in the process of loan appraisal, urge debt collection and set up provisions (specific provisions for group 5 debt is 100%) to minimize possible losses.
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PART III. CONCLUSIONS AND RECOMMENDATIONS
1. Conclusion
1.1. Evaluation of the results achieved by the topic
Through analyzing and evaluating the current situation of the Bank in the period of 2012-2014, we can see that: in the past 3 years, the situation of assets - capital and business activities of the Bank is quite good, the indicators of assets, capital as well as income and profit of MB Hue continuously increased. Compared to other banks in the area, MB is a prestigious bank with strong financial potential, increasingly establishing its position in the market.
Along with the difficulties of the economy and the global financial crisis, the credit quality of the Military Commercial Joint Stock Bank, Hue Branch, was also significantly affected. The ratio of overdue debt and bad debt fluctuated strongly and sometimes exceeded the threshold allowed by the State Bank (in 2013), leading to an increase in the credit risk coefficient. In addition, the debt collection coefficient decreased over the years, which was a big challenge for the Board of Directors and all employees of MB Hue. Therefore, improving credit quality through improving the management of credit risk is the top priority of MB Hue in this period.
Basically, the topic "Credit risk management at Joint Stock Commercial Bank Hue Branch" has achieved a number of set objectives:
- Study scientific theories of commercial banking, credit risk and standards, qualitative and quantitative indicators to measure risk.
- Evaluate and analyze the current business performance and credit risk status at MB Hue based on loan turnover, debt collection and outstanding debt, overdue debt, bad debt and measures and handling applied by the Branch to manage risks.
- Clarify the internal and external causes of the Bank leading to risks in credit activities at the Bank.
- Through quarterly data on debt with the possibility of losing capital within 5 years, the topic used the Value at Risk model with different calculation methods to make predictions.
report on the maximum loss that the Bank may encounter in the coming quarter to take appropriate preventive measures and set aside appropriate risk provisions.
- Propose a number of groups of solutions to minimize credit risks and improve the quality of risk management of the Branch: such as improving information collection, improving appraisal quality, actively handling bad debts and overdue debts, focusing on training and developing human resources, dispersing risks and minimizing credit risks.
1.2. Limitations of the topic
- Due to the limited internship time, the process of researching and evaluating the current situation is not close to the actual situation at the Bank. The topic only studies risk management activities and credit risk assessment in the period of 3 years from 2012-2014, which is relatively short. In addition, the above research is subjective to the researcher, the accuracy is not high and needs to be verified in practice.
- The data used in the article is completely provided by the Accounting Department of MB Hue, so only comments can be made based on this data, so there are issues that are not accessible and not close to reality. Besides, the data on the credit situation collected is still not guaranteed to be objective, leading to a partial impact on the quality of the analysis of the topic.
- The VaR model used in the article also has its limitations, such as assuming that market factors do not change much during the time of determining VaR, or imposing a data series that follows the normal distribution rule, along with the fact that the sample representative data is too small and the research time is limited, so this analysis only opens up directions for analysis and approaches to problems for administrators and risk managers. Therefore, the biggest limitation in this essay is that the calculated numbers will be difficult for administrators to use and can only be used for reference.
1.3. Development direction of the topic
Nowadays, the problem of bad debt, how to manage and use bad debt is still a question discussed daily in economic forums. Good management and correct assessment of credit risk is a method to help banks control their operating status.
activities of the Bank. Due to the above limitations, the research topic is still not fully representative and does not accurately reflect the situation of risk management at the Military Bank, Hue Branch in the recent past. Therefore, the conclusions and risk mitigation measures given may not meet the practical requirements in risk management at the Branch at present. On that basis, it is necessary to expand the topic in the following directions:
- Develop research at a higher and deeper level by evaluating data over more years, providing more realistic and objective data, so that there will be accurate analysis results, the results applied from the model will also have less difference and have practical meaning.
- In parallel with data analysis, it is possible to directly investigate and survey the actual risk status of the bank to use it as a basis for comparison with the data analysis results, which will help to assess the problem most accurately.
- At the same time, after calculating the VaR model, it is necessary to perform Backtesting to make sure that the actual results do not exceed the potential VaR loss and the violation frequency only corresponds to a predetermined probability level.
The new trend used by analysts today to manage risks more effectively is to combine VaR and CVaR. VaR only gives us thresholds and based on it, establishes rules and systematic levels as standards when evaluating the business's performance and finances in the following periods, but does not indicate how the values that exceed the accepted threshold will fluctuate. Conditional Value at Risk (also known as Expected Shortfall) was born to help measure risks more effectively. It is a rigorous risk measure with properties such as monotonicity and convexity, which are very popular features today. Not only that, CVaR also determines the possible loss in the tail of the data distribution or quantifies extreme credit risk, a feature that VaR cannot do. To calculate this value, we combine data using the Performance Analytics package in P-project (statistical programming software).
2. Recommendations
2.1. For Military Commercial Joint Stock Bank, Hue Branch
- To handle old bad debts, the Bank needs to use appropriate risk provisions. Find all measures to liquidate and sell off collateral for bad debts to recover. Actively coordinate with customers to restructure debts and extend repayment periods for customers with temporary financial difficulties but with good business prospects. Sell debts to VAMC to focus resources on developing business strategies.
- Along with handling old bad debts, the Bank needs to pay due attention to limiting the emergence of new bad debts by reviewing debt classification, moving towards debt classification according to international practices. To do this, the Bank needs to complete the internal credit rating system according to Basel II standards, based on historical statistics of the bank itself lending to customers to calculate the probability of default and possible losses.
- Establish a department to research, analyze and forecast macroeconomics as a basis for planning credit development strategies and credit risk management in the medium and long term as well as short-term business plans.
2.2. For the State Bank
- The State Bank needs to develop a credit information system quickly, accurately and richly, collect more information through international organizations, coordinate with tax and audit agencies and People's Committees of provinces and cities to establish enterprise tax codes so that credit institutions can obtain information easily and with high reliability.
- The State Bank needs to coordinate with ministries and branches to perfect the accounting system according to international accounting standards (IAS). Develop solutions to perfect internal control and audit methods in enterprises and credit institutions, moving towards international standards.
- The State Bank needs to perfect its management mechanisms and institutions, and legal documents to strengthen state management in the monetary and banking sector, enhance inspection and supervision, and create favorable conditions for banks to operate healthily, transparently, and effectively.
- Improve VAMC's debt handling capacity through perfecting the legal basis for bad debt handling, purchase and sale activities, and securitization of bad assets of credit institutions.
2.3. For the Government
- Coordinate with relevant State agencies such as courts, enforcement agencies, ministries, and local agencies to create conditions and support mechanisms for the implementation of measures to handle outstanding debts for banks.
- The government needs to improve regulations on taxes, accounting regimes, financial reports, and invoice regimes so that businesses can fully comply and improve the accuracy of accounting data. This is the basis for banks to make more accurate credit decisions.
- In promulgating and implementing legal policies and mechanisms, it is necessary to quickly and promptly grasp all developments of the socio-economy, and to collect complete and objective opinions from agencies, sectors and enterprises to ensure that implementation is accurate, effective, fair and appropriate to actual conditions.
REFERENCES
Vietnamese
[1]. Authors: Huynh Thanh Dien, Tran Nguyen Nguyen Trinh, Tran Thi Bao Loc (2012), Applying the Value at Risk model to credit risk management for the commercial banking system in Vietnam.
[2] Phan Thi Thu Ha (2013), Commercial Banking Textbook , National Economics University Publishing House, pp. 287-320.
[3] Tram Thi Xuan Huong, Hoang Thi Minh Ngoc (2012), Commercial Banking Coursebook , Ho Chi Minh City Economic Publishing House, pp. 40-100.
[4] Dau Thi Lien (2014), Graduation thesis on Personal credit risk management at Nam Viet Commercial Joint Stock Bank, Thua Thien Hue branch , Hue University of Economics.
[5] Phan Thi Kieu Nhi (2014), Graduation thesis Research on internal credit rating system of corporate customers at Military Commercial Joint Stock Bank - Hue Branch , Hue University of Economics.
[6] Nguyen Tra Ngan (2011), Graduation thesis: Identification and management of risks in credit activities at Joint Stock Commercial Bank for Foreign Trade of Vietnam - Hue Branch , Hue University of Economics.
[7] Nguyen Phuoc Bao Quyen (2013), Graduation thesis on Credit risk management at the Military Commercial Joint Stock Bank, Hue Branch , Hue University of Economics.
[8] Cao Hao Thi and Associates (1998) Crystal Ball Version 4.0 translation , Fulbright Program on Teaching Economics in Vietnam.
[9] Hoang Nhu Thinh (2013), Graduation Thesis Credit Risk Analysis at Asia Commercial Bank (ACB) , Ho Chi Minh University of Economics.
Circulars, Decrees
[10] Law No. 47/2010/QH12 of the National Assembly: Law on Credit Institutions.
[11] Circular No. 02/2013/TT-NHNN: Regulations on asset classification, provisioning levels, risk provisioning methods and the use of provisions to handle risks in the operations of credit institutions and foreign bank branches .
English:
[12] Edited by Greg N. Gregoriou, The VaR Implement Handbook.
[13] Joel Bessis (2012), Risk Management in Banking, 2nd Edition.
[14] Jon Danielsson (2011), Financial Risk Forecasting.