Home / Credit Risk

Credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade - 2

LIST OF TABLES

Table 1.1 Risk to customers 46

Table 1.2: Moody's Corporate Ratings 48

Table 1.3: Credit risk management quality of Scotia Group 64

Table 2.1: NHCT business performance results 2008 -2011 77

Maybe you are interested!

Table 2.2: Credit structure of NHCT by credit term 2008 - 2011 81

Table 2.3: Credit structure of NHCT by customer group 2008 - 2011 82

Credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade - 2

Table 2.4: Credit structure of the State Bank by industry group 2008 - 2011 84

Table 2.5: Credit structure of NHCT by collateral 86

Table 2.6: Credit structure of the State Bank by debt group 2008 - 2011 87

Table 2.7: Components of the Internal Credit Rating System 96

Table 2.8: Internal Credit Rating System Objectives 96

Table 2.9: Total financial score 99

Table 2.10: Non-financial scoring 99

Table 2.11: Customer Rating 100

Table 2.12: Indicator group 101

Table 2.13: Risks to debt repayment sources 101

Table 2.14: Individual customer ranking 104

Table 3.2. Customer relationship function 150

Table 3.1. Purpose of model conversion 148

Table 3.3. Risk management function 151

Table 3.4. Major changes and impacts 153

Table 3.5 Functions and tasks of each department at Branch 157

Table 3.6: Advantages of the model in the long term 161

LIST OF DIAGRAMS - GRAPHS


Figure 1.1: KDB Credit Approval Model 63

Diagram 2.1: Organizational structure at Headquarters 88

Diagram 2.2: Credit risk management organization model at branch 89

Figure 2.3: Credit risk identification process 91

Diagram 2.4: System operation process 97

Figure 2.5: Scoring of the internal credit rating system for KHDN 98

Figure 2.6: Financial score 99

Figure 2.7: Internal credit rating system scoring for individuals 100

Diagram 2.8: Debt classification according to Article 6 - Decision 493 103

Diagram 2.9: Debt classification according to Article 7 - Decision 493 103

Figure 3.1 Key risk management components 134

Figure 3.2: Credit Risk Management Model 136

Diagram 3.3 Organizational structure of risk management department 138

Figure 3.4. Model conversion requirements 149

Diagram 3.5: Model at Headquarters 149

Figure 3.6: Model at branch 150

Diagram 3.7: Overview of credit process flowchart in model 152

Figure 3.8: Credit block model 155

Figure 3.9: Credit decision levels under the new model 156

Diagram 3.10: Organizational structure at branch 156

Diagram 3.11: Functions and tasks at regional appraisal center 158

Diagram 3.12 Functions and tasks of the appraisal center Head office 159

Figure 3.13: Loan pricing in internal credit rating model 166

Chart 2.1. Income structure in 2011 of NHCT 79

INTRODUCTION


1. Urgency of the topic

As an economic entity, a commercial bank, like other economic entities, operates with the goal of maximizing its value. This goal requires that, in addition to constantly seeking solutions to increase business profits such as increasing market share, diversifying products, improving the quality of services, etc., commercial banks must also focus on researching and applying risk management policies to create a protective corridor for the existence and development of the bank, optimizing potential losses.

Risks in banking activities are extremely diverse and complex, hidden in all operations from cards, deposits, trade finance to investment, foreign exchange trading... with many different levels, but the most profound and serious impact is still credit risk, because credit is the basic and main activity that creates the largest amount of profit, as well as the largest loss of the bank. This is not only true in theory, but is clearly demonstrated by the business practices of the banking industry.

To ensure the safety of banking operations in the face of the increasing breadth and complexity of credit risks, in recent times, a revolutionary change has taken place and become an international standard in the operational strategy of the world financial industry in general and the banking industry in particular: Credit risk management, rather than traditional policies of revenue management and cost cutting, has become the core policy, playing a fundamental role in the long-term success of banks. This comes from the fact that, after a long time of pursuing increased profits and market share by all means without calculating and compensating for all potential risks, most banks have suffered serious consequences such as deterioration in quality or a serious decline in income from credit portfolios. It is these widespread failures in many countries that have led to

the above mentioned profound historical changes in the management and operation of banks.

In the context of the Vietnam Joint Stock Commercial Bank for Industry and Trade, after many years of strong and continuous growth and comprehensive and profound reforms in organizational practices, management, technology and human resources, the Bank has achieved remarkable progress in all aspects of business. However, historical lessons in the past and the great adverse fluctuations in the macro economy in general and the banking industry in particular in the past year and possibly in the next few years always remind us that the risk of declining credit quality is always present and can pose a great threat to the sustainable development of the Bank. To survive and develop through this complicated period, and even more, to comprehensively improve the quality of credit risk management according to international standards, quickly achieving the goal of integration into the regional and world financial system, improving the quality of credit risk management is a key issue in the operational strategy of the Vietnam Joint Stock Commercial Bank for Industry and Trade.

Based on the above reality, the researcher chose the topic " Credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade " as the topic of his doctoral thesis in economics.

2. Some research works and articles related to the topic

Credit risk management is an issue of interest to many researchers as well as bank leaders. Currently, there are many research projects and scientific discussions surrounding the issue of risk management in general and credit risk management in particular.

2.1 . “Main solutions to limit credit risks of commercial banks in our country in the current period”, PhD thesis in economics by author Nguyen Huu Thuy.

In this thesis, the author mentioned the characteristics of the formation and operation of the commercial banking system in our country is still too young. Poor capital conditions, outdated banking technology, products

Monotonous. The bank staff still lacks experience and knowledge about a bank in a market economy. The expansion of credit scale exceeds the management and operation capacity. In addition, the implementation of regulations is not strict. Many times, too much attention is paid to profits and forgetting to prevent risks. Competition between banks is unhealthy, even lowering credit standards. Credit information is incomplete, inaccurate, and outdated. Mortgage implementation is not good, control procedures are not done regularly. Monotonous products, income mainly comes from direct credit and risk assessment is not taken seriously. The bank's ability to adapt to competition is not high, the borrower's character is weak, leading to quite serious moral risks for the bank.

On that basis, the thesis proposes solutions to limit and prevent credit risks. It focuses on analyzing key solutions including staff training, organization and network arrangement, management, inspection and control as well as product diversification and new product development.

However, the thesis researched in the period 1994-1996, when Vietnam had not yet joined the World Trade Organization (WTO), the economy had just opened up, the financial banking system was still young and not really developed. Solutions to limit credit risks for the commercial banking system in general, had not yet focused on a specific bank. Risk studies were also only at the qualitative level, had not yet quantified risks and had not yet proposed any specific credit risk management model for banks.

2.2 . “Measures of commercial banks to limit risks in lending to businesses” Doctoral thesis in economics by author Le Thi Hiep Thuong

The thesis has stated that risks are the results of activities beyond human expectations. In the lending activities of banks, there are inevitably risks. Lending risks can come from fluctuations in interest rates or exchange rates of the lending currency, however, credit risk is the basic risk in lending activities.

Recognizing this problem, commercial banks are always looking for measures to limit credit risks. These measures aim to strengthen strict control of bank lending activities to improve credit quality and ensure the safety and efficiency of bank operations in general.

The thesis analyzes the credit situation of the country in the centrally planned subsidized economy. During the period 1951-1987, the State Bank implemented a credit policy oriented to the plan. The bank is like a treasurer that always provides capital to enterprises when necessary. Credit is more political than economic, lending is spread evenly, everyone has a share.

The thesis also analyzes the credit situation of the country in the period of operating under the market mechanism in Vietnam after 1988, especially since the promulgation of the banking ordinance, the credit activities of banks have had significant changes. Along with the growth of the economy, the scale of credit is increasingly expanding, leading to the risk of overdue debt increasing, causing instability and insecurity in banking business.

The thesis has proposed a number of positive measures, within the current capacity of commercial banks, to prevent and limit credit risks in lending to businesses such as management, loan control, diversification of loan types, solutions on applying new lending techniques to prevent and disperse risks, and at the same time recommending legal and State Bank support measures within the macro scope to strengthen State control as well as create a stable legal corridor for commercial banks to operate lending safely.

2.3 “Scientific argument on determining credit risk management model in Vietnam's commercial banking system”, PhD thesis in economics by author Le Thi Huyen Dieu

The thesis focuses on research on credit risk, causes, signs, and indicators reflecting credit risk in the business activities of commercial banks. At the same time, the thesis also clearly systematizes the basic content of credit risk management, on that basis, it proposes models.

Risk management and terms and conditions apply.

The thesis summarizes the basic theories of credit risk management, in which the author systematizes the content of credit risk management in the basic steps: risk identification, risk measurement, risk management, risk control and debt handling.

Basic issues of credit risk management model, concept, benefits of applying the model, influencing factors, classification of models according to criteria and conditions of application.

The thesis studies the credit risk status of the Vietnamese commercial banking system before 2000 and after 2000, in which the author systematizes the legal basis, credit characteristics and credit risk status of these two periods.

In the period before 2000, credit risk was mainly reflected in lending focusing too much on state-owned enterprises, the high rate of medium and long-term loans and the high rate of overdue debt over the periods. The main causes stemmed from systemic risks and individual risks.

In the period after 2000, the legal environment for credit activities in this period has become more complete and reduced risks. The system of legal documents on credit activities has been gradually completed from the Law to sub-law documents. However, in this period, lending policies have not yet reached a strategic level, have not achieved market principles, and have followed trends.

The thesis analyzes the application of risk management models of Vietnamese commercial banks on three aspects: risk management organization model, risk measurement model and risk control model. On that basis, the thesis proposes the selection of appropriate application models for Vietnam.

2.4 “Solutions to improve credit relations between commercial banks and enterprises in Vietnam” Doctoral thesis in economics by author Le Thi Thanh Ha

The thesis has systematized in a general way the theoretical issues on the relationship between

credit system between banks and enterprises. It has clarified the nature and role of bank credit in the market economy as well as clarified the relationships between banks and enterprises.

The thesis focused on clarifying the current status of credit relations between commercial banks and enterprises through the periods (from 1951-1988 under the centralized planning mechanism and from 1988 to present under the economic renovation policy of the Party and the State). During the renovation period, credit activities of commercial banks achieved great achievements, credit relations between banks and enterprises were increasingly strengthened and consolidated, reflected in many aspects such as outstanding loans to enterprises continuously increasing, expanding loans to non-state enterprises, the proportion of medium and long-term credit increasing, flexible lending mechanisms, improved credit quality, and more effective business situation of enterprises.

2.5 “Ensuring safety in credit activities of joint stock commercial banks in Ho Chi Minh City” Doctoral thesis in economics by Dr. Le Tan Phuoc

The thesis has raised the necessary theoretical issues for the research topic. Commercial banks, the commercial banking system, the basic operations of commercial banks. Credit risk and credit risk management - one of the basic requirements of ensuring credit safety is also mentioned in detail. The thesis has clearly pointed out the most serious consequences of credit risk. At the same time, the thesis also clearly analyzed the factors affecting the assurance of credit safety in commercial banks, which are the economic environment, credit policy, interest rate and interest rate risk management, and the business capacity of customers.

The thesis has proposed solutions to contribute to ensuring credit safety for commercial banks including three groups of solutions: macro, micro and other supporting solutions. The thesis is interested in improving credit risk management techniques by building reasonable credit policies, improving the quality of customer assessment and classification, and fully complying with regulations.

Comment


Agree Privacy Policy *