Evaluation of credit risk control in lending activities for corporate customers at Military Commercial Joint Stock Bank - Hue Branch

To complete this graduation thesis, in addition to my own efforts, I would like to send my sincere thanks to those who have cared for and helped me during my internship period for this graduation thesis.

First of all, I would like to sincerely thank the teachers of Hue University of Economics for guiding and imparting knowledge to me during the past 4 years of study. That is the basis for me to be able to complete this thesis. In particular, I would like to express my sincere thanks to my teacher - Master Le Thi Hoai Anh, who directly guided and helped me during my internship and completion of this graduation thesis.

Maybe you are interested!

I would like to sincerely thank the Board of Directors as well as all the staff at the Military Commercial Joint Stock Bank - Hue Branch for creating favorable conditions for me to successfully complete my internship at the Bank during the past time.

Finally, I would like to express my deep gratitude to my family, relatives and friends for being by my side and helping me in difficult times so that I could complete my graduation thesis well.

However, due to limitations in time, knowledge and experience, the process of implementing the topic inevitably has some limitations and shortcomings. We respectfully hope that teachers and those interested in this topic will have comments and contributions to make the topic more complete.

Thank you very much!

Hue, May 2014

Student

Princess of Korea

ACKNOWLEDGEMENTS

Finally, I would like to express my deep gratitude to my family, relatives and friends for being by my side and helping me in difficult times so that I could complete my graduation thesis well.

Thank you very much!

Hue, May 2014

Student

Princess of Korea

INDEX

THANK YOU i

TABLE OF CONTENTS ii

LIST OF ABBREVIATIONS v

LIST OF TABLES vi

LIST OF DIAGRAMS, FLOWCHARTS, CHARTS vii

SUMMARY OF RESEARCH TOPIC viii

PART I: PROBLEM STATEMENT

1.1. Reasons for choosing topic 1

1.2.Research objective 2

1.3. Research subject 3

1.4.Scope of research 3

1.5.Research method 3

1.6.Structure of research topic 4

PART II: RESEARCH CONTENT 5

CHAPTER 1: THEORETICAL BASIS OF CREDIT RISK CONTROL IN LENDING ACTIVITIES FOR CORPORATE CUSTOMERS OF COMMERCIAL BANKS 5

1.1. Controlling credit risk in lending activities 5

1.1.1.Concept 5

1.1.2. Credit risk control process in lending activities 5

1.1.3. The necessity and purpose of credit risk control in lending activities 6

1.1.4. Factors for assessing the quality of credit risk control in lending activities 7

1.1.5. Factors affecting credit risk control in lending activities to corporate customers of commercial banks 8

1.2. Credit risk in lending activities of commercial banks 10

1.2.1.Concept 10

1.2.2.Characteristics 10

1.2.3.Classification of credit risks in lending activities 11

1.2.4.Consequences of credit risk in lending activities 12

1.3. Theoretical basis of Commercial Banks and lending activities of Commercial Banks 13

1.3.1.Commercial Bank 13

1.3.2. Lending activities 15

CHAPTER 2: CURRENT STATUS OF CREDIT RISK CONTROL IN LENDING ACTIVITIES FOR CORPORATE CUSTOMERS AT MILITARY COMMERCIAL JOINT STOCK BANK - HUE BRANCH 22

2.1. Overview of Military Commercial Joint Stock Bank - Hue Branch 22

2.1.1. Military Commercial Joint Stock Bank 22

2.1.2. Military Commercial Joint Stock Bank – Hue Branch 22

2.2. Current status of credit risk control in lending activities for corporate customers at MB - Hue 36

2.2.1. Current status of lending activities for corporate customers at MB Hue over 3 years 2011 - 2013 36

2.2.2. Current status of credit procedures in lending at MB - Hue 47

2.2.3. Evaluation of credit risk control in lending activities for corporate customers at MB - Hue 54

CHAPTER 3: SOME SOLUTIONS TO CONTRIBUTE TO IMPROVING THE QUALITY OF CREDIT RISK CONTROL IN LENDING ACTIVITIES FOR CORPORATE CUSTOMERS AT MILITARY COMMERCIAL JOINT STOCK BANK - HUE BRANCH 68

3.1. General assessment of credit risk control in lending activities for corporate customers at Military Commercial Joint Stock Bank - Hue Branch 68

3.1.1.Advantages 68

3.1.2. Disadvantages 69

3.2. Some solutions to improve credit risk control in lending activities for corporate customers at MB Hue 70

PART III: CONCLUSIONS AND RECOMMENDATIONS 73

1. Conclusion 73

2. Recommendation 73

3. Future research directions 74

REFERENCES APPENDIX

LIST OF ABBREVIATIONS

MB Military Commercial Joint Stock Bank

Bank

Customer

Branch Office

CV Specialist

Contract

Director

Deputy Director Deputy Director

Credit institutions

Joint Stock Commercial Bank

Commercial Bank Commercial Bank

State Bank of Vietnam

KHDN Corporate customers

Science and Technology Individual customers

Customer Relations Customer Relations

Customer Relationship Support Customer Relationship Support

TDTD Credit Appraisal

QLTD Credit Management

CBTD Credit Officer

TCKT Economic organization

Investment Trust

Collateral Assets

Limited Liability Company

QTRR Risk Management

LIST OF TABLES

Table 2.1: Labor utilization situation at MB - Hue branch in the period 2011 - 2013 27

Table 2.2: Asset and capital situation at MB - Hue in the period 2011 - 2013 30

Table 2.3: Business performance results of MB - Hue Branch in the period 2011 - 2013 ...33 Table 2.4: Outstanding loans for corporate customers at MB in the period 2011 - 2013 37

Table 2.5: Outstanding loan situation of corporate customers by classification at MB - Hue Branch in the period 2011 - 2013 41

Table 2.6: Loan turnover of corporate customers at MB - Hue Branch in the period 2011 - 2013 43

Table 2.7: Debt collection turnover table of corporate customers at MB - Hue in the period 2012 - 2013 45

LIST OF DIAGRAMS, FLOWCHARTS, CHARTS

DIAGRAM

Diagram 1.1: Classification of credit risks in lending activities 11

Diagram 1.2: Credit process 18

Diagram 2.1: Organizational structure at MB Hue 24

FLOW CHART

Flowchart 2.1: Credit process at MB Hue 48

CHART

Chart 2.1: Labor situation by gender at MB Hue over 3 years 2011 - 2013 ..28 Chart 2.2: Income and expense situation at MB Hue over 3 years 2011 - 2013 34

Chart 2.3: Outstanding loan situation by term at MB Hue over 3 years 2011 - 2013...38 Chart 2.4: Outstanding loan situation by currency at MB Hue over 3 years 2011 - 2013 38

Chart 2.5: Loan sales situation by business type at MB Hue over 3 years 2011 - 2013 44

Chart 2.6: Debt collection turnover by economic sector at MB Hue over 3 years 2011 - 2013 47

SUMMARY OF RESEARCH TOPIC

For commercial banks, credit activities in lending are the activities that bring the largest profit and also have the highest potential risks. In the current period of economic fluctuations and difficulties, controlling credit risks in lending activities is even more important and has practical significance, especially for corporate customers, the subjects that play a great role and are considered the lifeblood of the economy. Therefore, the graduation thesis: "Evaluation of credit risk control in lending activities for corporate customers at the Military Commercial Joint Stock Bank - Hue Branch" is carried out with 3 main contents. Firstly, systematizing theoretical issues on credit risk control in lending activities for corporate customers at commercial banks. Next, the topic analyzes and evaluates the current status of credit risk control in lending activities for corporate customers at the Military Commercial Joint Stock Bank - Hue Branch. Finally, based on the assessments, the topic has proposed a number of solutions to contribute to improving the quality of credit risk control in lending activities at the Military Commercial Joint Stock Bank - Hue Branch.

PART I: PROBLEM STATEMENT

1.1. Reasons for choosing the topic

In the context of the world changing every day, the economy is in the stage of deep integration and globalization, Vietnam has many opportunities for development but also many challenges that require the economy to constantly strive to reach further. In particular, the Bank also realizes that the challenges in the integration process are very large because it is an important link that creates a smooth change in the economy.

The more a country integrates and develops, the higher the demand for capital and it cannot be denied that commercial banks are the most important capital channel for the Vietnamese economy. They play a particularly important role in the stability and development of a country. Banking activities are therefore very sensitive and always face risks. In today's market economy, risks in banking activities are inevitable, especially when these risks have chain reactions, spread and become increasingly complex. In particular, credit risks in lending activities are the largest because the serious financial difficulties of banks often arise from these risks. Just a small impact of the international economy or unnecessary risks in business activities can cause serious impacts.

Therefore, the banking system is required to operate strongly and effectively in risk control. If the banking system is likened to the "bloodline" of the economy, the control mechanism is likened to the "central nervous system" of commercial banks. And credit risk control in lending activities plays an extremely important role because lending activities are the focal point in all areas of commercial banking activities. The importance of lending activities is shown first of all in bringing in a source of income that accounts for a large proportion of the total income of commercial banks (accounting for 70% to 80% of total income). In addition, thanks to this activity, commercial banks can cross-sell products, creating a foundation to attract support for other activities such as guarantees, international payments, money transfers, etc. On the other hand, stemming from the need

There is a huge demand for capital to expand production and implement business strategies that not all businesses can meet on their own. Business loans often account for a large proportion of lending at most banks.

Controlling credit risk in lending activities for corporate customers will help banks ensure acceptable credit risk levels in lending activities, support more effective capital allocation in lending activities, minimize losses arising from credit risks and increase the bank's business profits. A bank that operates effectively, has sound financial capacity and controls risks within allowable limits will create trust in customers, enhance prestige and position with domestic and foreign economic organizations and credit institutions. This is extremely important to help banks achieve the goal of sustainable growth and development.

Realizing the urgency of that, on the opportunity to intern at the Military Commercial Joint Stock Bank - Hue branch, I chose the topic: " Evaluation of credit risk control in lending activities for corporate customers at the Military Commercial Joint Stock Bank - Hue branch" as my graduation thesis.

1.2. Research objectives

The project is carried out with the following three objectives:

Firstly, systematize theoretical issues on credit risk control in lending activities for corporate customers at commercial banks.

Second, analyze and evaluate the current status of credit risk control in lending activities for corporate customers at the Military Commercial Joint Stock Bank - Hue Branch.

Third, propose some solutions to contribute to improving the quality of credit risk control in lending activities at the Military Commercial Joint Stock Bank - Hue Branch.

1.3. Research subjects

The research object of the topic is the current status of credit risk control in lending activities for corporate customers at the Military Commercial Joint Stock Bank - Hue Branch.

1.4. Scope of research

- About space: To carry out this topic, I used data from the branch of the Military Commercial Joint Stock Bank - Hue Branch.

- About time: The data used for the topic was collected during the period from 2011 to 2013.

1.5. Research methods

To carry out the topic, I conducted research using the following methods:

Document research method: Is a method of researching issues related to the research topic through documents such as books, newspapers, information via the Internet, training documents of the Bank, and related documents.

Data collection method : This is the method of information collection used for the research. Data was collected directly from bank branches during the period from 2011 to 2013.

Document processing and analysis methods

With the raw data provided by the unit, I processed it based on my own knowledge and understanding using the following methods:

- Comparative method : Based on data, compare and contrast to find out the increase or decrease in both absolute and relative terms.

- Analytical method : Based on available data to analyze fluctuations, evaluate issues related to the scope of the topic, determine the causes of fluctuations to find solutions.

- Statistical and synthesis method : Collect information and data to gather necessary information and data for the topic and draw necessary conclusions and assessments.

Evaluation of credit risk control in lending activities for corporate customers at Military Commercial Joint Stock Bank - Hue Branch - 1

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