Experience of Some Other Banks in the World

Evaluate the quality of risk information and risk handling process for all cases of over-credit limit.

- Credit line management: Credit line managers are responsible for developing and implementing business plans, reviewing and approving loans, and are responsible for the quality of the loans. Credit line managers are also responsible for developing business strategies, reviewing and approving credit programs, managing indirect investments, and checking quality, correcting deficiencies when necessary.

- Business risk assessment committee: The staff of this committee must have at least 10 years of experience in credit operations and rotate in the committee according to the requirements of business development. This committee conducts the assessment of the business situation of the units and provides risk information in indirect investment; makes independent assessments of credit activities, policies, implementation and procedures in credit management; coordinates activities with independent supervisors and auditors.

Second, US Banks conduct creditworthiness assessments of borrowing businesses: creditworthiness assessments of borrowing businesses focus on the following key points according to the traditional “5 Cs of Credit”:

Maybe you are interested!

• Experience in Credit Risk Management for Enterprises in Some Countries in the World and Lessons for Vietnamese Commercial Banks
• Experience in Risk Management and Consumer Credit Development of Thai Banks
• The Role of Risk Management in Credit Activities at Commercial Banks
• Experience in Limiting Risks in Banking Credit Activities of Some Countries in the World
• Credit Risk Management of Commercial Banks

- Character of management;

- Financial capacity of the venture;

- Collateral security;

- Condition of the industry

- Terms and conditions of credit.(Condition of terms).

To make a sound decision on whether to approve or reject a loan, careful evaluation must be made based on the criteria set out. Loan approval includes a review of the application, checking the timely repayment of previous loans, checking and evaluating the collateral, and assessing the risk level of the loan.

Third, banks distinguish between credit granting and approval rights.

- The right to grant credit is delegated to credit officers based on their capacity and qualifications, professional skills and experience, education and training, and not based on the individual's position in the bank.

- Approval authority: Credit granting is not decided by one person, but by three credit officers who are responsible for lending and must approve individual credit programs or credit transactions.

1.4.4. Experience of some other banks in the world

Many commercial banks in the world have applied credit risk management measures immediately after Basel II took effect. Many commercial banks in Europe, Japan, and Australia have applied the modern measurement approach AMA (Advanced Measurement Approach). The results of the study conducted by the Basel Committee with 121 banks in 17 countries up to the end of 2008 concluded that the operational risk capital of commercial banks using AMA was lower than that of commercial banks not using AMA. More than 50% of Spanish commercial banks have innovated their operations and organizations to manage operational risks such as: establishing a separate department specializing in operational risks, innovating the reporting system, and applying modern technology.

The operational risk management framework is also flexibly applied to suit the conditions of each country and each bank to improve the credit risk management capacity of enterprises.

Some commercial banks make maximum use of external resources to manage credit risks for businesses, such as ING Group hiring IBM to manage operational risks. Key risk measurement indicators are carefully and specifically determined - and that is the condition for the bank to carry out credit risk management for businesses. Citibank uses CLS (continuous linked settlement) software. Citibank conducts credit risk management according to risk standards and policies and controls on the basis of self-assessment of risks. The activities of departments and business units are regularly identified and evaluated; from there, decisions to adjust and modify activities to minimize credit risks for businesses are made. These activities are documented and published in the bank. Key credit risk measurement indicators are carefully and specifically determined - and that is the condition for Citibank to carry out credit risk management for businesses.

The operational risk management framework is also flexibly applied to suit the conditions of each country and each bank. Singapore Bank (DBS) has specified the above management framework as follows:

Figure 1.1. Operational risk management framework of Bank of Singapore (DBS)

Source: www.dbs.com.sg

Operational risks are analyzed on two aspects: frequency of occurrence and level of impact. From there, DBS determines how to organize and build programs to minimize operational risk levels such as: internal control, international insurance. At DBS, operational risk management tools and techniques are used such as self-assessment control, event management, risk analysis and reporting.

1.4.5. Lessons learned in credit risk management for enterprises for Vietnamese commercial banks

Credit risk management for enterprises is not only a matter of handling bad debt, but it also includes many issues such as preventing and controlling credit risks... From the experience of credit risk management for enterprises of some banks in developed and developing countries, the lessons learned for commercial banks in Vietnam can be mentioned as follows:

One is: Thoroughly apply the golden principles of credit risk management according to the Basel Committee. To implement this principle, both commercial banks and the State Bank must participate. The State Bank needs to ensure Basel principles by issuing documents, circulars, directives, instructions... in compliance with Basel II principles.

Regarding the issue of credit risk management structure for enterprises, commercial banks need to establish/complete a separate risk management committee, in which credit risk is a component.

department. The bank's risk monitoring apparatus needs to operate independently, not participate in the risk creation process, and have the function of risk management and monitoring.

For commercial banks, all levels from the Board of Directors (Board of Members), the Board of General Directors and all officers and employees must be aware of the importance of credit risk for the enterprise. The Board of Directors (Board of Members) should hire consultants to build a risk management framework in credit activities for corporate customers suitable for their bank and the business environment. In which, the two key issues are: (i) Building and perfecting a strategy for credit risk management for enterprises, (ii) perfecting the credit risk management structure for enterprises - especially the organizational structure. The credit risk management strategy for enterprises often includes the following issues:

- Identify operational risks and identify causes of credit risk for businesses;

- Description of the credit profile (For example, the main risks of the management processes depend on the size, complexity of the business...);

- Description of credit risk management responsibilities for businesses in the overall risk management of the bank;

Second: Building a credit risk management model for enterprises in the direction of approaching credit risk management methods for modern enterprises, focusing on perfecting safe and effective credit policies. Because if the policy is issued in a standard way, it will help managers and direct credit officers have a guiding framework to make credit decisions and orient appropriate credit investment portfolios (71).

Third: Quickly apply credit risk assessment and quantification models. This helps managers detect early signs of risk, identify the main causes and find solutions.

To complete the system of measuring and quantifying risks according to best practices, banks should build new credit practices from post-audit, consulting to decision-making and loan management based on the credit analysis and review system. Banks should also build a credit assessment system based on future criteria instead of relying too much on past performance as before, and synchronously deploy an early warning system for problem loans.

Commercial banks need to pay more attention to decentralizing credit decisions to save time and increase responsibility for credit officers in making decisions.

their own decisions, promote creativity and initiative in their lending.

Fourth: Building a data bank on credit risks for businesses and using modern technology in analyzing and handling credit risks for businesses.

Commercial banks should quickly develop guidance procedures to collect more loss information. If possible, optimize modern technology to analyze, evaluate and handle credit risks for businesses. Commercial banks should participate in external organizations, increase dialogue with other banks and the State Bank to share loss information.

The State Bank, the Banking Association and commercial banks need to avoid hiding information about credit risks. Information that needs to be provided to the loss database includes: Total amount of loss (before recovery); Insurance benefits and other recovery; Corresponding risk type; Business sector, where the loss occurred; Date and month of the incident and discovery of the event; Cause of the event.

Fifth, minimize the causes of credit risks from internal factors of commercial banks such as people, processes, and systems. Human resource management policies should aim to build high-quality human resources with good professional ethics; business processes should be regularly reviewed and improved, avoiding being too rigid and having loopholes. Information technology and operational systems should be maintained and updated regularly. The basic functions of credit risk application software should at least include: (i) decentralized data entry (loss data, risk indicators, feedback for risk assessment; (ii) centralized assessment across all business scopes (determination of regulatory and investment capital, aggregation and comparison of results of all credit risk components reported to the Board of Directors; (iii) centralized and/or decentralized management.

Sixth, the bank continuously reviews, reports and controls risks. The bank needs to pay attention to improving system governance and avoiding potential risks in business operations by regularly reviewing key risks such as credit, interest rate, liquidity and market to ensure that risks do not exceed acceptable levels. Risk measurement methods are strengthened through post-factor analysis of the accuracy rate of measurement models. To ensure that risk management is applied consistently throughout the system, the bank needs to develop similar risk management systems for branches and subsidiaries abroad. For credit risk, the bank completes the Internal Rating System and analyzes monthly fluctuations in risk volume for each industry as well as enterprises, ensuring

not exceed established limits, thereby maintaining the bank's risk appetite consistently.

Seventh, comply with regulations on debt classification and credit risk provisioning in accordance with regulations of the Governor of the State Bank of Vietnam, gradually bringing credit activities towards standardization and conformity with international practices.

Finally, it is necessary to minimize the external causes of credit risk, develop plans, propose situations to be ready to deal with and promptly overcome the consequences of communication errors, natural disasters, and fires that cause credit risks. The solution for making alternative decisions is: recognizing existing risks, transferring risks to third parties (e.g. through insurance); avoiding risks by ceasing business operations; minimizing operational risks by measuring other risks (e.g., expanding control systems, introducing information technology for automatic error recognition systems). These measures are continuously supplemented to limit losses and facilitate business continuity in case risks cannot be prevented.

CONCLUSION OF CHAPTER 1

Chapter 1 introduces an overview and groups domestic and foreign research works on credit risk and credit risk management. There are many different views on credit risk in the world. The views on credit risk in countries and in the economy from the perspective of different subjects are also different. Bank credit risk is a difficult factor to determine. Up to now, there has been no consensus among researchers on how to determine credit risk. But bank credit risk is most concentratedly expressed through the ratio of bad debt to total outstanding loans.

There are some research works on credit risk, the authors conducted research on loss-making commercial banks and pointed out that the specific economic conditions of the locality and the weakness in banking management are the main causes of credit risk. Or conducted on large commercial banks, it shows that favorable macroeconomic conditions, financial factors, credit conditions, bank size, credit strategy affect bad debt at commercial banks. In the world as well as in Vietnam, there are many hypotheses as well as empirical studies referring to the relationship between macro factors and micro factors affecting credit risk of commercial banks.

In addition, there are a number of articles and PhD theses in Vietnam that research the issue of credit risk, mainly focusing on studying the risk aspects and the current state of credit risk in order to propose solutions to limit and manage credit risk at commercial banks. Many theses have pointed out the consequences of credit risk and analyzed the factors affecting the credit safety of commercial banks.

In addition, Chapter 1 also studies the theoretical basis of credit risk and credit risk management for enterprises at commercial banks. Risk management in general and credit risk for enterprises in particular are becoming a very important content in the development strategy of each bank. In order to have a basis for building an effective credit risk management system for enterprises, strengthening credit risk management for enterprises to meet the requirements and be consistent with the actual capacity of the bank is especially important. Chapter 1 has come to the conclusion that credit risk is the biggest risk in banking activities. In which, credit risk for enterprises accounts for the highest proportion of total credit risk of commercial banks. Credit risk for enterprises is caused by many different subjective and objective reasons, leading to many consequences affecting the operation as well as the reputation of the bank. Therefore, continuously improving the effectiveness of credit risk management for enterprises is an objective necessity to ensure stable and sustainable development.

sustainability of any commercial bank. Credit risk management for enterprises is the focus in the management and operation of Vietnamese commercial banks, including a system of strategies, policies and measures in credit activities to prevent and minimize credit risks.

From the basic theories and experiences as well as lessons learned for Vietnamese commercial banks, in this chapter, the thesis has fully systematized the theory for strengthening credit risk management for enterprises from the concept, characteristics, role, principles, content and factors affecting credit risk and credit risk management for enterprises. At the end of chapter 1, the experience of credit risk management for enterprises of some banks in the world is summarized, thereby drawing lessons for Vietnamese commercial banks.