Improving credit risk management capacity according to international practices at Vietnamese commercial banks

Basel II, however, these commercial banks are in the process of building to meet the roadmap for implementing Basel II into QTRRTD.

Information technology infrastructure systems: Loan origination system LOS, Collateral management system, Debt collection management system, Document management system, Capital calculation tool are systems that over 56% of banks have prepared to be ready to approach Basel II. However, these risk management tools have not been effectively applied due to the lack of synchronization in technology infrastructure and data systems.

To supplement the survey results (March 2016) and support the conclusions in the Thesis, the author referred to the results of the "Survey on the level of application of safety standards and risk management at Vietnamese commercial banks" conducted by BIDV Bank in 2013. The main survey results that the Thesis inherits include: (i) Organizational structure on risk management: 90% of surveyed banks have established a Risk Management Committee, 87% of banks have a separate department for debt management; 77% of banks have separated departments according to functions; (ii) System of documents and policies: 60% of surveyed banks have credit risk management policies. However, the policies are still overlapping, inadequate, and lack of synchronization between functional departments; (iii) Capacity to develop and operate credit risk measurement tools: 17% of banks proactively research and implement the probability of default (PD); Hypothesis testing (back testing), stress testing. In addition, 66% of banks have deployed and applied an internal credit risk management system, 26% of banks implement credit risk management according to the standard method (SA); 2/30 banks have not paid attention to modern risk measurement tools due to limited financial capacity; (iv) Risk management according to credit limits: Currently, Vietnamese commercial banks mainly use 3 traditional tools in credit risk management, which are: Credit portfolio management applied by 89% of banks; Credit limit and limit management by 96% and risk provisioning by 88%. In addition, 58% of banks have established credit limits by industry, customer group, geography, and product.

In addition, the author studies a specific bank (VPBank) to survey the process of analyzing and evaluating capacity differences compared to international practices and Basel II standards, with the aim of supplementing the basis for the author's comments in the Thesis.

From the survey results and expert interviews, the author synthesizes, analyzes, and evaluates the current status of QTRRTD capacity according to international practices and Basel II standards. The comments on the current status of QTRRTD capacity based on the collected data and survey results will be the scientific basis for making recommendations and proposals.

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Solutions to improve the capacity of risk management at commercial banks of the thesis.

5. New contributions of the thesis

Firstly, the thesis systematizes the theoretical basis of: Credit risk management; Credit risk management capacity, analyzes the dialectical relationship between credit risk management capacity and credit risk management.

Second , the thesis identifies factors affecting the credit risk management capacity of commercial banks according to international practices and Basel II standards, and synthesizes them into a Credit Risk Management Capacity Framework according to international practices and Basel II standards.

Third, the thesis surveys and studies the capacity of credit risk management and the level of readiness to approach Basel II standards at the group of commercial banks preparing to implement Basel II in Vietnam.

Fourth, the thesis proposes a number of solutions to improve the component capacity factors in the Credit Risk Management Capacity Framework.

Fifth, the Thesis makes some recommendations for state management agencies, the State Bank, to support documents, policies, and regulations related to Basel II implementation for commercial banks; Improve banking governance and supervision.

6. Theoretical and practical significance of the topic

In theory:

The thesis researches, identifies and synthesizes 8 groups of factors affecting credit risk management capacity at commercial banks. These factors were previously only evaluated separately and have not been identified in the overall relationship of the Credit Risk Management Capacity Framework.

The thesis clarifies the dialectical relationship and the mutual interaction between credit risk management and credit risk management capacity of commercial banks.

In practice:

The survey results on the actual approach and readiness level to apply Basel II of the group of 10 Vietnamese commercial banks, provide comments related to the current status of credit risk management, credit risk management capacity, and potential of banks in the Basel II implementation roadmap to improve credit risk management capacity.

The groups of solutions for commercial banks and recommendations for state management agencies and the State Bank are recommendations from the perspective of

Scientific insights can be used as suggestions for changing and improving the bank's risk management policies.

7. Structure of the thesis

In addition to the introduction, conclusion, appendix and list of references, the content of the Thesis consists of 4 chapters. Specifically as follows:

Chapter 1 : Overview of research status on topics related to the topic

Chapter 2 : Theoretical basis, international practices on credit risk management and credit risk management capacity at commercial banks

Chapter 3: Current status of credit risk management capacity according to international practices at Vietnamese commercial banks

Chapter 4: Solutions to improve credit risk management capacity according to international practices at Vietnamese commercial banks.

CHAPTER 1

OVERVIEW OF RESEARCH STATUS ON CONTENTS RELATED TO THE TOPIC

1.1. Overview of research situation abroad related to the topic

1.1.1 Overview of research on credit risk management

Risk management in banking covers all aspects of risk management and emphasizes the need to understand the conceptual and practical issues of risk management and considers the latest techniques and practical issues, including: risk management in banking, asset-liability management, risk regulation and technical standards, risk models, credit portfolio models, capital allocation requirements, credit portfolio management. Risk management in general, including credit risk management in particular, has been studied by many scholars and scientists from many different angles and aspects, specifically some typical studies:

The recent global financial crisis has highlighted the need for all participants in the banking system to understand and wisely utilize risk management, which has never been more important than it is today. Updated and expanded, the new edition of Risk Management in Banking by Joel Bessis [52] is a good primer on the concepts and tools needed to avoid financial crises. Now in its third edition, 2012, the book has been thoroughly revised and updated to examine the changing face of risk management. Completely restructured with new material and discussions on new financial products, derivatives, Basel II, time-intensity-based credit modeling, the implementation of risk systems and the intensity of default modeling, it also includes a subprime section to address the crisis mechanism and recent difficult financial conditions. The book argues that risk management methods and techniques are still important if implemented properly and managed appropriately. Risk management in banking examines all aspects of risk management from general risk management in banks to specific risk models in which the author mentions throughout sections 11 to 15 in detail about credit risk from individual credit risk, credit risk by portfolio, capital allocation according to credit risk, management of credit portfolios. Finally, the book has compiled a number of recommendations from the financial stability forum based on the concept of "procyclicality", related to the magnification of the cyclical amplitude in the financial sector, with 3 priority groups in policy implementation including: capital regulations, bank provisioning policies,

and the interaction between value and leverage. This study has basically answered the question: „How to approach and apply risk management theories to business activities in general and credit risk in particular?‟ and „The ability to practically apply risk management tools, including credit risk in banking business‟, The study is a comprehensive view of how risk management expands and evolves in complexity in the art of risk management, a handbook for risk managers. However, the book has not delved into the conditions of non-G10 financial markets such as developing economic markets, including Vietnam. In order to be able to apply advanced models and tools (including Basel standards), developing countries must find and fill the gap between the current governance model and the advanced governance model.

Book “Credit Risk Measurement” by Anthony Saunders & Linda Allen

[81] published by John Wiley & Sons, Inc. in 2002. This book mainly deals with portfolio risk measurement, a content in the asset portfolio management of commercial banks. In particular, this book focuses on the method of risk measurement through models using mathematical statistics. The two authors have delved into the technical aspects of the methods, variables, and the dependence of variables related to credit activity data, in order to forecast and calculate the probability of risks in order to have proactive measures to deal with them. Thereby, improving the capacity of risk management and credit risk management of6A

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