LIST OF TABLES
Table 1.1: Credit risk management processes 24
Table 1.2 LGD weighting for receivables with collateral under Basel II (F-IRB)..36 Table 1.3: Proposed credit risk management capability framework 44
Table 1.4: Citibank's internal credit rating system 59
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Table 1.5: Citibank debt classification table 61
Table 1.6: Some indicators reflecting Vietinbank's business results in the period 2016 - 2019 62
Table 1.7: Vietinbank 2018 Risk Appetite Statement 63
Table 1.8: Vietinbank credit risk appetite indicators and limits 2018 64
Table 1.9: Some indicators reflecting Agribank's business results 2015 - 2019 69
Table 2.1: Techcombank's business performance in the period 2014 -2019 77
Table 2.2: Techcombank's Capital Mobilization Activities in the period 2014 - 2019 79
Table 2.3: Total outstanding loans of the entire Techcombank system in the period 2014 -2019 81
Table 2.4: Techcombank's overdue debt ratio in the period 2014 - 2019 85
Table 2.5: Techcombank's bad debt ratio in the period 2014 - 2019 86
Table 2.6: Techcombank's minimum capital adequacy ratio for the period 2014 - 2019 89
Table 2.7: Techcombank's net interest income in the period 2014 - 2019 90
Table 2.8: Net profit before tax and profit after tax of Techcombank 91
Table 2.9: ROA, ROE ratios of Techcombank in the period 2014 - 2019 93
Table 2.10: KHDN ranking corresponding to the probability of default 98
Table 2.11: Techcombank's score scale applied to credit categories 99
Table 2. 12: Debt classification at Techcombank 105
Table 2.13: Debt classification by qualitative criteria at Techcombank 105
Table 2.14: Provision for loan risk of KH 106
Table 2.15: Cronbach's Alpha coefficient of independent variables 116
Table 2.16: Cronbach's Alpha coefficient of dependent variable 116
Table 2.17: First KMO test of independent variables 117
Table 2.18: Second KMO test of independent variables 117
Table 2.19: Results of variance analysis of independent variables 118
Table 2.20: Rotated Component Matrix 118
Table 2.21: KMO test of dependent variable 119
Table 2.22: Communalities coefficient table 119
Table 2.23: Results of variance analysis extracted dependent variable 120
Table 2.24: Descriptive statistics of regression variables 120
Table 2. 25: Model fit 121
Table 2. 26: Analysis of variance 121
Table 2.27: Multicollinearity test 122
Table 2.28: Regression analysis 123
Table 2.29: Summary of impact trends of factors constituting QTRRTD capacity (from model results) 124
Table 2.30: ANOVA test results Variable A. 124
Table 2.31: ANOVA test results for Variable B. 125
Table 2.32: ANOVA test results Variable C 125
Table 2.33: ANOVA test results for Variable D. 126
Table 2.34: ANOVA test results Variable E. 126
Table 2.35: ANOVA test results Variable F 126
Table 2.36: Summary of hypotheses resulting from model 127
Table 2.37: Hypothesis testing with Variable A Paired Samples Test 127
Table 2.38: Hypothesis testing with Variable B. 127
Table 2.39: Hypothesis testing with Variable C 127
Table 2.40: Hypothesis testing with Variable D. 128
Table 2.41: Hypothesis testing with Variable E. 128
Table 2.42: Hypothesis testing with Variable F. 128
Table 2.43: Summary of hypotheses resulting from model 129
Chart 2.1: Techcombank's income structure 2014 - 2019 78
Chart 2.2: Techcombank's deposit mobilization structure 2014 - 2019 80
Chart 2.3: Techcombank's service income in the period 2014 - 2019 82
Chart 2.4: Techcombank's credit balance and credit balance structure 2014 - 2019 ...84 Chart 2.5: Techcombank's LDR ratio in the period 2014 - 2019 87
Chart 2.6: Short-term capital for medium and long-term loans Techcombank 2014 - 2019 88
Chart 2.7: Techcombank ROA ratio in the period 2014 -2019 92
Chart 2.8: ROE ratio of some banks in 2019 92
Chart 2.9: Survey object business 115
Chart 2.10: Work experience of survey subjects 115
Figure 2.11: Standardized residual plot of the regression model of factors 122
LIST OF DRAWINGS
Figure 1.1: Credit risk management pyramid 23
Figure 1.2: Credit risk management content 24
Figure 1.3: Graphic illustrating credit losses according to Basel II 34
Figure 1. 4: ASK 41 Competency Model
Figure 1.5: Balanced scorecard model BSC 42
Figure 1.6: 7S management capacity model 42
Figure 1.7: Risk Management Competency Framework according to international practices and Basel II 43
Figure 1.8: Three lines of defense model 48
Figure 1.9: Total assets of Vietinbank 2015 - 2019 62
Figure 1. 10: EWS risk early warning system process at Vietinbank 66
Figure 2.1: Techcombank's organizational structure 76
Figure 2.2: Techcombank's credit rating process 98
Figure 2.3: KSRRTD Techcombank 101 3-line defense model
Figure 2. 4: Research process 111
PREFACE
1. Urgency of the research topic
In any stage of development, credit activities are always one of the core activities of commercial banks. Although credit activities bring the main source of income for Vietnamese commercial banks, this activity always has many potential risks. Therefore, credit risk management is one of the important links in banking management to minimize losses and ensure the effectiveness of commercial bank operations. However, the effectiveness of credit risk management is directly influenced by the credit risk management capacity of commercial banks. Therefore, one of the issues for the existence and development of a commercial bank is to improve its credit risk management capacity in a comprehensive and systematic manner.
In fact, since Vietnam joined the WTO, the credit activities of the commercial banking system in our country have encountered great risks due to high inflation, the rapid development of the real estate market, the stock market; weaknesses in management of State-owned corporations and groups; natural disasters and epidemics on agricultural production... and have also been significantly affected by the international financial crisis and debt crisis in many European countries. Due to the impact of these objective factors, combined with weaknesses in the credit risk management capacity of commercial banks, the bad debt ratio of the banking sector has increased and has been slow to be handled. This reality requires Vietnamese commercial banks to improve their credit risk management capacity for the overall stable development of the economy as well as the sustainable development of each bank.
Over 27 years of operation and development, Vietnam Technological and Commercial Joint Stock Bank has achieved many notable achievements, especially in credit risk management. As of December 31, 2019, Techcombank is the bank that has maintained its leading capital position in the Vietnamese commercial banking system with a Basel II capital adequacy ratio of 15.5% and a relatively low bad debt ratio of 1.3%. However, although still under control, Techcombank's bad debt ratio has fluctuated during the period 2014 - 2019, at some points the bad debt growth rate is high, showing certain limitations in credit risk management.
In the context of the financial market being affected by the macro economy, as one of the pioneering banks in applying risk management according to international practices, studying the credit risk management activities of Vietnam Technological and Commercial Joint Stock Bank, finding out the influencing causes, and proposing solutions
Improving credit risk management capacity at Vietnam Technological and Commercial Joint Stock Bank is really necessary and has practical significance.
From the above analysis, the doctoral thesis selection of the topic: "Improving credit risk management capacity at Vietnam Technological and Commercial Joint Stock Bank" is really necessary and meaningful in terms of theory and practice.
2. Overview of research situation related to thesis topic
2.1. Research situation in the world
Currently, researchers around the world have had many theoretical and practical research works as well as experimental models related to credit risk management models, which have also had many great achievements and brought benefits to banks in enhancing their capacity and credit risk management activities.
- The Basel Committee on Banking Supervision has conducted many studies and made recommendations on ensuring safety according to Basel I standards (1988) [50] to introduce a capital measurement system and a common method for banks to proactively face the quality risks of assets held by banks. The Basel II Capital Accord (2004) [51] provides many credit risk measurement methods (RRTD) such as the simple standardized method (SSA), the standard approach (SA), the basic and advanced internal credit rating approach (IRB)... Basel II suggests credit risk management processes and tools such as: Identifying risks through a system of financial and non-financial indicators and an internal rating system; measuring risks through the value-at-risk model (VAR); managing risks through credit policies; managing loan portfolios and credit origination.
The Basel III Capital Accord was established in 2010 [52] in response to the global financial crisis. In its initial reform phase, Basel III focused on addressing the shortcomings of previous Basel regulations, including: Improving the quality and regulatory capital, primarily enhancing the loss-absorbing capacity of equity tier 1 (CET1); Raising capital requirements for banks to withstand losses in difficult times; Improving risk-taking by reviewing areas of the risk-weighted capital framework, including global standards for market risk, counterparty credit risk and securitization; Adding macroprudential elements to the regulatory framework by: (i) introducing buffer capital (formed in good times and used in bad times) to limit cyclical impacts; (ii) establish a risk detection mechanism to minimize systemic risks arising from linkages between financial institutions and collective risks
and (iii) provide capital buffers to deal with external shocks caused by strategic banks; Specify minimum leverage requirements to limit excessive leverage in the banking system, and supplement risk-weighted capital requirements; Introduce an international framework to mitigate excessive liquidity risk and maturity variability through liquidity ratios and net stable capital ratios [50].
The Basel Committee on Banking Supervision has also issued a set of principles to be followed in credit risk management in “Principles in Credit Risk Management” - this is also a document that partly mentions credit risk management capacity through the issuance of credit risk management principles;
In addition to the above contents, research projects on credit risk management have achieved certain achievements, notably studies on issues such as:
- Glen Bullivant (2005) in "Credit Management" [56] presented comprehensively the aspects of credit management. The main content, throughout the author, is the issue of cash flow, cash flow management, the issue of profit can be improved, enhanced by many compatible plans. All important credit control issues are mentioned in detail, including guidance on credit policy and management of credit functions, credit conditions, risk assessment, management and modeling, debt collection, credit insurance, export credit, consumer credit, commercial credit law and credit services. However, the author focuses on the theoretical aspect of credit management, not mentioning the practical basis of credit risk management activities.
- Glen Bullivant et al. (2004) in "Effective credit control & debt recovery handbook - Tottel Publisher" [57] pointed out that lax credit management and bad debts are often the cause of self-destruction of successful commercial banks. Therefore, it is important, according to the author, to ensure that there is a system to keep the level of RRTD at the lowest level, and at the same time understand the debt collection procedures in case of non-payment. This book updates most of the latest legal issues and provides practical information on all aspects of credit control and debt collection including: Credit instructions for new customers; credit to new customers, changes to debt collection laws, enactment of data protection laws, dealing with raising credit limits for small businesses, how to set up a credit policy, payment terms, attracting large customers, procedures for defaulting or bankrupt businesses, businesses & credit sanctions and the effectiveness of information protection sanctions. However, the book does not mention the specificity
of credit risk management in underdeveloped markets that are in the process of integration like Vietnam.
- Author Joel Besis in “Risk Management in Banking”[53] has introduced general concepts and theories of credit risk, credit risk management, and proposed a risk assessment model. On the other hand, the author has developed a number of concepts related to credit risk management such as credit portfolio risk; credit portfolio management; and systematized credit risk management methods, quantified credit risk such as rating systems; statistical and scoring models; Credit risk data. However, the study only mentioned credit quality, building and synthesizing the credit risk management process as part of the dialectical relationship with credit risk management capacity - the research subject of the Thesis.
- Anthony Saunders & Linda in “Credit Risk Measurement” (2002) [88] focused on analyzing the content of portfolio risk measurement, a component of the asset portfolio management of commercial banks. The highlight of the book is the in-depth analysis of the nature of risk measurement methods through models using mathematical statistics. The authors study the technicalities of the methods, variables, and the dependence of variables related to credit activity data, in order to make forecasts and calculate the probability of risk occurrence in order to have risk handling measures. Thereby, improving the risk management capacity and credit risk management of banks. However, the work does not mention other contents of portfolio management/loan portfolio management, but is limited to risks and risk measurement.
- Frey R. and McNeil A. in “VaR and expected shortfall in portfolios of dependent credit risks: Conceptual and practical insights” (2002) [66] have developed concepts of credit risk, credit risk models, credit risk models as well as the construction and application of credit risk models in credit risk management activities of banks. The study mainly focuses on the theoretical overview aspect, not mentioning the application to the specific case of commercial banks.
- Shelagh Sheffernan in “Modern Banking” (2005) [92] clearly pointed out the contents of credit risk and credit risk management techniques, international regulations on credit risk management (Basel I and Basel II). However, Basel standards are all relatively complex standards, requiring not only resources, technological foundation but also financial factors. What resources are needed, specific technological foundation for new and developing financial markets like Vietnam, applicable to the case