Data. Depending on available resources and Basel 2 compliance goals, each bank must determine an appropriate preparation time.
Fourth : For commercial banks with an ineffective risk management system, the Basel 2 compliance process must be a process of completion and gradual compliance on the basis of taking advantage of existing capacity to minimize costs during implementation. According to the experience of commercial banks surveyed by NCS, Basel 2 compliance does not necessarily require following the most complex approach; banks need to choose an approach that is appropriate to the current credit performance and current capacity of each bank.
Fifth : Although the Basel Committee recommends that commercial banks should aim to approach IRB for RRTD, especially advanced IRB. However, in reality, meeting the minimum requirements to access IRB is quite strict. Therefore, even large commercial banks with modern RRTD management systems still have to approach IRB for each market segment (some market segments are still approached by the SA method) according to the principle that the market segment with the advantage will comply first, the segments that have not met will be gradually improved until they meet the minimum conditions to comply.
Sixth: Regarding the IRB method, Basel emphasizes the issue of verifying the effectiveness and accuracy of internal estimates. Therefore, the surveyed commercial banks are required by the Banking Supervision Agency to have a transition period before applying - parallel approach to the traditional method (or SA) and IRB - this period can be considered as a trial operation period. At the surveyed commercial banks, there are regulations on the minimum time for parallel operation and this period will end when the verification shows that the estimation results meet the requirements of Basel 2 standards.
Seventh : Among the obstacles in implementing Basel 2, the biggest obstacle is the database. Even large commercial banks such as ANZ, DBS... when starting to comply with the database
The database has not yet met Basel 2 standards. For Agribank, the gap between the database and Basel 2 standards is still quite large. Therefore, in addition to preparing capital, human resources, and technology, Agribank needs to build an appropriate roadmap to complete the database on the principle of building a centralized and unified management data warehouse.
Eighth : Implementing Basel 2 is a process with many challenges that not all commercial banks are ready to take on. Therefore, along with the policy, the Commercial Bank Management Agency needs to have meetings with commercial banks in general and Agribank in particular to clear their minds, assess the actual implementation capacity and promptly support the banks in resolving difficulties.
CONCLUSION OF CHAPTER 1
Compliance with Basel 2 on credit risk management has been implemented by commercial banks around the world since 2008-2009. The benefits of compliance with Basel 2 have been widely recognized. Systematizing the basic issues of credit risk management according to Basel 2 is extremely necessary for the implementation of Basel 2 at commercial banks. In chapter 1, the thesis analyzed and clarified the basic issues of credit risk and credit risk management according to Basel 2. The thesis also analyzed and clarified the benefits when commercial banks implement credit risk management according to Basel 2 and the conditions for commercial banks to implement credit risk management according to Basel 2. In addition, the thesis has researched and surveyed credit risk management according to Basel 2 at 4 domestic and foreign commercial banks, on that basis, drawing 7 lessons for Agribank. The issues mentioned in Chapter 1 are the basis for assessing the current status of credit risk management at Agribank and determining the level of compliance with Basel 2 standards on credit risk management at Agribank in the following chapter.
Chapter 2
CURRENT STATUS OF CREDIT RISK MANAGEMENT AND LEVEL OF COMPLIANCE WITH BASEL 2 STANDARDS ON CREDIT RISK MANAGEMENT AT THE BANK FOR AGRICULTURE AND RURAL DEVELOPMENT OF VIETNAM
2.1 OVERVIEW OF CREDIT ACTIVITIES AND CREDIT RISKS AT THE BANK FOR AGRICULTURE AND RURAL DEVELOPMENT OF VIETNAM
2.1.1 Some features of Vietnam Bank for Agriculture and Rural Development
2.1.1.1 History of formation and development of Agribank
Vietnam Bank for Agriculture and Rural Development, formerly known as Vietnam Bank for Agricultural Development, was established under Decree No. 53/HDBT dated March 26, 1988 of the Council of Ministers (now the Government) with the mission of being a specialized bank - operating in the field of agriculture and rural areas.
Along with the Government's policy of reforming the mechanism and operating model of Agribank and the efforts of the Board of Directors in directing and operating business activities, Agribank has achieved many achievements in the renovation period. In 2003, Agribank was awarded the title of Labor Hero in the renovation period. In 2011, Agribank carried out comprehensive restructuring with the following basic contents: debt restructuring, handling outstanding debts, increasing charter capital, perfecting the organizational model and officially operating under the model of a 1-member limited liability company with 100% charter capital owned by the State. In the period of 2010-2015, Agribank resolutely implemented the restructuring project,
supplement and perfect the mechanism and business processes, rearrange the organizational model and operating network.
With over 28 years of operation, Agribank has become a multi-functional commercial bank nationwide. Agribank ranks second in the entire Vietnamese commercial banking system in terms of asset size, outstanding loans, and first in the system in terms of staff, operating network and number of customers with nearly 2,300 branches and transaction offices, and agency relations with 1,065 banks in 97 countries and territories. Agribank has been awarded the following titles: Hero of Labor in the Renovation Period (2003); Second-class Independence Medal (2008), Top 10 "Vietnam Golden Star Award" (2009), Top 10 "Most Prestigious Vietnamese Brands" (2009) and Top 10 in the 500 Largest Enterprises in Vietnam (from 2010 to 2014).
2.1.1.2 Characteristics of Agribank
- Agribank is a bank with a wide range of operations nationwide. Currently, Agribank is the only bank with a 4-level organizational model: Head Office (Central level), Provincial (City) level branches, District (County) level branches and Commune (Ward) level branches. According to this model, Agribank currently has more than 2,300 branches covering from cities to wards across the country. Compared to other commercial banks, Agribank's operating apparatus is quite unique, management, especially RRTD management, is very complicated and difficult to control.
- Currently, Agribank is a 100% state-owned commercial bank, operating as a single-member limited liability company owned by the State. For a 100% state-owned bank, the dynamism, creativity and motivation to promote bank development are limited. The state-owned enterprise mindset makes the breakthroughs that are common in joint-stock commercial banks not appear at Agribank. Therefore, transparency in governance
Internally, published information is limited. This is considered one of the basic limitations when implementing RRTD management at Agribank according to Basel 2.
- Agribank is a bank that mainly serves the agricultural, rural and farmer sectors. Although Agribank has now shifted to a multi-purpose business model, agriculture and rural areas are still the key markets, with over 70% of outstanding loans in the agricultural and rural sectors. Of which, about 50% is credit for production households. This is a potential market but contains many unavoidable risks.
- Agribank's loan customers are mostly production households, individuals/households. These customers have limited capital management ability, low financial capacity, unstable income, while the output of agricultural products depends heavily on the market. In many cases, farmers have a good harvest but still do not have money to repay bank loans due to falling prices. Therefore, lending to these customers always bears high risks.
- Agribank is a bank with a large staff but with uneven qualifications. As of December 31, 2015, Agribank had over 40,000 officers and employees. Most of the staff were trained before 1990, so their sales skills, computer skills, foreign languages and ability to absorb new products and services are limited, especially staff at branches, type 3 transaction offices, rural areas, remote areas... This leads to many shortcomings in the RRTD management culture, limited awareness of compliance with procedures and regulations when handling transactions, this feature greatly affects the credit quality at the branches.
2.1.1.3 Some basic operating results of Agribank
Table 2.1 shows: The scale of assets and capital sources of Agribank in the period 2010-2015 grew steadily. Regarding assets: total assets grew over the years, in which 2011 reached the lowest level of 6.8%, 2013 reached the highest growth rate of 13%, the remaining years achieved growth rates of ≈
10%. In terms of capital, in 2011, total capital increased by 6.5% compared to 2010, the growth rate in the remaining years was around 10% compared to the previous year. Agribank's charter capital has also increased over the years. To ensure the capital safety ratio of 9% as required by the State Bank, Agribank has increased capital from the State budget (funded by the Government), from funds and annual retained profits (of which, the main increase is from the Government's additional source, in the period 2010-2014 the Government has provided a total of 26,204 billion VND). With the rapidly increasing charter capital, Agribank's capital safety ratio has been significantly improved. From 2012 to present, Agribank has achieved a CAR ratio of over 9% as required by the State Bank. However, compared to the average CAR ratio of the whole system, as well as the average of the State-owned commercial banks, Agribank's capital safety ratio is still low (according to the report of the State Bank, as of December 31, 2015, the average CAR ratio of the State-owned commercial banks was 9.42%, the whole system was: 13.00%).
Table 2.1: Main operating results of Agribank in the period 2010-2015 (unit: billion VND)
Target
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | |
Total assets | 524,000 | 560,000 | 617.212 | 697,037 | 762,896 | 833,000 |
Total capital | 474,941 | 505,792 | 557,028 | 634,505 | 690.191 | 804,000 |
Charter capital | 21,512 | 21,629 | 26,079 | 26,204 | 29,605 | 29,605 |
ROA (%) | 0.51 | 0.68 | 0.52 | 0.35 | 0.36 | 0.38 |
ROE (%) | 8.52 | 11.81 | 8.4 | 5.78 | 6.15 | 6.35 |
CAR ratio (%) | 6.09 | 8.02 | 9.49 | 9.11 | 9.01 | 9.13 |
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Source: [2], [62], author's synthesis
In terms of profitability, Agribank's profitability indicators in the period 2010-2015 have decreased significantly (especially in 2013 and 2014). If comparing the return on assets (ROA) and return on equity (ROE) of Agribank with the average of the state-owned commercial banks, Agribank's ROA and ROE are still low.
(In 2015, the average ROA and ROE of the state-owned commercial bank sector were 0.48% and 7.29%, respectively).
2.1.2 Credit activities at Agribank
In the period 2010-2015, credit activities at Agribank were relatively stable, specifically:
Chart 2.1: Outstanding debt, total assets and charter capital at Agribank (unit: billion VND)
833000
762896
697037
524000
421331
560000
451760
617212
486139
605324
614561
534500
21512
21629
26079
26204
29605
29605
2010
2011
2012
2013
2014
2015
Charter capital
Total Assets
Total outstanding debt
900000
800000
700000
600000
500000
400000
300000
200000
100000
0
Source:[2], [62]
In the period 2010-2015, Agribank's credit balance always grew at a fairly good rate, in which the two highest years were 2013 and 2014 with growth rates of 10% and 13.2% respectively compared to the previous year. In 2015, credit growth was the lowest in the period 2010-2015, reaching 1.53% compared to the previous year. In the context of many economic difficulties, the above figures show that Agribank's credit activities are always stable. Comparing total outstanding debt and total assets at Agribank in the period 2010-2015 shows that the majority of Agribank's assets are credit (accounting for about ≈80%). In other words, Agribank's income depends largely on credit activities. If comparing total outstanding debt and capital
The charter shows that the increase in charter capital is not really commensurate with the increase.
credit growth over the years. This leads to potential risks of financial instability for Agribank if capital is not replenished in time.
Compared to the credit growth rate of the entire Vietnamese commercial banking system, Chart 2.2 shows that Agribank's credit growth rate is always lower. Specifically:
Chart 2.2: Agribank's outstanding loan growth compared to the whole system (unit: %)
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
32.40%
17.29%
14.40%
12.51%
14.16%
9.10%
11.40%
13.20%
10.00%
7.22%
7.61%
1.53%
2010 2011 2012 2013 2014 2015
The entire Agribank commercial banking system
Source: [2], [71]
In 2010, the credit growth of the whole system was 32.4%, Agribank reached 11.4%% - a difference of 21%, the difference gradually narrowed in 4 consecutive years, by 2013 the gap was only 2.51% and in 2014 it was 0.96%. In 2015, while the credit growth of the whole system increased the highest in the period 2011-2015, reaching 17.29%, Agribank only reached a modest figure of 1.53%. That shows that although credit at Agribank has grown over the years, compared to the whole system (especially in 2015), the growth rate at Agribank is still quite low.
In terms of credit market share, with characteristics of scale, scope of operation and credibility in the market, State-owned commercial banks (State-owned commercial banks owning over 50% of capital) always hold the dominant credit market share. Market share of Commercial Banking Sector