in general and credit risk management (including transaction risk and portfolio risk) in particular according to international standards to open up opportunities for the banking industry to quickly and more closely approach international standards on governance in banking business. Current reality has shown that the Basel Convention is a common measure for risk management that Vietnamese commercial banks need to seriously perceive, build and implement. A bank that complies with the Basel Convention means having an advanced and modern risk management system, ensuring the implementation of minimum standards to assess the risks that banks face, ensuring adequate capital, increasing the overall operational efficiency of each commercial bank and the entire Vietnamese banking system.
Risk management in general and credit risk management in particular are still very necessary functions for Vietnamese commercial banks in the context of the world economy being increasingly strongly impacted by each other, along with the ever-changing domestic macro economy, the competitiveness of domestic enterprises has not been improved, so banks need to build risk "appetite", tolerance and risk limits, as well as how to improve processes, control and manage resources.
Solving risk issues in banking operations is not simply about limiting losses and minimizing business costs, but must aim to proactively warn of risks and better understand banking operations in order to build a strong Vietnamese commercial banking system and smoothly integrate into the international community.
On the management side of the State Bank, it is necessary to consider the contents of the Basel Convention as a guiding tool, calculation method, data, based on the characteristics of people, risk "appetite" of Vietnamese commercial banks and the portfolio of assets that commercial banks are holding to issue regulations and step-by-step instructions for implementing the contents of the Basel Convention for commercial banks. At the same time, it is necessary to have a suitable time schedule to approve Vietnamese commercial banks to apply and comply with the contents of the Basel Convention 2 and move towards Basel 3 quickly, feasiblely and safely.
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3.2.1.2. Perfecting the credit risk management framework
Commercial banks need to build a good risk management system based on a risk management strategy suitable for the business environment. The risk management system allows for acceptance of the general level of risk and especially the level of acceptance of credit risk.
Facilitation of business must be built on the basis of overall assessments of the business situation of commercial banks, the macroeconomic environment, expectations for future development of commercial banks, ensuring both aspects of measuring credit transaction risks and credit portfolio risks. Completing the credit risk management framework will help commercial banks build a credit risk management strategy in the right direction and in accordance with international practices, accordingly, the construction of a credit risk management framework must ensure factors as shown in the diagram below:
- Risk management framework
- Infrastructure for performing risk management work
- Steps to conduct risk management work
Figure 3.1: Elements of the Risk Management Framework
Risk Management Strategy
QTRR philosophy
Awareness and culture of QTRR
Risk tolerance
Organizational structure of QTRR activities
QTRR Framework
Risk Identification Risk Assessment Risk Management
Risk monitoring and prevention
Human Resources Management Policy
technology
application process
control and reporting methods
Infrastructure
Risk Management Steps
Source: according to Basel 2 content
3.2.1.3. Perfecting policies related to credit risk management
Credit policy
Credit limit policy
Credit risk provision policy
3.2.2. Group of solutions to improve credit risk management techniques
3.2.2.1. Choose a risk management model that is safe, scientific, easy to operate, and easy to control.
check
Commercial banks should build and operate a risk management model in general operations and credit risk in particular according to three lines of defense and ensure there is always mutual cross-checking and supervision.
3.2.2.2. Completing the steps in the credit risk management process
First, risk identification: Is the first step to have a credit risk management cycle. Identify risks through warning signs, find out the cause of risks and predict potential losses.
Second, risk assessment: Conduct customer assessment, classification and credit rating through the internal credit rating system, thereby classifying debt and setting up provisions.
Third, risk analysis : Quantify the level of risk that the bank is facing, calculate to forecast the level of damage if the risk occurs to build a suitable credit policy for each case of borrowing customers to help bank leaders operate and direct quickly, accurately, in accordance with credit growth targets.
Fourth, risk monitoring and handling : Monitoring must ensure that in case of risks arising from credit granting activities, risk handling must be carried out according to certain principles and using quick and appropriate measures based on the principle of balancing the interests between the customer and the bank, while ensuring that the bank must minimize losses to the lowest level based on the customer's capacity and ability to repay the debt.
3.2.2.3. Improve the quality of credit appraisal and analysis
In order for credit appraisal and analysis at commercial banks to ensure both quality and time requirements, it is necessary to focus on implementing the following solutions:
First , collect and process customer information to ensure the completeness and authenticity of the information.
Second , analyze and evaluate customers on all necessary content,
Combining qualitative and quantitative analysis in the appraisal process.
Specifically, credit officers need to conduct customer appraisals based on basic content.
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For individual customers: The assessment and analysis is based on information mainly on legal capacity, the analysis requires information and clear verification records related to accumulated assets; regular income sources (income from salary; house rental activities or business activities of the Customer); understanding the credit relationship situation at credit institutions; outside individuals (if any); borrowing reputation to determine the ability to balance the source of debt repayment for the loan; design a reasonable lending plan.
For Corporate Customers : When evaluating, some content should be noted:
main:
Legal capacity assessment
Assessment of the management capacity and organizational model of the borrower
Financial capacity assessment
Assessment of business performance and input and output markets of loan customers
Appraisal of loan plan/project
Collateral appraisal
Third , collect and process customer information to ensure the completeness and authenticity of the information.
3.2.2.4. Perfecting credit risk measurement indicators
3.2.2.5. Improve the quality of loan control and management
Firstly , commercial banks need to promptly issue documents, procedures and regulations guiding the implementation of public services.
loan control and management.
Second , strengthen inspection and supervision of post-control work at branches.
of Credit Quality Review Department – Head Office
Third , enhance the role of Internal Control in monitoring compliance . Fourth , units throughout the system need to be aware of the role of post-control work; fully implement loan control contents from disbursement to debt collection.
Fifth , flexibility in combining forms of loan control and management.
3.2.2.6 Fully and accurately classify debt and set up risk provisions to reflect the debt status of each commercial bank.
3.2.3. Group of solutions to disperse credit risks to prevent and limit losses
credit failure
In general commercial banking risk management, and credit risk management in particular, risk dispersion is a necessary requirement and must be carried out scientifically based on the following principles:
Diversify credit portfolio and customer portfolio
Co-financed loans
Credit insurance
Formation of debt trading market
3.2.4 Group of solutions to improve credit risk management policies according to the following:
International standards and practices in commercial banking management
Perfecting customer evaluation information system
Perfecting the credit rating system
Building a quantitative credit portfolio risk model
Building a roadmap to apply Basel standards in the shortest time
3.2.5. Group of solutions applying derivative instruments to limit credit risks
use
Credit risk derivatives are a form of high-level credit risk transfer to help commercial banks have a tool to transfer, buy, sell, process, and manufacture credit risks without having to transfer their credit portfolios.
In the coming time, it is necessary to focus on developing unified guidance documents.
The best in financial derivatives and credit derivatives for commercial banks.
3.2.6. Other support solutions
3.2.6.1 Building a team of CBTD with professional qualifications and ethics
People, capital, and technology are important factors that determine the success of a bank. Therefore, commercial banks need to focus on the following issues:
About work capacity
About moral qualities, sense of responsibility
More attention should be paid to training, fostering, improving qualifications and creating conditions.
favorable conditions for staff in work
3.2.6.2 Investment in modern information technology equipment
Information technology applied in the banking sector increases the efficiency of the entire system, helps store complete and accurate information, saves time,... contributes to improving credit quality.
3.2.6.3 Perfecting the information system
Information plays an important role in all areas of life in general and in the banking sector in particular. The level of mastery of information will determine success. With such an important role of the information system, it is required that commercial banks quickly complete the information system in the direction of completing the information system to serve credit activities.
3.2.6.4 Have a reasonable and timely plan to increase charter capital
In the trend of integration and competition, foreign commercial banks have a lot of experience and financial potential, so Vietnamese commercial banks need to continue to increase charter capital to meet the following requirements:
Improve financial capacity for commercial banks according to international integration roadmap.
Pressure of integration
Pressure from the development of commercial banks themselves
3.2.6.5 Implement the policy of merging and consolidating credit institutions to improve financial capacity
Merging and consolidating weak credit institutions into large credit institutions with healthy financial status
Merge small-scale, financially sound credit institutions into large-scale credit institutions
3.3. RECOMMENDATIONS TO CREATE A LEGAL CORRIDOR FOR THE PROPOSED SOLUTION TO IMPROVE CREDIT RISK MANAGEMENT OF VIETNAMESE COMMERCIAL BANKS
3.3.1. Recommendations to the State
Create a stable macroeconomic environment and stabilize monetary policy
Creating a synchronous legal environment for banking operations
Completing the infrastructure of economic information systems
Establish and develop bad debt trading market
Reduce administrative procedures related to lawsuits
3.3.2. Recommendations for the State Bank of Vietnam
The State Bank, with its function of macro-management in the field of monetary and financial affairs for the economy and as the Bank of commercial banks, has an important position in setting out the general economic strategic orientation and the capital mobilization strategy to serve the industrialization and modernization of the country in particular. Therefore, to create support for the Bank to prevent and limit credit risks effectively, the State Bank needs to:
Promote and improve the quality of management and operation
Strengthening inspection and control work
Issue a set of qualitative and quantitative indicators to guide commercial banks in building
build credit risk warning system
Promote the implementation of contents related to inspection, supervision and debt settlement.
bad and debt trading
Improving the quality of the Credit Information Center (CIC)
CONCLUSION OF CHAPTER 3
In summary, in chapter 3, the thesis has proposed the most effective solutions in credit risk management to best prevent credit risks and minimize the consequences if risks occur. At the same time, it recommends to the State and the State Bank of Vietnam on how to manage, operate and create a safe and effective legal and business environment to ensure maximum limitation of credit risks for commercial banks.
In addition, the thesis has proposed many groups of synchronous solutions to contribute to the completion of basic solutions on credit risk management at Vietnamese commercial banks. In addition, the thesis also recommends to the government and the State Bank support solutions and policies to improve the banking business environment in Vietnam.