Asset structure and capital sources at all times that the Bank needs to re-evaluate in the Bank's interest rate risk management, then risk management will be more accurate and effective, closer to reality.
Solution 5: Choose a suitable interest rate gap measurement method combined with good interest rate forecasting
The interest rate gap is a composite measure of the likelihood that earnings will decline as interest rates change. Therefore, managing interest rate risk is managing the interest rate gap. The methods used by banks today to measure interest rate sensitive assets have changed significantly in both complexity and form. However, all methods require bank managers to make some important decisions on all of the following aspects:
- Managers need to select a target period for managing the NIM as a basis for determining the expected values and lengths of the periods constituting the target period.
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- The manager needs to choose the value of the marginal interest income ratio, that is, maintain the current marginal interest income ratio or change this indicator.
- If managers want to increase NIM, they must accurately forecast interest rate changes or find ways to reallocate the portfolio of earning assets and liabilities to increase the bank's interest income.
- Managers must determine the value of interest-sensitive assets and the value of resources.
interest-sensitive capital held by banks.
- The bank's capital manager needs to be aware of the factors affecting interest rate changes, pay attention to changes in general interest rates as well as changes in general interest rates; or changes in interest rates of different terms.
- Regularly grasp and analyze the monetary policy management movements of the State Bank on base interest rates, discount rates, rediscount rates, refinancing rates, etc., and at the same time refer to current interest rates of the banking system based on the
macroeconomic indicators such as inflation, state budget targets, growth rate, etc. to make their forecasts.
Solution Six: Use Modern Financial Risk Management Tools
Banks can use modern financial risk management tools such as: futures contracts, options, interest rate swaps, etc. These tools will enable banks to minimize interest rate risks effectively and at low cost, so the bank will not have to restructure assets and capital.
Solution 7: Raise awareness of interest rate risk among staff.
Currently, the issue of interest rate risk is quite new to Vietnamese commercial bank staff. Therefore, the recognition and assessment of risks by bank staff is still limited. Therefore, these limitations often cause banks to ignore important steps in interest rate risk work. In fact, to know the level of loss of interest rate risk in order to have preventive measures, banks need to calculate and quantify the level of loss of bank income, and at the same time, must have a certain level of financial understanding to master the techniques of measuring interest rate risk by using models. For Vietnamese commercial banks in general and GP.Bank Vung Tau in particular, this is a quite new issue and most bank staff are not equipped with knowledge in this field. Therefore, the top solution that the branch needs to implement immediately is to train qualified human resources in this field to serve well the work of production risk management.
Solution Eight: Other Solutions.
- The movement of the market will make any preventive measure, even the most optimal, ineffective if not adjusted appropriately. Therefore, it is necessary to regularly monitor, evaluate and adjust preventive methods to increasingly improve the effectiveness of the method.
- Developing interest rate risk management tools, not only need staff with good professional expertise but also need staff with good technology to be able to coordinate the development of tools in interest rate risk management. Therefore, GP.Bank Vung Tau needs to have a policy to maintain and attract staff to build a team of staff with enough capacity to complete tasks well in current conditions as well as have conditions to develop to meet future requirements.
- Strengthen advertising on mass media, distribute leaflets to mobilize people, diversify forms of mobilization with attractive interest rates to increase capital mobilized from savings deposits among residents.
Recommendation
a/ For GP.Bank.
In the context of market interest rates tending to fluctuate strongly. Especially in the current economic integration trend, because in reality, to know the level of loss of interest rate risk in order to have preventive measures, GP.Bank Vung Tau needs to calculate how interest rate risk affects net income as well as the value of the bank's assets. To accurately determine these impacts, bank staff must have a real understanding of asset management - the bank's capital, and must have certain knowledge of finance to master the techniques of measuring interest rate risk, using models such as: repricing model, maturity model...
Focus on building a truly strong and professional statistical accounting system to be able to provide sufficient data necessary for calculations and quantification of interest rate risks because currently banks do not have statistical data on the remaining time of loans, investment assets as well as the remaining time of mobilized capital and borrowed capital.
Must maintain a balance of interest rate sensitive items on the funding side with
asset.
Use a flexible interest rate policy, especially for large, long-term loans that require finding corresponding capital sources, or implement a floating interest rate mechanism.
Use new financial instruments to limit off-balance sheet risks, such as using term deposits, term loans, futures contracts due to capital and asset imbalances; implementing interest rate swaps and interest rate options.
The information system and technological level of the bank need to be equipped to meet the requirements of risk management in banking business in the trend of international integration. It is necessary to prepare specific conditions to apply the arising operations in interest rate risk prevention. For example, one of the conditions stipulated in the regulation is that credit institutions must "develop a process for implementing interest rate swap transactions, including risk prevention measures" which needs to be promoted at the bank in the future.
b/ For the State Bank of Vietnam
Flexibly and cautiously manage monetary policy, interest rates and exchange rates to create a favorable macroeconomic environment for the operations of credit institutions and control inflation; limit the use of administrative interventions in the market to avoid causing shocks or increasing risks for credit institutions.
It is necessary to increase attention to directing and supporting the risk management of commercial banks through disseminating the experience of risk management of domestic and foreign banks, issuing unified documents on risk management. Support commercial banks in training and coaching professional staff...
Completing the CIC information system helps credit institutions have full information about customers, serving the work of appraising and evaluating customers before deciding to lend. Directing the merger of banks with financial capacity, improving the health of the banking system, creating trust for people in the domestic banking system.
c/ For the state and local authorities.
- The State needs to build a developed financial-monetary market:
Currently, the development of Vietnam's financial and monetary market is still very limited. In terms of financial depth and the level of economic monetization, Vietnam's financial market is still underdeveloped and backward compared to other countries in the region. The shallowness of the market will make market tools less effective, including interest rates. Therefore, it is necessary to have a policy mechanism to raise the level of the financial market to improve the domestic environment.
- Need an agency to forecast interest rate changes:
Measuring interest rate risk is not only to assess the losses that banks have suffered in the past, in the context of fluctuating market interest rates, but more importantly, to help banks predict the losses that may arise in the future, thereby helping banks choose effective solutions to prevent these risks. To accurately estimate the level of losses to banks when market interest rates fluctuate, one of the important issues is to accurately forecast the level of interest rate fluctuations in the future. Up to now, in Vietnam, there has been no agency responsible for forecasting the fluctuation trends of important macro variables, including interest rates. This is also a significant obstacle for banks in accurately quantifying interest rate risks.
- The Party and the State need to complete legal documents on measurement.
and interest rate risk management at commercial banks.
Up to now, in the legal documents on banking activities, there is no document regulating the management and measurement of interest rate risk at commercial banks, even in the supervision regulations of the State Bank Inspectorate, there is no regulation on this supervision content. Once the management agency does not have specific requirements, commercial banks cannot fully understand the necessity and how to implement interest rate risk management, and this is also a limitation for quantifying interest rate risk at commercial banks.
3.2.3. Group of solutions to minimize liquidity risk
Liquidity risk is not only a concern for Vietnamese commercial banks but also one of the top concerns of macro-management levels on finance and currency. In the "Regulation on classification of joint-stock commercial banks" issued on March 12, 2008 by the Governor of the State Bank of Vietnam, liquidity is included in one of the five criteria for evaluating the classification of a commercial bank. Specifically, the five criteria are:
- Equity
- Asset quality
- Management capacity
- Business performance
- Liquidity
Thus, it can be seen that liquidity risk management plays an extremely important role in the business activities of banks. I would like to propose some of the following solutions to strengthen liquidity risk management.
Solution 1: Establish a suitable and innovative organizational model
liquidity risk management
GP.Bank Vung Tau Branch is a level 1 branch of GP.Bank but also has the functions of an independent commercial bank: Balancing capital sources and capital use, ensuring liquidity, risk management... With that scale, when capital sources are temporarily idle, the branch sends it to the head office; conversely, when there is a shortage, the branch borrows back from the head office. In fact, this function is often assigned to the accounting department, so sometimes the calculation is not timely and accurate, causing unnecessary capital surplus or shortage. Therefore, it is necessary to establish a specialized department to coordinate capital sources for more effective operations.
In addition, the branch should implement liquidity risk management in accordance with international practices and legal regulations. At the same time, it must focus on customers, products and services, and bank staff, ensuring the expansion of new customers and improving competitiveness.
Second solution: Promote capital mobilization and diversification
mobilized capital
Branches should increase the proportion of residential deposits by using promotional measures for customers, ensuring compliance with regulations on ceiling interest rates for mobilization as prescribed by the State Bank, while ensuring that banks do not fall into a state of liquidity risk. Banks need to reasonably calculate between interest rates and terms while maintaining a reasonable level of liquidity reserves to best ensure payment capacity when needed. In addition, to enhance capital mobilization and debt management, branches should focus on the retail banking market. This is a very potential capital mobilization channel and can bring many benefits to banks as well as customers. In addition, branches can diversify capital mobilization forms such as: using promotional measures, attracting customers, promoting propaganda and advertising, flexibly applying different interest rates to increase capital from economic organizations and residents to contribute to the growth of mobilized capital. Branches should simplify loan procedures and cut out cumbersome processes.
Second solution: Calculate your liquidity needs accurately to make reasonable reserves. Do not let excess capital cause capital waste affecting the bank's profits.
As we have seen in Chapter II, the cash position index of GP.Bank Vung Tau is always at a level much higher than the permitted level (4.42% in 2012 and 5.26% in 2013). While the amount of capital mobilized by the branch is very large, it cannot be lent, leading to a surplus of capital, forcing the branch to send it to the headquarters (in 2013, the difference was 90,091 million VND). Therefore, in the coming time, the branch must build a reasonable investment portfolio, with a reasonable proportion of investment in finance and investments that can be quickly converted to cash with the lowest conversion cost or zero.
Third solution: Build a reasonable internal capital transfer mechanism
Currently, there is no coordination between branches in the GP.Bank system or between branches and headquarters in transferring capital to each other, so it is very limited.
liquidity within the bank. In addition to calculating how to effectively circulate capital between branches, it is also necessary to take into account the business performance of each unit and capital must be concentrated at the headquarters. Only then can we accurately forecast and measure liquidity needs, thereby having an appropriate liquidity risk management strategy.
Solution 6: Build a healthy business environment and promote coordination with other banks in the area.
GP.Bank needs to increase the system connection with local banks, this helps the bank save a lot of costs, ensure safety in payment. Avoid unhealthy competition, avoid pushing interest rates up, causing disruption to deposit flows and weakening the payment capacity of the entire system.
Seventh solution: Improve the quality of forecasting work at commercial banks in general and GP.Bank in particular . In the current situation, commercial banks are still quite subjective in forecasting work and the quality of forecasting is still quite poor. Therefore, risks will increase and most domestic commercial banks are still too subjective when relying too much on the mechanisms of the State Bank.
Perseverance
a/With State management agencies
- Perfecting the legal system to ensure efficiency in work.
work
In the coming time, it is necessary to focus on adjusting the State Bank Law,
Law on Credit Institutions and Law on Deposit Insurance; review and amend the system of legal documents in the banking sector to ensure compliance with Vietnam's commitments when joining the WTO.
The completion of the legal system to build a healthy, transparent and operating commercial banking system according to the Government's controlled market mechanism needs to clearly define the functions and tasks of each type of bank: Commercial Bank, Investment Bank, Policy Bank, Development Bank to avoid the following characteristics: