Solutions to Improve Credit Risk Management Capacity at Vietnam Technological and Commercial Joint Stock Bank

Ability to develop and operate risk measurement and management tools according to international practices and Basel II standards.

In addition, at Techcombank, the internal credit rating results have been used as a basis for applying customer policies, credit proposals and lending interest rate policies. Although the internal credit rating system has been applied to credit risk management, the quality of customers with credit relationships has not increased as expected, showing that the ability to assess and forecast risks of the rating tool is not high. Normally, the Gini coefficient [48] is used to assess the ability to forecast risks, the probability of eliminating bad customers of the scoring systems (Gini or AR of good models is usually over 70%), but Techcombank's rating models only reach an acceptable level, around 30% [2].

The final layer of defense (Internal Audit) in the 3-line defense model of QTRRTD has not really been effective in dealing with important risks other than RRTD, there are still limitations in the capacity of internal audit personnel and IT to serve internal control.

In the 3-layer risk management model, internal audit is the final layer of defense with the main role related to providing assurance that risks are appropriately assessed, assessing risk management processes, assessing periodic reporting of key risks, reviewing the management of key risks, assessing the appropriateness of the current risk management process through comparing the organization's risk management process with other banks. However, in reality, internal audit activities at Techcombanks have only focused mainly on credit risks and operational risks, and have not really been effective in other important risks (because risks are closely interrelated in the bank's risk management work).

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On the other hand, periodic inspection and supervision activities of the Internal Audit and Control Department (ICC/CC) are necessary, however, currently, the frequency of audits and inspections by ICC/CC is too high, affecting the operations of branches. The detection of ICC/CC mainly focuses on compliance violations. The violations are mainly the lack of documents proving income or the lack of records and documents according to regulations. The audit reports list many errors, but do not accurately reflect the actual status of violations. Only after the branch's explanation, these errors are corrected and correct.

In terms of human resources, currently, internal audit at Techcombank is lacking experts with experience in activities such as information technology, risk management, internal assessment of capital adequacy according to Basel II. In general, internal auditors at Techcombank still lack knowledge of mathematical model development, knowledge of RRTD and market risk management theory, and lack of training and practical experience.

On the other hand, Techcombank's internal audit is not yet fully equipped with application tools and information technology systems to support effective internal audit activities. According to IIA Standards [4], to ensure prudence, internal audit must consider the application of technology and data analysis techniques in audit activities. Internal audit is currently not equipped with application software to help manage audits to be performed consistently and ensure quality, nor is there a monitoring system to warn early signs of abnormalities in some high-risk areas of the bank.

Debt classification and risk provisioning do not reflect comprehensively and objectively the loan.

Regarding debt classification and risk provisioning, Techcombank currently classifies debt using a combination of quantitative and qualitative methods, and sets aside risk provisions according to the State Bank's regulations on risk provisioning under Circular No. 02/2013/TT-NHNN[34]. However, debt classification and risk provisioning at Techcombank are only based on certain criteria, mainly on the debt term of the loans. If only based on these criteria, it does not reflect comprehensively and objectively the risks of that debt. Therefore, the requirement for Techcombank is to build a more appropriate debt classification and risk provisioning model.

Techcombank's risk management measures are not really diverse and cannot meet the Bank's increasing risk management needs.

Currently, the risk management measures of banks are divided into two groups of solutions, including the direction of handling the operating organization (including adding collateral; transferring overdue debt; debt freezing, debt cancellation; handling loan collateral; appointing representatives to participate in enterprise management) and the direction of using liquidation measures (including: handling outstanding debt; liquidating enterprises; filing lawsuits; selling debts; handling with risk reserve funds). In which, currently, banks around the world have been using a highly effective risk management method, which is the use of derivative instruments such as securitization, derivative operations, and credit insurance. However, at Techcombank Vietnam, this risk management measure has not been mentioned or implemented. Therefore, to diversify risk handling methods to improve the bank's risk handling capacity, banks need to take measures to build a risk handling process in the form of using securitization, derivative instruments, and credit insurance.

Human resources for QTRRTD are still lacking in both quantity and quality.

In general, Techcombank has a systematic human resource policy, which is given due attention. However, to improve human resource capacity, especially in the QTRRTD block, it is necessary to ensure both the quantity and quality of human resources. Regarding the human resources of the QTRR Block alone, according to the bank's internal statistics, currently the proportion of employees in the QTRR Block at branches and headquarters accounts for 2.8% of the total number of employees at the bank. In the world, this ratio is usually around 5% [55], which shows that the human resources for QTRR work at Techcombank have not yet met the quantity requirements, the number of employees for QTRRTD is still low. On the other hand, the human resources to implement advanced QTRR methods according to international practices and Basel II standards have been prepared with new QTRRTD knowledge, but there are still a large number of staff who have not been equipped with knowledge of modern QTRRTD tools and methods, international practices, and Basel II regulations.

In addition, the quantification of RRTD is developed on a rather complex theoretical foundation, Techcombank itself is still lacking in employees with knowledge of QTRRTD, and is not yet capable of building and using quantification models. Therefore, the research on quantifying RRTD hires professional consultants, hires foreign senior personnel to hold important positions such as Director of QTRR block to take advantage of the management experience of the international QTRR system. However, in the long term, if Techcombank does not understand and master the model, it will have difficulty using the model, evaluating the accuracy of the results generated by the model as well as upgrading the model.

Not fully meeting the standards of information and data bases according to international standards and Basel II

Although it has received a significant investment in the past 5 years, Techcombank's IT infrastructure still does not meet the information and data requirements of Basel II standards. Currently, to meet the data requirements of Basel II standards, Techcombank needs to compare over 2,000 Basel II requirements on risk management related to the overall risk management issues specified in the 3 pillars of Basel II. If taking into account the data requirements for capital calculation methods, the total data can be up to 600 data fields for credit risk alone, 300 data fields for market risk and 180 data fields for operational risk [2]. Quantifying credit risk requires commercial banks to have a large and accurate input database. Although Techcombank has built a customer information system through the internal credit risk management system, it has not yet met the standards for information and data bases prescribed by Basel II. The data warehouse system, although large, is still scattered and in raw form, not cleaned, and still has some errors.

In case the error has not been corrected, and the data has not been unified across information sources, the data warehouse has not yet maximized its effectiveness as expected and has not served risk management more deeply. Thus, it can be said that the database for building a risk measurement tool is the biggest barrier, limiting the ability to apply risk quantification models at Techcombank.

2.3.3. Causes of limitations

2.3.3.1. Subjective causes

Firstly, the Internal Audit is under the Board of Supervisors, the Internal Audit is under the Board of Directors, so these departments have not coordinated when implementing the audit and control plan, leading to a high density of control, affecting the branch's operations but not really effective. In addition, the audits are performed very frequently, auditors and controllers are under great pressure to meet the requirements on the number of credit files to be inspected but still ensure quality. In addition, the Bank still lacks appropriate investments, especially for internal audit personnel and IT systems serving internal audit work.

Second, although Techcombank has clear regulations on post-lending inspection and supervision, CBTDs do not comply or do so in a rather sketchy manner. This leads to classification and provisioning based mainly on overdue time instead of focusing on other factors that potentially pose large risks in credit loans, affecting the timely detection and handling of arising risks. According to regulations, CBTDs must periodically check the situation of customers' loan use after disbursement to ensure that customers will use the loan for the right purpose. However, some CBTDs do not check the situation of customers' loan use, do not directly visit customers' business locations to understand the business situation of customers, and do not collect documents proving that the bank's loan use is in accordance with the authorized and approved purposes. Some CBTDs have customers sign the Minutes of checking the customer's loan usage status, and periodically fill in the information according to the bank's regulations to deal with the auditing or inspection department, internal control, and State Bank inspection.

Third, Techcombank's information technology platform, customer information system, and database are not yet synchronized, insufficient, and cannot meet the requirements for building quantitative risk management tools/models. These are major barriers and limitations for Techcombank's administrators in the process of improving and enhancing risk management capacity through quantitative models that meet international practices and Basel II standards.

Fourth, high-quality human resources, understanding the current situation of credit risk management at Techcombank, understanding credit risk management practices such as Basel II, Basel III, especially having knowledge

Good knowledge of quantitative mathematical models is still lacking. This human resource is currently Techcombank is still hiring professional consultants, and the personnel are foreign senior experts. Techcombank is currently just starting the stage of building a human resource team capable of operating the QTRRTD Competency Framework.

2.3.3.2. Objective causes

First, the business and legal environment is not stable.

Nowadays, the development orientations of the State, the policy mechanisms of the Government and the State Bank are increasingly being perfected but are still not really perfect and stable. This is reflected in the fact that these orientations, mechanisms and policies are constantly changing, affecting the entire economy and the banking system. In addition, in addition to being unstable, many policy mechanisms also contain shortcomings, are not suitable for the current situation and are slow to be amended and supplemented.

Second, on the customer side: For corporate customers, many units have not implemented the accounting and document regime well, especially in preparing and presenting financial reports. Therefore, many units prepare and submit financial reports to the Bank in a sketchy, unsystematic, and poor quality manner, often lacking or incorrect information. The lack of or inaccurate information affects the Bank's consideration, evaluation, ranking, and decision to grant credit to customers. This leads to risks for the bank when making credit decisions.

Third, the State Bank's policy is unstable and has many shortcomings.

Currently, the State Bank's credit management policies and mechanisms are increasingly being improved in accordance with international practices. However, the frequent changes and adjustments of the State Bank's policies and mechanisms cause many difficulties for banks in general and Techcombank in particular because they have to regularly update the changes. In addition, these policies and mechanisms are not yet synchronized, many contents are not specifically regulated, making banks confused when implementing. In addition, there is a situation where the guiding regulations overlap, some policies and mechanisms are not comprehensive, leading to many subjects taking advantage of loopholes in the policies and mechanisms to carry out acts that affect the banking system.

CONCLUSION OF CHAPTER 2

Through analyzing the current status of credit risk management and credit risk management capacity of Techcombank, chapter 2 of the thesis has solved the following problems:

Firstly, study the development process and business performance, the current status of credit risk management and the current status of credit risk management capacity of Techcombank in the period 2014 - 2019.

Second, NCS calculated, synthesized and processed data to assess the current status of Techcombank's risk management capacity.

Third, the researcher described the research method, the questionnaire design process, as well as the sampling method to collect data and process data on SPSS software. From there, the researcher presented the research results through the analyzed data, concluding on the level of influence of the factors constituting the capacity of QTRRTD.

Fourthly, the thesis points out the achievements, limitations and causes of Techcombank's credit risk management capacity in the period 2014 - 2019.

These studies are the practical basis for the author to propose some solutions to improve the capacity of Techcombank's credit risk management in the coming time.

CHAPTER 3: SOLUTIONS TO IMPROVE CREDIT RISK MANAGEMENT CAPACITY AT VIETNAM TECHNOLOGICAL AND COMMERCIAL JOINT STOCK BANK

3.1. Orientation to improve credit risk management capacity at Vietnam Technological and Commercial Joint Stock Bank by 2030

3.1.1. State Bank's management orientation for Vietnamese banking operations until 2030

On January 7, 2019, the State Bank issued Decision No. 34/QD-NHNN on the action program and goals for the entire banking industry towards 2030. In particular, some of the main management goals of the State Bank for the entire banking industry in the coming period are as follows:

Strengthening the institutional capacity, effectiveness and efficiency of the State Bank's banking inspection and supervision; Expanding the scope of inspection and supervision to financial groups in the form of parent-subsidiary companies, in which the parent company is a credit institution; complying with most of the principles of effective banking supervision according to Basel. By the end of 2025, banking inspection and supervision will comply with most of the principles of effective banking supervision according to Basel

Commercial banks basically have equity capital according to Basel II standards, of which at least 20 - 25 commercial banks have successfully applied Basel II standard method or higher. All commercial banks apply Basel II according to standard method, pilot application of Basel II according to advanced method at State-owned commercial banks holding controlling shares and joint stock commercial banks with good governance quality have completed application of Basel II according to standard method.

Bring the ratio of bad debt on the balance sheet of credit institutions, bad debt sold to VAMC and debt classified to below 3% (excluding weak commercial banks whose handling plans have been approved by the Government), and continue to maintain the bad debt ratio of the entire banking system at below 3% by 2030.

Increase the efficiency of credit capital allocation to serve the requirements of socio-economic development; Integrate the contents of sustainable development, climate change and green growth into credit loan programs and projects. Promote the development of "green credit" and "green banking" to contribute to the transformation of the economy towards green growth, low carbon emissions, and adaptation to climate change; Increase the proportion of bank credit capital invested in renewable energy, clean energy, and low-carbon production and consumption industries.

Promote non-credit service activities, aiming to increase the proportion of income from non-credit service activities in the total income of commercial banks to about 12-13% by 2025, and the proportion of income from non-credit service activities in the total income of commercial banks to about 16-17% by 2030.

Promote the development of non-cash payments, optimize ATM and POS networks. Take advantage of digital technology such as fingerprints, facial recognition... to minimize transaction costs, increase security, safety, transparency to replace previous popular payment methods... Gradually reduce the proportion of cash in total means of payment, the goal is that by the end of 2020, the proportion of cash in total means of payment will be below 10%. By the end of 2025, the proportion of cash in total means of payment will be below 8%.

Increasing the number of businesses and people accessing financial and banking services provided by credit institutions. The fourth industrial revolution is a major trend, having many impacts on the number of customers accessing banking services, especially digital banking services of countries, including Vietnam. Vietnam's population structure is young and modern, the majority of Vietnam's population lives in rural areas, which previously had little access to modern information technology, but recently the educational level of Vietnam has been raised, the ability to access new technology services of Vietnamese people is quite good compared to other countries in the world, especially

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