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The “3-Ring Control” Model of Risk Management for Commercial Banks

source of

customers (according to the regular reporting regime)

period,

production projects

export

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terrible

business), from the credit center (CIC) of the State Bank. Quantity and quality of information

The “3-Ring Control” Model of Risk Management for Commercial Banks

income received in connection with lending, monitoring and managing accounts for

Therefore, the more complete, quick, accurate and comprehensive the information is, the more likely it is that

increasing risk prevention ability.

Increasing risks in business operations, credit quality

 Five is: Credit risk management

Credit risk management is the process by which banks plan, organize, implement, and monitor all credit granting activities, in order to maximize the bank's profits with an acceptable level of risk.

Credit risk is the possibility that a customer will not meet its obligations.

meet debt obligations according to agreed terms. Credit risk

due to many reasons but in general, the main reason is the implementation

management process

credit management of commercial banks. Risk

credit risk

closely related to credit quality because it directly affects the process.

credit circulation process, business safety issues and from

that affects the ability to respond promptly to customer requests

Based on the credit capital circulation process, credit risk management includes

3 stages:

The first is the appraisal process.


definition:


this is the stage


start


head but


intentional

important meaning for ensuring the safety of loans, the safety level of this stage depends a lot on the review, preparation of loan documents, and assessment of assets.

collateral, customer status to assess customer repayment ability

customers and lending decisions. Appraisal typically focuses on financial capacity.

of the customer. For loans with collateral, the appraisal

It is necessary to pay attention to the assessment of assets, determining the perfection of the mortgaged assets as well as the risk level of this asset.

The second is customer monitoring: monitoring possible risks to customers.

loan amount. The requirement of this stage is that the credit officer must monitor and supervise

Closely monitor customers' loan usage process, detect and handle promptly

problem loans, loans that are likely to become uncollectible

recoverable. This is an effective measure to ensure loan safety.

Third is debt collection: this is a condition to ensure the safety of credit activities of commercial banks. Debt collection can take place in accordance with the following regulations:

The debt term has been specified, and can also be collected early if the debts are found to be in arrears.

problems, likely to lead to losses, causing loss of capital for the bank. Banks need to monitor and check regularly to effectively handle debts when problems are detected.

Credit risk assessment in the lending process aims to help credit institutions predict risks right from the loan application appraisal stage. The accuracy of

Risk assessment of debts is the basis for assessing credit quality.

used and is the basis for setting up and evaluating the use of loss reserve funds of commercial banks.

 Six: Credit officer

Human resources are at the heart of everything.

active

dynamic

business of

bank

commercial, special

special

is active

dynamic

credit

System

banks more and more

presently

grand,

career

increasingly complex credit operations require qualified personnel,

ability, thinking ability, sensitivity and professional ethics, these are

decisive factor in improving the effectiveness of CLTD. Unsuitable staff arrangement

mass theory

quantity

manage

customer service, capacity

manage each

section

credit,

Credit portfolios all lead to a decline in credit quality of commercial banks.

Improve quality

quantity

staff to team

staff response

application

competent

thing

act, practice

presently

procedures and policies according to international practices and standards

Basel 2. Human resources

Right

professional, through the learning process

ask,

dig

long-term creation. Building criteria for evaluating the capacity of banking staff in general

and staff in credit activities in particular. Director in charge of IT, in charge of

Data analysts must be properly trained to be able to cover and control the situation.

general, prescribes the application and compliance of technology for the entire

bank staff. Training for staff of departments, divisions, and divisions

It is essential that all employees in the bank know what Basel 2 is and how it works. Basel communication

2 As well as training, there needs to be a top-down approach, developing specific documents to share knowledge between departments, divisions, and units, following the core principle of Risk Culture - Risk management is the responsibility of the entire banking system.

People are a very important factor that determines the success or failure in credit capital management as well as in banking operations. Society today

The more we develop, the higher the quality of human resources is required to respond promptly and effectively.

effective in different situations of credit operations. The selection

Personnel with good professional ethics and expertise will help the bank.

prevent possible errors when performing a credit transaction.

closed cycle

The quality of human resources here is not only a matter of professional expertise, working style, sense of responsibility, and labor discipline, but also includes the conscience and professional ethics of the bank staff. Credit officers are the ones who directly perform credit operations and are the bridge between

banks and customers. Thereby showing that credit officers

important

very

big

opposite to

with

work

business of

banking in general and operations

dynamic

credit granting in particular, so credit officers

Right

qualified,

ability to think

customer support consultants, competent and dedicated to the profession. If the credit officer

work

too principled

or hard

remind, not accept

good service

customers will

unattractive

customer arrival

with

bank, issue

The subject is the credit officers.

must know how to flexibly apply credit policy procedures in a way

most effectively so as to attract more competition for the bank.

 Seven is: Internal control

customers, increase the ability

According to

Basel Committee, each

part

function

ability in the testing department,

Credit control takes on the role of control in other aspects.

each other. So,

to check

credit control

objective and effective

fruit,

job

organization

The administrative apparatus needs to avoid duplication of functions and conflicts of interest between

control department. Current practice, to ensure compliance with Basel principles,

real commercial banks

presently

organization

inspection and control apparatus

TD according to "3 rounds"

control” as shown below:


COUNCIL

MANAGEMENT BOARD

CircleCircle

Round

kg

rank

QU

g

QU

Mth

TbNaOA

Quite a system

nAhNat

description

hRai

NOTE

Oh

NB

Oh

Figure 1.3: The “3-ring control” model of RNHTM's risk management

G (Source:

[ 6 6 ] )

Round One

(customer relations): includes

parts

direct

next

business, sales. This round is real

presently

function

ability to determine,

Evaluate,

prevent,

Risk monitoring and reporting

risks arising in operations

dynamic

credit

Based on self-assessment of TD such as:

identify, determine, assess risk

full

before

when granted

credit,

part

customer relations

select

customers and

accept

favorable

grant

credit

in the world

limit

belong to

bank. This is the first round.

fairy

and is the direct loop that receives TD control through credit granting activities.

This loop ensures that the risk control environment is designed

set up

right in the transaction

pandemic

credit

daily of

bank. According to data

system

listed at

Commercial Bank in

In developed countries, the Customer Relationship Cycle can control and limit up to 80% of a bank's risk exposure.

Round two (risk management): To implement

presently

function

management

risk management

yes,

second round real

presently

Basic tasks: (1) establish management strategy

risk, risk appetite, management policy

RRTD value; (2) construction,

issue the

procedures, regulations on activities

dynamic

credit

and management

risk management

credit risk;

(3) build

build

system

information, system

tools,

measure

method to receive

area, measure

measure, control, monitor and report on credit risk at the individual credit level and

category

credit;

(4) assessment and control

control

active

dynamic

round number

First. As required by the Basel Committee, the operation of the second round must be independent.

with

first round

However, the Department

manage

RRTD theory plays a decisive role

determine

the customer relations department's ability to control RRTD. Because the third round

two determinations

right strategy, RRTD taste, setup

system of regulations

The appropriate program is a solid foundation for the first round of effective TD control.

Third Round (Internal Audit):

real

presently

unique review

set up

effect

fruit

belong to

first round,

second round and system

Check KSNB

belong to

bank.

Thus, the third control circle will be the driving force for the first and second circles to be more effective, minimizing errors and fraud and enhancing each person's sense of responsibility.

individual when present

function

ability, responsibility

case of

me. Usually

Round 3

direct

belong

Board of Directors to ensure

tell

toxicity

establish,

copper

time

help the Board of Directors, Board of Management

Control can capture information across the operations of business units,

Internal inspection and control help leaders obtain information on whether the lending situation of credit officers is consistent with the guidelines, policies and strategies set by the bank or not. This activity includes activities such as: checking procedures on the authority to operate, manage, and monitor loans, procedures, loan applications, etc. with the aim of detecting violations in the lending process, thereby helping the leadership make decisions to limit credit risks. A well-functioning internal control system will create conditions for banks to improve credit quality.

1.2.3.2 Objective factors

One is: Customer factors

Any customer who wants to borrow money from a bank must meet the conditions and credit standards set by the lending bank to ensure safety, prevent and avoid risks when lending. Only customers who fully meet the requirements of the bank will be granted loans by the bank, so the ability to meet the requirements of customers directly affects the quality of credit, including:

Customer market capacity

This capacity is reflected in the product market share, product quality that the customer is providing in the market, brand, product future, etc. The higher this capacity is, the greater the customer's investment capital needs are and this is one of the bases for banks to consider when lending.

Customer production capacity

This capacity is clearly shown in the total value of assets that customers put into production and business, specifically expressed in the technology that customers put into production, whether it is modern or outdated, and whether the investment activities of the business are effective or not. Production capacity is the basis for banks to calculate the feasibility and capital needs of the project.

Customer financial capacity

This capacity is reflected in the capital structure, self-financing ability, and financial indicators of the customer. If the customer borrowing capital has strong financial potential, high payment ability, and production and business activities that bring high and stable profits, etc., it means that the business is operating effectively and has the ability to repay the bank debt in full and on time, the bank will be more secure in lending capital to that customer. Each such customer will continuously consolidate and enhance the bank's credit quality.

Customer management capacity

Borrowers must have good management capacity. This is reflected in the ability to organize personnel, arrange departments, organize accounting systems, and manage finances in accordance with State regulations while ensuring the effectiveness of the system that the customer is managing. The operation of the accounting, financial, and statistical systems helps the bank provide information on the customer's business performance, thereby providing the basis for the bank to make timely and effective lending decisions.

Property ownership and ability to meet security measures

As we all know, the customer's business activities are associated with the ownership of a certain amount of assets, the ownership of assets is expressed in the legal ability of the customer to possess, use and dispose of that amount of assets. The value, quality and structure of assets that the customer owns determines the production and business activities, measures the financial capacity and determines the amount of credit that needs to be provided. The ownership of assets is associated with the customer's capacity and the ability to use the assets owned by him to implement credit security measures.

Project / Option Feasibility

When the customer has built a feasible production and business plan, the customer himself will see the direction of his work and it will be even safer for the customer when evaluated and consulted by the bank. A feasible production and business plan is a plan that must be market-oriented, not against the law, capable of providing output and input, and economically effective. An effective production and business plan will firmly ensure the source of principal and interest repayment to the bank.

Moral character of the borrower

This indicator is very difficult to grasp and assess, but before lending, banks must consider it carefully because it is related to the customer's

customers pay later. Customers with weak moral character will lead to procrastination.

In debt repayment, it is very difficult and costly for banks to handle debts.

Second: Economic environment

In order for banks to mobilize more capital and expand lending activities to serve economic development, there must be a stable economic development, creating favorable conditions for bank credit activities. When the economy develops stably, inflation is moderate, and there is no crisis, it will create favorable conditions for business production. Thus, the ability to borrow and repay loans will not fluctuate greatly. Banks do not have to suffer losses due to currency devaluation, avoiding a decrease in credit quality.

Economic cycles have a significant impact on credit activities. If the economic period is prosperous, production and business are expanded, leading to increased capital demand, credit efficiency also increases, reducing credit risks, but it does not exclude the case that due to the race in production and business, speculation and hoarding make credit demand increase too high and many credit institutions implement. These amounts may also be difficult to repay if the development of production and business is not planned or the development of production and business exceeds the scale of the customer in terms of both capital and management capacity. On the other hand, during the period of economic prosperity,

Economic recession, stagnant production, business losses, reduced demand for credit capital and even if credit capital is implemented, it is difficult to use effectively. During this period, the prolonged deflation causes production to exceed the demand of the economy as well as the cause of stagnation in production and business due to the unsold product inventory, credit activities encounter many difficulties. Moreover, due to competition in the monetary sector, banks will loosen lending conditions to attract customers. This is also the cause affecting credit quality.

Third: Social environment

Customers and banks carry out credit relations based on the trust between the two parties. Therefore, credit quality depends on three factors: customers, the bank's capacity and mutual trust. Trust is the bridge between the bank and customers, it is the premise to create conditions for continuous improvement of credit quality. Customers are both capital suppliers and capital demanders. Customers expect from banks a reasonable interest rate, simple and quick procedures. Banks are both representatives of capital mobilization and credit providers. The social relationship between banks and customers is an equally important factor determining the scale and operation of banks. The success or failure of a bank depends on the development of credit policies. A proper credit policy will attract many customers, ensure profitability from credit activities on the basis of risk dispersion, compliance with laws, State policies and ensuring fairness.

In addition to the above factors, there are other factors that affect credit quality such as social ethics and educational level related to credit risk. In addition, fluctuations in the economic, political and social situation abroad also affect credit quality.

Four: Legal environment

Law is an indispensable part of a market economy regulated by the State. If the legal framework is not suitable for the development requirements of the economy, all activities in that economy cannot proceed smoothly.

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