Research on the impact of loan portfolios on profitability of joint stock commercial banks - 12
It should be seen that the lack of attention to loan portfolio management or the application of passive portfolio management that some commercial banks are doing at present cannot be appropriate and adaptive in future conditions. Because in the modern economy there are many unpredictable developments, the scale of banking operations is expanding day by day, the complexity of banking products and operations is increasing, and especially the competition in the banking industry. The domestic and international financial and banking markets are increasingly fierce.
In that context, if banks don't change their management on their own, they will inevitably fall down in competition and at some point be eliminated from the market. In addition, the process of implementing international commitments on opening the financial-banking service market for integration also requires Vietnamese banks to follow international standards and practices on corporate governance. banking activities.
Therefore, changing the perception of loan portfolio management needs to be implemented immediately without delay and implemented in all Vietnamese commercial banks regardless of size and nature of ownership, in order to shorten the gap in management level compared to commercial banks in the region and in the world.
220.127.116.11 Strategic orientations for the bank's loan portfolio management
One is to plan loan portfolio management goals in close connection with the bank's profit goals, market share growth goals, and brand development goals. Which considers the level of loan portfolio loss that the bank can accept, depending on the size of the bank's own capital. The loan portfolio management objectives may change every year, based on the bank's overall business strategy and goals.
Second, in order to achieve the goal of loan portfolio management, banks must specify different loan portfolio options. In which, each option of the loan portfolio with the proportion of different types of loanable assets is designed differently, thereby forming different profits and losses between the options.
The bank needs to choose the most suitable plan to accomplish its goals and at the same time ensure flexibility in the implementation process. It is also important to note that, when orienting a loan portfolio management strategy, banks must anticipate cyclical changes in the economy that affect the structure and quality of the portfolio. Therefore, it is necessary to develop different loan portfolio options suitable for certain scenarios. When the scenario changes, it is inevitable that the bank must choose another suitable portfolio option.
Third, banks need to establish policies to effectively implement the loan portfolio management strategy, such as the policy of diversifying loan types, the policy of risk classification and provisioning. , policy on regulation of safety limit in lending... Policy on management of loan portfolio needs to be consistent and consistent with other internal policies in order to achieve the common goal of the bank.
For example, the policy of giving priority to loans for some subjects, the policy of salary and bonus according to the outstanding balance allocated to the branch or employee is actually in conflict with the portfolio management policies. because it can stimulate profits in the short term but disrupt the structure of the bank's planned loan portfolio, causing damage in the long term. In addition, the loan portfolio management policies must ensure compliance with the legal regulations of the State bank, on the other hand, must also be suitable to the individual conditions of each bank.
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All of the above strategic content needs to be determined or approved by the highest levels of management in each bank, that is, the Board of Directors and the board of directors.
18.104.22.168 Building a risk measurement model for loan portfolio
Building a risk measurement model is a very important measure in the entire content of proactive loan portfolio management. Based on the actual size of equity capital at the bank, the use of measurement models will help the bank offer different portfolio options, satisfying the profit and risk requirements as the target. planned. In monitoring performance, the model will help the bank calculate the level of risk taking place in the portfolio, thereby serving as a basis for operating decisions. Using internal risk measurement models is typical of loan portfolio management activities in the modern economy and has only been applied since the late 90s.
Therefore, risk measurement models are considered modern portfolio management models.
Due to the different governance positions of Vietnamese banks (especially between large-scale commercial banks with extensive experience and those newly converted from rural and small-scale joint stock commercial banks), It is not possible to apply the same model to all banks. Therefore, in order to match the capabilities of each bank, banks need to apply a risk measurement model that is suitable for the real situation. bank status.
22.214.171.124 Ensuring the independence and concentration of the risk management department in each bank
The most basic of loan portfolio management is risk management focused on the portfolio. That is why banks need to attach importance to the factors that govern the control and limit the risk of loan portfolio. One of those factors is to ensure the independence and concentration of the risk management department in each bank. The independence of the risk management department shows that it is separate from other operational departments in the bank. This is essential to ensure that the work of this department will not be dominated by the operating process, properly demonstrating the principle of separation between the risk-creating department and the risk-controlling department, and doing the right job. risk management capabilities.
Centralization in risk management ensures that risk types are not subdivided in the management process, making overall assessment easier. On the other hand, the centralization of the risk management department also requires that the information and research on the bank's risks need to be undertaken and responsible by one focal point, if it is dispersed, it will be difficult to manage effectively. fruit.
In order for the risk management department at all joint stock commercial banks to function properly and effectively, it is necessary to clearly define the tasks that this department must undertake. The functions of the risk management department include:
- Build a centralized risk identification, measurement, assessment and control system on the bank's loan portfolio. Especially, building a measurement model to quantitatively calculate the loss that 107 portfolios bring, and at the same time determine the risk tolerance through the bank's capital.
- Determine safe lending limits for each customer and customer group, across all regions, regions, and lending activities of the bank. At the same time, there must be a mechanism to ensure monitoring of the implementation of these limits.
- Design scenarios and test the impact of market conditions adversely affecting the bank's loan portfolio structure.
- Being the focal point to gather all risk-related information on a regular and continuous basis and transfer those results to the executive board, helping senior managers make a substantial assessment of the risk landscape of the company. banking in general, including risks associated with loan portfolios.
- In the period from now to before 2020, the risk management department of each bank will be the place to focus on researching to apply risk management techniques (including risk management for loan portfolios). ) in the spirit of Basel 2, approaching the spirit of Basel 3.
It should also be noted here that, in order to ensure centralization, the risk management department must manage all types of risks, not each type of risk separately. Currently, in some banks, there is an ALCO department (assets and liabilities management), which is actually responsible for risk management, so any bank that has established this department can regulate duties accordingly, banks that do not yet have them should be established. On the other hand, to ensure independence, the risk management department should not participate in the risk assessment process through reviewing loan documents as many banks are currently applying. This is contrary to the principles of risk management recommended by the Basel committee.
126.96.36.199 Building an effective management information system
In order to serve the effective management of the loan portfolio, first of all, it is necessary to mention the role of predictive information to help managers plan strategies proactively. Lack of accurate forecasted economic information is a limitation that exists in joint-stock commercial banks as pointed out in chapter 3. To overcome this limitation, it is necessary to have a department to analyze and provide forecasting information for internal management at the bank. Depending on the size and organizational structure of the bank, it is possible to establish a separate economic research department, or to combine them in an existing department/department of the bank, but it is necessary not to let the management department risk managers concurrently, because this will lead to conflicts of interest in the implementation of risk management.
The second type of information for portfolio management is information related to the portfolio implementation process, or in other words, reporting information for administration. Due to the requirement of daily updating, the reporting information network is tightly designed, including a top-down communication mechanism and a horizontal or superior reporting mechanism. A system of information and reports that is transmitted smoothly will help managers regularly update the status of the bank's loan portfolio, the status of the portfolio with manifestations of lack of diversity, concentration of risks. Risks will be identified and measured, thereby helping managers make timely adjustment decisions to meet the bank's goals. As mentioned in the situation analysis,Currently, most banks have formed a model of 3 lines of defense to participate in the implementation and supervision of the portfolio.
These three lines of defense include the operations department, the risk management department, and the internal audit department. Particularly, the risk management department is responsible for regularly monitoring the risk of the loan portfolio, so it needs to be organized in a vertical line, linked from the risk monitoring department at the local branch to the management unit. risks at headquarters. From here, the reporting information is transferred to the Board of Management to update the status of the loan portfolio, facilitating management decisions to be issued in a timely manner.
Finally, the modern information technology system is considered an important infrastructure for the formation and development of the bank's management information system. This requires banks to equip machines for data entry, quantitative risk analysis, and building software to calculate risk measurement models. Because the work of managing the portfolio includes many complex and quantitative contents, the information technology system needs to be modern to meet this requirement.
188.8.131.52 Improving and developing human resources at the bank
Research shows that when the market is fiercely competitive, too many banks jump in to dominate the market, leading to a decline in profits like a pie that has to be divided. And the reality in Vietnam shows that, in recent years, many small, weak, inefficient banks have been merged or dissolved, and the banking market is almost in a saturated phase. To stand firm and adapt to this fiercely competitive environment, banks must be dynamic and constantly improve their professional skills, service quality, improve technology, information technology, and expand utilities. …Any activity that wants to be successful must have a major human factor and loan portfolio management is no exception. In order to successfully manage the loan portfolio, it is necessary to have a team of enthusiastic managers with good vision,The staffs are knowledgeable in modern and professional techniques, capable of implementing the administrator's intentions, have professional ethics, etc. Develop orientations for targeted lending industries. Implement flexible credit policies, adapting to the economic environment, on the basis of updating information, analyzing, assessing the current situation and forecasting prospects for each line of products and products.
184.108.40.206 Building an accounting system suitable to the international accounting system
In the process of researching and collecting data related to the operation of Vietnamese commercial banks, I found that the financial statements of the banks are built based on both international accounting standards 142 and international standards. and Vietnam, thus making it very difficult for people to collect, process and analyze data, which makes the reports of commercial banks become ambiguous and lack transparency. Thus, if we use the international accounting system (IAS) in the accounting work of commercial banks, it will be possible to eliminate the two-way reporting process with two different versions of reports as currently. Now, reducing the time and effort of comparing and adjusting,at the same time, it also helps banks to make their operations transparent according to international standards and quickly publish information about their operations to the public. Therefore, in the near future, it is necessary to: