Trang chủ / Kinh Doanh

Commercial Banks And Risk Management In Commercial Banks’ Business

The thesis was completed at Foreign Trade University

Address: Number 91, Lang Pagodar street, Dong Da, Ha Noi, Vietnam


Supervisor:

1. Assoc.Prof, Dr Nguyễn Thị Quy

2. Assoc.Prof, Dr Nguyễn Đình Thọ


Reviewer 1: Prof, Dr Nguyen Ke Tuan Reviewer 2: Assoc.Prof, Dr Le Thi Kim Nhung Reviewer 3: Dr Nguyen Huu Thuy


The thesis is defended in front of the Assessment Committee of Foreign Trade University

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Number 91, Lang Pagodar street, Dong Da, Ha Noi

At 3.00 pm date 27th September 2012

Quản trị rủi ro trong kinh doanh của ngân hàng thương mại Việt Nam theo hiệp ước Basel - 31


The thesis can be found at National Library of Vietnam and Library of Foreign Trade University

PUBLICATIONS


Article


1. Nguyen Anh Tuan, “Studying Basel Committee’s guidance on the basic principles in operational risk managing and monitoring in banking activities”, Journal of financial and monetary market Number 19, 1st October 2007

2. Nguyen Anh Tuan, “Funding transfer pricing tools”, Journal of Banking Number 24/2009

3. Nguyen Anh T uan, “Insight into the finance and banking sector”, Foreign Trade University’s International scientific conference with topic “Global Finance and Banking Management”, October 2011

PREFACE

1. Rational of the thesis


The trend of globalization, regionalization is taking place increasingly powerful and becomes an inevitable trend for any economy. This is particularly true for developing and less developing economies which needs a significant amount of capital for investment activities, including the Vietnam economy.

With the signing of the Bilateral Trade Agreement (Bilateral Trade Agreement - BTA) with the United States in December 2001 and the official accession to the World Trade Organization (World Trade Organization - WTO) of Vietnam in November 2006, Vietnam’s banking and financial services sector confronts the presence and the direct competition of foreign financial institutions on the domestic market. The opening commitments of Vietnam as a member of APEC and the Association of Southeast Asian countries with the specific schedule for the opening of each economic sector is not only an opportunity to Vietnam financial banking sector to develop and expand markets, but also a genuine and obvious challenges. The current pressing issue to tackle is to enable Vietnam’s banking and financial system to make a genuine contribution to the development of Vietnam Socialist-oriented market economy regulated by the State.

Over the past two decades, Vietnam financial banking sector has been maturing and developing both in quantity and quality. However, according to the evaluation of the World Bank’s organizations (World Bank – WB), International Monetary Fund (International Monetary Fund – IMF) and the major and prestigious credit rating agencies in term of Vietnam’s banking industry as Fitch Ratings and Moody’s, the corporate governance in general and the risk management in particular almost commercial banks in Vietnam remains weak.

Up to this time, most of Vienamese banks merely pay attention to an only risk management – credit risk. Meanwhile, practical risk management activities of commercial banks all over the world took a step forward in comparision to


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the credit risk management with a focus on value portfolio (Portfolio Value) using tool value at risk (Value at risk – VAR), including operational risk, business risk, organizational risk,…

The nature of banking’s activities revolves around risk management. Therefore, the critical issue posed for Vietnam's banking sector (including the state management mechanism and business activities practices) now and in the near future is to develop the legal framework, safety risk management and monitoring process, to approach and applicate the international principles and practices. After meeting the requirements of the international principles and practices, the services which provided by Vietnamese commercial banks will be accepted in international financial banking transactions. In addition, even on the domestic market, risk management under international principles and practices will make the commercial banks ensure the safety of their business activities.

International Convergence of Capital Measurement and Capital Standards

- commonly known as Basel Capital Accord - is an agreement on a mechanism for management, administration and monitoring activities of commercial banking system, aimed at risk management and financial market stability. This Accord was developed and uniformly applied by the central banks of 10 developed countries that are members of Bank for International Setttlement - BIS. Due to the benefits of these standards, a variety of countries which are not members of BIS as well as developing countries have started out research and apply successfully. With the objective of systematizing the contents of the Basel Accord and proposing practical solution groups which help commercial banks complete risk management process, gradually approach the Basel standards, the author has selected researching into project: “Risk management in business of Vietnamese Commercial Banks under the Basel Accord”.

2. Literature review

In Vietnam, there has been a number of essays, thesises, scientifics which research into risk management in business of commercial banks refer to the Basel Accord. However, researches into the Basel Accord with the meaning of


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this accord’s applications in commercial banking management is limited and not systematical.

3. Research object

On the basis of learning about the contents of the Basel Accord as a standard of banks’ risk management and safety activities monitoring, the thesis analyzes the capabilities and demonstrates the need to apply standards of risk management under Basel in Vietnam commercial banking system and proposes solutions to strengthen risk management for Vietnamese commercial banks.

4. The subject of the thesis and the scope of research

Subject of the thesis is to study the applicability of the Basel’s standards on risk management of Vietnamese commercial banks in Vietnam.

Scope of the thesis is Basel’s risk management standards, depth analysis on the situation of Vietnamese commercial banks’ risk management activities under the three pillars of Basel II since Vietnamese banking system officially has two level. Then, the thesis gives total solutions for approaching and applying Basel’s standards in term of risk management of Vietnamese commercial banking system.

5. Reasearch tasks

- Clarifying the common and basic concepts as well as contents of commercial banks, risk and risk management in the operation of commercial banks.

- Analysis of the Basel Accord’s contents in terms of the international standards of risk management in the operation of commercial banks and the situation of application in the world.

- Assessing the situation of Vietnamese commercial banks’risk management.

- Proposing some macro and micro solutions in order to strengthen risk management abilities in business activities of Vietnamese commercial banks based on the Basel Accord’s guidelines and standards.

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6. Methodology

- Application of Party and State’s political opinion of on international economic integration, finance and banking sector’s developing strategy.

- Dialectical materialism method of Marxism - Leninism

- Inheritance and application of research results on risk management

- Methods of synthesis, analysis, data survey, data, facts.

7. The new findings of the thesis

- Analyse the basic content of the Basel Accord, the formation and development process, situation of applying the Basel Accord in the world. The meaning, role and importance of applying the Basel Accord in developing countries and Vietnam.

- Reference the Basel Accord’s standards as the guidelines in risk management activities of banks, including credit risk, market risk (interest rate, exchange rate), risk liquidity, operational risk, safety operational monitoring mechanisms and disclosure.

- Analyse the situation of risk management in Vietnamese commercial banks at present, which focus on analysing shortcomings and weaknesses in the risk management activities of Vietnamese commercial banks, especially the state commercial banks.

- Identify challenges for Vietnam commercial banking system related to the risk management in process of banking sector’s international integration, which focus on state commercial banks which are conducting equitization.

- Characterise some models to quantify the risks in the business of Vietnamese commercial banks with parameters consistent with market and operational characteristics of Vietnamese banks.

- Propose solution groups to enhance the quality of risk management in business activities of Vietnamese commercial banks.

8. Layout of the thesis


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Beside the preface, conclusion, list of tables, list of abbreviations, references and appendixes, the thesis consists of three chapters:

Chapter 1: General issues of risk management in business of commercial banks under the Basel Accord

Chapter 2: Situation of Vietnamese commercial banks’s risk management in business

Chapter 3: The solutions to enhance risk management in the business of Vietnamese commercial banks under the Basel Accord.

CHAPTER 1

GENERAL ISSUES OF RISK MANAGEMENT IN BUSINESS OF COMMERCIAL BANKS UNDER THE BASEL ACCORD

1.1. Commercial banks and risk management in commercial banks’ business

1.1.1. Commercial banks

The law Credit Institutions No. 47/2010/QH12 stipulates: "Commercial banks are types of banks which can do all banking activities and other business activities as prescribed by this Law aim at profit”. Thus, commercial bank is an important intermediate financial institutions in the market economy. Through this intermediate financial institutions system, freedom cash in society will be mobilized, concentrated at the same time that capital is used to extend credit to other economic organizations and individuals for the purpose of socio-economic development.

Commercial banks have three basic functions, such as: credit intermediary function, payment intermediary and payment facilities management function, banking service provision function.

1.1.2. Risk on commercial banks’ business acitivities

From the point of commercial banks’ business activities, risk is defined as the unexpected change in assets value (including assets and liabilities) and other obligations. All the activities of commercial banks are risky or unforeseen

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factors could cause losses to the bank. There are many risk classifications. According to the most commonly used classification, risks include credit risk, market risk, liquidity risk, operational risk and other risks.

1.1.3. Risk management on commercial banks’ business activities

Risk management involves risk identifying, measuring, monitoring, controling, managing and handling. According to the risk management practices of commercial banks in the world, risk management activities are made by a number of key principles such as: risk accepted principles, risk permitted authorized principles, independent management principles of individual risk, ...

Risk management process including these steps: (1) Risks identify and rules and regulations system development, (2) Risk analysis and risk quantification, (3) Risk acception, management and reporting.

1.2. Risk management on commercial banks’ business under the Basel Accord

1.2.1. The formation and developing process of the Basel Accord

To prevent the risk of global financial banking crisis, especially after the collapse of Herstatt bank Bankhaus of West Germany in 1977, the central monetary policy operation agencies (the central bank or an agency with similar functions) of 10 developed countries founded the Basel Committee (The Basel Committee on Banking Regulations and Supervisory Practices) to develop the general frameworks which control risks for the international activities banks.


Up to now, the Basel Committee has 27 members. In fact, the Basel Committee is a platform for member countries to exchange and cooperate on issues related to monitoring activities of commercial banks in each countries. Basel I was born in 1988, required capital adequacy ratio of at least 8%. Basel II issued in June 2004 to overcome the limitations of Basel I. In June 2011: issued Basel III which amended and supplemented some contents compared to Basel II.


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