127 Credit risk management at bank for investment and development of Vietnam (BIDV) - Thanh Do Branch,Master''''s Thesis

ɪ1 Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON CREDIT RISK MANAGEMENT AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM (BIDV) THANH DO BRANCH DUONG THI THANH ID No: Intake Supervisor: Prof Dr Nguyen Thi Hoai Thu September 2018 UWE ^ritv Bristol England ACKNOWLEDGEMENT After several months of hard work our thesis has been finished Now it is time to thank everyone warmly who provided their kind assistance to us First of all, I would like to thank my supervisor Prof Dr Nguyen Thi Hoai Thu for her guidance all through my work I would like to send our deepest gratitude to all lecturers, as well for giving us their constructive suggestions The same appreciations are given to the leadership and staffs of the Bank for investment and development of Vietnam JSC (BIDV) - Thanh Do Branch who have enthusiastically shared with me data and relevant documents to accomplish this important dissertation The dearest appreciations are directed to our families and friends, for giving us great support and help during these months Without them, my thesis would not be finished September 2018 Student’s Signature Duong Thi Thanh ii UWE ^ritv Bristol England UWE ^ritv Bristol Bristol England England ABSTRACT Credit risk management in banks has become more important not only because of the financial crisis that the world is experiencing nowadays but also the introduction of Basel II Since granting credit is one of the main sources of income in commercial banks, the management of the risk related to that credit affects the profitability of the banks In my study, I try to find out how the credit risk management affects the profitability in banks The main purpose of my study is to describe the impact level of credit risk management on profitability in banks The study is limited to identifying the relationship of credit risk management and profitability of BIDV - Thanh Do Branch The results of the study are limited to the bank in the sample and are not generalized for the all the commercial banks in Vietnam Furthermore, my study uses both Secondary data collection methods and quantitative research by analyzing the logistic regression model (Binary logistic) was selected with the dependent variable is the binary variable (1 The enterprise falls into the risky situation, The business is not risky) Key words: credit risk management, profitability, banks, regression model ABBREVIATION S DC Design Consultancy CI Construction investment F Factory E Enterprise JS Joint-stock OM One member L Limited CRM Credit Risk Management CBs Commercial Banks iii ιv TABLE OF CONTENTS ACKNOWLEDGEMENT ii ABSTRACT iii ABBREVIATIONS .iv LIST OF TABLE, DIAGRAM viii INTRODUCTION .1 1.1 Background 1.2 Problem Discussion .2 1.3 Research purposes and tasks: 1.4 Delimitation .3 1.5 Disposition METHODOLOGY: 2.1 Research approach 2.2 Data collection and description 2.3 Tested Results of the research model 10 2.3.1 Correlation Matrix of thevariables in the model 10 2.3.2 Determination of research results 13 FRAMEWORK .16 3.1 Previous studies 16 3.1.1 Liturature review 16 3.1.2 credit risk management Indicators 21 3.1.2.1 Credit size 21 3.1.2.2 Loan porfolio structure .21 3.1.2.3 Overdue debt 22 3.1.2.4 Non-performing loans .22 3.1.2.5 Credit risk provision 23 3.2 Theories 24 3.2.1 Risk in Banks 24 3.2.2 Credit risk managementin banks 25 3.2.3 Credit risk classification 25 3.2.4 Loan porfolio structure 27 3.2.5 Overdue debt 27 3.2.6 Non-performing loans 28 3.3 Credit risk provision 29 v UWE ^ritv Bristol England 3.4 Regulation 30 3.5 Credit risk measurement .31 a Qualitative model of credit risk management .31 b Quantitative model of credit risk management 32 c Credit risk measurement model in Basel II 36 3.6 Lessons .37 EMPIRICAL FINDING AND ANALYSIS 39 4.1 An overview of BIDV and Thanh Do Branch 39 4.1.1 Establishment and development of BIDV Joint Stock Commercial Bank .39 4.1.2 The formation and development of BIDV Thanh Do Branch 40 4.2 Business performance of BIDV Bank - Thanh Do Branch 41 4.2.1 Capital mobilization 41 4.2.2 Lending 43 4.2.3 Business performance .44 4.3 Credit at BIDV - Thanh Do branch .45 4.3.1 Loans structure of BIDV- Thanh Do branch 45 4.3.2 Credit risk of BID V - Thanh Do branch 48 4.3.3 Credit risk management of BIDV- Thanh Do branch .50 4.3.3.1 Risk management models of BIDV- Thanh Do branch .50 4.3.3.2 Credit risk management policy of BIDV- Thanh Do branch 53 a Credit risk management policy for customers .53 b Credit allocation policy 53 c Jurisdiction 54 d Classifying debt, establishing and using credit loss provision policy 54 e Regulations on reporting and checking credit risk 54 4.3.3.3 Credit Risk Management of BIDV - Thanh Do branch .54 a Identification of credit risk: 54 b Credit risk measurement: .56 c Risk control process: .59 d Risk management operation: 60 4.4 General evaluation of BIDV - Thanh Do branch in risk management 62 4.4.1 Achievements 62 4.4.2 Limits and challenges .63 4.5 Solutions to improve credit risk management at BIDV Bank - Thanh Do branch 65 vi UWE ^ritv Bristol England 4.5.1 Building an effective credit policy 65 4.5.2 Diversify credit portfolio to decrease credit risk 68 4.5.3 Improve the quality of loan appraisal and analysis 68 4.5.4 Reinforcing internal credit supervision and inspection 69 4.5.5 Improve the quality of human resources 70 4.5.6 Use derivatives 72 4.6 Recommendations 72 4.6.1 Recommendations to the SBV 72 4.6.2 Recommendations to Head Office of BIDV 73 CONCLUSION .75 REFERENCES .76 Vii University itv UWE ^r Ofthe UWE West of Bristol England England Bristo l INTRODUCTION LIST OF TABLE, DIAGRAM Table 1: Descriptive Statistics Business Credit risk Table 2: Describe the indicators of financial ability and effectiveness in the operation of enterprises 10 Table 3: Correlation coefficient matrix .11 Table 4: Summary table of the model .12 Table 5: Summary of credit risk ratings by Standard & Poor's 13 Table 6: Conclusion of model results 14 Table 7: Capital mobilization results from 2015 to 2017 41 Table 8: Several targets for credit activities in 2015 - 2017 43 Table 9: Results of business activities in 2015 - 2017 44 Table 10 Loans structure of BIDV - Thanh Do branch in 2015 - 2017 45 Table 11: Overdue and bad debt of BIDV - Thanh Do branch in the period of 2015 to 2017 Fingure 1: Lending model without risk appraisal process 50 Fingure 2: Lending model with risk appraisal process .51 In this chapter, I present the background of the thesis followed by the problem statement The discussion also contains the motivation for our thesis Finally, we present the literature review, the methodology, the purpose of this thesis and limit the area of the study 1.1 Background The world has experienced remarkable numbers of banking the last thirty years Caprio and Klingebiel (1997) have identified 112 systemic and financial crises during banking crises in 93 countries since the late 1970s (Ibid.) Demirguc-Kunt and Detragiache (1998) have identified 30 major banking crises that are encountered from early 1980s and onwards Though most of those were experienced in the developing countries, the authors have noted that Vietnam has also gone through similar crises in the late 1980s and early 1990s1 Interestingly, the majority of the crises coincided with the deregulatory measures that led to excessively rapid credit extension In the long run, continuous increases in asset prices created bubble At some point, the bubble burst and the asset markets experienced a dramatic fall in asset prices coupled with disruption Finally, widespread bankruptcies accompanied by non-performing loans, credit losses and acute banking crises were observed Ironically, reforms the frequency of Why? There are crises many did not decrease contributing despite viii factors, the mainly, introduction political of and successive economical conditions It can thus be self evident that the improved risk management does not improve the banking business Moreover, Jean-Charles Rochet (2008) states that key factors to successful reform are independence and accountability of banking supervisors As long as banking supervisors represent political and economical interests of their respective countries, it is not possible to implement international regulation successfully The current global financial crisis indicates that risk management of the financial institutions is not adequate enough This leads to the failure of the banks in highly challenging financial market Furthermore, the discussion of financial crisis in mass media and among scholars mentions the risk management as omissions or neglect of risk measurement signals They state that more attentive participants could avoid the tremendous affect of the financial meltdown Therefore, Risk Management as a discipline is being taking seriously nowadays Nevertheless, the financial storm teaches several key lessons which can assist to improve the risk management in future As a result, risk has become a very challenging area of studies This has motivated me to conduct my thesis on this area of interest ... BIDV- Thanh Do branch .50 4.3.3.1 Risk management models of BIDV- Thanh Do branch .50 4.3.3.2 Credit risk management policy of BIDV- Thanh Do branch 53 a Credit risk management policy for. .. 4.3 Credit at BIDV - Thanh Do branch .45 4.3.1 Loans structure of BIDV- Thanh Do branch 45 4.3.2 Credit risk of BID V - Thanh Do branch 48 4.3.3 Credit risk management of. .. level of credit risk management on profitability in banks The study is limited to identifying the relationship of credit risk management and profitability of BIDV - Thanh Do Branch The results of