128 Credit risk management at military commercial joint stock bank of Vietnam

UWE ofbΓl' Dissertation submitted in partial fulfillment of the Bristol England Requirement for the MSc in Finance FINANCE DISSERTATION ON Credit risk management at military commercial joint stock bank of Vietnam HA LE HAI ID No: 15034416 Intake Supervisor: Prof Dr Nguyen Quynh Tho September 2018 ACKNOWLEDGEMENTS First of all, I would like to express my deep gratitude to Dr Nguyen Quynh Tho, who has been helpful in helping me through my studies, research and complete the thesis The author highly appreciates the valuable help of teachers and students at the Banking Academy and the University of the West of England in the process of study The author sincerely thank the Bank's leaders, colleagues in the Risk Management Division - Military Commercial Joint Stock Bank has created conditions in time, and enthusiastically help the author in the process of collecting materials, research and complete the thesis The author would like to thank the support and encouragement of relatives and friends during the study, research and completion of this thesis TABLE OF CONTENT ACKNOWLEDGEMENTS LIST OF FIGURES LIST OF TABLE ABBREVIATIONS CHAPTER I INTRODUCTION 1.1 An overview of credit risk management: .7 1.2 Area of study: 1.3 Study obj ectives: 1.4 Methods of study: 1.5 Organization of thestudy: CHAPTER II THEORETICAL FOUNDATION OF CREDIT RISK MANAGEMENT IN COMMERCIAL BANKS 10 2.1 Credit risk and credit risk management: 10 2.1.1 Credit risk in banking operations: .10 2.1.2 Credit risk management in commercial banks: 11 2.2 Credit risk management in accordance with Basel II standards: .11 2.2.1 General principles of risk management in accordance with Basel II standards: .11 2.2.2 Credit risk framework under Basel II: 12 2.2.3 Factors affecting the credit risk framework: .13 2.3 Experience in credit risk management under Basel II: 13 2.3.1 Experiences of Singapore Commercial Banks: 13 2.3.2 The experience of the central bank of India in guiding and monitoring commercial banks applying Basel II standards: 14 2.3.3 Lessons learned for the commercial banking system: 15 SUMMARY OF CHAPTER II .16 CHAPTER III CURRENT STATUS OF CREDIT RISK MANAGEMENT IN THE MILITARY COMMERCIAL JOINT STOCK 17 3.1 Overview of Military Commercial Joint Stock Bank: .17 3.1.1 Overview of the development process of the Military Commercial Joint Stock Bank: 17 3.1.2 Performance results of the Military Commercial Joint Stock Bank: 17 3.1.3 The structure of the management apparatus of the Military Commercial Joint Stock Bank: 18 3.2 Current status of credit risk management in the Military Commercial Joint Stock Bank: 19 3.2.1 Strategy and policy of credit risk management: 19 3.2.2 Tools, techniques, operational systems for credit risk management: 22 The results obtained at the Military Commercial Joint Stock Bank: .23 Restrictions on risk management at the Military Commercial Joint Stock Bank: 25 3.4.1 Restrictions on organizational structure: 26 3.4.2 Limitations in strategic planning, credit risk management policies: 27 3.4.3 Limitations on tools, techniques, operational systems for credit risk management: 3.3 3.4 27 3.4.4 Causes of limitations in credit risk management in the Military Commercial Joint Stock Bank: 28 SUMMARY OF CHAPTER III 29 CHAPTER IV SOLUTIONS TO IMPROVE THE EFFECTIVENESS OF CREDIT RISK MANAGEMENT IN ACCORDANCE WITH BASEL II STANDARDS AT THE MILITARY COMMERCIAL JOINT STOCK BANK 30 4.1 Orientation of credit activities at the Military Commercial Joint Stock Bank: .30 4.2 The solution for the Military Commercial Joint Stock Bank to improve the effectiveness of credit risk management under Basel II: 31 4.2.1 Resolution on the organizational structure of the Executive Board according to Basel II: 31 4.2.2 Solutions on credit risk management strategies and policies: 35 4.2.3 Solutions to tools, techniques, operational systems for credit risk management: 36 4.2.4 Human resources measurement tool operating credit risk measurement: 38 4.3 Policy recommendations for the State Bank of Vietnam: 38 4.3.1 Complete the legal framework for credit risk management: 38 4.3.2 Support to improve the financial capacity of commercial banks: 40 4.3.3 Effectively manage the credit risk information system of the entire banking system: 41 SUMMARY OF CHAPTER IV 42 CONCLUSION 43 REFERENCES .44 LIST ABBREVIATIONS OF FIGURES Figure 1: Factors affecting the Credit Risk Management Framework .13 Figure 2: Management structure of MB .19 Figure 3: Structure of the organization in accordance with the Basel II international practice 33 LIST OF TABLE Table 1: Business results of MB 18 Table 2: Target of MB's outstanding structure for 2013-2017 .20 Table 3: Credit limits for MB for the period 2013-2017 20 Table 4: Credit limit for personal loan products of MB from 2013-2017 21 Table 5: Mobilization of credit granting for MB period 2013-2017 22 AIRB Advance Internal Rating Based Approach AMC Asset Management Company BOD Board of Director CAR Capital Requirement DATC Debt And Asset Trading Corporation EAD Exposure At Default EL Expected Loss FIRB Foundation Internal Rating Based Approach IRB Internal Rating Based Approach LGD Loss Given Default MAS Monetary Authority of Singapore MB Military Commercial Joint Stock Bank PD Probability of Default RBI Reserve Bank of India VAMC Vietnam Asset Management Company SB Supervisory Board SME Small and Medium Enterprise SBV State Bank of Vietnam CHAPTER I INTRODUCTION 1.1 An overview of credit risk management: In the activities of the bank, it can be said that credit is the basic and important activity, bringing the main income of banks Through credit activities, banks have contributed to the supply of capital to enterprises and the economy However, along with the significant revenue generated for the bank, the credit sector is also at great risk because economic rules have proven that the higher the return, the greater the risk Credit risk not only causes banks to increase costs, slow interest payments, even credit losses, worsening financial situation, damaging reputation and position, even Affecting the existence and development of each bank also affects both the banking system and the whole economy However, this is an unavoidable risk in credit activities, we can not completely eliminate but can only take measures to prevent or minimize losses when credit risk occurs Faced with the constant turbulence of the business environment, credit risk management of Vietnamese commercial banks is increasingly focused on improving However, Vietnamese commercial banks still face many limitations, manifested through poor management ability, inefficient use of bank resources; policies; Unorganized business strategy; Organizational model does not separate function and authority; Risk measurement tools not meet the standards due to the lack of quality and quantity in databases, and high quality human resources that have not been prepared 1.2 Area of study: The dissertation focuses on the subject of credit risk management at the Military Commercial Joint Stock Bank, this is one of the commercial banks selected to deploy Basel II by the end of 2015 Thesis on the theory of credit risk management, credit risk management framework in banking operations, Basel II credit risk management framework; credit activities of the bank, including capital mobilization, guarantee and granting trade finance credits However, the thesis is limited to research in credit granting activities of banks The period from 2014 to 2017 is the period of commercial banks have many problems such as bad debt ratio, a series of banks to restructure under the scheme of restructuring the system of credit institutions stage Therefore, the thesis selects the study period from 2014 to 2017, and updates the situation to 2018 1.3 Study objectives: To accomplish the general purpose, the thesis will perform tasks to achieve specific objectives, including: ❖ Firstly, systematize the theoretical basis of credit risk management, clarifying the credit risk management framework of commercial banks in accordance with the Basel II standard ❖ Secondly, study in international practices on credit risk management, experience of some countries on how to approach and apply Basel II standard in credit risk management under Basel II ❖ Thirdly, assess the current status of credit risk management in the Military Commercial Joint Stock Bank, comparing with the credit risk management framework in accordance with the Basel II standard ❖ Fourthly, propose measures to improve the effectiveness of credit risk management in the Military Commercial Joint Stock Bank in particular and the commercial banking system in Vietnam in general to meet the Basel standard II 1.4 Methods of study: With the methodology derived from Basel II standards, the thesis uses qualitative research methods including analysis, synthesis and comparison Thesis research experience of credit risk management in Singapore and India, compared with the practice of credit risk management of Vietnamese commercial banks to study and draw out to learn lessons and propose solutions and policies to improve the effectiveness of credit risk management for commercial banks in general and the Military Commercial Joint Stock Bank in particular The thesis gives a practical assessment of credit risk management activities at the Military Commercial Joint Stock Bank on the basis of comparison with the Basel II standard, which provides solutions and policy recommendations to the Bank, to enhance the effectiveness of credit risk management 1.5 Organization of the study: The content of the thesis consists of chapters, as follows: V Chapter I: Introduction V Chapter II: Theoretical foundation of credit risk management in commercial banks J Chapter III: Current status of credit risk management in the Military Commercial Joint Stock Bank J Chapter IV: Solutions to improve the effectiveness of credit risk management in accordance with Basel II standards at the Military Commercial Joint Stock Bank ... Commercial Joint Stock Bank: 17 3.1.2 Performance results of the Military Commercial Joint Stock Bank: 17 3.1.3 The structure of the management apparatus of the Military Commercial Joint Stock Bank: ... systems for credit risk management: 22 The results obtained at the Military Commercial Joint Stock Bank: .23 Restrictions on risk management at the Military Commercial Joint Stock Bank: 25... EFFECTIVENESS OF CREDIT RISK MANAGEMENT IN ACCORDANCE WITH BASEL II STANDARDS AT THE MILITARY COMMERCIAL JOINT STOCK BANK 30 4.1 Orientation of credit activities at the Military Commercial Joint