(LUẬN văn THẠC sĩ) risk management in commercial banks of vietnam

ĐẠI HỌC QUỐC GIA HÀ NỘI TRƯỜNG ĐẠI HỌC KINH TẾ NGUYỄN HỘI TIÊN Risk management in commercial banks of Vietnam LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH NGƯỜI HƯỚNG DẪN KHOA HỌC: TS Tạ Ngọc Cầu Hà Nội – 2007 TIEU LUAN MOI download : skknchat@gmail.com ĐẠI HỌC QUỐC GIA HÀ NỘI TRƯỜNG ĐẠI HỌC KINH TẾ NGUYỄN HỘI TIÊN Risk management in commercial banks of Vietnam Chuyên ngành: Quản trị kinh doanh Mã số: 60 34 05 LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH NGƯỜI HƯỚNG DẪN KHOA HỌC: TS Tạ Ngọc Cầu Hà Nội – 2007 TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENTS Abstract i Acknowledgements iii Table of contents…………………………………………………………………….iv INTRODUCTION 1 NECESSITY OF THE THESIS OBJECTIVE OF THE RESEARCH KEY RESEARCH AREA METHODOLOGY CONTRIBUTIONS OF THE THESIS THESIS STRUCTURE Chapter 1: Literature review 1.1 Commercial Bank and the main risks in the bank operations 1.1.1 Commercial Bank and the main risks 1.1.1.1 Concept 1.1.1.2 Functions 1.1.1.3 Main professional competences iv TIEU LUAN MOI download : skknchat@gmail.com 1.1.2 Main risks in operations 1.1.3 Risk measurable indexes 1.2 Risk management in operations of Commercial Banks 10 1.2.1 Concept and role of risk management 10 1.2.2 Tools of risk management 11 1.2.2.1 Group tools limited credit risk 11 1.2.2.2 Group tools sponsored risk 16 1.2.2.3 Group tools prevented other risks 17 1.2.3 Factors impact risk management 18 1.3 Experiences in risk management of Foreign Banks 19 1.3.1 Model assessed credit risk 19 1.3.2 Model determined interest rate risk 21 1.3.3 Model reassessed 22 Chapter 2: Methodology, research paradigms, analysis 23 2.1 Status quo risk management in Commercial banks of Vietnam 23 2.1.1 Background of Commercial banks in Vietnam at present 23 2.2 Status quo risk management of commercial banks 24 2.2.1 Status quo of credit risk 24 TIEU LUAN MOI download : skknchat@gmail.com 2.2.2 Status quo of foreign exchange risk 27 2.3 Risk management policy of commercial banks (period 2005-2010) 29 Chapter 3: Recommendation and conclusion 33 3.1 Improving risk management in Commercial banks of Vietnam 33 3.1.1 Group of risk management solutions 33 3.1.1.1 Customers selection by grade system and credit rank 33 3.1.1.2 Criteria assessed by kind of customers 33 3.1.1.3 Some of methods support to fulfill credit grade process 43 3.1.2 Improving the evaluation quality of debts 45 3.1.3 Solution for improving guarantee assets management in credit operations 49 3.1.3.1 Improving assessed technique and propose methods for guarantee assets management 49 3.1.3.2 Solutions for support to fulfill 53 3.1.3.3 Solutions for deduction particular standby 55 3.2 Group of foreign exchange risk management solutions 55 3.2.1 Opening the mobilizing foreign currency resources and intensify to seek customers had import/export payment demands 55 3.2.2 Combination buy/sell foreign currency spot and forward 57 TIEU LUAN MOI download : skknchat@gmail.com 3.3 Group of interest rate risk management solutions 59 3.3.1 Prevention interest rate risk by Swap 61 3.3.2 Determine the suitable exchange ratio between fixed and floated interest rate 62 3.4 Group of improving organization system management 62 3.4.1 Signification in arranging organization framework suitable for risk management functions 62 3.4.2 Organizing system professional competences management 62 3.4.3 Strengthen internal control 65 3.5 Some of petitions for State-owned Commercial banks to support for Commercial banks in risk management 67 3.5.1 Some of petitions for State-owned Bank in credit management 67 3.5.2 Some of petitions for State-owned Bank to support in strengthen foreign exchange risk management of Commercial Banks 69 3.5.3 Petition for Government and relative industries 70 CONCLUSION 72 REFERENCES APPENDIXES TIEU LUAN MOI download : skknchat@gmail.com INTRODUCTION NECESSITY OF THE THESIS Risk management was interested in by the managers, especially, bank industry Risks always threaten existence of the commercial banks and that thing effected to the economic Risk is a significant barrier in trading of banks Therefore, researching the preventative solutions to ensure the security and limit risks in business is very necessary Risk management in commercial bank operations is a new field Besides, risk management standard of Vietnam banks is the beginning period in comparison with the countries had the development financial market in hundreds years As well as, banks are poor in financial products and services, small scale and business capital sources Operation scope is also major in domestic market; weakness in financial management ability and unclear, closed the financial system Through the working in bank, I have chance to face with the practices and compare to theory and practice, I decide to choose the topic: “Risk management in trading in commercial banks of Vietnam” OBJECTIVE OF THE RESEARCH - Research the issues about risks which banks have to face with including discovery, measure and the overcome methods - Research the risk expression in professional competences of commercial bank such as: credit operations, capital management, and international bank services in bank - Research the risk impact level because of the payment over time situation of customers, the change of interest rate, foreign exchange to the direct income in bank Simultaneously, finding the limited reasons in risk management tools application of bank in particular and commercial bank on general TIEU LUAN MOI download : skknchat@gmail.com Reply on the realistic experiences of banks in the world, propose solution groups to improve the risk management process, included the deploy some of new preventive professional competences in practice conditions of bank .3 KEY RESEARCH AREA Research risk management in business of commercial bank is the great topic Thesis only concentrates on major risks and the relation among risks in capital trading of commercial bank to give out the preventive solutions .4 METHODOLOGY Thesis is used methodology of dialectic materialism, logic reason combination materialistic history, methods in raising the issues, interpretation, analysis and giving the conclusion Thesis is also used statistic, formula illustration, interpreting the issues means .5 CONTRIBUTIONS OF THE THESIS - Systematize the views about risks, the relationship among risks affect to the operations in commercial banks - Analysis to seek the reasons, appreciate the status quo to conduct the preventing risk methods and apply for the commercial banks .6 THESIS STRUCTURE Topic: “Risk management in commercial banks of Vietnam ” INTRODUCTION TIEU LUAN MOI download : skknchat@gmail.com Chapter 1: LITERATURE REVIEW Chapter 2: METHODOLOGY, RESEARCH PARADIGMS, ANALYSIS Chapter 3: RECOMMENDATIONS AND CONCLUSION CONCLUSION References TIEU LUAN MOI download : skknchat@gmail.com CHAPTER LITERATURE REVIEW 1.1 Commercial bank and the main risks in bank operations 1.1.1 Commercial Bank and the main risks 1.1.1.1 Concept America: Commercial Bank is a business company specialized in providing financial services and operating in financial service industry France: Commercial Bank is an enterprise frequently receives from the people deposit form or the other forms which their money was not used to theirselves in discount professional competences, credit or financial services India: Commercial Bank is a place to receive the deposit to loan or sponsor and invest Vietnam: Commercial Bank is an organization trading in currency major in and frequently to receive deposit from the customers with the responsibility to refund and use that money to loan, carry out discount operation and make payment means 1.1.1.2 Functions - Assets rotation function: Banks conduct at the same time two operations The first one, Banks mobilize capital by issuing deposit certificate The second one, Banks invest by providing credit and stock investment TIEU LUAN MOI download : skknchat@gmail.com technology, bank completely monitors all transactions happened in branches every time, everywhere through online networks While the requirement of credit quality is higher day by day, it is necessary to have professional department in managing and handling credit risks in particular and trading risks on general aim to separate credit management function from function of risks management and handling at branch 3.4.2 Organizing system professional competences management Building organization models of credit operations with trend separated special function of guarantee operations, foreign currencies trading operations independently and developing them to become the trading offices taken responsibility in dealing with internal risks related professional competence and program of forecasting factors caused risks for branch This aims to strengthen risk control for branch operations - Credit operations (number customer department, number customer department, individual customer department) Establishing appraised, handled debts, followed guarantee assets groups to manage timely risks related customers of each department, especially, professionalizing two departments: appraised and handled debts had problem Rotation process of credit documents will be conducted like as: Application and documents for loan Customer Appraised group Ratify Credit manager 67 Collected debts group TIEU LUAN MOI download : skknchat@gmail.com - Sponsored trading department follow up foreign currencies sources to sponsor for import/export operations - Buying/Selling foreign currencies department: take responsibility for monitoring, forecasting the change of rate and foreign currencies speculation trading - Capital sources department: follow up mobilized and lend capital sources as well as happening of interest rate in the market and propose handling solutions - Information technology department: is responsible for linking internal information and its sources from information and handling risks department of State-owned Bank and banks to support appraised group to collect and manage information 68 TIEU LUAN MOI download : skknchat@gmail.com Credit Information Center of State-owned Bank Professional operations departments of BANK Related offices and industries General Information Department of BANK Other information sources Information Department of BANK Customers 3.4.3 Strengthen internal control To strengthen controlling risks in operations process, bank gathers human resources staff with experience and well professional competence from trading departments to research topics: - Analysis all steps in process of each professional operation - Determine potential risks of process - Determine controlling operations to minimize or reject these risks - Present documentation for controlling operations - Conduct control experiment to ensure or control in practice Bank have to enough aware of and control credit “shield” If risks are happened, it is not from credit process, regulations, both performance and 69 TIEU LUAN MOI download : skknchat@gmail.com legal Except the interested of steering committee, it is well for bank to have frequently controlling methods of internal controllers Training and selecting internal controllers: This operation must carry out through test and professional contest organized every year Depend on the requirements of control operations, it is very important for banks to manage risks in operations, selected operation have to get some below requires: - Well virtuous character - Have professional heart - Professional ethics - Have colleagueship - High professional competence - These staff has to take more responsibilities in banking professional competences In there, they have more experience at credit department as well as understanding deeply about industry, legal, market price, labors,… - Checking regularly professional competence ability of control officers about all fields related - Combination with State-owned Bank to organize special courses, had excellent experts to improve quality of them Specializing staff in credit operations: It is important for credit officers to reduce risks in this field To ensure diversification of investment to avoid risk and overcome contradiction between specialized and diversified investment, banks should specialize in 70 TIEU LUAN MOI download : skknchat@gmail.com assigning tasks for each credit officers group to serve special to any customer group When specialized for each credit officer, banks also separate customers follow special character group Depend on that, banks assign tasks for each staff with his capacity and experience - Traditional customers, prestigious customers and strong financial situation, banks can allocate follow business industry - Customers loan the first time or irregular loans at banks, not high reliability, it is necessary to consider facility conditions for guarantee loans (mortgage, pledge, and guarantee) These customers should classify by: mortgage by real estate, mortgage by personal property, guarantee by the third side 3.5 Some of petitions for State-owned Bank to support for Commercial Bank in risk management 3.5.1 Some of petitions for State-owned Bank in credit operations management - Promulgation laws and under law writings need synchronous and timely to create better, stable, and clearly legal environment for operations of all subjects in economy In particular: + Stated-owned Bank needs the particular writings to guide about exchange loaning and classifying debts + Stated-owned Bank also needs consider and supplement some writings which are not suitable for practices For examples: In the case, which bank did not accept to borrow-following regulations of clause 19 Decision 1627/2001/Decision-State- 71 TIEU LUAN MOI download : skknchat@gmail.com owned Bank: Board of Directors members, Board of controllers, General Directors or Directors of that credit organization implement in appraising, decision for lending; although their parents and children have guarantee assets (such as: deposit certificates, savings,…) It is not reasonable to reject them to borrow Circular 07/2003/Circular-State-owned Bank date May 19,2003 of State-owned Bank guide to perform some rules about loan guarantee Following point b, item 5.1, section II stipulate mortgaged assets unregistered ownership When mortgaging, people have to register transaction at registered guarantee office However, State-owned Bank still has not directions about holding mortgaged documents and registering guarantee transaction - State-owned Bank needs to systematize basic knowledge of appraising projects, supporting for commercial banks and improving appraised professional competence as well as opening scale, content and increasing updated in credit risk prevention center Every year, it also organizes the experience conferences of whole industry to strengthen understanding and coordinating among commercial banks in appraising tasks - Proposing appraised departments of commercial banks combine with together to exchange experiences and information Especially, banks not only loan but also co-sponsor the big scale projects at present Thus, the coordination will take advantages the strengths of each bank in assessing - Deduction for risk standby: suggesting State-owned Bank should change the way of risk standby deduction according to quality standard of guarantee assets 72 TIEU LUAN MOI download : skknchat@gmail.com - Deploying effectively information system of credit risk prevention - Continuous to improving guarantee customers regulations according to trend which supplement subjects taken part in guarantee There are the manufacturing/trading operations, consuming demands and the other demands like as culture, education, health,… - Establishing credit insurance organization directly under credit, State-owned Bank or independent organization that credit organizations buys insurance of this one, when they lend or invest, to insure both lenders and borrowers 3.5.2 Some of petitions for State-owned Bank to support in strengthen foreign exchange risk management of Commercial Bank - Enable to perform Swap transactions among credit organizations The characteristic of this transaction is not arisen foreign exchange state and is risk prevention tool because of changing of foreign exchange To Swap transaction is really a tool to help commercial banks to protect from risks, State-owned Bank needs to enforce regulations to permit of implementing Swap operations among credit organizations, between bank and customers based on real demand/supply relation of foreign exchange as soon as possible Consequently, State-owned Bank needs to modify increasing levels in Swap transaction suitable for real demands of foreign exchange market - Enable to implement new risk management tools such as: option transactions Suggested State-owned Bank to enforce early particular legal writings to permit commercial banks to carry out the derivative tools like option transaction to strengthen risk insurance ability in foreign exchange trading Option transactions 73 TIEU LUAN MOI download : skknchat@gmail.com allow banks not only limit risks of changing rate but also get profits if bank forecasts exactly happening rate in the future - Loosening amplitude of USD rate To avoid banks met difficulties and risks in performing foreign exchange transaction because real transaction rate exceed transaction ceiling rate stipulated by State-owned Bank, proposing State-owned Bank as soon as possible to loosen amplitude of USD rate from 0.25% to 0.5% This loosening amplitude will help bank to implement foreign exchange spot transactions following market rate, not have to carry out the third currency transactions or forward transaction which paid a security 100% 3.5.3 Petition for Government and relative industries It is necessary for Government to coordinate timely in handling complicated legal matters with the relative industries such as: guarantee transaction register, land management, building scheme, right of land use,…They are the interdisciplinary, inter-ministerial matters related to deal with credit risks Government also attaches special importance to strengthen actively the combination with State-owned Bank in enforcing suitable guide writings to implement handling solutions of old debts and deduct risk standby Then, bank set up synchronous legal framework and high validity for operations of preventing and restricting credit risk Organizing to perform legal sanction: system of state-owned managing offices about legal have function to manage and monitor relations of guarantee transactions on general and guarantee assets mortgage in particular including a lot offices: notary public’s office, national office of registration guarantee transaction; economic, civil, criminal court; economic arbitration However, operations of these offices still have 74 TIEU LUAN MOI download : skknchat@gmail.com inadequate issues influenced credit operations of bank system at present As the result, mortgage operations of guarantee assets for loan of credit organization on general are open and effect, related levels of government and industries improve structure and regulations of operations, administrative procedures as well as support positively to over related offices 75 TIEU LUAN MOI download : skknchat@gmail.com CONCLUSION Thesis “Risk management in trading” concentrates to analyze risk management status quo at branch through the handled professional process showed potential risks affected trading operations results These risks may be not harmful in the short-time but in the long-term they cause obstacles for operations in the nearer integration The financial market conditions of Vietnam develops at the first step while in a lot of countries, the financial and technology tools are applied to avoid credit risks, interest rate risks, convertible risks and foreign exchange risks Although, the derivative tools of banks in developing countries are utilized quite professional like tool can not be lack of preventing solutions and minimizing risks in their trading; Vietnam, this tool have not applied popular yet Due to real status quo of Vietnam financial market did not develop corresponding to foreign exchange market, stock market to support efficiently in application this tool in Vietnam commercial banks At present, Vietnam joined WTO so it is easy for foreign banks enter in Vietnam economic It makes economic changed more rapidly compared with the optimistic evaluation of economist before Entering WTO will help Vietnam economic on general and commercial banks in particular more and more improved in legal system, trading and investment From there, they will support to manage risks of bank effectively Thesis gives out mainly solutions to improve current processes of bank professional operations to minimize subjective risks from the internal factors of bank like as: management mechanism, approved process, professional operations, standard and capacity of staff; and drive to use probability statistic method to measure risks in trading and actively to deduct standby of capital, valued strategy for lending to make compensation for losses caused the subjective external reasons Thesis also contributes to develop deeply in implementing the new method aim to select actively customers before, in and after lending as well as 76 TIEU LUAN MOI download : skknchat@gmail.com help bank familiarize with derivatives transactions such as: swap, options, future to bring practical benefit for its bank 77 TIEU LUAN MOI download : skknchat@gmail.com REFERENCES Dr Nguyen Dai Lai - Topic of scientific conference: “Strengthen risk management capacity of Vietnam commercial banks” Michael Regester and Judy Larkin – Risk issues and crisis management Henie Van Greuning and Sonja Brajovic Bratanovic (Document of World Bank) – Analyzing and managing banking risk – A framework for assessing corporate governance and financial risk Jonathan Golin (John Wiley & Sons Pte Ltd) - The bank credit analysis handbook www.interbankbdi.com/publication/ - “The risk of credit” Phạm Quang Vinh – “Quản lý rủi ro lãi suất hoạt động ngân hàng thương mại” – Tạp chí nghiên cứu trao đổi Tạp chí Thị trường tài tiền tệ số 3,5,7 năm 2004, 2005 Th.s Lại Thế Trọng – “Vài suy nghĩ vấn đề quản lý rủi ro tỷ giá kinh doanh ngoại tệ ngân hàng thương mại Việt Nam” – Thị trường tài tiền tệ 01.04.2004 “Hồn thiện chế sách nhằm đổi hoạt động ngân hàng điều kiện hội nhập quốc tế” – Nhà xuất Hà Nội 10 PGS.TS Phạm Quang Trung, Nguyễn Mai Hương – “Kiểm sốt nợ khó địi nhìn từ góc độ ngân hàng” – Tạp chí ngân hàng số năm 2005 11 Th.s Phạm Tuấn Anh – “Phát triển mơ hình đánh giá rủi ro tín dụng điều kiện Việt Nam” – Tạp chí Thị trường tài tiền tệ 01.04.2004 12 Trần Đình Bính – “Một giác độ khác rủi ro hoạt động ngân hàng” – Tạp chí Thị trường tài tiền tệ 5.03.2005 13 Đào Văn Chung – “Bàn số khía cạnh nhận cầm cố tài sản máy móc thiết bị làm bảo đảm tiền vay – vấn đề quan tâm doanh nghiệp” – Tạp chí Thị trường tài tiền tệ 15.03.2005 78 TIEU LUAN MOI download : skknchat@gmail.com 14 Th.s Trần Cơng Hịa, Th.s Phan Thu Trang “Tiến tới xây dựng phát triển cơng cụ tài phái sinh Việt Nam” – Tạp chí Thị trường tài tiền tệ 01.04.2004 15 TS Nguyễn Phương Lan – “Rủi ro ngân hàng – nguyên nhân biện pháp khắc phục” – 16 PGS.TS Nguyễn Thị Nhung, Nguyễn Trung Kiên – “Làm quen với nghiệp vụ mua bán khoản cho vay” – Tạp chí Thị trường tài tiên tệ 01.03.2004 17 TS Nguyễn Mạnh Dũng – “Một số giải pháp phòng ngừa rủi ro hệ thống quỹ tín dụng nhân dân” – Luận văn Tiến sĩ kinh tế 18 TS Nguyễn Hữu Thủy – “Một số giải pháp nhằm tăng cường kiểm sốt họat động tín dụng ngân hàng thương mại” – Luận văn Tiến sĩ kinh tế 79 TIEU LUAN MOI download : skknchat@gmail.com APPENDIXES Credit grade system is supplemented by non-financial credit grade like as: Table of scoring scale of enterprise Ordinal Criteria Numeric value Score number Over 50 Trading source billion VND From 40 to 50 25 capital From 30 to 40 20 From 20 to 30 15 From 10 to 20 10 Under 10 Over 1500 Labors people 12 From 500 to 1000 From 100 to 500 From 50 to 100 Under 50 billion VND 40 From 100 to 200 30 From 50 to 100 20 From 20 to 50 10 From to 20 Under Over 10 Pay budget 15 From 1000 to 1500 Over 200 Net profit 30 billion VND 15 From to 10 12 From to From to From to 3 Under 1 80 TIEU LUAN MOI download : skknchat@gmail.com Table of credit score follow cash flow criterion Ordinal Standard score 20 16 12 > times > times > times > time number Coefficient of interest payment ability (*) < time or negative Coefficient of loan payment > times > 1.5 times > time < time Negative Increase Increase Stable Decrease Negative = net profit < net profit Nearly Negative ability (**) Net cash flow trend in the past rapidly Net cash flow state from > net profit operations breakeven point Money and equivalent money account / Owned capital > 2.0 > 1.5 > 1.0 > 0.5 (*) Coefficient of interest payment ability = EBT & interest expense / loan expense (**) Coefficient of loan payment ability = EBT & interest expense / (payable loan + loan expense) 81 TIEU LUAN MOI download : skknchat@gmail.com Nearly ... 2.1 Status quo risk management in Commercial banks of Vietnam 23 2.1.1 Background of Commercial banks in Vietnam at present 23 2.2 Status quo risk management of commercial banks 24... ANALYSIS 2.1 Status quo risk management in Commercial banks of Vietnam 2.1.1 Background of commercial banks in Vietnam History of bank industry is different from other countries in the world about... choose the topic: ? ?Risk management in trading in commercial banks of Vietnam? ?? OBJECTIVE OF THE RESEARCH - Research the issues about risks which banks have to face with including discovery, measure