Microsoft Word F69703116 doc 4 Chapter2 Reasoning Basis in Managing Credit Risks Contents of Chapter2 includes (1) Managing risk in the banking business; (2) Overview of managing credit risks of the bank 2 1 Managing Risk in the Banking Business 2 1 1 Generalizing about risk 2 1 1 1 Risk concept In general, risk can define as the possibility that actual future returns will deviate from expected returns In other words, it represents the volatility of returns Risk can define as the volatility of t.
Chapter2 Reasoning Basis in Managing Credit Risks Contents of Chapter2 includes: (1) Managing risk in the banking business; (2) Overview of managing credit risks of the bank 2.1 Managing Risk in the Banking Business 2.1.1 Generalizing about risk 2.1.1.1 Risk concept In general, risk can define as the possibility that actual future returns will deviate from expected returns In other words, it represents the volatility of returns Risk can define as the volatility of the unexpected outcomes, generally the value of assets or liabilities of interest Firms can expose to various types of risks, which can broadly classify into business and non-business risks (Philippe Jorion, 2000) 2.1.1.2 Categorizing risks There are many ways to approach risk and we can divide it into systematic and unsystematic risks Systematic risks (undividable risks): are the risks from the elements outside the company, which are uncontrollable and have the widespread influence to the market Systematic risks are the ones coming from the outside of an industry or business such as war, inflation, economical and political events, etc Unsystematic risks (dividable risks): result from the accidental or uncontrollable events, which only affect some companies or some industries These elements can be changed of labor force, managing ability, bringing a legal action, regulating policy of the government Most of the investors who have the minimum understanding of this field can eliminate the dividable risks by holding an enough big portfolio, which has from tens to hundreds of stocks 2.1.2 Risks and managing risks in the banking business 2.1.2.1 Risks in the banking business 2.1.2.1.1 Concept In the banking business activities, risks are the unexpected events, which lead to the loss to the assets of the bank, reduce the real profit compared to the budgeted one or spend a further amount of expense to finish a certain finance practice when they occur (Phan Thi Cuc, 2009) 2.1.2.1.2 Categorizing Credit Risk Operational Risk Liquidity Risk RISK IN ACTIVITIES OF BANK Legal Risk Market Risk Figure 2-1 Categorizing Risks in The Banking Business (Philippe Jorion, 2000) Credit Risk: is the risk generating in the process of providing credit of the bank, shown in reality through inability to pay debts or not just-in-time paying debts of customers to the bank All of the forms of providing credit of bank including short term, medium term and long term loans, financial leasing, discount on valuable documents, financing import and export processes and projects, guaranteeing liquidation contain credit risks (Phan Thi Cuc, 2009) Operational Risk: According Basel (1998d) and Jorion (2000), the operational risk generally can be defined as arising from human and technical errors or accidents This includes Freud, management failure, technical errors and inadequate procedures and controls Operational risk also can lead to market and credit risk Liquidity Risk (unable liquidity): occur in the case that the bank losses the liquidity, convertibility of assets to cash, or borrowing power to meet the need of a settlement contract (Phan Thi Cuc, 2009) Legal Risk: Customers and other people can take legal actions to the bank Reason of taking legal actions comes from the common operational processes For example, according to the customers, the rejecting of providing the credit limit again is unreasonable However, some cases can come from the reasons, which are not from the business activities of the bank such as financing the customers who polluted the environment and the bank can take a legal action by the third party suing When solving the legal action of a bank, for example, the contract of leasing and the guaranteeing asset standard have problems, or the government suddenly changes the macro policy in economic structure, prior field, etc These things can create the risk of loss for the bank (Le Thi Tuan Nghia, 2007) Market Risk: arises from movements in the level or volatility of market prices Value at risk tools now allow users to quantify market risk in a systematic fashion (Philippe Jorion, 2000) 2.1.2.2 Managing risks in banking business Managing risks is the process of approaching risks scientifically, entirely, and systematically to identify, control, prevent, and reduce the damage, loss, bad effects of risks Managing risks includes the steps shown in the following exhibit: IDENTIFY -ING RISKS ANALYZ -ING RISKS EVALUAT -ING RISKS CONTROL LING AND PREVENTING RISKS Figure 2-2 The Steps of Managing Risks in Operation of Bank (Phan Thi Cuc, 2009) FINANC -ING RISKS * Identifying risks: About the managing risks, Phan Thi Cuc (2009) has to identifying risks; it is the process of identifying continuously and systematically Identifying risks include the work of observing, considering, researching operational environment and entire activity of the bank to list all kinds of risks, not only eliminate the occurred and occurring risks but also forecast the forms of risks, which newly occur at the bank Based on the above basis, the appropriate solutions in controlling and financing risks suggest Besides, Phan Thi Cuc also purposes that to identifying, managers have to compile the list of the occurred, occurring and potentially appearing risks of the bank by the following methods: preparing the research questionnaire about risks and continuing investigation, analyzing the financial statements, flow of chart method, inspecting the real field, analyzing the contract, working with related governmental agencies * Analyzing risks: Phan Thi Cuc (2009) points out to analyze risks is to identify the causes making risks This is a complicated work, because not every risk comes from the only cause but from many causes To analyze risks is to find effective methods to prevent risks When the cause or the influence affecting the change find, we can prevent risk effectively (Phan Thi Cuc, 2009) * Evaluating risks: Phan Thi Cuc (2009) also considers that to evaluate risks, we need to collect, analyze and estimate the data Based on the result, we prepare the matrix to evaluate risks To evaluate the important level of risk to the bank, we use both criteria: the frequent occurrence of risk and the margin of risk - the serious level of damage Between the two, the second plays the determining role * Controlling and preventing risks: The main work of administration is controlling risks Controlling risks is using the methods, skills, tools, strategies, the operational programs to prevent, avoid, and eliminate the damage, loss, unexpected influence occurring at the bank There are many risk controlling methods such as avoiding risks, preventing loss, eliminating loss, transferring risks, diversifying risks, information management (Phan Thi Cuc, 2009) * Financing risks: Phan Thi Cuc (2009) points out when the risks occur, firstly we need to observe, identify accurately the loss of assets, human resources, legal value Then we need to have appropriate financing ways to risks These ways can divide into two categories: risk selfovercoming and transferring 2.1.3 Influence of risks to banking operations and social economy In the banking operations, the first influencing risk can cause loss to the assets of the bank The frequent losses are losing the principle of loan when lending, increasing the operation expenses, decreasing profit, and asset value Besides, risks make the reputation of the bank and the trusts of the customers go down, and the bank can loss its goodwill A bank operating with loss result continuously, with insufficient liquidation making a large number of customers withdraw their deposits, which obviously causes the bank to go bankrupt Thus, it influences thousands of depositors, and businesses which need the capital, and makes the economy recess, prices increase, purchasing power decrease, unemployment decrease, order of society confuse, and moreover a lot of domestic bank collapse (Phan Thi Cuc, 2009) Besides, risks of the banks also influence the world economy because in the circumstance of going international and globalization now, every country's economy depends on the area and world's economy On the other hand, the relation of currency, investment among the developed countries is close so the risks of the banks in one country will affect directly to other related countries' economies These have shown by the financial crisis of 1997 in Asia, of 2001-2002 in South America and of 2008 in the U.S 2.2 Overview of Managing Credit Risks of the Bank 2.2.1 Credit concept Credit comes from Latin: Credittum- meaning trust or confidence In Vietnamese, credit means borrowing Credit is the transaction between two subjects; one lends the other one money or property for using in a certain time based on the rule of returning the principle and interest within the agreed time (Le Thi Tuan Nghia, 2007) Loan (Borrower) (Lender) Refund capital and interest Figure 2-3 Credit form Shows in the Following Exhibit 2.2.2 Credit risks According Basel (1998b) and Jorion (2000), Credit risk originates from the fact that counterparties may be unwilling or unable to fulfill their contractual obligations The effect of credit risk is measured by the cost of replacing cash flows if the other party defaults However, the risks of the bank mainly focus on credit portfolio This has the hugest risks, and risks frequently occur When a bank encounters a very serious and difficult situation in finance, the cause usually comes from the credit operations of the bank (Le Thi Tuan Nghia, 2007) 2.2.2.1 Concept of credit risks Credit risks are the risks, which occur during the providing credit process, shown in the situation that customers not have the ability to return the debts or pay debts not in time to the banks (Le Thi Tuan Nghia, 2007) Hence, credit risks are said to appear in the relation that the bank is the creditor, while the debtor does not or cannot carry out the obligation of paying debt when it matures It occurs during the process of lending, discounting the transferring tools, and the valuable documents, financial leasing, guaranteeing, insuring settlement of the bank 2.2.2.2 Categorizing risks We can diversify credit risks shown in the following exhibit: CREDIT LIST RISK TRANSACTION RISK CHOOSING RISK INSURANCE RISK SKILL RISK DOMESTIC RISK Figure 2-4 Credit Risk Pattern (Source:Le Thi Tuan Nghia, 2007) ATTENTION RISK Based on the above exhibit, credit risk can divide into risk in transaction and risk in portfolio (Le Thi Tuan Nghia, 2007): Risk in transaction: is the form of credit risk whose cause comes from the limit in the process of transaction, considering and approving the loan, evaluating the customers It includes: Risk in choosing: is the risk related to the process of evaluating and analyzing credit when the bank chooses the effective ways of lending money to suggest the lending decision Risk in guaranteeing: comes from the guaranteeing standards such as the terms in the lending contract, guaranteeing properties, subjects, ways and lending amount based on the collaterals Risk in practice: is the risk related to process of lending and managing loans including using the risk ranking system and processing technically the problematic loans Risk in portfolio: is the form of credit risk whose cause comes from the limit in managing lending portfolio of the bank, divided into two types: intrinsic risk and concentration risk Intrinsic risk comes from its own element, characteristics, has the inside distinctiveness of every lending subject or from economic industry, field, from the characteristics of the operation or using capital of borrowing customers Concentration risk: is the case that the bank concentrates too much lending capital on some customers, lends too much to many businesses operating in the same industry, economic field, certain geographical area, or form of lending which has high risk 2.2.2.3 Ratio of evaluating credit risk 2.2.2.3.1 Overdue debt ratio Overdue debt is the most important yardstick evaluating the health of the institution It influences all of the main operational fields of the bank The way of determining this criterion with low result indicates that the credit amount of the bank guarantees quality; risk in providing credit of the bank is low On the contrary, if this ratio is high, it indicates the ability of using the bank's working capital low (Le Thi Tuan Nghia, 2007) Overdue debt ratio = (Overdue debt balance / Total lending loan balance) x 100% 2.2.2.3.2 Bad debt ratio (Le Thi Tuan Nghia, 2007) Bad debt ratio = (Allowance for compensating risk / Total debt balance) x 100% 2.2.2.3.3 Risk circumstance of losing capital (Le Thi Tuan Nghia, 2007) 10 Credit risk allowance ratio = (Allowance for credit risk deducted / Debt balance for preparing period) x 100% 2.2.2.3.4 Credit risk factor This factor shows the density of credit amount in the assets If the credit amount in the total assets is high, the profit will be high, but meanwhile credit risk will be high, too (Le Thi Tuan Nghia, 2007) Credit risk factor = (Total lending loan balance / Total assets) x 100% 2.2.2.4 Some signals of realizing credit risks 2.2.2.4.1 Some financial signals (Nguyen Van Tien, 2007) - Liquidity ratios show weak points - Return ratios show weak points - Operational turnovers show weaknesses - Capital structure is unreasonable 2.2.2.4.2 Some non-financial signals (Nguyen Van Tien, 2007) * Signals relate to the banks: - Deposits reduce significantly - Debts increase - Borrowing amount frequently increases - Needs of borrowing amount is in excess of budgeted demands - Using the financing source with high interest rate is acceptable - Slow payment of principle and interest of debt to the bank * Signals relate to managing ways with customers: - There are changes in human resource structure in the administrating system - There are conflicts in the managing system - Little experience, much appearance - Transferring employees too often - Dispute in the managing process - Illegal administrative expenses - Nepotism management * Signals in technical and commercial problems: - Difficulty in developing new products, having no substitution products - Changes in the governmental policies - Seasonal products - There is an indication of cutting expenses 11 - Changes in the market about interest rate, exchange rate, losing customers, taste, etc * Signals in processing financial information: - Increase in ratio of debt unbalance - Prepare insufficient financial data, delay in submitting report - Cash balance decreases - Increase rapidly in accounts receivable and period of paying debts - Loss in income result - Deliberate to make the balance perfectly with intangible assets * Other non-financial signals: - Degradation of business premises - Inventory increases due to not sold goods, damage, and obsoleteness - Discipline the leading officers 2.2.2.5 Cause of credit risks 2.2.2.5.1 Objective cause Objective cause can influence the credit operation of the bank, reason of overdue debts of the bank is absolutely necessary risk occurring out of the intention and control of people There are many kinds of objective causes and they are diversified, unpredictable, belong to many fields and have many different characteristics (Nguyen Van Tien, 2007) - Disaster, fire, epidemic pull the business and manufacturing processes down - Domestic and international social and economic circumstances - Environmental factors - Changes in policies of the government - Legal environment is disadvantageous, loosing in macro-management 2.2.2.5.2 Subjective cause * From customers: This is one of the main and most traditional causes of credit risks Borrowers can be intentionally or unintentionally unable to pay loan to the bank just in time In general, this cause can be controllable, deal able if the bank supervises, controls and manages the customers well before, within, after distributing the loan to customers (Nguyen Van Tien, 2007) This cause can be considered in the following aspects: - Because the borrowing customers lack legal capacity - Using the borrowing capital with wrong purpose, ineffectiveness 12 - Due to continuous loss in business, unconsumed goods - Inappropriate way in managing capital causes lacking liquidity - The business owner borrowing loan lacks managing ability, embezzles, cheats - Because the subjective intention of the borrowers, they not want to return the debt to the bank - Due to the disunity in the internal of the Board of Directors * From the bank: Apart from the cause of overdue debt from borrowers, subjective cause includes shortcoming, defect from the bank (Nguyen Van Tien, 2007): - Judging ability of the lending project of the bank is still weak so the bank lent to the projects, which are unfeasible, risky, unrecalled in a loan while the bank cannot predict the reserve source to amend risks - In addition to the problem being short of and weak in managing ability, there is also a group of bank staff who lack moral quality taking advantage of their working positions to seek self-interest, embezzle, corrupt, lend intentionally with wrong rule This is also the cause of increasing overdue debt - The bank believes subjectively in the collaterals, sponsoring and insuring property, considers them as certainly insuring things for recalling principle and interest of loan and looks down the check, control of doing projects, prevention of risks The bank does not know the way of using the loan of customers so there is no method of preventing, processing quickly when the loans have the bad signals in the using process so it makes the debt returning ability unsecured, and debts overdue - The bank lacks a department that specializes in observing, managing risks, managing maximum credit limit for each customers of different industry, products, and regions to scatter risks - Bank's control system is too weak and loose, which makes a lot of credit amount concentrating too much on a few borrowers so the peril of losing credit of the bank increases depending on these customers' business operations 2.2.2.6 Effect of credit risks According Basel (1998b) and Jorion (2000), the effect of credit risk is measured by the cost of replacing cash flows if the other party defaults However, when we focus on the credit risk of the bank, we can cite Nguyen Van Tien (2007) supposes bank is the mental centre of the entire economy and a regulating tool of government's macroeconomy Thus, if the bank has risk in any operations, especially credit risk; it will cause 13 not only damaging effects to the bank itself but also serious influence to bank system and national economy * To the bank having risks (Nguyen Van Tien, 2007) In the financial sector: due not to recall in the debt (including principle, interest of the loan and other expenses), it makes the capital of the bank stuck so it cannot create interest, while the bank has to pay interest for the deposits mobilized; so the bank's profit decreases, source of working capital is narrowed If this situation becomes serious and last in a long time, it will make the bank unliquidated and go bankrupt In the social sector: Bank's credit risk can make the bank lose the liquidity due to losing the depositors' confidence and withdrawing money in large quantity of them The circumstance of withdrawing the deposits with large quantity occurs not only at one bank but also at other banks, which causes panic and instability in society * To the bank system (Nguyen Van Tien, 2007) The operations of one bank of one country relate to the bank system and many economic and social organizations and individuals in the economy Thus, if one bank has bad operational results or even loses liquidity and goes bankrupt, there will be some bad linear influence to other banks and economic sectors, the thought of losing money will spread to depositors and they will withdraw money at the same time at other banks It can make other banks encounter the situation of unliquidated * To the economy (Nguyen Van Tien, 2007) Bank has a close relationship with other economic components, is a channel attracting and providing money to invest in developing business process, and is vital to every economic component Therefore, credit risk causes bankruptcy to a bank or even influences badly other banks and it makes the national economy confused, economic activities unstable and standstill, the relation of supply and demand unstable, the inflation, unemployment and social evils increase, security and political situations unstable 2.2.3 Credit risk management 2.2.3.1 Concept Credit risk management is the way of using professional measures to control credit qualitity, limiting bad effects in credit activities, reducing loses not to let bank activities fall into dissolution status (Credit Manual, 2010) 14 2.2.3.2 The necessity of credit risk management Ngo Quang Huan (2007) points out to limit the risk, it is necessary to work well from prevention to solving bad effects due to risk occurring: Forecasting, identifying potential risks, detecting disadvantageous occurrence, preventing unbeneficial situations, which happened or are happening and can be spreaded to a widespread area To solve the effect of risks can prevent the loss to property and income of bank This is a logical process so it is necessary to have management to secure the unification Preventing risks is done by the staff, leaders of the bank At the bank, the thought and action of the staff can be different, or obstruct the others so we need to have management to make everyone to act unifiably Management suggests detailed goals to help the bank develop in the correct direction and we must have detailed plans and suitable results to the suggested goal 2.2.3.3 Tools of managing credit risks (Le Van Tu, 2005) - Credit policies - Credit limit - Loan evaluation - Credit range - Collaterals - Portfolio diversification 2.2.3.4 Method of managing credit risks Le Van Tu (2005) points out to perform these above tasks well; first, credit risk management has to secure the general steps of management including planning, organizing, disposing, examining and controlling Besides, in addition to the significant characteristics of credit risks considered at different aspects, the method of managing credit risks is considered and done coordinative 2.2.3.4.1 Managing credit risks with influencing factors Le Van Tu (2005) also considers that it is the method of identifying and managing many factors, which affect and influence to credit risks It includes the following factors: Factors of the bank: credit policy, risk managing pattern, human resource quality, credit evaluating work, supervising and controlling after work, credit increasing speed, customers, loan maturity, lending subject, credit rating, collateral, portfolio diversification, risk in moral, human resource management policy, etc 15 Market factor: economic cycle, inflation, interest rate, exchange, price and market, risk in policy, etc Policy of customers: possibility, effect of lending project, collateral, liquidity, profitability, leverage, effect of managing capital, cash flows, moral of business owner, manageability, prospect of industry, competitiveness, business diversification, etc Other factors: accurateness and availableness of information, legal way, supervising role of central bank, etc 2.2.3.4.2 Credit risk management with segmentation of credit rank Credit managing work can differently at every segment of credit rank (Le Van Tu, 2005) It includes: Before providing money: it includes from planning policy to developing evaluation and providing credit decision This is the decisive stage to the whole process (although other after segments of providing credit process cannot be considered lightly While providing money: it include set up records and control during providing process Work in this process has high formality and legality After providing money: risk causes can potentates in the two first segments (before and while providing money; however, credit risk is only exposed and occur after providing money Thus, controlling, supervising loan and classifying debt are attached special importance in this segment 2.2.3.4.3 Credit risk management with period of occurring credit risks * Before occurring risks: - Identifying and evaluating risk - Determining level of risk - Grasping and doing the forecast steps - Getting rid of big risks - Financing acceptable risks by choosing method of self-financing, guaranteeing and disposing risks * After occurring risks: - Managing loss - Planning restoration In short, the duties of credit risk management is forecasting, detecting potential risks, detecting disadvantageous events, preventing disadvantageous situations which happened and are happening and are spreading widely, solving effect of risk to prevent loss to the property and income of the bank This is logical process and to prevent credit 16 risk, managers has to perform well from forecasting, preventing stage to stage of solving bad effects due to risks (Le Van Tu, 2005) 2.2.3.5 Measuring credit risks One of the basic characteristics of modern finance is riskiness so all modern financial patterns are set in risky environment Thus, it is necessary to construct a tool to measure it These patterns are diversified including quantitative and qualitative models (Nguyen Van Tien, 2005) 2.2.3.5.1 Quantitative model of credit risk - Model 6C Nguyen Van Tien (2005) points out the first question of bank to every loan are whether customer wants or has the capacity to repay the loan when it matures This relates to researching details "6 aspects - 6C” of customers These include: - Character of borrower: Credit staff must make sure that borrower has clear credit goal and serious intention of paying debts when maturing - Capacity of borrower: Borrower of loan must have legal and behavioral capacity of citizen, must be the legal representative of the business - Income of borrower: Bank has to identify the source of repaying loan of borrower from the cash flows of business - Collateral is the second source used to repay loan to the bank - Conditions: Bank sets up conditions depending on the credit policy of each period - Control: means to assess the influence from change of law, operational regulation, and customers’ ability to adapt the bank's criteria Using this model is rather simple but the limit of this model is that it depends on the accuracy of information source collected, forecasting ability as well as analyzing, and evaluating ability of credit staff 2.2.3.5.2 Qualitative model of credit risk Nowadays, most of the banks approach to modern method of assessing risks There are some qualitative models of credit risk following mostly used Z point model (Le Van Tu, 2005): This model was set by E.I.Altman depending on: (i) Ratio of financial element of borrower - Xj (ii) The importance of these ratios in identifying bankrupt possibility of borrower in the past 17 Z = 1.2X1 + 1.4X2 + 3.3X3+ 0.6X4 + 1.0X5 X1: Net working capital / Total assets ratio X2: Retained earnings / Total assets ratio X3: EBIT / Total assets ratio X4: Market value of share / Book value of long-term liabilities ratio X5: Sales / Total assets ratio Z value is high so the borrower having bankrupt possibility is low When the Z value is low or a negative number, it is a base to classify the customer into the group who has high bankrupt risk If Z < 1.8: customer has high risk If 1.8 < Z < 3: unidentified If Z > 3: customer does not have the ability of bankruptcy Any company which has Z value < 1.8 is classified into a group of high credit risk and the bank will not provide credit Advantage: measuring technique of credit risk is rather simple Disadvantages: This model can use to classify into customer groups, which have risks or no risks However, in reality, every customer's credit risk level is different from low level as low or unable payment of interest to level of losing both principal and interest of loan There is no persuasive reason to demonstrate that parameters reflecting the importance of ratios are invariant while the business conditions as well as financial markets are changing continuously Ranging model of Moody, Standard & Poor (Le Van Tu, 2005): Credit risk in lending and investing usually indicates by ranging bond and loan Moody, Standard & Poor is one of the businesses providing these services best Moody, Standard & Poor ranges bond and loan into ranges and descends by quality Which is belonging to four first ranges, bank will lend but other ranges, and bank will not lend or invest In short, the work a bank evaluate risk possibility of one borrower and based on that base, how to assess loans and debts correctly depends on investment portfolio and expenses of collecting information These related factors leading to investment decisions include: 18 * Factors relating to borrowers: Borrower's prestige: indicates by lending - borrowing history of customers If during the borrowing process, the customer always pays sufficient money and in time, it will create confidence to the bank Customer's capital structure: indicates by working capital/capital ratio The higher this ratio is, the bigger the risk possibility is Fluctuation level of income: with any capital structure, income influences largely to ability of returning debts of borrowers Hence, the company which has frequently stable history of income will attract more investors Collateral: is the main condition in any lending decision to encourage using capital effectively and improving the duties of customer in returning debt to the bank * The factors relating to the market: Economic cycle has affected strongly to business activities So the bank needs to analyze the economic cycle to make a decision on time and to invest in which fields have the low risk rates Interest rate: the high interest rate is applied to show a tight currency policy relating to the high risk rate, many investors who are attracted by high profit projects but to forget that the interest rate seems to face possible risks 2.3 Introduction of the Bien hoa Agribank and Rural Development Office: 1A Highway 1, Binh Da Ward, Bien Hoa City, Dong Nai Province The Bien hoa Agribank was established by Decree No: 430/QD/HDQT-TCCB dated November 07th, 2001 and Decree No.145/QD/HQT-TCCB dated April 27th, 2004 of the board of director of Bank for Agriculture and Rural Development of Vietnam Main office of Bien hoa Agribank is located at convenient conditions for bank to easily communicate with people living in the province In addition, it can service to vicinity residents Bien Hoa Agribank has formed a network defense system-wide transactions Comparing to the first day of establishment, Bien hoa Agribank now has some achieved development, products and services are accepted and confided by large organizations and foreign economy, businesses, small business and individuals There are a lot of changes in the financial markets recent years but the bank have made great efforts and achieved that are encouraging results, in particular: 19 Table 2-1 Results of the Bank’s Business Activities during the Years Unit: Billion VND Standard Mobilizing capital Total debt Include: bad debt Total income Total expense EBIT 2008/2007 2009/2008 2007 2008 2009 1177.8 1404.9 2549.4 227.1 19.28% 1144.5 81.46% 814.46 882.94 1142 68.48 8.41% 259.06 29.34% 11.403 7.064 4.568 -4.339 -38.05% -2.496 -35.33% 141.336 176.686 219.446 35.35 25.01% 42.76 24.20% 108.829 139.582 158.857 30.753 28.26% 19.275 13.81% 32.507 37.104 60.589 4.597 14.14% 23.485 63.30% Value Density Value Density Results from Table 2-1 shows, the operations of the Bien hoa Agribank and Rural Development has good growth, especially in 2009 Integration will increase the prestige and position of the bank, opportunity exploitation and efficient use of the advantages of modern banks operates multi-function, can use technology, management experience from other countries development Agribank is Vietnam's the largest bank in terms of capital, assets, personnel staff, operation networks and customer amount The Bien hoa Agribank and Rural Development is spacious, cool, is invested the new systems and modern equipment Leadership is a highly qualified and experienced The staff is young, dynamic, creative, dedicated to customer and highly qualified Customers wishing to use the products and services of bank are increasing Products and services of the bank are trusted by customers It is a solid prop for survival and development banks 20 ... economies These have shown by the financial crisis of 1997 in Asia, of 20 01 -20 02 in South America and of 20 08 in the U.S 2. 2 Overview of Managing Credit Risks of the Bank 2. 2.1 Credit concept Credit. .. finance, the cause usually comes from the credit operations of the bank (Le Thi Tuan Nghia, 20 07) 2. 2 .2. 1 Concept of credit risks Credit risks are the risks, which occur during the providing credit. .. Discipline the leading officers 2. 2 .2. 5 Cause of credit risks 2. 2 .2. 5.1 Objective cause Objective cause can influence the credit operation of the bank, reason of overdue debts of the bank is