15 NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** Bachelor thesis Evaluation of credit risk management in Asian Commercial Bank (ACB) Duyen Hai branch Student[.]
NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** Bachelor thesis Evaluation of credit risk management in Asian Commercial Bank (ACB) Duyen Hai branch Student’s name: Do Thanh Tung Class: Advance finance Intake:50 Internship guide: Mr Bui Ngoc Quy Supervisor: Nguyen Huu Anh, Ph.D Hanoi, 2012 Table of Contents Chapter INTRODUCTION …………………………………… ………… 1.1 Objectives of the thesis 1.2 Overview of the subjected bank 1.2.1.Overview of Asian Commercial Bank (ACB) 1.2.2 Overview of ACB Duyen Hai branch 1.3 Data collection and methodology 1.3.1Data collection 1.3.2 Methodology Chapter LITERATURE REVIEW…………………………………………… 2.1 Bank and credit activities 2.2 Credit risk 10 2.2.1 Definition .10 2.2.2 Types of credit risk 11 2.2.3 Sources of credit risk .13 2.3 Credit risk management 16 2.3.1 Role of credit risk management .16 2.3.2 Principles of credit risk management .17 2.3.3 Credit risk measurement 20 2.3.4Risk mitigation and transfer techniques 24 Chapter EMPIRICAL FINDINGS………………………………………… 31 3.1 Performance of credit activities at Asian Commercial Bank (ACB) Duyen Hai branch in the last years .31 3.1.1 Overview of credit activities at the branch 31 3.1.2Credit risk at ACB Duyen Hai branch .33 3.2 Credit risk management at Asian Commercial Bank (ACB) Duyen Hai branch 38 3.2.1 External management .38 3.2.2 Internal management at the Asia commercial bank .44 Chapter RECOMMENDATION FOR CREDIT RISK MANAGEMENT IN ACB DUYEN HAI BRANCH…….………………………… ……………….59 4.1 Orientation of overall operation at Duyen Hai branch 59 4.2 Orientation for credit activity at Duyen Hai branch .60 4.3 Recommendation for credit risk management at Asian Commercial Bank Duyen Hai branch 61 4.3.1 Promote professional employee training and utilize rationally human resource 61 4.3.2 Disperse credit risk 62 4.3.3 Concentrating on borrower information collecting practice 63 Chapter CONCLUSION, LIMITATION AND RECOMMENDATION FOR FURTHER STUDY…………………………………………………………….65 5.1 Conclusion 65 5.2 Limitation 66 5.3 Recommendation for further study .67 ABSTRACT Banking industry is a crucial part in any economies It goes without saying that with the presence of banking firms, such developed countries as the United State can achieve their success today However, inherent in banking industries are a lot of uncertainty that can cause vast damage to their members The most noticeable and current example of this is the financial crisis 2008 stemmed from failure in banking system of the United State and the debt crisis in Europe from 2010 until now In a small country like Vietnam, banking industry also have to face similar risk and may encounter same problem as what banks in other developed country did Especially, when most of Vietnamese banks rely heavily on credit activities to generate profits, credit risk is the issue that matter the most The main concerns of this thesis is to find out what a typical Vietnamese commercial bank is doing with their credit risk management and recommend solution to improved their weaknesses How well a bank is doing with its credit risk management is first determined by the performance of its credit activities That means in order to evaluate credit risk management, the first task is to evaluate the performance of the bank’s credit activities Then, through various data, the reason for the performance of the bank will be revealed ABBREVIATION ACB: Asian Commercial Bank BIDV: Bank for investment and development of Vietnam CIC: Credit information center HNX: Hanoi Stock exchange SBV: State bank of Vietnam USD: United state dollars VND: Vietnam dong LIST OF FIGURES Figure 1: Composition of branch's credit in 2009 38 Figure 2: Composition of branch's credit in 2010 39 Figure 3: Composition of branch's credit in 2011 39 Figure 4: Division of jurisdiction in ACB .52 List of tables Table Credit performance at Duyen Hai branch 35 Table 2credit risk at Duyen Hai branch 37 Table 3: Quality structure of branch's credit 40 Table 4: Internal regulation on interest rate .50 Table 5: Criteria weight in corporate borrower rating .56 Table 6: Individual borrower information .57 Table 7: Ranking scale of individual borrower 58 Table 8: Collateral rating scale 59 Table 9: Individual borrower rating 59 Table 10: Corporate borrower rating criteria 68 Table 11: Corporate borrower rating scale 70 Chapter INTRODUCTION 1.1 Objectives of the thesis Financial institutions always plays important role in every economy No country can achieve its growth objectives without the support from commercial banks and other institutions that also provide banking services to the public With the main function of receiving money deposit from money supplier and lending it to money user, banks works as intermediaries in the money market Without banks, the process of transferring money from people with excess of money to people in need of money will be obstructed by many barriers such as the lack of information, geographical distance, etc However this industry is also very risky As intermediaries in money market, banks make loans to a large number of borrowers in remarkable amount of money while their own capital is relatively very small Certain incidents, hence, can cause trouble to the bank when the loss of their loan may exceed their capital and force them to go bankrupt In Vietnam, banking is a very flourishing industry but are facing many difficulties Currently, 25 years after the economic reform, there are about 40 Vietnamese commercial joint stock banks, state-owned commercial banks and many other foreign banks All of them are contributing to Vietnamese economic achievement in the recent years However, Vietnamese banking industry are confronting many challenges, one of which is how to ensure the lowest risk in credit activity When the impact of 2007-2009 global crisis is still present all over the world, credit quality is a tricky problem High inflation, the climbing of ... Performance of credit activities at Asian Commercial Bank (ACB) Duyen Hai branch in the last years .31 3.1.1 Overview of credit activities at the branch 31 3.1. 2Credit risk at ACB Duyen Hai branch. .. is Duyen Hai branch where the writer was an intern 1.2 Overview of the subjected bank 1.2.1.Overview of Asian Commercial Bank (ACB) In June 04, 1993, Asian Commercial Bank? ??s foundation was official... liquidity risk and regulatory risk Regarding the importance of management of risks, Kaminsky and Reignhart (1999) thought that credit risk was the largest element of risk in the book of most banks Credit