Credit risk management in bank for investment development of vietnam branch in hai phong

NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM ***************************** Bachelor Thesis Credit Risk Management in Bank for Investment & Development of Vietnam branch in Hai Phong Student’s name: Pham Quang Huy Class: Advanced Program Intake:50 Internship guide: Mr Pham Manh Hung, Risk Management Department Supervisor: Mr Le Duc Hoang, MBA Hanoi, 2012 Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50 Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50 ACKNOWLEDGEMENT This report is the result of my internship in the Risk Management Department of BIDV – Dien Bien Phu, Hai Phong branch By that time, I have worked with a great number of people whose contribution in the research It is a pleasure to convey my gratitude to them all in my humble acknowledgement In the first place, I would like to express my thank to Mr Le Duc Hoang for his supervision, guidance, and encouragement I appreciate all his time and effort in helping me during the time of my internship I gratefully acknowledge all lecturers and officers from Advanced Program for their shared knowledge and experiences I would like to deliver my gratitude to all my friends in Advanced Class intake 50 Their support is one thing making this report possible Last but not least, many thanks go to all of staffs in the BIDV branch in Hai Phong generally, and in the Department of Risk Management particularly, for their warm treatments during my internship I am very grateful to Mr Hung, my supervisor in the office, for his encouragement and guidance Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50 TABLE OF CONTENT ABSTRACT ABBREVIATION LIST OF TABLES .7 LIST OF FIGURES .8 CHAPTER I: INTRODUCTION .9 1.1 Rationale 1.2 Research Objective 1.3 Methodology 10 1.4 Research Scope & Constraints 10 1.5 Thesis Structure .11 CHAPTER II: THEORETICAL BACKGROUND 12 2.1 Overview About Commercial Bank 12 2.1.1 Definition of Bank .12 2.1.2 Services Provided by Commercial Banks 13 2.1.3 Risks in Banking 15 2.2 Credit Risks In Banking 17 2.2.1 Definition of Credit Risk 17 Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50 2.2.2 Impacts of Credit Risks .17 2.2.3 Causes of Credit Risks 18 2.2.4 Reflecting Factors for Possible Credit Risks .19 2.3 Credit Risk Management 21 2.3.1 What is Credit Risk Management? 21 2.3.2 How does the Government Regulate about Credit Risk Management? 22 2.3.3 Is There Any Specific Method to Evaluate Credit Risks? 25 Financial ratios analysis 26 Credit analysis 26 Internal credit rating system .29 Credit review 30 2.3.4 Is There Possible Way to Hedge against Credit Risks? .31 CHAPTER III: CURRENT SITUATION OF CREDIT RISK MANAGEMENT FOR ORGANIZATIONS IN BIDV – HAI PHONG BRANCH 32 3.1 Profile Of BIDV And BIDV Dien Bien Phu, Hai Phong branch .32 3.2 Organizational Structure Of The Branch 34 3.3 Business Results Of BIDV – Hai Phong Branch During 2009-2011 .37 3.3.1 Profitability Analysis 37 3.3.2 Capital Mobilization 39 3.3.3 Credit Activities 42 3.3.4 Services Activities .44 3.4 Credit Evaluation System Of BIDV 45 3.4.1 Steps in Credit Granting in BIDV .45 3.4.2 Internal Credit Rating Process 47 3.4.3 Credit Granting Policies & Collateral Requirements .53 Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50 3.4.4 Credit Review Policy under BIDV .55 3.4.5 Connection between BIDV’s Credit Evaluating System and the Model of Cs of Credit Analysis 55 3.5 Performance Of Credit Risk Management In BIDV Branch 57 3.6 Evaluating Of Credit Risk Management In BIDV – Hai Phong Branch 63 3.6.1 Achievements in Credit Risk Management of BIDV branch 63 3.6.2 Shortcomings in Credit Risk Management of BIDV branch 65 CHAPTER IV: RECOMMENDATION 68 4.1 Recommendation To BIDV & The Branch .68 4.1.1 To Improve Qualification of Credit Officers .68 4.1.2 To Build Internal Information System .69 4.1.3 To Enhance Internal Supervision on Outstanding Debts 70 4.1.4 To Refer to Different Methods to Access Credit Ratings 72 4.1.5 To Diversify Borrowers Pool & Hedging Strategies 73 4.2 Recommendation To The Government & SBV .75 CONCLUSION 78 APPENDIX A: The Model Cs of Credit Analysis 79 APPENDIX B: Z-score Model 81 REFERENCE 83 Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50 ABSTRACT The goal of this internship thesis is to characterize performance of BIDV – Hai Phong branch in credit risk management and to highlight possible related problems during the 3-year period 2009-2011 The paper is going to analyze internal credit rating system of BIDV as well as to discuss its connection to international standards The real situation of credit risks in the branch will be determined basically through examining outstanding loans structure The results from this study helps to understand about the company’s business operation, focusing on credit risk management for organization customers, and to identify any shortcoming existing in the company’s management, so that suggestible actions should be undertaken Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50 ABBREVIATION  BIDV Bank for Investment and Development of Vietnam  SBV Stated Bank of Vietnam  Dep Department  Div Division  FDIC Federal Deposit Insurance Corporation  FTP Fund Transfer Pricing  EBIT Earnings Before Interests and Taxes  ROE Return on Equity  ROA Return on Assets  D/E Debt to equity ratio  C&R Vietnam Credit Information and Rating Company  CRC Enterprise Credit Rating Appraise Science Center  CIC Credit Information Center  VAS Vietnamese Accounting Standards  IAS International Accounting Standards Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50  LIST OF TABLES Table 2.1: Risk Classification in Banking 16 Table 2.2: Debt Classification under Article of Decision no.493 23 Table 2.3: Maximum Rate to Calculate the Value of Collateral .24 Table 2.4: Credit Risk Minimization Methods .31 Table 3.1: Credit Rating for BIDV in 2010 33 Table 3.2: Operational Results of BIDV – Hai Phong branch during 2009-2011 37 Table 3.3: Capital Mobilization of BIDV – Hai Phong branch in 2009-2011 41 Table 3.4: Distribution of Annual Average Outstanding Debts by Customer Type 43 Table 3.5: Average Outstanding Debts Classification by Currency .44 Table 3.6: Financial Indicators in Credit Rating of BIDV 49 Table 3.7: Coefficients for Nonfinancial Indicators .51 Table 3.8: Credit Rankings under BIDV System 52 Table 3.9: Credit Policy in BIDV 54 Table 3.10: Debts Classification for BIDV branch under Decision no.493 60 Table 3.11: Provision for Loan Losses in BIDV branch 61 Table 3.12: Calculation for Expected Provisions for Loan Losses 62 Supervisor: Mr Le Duc Hoang, MBA Pham Quang Huy – Advanced Program 50