The credit risk management at bidv bank – thanh do branch 2018

INTRODUTION

The urgency of the topic

In the trend of liberalization, economic globalization and internationalization of financial flows have fundamentally changed the banking system; with the opening of the financial market, the appearance of banks with investment capital, modern technology and advanced management level are major challenges for domestic banks Thus, the business activities become more complex and the competitive pressure between the banks is larger and along with it, the level of risk increases Risks are almost present in each banking operation A bank wants to make a profit; it must have risky, meaning that it must live together with the risks that arise in each of its operations In the context of competition and financial market integration and the financial services industry - the banking sector is growing; it demands strong reforms to reduce operational risk.

Credit activities bring high income but also the most risky Over time, the nature of credit risk also changes when Vietnamese enterprises are increasingly under pressure from globalization and international integration Therefore, the issue of improving credit risk management to improve operational efficiency and competitiveness in the current period is a serious problem for commercial banks.

BIDV Bank is a Joint Stock Commercial Bank with a wide network spreading throughout the country and also reaching out to neighboring countries in the region as well as having representative offices of some countries in the world.Thanh Do branch is an affiliated unit is located at 463 Nguyen Van Linh Street,Phuc Dong Ward, Long Bien District, Hanoi The branch has 04 sub-branches Over time, BIDV Thanh Do has made significant contributions to the socio-economic development of Hanoi City in general and for the development of BIDV in particular Apart from the achievements, credit activities still face many difficulties and challenges, the situation of overdue debts and bad debts tend to increase due to the impact of the economic recession storm in the last period; it requires BIDVThanh Do to focus and improve risk management, especially credit risk, to ensure the safety of the system, contributing to competition capacity building in the new stage.

In addition to the achievements, credit activities still face many difficulties, the situation of overdue debt and bad debt still exist and tend to increase due to the impact of economic recession in the past The fact that, it requires BIDV Bank - Thanh Do Branch has to focus on and improve risk management, especially credit risk management to ensure safety, contributing to improving competitiveness that is an urgent requirement for JSCBs in the current context However, during the study,the author found there has not been research work on credit risk management atBIDV Bank – Thanh Do Branch in the period 2014-2016 and suggested the direction to improve credit risk management quality until 2022 Therefore, the author selected the topic “The Credit risk management at BIDV Bank – Thanh DoBranch”

Overview of related researches

There are many researches on credit risk management in commercial banks in which typical examples include:

(1) Dr Tran Huy Hoang (2012) “Recommendations to limit the risk in credit activities of Vietnamese commercial banks”, Economic Development magazine No 3/2012, University of Economics Ho Chi Minh City: The author lists the common risks faced by typical commercial banks, such as the risk associated with the loan portfolio, including whether the banks focus too heavily on a few borrowers, The loans structure are concentrated on medium and long-term credit,the long payback time and efficiency depends on the success of the project in the future, the too hot credit growth also has much risk The provision of risk is not correct, not scientific, the abuse of collateral, the loan is based only on the underlying asset that underestimate ability, financial strength of the customer Risks related to credit management, related to the skill of the officers, the author has listed a lot of shortcomings of banking officers, the human factor is always important in each agency, the organization and the need to improve the qualifications and quality for the staff of bankers are concerned by the author From the real situation of commercial banks, the author has made some useful and practical recommendations such as: (i) The bank must determine the credit development strategy depending on the target market and take advantage of their ability, strength, avoid spontaneous (ii) enhancing the capacity of management and operational staff in the credit sector; (iii) utilizing existing facilities and technologies; (iv) make a risk provision in accordance with the nature of the loan, (v) apply the tools to prevent credit risk

The author outlines the risk factors related to credit in a very authentic and scientific way, shows the causes and determines what the root cause is and makes the suitable recommendations However, the article also has some limitations because the practice of credit development in recent years at commercial banks is a matter that needs to be analyzed in depth In addition, there are credit risk factors that not all people point to and find solutions to immediately solve such as cross-ownership situation between commercial banks and the benefits of these “interest groups”"

(2) Assoc Prof Dr Nguyen Thi Mui (2006), Commercial Banks Management, Finance Publishing House: The author presents a general overview of commercial bank management that spends a lot of time discussing credit management issues and derivative works from credit where the author has introduced credit concepts, processes and regulations such as the loan appraisal process, the debt collection process and the handling of problematic debts, the supervision and control procedures, etc On the basis of that, the author has reviewed almost all the activities related to the management of commercial banks and analyzes the theoretical issues as well as the rules and procedures of the banks relating to credit management and credit risk management.

The advantages are that the author has helped readers understand the banking management practices, management practices and interrelationships of the activities identified in a system that gives an overview of banking operations and understands the activities related to credit management and credit risk However, as a scientific work, it still has nature of research and theory in order to apply to the practice of banking management, especially the management of our credit risk, it is necessary to cooperate more relevant processes and regulations.

(3) Prof Dr Nguyen Van Tien (2002) “Risk Assessment and Prevention in Banking Business”, Statistical Publishing House: In this work, the author has updated the latest knowledge with advanced content about banking management that are widely applied in the world and shows the applicability and implications for commercial banks in Vietnam In this book, the author listed the main risks in banking operations - special business type The author also incorporates typical case studies and exercises for readers to understand the theory and can be practiced and applied in real work This is a work that has many practical elements and it is close to the processes and regulations of modern and advanced finance Useful exercises case studies as a “miniature bank” so that the administrator can measure the risk factors and provide the suitable methods and solutions However, the works are still inevitably limited and need to be improved in order to better match the business practice of Vietnamese commercial banks.

(4) The State Bank of Vietnam (2013), the Regulations on Assets Classification, the level of deductions, the method of setting up risk provisions and the use of provisions to deal with risks in the credit organization's operations, foreign bank branch, issued in conjunction with the State Bank of Vietnam's Circular No 02/2013 / TT-NHNN dated January 21, 2013: This is a legal document which includes the procedure for asset classification and risk provisioning is mandatory, requiring all credit institutions, commercial banks, and foreign bank branches to strictly comply

It was introduced through many amendments and additions, and this is a legal document that is assessed to be close to the rules and regulations of international practice and if commercial banks comply with seriously, it will be a big step in transparency of bank debt as well as ensuring the safety of the system and will be of great help to commercial banks in credit risk management as well as financial balance to have appropriate investment strategies However, it is a legal document, so it has a lot of administrative elements, commands and to maximize the effect as desired, it also needs to be revised, improved to fit and to be more realistic, avoid factors with nature of coping.

(5) Nguyen Anh Tuan (2012) “Credit Risk Management of Bank for Agriculture and Rural Development in Viet Nam” Doctoral dissertation, Hanoi University of Economics: The dissertation has given basic signs to identification and early warning of risk as well as methods of measuring credit risk, the biggest advantage of the project is that it provides a relatively sufficient qualitative and quantitative criteria to evaluate the effectiveness for Credit risk management of the Bank for Agriculture and Rural Development of Vietnam, as well as suggestions for other commercial banks.

The dissertation has shown many weaknesses and limitations in the credit risk management in Agricultural Bank such as backward risk management model, credit scoring system for credit customers is not suitable, it still has a qualitative factor, it does not attach much importance to the quantitative factors, the classification of debts as well as the provision for risks are still inadequate and inaccessible to existing regulatory advanced procedures, making bad debts in banks tends to increase and decline in profits.

Since then, the author has provided key solutions to improve the credit risk management at banks and make practical recommendations However, the drawback of this study is that suggestiveness, application for credit risk management in general is not high as we already know that the Bank for Agriculture and Rural Development is a relatively subsidized bank and old-dated in technological modernization as well as the access to and integration with international finance and banking is low.

(6) Nguyen Duc Tu (2012), “Credit risk management in VietinBank”,PhD dissertation, Hanoi University of Economics: The dissertation proposed new concept of credit risk difference with the view of many economists and managers inVietnam, it emphasizes the possibility of unexpected discrepancies between actual and expected returns, full receipt of principal and interest, credit risk will lead to financial losses i.e net reduction in net income and decrease in market value This concept is an important theoretical basis for identifying the specific content of credit risk management.

Moreover, the dissertation has developed the credit risk management theories applied to the bank with the content of building credit risk management model in the approach of current risk management methods Applying credit risk management models, enhancing the efficiency and transparency of credit risk management, and recommending banks to develop new credit policies from post- and loan decision management based on the credit analysis and review system. From theoretical point of view, the author has pointed out the main causes leading to risks and proposed many useful solutions and directions as well as suggestions for the Industrial and Commercial Bank of Vietnam as well as commercial banks. The Bank is also committed to strengthening the Bank's credit risk management framework and enhancing the Bank's ability to integrate into the international financial system.

(7) Basel II: Basel II is the second version of the Bassel treaty which lays down the general principles and banking rules of the Basel Committee on Banking Supervision, Basel II is limited by market risk measurement and basic measurement of credit risk, which introduces a series of complex and risky credit approaches that focus on operational risk Basel II uses such concepts as: Minimum capital requirements:

Mentioning the maintenance of a legal capital amount is calculated for the three risk components that banks face: market risk, credit risk and operational risk, with credit risk components; it can be calculated in three different ways of complexity change namely the standardized approach The standardized approach is the simplest of Basel II credit scoring methods.

Accordingly, to measure credit risk, banks should have the support of external rating agencies (such as Moodys', S & P, Fitch) and from there, determine the risk factor as required In some countries, the central bank's supervisory and supervisory bodies only approve this method during the Basel II application period.

Research purposes and tasks

The purpose of the dissertation is to analyze the current situation of credit risk management of BIDV Thanh Do branch, thereby proposing solutions to improve the credit risk management of the branch in coming time.

- To clarify some theoretical issues related to credit risk, credit risk management of commercial banks.

- To study the experiences of some banks and branches on credit risk management

- Analyze and assess the current situation of credit risk management at BIDV Bank - Thanh Do Branch in the period of 2014 - 2016 Identify the results as well as weaknesses in credit risk management activities.

- Propose some solutions to improve credit risk management at BIDV Bank -Thanh Do Branch

Research objects and scope

The dissertation focuses on the current situation of credit risk management activities at BIDV – Thanh Do Branch

+ In term of space: Research about the practical activities of credit risk management in Thanh Do Branch and some features of other typical branches in the BIDV system.

+ In term of time: Real researches are mostly limited in period 2014-2016 and proposals for solutions to 2022

+ Content: Research on credit risk management was conducted at BIDV

Thanh Do branch The process includes: analyzing the credit risk management situation, assessing the weaknesses of credit risk management and proposing solutions to improve the credit risk management in BIDV – Thanh Do branch.

Research methodology

Primary data was collected through questionnaires and interview methods.

To collect the most general information about credit risk management practices at BIDV Bank – Thanh Do Branch, 25 questionnaire were issued with different oriented answers, the respondents only need to fill out the personal information (name, age, department of work), choose the answers that they think reasonably and tick on the questionnaire, the total number of votes received is 20 votes Based on the aggregation of questionnaires, the author collected information on: the shortcomings in the credit risk management that BIDV – Thanh Do branch encountered; In addition to the questionnaire, the author also conducted in-depth interviews with 05 officers holding the position of head and vice-head of departments at the company.

+ Investigation objects: employees in the company

+ Number of questionnaires issued: 25 votes

+ Number of votes received: 20 votes

Secondary data collection methods were collected through:

- Report on business results, report on credit data, and assist the author to collect such information as: Total debt balance, loan portfolio ratio, debt structure

- Collect statistics tables about credit debt and issues related to credit risk management in the company such as lending policy, credit risk management policy, etc.

- Research topics at the school level; the dissertation of previous times

- The information on the website: http: //Bidv.com.vn/ ) and related books.

Data processing and analysis method

To clarify the issues to be studied in the topic, the author uses the following methods:

 Data synthesis method: Primary and secondary data are discrete data, the authors use the statistical method to synthesize the data into the statistic sheets, then compare the data and analyze the data to make accurate conclusions about the business situation and the credit risk management of the company.

 Comparison method: This method is used to compare data between periods and years, highlighting the issues that need to be studied, clarifying the situation of risk management, successes and limitation in risk management.

 Analytical methods: Collected data includes primary data and secondary data Secondary data is collected from departments in the company Primary data is collected through interviews and questionnaires These data need to be analyzed to clarify the meaning of the numbers.

Contributions of the dissertation

The author expects the successful research project will make meaningful contributions on both theoretical and practical aspects.

First, it contributes to clarify the basic theoretical issues of risk management in the context of changing competitive environment in Vietnam, the role and significance of risk management of BIDV Thanh Do branches in particular and commercial banks in Vietnam in general in the context of free market and international economic integration.

Second: Analyze and assess credit risk management situation at BIDV Bank

Third, propose solutions to improve credit risk management at BIDV Bank –

Structure of the topic

Apart from the introduction and conclusion, the dissertation is divided into three specific chapters:

- CHAPTER 2: THEORICAL BASIS OF CREDIT RISKS MANAGEMENT IN OPERATION OF COMMERCIAL BANKS.

- CHAPTER 3: REAL SITUATION OF CREDIT RISK MANAGEMENT IN VIETNAM JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIET NAM - THANH DO BRANCH

- CHAPTER 4: ORIENTATIONS AND SOLUTIONS TO IMPROVE CREDITRISK MANAGEMENT IN BIDV – THANH DO BRANCH TO 2022

THEORY OF CREDIT RISK MANAGEMENT IN THE

Credit risk in the operation of commercial bank

Credit activity is the main business activity and brings the bank's main profit. However, this is also a very risky business Credit risk accounts a large proportion of banking activity Although banking activity has shifted in the structure of profit, credit income tends to decrease and service income tends to increase, however, the rate of return from credit activity still accounts a large proportion of total bank income Credit risk is one of the major causes of loss and seriously impacts on the business quality of the bank.

It is possible to generalize that the risk is unexpected incident, as they occur, resulted in loss of bank assets, a reduction in actual profits against the expectation or an additional expense to accomplish a certain financial business.

If credit is regarded as "trusting", then giving the customer a present value with the expectation of receiving a greater value in the future, the credit risk is the ability that that desire is not met, or in other words, the likelihood of the unwanted occurrence between actual results and expectations.

At present, credit risk has been researched by a lot of scientists and put forward a number of different views:

- The Banking Supervisory Board defines credit risk as "the likelihood that a borrower or counterparty of a bank will fail to perform its obligations under the terms of the agreement."

Under Clause 1, Article 3 of the State Bank Governor's Circular No 02/2013 /TT-NHNN of January 21, 2013 about prescribing assets, deduction levels and methods of setting up risk provisions and the use of provision to deal with risks in the operation of credit institutions and foreign bank branches: “Credit risk in banking activities of a credit institution is the probable loss of debt of a credit institution or branch of a foreign bank because customers can not perform or are unable to perform part or all of their committed obligations.

Depending on purpose, research requirements, we have different ways of classifying credit risk Depending on the classification criteria, credit risk is divided into different categories.

- Based on the risk reason, credit risk can be divided into two groups:

+ Ethical risk is the risk caused by inadequate information after the transaction.

+ Risks of opposite choice are due to inadequate information created before the transaction.

- Based on the level of loss, credit risk can be divided into two groups:

+ The risk of capital accumulation is the risk that occurs in the case when the bank has not recovered the loan, resulted in funds frozen, less liquid and affected the bank.

+ The risk of losing money is a risk when the borrowers are unable to repay their debts under the contract, including principal and / or interest, at that time they can recover their loans only because of customer’s asset liquidation.

- Based on the users, risk can be divided into three main groups:

+ Individual customer risk: Credit risk occurs in individual clients.

+ Risks of companies / economic organization, financial institutions: Credit risk occurs in customers that are companies, economic organizations, financial institutions.

+ National or geographic risk: Credit risk occurs in each country for debt and aid operations.

- Based on the overall nature of the risk: risk can be divided into Transaction and portfolio risk.

+ Transaction risk is the risk that is caused by the limitations in the transaction process, loan approval, customer rating, including the risk of selection, security risk and operational risk.

+ Portfolio risk is the risk that the cause is due to restrictions on the bank's portfolio management, divided into internal and centralized risks.

- Based on risk period, risk can be divided into three groups:

+ Risk before loan: occurs when the bank misjudges the customer, resulted the loan to customers who are not eligible to ensure the ability to repay in the future.

+ Risks during the loan: occurring in the credit granting process, can be attributed from a number of reasons as follows: disbursement in wrong progress, not updating information regularly to customer, unpredictable hidden money risk.

+ Risks after the loan: occur when credit officers do not grasp the situation of using loans, the future financial ability of customers.

- Based on the range of risk: Credit risk can be divided into two groups:

+ Individual credit risk is the risk that occurs for only a loan or a portfolio of banks Causes can be attributed to a number of reasons as follows: characteristics of business type of customers, financial situation of customers, customer morality, ability to manage and use capital of customers

+ System credit risk: occurs not only to a bank but also systemically, spreading the whole banking sector Some of the causes of risk are as follows: Changes in government policy, inflation, laws and issues of social and political stability, majeure factors from the natural environment.

Credit size is not a direct indicator of credit risk, however, if the scale of credit growth is too hot, does not correspond to the control of the bank then the scale of credit will reflect credit risk, expressed in these aspects:

- If the scale of credit is too large, beyond the management capacity of the bank, this is reflected by the increase in the ratio: outstanding loans to total assets, outstanding loans to total loans of banks then the level of risk increases.

- If the bank extends the credit line towards loosening credit for each customer: lending in excess of customer demand, lending in excess of the allowable asset, it will lead to the result that customers use the capital for the wrong purpose, can not control the purpose of using the loan this will put the bank in risk.

This factor, like the credit size, does not directly reflect the level of risk, which reflects the degree of credit concentration in a sector, field, time If the credit structure is too biased in the risk areas, it will reflect the potential credit risk Credit structure can be divided into groups as follows:

Credit structure by sector: If we focus on high risk industries, the risk of not paying bank debt is high When the credit structure focuses too much on one sector, the level of risk will be high when that sector is degraded or affected by another sector.

Credit structure by loan term: This factor is based on the bank's capital structure If the bank has a large short-term capital structure, low long-term capital while the long-term credit structure is large, this means that the bank has used too much short-term capital for medium and long term loans, then the bank may face liquidity risk When the bank focuses too much on medium and long-term credit, the risk level will be higher.

Credit structure by asset-backed: The percentage of loans with collateral is low, the bank faces a potential risk when the customer defaults.

Causes of Credit Risk

Identifying the cause of the risk is very necessary, which is also an effective preventive measure, reducing the damage Credit risk occurs for a variety of reasons, which can be broadly classified into three main causes: the external environment, the customer and the bank.

Causes of the external environment are un-avoidable, the bank cannot control itself but can only predict and prevent the fluctuation of these factors External environmental factors include a number of factors:

- Due to natural disasters, epidemics, fire,

- The situation of security and politics in the country, in the unstable region;

- Due to crisis or economic recession, inflation, imbalances in the international payment balance, exchange rate fluctuation;

- Unfavorable legal environment and loosing in macro management;

These factors will directly or indirectly affect the income as well as the consumption in the population, the production of the business and the mechanism of lending by the bank When these factors fluctuate in the negative trend, it can will reduce the business capacity of enterprises, reduce the income of the people, so that customers reduce the ability to repay the bank then increase the bank credit risk.

The reason causes customers not pay properly and fully as committed in the credit contract may be due to a number of factors as follows:

- Due to lack of legal capacity of borrowers;

- Using loans for wrong purposes or ineffectively;

- Due to continuous business losses, goods cannot be sold;

- Unreasonable capital management leading to lack of liquidity;

- The owner of the enterprise lacks the capacity to manage, embezzle or deceive;

- Due to the lack of solidarity within the enterprise

All of the above factors will affect the ability to repay under the credit contract, so when assessing customers, banks should carefully consider the above factors.

- Unreasonable credit programs and policies that emphasize the profit target can lead to over-recession loans, focusing too much on one business or economic sector.

- Due to lack of market knowledge, lack of information or inadequate information analysis leads to unreasonable lending and investment.

- Due to competitive pressure, banks extend credit, expand market share, accept to loosen credit conditions, leading to high credit risk.

- Credit officers do not comply with credit policies, do not comply with loan procedures Credit staff with low professional level, Credit officers violate business ethics.

- Property valuation is not accurate and does not fulfill the necessary legal procedures; or does not meet the principle of collateral: easy to valuate, easy to transfer ownership; highly liquid.

In summary, the causes of credit risk are diversified, there are objective reasons and subjective reasons Subjective reasons are caused by subjects with a great impact on credit quality and bank can control with appropriate.

2.3 Credit risk management in commercial bank

2.3.1 Definition and necessity of credit risk management

The definition of credit risk management may be different in many respects,but the nature is the same, and in the viewpoint of management, we can interpret the concept of credit risk management as: Credit risk management is the process that banks plan to organize, implement and monitor all credit operations to maximize the bank's profitability with acceptable risk level.

Risk controlling at acceptable level is that the commercial banks strengthen measures to prevent, reduce overdue debts and bad debts in credit business in order to increase credit revenues and reduce costs of risk, to achieve efficiency in credit business both in the short and long term.

2.3.1.2 The necessity of credit risk management

- Credit risk is a major cause of bank problems

When a credit risk arises, the bank may face a liquidity default resulting in a bankruptcy or a financial impairment in its business, leading to a collapse or merger between banks.

- Good risk management is a competitive advantage and a tool to create value for commercial banks, which also contributes to the creation of more effective business strategies.

- The level of risk in credit activities is increasing

The urgency of credit risk management is not only due to the complex of the credit risk, but also to the risky business trend Some of the main reasons for the increase in risk in banking business are:

+ Due to the process of loosening regulations in banking activities around the world In recent decades, the globalization trend, economic liberalization, competition has become common Increasing competition means that risks and bankruptcies increase.

+ The business operation of the bank is more and more complex, with increasingly developed technology and the trend of integrate aggressively leads to increase in the level of risk and new risks The diversity of credit products on the basis of technological development always contains new risks Due to the competition rules, the diversification of credit products is very necessary Therefore, credit risk management must be paid attention and upgraded accordingly.

+ In developing countries like our country, the economic environment is in transition, the legal document system is being improved, the level of information transparency is low , therefore, banking operations become more risky, so it is very important to start working on credit risk management right from the beginning.

2.3.2 Objectives and principles of credit risk management

The objective of credit risk management is to maximize income by maintaining acceptable credit risk The bank should manage the credit risk of the overall loan portfolio as well as the individual loans; Consider the correlations between credit risk and other types of risk Effective credit risk management is an important part in approaching of the overall risk and is considered to play a key role in the long-term success of the bank.

In 2000, the Basel Committee on Banking Supervision issued 17 principles for the management of credit risk, ensuring the efficiency and safety of credit operations These principles focus on the following key areas:

+ Develop an appropriate credit environment

The Basel Committee requires the Board of Directors to approve and periodically review (at least once a year) credit risk strategies and credit risk policies This strategy should include the level of risk tolerance and the likely response to any type of credit risk Basing on this basis, the Board of Directors is responsible for implementing the credit risk management strategy and developing policies and procedures to detect, measure, monitor and control credit risk in every activity, at the level of credit and also the portfolio Banks should identify and manage credit risk in all their products and activities.

Banks should clearly define healthy credit criteria (target markets, customers, terms, credit terms ) Banks should develop credit limits for each type of customer and related group of borrowers in order to cover different types of credit risk but can be compared and monitored on an internal credit rating for customers in different sectors The bank should have a clear credit approval process with the involvement of marketing departments, credit analysts and credit approval departments, as well as the clear responsibilities of the participants At the same time, it is necessary to develop an experienced and knowledgeable credit risk management staff in order to make prudent assessments in credit risk assessment, approval and management.

+ Maintain an effective management, measurement and monitoring process

Factors affecting the management of credit risk

Risk management orientation of the bank: This is a very important subjective factor of the bank, it determines the level of interest in credit risk management The bank's credit risk orientation is an overall plan or strategy to develop credit activity and credit risk management including a set of specific goals, programs, policies, and solutions.

Credit policy: It is an important component of each bank's credit management and administration system Credit policy is reflected from the orientation, the guiding principles to the regulations and procedures of credit approval and decentralization If a credit policy lacks clear standards, lacks of rigorous and scientific control, credit risk management will not be implemented or implementation will be not possible.

Credit Process: Credit process is very important in limiting errors of lending and minimizing the likelihood of credit risk The process of credit will specify each stage and specific responsibilities of the involved staff When the credit process is set up asynchronously, the risk management will be ineffective.

Credit risk assessment model: Each bank must use a specific risk assessment model to manage credit risk consistently and effectively This model must be appropriate to the nature, scale and complexity of that bank This is also an important determinant factor of credit risk management.

Human resources: The human factor has always played a very important role in any field, especially in banking sector A bank with qualified, competent, responsible staffs can implement the credit risk management well Besides qualifications of staff, staff morality is also a top issue, especially in the field of credit A professional staff with corrupt morality is extremely dangerous when arranged in credit Therefore, the human factor is always a key factor in the success or failure of banking business in general and risk management in particular.

Information technology: Information technology is an important factor in enhancing the bank's operational capacity, especially in the field of risk management Technological factor enables bank in quick application of credit risk measurement models and credit risk management models, thus helping to manage credit risks in line with international standards.

Credit risk primarily arises from customer's credit When customers are at risk, unusual problems, it will affect their ability of repayment, and this is the main cause of bank credit risk Therefore, the customer factor is a very important factor in bank credit risk management Risk assessment from customers enables the bank with proper treatment in credit risk management, minimizing the losses caused by these risks In fact, there are many factors that can cause the bank's credit contract failure which may be resulted from dishonesty in providing financial information to bank, resulting in inaccuracy in credit analysis and great impact on credit decisions, affecting the bank's credit risk management The risk may come from the situation that customer himself is not willing to pay the debt

2.4.3 Factors from the business environment:

National condition is difficult to forecast, it often occurs unexpectedly with great damage beyond human control So, in the event of natural disasters,epidemics, customers will be at risk of large losses affecting their revenue that means the bank also need to share the risk with customers This kind of risk is the unforeseen risks.

Legal environment: Monetary business is a special type of business that is adjusted by the law and strict control of state management agencies.

If legal elements are not suitable with the development requirements of the economy, it will be difficult to develop all activities of the economy Any mismatch of the law in particular and the legal environment in general can push business into risk while engaging in financial relationships, and bank credit relationship can not be out of serious risk.

Economic Environment: The economic environment affects the borrower's financial strength and the failure or success of the borrower The boom or downturn in the business cycle also affects the borrower's profits, as the economy in a recession will lead to a decline in customer repayment capacity, weakening its payment capacity and increasing credit risk.

Information environment: It will be very smooth and safe if the parties involved in credit transactions have full information to understand each other The lack of customer information, or false information from the customer can put the bank decision into the condition of imperfect information, which poses a risk to the bank The lack of borrowers’ information and the information of economic environment is the single most significant cause of credit risk.

REAL SITUATION OF CREDIT RISK MANAGEMENT IN

An overview of BIDV and Thanh Do Branch

3.1.1 Establishment and development of BIDV Joint Stock Commercial Bank

Vietnam Joint Stock Commercial Bank for Investment and Development (VBSP) was established in 1957 It was firstly named as Bank for Construction of Vietnam After years of development and changing its name, since 1990, the bank's name has been Bank for Investment and Development of Vietnam Born in the era that country was enthusiastically recovering the economy to move to the stage of planned economic development, building the initial premise of Socialism, the bank contributed an important part to provide capitals for the development of infrastructure of focal constructions in the country.

On November 30, 2011, the Prime Minister issued Decision No 2124 / QD- TTG approving the plan of equitizing Bank for Investment and Development (BIDV) On that basis, on April 27, 2012, BIDV has equitized in accordance with the Government's plan and officially named Vietnam Commercial Joint Stock Bank for Investment and Development In January 2014, BIDV's shares went public successfully on the stock market, marked a milestone to become a public bank. BIDV has been classified by the State Bank of Vietnam as one of the most reliable, stable and secure credit institutions and given the highest credit growth in the difficult economic years BIDV is honored to receive the award for prestigious brand name in Vietnam and has been highly assessed by various international financial organizations for many titles, such as: Vietnam's most promising bank rated by Moody's and S & P; one of 2000 biggest enterprises in the world, rated by Forbes It is one of the 2,000 largest businesses in the world.

May 2015 saw the restructuring of banking sector, BIDV pioneered and successfully merged with Mekong Housing Bank (MHB), marked a new development in terms of capital, network and human resources After the merger and capital increase, as of December 31, 2015, the chartered capital of BIDV was over VND 34 trillion Its total assets were VND 857 trillion, considered as a leading bank in Vietnam financial market in terms of scale of asset.

Network development: BIDV's branch network is also one of the top- ranking banks After the merger, BIDV has a strong network with 182 branches and more than 800 transaction offices across the country In addition to the development and relations with domestic economic organizations, BIDV maintained and developed relationships with about 1,700 financial institutions in 122 countries around the world BIDV has commercial presence in six countries including: Laos, Cambodia, Myanmar, Taiwan, the Czech Republic and the Russian Federation.

Capacity Building: Along with the development of the network, BIDV strives to focus all its capabilities on developing its banking business in two areas: human resource development and banking modernization.

Modernizing banking technology: The continuous supplement of modern technologies has supported electronic transactions through ATMs, POS machines, SMS banking as well as Internet banking transactions, retail banking services in the future.

Accountability for the community: BIDV is a pioneer in the implementation of policies for the society and community In 5 years from 2011 to 2016 BIDV has implemented social security programs at home and abroad, with a total budget of over VND 2,214 billion, accounting for 18.8% of the total social-security expenditure of the whole banking sector.

3.1.2 The formation and development of BIDV Thanh Do Branch

With the establishment and development history of BIDV, on 25th August

2006, Thanh Do Branch was established by being separated from Bank for Investment and Development of Northern Hanoi to become the first level branch under the Bank for Investment and Development of Vietnam and was named Bank for Investment and Development of Vietnam - Thanh Do Branch.

Based on the change of operating model, the Board of Directors has issuedDecision No 30 / QD-HDQT dated 01/05/2012 to set up branches and transaction offices under the Commercial Joint Stock Bank for Investment and Development of

Vietnam and the branch was officially renamed as Joint Stock Commercial Bank for Investment and Development of Viet Nam - Thanh Do Branch.

Over the many ups and downs with the development of the country andJoint Stock Commercial Bank for Investment and Development of Viet Nam, after many times changing its name and adding its functions and responsibilities, JointStock Commercial Bank for Investment and Development of Viet Nam - Thanh DoBranch has been one of the bank branches playing an important role promoting the economic development of the country and is a big branch of the BIDV system.Currently, Joint Stock Commercial Bank for Investment and Development of VietNam - Thanh Do Branch is located at 463 Nguyen Van Linh, Phuc Dong Ward,Long Bien District, Hanoi Full name in Vietnamese: Ngân hàng TMCP Đầu tư vàPhát triển Việt Nam- Chi nhánh Thành Đô Full name: Joint Stock CommercialBank for Investment and Development of Viet Nam - Thanh Do Branch.

Business activities situation of BIDV Bank – Thanh Do Branch

Capital mobilization is an important task for maintaining the bank's operations.

As we know, banks have a source of money for businesses and residents to borrow money, which comes primarily from cash of people and organizations with dormant capital In recent years, BIDV Thanh Do branch has always attended closely to this task and has made positive results through the years shown in the table below:

Table 2.1: Capital mobilization results from 2014 to 2016

Based on the above table, we can see that BIDV - Thanh Do branch's capital mobilization situation has seen considerable growth in the period from 2014 to 2016, but in 2015 there was a decrease compared to 2014 Particularly, the total mobilized capital of 2015 decreased by 280 billion VND (9%) compared to the previous year The main cause of this decrease is the effect of the decrease of the USD savings interest rate dropped to 0% per year In addition, in the period 2014-

2015 our country is still affected greatly by the global economic recession, financial crisis and public debt in Europe has not been resolved The Euro zone's recession with the credit crunch and rising unemployment had led to production and trade impacted severely However, in the year 2016, the mobilization of capital has been relatively positive Specifically, total mobilized capital increased by 610 billion VND, equivalent to 23%, compared to 2015 In 2016, despite the fact that the economy is still considered to be difficult, the bank has had a breakthrough in terms of capital, which is a result of the endeavor of the entire employees in the branch and the right direction of the branch's Board of Directors The branch has shifted its capital-mobilized orientation, focusing on mobilizing residential capital that is more sustainable.

Source of capital mobilized are mainly deposits, especially time deposits. Capital mobilized mainly from the residents accounted for a large proportion To have such a stable source of capital, the bank has distribution network located in densely populated places, convenient for the transaction; The income of the people in Hanoi is gradually increasing, and the deposit interest rate of the branch is competitive with other banks in the area.

In recent years, the branch has increased the mobilization of low-interest loans (deposit, L / C deposit, and demand savings) to reduce mobilization costs.

In order to achieve the above results, the Board of Directors has worked closely with the Divisions and introduced policies on mobilizing interest rates and suitable types of mobilization in each period, simultaneously improving customer service to be more polite and professional, as well as accelerating the application of modern technology into the transaction.

Credit activities of BIDV – Thanh Do branch in the period of 2014-2016 is indicated as below:

Table 2.2 Several targets for credit activities in 2014 – 2016

Growth in comparison with 2014 VND

Growth in comparison with 2015 Growt h Ratio Growt h Ratio

The above table shows that total credit outstanding balance of BIDV Thanh

Do Branch has increased over the years Specifically, total credit outstanding balance in 2015 increased by 561 billion, equivalent to 14.2%; In 2016, increased

754 billion, equivalent to 16.7%, compared with 2015 In the period of 2014-2015, credit growth is still slow On one hand, the economic situation in Vietnam still affected by the world economic recession, credit growth in this period is very difficult On the other hand, in the year the branches also collect a lot of debts, represented by the difference of the disbursement and the debt collection is negligible between 2014 and 2015 Although timely implementation of solutions such as increasing outstanding balance is associated with improved credit quality, new credit development combined with risk prevention supervision of existing loans All loans are strictly controlled but due to difficult economic context, businesses effectiveness is declining, enterprises as well as individuals do not want to expand their business and cut all expenses, including financial expenses so the demand for loans has a clear decline In addition, the consumer's income decreased so people reduced spending The demand for consumer loans also decreased.However, in 2016, the branch has gradually increased its scale and oriented to retail credit, the new disbursement rate compared to 2015 increased by 34% However, the branch also determined that the growth of credit should be combined with collecting outstanding debts, so total credit growth remains moderate, but this is also the result of ongoing efforts made by the whole branch's employees.

In the period 2014 - 2016, although the economy has just entered the recovery phase, this period is still considered as a difficult time for the banking system The banking sector was struggling because of the credit boom with excessive loose credit conditions Bad debt reduced banks' profit Aggregate demand of the economy sharply decreased because of the global economic recession and the implementation of tight fiscal and monetary policies, the reduction of public investment which makes it difficult to absorb the capital of the economy This leads to a significant decline in profitability from the business activities in 2013 It affected the 2014-2016 period Nevertheless, BIDV - Thanh Do branch overcame all the challenges to gain 116.6 billion VND profit before tax in

2016 Profit before tax in 2016 has increased significantly but mainly due to the reduction in expenses, this is the effort of all employees of the branch We can see the results of BIDV - Thanh Do branch through the following table:

Table 2.3 Results of business activities in 2014 – 2016

The reality of risk management of BIDV – Thanh Do branch

3.3.1 Credit structure of BIDV – Thanh Do branch

Table 2.4 Credit structure of BIDV – Thanh Do branch in 2014 – 2016

Growth compared with 2014 VND Ratio

+ Credit structure based on term:

In credit activities of the Bank, the longer the loan term, the greater the profit, but the higher the risk, especially in the economic situation has many changes as the last period Recognizing this, the Board of Directors of BIDV Bank - Thanh Do branch has advocated directing short-term loans to minimize risks and reserve a suitable amount to develop medium and long-term loans Therefore, the outstanding balance of BIDV - Thanh Do branch mainly focused on the short-term loan outstanding balance The short-term outstanding balance of the balance always reaches over 65% of total outstanding loans, long-term loans ranged from 29% to 33%.

In the period of 2014-2016, due to the impact of the economic crisis, the investment in construction of new machinery and equipment, and expansion of production and business activities was not much Long-term loan demand for investment in new projects was relatively small The demand for loans in this period mainly focused on working capital loans for business purposes, the term of the loan is mainly short term Medium and long term loans starting growing from 2015,

2016, but most of loans are small loans, personal loans for household consumption.

In the credit structure over the term of loans in recent years, the ratio of medium and long term loans increased in proportion due to the lending policy of the bank focused on serving consumer demand of individuals and households, lending to retail products such as building, repairing houses, buying houses, buying cars, etc. This is also correspondent with the general trend for banks Now, banks are paying special attention to consumer credit and retail.

+ Credit structure based on customer

Looking at the credit structure by target over the years we see significant credit maintenance and growth for private small and medium enterprises.Outstanding balance over the years of these targets is always maintained at over65% of total outstanding loans However, in the years from 2014 to 2016 this ratio had decreased but was just a slightly reduce and the reason is that the bank increased the ratio of consumption and retail loan There is a maintenance at the average of about 15% of total outstanding loans for state-owned enterprises The fact that BIDV Thanh Do branch always maintains this proportion is because of its political mission to spend a number of credits to invest in state-owned enterprises (SOE) to implement the key projects that other non-state enterprises do not have the capacity to do One of the highlights of the credit structure is that the Bank has paid special attention to individuals and households In addition to investing in business enterprises, BIDV Thanh Do branch is also very sensitive and has timely policies to shift to retail products for rapidly increasing consumer demand Specifically, consumer and retail credit growth has surged in 2016 with a 31.6% increase over 2015.

+ Lending structure according to collaterals

There is a consistency in maintaining secured loans Over the years, we have always seen outstanding balance at around 84% in spite of the fact that state- owned enterprises are given about 15% on average It shows that most of SOEs' loan outstanding balance are also secured loan It can be said that this is a bright spot of the bank because in fact, the majority of SOEs borrowing has no collateral asset but only issue letters of guarantee by their prestige and the governing organization Based on the specific data of the bank, 100% of outstanding loans to non-state enterprises, individuals and households borrowed are secured assets, the bank only sets a very small level to lend its employees loans on overdraft and trust with their income Although the bank's non-collateralized loan ratio has been low (around 15%) over the years, the loan outstanding balance of the branch has remained high, so the absolute number is not small It is always around 500 to 800 billion in terms of outstanding balance.

+ Outstanding balance based on currency:

It can be said that outstanding balance of BIDV - Thanh Do branch moves in the same direction with the outstanding balance in VND In the years from 2014 to

2016, outstanding balance in VND had an increase both in absolute and specific proportion In 2014, total outstanding balance in VND reached 2,987 billion VND,accounting for 75.6% of the total outstanding balance By the end of 2016, total outstanding loans in VND reached 4.087 trillion VND, accounting for 77.6% of total outstanding loans Foreign currency lending rate tended to decrease even in the case of significant credit growth in 2016 By 2016, outstanding balance in foreign currency (VND equivalent) accounted for only 22.4% of the total outstanding balance Reasons: the difference between interest rates in VND and foreign currency lending rates narrowed considerably, while foreign currency loans are always risky with exchange rate fluctuations Therefore, the demand for loans in foreign currencies tend to decrease, this trend tends to continue in the next years.

On the other hand, the Government and the SBV have implemented a policy of controlling foreign credit growth at a reasonable level, consistent with the policy of the government to avoid dollarization in the economy.

3.3.2 Credit risk of BIDV – Thanh Do branch

Table 2.5: Overdue and bad debt of BIDV – Thanh Do branch in the period of 2014 – 2016

Growth compared with 2015 Growt h Ratio Growt h Ratio

From Table 2.5, it can be seen that in the period 2014 - 2016, the ratio of overdue debt has fluctuated over years This increase is due to the impact of the economic crisis affecting most of the economic sectors in Vietnam in general and the banking industry in particular It deteriorated the business situation of customer and customer's financial capacity, resulting in an increase in overdue debt.

Overdue debt ratio in group 1 increased in 2015 Specifically, overdue debt of group 1 in 2014 is 25.9% and up to 2015, this ratio is 32.5% It was gradually controlled and tends to decrease in 2016 to 31.8% Although the reduction was small but also the branch efforts to control overdue debt group 01.

In 2015, there was a significant increase in group 2 and group 3, of which group 3 increased by 81.2% compared to 2014, group 2 increased by 40.2% and group 4 increased by 40.2% and debt ration of group 4 and group 5 increased 20% more than in 2014 The reason is that in addition to the total outstanding balance, bad debts arise, old bad debt could not be recovered There is a very important cause is branch must carry out debt classification under new regulations of the State Bank, the new criteria on bad debt had pulled this data of the Branch increased significantly.

3.3.3 Credit risk management of BIDV – Thanh Do branch

3.3.3.1 Risk management models of BIDV – Thanh Do branch

 For loans that do not have to go through risk appraisal proccess:

Vice director of Customer Relation Division, Director of the branch.

Map 2.2: Lending model without risk appraisal proccess

 For loans that have to go through risk appraisal proccess:

Map 2.2: Lending model with risk appraisal proccess

Through the risk management model at BIDV - Thanh Do branch, it can be seen that there is a separation between the two parts which are the Customer Relation and Credit Risk Management, in which:

- Customer Relation is responsible for search, marketing, negotiation, customer assessment and credit proposal.

- Risk management activities in which the most important task is risk management in credit activities assigned to the two main Divisions are Risk Management Division and Credit Management Division, Specifically:

- The Risk Management Division is responsible for:

+ Receive and promptly handle credit application dossiers for clients and projects from business sections for independent evaluation, review, and assessment

Credit Committee of the branch

Vice Director of Risk Management

Customer Relation Division, Transaction Office

Vice director of Customer Relation Division, Director of Transaction Office of efficiency, feasibility and credit conditions Asset valuation and risk assessment of the loan to ensure that the proposed credit in accordance with regulations, procedures and acceptable risk levels of BIDV and the branch.

+ Proposing and submitting to the leaders for approval of credit extension / guarantee / trade finance / project financing, or revising the limit and exceeding the limit in line with the competence of the branch.

+ Announce the approved loan decision to the relevant Division in accordance with the operational procedures to disburse and manage the loan.

- Coordinate, support customer rooms to detect and handle problem loans.

To be fully responsible for the establishment, operation, inspection; and supervision of the branch's risk management system, responsible for safety, quality, and minimizing risks in credit activities according to the scope and tasks assigned.

+ In addition, the Risk Management Division is also very important in other tasks such as operational risk management, anti-money laundering, ISO quality management system, internal inspection

The Credit Management Division has the following tasks: Directly perform the operation and management of lending, guarantee for customers.

ORIENTATIONS AND SOLUTIONS TO IMPROVE CREDIT

Orientation of BIDV – Thanh Do branch on credit risk management in the

4.1.1 Operation orientation of BIDV in the coming time

In 2017, macro economy is forecasted to be more positive Many new economic policies become effective While opening the market for foreign investors, either opportunities or challenges are increased The government sets the goal for inflation control up to approximate 7%, and economic growth to 5.8% The SBV operates moneytary policy following these directions: Active and flexible tools in moneytary policy to curb the inflation, stabilize macro economy and support economic growth in suitable rate, ensure the safety of liquidity; manage interest and exchange rate to make them fit with macro economy background, especially the inflation’s present, guarantee the value of Vietnam dong; operate credit according to the method that opens and control quality of credit, simultaneously implement solutions to deal with bad debts In 2014, Join Circular

02 (amended) became effective Thus, credit loss provision of the bank system is going to be raised, and interest rate’s trend is going down, the gap between input and output interest rate is shortened Those factors are creating a considerable burden to all banks in Vietnam in general and BIDV in particular.

Based on the macroeconomic forecast, closely follow the SBV's monetary policy objectives and anticipate the difficulties and challenges for banking activities, the key orientation of BIDV's management board in the coming time is striving to be one of 20 modern, effective, hi-quality and prestigious banks in Southeast Asia by 2020 Specific orientations for some activities are as follows:

- Strictly implement the guidelines and policies of the Government and the SBV in building and administering the business plan in line with the main solutions of operating monetary policy, credit and banking activities of the government andSBV in each period.

- Credit growth: As the economy begins to show signs of recovery, the bank must take advantage of the opportunity to reach out to survival businesses after the crisis to generate revenue, ensure operational efficiency, and compensate money that is taken to establish Credit loss provision and debts sold to VAMC To ensure the quality of new credits so they won't be classified to other portfolio, drain provision and withdraw accrued revenues Sustainable and fast credit growth is attached with retail credit as a focal point.

- Managing and handling of bad debts and accrued interest: It is considered as a key task, actively collecting bad debts and accrued interest to increase the efficiency of operation, and generate revenue to continue to set up Credit Loss Provision is the most important duty in the next few years to minimize the risk and maximize profits for the Bank.

- Pushing strongly retail-banking activities to develop customers, diversify revenue sources and develop brand names through promotion and advertisement activities.

- Risk management: Continue to improve the internal control system in all areas of operation, enhance the role and quality of the internal audit team Well governance of safety ratios in accordance with SBV regulations and step by gradually approaching international practice.

- Continue strengthening and enhancing internal control and audit in order to limit the risks and violations of laws, strengthen the discipline in the system, take measures strictly and timely.

- Some main targets for credit activities in 2017 are as follows:

+ Total assets reached VND1,320 trillion, up 20% compared to 2016

+ Mobilized capital: VND 1025 trillion, up 21% compared to 2016

+ Outstanding balance: 990 trillion, up 19% compared to 2016

+ Bad debt ratio below: 3%, strive for less than 2%

4.1.2 Credit risk management orientation of BIDV Bank – Thanh Do branch

The goal of BIDV Bank - Thanh Do Branch, in line with the common target of the whole banking system of BIDV: "Striving to become one of the 20 modern, effective, hi-quality and prestigious banks in Southeast Asia by 2020 " The determination of strategic vision of the branch as well as the entire banking system of BIDV clearly shows the target customer of banks that are oriented towards the direction of quality of customer services It is always the focus in all activities and the difference to create the competitive advantage of BIDV.

- BIDV - Thanh Do branch aims to develop credit safely and effectively; To focus on providing credit to small and medium enterprises, individuals and households, especially agricultural and rural loans suitable to Long Bien district and Gia Lam district; Expanding lending to effective areas, professions, and business areas with profitability.

- Research and development of new credit products and services, while improving the quality of traditional products Promote the development of products and services that bring high efficiency and reduce risks.

- Distribute breakthrough new products and services for small and medium businesses; Expand technology development to support new products launched and meet the increasing needs of customers.

- The branch sets annual credit growth target at 20-25% Set credit growth target for two main customers are small and medium enterprises and individual customers:

+ To ensure the ratio of credit outstanding balance to small and medium enterprises reached 60-65% of the total credit outstanding balance of the branch

+ The proportion of credit outstanding balance to individual clients developed and maintained at the target level is 25-30% of total credit outstanding balance, of which the target is to meet the needs of private capital, households’ loans to start the business and support housing demand.

BIDV - Thanh Do branch is oriented to manage credit risk in a holistic and comprehensive manner Specifically:

- Secure and sustainable credit growth: Built criteria for supervising and assessing compliance in credit activities; To complete and amend this system to improve and suit the reality, thus contributing to raising the credit quality of the whole system and ensuring a bad debt rate of under 3%.

- Disperse the risk in the portfolio of credit in the direction of selecting profitable and potential trades and groups.

- Increase the ability to prevent credit risk in the bank's operations by improving the quality of appraisal and strengthening the continuous, comprehensive, timely supervision in the process of granting credit.

- To develop a mechanism to handle bad debts in a flexible and effective manner, ensuring the continued cooperation of customers in the process of handling bad debts and reducing losses caused by credit risks.

- Improve business efficiency and lead to international standards in credit risk management.

- Applying advanced science and technology to loan appraisal, analysis and supervision, supporting the analysis and evaluation of customers Improve staff capacity to meet the needs of the job.

- Strengthen the training and recruitment; improve the quality of staff involved in the direct business process.

- Improve coordination among departments in the branch, reduce duplication of credit, creating drafts, and contribute comments with credit procedures, bad debts handling procedures, to suit the actual business situation at the branch.

Solutions to complete credit risk management at BIDV Bank – Thanh Do branch

4.2.1 Building an effective credit policy

Lending is the main form of profit for the bank Therefore, in order to ensure safe and effective credit growth, credit policies should be in line with the specific socio-economic conditions of each area where branch runs, ensure to maximize profits and minimize risks The credit policies should ensure that:

- Being widely disseminated throughout the entire banking system There are specific regulations for each category of credit products, with consistent guiding documents in order to facilitate the application in reality.

- Reflecting the bank's credit policy in each period, ensuring the uniform management from the general point of view;

- The issued policies must be in line with the general policy of the entire BIDV banking system, suitable to the particular characteristics of the investment area of the branch, optimize the strengths of the local branch Credit policy should be flexible, effective, and suitable for each customer and credit needs:

+ Continuing to improve the credit policy system to ensure the full, consistent and convenient implementation of credit policy.

+ Continuing to improve and reform the credit policy in a flexible and adaptable manner to the economic environment, on the basis of updating information, analyzing and evaluating the current status and forecasting the potential of each product line.

+ To continue researching and developing package products by linking credit products with other banking facilities.

+ To formulate policies and support credit packages suitable to the business situation in the local and submit it to the head office so as to optimize the strengths and credit growth in every the local.

- In order to meet the requirements and business efficiency, expandingBIDV's market share h, it is necessary to balance the development of credit outstanding balance and bad debt ratio to ensure the acceptable bad debt ratio.

- It is necessary to develop a suitable customer policy and customer orientation: + On customer policy: Develop organizational structure oriented to customers, have clear customer policy and high legal Customer policy may include marketing policy, credit policy, lending interest rate policy, loan guarantee policy, interest rate policy

For entrepreneurs: To attach importance to credit investment for small and medium enterprises and enterprises which are engaged in business activities supported by the government and foreign organizations Learn, develop and expand relations with foreign invested enterprises in Vietnam.

For individuals: Continue to implement product packages to support small businesses, households with models of agricultural and forestry production supported by the government Access to housing projects in the Long Bien district, Gia Lam district, considered to propose the Central government a package with preferential interest rates.

- Regarding the structure of periodic credit outstanding balance, it is necessary to base on the actual situation of capital sources of branches to allocate the structure in short, medium and long-term, ensuring the liquidity of banks, increase the short-term loan to reduce risk.

Put the target credit limit by specific region, industry, term, customer As businesses operating in different sectors of the business will have different demand for loans, influenced by different macro factors On that basis, when giving the credit, the bank should look at those targets to minimize the risk.

- Strengthen interest rate incentive programs to attract customers with good business and financial activities Programs need to be developed on a feasible basis, which can be implemented and applied in practice It is possible to build this preferential interest rate based on the number of the bank's products and services cross-selling to customers.

4.2.2 Diversify credit portfolio to decrease credit risk

The over-concentration of credit in one industry or one type of term will increase the risk for the bank Branch should actively seek customers in many fields and professions that have potential.

Diversify the customer in different industries and sectors to limit the situation when an industry breaks down, it will lead to the breakdown of all loans.

Do not invest too much credit for a customer, that should be shared with other customers.

In order to diversify the credit portfolio, the branch should have a flexible customer policy, serve the customers well in all types of services and have a sustainable link with the banks within and outside the system.

The diversification of the loan portfolio in the form of products, methods of lending will help the bank's credit products become various, creating convenience for customers, attracting many customers, also limit the chance of portfolio risk In addition, the bank needs to increase co-financing, syndicated loans, which will help banks increase their customer target and share risk to other banks.

Recommendations

- To maintain stable economic, political and social stability, create an equal business environment for commercial banks and a stable political environment that will promote the economy to develop and maintain the confidence of people and investors, creat favorable business environment The government should develop a stable and reasonable macroeconomic policy The stable and rational macroeconomic development creates the environment for the entire economy to grow in a sustainable manner.

- Create and complete the legal environment to ensure credit safety The government should issue specific regulations on credit insurance; To issue legal documents guiding the rules of mortgaging and pledging, especially the secured registration of transactions in the local with respect to property and land.

- The change of government policies should be clearly announced and the time for conversion All economic organizations and individuals operate in an economic and social environment Any changes in the social and economic policies of the government affect the operation of organizations and individuals and future development plans If the policy change of the gorvenrment is not announced in advance, it can lead to damages due to not change of production and business activities in time in accordance with the new policy This adversely affects the bank while the bank cannot anticipate the change of policy.

- To build up a national information system published on the basis of modern information technology, linking information from the central to local level, easy for credit officers to save time and look up information in the collection and distribution information process, increase the reliability of information In Vietnam in the present, information is scattered in governmental departments and there is no regulation on the coordination of information supply between departments. Moreover, the information is not computerized but mainly in the form of paper documents, the information search is very difficult, time-consuming, the old papers are easily lost or blurred Therefore, commercial banks often do not have sufficient information about the customer's history Especially, to find information from govenrment departments such as department of taxation or police department, is very difficult, mainly impacted by relations, so the information that credit institutions are given has many limitations Therefore, the development of national information systems is extremely important for the management of the government and help banks easy access to information sources.

- Establishing a system of sector average indicators The Government should assign the General Statistics Office to coordinate with the Ministry ofFinance to set up a system of average indicators of every economic sector This is a very important piece of information in assessing customers based on the industry average, whereby credit institutions can make the right decisions in making credit decisions This information also helps banks to develop credit plans by industrial sector.

- Recently, the SBV has drafted a circular on risk management system in banking activities It is proposed to quickly issue a circular on risk management for uniform implementation throughout the banking system in Vietnam.

- Against the unfair competition: SBV needs to check and control effectively the business activities of commercial banks to ensure the sustainable and safe development.

- Application of the basic principles of effective banking supervision (25 principles of banking supervision of the Basel Committee) in the performance of the functions of a government management department and market supervision, improve internal control and audit in credit institutions and towards international standards.

- Complete the application information system of the CIC Center of the SBV Research and apply an independent credit rating agency model in Vietnam to assist banks in their business operations, which may involve the transfer of technology and the learning experience of credit rating agencies in the world To amend and supplement the regulations on the organization of CIC activities in the direction of obliging member banks to fulfill their roles and responsibilities when participating in the supply and exploitation of information from CIC To quickly consolidate the officers, apply new technologies, modernize and automatize all professional operations to create more information for the purpose of usefully evaluating and analyzing clients of credit institutions.

- Strengthening the officers, applying new technology, modernizing and automatize all professional operations to create more information products At the same time, credit risk is analyzed, assessed and classified, timely forecasting and warning to limit credit risk.

- At present, the SBV needs to complete a really reasonable process of lending regulations for banks Maintaining multiple credit limits for a customer like now leads to a number of issues in implementation and causes different interpretations Now, the government has promulgated a regulation on the disposal of collateral assets of bad debts, but it needs to be implemented comprehensively and there is a specific guiding document for the banks to implement them consistently.

- Completing the vertical inspection model from central to the local level and having relative independence on the operation and activities of banks. Inspection activities should be carried out more frequently and improve the level of the team of inspectors to be able to timely detect errors, wrong trends in credit analysis to direct, prevent and fix problems thoroughly.

4.3.3 Recommendations to Head Office of BIDV

- Always direct and instruct in detail and in time guidelines and policies of the Government and the SBV in credit activities Complete credit policies and procedures, internal credit rating system, early warning system, credit risk management system.

- Build up a customer information system so that branches in the system can share information on the collateral asset, information, asset value, etc to help credit officer take accurate information of customers.

- Assist the branch in controlling and supervising the credit risk control. Developing an inspection process throughout the system to improve the professionalism It is recommended to develop a software applied consistently throughout the system to meet the requirements of checking, risk management, quality assessment activities.

- Develop and organize training programs for credit officers and risk management officers to improve their capacity and help them understand the business direction of the bank in the same period and the current situation in the business market.

- Build customer information system to assist the branch in searching customer information.

- Upgrade the information technology system more and more modern; meet the requirements of the work.