Credit risk management at bank for investment and development of vietnam (bidv) thanh do branch,masters thesis

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON CREDIT RISK MANAGEMENT AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM (BIDV) – THANH DO BRANCH DUONG THI THANH ID No: Intake Supervisor: Prof Dr Nguyen Thi Hoai Thu September 2018 ACKNOWLEDGEMENT After several months of hard work our thesis has been finished Now it is time to thank everyone warmly who provided their kind assistance to us First of all, I would like to thank my supervisor Prof Dr Nguyen Thi Hoai Thu for her guidance all through my work I would like to send our deepest gratitude to all lecturers, as well for giving us their constructive suggestions The same appreciations are given to the leadership and staffs of the Bank for investment and development of Vietnam JSC (BIDV) – Thanh Do Branch who have enthusiastically shared with me data and relevant documents to accomplish this important dissertation The dearest appreciations are directed to our families and friends, for giving us great support and help during these months Without them, my thesis would not be finished September 2018 Student’s Signature Duong Thi Thanh ii ABSTRACT Credit risk management in banks has become more important not only because of the financial crisis that the world is experiencing nowadays but also the introduction of Basel II Since granting credit is one of the main sources of income in commercial banks, the management of the risk related to that credit affects the profitability of the banks In my study, I try to find out how the credit risk management affects the profitability in banks The main purpose of my study is to describe the impact level of credit risk management on profitability in banks The study is limited to identifying the relationship of credit risk management and profitability of BIDV – Thanh Do Branch The results of the study are limited to the bank in the sample and are not generalized for the all the commercial banks in Vietnam Furthermore, my study uses both Secondary data collection methods and quantitative research by analyzing the logistic regression model (Binary logistic) was selected with the dependent variable is the binary variable (1 The enterprise falls into the risky situation, The business is not risky) Key words: credit risk management, profitability, banks, regression model iii ABBREVIATIONS DC Design Consultancy CI Construction investment F Factory E Enterprise JS Joint-stock OM One member L Limited CRM Credit Risk Management CBs Commercial Banks iv TABLE OF CONTENTS ACKNOWLEDGEMENT ii ABSTRACT iii ABBREVIATIONS iv LIST OF TABLE, DIAGRAM viii INTRODUCTION 1.1 Background 1.2 Problem Discussion 1.3 Research purposes and tasks: 1.4 Delimitation 1.5 Disposition METHODOLOGY: 2.1 Research approach 2.2 Data collection and description 2.3 Tested Results of the research model 10 2.3.1 Correlation Matrix of the variables in the model 10 2.3.2 Determination of research results 13 FRAMEWORK 16 3.1 Previous studies 16 3.1.1 Liturature review 16 3.1.2 credit risk management Indicators 21 3.1.2.1 Credit size 21 3.1.2.2 Loan porfolio structure 21 3.1.2.3 Overdue debt 22 3.1.2.4 Non-performing loans 22 3.1.2.5 Credit risk provision 23 3.2 Theories 24 3.2.1 Risk in Banks 24 3.2.2 Credit risk management in banks 25 3.2.3 Credit risk classification 25 3.2.4 Loan porfolio structure 27 3.2.5 Overdue debt 27 3.2.6 Non-performing loans 28 3.3 Credit risk provision 29 v 3.4 Regulation 30 3.5 Credit risk measurement 31 a Qualitative model of credit risk management 31 b Quantitative model of credit risk management 32 c Credit risk measurement model in Basel II 36 3.6 Lessons 37 EMPIRICAL FINDING AND ANALYSIS 39 4.1 An overview of BIDV and Thanh Do Branch 39 4.1.1 Establishment and development of BIDV Joint Stock Commercial Bank 39 4.1.2 The formation and development of BIDV Thanh Do Branch 40 4.2 Business performance of BIDV Bank – Thanh Do Branch 41 4.2.1 Capital mobilization 41 4.2.2 Lending 43 4.2.3 Business performance 44 4.3 Credit at BIDV – Thanh Do branch 45 4.3.1 Loans structure of BIDV – Thanh Do branch 45 4.3.2 Credit risk of BIDV – Thanh Do branch 48 4.3.3 Credit risk management of BIDV – Thanh Do branch 50 4.3.3.1 Risk management models of BIDV – Thanh Do branch 50 4.3.3.2 Credit risk management policy of BIDV – Thanh Do branch 53 a Credit risk management policy for customers 53 b Credit allocation policy 53 c Jurisdiction 54 d Classifying debt, establishing and using credit loss provision policy 54 e Regulations on reporting and checking credit risk 54 4.3.3.3 Credit Risk Management of BIDV – Thanh Do branch 54 a Identification of credit risk: 54 b Credit risk measurement: 56 c Risk control process: 59 d Risk management operation: 60 4.4 General evaluation of BIDV – Thanh Do branch in risk management 62 4.4.1 Achievements 62 4.4.2 Limits and challenges 63 4.5 Solutions to improve credit risk management at BIDV Bank – Thanh Do branch 65 vi 4.5.1 Building an effective credit policy 65 4.5.2 Diversify credit portfolio to decrease credit risk 68 4.5.3 Improve the quality of loan appraisal and analysis 68 4.5.4 Reinforcing internal credit supervision and inspection 69 4.5.5 Improve the quality of human resources 70 4.5.6 Use derivatives 72 4.6 Recommendations 72 4.6.1 Recommendations to the SBV 72 4.6.2 Recommendations to Head Office of BIDV 73 CONCLUSION 75 REFERENCES 76 vii LIST OF TABLE, DIAGRAM Table 1: Descriptive Statistics Business Credit risk Table 2: Describe the indicators of financial ability and effectiveness in the operation of enterprises 10 Table 3: Correlation coefficient matrix 11 Table 4: Summary table of the model 12 Table 5: Summary of credit risk ratings by Standard & Poor's 13 Table 6: Conclusion of model results 14 Table 7: Capital mobilization results from 2015 to 2017 41 Table 8: Several targets for credit activities in 2015 – 2017 43 Table 9: Results of business activities in 2015 – 2017 44 Table 10 Loans structure of BIDV – Thanh Do branch in 2015 – 2017 45 Table 11: Overdue and bad debt of BIDV – Thanh Do branch in the period of 2015 to 2017 Fingure 1: Lending model without risk appraisal process 50 Fingure 2: Lending model with risk appraisal process 51 viii INTRODUCTION In this chapter, I present the background of the thesis followed by the problem statement The discussion also contains the motivation for our thesis Finally, we present the literature review, the methodology, the purpose of this thesis and limit the area of the study 1.1 Background The world has experienced remarkable numbers of banking and financial crises during the last thirty years Caprio and Klingebiel (1997) have identified 112 systemic banking crises in 93 countries since the late 1970s (Ibid.) Demirguc-Kunt and Detragiache (1998) have identified 30 major banking crises that are encountered from early 1980s and onwards Though most of those were experienced in the developing countries, the authors have noted that Vietnam has also gone through similar crises in the late 1980s and early 1990s2 Interestingly, the majority of the crises coincided with the deregulatory measures that led to excessively rapid credit extension In the long run, continuous increases in asset prices created bubble3 At some point, the bubble burst and the asset markets experienced a dramatic fall in asset prices coupled with disruption Finally, widespread bankruptcies accompanied by non-performing loans, credit losses and acute banking crises were observed Ironically, the frequency of crises did not decrease despite the introduction of successive reforms Why? There are many contributing factors, mainly, political and economical conditions It can thus be self evident that the improved risk management does not improve the banking business Moreover, Jean-Charles Rochet (2008) states that key factors to successful reform are independence and accountability of banking supervisors As long as banking supervisors represent political and economical interests of their respective countries, it is not possible to implement international regulation successfully The current global financial crisis indicates that risk management of the financial institutions is not adequate enough This leads to the failure of the banks in highly challenging financial market Furthermore, the discussion of financial crisis in mass media and among scholars mentions the risk management as omissions or neglect of risk measurement signals They state that more attentive participants could avoid the tremendous affect of the financial meltdown4 Therefore, Risk Management as a discipline is being taking seriously nowadays5 Nevertheless, the financial storm teaches several key lessons which can assist to improve the risk management in future As a result, risk has become a very challenging area of studies This has motivated me to conduct my thesis on this area of interest Systemic risk is the risk of collapse of an entire system or entire market and not to any one individual entity or component of that system Steigum (1992) and Vihriälä (1997) discusses on the Norwegian and Finnish cases Englund P (1999), The Swedish Banking crisis: Roots and Consequences, Oxford review of Economic Policy, Vol 15, no.3, pages 80-97 Joe Nocera, “Risk management and financial crisis”, Herald Tribune, January 4, 2009 A.E Feldman Associates, Inc., US Consulting firm report “On financial crisis and its effect” http://www.aefeldman.com Accessed February 9,2009 1.2 Problem Discussion The banking sector has become more complex over the last decades due to the development of financial security market As a result, banks are getting involved in compound transactions without fully realizing the risk level Consequently, the risk bearing side gets blurred and risk exposure splits on everybody This causes systemic failure - the economical system of the countries breaks down Government influences the situation and tries to stabilize economy through the regulatory mechanisms 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 riskiest 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 BIDV Thanh 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 handling credit risks in banking activities of credit institutions and Circular No 02/2013 / TT-NHNN dated 21 January 2013 on classification of assets, levels and method of setting up of risk provisions, and use of provisions against credit risks in the banking activity of credit institutions, foreign banks’ branches BIDV Thanh Do branch has issued documents requesting credit officers to understand the basic contents of the regulations and the guiding documents Currently, BIDV Thanh Do branch is strictly implementing the credit scoring and rating in accordance with the regulations of BIDV Bank and regulations of the SBV Credit risk supervision and control has positive results Supervision and control of credit risk were assessed fairly by the employees at the branch: up to 15 positive votes for the supervision and 16 votes for managing credit risk The Branch's Risk Management Department conducts a loan check program in each term Due attention to this activity should have timely detected errors in the appraisal stage, customer evaluation The bank has detected errors in the process of lending such as incomplete legal documents, assets that are difficult to handle, and limited supervision of loans BIDV - Thanh Do branch has solutions to overcome the existing issues and improve the quality of credit operations The quality of debt has changed in a positive way In the period from 2015 to 2017, the bad debt ratio of the whole branch was tending to increase and especially in 2016, the bad debt ratio was 8.7% This rate is very alarming; the rate is nearly times more than the permission of the SBV However, in a short time, when combining solutions for dealing with bad debts as mentioned above, in 2017 the bad debt ratio was reduced to 4.7% Although the number is still higher than the SBV's regulation, it is a good result for BIDV Thanh Do branch and this is one of the prerequisites for BIDV Thanh Do branch to reach its commitments with the Headquarter to reduce bad debt to less than 3% in 2018 4.4.2 Limits and challenges The credit risk management model needs to be further improved At present, the organizational structure of the branch is still inadequate and not centralized, so it is not sufficient to ensure the adequacy of risk management The bank's credit risk management has not been optimized because of the lack of compliance with risk management principles such as: 63 Centralized Principle: Risks must be centrally managed at the Headquarter and reported to a leader Principle of independent independence: Risk Management Division of the branch has not fully fulfilled its role and responsibility Credit risk management division is not authorized to issue limits and is still under the direction and management of the Board of Directors of the branch Therefore, the opinion of the risk management department is only a reference, sometimes depends on the Board of Directors It is dependent, so it cannot guarantee the independence in all stages of the credit decision process as well as the handling of problematic debts Credit Risk measurement system is disharmonious The bank's current risk measurement system is mainly the customers' scoring and rating system, which is currently only quantifiable when measuring possible risks The system cannot provide warnings and orientations for credit activities, in order to limit investment in high-risk economic sectors The ranking method is subjective, depending on the subjective opinion of the credit officers, the results are not really the basis for the quantification of risks Credit officers manually process the input of ratings and scorings Non-financial indicators, mainly due to the subjective assessment of the individual who performed scoring, not guarantee the accuracy, easily impacted by the officer The credit rating system is still limited, up to opinions on 20 votes saying that the credit rating system is still inappropriate A credit risk early warning system has not been established At present, the Bank has not built an early warning system for credit risks from time to time so that it can direct to take timely measures to prevent credit risks Only when there are signs of credit risks, the bank has just issued an official letter to instruct the whole system At present, the system has built a centralized credit information system However, this system is still in the experimental stage and has not yet been deployed synchronously throughout the system Branch's accession to information is limited Executives who were interviewed also agreed on the need to develop a customer information system in order to reduce the risk of lack of customer information during the loan appraisal process as well as information on the value of assets in the area far from the branch 64 There are many shortcomings in credit process 05 out of 20 comments says that credit process is not appropriate At present, the Customer Relation Division has to find customers to meet the business criteria and have to perform all stages of the credit process as well as the management of the loan The fact that the business bodies have to look for customers, analyze and appraise the proposal of credit to customers and direct management of customers causes some risks: By performing many functions at the same time, managing multiple customers, credit officers have little time to gather sufficient information, resulting in the poor analysis that does not accurately assess the customer's situation The transparency and accuracy of customer information, the ability to analyze customer assessment is limited The current loan check and control is still undergoing but not implemented carefully Risk management is still limited At present, the risk management process still has many limits The mechanism of risk management is unclear, not thoroughly implemented Specific guiding documents, measures to recover the debt have a lot of restrictions Regulations on the coercive recovery of assets to secure loans have not been concretized Many cumbersome procedures have caused troubles and time-consuming issues during the recovery of bad debts As assessed by managers in interviews, the risk management process is still limited due to the lack of a proper asset management mechanism in line with the current business situation There are currently governmental regulations on simplified court procedures and regulations on handing over assets to banks when customers are overdue, but have not yet been implemented in practice and provide specific guidance 4.5 Solutions to improve credit risk management at BIDV Bank – Thanh Do branch 4.5.1 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 socioeconomic 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 65 - 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, expanding BIDV's market share, 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 + Customer Orientation: 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 66 - 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 ris - 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 67 4.5.2 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 Branches should periodically supervise the loan portfolio in order to capture changes in the loan portfolio to adjust and recommend the Head Office to adjust its credit policies accordingly to the strategy and current market 4.5.3 Improve the quality of loan appraisal and analysis Credit risk begins with nonchalant and inaccurate credit analysis and appraisal, resulting in wrong loan decisions This is a very important step to minimize the credit risk with the highest efficiency, least loss The appraisal process should meet the requirements of analytical quality and decision-making time, ensuring reasonable care based on profit and risk analysis as well as satisfying quality requirements of customer service To this, it is necessary to the following: - Perform accurate analysis and appraisal of customers' overall risk by defining credit limits every months or year This enables the bank to take a general view of the financial situation, business quality and assess the company's growth prospects to see the risks of the business, to set a reasonable limit 68 - In the process of credit analysis and appraisal, it is necessary to focus on the quantitative analysis and quantification of risk levels of customers through the evaluation of index and the qualitative analysis to realize the potential risk and ability to control, limit the risks for the bank In close co-ordination with the internal credit rating system during credit analysis and appraisal, this system should be regularly adjusted to match with current Vietnam economic conditions, not rigid under a certain inappropriate proportion - On the basis of the approved credit limit, each time the credit is granted, the risk analysis of the borrowing plan is mainly focused to reduce the transaction processing time In the analysis, it is necessary to focus on the legality of the option/project, marketability, etc., and at the same time presenting the projected risks and control of the bank and some backup plan to deal with when the risk occurs - The valuation of collateral assets of customers should be combined with a prestigious valuation organization to ensure objectivity as well as assessing the real status and value of collateral assets of the customer - It is necessary to closely coordinate the credit conditions in credit contracts such as interest rates, capital participation rates, collateral assets, etc., so as to ensure that the earned profits correspond to the level of risk 4.5.4 Reinforcing internal credit supervision and inspection Designing the regulation that requires performing check of customers after lending, avoiding inaccurate and cursory inspection, to generalize and receive exact information about the actual status of customers Clearly defining the roles and responsibilities of the brand's Board of Directors and staffs in credit operations and credit risk management is essential to ensure: Key decisions related to credit strategies; Credit scoring and credit risk management are appropriately provided by a collective of individuals with relevant experience and knowledge; Responsibility assigned by the Board of Directors and implemented in accordance with the authorization; Individuals are given the appropriate roles to ensure proper separation of tasks, in order to create a controlled credit environment Internal inspections must be carried out periodically and irregularly to detect errors and warnings of violation signs Annually, the organization shall conduct an internal inspection within the entire branch to detect and take measures to promptly detect violations of the process and regulations, to avoid serious consequences happen which will be very expensive for the 69 bank The inspection and supervision must be carried out throughout the entire credit granting process as well as the management of the granted credits Lending evaluation and disbursement must be well done at the beginning, in particular: gathering information and evaluating clients , especially analyzing debt structure to determine the impact of the debt structure on the risk of bankruptcy of customers If the debt structure is unreasonable and inefficient then the borrower will be lowered in the rating category The branch must regularly assess the credibility of their customers In case of detecting mistakes, the branch should take appropriate measures This is very important because by the supervision of customers to implement the loan, the risk will be timely dealed with so it limits credit risk Credit risk inspection should be broken down into: Loan supervision and Portfolio supervision: + Supervising each loan on a regular basis to detect and early warning to take timely action Loan supervising is carried out through: Regularly reviewing and analyzing customer's financial situation in order to evaluate the performance of customer; Site visits which determine the actual situation and verify the accuracy of the information provided by the customer + Supervising the credit portfolio - Analyze the overall credit portfolio in order to detect credit concentration and assess the quality of the credit portfolio This should be done regularly so that measures can be adopted to prevent banks from adverse changes in credit activities In fact, it is necessary to have a separate supervising program, the staffs of this department must have professional knowledge and capacity in assessing credit activities in order to assess the quality of credit in general and quality of credit in particular, then to propose appropriate solutions 4.5.5 Improve the quality of human resources In all activities, human resources are always the important factor, not to mention in the banking, this factor decides the success of business strategies In the business of banking, credit work can be considered as the most complicated task Credit reports represent subjective assessments from credit staffs in terms of customer's financial performance, business performance and customer debt repayment capacity, based on selection criteria and analysis thoroughly This work requires qualified and competent staff who are knowledgeable and professional Therefore, in order to improve the credit quality 70 of the branch and limit credit risks, special attention should be paid to improving the quality of credit staffs Using the best experts in risk and risk management as a core factor in consulting the Bank's Board of Directors and in disseminating the knowledge and experience for the employees about risk and risk management Whenever new regulations are issued, mechanisms are amended or refined, information and knowledge about risk management should be updated Bank directors need to listen to the opinions of experts in respect of objective and scientific proposals - In order to improve professional knowledge and skills for credit officers, the branch should regularly open training courses for staff Credit officers need to update the Party's and State's guidelines and policies on legal matters, socio-economic activities, regulations, and mechanisms on credit operations It can be done by highly qualified, professors with teaching experience or invited lecturers from universities and experts - Branches should also encourage credit officers to learn, train, improve their skills and abilities by themselves Branches can also sponsor credit officers to exhort them to improve the computer skill and foreign languages to understand modern facilities and advanced technologies In addition, the branch should soon build up a qualified team that takes credit risk training courses and becomes a pillar of credit risk management - Branches should check, supervise and evaluate periodically, regularly check the progress of each credit officer to make plans for training officers who not know professional skills or transfer them to another more appropriate position - Arranging effectively position for all officers in accordance with the principle of right people in the right job, work with the suitable ability, qualifications and strength of each person will prevent the risks in business activities - Branches should have fair and equitable financial and non-financial treatment Each officer also needs to be placed in a competitive environment, and clearly defined responsibilities, obligations, and interests to motivate the creativity and enthusiasm of each officer Financial incentives such as salary increases, bonuses for high performing employees, non-financial policies: promotion opportunities for employees, regular training courses for officers, creating a comfortable and friendly working environment, encouraging employees to maximize their capabilities and creativity in their work, etc 71 4.5.6 Use derivatives Now, the use of derivatives to restrict credit risk in credit institutions in Vietnam is relatively limited, although the use of derivative instruments has been used widely by the banks around the world Therefore, in order to minimize risk in credit activities of banks in Vietnam in general and BIDV Bank - Thanh Do branch in particular, it is necessary to study and use these new financial instruments to limit credit risk, while generating additional income for banks from the fees collected Some of the derivatives that the bank can use are as follows: - Sale of loans: Selling loans mean turning a buyer's debt from a seller or providing a service to a debt trading company Debt trading companies will be able to pay off the debt, either by paying a full or partial repayment of the buyer's debt, with a commission and a collection fee All risks are incurred by the sponsor Debt trading is not only a debt-handling measure but also a new form of credit to diversify credit activities, enhance competitiveness and increase profits On the other hand, entities professionally carry out debt trading on the market, having many advantages in terms of information and scale, and because they are not under the pressure from the relationship with customers like banks, bad debt settlement will be more effective At the branch, this derivative has been used to handle problematic debts, however, it has not been paid enough attention and hit the highest efficiency In order to successfully implement this measure, BIDV Bank - Thanh Do branch must clearly recognize the role, importance and benefits of debt trading, concretize the law to make a decision to conduct debt trading properly and effectively 4.6 Recommendations 4.6.1 Recommendations to the SBV - 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 - Apply 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 72 - 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 - Strengthen 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 - Complete a really reasonable process of lending regulations for banks Maintain 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 - Complete 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 4.6.2 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 73 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 74 CONCLUSION In the current business environment, commercial banks' revenues are shifting from credit services to other services, but it can be said that in recent times, credit institutions and commercial banks in Vietnam in general, the main source of revenue for banks is from credit activities, the source of revenue from this activity is significant for banks to pay for operating expenses and bring in profits In the next few years, this source of revenue will still play a key role, but it also has unpredictable risks So how to grow revenue from credit activities and avoiding risk factors at the same time is a difficult problem, but it is inevitable to have a solution because only by solving this problem, banks and credit institutions exist and develop The period of stable economic development, high investment efficiency leads to the development of credit and vice versa At the economic downturn, the credit is badly affected With the economy's difficulties brought on by the economic crisis, as a rule, the quality of credit in banks in general, and BIDV Bank - Thanh Do branch, in particular, has shown signs of decreasing Therefore, an urgent requirement set for commercial banks in general and for BIDV Bank - Thanh Do branch in particular is to implement well credit risk management in order to maximize profits and income The dissertation is written based on the credit risk and credit risk management theory The dissertation digs into the current situation and causes of credit risk as well as the credit risk management at the bank BIDV - Thanh Do branch, showing the limited aspects to overcome Whereby, the author suggests specific solutions to improve the quality of credit risk management based on the orientation and objectives of the bank in the offing period The author also proposed some recommendations to the Government, the SBV and BIDV Headquarter to support BIDV - Thanh Do branch in particular and the whole banking system in general to have risk management carried out and achieve sustainable credit growth However, due to the limitations in terms of theoretical knowledge and rapidly changing background of the social environment, so this research dissertation, which has inevitable flaws or limitations, is still required to be contributed by lecturers and colleagues to be more comprehensive 75 REFERENCES Anon., 2004 Credit Approval Process and Credit Risk Management s.l.:Central Bank of the Republic of Austria Anon., 2017 Retail credit handbook, s.l.: Joint Stock Commercial Bank for Investment and Development of 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