Credit risk and recommendations to minimize credit risk tien phong commercial joint stock bank thang long branch,graduation thesis

BANKING ACADEMY FOREIGN LANGUAGE FACULTY ~~~~~~*~~~~~~ GRADUATION THESIS CREDIT RISK AND RECOMMENDATIONS TO MINIMIZE CREDIT RISK IN TIEN PHONG COMMERCIAL JOINT STOCK BANK - THANG LONG BRANCH Supervisor : Mr Ngo Tung Anh (MA, MBA) Student : Nguyen Minh Tu Class : K16 ATCC Student code: 16A7510170 Hanoi – May, 2017 Banking Academy Graduation Thesis DECLARATION I declare that “Credit Risk and Recommendations to minimize credit risk in Tien Phong Commercial Joint Stock Bank - Thang Long Branch” is my own work and all the sources that I have used or quoted have been indicated and acknowledgement by means of complete reference Hanoi, May, 2017 Nguyen Minh Tu Nguyen Minh Tu i ATCC - K16 Banking Academy Graduation Thesis ACKNOWLEDGEMENTS After several months of hard working, I have completed my thesis Now it is time to thank everyone warmly who gave their kind help to me First of all, I would like to thank my supervisor Mr Ngo Tung Anh - Vice Dean of the Faculty of Foreign Languages, Banking Academy, for his guidance and suggestion through my work I also would like to express my thanks to all lecturers at Banking Academy for giving their valuable lectures during the time I have studied there Without them, my thesis would not have been finished In addition, the same appreciations are also given to the officials of Tien Phong Commercial Joint Stock Bank – Thang Long Branch for facilitating me a lot during my internship Last but not least, the dearest gratitude is directed to my family and friends for giving me great support and help during these months Nguyen Minh Tu ii ATCC - K16 Banking Academy Graduation Thesis ABSTRACT Credit activity is one of the fundamental business activities which are primarily profitable for commercial banks However, along with bringing significant revenue to the bank, it is also the activity having the greatest risk Credit risk has kept pace with credit operations which cannot be completely eliminated, as a result, we can only apply measures to prevent or minimize the maximum damage when it happens It is observed that the credit problems have had a significant effect in the whole banking activity of Tien Phong Commercial Joint Stock Bank – Thang Long Branch The secondary data was mainly exploited to measure the credit performance of TP Bank - Thang Long Branch, as the base for improving the branch’s credit quality Therefore, to serve this purpose, many credit risk indicators are discussed and illustrated in this thesis to find out the actual problem along with causes of the case study Several reasons are also identified to define the responsibilities between the branch and its customers in causing serious credit risks At the end of the thesis, recommendations for mitigating loss as well as enhancing credit activity are given Nguyen Minh Tu iii ATCC - K16 Banking Academy Graduation Thesis LIST OF TABLES Table 1.1 Loan classification Table 2.1: Business result of TP Bank – Thang Long Branch (2014- 2016) Table 2.2: Outstanding loan classified by economic sector Table 2.3: Outstanding loan classified by the term loan Table 2.4: Outstanding loan classified by collateral Table 2.5: Outstanding loan classified by currency Table 2.6: Outstanding loan classified by debt category Table 2.7: Debt classification Table 2.8: Delinquency Table 2.9: Provision LIST OF FIGURES Figure 1.1: Classification of Credit risk Figure 2.1: Organizational structure of TP Bank – Thang Long Branch Figure 2.2: Outstanding loan classified by economic sector Figure 2.3: Outstanding loan classified by the term loan Figure 2.4: Outstanding loan classified by collateral Figure 2.5: Outstanding loan classified by currency Figure 2.6: Outstanding loan classified by debt category Figure 2.7: Bad debt Nguyen Minh Tu iv ATCC - K16 Banking Academy Graduation Thesis LIST OF ABBREVIATIONS Abbreviation ANAT Meanings Apple Network Administrator's Toolkit BCP Business Continuity Plan CIC Credit information center DR Delinquency ratio IT Information and technology LLPR Loan loss provision ratio LLR Loan loss ratio NPL Non- performing loan NPLR SBV TP Bank VND Nguyen Minh Tu Non- performing loan ratio State Bank of Vietnam Tien Phong Commercial Joint Stock Bank Viet Nam Dong v ATCC - K16 Banking Academy Graduation Thesis TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENTS ii ABSTRACT iii LIST OF TABLES AND FIGURES iv LIST OF ABBREVIATIONS iv INTRODUCTION 1 Rationale to the research Objectives of the study Scope of the study Methodology of the study Structural Organization of the thesis CHAPTER 1: THEORETICAL BACKGROUND OF CREDIT RISK 1.1 Definition of credit risk 1.2 Types of credit risk 1.3 Credit risk indicators 1.3.1 Loan classification 1.3.2 Delinquency ratio 1.3.3 Loan loss ratio 1.3.4 Non- performing loan ratio 1.3.4 Ratio of provision against credit risk 1.3.5 Credit concentration 1.4 Causes of credit risk 1.4.1 External causes 1.4.2 Internal causes from the commercial bank 1.5 Impact of credit risk 10 1.5.1 To the bank 10 1.5.2 To the economy 11 1.6 Summary 11 CHAPTER 2: ASSESSMENT OF CREDIT ACTIVITIES AND CREDIT RISK MANAGEMENT IN TPBANK- THANG LONG BRANCH 13 2.1 Overview of TP Bank and TP Bank – Thang Long Branch 13 2.1.1 Introduction of Tien Phong Commercial Joint Stock Bank (TPBank) 13 Nguyen Minh Tu vi ATCC - K16 Banking Academy 2.1.2 2.2 Graduation Thesis Introduction of TP bank – Thang Long Branch .14 Credit risk assessment in Thang Long Branch 16 2.2.1 Credit activities in TP Bank - Thang Long Branch 16 2.2.2 Credit risk management in TP Bank- Thang Long Branch 21 2.2.3 Evaluation credit risk management of TP Bank - Thang Long Branch 25 2.3 Summary 29 CHAPTER 3: RECOMMENDATIONS TO MINIMIZE CREDIT RISK IN TP BANK- THANG LONG BRANCH 30 3.1 Development orientations of TP Bank – Thang Long Branch’s credit activities in the near future (until 2018) 30 3.2 Recommendations to TP-Bank – Thang Long Branch for reducing credit risk 30 3.3 Other recommendations 32 3.3.1 Recommendations to the Government 32 3.3.2 Recommendations to the State Bank of Vietnam 33 3.3.3 Recommendations to TP Bank 34 3.4 Summary 35 CONCLUSION .37 References viii Nguyen Minh Tu vii ATCC - K16 Banking Academy Graduation Thesis INTRODUCTION Rationale to the research The wide and profound integration background between Vietnam’s economy and the world’s economy has made great conditions for banking activities in Vietnam The bank market is developing in a superior trend that has denoted a new development step in both quality and quantity of Vietnam banking system However, because banking is a field of susceptible business suffered from indirect and direct components, banking risks are unavoidable and are able to genuinely influence the sustainable development of banks in particular and financial markets as well as economy framework in general In the current business activities of the Banks in Vietnam, especially at TP Bank - Thang Long Branch, the credit is the principal business activity of the Bank and the revenue from credit activity represents an extensive proportion of aggregate revenue TP Bank Thang Long Branch has been gradually expanding the scale of operation, overcoming difficulties to ascend, at the same time, it also regularly broadens the sorts of credit in order to respond fully and timely capital needs of the economy on the basis of safety and proficiency However, this has also resulted in the increasing of risks in the Bank's business, particularly credit risk Therefore, avoiding and diminishing credit risk are always the top priority in TP Bank - Thang Long Branch These practical needs have motivated the researcher to pursue the topic "Credit Risk and Recommendations to minimize credit risk in Tien Phong Commercial Joint Stock Bank - Thang Long Branch" and this thesis is an endeavor to find the solutions Objectives of the study The thesis is aimed at determining three fundamental issues which are (i) systematizing the theoretical issues of credit risk in banking activities; (ii) analyzing and assessing the status of credit risk in TP Bank - Thang Long Branch; and (iii) giving recommendations so as to limit credit risk in TP Bank - Thang Long Branch Scope of the study The research is restricted on identifying the credit risk situation and recommendations in TP Bank - Thang Long Branch Therefore, the other risks in this transaction office are not discussed Because of the inaccessibility of data divulgence in authority reports the researcher has acquired, the thesis just contains TP Bank - Thang Nguyen Minh Tu ATCC - K16 Banking Academy Graduation Thesis Long Branch’s reports and data from 2014 to 2016 In addition, the results of the study are constrained to TP Bank - Thang Long Branch and are not generalized for any other branches and commercial banks in Vietnam Methodology of the study The thesis will cover concepts, facts, methods and approaches explored from credit activity in identifying issues and, subsequently, discover essential solutions for TP Bank - Thang Long Branch The thesis likewise gives a quantitative analysis of this application procedure and the analyses are presented by utilizing descriptive approach With a specific end goal to discover the credit shortcomings of TP Bank - Thang Long Branch, the researcher has utilized auxiliary information, for example, the introduction of the bank and branch, financial report, annual report on the Internet, newspaper to evaluate all indicators Structural Organization of the thesis Apart from the Introduction and Conclusion, the thesis is divided into three main chapters as follows: Chapter 1: Theoretical Background of Credit Risk Chapter 2: Assessment of Credit Activities and Credit risk Management in TP Bank – Thang Long Chapter 3: Recommendations to Minimize Credit Risk in TP Bank – Thang Long Nguyen Minh Tu ATCC - K16 Banking Academy Graduation Thesis As we can see from the table, the overdue loans in recent years had a significant positive change The ratio of delinquency went down considerably from 2014 to 2016 In 2014, it was VND 664 billion, accounted for 40% of the total outstanding loans After that, this number decreased by VND 375 billion in 2015, approximately a decline of 56% in comparison with the previous year In 2016, the delinquency of the bank was VND 30 billion, made up 6% of the total debts, approximately a decrease of 89% in comparison with 2015 Overall, it was really a pleased figure after a lot of efforts of TP Bank- Thang Long Branch during this period  Bad debts Figure 2.7: Bad debts Unit: billion VND 1668 1800 1600 1400 1190 1200 1012 1000 800 554 600 400 198 200 19 2014 2015 Bad debts 2016 Total outstanding loans (Source: Annual Report of TP Bank- Thang Long Branch 2014- 2016) In general, the amount of bad debts during three-year period since 2014 experienced a remarkable decline thanks to effectively classifying and evaluating debts in order to provide management solutions for credit quality, bad debts prevention and provision This figure was VND 554 billion in 2014 before decreasing by VND 356 billion in 2015 Then, there was a significant decrease in the amount of bad debts of TP Bank - Thang Long Branch, accounted for just VND 19 billion in the last year because Nguyen Minh Tu 24 ATCC - K16 Banking Academy Graduation Thesis the bank implemented seriously solutions in order to increase the credit quality 2.2.2.3 Provision Table 2.9: Provision Unit: billion VND Year 2014 2015 2016 Profit before provision 1203 1053 1119 Profit after provision 1083 570 583 Provision 120 483 536 Features (Source: Annual Report of TP Bank- Thang Long Branch 2014- 2016) As can be seen from the data table, the amount of provision went up considerably from VND 120 billion in 2014 to VND 536 billion in 2016 It resulted in the significant decrease of the bank’s profit One of the reasons for this situation was supposed to be the general difficult circumstances of banking sector and economy 2.2.3 Evaluation credit risk management of TP Bank - Thang Long Branch 2.2.3.1 Achievements During the six years of operation, TP Bank- Thang Long Branch has paid special attention to credit risk reduction, so it has achieved certain achievements 2016 was a remarkable year for TP Bank - Thang Long Branch in terms of risk management activities when NPLs ratio was controlled below target, operational loss and potential risks were managed within acceptable levels TP Bank - Thang Long Branch continues to strengthen risk management towards Basel II compliance, with standards equivalent to Top 10 banks in the market There were a number of operational risk management items implemented in 2016 including enhancement of operational risk management such as maintaining tools to control operational risk as required by Basel II (Loss Data Collection, Key Risk Indicators, Risk and Control Self-Assessment) in order to identify potential risks for allocating resources to handle TP Bank - Thang Long Branch implemented a number of comprehensive reviews on operating activities such as cash management, information and technology (IT), administration office to test ANAT equipment in business units, revise administrative decentralization to access core IT Nguyen Minh Tu 25 ATCC - K16 Banking Academy Graduation Thesis applications On the other hand, the Bank also maintained communication channels with important departments such as Internal Audit and Call Center to exploit previous results, maximize resources, and avoid duplication of work in implementing inspection, and control activities Business continuity plan was also developed for a number of activities related to business areas which have not yet being built Business Continuity Plan (BCP) TP Bank- Thang Long Branch always complied strictly with regulations on capital adequacy ratio issued by SBV In particular, as regulated in Circular No 36/2014/TTNHNN dated 20/11/2014 on “Capital adequacy ratio in domestic credit institutions and branches of foreign banks”, minimum capital adequacy ratio was always maintained at above 9% In addition, the bank's provision has also gone up in recent years, in 2014, it was VND 120 billion before increasing to VND 483 billion in 2015, and in 2016, it increased considerably to VND 536 billion This proves that TP Bank - Thang Long Branch prepared carefully to take precaution against possible risks 2.2.3.2 Drawbacks Besides the achievements, some shortcomings still need to be overcome in order to further improve the efficiency of banking business in general and the efficiency of credit activities in particular: - The rate of overdue debt declined over the years but this ratio is still higher than the average rate of the banking sector (5%), namely: 40% in 2014, 24% in 2015, and 6% at the end of 2016 Non-performing loans have tended to decrease significantly over the years: 29% in 2014, 15.2% in 2015, and 5.5% in 2016, but still over the SBV's target with 5% Moreover, the handling of bad debts, collecting the interest and principal repayment are still difficult, the risk of debt extension and debt inconsistency is too great even for some undue debts but the quality of credit is not high - In addition, recently, due to the competitive pressure and profit-making from credit activities, commercial banks only have focused on mortgages without carefully analyzing the effectiveness of their business plans, skills and the business experience of the borrowers, there are customers who have an inefficient business plan are still able to be borrowed, resulting in overdue debt On the other hand, customers who have efficient business plans, skills and business experience, but not have collateral, are ignored It will lose potential customers of the bank Nguyen Minh Tu 26 ATCC - K16 Banking Academy Graduation Thesis - Last but not least, the loan portfolio is still not diversified Credit activities are traditional activities, bringing the main income for commercial banks Therefore, the business efficiency of banks depends on lending activities as an activity with great potential risks for the bank 2.2.3.3 Reasons  Internal reasons - The employees of TP Bank - Thang Long branch are very young, so the practical experience is limited On the other hand, they have not been trained fully with new knowledge of risk management model in developed countries The qualification of staff is very important, so the bank has paid great attention to the training as well as retraining of staff at home and abroad However, this activity also has difficulties because the funding for training is limited and the more important problem is the lack of good specialists to teach In addition to professional competence, the ethical issue of credit officer is also a source of risk for credit operations In fact, many poor quality loans and possible losses result from careless evaluation, problematic documents and the lack of control This is partly due to the capacity of the relevant officials, but a large part of that is from credit officers, appraisers, etc who are involved in the loan have the deterioration in quality, morality and responsibility - Although the credit information center (CIC) was established but the operating efficiency is not high, the Bank has not been informed of accurate, immediate and complete information This results in the bank making the wrong decisions, such as: the customer borrows with the collateral that has already been mortgaged in other banks, customers have borrowed and used the loan to convert the debt, repay other banks This is a precursor to credit risk - The inspection and supervision of loans is not very effective, internal control activities have not met the requirements of credit risk management Indeed, in Thang Long branch, credit officers rarely review and supervise the loan after lending, especially the new ones, are not aware of the importance of loan monitoring and supervision When actually inspecting the subjects, due to lack of experience and methods, the inspection is not very effective Credit officers have not strictly checked collateral assets, not known the actual goods in the warehouse, and not properly assessed Nguyen Minh Tu 27 ATCC - K16 Banking Academy Graduation Thesis the actual use of loans of enterprises - Internal auditing activities for credit operation is very necessary in order to detect errors and risks while identifying shortcomings in the credit process, thereby proposing solutions Therefore, this activity must be continuous with each customer and loan type However, currently, the Internal Audit Department at the branch with a limited number of staff (only one manager and two staff) cannot cover all branch's credit activities Thus, the role of internal inspection and control has not been fully promoted - The assessment of investment projects still has several drawbacks, the indicators of financial analysis of enterprises are static, not including variables, so the approval of projects is not able to predict the market volatility Moreover, the assessment is mainly based on quantitative factors while qualitative factors are not highly appreciated  External reasons - Because the behavior and quality of some customer are not good, they deliberately deceive the bank's capital In this case, it is difficult for the bank to recover the loan - Business capabilities, managerial ability of executives are important factors determining the success of enterprises If the manager is not clearheaded, he or she can make the wrong decision in the business strategy, choose the unsuitable field leading to losses, and being unable to repay the bank Moreover, if the enterprise is not well managed, it will reduce the efficiency and productivity as well as competitiveness, as a result, the enterprise cannot stand firmly and easily fall into ineffective condition, so the bank cannot recover the debt - Force majeure causes are usually natural disasters, fires Their risks are often very serious, but businesses and banks have difficulties in controlling and avoiding The only way to limit risk is the bank has to make sure that the businesses have bought insurance to reduce the loss - The inconsistent and inappropriate legal corridor is also the cause of bank credit risk The issue of secured and unsecured loans to state-owned enterprises and non-state enterprises under the Law on Credit Institutions still has many inadequacies that are not suitable with reality An inadequate and variable legal environment can negatively affect the bank's credit risk management Nguyen Minh Tu 28 ATCC - K16 Banking Academy Graduation Thesis - Changing the macro policy of the government also affects the business activities of enterprises, such as changes in import-export policies, changes in tariff barriers, etc These changes can push the business to get into troubles and they are unable to fulfill obligations to the bank 2.3 Summary In chapter 2, the thesis has analyzed the credit activity and credit risk management of TP Bank - Thang Long Branch from 2014 to the end of December 2016 The results of the analysis not only show that there are still several drawbacks that need to be overcome to improve the risk management system besides many considerable achievements, but also identify the causes of those shortcomings Thereby, the researcher gives some solutions and recommendations to limit TP Bank- Thang Long Branch's credit risk in the next chapter Nguyen Minh Tu 29 ATCC - K16 Banking Academy Graduation Thesis CHAPTER 3: RECOMMENDATIONS TO MINIMIZE CREDIT RISK IN TP BANK- THANG LONG BRANCH 3.1 Development orientations of TP Bank – Thang Long Branch’s credit activities in the near future (until 2018) In the market mechanism, bank credit activities are always risky The fact of credit activities of TP Bank - Thang Long Branch in recent years has showed that credit quality is not good, business efficiency is low, and bad debt ratio is high Therefore, the problem is how risk management measures to minimize risk but still meet the requirements to expand and develop lending To achieve that goal, the requirement is to constantly improve the quality of risk management in credit activities and to have appropriate and feasible solutions, be consistent with the whole system of Tien Phong Commercial Joint Stock Bank as well as bring the characteristics of TP Bank- Thang Long Branch The aims of credit activities of TP Bank during the years are: (i) prudent, sustainable credit growth along with improving credit quality, increasing the rate of secured loans with assets; (ii) striving by all measures to recover bad debts, particularly for outstanding debts which have been treated with risk provisions, it is necessary to actively find ways to collect them; (iii) improving the portfolio, giving priority to lending to small and medium enterprises, non-state owned enterprises; (iv) reducing the proportion of lending to ineffective state owned enterprises; (v) gradually expanding credit to individual customers on the basis of following up credit programs such as student loans, home mortgages, auto loans, real estate loans, consumer loans ; (vi) continuing to diversify the customer base in the direction of increasing the proportion of customers with collateral, especially for non-state sector and retail customers; (vii) expanding lending to customers who are doing business in key economic sectors, trading in commodities with stable consumption market; and (viii) prudentially lending to commodities that are volatile on the price market 3.2 Recommendations to TP-Bank – Thang Long Branch for reducing credit risk To achieve the above objectives, the main solution to improve the quality of the risk management of TP Bank – Thang Long Branch’s credit activities in the coming years is:  Portfolio diversification Nguyen Minh Tu 30 ATCC - K16 Banking Academy Graduation Thesis The bank should divide its resources into various types of credit investments, different sectors as well as clients in different locations This has not only broadened the scope of the bank's credit activities, but also expanded its prestige and achieved the purpose of risk diversification To this, the bank needs to map out some appropriate business strategies based on the following issues: - Investing in many different economic sectors to avoid the competition of other credit institutions in gaining market share in the narrow sphere of some developing industries as well as avoiding the risks due to the policy of the State with the purpose of limiting the activities of certain trades in the plan to restructure some economic sectors - Investing in many business objects, different kinds of goods, avoiding focusing on loans for the production of a number of products, especially non-essential products that the State does not encourage or the product has appeared too much in the market - Avoiding excessive lending to a single customer, always ensuring a certain percentage of the client's operating cash flow to prevent the client's reliance and sudden risk - Lending with different terms in order to ensure the balance between short-term, medium-term and long-term loans, maintaining the stable development and avoiding credit risks due to changes in market interest rates - Creating a suitable ratio between VND loans and foreign currency loans to meet the customers' demand for loans to avoid credit risks due to changes in foreign exchange rates  Finalization of the model of internal inspection This department needs to operate independently from the Board of Directors at TP Bank in order to ensure the independence and objectivity in inspection and control At the same time, the bank improves internal controls and controls in accordance with international standards The inspection operation must perform more frequently for credit activities at TP Bank– Thang Long Branch; Loans of great value need to be passed through the internal control department, contributing to limiting the risk In addition, after the end of the financial year, an independent external auditor should be hired to perform a credit audit to review and evaluate the loans  Enhancing the debt management Nguyen Minh Tu 31 ATCC - K16 Banking Academy Graduation Thesis Control, supervision and debt management which are significantly increasing are important measures to limit credit risk for the bank, especially moral hazard when customers use the loan for wrong purposes In order to carry out this task properly: (i) the loan must be transferred directly to the beneficiary; (ii) disbursements must be made through the payment system of TP Bank; (iii) periodically (quarterly) the bank must analyze and evaluate the financial situation of the enterprise; and (iv) strengthening checking the purpose of using loans, collaterals and production business of customers, especially those have overdue debt and interest  Improving human resources High quality human resources are the factors that ensure the success of the implementation of credit risk mitigation measures In order to be able to build up human resources that are strong enough to meet the needs of credit risk management, TP Bank – Thang Long Branch must focus on solving some key tasks as follows: - Raising awareness of risk consequences through discussions, seminars, courses for staff, especially credit officers for appraisal and risk management, so that they can work more responsibly - There is a policy of training on all aspects such as ethical qualities, professional qualifications, communication styles the training can be conducted by self-training or by hiring professional trainers - Having reasonable treatment through salary, bonuses, advancement opportunities for credit officers, risk assessment and management At the same time, TP Bank – Thang Long Branch also needs to issue regulations relating to personal liability (especially material liability) in causing risks resulting in the loss to the bank 3.3 Other recommendations 3.3.1 Recommendations to the Government  In policy formulation, appropriate balance should be made among goals that meet the requirements of economic development, monetary stability and sustainable development of the commercial banking system, avoiding excessively tightening, or loosening and sudden direction changes that affect the operation of commercial banks  The government must constantly create a healthy legal environment to encourage business production and create a solid legal corridor for economic sectors to Nguyen Minh Tu 32 ATCC - K16 Banking Academy Graduation Thesis invest peacefully In addition, the government needs to continue to improve the economic environment, consider it the most comprehensive and fundamental solution in the process of innovation in all areas of business in general and in the currency business sector in particular  In the promulgation and implementation of proactive legislative mechanisms that precede the development of the socioeconomic environment, it is necessary to collect the comments of the stakeholders to ensure the correct, effective, fair and suitable implementation for practical conditions  Promoting the development of financial markets, first of all, the debt trading market in order to have more investment opportunities to disintegrate and reduce risks in banking operations  Completing the technical infrastructure such as information systems, auditing and accounting according to international standards to create safe, sustainable, international conditions for production and business activities of enterprises in general and commercial banks in particular  The Government should coordinate with relevant ministries and agencies in the handling of complex legal issues such as registration of collateral, land management, construction planning, removing difficult obstacles in the procedure of commercial property 3.3.2 Recommendations to the State Bank of Vietnam  The State Bank of Vietnam (SBV) plays the role of the executive, macroregulator in the monetary and credit sectors Therefore, the SBV should enhance its role in the management and advisory of commercial banks by regularly synthesizing and analyzing market information, providing scientific, especially related to credit activities feedback and forecasts for commercial banks so that they have a basis to refer and orient their credit policy so as to ensure reasonable development as well as to prevent the risk  Perfecting the lending mechanism and ensuring the borrowings on the basis of safety for credit activities, protecting the legitimate interests of commercial banks, strictly regulating the responsibility of commercial banks in compliance with loan regulations and loan guarantees, limiting complex legal procedures those make it Nguyen Minh Tu 33 ATCC - K16 Banking Academy Graduation Thesis difficult for commercial banks  The SBV should develop and perfect institutions for credit insurance instruments so that commercial banks can apply timely and accurately such as loan insurance, credit options and other derivatives At the same time, the SBV ought to organize the training and guidance on the above operations to help commercial banks both diversify their credit products, and prevent and disperse risks in credit activities  Inspection of credit activities should be carried out more frequently and the level of the team of inspectors should be improved so as to be able to timely detect errors and distortions in credit analysis to prevent, correct and overhaul thoroughly Inspection process should prevent the tendency of unfair competition, loosening the credit conditions leading to the risk of credit risk of not only one bank but also the whole system  One of the departments used by commercial banks is the Credit Information Center (CIC) and the conditions required to perform good risk management information systems must be complete, up-to-date, and accurate The quality of information is increasing, but the risk in the business of credit institutions is decreasing Credit information must be completed and timely In addition, the attention should be paid to the renovation and modernization of equipment and systems CIC administrators must be knowledgeable about the technology, have the ability to gather information, analyze, synthesize and make appropriate judgments and warnings Currently, banks have not actively cooperated with CIC mainly because they want to keep confidential information about customers to compete The SBV should take measures to encourage and gradually regulate commercial banks to cooperate and provide sufficient information to the center The State Bank Inspectorate should inspect the reporting and exploitation of information of banks and take resolute and timely measures for banks violating the regime of reporting credit information At the same time, they ought to encourage banks to use credit information from CIC as a mandatory document in the loan appraisal process 3.3.3 Recommendations to TP Bank  Improving the quality of the loan appraisal The appraisal needs to be fundamentally changed on the basis of customer credit management rather than project-based management In order to improve the quality of Nguyen Minh Tu 34 ATCC - K16 Banking Academy Graduation Thesis appraisal, it is necessary to arrange the staff with capacity and experience in the appraisal as well as regular discussions and training courses on project appraisal to update the information and methods to evaluate At the same time, the appraisal should focus on the collection and processing of information on projects and loans; applying assessment criteria such as Net Present Value, Internal Rate of Return, especially the capability, prestige and financial ability of the client  Building and improving the risk prevention information system In order to be able to effectively implement measures to mitigate credit risk, TP Bank must develop and continually improve its risk prevention information system by enhancing the collection of customer and project information, information on socioeconomic, commodities, markets through different information channels At the same time, it should check, process and store information scientifically, and invest more in upgrading information technology system, professional software and promptly make good payment to customers  Strengthening the risk management system TP Bank ought to have a unified risk management model with participation of board of directors, board of bank executives Moreover, having suitable policies, procedures and unified limitation system will help the bank in measuring, monitoring and controlling credit risk arising in business process in the most effective way TP Bank should define clearly responsibilities and powers of each department and each individual in risk credit management 3.4 Summary Based on the assessment of credit risk status and the fundamental causes of credit risk at TP Bank - Thang Long Branch in recent years in Chapter 2, the researcher proposes some basic recommendations for the branch focusing on solving existed shortcomings and enhancing the credit risk mitigation ability of the branch In addition, recommendations to the Government and SBV help to create a competitive business environment and effective credit risk management system The thesis also gives several recommendations to TP Bank to complete a united system from office to branch which help to limit credit risk not only for the branch but also for the whole system of TP Bank The effort of all parties makes it possible to get the target of developing credit activities Nguyen Minh Tu 35 ATCC - K16 Banking Academy Graduation Thesis effectively and contribute to the fast and stable development of Vietnamese economy Nguyen Minh Tu 36 ATCC - K16 Banking Academy Graduation Thesis CONCLUSION Our country is in the process of renovation Besides the advantages are brought about by the integration process, we also have to face many difficulties In order to confront and solve the difficulties, our country has to have a strong financial background, in which, the banking industry is one of the industries that represents that strength But when operating under the current fierce competition conditions, it must be said that the risk factor is extremely high Risk is an objective phenomenon in all areas But if we soon have solutions to prevent and limit risks, in case the risk occurs, we also have solutions to avoid the loss for society Facing these challenges requires Vietnamese commercial banks to constantly improve their credit quality to increase their financial capacity and competitiveness Not apart from that trend, Tien Phong Commercial Joint Stock Bank in general and TP Bank - Thang Long Branch in particular are trying their best in solving the problem of credit risk Therefore, researching solutions to limit credit risk is a very meaningful task In the process of researching and studying this thesis topic, the researcher has accomplished the following objectives: Firstly, the thesis has presented the theoretical background of credit risk in commercial banks, which forms the basis of argument for using in practical analysis Secondly, the researcher has studied and analyzed the credit situation and the credit risk mitigation process at Thang Long Branch from 2014 to the end of 2016 Thereby, the researcher has assessed the achievements as well as the drawbacks, while analyzing a number of causes leading to the shortcomings Lastly, this thesis has proposed practical and feasible solutions to enhance credit risk management at TP Bank - Thang Long Branch Hopefully, on the basis of the measures taken along with the new directions and solutions, Thang Long Branch would take positive steps in limiting credit risk Due to the wide and complex research topic, and within the framework of a graduation thesis, the limitations and shortcomings are inevitable The researcher would appreciate it if the teachers, friends and all those who are interested in this field continue to help, and contribute ideas to complete this topic Nguyen Minh Tu 37 ATCC - K16 Banking Academy Graduation Thesis References Andrew Fight (2004) Credit risk management Elsevier Butterworth & Heinemann Press, Great Britain Anthony M Santomero (1997) Commercial bank risk management: An analysis of the process The Wharton Financial institution center, USA Circular No 36/2014/TT-NHNN (2014) Darrell Duffie (2003) Credit risk: Pricing, Measurement, and management Princeton University Press Decision No 18/2007/QD-NHNN State Bank of Vietnam (2007) Decision No 493/2005/QDD-NHNN State Bank of Vietnam (2005) Diane Reynolds (2009) Analyzing Concentration Risk Algorithmics Inc., Canada http://vneconomy.vn/ http://www.sbv.gov.vn 10 https://tpb.vn/ 11 https://www.bis.org/ 12 Johnathan Mun (2008) The banker’s handbook on credit risk: Implementing Basel II Elsevier Academic Press, Oxford, UK 13 McGraw Hill (2002) Commercial bank management, 5th Edition Boston, USA 14 McGraw Hill (2007) Credit risk management: How to avoid lending disasters & Maximize earnings, 3rd Edition Boston, USA 15 Philippe Jorion (2009) Risk management lessons from the Credit Crisis Nguyen Minh Tu 38 ATCC - 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