Credit risk and solutions to prevent and minimize credit risk at bank for development and investment of vietnam dong do branch,graduation thesis

STATE BANK OF VIETNAM BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES  GRADUATION THESIS CREDIT RISK AND SOLUTIONS TO PREVENT AND MINIMIZE CREDIT RISK AT BANK FOR DEVELOPMENT AND INVESTMENT OF VIETNAM – DONG DO BRANCH Student’s name : Nguyen Do Khanh Linh Student’s ID : 15A7510113 Class : K15 ATCD Course : 2012 – 2016 Supervisor : Ngo Tung Anh (MA, MBA) HANOI, MAY 2016 STATE BANK OF VIETNAM BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES  GRADUATION THESIS CREDIT RISK AND SOLUTIONS TO PREVENT AND MINIMIZE CREDIT RISK AT BANK FOR DEVELOPMENT AND INVESTMENT OF VIETNAM – DONG DO BRANCH Student’s name : Nguyen Do Khanh Linh Student’s ID : 15A7510113 Class : K15 ATCD Course : 2012 – 2016 Supervisor : Ngo Tung Anh (MA, MBA) HANOI, MAY 2016 Graduation thesis Banking Academy DECLARATION I declare that this thesis is originally written by me and has not been previously submitted for my degree or examination in any other university All the sources I have reproduced from other person’s work has been acknowledged by references Name: Nguyen Do Khanh Linh Signature: …………………… Nguyen Do Khanh Linh Date: … /… /2016 i K15.ATCD Graduation thesis Banking Academy ACKNOWLEDGEMENTS First of all, I would like to express my special thanks to my beloved instructor as well as supervisor, MA Ngo Tung Anh for his constructive support, helpful feedbacks and great inspiration In spite of his conflict schedule, he always provided enthusiastic instructions and corrections through my work I also would like to thank all lecturers at Banking Academy of Vietnam, especially those of the Faculty of Foreign Languages Without their help and all the valuable lessons they taught me, my thesis would not have been finished In addition, I wish to send the same appreciations to staff of BIDV Dong Do Branch for creating favorable conditions and guiding me during my internship time Last but not least, I am very grateful to my family and friends, for their encouragement and constant supports Nguyen Do Khanh Linh ii K15.ATCD Graduation thesis Banking Academy ABSTRACT The trend of liberalization and economic integration have created favorable conditions for the development of banking sector development as well as some risky factors In the banking system, credit activity has played an important role which provides main income for commercial banks Credit operation, however, is one of the riskiest activity and credit risk is also one of the most general risks that commercial banks have to face Especially, after many events strongly affected the banking sector due to credit risk, it is urgent to take appropriate preventive measures into account Hence, researching the topic “Credit risk and solutions to prevent and minimize credit risk at Bank for Development and Investment of Vietnam - Dong Do Branch” is essential to boost the growth of credit activity and the safety in the context of integration The paper has analyzed credit situation and indicated drawbacks and causes in credit operation of the branch beside giving solutions to avoid risk In the future, the author hopes this study could make small contributions to credit’s growth As there has been limited time and knowledge of the author, this thesis could exist some shortcomings Therefore, for further study, it would be better to extend the work in other branches of Bank for Development and Investment of Vietnam Nguyen Do Khanh Linh iii K15.ATCD Graduation thesis Banking Academy LIST OF ABBREVIATIONS ADB Asian Development Bank ATM Automatic Machine Teller BIDV Bank for Investment and Development of Vietnam CIC Credit Center Information Eximbank Vietnam Export Import Commercial Joint – Stock Bank GDP Gross Domestic Product IFRS International Financial Reporting Standards IMF International Monetary of Fund ISO International Organization for Standardization JBJC Japan Bank for International Cooperation NIB Nordic Investment Bank POS Point of Sale ROA Return on Assets ROE Return on Equity SBV State Bank of Vietnam VALC Vietnam Aircraft Leasing Company Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam VND Vietnam dong Nguyen Do Khanh Linh iv K15.ATCD Graduation thesis Banking Academy LIST OF FIGURES AND TABLES List of figures Figure 2.1 Status of mobilizing capitals 14 Figure 2.2 The business result of Dong Do Branch 18 Figure 2.3 The situation of outstanding loans in terms of maturity 21 Figure 2.4 The process of credit scoring and customer ratings 25 List of tables Table 2.1 Analysis of total mobilized capital from 2012 to 2015 16 Table 2.2 Outstanding loans at the branch 19 Table 2.3 The status of overdue loans at Dong Do Branch 22 Table 2.4 Overdue debts and bad debts 23 Table 2.5 Provisions at the branch 24 Table 2.6 Criteria for scoring business credit 26 Table 2.7 Scale to grade the size of enterprises 27 Nguyen Do Khanh Linh v K15.ATCD Graduation thesis Banking Academy TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENTS ii ABSTRACT iii LIST OF ABBREVIATIONS iv LIST OF FIGURES AND TABLES v TABLE OF CONTENTS vi INTRODUCTION CHAPTER 1: THEORETICAL BACKGROUND 1.1 DEFINITION AND FEATURES OF CREDIT OPERATION IN COMMERCIAL BANKS 1.1.1 Definition 1.1.2 Features of credit 1.2 CREDIT RISK AND METHODS TO CONTROL CREDIT RISK IN COMMERCIAL BANKS 1.2.1 Credit risk in commercial banks 1.2.2 Some indicators to measure credit risk 1.2.3 Solutions to minimize and prevent credit risk 1.3 SUMMARY 11 CHAPTER 2: THE REALITY OF CREDIT RISK AT BIDV - DONG DO BRANCH, 2012 - 2015 12 2.1 INTRODUCTION OF BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – DONG DO BRANCH 12 2.1.1 Brief introduction of Bank for Investment and Development of Vietnam (BIDV) 12 2.1.2 Overview of the establishment and development of Bank for Investment and Development of Vietnam – Dong Do Branch 13 2.1.3 Organizational structure 13 2.2 SITUATION OF CREDIT OPERATION AT BIDV – DONG DO BRANCH 14 2.2.1 Raising capital activities 14 Nguyen Do Khanh Linh vi K15.ATCD Graduation thesis Banking Academy 2.2.2 General assessment of the business results of BIDV - Dong Do branch 18 2.2.3 Credit operation 19 2.3 SITUATION OF CREDIT RISK AT BIDV– DONG DO BRANCH 22 2.3.1 Overdue loans 22 2.3.2 Bad debts 22 2.3.3 Provisions deduction and risk solvency activities 23 2.4 CREDIT RISK MANAGEMENT ASSESSMENT 24 2.4.1 Measures imposed to prevent and minimize credit risk 24 2.4.2 Drawbacks 29 2.4.3 Causes of credit risks 30 2.5 SUMMARY 32 CHAPTER 3: SOLUTIONS AND RECOMMENDATIONS 34 3.1 ORIENTATION FOR THE DEVELOPMENT OF BIDV DONG DO BRANCH 34 3.1.1 General development orientation of BIDV 34 3.1.2 Oriented strategy of business activities at Dong Do Branch 34 3.2 SOLUTIONS TO MINIMIZE AND PREVENT CREDIT RISKS AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – DONG DO BRANCH 36 3.2.1 Improving credit evaluation before granting credit 36 3.2.2 Enhancing credit supervision during and after issuing credit 37 3.2.3 Improving credit policy 37 3.2.4 Developing information system 38 3.2.5 Dispersing risks by diversification measures 39 3.2.6 Enhancing professional skills and moral qualities of staff related to credit operations 39 3.3 RECOMMENDATIONS 40 3.3.1 Recommendations to the Government 40 3.3.2 Recommendations to the State Bank of Vietnam 41 3.3.3 Recommendations to the Headquarter of Bank for Investment and Nguyen Do Khanh Linh vii K15.ATCD Graduation thesis Banking Academy Development of Vietnam 43 3.4 SUMMARY 44 CONCLUSION 46 REFERENCES 48 Nguyen Do Khanh Linh viii K15.ATCD Graduation thesis Banking Academy polls indicate the reasons why they choose the branch to transactions or some choose to switch to other banks Moreover, the list of VIP customers is set up to offer them the remuneration policy due to their large amount of idle money deposited at the branch  Controlling credit growth, enhancing credit quality and restructuring credit To control the credit growth, the branch classifies customers and sectors which are encouraged by the Government in the near future to prioritize credit growth Borrowers having efficiency in business as well as using multiple services are given priority in granting credit In contrast, the branch has limited disbursement for customers only having loans During the transaction, credit officers need to analyze carefully financial situation of enterprises and transfer documents in accordance with applied model Noticeably, as the recent economy of Vietnam has more adverse events, staff should not be hasty while evaluating companies and special precautions should be prepared to prevent the branch from failure in repayment After granting credit, enterprises are going to be taken tight controls to minimize bad debts Besides, the branch is trying to increase collateral as outstanding loans by various ways along with enhancing the quality of appraisal projects and credit assessment To detect the risk immediately, credit staff should regularly control and supervise before, during and after issuing loans The branch continues to promote the training of both qualifications and management skills and focus on the following operations: credit, international payments, information technology, foreign languages, law… This can meet human needs when the business network is expanded and restructured Restructuring credit is also one of the targets in the future and staff are encouraged to seek individual customers, households with effective business plans and collaterals to grow retail credit  Developing services Apart from traditional products giving high income such as remittance, guarantees, foreign currency trading, trade finance; the branch will actively promote Nguyen Do Khanh Linh 35 K15.ATCD Graduation thesis Banking Academy new services such as insurance, cards, BIDV SMS (BSMS), e-banking, derivatives … through doing effective marketing to individual customers and businesses trading at the branch Furthermore, the branch will improve the quality of services associated with the innovation of service style  Developing customer care and expanding customer base Brand promotion is being strengthened through mass media including social networks, newspapers Besides, on major holidays or customers’ birthdays, many special promotions and gifts are presented to valued customers The major goal in the period 2013-2017: - The average growth rate of total assets is 15-20% per year - The average credit growth ratio is 15-20% per year - The average growth rate of funds raising is 15-20% per year - Profit after tax increases 20-25% year-on-year 3.2 SOLUTIONS TO MINIMIZE AND PREVENT CREDIT RISKS AT BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM – DONG DO BRANCH 3.2.1 Improving credit evaluation before granting credit Analyzing and assessing customers is a necessary step that credit staff have to perform before issuing credit If this first step is done scientifically, credit risk will be controlled The staff need to identify exactly the sectors and products of enterprises and not skip to consider whether their sectors are suitable to recent situation or not Moreover, predicting the ability of product development and checking competitive companies can help credit officers to evaluate the existence as well as the development of enterprises Besides, cash flow in the future is the prior factor that the branch considers to grant credits Therefore, financial report should be analyzed in more details and systematically Apart from traditional financial indexes that the branch usually evaluates, loan staff need to examine Debt service coverage ratio (DSCR) to determine income property loans This ratio shows the available cash flow to pay current debt obligations, which allows bank credit officers to make accurate decisions Nguyen Do Khanh Linh 36 K15.ATCD Graduation thesis Banking Academy Not only inspecting customers basing on their given data and the analysis of reports but bank loan staff should also take site visits to verify inventories, relationship between directors and staff, equipment, factories … This can indicate the real situation of the firms and allow credit officers to make accurate loan decisions 3.2.2 Enhancing credit supervision during and after issuing credit The branch should regularly monitor customers to ensure that credits are issued in line with the branch’s credit policies This also helps the branch to detect potential risk to control and prevent credit risk They need to assess and specify periodically important indicators such as financial position and business conditions, machinery, conduct of accounts, loan covenants, collateral valuation, external rating and market price Moreover, the branch should delegate staff to visit customers in order to have a clear picture on the production and business activities of customers The trips can confirm the accuracy of financial reports as well as the use of funds Furthermore, the branch should implement regular credit reviews for customers with updated information of the firms In case the customers are expected not to repay the loans due to failure in doing business, credit staff should consider carefully credit limits, reduce outstanding loans and collect additional information Internal monitoring in credit operations is an essential tool to detect, prevent and correct faults Besides, this activity can prevent the branch from moral hazard due to credit officers The branch should define clearly the responsibility and promote the independence of this department Moreover, staff need to pay more attention to risky signs including inaccurate assessment of customers’ risk level, the over credit growth, vague credit conditions in the agreements, unclear repayment schedule for each loan 3.2.3 Improving credit policy Policy making should be concerned and paid greater attention to in the coming years The policy needs to meet the requirements associated with the actual business activities of the branch, in which it must define clear direction on credit conditions, credit limits, policy priorities, marking operation … The branch also focuses on Nguyen Do Khanh Linh 37 K15.ATCD Graduation thesis Banking Academy improving the contents of credit policy in following matters: - Completing customer policies and classifying customers by detailed categories - Improving credit policies by sectors and business areas and separating by sectors and specific areas with accompanying policies - Fulfilling specific classification policies and classifying credit by regulated types Besides, the branch should create more favorable conditions for customers such rescheduling loans or lowering interest rates and purpose flexible credit policies in order to reduce repayment burdens for customers 3.2.4 Developing information system Credit risk can be only managed by solving the problem of information successfully, therefore, the branch should develop information system to exchange and update data timely and accurately between departments By establishing a mechanism, the functions of each department at Dong Do branch will not overlap and staff can focus more on their specialized work To perform this solution, credit staff need to update periodically information and forward any updates to credit risk management division to detect potential risks and purpose methods to handle Apart from risk management and operation department which are in charge of exchanging information, other departments should be noticed any changes in credit operations In addition, the branch should create an information library which contains customers’ transactions before, during and after risks … along with solutions and previous lessons Furthermore, the library should relate to two groups as follows: - Financial information group: including financial situation, business of enterprises such as revenue, profit, assets, equity, ROA, ROE … These figures can help credit officers to analyze liquidity, profitability, cash flows in the future before indicating repayment capacity, project implementation capability Additionally, it is necessary to update and make the analysis of financial market fluctuation such as interests, foreign exchange rates, etc - Non-financial information group: including morale, management capacity, Nguyen Do Khanh Linh 38 K15.ATCD Graduation thesis Banking Academy social relations of the Board of Directors in enterprises or individual customers 3.2.5 Dispersing risks by diversification measures BIDV Dong Do branch should diversify the loan portfolio Since enterprises in the same industry, same size and business conditions are discovered to have high correlation with credit risk; the branch needs to prevent credit risk from occurring simultaneously with customer There are three diversification measures based on each object as follows: - Lending methods: loans under credit limit, overdraft, co-financing loan, revolving credit line, one-shot loan, project financing, housing loan, instalment loan for improvement of living standard, lending entrustment … - Customers: To diversify risks and achieve profitability, the branch should extend loans to different economic sectors it is important to pay attention to stateowned enterprises doing business well, however they lack sufficient capital Conversely, the branch needs to set lending limitations for state-owned enterprises operating inefficiently Beside enterprises, the branch should focus on retail customers having various demands In fact, nowadays, customers’ demand is really high, people have begun to borrow more for individual purpose such as purchasing appliances and cars or even travelling - Banking products: Researching market is essential method to develop new products, hence, the branch can serve the diversified needs to customers Consequently, credit market share of the branch can be increased This is also a way to share and mitigate risk 3.2.6 Enhancing professional skills and moral qualities of staff related to credit operations In any stages of the credit process, although modern science and technology are important keys, human factor is indispensable to ensure credit quality Therefore, the branch should identify each staff as an array in any success Credit activity involves many sectors, while staff working in operation department are mainly trained in universities specializing in banking – finance Thus, their experience and knowledge related to various fields such as construction, Nguyen Do Khanh Linh 39 K15.ATCD Graduation thesis Banking Academy telecommunication, electricity are limited This requires credit officers to continuously improve qualifications and research other sectors by updating market’s fluctuations, business cycles of enterprises … Hence, the branch needs to organize professional training courses and invite both local and foreign experts to improve staff’s competence and update intensive knowledge Besides, to make an accurate loan decision, it is important to have talks with legal experts so that they can share the experience in cases related to credit and indicate signals of repayment failure Through training, staff are able to deal with daily tasks and management staff can improve planning and organizing abilities so that solutions to handle credit risk can be purposed timely Moreover, developing soft skills for staff should be focused, as communication skills are highly appreciated when approaching unknown information about customers This can enhance the capacity of limiting credit risk However, qualification is not the only factor effecting credit operations, the quality of human resources has to be assessed by professional ethics, enthusiasm spirit, staff’s dedication to their jobs and high morale Thus, the director of the branch needs to give a special concern and monitor strictly to all staff’s activities, especially credit officers and staff in credit-risk management department To motivate the quality of credit activity, the reward and discipline policy should be stated clearly and fairly, which is closely associated with rights and responsibilities of loan officers 3.3 RECOMMENDATIONS 3.3.1 Recommendations to the Government Building a nationally public information system This system will be built on the foundation of modern information technology which is able to connect locals and Central, hence, it is easy for institutions to search information accurately and timely It is important to classify information into searchable information, limited one which only certain organizations are allowed to explore and one had to be purchased to access This public information system can create favorable conditions for commercial banks to exploit data and also reduce the Nguyen Do Khanh Linh 40 K15.ATCD Graduation thesis Banking Academy time and cost of searching Stabilizing legal environment The National Assembly needs to complete the Regulations and Laws relating to the rights of creditors of the banks and loan guarantees in order to allow banks to handle collaterals to recover debts along with avoiding repayment failure Moreover, it is essential to build institutional system to ensure the rights of creditors as banks in handling collaterals and the Government should direct relevant ministries towards efficient and quick procedures The legal provisions relating directly to the credit operation such as secured transactions, regulations on property ownership documents, related business sectors’ regulations, need to be fulfilled In addition, the Government must be in conjunction with relevant ministries and departments and share the point of view of considering solutions Stabilizing economic environment Furthermore, the coordination of fiscal policies can boost public investment, payment for construction debts in order to support enterprises and banks in handling inventories and bad debts Besides, investment promotion, trade promotion and land tax reduced should be put into necessary measures aimed at dealing with difficulties for enterprises Thus, they can be able to repay debts to the banks which can prevent banks from facing credit risk 3.3.2 Recommendations to the State Bank of Vietnam Preventing unhealthy competition With the expansion of the autonomy in banking activities, SBV has allowed commercial banks to be more creative and active in banking business However, this led to unhealthy competition, the scramble for attracting borrowers between banks such as lending to repay loans from other banks, lowering loans standards and conditions which increases credit risks Therefore, SBV needs to supervise and regulate effectively banking business to ensure a stable and secure development Applying effective banking supervision In particular, SBV needs to have clear orientation and issue specific Nguyen Do Khanh Linh 41 K15.ATCD Graduation thesis Banking Academy regulations on the implementation of Basel III According to Basel Committee on Banking Supervision, compared to Basel II, Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector In addition, Basel II requires stricter standards and capital to be 10.5% of Risk Weighted Assets Hence, SBV should complete inspection models to apply from the Central Bank to the grassroots level and operate independently in the organizational apparatus Developing deeply financial and monetary market Beside scaling up the stock and encouraging listed companies to issue securities and raise capitals, it is important to issue more government bonds with diversified terms The development of monetary and financial markets can facilitate the development of new markets such as organized market in the future In addition, SBV should establish organizations with high credit ratings to value portfolios having risky assets Furthermore, developing guiding documents on derivative and credit derivative is essential, as this allows commercial banks to provide methods preventing credit risks for themselves and also develop debt market Completing the Credit Information System (CIC) of SBV CIC is one of the useful channels which supports banks to deal with information asymmetries, thereby contributing to the substantial improvement in credit analysis quality The responsibility of CIC is collecting information about enterprises and others related to currency trading activities from commercial banks, domestic and foreign agencies Nevertheless, information provided by CIC over the years has not met the demands on both quality and quantity of the information, which has limited the banks’ ability to analyze credit To prevent credit risk causing losses in banking systems, SBV needs to coordinate closely with other banks, State management agencies of Vietnam and also expand relationships with other international information organizations Nguyen Do Khanh Linh 42 K15.ATCD Graduation thesis Banking Academy 3.3.3 Recommendations to the Headquarter of Bank for Investment and Development of Vietnam Completing credit policies and process It is necessary for BIDV to fulfill effective credit policies and flexible process The regulations of credit ratings and scoring, credit limits granted to customers as well as the regulations of loan classification and provisions must be in harmony with the strength of the bank and applied flexibly to all branch network Furthermore, the process of credit risk management needs to be researched and applied the innovation of science and technology in order to increase the consistency and accuracy in credit activity Especially, BIDV should strive to reach the internationally safety standards such as ISO, Basel and IFRS Modernizing banking technology To support the process of preventing credit risk, it is essential for BIDV to build a modern technology as well as to follow the world’s trend The development of technology infrastructure can support actively the connection between the branches and the Headquarters in order to exchange information timely and access the application easily Besides, the transactions with other branches in different systems can be performed smoothly so that the credit risk can be reduced Especially for retail customers, BIDV needs to set up automatic system from the first steps such as contacting, receiving customers’ demands to other steps including approving loans, disbursement and managing files after disbursing This system enables the Headquarters and branches to track the status of online documents, mitigate losses and minimize erroneous information provided through traditional channels such as email, phone … Using derivatives as methods to prevent credit risk In Vietnam, derivative is not common for the bank’s leaders and bank staff Although this operation is relatively difficult to apply, it has significant meaning to the bank while coping with credit risk Thus, to avoid credit risk, the Board of Directors of BIDV should recognize the necessity to use derivative instruments such as options, forwards, swaps, futures Beside researching products and derivative Nguyen Do Khanh Linh 43 K15.ATCD Graduation thesis Banking Academy tools of international banks and domestic banks such as Vietcombank and Eximbank; BIDV needs to strengthen the operation analysis and forecasting activity as well as risk supervision Applying modern methods in predicting and warning credit risk In recent years, Knowledge Discovery in Database (KDD) and Data Mining (DM) have been considered as a new approach to search knowledge from data From the huge datasets, KDD and DM method can find out the unknown rules to explain actual phenomena Using these methods to predict credit risk is a new method to enhance the credit quality of BIDV To study the application of DM in predicting credit risk, the bank uses a random dataset consisting the number of loans which are after maturity dates in the past The information of each loan will be used for DM includes as follows: - Type of business, Address, Economic sectors - Evaluation of customers - Strategy customers - Customers have relationships with different credit institutions - Products of the loan, Loan purposes, The term, The currency, Amount - Type of collaterals, The percentage of assets as security for loans - The branch granting credit In the fiercely competitive environment, this method is a new approach which not only helps BIDV to make decisions timely, but also strengthens competitiveness Furthermore, the bank can apply this in support of the bank’s decision on solving other problems such as cross-selling, customer relations, fraud detection, anti-money laundering 3.4 SUMMARY Based on the orientation of BIDV Dong Do Branch in the next years, the author has provided various solutions to the branch and some recommendations to the Government, the State Bank of Vietnam and the Headquarters of BIDV For Dong Do Branch, in order to avoid credit risks occurred, it is important to not only improve credit evaluation and credit supervision before, during and after granting Nguyen Do Khanh Linh 44 K15.ATCD Graduation thesis Banking Academy credit; but also enhance credit policy Besides, the branch should develop information system as well as disperse risks by diversification measures In addition, as human resource is a factor determining credit quality, both professional skills and moral qualities of staff are needed to enhance Apart from the efforts of the branch in process of minimizing risk, the Government should offer a great help by building a nationally public information system along with stabilizing legal and economic environments For the State Bank of Vietnam, preventing unhealthy competition and applying effective banking supervision are essential actions to prevent risk happening Furthermore, SBV needs to develop deeply financial and monetary market beside completing the Credit Information System In term of the Headquarters of BIDV, it is necessary to complete credit policies and process and also modernize banking technology To follow the world’s trend and limit credit risk, the Headquarters should use derivatives and apply modern methods in predicting and warning risk Nguyen Do Khanh Linh 45 K15.ATCD Graduation thesis Banking Academy CONCLUSION Recapitulations and concluding remarks Credit risk is an inevitable factor in the banking business The commercial banks can only minimize credit risk at acceptable levels while the risk cannot be completely eliminated Thus, for most of commercial banks in Vietnam in general and Bank for Investment and Development of Vietnam – Dong Do branch in particular, seeking solutions to prevent and limit credit risk is one of the most vital tasks The purpose of the paper was therefore to analyze credit risk and purpose solutions to minimize credit risk at Dong Do Branch On the basis of applying research methods and practices, the thesis has indicated theoretical issues including credit definition and the basis of credit in commercial banks has been systemized in chapter Additionally, the author has illustrated various internal and external factors causing risk and made the analysis of some important indicators measuring credit risk Furthermore, based on the research of credit risk situation and methods implemented at Dong Do Branch, although the branch has achieved good results in credit operation, there have been some drawbacks which have been caused by both internal and external reasons Finally, to prevent and minimize credit risks, six solutions have been given to Dong Do Branch and other recommendations have been also purposed to the Government, the State Bank of Vietnam and the Headquarters of BIDV Implications The researcher has contributed to the existing theoretical background of credit risk in the banking systems and its causes Beside showing some indicators to help banks measure credit risks, the paper has indicated the feasible solutions in order to be used for further studies To commercial banks in banking systems of Vietnam, it will be useful by providing information and guiding staff during the granting credit process Especially for Dong Do Branch, through this graduation thesis, the branch could recognize shortcomings existed and settle these questions by referring given solutions Moreover, the paper will help the Government, the SBV and the Headquarters of BIDV in finding methods to limit credit risk, the banking system Nguyen Do Khanh Linh 46 K15.ATCD Graduation thesis Banking Academy can therefore be stable in the near future Limitations of the study and suggestions for further study Limitations of the study However, due to limited time within which to complete this work, the researcher has only researched a case study of Dong Do Branch In addition, the author has found it difficult to gather information related to the economic sectors of loan provision and bad debts; therefore, the study could not provide a clear picture of these sectors Furthermore, limitations in terms of knowledge and expertise of the author have led to some drawbacks which, in credit operation of the branch, have not been discovered fully and non-performing loans not analyzed in depth Suggestions for further study In the future, the author hopes to extend the area studied by doing a comparison with other branches to better understand the credit risk situation at BIDV and also research other commercial banks in banking systems of Vietnam The focus on loan distribution and improving credit quality for only small and medium enterprises can be interested researches beside studying non-performing loan at BIDV – Dong Do Branch Nguyen Do Khanh Linh 47 K15.ATCD Graduation thesis Banking Academy REFERENCES Banking Faculty (2015) Commercial Banking: Lecture notes Toowoomba: Banking Academy Dennis G Uyemura & Donald R Van Deventer (1992) Financial Risk Management in Banking: The Theory and Application of Asset and Liability Management New York, NY: McGraw-Hill Golin & Jonathan L (2001) The Bank Credit Analysis Handbook New Jersey, Jersey City: WILEY A John Wiley and Sons, Ltd Peter S Role (2002) Commercial Banking Management 5th edition Illinois, Illinois: Richard D Irwin Rösch Daniel (2013) Credit Securitisations and Derivatives New Jersey, Jersey City: WILEY A John Wiley and Sons, Ltd Servigny & Arnaud de (2004) Measuring and Managing Credit Risk New York, NY: McGraw-Hill Basel Committee on Banking Supervision (September 2000) Principles for the management of Credit Risk Retrieved from http://www.bis.org/publ/bcbs75.pdf Ph.D Nguyen Manh Hung (2015, May 18) Dien bien chinh cua kinh te the gioi giai doan 2011-2015 Retrieved from http://www.sbv.gov.vn/portal/faces/vi/pages/trangchu/hdk/ Monetary Authority of Singapore (March 2013) Credit Risk Retrieved from http://www.mas.gov.sg/regulations-and-financial-stability/regulatory-andsupervisory-framework/risk-management/credit-risk.aspx 10 Nguyen Le (2014, September 18) “Du no tin dung nam 2015 tang khoang 1214%” Retrieved from http://vneconomy.vn/tai-chinh/du-no-tin-dung-2015tang-khoang-12-14-20140917101613336.htm 11 Ph D Tran Kim Chung (2015, January 10) Thi truong bat dong san Viet Nam nam 2013 va trien vong nam Retrieved from http://tapchitaichinh.vn/nghiencuu trao-doi/trao-doi-binh-luan/thi-truong-bat-dong-san-o-viet-nam-nam-2013va-trien-vong-nam-2014-39842.html Nguyen Do Khanh Linh 48 K15.ATCD Graduation thesis Banking Academy 12 State Bank of Vietnam (2005, April 22) Decision No 493/2005/QD-NHNN Retrieved from https://luatminhkhue.vn/en/decision/decision-no-493-2005 13 General Planning Office of BIDV Dong Do Branch (2015) BIDV and BIDV Dong Do five-year strategy 2010-2015 period report Retrieved from a secondary database 14 Operation Department of BIDV Dong Do Branch (2015) Annual Report from 2012 to 2015 Retrieved from a secondary database 15 Statistics are collected from: - http://bidv.com.vn/ - http://cafef.vn/ Nguyen Do Khanh Linh 49 K15.ATCD