Perfecting internal control system over credit operations in commercial banks in hai phong,graduation thesis

Banking Academy Graduation Thesis STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING BANKING ACADEMY OF VIETNAM FOREIGN LANGUAGE FACULTY -**** - GRADUATION THESIS Topic: Perfecting internal control system over credit operations in commercial banks in Hai Phong Student Pham Thi Tuyet Trinh Class ATCB – K13 Supervisor Mr Ngo Tung Anh Student number 13A7510191 Hanoi, May 2014 Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis DECLARATION I declare this thesis entitled “Perfecting internal control system over credit operations in commercial banks in Hai Phong” is the result of my own research except as cited in the references The thesis has not been accepted for any degree and is not concurrently submitted in candidature of any other degree Signature Pham Thi Tuyet Trinh Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis ACKNOWLEDGEMENT I would like to express my deepest appreciation to all those who provided me the possibility to complete this thesis I am heartedly thankful to my supervisor, MA Ngo Tung Anh, whose encouragement, guidance and support from the initial to the final level enabled me to develop an understanding of the subject Special thanks are given to my beloved teachers, staff and friends at Foreign Language Department, Vietnam Academy of Bank, who have delivered me precious knowledge and support during the course Finally, I would like to give my gratitude to my parents and my brothers They were always supporting me and encouraging me with their best wishes Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis LIST OF ABBREVIATIONS Number Abbreviation Original SBV State Bank of Vietnam SOCBs State -owned commercial banks CIC Central information center VAT Value added tax WTO World trade organization Vietinbank Agribank BIDV Vietcombank 10 Sacombank 11 ACB Pham Thi Tuyet Trinh Vietnam joint stock commercial bank for industry and trade Vietnam Bank for Agriculture and Rural Development Joint Stock Commercial Bank for Investment and Development of Vietnam Joint Stock Commercial Bank for Foreign Trade of Vietnam Saigon Thuong Tin Commercial Joint Stock Bank Asia Commercial Bank ATCB-K13 Banking Academy Graduation Thesis LIST OF DIAGRAMS AND TABLES DIAGRAMS Diagram 1.1 Risk categories 10 TABLES Table 2.1 Summary of outstanding balance growth in credit institutions in Hai Phong .20 Table 2.2 Summary of bad debts in credit institutions in Hai Phong 23 Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis TABLE OF CONTENTS DECLARATION ACKNOWLEDGEMENT LIST OF ABBREVIATIONS LIST OF DIAGRAMS AND TABLES PART A: INTRODUCTION 1 Rationale of the study Aim of the study Methodology of the study The scope of the study Significance of the study Research questions Organization of the study PART B: DEVELOPMENT CHAPTER 1: THEORETICAL BACKGROUND 1.1 Internal control in commercial banks 1.1.1 Commercial banks 1.1.2 Internal control 1.2 Internal control over credit operations 1.2.1 Credit 1.2.2 Credit risk and its related matters 1.2.3 Internal control system over credit operations 11 CHAPTER 2: THE REAL SITUATION 16 2.1 The formation and development of banking system in Vietnam and commercial banking system in Hai Phong 16 2.1.1 The foundation and development of Vietnam’s banking system 16 2.1.2 The foundation and development of commercial banks in Hai Phong 19 2.1.3 Characteristics of credit operations in commercial banks in Hai Phong 20 Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis 2.2 The causes of credit risk in commercial banks in Hai Phong 24 2.3 Strengths and weaknesses of internal control system over credit operations in commercial banks in Hai Phong 30 2.3.1 Control environment 30 2.3.2 Risk analysis and assessment 33 2.3.3 Control activities 33 2.3.4 Information and communication 34 2.3.5 Monitoring activities 35 CHAPTER 3: SOLUTIONS 37 3.1 As for state bank 37 3.1.1 Perfecting legal environment for credit activities 37 3.1.2 Strengthening the inspecting, monitoring and evaluating of the internal control system 38 3.1.3 Creating reliable communication channels for banks and businesses 39 3.2 As for authorities 39 3.2.1 Integrity among notary public's offices 39 3.2.2 As for the authorities issuing property certificates 39 3.2.3 People's Committee should assist commercial banks when businesses go bankruptcy and use their property to recover debts 40 3.3 As for commercial banks 40 3.3.1 The solutions to complete control environment 40 3.3.2 The solutions to improve the effectiveness of the internal control system in the prevention, control and management of credit risk 41 3.3.3 The solutions to effectively manage and handle bad debts 46 3.3.4 The solutions to improve the quality and efficiency of internal audit machine47 PART C: CONCLUSION 49 Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis PART A: INTRODUCTION Rationale of the study Along with the commodity based economy, many banks appear and develop to meet demands for capital and payment in expanding business and production of economic institutions and individuals Commercial banks are financial intermediaries of the economy They perform operations of mobilizing capital to channelize them into the economy and banking services to generate profits In the banking activities, credit operations are the most important in terms of capital turnover and high profit However, this operation poses many potential risks Credit risk arises when borrowers cannot repay the bank as promised This can lead to the potential liquidity risk as a result of unrecovered loans To limit and prevent credit risk, in addition to technical measures, an effective internal control system makes an important contribution Along with the rapid growth of economy and other fields in Hai Phong, the branches of commercial banks are massively opened to meet demands for savings, financial services and demands for capital to business and consume in the province Commercial banks are gradually modernized on all types of services to enhance their competitiveness in the market However, due to small size, low governance capacity and professional qualifications, commercial banks in the province reveal weaknesses and the potential risks in the context of unstable business environment and inadequate legal framework There are many loopholes for fraud Specifically, overdue loan rate in commercial banks in Hai Phong is not low Therefore, commercial banks should constantly improve the credit risk management capacity - particularly build the effective internal control system On the other hand, in the context of economic globalization, Vietnam joined the WTO, financial liberalization is not optional but inevitable for countries to put their economies in the world orbit Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 2 Graduation Thesis Aims of the study The study is aimed at evaluating the strengths and weaknesses of the internal control system over credit operations in commercial banks in Vietnam in general and commercial banks in Hai Phong in particular Afterwards, the study proposes solutions to complete internal control system over credit operations at commercial banks in the province Methodology of the study The study uses questionnaires to examine the status of internal control over credit operations in typical commercial banks in Hai Phong We discuss with a number of managers, internal auditors and loan officers at a number of state-owned and joint-stock commercial banks in Hai Phong We synthesize the reports and data related to outstanding loans, overdue loans and the causes to the overdue loans of the State Bank of Hai Phong Scope of the study The study pays attention to the internal control problems over credit operations in commercial banks in Hai Phong Significance of the study The purpose of the study is to evaluate the strengths and weaknesses of the internal control system in detecting and preventing credit risks From those points, the study provides solutions to overcome the weaknesses of the system and brings about the optimal control over credit operations for commercial banks The study is important as follows: - For the State and the State Bank of Hai Phong: the study is the material for the State to complete laws on credit operations, policies and measures on inspecting and monitoring commercial banks - For authorities: the study recognizes the problems and gives lots of support for commercial banks so that they feel secure to expanse business, contributing to Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis economic and social development in Hai Phong in particular and the nation in general Research questions What are strengths and weaknesses of internal control system over credit operations in commercial banks in Hai Phong? What are the causes of those weaknesses? What are measures to overcome those weaknesses? Organization of the study Chapter 1: Theoretical background This chapter summarizes the banking internal control system and discusses the credit operations, credit risk and internal control over credit operations Chapter 2: The real situation This chapter outlines the foundation and development of the banking system in Vietnam and the commercial banks in Hai Phong Through the survey, the study identifies and analyzes the causes of the credit risk in commercial banks in the province, then exploits the strengths and weaknesses of internal control over credit operations in Hai Phong Chapter 3: Solutions This chapter provides some solutions to perfect the internal control system over credit operations in commercial banks in Hai Phong Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 36 Graduation Thesis At every branch, there are the suggestion boxes to collect feedbacks from customers, ensuring service quality as well as detecting fraud from staff At every branch, there are internal auditors, who take charge of monthly inspecting all business operations, especially credit operations Besides, a part of internal audit remotely control operations by information system and have timely corrections Despite such achievements, information and communication reveal following weaknesses: - Internal audit department is limited in human, qualification, experience and methods of internal audit - Internal audit staff in commercial banks are few compared to the operation scale and network of branches, therefore periodical checking is impossible - The modern audit methods are brand new for internal auditors - Bank managers only chase for profit objectives but not focus on the result of the internal audit Their responses to the internal audit report are just immediate measures rather than specific solutions to overcome the weaknesses of the internal control system Summary Along with the development of the country, Hai Phong is also trying to develop all aspects of social life There are great contributions from commercial banks, especially credit operations to provide capital for production and business activities of the businesses and individuals as well as shopping and consumption activities However, the massive development of commercial banks’ branches in Hai Phong in the volatile business environment, the inadequate legal framework, and poor information systems, especially the weakness of internal control systems, the credit risk is unavoidable Therefore, there should be specific measures to improve internal control system over credit operations in general and commercial banks in Hai Phong in particular to raise the level of credit risk management in commercial banks in Hai Phong Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 37 Graduation Thesis CHAPTER 3: SOLUTIONS 3.1 As for the state bank 3.1.1 Perfecting legal environment for credit activities The government issued Decree 178/1999/ND-CP on loan guaranteed The SBV issued Circular 06 to instruct the implementation of this decree However, to implement this decree, the guidance of the Ministry of Finance on the loan mortgage, pledge or guarantee for state-owned enterprises is necessary The police department, fisheries, civil aviation authority have not guided guarantee procedures for means of transport, aircraft, ships, fishing vehicles It is necessary to complete lending regulations and improve loan to ensure the safety of credit operations, protecting the legitimate interests of the commercial banks, following strict regulations on commercial banks’ responsibilities for lending and loan guarantee The State Bank should introduce clear guidelines and regulations about operation, monitoring and internal audit system and responsibilities of internal auditors It is necessary to consolidate and reorganize commercial bank, especially weak banks, reorganizing governance and business operations Competition among banks is relatively severe, to attract customers, some banks lower credit conditions Therefore, the State Bank should restructure by reselling, merging banks with poor credit quality and poor capital The State Bank should assign the Board and Executive Committee in commercial banks the responsibilities for ensuring credit risk management, including: - Developing strategies, policies and processes for credit risk management - Clearly defining the responsibilities of each level of governance, each staff in the credit risk management - Setting up tight apparatus and mechanism for monitoring and assessing credit risk - Specifying the lending limit under the regulations of every commercial bank Pham Thi Tuyet Trinh ATCB-K13 Banking Academy - 38 Graduation Thesis Establish rapid internal communication systems to timely provide loan portfolio restrictions and other regulations Those defining responsibilities of the Board and Executive Committee by legal documents raise their consciousness of associate business targets with the safety of banking operations through risk management strategies 3.1.2 Strengthening the inspecting, monitoring and evaluating of the internal control systems Currently, inspection activities of the State Bank mainly are checking the law compliance in banking operations and evaluating the safety of commercial banks Risk assessment and internal control system of commercial banks have not been systematic and have not had assessment criteria Therefore, to perform roles of assessing the internal control system, commercial banks need to implement the following measures: - Bank inspection should strengthen qualified and experienced staff - Perfecting, modifying and supplementing regulations, inspection and supervision procedures, including assessing control activities and internal audit in commercial banks and defining sanctions for commercial banks with weak internal control system - Developing specific risk assessment criteria when performing banking inspections Researching and applying Balse principles on assessing internal control system - Adopting international laws and practices on banking inspections Establishing a banking supervision agency as a part of the State Bank On the basis of current inspection apparatus, the commercial banks set up modern and effective banking supervision system (in terms of regulations, models, organization and methods) to meet the requirements of developing Vietnam's banking system and comply with international principles and standards on banking supervision Currently, the inspection activities of State Bank in Hai Phong are ineffective, the control and supervision activities primarily base on the monthly report, lack of practical checking The reason is that branches have grown massively in comparison Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 39 Graduation Thesis with the lack of inspectors Therefore, it is necessary to develop qualified and skilled inspectors as well as set up plans for practical inspection at all commercial banks at least once two years 3.1.3 Creating reliable communication channels for banks and businesses In principle, commercial banks will consult the CIC for customers’ information With such current volume of information, the State Bank needs to complete the CIC by applying modern information technology so that commercial banks can access information easily In additionally, information should be diversified and generally analyzed about the borrowing situation Creating communication channels between different authorities such as taxation, customs, court and police and the State Bank to gather information about individuals and organizations Building private websites and journals about practical credit risk arising in the commercial banks, namely the cause of overdue loans so that all commercial banks can study and can draw experience when making lending decisions The State Bank of Hai Phong should cooperate with the local authorities to get timely information about new established, bankrupted businesses as well as update such information on the mentioned websites and magazines issued by the State Bank of Hai Phong From this information the banks would have a more careful consideration before lending 3.2 As for authorities 3.2.1 Integrity among notary public's offices Currently, there are two notary public's offices in Hai Phong However, notarization procedures and forms at each office have not been inconsistent with each other Therefore, it is necessary to review and revise those procedures so that the mortgage notarization is easy, avoiding frequent changes of procedures and forms to create opportunities for customers to commit fraud 3.2.2 As for the authorities issuing property certificates Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 40 Graduation Thesis It is necessary to review the issuing of property certificates to prevent the case that customers use an asset as collateral to borrow at many commercial banks Forms of property certificates need to be unified to avoid confusion 3.2.3 People's Committee should assist commercial banks when businesses go bankruptcy and use their property to recover debts The handling of the collateral relates to various state administrative agencies The responsibilities of these agencies have been clearly defined as to support credit institutions to recover the debt, however, in fact, it is not seriously implemented, banks not have rights to the mortgaged assets The local enforcement machine is inefficient, making it difficult for banks to handle risky loans 3.3 As for commercial banks 3.3.1 The solutions to complete control environment (1) Enhancing the capacity of the management machine and organizational structure of commercial banks The Board of Directors needs to appoint individuals with highly specialized capabilities, extensive experience in the banking sector and good moral qualities to undertake the banking management Clearly defining the responsibilities and powers of every managing level, avoiding personal imposition and arbitrary (2) Improving control culture Raising awareness of the senior managers about banking business principles, respecting for law and the necessity of building risk management system in accordance with the operational characteristics of each bank (3) Changing opinion on credit growth Credit extension should go together with credit management Mainly focusing on credit expansion without improving the quality of credit risk management and protection will lead to increase in overdue loans, bank losses Conversely, the focus on credit risk management without regard to the credit expansion is not effective Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 41 Graduation Thesis Credit growth should match with the qualifications and ability to manage credit risk Credit expansion should focus on pioneering projects and industries (4) Improving the training quality for bank staff It is necessary to strengthen training activities for bank staff by many types of training from basic to advance, providing a full range of documents to equip staff with adequate knowledge for the job and organizing seminars to exchange lessons related to credit In addition, there should be a team of experienced credit experts, editing and updating practical curriculum, well equipping teaching facilities and methods (5) Commercial banks should have clear criteria to recruit and train credit officers to ensure their capacities to carry out operations Some standards should be built when recruiting staff Career progress and career training plan should be clear and detailed after recruiting, including training at the bank and to taking part in the business class (6) Commercial banks should research and design credit handbooks to guide the performance of the operations (7) Board and executive committee should be aware of the importance of the internal audit department in the banking business activities by appropriate investment, frequent consideration into quality and effectiveness of inspection and auditing activities in preventing fraud and minimizing business risks 3.3.2 The solutions to improve the effectiveness of the internal control system in the prevention, control and management of credit risk (1) Establishing departments to research, analysis and forecast changes of macroeconomic in short-term and long-term Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 42 Graduation Thesis Commercial banks should have private research department, based on channels of information, research sources and other forecasts to guide credit operations, credit risk management strategies, credit strategies and capital investment strategies (2) Setting up credit risk assessment department in commercial banks Commercial banks should establish risk management department This body will operate independently from the credit department of branches Functions of this department include: To make quantitative analysis of credit risk, the credit risk assessment department should coordinate with the department of researching, analyzing and forecasting changes of macroeconomic to quantify the risks by the external environment Besides, the department should have veteran experts with knowledge about credit, lending products, extensive analytical skills and ability to judge and they should be regularly updated with information about industry, economy, society and law, etc Analyzing and evaluating credit risks before approving loans in terms of lending types, borrowers, macroeconomic risks and operational risks of the businesses, etc Staff of risk assessment department can coordinate with credit officers in case of great loans to have an accurate assessment of credit risk After disbursement, credit risk management department continues to monitor and supervise the disbursement process, debt collection and periodically report on the operation situation of the customers This department can have practical examination to verify monitoring operations of credit officers They can directly communicate with the customers in case of late payments or other unusual signs Performing periodic assessment of the credit risk in the loan portfolio of banks to have timely adjustments and solutions, minimize risks as well as supervision methods for each customer (3) Developing and perfecting the credit rating system At present some commercial banks have developed credit rating system as a basis for credit decisions In the future, the big commercial banks can build their own rating Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 43 Graduation Thesis systems correspondent with credit operations Credit rating system will assess the loans basing on quantitative and qualitative factors The assessment results will be a basis to make lending decisions However, to ensure the credit assessment and credit rating accurate, there should be examination and assessment from the authoritative credit officers (4) The solutions to limit credit risk due to lack of information during authorization and making lending decisions Along with the development of technology and information systems, looking for information is not difficult, but it is important to identify the appropriate information channel As for information channels: - Loan officers can collect information from websites of the State Bank’s credit information center, general department of taxation - Verifying the information about the economic contracts and debt situation of customers through communication with their partners - Marketing departments organize the study and assessment of market and business sectors As for authorization activities: managers assign credit officers with profile authorization corresponding with their capacity in terms of qualifications, experience and their knowledge about the sector (5) Controlling the valuation of collateral, verifying the actual status of collateral and reducing the risk of collateral devaluation For real estate, banks should build market price table of each area To ensure the practical monitoring, authorization officers should wear an identity card together every time with a referral from banks and property owners are required to record their identity number and sign to certify authorization time For movables (machine, transport vehicles, ships), authorization officers should photograph and describe their operation status and collect related evidence In case, Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 44 Graduation Thesis banks discover that mortgage assets are different from the original description, authorization officers will take responsibilities Authorization officers should fully verify the legal nature of the borrowers and collateral In special cases, they should consult lawyers or legal experts Making loans should be based on high security properties rather than properties with high liquidity risk (6) Measures to restrict fraud and dishonesty of loan officers Currently, some commercial banks have adopted separation of works among property authorization officers, finance authorization officers and officers responsible for disbursement The separation will help minimize their mistakes as well as fraud and dishonesty It is necessary to set up the system and have independent examination on the credit department The examination is frequently and periodically done by credit risk assessment department, internal auditors, and head of credit department Clearly defining responsibilities of property authorization officers, credit officers, legal staff through professional error summary Defining material compensation if there is any damage to banks by intentional commitment (7) The solutions to limit credit risk due to loose lending control Controlling credit profiles, documents proving the borrowing purposes through the following steps: Once completing credit contracts and mortgage contract, their correctness need to be checked in comparison with related documents Legal staff is responsible for the correctness of the certificate of land use rights, house ownership, project ownership and other papers on the property use and ownership rights Before conducting the disbursement procedures, inspectors or loan approval level check the necessary contents (8) Controlling ex-post monitoring of loans Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 45 Graduation Thesis The commercial banks need to be aware of the importance of the ex-post monitoring, thereby building the strict regulations on loan supervision after disbursement Ex-post monitoring should be made monthly, quarterly, every six months, depending on the nature of the profiles The records should fully demonstrate the current situation of the customer, avoiding perfunctory manner In the case of too many customers, it is difficult for credit officers to have regular examination, banks should classify the customers into different appropriate levels Customers should be bound to transactions and make international payments through banks before lending When there is profile transfer among credit officers, there should be a report on the credit history with customers and update the latest information about customers Large or complex loans require old and new loan officers to pay a visit to the customer before handover (9) Developing warning system for problem loans Currently, commercial banks well perform warning system for problem loans through the banking network Specifically, the information system can list loans to mature If borrowers not promptly pay principal and interest on that day, the next day the system will automatically report overdue loans However, loan officers need to monthly monitor and report on the status of the borrowers, their collateral, the disbursement and the periodical payment to the head of department or directors and promptly take measures to limit overdue loans Each commercial bank should establish departments specializing in the study of the business environment, industries, updating economic and social information, providing timely information for the business departments to restrict lending, stop lending in less secured industries (10) The solutions to prevent customers’ frauds Clearly defining the customers’ identity right in the authorization process Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 46 Graduation Thesis Be cautious with new customers, the banks should not ignore operation principles due to previous truth in prestigious customers Stopping disbursing or collecting debts before maturity in case of any potential fraud from customers (11) The solutions to deal with the credit risk due to the unusual volatility of the business environment and other subjective factors beyond the control of the bank and the customer Banks should have capital reserve plan, forecast the arising risks to have appropriate adjustments to the lending limit (12) The solutions to limit credit risk due to failure to manage borrowers The banks absolutely explore information from CIC about customers’ credit relations, stakeholders and related members The banks also compare with those information collected from customers so that they cannot deny If customers have credit relationships with many banks, financial institutions, credit officers should gather more information about the related parties, their relationship with customers and analyze the overall financial condition and business operations if necessary 3.3.3 The solutions to effectively manage and handle bad debts Doubtful debts are the result of granting credit without analysis of the related factors and the honesty and desire to repay of customers can change The purpose of the bank is to lend customers and projects with good repayment ability Besides objective factors, there are also subjective ones which bank directors not expect There are measures to be implemented as follows:  Establishing overdue debt collecting team Depending on their size, banks establish different teams to collect and handle bad debts In small banks, the amount of doubtful debts are small, they are entrusted for credit officers making loans with consultancy from experts or lawyers Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 47 Graduation Thesis A team of experienced and highly qualified staff should be basically trained in laws on settling bad debt The debt settlement department should monthly or quarterly report on settlement progress, explain the causes and evaluate the recovery ability of bad debts Internal audit department is responsible for periodic inspection of debt settlement activities In this process, internal audit will evaluate the effectiveness and debt collection measures of debt settlement department and periodically report to the Board and Executive Committee to consider level of provision  Implementing measures to prevent doubtful debts  When debt problems arise, to reduce damage to banks as well as customers, banks should apply the following measures: - Along with customers, the banks should invite consultants on production, sales and money collection - Increasing equity: Selling shares, call for shareholders to contribute more capital - Merging - Reducing expansion plan: If this plan exceeds the financial and management capacity - Encouraging to recover undue debts, increasing public debt collection, reducing inventory by cutting prices or increasing marketing - Suggesting additional collateral or guarantee of large shareholders, the customers - Debt rescheduling, redefining repayment period for the long term investment loans 3.3.4 The solutions to improve the quality and efficiency of internal audit machine Organizing the internal audit system including: credit and investment audit and investment credit, treasury audit, IT audit, internal financial audit, payment audit, other activities Those subcommittees are placed at the head office and are responsible for directing and supervising the audit process at the branches, generally assessing risks and advising the executive committee on the completion of the internal control system Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 48 Graduation Thesis Branches will place one or more auditors to monitor and control their activities The audit may be performed regularly, monthly or unexpectedly The audit report of the internal auditors in the branch will be submitted to the internal audit department at the head office To ensure the effectiveness of the internal audit department, internal auditors should have the following factors: - Having qualifications and practical experience in a banking operation for a long time (at least from two to five years), clearly understanding where mistakes can focus - Being trained with professional skills and auditing - Having good communication skills, be able to coordinate with different departments - Requesting branches to provide all information and documents to support the inspection, warn and recommend promptly to the authorities if there are any errors - The auditors should regularly update and improve the professional knowledge, legal knowledge, audit skills and communication skills during the audit process - The auditors should not hold other works out of the internal audit function and are supported with the infrastructure and working facilities - Working time of each auditor at branches should be under two years, they should then transfer to another branch Summary On the basis of analyzing and evaluating strengths - weaknesses of internal controls over credit transactions in commercial banks in Hai Phong, presented in Chapter II, I, Chapter III has proposed a number of measures to overcome weaknesses and perfect the internal control system in order to promote its role in monitoring, preventing and managing credit risk These are just some of the immediate solutions, there are still potential risks which need to be monitored and timely researched to have effective measures Pham Thi Tuyet Trinh ATCB-K13 Banking Academy 49 Graduation Thesis PART C: CONCLUSION In practice, there is no perfect control system which can prevent any possible adverse consequences However, the important role of the internal control is indispensable in the survival and growth of any business, organization or commercial banks The construction of effective internal control system in commercial banks in general and banks in Hai Phong in particular, especially over credit transactions will provide the safe and sustainable development of banking system Currently, in the process of globalization and international integration, Vietnam joined the WTO, commercial banks are facing opportunities and challenges domestically and internationally Besides, the equitization of SOCBs and listing shares of joint-stock commercial banks on the stock market requires more rigorous standards for financial security, preventing the risk of commercial banks Therefore, Vietnam commercial banks in general and commercial banks in Hai Phong in particular should put more efforts in the improvement and construction of internal control system, especially over credit transactions which bring the highest income for commercial banks in order to achieve the goal of minimizing risk and bring the highest efficiency in business We hope that the solutions proposed in the study will initially contribute to perfect the internal control system of commercial banks in Hai Phong, SBV and the provincial authorities will have a part of materials to support commercial banks, contributing to the development of the province Pham Thi Tuyet Trinh ATCB-K13 Banking Academy Graduation Thesis REFERENCES Vietnamese Biểu số liệu tổng hợp tình hình hoạt động địa bàn tỉnh Hải Phòng năm 2011, 2012, 2013 - Ngân hàng nhà nước Việt Nam tỉnh Hải Phịng Kiểm tốn nội - khái niệm quy trình, TS Vũ Hữu Đức chủ biên - NXB Thống kê - năm 1999 Ngân hàng Việt Nam trình xây dựng phát triển - Nhà xuất trị quốc gia Hà Nội – năm 1996 Quản trị Ngân hàng thương mại, TS Trần Huy Hoàng - Nhà xuất thống kê năm 2013 Tín dụng ngân hàng, chủ biên: TS Hồ 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