introduction bidv

BIDV was founded on 26 April 1957 under the initial name of Bank for Construction ofVietnam, then renamed Bank for Investment and Construction of Vietnam 1981 - 1990,Bank for Investment

Group 4:

Nguyễn Ánh Linh: 18071355 Nguyễn Thị Linh: 18071139 Nguyễn Thị Thu Thảo: 19071243

Lecture:

Chu Văn Hùng

BIDV was founded on 26 April 1957 under the initial name of Bank for Construction of Vietnam, then renamed Bank for Investment and Construction of Vietnam (1981 - 1990), Bank for Investment and Development of Vietnam (1990 - 2012), and Joint Stock Commercial Bank for Investment and Development of Vietnam (since 2012)

For banking activities, credit activities always play an important role, often accounting for a large proportion of total assets and generating most of the income for the bank, but this is an activity that always has many potential factors risk, which can lead to bad debt Credit risk, if it occurs, will have a great impact and directly affect the existence and development of each credit institution credit and banking activities In recent years, the bank's operations have witnessed and faced many difficult problems such as joint-stock commercial banks being merged into strong financial institutions because they could not handle their losses losses caused by risks in credit activities Therefore, the improvement

of risk management capacity for the banking system is very urgent and extremely important

Here are solutions to help reduce credit risk

1 Sharing

Risk sharing is a completely different phenomenon This approach is a risk reduction technique which in its simplest form narrates to "sharing the spoils" It involves dividing common risk among two or more persons/companies Bank use this practice

to lend huge amount to big corporations They prefer to pool the risk together with competitors than take the full benefits and loss of the investment In this case, each bank supplies a portion of the loaned funds and enjoy the profits as well as endure potential losses in the proportion of the investment pooled In most severe cases for institutions, risk sharing involves merger or acquisition decisions Risk can also be shared by getting into a joint venture where the partners by agreement will share any possible loss that may arise from the venture This explains that the risk sharing approach is born of necessity

BIDV is known as one of the largest and most prestigious banks in Vietnam With high revenue, diversified products and services, BIDV is trusted and chosen by many customers

Besides, credit risk is a complex risk and many other risks associated with it Therefore, BIDV has used credit risk sharing by linking with other banks to minimize this risk

Năm 2020:

Năm 2021:

Thanks to the use of risk sharing by linking with banks, BIDV has reduced credit risk from 2019 to 2020, overdue financial assets, for example, under 90 days reduced from 490,397 million Vietnamese dong to 26,558 million Vietnamese dong or amounts over 360 days reduced from 1,250,069 Vietnamese dong to 411,058 million Vietnamese dong

2 Diversifying

risk diversification: a strategy used by investors to manage risk By spreading your money across different assets and sectors, the thinking is that if one area experiences turbulence, the others should balance it out It's the opposite of placing all your eggs in

one basket.

Diversifying your investments doesn't simply mean spreading your money across different assets Instead, you can also spread it between companies of varying sizes, different sectors, and a range of geographic regions

While banks cannot be fully protected from credit risk due to the nature of their business model, they can lower their exposure in several ways Since deterioration in an industry

or issuer is often unpredictable, banks lower their exposure through diversification

By doing so, during a credit downturn, banks are less likely to be overexposed to a category with large losses To lower their risk exposure, they can loan money to people with good credit histories, transact with high-quality counterparties, or own collateral to back up the loans

In addition to lending to different customers, BIDV also invests in gold, silver and gems

3 Transfering

- BIDV issues credit using insurance: BIDV Visa Platinum Cashback with the advantage of a maximum refund rate of 6% of the online spending transaction value, of which online insurance payment is 3% In other words, if customers pay insurance via BIDV Visa Platinum Cashback card, they will get a maximum refund

of 3%

- Customers using Visa Platinum Cashback when making a card will sign an insurance contract with BIDV, when the customer loses the card or fails to pay the card limit, the insurance company will pay this not only for benefits benefits for customers, but you bring benefits to the bank, helping the bank to reduce the efforts

4 Hedging

a, Forward contract

-Foreign currency trading

 A transaction of buying a certain amount of foreign currency at the current market rate, for settlement on a certain future date.

 Contract term: Conversion transactions between foreign currencies: Upon agreement between BIDV and clients, Foreign currency versus VND: from 3 days to 365 days.

 A hedging tool for exchange rate risk, help clients control their cash flow

 BIDV and Stavian signed a comprehensive cooperation agreement

 It is a useful solution for customers who have foreign trade contracts, or payments that do not have an exact time of payment such as import-export payment, L/C payment or UPAS L/C with arrival date Payment term depends on delivery progress and document checking…

 As a tool to hedge against risk regardless of price fluctuations in the market Contracts are used to fix income or payments at a predetermined fixed price,

 This is a special assistant to hedge exchange rate risks for commercial banks Very suitable for multinational companies or financial investors, import-export companies, who are most affected by fluctuations in exchange rates

 Because a forward contract is a separate agreement between two parties Therefore, it is often very flexible in terms of contract execution term, contract size, transaction time, etc

Interest rate:

BIDV will cut lending interest rates for prioritized sectors to support businesses Accordingly, the rate applicable for short-term loans for the five prioritized sectors

of agriculture, exports, parts supply industries, small- and medium-sized enterprises and hi-tech businesses will be reduced from 7 per cent to 6 per cent per year

The preferential rate is also applicable for startups, environmental firms and those that have good financial status and credit ties with BIDV for more than three years Notably, BIDV is also offering a lower rate of 5.5 per cent per year for firms and households affected by the recent floods in the central provinces

b, Future contract

BIDV buys and sells foreign currencies

Institutional/individual customers who expect to receive higher interest rates than conventional deposits and have a forecast on a reference index of one pair of exchange rates or several pairs of exchange rates which fluctuate higher/lower than the rate determined on the transaction date (determined rate) during the investment term Potential customers are individual/institutional customers with large deposit balances Transaction currencies:

VND and other strong foreign currencies (USD, EUR, JPY, GBP, AUD, CAD)

Benefits:

 Pay less commissions for trading operations using futures

investments compared to

 Other investment options

 They are highly liquid financial instruments

 contracts allow you to reverse your position and allow you to open buy or sell position

They offer high leverage for maximum profit with limited investments

c, Option contract

For example, for the US dollar, the current buying and selling prices are $23,560 and 23,869, respectively BIDV sets as discount (expected stock price will decrease) on stock price volatility

Return Per Share = [MAX(Strike Price – Share Price ,0)

– Prepaid fee per share

Case 1: if the dollar price increases, the company will make a profit

Scenario 2: if the dollar price falls, the put option expires worthless and the investor loses X dollars, this is a prepaid fee

d, Swaps contract

BIDV opened cooperation contracts with domestic banks such as Vietcombank, Vietinbank, Argribank and expanded cooperation with foreign companies such as KEB Hana Bank (Korea), This helps BIDV to easily transfer resources capital and when customer abroad when withdrawing money can be withdrawn directly without any intermediary transaction

5 Mitigating

Risk mitigation involves taking action to reduce an organization’s exposure to potential risks and reduce the likelihood that those risks will happen again In this article, we will discuss how BIDV minimizes operational and credit risk with the Mitigating tool

5.1 Operational risk

Operational risk is the risk of loss resulting from ineffective or failed internal processes, people, system errors, or external events

In 2021, BIDV has uniformly implemented operational risk management tasks to ensure compliance with regulation of competent regulators, towards common practices and the reality, particularly:

(i) setting up an organizational structure under a 3-lines-of-defense model; developing and implementing BCP (Business Continuity Plan)

(ii)issuing full, timely, and synchronous documents; developing a credit appraisal and approval process at branches and Head Office to consistently implement throughout the system;

(iii) establishing and supervising compliance with operational risk appetites and limits; implementing operational risk management tools such as RCSA (Risk and Control Self-Assessment), KRI (Key Risk Indicator), LDC (Loss Data Collection), using the findings of internal auditors and independent auditors; developing software programs for operational risk management;

(iv) performing operational risk management for outsourced activities and new products/activities in new markets

(v) calculating and stress-testing on required capital for operational risk;

(vi) reporting on a regular and ad-hoc basis on operational risk management; (vii) implementing training and communication on operational risk management across the system

5.2 Credit risk

Credit risk is the possibility of a loss in the banking operations of a credit institution due to the customer's failure to perform or inability to perform his/her obligations as committed The Bank controls and manages credit risk by:

(i) Establishing a credit quality review process that allows early forecasting of changes in counterparties' financial position and repayment capacity based on qualitative and quantitative factors;

(ii)The credit limit for each customer is established through the use of a credit rating system where each client is rated at a risk level;

(iii)Building the level of the jurisdiction of each branch on the basis of the actual efficiency and credit quality of each branch and assessing the management capacity of each branch, assessing the potential of each region;

(iv) Developing a customer policy to screen and select customers and has an appropriate and consistent behavior policy for each customer

6 Reserves

The bank has made provisions for credit risk as follows:

Provisions for losses on loans, advances and finance leases to customers from 2017

-2021

Loans, advances and finance leases to customers from 2017 – 2021

Loans, advances and finance leases

to customers 866,885 988,739 1,116,998 1,214,296 1,354,633

Provisions for losses on loans, advances

and finance leases to customers -11,350 -12,405 -14,632 -19,056 -29,104

Provisions/Loans, advances and

finance leases to customers (%) 1,31% 1,25% 1,31% 1,57% 2,15% From the table above, we see that the percentage of provisions against loans to customers is stable at 1.25-1.31% in 3 years from 2017 to 2019 But this ratio increases significantly to 1.57% in 2020 and 2.15% in 2021

Especially, compared to 2020, the provision of 2021 has increased by 53% although the loan to customers is only increased by 12% BIDV had increased the provision ratio significantly higher than in prior years to reduce credit risk because the covid-19 pandemic had a negative economic impact in 2020 and 2021

Conclusion :

Particularly in the context of the Joint Stock Commercial Bank for Investment and Development of Vietnam, through many years of strong and continuous growth and comprehensive and profound reforms in organizational practices, management, technology as well as human resources, the Bank has achieved remarkable progress in all business aspects However, the historical lessons in the past and the adverse fluctuations

in the macro-economy in general and the banking industry in particular in recent years and possibly in the next few years always remind that the risk of Credit quality deterioration is always present and potentially poses a great threat to the Bank's sustainable development In order to survive, develop and further, to comprehensively improve the quality of credit risk management according to international standards, quickly achieve the goal of integrating into the regional and world finance, Improving the quality of credit risk management is a key issue in the operational strategy of the Joint Stock Commercial Bank for Investment and Development of Vietnam

In general, the above studies have made an important contribution to the basic theories of credit risk management in recent years However, the studies mentioned above still have some "gaps" in research on credit risk management, typically credit risk management for the Joint Stock Commercial Bank for Investment and Development of Vietnam

Reference:

1 https://

www.bidv.com.vn/vn/quan-he-nha-dau-tu/bao-cao-va-tai-lieu/bao-cao-tai-chinh/

2 Swap contracts (2022) Corporate Finance Institute Available at:

https://corporatefinanceinstitute.com/resources/derivatives/swap-contracts/

3 Dheeraj Vaidya, C.F.A (2022) Interest rate swap: Examples: Uses: Swap curve WallStreetMojo, Available at: https://

www.wallstreetmojo.com/interest-rate-swap-curve/

4 VietstockFinance (2002) Bid: Ngân Hàng TMCP đầu tư và phát triển Việt Nam

- BIDV - Tài Chính, VietstockFinance finance.vietstock.vn Available at:

https://finance.vietstock.vn/BID/financials.htm?tab=CDKT

5 Www.bidv.com.vn (no date) Available at:

https://

www.bidv.com.vn/wps/wcm/connect/6a0859d4-d932-442f-b8f4-a9ee5264b102/BCTN+BIDV+2021+FINAL+ENG.pdf?MOD=AJPERES (Accessed: December 9, 2022)

6 BID: Ngân hàng TMCP Đầu tư và Phát triển Việt Nam - BIDV - Tài chính |

VietstockFinance

7 BID_Baocaotaichinh_2021_Kiemtoan_Hopnhat.pdf (vietstock.vn)

8 BID_Baocaotaichinh_2020_Kiemtoan_Hopnhat.pdf (vietstock.vn)