Credit quality improvement at acledabank PLC

MININSTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS OF HO CHI MINH CITY  CHHUON CHHEN CREDIT QUALITY IMPROVEMENT AT ACLEDABANK PLC MASTER OF BANKING THESIS Ho Chi Minh City – 2012 MININSTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS OF HO CHI MINH CITY  CHHUON CHHEN CREDIT QUALITY IMPROVEMENT AT ACLEDABANK PLC Major: Banking Major code: 60.31.12 MASTER OF BANKING THESIS Ho Chi Minh City – 2012 Acknowledgements First of all I would like to express my sincere gratitude to my supervisors, Dr PHAM VAN NANG at University of Economics Ho Chi Minh City, Vietnam, for his intelligent guidance and helpful advice during the whole process I would like to thank all the participants who contributed to my work, not just for their responses, but also for the good suggestions they made and their kind help Special thanks to my family and friends for their consideration and support during all the process of writing this thesis CHHUON CHHEN I Table of Content INTRODUCTION 1 URGENCY OF THE SUBJECT Research Objectives Object and Scope of the research Research Methodology Contribution of the study Outline of the study CHAPTER I: CREDIT QUALITY OF COMMERCIAL BANK 1.1 Credit activities of commercial bank 1.1.1 Overview of commercial bank 1.1.1.1 Definition of commercial bank 1.1.1.2 Major activities of commercial bank 1.1.1.2.1 Mobilization of capital 1.1.1.2.2 Capital Use 1.1.1.2.3 Other activities 1.1.2 Credit activities of commercial bank 1.1.2.1 Definition of credit activities 1.1.2.2 Forms of credit of commercial banks 1.1.2.2.1 Based on purpose 1.1.2.2.2 Based on credit term 1.1.2.2.3 Based on the mode of lending 1.1.2.2.4 Based on the level of confidence for customers 10 1.1.2.2.5 Based on the origin of credit: 10 1.1.2.2.6 Based on morphological value of credit 11 1.2 Credit quality of commercial bank 11 1.2.1.Definition of credit quality 11 1.2.2.The important to improve credit efficiency 12 1.2.2.1.For banks 12 1.2.2.2 For customers 13 1.2.2.3 For economic development 14 1.2.3 Factors used to analyze credit quality 14 1.2.3.1 Qualitative factors 14 II 1.2.3.2 Quantitative factors 15 1.2.3.2.1 Debt outstanding growth rate 15 1.2.3.2.2 Past due debt/Total debt outstanding ratio 15 1.2.3.2.4 Mortgage loan/Total loan outstanding 16 1.2.3.2.5 The growth rate of income from credit activities 16 1.3 Factors affecting credit quality of commercial banks 17 1.3.1 Subjective Factors 17 1.3.2 Objective Factors 19 CHAPTER II: THE REALITY OF CREDIT QUALITY OF ACLEDA BANK PLC23 2.1 Overview of ACLEDA BANK PLC 23 2.1.1 History of development 23 2.1.2 Management structure of ACLEDA BANK PLC 26 2.1.3 Result of its activities……………………………………………………………32 2.1.3.1 Capital mobilization……………… ………………… ………………………32 2.1.3.2 Lending and investment 36 2.1.2.3 Other business activities 37 2.1.2.4 Business Result 38 2.2 Credit quality of ACLEDA BANK PLC 39 2.2.1 Lending process 39 2.2.2 Analyzing factors reflecting credit quality of ACLEDA BANK PLC 41 2.2.2.1 The growth of debt balance 41 2.2.2.2 Past due 44 2.2.2.3 Past due divided in groups 45 2.2.2.4 Mortgage loan 48 2.2.2.5 The growth of interest income 51 2.3 Credit quality analysis 52 2.3.1 Business outcome 52 2.3.2 Limitation and causes 54 2.3.2.1 Limitation 54 2.3.2.2 Causes 54 2.3.2.2.1 Subjective Causes 54 2.3.2.2.2 Objective cause 56 CHAPTER III: SOLUTION TO IMPROVE CREDIT QUALITYOF ACLEDA BANK PLC …………………………………………………………………………… 59 III 3.1 The orientation of credit activities of ACLEDA BANK PLC 59 3.1.1 Business orientation of ACLEDA Bank Plc: 59 3.1.2 The orientation of credit development of ACLEDA BANK PLC 60 3.2 The solution to improve credit quality of ACLEDA BANK PLC 61 3.2.1 Credit assessment improvement 61 3.2.2 Improvement of credit risk control 62 3.2.3 Increasing cover ratio( collateral/debt ratio) 63 3.2.4 Enhance the settlement of outstanding debt 64 3.2.5 Development of human resource 65 3.2.6 Update technology 67 3.2.7 Maintain long term relationship with customers 68 3.2.8 Improvement of Marketing quality 69 3.2.9 Other solution 70 3.2.9.1 Conduct contests to find out high quality staffs 70 3.2.9.2 Organize seminars and exchange experiences with other banks 70 3.2.9.3 Separate clearly between salaries and bonuses 71 3.2.9.4 Promote good relationship between the bank and other authorities 71 3.3 Petition 71 3.3.1 For the government 71 3.3.1.1 Strengthening the supervision of law enforcement 71 3.3.1.2 Conducting equalization and restructuring the state enterprises 71 3.3.1.3 Further promoting the operations of debt and asset trading companies 72 3.3.1.4 Urgently granting land/house title deed to people 72 3.3.1.5 Fastening the process of issue settlement of the court system 72 3.3.2 3.3.2.1 For National Bank of Cambodia 72 Stabilizing the inter-banking money market quickly 72 3.3.2.2 Strengthening the inspection and supervision of the operation of commercial banks…… 73 CONCLUSION 74 REFERENCES 75 IV List of Tables Table 2.1: The situation of ACLEDA Bank’s capital mobilization……… ………32 Table 2.2: Capital mobilization by maturity date…………………………….……35 Table 2.3: Lending and investment of ACLEDA Bank…………………….…… 36 Table 2.4: Business result of ACLEDA Bank ………………………… …… 38 Table 2.5: Lending situation of ACLEDA Bank………………………………… 43 Table 2.6: Past due debt of ACLEDA Bank……………………………………….44 Table 2.7: Past due debt divided in group of ACLEDA Bank………….…………46 Table 2.8: Percentage secured past due loan of ACLEDA Bank……….…………50 Table 2.9: Total net interest income of ACLEDA Bank…………………….…….51 V List of Chart Chart 2.1: The situation of ACLEDA Bank’s capital mobilization ………….……33 Chart 2.2: Capital mobilization by maturity date ………………………………… 35 Chart 2.3: Lending and investment of ACLEDA Bank ………………………… 37 Chart 2.4: Business result of ACLEDA Bank ………………………………… 38 Chart 2.5: Lending situation of ACLEDA Bank ………………………… …… 43 Chart 2.6: Past due debt of ACLEDA Bank…………………………….…… … 44 Chart 2.7: Past due debt divided in group of ACLEDA Bank ……………… … 47 Chart 2.8: Percentage secured past due loan of ACLEDA Bank ………… … … 49 Chart 2.9: Total net interest income of ACLEDA Bank ………………… …… 52 VI Page INTRODUCTION URGENCY OF THE SUBJECT Today the role of banks in general and commercial banks in particular are increasingly evident, contributing to the development of world economy in general and in particular to contribute to the economic development of Cambodia ACLEDA bank is one of the commercial banks of Cambodia Currently, the main business activities of commercial banks in general and of ACLEDA bank in particular are: Capital raising activities, Capital using activities, and other services Among these activities, credit activities is a basic activity and plays an important role for ACLEDA bank, such as: This activity provides the main source of revenue for ACLEDA, and through this activity, it may cross-selling products to attract other activities such as underwriting, international payment, money transfer However, the credit quality of ACLEDA is still being evaluated to be low This will cause many risks (such as credit risk, liquidity risk ) and losses to the bank In the context of the global financial crisis, the fierce competition among commercial banks with other banks has made credit quality of ACLEDA somewhat diminished To develop credit activities in particular and banking activities in general, improvement the credit quality in the future is an urgent requirement in place today Because of the above requirement, the topic: “The solution to improve credit quality of ACLEDA bank.” was chosen as the subject of Master thesis in economics Page 2 Research Objectives - Study the basic theories about the credit quality of commercial banks - Analyze the status of credit quality of ACLEDA BANK PLC in Cambodia, then point out what has been done and what has not yet been done and point out the causes of these limitations - Propose the solutions to improve the credit quality of the ACLEDA BANK in the future Object and Scope of the research - Study objects: the credit quality of commercial banks - Scope of the Study: Credit quality of ACLEDA BANK in Cambodia - Research Time: From 2009 to 2011 Research Methodology In the process of writing thesis, statistical methods, synthesis, investigation, comparison and economic analysis are used Contribution of the study - Systematize the basic arguments of credit quality of commercial bank - Analyze the status of credit quality of ACLEDA BANK, then point out the solutions to improve its credit quality Outline of the study Introduction Chapter 1: Credit quality of commercial bank Chapter 2: The reality of credit quality of ACLEDA BANK PLC Chapter 3: Solutions to improve credit quality of ACLEDA BANK PLC Conclusion Page 61 3.2 The solution to improve credit quality of ACLEDA BANK PLC 3.2.1 Credit assessment improvement For credit activity, firstly, banks mention in the effective use of the money that banks provide to customers, because when the business plan of the customer is effective, it will bring good income for customer to make repayment to the bank During the evaluation process, before deciding to grant credit to customers, the evaluation of customers’ business plans will be key requirements The evaluation of the collateral, or financial capacity of customers is only a necessity to reduce credit risk to a bank, but the evaluation of the efficiency of the business plan will be the necessary condition and sufficient condition (most important) to consider whether banks should provide credit to customers or not Usually in the evaluation of business plans, the loan officer meets some mistakes like: He ignores customer who have effective business plans and accepts to grant credit to customers who have inefficient business plans So, in order to better appraise the customers’ business plan, ACLEDA bank needs to: - When the loan officers receive loan applications from customers, they need to consider carefully and answer questions like: Who is the creator? Is it appropriate with the functions and duties? Is accounting method correct? Is the business plan appropriate with the business license? Then, determine the efficiency of the business plans - Expertise the credit appraisal staffs - Always update market information (such as the inputs of production, suppliers, output, product design, needs, and distributors of the business ) To achieve this, beyond the capacity and experience of appraisal staffs, bank should train its staffs how to make intensive use of survey methods, statistics, analyze, and predict the flow of costs, revenues, inflation Then compare with the expected figures in the business plan established, then assess the risks that may occur On the other hand, banks should guide customers to make their business plan when they can not make it Page 62 Now loan officers (credit appraisers) is suffering from some mistakes when evaluating some issues such as technical evaluation of the projects that have modern equipment/machineries, new technology, production line technology, capacity of machineries and levels of energy consumption, raw material or evaluate market forecast parameters, revenue and demand for the product of the investment project, import and export turnover, estimated market share of the business Therefore, hiring experts or third-party evaluation is necessary, because their specialized fields would better than officers who not understand those technologies But in the process of hiring experts, or third-party evaluation, ACLEDA bank should properly integrated with those professionals in the process of evaluation for next time similar works can be conducted by the credit officers of the bank 3.2.2 Improvement of credit risk control In parallel with credit growth, to limit the credit risk to enhance credit quality, banks need to develop the following major measures: - Need to diversify the forms of credit, then it will meet the diverse needs of customers in the economy On the other hand it also helps the bank to choose customers and diversify credit risk Currently banks are too favorably for some large customers dealing with banks and regardless the provisions on risk diversification, this will potentially risky for banks in the future Thus, in the future banks should apply the measure of risk diversification in effective way to improve credit quality - Need to build and consolidate the activities of departments directly related to credit activities Customer evaluation system is based on historical relationships with customers, and information received from loan officers, pay little attention to the financial situation and other factors affect the results of production and customer’s business So, in the coming time, the bank should implement the following measures: Need to build and strengthen activities of the credit risk assessment department which its function is to responsible for risk management Page 63 of the bank This department should develop policies to implement the objectives of the bank as well as controlling the level of credit risk Consolidating and reorganizing the operations of internal control department to help it act more effectively Thus the internal control department will be rebuilt on the foundations of the old internal control department and recruit staffs that are full of experiences to enhance good performance of the department On the other hand, the Central Credit Committee needs to shorten the decision-making time for the case of credit which exceeds the decision of the branch manager, deputy general manager, and general manager in order to reduce the time for granting credit to customers, to gradually improve the credit efficiency - Now, functions, duties, powers and responsibilities of each loan officers and approval level is still restricted Thus, in the future, the bank should develop and promulgate regulations on functions, tasks, powers and responsibilities of each department to avoid shirk responsibility as current work However, it should be based on the basis of regulations issued Each department operates independently and coordinates synchronously, rhythmically in the process The policies, regulations, procedures must be built clearly, scientifically and regularly updated to suit with the actual activities and suit with regulations, circulars issued by National Bank of Cambodia - Improving the process of credit scoring and credit rating and building credit risk management committee (ALCO Committee) to control and handle credit risk 3.2.3 Increasing cover ratio( collateral/debt ratio) Increasing the cover ratio will contribute to reducing risks in the debt recovery process of the bank when the customer does not repay the debt It will contribute to improving the credit quality So, in the coming time, ACLEDA bank should: Banks should establish property valuation division to ensure professional, objective and the effectiveness of property valuation Poor-quality assets have affected the Page 64 recovery of debts when customers fail to repay loan to the bank So, the bank should embody the principles such as the property ownership, the right to use the property must belong to the borrower or the mortgagor's (guarantee); transactions - allowed property: the type of property that the law allows to sale, donate, transfer, pledge, mortgage, guarantee and other transactions; not disputed at the time of signing the contract; to have insurance (if required by law to have insurance); assets must be easily transferable and have value in the future On the other hand, banks need to further coordinate with government authorities at all level such as commune/Sangkat authority, district/Khan authority, province/city authority, the department of land management, urban planning and cadastral(the place where we can register the collateral) to get the reliable information about the property when receiving the property as the collateral In addition, the bank should conduct the inspection, revaluation of the collateral annually to ensure that property values reflect the current market value as well as comply with the provisions of law and regulations of ACLEDA bank However, the bank have to organize training class for credit officers to make them understand that the collateral is only the necessary condition but not a sufficient condition for granting credit to customer When granting credit to customer, we have to analyze other criteria such as the effectiveness of business plans, financial status of customers, the changes of market output, the domestic economic situation 3.2.4 Enhance the settlement of outstanding debt Currently, the debt management division of ACLEDA bank is in charge of supervising the loans that have problems Handling the outstanding debts to contribute to financial healthy of the bank is main issue that need more attention and need more coordination from various departments The reasons to resolve the outstanding overdue debt are: Page 65 Outstanding debts contained banking system disruption will lead to financial and monetary crisis Outstanding debts created burden for banks, impaired ability to raise capital and lending to the economy, reducing the public's trust and reducing international prestige for its banking system Hence, the need to strengthen public debt management and settlement of debts is an urgent matter for ACLEDA bank In order to well the recovery of outstanding debts, in the coming time, the bank should treat the following issues: - Need to review all of the debt that has problems properly and loan classification - Determine the likely debt retrieved or recovered - Estimate costs related to the recovery of debts and estimate the necessary funds - Make plans to restore the debt that has problem and adopt appropriate measures for each specific group of debt For loans that the bank feels the customer can’t have the ability to repay the loan to the bank, the bank should invite the customer to the bank to discuss and find the solution, then ask the customer to sell the secured property or let the bank help to sell the property to recover the debt quickly and reduce damage to the customer 3.2.5 Development of human resource Human resources have an important role in banking business in general and especially in credit operations in particular The qualification of human resources is not only in the successful implementation of assigned work but it is also the task of modern banking management, new knowledge, often-change information Meanwhile, it requires loan officers to proactively update, study through documents, public information and relationship and then, apply that information into work This will ensure the quality of assigned work, and then it will ensure the credit quality Page 66 In recent years, officers in general and credit officers in particular of ACLEDA bank are still subject to the old control mechanism, so it has reduced flexibility, responsibility of each officer and employee in the bank, so the quality of each credits is not high So, in the future, ACLEDA bank should focus on training staff as following: - Need to build a team of experts who have profound understanding in each field of banking activities, particularly in the implementation and management of credit and credit risk This can be done in many ways, both short and long term Specifically: • For short term: Conduct short term training courses, seminars, cooperation and exchange experiences with other banks, or conduct training courses at the bank’s training center to equip all staffs the professional knowledge, the current and new policies The knowledge and training need to be standardized • For long term: Banks should identify groups of key officials and send them to be trained in foreign countries (countries in which its financial and banking industry is developed, such as Hong Kong, USA, UK, Japan ) Then, they will bring modern knowledge that has been equipped to serve the development of the bank In addition, banks can hire more consultants from abroad to advise the bank - On the other hand, the bank should actively encourage its officials to be trained in the country However, banks need to keep track of training programs for those staffs, periodically updating textbooks, documents and learning outcomes of each officers to check whether the result of training is effective or not - Besides training, the bank should have policies on the use of officers in a reasonable manner after having been trained Banks should empower, enhance responsibility to those officers in order they can develop their capacity and apply the knowledge in specific work such as: Page 67 - Banks should set up reward policies (salary, bonuses, ), sanctions (administrative fines deducted from the salary, criminal liability ) in transparent and public way to encourage employees - Need to build a reasonable employment policy This policy must be public and transparent to attract high-quality employees, especially for employees working on risk management in general and credit risk management in particular Currently, the recruitment of ACLEDA bank is still lack of transparency For example, to recruit into the bank, the applicants have submitted more than 10 different types of papers but not know whether they are contacted to the contest or not ; in some cases, bank employees receive money and employ staffs who have low-quality to work, while the high quality personnel are not recruited So, if we want to attract good and high quality employees, in the near future, ACLEDA bank needs to build a reasonable employment policy and it must be public and transparent 3.2.6 Update technology Information technology systems and information technology play a critical role in improving the efficiency of banking operation in general and strengthen credit management in particular Information technology systems and information technology can be seen as the key support for making decisions on management of credit risk more accurately, more efficiently Currently, information technology systems and information of ACLEDA bank are low, not by international standards Therefore, the time to upgrade and modernize information technology systems and information technology should be focused on the following specific issues: - Development of information technology systems and information technology under the following three objectives: + Increase the capacity of supplying products and services with high quality Page 68 + Support for information quickly and accurately in order to serve the executive management and banking business in general and credit risk management in particular + The information must be easily reached by all levels and ensure the safety of the operating system - Information technology upgrading must be modern and consistent with the development of banking activities Avoiding the situation of information technology is upgraded, but two or three years later, it will be outdated (being cheated by provider) In addition to upgrading information technology systems need to implement a roadmap and it must be consistent with the financial capacity of the bank, in accordance with the qualifications of staffs - Need to build and upgrade the backup center to ensure that business activities is continued without interruption, to prevent and mitigate risks that may occur in an application of the information technology - Need to set up information technology system in the direction of modern banking On the other hand need to assign right people, right work and give responsibility to the managers and the operators of the system 3.2.7 Maintain long term relationship with customers Customers have particularly important role in the credit activities of banks and customers decide the existence and development of banks Therefore, maintaining and developing long term relationships with customers not only help banks attract deposits, but also expand credit operations, develop additional products and services On the other hand, it helps banks to know the customer's business activities and, since then, banks have more accurate decisions when deciding to grant credit and to mitigate credit risk and respectively, improving credit quality To maintain and develop long lasting relationships with customers, banks should use the following measures: Page 69 - Need to enhance the exploitation of customers and especially attract good customers from other banks to come to ACLEDA bank In addition, we need to understand and assess the actual operational status of customers from which to capture the status, needs, interests and conditions of the loan in order to setting orientation to maintain and apply reasonable conditions for each specific customer - Score customers to classify customers according to various criteria such as business type, scale of operations, business field, relationship with the bank so that we can set reasonable policies for each customers such as for traditional customers who have prestige in both credit activities and other activities and then, the bank may have a preferential policies about interest rates, reduction of collateral in credit relationships, and may reduce other conditions in the credit - Enhance the advertising and marketing to attract customers In addition, we can implement in other forms of activities such as participation in banking fairs and exhibitions, media advertising, handing out leaflets to create the bank's image in the minds of customers - It is necessary to enhance the responsibility of Customer care Department It not only shows the high specialization but also improves the quality of banking services Customer care Department will be the place to get those needs as well as inquiries or complaints from customers for banking activities and directly address the complaint or transferred to the relevant sections and guide customers to access and use of banking services 3.2.8 Improvement of Marketing quality ACLEDA bank’s policies should be appropriate to maintain and continually attract customers To achieve this, the bank needs to develop a marketing strategy for credit operations in a reasonable manner and must be programmed from the time of finding out customer demand until the information, products to be reached to customers to satisfy the needs of customers Then, customers will have sufficient Page 70 information and knowledge before using the products and services of the bank, thereby giving customers the most comfortable and convenient in the transaction, thus contributing to improve competitiveness in the market On the other hand, by making research, being closely to the market fluctuations, Marketing can bring valuable information to help the bank to decide promptly in responding to the market and competitors Thereby, the bank can fully anticipate all risks and provide solutions in a proactive way, promptly and doing business safely while maintaining high efficiency Then, it will contribute to increasing credit efficiency of the bank 3.2.9 Other solution On the basis of uniform application of the specific measures mentioned above, in the future, to enhance credit efficiency, ACLEDA bank needs to perform synchronously the following measures: 3.2.9.1 Conduct contests to find out high quality staffs The bank should conduct regularly, and may assign branches; headquarters organize the contest separately, thereby stimulating the regular studying of loan officers On the other hand, it requires all employees to participate, then we can check on the knowledge of the credit officers and otherwise, it stimulates further the study of officers and employees throughout the bank 3.2.9.2 Organize seminars and exchange experiences with other banks Organizing seminars and exchanging experiences with other banks to enhance learning between credit officers together and also getting more useful information from credit officers of other banks Then, it will provide more sources of information for the loan evaluation process Page 71 3.2.9.3 Separate clearly between salaries and bonuses Currently, ACLEDA bank only applies salary payment method, but award payment method has not been emphasized So, in the coming years, the bank should apply the bonus, a specific penalty, fair and equitable for each credit officers to attach the right and responsibility to each staffs who perform each corresponding credit items 3.2.9.4 Promote good relationship between the bank and other authorities There is a need to closely coordinate to increase the support of government authorities and other organizations to obtain more precise information about mechanisms and policies of the government, about the activities and reputation of enterprises This information will be helpful for making credit decisions 3.3 Petition 3.3.1 For the government 3.3.1.1 Strengthening the supervision of law enforcement The government and particularly the Ministry of Finance should strengthen guidance and supervision of the implementation of enterprise accounting regime, in order to avoid enterprises provide the false financial information, making it difficult for the evaluation of the bank The government also needs to strengthen the implementation of the audit regime for enterprises, clearly defined responsibilities of related sectors such as notary department, audit agency and property valuation companies in the valuation of collateral, and collateral settlement 3.3.1.2 Conducting equalization and restructuring the state enterprises The government should conduct equalization and restructuring of state enterprises, leaving only those doing business effectively When these enterprises are restructured, the business capacity of the enterprises will increase and then, loan from banks will be more efficient in the use of loans Page 72 3.3.1.3 Further promoting the operations of debt and asset trading companies The government should further promote the operations of debt and asset trading companies in order to support and help commercial banks to settle the past due debts 3.3.1.4 Urgently granting land/house title deed to people To improve credit efficiency, the government authorities at cities, provinces, districts, communes need to grant urgently land/house title deeds to people to help clients be able to use those properties as collateral for borrowing money in accordance with the provisions of law The government also needs to shorten the time of registering the collateral 3.3.1.5 Fastening the process of issue settlement of the court system Court at all levels should quickly settle all issues that banks submitted to help banks quickly get their capital back 3.3.2 For National Bank of Cambodia To improve the credit efficiency for commercial banks in general and, in particular, for ACLEDA bank, this thesis proposes the central bank as follows: 3.3.2.1 Stabilizing the inter-banking money market quickly Currently, inter-banking money market of Cambodia is lacking of unity It is incomplete and operates inefficiently Thus, a bank that has limited financial capacity will not have enough power to compete in the open market So in the future, National Bank of Cambodia needs to quickly stabilize the market by: - Continue to adjust capital reallocation interest rate, rediscount interest rate, base rate and open market interest rates in a reasonable way to reflect supply and Page 73 demand on the monetary market, allowing the commercial banks to negotiate interest rates for consumer loans - Need to create favorable conditions for banks to access to the capital from National Bank of Cambodia for additional capital of each bank in the necessary time 3.3.2.2 Strengthening the inspection and supervision of the operation of commercial banks Nowadays, National Bank of Cambodia has made the inspection, testing and monitoring activities of commercial banks However, the inspection and control of credit of commercial banks still have not been effectively implemented It only controls the development of credit through the periodic report of commercial banks, but it has not yet controlled at a point of time So, in the future, the limitations mentioned need to be overcome , on the other hand need to strengthen and improve the quality of inspections and monitoring There can thus be given early warning of potential risks in credit operations for commercial banks in general and for ACLEDA bank in particular On the other hand, during the inspection and monitoring, if any violation is discovered, it must be dealt strictly as an example for other banks, avoiding keeping secret like today Page 74 CONCLUSION Improving credit quality is an essential activity for the bank's business activities Because, when, credit quality is not improved, it will maintain the potential risk that can lead to bankruptcy, affecting the domestic and international financial sectors The practical research shows that the credit quality of ACLEDA Bank is still at a low level, there are many issues that need to be improved The thesis has shown the results achieved and the limitation in the credit activities of ACLEDA Bank This thesis also provides a system of solution and suggestion to all levels of relevant authorities/departments So, during the time of improving the credit quality of ACLEDA Bank, the bank should plan to implement comprehensive solution to improve the credit quality and minimize possible losses, gradually improve the efficiency of the bank's business, to bring ACLEDA Bank to be one of the best commercial bank in Cambodia Page 75 REFERENCES Benton E Gup and James W Kolari; 2005, Commercial Banking, The Management of Risk; Third edition; ISBN: 9812-53-159-9 Frederic S Mishkin; 2007, The Economics of Money, Banking, and Financial Markets; Eighth edition; ISBN:0-321-42281-3; Pearson International Edition Frank K Reilly & Keith C Brown; 2006, Investment Analysis and Portfolio Management; Eighth Edition; ISBN: 0-324-28903-0 Cooper Donald R and Schindler Pamela S.; 2003, Business Research Methods; Eighth edition; ISBN: 0- 07-249870-6 ; McGraw-Hill higher Education Eisemann, P C., (1997), Return on equity and system ratio analysis, Commercial Lending Review, Summer, Boston, p 51 – 57 Altman, E I., (1968), Financial ratios, discriminant analysis and the prediction of corporate bankruptcy, The Journal of Finance, Vol 23, No 4, p 589 – 609 Brigham, E F (1992), Fundamental of Financial Management, 6th edition, Dryden Press, Forth Worth Brigham, E F (1995), Fundamental of Financial Management, 7th edition, Dryden Press, Forth Worth Bureau of Economic and Business Research, (1961), The use of financial ratios and other financial techniques and services by small businesses, Temple University, Philadelphia, Pennsylvania Law on banking and financial institution of Cambodia, (1999) Annual report of ACLEDA Bank Plc, (2010 & 2011) ... information: Credit information has an important role, impact on credit quality of banks In credit operations, thanks to the credit information that loan officers can make decisions in credit. .. The reality of credit quality of ACLEDA BANK PLC Chapter 3: Solutions to improve credit quality of ACLEDA BANK PLC Conclusion Page CHAPTER I CREDIT QUALITY OF COMMERCIAL BANK 1.1 Credit activities... pay attention to credit quality problems parallel to the continuous scale of credit growth Thus, for banks, improving credit quality will have the effect that: Page 13 - Improving credit quality