LV Thạc sỹ_Credit risk management efficiency at South Asia bank

ACKNOWLEDGEMENT Thanks for people who have given me support to me over the time of study Firstly, I would like to express my gratitude to my lectures for all of their support and guidance over the past two years Your knowledge, lecture and advice are the foundation of this study However, without persistent encouragement of my supervisor, Dr…., this thesis would never have come as expected I would really like to thank him for all of his terrific ideas regarding the research methodology, comments which put me on the right track during this study formulation It is important for me to thank South Asia Commercial Joint Stock Bank and its staffs, who provided invaluable data and information I certainly could not have completed this study without their knowledge and cooperation I would also like to thank my colleagues and my friends for what they done as well as their understanding in effort to help me all time… Finally, I would like to dedicate this study to my parents for all their support and understanding, and for always believing in me TABLE OF CONTENTS ACKNOWLEDGEMENT i TABLE OF CONTENTS .ii LIST OF FIGURES LIST OF TABLES ABBREVIATION EXECUTIVE SUMMARY CHAPTER I: CREDIT RISK MANAGEMENT IN COMMERCIAL BANK – THE THEORETICAL FRAMEWORK FOR ANALYSIS 1.1 OVERVIEW OF CREDIT RISK OF COMMERCIAL BANK .1 1.1.1 Credit activities of commercial bank 1.1.2 Definition of the credit risk 1.1.3 Causes of credit risk 1.1.4 Consequences caused by credit risks 11 1.2 MANAGEMENT OF CREDIT RISKS IN COMMERICAL BANKS 13 1.2.1 Definition of the credit risk management 13 1.2.2 Process of the credit risk management .14 1.2.3 Tools supporting for the management of the credit risks 16 1.3 EXPERINCE IN CREDIT RISK MANAGEMENT OF SOME COMMERCIAL BANKS IN THE WORLD 24 1.3.1 Management of credit risk of some commercial banks to in the world 24 1.3.2 Lessons for commercial banks in Vietnam .27 CHAPTER II: PRESENT SITUATION OF CREDIT RISK MANAGEMENT OF SOUTH ASIA COMMERCIAL JOINT STOCK BANK 30 2.1 OVERVIEW OPERATION OF SOUTH ASIA COMMERCIAL JOINT STOCK BANK 30 2.1.1 Brief development and personnel organization 30 2.1.2 Peformance of South Asia Commercial Joint Stock Bank 33 2.1.2.1 Capital mobilization 34 2.2 REAL STATUS OF CREDIT RISK MANAGEMENT IN SOUTH ASIA COMMERCIAL JOINT STOCK BANK 38 2.2.1 Motive of the South Asia Commercial Joint Stock Bank in the credit risk management .38 2.2.2 The lending procedure of the South Asia Commercial Joint Stock Bank to minimize credit risk: 39 2.2.3 Credit risk management in the South Asia Commercial Joint Stock Bank 41 2.3 ASSESSMENT OF THE CREDIT RISK MANAGEMENT IN THE SOUTH ASIA COMMERCIAL JOINT STOCK BANK 44 2.3.1 Archivements 44 2.3.2 Limited aspects 47 2.3.3 Causes leading to limited credit risk management in the South Asia Commercial Joint Stock Bank 49 CHAPTER III: SOLUTIONS TO IMPROVE CREDIT RISK MANAGEMENT EFFICIENCY AT SOUTH ASIA COMMERCIAL JOINT STOCK BANK .53 3.1 GUIDELINES FOR AND OBJECTIVES OF VIETNAM BANKING SYSTEM DEVELOPMENT DURING THE INTEGRATION PROCESS 53 3.1.1 Guidelines for Vietnam banking system operation during the integration process: 53 3.2 SOLUTIONS TO CREDIT RISK MANAGEMENT AT SOUTH ASIA COMMERCIAL JOINT STOCK BANK 56 3.2.1 Continue to complete credit operation organization structure 56 3.2.2 Develop risk management strategy and complete credit policy: .58 3.2.3 Closely supervision of conformity with credit process, regulation 60 3.2.4 Continue to complete internal credit ranking system of the bank .63 3.2.5 Complete information technology infrastructure 64 3.2.6 Apply technical models and methods to measure credit risks 65 3.2.7 Improve quality of human resource development 66 3.2.8 Improve financial capacity, create conditions for development as well as guarantee safety for South Asia commercial joint stock bank operation 68 3.3 RECOMMENDATIONS 68 3.3.1 Recommendations for State administration 68 3.3.2 Recommendations for the State Bank .71 CONCLUSION OF CHAPTER III 73 APPENDIX REFERENCE ABBREVIATION NAB - Nam A Bank SBV - State Bank of Vietnam CIC - Credi information IT - Information Technology LIST OF FIGURES Diagram 1.1: Continuour risk monitoring cycle .15 Diagram 1.2: Prevention and solutions to credit risks 16 Chart 2.1 Organization structure of South Asia Commercial Joint Stock Bank 32 LIST OF TABLES Table 2.1 The business results of the South Asia Commercial Joint Stock Bank in period of 2005-2008 33 Table 2.2 Structure of mobilized capital resources in period of 2005 – 2008 34 Table 2.3 Activity of capital utilization 35 Table 2.4: The credit structure by the enterprise kind 36 Table 2.5 Credit outstanding structure by business branch .37 Table 2.6 Analysis of ther rate of capital mobilization/total outstanding 38 Table 2.7 Rate of bad debt of the South Asia Commercial Joint Stock Bank from year 2005 to year 2008 .48 EXECUTIVE SUMMARY At present, lending is the main source of revenue for commercials banks in Vietnam Therefore, credit risk is the biggest risk and causes the most serious consequences for bank Based on the credit risk management activities in South Asia Commercial Joint Stock Bank, the thesis focuses on the situation of credit management at South Asia Commercial Joint Stock Bank Then it mentions some solutions to improve competence in credit risk management, especially in assessing credit risk with advanced measurement methods used by banks in the world, as well as the feasibility in Vietnam In total, the thesis has achieved some goals, as follow: - To provide many basic model and concept of credit risk and credit risk management, so that, it helps readers can understand the nature of credit risk Beside, it also provides the reasons which cause credit risk, consequence of credit risk, methods for managing credit risk - To provides the method to evaluate risk credit and rank customer which are used by many banks and international organization in the world - To describe the overview of managing credit risk activites at South Asia Commercial Joint Stock Bank Hence, it shows the advantages and disadvantages of these activites - At last, to give and recommend some solutions which can help or support South Asia Commercial Joint Stock Bank to improve the managing credit risk activities However, this thesis has many weaknesses, namely: - It hardly approaches to the real data of bad debts at South Asia Joint Stock Bank, so that the evaluation and reorganization are no so good as respect - Beside, this is the first time the author writes about the credit risk management so he lacks of experience about this topic and the way to analyze it And it leads to many mistak INTRODUCTION Rationale In the context of Vietnam's increasingly deeper integration into the world economy and especially in the current difficult economic situation, competition among banks is becoming much more severe Therefore, in order to maintain and develop, each banks need to be well- equipped with operation performance, professionalization, supplied service and product quality In the society, material production is a basic existence of human- beings The need of credit creates the higher rotation of the product and more product manufacture which make the economy develop growth In fact, business activities of banks also connect closely to business activities of economic organizations and individuals Thus, credit risk management is an essential requirement of the economy and the customer as well as the real need of commercial banks Therefore, managing credit effectively will really bring profits to banks, customers and the economy Being a small bank, South Asia bank possesses traditional operational characteristics The credit profession plays an important role in the bank’s operation Considering bank’s profit structure, obtained income from credit operation always keeps the highest percentage In South Asia Bank, credit outstanding make up more than 2/3 total incomes of the bank If the credit risk management is not good, Bank’s Non-performing loan (NPL) rate will increase and affect to bank payable, even lose bank payable For that reason, researching solutions to enhance the quality of the credit risk management is really essential for the effectiveness of the bank operation Also the research on credit risk management in South Asia aims to analyze recent credit management’s reality and thus proposes some potential solutions, proposals which will contribute to the expansion and enhancement on credit risk management as well as security and activity effectiveness of commercial banks Research objectives: - To provide an overview of credit risk management at South Asia Bank in recent time - To study the strength and weakness in managing credit risk of South Asia Bank - To study reality of credit risk management in South Asia Bank - To find out effective solutions for enhancing the quality of the credit risk management at South Asia Bank Research question: To achieve these objectives above, the thesis will answer some following questions - What is the credit risk management ? - How does the credit management play role in banks ? - How is the current situation on the credit risk management of South Asia bank ? - What is the new solution to improve the credit risk management of South Asia bank? Scope and limitation of research - In this research, I will only focus on credit risk management in banking operation - This research is implemented in South Asia bank whose credit activities are a core business of bank - Collected data: implemented only in South Asia bank - Time limitation: In the period from 2005 up to now - Knowledge and experience of author Research methodology: Analysis and estimation is made by - Method of data collection: from the banks’ data, reference books and newspapers & magazines relating banking - Interview method: interview credit staffs directly at South Asia Bank and other banks to understand the real operation - Method of analyzing and comparing data according to the criteria relatively and absolutely From that, comment and conclusion on credit risk management at Bank will be offered 60 of customers are highly adaptive to market economy; focus on loans for export enterprises, rural and agricultural projects; promte loans for farmers in order to, on the one hand, help them overcome usury loan situation in rural areas, on the other hand, experience indicates that farmers are reliable in debt payment In fact, over the past time, relatively large number of this group of enterprises enter market, and operate effectively, making great contribution to the country Operation of this group of enterprises are active and is always renovated, approach modern technology with young managers and leaders who are highly qualified, so operation of enterprises are relatively good, credit risks are minimized other than investment in other groups of customers - Business strategy: It is necessary clearly determine subjects of business in order to make investment for each period with the criteria of selecting businesses capable of competition, reliable consumption market; re-organize capital and loan rate in compliance with characteristics and real conditions of customers, especially enterprises in Vietnam In early months of 2008, banks limited loans for investment in real estate, securities, consumption but focused on export loan and assist agriculture to be competitive in domestic and international market However, at present the Government has policy of consumption demand stimulation, so South Asia commercial joint stock bank should select customers in the direction of customers trading effective businesses On the basis of above strategies, banks shall be assisted to invest in correct, effective direction, to reduce arising credit risks 3.2.3 Closely supervision of conformity with credit process, regulation Credit operation is one of operations likely to have risks Therefore, inspection, internal control of banks are very important, guarantee credit operation achieve high quality Based on awareness of importance of inspection, control and results of credit quality assessment, inspection, control is one of important solutions to improve credit quality Specifically as follows: 3.2.3.1 Strengthen internal inspection: - First, guarantee to inspect all phases of lending process Specifically as 61 follows: + Inspection before lending: assess customer, project, and capital loan project, implemented according to “6C” principle + Inspection during lending: check whether payment transfer of customer is compliant with capital loan purpose, especially inspection of disbursement in cash + Inspection after lending: inspect whether use of capital loan is for correct purpose, check loan debt guarantee, and check debt collection capacity based on the situation of goods circulation, financial situation of enterprises - Second, regularly control loan debts of customer Control should be implemented according to following contents: + Review list of loans, borrowers + Classify loans, borrowers + Control documents; evaluate credit quality of loans, borrowers + Inspect the conformity to credit processes and policies of loan tellers - Third, in order that control task is highly effective, South Asia commercial joint stock bank should arrange controllers who have good professional competence, professional skill and spirit, especially have fighting arts to bravely contribute as well as give advice to General Director, Board of Directors for common interests of South Asia commercial joint stock bank 3.2.3.2 Improve customer assessment quality In loan assessment, South Asia commercial joint stock bank should well apply credit analysis techniques including 6C principle First, capacity of borrower Loan teller must be sure that applicant for loan must have full behavior capacity and legal capacity to sign credit contract In case of legal entity, person signing contracts must be legal representative of such legal entity (specified in company charter) or authorized person as regulated by laws Borrower capacity must be evaluated carefully in terms of finance capacity, production capacity, and business capacity Second, characters of borrower Loan teller of South Asia commercial joint 62 stock bank must be ensure that applicant for loan has clear purpose of capital loan use and goodwill of debt payment on due date Loan teller must grasp purpose for loan of customer Even if purpose of loan is good, loan teller should determine attitude and responsibility in using capital loan, reply questions truthfully, has goodwill and effort to make full debt payment on due date If detecting that applicant for loan is deceitful in capital loan use plan and debt payment as agreed, loan tell must refuse to lend, otherwise, credit risks shall arise Assessment of borrower character must include history (previous), current situation and their images in the future Third, cash of borrower Criteria of borrower income should focus on the question: is borrower capable of generating enough cash for debt payment? In general, borrower has three sources of cash: cash from sales turnover or income; from assets liquidation; from securities issue However, loan teller should give priority for capacity of debt collection from the first source, which is the first and basic source of income for paying debt for South Asia commercial joint stock bank Fourth, conditions Loan teller should know current trend in business and profession of borrower, as well as how changing economic conditions shall have impact on capital loan Fifty, collateral When assessing collateral, loan teller must ask: Does borrower owns a value of assets to support debt payment to the bank? Loan teller should pay attention of such factors as: age, condition and specialization level of collateral Sixth, control Loan teller should focus on such problems as: Whether changes in laws and regulations have negative impact on borrower? 3.2.3.3Enhance credit management - Determine correct period of loan: bank should not constrain date of debt payment with customer Since it shall make production and business activities of customer become difficult Bank should figure out period of loan so as to comply with business and production cycle of customer, circulating capital cycle, progress 63 of payment for each specific contract This help to avoid the situation of over due debt even though customer business does not experience loss, South Asia commercial joint stock bank may collect debt on due date, both principal and interest - Regarding debt payment level: it is necessary to determine debt payment level in compliant with turnover from business and production of customer, debt payment rate for circulating capital loan is determined based on the time when income is generated For medium term and long term loans, it is advisable not to apply the method of debt collection equally divided for terms but depend on profit and depreciation of each period, brought by the project In addition, it is necessary to pay attention to other sources of income of customer, to collect debt in order to increase credit capital turnover of the bank It can be said that monetary services – banking credit business has specific characteristics different from normal goods business The bank is easy to become a victim of customers, when customers experience production and business loss or when customers are victims of defraudation, and then incapable of paying debt, which leads to credit risk, the bank is unable of collecting principal Therefore, loan of the bank is always potentially risky So, the bank should forecast well potential risks and measures to effectively prevent in order to minimize possible risks 3.2.4 Continue to complete internal credit ranking system of the bank Internal credit ranking system to evaluate customers has made certain contribution to credit task However, internal credit ranking system should still to be more completed in order to reduce time for assessment, review, decision on loan, so it is not advisable to distinguish big customers and small customers but distinguish customers eligible or ineligible to borrow capital (good or bad) Improve practicality and capacity of accurate assessment of internal credit ranking system, implement credit ranking periodically and continuously to set up basis for customer policy in terms of credit limit, apply proper method of loan guarantee, credit orientation for each customer of South Asia commercial joint stock bank Credit 64 ranking is an effective, scientific tool in credit risk management through quantification of evaluates and proper decisions Customer credit ranking system has just been applied by South Asia commercial joint stock bank recently, and is being completed, need lots of experiences to modify, adjust in order to be suitable with real conditions Therefore, completion of internal credit ranking system is one of key tasks in order to improve credit quality of South Asia commercial joint stock bank 3.2.5 Complete information technology infrastructure Basis for operation of a modern bank is modern information technology Currently, South Asia commercial joint stock bank has established Core Banking project management unit in order to modernize banking system as well as to provide customers with best electronic banking products Development of information technology, telecommunication, network technology and digital technology creates basis for development of electronic and automatic banking services such as: Home Banking, Internet Banking, payment card, electronic transaction, etc., which actively contributes to banking operation civilization However, this requires great investment, for example, investment in establishing management information system for a commercial bank need 500 – 600 billion VND This amount is half of current charter capital of South Asia commercial joint stock bank International integration in banking sector has helped to increase capital transactions, whereas management mechanism and supervision information system of South Asia commercial joint stock bank is almost primitive, incompliant with international practice, ineffective to guarantee strict conformity with laws in banking operation and safety of banking system, especially early warning of risk of banking operation even network system of South Asia commercial joint stock bank usually experiences embolism, regular penetration of virus, limited access to internet At present, software connecting securities companies and South Asia commercial joint stock bank, it is late to have just prepared for investment in renovation of information technology of South Asia 65 commercial joint stock bank, it is necessary to speed up to meet practical demand Operate thoroughly information technology system, regularly update, renovate, and modernize application programs to meet demand for management, collection, analysis of data, customer transaction Actively invest in information technology, focus on corebanking project investment in order to create conditions for developing banking services in compliance with development trend of finance – banking sector, and be eligible for regional and international integration 3.2.6 Apply technical models and methods to measure credit risks For loans, basic risk is credit risk Lenders know that part of the loan shall not be repaid, this loss is sometimes foreseen Even though unforeseen losses may be equal to zero, this figure may be bigger VaR models concerning banking operations estimate limit to credit risk There are two basic models for calculating credit risk One model calculates probability of failure to collect debt Second model calculates probability of gradually decreasing credit ranking quality of customer These models are similar to VaR models concerning business transaction operations, VaR model concerning estimated transaction operations for potential losses due to change in value of bank loans Basically, credit risk models can use credit ranking These models can help banks have best methods of calculating potential losses of the banks, through which help the banks have measures for loss provision These models normally measure capital safety rate of the banks Credit risks of a loan in a period include probability of default and value of loan which the banks may loose if customer falls into Loss Given Default (LGD) LGD of a credit amount depends on structure of such loan, whereas PD normally depends on borrower According to regulation, banks normally assume that a debtor shall be unable to pay all debts if he is unable to pay a debt Estimated loss is equal to PD multiplied LGD of a loan (PD/LGD =EL) In general, ranking system operating with two criteria is normally better than one criterion since by assessing separately PD and LGD, two-criteria system can 66 improve the efficiency of communicating information about risk, reduce the trend of ranking depending mainly on guarantee assets, promoting the development of supporting tools during the process of risk ranking, be more suitable with techniques of capital allocation, capital provision In short, this system can increase the accuracy and unity in ranking through separate recognition of assessment of PD and EL, not combine them like in one-criterion ranking system 3.2.7 Improve quality of human resource development Human resource is considered as an important asset of an organization, a factor contributing to the success and sustainable development of the organization Due to the character that risk is always potential since all phases and stages in business of the bank are attached to mobilization of currency capital In order to reduce risk, it is required that professional competence of officers and employees of the bank is improved, not only professional competence in finance and banking, but also general economic ability so that the bank can give advice to its customers about directions of effective capital investment, at the same time, assess accurately credit investment projects, and them improve credit quality of South Asia commercial joint stock bank Therefore, it is necessary to improve the quality of human resources by such measures as: regularly train, re-train officers and employees in order to improve capacity and competence of new officers and employees in form of self-training or associated training Evaluate capacity of officers and employees depending on the description of work so as to circulate officers and employees reasonably and effectively Develop a recruitment procedure in order to meet requirements for quality of newly-recruited officers and employees South Asia commercial joint stock bank develops and instructs individual career development; create best environment and condition for employees to uphold most efficiency in working Develop proper salary, bonus, and welfare regulations in order to maintain, develop modern human resources, and attract high quality human resources from outside to work for South Asia commercial joint stock bank Regarding personnel for credit, this is an important factor deciding credit 67 quality of South Asia commercial joint stock bank, it is necessary to develop experienced, qualified and quick-witted loan tellers; when reviewing, evaluating credit proposal, it is necessary to pay attention to basic content in officer arrangement, such as: - Develop a standardization system of loan tellers Selection, arrangement, utilization of officers should meet following requirements: + Loan teller must have high professional ethics and qualities, be honest, responsible and enthusiastic with South Asia commercial joint stock bank + Loan teller must have stable professional knowledge, be trained carefully, have practical experience, have a thorough grasp of market, law, specialized in assessing each industry, profession and customer + Be determined to remove weak officers in terms of ethical status, dishonest and circulate officers to other departments if they lack of professional knowledge and skill - Improve professionality of loan tellers, so that each loan teller within his function and duty must fully perform his responsibility for common business in handling the relationship among departments of South Asia commercial joint stock bank South Asia commercial joint stock bank should continue to regularly organize special subject sessions to popularize, exchange new documents, regulations inside and outside the sector so that each loan teller can grasp and exchange for deeper understanding Assign officers and employees to attend special subject training courses organized by the State Bank such as: credit project assessment, export and import loan, cash flow loan assessment, special subject conference about banking administration in risk management, investment science conference, exchange of application of professional knowledge, scientific and technological advances, international financial crisis conference, behavior of banking, finance, export, import sectors and Vietnam’s enterprises Actively connect with universities, professional training centers to regularly organize training courses for customer 68 analysis, investment project assessment, etc 3.2.8 Improve financial capacity, create conditions for development as well as guarantee safety for South Asia commercial joint stock bank operation South Asia commercial joint stock bank improves financial capacity by adding charter capital, increasing own capital in order to gradually comply with direction of banking sector and international and regional standards; at the same time, improve competitive capacity, extend business operation of the bank Adding charter capital, increasing own capital is a factor deciding enhancement of capital mobilization, extension of branch network because as regulated one of conditions to open a branch of the bank is that charter capital minus minimum legal capital, each average expenditure must be 20 billion dong At the same time, as regulated, loan for a customer shall not exceed 15% of own capital With existing capital, South Asia commercial joint stock bank shall limit loan, investment in big projects producing high profit such as: oil and gas, electricity, aviation, post and telecommunication, etc which shall make loan extension, competitive capacity of the bank in the market decreased In order to supplement charter capital, South Asia commercial joint stock bank speeds up the process of selling stocks in the market; increase own capital by collecting debts, bad debts which have been compensated by credit risk provision funds; re-evaluate fixed assets value and investment securities, accordingly, valued added amount of this type of assets after re-evaluation may have high value, contributing to increase own capital of the bank 3.3 RECOMMENDATIONS 3.3.1 Recommendations for State administration 3.3.1.1Create legal corridor suitable for commercial banks It is necessary to check overlapping, asynchronous documents which are no longer suitable with the reality in order to systematize higher legal documents rather than simple professional instruction The whole banking sector focuses on developing and completing legal institution on banking in compliant with development direction, strategy of banking sector and route of implementing 69 international commitments in banking and currency sectors, specifically, it focuses on developing and completing Law on State Bank, Law on credit organizations, Law on deposit insurance and Law on banking operation safety supervision; on studying, revising and completing regulations on foreign exchange, safety guarantee, organization and operation structure of credit organizations, etc The State Bank should only enact legal documents in order to adjust capital loan relation between banks and customers, enterprises in compliance with general direction of the Party and Government in each period, rather than intervene by order, administrative decision since capital loan relation between banks and customers in market mechanism must always be seen as civil relation (business – trade relation) which is established by contract according to the agreement and capital supply – demand between parties on the basis of voluntary, equal and mutual beneficial This relation is restrained by specific conditions for each party to credit contract/capital loan contract 3.3.1.2Re-complete credit information system of banking sector In order to gradually complete and develop credit information system of banking sector, the State Bank of Vietnam should enact regulation forcing credit organizations and enterprises having credit relation, to provide credit information for CIC banking sector, must have other regulations for credit organization not providing full, prompt and accurate credit information Information environment, in which transparency, accuracy, clearness of information and reliability of agencies supplied in Vietnam are limited Even though, Credit Information Center (CIC) of the State Bank is more and more developed and plays important role in providing information about customer, analyze, rank enterprise credit, provide warning information, making significant contribution to the development of Vietnam banking sector for the objective of safety, efficiency but requests for information of banks are not met reliably, promptly and quickly Information about financial statements of enterprises must not be audited so accuracy of reports is not high It is really difficult to search for information and imbalanced information is still a 70 shortcoming which has not been repaired in Vietnam’s finance market In case information is detected to be inaccurate, commercial bank must bear penalty for administrative violation as well as compensate for loss of other commercial banks which have used such inaccurate information In addition, it is necessary to have regulations of reward for commercial banks which well conform to regulations on credit information operation in order to encourage commercial banks to improve the quality of supplied information CIC should enhance the function of inspecting the accuracy, adequacy of information supplied by commercial banks On that basis, every month, make report about situation of conformity to regulation, administrative penalty for commercial banks violating regulations 3.3.1.3Develop system of average targets of the sector: It is still difficult to develop internal credit ranking system at commercial banks due to limited access to information for customer credit evaluation and ranking Therefore, the Government should assign General Office of Statistics to coordinate with Ministry of Finance to develop a system of average targets of economic sectors This information is very important for evaluating customers on the basis of comparing with sector average From that, help credit organizations make reasonable decisions in credit business and reduce risk 3.3.1.3 Enhance state administration in terms of credit operation at commercial banks Continue to renovate, improve validity and efficiency of bank investigation, supervision Complete legal framework for bank investigation, supervision and regulations on bank operation safety guarantee, as well as promote organization structure, enhance training for bank inspectors Bank inspectors should improve the quality of investigation by promptly grasping business operation, modern banking services, applying new technology in order to continuously supervise commercial banks in two forms, inspection on the spot and distant inspection Inspection on the spot shall help to improve validity of settling violations based on documents demonstrating inconformity to legal regulations due to objective or subjective 71 causes as a basis for applying specific sanctions Bank inspectors through distant supervision promptly warn mistakes so that commercial banks have measures to prevent risks in business operation in general and credit operation in particular With gigantic development of information technology, more and more completed legal system and request for information transparency are advantages for bank inspector to mostly distant supervision in order to uphold the role of early warning of bank inspector 3.3.2 Recommendations for the State Bank 3.3.2.1 Improve operational quality of Credit Information Center Gradually complete and develop credit information system for banking sector, the State Bank of Vietnam should enact regulation forcing credit organizations and enterprises having credit relation to provide credit information for CIC of banking sector, must have regulation when credit organizations not provide full, prompt, accurate information Information environment, in which the transparency, accuracy, clearness of information and reliability of agencies provided in Vietnam, is still limited Even though Credit Information Center (CIC) of the State Bank of Vietnam is more and more developed and plays important role in providing information about customers, analyzing, ranking enterprise credit, providing warning information, contributing significantly to the development of Vietnam banking system for the objective of safety, efficiency but request for information of bank is not met reliably, promptly and quickly Information about financial statements of enterprises must not be audited so the accuracy of statements is not high It is really difficult to search for information and imbalance of information is still a shortcoming which is not repairable in Vietnam’s finance market In case of detecting inaccurate information, commercial banks must bear penalty for administrative violation as well as compensate for losses of other commercial banks which have used such inaccurate information In addition, it is necessary to have regulation on reward for commercial banks well conforming to credit information operation regulation in order to encourage commercial banks to improve the quality 72 of supplied information CIC should enhance the function of inspecting the accuracy, adequacy of information supplied by commercial banks On that basis, every month, make report about situation of conformity to regulation, administrative penalty for commercial banks violating regulations 3.3.2.2 Enhance investigation, state administration in terms of credit operation at commercial banks Continue to renovate, improve validity and efficiency of bank investigation, supervision Complete legal framework for bank investigation, supervision and regulations on bank operation safety guarantee, as well as promote organization structure, enhance training for bank inspectors Bank inspectors should improve the quality of investigation by promptly grasping business operation, modern banking services, applying new technology in order to continuously supervise commercial banks in two forms, inspection on the spot and distant inspection Inspection on the spot shall help to improve validity of settling violations based on documents demonstrating inconformity to legal regulations due to objective or subjective causes as a basis for applying specific sanctions Bank inspectors through distant supervision promptly warn mistakes so that commercial banks have measures to prevent risks in business operation in general and credit operation in particular With gigantic development of information technology, more and more completed legal system and request for information transparency are advantages for bank inspector to mostly distant supervision in order to uphold the role of early warning of bank inspector 73 CONCLUSION OF CHAPTER III … 74 REFERENCE Frederic S Mishkin: The Economics of Money, Banking and Financial Markets Addison – Wesley, 1997 Peter S Rose: Commercial Bank Management IRWIN, 1999 Ho Dieu, Th.D: Banking Credit Statistic publishing house, 2001 Quyet dinh 493/2005-NHNN ve phan loai no, trich lap va su dung du phong de xu ly rui ro tin dung hoat dong ngan hang cua to chuc tin dung, ban hanh 22/04/2005 Cac bao cao thuong nien cua Ngan hang Nam A Quy che Quan ly tin dung cua NAB Thong tin tai lieu tren Thoi ban Ngan hang, Thoi bao Kinh te Viet Nam Tai lieu tren webside: www.sbv.gov, www.nab.com.vn, www.vnba.org.vn ... credit risk management in the South Asia Commercial Joint Stock Bank 49 CHAPTER III: SOLUTIONS TO IMPROVE CREDIT RISK MANAGEMENT EFFICIENCY AT SOUTH ASIA COMMERCIAL JOINT STOCK BANK ... credit risk: 39 2.2.3 Credit risk management in the South Asia Commercial Joint Stock Bank 41 2.3 ASSESSMENT OF THE CREDIT RISK MANAGEMENT IN THE SOUTH ASIA COMMERCIAL JOINT STOCK BANK ... operation model of the whole bank 30 CHAPTER II PRESENT SITUATION OF CREDIT RISK MANAGEMENT OF SOUTH ASIA COMMERCIAL JOINT STOCK BANK 2.1 OVERVIEW OPERATION OF SOUTH ASIA COMMERCIAL JOINT STOCK