Solutions to limit credit rish at vietinbank ba dinh branch

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH - LÊ DIỆU MY SOLUTIONS TO LIMIT CREDIT RISHS AT VIETINBANK- BA DINH BRANCH GIẢI PHÁP HẠN CHẾ RỦI RO TÍN DỤNG TẠI NHTMCP CƠNG THƯƠNG VIỆT NAM-CHI NHÁNH BA ĐÌNH LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH HÀ NỘI - 2020 ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH - LÊ DIỆU MY SOLUTIONS TO LIMIT CREDIT RISHS AT VIETINBANK- BA DINH BRANCH GIẢI PHÁP HẠN CHẾ RỦI RO TÍN DỤNG TẠI NHTMCP CƠNG THƯƠNG VIỆT NAM-CHI NHÁNH BA ĐÌNH Chun ngành: Quản trị kinh doanh Mã số: 60 34 01 02 LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH NGƯỜI HƯỚNG DẪN KHOA HỌC: TS NGUYỄN THỊ KIM OANH HÀ NỘI - 2020 DECLARATION The author confirms that the research outcome in the thesis is the result of author’s independent work during study and research period and it is not yet published in other’s research and article The other’s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration Date………………………… CONTENTS INTRODUCTION 1 Significance of the study and problem statement Literature review of previous researhes Research objectives Research questions Methodology and scope Structure of the study CHAPTER THEORYTICAL BACKGROUND OF CREDIT RISK FOR COMMERCIAL BANK 1.1 Theoretical framework of credit risk 1.1.1 Definition of risk and credit risk in commercial bank 1.1.2 Classification of credit risk 1.1.3 Characteristic of credit risk 1.2 Factors influence on credit risk of commercial banks 1.2.1 Internal factors 1.2.2 External factors 1.3 Credit risk assessment in commercial banks 11 1.3.1 Process of credit risk assessment 11 1.3.2 Qualitative criteria for credit risk assessment 12 1.3.3 Quantitative criteria of credit risk assessment 12 1.4 Impact of credit risk on financial performance of commercial banks and economy 18 1.5 Experiences on credit risk management 20 1.5.1 Experiences from Vietnam commercial banks 20 1.5.2 Experiences from International Commercial banks 21 1.6 Methodology in this thesis 24 1.6.1 Research method 24 1.6.2 Evaluation criterion using to assess credit risk of Vietinbank - Ba Dinh branch 25 1.6.3 Data collection and description 25 CHAPTER 2.CURRENT SITUATION OF CREDIT RISK MANAGEMENT AT VIETINBANK – BA DINH BRANCH 26 2.1 Overview of Vietinbank - Ba Dinh branch 26 2.1.1 General information of Vietinbank - Ba Dinh branch 26 2.1.2 Organization structure of Vietinbank - Ba Dinh branch 26 2.1.3 Key financial performances of Vietinbank - Ba Dinh branch 27 2.2 Credit operation of Vietinbank - Ba Dinh branch 29 2.2.1 Credit products of Vietinbank - Ba Dinh branch 29 2.2.2 Credit growth of Vietinbank - Ba Dinh branch in the period 2009 – 2018 44 2.3 Credit risk management at Vietinbank - Ba Dinh branch 45 2.3.1 Credit risk management model at Vietinbank - Ba Dinh branch 45 2.3.2 Policies of credit risk management at Vietinbank - Ba Dinh branch 47 2.4 Assessement of credit risk control at Vietinbank - Ba Dinh branch 51 2.4.1 Loan structure at Vietinbank - Ba Dinh branch 51 2.4.2 Overdue debt ratio at Vietinbank - Ba Dinh branch 51 2.4.3 Restructed debt ratio at Vietinbank - Ba Dinh branch 53 2.4.4 Total nonperforming loan at Vietinbank - Ba Dinh branch 53 2.4.5 Capital use efficiency at Vietinbank - Ba Dinh branch 55 2.4.6 Credit risk provision at Vietinbank - Ba Dinh branch 55 2.5 The reason for credit risk of Vietinbank – Ba Dinh branch 56 2.5.1 Survey results on the causes of credit risk 56 2.5.2 The reasons from macroeconomic environment 57 2.5.3 The reasons from borrowers 58 2.5.4 The reasons from the bank 59 CHAPTER 3.RECOMMENDATIONS FOR CREDIT RISK MANAGEMENT IN VIETINBANK – BA DINH BRANCH 62 3.1 Conclusions 62 3.2 Development strategies of Vietinbank 66 3.3 Solutions to credit risk management in Vietinbank – Ba Dinh Branch 69 3.3.1 Solutions to prevent credit risks 69 3.3.2 Solutions to handle and limit losses from credit risks 73 REFERENCES 75 QUESTIONAIRE 76 INTRODUCTION Significance of the study and problem statement Credit activities are always one of the main business activities that bring revenue and profit to commercial banks in Vietnam However, along with bringing significant income to the bank, credit activities have the greatest risk, significantly affecting the source of income of commercial banks The consequence of credit risks in commercial banks is the increase in bank costs due to the increase in provisioning, loan interest income is reduced, loss of capital or deterioration of the bank's image to the public In addition, according to the Basel Banking Supervision Committee, poor loan portfolio management creates major problems for commercial banks (Basel Committee on Banking Supervision, 2000) Another author points out that credit risk management reduces the value of bank lending portfolio and reduces banks' total assets (Ping, 2015) Therefore, credit risk management at commercial banks is always concerned From the viewpoint of managing the entire operation of the bank in general and credit activities in particular, an expected loss rate for credit activities must always be determined in the general operation strategy When a bank trades at a loss lower than or equal to the expected loss rate This is considered a success in risk management The bank must take many measures to affect credit activities to minimize credit risks in order to contribute to achieving the goal of safe and effective credit growth Therefore, how to effectively manage credit risk is an issue that commercial banks are very interested in, especially in the volatile global financial and economic situation like today (Ping, 2015) In the last 10 years, credit risk management activities throughout the banking system have many remarkable points The period from 2010 to 2012, using with high credit growth rate, non-performing loan of the commercial banking system in Vietnam increased from 2.52% to 4.47% in 2012 However, the real data on non-performing loan ratio as of 2012 is still doubtful Specifically, according to the data of the Banking Supervision Agency of the State Bank of Vietnam, the non-performing loan ratio is sometimes up to 8.6% According to Fitch Ratings, Vietnam's NPL ratio is 13% of total outstanding loans In the face of the risk of bank breakdown, which adversely affects the national financial security, the Government of Vietnam and the State Bank of Vietnam have taken actions to restructure the banking system and deal with non-performing loans After years of implementation, the restructuring of the banking system and the handling of non-performing loans have recorded remarkable results According to data from the National Financial Supervisory Commission, the non-performing loan ratio of the entire commercial banking system in Vietnam by the end of 2018 was 2.4%, a slight decrease of 0.1% compared to 2017 The total value of non-performing loans of credit institutions reached about VND 163 trillion Potential non-performing loans in debt structure, corporate bonds with debt structure, non-performing loans and entrusted receivables Organizations with high NPL ratios are mandatory banks, banks are under special control, weak banks are slow to improve However, credit risk provision increased by 30.1% compared to the end of 2017 Literature review of previous researhes In Vietnam, in recent years, some researches are conducted to investigate the credit risk of commercial banks and Vietnam banking sector It is introduced some researches as follow: Vo Minh Huong (2015) investigated credit risk management in banking industry – case study Joint stock commercial bank of foreign trade of Vietnam in the period of 2012 2014 The main research question aims to provide the relationship between a high credit growth and level of bad debts Based on qualitative method and interview expert method The findings of the analysis provided the possible explanations of the expanding credit growth accompanied by an escalating increase in the amount of bad debts About recommendation for greater credit risk management, author confirmed that Vietcombank need to invest more in its staff quality, information system and effective business strategy Nguyen Anh Dung (2014) studied causes, consequence and effects of non – performing loan in Vietnam banking sector in the period 2011 - 2013 The research provided a general look into non – performing loan, its causes and consequence is also revealed The results found that four main reasons of non – performing loan consisting the poor assets quality, shortage of capital capacity, shortage of liquidity and capital shortage for provision However, the research was conducted on short of time, the results are not too deeper Nguyen Dinh Thanh (2014) researched the management of non – performing loan in Bank for Investment and Development of Vietnam (BIDV) – Quang Trung branch in the period 2010 - 2013 By using qualitative and quantitative method to measure and evaluate the related data, some findings is revealed Author has most attention for analyzing factors causing credit risk of BIDV – Quang Trung Branch The results found that both macroeconomic, borrowers and banks have impact on status of credit risk of BIDV – Quang Trung branch Finally, author gave some recommendations for reducing non – performing of these banks Briefly, these is greater paper of analysis non – performing in both methodology and research process However, limitation of these is limited research scale In addition, research in the case of a branch would be difficult to apply to a whole generation On the other hand, short study duration is also a limitation in this study From previous studies, some limitations were found as follow:  Short research duration  Research on a small scale  Lack of a comparison between banks in a study by the authors Overcoming the limitations of previous studies, the author investigated credit risk at banks and compare credit risk of Vietinbank with other commercial banks Specifically, in this study, the author selected 10 commercial banks had largest total assets of Vietnam banking sector in 2015 to conduct research The use of comparative method will show a overall background on the status of the credit risk of the banks On the other hand, the choice of Vietinbank is a bank has the highest credit growth in the banking sector is also an initial study showed that the relationship of credit growth and credit risk Although the author does not use quantitative research models to specify that like as previous research However, by means of combination of analysis method and describe statistical, objective research hope to shows the reality of credit risk in the context of greater credit growth Research objectives The purpose of the overall study is to assess credit quality at Vietnam Joint Stock Commercial Bank for Industry and Trade To clarify the objective of the overall study of the topic, the author focuses on clarifying the following specific research objectives: - Researching on the rationale related to credit risk and credit risk management activities in commercial banks; - Analyzing, commenting and evaluating the status of credit risk management and credit risk management activities at Vietinbank Ba Dinh branch; - Researching international experience and practices on credit risk management and improving credit risk management quality in commercial banks; - From the research results found, the author proposes some solutions to improve the quality of credit risk management at Vietinbank Ba Dinh branch Research questions To clarify the research objectives set out, this study answers some of the following questions: - What are the rationales related to risk of credit risk management in commercial banks? - What situation of credit risk and credit risk management activities at Vietinbank Ba Dinh branch? - What experiences and international practices on credit risk management and credit risk management quality improvement in commercial banks? - What solutions are proposed to improve the quality of credit risk management at Vietinbank Ba Dinh branch? Methodology and scope The scope of the study includes spatial scope and time range Scope of space: Vietinbank Bank Ba Dinh branch Time range: The study was conducted over a 10-year period from 2009 to 2018 Research using secondary data sources summarized from the branch's business performance reports, financial reports and annual reports In addition, the author also uses secondary data sources from books, newspapers, magazines and international studies to complete the research overview Regarding the method of data collection, the materials are collected through the internship process at the branch and downloaded on the Internet Descriptive statistical methods are the methods used to describe the basic characteristics of data collected from research Some techniques are used as data representation by graphs, graphs; represent data by summary table, comparing data Structure of the study The thesis is divided into four chapters It starts with the introduction to give the necessities of thesis, what author goals to improve by the end of the thesis, which methodology are used throughout the thesis Then, some basic theoretical of credit risk, credit risk management model, relationship between credit risk and bank’s performance will be introduced in the second chapter The next chapter provided the information of thesis’s method based of assessing both strengthen and weakness of methodology in previous researches It also introduces some findings of credit risk and credit risk management at Vietinbank – Ba Dinh Branch in period of 2009 – 2018 On other hand, factors impact on effectiveness of credit risk management of Vietinbank – Ba Dinh also will be analyzed In final chapter, the brief conclusions are given From what discussed, some recommendations are draw for improvement of effectiveness of credit risk management CHAPTER THEORYTICAL BACKGROUND OF CREDIT RISK FOR COMMERCIAL BANK 1.1 Theoretical framework of credit risk 1.1.1 Definition of risk and credit risk in commercial bank As defined by the Basel Treaty, which was established in 2010 and Rose (2002), credit risk was the ability that banks would lose part or all of loans from events that threaten their solvency These unwanted events include customer bankruptcy or the intentional refusal to pay a customer's debt According to Circular No 02/2013 / TT-NHNN regarding the use of provisions to handle risks in operations of credit institutions and foreign bank branches, foreign bank branches, credit risks in banking operations are possible losses to debts of credit institutions The reason is that customers not perform or are unable to perform part or all of their obligations as committed Thus, although the expression is different, the concepts of credit risk are generally converged at one point It is the loss that the bank may encounter from the failure to fulfill the customer's payment obligations Credit risk is one of the great concerns of commercial banks The reason is that this risk not only directly affects the bank's performance and reputation but also determines the bank's existence and development Credit risk reduces bank's asset value, causes capital loss and affects the bank's solvency Bessis (2002) emphasized that banks need to pay special attention to credit risks because only a small number of banks' main customers are insolvent, which can lead to huge losses for the bank In particular, for banks that are poor in the financial services business, while credit is considered to be the main profitable business, the credit risk is even more noticeable According to the Decision No 493/2005 / QD - NHNN (April 22, 2005) of the Governor of the State Bank of Vietnam,” Credit risk in banking activities of credit institutions is the possibility of losses in banking operations of credit institutions because customers not perform or are unable to perform their obligations” Credit risk can be identified in two characteristics: (1) Risk margin shows the damage that the risk caused (2) The frequency of the risk represents the occurrence of that risk more or less, whether or not there is a rule Thus, the credit risk arises when one or more parties in the credit contract are unable to pay the other parties A commercial bank is a financial intermediary that performs this person's loan operation to lend to others Credit risk for banks comes from both lenders (bank CHAPTER RECOMMENDATIONS FOR CREDIT RISK MANAGEMENT IN VIETINBANK – BA DINH BRANCH 3.1 Conclusions In recent years, credit activities at Vietinbank – Ba Dinh Branch have achieved remarkable results Firstly, the above results show that Vietinbank – Ba Dinh Branch's lending activities have developed rapidly Credit outstanding loans continued to increase with increasing number of customer relations Besides, the Bank has always maintained a reserve to cover risks In general, credit risk management (CFM) of Vietinbank – Ba Dinh Branch has changed markedly compared to the past Secondly, outstanding loans grew at a high level, good risk management and effective business, with priority given to growth targets Despite considerable competitive pressure in the market, Vietinbank – Ba Dinh Branch still achieved a high growth rate in both capital mobilization and credit The bank has taken advantage of its online banking system and its rich and diversified portfolio of deposit and lending products to focus on implementing market entry strategies in two key locations Thirdly, the bank has actively developed distribution channels including branches and transaction offices and electronic banking channels to improve customer service capacity and attract new customers, improve service quality and create more products associated with people's needs Since then, the bank's business efficiency and competitiveness have been enhanced Fourthly, the bank has focused on the prevention and management of credit risks Credit management is specially audited Specifically, the bank built credit policies and strictly implemented regulations, regimes, and credit procedures of the bank The bank also clearly defined loan limits to guide credit growth under control This task will continue to be strengthened not only at discovering and remedying requests but also analyzing the causes, proposing appropriate and thorough solutions 62 However, in addition to the achieved results, there are still many shortcomings that need to be overcome to further improve the efficiency of banking business in general and credit performance in particular In the process of determining credit risk, policy compliance has not been thoroughly implemented Vietinbank - Ba Dinh Branch sets a credit policy with the goal of profit and safety However, ensuring these two factors at the same time is always a difficult problem in the fierce competition environment today So in some cases, credit policy has not been applied thoroughly For example, the customer's financial information has not been thoroughly analyzed, some steps in the loan appraisal process are ignored, disbursed when customer loan documents have not been fully supplemented, etc Besides, the bank is too focused on loan security assets, as this is a safe solution for lending Collateral is an important link in the process of loan collection and debt settlement However, Vietinbank - Ba Dinh Branch carries out the evaluation, classification, forecast and warning of the list of assets that have not been regularly and systematically made This is only at the level of checking on legal documents, periodically revaluing the value of collateral to adjust the loan balance or request customers to supplement collateral assets In addition, in the process of deciding to grant credit, Vietinbank - Ba Dinh Branch also prioritizes to consider customers with secured assets even though the loan conditions not meet properly and fully In the process of measuring credit risk, the quality of information in the analysis is still poor The problem of inadequate information affects both customers and banks However, banks are more at risk when the capital is out of control Information in credit analysis is primarily taken from CIC, from customer financial reporting, informal sources and Intrenet The above information sources are not guaranteed to be accurate and have no reliable basis In fact, information about customers such as management capacity or operating information of business owners is not properly evaluated Information on financial capacity of enterprises has not had a reliable basis Supporting information in project appraisal, machinery technology, 63 and collateral is also very difficult to find The poor quality of information has caused many difficulties in assessing customers and their projects, thereby greatly affecting the credit quality shown in the aspects mentioned below n the issue of auditing financial statements, the audit data is still conflicting The reliability of financial statements made by customers is not high, so the use of financial statements to grade customers' ratings in credit decision making is not accurate It leads to reverse options that pose risks to the bank On the Vietinbank – Ba Dinh Branch, if it is necessary to require customers to perform financial statements auditing, the bank will lose customers when lending In the regulation on classification of borrowers from the State Bank as well as Vietinbank – Ba Dinh Branch's credit process, credit officers must assess the management capacity of the enterprise director However, in fact, the information from CIC is mainly listed by managers without specific analysis and evaluation With such input information, it is clear that the information on customer management capacity is incomplete and lack of quality It is difficult to properly assess the management capacity of customers while the fact shows that this capacity is not only reflected in qualifications but also in many other factors In addition, Vietinbank - Ba Dinh Branch has not focused on building a system of information collection, especially in the medium of information that is both lacking and weak Therefore, in the evaluation and evaluation of projects on many aspects such as markets, technology, technology, finance, society, officials have not fully implemented, only briefly presented feasibility of the project Even the information used when assessing is outdated and misleading, has no value in preventing and limiting risks In the process of credit evaluation, the internal audit department has not fully played its role In recent years, the internal audits of Vietinbank - Ba Dinh Branch have been held periodically to ensure safety for lending activities of Vietinbank - Ba Dinh Branch, helping the bank's operations to comply with the provisions of law and internal regulations Since then, it is possible to prevent possible mistakes, risks and 64 losses At the same time, it also helps to advise Board of Directors of Vietinbank - Ba Dinh Branch in developing regulations and managing credit activities However, it can be said that credit risks at Vietinbank - Ba Dinh Branch still exist One of the main reasons is that the internal audit for lending operations is not really effective, there are many limitations Internal audit of Vietinbank - Ba Dinh Branch is not really commensurate with the roles and tasks and is very different from international standards The documents not distinguish clearly the concepts of inspection, audit and internal control as well as not specifying the duties, positions and powers of internal inspection and internal audit in the internal control system This ambiguous delimitation leads to low operational efficiency, not yet consistent with international practices, in which very important principles are to ensure independence The method of checking and auditing is outdated compared to the new requirement is to perform the audit according to the individual audit method Following this method, each individual document or specific credit amount must be considered, associated with each specific employee's responsibility It is not a system audit for a general view of the process With a lot of transactions, especially when the scale is increased, it is expensive both in time and effort but the efficiency is not high In the process of credit assessment, business processes depend on subjective assessment of credit officers In fact, in order to make a loan, the credit officer is the one who performs all the steps from receiving customer records, appraising production loan plans until disbursement Credit officers must collect information about borrowers, analyze and evaluate customers, check the validity and legality of documents provided by customers They also have to analyze the feasibility, repayment capacity of the plan, analyze the loan security measures, the validity of the value and the ability to handle security assets if necessary After appraising about the borrowers and issues related to the plan of the loan, credit officers prepare the appraisal report and offer loan settlement They are responsible for the analysis in the The statement is whether or not there is a proposal for a loan After that, they transferred all documents attached to the 65 submission to the Appraisal Unit Upon receipt of the application, the Appraisal Unit performs the re-appraisal of the application and submits it to the Credit Council / Credit Approval Level to make a decision on whether to grant credit In case of borrowing, credit officers will notify customers With the appraisal process as above, the responsibility of the credit officer is too large They will not make loans without avoiding all defects Because a project, a loan contract involves many areas, the credit officer cannot always fully understand During the process, the monitoring after lending is not effective Although Vietinbank - Ba Dinh Branch has issued a series of processes and regulations on checking and supervising loans of customers, the monitoring has not been effective It shows through factors such as the neglect of credit officers in checking loans According to regulations at Vietinbank - Ba Dinh Branch, within days after disbursing in cash, 10 days for the form of bank transfer, the loan check should be done However, in fact, officials not implement on time this regulation but are very subjective, trust in the reputation of customers, not check the actual situation as well as the purposes of using capital Therefore, they cannot monitor customers The bank's post-disbursement inspection depends heavily on the customer's awareness and responsibility in continuing to comply with credit conditions Customers who have intentionally used capital for improper purposes, this is very difficult for officials in checking loans 3.2 Development strategies of Vietinbank On November 8, 2016, the National Assembly passed Resolution No 24/2016 / QH14 on restructuring the economy in the period of 2016-2020, including the content of restructuring the credit institution system Currently, the Government is directing the State Bank of Vietnam and the Bo's, quan related branches to quickly develop the Restructuring Plan of Credit Institutions for the second phase (2016-2020) to soon issue in 2017 The objective of restructuring credit institutions in phase is clearly defined in Decision 254 / QD-TTg: “By 2020, the system of multi-functional credit institutions will be developed in the direction of modernization, safe and efficient 66 operation with diversified structure of ownership, scale and type These organizations have greater competitiveness and are based on advanced technology and banking management in accordance with international practices and standards of banking operations” In that spirit, promoting the role of a leading institution of Vietnam and pioneering to take the lead in implementing guidelines and policies of the State, Vietnam Joint Stock Commercial Bank For Industry and Trade (Vietinbank) has actively inherited, promoted and continued its efforts to implement better and more actively the restructuring contents achieved in the previous period Some targets set by Vietinbank are Credit growth of up to 17% and within the limits assigned by the State Bank; Capital mobilization increased by 17% and was in line with the demand for capital use; Strive for NPL ratio below 2%; Profit before tax reached VND 9,300 billion Subsidiaries, joint-ventures, associates and overseas units focus on resolving weak weaknesses, drastically restructuring operations, improving efficiency and contributing to the overall operation of the whole system The key measures to be implemented include: - Improve financial capacity: Focusing on increasing charter capital from issuing shares to foreign investors (including strategic investors and financial investors) and implementing other capital raising measures - Actively and actively direct the implementation of Vietinbank's structure with bad debt handling by 2020 In particular, special attention should be paid to improving the quality of assets; credit quality control through measures of overdue debt collection, VAMC debt selling; control credit limits for industries with high risks; credit restructuring in the right direction - Focus on increasing and strengthening customer quality, especially retail and SMEs segments; For the remaining segments, select good customers, prioritize efficiency, ensure compliance with Vietinbank's business interests and risk appetite; Encouraging the development of industries oriented by the Government, the State Bank and other industries with long-term 67 potentials such as energy, telecommunications, supporting industries, health, education, etc gradually reduce the level of focus on a large group of customers with high levels of risk - Continue to manage cost effectively, improve profitability, strive to improve the CIR index on the basis of effectively implementing solutions in the Cost-effective Management Scheme Specifically: (i) Continue reviewing and improving the system of documents on financial, asset and wage management in the direction of improving quality and streamlining quantity; (ii) Building and perfecting the management policy system (from recruitment, training, assessment, salary, motivational mechanisms, labor management, etc.) to effectively allocate staff costs, create the cohesion of employees with Vietinbank, improve the overall labor productivity of the system, especially the business department; (iii) Control management costs of business management, procurement of fixed assets; (iv) Enhance the responsibility of cost control units - Promoting non-credit revenues, especially focusing on developing net services revenue to improve net income structure; Continue to diversify customer base on the basis of promoting retail banking, developing SME enterprises, foreign-invested enterprises; Diversifying special products and services of non-credit banking services, focusing on developing convenient, technological and modern products suitable for each customer segment; Focus on competition with product quality and service methods - Improve information technology capacity, strengthen the application of information technology to administration and management, focusing on implementing on-schedule key information technology projects (Core Banking, LOS projects, etc.); prioritize the development of digital banking strategy comprehensively on all aspects of business operations, product processes, and distribution channels, in line with the development trend of the industrial revolution 4.0; Promote the development of digital banking products and services and modern distribution channels; Strengthening the capacity of IT infrastructure to meet operational needs; Enhancing safety and information security 68 3.3 Solutions to credit risk management in Vietinbank – Ba Dinh Branch 3.3.1 Solutions to prevent credit risks Firstly, to improve the efficiency of determining credit risks, Vietinbank - Ba Dinh Branch needs to apply some methods as follows Diversify forms of credit Banks need to use many lending methods to increase sales as well as borrowers in their units Credit products with utilities as well as convenience when used will be more easily accepted by customers The bank branch should focus on expanding the product to the limit, reserve limit, overdraft, discount of valuable papers, storm surges, etc Completing the credit process is important in limiting errors, limiting the risk of risk and improving the quality of each loan Credit processes have been issued quite closely and specified by each type of credit However, it is necessary to be more detailed with each loan, each type of customer Paperwork is simple, compact, but must ensure safety for customers as well as banks Depending on the size of the loan, the object of the loan, the type of loan and the intensity of competition, the bank needs to reduce some procedures But there are two absolute procedures that should not be reduced as a loan proposal and legal documents Deploying customer surveys to help customers evaluate the quality of banking services provided Since then, there is a basis to adjust banking activities and customer policies to suit the general situation and meet the customers' requirements more Find a direct approach to customers to understand the aspirations, needs of capital and services that customers need From there, advise and guide the methods as well as loan conditions suitable to each customer Strengthening close coordination with credit information center to help banks have more necessary information as a basis for effective credit investment, avoid capital loss, prevent overdue debt generation 69 Secondly, in order to improve the efficiency of credit risk determination, Vietinbank - Ba Dinh Branc needs to develop credit policies and regulations in accordance with policies, legal regulations and current economic situation Policy adjustments and credit regulations aim to achieve a balance between profit maximization and risk reduction, ensuring safe, effective and step by step credit growth in line with international practices and standards Building effective customer policies, strategic and traditional customers must enjoy the preferential interest rates, fees and necessary care policies of commercial banks Applying a flexible lending interest rate policy, the lending interest rates are not the same for different loans depending on term, currency, loan project and specific borrowers Credit management activities must ensure safety ratios Credit structure must be consistent with customer strategy, commodity industry, risk management policy, capital structure Credit growth should be ensured in accordance with the capacity, management, administration and professional qualifications of credit officers Regarding interest rate policy, in the current competitive environment, the interest rate policy of a commercial bank will be built depending on the credibility of customers, the feasibility of borrowing and the safety of the loan On that basis, preferential interest rates or flexible interest rates should be applied to customers having good loan history (no overdue debt) and efficient production and business activities, projects use feasible loans as well as appropriate collateral assets In the interest rate policy, commercial banks still accept to lend high-risk loans (for example, lack of security assets, etc.) with outstanding high interest rates to improve profits However, it is necessary to limit this form to a certain percentage to avoid too great risks Regarding customer policy, building customer policy is essential in the situation of fierce competition among banks today The aim is to retain old customers, attract new customers in the direction of diversifying components from individuals to economic organizations to both expand market share and to spread risks Thirdly, to operate effectively credit assessment, Vietinbank - Ba Dinh Branch should enhance the role of internal control activities 70 Internal control in credit operations is an extremely important tool, through control activities that can detect, prevent and correct errors in the process of implementing credit operations In addition, control activities also detect and prevent ethical risks caused by credit officers In order to enhance the role of controlling to limit credit risks, Vietinbank - Ba Dinh Branch needs to implement some following measures:  Strengthen qualified staff, passed credit operations to supplement the control room Standards for internal audit workers should include honest qualities, a sense of law observance and objective recognition; having knowledge, general knowledge about law, business administration and banking operations; capable of collecting, analyzing, evaluating and synthesizing information; have knowledge and skills on internal audit; and experience at least years in banking  In the process of checking credit activities, it is possible to strengthen officers who work directly from credit or appraisal and credit management departments to coordinate the inspection  Regularly training and improving professional and legal qualifications for control officers Because now, there are officials who perform the inspection without having been trained or have no credit experience In particular, professional ethics training must be provided to internal auditors in the course of operation to be impartial, avoiding both respectful and incomplete comments  It is necessary to stipulate responsibilities for control officers, to have incentives and incentives to improve responsibility in control activities  Continuous improvement and innovation of inspection methods, flexible application of inspection measures depending on each time, each object and the purpose of inspection  In addition, the internal control system should be regularly self-assessed because this will work to prevent risks and effectively support the bank's risk management Fourthly, solving professional risks related to credit officers, Vietinbank - Ba Dinh Branch needs to improve the quality of human resources 71 The human factor is the most important factor determining the success or failure of any activity in all areas For credit, the human factor plays an important role It determines the credit quality, service quality and image of the bank and thereby determines the bank's credit performance Therefore, solutions to improve the quality of human resources are given focus on some of the following contents: Vietinbank - Ba Dinh Branch, each customer has specific characteristics of specific business and production Organize seminars to exchange lessons related to credit Updating professional knowledge and training new legal regulations Currently, the reality shows that the working intensity of credit officers in the past is quite stressful, even overtime work is quite common And this has led to restrictions on customer contact activities, loan checks and controls Therefore, to ensure credit safety and sufficient human resources to catch new business opportunities, the enhancement in both quantity and quality is necessary It also helps banks to ensure credit growth while ensuring credit quality Banks also need to pay more attention, demand more and have a clearer attitude towards credit officers in order to limit risks in lending Fifthly, to treat credit effectively, Vietinbank - Ba Dinh Branch needs to comply with the process of granting credit and post-borrowing control When appraising loan plans, credit officers should consider the authenticity of the equity of customers participating in the plan and project applying for loans Customers need to prove the specific source of this equity because this is a very important issue affecting the implementation of plans and projects Because if more equity is involved, businesses will use capital more efficiently, they will be more cautious in investing in the upcoming business plan In addition, when appraising the loan plan, credit appraisers / officials need to assess the financial capacity and business production capacity of borrowers to consider the credit capital efficiency The process must be combined with the cause of the borrower, assessing aspects such as industry risks, business risks, etc Criteria to consider include profitability, ability to exploit and use assets, situation of using capital and solvency 72 When assessing debt repayment capacity of borrowers, credit officers need to be aware of the main source of debt repayment This means the profitability of the loan option and other sources of income that customers commit to repay the bank when the main repayment source has a problem At the same time, consideration should be given to potential risks that may not be appraised at the first step in order to adjust the loan term and recover debts reasonably In any case, self-financing must be considered an ideal source of debt repayment Credit officers must try to avoid the point of lending completely based on collateral directly or guaranteed by a third party Because when handling collateral to recover the loan, this process takes place long time, takes a lot of time and disadvantages always lean toward lenders At the same time, the bank should require borrowers to have monthly and quarterly report data on the business situation but use bank loans during the loan period in order to detect bad changes in the business to take timely measures In addition, the bank can enhance the hire of a professional appraisal team in large, technically intensive loan applications to accurately analyze feasibility before making a loan decision 3.3.2 Solutions to handle and limit losses from credit risks Firstly, build a system of early warning indicators on credit risk and debt appraisal  The system of risk warning signs reflects the bank's views and assessments on signs that reflect a customer's ability to function and increase the risk level This system is built on the theory of bank risk management and customer-specific customer base  In addition, the bank needs to build a problematic debt appraisal system to speed up the handling of outstanding debts at banks Secondly, the bank organizes monitoring and recovery of bad debts  After receiving all customer records, the bank conducts a thorough analysis to determine the main cause of the risk  It is necessary to organize in-depth analysis and analysis, to determine the exact level of risk 73  In case of worthwhile customers still have the ability to recover business and repay the bank, specific recovery solutions are proposed such as restructuring business operations, changing management units, diverting production, cutting costs, liquidating unnecessary assets and applying support measure  In case of assessing customers, it is no longer possible to restore production and business, choose an effective solution It is possible to supplement pledge and monitor inventory; request the transfer of debt claims to NH; selling collateral, pledge; conducting legal procedures for bankruptcy Thirdly, measures to resolve overdue debts Exploitation measures applied to deal with overdue debts are difficult as a recovery program  The bank guides and advises customers on issues such as the ability to create products and profits  Renewal of adjustment period to reduce the scale of immediate repayment, further loans to increase financial strength for borrowers, restore production and business and supervising organization  Strictly managing the budget, recommending selling out valuable assets, reducing inventory  Proposing customers to improve their production and business systems, reorganize production, change equipment, machinery and technology Encourage customers to recover deferred payment debts by accelerating the process of recovering receivables, minimizing the amount of capital appropriated  Directly help customers when facing financial difficulties such as granting more credit to restore production and business  Finally, in a situation that cannot be solved, liquidation of assets is carried out 74 REFERENCES Basel Committee on Banking Supervision (2000) Priciples for the Management of Credit risk Basel Committee on Banking Supervision (2006) International Convergence of Capital Measurement and Capital Standards, A Revised Framework Technical report, Bank for International Settlements, Basel Bjorn Imbierowicz and Christian Rauch (2013) The relationship between liquidity risk and credit risk in banks Brigitte Godbillon – Camus and Christophe J Godlewski (2005) Credit risk management in Banks: Hard information, Soft information and manipulation Henderson, T (2011) Counterparty Risk and the Sub-prime Fiasco 2011 -01-02 Edward I Altman (2001), Managing credit risk: A challenge for the new millennium Nguyen Anh Dung (2014) Non – performing loan Case study in Vietnam: Causes, consequences and effects Nguyen Dinh Thanh (2014) Improving the management of Non – performing Loan in Joint Stock Commercial Banks – The case of the bank for Investment and Development of Vietnam (BIDV) – Quang Trung Branch Myrna R Berrios (2013) The relationship between bank credit risk and profitability and liquidity The International Journal of Business and Finance Research Vol P.105 – 118 10 Moses Ochieng Gweyl (2013) Credit risk mitigation strategies adopted by commercial bank in Kenya International Journal of Business and Social Science, Vol.4, No 6, June 2013 P 71 - 78 11 Olawale Luqman Samuel (2013) The effect of credit risk on the performance of commercial banks in Nigeria 12 Tony Van Gestel and Bart Baesens (2008), Credit risk management: Basic concepts: financial risk, components, rating analysis, models, economic and regulatory capital, Oxford University Press 13 Ping Han (2015), Credit risk management of Commercial Banks Journal of Business Administration Research, Vol.4, No 14 Rekha Arunkumar, G Kotreshwar (?) Risk management in commercial bank – A case study of public and private sector banks 15 Vo Minh Huong (2015) Credit risk management in banking industry Case study – Joint – stock commercial bank for Foreign trade of Vietnam 75 QUESTIONAIRE Dear Sir / Madam! I would like to send to you and your family good health and success in life For full information, as a basis for contributing in making the method of improving the credit management quality of Vietinbank - Ba Dinh branch I would like to send to the questionnaire to investigate the causes of credit risk of the current branch We hope you provide the information objectively Unpopular Popular Very popular There are no specific orientations and strategies for managing credit risk No system to monitor the structure and overall quality of credit portfolio No credit risk measurement system yet No team of credit risk management experts Staff are weak in credit risk management Officers violate business ethics Activities of inspection and supervision have not been properly focused Credit officers lack supervision before and after lending Database, credit information is incomplete Information asymmetric about customers, economic environment, investment industries Preserving and evaluating collaterals not often, only checking dossiers Appraisal has difficulty in analyzing financial and non-financial situation Customers use capital for wrong purposes, inefficient Customers not have goodwill in paying debts, intentionally cheating on banks I pledge to use only the information you provide for the purpose of my dissertation, not to publish it in any way! 76 ... CREDIT RISK MANAGEMENT AT VIETINBANK – BA DINH BRANCH 2.1 Overview of Vietinbank - Ba Dinh branch 2.1.1 General information of Vietinbank - Ba Dinh branch Bank Vietinbank Ba Dinh branch was established... Overdue debt ratio at Vietinbank - Ba Dinh branch 51 2.4.3 Restructed debt ratio at Vietinbank - Ba Dinh branch 53 2.4.4 Total nonperforming loan at Vietinbank - Ba Dinh branch 53... of Vietinbank - Ba Dinh branch 27 2.2 Credit operation of Vietinbank - Ba Dinh branch 29 2.2.1 Credit products of Vietinbank - Ba Dinh branch 29 2.2.2 Credit growth of Vietinbank