2022 credit management at techcombank

RESEARCH PROPOSAL

TOPIC: CREDIT RISK MANAGEMENT IN THE BANKING SYSTEM OF VIETNAM -
A CASE STUDY OF TECHCOMBANK VIETNAM

Table of Contents

Introduction 1

Literature review 2

The risk of credit activities in banking system 2

The impact of credit risk 4

For economy 4

For banks 4

For customers 5

The role of credit risk management for banking system 5

The concept of credit risk management 5

The role of management for credit activities at banking system 5

Research methodology 6

Research subjects 7

Scope of research 7

References 8

Introduction
Banks are intermediary financial institutions which play the most significantly important role of
the economy with a wide range of activities (Khaliun, 2015). Banks are not only organizations
that attract the largest amount of savings in the economy, but banks are also the main lending
organizations to both businesses and individuals (Dudhe, 2017).

In the intensively competitive environment between home and oversea banks, business activities
of banks are under the pressure of integration process, especially credit activities, have been
complicated and always going on containing potential risks (Alobari, et al., 2017). Currently, the
situation of the global economy in the general and Vietnam economy in particular is presently
going through many difficulties, the state of unpaid loan or overdue loan of both individuals and
companies have tendency to increase, so the danger of banking credit activities additionally tends
to enlarge upward style (Diep & Kieu, 2015).

This is a controversial issue now not only for commercial banks , financial institution or for the
Bank of Government, but also additionally a common trouble for the entire society, which makes
authority agencies and organizations to coordinate in order to handle it (Alobari, et al., 2017).
Among the activities of the Bank, deposit is the most significantly important business activity
which takes account for the absolute best part of total assets, producing the perfect income. In the
context of opposition and integration today, one of the problems for the existence and
development of industrial banks is the capacity to manage risks, specifically deposit risks in a
comprehensive way (Duaka, 2015). Preventing and proscribing deposit dangers is a difficult and
elaborate issue. Credit hazard is frequently difficult to manipulate and leads to losses, loss of
capital and financial institution income. The well-implemented prevention of deposit chance
prevention activities will deliver benefits to banks such as: (i) Reducing costs, improving
income, keeping capital for commercial banks; (ii) Creating have confidence for depositors and

investors; (iii) Create a premise to make bigger the market and make bigger the prestige,
position, image, market share for the bank (Daniel Kaitibi, 2017).

Over the previous time, in Vietnam, the savings organization machine has kept a stable step, the
monetary administration ability of industrial banks, specifically chance management, has
changed appreciably and effectively, step by way of step meet the necessities of global
integration (Diep & Kieu, 2015). The legal framework for secure and sound protection standards
of credit score establishments has been improved, shifting closer to worldwide banking practices
and standards, growing a basis for credit score institutions to function more safely and promote
restructuring according to the set desires and orientations (Diep & Kieu, 2015). Vietnamese
commercial banks have progressively implemented and utilized Basel II capital safety standards
in line with the schedule. However, hazard management in the economic market is nonetheless a
hassle that needs different attention of Vietnamese business banks, because the banking gadget is
carrying a high range of bad debts compared to global standards (Aebi, et al., 2012).

For that reason, credit score activities also incorporate many risks, when risks occur, it will
immediately make a significant impact on the benefit of banking system. Therefore, credit
threats should to be managed and managed inside the authorised limits in order to reduce losses,
make contributions to decorate the status and create aggressive benefits of the bank, assisting
banks to develop sustainably (Aebi, et al., 2012). Stemming from the aforementioned practice,
the requirement is to manage credit growth alongside with improving savings quality, ensuring
safety in deposit things to do in the coming time (Paulino, et al., 2018). Especially, in the scope
of this thesis paper with the case study of Vietnam Technological and Commercial Joint Stock
Bank, it is necessary for this bank to explore, identify and analyze the motives of credit risk. And
then, suggestion and recommendations to minimize and cope with credit score risks will be
provided. That is why the author chose the research topic "Credit risk management at Vietnam
Technological and Commercial Joint Stock Bank".

Literature review

The risk of credit activities in banking system
Risks are unexpected occasions when they occur, leading to a loss of bank assets, a minimize in
real profits compared to the expected or an additional cost to entire a positive economic services
(Outreville, 1998). In banking business, credit is a commercial enterprise that earns primarily

profits of the financial institution however is also a probably risky business. Statistics and studies
show that credit score risk bills for 70% of total banking hazard (Duaka, 2015). Although there
has been a shift in the income shape of the bank, whereby deposit earnings tends to reduce and
service earnings tends to increase, but credit score earnings nonetheless money owed for half to
2/3 of financial institution profits (Ken Brown, 2016). Banking enterprise is a unstable business,
pursuing earnings with applicable risk is the nature of banking. Credit danger in general and
lending in particular are one of the primary causes of loss and serious affect on banking
commercial enterprise fine (Tursoy, 2018).

There are many exclusive definitions of savings risk, however, inside the scope of the lookup it
is viable to outline credit score chance as the danger of monetary loss (directly or indirectly)
ensuing from loans that fail to fulfill their debt reimbursement tasks as committed or insolvent
(N. Konovalova, 2016). This means that credit risk arises in the event that the bank fails to fully
collect the principal, interest or both principal and interest of the loan; or the loan is repaid by
customers on time.

According to Timothy W. Koch, once the bank holds profitable assets, the risk occurs when
customers are wrong. That means customers do not have to pay the principal and interest as
agreed (W.Koch, 2009). Credit risk is defined as a potential change in net income and market
price of capital resulting from customers not paying debts or paying debts late. Along this line,
Thomas P.Fitch also pointed out that credit risk is the type of risk that happens when borrower
fails to pay their debts under a contractual agreement resulting in an error in repayment
obligations (Thomas, 2000). Along with interest rate risk, credit risk is one of the main risks in
bank lending activities.

However, according to Henie Van Greuning - Sonja B rajovic Bratanovic, credit risk is defined
as the risk that the borrower is unable to pay interest or repay the principal compared to the term
specified in the credit contract (Hennie Greuning, 1999). This is an inherent attribute of banking
activity. Credit risk means that payments are delayed, or worse, inadequate. This causes
problems for cash flow and affects the liquidity of banks. And in the document "Financial
Institutions Management - A modern perspective," A. Saunders and H. Lange defined credit risk
as a potential loss when the bank provides credit to customers, that is, the possibility of income

streams (Saundersand Lange, 1999). Estimates from bank loans cannot be fully realized in terms
of both quantity and duration.

Therefore, it can be seen that credit risk arises when one or more parties to the credit contract are
unable to pay to the other parties (Nguyen Thuy Duong, 2017). A business bank is a monetary
intermediary that conducts a mortgage from one man or woman to another (Nwanna & Oguezue,
2017). Thus, savings threat to the bank comes from both lenders (bank creditors) and debtors
(bank debtors).The first case is that the depositor (the lender of the bank) desires to withdraw
money but it is nearly impossible for banks to pay, in truth it is liquidity chance however it is
intently related to the 2nd case (Tursoy, 2018). The financial institution does not gather all loans
consisting of essential and interest, or the reimbursement of money owed (including primary and
interest) on time. This happens when a financial institution borrower is incapable of repaying a
debt or deliberately refuses to pay (Alobari, et al., 2017).

In addition, credit risk is expressed as a high proportion of overdue debts. In countries where this
rate is up to 5% of the total outstanding debt is considered an alarm. In Vietnam, the ratio
fluctuates between 10 and 11% of the total total loans (Nguyen Thuy Duong, 2017).

The issue of credit risk and credit risk management should also be studied and considered in
relation to changes in financial markets and financial intermediation management. There are
many different approaches, but it can be generally considered that credit risk is the threats,
financial loss (directly or indirectly) stemming from borrowers who fail to fulfill their debt

repayment obligations on time as committed or insolvent. This also means that payments,
including both principal and interest, as promised, may be delayed or even not reimbursed, and
consequently will have a serious impact on currency turnover and bank sustainability. Credit
hazard is now not solely restrained to lending activities, however additionally consists of many
other credit-related activities of the financial institution such as: guarantees, charge
commitments, exchange finance approvals, co-financing, for the purchase tax (Dudhe, 2017)

Therefore, credit risk management is an important and indispensable task of banks in general and
commercial banks in particular (Duaka, 2015). This is the biggest type of risk, often happens and
often causes the most severe consequences, it can happen anywhere, anytime. If credit risk is not
detected and handled timely, there will be other risks.

The impact of credit risk

For economy
Originating from the nature and function of the financial institution is a economic intermediary
specializing in mobilizing idle capital in the economy to lend to organizations, groups and
individuals (Sajeda Pervin, 2015). As a result, the nice of ownership however the mortgage is
still the property of the depositors. Therefore, when deposit danger happens, now not solely
banks go through however additionally the rights of depositors are additionally affected (Saeed
MS, 2016). Banking activities contain commercial enterprise activities, industries and
individuals, so when a financial institution is exposed to credit risk or causes bankrupt,
depositors at the banks are bewildered and scared. The majority got here to withdraw cash at the
banks, making the complete banking gadget difficult (Tursoy, 2018). The financial institution is
uncovered to risks or bankruptcy which will have an effect on the commercial enterprise and
production scenario of enterprises, without paying wages, leading to difficulties for workers'
lives. Moreover, the panic of banks radically influences the complete monetary device (Hennie
Greuning, 1999). It motives the economy to be depressed, costs to rise, purchasing strength to
fall, unemployment to rise, and social instability. In addition, credit score chance additionally
impacts the world economic system due to the fact today the economic system of each united

states of america depends on the regional or the global economy. Experience indicates that the
Asian monetary disaster (1997) and the recent economic disaster in the US have triggered a
global shake (Sajeda Pervin, 2015). On the different hand, the relationship between cash and
funding amongst international locations develops very quickly, so the savings danger in a nation
immediately influences the economies of the international locations worried.

For banks
Credit risk is the financial loss and damage that the bank incurs in connection with the
borrower's failure to pay the loan on time or inadequate performance as committed in the
contract (Tursoy, 2018). That said, credit risk has a great influence on the financial situation of
the bank. In the event of a deposit risk, the bank is unable to accumulate the loan credit and loan
interest, however the bank has to pay the foremost and hobby on the deposit when it is due,
which makes the financial institution unbalanced in The bank's income and expenditure and
banking earnings decreased, and the capital utilization design of the bank was once also affected
(Duaka, 2015). When debt is now not collected, the savings capital turnover decreases, making

commercial banks ineffective. If a mortgage becomes irrecoverable, the bank must use its dollars
to pay the depositors, to some extent, the financial institution does not have ample capital to pay
the borrower (Ken Brown, 2016). If humans have money, the financial institution will fall into
insolvency situation, which might also lead to the risk of liquidity risk. As a result, the
commercial enterprise scale narrows, economic functionality decreases, prestige and
competitiveness decrease (W.Koch, 2009). Worsening bank's commercial enterprise outcomes
can also lead the financial institution to loss or to the brink of financial disaster if no measures
are taken to overcome the hassle (Ken Brown, 2016).

In short, the credit risk of a bank occurs at a various levels: the slightest is that the bank reduces
its profits when it fails to recover loan interests, the heaviest when the bank fails to collect
interest and debt (Tursoy, 2018). The high rate of revenue loss resulted in the bank losing and
losing capital. If this situation continues for a long time, the bank will bankrupt, resulting in
seriously negative impact on the economy in general and the banking system in particular.

For customers
For the topics themselves who are unable to repay the capital (interest) to the bank, they have
almost no opportunity to get admission to bank capital and even different sources in the economy
due to the loss two of recognition (Nguyen Thuy Duong, 2017). Access to bank capital of other
borrowers is also more limited when credit risks force commercial banks to tighten lending or
even narrow their operations. Depositors are at risk of failing to recover their deposits and
interest if banks go bankrupt.

The role of credit risk management for banking system
The concept of credit risk management
Risk management is the center of management and operation of each commercial bank (Ken
Brown, 2016). In easy terms, the danger of crediting administration is the process of applying
banking management principles, techniques and experiences to their bank's commercial
enterprise things to do to supervise prevention, limiting and minimizing dangers in credit,
funding and other commercial enterprise things to do to prevent damage to the bank, and
constantly enhancing the energy and reputation of the financial institution in the market. Risk
management plays an essential role in strategies of banking system, and with every particular
kind of risk, it applies its personal administration techniques (Hennie Greuning, 1999). Credit

threat management is the technique of developing and imposing deposit rating administration
strategies and policies to accumulate safe, effective and sustainable development goals (Duaka,
2015). At the same time, it is fundamental to make better the measures to prevent, restrict and
minimize past due money owed and horrific cash owed in credit business, thereby growing
revenue, lowering charges and improving the incredible and efficiency of company operations
every in the quick and lengthy term of enterprise financial institution (W.Koch, 2009). However,
credit chance administration is a large thinking with many distinctive contents in the governance
of an industrial bank (Aebi, et al., 2012). Therefore there are many interpretations, there can also
be many one of a kind ideas on this issue. Similarly, within the scope of this study, credit risk
administration is the method of growing and imposing strategies, policies, measures related to

credit score activities to prevent and restrict deposit risk in the financial institution (Ken Brown,
2016).

The role of management for credit activities at banking system
Risks in currency trading and banking services in the market economy are always a matter of
concern, as banking operations are highly sensitive, strongly affecting socio-economic stability
(Daniel Kaitibi, 2017). If a bank is at risk, in a state of insolvency, at risk or actually going to
bankruptcy, easily causing panic, causing people to rush to withdraw their deposits. Quick to
avoid damage, causing system crash. The history of banking activities in the world has witnessed
many large banks go bankrupt, whose negative impacts are not even limited to one country but
spread to many countries in the region or globally (Alobari Collins, 2018).

The financial and monetary crisis in Asia in 1997 caused many banks and financial institutions
of countries in the region to go bankrupt. Many small banks in Thailand, Japan, Indonesia,
Philippines ... have had to merge or be acquired by big banks, many financial companies and
securities brokers have gone bankrupt (Stephen Owusu Afriyie, 2018). Similarly, the US housing
secondary credit crisis in late 2008 affected a series of other economies and caused the global
financial crisis, being the biggest crisis since 1933 until now (Stephen Owusu Afriyie, 2018). If
the loss caused by the risk of credit activities is at a manageable level, it is relatively easy to
handle within the permitted limits of the credit institution's risk reserve fund. But when the loss
is large, beyond the ability of the credit institutions, the problem will become serious, causing
unpredictable consequences not only for the credit institution itself, but also for the credit

institutions and other related businesses, affecting the interests of depositors and, ultimately,
affecting the economy as a whole, and the potential risk for the financial crisis (Paulino, et al.,
2018).

Credit business is one of the key activities of commercial bank. Credit risk management must
focus on ensuring the effectiveness of credit operations and constantly improving the quality of
credit operations of commercial banks even in volatile market conditions and risk constantly

increasing (Stephen Owusu Afriyie, 2018). More specifically, credit risk management should
aim at lowering credit risk, improving the business safety of each commercial bank by policies,
management measures, supervise scientific and effective credit activities.

In summary, risk management in banking activities in general, in credit activities in particular
has a very important role for the existence of each bank (Sajeda Pervin, 2015). If the credit risk
management is well implemented, it will limit risks to the bank and increase the bank's income.
In addition, the risk management work, if well implemented, will facilitate the development of
the whole economy in general. Because when risks are limited, that is, the bank has effectively
provided capital for the economy and that is the driving force for economic development (Daniel
Kaitibi, 2017).

Research methodology
The research method used in the research is mainly based on data collection methods and data
analysis methods, and combined with the actual observation process at the Vietnam
Technological Industry, Ha branch. Internal, as follows:

- Data collection method: Through the branch's annual report from 2010 to 2019; guiding
documents, Decrees and Decrees related to credit issues of the Government, the State Bank of
Vietnam.

- Methods of data analysis: the topic uses statistical and descriptive methods; absolute and
relative comparison methods

This method is primarily used to evaluate existing studies at home and abroad, thereby forming
the theoretical framework for the thesis. In addition, it is also used to assess the quality of credit
risk of Vietnamese commercial banks through analysis of risk management models in some
developed countries, especially BASEL I standards and BASEL II in credit risk management.

Compare the situation of credit risk management of commercial banks with each other and with

the requirements of innovation in credit risk management, thereby finding inadequacies and
clarifying the causes. The method of gathering the data system and materials released through
the official channel. In particular, the main source of data is taken from secondary data such as:
report data from the relevant agencies of the Party and the State, relevant officials (Government,
State Bank of Vietnam, Ministry of Planning and Investment, Ministry of Finance, commercial
banks in Vietnam, ...); summary report from commercial banks as well as published results of
conferences, seminars, surveys, surveys and scientific research projects by related organizations
and individuals in domestic and foreign implementation. Primary data sources include
information and data collected through field surveys at some commercial banks in Vietnam.

Research subjects
Credit risk management at Vietnam Technological and Commercial Bank (Techcombank, Hanoi
branch)

Scope of research
Focusing on researching credit score threat administration in ordinary and assessing credit score
danger administration at Vietnam Technological and Commercial Bank (Techcombank, Hanoi
branch), from which to recommend the solutions and recommendations to improve and improve
the effectiveness of credit score hazard management at Vietnam Technological and Commercial
Bank (Techcombank, Hanoi branch) Vietnam. The centralized facts is for the period 2010-2019.
Some tables and statistics sources have been wider than previous years to compare and lookup to
clarify the trend of the situation. The dissertation approaches the research object based on
applying dialectical materialist method as a general methodology. The thesis emphasizes the
survey of practical review, taking practice compared with the theoretical framework of credit risk
management models of countries in the world and in the country to make evidence from which to
propose model building. credit risk management of Vietnam Technological and Commercial
Bank (Techcombank, Hanoi branch) Vietnam. The specific methods used are:

Analysis and synthesis: This method is firstly used to evaluate existing research at home and
abroad, thereby forming the theoretical framework for the thesis. Moreover, it is also used to

assess the quality of credit risk of Vietnamese commercial banks through analyzing the

management model of risk management in some developed countries, especially BASEL I and
BASEL II standards in credit risk management ...

Comparison method: Comparing the actual situation of credit risk management of commercial
banks with each other and with the requirements of innovation in credit risk management,
thereby finding inadequacies and clarifying the principle. multiply.

Methods of evaluating characteristics of policy science and specialties, especially the method of
analyzing and evaluating policy documents: This method is mainly used to assess the
institutional environment in credit risk management, as well as changes in that environment
through the issuance of The life of policy documents of the Government and the State Bank
through different stages.

Method of aggregating the system of data and materials released via the official channel. In
particular, the main source of data is taken from secondary data such as: report data from related
agencies of the Party and State, concerned officials (Government, State Bank of Vietnam,
Ministry of Planning) planning and investment, Ministry of Finance, commercial banks in
Vietnam, Vietnam Industrial and Commercial Bank (Techcombank, Hanoi branch). Summary
reports from commercial banks as well as published results of conferences, seminars, surveys,
surveys and scientific research projects organized by relevant organizations and individuals
inside and outside the country. water made. Primary data sources include information and data
collected through field surveys at some commercial banks in Vietnam.

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