Factor affecting risk exposure and profitability of the commercial banks operating in Vietnam

MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HOCHIMINH CITY




Ta Thi Xuan Hoa


FACTORS AFFECTING RISK EXPOSURE
AND PROFITABILITY OF THE
COMMERCIAL BANKS OPERATING IN
VIETNAM

MASTER’S THESIS






Ho Chi Minh City 2010


MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HOCHIMINH CITY



Ta Thi Xuan Hoa

FACTORS AFFECTING RISK EXPOSURE
AND PROFITABILITY OF THE
COMMERCIAL BANKS OPERATING IN
VIETNAM

MASTER’S THESIS
In Banking
Code: 60.31.12

Supervisor
Assoc. Prof. Dr. Bui Thi Kim Yen



Ho Chi Minh City 2010
i

DECLARATION

This is to certify that:
•
the thesis contains no material which has been accepted for the award to the
candidate of any other degree or diploma except where due reference is made
in the text of the thesis.
•
to the best of candidate’s knowledge contains no material previously
published or written by another person except where due reference is made in
the text of the thesis.

Ta Thi Xuan Hoa

Signature:

Date:
ii

ACKNOWLEDGEMENT

I would like to express my attitude to many individuals who helped me to complete
this thesis. First of all I would like to express my deepest acknowledgement to my
supervisor, Assoc. Prof. Dr. Bui Kim Yen for her valuable advice and
recommendation.
I would like to express my gratitude to my English teacher, Mr. John William Hall
who helped me in improving English speaking skills. I would like to express my
gratitude to Ms. Ly Thi Minh Chau, who helped me a lot in providing reference
materials, giving me valuable time, invaluable advice, assistance, support and
recommendation.
I would like to express my gratitude to Dr. Vo Xuan Vinh, who helped me a lot in
data analysis, giving me valuable time, support and recommendation.
In the process of data collection for this research, many individuals contributed to the
task and I am particularly grateful for their contributions. I am greatly indebted to
Mr. Nguyen Huu Nhan, Mr. Nguyen Ngoc Tan for their support during the time of
this thesis.
I would also like to thank Mr. Ngo Tran Kien Quoc and Mr. Ho Phi Diep who helped
me to collect data, and to conduct personal interview.
I would like to thank the people who have been working in The State bank of
Vietnam, Ho Chi Minh City Branch for providing secondary data relating activities
of commercial banks in Vietnam in general and supporting my study leave to enable
me to complete the thesis. It allowed me to concentrate on the completion of my
thesis.

Finally I wholeheartedly thank and acknowledge the most important people in my
life, my parents and my husband, for their total support, encouragement and patience
in my completing the thesis.
iii

ABSTRACT
The basic principles of bank management have highlighted the need to balance
between liquidity, asset, liability, capital adequacy, credit and interest rates risks in
order to mitigate the loss in earnings. Thus, the factors that may affect these risks are
important indicators to formulate appropriate strategies for better bank management.
It is therefore the purpose of this study to identify the factors that contribute to the
risks that are faced by banks. The factor analysis conducted indicated that liquidity
and interest rate, market, business operation, credit are the factors affecting banks’
risk exposure. Hence, banks have to seriously consider these factors in formulating
an effective risk management strategy to minimize any possibility of loss in income
and to avoid bank failure. This thesis is to examine factors affecting banks’ risk and
the relationship between financial risks and profitability of the commercial banks in
Vietnam.
The objectives of the thesis are to investigate and analyze factors affecting banks’
risk exposure and relationship between financial risks on profitability of commercial
banks in Vietnam to contribute some implications for management strategy of banks
in Vietnam. From that, the recommendations are given to not only commercial banks
but also SBV. These recommendations are both “situated” recommendations and
“strategic” recommendations. This creates the important and necessary perquisites
for the business of commercial banks in Vietnam safer, more stabilized and more
efficiency.
Key words: bank risk, financial risk, profitability
iv

TABLE OF CONTENTS

Chapter Title Page


Declaration i
Acknowledgement ii
Abstract iii
TABLE OF CONTENTS iv
LIST OF TABLES AND FIGURES vii
LIST OF ABBREVIATIONS ix
Chapter 1
INTRODUCTION 1
1.1 Introduction 1
1.2 Research Background 2
1.3 Research problems 3
1.4 Research questions 4
1.5 Research objectives 4
1.6 Research Methodology 4
1.6.1 Secondary Data and Limitations 4
1.6.2 Questionnaires 5
1.7 Significance and scope of the Research 5
1.8 Structure of the Research 5
1.9 Conclusion 7
Chapter 2
LITERATURE REVIEW 9
2.1 Introduction 9
2.2 Bank’s risk 10
2.3 Characteristics of bank’s risks 13
2.3.1 Credit risk 13
2.3.2 Liquidity Risk 15
2.3.3 Market Risk 18

2.3.4 Interest Rate Risk 20
2.3.5 Operational risk 21
2.3.6 Capital risk 24
2.4 Analyzing bank performance with financial ratios 26
2.4.1 Rate of return on equity (ROE) 27
2.4.2 Rate of return on asset (ROA) 28
v

2.5 Relationship between financial risk factors and profitability 28
2.6 Previous study 29
2.6.1 Factors affect to bank’s risks exposure 29
2.6.2 Effects of financial risks on profitability 30
2.7 Conclusion 33
Chapter 3
OVERVIEW OF BANKING INDUSTRY 34
3.1 Introduction 34
3.2 Overview of banking industry 35
3.3 Banking industry in Vietnam 36
3.4 The bank regulatory environment 38
3.4.1 Law on credit institutions 38
3.4.2 Deposit insurance 38
3.4.3 Reserve requirement 39
3.4.4 Some other regulations 41
3.5 Conclusion 46
Chapter 4
RESEARCH METHODOLOGY 47
4.1 Introduction 47
4.2 Research design 48
4.3 Variable definition 49
4.3.1 Dependable variables 49

4.3.2 Independent variables 49
4.4 Model development for the study 50
4.5 Hypothesis statement 50
4.6 Data collection method 51
4.7 Data transformation 52
4.8 Conclusion 52
Chapter 5
DATA ANALYSIS AND FINDINGS 53
5.1 Introduction 53
5.2 Links between data analysis and research objectives and research questions 54
5.3 Descriptive findings of the research study 55
5.3.1 Sample descriptions 55
5.3.2 Descriptive findings 65
5.4 Associate analysis and findings of the research study 70
5.4.1 Analysis of findings on factors affecting banks’ risk exposure 70
5.4.2 Testing research model and hypotheses 71
vi

5.5 Conclusion 75
Chapter 6 76
CONCLUSION AND IMPLICATIONS 76
6.1 Introduction 76
6.2 Conclusions related to research questions 77
6.2.1 Summary of all hypothesis 77
6.2.2 Conclusion related to research questions 78
6.3 Implications for the commercial banks in Vietnam 79
6.3.1 Implication 1. Implication for the State Bank of Vietnam 79
6.3.2 Implication 2. Viewpoint of risk management role 81
6.3.3 Implication 3. Developing and updating the risk management strategy in
more details 82

6.3.4 Implication 4. Improving the efficiency of risk management in the bank 83
6.4 Limitations for the research study 87
6.5 Implications for further research 88
REFERENCES 89
Appendix 93

vii

LIST OF TABLES AND FIGURES
Figures
Figure 1.1 Structure of chapter 1
Figure 1.2 Structure of the Research
Figure 2.1 Structure of chapter 2
Figure 2.2 Bank goal and risks
Figure 2.3 The link between liquidity and other typical risks
Figure 2.4 Two broad categories of operational risk
Figure 3.1 Structure of chapter 3
Figure 3.2 Market shares of Vietnamese banks
Figure 4.1 Structure of chapter 4
Figure 4.2 Hypothesis
Figure 5.1 Structure of chapter 5
Figure 5.2 Age group of respondents
Figure 5.3 Distribution of working experience
Figure 5.4 Distribution of Ownership
Figure 5.5 Distribution of educational level
Figure 5.6 Distribution of educational background
Figure 6.1 Structure of chapter 6

Tables
Table 3.1 Deposits of the commercial banks in Ho Chi Minh City

Table 3.2 Reserve requirement rate in 2004-2008
Table 3.3 Current Reserve Requirement Rate
Table 3.4 Changes of interest rate for reserve deposit in VND at State bank of VN
Table 3.5 Changes of base rate from 2008
Table 3.6 Provision rates
Table 5.1 Respondents’ characteristics
Tables 5.2 Interest rate risk ratio
viii

Table 5.3 Summary of interest rate risk ratios
Table 5.4 Liquidity risk ratios
Table 5.5 Summary of liquidity risk ratios
Table 5.6: Credit risk ratio
Table 5.7 Summary of credit risk ratios
Table 5.8: Capital risk ratio
Table 5.9 Summary of Capital risk ratios
Table 5.10 ROA
Table 5.11 Summary of ROA
Table 5.12 ROE
Table 5.13 Summary of ROE
Table 5.14 Summary Statistics of the Explanatory Variables
Table 5.15 Liquidity and interest rate
Table 5.16 Domestic market
Table 5.17 International market
Table 5.18 Internal Operation
Table 5.19 External Operation
Table 5.20 Credit
Table 5.21 Factors affecting banks’ risk exposure
Table 5.22

Correlation Matrix of the Explanatory Variables
Table 6.1 Summary of all hypotheses



ix

LIST OF ABBREVIATIONS

ACB

Asia Comm
ercial Bank

ALCO

Asset Liability Committee

BIDV Bank for Investment and Development of Vietnam
BODs

Board of Directors

CAR

Capital Adequacy ratio

CDs

Certificate of deposits

CEO

Chief Executive Officer

CIC

Credit Information Center

EAB Dong A Bank
EFA

Exploratory Factor Analysis

FX Foreign Exchange
ICT

Information and communicative technology

IT

Informatics technology

L/Cs Letters of Credit
MLR

Multiple Linear Regression

MM Money Market
NIM

Net interest margin

P&L Profit and Loss
ROA

Ra
te of return on assets

ROE

Rate of return on equity

RP

Repurchase Agreement

RPs

Repurchase Agreements

SBV

State Bank of Vietnam

SMEs Small and Medium Enterprises
SOE

State –owned enterprise

SPSS

Statistical Package for Social Science

VND

Vietnamese dong

WB

World Bank

1

CHAPTER 1

INTRODUCTION
1.1 Introduction
This chapter provides a general introduction to the research study. The purpose is to
establish foundations for following chapters and the study as a whole, by providing a
general picture of the study. This chapter is structured into eight sections as presented
by figure 1.1.

2

Figure 1.1: Structure of chapter 1

1.2 Research Background
In the past two decades, the banking industry has evolved from a financial
intermediation between depositors and borrowers, to a “one-stop” centre for a range
of financial services like insurance, investments and mutual funds. The advancement
1.9 Conclusions
1.1 Introduction
1.2 Research Background
1.5
Methodology

1.3
Research Problem
1.6
Justification for the study

1.7 Significance and scope of the study
1.8 Structure of the study
1.4
Research question
3

of information and communicative technology (ICT) is accountable for the evolution
of banking services, in particular, online banking. The development in ICT has not
only provided vast banking opportunities previously beyond reach, but also heightens
the competition and risks faced by banks in the financial system. The banks’ primary
business in lending and investment are risky business. Banks are exposed to
uncertainty and instability of the financial market as interest rate fluctuations,

exchange rate variation and economic volatility could all lead to insolvency,
bankruptcy and financial crisis. The present adverse effect of the sub-prime crisis in
the US, for instance, has crumbled giant investment bankers like Bear Stearns and
Lehman Brothers and shook the insurance company American International Group
(AIG). Hence, proper understanding on the factors that constitute banks’ risks
exposure will mitigate and minimize banks’ loss in earnings and capital due to risks
and financial crisis. Besides, the intensified global competition and the liberalization
of banking rules and regulations have also changed the current banking system by
providing greater opportunities of banks’ risk diversification. Therefore, it is the
purpose of this study to determine the factors that will affect the banks’ risks taking
in the banking industry and impacts of financial risks on theirs profitability. The
identification of these factors would be beneficial in constructing effective risk
management strategies in the banks and to minimize a loss in income. In addition, an
understanding on the association of risk involved in the banking industry will also
help banks formulate appropriate strategy that will escalate positive and minimize
negative impact of associated risks.
1.3 Research problems
Right now, the Vietnam banking system is facing to serious difficulties in regard to
uncertainty and instability of the financial market as interest rate fluctuations,
exchange rate variation and economic volatility. It made many commercial banks had
been chaotic and potential bankruptcy; threat the safety of whole banking system and
national economy. This has put the country in difficult situation when it is on the way
to modernize and industrialize the nation and integrate with international
4

environment. This research study is to investigate and identify factors affecting
banks’ risk exposure and relationship between financial risks and profitability of the
commercial banks in Vietnam.
1.4 Research questions
The research study will answer for the following research questions:

1. What factors affect banks’ risk exposure in Vietnam?
2. What is relationship between financial risks (liquidity risk, interest rate risk,
capital risk, credit risk) and profitability of the commercial banks in Vietnam?
1.5 Research objectives
In solving the research problem and answering the research questions mentioned
above, the research study has the following objectives:
•
To investigate and describe factors affecting banks’ risk exposure in Vietnam
•
To develop models the impacts of financial risks on commercial banks’
profitability
•
To contribute to knowledge of factors affecting banks’ risk exposure and the
relationships of financial risks and commercial banks’ profitability
1.6 Research Methodology
In this research, casual and descriptive are used in combination research
1.6.1 Secondary Data and Limitations
The study uses secondary data from official publications of State Bank of Vietnam
(SBV), World Bank (WB). Moreover, data from other publications such as journals,
magazines, newspaper, banks’ annual reports and foreign banks’ researches are also
used in this study.
It should be noted that the quality of Vietnam’s data is poor and short in term of time
series. More especially, obtaining the data related to Vietnam‘s banking sector is a
very difficult task because of non-transparency in this sector. It is also widely known
5

that the validity of the published information by Vietnamese journals, newspapers,
annual reports and Government documents varies greatly, thus, resulting in the
difficulty of obtaining internal validity.
1.6.2 Questionnaires

Questionnaires were constructed based on the objectives of the research and after
exploring bank executive opinions about different aspects of the current risk
management in Vietnam‘s banking system. Based on the relationship with the author,
respondents were selected as bank’s executives, officers in risk management
department at different local banks as well as foreign banks doing business in
Vietnam. The number of respondents was 150 and most of them were willing to reply
the questionnaires. The questionnaire is in Appendix.
1.7 Significance and scope of the Research
Identifying the factors that may affect these risks are of importance and the impact of
financial risks has had an effect on profitability of the commercial banks. This study
highlights that these indicators are implied for banks to formulate appropriate
strategies for better bank management. This study is to bring some applications in
developing risk management strategy in commercial banks in Vietnam. It will help
banks in constructing effective risk management strategies in the banks and to
minimize a loss in income.
1.8 Structure of the Research
In term of research structure, the thesis has six chapters (Figure 1.2). The thesis
begins by defining the research problem and questions, and providing a justification
for the research study. Chapter one also reviews the research background,
significance and scope of the study. Chapter two reviews banks’ risk in theory, ratios
to evaluate profitability of the commercial banks. Objectives of this chapter are to
review the theories related to banks’ risk and profitability of the commercial banks,
to review previous research related to the areas of banks’ risk and profitability of the
6

commercial banks and to build a model of the impact of financial risks (liquidity risk,
interest rate risk, market risk and capital risk) on profitability.
Chapter three examines the overview of banking industry. The objective of this
chapter is to review overview of banking industry and banking regulatory
environment which affect management strategy of the commercial banks in Vietnam,

Chapter four discusses aspects of the research methodology including research
design, data collection and data analysis methods, and hypothesis testing to support
the model. Objectives of this chapter are: (1) to justify the research methodology of
this study, (2) to explain research methodology used in the study, and (3) to
demonstrate how research design, and data collection and analysis can be utilized in
this study to answer the research questions outlined in the chapter 1.
Data analysis and findings are presented in chapter five. This chapter presents
descriptive findings of factors and findings of the research study related to testing the
model of profitability. Objectives of this chapter are (1) to systematically present the
descriptive findings of the research study, (2) to interpret significance of these
findings based on data analysis, (3) to present the results of testing the model of
commercial banks’ profitability, and (4) to explain how the model, developed from a
literature review, was supported by data analysis. Finally, the thesis ends with
chapter six. This chapter will give some conclusions and implications for banks in
Vietnam to avoid bank failure.






7

Figure 1.2: Structure of the Research

1.9 Conclusion
This research examines the factors affecting banks’ risk exposure and the relationship
between financial risks and profitability of the commercial banks in Vietnam. To
date, there is no significant research related to factors affecting banks’ risk exposure
and impacts of financial risks on profitability in Vietnam. This research is designed
as a combination of descriptive and casual research in which a sample of 150 banks’
executives, officers in risk management department at different local banks as well as



Chapter 2: Literature Review

Chapter 3: Overview of banking Industry
Chapter 6: Conclusions and Implications

Chapter 5: Data Analysis and Findings

Chapter 4: Research Methodology
Chapter 1: Introduction to the Study
8

foreign banks doing business in Ho Chi Minh City for personal interview and a
sample of 10 banks in Vietnam for analyzing impacts of financial risks on

profitability.
Gathered data will be processed by Excel, the Statistical Package for Social Science
(SPSS) and EView 7.0 are the main computer software utilized in data analysis.
Findings of this study will be applied to increase efficiency of risk management of
commercial banks in Vietnam. To provide an in-depth picture of business
environment in which commercial banks operate, chapter 3 will present information
on background of banking industry, the bank regulatory environment in Vietnam
whereas chapter 2 reviews the literature of bank’ risks.

9

CHAPTER 2

LITERATURE REVIEW
2.1 Introduction
This chapter is a review of the literature on banks risk in theory. The objectives of
this chapter are to review previous research related to the area of banks’ risk.
This chapter is structured into 5 sections (Figure 2.1)
Figure 2.1: Structure of chapter 2

2.1 Introduction
2.2 Bank’s Risks
2.4
Analyzing Bank Performance with
Financial Ratios

2.3
Characteristics of Bank’s Risks

2.5

Relationship between financial risk
factors and profitability

2.6

Previous studies
2.7

Conclusions

10

2.2 Bank’s risk
There are many different risk definitions by different economists. Risk is uncertainty
but it can be measured (Frank, 1981). Risk is uncertainty that an unexpected event

was happened (Alan, 1989). Risk to a banker means the perceived uncertainty
connected with some events.
Risk is defined as the effect of uncertainty on objectives (whether positive or
negative). Risks can come from uncertainty in financial markets, project failures,
legal liabilities, credit risk, accidents, natural causes and disasters as well as
deliberate attacks from an adversary.
According to Spira (2003), the historical progression of the idea of risk and risk
management can be traced back to the pre-modern era when risk was related to
natural events, which were beyond human agency. The development of rationalism
during the seventeenth century suggests that both the natural and social worlds could
be subjected to scientific exploration. People learnt that once techniques for the
prediction and calculation of risk became available, it could also be avoided and
compensated. Risk became associated with unanticipated outcomes of human action,
rather than simply the result of fate or acts of God. Her Majesty's Treasury's website
(2005) stated that, today, risks were an inherent part of both business and public life.
Every business and every person faces risks everyday but each person has different
attitude to risks. A person's aversion to risks is the main factor in deciding whether
he/she will try to manage his/her risks. The essence of risk is the uncertainty of
outcome. The term exposure refers to the combination of the probability of all
potential events and the magnitude of their impact. The Chinese symbol for risk is a
combination of two symbols one for danger and one for opportunity (Damodaran
2003). In general terms, people often think of risks as the chance of something bad
happening. Being bad and chance are two key elements of risks. Being bad is the first
element which is also seen as a threat, and it refers to an event or outcome that is
adverse, such as a crop failure due to a thunderstorm. Chance is the second element,
which also sometimes refers to opportunities (constructive events) which if exploited
11

could offer an improved way of achieving objectives but which are surrounded by
threats. Tchankova (2002) stated that risk is an inherent part of business and public

life. Dynamic market relations continuously increase the uncertainty of the
environment where business and public organizations work. In order to maintain high
competitiveness, it requires organizations to start considering other alternatives,
which may lead to better return but at the same time, may create higher risks for the
organization. It is important for management to realize that risks cover all aspects of
organizational activities and they should be considered at all management levels.
Risk to a banker means the perceived uncertainty associated with a particular event
(Peter S.Rose, 2005). For example, whether the customer will renew his or her loan;
deposits and other sources of funds will grow next month; or whether interest rates
are going to rise or fall next week.
Banking is the management of risk. Bank accepts risk to earn profit. They must
balance alternative strategies in terms of their risk/return characteristics with the goal
of maximizing shareholder wealth.
‘‘The fact is that bankers are in the business of managing risk. Pure and
simple, that is the business of banking.’’

(Walter Wriston, former CEO of Citibank; The Economist, 10 April 1993)

‘‘Banks have an ingrained habit of plunging headlong into mistakes together
where blame minimizing managers appear to feel comfortable making
blunders so long as their competitors are making the same ones. . . VaR is the
alibi that bankers will give shareholders (and the bailing out taxpayer) to show
documented due diligence.’’
(Taleb, in Jorion and Taleb, 1997, p. 3)
In doing so, banks recognize that there are different kinds of risk. The Office of the
Comptroller of the Currency (OCC) (OCC Formally Launches Supervision by Risk
Program with distribution of Large Bank Supervision Handbook”, Office of the
Comptroller of the Currency, News Release NR 96-2 (January 4, 1996) lists nine for
12

purposes of ban supervision: credit risk, interest rate risk; operational risk; liquidity
risk; price risk; compliance risk; foreign exchange risk; strategic risk; and reputation
risk. The risks listed by the OCC may appear to differ from those listed by different
bank supervisory agencies.
Bank management must balance risk and return in seeking to maximize shareholder
wealth. However, such decisions are constrained by a number of factors. These
constraints may be classified into three separate though overlapping areas: market
constraints; social constraints; and legal and regulatory constraints.
Peter S. Rose lists types of bank risk as follows: credit risk; liquidity risk; market
risk; interest rate risk; earning risk; capital risk; inflation risk; currency or exchange
rate risk; political risk; and crime risk.
Shelagh Heffernan (2005) specifies risks to the business of banking are: credit,
counterparty, liquidity or funding risk, settlements or payments risk, market or price
risk, which includes currency risk and interest rate risk, capital or gearing risk,
operational risk, sovereign and political risk.
Bank goal and risks can be described as figure below:
13

Figure 2.2: Bank goal and risks

Goal

Source: Benton E.Gup, James W.Kolari (2005)
2.3 Characteristics of bank’s risks
In this study, the author concerns with six main types of risk as follows:
2.3.1 Credit risk
Credit risk is one of the oldest and most vital forms of risk faced by banks as
financial intermediaries (Broll, et al., 2002). Commercial banks are most likely to
make a loss due to credit risk (Bo, et al., 2005).
Banks are in business to take credit risk, it is the traditional way banks made money.
To quote a former chairman of the US Federal Reserve System ‘‘If you don’t have
Maximize
Shareholder wealth
Amount of cash flow
Timing of cash flow
Risk of cash flow
Credit
risk
Interest
rate
risk

Liquid-
ity risk
Opera-
tional
risk

Capit-
al risk
Fraud
risk
Market
competition

Social
Legal/regulatory
Constraints
14

some bad loans you are not in the business.’’
(P.Volker, former chairman of the Board of
Governors of the Federal Reserve System)
Generally, the greater the credit risk, the higher the credit premiums to be charged by
banks, leading to an improvement in the net interest margin (Hanweck and Ryu,
2004)
Credit risks are a vital component of fixed-income investing, which is why ratings
agencies such as S&P, Moody's and Fitch evaluate the credit risks of thousands of
corporate issuers and municipalities on an ongoing basis.
A form of risk that summarizes the risks a company or firm undertakes when it
attempts to operate within a given field or industry.
Peter S. Rose (2005) indicates that the following are five of the most widely used
indicators of credit risk:
•
The ratio of non performing assets to total loans and lease.
•
The ratio of net charge-offs of loans to total loans and leases

•
The ratio of the annual provision for loan losses to total loans and leases or to
equity capital
•
The ratio of allowance for loan losses to total loans and leases or to equity
capital
•
The ratio of non performing assets to equity capital
Non performing assets are income-generating assets including loans that are past due
for 90 days or more
Charge-offs is loans that have been declared worthless and written of the lender’s
book. If some of these loan ultimately generate income for the lender, the amounts
recovered are deducted from gross charge offs to yield net charge offs. Both of the
above ratios rise, exposure to credit risk grows, and failure of a bank or other lending
institution may be just around the corner. The final two credit risk indicator ratios