DSpace at VNU: Solutions to improve credit risk management of Vietnam Bank for Agriculture and Rural Development (AGRIBANK)

Solutions to improve credit risk management of
Vietnam Bank for Agriculture and Rural
Development (AGRIBANK)
Hoàng Ngọc Linh
Khoa Quản trị Kinh doanh
Luận văn Thạc sĩ ngành: Kinh doanh và quản lý; Mã số: 60 34 05
Người hướng dẫn: TS. Nguyễn Việt Dũng
Năm bảo vệ: 2010
Keywords: Quản trị rủi ro; Tín dụng; Ngân hàng; Quản lý điều hành
Content


TABLE OF CONTENTS
ACKNOWLEDGEMENTS ................................................................................... i
ABSTRACT ........................................................................................................... ii
TÓM TẮT ............................................................................................................. iv
TABLE OF CONTENTS ..................................................................................... vi
LIST OF ABBREVIATIONS .............................................................................. xi
LIST OF TABLE ................................................................................................. xii
LIST OF FIGURES ............................................................................................ xiii
INTRODUCTION ................................................................................................. 1
1.

Thesis necessity ........................................................................................... 1

2.

Research Objectives .................................................................................... 2

3.

Research Scope ........................................................................................... 2

4.

Data sources ................................................................................................ 2

5.

Research Methods ....................................................................................... 2

6.

Contributions of the research..................................................................... 2

7.

Limitation.................................................................................................... 3

8.

Structure of the thesis ................................................................................. 3

CHAPTER 1 .......................................................................................................... 4
THEORETICAL FOUNDATION ........................................................................ 4
1.1 Commercial banks ....................................................................................... 4
1.1.1 Main types of Risk in the bank operation ............................................. 4
1.1.1.1 Liquidity risk...................................................................................... 4
1.1.1.2 Credit risk .......................................................................................... 5
1.1.1.3 Interest rate risk ................................................................................ 6
1.1.2 Other types of risk ................................................................................. 6

1.2 Bank credit & Credit Risk ........................................................................... 8
1.2.1 Bank credit ............................................................................................ 8
1.2.2 Classification of credits & credit risk ................................................... 9
1.2.2.1 Classification of credits .................................................................... 9

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1.2.2.2 Classification of credit risks ........................................................... 11
1.2.3 Root causes of credit risk .................................................................... 12
1.2.3.1 External reasons.............................................................................. 12
1.2.3.2 Risks due to borrowers ................................................................... 14
1.2.3.3 Risks due to the bank internally ..................................................... 14
1.2.4 Damages caused by credit risks .......................................................... 15
1.2.4.1 To the bank ...................................................................................... 15
1.2.4.2 To economy and society .................................................................. 16
1.3 Credit risk management ............................................................................ 16
1.3.1 Concept ................................................................................................ 16
1.3.2 Identification of credit risks ................................................................ 16
1.3.3 Preventive and corrective measures against groups of risk signs ...... 18
1.3.3.1 Preventive measures: ...................................................................... 18
1.3.3.2 Corrective actions:.......................................................................... 19
1.3.3.3 Measures on debt recovery ............................................................. 20
1.3.3.4 Measures against bank officers and relevant bodies: .................. 21
1.4 Risk management from the viewpoint of Basel Committee and criteria
for development of a modern risk management model. ................................. 21
1.4.1 Basel I Banking regulations ............................................................... 21
1.4.2 Methods of credit risk approach as per Basel II ................................ 23
1.4.3. Criteria for development of a modern risk management model as per
Basel Committee................................................................................................... 24

1.4.4. Vietnam’s existing regulations on debt classification, provisioning
and use of provisions for settlement of credit risks ............................................. 26
CHAPTER 2 ........................................................................................................ 28
ANALYSIS Of AGRIBANK’S CREDIT RISK MANAGEMENT ................... 28
2.1. Overview on Agribank and its loan system ............................................. 28
2.1.1. Milestones........................................................................................... 28
2.1.2. Organization structure ....................................................................... 30

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2.1.3. Operation networks ............................................................................ 30
2.2. Overview of Agribank’s business performance in period of 2005 - 2009
and in first 6 months of 2010 ........................................................................... 31
2.2.1. Business environment in period of 2005 - 2009 and in first 6 months
of 2010 .................................................................................................................. 31
2.2.2. Business performance during 2005 - 2009 ........................................ 34
2.2.2.1. Total Assets..................................................................................... 34
2.2.2.2. Treasury .......................................................................................... 36
2.2.2.3. Some indicators to assess financial performance ........................ 40
2.2.2.4 Trends of capital adequacy of AGRIBANK ................................... 42
2.2.2.5 Business results of 2010’s first half ............................................... 44
2.3. Loan structure and quality during 2005-2009 ......................................... 46
2.3.1. Loan structure:................................................................................... 46
2.3.1.1 Loan structure by economic regions .............................................. 46
2.3.1.2 Structure of lending by economic sectors in the years 2005-2009
............................................................................................................................ 47

2.3.1.3 Loan structure by terms:................................................................. 47
2.3.1.4 Loan structure by currencies: ........................................................ 48

2.3.1.5 Loan structure by economic industries: ........................................ 48
2.3.2 Credit quality ....................................................................................... 49
2.3.2.1 Credit quality by terms ................................................................... 49
2.3.2.2 Credit quality by economic regions ............................................... 49
2.3.2.3 Credit quality by enterprise types .................................................. 49
2.3.2.4 Credit quality by branches ............................................................. 49
2.3.3 Assessment on provision for impairment loss and methods to deal
with bad debts ....................................................................................................... 52
2.3.3.1 Provision for impairment loss ........................................................ 52
2.3.3.2 Methods to deal with bad debts ...................................................... 53
2.4 Status quo of credit risk management in Agribank ................................. 54

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2.4.1 Credit organization structure and risk management: ........................ 54
2.4.2. Credit processes .................................................................................. 56
2.4.3. Regulations on customer classification as currently applied ............ 58
2.4.4 Some shortcomings in credit risk management .................................. 59
2.4.4.1 Shortcomings in provisioning and risk processing: ...................... 60
2.4.4.2 Shortcomings in credit policies, customer policies and customer
classification. ..................................................................................................... 60
2.4.4.3 Shortcomings in credit procedures and credit risk management. 61
2.4.4.4 Shortcomings from Staff’s qualification and career ethics .......... 62
2.4.4.5 Shortcomings by insufficient information management system ... 63
2.4.5 Main reasons caused credit risk in Agribank ..................................... 64
2.4.5.1 External reasons.............................................................................. 64
2.4.5.2 Reasons caused by borrowers ........................................................ 65
2.4.5.3 Internal reasons .............................................................................. 66
CHAPTER 3 ........................................................................................................ 69

SOLUTIONS AND RECOMMENDATIONS TO IMPROVE AGRIBANK’S 69
CREDIT RISK MANAGEMENT ...................................................................... 69
3.1. Agribank’s development goals and orientation in terms of credit
activities and credit risk management towards 2015 and 2020 ..................... 69
3.2 Measures to improve the efficiency and effectiveness of credit risk
management in Agribank ................................................................................ 71
3.2.1 Strengthening financial conditions .................................................... 71
3.2.2 Complete credit operation and risk management structure ............... 72
3.2.3 Complete credit procedures ................................................................. 77
3.2.4 Improve the quality of human resources ............................................ 79
3.2.5. Customer classification and assessment procedures ......................... 82
3.2.6. Develop customer policies in credit activities: ................................... 84
3.2.7 Credit policies ...................................................................................... 85
3.2.7.1. Set out prudential ratios in credit activities: ................................ 85

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3.2.7.2 Expand loans secured by collaterals ............................................. 85
3.2.7.3 Disperse credit risks ....................................................................... 87
3.2.8 Book provisions to offset risks: ........................................................... 89
3.2.9. Invest in modern information technology ......................................... 89
3.3. Policy recommendations to improve commercial bank’s credit risk
management ..................................................................................................... 91
3.3.1. To the Government............................................................................. 91
3.3.2. To State Bank ..................................................................................... 92
CONCLUSION .................................................................................................... 94

x

REFERENCE
1. Dr: Ir.Tony Van Gestel and Prof. Dr. Bart Baesens (2008), “Risk Credit
Management” Oxford University Press.
2. Didier Cossin and Hugues Pirotte (2001),“ Advanced credit risk analysis Financial Approaches and Mathematical models to assess, Price and Management
credit risk” , John Wiley and sons, LTD
3. Andrew Fight (2004), “Credit risk management”, Elsevier Butterworth –
Heinemann publisher.
4. Joetta Colquitt (2007), “Credit Risk Management – How to avoid lending
disasters and maximize earnings” McGraw Hill, pp. 150-152
5. Univ.Doz.Mag.Dr. Josef Christl and Dr. Kurt Pribil (2004), “Credit
Approval Process and Credit risk Management, guidelines on credit risk
management, Oesterreichische National Bank (OeNB) in co-operation with the
Financial Market Authority (FMA)
6. Tran Dinh Dinh (2008), Credit risk management in banking according to
standard, international rules and Vietnam regulations, judiciary publisher
7. Dr Nguyen Huu Thuy, “Some measures to improve the control of creit
activities in commercial banks”, PhD Thesis, 2007.
8. Vietnam Bank for Agriculture and Rural Development, “Credit handbook”,
2004’
9. Vietnam Bank for Agriculture and Rural Development, “Annual report”,
2005, 2006, 2007, 2008, 2009.
10. The State Bank, “Reports on Deposits”, 2009
11. Agribank’s Income Statements for 2007 – 2009
12. Commercial banks’ annual reports for 2009
13. State Bank of Viet nam, “Decision No 493/2005/QD-NHNN on issuing
regulations on making

loan classification, making impairment loss and using

provision to handle credit risk in banking operation”, 22/4/2005.
14. Websites of Commercial Banks, including:

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; ;
; ;
,vn; ;
; ;
, ,
www.dbs.com/sg, www.mayabanks.com, www.boc.cn
15. General Department of Statistics (2005, 2006, 2007, 2008 and 2009),

16.

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