THỰC TRẠNG PHÒNG NGỪA rủi RO tín DỤNG tại NGÂN HÀNG TMCP đầu tư và PHÁT TRIỂN VIỆT NAM e

LUẬN VĂN THẠC SĨ
THỰC TRẠNG PHÒNG NGỪA RỦI RO TÍN DỤNG TẠI
NGÂN HÀNG TMCP ĐẦU TƯ VÀ PHÁT TRIỂN VIỆT NAM
CREDIT RISK PREVENTION – THE CASE OF GP BANK DONG DO BRANCH


ABBREVIATIONS

GP.Bank Dong Do : Global Petro Commercial Joint Stock Bank – Dong Do
Branch
DN

: Enterprises

DNVVN

: Small and medium enterprises

KH

: Customer

NH

: Bank

NHNN

: State bank

NHTM

: Commercial banks

NHTMCP

: Commercial Joint Stock Bank

NHTMCP ĐT&PT VN: Global Petro Commercial Joint Stock Bank - Dong Do Branch
RRTD

: Credit risks

TCTC

: Financial institutions

TCTD

: Credit institutions

TD

: Credit


TABLE OF CONTENTS
Pages
ABBREVIATIONS
LIST OF CHARTS, FIGURES AND TABLES

NHNN................................................................................................................. : State bank
.................................................................................................................3
NHTM

.........................................................................

: Commercial banks

..............................................................................................................3
NHTMCP

................................................

: Commercial Joint Stock Bank

..............................................................................................................3
NHTMCP ĐT&PT VN : Global Petro Commercial Joint Stock
Bank - Dong Do Branch.....................................................................3
RRTD................................................................................................... : Credit risks
..............................................................................................................3
TCTC.............................................................................. : Financial institutions
..............................................................................................................3
TCTD..................................................................................... : Credit institutions
..............................................................................................................3
TD ...................................................................................................................... : Credit
..............................................................................................................3
CHAPTER 1 OVERVIEW OF THE RESEARCH STUDIES
RELATED TO THE THESIS TOPIC..............................................ii
CHAPTER 2 THEORETICAL BASIS FOR CREDIT RISK
PREVENTION OF COMMERCIAL BANK..................................iii

2.1. Credit activities of commercial banks................................................................................iii


2.1.1. Fundamental activities of commercial banks..............................................iii
2.1.2. Credit activities of commercial banks........................................................iii
2.2 Credit risk.............................................................................................................................iv

2.2.1. Nature of the credit risk.............................................................................iv
2.2.2. Credit risk classification............................................................................iv
2.2.3. Causes of credit risk..................................................................................iv
2.2.3.4. Credit risk measurement criteria in business of commercial banks............v
2.3. Credit risk prevention..........................................................................................................v
2.3.1. Nature of credit risk prevention.........................................................................................v
2.3.2. Contents of credit risk prevention......................................................................................v
2.4. Experiences of foreign banks in the prevention of credit risk...........................................v

CHAPTER 3 SITUATION OF CREDIT RISK PREVENTION –
THE CASE OF GP BANK – DONG DO BRANCH........................v
3.1. Overview of GB.Bank - Dong Do Branch...........................................................................v

3.1.1. Establishment process and development of GB.Bank - Dong Do Branch v
3.1.2. The organizational model...........................................................................v
3.1.3. Business results of GB.Bank - Dong Do Branch for the period 2011 - 2013vi
3.1.4. The credit risk situation of GP.BANK – DONG DO BRANCH for the period 2011 –
2013 vi
3.2. Situation of credit risk prevention – the case of GP Bank – Dong Do Branch for the
period 2011 - 2013.......................................................................................................................vi

3.2.1. Situation of building strategy, orientation and credit policies.....................vi
3.2.2. Situation of internal credit rating system for borrowers...............................vi

3.2.3. Situation of the credit structure and credit concen.......................................vi
3.2.4. Situation of the loan security......................................................................vi
3.2.5. Situation of organizational structure of credit risk prevention.....................vi
3.2.6. Situation of the internal inspection and control for credit risk prevention....vi
3.2.7. Situation of credit officers..........................................................................vi
3.2.8. Situation of overdue and bad loan process..................................................vi


3.3. Assessment of achieved results and limitations in the credit risk prevention at GP.Bank
– Dong Do Branch......................................................................................................................vi

3.3.1. Achieved results........................................................................................vi
3.3.2. Some limitations.......................................................................................vi
3.4. Causes of limitations in credit risk prevention at GP.Bank – Dong Do Branch............vii

3.4.1. External causes:......................................................................................vii
3.4.2. External causes......................................................................................vii

CHAPTER 4...................................................................................vii
SOME MEASURES FOR INCREASING ABILITY TO
PREVENT CREDIT RISKS AT GP BANK – DONG DO
BRANCH.........................................................................................viii
4.1. Development orientation for credit operation of GP BANK- Dong Do Branch in the
near future................................................................................................................................viii
4.1.1. General orientation for GP BANK- Dong Do Branch period 2014 – 2016....................viii

4.1.2. Orientation for credit operation of GP BANK- Dong Do Branch in period
2014-2016........................................................................................................viii
4.2. Measures for enhancing the credit risk prevention capacity at GP BANK- Dong Do
Branch.......................................................................................................................................viii

4.2.1. Continue completng the internal credit rating system....................................................viii

4.2.2. Diversification of investment activities......................................................ix
4.2.3. Strengthening data collection and information processing for risk
prevention..........................................................................................................ix
4.2.4. Closely monitoring loans and improving internal inspection control
performance.......................................................................................................ix
4.2.5. Enhancing the efficiency of direct debt recovery activities.........................x
4.2.6. Continue exploiting and processing loans with security assets...................x
4.2.7. Limiting moral hazard and improving capacity of credit officers..............x
4.2.8. Appropriation and use of risk reserve fund reasonably and efficiently......xi
4.3. Recommendations to increase credit risk prevention capacity of GP BANK- Dong Do
Branch.........................................................................................................................................xi

4.3.1. Recommendations to the State bank...........................................................xi


4.3.2. Recommendations to the Government........................................................xi

CONCLUSION..............................................................................xii
INTRODUCTION...........................................................................1
CHAPTER 1 OVERVIEW OF THE RESEARCH STUDIES
RELATED TO THE THESIS TOPIC..............................................4
CHAPTER 2 THEORETICAL BASIS FOR CREDIT RISK
PREVENTION OF COMMERCIAL BANK...................................8
2.1. Credit activities of commercial banks.................................................................................8

2.1.1. Fundamental activities of commercial banks...............................................8
2.1.2. Credit activities of commercial banks.......................................................10
2.2 Credit risk............................................................................................................................14

2.2.1. Nature of the credit risk....................................................................................................14

2.2.2. Credit risk classification...........................................................................15
2.2.3. Causes of credit risk.................................................................................16
2.2.3.4. Credit risk measurement criteria in business of commercial banks..........22
2.3. Credit risk prevention........................................................................................................28
2.3.1. Nature of credit risk prevention.....................................................................................28
2.3.2. Contents of credit risk prevention..................................................................................29
2.4. Experiences of foreign banks in the prevention of credit risk.........................................39

2.4.1.

Experiences of credit risk prevention in Thailand..................................39

2.4.3.

Experiences of credit risk management in Hong Kong...........................40

CHAPTER 3...................................................................................41
SITUATION OF CREDIT RISK PREVENTION – THE CASE
OF GP BANK – DONG DO BRANCH...........................................41
3.1. Overview of GB.Bank - Dong Do Branch.........................................................................41

3.1.1. The establishment process and development of GB.Bank - Dong Do
Branch 41
3.1.2. The organizational model........................................................................42


3.1.3. Business results of GB.Bank - Dong Do Branch for the period 2011 - 2013
43

3.1.4. The credit risk situation of GP.BANK – DONG DO BRANCH for the period 2011 - 2013
....................................................................................................................................................45
3.2. Situation of credit risk prevention – the case of GP Bank – Dong Do Branch for the
period 2011 - 2013......................................................................................................................46

3.2.1. Situation of building strategy, orientation and credit policies....................46
Step 1: Market customers, make a report to propose credit and approve for export
credit; 48
Step 5: Handle arising problems in the credit granting process;...........................48
Bước Step 6: Liquid the contract........................................................................48
About credit granting policy:..............................................................................48
3.2.2. Situation of internal credit rating system for borrowers...........................49
3.2.3. Situation of the credit structure and credit concentration........................51
3.2.3.2. Situation of credit structure by sectors....................................................52
3.2.4. Situation of the loan security...................................................................53
3.2.5. Situation of organizational structure of credit risk prevention.................54
3.2.6. Situation of the internal inspection and control for credit risk prevention
55
3.2.7. Situation of credit officers........................................................................57
3.2.8. Situation of overdue and bad loan process...............................................58
(Source: Report on credit activities of GP.Bank – Dong Do Branch in 2011-2013).................59
3.3. Assessment of achieved results and limitations in the credit risk prevention at GP.Bank
– Dong Do Branch.....................................................................................................................59

3.3.1. Achieved results.......................................................................................59
3.3.2. Some limitations......................................................................................60
3.4. Causes of limitations in credit risk prevention at GP.Bank – Dong Do Branch.............61

3.4.1. Underlying causes:..................................................................................61
3.4.2. External causes......................................................................................66

CHAPTER 4...................................................................................68


SOME MEASURES FOR INCREASING ABILITY TO
PREVENT CREDIT RISKS AT GP BANK–DONG DO BRANCH
............................................................................................................68
4.1. Development orientation for credit operation of GP BANK- Dong Do Branch in the
near future.................................................................................................................................68
4.1.1. General orientation for GP BANK- Dong Do Branch period 2014 – 2016.....................68

4.1.2. Orientation for credit operation of GP BANK- Dong Do Branch in period
2014-2016.........................................................................................................70
4.2. Measures for enhancing the credit risk prevention capacity at GP BANK- Dong Do
Branch........................................................................................................................................70
4.2.1. Continue completng the internal credit rating system.....................................................70

4.2.2. Diversification of investment activities.....................................................71
4.2.3. Strengthening data collection and information processing for risk
prevention.........................................................................................................71
4.2.4. Closely monitoring loans and improving internal inspection control
performance......................................................................................................72
4.2.5. Enhancing the efficiency of direct debt recovery activities.......................72
4.2.6. Continue exploiting and processing loans with security assets.................73
4.2.7. Limiting moral hazard and improving capacity of credit officers............74
4.2.8. Appropriation and use of risk reserve fund reasonably and efficiently.....75
4.3. Recommendations to increase credit risk prevention capacity of GP BANK- Dong Do
Branch........................................................................................................................................76

4.3.1. Recommendations to the State bank..........................................................76

4.3.2. Recommendations to the Government.......................................................79

CONCLUSION..............................................................................82
REFERENCES..............................................................................83


i

SUMMARY OF MASTER’S THESIS
INTRODUCTION
1. Rationale
In business banking, credit operations are fundamental operations with the
most important role and they accounted for the majority of the income structure,
assets structure of each bank. However, the credit operations always contain a lot of
risks and have significant impact on the results of the business banking. In order to
survive and develop, the banks must focus on the prevention of credit risks,
minimize the potential hazards which can cause credit risks.
Global Petro Commercial Joint Stock Bank - Dong Do Branch (GP.Bank
Dong Do) is one of the branches with largest operation scale in the system of Global
Petro Commercial Joint Stock Bank. For governance, GP.Bank Dong Do always
focuses on preventing risks in credit operations. This helps GP.Bank Dong Do to
have more realistic and oriented results of debts classification and solutions to
prevent possible debts becoming overdue or bad debts in the future. However, due
to many different subjective and objective causes, the prevention of credit risk of
GP.Bank Dong Do is not yet as effective as expected by the bank’s board of
directors.
With the importance of prevention credit risks as well as the current situation
of credit risk prevention at GP.Bank Dong Do, I chose the topic “Credit risk
prevention – the case of GP Bank – Dong Do Branch” as the theme for my
Master’s Thesis in Business Administration with the aim at providing synchronous,

efficient, realistic solutions to increase the credit risk prevention at GP.Bank Dong
Do.


ii

CHAPTER 1
OVERVIEW OF THE RESEARCH STUDIES RELATED
TO THE THESIS TOPIC
With the most importantance in the business of commercial banks, credit risk
and the credit risk prevention have become the subjects for studies of many
researchers, policy makers, the bank governors, etc.:
The master’s thesis of Nguyen Thi Hoai Thu “Preventing credit risk for small
and medium enterprises in Hanoi Building Commercial Joint Stock Bank” in 2007, has
generalized all common characteristics of small and medium enterprises, credit risks,
the causes of credit risks; and proposed solutions to enhance credit risk prevention for
small and medium enterprises in the bank. However, this thesis only focused on a
narrow range of customers who are small and medium enterprises.
The master’s thesis in economics of Nguyen Van Manh “Some solutions for
credit risk prevention in the Bank for Investment and Development of Vietnam, Bac
Ninh Branch” in 2007 has added the qualitative and quantitative models in analysis and
evaluation of credit risk prevention.
With the same study topic, the master’s thesis “Reducing credit risks at the
Transaction of Bank for Investment and Development of Vietnam” by Hoang Thanh
Lan has provided many convincing data on the current situation and solutions to reduce
credit risks which are being applied at the Transaction. On this basis, the author has
proposed solutions and recommendations to reduce credit risks at the Transaction.
However, the thesis of author Hoang Thanh Lan analyzed the credit risks based on the
BIDV’s debts classification under both Article 6 and Article 7 in the Decision No. 493
of the State Bank, while GP.Bank Dong Do is currently applying debt classification

under Article 7 only.
Unlike the methods presented in the three above theses, the master’s thesis
“Current situation and preventive measures of credit risks at Vietnam Technological
and Commercial Joint Stock Bank” by Truong Quoc Doanh (in 2007, University of


iii

Economics Ho Chi Minh City) has analyzed the rationale, current situation as well as
solutions based on the assessment of the implementation of Basel Committee’s
recommendations on credit risk management such as establishing good credit risk
management environment.
In addition to the master’s theses, there have been many articles and researches
on credit risks and credit risk prevention in commercial banks: author Nguyen Duc
Trung had an article “Estimation method of credit losses based on the database system
of internal assessment and its applications in risk management” (Banking Journal,
2007); author Nguyen Van Toan with the article “Prediction and warning of credit
risks by knowledge exploration of data” (website of Vietnam Technological and
Commercial Joint Stock Bank, 2011), etc.
In summary, there have been many researches, theses, articles on the issues of
credit risks and credit risk prevention in commercial banks. However, to date, some
new official documents have been issued, so the issues of governance, credit risk
prevention in the commercial banks will change quite much in the coming time;
therefore in my opinion, the topic “Credit risk prevention – the case of GP Bank Đông Đô Branch” will continue to be an urgent issue to study.

CHAPTER 2
THEORETICAL BASIS FOR CREDIT RISK PREVENTION
OF COMMERCIAL BANK
2.1. Credit activities of commercial banks
2.1.1. Fundamental activities of commercial banks

Including capital mobilization, credit and other operations

2.1.2. Credit activities of commercial banks
2.1.2.1. Concept of bank credit


iv

Credit operations are activities where commercial banks grant amounts of
money to customers, and customers are responsible to pay interest and repay
principal in a timely manner as agreed in the contract.

2.1.2.2. Characteristics of bank credit
(i) In the credit relations, assets are traded in two forms: cash or assets. (ii)
Credit relations are based on mutual trust between the borrower and the lender (iii)
The normal reimbursement value must be greater than loan value (iv) In the credit
relations, loans are granted on the basis of unconditional commitment to refund

2.1.2.3. Categories of bank credits:
Depending on different criteria on the classification of bank credit

2.2 Credit risk
2.2.1. Nature of the credit risk
Credit risks in banking operations of credit institutions are the possibilities of
losses in banking operations of credit institutions when customers do not perform or
do not have the ability to perform their obligations under the commitment.

2.2.2. Credit risk classification
Depending on the causes: Transaction risk, porfolio risk

2.2.3. Causes of credit risk
2.2.3.1. External causes
Including causes from social and economic environment; from institutions
and laws; from the credit information system

2.2.3.2. Internal causes
Including causes from the side of commercial banks and customers

2.2.3.3. Impacts of credit risk
Credit risks have adverse impacts on the Bank itself, on the economy as well
as the customer’s activities


v

2.2.3.4. Credit risk measurement criteria in business of commercial
banks
Including such criteria as: Overdue debts; bad debts; credit risk factor;
outstanding credit over total mobilized capital; doubtful debts over total overdue
debts

2.3. Credit risk prevention
2.3.1. Nature of credit risk prevention
Risk prevention is to prevent disadvantages from occuring or credit risk
prevention is to prevent credit risks from occuring when lending. However, risk
prevention does not mean risk avoidance but to define an acceptable level of risk,
based on which the measures are taken to ensure that the credit risks do not exceed
the defined level.

2.3.2. Contents of credit risk prevention

Including prevention of credit risks caused by customers, prevention of credit
risks caused by management mechanism, processes and policies of the commercial
banks and prevention of credit risks caused by credit officers

2.4. Experiences of foreign banks in the prevention of credit risk
Including experiences in credit risk prevention of Thailand, Korea,
Hongkong

CHAPTER 3
SITUATION OF CREDIT RISK PREVENTION – THE CASE
OF GP BANK – DONG DO BRANCH
3.1. Overview of GB.Bank - Dong Do Branch
3.1.1. The establishment process and development of GB.Bank - Dong
Do Branch


vi

3.1.2. The organizational model
3.1.3. Business results of GB.Bank - Dong Do Branch for the period
2011 - 2013
3.1.4. The credit risk situation of GP.BANK – DONG DO BRANCH
for the period 2011 - 2013
3.2. Situation of credit risk prevention – the case of GP Bank –
Dong Do Branch for the period 2011 - 2013
3.2.1. Situation of building strategy, orientation and credit policies
3.2.2. Situation of internal credit rating system for borrowers
3.2.3. Situation of the credit structure and credit concen
3.2.4. Situation of the loan security
3.2.5. Situation of organizational structure of credit risk prevention

3.2.6. Situation of the internal inspection and control for credit risk
prevention
3.2.7. Situation of credit officers
3.2.8. Situation of overdue and bad loan process
3.3. Assessment of achieved results and limitations in the credit risk
prevention at GP.Bank – Dong Do Branch
3.3.1. Achieved results
- GP.Bank Dong Do has issued synchronous, complete, enclosed credit
strategies, policies, processes to uniformly apply in all member units.
- The organizational model of GP.Bank Dong Do is gradually completed in
accordance with international practices; its products and operational processes are
separated into three functions of business, risk management and operations.
- GP.Bank Dong Do pays great attention to the inspection and control of
credit operations.
- GP.Bank Dong Do paid proper attention to the management of human
resources in the credit operations.


vii

3.3.2. Some limitations
- In 2012, 2013 the non-performing loan percentages of GP.Bank Dong Do
did not have much improvement compared to 2011 (2011: 2.91%, 2012: 1.46%,
2013: 2.32% ).
- The credit structure of GP.Bank Dong Do also revealed many
shortcomings.
- The measures to prevent risks of capital loss from recovery of bad debts
and off-balance sheet accounting debts showed less effectiveness

3.4. Causes of limitations in credit risk prevention at GP.Bank –

Dong Do Branch
3.4.1. External causes:
3.4.1.1. External causes from the bank
- GP.Bank Dong Do’s policy mechanism of risk prevention has not catched
up with the requirements of credit operations: The assessment of customers and
classification of debts in accordance with the internal credit risk rating system of
GP.Bank Dong Do are still emotional and less accurate, the credit information of
customers is not complete and accurate, the Awareness of “dependence and
reliance” on the collaterals, Lack of control and supervision of loans
- The capacity of Customer Relation and Risk Management staff is still
limited

3.4.1.2. Internal cause from customers
Due to the limited financial capacity, the governance capacity of customers,
capital use for the wrong purposes, no goodwill for repayment and deliberate fraud

3.4.2. External causes
Due to the adverse changes in natural conditions, due to the impacts of social and
economic environment, due to the shortcoming management information system

CHAPTER 4


viii

SOME MEASURES FOR INCREASING ABILITY TO
PREVENT CREDIT RISKS AT GP BANK – DONG DO
BRANCH
4.1. Development orientation for credit operation of GP BANKDong Do Branch in the near future
4.1.1. General orientation for GP BANK- Dong Do Branch period

2014 – 2016
4.1.2. Orientation for credit operation of GP BANK- Dong Do
Branch in period 2014-2016
- Reasonable and effective control and management of credit growth.
- Maintaining a high quality portfolio of earning assets, aiming at building
asset structure consistent with practices of a modern commercial bank.
- Proactively controlling and lowering bad debt percentage, secondary debt,
structural debt, suspended interest.
- Improving the competitiveness in the market.
- Promoting the retail credit operations, maintaining a leading position in
terms of scale, market share in the retail market.
- Complying with laws, ensuring system security, further strengthening the
management of credit risks and improving credit quality.

4.2. Measures for enhancing the credit risk prevention capacity at
GP BANK- Dong Do Branch
4.2.1. Continue completng the internal credit rating system
GP.Bank Dong Do needs to accelerate the upgrading and perfecting of the
internal credit risk rating system aiming at the innovation of scoring and ranking
criteria towards the period of 2014 - 2016; make specific and detailed regulations
and quantify the scoring to minimize the subjective, emotional factors in scoring


ix

results, etc. Besides, the management should direct the credit officers to strictly
score and rank borrowers to avoid formal, cursory scoring

4.2.2. Diversification of investment activities
GP.Bank Dong Do needs to diversify business lines, types of borrowing

enterprises, forms of loan, namely: reducing the concentration of credit on the
traditional industries such as civil construction, manufacture of building materials,
etc. and expanding the loans for industries which have potential growth such as
processing exports, handicraft industries, etc. promoting loans for personal
customers and small and medium enterprises which operate effectively; restricting
credit for long-term projects out of the priority list of GP.Bank Dong Do, increasing
short-term loans to accelerate repayment, risk prevention, etc..

4.2.3. Strengthening data collection and information processing for
risk prevention
GP.Bank Dong Do staff should strengthen the collection, selection and
processing of information relating to loans to ensure the quality of information. For
example, credit officers need to carefully review and evaluate the business reports,
financial reports, etc. provided by the customers. In addition to information
provided by customers, credit officers need to strengthen the collection of
information from other sources such as customer’s partners, previous banks which
had a relationship with the customer, government agencies, the mass media, and
public opinions.

4.2.4. Closely monitoring loans and improving internal inspection
control performance
Performing well the inspection and supervision of loans will help the bank to
closely monitor the actual situation of the enterprise’s and project’s operations,
ensure that the loans are used for the right purposes and commitment in the credit
agreement. In order to ensure the effectiveness, the inspection and supervision of
the loans must be more strictly and frequently performed; in addion to periodic


x

inspections, it is necessary to perform unscheduled ones to ensure the accuracy of
the inspection results.

4.2.5. Enhancing the efficiency of direct debt recovery activities
After the analysis and classification of bad debts, the bank should take
appropriate measures to urge the recovery of bad debts to achieve the highest
recovery efficiency, in the shortest time. In order to improve the efficiency of
directdebt recovery, the Bank should develop an attractive motivation mechanism in
the recovery of bad debts for all debt collectors of the bank including bank staff and
employees as well as other participating individuals and organizations. On the other
hand, the bank should resolutely force the credit staff who have done wrong in the
recovery of bad debts to take material responsibility or compensate if they cannot
recover. If the bank staff intentionally defraud or are in cahoots with the customer to
withdraw money from the bank, they must be prosecuted under the law.

4.2.6. Continue exploiting and processing loans with security assets
First of all, it is necessary to review the entire loan guarantee records and
procedures of the bad debts. Timely add to complete the records which are still
missing legality and validity and to be sufficient to create good conditions for the
processing. Re-assess the current state and value of the collaterals and classify those
collaterals, then set out appropriate remedial measures.

4.2.7.

Limiting moral hazard and improving capacity of credit

officers
GP.Bank Dong Do need to use some solutions to develop human resources
such as:
- Standardization of credit officers: GP.Bank Dong Do should also set out the

mandatory standards for Customer Relation and Risk Management staff to
minimize credit risks while lending such as: having been formally trained in proper
major by prestigious universities, having the capacity to predict and forecast and
check customers; having good language skills and computer skills to study
documents and appraise; having good moral characters, high sense of responsibility.


xi

- Policy on professional training and improving specialization and selfimproving virtue: Paying proper attention to basic and specialized training in credit
operations, organizing seminars, exchanging experience lessons in credit
operations; updating new professional knowledge and laws; regularly educating
ideology and virtue for GP.Bank Dong Do staff.
- It is necessary to have appropriate remuneration and incentive regime for
staff such as praise and rewards for staff with good performance and strict sanctions
for staff with violations; ensuring discipline in credit operations of the bank.

4.2.8. Appropriation and use of risk reserve fund reasonably and
efficiently
GP.Bank Dong Do needs to make good provision and use of reserves for
credit risks: On the basis of results ranked according to the internal credit risk rating
system, it is necessary to classify the exact debts, then determine the amount of risk
provisions to be made for losses that may occur when customers do not perform
their obligations under the commitment. The use of the reserves for credit risks
must ensure the compliance with the conditions prescribed by GP.Bank Dong Do.

4.3. Recommendations to increase credit risk prevention capacity
of GP BANK- Dong Do Branch
4.3.1. Recommendations to the State bank
- Improving the quality of management and administration

- Strengthening information and technical support for commercial banks
- Increasing efficiency of the state bank’s inspection and control of credit
operations in the commercial banks to reduce and prevent risks
- Creating favorable basis aand legal framework for the operations of
Vietnam Asset Management Company (VAMC)
- Enhancing the roles and operations of the Banking Association

4.3.2. Recommendations to the Government
- Creating a stable economic environment


xii

- Further promoting the equitization of state-owned enterprises associated
with the application of modern corporate governance models and skills
- Promoting reform and enhancing financial capacity for the commercial
banks
- Establishment of agency responsible for the classification of enterprises

CONCLUSION
In the current trend of integration and development, Vietnam’s economy in
general and the banking system in particular are facing tremendous opportunities
and challenges when the time for a fully open environment is increasingly closer.
The requirement for improving credit quality to ensure safe and sustainable
development of banking operations is the top target in the management of credit
risks. Therefore, the research to find solutions for credit risk prevention is not only
an urgent requirement for GP.Bank Dong Do but also for the entire banking system.
With a desire to contribute to improving the quality of credit risk prevention
of GP.Bank Dong Do in the future, the author has made efforts and take time to
study the topic, nevertheless, with his limited capacity, the thesis still certainly has

many shortcomings. The author would like to receive the attention and feedback
from teachers, friends and colleagues to complete his research thesis.


1

INTRODUCTION
1. The necessity of the topic
In banking business, credit activity is the fundemental with the most
important role, accounting for the majority of the income structure, asset structure
of each bank. Through credit activity, banks have effectively used mobilized funds
for lending, which brings profits and revenue to banks on the basis of differences
between incoming and outcoming interest rates (it is estimated that credit activity
has contributed up to 70% of bank’s profit). In terms of the economy, bank credit is
not only a lever for economic development by financing businesses, industries and
sectors in need of capitals but also a supervision tool of the State in the management
of monetary policy, credit and payments under the government's objectives in each
different period.
Given such importance, how to preserve and enhance income from credit
activity is always the top concern of managers. However, the credit activity is
accompanied with numerous underlying risks and significant impacts on banking
business performance. Credit risk which is assessed as an important link in banking
operations can determine the success or failure of a bank. In order to survivel and
develop, banks have to focus on credit risk prevention to the lowest limit of
potential risks resulting in credit risk, particularly, in the era of globalization and
amid fluctuations of macroeconomic factors as well as the competition and
integration of the international economy, the risk of credit risk is getting greater;
therefore, the issue of how to increase credit risk prevention becomes more urgent.

2

Global Petro Commercial Joint Stock Bank – Dong Do Branch (GP.Bank
Dong Do) is one of the branches of large-scale operation in the system of Global
Petro Commercial Joint Stock Bank. In the administration and management,
GP.Bank Đông Đô always focuses on credit risk prevention and is one of few highly
appreciated banks regarding the transparency and quality of administration. This
helps GP.Bank Dong Do get more realistic debt classification result and have
orientation and solution to prevent the debts on the verge of overdue debts or bad
debts in the future. However, due to various reasons, both subjective and objective,
credit risk prevention in GP.Bank Dong Do is not yet effective as expected by bank
CEOs: NPL ratio in 2013 was 2.32%, down 0.59% compared to 2011 (2.91%), in
terms of absolute figure, bad debt balance in 2013 increased 1.12 times compared to
that in 2011 (20,659 billion VND compared with 18,481 billion VND); while the
credit size increased only by 1.4 times.
Given the importance of credit risk prevention as well as curent situation of
credit risk prevention at GP.Bank Đông Đô, I choose the topic " Credit risk
prevention – the case of GP Bank - Dong Do Branch" as the theme of my Master’s
thesis, aiming at recommending uniform, efficient and realistic solutions to increase
the credit risk prevention in GP.Bank Dong Do.

2. Objectives of the research
This research is conducted for below objectives:
- Systematize a theoretical basis on credit risk and credit risk prevention in
commercial banks.
- Applying such theoretical background in practice the credit risk prevention
in GP.Bank Dong Do, then revealing shortcomings as well as causes of
shortcomings in the credit risk prevention in GP.Bank Dong Do.
- Proposing solutions to enhance credit risk prevention in GP.Bank Dong Do.

3. Objects and scope of the research
- Subject of the research: Credit risk prevention in commercial banks
- Scope of the research:


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+ Regarding the space: Credit risk prevention in GP.Bank Dong Do
+ Regarding time: analyze current situation of credit risk prevention in GP
Bank Dong Do in the period from 2011 to 2013 and suggest solutions to improve
credit risk prevention for the period 2014-2016 .

4. Research methodology
- Research methods: Qualitative method. Specifically, methods of analysis,
comparison and synthesis - descriptive analysis are made use of in this research.
- Data collection method: data are obtained from various sources such as
statistical yearbooks, websites, financial reports, accounting reports and risk
prevention reports of businesses, organizations and banks in general and in GP
Bank Dong Do in particular (secondary data)

5. Structure of the thesis
In addition to the introduction, conclusion, table of contents, list of tables,
list of abbreviations, list of references, appendices, the contents of the thesis
consists of 04 chapters:
- Chapter 1: Overview of the research studies related to the thesis topic.
- Chapter 2: Theoretical basis for credit risk prevention of Commercial bank.
- Chapter 3: Situation of credit risk prevention – the case of GP Bank – Dong
Do Branch.
- Chapter 4: Some measures for increasing ability to prevent credit risks at
GP Bank–Dong Do Branch.

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CHAPTER 1
OVERVIEW OF THE RESEARCH STUDIES RELATED
TO THE THESIS TOPIC
With the ultimate importance in the business activities of commercial banks,
credit risk and credit risk prevention have become the objects of a great number of
researchers, policy makers, the bank managers, etc. An overview of researches related
to this content during the most recent 10 years is presented hereinafter:
MBA thesis of Nguyen Thi Hoai Thu "Credit risk prevention for small and
medium enterprises in Hanoi Building Bank (Habubank)", 2007 has systemized
general characteristics of small and medium enterprises, credit risk in small and
medium enterprises, the causes of the credit risk, the author indicates strong points as
well as shortcomings of this work in Hanoi Building Bank in the situation analysis,
then proposes solutions to enhance credit risk prenvention for small and medium
businesses in this bank. However, situation analysis as well as recommended solutions
of the author are still too sketchy and general, not really an effective solution indeed in
reality for bank managers.
Compared to above mentioned thesis, MBA thesis of Nguyen Van Manh "Some
credit risk prevention measures at the Operation Center of the Bank for Investment and
Development of Vietnam, Bac Ninh Branch" in 2007 has added contents of qualitative
and quantitative models in analysis and evaluation of credit risk prevention. This thesis
has detailed assessment of the credit risk situation and credit risk prevention in the
BIDV Bac Ninh, and proposed many effective measures to prevent credit risk at the
branch.
Focusing the same research topic, MBA thesis, "Limiting credit risk at the
Operation Center - Bank for Investment and Development of Vietnam" by Hoang
Thanh Lan has fully systematized theoretical basis of credit risk such as what is credit

risk, criteria, causes and impacts of credit risk; concept of credit risk prevention;


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assessment criteria, causes and impact of measures to limit credit risk. In the analysis of
the current situation of the credit risk at BIDV Transaction Center, the author
introduces convincing data on the status and measures to limit credit risk applied at the
transaction. Based on asssessment of limitations and shortcomings in the transaction
office, the authors have proposed solutions and recommendations to the Government,
the State Bank, the Bank for Investment and Development of Vietnam to minimize the
credit risk at the transaction office. However, the thesis of Hoang Thanh Lan is only
focusing on the credit risk analysis on the basis of the BIDV loan classification under
both Article 6 and Article 7 of Decision 493 of the State Bank, while GP.BANK
DONG DO bank only applies loan classification under Article 7.
Different with the methodology presented in foresaid there thesises, the MBA
thesis “Credit risk in the Technological and Commercial Joint Stock Bank of Vietnam,
current status and preventive measures” of Truong Quoc Doanh (2007, University of
Economics HCMC) analyzes the theoretical basis, current situation as well as solutions
on the basis of analysis of the implementation of the recommendations of the Basel
Committee on risk management such as establishing a good credit risk management
environment, operating a correct and accurate credit delivery process, maintaining a
good credit operation measurement process, ensuring adequate control of credit risk,
the role of the agencies or departments in charge of monitoring credit activities. This
thesis analysis is very scientific and logical about credit risk, status and preventive
measures at Technological and Commercial Joint Stock Bank of Vietnam.
In addition to the master's thesis, there have been numerous articles and research
works on the content of credit risk and the credit risk prevention in commercial banks.
Nguyen Duc Trung with the article "Estimation of credit losses based on the internal
assessment database system and applications in risk management"(Banking Magazine,

2007). In the article, the author identifies a formula to determine the estimated loss of
loans, accordingly, the bank is able to realize several objectives in the risk management
such as: help the bank strengthen personnel management, set up and effectively use
Reserve Fund, enhance the quality of monitoring and re-ranking customers after