LV thạc sỹ_Improving credit quality of GP bank

ACKNOWLEDGEMNET
This thesis would not have been possible without the supports of MBA ….
I would also like to thank all of lectures and tutors at National Economics
University in general and Advanced Program in particular who not only have bestowed
their valuable knowledge, hands-on experience to me, but also have created the favorable
opportunities for me to complete the thesis on time.
…...
Lastly but not least, I would especially like to thank all of my friends in Advanced
Finance Intake 49 for all their motivation and intellectual support that has made this
thesis completed.

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LIST OF ABBREVIATIONS
BOD - Board of Directors
BE - Board of Executives
GP-Bank - Global Petro Joint Stock Commercial Bank
HSBC - Hongkong and Shanghai Banking Corporation
Petro Vietnam – Vietnam Oil and Gas Corporation
SB – State Bank of Vietnam
Vietinbank – Vietnam Joint Stock Commercial Bank for Industry and Trade
Vietcombank – Vietnam Joint Stock Commercial for Foreign Trade
VIBank – Vietnam International Bank
VND - Vietnam Dong

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TABLE OF CONTENTS
ACKNOWLEDGEMENT

LIST OF ABBREVIATIONS
TABLE OF CONTENTS
LIST OF TABLES AND DIARAMS
INTRODUCTION
1. Rationale
2. Research Questions
3. Research Objectives
4. Research methodology
5. Research scope
6. Research Structure
CHAPTER 1: General Discussion on Credit Quality of Commercial Banks
1.1 Bank Credit in the Market-based Economy
1.1.1 Definition of Bank Credit
1.1.2 Classification of Bank Credit
1.1.3 Role of Bank Credit in the market-based Economy
1.1.3.1. Definition of market-based Economy
1.1.3.2. Strengths and Weaknesses of market-based Economy
1.1.3.3 Role of Bank Credit in market-based economy
1.2 Credit Quality of Commercial Banks
1.2.1 Concepts about Credit Quality of Commercial Banks
1.2.2 Evaluation Criteria of Credit Quality
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1.2.2.1 Qualitative Indicators
1.2.2.2 Quantitative Indicators
1.2.3 Factors influencing Credit Quality
1.2.3.1 Objective Factors
1.2.3.2 Subjective Factors
CHAPTER 2: Current Situation of Credit Activities in Global Petrol Joint Stock

Commercial Bank – GP-Bank
2.1 Overview of Global Petrol Joint Stock Commercial Bank
2.1.1 Formation and Development Process of GP-Bank
2.1.2 Organizational Structure
2.1.3 Business Achievements of GP-Bank between 2007 and 2010
2.2 Current Situation of Credit Quality at GP-Bank
2.2.1 Essential Credit Activities of GP-Bank
2.2.2 Current Situation on Credit Activities at GP-Bank
2.2.2.1 Qualitative Evaluation
2.2.2.2 Quantitative Evaluation
2.3 Evaluation on Credit Quality of GP-Bank
2.3.1 Business Attainments
2.3.2 Existing Problems and Causes
CHAPTER 3: Solutions to Enhance the Performance of Credit Operation in Global
Joint Stock Commercial Bank – GP-Bank in coming years
3.1 Business Orientation of Global Petrol Joint Stock Commercial Bank

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3.2 Solutions for Improving Credit Quality at Global Petrol Joint Stock
Commercial Bank – GP-Bank
3.2.1 Strengthening Capital Mobilization
3.2.2 Improving Customer Evaluation Quality and Business Plans
3.2.3 Building Appropriate Lending Interest Rate Policies
3.2.4 Improving Quality of Human Resources
3.2.5 Preventing, Limiting, and Handling Short-term and Bad debts
3.2.6 Strengthening Inspection and Internal Control
3.2.7 Using appropriate marketing policies and strengthening
relationships with customers

3.2.8 Modernizing Bank and Expanding Business Area
3.3 Supplementary Solutions
3.3.1 State Bank of Vietnam
3.3.2 Government
CONCLUSIONS
REFERENCES

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LIST OF TABLES, GRAPHS AND FIGURES
Diagram 1.1 Organizational Structure of GP-Bank
Table 2.1 Capital Mobilizing activity of GP-Bank from 2007 to 2010
Table 2.2 Lending Activity of GP-Bank from 2007 to 2010
Table 2.3 Income Situation of GP-Bank during 2007-2010
Table 2.4 Pretax Profit of GP-Bank stage 2007-2010
Table 2.5 Loan sales according to objective
Table 2.6 Outstanding debts of GP-Bank during 2007-2010
Table 2.7 Overdue and Bad Debts Rates of GP-Bank

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INTRODUCTION
1. Rationale
After officially joining the World Trade Organization WTO (from November
7th, 2006), Vietnam's economy has increasingly integrated into the world economy,
which has created not only an equal playing field and brought about many
opportunities, but also held potential risks and great challenges to Vietnam economy.
In order to overcome the difficulties and challenges, the Vietnamese commercial

banks have actively improved their competitive advantages through measures such as:
business expansion; management capacity enhancement; financial strength and
business

efficiency

improvement;

modernization

and

technological

innovation....Among them, credit activity proves one of essential operations in banking
industry, which mainly contribute to the bank’s profit.
As one of the leading joint stock commercial bank in Vietnam's banking system,
Global Petrol Joint Stock Commercial Bank - GP-Bank is equipped with a wide business
network, diversified and high quality banking products, modern computer and
communication systems, and advanced banking information

processing

technology...

Along with this, GP-Bank has gained prestige from its customers nationally and
internationally, and hence, its reliability and creditability are increasing clearly. In fact,
the credit activity holds a very important role in bringing revenues as well as profits
for the bank although just coming into being since 1990s.
Notwithstanding, credit activity in GP-Bank still remains a host of restrictions

relating to loans procedures, appraising process, legal framework, and limited operational
scale…Therefore, the research on credit activity proves crucial in order to work out some
solutions and measures to get to the bottom of existing problems for the development and
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growth of the bank. Because of these reasons, I am going to choose the following as topic for
my thesis “Improving Credit Quality of Global Joint Stock Commercial Bank”.
2. Research Questions
This study will aim at answering the following questions
 What is credit activity included?
 What are issues of credit activity performance of GP-Bank?
 What are solutions and recommendations for improving credit activity

performance in GP-Bank?
3. Research Objectives
 To have profound understanding about mobilizing and lending activities of the

GP-Bank.
 To assess the reality of credit activity performance in GP-Bank and factors
affecting credit quality of the bank
 To provide some radical solutions and recommendations to promote credit quality
of the bank.
4. Research Methodology
Accessing the issues in theory and practice, this subject uses a variety of
concepts relating to credit and then combines with statistics, analysis, synthesis, and
appropriate comparison methods in order to make matters clear.
5. Research Scope
Object of the research: performance of credit activities in GP-Bank
Scope of the research: the real situation and performance improvements of

credit quality in GP-Bank in recent years.
6. Research Structure
This thesis is constituted by three main parts: Introduction, Body, and
Conclusion. Of which the body includes three chapters as follows

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Chapter 1: General Discussion on Credit Quality of Commercial Banks
This chapter systematically analyzes and synthesizes the basic issues
relating to credit and credit quality, which holds a crucial role in providing the framework
for the bank to evaluate and give pertinent measures to both get to the roof of the
problems and improve credit quality of GP-Bank
Chapter 2: Current Situation of Credit Activities in Global Joint Stock
Commercial bank – GP-Bank.
This chapter is going to analyze and value the real circumstance of credit
quality in GP-Bank, which actually evaluates Credit activities performance through some
criteria and clarifies its achievements, restrictions, and causes in credit activities of the
bank.
Chapter 3: Solutions to enhance the performance of credit Operation in
Global Joint Stock Commercial Bank – GP-Bank in coming years.
This chapter offers a wide variety of measures and solutions for GP-Bank
and recommends Government, State Bank of Vietnam to have pertinent policies to
promote the quality of credit activities among commercial banks.

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CHAPTER I: General Discussion on Credit Quality of Commercial
Banks

1.1 Bank Credit in the Market-based Economy
1.1.1 Definition of Bank Credit
The terminology credit originates from Credo demonstrating reliability and
credibility. In fact, credit is understood in various meanings and even in the financial
relations, but depending on specific contexts that credit has its particular features.
Nevertheless, credit in general is the process of transferring capital in forms of money
and things from an organization or individuals to another business entity or individuals
who are going to use it in a certain period of time relying on the principles of repayment.
Bank credit, in particular, is a highly developed type of credit relationship, which is
a trading relationship between a bank and agents such as legal persons, business entities,
social institutions as well as individuals. For banks, credit is one of core activities,
bringing most of the bank’s income, and hence, it is necessary to meliorate the quality of
credit in the operation of bank at current time. Admittedly, the more the economy grows,
the higher the volume of bank credit is implemented. Bank credit has three major
characteristics:
 There is a transferrable right to use funds from the owner (banks) to the user
 The transferring is existed in a given period of time.
 The transferring is included with interest rate.

1.1.2 Classification of Bank Credit
Actually, there are a set of ways to categorize the bank credit, but the most
commonly-used would be certainly as follows
 Relying on credit term
• Short-term: within one year
• Medium-term: from two years to five years
• Long-term: above 5 years or 60 months
 Relying on the customers’ credibility
• Loans are backed by properties
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• Loans are not secured by properties
 Relying on types of customers
• Lending is given to personal customers or individuals
• Lending is provided to businesses or organizations
 Relying on customers’ purpose of using capital
• Loans are given for goal of business
• Loans are given for purpose of consumption

Besides to this, there are also other manners of classifying bank credit, ranging from
forms of loans and diversification of products and services to methods of repayments.
1.1.3 Role of Bank Credit in the Market-based Economy
Recently, the bank has become more and more crucial and considered the bloodvessel of the economy, especially for the purpose of constructing our nation in the new
age as well as the successful implementation of the industrialization and modernization.
Therefore, commercial banks are extremely important factors contributing significantly to
the development of the country in general and the economy in particular. The importance
of the bank in fostering the economy is actually expressed in a wide number of key roles
as follows:
At first, bank credit is an important lever to provide capital for businesses to
expand their production and business, and at the same time improve business
performance.
 In the market-based economy, in order to expand the scale of production, the

corporations are entailed huge amounts of capital to renovate plants and
equipment, supersede backward technology, and utilize effectively modern
scientific progresses. In such conditions, on the one hand, commercial banks
take responsibility of both providing, meeting the prompt shortage of capital
to address payment-related services and others and helping enterprises to
follow their plans smoothly. On the other hand, via credit operations,
payments and currency, the banks contribute significantly to strengthening

the efficiency in production and business of the corporate.
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Secondly, the commercial banks hold an active role to push the process of
accumulation and concentration of capital for the production activities.
 As a financial intermediary between savers and borrowers, the banks have

turned idle capital into the concentrated funds through which they can
reconcile the demand and supply of money in the society and meet the most
satisfactory needs for the customers.
 By using different forms, the banks have done very well the work of
focusing the idle capital from individuals or social organizations and through
those interim funds, banks will definitely exercise their strategies to exploit
and utilize most effectively and efficiently, aiming to meet most of capital
needs helping the production process continuously as well as speeding up the
process of reproduction.
Moreover, bank credit is one of tools to regulate money circulation through which
to harmonize macro-economic.
 In fact, in the market economy, the development of production of products

and services are tied strictly to money circulation, and it is thanks to banks’
advantageous characteristics that bank credit plays an indispensible role in
the circulation of currency.
 Plus, by dint of an actual growth in the number of those people opening
accounts and carrying out their transactions through the banks regularly as
well as the lending and collecting debts of the banks associated with the
movement of goods and materials in the process of production and
circulation, it can create objective conditions for the State via the banking
system to use credit instruments to regulate currency circulation replacing

cash flow.
 The development of credit operations along with non-cash payments has
obviously reduced amounts of cash flowing which are hardly handled by the
State, contributing to the stability of currency circulation. Nonetheless, it
should be noticed that the commercial banks actively need to reconcile from
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the capital surplus to the shortage, helping to harmonize macro-economy as
well as to stabilize the entire economy.
Fourthly, bank credit is an important tool to promote the expansion of international
exchanges amongst economies.
 As economies in the world are tied closer together, economic development is

no longer confined within each nation instead it will definitely spread to a
larger scale – worldwide, simultaneously exchanges and cooperation among
economies will exhibit much deeper and more powerful. Thanks to these,
bank credit proves a very effective means of connecting all economies
altogether. To specify, it encourages both export and import of products and
services, to modernize the economy since these activities are always required
a huge amount of capital, especially in terms of foreign currency like U.S
dollars that individuals or institutions cannot possess adequately. Only going
to commercial banks are fund’s needs able to satisfy fully.
 The development of credit activities between Vietnam and international

financial institutions, monetary funds, and foreign banks has contributed
considerably to the development of our economy as well as the process of
integration and globalization.
1.2 Credit Quality of Commercial Banks
1.2.1 Concepts about Credit Quality of Commercial Banks

For the purpose of evaluating the power and potential of a specific business, the
analyst relies on three important criteria, namely, quality, quantity and price of products.
In fact, in the fiercely competitive market economy, the quality improvement of credit
activities proves a necessity and demonstrates the importance for the sustainable growth o
the enterprise, and the commercial banks cannot also be out of this circle. It is believed
that the credit quality is considered as the ability to satisfy customers’ needs and ensure
both the existence and development of banks in accordance with the economic and social
growth. However, to clarify this, it should be taken into account the following aspects.
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For customers, the credit quality is shown clearly in the amount of budget being
lent to meet funds’ needs timely and adequately with reasonable interest rates, which can
easily bring the most satisfactory feeling for the customers while ensuring the credit’s
requirements set up by the State Bank of Vietnam. Besides this, it can create favorable
conditions for the production processing to take place smoothly, generating more profits.
For bank itself, bank credit is the most crucial aspect needed to be scrutinized to
improve the quality of their products and services because banks are also one form of
business enterprises which are running business in a special field. Hence, bank credit can
be determined by a number of following features
 It can contribute to the development of business sectors and locals as well,

which is regulated according to the orientation of the State as well as the
banks to match the real circumstances.
 The amounts of bank credit given by the commercial banks must be
followed principles, objectives, and reliabilities.
 Credit amounts must be collected timely, including both principal and
interest, minimize the overdue debts, bad debts to increase the capital cycle
and make more profits.
As mentioned-above, on the one hand the credit quality is a specific term because

it can be determined by a number of quantitative indicators like profit and loss statements
and overdue debts. On the other hand, it is also an abstract concept when being evaluated
by qualitative indicators. Therefore, to have profound understanding the essence of the
quality, appropriate analysis and assessments, and main causes affecting the quality of
credit can help banks to ferret out the most effective measurements to meliorate the
quality and increase the performance dealing effectively with the competitive market like
today.
1.2.2 Evaluation of Credit Quality
1.2.2.1 Qualitative Indicators

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Through above analysis, it is easy to see that the quality of credit is demonstrated
clearly by the bank’ ability to expand credit activities tied with the ability to meet the
capital needs of borrowers, which aims to ensure the existence and growth of the banks,
contributing to the development of the whole economy. Actually, qualitative indices can
be judged through a number of factors as follows
At first, the quality of credit is good once the banks gather debts in time and
generate profits. In other words, credit activities should generate profits so that the banks
can have the income to cover expenses, minimize risks, and enjoy profits. This is not only
to depend on the bank themselves, but also be affected heavily by the customers. To
illustrate, an amount of credit is effective whether lending procedures are being followed
strictly, ranging from the use of loans for the right purposes with high economic
efficiency to repayment of principal and interest on time. It is thanks to the strict
observance of credit’s principles, the responsiveness in doing business, and valuable
helps from commercial banks that the corporate are able to generate profits, fulfill
payment obligations, and ensure its existence and growth.
Secondly, the quality of credit is evaluated as good once the bank meets timely
capital needs of customers. In fact, this is a cornerstone for the development of the bank

because the bank cannot bring a sustainable standing without significant contributions
from their customers. To be more specific, for the enterprise itself, a sense of good
quality demonstrates from simple procedures and convenience, but ensuring the
principles of minimum safety proving the funds promptly, quickly, and safely.
Notwithstanding, they are initial requirements in the competitive market-based economy
which is always volatile, and hence, it entails the commercial banks have to become more
and more active in order to satisfy the rise in both the quality and quantity of the credit
activities. Thus, to achieve this goal, apart from having the ability to response to capital
needs, the bank are needed to be friends, to be ready to give helps, and share financial
burden with their customers. For instance, during the time of appraising the project
finding any inappropriate and not feasible, the bank should comment on, advice, provide
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reasonable adjustments as well as providing useful information in terms of markets,
technology instead of refusing these.
Thirdly, the quality of credit must contribute to the socio-economic growth of the
specific regions, locals and the whole nation as well. This is manifested in the stability of
financial market, the improvement of production capacity, and the technological
improvement for the enterprises, tackling job-related problems, raising income,
meliorating living standards of the residents. However, when assessing these criteria, it
should rely on specific circumstances at the certain period of time. For example, on the
one hand, there are a host of projects including renovation of equipment, plant, and
technology to both help businesses to increase the productivity and at the same time
trigger unwanted repercussion like narrowing the employment of workers. On the other
hand, a number of projects prove ineffective temporarily, but have long-term worth for
the society. Therefore, in these situations, in order to judge accurately the credit quality,
the banks should take into account multifaceted involvements. In a word, credit quality is
the synthesizing indicator being evaluated through three major partners consisting of
banks, businesses and the economy. Moreover, it is concluded that the qualitative

indicators are mere background in assessing the credit quality in general, and hence, there
will need quantitative indicators to make accurate and clear adjustments.
1.2.2.2 Quantitative Indicators
 Credit scale indicators

- Loan sales: these criteria reflect the scale of proving credit of the bank the customers
those people who need the capital in a certain period of time, often yearly. In fact, the
larger the credit scale and the higher the growth of credit are, the better the operation of
credit activity in the banks. Yet, this merely manifests the quantity not the quality of this
activity. As the purpose of commercial banks is their profitability, the rise in the number
of loan sales needs to be followed by the increase in the sales of debt recovery with the
latter having at least equal growth rate with the former in order for the encouragement of
the development of credit activity
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- Credit outstanding balance: this is the amount of funds given for the customers
at a certain period of time. Despite it could be regarded as the higher this criterion is, the
better the credit quality is, it still cannot provide accurate assessments, stemming from a
number of potential risks involved in.
- Profitability: in general, bank’s revenues stem from a number of sources, but in
particular, credit operation contributes the most important part to the profit of the bank
helping it to survive and grow. These amounts of profit not only include principals, but
also cover the interest rate as well. Moreover, the reduction on the overdue and bad debts
should be accompanied by the increase in the revenues from credit activity.
- Capital Adequacy Ratio (CAR): A measure of a bank's capital. It is expressed as
a percentage of a bank's risk weighted credit exposures.

According to the decision number 493 about the classification of debts and
provisions against risks issued by the Governor of the State Bank of Vietnam, stating to

categorize the debts of commercial banks as follows
o
o
o
o
o

Group 1: Current
Group 2: Noticed
Group 3: Sub-prime
Group 4: Doubtful
Group 5: Bad debts

- Overdue loans: debts incurs whether the borrowers fail to implement the
payment obligation on time, and these are categorized in groups 2, 3, 4, and 5 in which
the overdue loan ratio is determined by the following formula
overdueloa ns
totaloutsa ndingloans

Overdue loan ratio =
In terms of its nature, credit is essentially a refund, and hence, the ability of safety
is prioritized. To specify, once a loan cannot be paid timely without any appropriate
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reasons or exceeds time allowed to make differed payment, it will then transfer to the
overdue loan which is not expected by both the banks and customers themselves. In fact,
the higher this ratio is, the more difficult the bank has to deal with. In addition to this,
some of these loans are certainly able to categorize as the bad debts, triggering loss of
capital for the bank.

- Bad debt: that is an amount that is written off by the business as a loss to the
business and classified as an expense because the debt owed to the business is unable to
be collected, and all reasonable efforts have been exhausted to collect the amount owed.
This is calculated by subtracting the overdue loans from noticed loans, and therefore, this
includes those loans of group 3, 4, and 5. Actually, bad debt ratio is a very crucial
criterion in assessing the credit quality of the commercial banks. Not only does it have
adverse influence on the bank, but it also carries higher ability to move down to riskier
debts, leading to the loss of capital easily quickly. It is determined by the following
formula:

BadDebts
TotalOutsa ndingLoans
Nonperforming loans (NPL) ratio =

-Loans group 5: these loans are extremely concerned by the bank because it
reflects the fact that the higher the ratio is, the easier the bank has to cope with the
possibility of capital loss, including overdue loans over 360 days, loans waiting processed
by the government…In fact, they have great impact on the business situation of the bank
because for these loans, the bank always has to provide 100% the provision against the
risk, affecting its profitability and deteriorating the bank’s creditability. Thus, the bank
really needs to ferret out measures to ward off from these types of loans, which require,
the bank’ s efforts on many aspects.
- Capital efficiency

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totalouts tan dingloans
totalcapit almobilizi ng

Capital efficiency ratio=
This indicator is allowed the analyst to judge the bank’s capital aiming to meet
the credit needs of the economy. To illustrate, once this ratio approaches closely to 1,
meaning that most of credit amounts given by the bank is utilized properly for the goal of
lending. This can ensure and construct an optimal capital structure for the bank in terms
of risk prevention. Also, it demonstrates how expansionary credit of the bank is whether
it follows positive or negative trend.
1.2.3 Factors influencing Credit Quality
1.2.3.1 Objective Factors – PEST analysis
 Economic Environment

In general, any kinds of business forms are influenced by the environment
surrounding it whether it is big or small, but in particular, economic aspects actually
cause no little impact on business activities of commercial banks, especially in credit
operation. They are factors affecting the financial health of borrowers. In other words, as
the economic environment becomes unfavorable, then it will not only have great
influence on the payment obligation of the borrower, but it also reveals adverse effects on
the corporate, leading to significant reduction on their profits as a consequence of
instability of economic elements.
In fact, a stable economy is always considered as the sustainable cornerstone for
banks which utilize their strategies to run business effectively and efficiently, giving the
opportunity for the improvement of credit activity. By contrast, for an unstable economy,
such factors like inflation, unemployment, and crisis are obstacles to hamper banks from
implementing their operations in a productive way, causing big loss for the banks.
Besides, the economic growth cycle also has undeniable impact on the credit
operations. To specify, during the stagnated economy, because the production and
business activities are narrowed down, then the credit operations will be affected greatly
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in a number of fields, and hence, the demand for capital will be reduced and the payment
ability of the borrowers is definitely poor. Whereas in contrast, during the time the nation
is beyond the peak of the economic growth, not only is higher demand for funds seen, but
it also indicates much improvement in the credit activity. However, it should be noticed
that the bank should not eliminate the possibility of increasing in capital due to
speculation.
In addition to these, inflation also holds great effect on the demand for funds,
actually triggering negative influence on the commercial banks’ credit activity. To
illustrate, the staggering increase in the price of all goods results in the higher demand on
credit. During the inflation period, financial companies and individuals will tolerate these
effects and bear the cost of those loans.
Moreover, the relevance of bank’s interest rate and corporations’ profitability in
the economy has significant influence on the credit quality of the banks. To specify, as the
interest rates of the banks’ loans are set up higher than the enterprises’ profits, then the
enterprises certainly find hard to carry out their payment obligations, affecting the
production process of the enterprises in particular as well as the whole economy in
general. Plus, as the economy becomes increasingly globalized, the exchange rate also
triggers no little difficulties for enterprises while dealing with multilateral economic
relations. In fact, the corporate cannot anticipate accurately all changes of market and
hardly handle these fluctuations. For instance, when borrowing the foreign currencies to
trade in the international market, the corporate will cope with the changes of foreign
currencies whether they appreciate or depreciate, which directly affect their profitability.
 Political Environment

In fact, a stable background in terms of politics given not only creates the
favorable conditions for each nation to foster its economy, but it also has direct influence
on foreign investors’ vision. The pertinent implementation of macro-economic factors in
current situation is able to create a stable politics for each country in general, but in

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particular, it has a direct influence on capital mobilization, loans as well as the credit
quality of the commercial banks.
 Legal Environment

Banks must actually operate their businesses under the strictest legal framework
in comparison with any types of businesses. Hence, the more complete, uniform and
unity the legal system is, the more efficient banks’ operations are, proving the conditions
for improvement of credit quality and guarantee the credit quality between the banks and
the corporate. Whereas in contrast, once the legal system is unstable, the banks certainly
undergo the adverse result. Only when having the cooperation between two partners do
we see the improvement in the credit quality.
 Unexpected factors

These factors may be able to include natural disasters, fires, floods, and
earthquake, which are uncontrolled risks for the banks, leading to huge financial loss for
the borrowers, and then direct affecting the banks’ profitability.
1.2.3.2 Subjective factors
 For the banks
 Credit Policy

This is essential factor to determine whether the banks can operate successfully
or not. In fact, credit policy covers a system of measures related to the extension and
shrink of the credit in order to achieve predetermined goals of the banks and restrict
potential risks in carrying out the credit activity. In addition to this, the credit policy must
conform to the State’s policy in terms of the economic development, and at the same time
harmonize the rights and liabilities of participants like borrowers, banks, and depositors.
Actually, an appropriate credit policy will lure a great number of customers involving in,
expand credit activity, and reduce risks. Credit policies have great influence on the credit

quality of the banks.
 Credit Information
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It is thanks to assessing information that management team can be able to make
decisions associated with loan, its management, its related risks, and improvement in the
credit quality. Credit information can be collected from the existing sources of the banks,
customers, and other direct and indirect sources, law agencies…
 Organization of Commercial Banks

In fact, this factor not only affects the credit quality but also has influence on
banks’ operations. To illustrate, for those banks which are organized with clear task
delegations among personnel and cooperation among divisions, then they can meet fund
customers’ fund needs promptly and find it easy to manage other credit amounts. Hence,
because of its importance, during the operating time, the banks need to pay attention to
perfect their organizational structures in order to create the most favorable conditions for
the improvement of credit activity.
 The quality of Human Resources

The facts have shown that human is an essential factor in determining the
success or failure in business, especially in the banking sector. As the banking activities
become increasing developed and there are an increase in the number of modern
equipment used, then the role of personnel is also highly regarded to both facilitate
working process and to be representatives for the banks. It is because of its requirements
that the improvements in the human resources prove essential in banking activities in
particular. For instance, banks’ personnel should possess ethics and professional working
style to help the bank away from unwanted risks.
 The Internal Control

This task is needed to be done frequently by any banks for the goal of
maintaining the quality and efficiency consistent with predetermined policies,
requirements, and plans. This work to be done well can push the process of meliorating
the credit quality quickly as long as the implementation is entailed to complete correctly.
 Capital Mobilizing
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Actually, once the banks’ ability to attract investors is highly regarded, then the
credit expansion proves much easier. In addition to this, the bank will not be able to
approach the efficiency and effectiveness in credit activities without the pertinent
collaboration between raising capital and loans, then resulting in risks.
 For the Customers
 The financial situation of the enterprises

In order to achieve the safety in the credit activities, the banks should also take
care of the financial health of their customers – enterprises. To be more specific, whether
these customers are able to generate profits during the business process, it can be possibly
to evaluate that they will implement their payment obligation including paid for
principals and interests on time whenever any loans are done. Therefore, it is obviously
important for the banks to have understanding about their customers’ financial ability
before deciding whether or not to make loans.
 Capacity and Management of Customers

It is certain that there are no any enterprises which carry the business without
pursuing profits. However, on the one hand, due to the capacity and management level of
some customers that they utilize loans from the banks in ineffective ways, leading to
huge loss for both participants. On the other hand, if the management ability of the
corporate is highly evaluated, then it is almost possible that banks will have more
confidence on loans given to their customers. This factor then contributes no little to the

improvement of credit quality.
 Customers’ ethics

It should be also noticed that the ethical behaviors of the customers in terms of
providing truthful information on the application form are extremely helpful for the banks
to capture the possibility of granting loans. In fact, the banks merely decide to give the
loans after they carefully analyze, clarify factors related to repay the funds, and how to
use these loans of customers.
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In a word, as a financial intermediary in the financial market, the banks must
take into consideration a number of factors to determine whether or not the granting
credit is appropriate. In fact, via understanding fully and analyzing the operational
mechanisms of these interrelated factors that the banks are able to make smart measures
to improve credit quality, restrict unwanted risks, and maximize the role of intermediary
levers in the economy.

CHAPTER 2: Current Situation of Credit Activities in Global Petrol
Joint Stock Commercial Bank – GP-Bank
2.1 Overview of Global Petrol Joint Stock Commercial Bank
2.1.1 Formation and Development Process of GP-Bank
GP-Bank originated from Rural Commercial Joint Stock Bank Ninh Binh
according to the Decision No. 216/QD – State Bank of Vietnam on 13 th November 1993,
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and has officially transformed the operation from a rural bank to an urban and modern
bank from 7 November in 2005. On 9th February 2007, the Governor of State Bank of
Vietnam issued the Decision No.372/QD – SB of Vietnam approved to change Global

Joint Stock Commercial Bank into Global Petro Joint Stock Commercial Bank.
Although having difficulties as a new banking paradigm shift, under the wise
leadership and full consensus of the Board of Directors and Board of Executives, the
business performance in 2007 was a breakthrough in the growth period of GP-Bank with
impressive numbers such as total assets of 7,214 billion of dong. The victory in 2007 was
an important stepping stone for the bank to develop its entire system, to improve service
quality, increase value for customers, and improve operational efficiency.
In 2008, despite facing with adverse situations from the world financial downturn
and general economic difficulties inside our country, GP-Bank has steadily developed
with total assets of over 8,000 billion of dong.
In 2009, the year that the commercial bank has started to recover from the
economic crisis and GP-Bank included as well. For 2009, GP-Bank operated its business
at more stable level than in 2008, proving by the facts that the bank’s charter capital was
above double to reach 2,000 billion of dong, total assets reached nearly 17,348.525
billion of dong.
Starting its business operation with less than 10 members as a task force Hanoi in
November 2005, recently, GP-Bank has built a strong and potential staff with above
1,000 employees serving for business activities in the bank. In addition, the bank has also
built 67 branches and transactional offices around key economic cities and provinces in
Vietnam like Hanoi, Ho Chi Minh City, Hai Phong, Vung Tau, Da Nang, Ninh Binh…
Over time, GP-Bank has currently confirmed its maturity and makes an impressive
affirmation on its presence in the financial market in the competitively cut-throat market
in Vietnam. Not only does GP-Bank enhance the opportunity to cultivate the current
professional human resources, but it also emphasizes on the attraction and development
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