SOME MEASURES FOR INCREASING ABILITY TO PREVENT CREDIT RISKS AT 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 2.3 Credit risk prevention .v 2.3.1 Nature of credit risk prevention .v 2.3.2 Contents of credit risk prevention v 3.1 Overview of GB.Bank - Dong Do Branch v 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 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 4.2 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 4.3 Recommendations to increase credit risk prevention capacity of GP BANK- Dong Do Branch .xi 2.3 Credit risk prevention .28 2.3.1 Nature of credit risk prevention 28 2.3.2 Contents of credit risk prevention .29 3.1 Overview of GB.Bank - Dong Do Branch 41 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 – Đông Đô Branch for the period 2011 - 2013 46 Check the compliance of operating discipline: Check the deployment of direction text of Head Office, compliance of borrowing limit, guarantees and examine the evaluation and ranking of borrowers periodically, the performance of customer policies 56 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 4.2 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 4.3 Recommendations to increase credit risk prevention capacity of GP BANK- Dong Do Branch 76 i SUMMARY OF MASTER’S THESIS INTRODUCTION 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 - Đông Đô 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 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 and Article in the Decision No 493 of the State Bank, while GP.Bank Dong Do is currently applying debt classification under Article 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 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 not perform or 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 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 SITUATION OF CREDIT RISK PREVENTION – THE CASE OF GP BANK – ĐÔNG ĐÔ BRANCH 3.1 Overview of GB.Bank - Dong Do Branch 3.1.1 The establishment process and development of GB.Bank - Dong Do Branch 3.1.2 The organizational model vi 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 3.3.2 Some limitations vii - 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 71 Dong Do Branch to complete the processes, credit policy, thereby enhancing the credit quality of the entire system Therefore, on the basis of coordination with the audit firm Ernst & Young, GP Bank- Dong Do Branch needs to accelerate upgrading and improving the internal credit rating system towards improving the grading criteria in period 2014-2016; to make specific, detailed and quantified provisions for ratings to minimize subjective and emotional factors in the rating results Besides, the leaders should direct the credit officers to conduct the rating work strictly for borrowers, avoid superficial ratings 4.2.2 Diversification of investment activities The degree of concentration of the credit portfolio by sector and maturity for customers have direct impacts on credit risk Therefore, banks should actively diversify investments to spread risks in the credit activity of the bank Accordingly, GP Bank- Dong Do Branch needs to diversify business lines and types of borrowing business, loan forms, namely: limit the concentration degree of credit in traditional industries such as basic construction and construction materials , expand lending to industries which have development prospects such as export processing and aquaculture , strengthen lending to non-state enterprises and individual customers, especially effective SMEs; restrict issuing credit to longterm projects which are not listed in priority portfolio of GP Bank- Dong Do Branch, increase short-term loans to accelerate repayment and avoid risks Besides it needs to continue diversifying the forms of credit to customers such as VND and foreign currency loans, syndicated loan, co-financing, loan in the form of trusts and lease financing 4.2.3 Strengthening data collection and information processing for risk prevention Credit information is a direct factor affecting all stages of credit issuance, from the stage of proposals, appraisal, to loan approval Therefore, officers of GP Bank- Dong Do Branch should strengthen the collection, selection, and processing of information relating to loans to ensure the quality of information For example, 72 credit officers need to consider and assess the business situation reports and financial reports carefully which are provided by the customers If they detect any signs of restless, they must take measures to check the accuracy and reasonableness of information immediately Besides the information from customers, credit officers need to collect information from other sources such as the custome’s partners, other banks which had business relation with such customer, state agency, mass media, or public opinion, etc On the basis of collected information, they need to screen, analyze, and process the information to help Board of leaders take measures of risk prevention timely 4.2.4 Closely monitoring loans and improving internal inspection control performance The close monitoring of loan before, during, and after issuing loan is necessary to help the bank detect early warning signs quickly, to implement prevention solutions to prevent credit risks The bank should perform the loan monitoring well which helps the bank understand actual operation of the enterprises or projects and ensure that the loans are used for the right purposes and commitments in the credit agreement; it also helps the bank capture the difficulties in the process of project implementation and take countermeasures timely For example, in the case of project in trouble, the investment efficiency and repayment capacity of the project is not ensured, the bank may consider to stop disbursement of the loan and require the customer to supplement security assets, etc To ensure effective loans, the inspection and monitoring work after isssuing loans must be conducted more strictly and more often; besides scheduled inspections, the bank should also conduct unscheduled inspections to ensure the accuracy of the inspection results 4.2.5 Enhancing the efficiency of direct debt recovery activities After analyzing and sorting bad debts, the bank should take measures to withdraw bad debts in order to achieve the highest recovery efficiency in the 73 shortest time This is considered the least costly measure but gives significant effeciency To improve the efficiency of direct debt recovery activities, it is important that the Bank should develop a gravitational driving force mechanism in the recovery of bad debts for all subjects who help the bank to recover debts including bank staff as well as individuals and other organizations involved On the other hand, the bank needs to resolutely force the credit department officers who made mistakes to take material responsibility for the recovery of bad debts or to compensate of the bad debts are nonrecoverable If any bank officier intentionally frauds or in collusion with customers to withdraw money from the bank, such officer must be prosecuted under the law In addition, the bank should combine other debt addressing measures with higher autonomy and flexibility such as: introducing the customers to potential partners to avoid fraud, or to avoid invalid contracts resulting to risks for the customers (and also the bank) Promote the transfer of debt into equity in the prospective enterprises With this method, the bank transfers money from the loan into equity and participates in the operation of enterprises or chooses the right time to transfer shares For bad debts due to objective reasons but force of majeure, it is necessary to restructure the debt This will help the enterprises get opportunity to continue production and to repay debt for the bank 4.2.6 Continue exploiting and processing loans with security assets First of all, it is necessary to review the entire records and security procedures of bad debts Carry out to supplement and complete the dossiers timely to become legally valid and sufficient to create good conditions for the bad debt processing The most complicated problem is to handle houses or land as security assets because there have been many changes in regulation on issuing ownership or land use right certificates, etc the bank needs additional measures when the 74 customers had changed or re-registered the certificates under the new regulations as a basis for handling bad debts, avoiding the abuse or fraud Organize reassessment of current state and value of collateral and classify those assets, after that set out appropriate measures Identify and assess the collateral on three aspects: ownership, legality, and rotation values for each bad debt with collateral in order to choose appropriate handling measures: + For assets which are easy circulating on the market and have sufficient legal conditions, GPBank- Dong Do Branch makes handling plan for the assets and recover the debt in short-term or long-term (2 years) with respect to each customer and debt + For collateral with liquidity, low circulation, and legal papers, GPBankDong Do Branch coordinates with authorities to liquidate the assets and recover capital in different modes: sale on the market; sale through auction service centers, etc - For security assets under the cases resolved by the Court but the assets have not been delivered to the Bank, the Bank actively summarizes and coordinates with judgment execution agencies to recover and receive the assets quickly for handling The final solution is to sell the assets to Debt and Asset Trading Corporation 4.2.7 Limiting moral hazard and improving capacity of credit officers People are the most important factor in determining the success or failure of any activity in all aspects For credit activities, the human factor plays an even more important role, determining the quality and efficiency of credit operations GP Bank- Dong Do Branch should apply some solutions for human resource development such as: - Standardization of credit officers: GP Bank- Dong Do Branch should also set out the mandatory standards for Customer care staffs and risk management officers to minimize credit risks: they must have full-time training in specialized 75 majors in prestigious universities; credit officers must not only be learning, mastering knowledge, and comply with current regulations, but also improve their capability to predict, forecast, and inspect the customers; they must have foreign language and informatics skills to process documents, to evaluate projects; and also have good moral character, and high sense of responsibility - Policy of professional training and cultivation of virtue: Pay attention to basic training and specialized training in credit operations, hold seminars, exchange experiences in credit operations; update professional knowledge and new legislation In addition, it is necessary to build a team of lecturers who are external experts, credit officers of the bank with much experience, compile and update the practical curriculum, ensure training equipment and facilities The authority should coordinate with the communist party, youth union, and trade union organizations to educate the ideology and ethics for officials of GP Bank- Dong Do Branch; especially with two set of ethical standards and professional codes of conduct which are conducted by GP Bank- Dong Do Branch - There should be appropriate incentive regime for officers such as praise and rewards for good performance or strict treatment for employees with violation acts; ensure discipline in credit activities of the bank At the same time, implement incentive mechanism and open financial policy to attract talents and to maintain high quality human resource to ensure quality of credit operations at GPBank- Dong Do Branch 4.2.8 Appropriation and use of risk reserve fund reasonably and efficiently To ensure the business operations in case any risk occurs, GP Bank- Dong Do Branch should implement the appropriation and use of credit risk reserve fund well On the basis of results from internal credit ranking system, classify the debts to assess quality of the loans and possibility of losses in credit activities when the customers not perform or fails to perform their obligations under the 76 commitment Then, determine the risk reserve amount in need for losses that may occur when the customers fail to perform their obligations under the commitment The use of risk reserve fund to handle a debt must ensure the condition that the debt belongs to group 5, or the customer is an bankrupt organization and business/ dead or missing individuals The bank should have specific regulation on a maximum time period for direct debt settlement before using the risk reserve fund 4.3 Recommendations to increase credit risk prevention capacity of GP BANK- Dong Do Branch 4.3.1 Recommendations to the State bank 4.3.1.1 Soon introducing and validating Circular 02/2013 / TT-NHNN to replace Decision 493 on loan classification and appropriation of risk reserve fund On January 21, 2013, the State Bank issued Circular 02/2013 / TT-NHNN to replace Decision 493 on loan classification and appropriation of credit risk reserve fund for credit institutions In comparison with Decision 493, the Circular 02/2013 of the State Bank has important changes, complies closely with the international rules and directs the banking system to safety standards, specifically: expanding the rage of assets for credit risk reserve fund, improving debt classification standards, the credit institutions must provide Credit Information Center (CIC) with debt classification information and sheet commitments; the credit institutions applying the qualitative debt classification method, now must combine with quantitative method, which method provides data with a higher degree of risk will be chosen However, in current period, the economy encounters many difficulties, the application of Circular 02 will be detrimental to both enterprises and banks, so the State bank postpones the validation of Circular 02 to the following year (since June 1, 2014) to help businesses access the bank loans Therefore, loan classification and appropriation of credit risk reserve fund must still comply with Decision 493 and amendment documents In fact, Decision 493 is now obsolete, which could not reflect the credit quality of the commercial banks, thereby affecting the loan 77 classification and management, risk prevention of the commercial banks in general and GP Bank- Dong Do Branch in particular Therefore, to ensure effective risk management and prevention of commercial banks, the Central Bank should validate the Circular 02/2013 in practice 4.3.1.2 Enhancing management and operation quality In recent years, the management and orientation role of the State Bank in the operation of the entire banking system is relatively faint; it fails to promote the effectiveness as a State management agency for the banking system Therefore, the State Bank should raise its orientation and direction role in managing and consulting the commercial banks through regular summary and analysis of market information, make objective judgments and forecasts especially in credit activities of the commercial banks to refer and use in making plan for credit policy in order to ensure development and risk prevention Besides, the State bank should continue to complete the regulations on lending and loan guarantee on the basis of security for credit operations, to protect the legitimate interests of commercial banks and to lessen complex legal procedures, which causes difficulties for the activities of commercial banks 4.3.1.3 Strengthening information and technical support for commercial banks The State Bank should assist and provide credit information accurately and effectively for commercial banks so that the commercial banks could refer in the credit granting process; thereby restricting the grating of credit to customers who have bad credit history and avoiding risks To this, the State Bank should invest in modernizing information technology, or offering solution to create unified code for each borrower at CIC for all credit institutions Besides, to collect credit information from the commercial banks for common data repository, which facilitates lookups, the State Bank should soon validate Circular 02/2013 /TTNHNN According to Circular 02/2013 /TT-NHNN, the credit institutions must 78 submit the results of debt classification and risk reserve fund appropriation to Credit Information Centre- CIC on a quarterly basis 4.3.1.4 Strengthening the credit inspection efficiency of the State Bank at Commercial banks in order to limit and prevent risks Strengthen inspection and supervision of credit operations and credit management at commercial banks to have the countermeasures timely and reasonably to help reduce risks in credit activities of the banks Firstly, the State Bank should strengthen inspection and supervision on the basis of risks, especially credit risks, and closely monitor the compliance with regulations on the credit operation, which has been fully reflected in the Credit Handbook of the commercial banks 4.3.1.5 Creating favorable legal basis and framework for activities of the Asset Management Firms under Credit Institutions in Vietnam (VAMC) On May 18, 2013, the government issued Decree No 53/2013 on the establishment of Vietnam Asset Management Company (VAMC) with the aim to handle bad debts of commercial banks VAMC is a peculiar business, organized in the form of 100% state owned limited liability company with one member, subject to the management of the State, and inspection and supervision of the State Bank The company could carry out such activities as: purchase bad debts from credit institutions; debt recovery, debt collection and handling, sell debts and security assets; restructure debts, adjust debt repayment conditions, convert debts into equity of the borrowers Currently, VAMC is getting stable in operation However, according to many experts, the operation of VAMC will encounter many difficulties, and it is not easy to perform its functions and missions because the charter capital of VAMC (500 billion Dong) is too little compared to the bad debt handling target of the State banks (about 40 -70 trillion Dong); besides, the mechanism for transferring bad debts between commercial banks and VAMC is currently unclear Therefore, in order to help VAMC accomplish the task of bad debt handling for the banking 79 system including GP Bank- Dong Do Branch, the State Bank should create favorable legal framework for the operation of VAMC and supplement charter capital to meet operating requirements of VAMC 4.3.1.6 Enhancing the role of Banking Association Banking Association is a voluntary professional association of credit institutions in Vietnam, operating with the aim to encourage and gather the members to cooperate and support one another in business; representing and protecting the legitimate rights and interests of its members; becoming the bridge between its members and the State agencies; stabilizing and developing a healthy, effective, safe system of credit institutions in Vietnam However, in recent years, the Banking association has not really promoted its role in the operation of commercial banks Therefore, the State Bank should have a mechanism to help the Banking Association promote its efficiency in the development of the commercial bank system, particularly in the issues that need consensus in behavior and actions of the banks, for example, issues of conduct for borrowing customers in the member units of the association; issue of information and investment orientation for economic sectors, especially the sectors with high risk potential 4.3.2 Recommendations to the Government 4.3.2.1 Creating stable economic environment One of the causes for credit risks at commercial banks is unstable economic environment, which causes difficulties for the operation of the businesses as well as the banks Therefore, the State should have policies and measures to ensure a stable economic environment, such as adjusting and enhancing the legal effect of the tax policies, domestic production support policy, and policy for smuggled goods prevention , especially in the current period, the government should have practical solutions to remove difficulties for enterprises and to recover production 4.3.2.2 To further promote the equitization of State enterprises associated with the application of the corporate management models and skills 80 In general, the operation of state-owned enterprises in our country is not efficient, with low financial capacity, weak management; the use of bank loans is not effective, which causes loss of capital; therefore, bad debts of state-owned enterprises in the commercial banks are quite large and it is very difficult for commercial banks to deal with these bad debts Therefore, to treat this disease completely, the government should take appropriate measures to improve the quality and performance of state-owned enterprises such as: continue to promote the equitization of SOEs, only retain effective businesses or key businesses including petroleum, power, and coal enterprises At the same time, it is necessary to improve management capability SOEs in order to build a strong business, to meet the loan requirements of the banks, to use the borrowing capital effectively, and to repay the principal and interest in full 4.3.2.3 To promote the reform and improve financial capacity for commercial banks Further reform of the banking sector, including the State Bank and commercial banks is condition for maintaining strong banking system, on a par with the region and the world Thus, the government should accelerate the equitization process of the banks; consider expanding the proportion of capital held by foreign investors in state-owned commercial banks to facilitate foreign partners to be involved in managing state-owned commercial banks This is a long-term and sustainable solution to ensure efficient and sustainable operation of the banks 4.3.2.4 Establish agencies specializing in enterprise rating Recommend the Government to give steering opinions on establishing independent business rating companies in order to help the bank obtain more accurate and objective evaluation in making loan decisions To ensure efficient operation of this organization, the government may specify that only enterprises which are registered at the rating agencies could apply for loan from the bank By 81 this way, the businesses will voluntarily participate in the ranking of this independent company if they want to borrow from the bank In addition to help the bank in evaluating customers and credit risk prevention, activities of this agency also provides motivation for enterprises to complete and improve their financial and production capacity, as well as their reputation for high-ranking position 82 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 fully opening time is very close The top objective in credit risk management is to enhance credit quality in order to ensure safe and sustainable development of banking activities Therefore, researching and finding solutions to prevent credit risks is not only an urgent requirement for GP Bank- Dong Do Branch but also for the entire banking system For the actual and requirements, together with the application of research methods, my thesis has solved several issues as follows: It clarifies the basic theoretical issues about credit risks, credit risk prevention, and role of credit risk prevention in banking operation; points the evaluation criteria as well as objective and subjective factors affecting the credit risk prevention It shows the organization and operation of GP Bank- Dong Do Branch, analyzes and interprets the status of credit risk prevention in GP Bank- Dong Do Branch in period 2011-2013 Thereby, the thesis clearly shows the results obtained as well as the restrictions and the reasons shortcomings On the basis of rationale and results of the status analysis, the author make recommendations for GP Bank- Dong Do Branch, the Central Bank, and the government in order to improve the quality of risk prevention of GP Bank- Dong Do Branch in the future With a desire to contribute to improving the quality of GP Bank- Dong Do Branch in the near future, the author has tried to take time to study this subject However, with limited capacity, the thesis still has certain shortcomings The author would like to receive the attention and feedback from instructors, friends, and colleagues to complete this research topic 83 REFERENCES 1 David Cox (1997), Modern Banking, Hanoi National Political Publishing House Truong Quoc Doanh (2007), "Credit Risk at TechcomBank, status and preventive measures” Huynh The Du (2004), Hanling bad debts in Vietnam learning from the model in China and other economies, Fulbright Economics Teaching Program, Ho Chi Minh City Hoang Kim (2001), Banking Monetary, Financial Markets, Financial Publishing House, Hanoi Hoang Thanh Lan (2007), "Limiting credit risk at Transaction center- Bank for Investment and Development of Vietnam” Phan Thi Linh (2012), "The experience of credit risk management in the world", Journal of Finance Nguyen Van Manh (2007), "Some preventive measures against credit risk in the Bank for Investment and Development of Vietnam, Bac Ninh branch” Frederic S.Mishkin (1995), Monetary, Banking, and Financial Markets, Science and Technology Publishing House, Hanoi Peter S.Rose (2004), Commercial bank management, Financial Publishing House, Hanoi 10 Nguyen Thi Hoai Thu 10 (2007), "Credit Risk Prevention for small and medium enterprises in Hanoi Building Commercial Joint Stock Bank” 11 Assoc Prof Dr Nguyen Van Tien (2010), Risk Management in Banking Business, Statistics Publishing House, Hanoi 12 Assoc Prof Dr Nguyen Van Tien (2003), Evaluation and prevention of risks in banking business, Statistics Publishing House, Hanoi 13 Nguyen Van Toan (2011), "Prediction and warning of credit risk by exploring knowledge from data", VietinBank website 84 14 Nguyen Duc Trung (2007), "Method for estimating credit losses based on database system of internal assessment and the application of risk management", Journal of Finance 15 The final reports, business reports, and annual reports of the GPBank- Dong Do Branch from 2008 to 2012 16 Banking Times, Banking journal, Journal of Finance and Monetary from 2007 to 2012 17 Journal of the Investment and Development, Bank for Investment and Development of Vietnam (internal journal) 18 The websites: - www.sbv.gov.vn State Bank of Vietnam - www.GP.Bank Đông Đô.com.vn Global Petro Bank - Dong Do Branch - www.incombank.com.vn Vietnam Joint Stock Commercial Bank for Industry and Trade - www.vbard.com.vn Vietnam Bank for Agriculture and Rural Development - www.dddn.com.vn Business Forum - www.economy.com.vn Vietnam Economic Times - www.saigontimes.com.vn Saigon Economic Times - www.vnba.org.vn Vietnam Banking Association 85 ... 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-... of customer policies 56 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. .. 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 - Đông Đô Branch