MINISTRY OF FINANCE ACADEMY OF FINANCE Student: Group: Nguyễn Thành Quang CQ53/51.02 GRADUATION THESIS TOPIC: SOME SOLUTIONS TO REDUCE CREDIT RISKS AT VIET NAM PROSPERITY JOINT STOCK COMMERCIAL BANK Major : English for Finance and Accounting Student code: 155D2202010060 Supervisor: Ms Pham Phuong Oanh [Hanoi-2019] Graduation thesis Academy of Finance DECLERATION Thereby declare that this graduation thesis is based on my work except for quotations and citations that have been duly acknowledged I also declare that it has not been previously or simultaneously submitted at Academy Of Finance or other institutions Graduation thesis author Nguyen Thanh Quang Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance ABSTRACT This research involves identifying the credit performance of Viet Nam Prosperity Joint Stock Commercial Bank between 2015 and 2017 The goal is to show that the firm could improve its income results through both of internal and external sources This has been done by analyzing financial and credit risk ratios throughout the years, which includes debt ratios and capital turnover ratios Upon the analysis on these factors, it becomes clear that VP Bank was getting better with the decrease in the loss of outcome to achieve the target corporate goal in the long run Through showing the financial wealth of VP Bank, this research highlights the importance of running the business with careful strategies in order to survive in the modern economy Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance ACKNOWLEDGEMENT No thesis can be completed without a great deal of help and encouragement I am exceedingly grateful to all people for giving me such huge supports Firstly, I would like to give my heartfelt thanks to my instructor, Ms Pham Phuong Oanh at Academy of Finance for her enthusiastic supervision from the beginning of forming thesis’s topic until the completion Despite of busy time schedule, she still spent a lot of time listening to my opinions whenever necessary, contributing her comments and ideas, and correcting thesis draft Secondly, I express profound gratitude to my thesis guide, Mr Bui Thanh Hai – a credit officer of VP Bank He helped me to collect all essential data, explained me what I am confused, provided me useful advice to comprehend problems in the thesis I also wish to send my heartfelt thanks to all staffs of the VP Bank, who created a welcomes condition for me during the time I was taking field study there For the valuable knowledge and studying encouragement, my sincere thanks go to all my teachers in the Faculty of Foreign Language – Academy Of Finance, who have provided me with worthy lessons throughout years of study Lastly, from the bottom of my heart, I want to dedicate this report to my parents, who created all the greatest opportunities for me to fulfill my studies and desire They are always support me unconditionally Everything I do, I know I have them beside me and that thought is the motivation for me to overcome all the difficulties and stress during not only this internship but also my whole life Sincerely thanks again for all of your support and inspiration! Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance LIST OF ABBREVIATION VP Bank Vietnam Prosperity Joint Stock Commercial Bank C&I Commercial and industrial DSCR Debt service coverage ratio REITs Real estate investment trusts PSE Professional sales employee UPL Unsecured personal loan SME Small and medium enterprise NFS Non - financial service CMB Commercial banking division FDI Foreign direct investment IFC International finance corporation ICBS Industrial and commercial bank of China Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance LIST OF FIGURES AND TABLES Table 2.1: Analysis of total asset structure of VP Bank in period 2015-2017 Table 2.2: Analysis of liabilities structure of VP Bank in period 2015-2017 Table 2.3: Analysis of total operating income of VP Bank in period of 2015-2017 Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance TABLE OF CONTENTS DECLARATION ABSTRACT ACKNOWLEDGEMENT LIST OF ABBREVIATION LIST OF FIGURES AND TABLES TABLE OF CONTENTS INTRODUCTION Rationale of the study Aims to the study Methodology Scope of the study Organization of the study CHAPTER 1: LITERATURE REVIEW 1.1 OVERVIEW OF CREDIT AND BANK CREDIT 1.1.1 The basic definition of credit and bank credit 1.1.2 Role of bank credit 1.1.3 Classification of bank credit 1.2 CONTENTS OF BANK CREDIT RISKS 1.2.1 The basis definiton of risks 1.2.2 Concept of bank credit risks 1.2.3 Some indicators of credit activity evaluation 1.3.CAUSES OF BANK CREDIT RISKS 1.3.1 From the Bank 1.3.2 From customer Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance 1.4: THE IMPACTS OF BANK CREDIT RISKS…………………………… 15 1.4.1: For customer ……………………………………………………………15 1.4.2: For the Bank ………………………………………………………………………16 CHAPTER 2: THE STUDY 2.1 GENERAL INFORMATION ABOUT VIETNAM PROSPERITY JOINT STOCK COMMERCIAL BANK 2.1.1 Brief intriduction about the company 2.1.2 The formation and development process 2.1.3 Organizational structure of the Bank 2.2 THE PRACTICAL SITUATION OF CREDIT AND CREDIT RISKS AT VP BANK 2.2.1 Area of banking operations 2.2.2 Business performance results 2.2.3 The situation of credit activity 2.2.4 Risk management system at VP Bank – Kim Lien Branch 2.3 THE GENERAL ASSESSMENT CREDIT ACTIVITY AT VIET NAM PROSPERITY JOINT STOCK COMMERCIAL BANK CHAPTER 3: SOME SOLUTIONS TO IMPROVE CREDIT PERFORMANCE AT VP BANK 3.1 THE DEVELOPMENT ORIENTATION OF VP BANK ………………… 3.1.1 Social - economic context 3.1.2 Aim and operating orientation of VP Bank 3.2 SOME SOLUTIONS .TO IMPROVE CREDIT PERFORMANCE AT VP BANK 3.2.1 Promoting the capital mobilization 3.2.2 Marketing and customer service improvement 3.2.3 Diversifying credit products 3.2.4: Improving professional qualifications of credit officers ……………… 53 3.2.5: Loan monitoring promotion …………………………………………….54 3.2.6: Participating in credit insurance…………………………………………54 Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance 3.3 RECOMMENDATIONS CONCLUSION REFERENCES Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance INTRODUCTION Rationale of the study International economic integration is an inevitable trend of mankind, taking place strongly not only in the region but also around the world With this trend in mind, Vietnam has also made strong steps to bring a lot of development opportunities for its economic sectors Through many difficulties and challenges, our economy has achieved encouraging achievements To achieve that, there is a significant contribution of the banking industry as an "economic lever" through credit activities Bank credit is a tool to finance capital for the economy, contributing to the promotion of the balanced development of other industries and sectors according to the State's orientation Credit activity is the main business of the Vietnamese commercial banking system, bringing about 80-90% of each bank's income, but its risks are not small Excessive high credit risk will greatly affect the banking business Facing the opportunities and challenges of the process of international economic integration, the issue of improving the competitiveness of commercial banks, particularly improving credit quality and minimizing risks, has become necessary Actually, there are many internal and external reasons causing credit risks situation for the Bank in Viet Nam The lack of management skill, for example, can limit the profitability and competiveness of the Bank As a result, many theories as well as some solutions related to credit activity issues are carried out Starting from the urgency of the problem, I decide to carry out research Nguyen Thanh Quang CQ53/51.02 Graduation thesis Academy of Finance an information security strategy and detailed action plan through 2020 with E&Y’s advice The strategy includes over 40 information security projects to develop comprehensive capabilities that encompass processes, technologies, and people In 2017, VPBank carried out over 10 projects to strengthen its information security system and facilitate the digital strategy Those projects are part of the Bank’s long-term strategy and instrumental in improving the information security system in line with the roadmap Debt collection The year 2017 laid a solid foundation for rapid, sustainable improvements in collection by putting in place a young, dynamic, well-trained team, investing in and developing systems and tools to boost collection efficiency The Bank deployed Medialtel & Tethys, an automated dialing and collection software system, which helped make three million calls and send one million SMS messages and 16,000 email messages as reminders In addition, VPBank actively supported customers who faced temporary financial difficulties by working out appropriate financial solutions for them so that they can continue their business, thereby reducing NPLs The Bank also made use of the National Assembly’s Resolution no 42/2017/QH14 on resolving NPLs at credit institutions to seize collateral, shorten legal proceedings, etc to effectively resolve NPLs The strategic goal for 2018 is to further develop and strengthen foundational systems, particular risk management and information security The Bank will focus on improving risk management productivity and efficiency through process improvement, in particular the re-assessment of customer rating criteria, to optimize the automatic approval system, increase collaboration efficiency and quality of support to business functions in product development, periodic risk assessment and resource optimization In terms of collection, beside conventional methods, VPBank will also adopt new debt reminder methods such as Zalo and video messages to curb the increase in NPL buckets and reduce the Nguyen Thanh Quang 45 CQ53/51.02 Graduation thesis Academy of Finance NPL ratio The Bank will continue to reinforce operational risk management and fraud prevention by focusing on high risk areas, applying data mining techniques and raising staff’s risk awareness 2.3: General assessment of credit activity at Viet Nam Prosperity Joint Stock Commercial Bank Customer need loan Nguyen Thanh Quang 46 CQ53/51.02 Graduation thesis Academy of Finance Advising and guiding customers on loan forms anapplications Making a report Finalize loan documents Receiving loan documents Monitoring loans and performing outstanding loans Investigating customer information and loan options Disbursement Analysis and appraisal of borrowers Complete profile submit to the credit council Signed credit contracts with customers In 2016, VPBank also teamed up with fintechs, telcos, and retailers, clearly demonstrating the Bank’s strong emphasis on digital business processes that cater to youthful, dynamic customers It is critical to have a well-formulated plan for information security Therefore, VPBank proactively invested in information security in 2016 by implementing many solutions as part of its IT security strategy Those investments are aimed at increasing the level of protection for VPBank’s customers Realizing the importance of information technology to the sustainable development of the Bank, VPBank executed a number of initiatives to improve the Nguyen Thanh Quang 47 CQ53/51.02 Graduation thesis Academy of Finance core technological systems, develop functionalities to serve business, optimize internal processes, save costs and better capabilities of the workforce, particularly: • Shift the loan origination process, internet and mobile banking to a new platform provided by prestigious international companies and put the digital credit card process into operation • Implement new processes on procurement, finance, HR were also put into use on SAP, ERP platforms to better organize and control the management of human resources and finance • Strongly upgrade the infrastructure across the system to support aggressive business development The new storage system will ensure information safety and security The renovation of the network, ATMs in some branches helped significantly improve the readiness of those systems • Equip staff with mobile devices in their sales activities Sales staff of SME and CommCredit divisions can work from distance by using those devices VPBank is experiencing a period of rapid transformation with the implementation of over 30 projects, over 1,500 changes and 2.5 time growth pace against 2016 Initiatives on changing the core systems, network control allows the Bank to save considerable costs on license and telecommunication In 2017, the Bank approved the Information Technology Strategy for the 2017 – 2020 period, which paves the way for the Bank’s digitization journey The technical aspects and organizational structure of over 250 initiatives were technically approved and this will help the Bank: • Open up opportunities for cooperation with business partners • Get ready to expand business and outsource a number of external service providers through highspeed electronic channels Nguyen Thanh Quang 48 CQ53/51.02 Graduation thesis Academy of Finance • Digitize and improve process efficiency • Incorporate the Agile approach (an approach to deal with issues in a highly flexible, adaptable manner in alignment with the actual situation, help deliver tasks more rapidly and facilitate continuous improvement) • Ensure information security for the Bank In order to meet business transformation requirements towards higher growth and efficiency, minimize risks, strengthen key businesses, VPBank will continue to invest in IT projects, step up IT development and efficiency to support growth and maintain sustainable development Nguyen Thanh Quang 49 CQ53/51.02 Graduation thesis Academy of Finance CHAPTER 3: SOME SOLUTIONS TO IMPROVE CREDIT PERFORMANCE AT VIETNAM PROSPERITY JOINT STOCK COMMERCIAL BANK 3.1: The development of orientation of the Bank Oriented development Socio-economic development orientation in 2015 The Party and sectoral departments always follow closely the direction of socio-economic development in the locality, implement policies consistently.by developing a diversified commodity economy of components, operating under the market mechanism and under the supervision and management of the State Besides, VP bank always create favorable conditions for investment and development of local businesses, contributing to promoting the socio-economic development Current market demand: Hanoi is one of the places with high socio-economic development index in the country, corresponding to that development, the demand for credit of the population is also increasing This is shown in detail as follows: The number of enterprises by the end of 2016 is 20,183 enterprises, an increase of 42% compared to 2015 The number of fast-growing enterprises requires a large amount of capital to meet development needs VP Bank's development orientation: Ensuring the growth target "Safety Efficiency - Sustainability" The growth target is always placed at the top That is not only a target in a certain period but it is a norm throughout the long-term operation of VP Bank Based on development-oriented construction bases, VP Bank tries to fulfill specific targets as follows: Enhancing capital mobilization with the target of over VND 300 billion Further boost lending to non-state sector with the target of more than VND 100 billion Nguyen Thanh Quang 50 CQ53/51.02 Graduation thesis Academy of Finance The work of preventing overdue debt is focused, minimizing operational risks by enhancing debt recovery and risk management, reducing overdue debt ratio to below 2% Adjusting the debt balance on mobilized capital to less than 200% to minimize risks in business operations of the Branch Completing credit appraisal, especially business credit assessment: classifying specific portfolio of enterprises by industry, by scale to be able to provide credit process specific for each business 3.2: Some solutions to improve credit performance at Viet Nam Prosperity Joint Stock Commercial bank 3.2.1: Promoting capital mobilization The basis of the solution Commercial banks operate on the principle of "borrowing to lend", so mobilized capital plays a very important role in the bank's operations The bank wants to operate effectively, it needs a stable source of capital mobilization to be a prerequisite for development Besides, according to analysis results, the mobilized capital of the Branch in terms of value has increased over the years but the growth rate of capital mobilization in 2017 compared to 2016 is only 18.43%, while This growth rate in 2016 compared to 2015 reached 27.62% Therefore, the branch needs to devise appropriate measures to attract capital for the bank, avoid capital shortage and not provide enough for the economy The purpose of the solution This solution provides appropriate capital mobilization strategies to attract idle capital in the population, increase mobilized capital, contribute to adjust the debt balance ratio on mobilized capital at a more reasonable level Nguyen Thanh Quang 51 CQ53/51.02 Graduation thesis Academy of Finance Implementation of the solution Diversifying savings deposit products, capital mobilization forms With savings deposit products, Vp bank creates flexible options for customers such as sending once but flexible original withdrawal still get high interest, sending donations but pay out once in the end of the term with attractive interest rates; 6-month, 9-month, 12-month multi-purpose savings account allows flexible root withdrawal, savings deposit associated with life insurance; sending money together with loan for buying installment cars Diversifying capital mobilization form Issuance of international bonds to borrow foreign capital to finance enterprises and customers with investment projects with high feasibility Provideing a flexible interest rate policy which adjusts the interest rate appropriately to each specific socio-economic stage At the same time, give the policy of preferential interest rates for large customers 3.2.2: Marketing and customer service promotion The basis of the solution The nature of marketing is the process of determining the specific needs of the market The branch needs to understand what customers really need, at the same time evaluate the competencies of competitors and their ability to offer optimal solutions to meet customers' needs in a good way Best Therefore, Marketing increasingly plays an important role and becomes an indispensable tool in the business strategy of most banks But now, the Branch still has a situation of waiting for customers to send and borrow money, this is a dynamic plan that needs to be adjusted immediately Nguyen Thanh Quang 52 CQ53/51.02 Graduation thesis Academy of Finance The purpose of the solution Aiming to help the Branch to capture strong points and internal weaknesses of the Branch to be able to adjust more appropriately to the market demand Besides, it helps the Branch to promote the image promotion, creating trust with existing customers and attracting more new customers At the same time, the Branch can further improve the customer information system Implementation of the solution The first is making the research and collecting customer information monthly Bank analyze processed information to make estimates, conclusions about the needs of current and potential customers about the situation of competition between VP bank and other banks and between banks and the ability of VP Bank to meet market demand The second is updating market trends Because the current workload has been increasing , the number of personnel of Customer Relation Department and Risk Management is limited, requiring employees to be more than computer proficient and computer processor must continuously be supplemented and fostered knowledge of market economy, market changes, corporate finance, science and technology, modern banking operations and at the same time consolidate and improve the ability to synthesize and analyze data 3.2.3: Diversifying credit products The basis of the solution Diversifying products is always an effective strategy for a bank with a position like VP bank Diversifying credit products creates more credit products, more suitable for customers, making customers more secure for credit products However, the package of products for VP Bank's credit customers has not been diversified, only encapsulated in traditional products such as lending each time, Nguyen Thanh Quang 53 CQ53/51.02 Graduation thesis Academy of Finance not yet launched new products, forms of credit, regulation Lending process lacks flexibility Therefore, in order to improve its competitiveness and position, the Branch must always pay attention to the development of lending products to make a difference for itself in the market The purpose of the solution VP Bank expands loan objects and lending products to develop market share for banks Besides, there are various types of loan lists and payment methods to create satisfaction and comfort for customers Implementation of the solution Offering flexible lending interest rates In order to attract customers, the Branch needs to build a list of attractive and flexible interest rates, depending on each period or each object, but the interest rate policy will be different 3.2.4: Improving professional qualifications of credit officers People are the subjects of lending in credit relations, who are directly involved in all tasks from planning policies, to project appraisal, loan approval, loan use and collection check in debt It can be said that all right and wrong, success or failure of credit projects in addition to objective causes contains subjective elements of credit officers Due to the specificity of this work, it is a wide exchange with many enterprises and many economic sectors At the same time, it is always necessary to grasp the market economy situation, production and business situation of credit-related units Use with banks, so choosing a credit officer to deliver is very important Therefore, credit officers must meet the following criteria: be honest, have the necessary level of economic knowledge, finance and have a seniority in banking operations or in other words, must have sufficient reliability VP bank should regularly organize training, professional training to contribute to improving professional qualifications, especially focusing on the ability to assess, analyze business results and the use of loans The bank regularly sends its staff to Nguyen Thanh Quang 54 CQ53/51.02 Graduation thesis Academy of Finance visit and learn from experiences of other domestic and foreign banks in creditrelated fields In addition to professional knowledge, credit officers must be knowledgeable about laws and foreign languages to serve their work, banks need to create conditions for staff to learn more to improve their knowledge Informally, study the Government Decrees, Decisions and documents of the State Bank 3.2.5: Loan monitoring promotion Loan monitoring is one of the most important steps in the credit process at banks It should be done to ensure the loan security is used for the right purpose of borrowing, ensuring debt recovery ability Current loan monitoring in the Branch only focuses on the review of the latest financial statements, some related invoices Credit officers come to the facility to check (at least once every two months), however such monitoring will not detect timely events occurring in the enterprise, especially the integrity of the financial statements that business offers Monitoring the use of loans by customers is considered an effective measure to prevent risk The monitoring will help the bank to control the behavior of borrowers, capture information, monitor and update the situation of loans and the situation of customers in a timely manner, but above all it makes sense limiting arising credit risks, ensuring the efficient use of capital and the right purpose The bank should organize a careful and serious control process to ensure that it evaluates and considers all the most important characteristics of the loan, such as assessing the payment process, evaluating performance and love mortgage status, fully considering the legal aspect of the credit contract to ensure that the bank has the legal right to own all or part of the collateral of the enterprise in case the customer does not repay the debt, assess the change in the borrower's Nguyen Thanh Quang 55 CQ53/51.02 Graduation thesis Academy of Finance financial situation and the change in forecasts, assess the factors that reduce borrowers' credit needs 3.2.6: Participating in credit insurance Each loan has a certain risk ratio, so the risk is always likely to occur in any case Branches should take measures to prevent risks as well as minimize losses caused by risks This insurance method is relatively suitable in the current conditions of Vietnam Therefore, this company operates under the intervention of commercial banks such as forcing commercial banks to participate in insurance and assistance when necessary This insurance method promotes community and mutual support of commercial banks, credit institutions contribute to ensuring the safety in business of each commercial bank as well as safety in the banking system When businesses are at risk of leading to the inability to pay with the Bank Depending on the nature of each type of risk and the financial situation of an enterprise, commercial banks may use the following measures: extracting customers' deposit accounts at commercial banks, extending credits and selling such assets mortgage, debt freezing and finally offset by risk fund In addition to the establishment of a Risk Compensation Fund, in order to overcome the limitation of this fund, commercial banks may participate in insurance with great credit and credit insurance benefits as follows Firstly, credit insurance is obliged to compensate commercial banks when risks occur In addition, credit insurance is also obliged to coordinate with related agencies to organize measures to prevent and limit losses occurring to ensure safety for insurance companies as well as safety for Commercial banks Secondly, credit insurance attracts many customers to participate in insurance, so it has the ability to pay quickly and promptly to compensate for big losses and promote community, mutual assistance among banks Nguyen Thanh Quang 56 CQ53/51.02 Graduation thesis Academy of Finance 3.3: Recommendations for Vietnam Prosperity Joint Stock Commercial Bank Firstly, It is necessary to carry out and instruct specifically the SBV's decision documents on Banking activities for affiliated Bank branches, ensuring accuracy, timeliness, and synchronization throughout the system Secondly, VP bank needs to research and promulgate financial regulations, organize and reward its own disciplines for officials involved in the credit process to create a better motivation to work Lastly, Bank need to strengthen and further strengthen inspection and control, in order to promptly detect and promptly handle violations, minimize possible losses and improve credit efficiency through the system CONCLUSION Credit activity is an important factor, it determines the existence and development of VP Bank in the current market economy In order for the Branch's business activities to develop more and more diverse, especially in the field of credit, it requires the Branch to constantly improve and improve banking technology to meet the banking modernization process, improve competitiveness Besides, it is necessary to have a team of staff to meet the job in the new period, good at professional skills and must be professionally qualified, good at professional skills to meet the level of innovation and development of banking technology, while avoiding occupational risks Although there are many difficulties in capital mobilization, it is impossible to meet 100% of customers' borrowing needs However, the Branch will try to continue to make it possible to get closer to customers, provide more banking services to meet customers' needs in the maximum possible way, while improving competitiveness in current conditions In the future, with the great potential of Vietnam's credit market, plus the right business strategy and the efforts of the Branch In addition, it is the active Nguyen Thanh Quang 57 CQ53/51.02 Graduation thesis Academy of Finance support of Vietnam Joint Stock Commercial Bank of Vietnam, VP bank will reach higher results, bring card service to become one of its leading services, and strengthen and further develop its position in the credit market The research reflected the current situation of VP Bank in Kim Lien branch However, due to the fact that the knowledge is not sufficient in all aspects as well as time constraints, the article cannot avoid shortcomings We are looking forward to receiving the comments of teachers, working officers at VP Bank so that the internship report is more practical By determining the actual financial situation, analyzing and evaluating the credit operation management at Viet Nam Prosperity Joint Stock Commercial Bank, I have gained new insight into the results of the company gained during long periods of operation and the limitations that the company still needs to resolve By finding solutions to overcome these problems, enterprises can improve their ability to manage credit operation efficiently and benefit the businesses themselves, achieve goals outlined Nguyen Thanh Quang 58 CQ53/51.02 Graduation thesis Academy of Finance REFERENCES Joel Bessis (1998), Risk management in Banking Sylvain Bouteille ( 2012 ), The Handbook of Credit risk management Financial statements of Viet Nam Prosperity Joint Stock Commercial Bank in period 2015-2017 Report of credit activities of VP Bank in 2015, 2016 and 2017 Some thesis with the topic of managing credit risks, customer service improvement 6.Websites: Investopedia.com, www.oxfordlearnersdictionaries.com, https://en.wikipedia.org and other websites about the policies, solutions relating to the bank credit Principles for Assessment of Bank’s Management of Credit Risk Nguyen Thanh Quang 59 CQ53/51.02 ... CHAPTER 2: SITUATION OF CREDIT ACTIVITY AND CREDIT RISK AT VIET NAM PROSPERITY JOINT STOCK COMMERCIAL BANK 2.1: General information about Viet Nam Prosperity Joint Stock Commercial Bank 2.1.1: Brief... strategic weapons in the journey towards the goal of becoming one of the top joint stock commercial banks in Vietnam and one of the top retail joint stock commercial banks Vietnam in 2017 VPBank... assessment of credit activity at VP Bank Chapter 3: Some solutions to credit risk reduction at Viet Nam Prosperity Joint Stock Commercial Bank which shows the suitable solutions basing on orientation