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 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 TABLE OF CONTENTS ACKNOWLEDGEMENT LIST OF ABBREVIATIONS TABLE OF CONTENTS LIST OF TABLES AND DIARAMS INTRODUCTION Rationale Research Questions Research Objectives Research methodology Research scope 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 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 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 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 INTRODUCTION 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 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” 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? 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 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 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 Research Structure This thesis is constituted by three main parts: Introduction, Body, and Conclusion Of which the body includes three chapters as follows 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 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 years or 60 months  Relying on the customers’ credibility • Loans are backed by properties 10 It is clearly seen that the total outstanding debts indicated a quite strong upward trend during four years surveyed, having above fivefold greater than in 2007 (from 1,718.82 in 2007 to 8,597.63 billion of dong in 2010) This is mainly due to the increase in the loan sales although a small part belongs to previous year which was restructured to be debts To illustrate, with regard to economic sector, the overall was that not only did the outstanding debts of socio-economic organizations always outstripped that of individuals, but the latter also indicated a gradual increase both in amount and percentage To be more specific, there was a quite high number of 33% in the individual’s outstanding debts in 2007 before decreasing by 10% the following year as an impact of 2008 financial crisis, ending the period with an upward trend reaching a peak of above 36% in 2010 which was achieved at the expense of the decrease in proportion of organizations’ outstanding debts In fact, the chief elucidation for this might definitely stem from banks’ efforts in improving and meeting promptly fund needs of customers Moreover, the bank also intended to provide more service for individual customers, which has been pursuing by a number of various commercial banks When it comes to duration categorizing, the overall picture was that while the short-term outstanding debts witnessed a downward trend, the opposite was true for both medium and long term ones For instance, short-term debts were 989.151 billion dong in 2007 or 57.55%, 2,084.57 billion dong in 2008 or 66.13%, 57.7% and 53.37% for 2009 and 2010 respectively By comparison, though seeing a fall in 2008, the medium term outstanding debts increased considerably next two years Similarly, 18.83% was the long-term outstanding debts in 2007, the following years underwent an upward trend, increasing from 15.69% in 2008 to 22.48% in 2010 In a word, we can see that short-term always contributed most to the total outstanding debts, having always above 50%, whereas medium and long term’s debts accounted for a about half of total debts collectively, but they indicated an upward 42 trend in recent years The facts have shown that because the development and growth of economics become increasingly, then the provision for purchasing necessary equipment, especially cars and houses is increasing accordingly Hence, the increase in medium and long term debts proves feasible in reality However, because of the instability in the financial system in 2008, then the demand for long term debts were cautious by the customers  Capital Efficiency 1,718.82 * 100 4,209.45 Capital efficiency in 2007= = 40.83% 3,152.08 * 100 4,133.87 Capital efficiency in 2008= = 76.25% 5,986.30 * 100 8,910.92 Capital efficiency in 2009= Capital efficiency in 2010= = 67.18% 8,597.63 * 100 14564.32 = 59.03% Through the above-mentioned data, we can see that the capital efficiency of the bank becomes increasingly, especially during 2008 world financial crush when the bank was cautious in giving loans and managing capital they have Although this reduced in 2009 and 2010, but still was greater than in 2007 having only 40.83% To explain for this issue, it should be noticed that thanks to the bank’s reliability and creditability that they can easily expand its credit activities, leading to the increase in the loan sales In fact, both capital mobilizing and outstanding debts rose strongly in 2009 and 2010, but the race in terms of interest rate and the repercussion of financial crisis still remained Because of this, the growth of credit outstanding debts was still lower than the growth 43 rate of mobilized capital, leading to a reduction on the capital efficiency in 2009 and 2010 Nevertheless, the bank still needs to expand its credit activities in order to maximize mobilized capital, contributing to increasing in the reputation as well as trustworthiness of the bank in the eyes of customers  Interest Income According to table 2.3, the proportion of interest income for all four years surveyed occupied above 95% of the bank’s total income This suggests that credit is an essential activity of the bank, which brings most of profits for the bank In addition to this, it also demonstrates that the bank’s credit quality is increasing and being meliorated, meeting fund needs of its customers Notwithstanding, besides this, it should be also noticed that the development of other potential activities like investment, foreign exchange proves a necessity  Overdue and Bad Debts of the Bank Table 2.7: Overdue and Bad Debts Rates of GP-Bank Unit: billion of dong Target 2007 2008 2009 2010 Overdue debts 14.61 324.66 173.603 240.733 Overdue debts/total outstanding debts 0.85% 10.3% 2.9% 2.8% Bad debts 8.422 308.59 140.08 191.727 Bad debts/total outstanding debts 0.49% 9.79% 2.34% 2.23% (Source: Chamber of Credit supporting – GP-Bank) In fact, because safety and effectiveness were chosen as the business motto for the bank during the hardship time, especially in 2008 when the world financial system underwent the worst time, the credit officer should be very cautious in selecting objectives and making loans in order to achieve predetermined targets The overdue debt ratio was kept below 3% by the bank although this figure in 2008 increased suddenly and sharply compared to the other years since the bank was subjective in handling loans, then 44 causing the considerable rise in the overdue rate reaching a high of 10.3% corresponding to 324.66 billion of dong, and at the same time the bad debts ratio witnessed a significant increase, having nearly 9.8% or 308.59 billion of dong in amount Moreover, the group debt rate for 2009 accounted for 0.1% of total credit outstanding debts or 5.9863 billion of dong correspondingly This figure was a quite good number for the bank, especially in time of economic recovery, but the bank really needs to work out effective measures to exclude this type of debts In general, the overall credit quality of the bank has improved quite significant compared to previous years, which originates from both the bank itself and its staff’ effort, but the bank should be no stopping in meliorating its credit quality 2.3 Evaluation on Credit Quality of GP-Bank 2.3.1 Business Attainments Actually, indicators like loan sales, total revenues, total outstanding debts, and a high growth rate shows the importance of credit activity in banking industry The quality of loans has generally meliorated when the bank has issued specific criteria towards each kind of customers In addition to this, the bank also utilizes scoring criteria in evaluating customers, helping its credit officers to shorten time and complicated procedures without any changes related to predetermined requirements of the bank Thanks to the diversification in terms of products and services that the bank can be able to satisfy the fund needs of its customers, luring more and more customers using the bank’ service Besides this, while implementing credit activities, the bank also exercises cross-selling other products and services such as savings, transferring, and ATM Since the credit quality of the bank has increasingly improved, its position in the market can be certainly confirmed and its customers indicate more reliability and credibility on the bank Furthermore, the quality of human resources has been improving, stemming from the training and practicing frequently of the banks Last but not least, there are more and more branches and transaction offices to be established in a number of 45 provinces throughout Vietnam All above-mentioned is based on the bank’s goal towards one of the leading commercial banks in Vietnam 2.3.2 Existing Problems and Causes  Lack of Specialization The facts have shown that enterprises are always top concerns of any commercial banks in Vietnam, even including manufacturing companies, and hence, both the appraisal of the financial position of the enterprise and risk associated with enterprises’ loans are much more difficult than that of individuals Understandably, once the credit officers not understand business sectors and types of business, they will hardly be able to make precise conclusions, losing much time for evaluating projects, directly affecting customers’ need In addition to this, it is undeniable that each credit officer has his or her own strengths, then specialization proves essential At the same time, whether a new branch is established, hands-on experience employees will be moved out to those places and the rest or younger employees will stay with the former branch  Limitations on credit officers’ capacity In fact, in current banking field, it is argued that most of credit officers are generally young compared to other business sectors Nevertheless, those people not possess practical experience which is usually required and necessary for them to deal with complicated problems in reality Yet, the facts indicate that the bank’s credit officers still not meet the job’s requirements, stemming from their lack of experience Moreover, the appraisal process of credit files normally entails a lot of practical knowledge, therefore, the bank will hardly recognize whether given information by customers is true or not, triggering huge unwanted repercussions for the bank Because of these reasons, the bank still has the overdue debts ratio as well as bad debts ratio, having above 2%, especially in 2008 when these ratio witnessed great changes reaching about 10% Simultaneously, the training for improving and enhancing 46 young staff’s specialization has not been maintained frequently as a result of a huge load of work and high pressure of commercial banks  The inaccuracy of financial statements Actually, during credit process, appraising customers in terms of their financial health proves an essential step since it judges the solvency of the customers However, a great number of financial statements from enterprises are often changed to balance in accordance to meeting fund needs of the bank; just a small number of financial statements is audited independently Moreover, these faults are usually difficult to realize, wasting time and money  Restrictions on evaluation process It is believed that joint stock banks have simpler procedures for granted loans, bringing more satisfactory for customers Notwithstanding, such joint stock banks in general and commercial joint stock banks in particular have limitations coming from these advantages, this is due to the facts that simple procedures can lead to fault in evaluating process of projects Here is really a challenge for the bank because not only does it want to lure more customers, but it also demonstrates towards simple, safety, and reduction on risks CHAPTER 3: Solutions to Enhance the Performance of Credit Operation in Global Joint Stock Commercial Bank – GP-Bank 3.1 Business Orientation of Global Petrol Joint Stock Commercial Bank – GP-Bank in coming years  Vision 47 GP-Bank has determined not to be the first but to be the best Objective: to become one of the top commercial banks of Vietnam  Strategy To maintain the financial situation at a high level of safety, to optimize the usage of equity capital – ensuring the rights of customers, the bank, and shareholders To achieve high growth by creating a difference on the basis of understanding customers’ needs and following customer-based orientation; To build a risk management system synchronization, efficiency, and professionalism in order to ensure a sustainable growth and development; There is a strategy to prepare human resources, to train professional labor force To construct “Culture of GP-Bank” to become spiritual elements to amount the entire system;  Implementation Agreement  Improving the service quality is the objective for the perfect life To construct the service culture and customer orientation, to personalize transactions including nickname and already used transaction; To be Bank of Mobility, deploy rapid response service To apply advanced technology in carrying out business to improve service quality; To establish customer care centers  Developing and improving risk management system To develop and apply risk management system focused, independent, and comprehensive assessments, to monitor types of credit risk, liquidity risk, market risk, operational risk, and system risk in an objective, consistent, and comprehensive 48 To build Manual Credit Books in terms of international practice and to implement the supporting systems to strengthen credit management activities to maintain quality of properties To apply credit score system To set up credit councils and ALCO committee, risk management committee, and to build internal auditing system; To develop and implement management information system on the basis of the accounting system according to international standards 3.2 Solutions for improving Credit Quality at Global Joint Stock Commercial Bank – GP-Bank 3.2.1 Strengthening Capital Mobilization Capital mobilization is a traditional operation that any banks need to possess in order to create the condition for other activities to follow; especially credit operation mainly relies on mobilizing capital activity, for meeting the customers’ loans One of current situations of raising capital activity is that short-term loans of the bank have accounted for a greater proportion due to fluctuations on interest rate and financial circumstance in which customers’ savings are mainly going to short-term deposits to avoid the decrease in the interest rate Also, at the same time, the demand for borrowing from enterprises has still maintained quite high, usually including medium and long-term loans, leading to a host of difficulties for the bank Hence, in order to attract a huge amount of capital both medium and long-term ones, then the bank needs to give out appropriate measures timely and promptly o Product policy: GP-Bank should strengthen the provision of financial services for its customers, conduct the diversification on types of products and services in order to lure and satisfy fund needs of customers as well as enhancement of fiduciary service, financial consulting, and diversify the manner of raising capital, time of raising capital, flexible interest rates, forms 49 of interest payment, and improvement on procedures to make them simpler and faster but still ensuring predetermined requirements… o Customer care: the bank should pay more attention to customer caring, expanding its network Plus, apart from attracting more new customers, the bank should take into account a number of factors like quantity of traditional customers who have long-term relationship with the bank and creation of stable financial sources for the bank o Effective cooperation among divisions: in order to achieve fastness and convenience, the bank should nonstop strengthening relationships among departments o Understanding customers’ psychology: in fact, most of customers, especially individuals, usually have habit to believe in sending their savings into state banks for a long time, and hence, such new bank as GP-Bank needs to create trustworthiness in the eyes of its customers, analyze customers’ feedbacks comments as well as their expectations, then it will provide appropriate products or services to meet customers’ needs 3.2.2 Improving Customer Evaluation Quality and Business Plans This is one of indispensible measures to be used by the bank Appraising customers and business methods given by customers are inescapable in ensuring the capital recovery of the bank, warding off such circumstances as losing capital and recovery part of capital One effective solution might be that the bank can be able to find out necessary information related to its customers from a variety of sources, including Central Bank, partners and mass media…through which credit officers will focus on analyzing customers and implementing act capability, legal competence, financial capacity, creditability, ethics and profitability from manners of business production to make smart decisions Therefore, it is necessary to have pertinent credit policies to not only ensure simple procedures but also ensure strict steps in evaluating process 3.2.3 Building Appropriate Lending Interest Rate Polices 50 Recently, in market-based economy like today, competitiveness among commercial banks is extremely fierce as more and more banks are coming into being In order for having a sustainable development and growth, interest rate proves indispensible for the bank For instance, in 2009, banks had been increasingly in providing catchy interest rate levels to lure more customers, and GP-Bank was not an exceptional one in the banking industry despite the Central Bank had fixed the ceiling interest rate for all commercial banks Also, with the purpose of competing strongly and increasingly developing in coming years, the bank should provide reasonable policies relating to interest rate in accordance with general situation which is not contrary to legal framework preset by the Central Bank in terms of interest rate 3.2.4 Improving Quality of Human Resources Over years people have always been an important factor and have proved essential in deciding the effectiveness of all business activities in general and credit ones in particular Actually, the whole appraising process of loans or lending is definitely carried out and done by credit officers It is inescapable that credit officers should have the following characters: sensitiveness, flexibility, hands-on experience and sustainable qualification in appraising projects before giving loans to customers, especially in the economic area of enterprises where fluctuations and complex are usually seen Besides this, the more the development of the society is, leading to the development of science and technology, the higher the requirements for credit officers are, to achieve better results in doing business At the same time, it is supposed that credit officers are also required to have a certain understanding about types of machines being used and means of companies to have more accurate assessments By dint of its importance that the development of human resources both quality and quantity is an important requirement which is indispensible in banking activity in general and credit operation in particular Thus, to achieve these requirements, there are a number of measures and actions should be taken as follows: 51 There should have an appropriate schedule for recruiting human resources to work at the bank: one the one hand, the recruitment process should be ensured fairness and transparency, to select talented employees whose profession, language level, computer science are fitted with what required by the bank On the other hand, the bank should also pay more attention to training its staff It is important to remind that the training should be delivered by senior employees and lecturers from leading and wellknown universities throughout the world Plus, the bank should nonstop in encouraging and creating favorable conditions for its personnel to enhance their professional and specialization Nevertheless, it should be also noticed that although training professional proves indispensible, the cultivation of ethical behaviors of the staff cannot be ignored Such issues like working styles and serving attitudes of the personnel have great influence on the effectiveness and success of the banking business activity Thus, the bank should have pertinent measures to stimulate and enhance the serving quality of the staff as well as reward policies and sanctions For example, the pertinent arrangement in terms of operation and professional prove important Only by implementing successfully this task the staffs enable themselves to develop their talents, contributing to the growth of the bank With credit officers who are directly approachable to appraising files of the customers, they will need to have necessary skills like good speaker, and well understanding about the real business conditions related to economics, politics and society at large, to please to those customers who are very demanding To specify, they should be skilled in negotiating, persuading, and communicating with their customers in terms of loan-related conditions to ensure the bilateral benefits of the banks and customers Along with this, furthermore, the bank should formulate a policy of salary and bonuses not only consistent with employees’ position but also their ability and their effectiveness in working These will then aim to encourage the personnel more enthusiastically, aggressively, and one pertinent salary policy has always been to attract more talented employees involved in 52 3.2.5 Preventing, Limiting, and Handling Short-term and Bad Debts The extension of loans is always coming with the improvement on the quality of loans In 2009, the bank’s bad debts were below 2.34% which was smaller than the industry, having 2.46%, but still greater than some banks: Vietinbank, HD bank, Techcombank, and Sacombank… At the same time, the overdue debts stood at 2.9% Because both the overdue debts and bad debts were still quite high compared to other banks in Vietnam, then in order to meliorate the effectiveness of business process such issues as reduction, processing and preventing overdue and bad debts indicate essential to both recover the bank’s capital no affect on production process of the customers These tasks are entailed the bank with the followings: The first is that the bank should self manage and organize or transfer bad debts for debts management companies to continue to supervise debts in order to exercise debts recovery through secured assets In addition to this, discounting method should be used in recovering debts To illustrate, this is the method to lower the value of debts for the bank’s customers, and discounting value will be determined by the agreement between the bank and enterprises but following the beneficial way for the enterprises to stimulate customers to pay off all the debts Moreover, with new debts incurred, there is needed to find out the causes in order to provide effective solutions to tackle these problems 3.2.6 Strengthening Inspection and Internal Control In fact, credit activity has always existed huge potential risks The larger the extension of credit activity is, the stricter and the more cautious the inspection and internal control are Moreover, the process of inspection and internal control is not only simple an inspection, supervision and production activity, but they also help officers to obey operation procedures, loans procedures ensuring safely, effectively, and legally 3.2.7 Using appropriate marketing policies and strengthening relationships with customers 53 It is believed that the introduction of market-based economy along with a fierce competition among participants will emphasize the importance of marketing Because of this, the bank should especially pay attention to customers in order to introduce and marketing all types of bank’s products and services In order to achieve this goal, the bank should build marketing policies in the scale of branches which will then formulate the plan for customer relationship development, market penetration to give out pertinent strategies to meet at most customers’ needs Hence, there are following measures can be taken to exercise this policy o To expand transaction offices and branches in the built-up residential o o o o areas To install a lot of new ATM To speed up credit process and open LC… To advertise via mass media To strengthen financial consulting activities 3.2.8 Modernizing Bank and Expanding Business Area It is undeniable that modern technology can be able to help the bank to process the jobs quickly, easily, and more effectively Therefore, the development of technology in dealing with the business situation proves crucial in the bank, requiring the bank to invest heavily on multifunctional machines… At the same time, it is necessary to attach modern equipment with staff ability and capacity to employ effectively, generating more profits for the bank For instance, the bank should modernize the payment system to make it quicker, better and more convenient, then attracting more and more customers using the bank service Besides this, the bank should also continue to develop and provide banking services like SMS banking, mobile banking 3.3 Supplementary Solutions 3.3.1 State Bank of Vietnam 54 One of existing problems might be that the legal environment is not strong enough to ensure the safety for the credit activity at the bank Hence the State Bank of Vietnam should establish and perfect the legal environment so that the credit activity will run smoothly Actually, the following measures can be taken to these tasks o The State Bank (SB) should create a positive and active monetary policy which is always towards the extension of capital sources for the country, and inspect capital sources both domestic and abroad To illustrate, the bank can apply a flexible and pertinent interest rate to create the leverage for banking activity o The quantity of legal guiding documentations should be consolidated and not have negative effect or difficulties for the bank o The SB should implement to simplify the legal execution procedures by handling the trading and transferring assets 3.3.2 Government Government should study the valuation of collateralized by examining the brackets for land use rights so that it reflects the market price and construct specialized teams who are always responsible for property valuation The government should also improve courts, execution, and shorten duration for lawsuits and execution The government should organize more and more programs to honor business entities which are well implemented Actually, the bank will definitely feel a sense of safety once it is dealing with those enterprises, pushing them to make more profits The government should not forget to create the sustainable development for security market to deserve with its role in the economy, and create long-term mobilizing capital for the enterprises, bestowing upon the bank opportunity to take part in business activities and search for information on the stock market 55 CONCLUSION Credit is one of radical operations of the bank, and hence, in order to survive and have a sustainable growth in the market-based economy like today, especially after the recovery period from a worth financial crush in 2008, then the improvements on credit operations prove indispensible In fact “improvement on credit operation” is not only a particular expectation and wanting of the global petro joint stock commercial bank, but also for all commercial banks as well as State and Party Over years, the credit quality of GP-Bank has been positive movements, confirming that the role of commercial banks is quite strong at the moment, contributing to effective investment of the bank’s capital, pushing the economic development and restructuring the economic structure both in Hanoi and throughout the country However, restrictions and existing problems should be scrutinized associated with synchronized solutions like above-mentioned measures will certainly have significant contributions to continuing the improvement of credit quality at the bank, meeting the high demand for capital of the investors currently This thesis is aimed to contribute a small sharing idea in meliorating the credit quality of all commercial banks in general and GP-Bank in particular Notwithstanding, because my awareness and perception are still restricted, and hence, there are a number of deep issues which are not done well I hope that feedbacks and comments will be received soon 56 ... 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... 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... 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