NATIONAL ECONOMICS UNIVERSITY
CENTRE FOR ADVANCED EDUCATIONAL PROGRAMS
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BACHELOR’S THESIS IN FINANCE
CREDIT RISK MANAGEMENT OF MARITIME
BANK VIETNAM: EVALUATIONS AND
RECOMMENDATIONS
Student’s name: Vu Ngoc Diep
Student’s ID: 11120600
Class: Advanced Finance 54.B
Intake: 54
Internship guide: Tran Thi Lan Anh
Instructor: MSC.Prof Tran Minh Tuan
Ha Noi, 2016
Table of Contents
ACKNOWLEDGEMENT…………………………………………………………….………………….……4
ABBREVIATION………………………………………………………………………………….……………5
LIST OF TABLE…………………………………………………………………………………..…………….6
LIST OF FIGURES…………………………………………………………………………….…………….…7
INTRODUCTION……………………………………………………………………………………..……….8
1. Rationale………………………………………………………………………………………………………………………….……..……..… 8
2. Research objective and questions…………………………………………………………………………………………….. 8
3. Research methodology…………………………………………………………………………………………………..……..…….. 9
4. Research scope…………………………………………………………………………………………………………………………....…. 9
5. Research framework……………………………………………………………………………………………………………..…..…. 9
CHAPTER I. THEORETICAL FRAMEWORK………………………………………..……………….…11
1. Credit risk at commercial banks…………………………………………………………………………………….…….... 11
1.1 Fundamental understanding of commercial banks……………………………………………………..…11
1.1.2 Basis functions of commercial banks………………………………………………………………………………………11
1.1.3 Credit activity of commercial banks……………………………………………………………………………..……..… 12
1.2 Credit risk at commercial banks……………………………………………………………………………..……..…….. 14
1.2.2 Classification of credit risk……………………………………………………………………………………………………..… 15
1.2.3 The consequences of credit risk………………………………………………………………………………...……..…….. 16
2. Credit risk management at commercial banks……………………………………………………..……..…….18
2.1 The definition of credit risk management…………………………………………………………………….…… 18
2.2 The necessity of credit risk management……………………………………………………………..…..……....19
2.3 The process of credit risk management………………………………………………………………..……..……..….. 20
2.4 Principles of Sound Credit Risk Management (Basel principles)…………………....……..….24
CHAPTER II. CURRENT SITUATION OF CREDIT RISK MANAGEMENT AT MARITIME BANK
RETAIL BANKING……………………………………………………………………………………..…….28
1. OVER VIEW OF MARITIMEBANK.……………………………………………………………………………………..…….. 28
1.1 General Introduction…………………………………………………………………………………………………………………. 28
1.2 MSB Organization Structure…………………………………………………………………………………………………... 31
1.3 Products and services…………………………………………………………………………………………………………..…… 33
1.4 Recent achievements……………………………………………………………………………………………………………….… 33
1.5 Mission and Vision…………………………………………………………………………………………………………………..…. 34
Mission…………………………………………………………………………………………………………………………………………..……... 34
1.6 Business performance…………………………………………………………………………………………………………………... 35
Customers Loans………………………………………………………………………………………………………………………………. 36
Trading securities and investment securities………………………………………………………………………….37
Customer deposits………………………………………………………………………………………………………………………..…. 37
Business performance………………………………………………………………………………………………………………….... 38
2. Current situation of credit risk management at Maritime Bank……………………………..……42
2.1 Current situation of credit risk at Maritime Bank…………………………………………………..…..….42
2.1.3 Over-due loan ratio of MSB………………………………………………………………………………………..……..…….. 46
2.2 Credit risk management at MSB………………………………………………………………………………………….… 47
3. Evaluations of credit risk management at MSB…………………………………………………...……..……..58
3.1 Achievement……………………………………………………………………………………………………………………………….... 58
3.2 Limitation……………………………………………………………………………………………………………………………..…….... 59
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
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Reasons of limitation……………………………………………………………………………………………………………...… 60
CHAPTER III. RECOMMENDATIONS TO IMPROVE CREDIT RISK MANGEMENT OF
MARITIME BANK VIETNAM……………………………………………………………………………..63
1. Solutions to improve credit risk management…………………………………………………………….…..…63
1.1 Effectively utilize information in credit operations……………………………………………....……....63
1.2 Enhance the quality of collateral assessment and management…………………………………..…....64
1.3 Improve the credit ratings:……………………………………………………………………………………………………… 64
1.4 Improve post-lending supervision…………………………………………………………………………..…..…….... 65
1.5 Improve the efficiency of internal supervision……………………………………………………..……..…..65
1.6 Improve technical capacity and ethics quality of credit risk management
department’s staff.………………………………………………………………………………………………………………………..….. 65
1.7 Maintain current effectiveness credit risk management method….……..…………………..66
2. Petitions ………………………………………………………………………………………………………………………….……..……... 67
2.1 Towards the Government………………………………………………………………………………………..……..……..… 67
2.2 Towards SBV……………………………………………………………………………………………………………………………….… 67
CONCLUSION………………………………………………………………………………………….…….69
REFERENCES…………………………………………………………………………………….…………..71
COMMENT…………………………………………………………………………….………….…………72
THESIS ASSESSMENT………………………………………………………………………………………73
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
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ACKNOWLEDGEMENT
Before starting my research, I would honored to express my grateful to my
research supervisor, Associate Professor, MA Tr n Minh Tu n for his wiseầ ấ
guidance and useful advices during my process of making this report.
Moreover I would like to thank my internship guider, Mrs. Tran Thi Lan
Anh, for completely supportive with my internship as well as giving me useful
information with her experiences to conduct this research.
Last but not least, I would like to send my great thanks to Maritime Bank
Operation Center’s staff for giving me the warm environment to work and also the
team work spirit during my internship
Thank you,
Ngoc Diep.
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
ABBREVIATION
MSB Maritime Bank Vietnam
BOD Board of Director
BOM Board of Manager
CIC Credit Information Central
NPL Non-performing Loan
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
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LIST OF TABLE
Table 2.1 Classification Loan of MSB 2012-2014 (Unit: Billion VND)..………..…..............43
Table 2.2 Non-performing Loan 2012-2014 (Unit: billion VND)..………..………..………..…..45
Table 2.3 Credit rating policy for enterprise customer of MSB……..………..………...............54
Table 2.4 Credit rating policy for retail customer of MSB………………………………………………56
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
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LIST OF FIGURES
Figure 1.1 Type of credit risk…………………………………………………………………………………....…....…. 15
Figure 1.2 The Credit Risk Management Process……..………..………..………..……......................21
Figure 2.1 Maritime Bank Organization Structure…..………..………..………..………..……............32
Figure 2.2 CAR ratio versus granting/funding…………………………………………………………….….. 36
Figure 2.3 Customer Deposit 2013-2014…………………………………………………………………………. 38
Figure 2.4 Revenue Structure………………………………………………………………………..…..…..…..…...... 40
Figure 2.5 Operation Cost……………………………………………………………………………………………………. 41
Figure 2.7 Classification of………………………………………………………………………………………..…..….... 43
Figure 2.8 Overdue Loan of MSB 2012-2014………………..………..………..……….......................... 46
Figure 2.9 Granting Process of MSB…………………………………………………………………….....…..….... 49
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
INTRODUCTION
1. Rationale
The ruinous impact of global financial crisis has illustrated the vulnerability of
business world follow the shift of the market. This vulnerability was formed by
different reasons; one of them was the circumstance of risks. Risks could influence
all parties in the financial market, ranging from financial institutions and
enterprises to individual investors. Moreover, the seriousness of managing risk has
been notice of by most of financial market practitioners and the authority.
In our country, the recent recession has harmed the financial institution badly,
exclusively in the case of commercial banks. Subsequently, banks have to face
with increasingly risk and credit risk is one of the most important risks that a bank
meet. Credit risk is the risk that a borrower will default on any type of debt by
failing to make required payments. Providing loan for new customers is one of the
benefit sources to banks; however, business relationships are not always
successful, especially in this era of economic crisis. Thus, credit risk management
becomes a crucial act to survive for commercial banks. Banks use non-performing
ratio to evaluate the effectiveness of their credit risk management. The period of
three years from 2009 to 2012 in Maritime Bank (MSB), the credit services were
stopped follow the consulting result of Mckinsey – a global management
consultant, as a result, after comeback to the retail credit service game in 2012,
risk managing in MSB face many problems.
These reasons lead to the thesis topic: Credit Risk Management of Maritime Bank:
Evaluations and recommendation.
2. Research objective and questions
2.1 Research objective
At first, this research objective is getting a rooted understanding of the concept of
credit risk and credit risk management. By looking at those theoretical
backgrounds, the research will help MSB RB to assess its credit risk management,
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
discovering gaps and the reason of forming those gaps. Lastly, the researcher will
conduct some recommendations to improve credit risk management of MSB RB.
2.2 Research questions
What is the current situation of MSB RB’s credit risk management?
What are the weaknesses of the bank’s credit risk management? Reasons?
How can bank improve its credit risk management?
3. Research methodology
Method: This research applies 17 principles of Basel Committee on credit risk
management to assess MSB RB’ management of credit risk.
Data source: This research learns on secondary data comprehensively. Both
qualitative and quantitative data conducted by the author from MSB’ annual
reports, internal documents and paper on analyzing MSB’ financial status. Massive
media resources were carefully apply and so were the international past paper.
Personal observation during the internship period at MSB Head office was also
sources for assessment.
4. Research scope
The thesis will investigate the credit risk management of MSB RB, if the risk
management policy is relevant enough, the competences of credit managers and
staffs, collaboration between departments in bank… To assess MSB RB credit risk,
its credit quality is considered in the period of 2012 – 2014. Such a revolution
period of retail credit system to reveal debt’s characteristics.
5. Research framework
Together with Introduction and Summary, the thesis includes three chapters:
The first chapter describes the theoretical framework of credit risk, credit risk
management and the principles of credit risk management in banking.
The second chapter analyses current situation of MSB RB ’s credit risk
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
management, which aimed to find weaknesses.
The last chapter offers some recommendations to improve credit risk
management of Maritime Bank Retail Banking.
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
CHAPTER I. THEORETICAL FRAMEWORK
In pursuance of assess the efficiency of a bank’s credit risk management,
understanding of the theory foundations is essential. Wherefore this chapter will
give general knowledge of commercial bank, credit risk, and credit risk
management.
1. Credit risk at commercial banks
1.1 Fundamental understanding of commercial banks
1.1.1 Denition of commercial banks
The word “bank” is one of the most used word in all languages all over the world;
however, still, the obfuscation of defining bank is happen. A bank stated by three
aspects: how the economic function it serves, which services it offers for clients,
or the legal basis of existence.
According to the functional performance, banks are financial intermediaries that
involved in transferring funds from savers to borrowers and paying for goods and
services (Rose and Hudgins, 2009, p. 2).
According to services offer to customers, banks have a great range of financial
services – from checking and debit accounts, credit cards, saving plans to loan for
business, consumers and government. In addition, banks also provide investment
banking, insurance protection, financial planning, advice for merge companies, the
sale of risk management services and numerous other innovative services. In
summary, banks tend to become the general financial-service providers (Rose and
Hudgins, 2009, p. 2).
According to Vietnam Legislation, a commercial bank is a credit institution that
permitted to conduct all banking activities and other related business activities.
1.1.2 Basis functions of commercial banks
As approached above, commercial banks have two basic functions.
Supervisor: Prof Tran Minh Tuan Vu Ngoc Diep _ Advance
Finance54.B
The primary purpose of commercial banks is to encourage individuals and
institutions to save and transfer those saving to those individuals and institutions
planning to invest in new projects (Rose and Hudgins, 2009, p. 5). Bank
emboldens customer’s act of saving by accepting deposit, including demand
deposits, term deposits, saving deposits. After that, based on the funded capital,
banks grant credit to whom needing investment spending. This process nursing the
growth of economy, creating new jobs, and upgrading living standard.
However, not only transform saving into investment, commercial bank also
provides several supporting services for daily life. They manage customers’
accounts, provide payment services such as checks, credit and debit cards…, and
perform collecting and spending for customers in payment transactions. This helps
speed up the payment process and ensures the safety and accuracy of payment.
Besides, banks provides risk protection services for those who save and venture to
invest, including derivative contracts and insurance policies, liquidity services to
make it possible to convert property into immediately available spending power,
