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MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM
BANKING ACADEMY OF VIETNAM
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NGUYEN BICH NGAN
SUMMARY OF DOCTORAL THESIS
CREDIT RISK MANAGEMENT ON LOAN PORTFOLIOS IN VIETNAMESE
COMMERCIAL BANKS
Major : Finance – Banking
Code : 9.34.02.01
Academic supervisors : 1. Assoc. Prof., Dr. Nguyen Thuy Duong
2. Dr. Nguyen Tien Dong
HANOI, 2020
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TABLE OF CONTENTS
INTRODUCTION ........................................................................................................................................... 1
1.
Necessity of research topic ........................................................................................................................... 1
2.
Research objectives of the thesis .................................................................................................................. 2
2.1.
General research objectives ....................................................................................................................... 2
2.2.
Specific research objectives ....................................................................................................................... 2
3.
Object and study scope of the thesis ............................................................................................................. 3
3.1.
Object of the study ..................................................................................................................................... 3
3.2.
Scope of the study...................................................................................................................................... 3
4.
Research methodology of the thesis ............................................................................................................. 3
5.
New contributions of the thesis .................................................................................................................... 5
6.
Structure of the thesis ................................................................................................................................... 7
CHAPTER 1: OVERVIEW OF RESEARCHES ON CREDIT RISK MANAGEMENT ON LOAN
PORTFOLIO IN COMMERCIAL BANKS ................................................................................................... 9
1.1.1.
Researches on organizational model of risk management on loan portfolios ........................................ 9
1.1.2.
Researches on information reporting principle between divisions in organizational structure of risk
management on loan portfolios ..................................................................................................................... 10
1.2.
Researches on risk identification on loan portfolios ................................................................................ 11
1.2.1.
Researches on credit risk early warning system ................................................................................... 11
1.2.2.
Researches on loan portfolios’ past quality evaluation models ............................................................ 11
1.3.
Researches on risk measurement on loan portfolios ................................................................................ 12
1.4.
Researches on using loan portfolio risk management tools ..................................................................... 12
1.4.1.Researches on modern tools ...................................................................................................................... 12
1.4.2.
Researches on traditional tools ............................................................................................................. 13
1.5.
Research gaps .......................................................................................................................................... 14
CHAPTER 2: THEORETICAL BACKGROUND FOR RISK MANAGEMENT ON LOAN PORTFOLIO
IN COMMERCIAL BANKS ........................................................................................................................ 15
2.1.1.
Concept of credit risk management in commercial banks .................................................................... 15
2.1.2.
Principles of credit risk management in commercial banks ................................................................. 15
2.1.3.
Contents of credit risk management in commercial banks ................................................................... 16
2.2.
Theoretical background for loan portfolio risk management in commercial banks ................................ 16
2.2.1.
Concept of risk management on loan portfolios in commercial banks ................................................. 16
2.2.2.
Contents of risk management on loan portfolios in commercial banks ................................................ 17
2.2.3.
Factors affecting risk management on loan portfolios in commercial banks. ...................................... 18
2.3.
International experiences of loan portfolio risk management in commercial banks ............................... 18
2.3.1.
Experiences of Japanese commercial banks ......................................................................................... 18
2.3.2. Experiences of Korea Development Bank (KDB) ............................................................................... 18
2.3.3.
Experiences of Bangkok Bank .............................................................................................................. 19
2.3.4.
Experiences of Citibank ........................................................................................................................ 20
2.3.5.
Lessons learned for Vietnamese commercial banks ............................................................................. 21
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CHAPTER 3: CURRENT SITUATIONS OF CREDIT RISK MANAGEMENT ON LOAN PORTFOLIO
IN VIETNAM COMMERCIAL BANKS ..................................................................................................... 23
3.2.
Current situations of loan portfolio risk in Vietnamese commercial banks ............................................. 23
3.2.1.
Regarding the ratio of NPLs on loan portfolios .................................................................................... 23
3.2.2.
Regarding loss rate on loan portfolios .................................................................................................. 23
3.2.3.
Regarding credit concentration on loan portfolio ................................................................................. 23
3.3.
Current situations of risk management on loan portfolio in Vietnamese commercial banks .................. 24
3.3.1.
Regarding organizational structure of credit risk management on loan portfolios ............................... 24
3.3.2.
Regarding risk identification of loan portfolios .................................................................................... 25
3.3.3.
Regarding risk measurement of loan portfolios .................................................................................... 25
3.3.4.
Regarding the use of loan portfolio risk management tools ................................................................. 26
3.4.
Assessment on current situations of risk management on loan portfolio in Vietnamese commercial banks
........................................................................................................................................................... 27
3.4.1.
Obtained results .................................................................................................................................... 27
3.4.2.
Limitations and reasons ........................................................................................................................ 28
CHAPTER 4: SOLUTIONS FOR IMPROVING CREDIT RISK MANAGEMENT ON LOAN
PORTFOLIOS IN VIETNAMESE COMMERCIAL BANKS ..................................................................... 30
4.1.
Orientation of credit risk management in Vietnamese commercial banks .............................................. 30
4.2.
Solutions for improving credit risk management on loan portfolios in Vietnamese commercial banks . 30
4.2.1.
Regarding organizational structure of risk management on loan portfolios ......................................... 30
4.2.2.
Regarding risk identification of loan portfolios .................................................................................... 31
4.2.3.
Regarding risk measurement of loan portfolios .................................................................................... 31
4.2.4.
Regarding the use of loan portfolio risk management tools ................................................................. 34
4.3.
Recommendations for the State Bank of Vietnam .................................................................................. 35
4.3.1.The recommendations for the SBV to support and promote the application of modern credit risk
measurement models in commercial banks ........................................................................................................ 35
4.3.2.
The recommendations for the SBV to manage and supervise loan sale activities ................................ 36
4.3.3.
The recommendations for the SBV as the market manager of credit derivative transactions of
Vietnamese commercial banks. ..................................................................................................................... 36
RECAP .......................................................................................................................................................... 37
LIST OF PUBLISHED WORKS RELATED TO THE THESIS..................................................................39
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INTRODUCTION
1.
Necessity of research topic
Lending is the key business of most commercial banks, therefore, the loan portfolio
makes up the largest proportion of the total assets and also generates the largest source
of revenue for banks. On the other hand, the loan portfolio also contains the greatest
risks, affecting the safety and efficiency of commercial banks. For decades, to manage
loan portfolio risks, bank managers have focused most efforts on making careful loan
decisions and post-lending follow-up. Currently, even though these control activities
are still maintained, the analysis of the credit problems that have occurred to
commercial banks in the past1 shows the contents of credit risk management on loan
portfolios need to be added. Over the past time, tools used for credit risk measurement
on loan portfolios mainly focused on indicators related to loan quality, such as overdue
debt, subprime debt or fluctuating trend in credit ratings. However, commercial banks
realized that the above indicators are not enough to help them take actions timely to
cope with credit risks, especially when the systemic risks are increasing at the same
time. Thus, effective loan portfolio risk management still needs to begin with
controlling the quality of each loan in the portfolio with important stages, such as loan
appraisal or post-lending follow-up. In addition, the development of new risk
management methods based on technology and multi-dimensional information systems
has been a popular trend in commercial banks around the world. To date, not many
commercial banks have applied the modern loan portfolio risk management methods
as above. Therefore, the necessity of conducting in-depth theoretical and empirical
studies on loan portfolio risk management, especially in the context that the credit risk
profile of commercial banks is increasingly complicated and requires more tools to
manage.
In Vietnam, with the integration trend combined with changes in legal regulations
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For instance, risks were related to the oil and gas, agricultural and real estate loan portfolios of the
1980s in commercial banks around the world.
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towards a safe, efficient and close to the modern international standards of banking
management, commercial banks have obtained certain achievements in applying new
methods and techniques to credit risk management in general and loan portfolio risk
management in particular. Nonetheless, for many reasons, the risk management of
loan portfolio in Vietnamese commercial banks still has some limitations. The
consequences of the limitations in loan portfolio risk management are poorly-
structured portfolio, credit risks are not identified in time, and high level of non-
performing loan in Vietnamese commercial banks during the period from late 2011
onwards. Thus, in Vietnamese commercial banks, the credit risk management on loan
portfolios still needs to focus on research in both theory and practice.
By that reason, in the current practical context, the study of the topic “Credit risk
management on loan portfolio in Vietnamese commercial banks” has high practical
meaning.
2.
Research objectives of the thesis
2.1.
General research objectives
The thesis aims to studying the credit risk management on loan portfolios in
Vietnamese commercial banks, then proposes solutions and recommendations for
improvement.
2.2.
Specific research objectives
To realize extensive research objectives above, the thesis targets to four specific
objectives as follows:
Firstly, systematize the theoretical basis of credit risk management on loan portfolio
in commercial banks;
Secondly, study the facts of credit risk management on loan portfolio in Vietnamese
commercial banks and compare performance capacity among groups of Vietnamese
commercial banks, thereby giving an assessment on the results and limitations of loan
portfolio risk management;
Thirdly, simulate the risk measurement of commercial banks' loan portfolios by the