Tài liệu Credit risk management in agribank thai nguyen province

Thai Nguyen University Socialist Republic of Vietnam Southern Luzon State University Republic of Philippines CREDIT RISK MANAGEMENT IN AGRIBANK – THAI NGUYEN PROVINCE A Dissertation Presented to the Faculty of Graduate School of Southern Luzon State University, Philippines and Thai Nguyen University, S.R. Vietnam In Partial Fulfillment of the Requirements for the Degree Doctor in Business Administration BUI VAN KHOA (BILLY) August 2013 ii APPROVAL SHEET iii DEDICATION This piece of work is dedicated To my wife and my children, All the staffs of the Agribank in Thai Nguyen Province iv ACKNOWLEDGMENT The researcher wishes to extend him most since gratitude to the following people who made this piece of work a reality. Dr. Cecilia N. Gascon, President of Southern Luzon State University, Republic of the Philippines, who made possible the linkage with Thai Nguyen University and the offering of Doctor of Business Administration, through the ITC-TUAF; Dr. Dang Kim Vui, the President of Thai Nguyen University, who made the linkage with Southern Luzon State University, Republic of the Philippines and the offering of Doctor of Business Administration, through the ITC-TUAF; Dr. Walberto A. Macaraan, for his support and supervision throughout my graduate study program. His kindness and daily instructions in the last three years are greatly appreciated and this dissertation is as much his work as mine; Prof. Nordelina Ilano, Director, Office for International Affairs of URS for her support to the DBA1 students; Dr. Tran Thanh Van, the Dean of the Graduate School of Thai Nguyen University, for his assistance and encouragement to pursue this study; Dr. Dang Xuan Binh, the Director of International Training Center, for his assistance and encouragement to pursue this study; Dr. Nguyen Thanh Hai, the Vice Director of International Training Center, for his assistance and encouragement to pursue this study as DBA Class Manager; To all the SLSU and TNU Professors, for their support and guidance extended throughout the graduate studies in Thai Nguyen University, Vietnam; To his ever dearest friends for their kindness and remarkable support; To his family, for their support, encouragement for being the sources of greatest inspiration, which made his career a success. v ABSTRACT This study was conducted on the basis of practical reasoning combined with analysis of the status and operation characteristics of the Bank for Agriculture and Rural Development, Vietnam to build a strategy for credit risk management effectiveness, which proposed solutions and recommendations for improvement, improve credit risk management of the Bank for Agriculture and rural Development of Vietnam, contributing to the economic restructuring of agriculture and rural towards industrialization and modernization, promoting our country's economic integration and development. The result will the present situation of credit risk in terms of bad debts, undue debts, overdue debts, debts requiring attention, under qualified debts, doubtful debts and frozen debts. as perceived by managers and staff of the Agribank, and from that, the researcher recommended the appropriate solutions to limit credit risk in effective ways in bank. The findings of the study shows that with respect to “segment structure which contain the big risks”, respondents evaluated it with mean of 3.5 corresponding to level More Risky. The evaluated the item “Credits for industries” with highest mean of 3.6 corresponding to level More Risky and ranking first of all. They evaluated the item “Credits for service sector” with lowest mean of 3.2 corresponding to level Risky and ranking last of all. For overall assessment of both managers and staffs, they evaluated all items of ‘types of customers, which contain the big risks” with mean of 3.4 corresponding to level More Risky. They evaluated the item “individuals” with mean of 3.6 corresponding to level More Risky and ranking first of all. They evaluated the item “Big companies and organizations “ with lowest mean vi corresponding to level Risky and ranking last of all. For overall assessment of two groups of respondents, they evaluated all items of “not have guarantee properties” with mean of 3.1 corresponding to level Risky. They evaluated the item “Not have guarantee properties” highest mean of 3.6 corresponding to level More Risky and ranking first of all. While, the item “Have guarantee properties’’ was evaluated with lower mean corresponding to level Less Risky. With respect to “the account outstanding acc to time”, two groups of respondents evaluated short term credit with highest mean of 3.5 corresponding to level More Risky and ranking first. While, the item “medium and long term credit” received lower mean of 3.2 corresponding to level Risky and ranking last. With respect to overdue debts, both groups of managers and staffs evaluated all items of “overdue debt” with mean of 3.3 corresponding to level Risky. They gave highest mean of 4.3 for the item “Both principal and interest can be recovered partially” corresponding to level Most Risky and ranking first. While, the item “Both principal and interest can be recovered fully” was evaluated with lowest mean of 2.4 corresponding to level Less Risky and ranking last of all. With respect to undue debt, both groups of respondents evaluated “undue debt” with mean of 3.2 corresponding to level Risky. They evaluated the item “Customers are traditional borrowers” with highest mean of 3.5 corresponding to level More Risky and ranking first of all. They evaluated the item “It is easy to collect principle and interest” with lowest mean of 3.1 corresponding to level Risky and ranking last of all. With respect to “debt requiring attention”, two groups of respondents evaluated “debt requiring attention” with mean of 3.6 corresponding to level More Risky. They assessed the item “The interest rate is suitable for customers” with highest mean of 3.6 corresponding to level More Risky and ranking first. While, the item “The mechanism for this debt is so clear” received lower mean of 3.5 corresponding to rank vii last. With respect to qualified debt two groups of respondents evaluated “qualified debt” with mean of 2.9 corresponding to level Risky. They evaluated the item “Able to pay the interest and principle at maturity” with highest mean of 3.6 corresponding to level More Risky and ranking first of all. The item “The interest is made free for customers” was evaluated with lowest mean of 1.7 corresponding to level Least Risky and ranking last of all. With respect to doubtful debt, all respondents evaluated the item “The bank controls closely this type of debt” with highest mean of 4.3 corresponding to level Most Risky and ranking first of all. While, they evaluated the item “Creditors do not carefully appraise the borrowers” with lowest mean of 3.5 corresponding to level More Risky and ranking last of all. With respect to frozen debt, two groups of respondents evaluated frozen debt with mean of 3.3 corresponding to level Risky. They evaluated the item “There are a lot of customers classified in frozen debt group” with highest mean of 3.6 corresponding to level More Risky and ranking first of all; and evaluated the item “The rate of frozen debt is too high” with lowest mean of 3.2 corresponding to level Risky and ranking last of all. With respect to “bad debt”, both groups of respondents evaluated the item “It is difficult to collect both interest and capital” with highest mean of 3.7 corresponding to level More Risky and ranking first of all. While, the item “The mortgage is hard to sell” was evaluated with lowest mean of 3.5 corresponding to level More Risky and ranking last. Considering all items of “bad debt”, they evaluated them with mean of 3.6 corresponding to level More Risky. With respect to items of subjective criteria, all respondents evaluated all items of subjective criteria with mean of 3.6 corresponding to level Frequent. They evaluated the item “Credit process follows the common regulations of State bank” with highest mean of 4.3 corresponding to level Always and ranking first. While, the item “The information quality in banking network and outside is good” was evaluated viii with lowest mean of 2.8 corresponding to level Often and ranking last. With respect to objective criteria, both groups of respondents evaluated all items of objective criteria with mean of 3.7 corresponding to level Frequent. They evaluated the item “The political and legal environment is stable” with highest mean of 4.5 corresponding to level Always and ranking first of all. While, the item “The economic environment facilitates for both bank and customer” was evaluated with lowest mean of 3.1 corresponding to level Often and ranking last of all. With respect to the Credit activities aspects of Agribank Thai Nguyen in term of four aspects, both groups of respondents evaluated the Credit activities aspects of Agribank Thai Nguyen term of four aspects with mean of 3.3 corresponding to level Risky. They evaluated the item “Segment structure contain the big risks” with highest mean of 3.5 corresponding to level More Risky and ranking first of all. They gave lowest mean for “Based on the guarantee level, types of guarantee contain the big risks” with mean of 3.1 corresponding to level Risky. With respect to all items of Current status of debts, both groups of respondents, they evaluated all items with mean of 3.4 corresponding to level More Risky. They evaluated the item ‘doubtful debt” with mean of 4.0 corresponding to level Risky and ranking first of all. They evaluated the item “under qualified debt” with lowest mean of 2.9 corresponding to level Risky and ranking last of all. With respect to two aspects affecting the risk management of credit, respondents evaluated them with mean of 3.7 corresponding to level More Risky. Two items were evaluated with a same mean of 3.7. It is recommended that the research and define the appropriate types of credit for individuals. The bank should require guarantee properties for credits. The bank should pay more attention more on long – term and medium credits. Review procedure and conditions of them to manage and control in order to minimize risks of ix credit. Review to define appropriate solutions to collect interest and capital. Review and find suitable solutions to recovery both principle and interest fully. Research to find suitable solutions to collect principle and interest. Review to produce clear mechanism for “debt requiring attention”. Review to decrease cost to improve the competitive ability of services. Creditors should carefully appraise the borrowers. Review to define exactly ability of borrowers before credits. Review to establish a good information network. Carefully manage segment structure; define exactly targeted customers. The bank should pay attention on both subjective criteria and objective criteria affecting on risk management of credit. x TABLE OF CONTENTS TITLE PAGE Page APPROVAL SHEET ................................................................................................... ii DEDICATION ............................................................................................................. iii ACKNOWLEDGMENT.............................................................................................. iv ABSTRACT...................................................................................................................v TABLE OF CONTENTS ...............................................................................................x LIST OF TABLES ...................................................................................................... xii LIST OF FIGURES ................................................................................................... xiv CHAPTER 1 INTRODUCTION………………………………………………………………1 Background of the Study.......................................................................................2 Statement of the Problem ......................................................................................3 Hypothesis of the Study ........................................................................................5 Significance of the Study ......................................................................................5 Scope and Delimitation .........................................................................................6 Definition of Terms...............................................................................................6 2 REVIEW OF LITERATURE AND RELATED STUDY …………………..…8 Review of Related Literature ................................................................................8 Review of Related Studies ..................................................................................31 Conceptual Framework .......................................................................................55 3 METHODOLOGY………......................................................................………56 Research Design..................................................................................................56 Population and Sampling ....................................................................................56 xi Sampling Design and Techniques .......................................................................57 Research Instruments ..........................................................................................58 Data Gathering Procedures .................................................................................59 Statistical Treatment ...........................................................................................60 4 PRESENTATION ANALYSIS AND INTERPRETATION OF DATA…........61 5 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS.91 Findings ..............................................................................................................91 Conclusions .........................................................................................................96 Recommendations ...............................................................................................97 BIBLIOGRAPHY ........................................................................................................99 APPENDICES A .......................................................................................................101 APPENDICES B ........................................................................................................102 QUESTIONNAIRE ...................................................................................................103 CURRICULUM VITAE............................................................................................109 xii LIST OF TABLES Table Page 1 Frequency and Percentage of respondent’s profile 2 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in terms of segment structure 3 78 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Objective criteria 15 76 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Subjective criteria 14 75 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Bad debt 13 73 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Frozen debt 12 72 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Doubful debt 11 71 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Under qualified debt 10 69 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Debt requiring attention 9 68 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Undue debt 8 66 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in Overdue debt 7 65 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in terms of account outstanding 6 64 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in types of guarantee 5 62 Mean Distribution of Respondents on Credit risk management of Agribank Thai Nguyen in types of customers 4 61 79 Summary table on the Assessment of the Two groups of Respondents the Credit activities aspects of Agribank Thai Nguyen term of four 16 aspects 81 Summary table on the Assessment of the Two groups of Respondents 82 xiii the Current status of debts of Agribank Thai Nguyen term of Current status of debts 17 Summary table on the Assessment of the Two groups of Respondents the factors affecting the limitation of Credit Risks of Agribank Thai Nguyen in term of two aspects 18 T-test Results for the Differences on the Assessment of Two Groups of Respondents on the Agribank Thai Nguyen 19 87 T-test Results for the Differences on the Assessment of Two Groups of Respondents on the Current status of debts Agribank Thai Nguyen 20 84 88 T-test Results for the Differences on the Assessment of Two Groups of Respondents on the factors affecting the limitation of Credit Risks of Agribank Thai Nguyen in Vietnam 90 xiv LIST OF FIGURES Figure 1 Page Conceptual Framework 55 Chapter 1 INTRODUCTION The banks system as the lifeblood play very important role of the economy. Vietnam's banking system in recent years has gained encouraging achievements such as contributing to stability and control inflation, the effective implementation of national monetary policies ... However, in the economy market, business risk is unavoidable, especially in the field of risk banking business activities because it has the potential to cause a chain reaction, spreading and increasingly complex expression . The collapse of the focal bank to influence the whole of life - economic - political and social resilience can spread within a country even just settle the whole region and global. Before the integration trend, the financial institutions, banks will always have to deal with competition as well as many different types of risk. In Vietnam, the starting point of the banks is quite low compared with the average in the region should focus on developing the right and interest earnings are considered a priority. This leads to the risk management of banks virtually Vietnam are still being left open and the construction has not been a satisfactory and professional. That is why, the ratio of bad debt problems arising from loss of control is becoming unsolved problem in most of Vietnam's current banking and in the Bank for Agriculture and rural Development in Vietnam - a financial institution operating mainly in the agricultural sector and rural areas. Profit brought mainly from bank credit activity (accounting for 90% of total banking income). 2 Therefore, the credit risk management is crucial for the survival and development of the bank comes up agricultural and rural development in Vietnam. Background of the Study Agribank Thai Nguyen province was formed in October 1998 on the basis of getting the entire facility, workers from several departments of the provincial state banks and state bank branches in the province districts Thai Nguyen, with workforce of 760 people, 2.3 billion funding, and debt balances 3.5 billion mainly being overdue Commercial banks is the industry that is high risk, which is the type of credit business with the highest risk, especially in the context of the global financial crisis now and will adversely Bank's activities in general and in particular credit activities. In fact, on average between 2005 and 2009, the percentage of REO commercial banks Vietnam has steadily increased from 12% to 30%, but from early 2010 until now, this index has fallen down dramatically, REO 2010 decreased 40% compared with 2009, 2011 decreased 30% compared to 2010 (Source: annual reports of the Bank and the author's calculations). Net interest margins are also in a similar situation. Profitability decreased, while the CAR is very low, meaning that the commercial banks in recent years has paid a high price does not perform well due to the credit risk management which is most evident ratio of bad debts rise. Recently, the credit risk management in commercial banks but has were given more attention, but generally are not effective, not to be carried out in a basically. Bank of Agriculture and Rural Development of Vietnam (Agribank) is one of the first commercial bank in Vietnam, was a prestigious and affirmed its brand domestically and internationally. Not outside the general trend of development of Vietnam's banking system since our country transition to a market economy, Agribank continuous expansion of asset size, capital size, in which the credit scale 3 constantly expanding and this is also the main source of profit for the operation Agribank. Currently, the credit rate on the total assets of the Agribank about 80%, while the credit risk management is still inadequate, the percentage of total outstanding loans high: from 0.98% in 2005 to 2.24% in 2009, 3.3% in 2010, 6.8% in 2011 and is expected to increase further in 1012, ROE from 2006 to now tended to decrease significantly (down 43% ). With Agribank Thai Nguyen, the percentage of total debts balance in 2006: 1.26%, 2007: 2.58%, 2008: 2.34%, 2009: 1.42%, 2010: 0.98%, 2011: 0.58%. Despite the bad debt ratio of Agribank Thai Nguyen is also lower than the average bad debt ratio of Agribank Vietnam but also the amount of bad debt increases in the current economic conditions. If bank does not implement well to control risk, the efficiency of credit activity will be decrease. The growth of bank is slow. With this situation, while credit remains the main activities of the commercial banks, the activities of credit risk management is vital to the commercial banks as well as Agribank Vietnam and Thai Nguyen Agribank in particular, and also means that the stability of the economy. From the above reasons, researcher has chosen the topic: “Credit Risk Management in Agribank Thai Nguyen Province" to conduct the study of his dissertation. Statement of the Problem On the basis of practical reasoning combined with analysis of the status and operation characteristics of the Bank for Agriculture and Rural Development, Vietnam to propose recomendation for credit risk management, improve credit risk management of the Bank for Agriculture and rural Development of Vietnam, 4 contributing to the economic restructuring of agriculture and rural towards industrialization and modernization, promoting our country's economic integration and development. Specifically it seeks to answer the following questions: 1. What is the profile of the respondents in terms of: a) Age b) Gender c) Civil status d) Education e) Year in service 2. What is the assessment of the managers and staffs of Agribank Thai Nguyen credit risk management in terms of: a) Segment structure b) Types of customers c) Types of guarantee d) Account outstanding 3. What is the assessment of the managers and staffs of Agribank Thai Nguyen on the credit risk management in terms of: a) Overdue Debt b) Undue Debt c) Debt requiring attention d) Under qualified Debt e) Doubtful Debt f) Frozen Debt g) Bad Debt 5 4. What is the assessment of managers and staff on the factors affecting credit risk management of Agribank Thai Nguyen in terms of: a) Subjective creteria b) Objective creteria 5. What design improvement on the credit risk management of Agribank Thai Nguyen can be proposed to minimize credit risk? 6. Is there a significant difference in assessment of two groups of respondents on credit risk management and factors affecting the limitation of credit risks of the bank? Hypotheses of the Study 1. There is no significant difference in the assessment of two groups of respondents on credit risk management implemented by the bank. 2. There is no significant difference in assessment of two groups of respondents on the factors affecting the limitation of Credit Risks. Significance of the Study To the Manager. This will provide them with valued information concerning the credit risk management of the branch. In this regard they will be able to adapt their development programs to help the bank reduce credit risk management. To the Researcher. The researchers as an employee of bank and as a candidate for Doctor of Business Administration Degree, this study will enhance his knowledge that he can use and apply to the bank in the future. To Future Researchers. This can serve as reference materials for future researches similar to this. 6 Scope and Delimitation This study chooses subjects as the credit risk management at the Bank for Agriculture and Rural Development in Thai Nguyen province. The researcher studied the present situation of credit risk in terms of bad debts, undue debts, overdue debts, debts requiring attention, under qualified debts, doubtful debts and frozen debts. as perceived by managers and staff of the Agribank, and from that, the researcher recommended the appropriate solutions to limit credit risk in effective ways in bank. Definition of Terms To clearly understand the different terms used in this study, the following were technically and operationally defined: Bad Debt: Bad debt is an amount owed to a business or individual, for which there is zero probability of collection. Credit risk: Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit (either the principal or interest (coupon) or both). The default events include a delay in repayments, restructuring of borrower repayments, and bankruptcy. Debts requiring Attention: Debts have been rescheduled the maturity for the first time (to the customers as enterprises, organizations, credit institution must have customer assessment record on ability to pay the principal and interest in full and in time as rescheduled at the first time). Doubtful debt: Doubtful debts are those debts which a business or individual is unlikely to be able to collect. Frozen debt: Frozen debts are uncollectible debts, credit institution will not restructure the payment maturity, not move the overdue debt, not calculate the