Banking risk management and credit management issues

Banks have faced troubles over the old ages for mutiple grounds. In the survey of ( Cornett and Saunders, 1999 ) , The hazards CBs face can be categorized into three groups: fiscal [ with recognition hazard ( CR ) being a constituent ] , operational and strategic. Among the hazard that face Bankss, recognition hazard is one of great concern to most bank governments and banking regulators. This is because recognition hazard is that hazard that can easy and most likely prompts bank failure. Credit hazard direction is a structured attack to pull offing uncertainnesss through hazard appraisal, developing schemes to pull off it, and extenuation of hazard utilizing managerial resources.

This paper takes a expression on Banking and Credit hazard direction and farther investigations into bank hazard exposure, appraisal, direction and control. An effort will do to blossom the usage of some hazard direction, rating and appraisal tools, theoretical accounts, and techniques. Another survey conducted by Brown ( 2004 ) shows that Credit hazard is a necessary effect of a vivacious economic system. Everyone involved in complex production processes must wait for payment until the goods or services delivered to the concluding consumer – or even subsequently if recognition extended to the consumer as good. When there is a failure in the procedure, the loss must apportion among the manufacturers. Mediators, like Bankss or batchs, can reassign the payment holds and the recognition hazard among manufacturers, or between manufacturers and outside investors. These mediators can besides cut down the sum of hold through fractional militias and the sum of hazard through variegation. But payment holds and recognition hazard can non be eliminated wholly without smothering the economic system.

Recognition hazard in this research most merely defined as the potency that a bank borrower or counterparty would neglect to run into its duties in conformity with in agreement footings. Banks need to pull off the recognition hazard inherent in the full portfolio every bit good as the hazard in single credits or minutess. The effectual direction of recognition hazard is a critical constituent of a comprehensive attack to put on the line direction and indispensable to the long-run success of any banking organisation. Banks need to prosecute in better recognition hazard direction.

The writer of this survey has been working for 5 twelvemonth in this sphere. Therefore, the forcusing on the pull offing recognition helps the writer recognize her calling aspirations. In world, the quality of loans affect on the banking concern. Berger and Humphrey ( 2000 ) stated that most bank ; failure are straight related to holding a big figure of probleme loans, low capital place, weak or negative hard currency flow, and hapless direction quality. In world, Lending activities were limited. This is because concern houses on one manus are kicking about deficiency of credits and the overly high criterions set by Bankss, while Commercial Banks on the other manus have suffered big losingss on bad loans ( Richard, 2006 ) . However, In Vietnam, there are working on a figure of enterprises to better its recognition hazard direction system. They include: puting up a new loan categorization system ; planing an internal recognition evaluation system that places more accent on the creditworthiness of borrowers alternatively of simply the feasibleness of undertakings ; human resource development ; bettering accounting pattern ; etc. ( Hoang Tien Loi, 2006 ) . The creative activity of such theoretical account has objective to extenuate recognition hazard that name Credit Management theoretical account.

In Vietnam, recognition direction issues play the prima function in the riks direction. From the recent crisis, Bankss had wage attending to pull off recognition hazard on their manner. Hanoi constructing commercial articulation stock bank ( HABUBANK ) is non an freedom. Hence, aims of the thesis besides are to look into and depict characteristics of recognition direction patterns and recognition features of HABUBANK. Besides, this research proposal discusses in item constructs, theories, theoretical account to utilize tools of efficient recognition direction to better current HABUBANK concern.


The chief purpose of this survey is to analyze the quality of hazard direction patterns in HABUBANK. Thus The end of this research to

Examine why and how banking recognition hazard exposure in banking system every bit good as in Habubank.

Explore the Principles of Credit Management: Principles of Lending – Evaluation of Borrower

Understand the procesdure of recognition manangement: Credit Allocation – Recognition Evaluation – Recognition Discipline – Recognition Monitoring.

Provide overall scheme, way and connexion between concern environment, loan quality and recognition quality and legislative demands by set uping an agreed minimum degree of conformity required in all current systems ; Help reader to understand deeper constructs, theory in commanding recognition hazard. Specify a model to develop an analysis and cut down recognition hazard. Explore the relationship between recognition quality and loan quality. This is necessary to come up with a strong decision to happening out solution of recognition hazard direction.


From the empirical analysis, it expected that recognition quality is associated to the loan quality. Hence, the proposed hypotheses are as follows:

H1a. Banks that have good recognition quality have good loan quality

H1b. Bank that have good loan quality have good recognition quality.


Q1. What are the qualities of pull offing recognition hazard in HABUBANK?

Q2. What are Troubles in pull offing recognition hazard in HABUBANK?

Q3. How the quality of recognition direction influence on the activities of the Bank.

Q4. What are the rules of recognition hazard direction?

Q5. How to pull off recognition hazard efficaciously in HABUBANK, What are the proper hazard direction tools and techniques to use?


When discoursing the hazards faced by Bankss, hazard defined as the volatility o fa corpotation ‘s market value including recognition hazard, market hazard and operational hazard ( Oswari, 2010 ) . In this paper, the topic is recognition hazard. Credit hazard is the hazard that a loaner will endure a fiscal loss as a consequence of a borrower ‘s failure to execute harmonizing to the footings and conditions of the recognition or loan understanding. ( Duffie and Singleton, 2003 ) argue that Credit hazard is the hazard of default or of decreases in market value caused by alterations in the recognition quality of issuers or counterparties.

The issue of recognition hazard in banking industry is the greater concern because of their concern activities coming from features of clients and concern conditions that change to the marcroeconomic. Banks play a major function in all the economic and fiscal activities in society. All trade and commercialism would decelerate down severely if the Bankss were non at that place to manage their fiscal transactions.The Bankss provide fiscal resource to large industries and advance these activities. Howerver, The graduated table of losingss in the recognition crisis is unsafe. Recently, it has seen dramatic losingss in the banking industry. The International Monetary Fund ( IMF ) has estimated that entire losingss on US assets in 2007 exceed $ 4,000 billion ( Jorion, 2009 ) . The recognition market crisis of 2008 has profoundly affected the economic lives of every American. Yet, its implicit in causes and its surface characteristics are so complex that many perceivers and even policymakers hardly understand them. This timely book will assist steer nonspecialists through the workings of fiscal markets, peculiarly how they value, monetary value, and distribute hazard, ( William Greene from the Stern School of Business, New York University ) . Following the eruption of the Asiatic crisis, recognition criterions were tightened and lending growing curtailed. Banks in states like United State, France, England imposed tight recognition control while they work though their porfolios of bad loans. ( Santomero, 1997 ) investigates that the hazards contained in the bank ‘s chief activities, i.e. , those affecting its ain balance sheet and its basic concern of loaning and adoption ( imparting scheme, loaning process, human resources ) are non all borne by the bank itself.

The major net income to Bankss were brougnt from loans imparting activities, this determination was showed in the research of ( Kemper 1980 ) : “ Borrowing is a popular interest and everyone wants to make more of it, including the authorities ” . But this activity involves immense hazards to both the loaner and the borrower, loans are frequently the primary beginning of recognition hazard. This recognition creative activity procedure exposes the Bankss to high default hazard which might take to fiscal hurt including bankruptcy. Beside other services, Bankss must make recognition for their clients to do some money, grow and survive stiff competition at the market topographic point. ( Koch and MacDonald, 2000 ) province in item that loan constitute a big proportion of the assets in most Bankss ‘ portfolios are comparatively illiquid and exhibit the highest Chromium, therefore Risk direction in banking is non a new phenomenon ( Schroeck, 2002 ) . The effectual direction of hazard is important to any fiscal establishment ‘s performance.Borrowers assessment is complex procesdure. That depends on the public and private information and the loaner ‘s assessement.

In the instance of HABUBANK in Vietnam, the information system is asymmetric and dependable that is similar to other states. Bank need to establist a effectual Credit direction that ensures refund of loans by borrowers is critical in covering with asymmetric information jobs and in cut downing the degree of loan losingss, therefore the long-run success of any banking organisation ( Basel, 1999 ; IAIS, 2003 ) . Besides, The other survey conducted by ( Bao Toan Tran 2008 ) shows that SMEs besides had trouble to borrow from Bankss is a deficiency of recognition information on most possible clients and a hazard averse loaning civilization. That leads to the desire to distribute the hazard every bit widely as possible. The latter is dry sing that most Vietnamese Bankss concentrate their loaning on a few big corporate clients.

The other intent of the present paper is to sketch the findings of model and relationships between quality of hazard and loan quality outside Vietnam en general and in Vietnam in peculiar. The writer takes the HABUBANK instance to demo the advantage and disadvantages of The direction of CR in banking industry in Vietnam. This usually follows the procedure of hazard designation, measuring, appraisal, monitoring and control. It involves designation of possible hazard factors, estimate their effects, proctor activities exposed to the identified hazard factors and put in topographic point control measures to forestall or extenuate the unwanted effects. From this procedure, the research suggests the manner of set uping an appropriate loan ‘s appraisal. That is the chief point of this survey to demo the relationship between recognition quality and loan quality. Finally, this paper recommends some solution to work out the issue of retrieving loanable sum based on the studied recognition direction process. That meants the writer recommends a recognition direction procedure is non avoiding bad loans, but doing good 1s. Thank to that to offer a recognition direction procedure in general and forcus on the loan ‘s appraisement that include appraisal of borrower througn borrower repute, borrower loan intent, borrower history and borrower life style. On the other manus, collateral, loan syndication and recognition rationing have been used in commanding recognition losingss. These tools is done by Dokko, Edelstein and Urdang ( 1990 ) . A closely related work was besides done in “ Collateral, loan quality and bank hazard, ” by Berger, Allen N. and Udell, Gregory F. , 1990. Therefore, the writer has non ambition to supply proved schemes for successful recognition analysis, recognition direction but extenuation bad loans.

The appraisal of loan and recognition hazard can be performed utilizing qualitative every bit good as quantitative theoretical accounts. Harmonizing to ( Aaron Brown, 2004 ) : Recognition hazard has been around for more than a millenary. Good qualitative recognition evaluations have been around for a century. Serious quantitative recognition hazard estimations have a 40-year history. Quantitative advancement was slowed by confusion within the profession, but regulators, evaluations bureaus, practicians and faculty members have been working together for at least the last five old ages. Consequently, for the first clip in history, it seems likely that the job of recognition hazard can be solved. This survey urge the recognition hazard assessement moded combined qualitative every bit good as quantitative theoretical accounts to give the principal of recognition direction. This theoretical account bases on the recognition evaluation that is performed through the usage of fiscal statement, borrowers appraisement, concern environment and so on. ( Margrabe, 2007 ) states the net incomes at hazard ( EAR ) and value at hazard ( VAR )


A A With a instance of HABUBANK, This survey will be a important enterprise in understanding the importance of measuring hazard management.A This survey will be helpful to direction practicians for this will be a usher for them when they employ effectual recognition hazard direction attack to the organisation. By analyzing the hazards and other factors involved in recognition hazard direction practicians that will be able to plan steps to understate the risks..

As such, the completion of this thesis will supply apprehension of the constructs presented so as to bring forth informations and information that every Manager could utilize in order to come up with schemes, programs and designs that will be a important enterprise in advancing effectual recognition hazard methods to the Vietnamese Bankss and particularly in HABUBANK

4. Methodology

For this thesis, descriptive research method will be utilised. The research described in this papers is based on qualitative research methods. The qualitative research is multi-method in focal point, affecting an interpretive attack to its capable affair. The intent of using this method is to depict the nature of a state of affairs, as it exists at the clip of the survey and to research the causes of peculiar phenomena. The research worker opted to utilize this sort of research sing the desire of the research worker to obtain first manus informations from the respondents so as to explicate rational and sound decisions and recommendations for the survey.

For this research design, Primary and secondary research will be integrated. The ground for this is to be able to supply equal treatment for the readers that will assist them understand more about the issue and the different variables that involve with it. In the primary research, Department directors in banking industry will be surveyed. A structured questionnaire will be developed and it will be used as the study tool for the survey. On the other manus, beginnings in secondary research will include old research studies, newspaper, magazine and journal content. Existing findings on diaries and bing cognition on books will be used as secondary research and makes a content analysis of the gathered docudrama and verbal stuff. Afterwards, the research worker will summarize all the information. The writter has trouble in salvaging clip for the meetings. The solution for that is directing electronic mail or phone call to take the information.


To turn to the research inquiries and achieve the intent of this survey:

1. The participants will be from the Department Manager and client in HABUBANK and other Banks

2. The research will interview and do a study 30 Credit Department Manager, 20 relevant Credit Department Manager and 50 client in HABUBANK to place countries of concern, belief, or attitudes sing the current recognition hazard direction along with narrative interview informations obtained from Department director.

The topographic point to do study and interview: interior and outside HABUBANK

3. Appropriate tabular arraies, charts, and figures will be included in the concluding study


Confidentiality of participants in the survey will be purely obeyed. All participants will reexamine these guidelines with the research worker before continuing with the survey.

All research criterions and guidelines required by Leedsmet University will followe and all requested signifiers must be completed, signed, and returned by the specified deadlines.

7. TIME Scale



Deadline ( 2010 )


Final bill of exchange proposal

10 Red planets


Gathering grounds or informations

30 May


Continue outlining and refinement


Theoretical underpinnings

30 June



30 July


Datas analysis

15 July



20 July



25 July


Apply self-evaluation checklist once more

30 July


Produce concluding assignment

10 August