The impact of creadit risk management on the financial results of commercial bank in Vietnam, 2021

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY AT HO CHI MINH CITY

---------------------

HOANG THUY LINH

THE IMPACT OF CREDIT RISK

MANAGEMENT ON THE FINANCIAL

RESULTS OF COMMERCIAL BANK

IN VIETNAM

THESIS PROPOSAL

FINANCE AND BANKING

CODE: 7340201

ADIVISOR by NGUYEN DUY LINH, PhD

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY AT HO CHI MINH CITY

---------------------

HOANG THUY LINH

THE IMPACT OF CREDIT RISK

MANAGEMENT ON THE FINANCIAL

RESULTS OF COMMERCIAL BANK

IN VIETNAM

THESIS PROPOSAL

FINANCE AND BANKING

CODE: 7340201

ADIVISOR by NGUYEN DUY LINH, PhD

THE IMPACT OF CREDIT RISK MANAGEMENT ON THE FINANCIAL

RESULTS OF COMMERCIAL BANK IN VIETNAM

APPROVED BY: Advisor

Nguyen Duy Linh, PhD

APPROVED BY: Committee

THESIS COMMITTEE

DECLARATION

I indicate that the thesis "The impact of creadit risk management on the

financial results of commercial bank in Vietnam" is the result of my independent

studies. Except for the references to other research works mentioned in the thesis,

the thesis conclusions are genuine and have never been published in any other

research work.

ACKNOWLEDGE

This thesis is the author's own work, the research findings are accurate, so

there is no previously published material or content created by others in the thesis

except for the mentioned references.

During my thesis period, I received a lot of support and encouragement from

the lot of people. Without their valuable feedback, support, counsel, and advice, this

thesis would not have been completed.

First and foremost, I would like to express my appreciation to my advisor –

PhD Nguyen Duy Linh – Lecturer at Banking University of Ho Chi Minh City , for

his sincere and unreserved support, valuable guidance, and recommendation.

Thanks for his efforts and extensive knowledge to make my research a reality; his

suggestions, guidance, and advice are always admired and greatly contribute to the

thesis' success. I would also like to express my gratitude to the professors and

lecturers at the University of Banking for their support during my studies. The

experience and skills that I've gained have benefited me in completing this thesis.

Last but not least, my family has been the most supportive. Words fail me

whenever it comes to expressing my gratitude for my parents' unending affection.

To all of the above, as well as so many others, I simply want to convey my

gratefulness for all of your encouragement, support, and love.

ABSTRACT

In the current economic climate, one of the key factors determining the

existence and growth of commercial banks in Vietnam is the ability to manage

risks, especially credit risks, in a comprehensive and systematic manner. Credit risk

is often difficult to manage, resulting in capital and income losses for the bank.

While credit risk prevention and limitation is a difficult and complicated problem, if

done correctly, it can benefit the bank in a number of ways, including cost savings,

increased income, capital maintenance concept for commercial banks, increased

consumer and investor trust, money to grow the market, and improved credibility,

position, brand, and profit margins. The purpose of this thesis is to contribute to the

improvement of risk management efficiency and, as a result, the financial results of

commercial banks in Vietnam.

After reviewing previous research, the author decided to use STATA 14.0

software to estimate the effect of risk management variables such as Non￾Performing Loan (NPL), Capital Adequacy Ratio (CAR), Bank Size (SIZE), Loan￾to-Deposit Ratio (LD), Cost-to-Income Ratio (CI), Gross Domestic Product (GDP)

and Inflation rate (INF) on financial performance factors such as Return On Asset

(ROA) and Return On Equity (ROE).

The results of previous empirical studies show that an increase in credit risk

variables such as Non-performing loan and Cost-to-income have a negative effect

on the financial performance of commercial banks. On the other hand, the increase

of Capital Adequacy Ratio, Bank size and Loan-to-deposit Ratio have a positive

impact on the financial results of commercial banks in Vietnam. In addition, the

research results show that social variables such as Gross Domestic Product and

Inflation Rate have an impact on financial results of commercial banks in Vietnam.

CONTENTS

LIST OF CHART.......................................................................................................... i

LIST OF TABLE........................................................................................................... i

LIST OF PICTURE...................................................................................................... i

LIST OF SPORTENED WORDS ..............................................................................ii

CHAPTER 1: OVERVIEW OF THESIS .................................................................. 1

1.1. Introduction ......................................................................................................... 1

1.1.1. Research background ............................................................................1

1.1.2. Research issue and the urgency of the topic.........................................2

1.2. Aim of study and research questions................................................................. 4

1.2.1. Aim of study............................................................................................4

1.2.2. Research question ..................................................................................5

1.3. Object and scope of the study............................................................................. 5

1.3.1. Object of study........................................................................................5

1.3.2. Scope of study.........................................................................................5

1.4. Research method ................................................................................................. 5

1.5. Meaning of topic .................................................................................................. 6

1.5.1. Theoretically...........................................................................................6

1.5.2. In term of method...................................................................................6

1.6. Proposed thesis structure.................................................................................... 7

CONCLUSION CHAPTER 1 ...........................................................................9

CHAPTER 2: THEORETICAL BASIS OF THE IMPACT OF CREADIT

RISK MANAGEMENT ON THE FINANCIAL RESULTS OF

COMMERCIAL BANK IN VIETNAM .................................................................. 10

2.1. Credit risk management ................................................................................... 10

2.1.1. Theoretical basis for credit risk and credit risk management...........10

2.1.2. Measurements represent credit risk management..............................12

2.2. Theoretical basis of financial results of commercial banks........................... 16

2.2.1. Definition of financial result...............................................................16

2.2.2. Theoretical basis of macro factors affecting the financial results of

commercial banks........................................................................................................ 17

2.2.3. Theoretical basis of financial performance of commercial banks.............. 17

CONCLUSION CHAPTER 2 .........................................................................20

CHAPTER 3: DATA AND METHODOLOGY...................................................... 21

3.1. Research data..................................................................................................... 21

3.1.1. Research process..................................................................................21

3.1.2. Research sample...................................................................................22

3.2. Research model and hypothesis ....................................................................... 23

3.2.1. Research model ....................................................................................23

3.2.2. Description of variables and research hypotheses used in the model ......... 24

3.3. Analysis of descriptive statistics and Correlation .......................................... 26

CONCLUSION CHAPTER 3 ................................................................................... 34

CHAPTER 4: METHODS SELECTION RESULTS FOR THESIS MODEL.... 35

4.1. Result of method selection of model 1 ............................................................. 35

4.2. Result of method selection of model 2 ............................................................. 36

CONCLUSION CHAPTER 4 ................................................................................... 37

CHAPTER 5: THE RESULTS ON THE IMPACT OF CREADIT RISK

MANAGEMENT ON THE FINANCIAL RESULTS OF COMMERCIAL

BANK IN VIETNAM ................................................................................................ 38

5.1. Regression results (Model 1) .............................................................................. 38

5.2. Regression results (Model 2) ............................................................................ 40

CONCLUSION CHAPTER 5 ................................................................................... 43

CHAPTER 6: CONCLUSION AND SOLUTION TO INCREASE THE

FINANCIAL RESULTS OF COMMERCIAL BANKS IN VIETNAM .............. 44

6.1. Conclusions ........................................................................................................ 44

6.2. Solutions to increase financial results of commercial banks in Vietnam..... 44

6.2.1. Group of suggestions to improve financial results.............................44

6.2.2. Group of recommendations to manage credit risk .............................46

6.3. Limitations of the topic and the next research direction............................... 47

CONCLUSION........................................................................................................... 48

REFERENCE ............................................................................................................. 49

APPENDIX ................................................................................................................. 57