NECESSITY OF THE THESIS
Risk management is a critical concern for managers in the banking industry, as risks pose significant threats to the existence of commercial banks and have broader economic implications Effective risk management is essential for ensuring security and minimizing risks in banking operations In Vietnam, risk management in commercial banks is still in its nascent stages compared to countries with well-established financial markets Additionally, Vietnamese banks face challenges such as a limited range of financial products and services, small operational scales, and inadequate business capital The focus remains primarily on the domestic market, compounded by weaknesses in financial management and a lack of transparency in the financial system My experiences in the banking sector have driven me to explore the topic of "Risk Management in Trading in Commercial Banks of Vietnam."
OBJECTIVE OF THE RESEARCH
- Research the issues about risks which banks have to face with including discovery, measure and the overcome methods
- Research the risk expression in professional competences of commercial bank such as: credit operations, capital management, and international bank services in bank
This article examines the impact of customer payment timelines, interest rate fluctuations, and foreign exchange variations on banks' direct income It also identifies the limitations of risk management tools utilized by banks, particularly commercial banks, in addressing these challenges.
Banks worldwide face significant challenges in risk management, necessitating the implementation of innovative solutions and collaborative groups to enhance their processes By integrating new preventive professional competencies into practical banking conditions, institutions can effectively mitigate risks and improve overall performance This strategic approach not only addresses current challenges but also prepares banks for future uncertainties in the financial landscape.
Researching risk management in commercial banking is a crucial topic This thesis focuses on the primary risks associated with capital trading in commercial banks and examines the interrelationships among these risks to propose effective preventive solutions.
Thesis is used methodology of dialectic materialism, logic reason combination materialistic history, methods in raising the issues, interpretation, analysis and giving the conclusion
Thesis is also used statistic, formula illustration, interpreting the issues means
- Systematize the views about risks, the relationship among risks affect to the operations in commercial banks
- Analysis to seek the reasons, appreciate the status quo to conduct the preventing risk methods and apply for the commercial banks
Topic: “Risk management in commercial banks of Vietnam ”
Chapter 2: METHODOLOGY, RESEARCH PARADIGMS, ANALYSIS Chapter 3: RECOMMENDATIONS AND CONCLUSION
CHAPTER 1 LITERATURE REVIEW 1.1 Commercial bank and the main risks in bank operations
1.1.1 Commercial Bank and the main risks
America: Commercial Bank is a business company specialized in providing financial services and operating in financial service industry
France's Commercial Bank is a financial institution that regularly accepts deposits from individuals, providing them with professional expertise in credit and financial services for their unused funds.
India: Commercial Bank is a place to receive the deposit to loan or sponsor and invest
Vietnam's Commercial Bank is a key financial institution that specializes in currency trading, actively accepting customer deposits It is responsible for safeguarding these funds and utilizing them for loans, discount operations, and facilitating payment methods.
Banks engage in a dual asset rotation function, where they simultaneously mobilize capital through the issuance of deposit certificates and invest by providing credit and making stock investments.
Table 1.1 Balance sheet assets of Bank (simple)
The intermediary payment function serves to facilitate transactions on behalf of customers by issuing and balancing cheques, providing access to e-payment networks, and connecting funds with physical cash This service ensures a commitment to refund customers while effectively managing and protecting their assets, as well as handling the issuance or redemption of stocks.
- Function makes “book value” in economy
- Intermediary function in conduct the country economic policy 1.1.1.3 Main professional competences
- Debit operations (mobilizing capital): Commercial Bank conducted its operations throughout not only using its capital but also mobilizing capital from the customers
- Credit operations (business loan) currently, this is still the basic operation of Commercial Bank
- Intermediary/broker operations (payment, dealer, consultative, protection documentary, valuable assets,…)
Trading principles of Commercial Bank
Banks prioritize customer benefits by offering a range of financial services while employing safe trading practices They maintain fixed capital, demonstrate resilience against market fluctuations, and carefully select customers to limit credit exposure Additionally, banks focus on performance control and asset diversification to mitigate risks Furthermore, they leverage forward deposit markets and options markets to enhance their financial strategies.
Banking operations are among the most risk-laden sectors in economics, making it challenging to accurately define risk in trading environments and across various economic and societal phases Essentially, banking risk refers to unforeseen events that result in losses and damage to a bank's assets and income during its operations.
Credit risk refers to the potential losses banks face due to irrecoverable debts that remain unpaid by the due date This type of risk extends beyond just business loans; it also encompasses various credit-related activities, including guarantees, trade sponsorships, and inter-bank lending operations.
Unusable capital risk arises from the challenges associated with the transformation of forward capital and bank capital utilization Typically, forward capital has a longer utilization period compared to bank capital sources As a result, banks face two significant difficulties: they struggle to meet their short-term commitments while also managing the constraints of shorter-term forward capital sources, which are still tied to fixed-time usage.
Interest rate risk is a significant concern for banks as they manage their assets, including purchasing primary stocks, providing loans, and issuing secondary stocks This risk arises from the mismatch in timing and conversion between debit and credit assets When the interest rate sensitivity of a bank's debit assets exceeds that of its credit assets, an increase in interest rates can lead to a decline in net interest income, ultimately reducing the bank's overall income Conversely, if interest rates decrease, the bank's financial situation improves.
Bank products typically feature two types of interest rates: fixed and variable Consequently, the assessment and management of interest rate risk also fall into two categories: fixed interest rate risk and variable interest rate risk.
Interest rate risk arises when the interest rates of credit assets and debit assets do not adjust simultaneously, leading to potential discrepancies in response to fluctuating market interest rates.
Fixed interest rate risk affects both Debit and Credit assets simultaneously In the first scenario, when the fixed interest rate on Debit assets exceeds that of Credit assets, banks benefit significantly as market interest rates rise but face risks if market rates decline Conversely, in the second scenario, if the fixed interest rate on Credit assets is higher than that on Debit assets, the opposite occurs, exposing banks to potential gains when market rates fall and losses when they rise.