Policy Recommendations for Improving Credit Risk Management: A Case Study of Commercial Banks in Vietnam
Keywords:
Policy recommendation; credit risk; risk management; commercial banksAbstract
Background: Credit risk management is essential in ensuring the safety of banks' credit activities and contributing to minimising risks in banking operations. It involves identifying and analysing risk factors, measuring risk levels, and choosing to deploy measures and manage credit activities to limit risk.
Objective: The study evaluates critical factors affecting credit risk management at commercial banks in Vietnam. On that basis, the author proposes policy implications that contribute to improving credit risk management.
Methodology: The researcher used a quantitative method and surveyed 700 credit officers in 20 commercial banks. The questionnaire served as the instrument for data collection. The data were processed by testing Cronbach's alpha, exploratory factor analysis, confirmatory factor analysis, and structure equation model with the support of SPSS 20.0 software.
Result: Research shows that five factors: (1) credit policy, (2) macro environment, (3) credit information, (4) credit process, and (5) digital technology are essential for effective credit risk management. Therefore, evaluating and measuring credit risk management is necessary for banks' survival and development.
Conclusion: Credit risk management is crucial to the bank's governance, operations, and development. Effective risk management minimises credit risk - an essential activity in Vietnamese commercial banks.
Unique Contribution: This study could benefit both theory and practice in credit risk management in commercial banks. This information could be useful for banks in their efforts to ensure profits and enhance their reputation and operational capacity.
Key Recommendation: From the above results, the researcher proposes five policy recommendations to improve the quality of credit risk management at commercial banks in the context of development and integration.
References
Abdelaziz, H., Rim, B., & Helmi, H. (2022). The interactional relationships between credit risk, liquidity risk, and bank profitability in MENA region. Global Business Review, 23(3), 561-583. https://doi.org/10.1177/0972150919879304.
Abdulla, H., & Elshandidy, T. (2023). Do governance factors affect the effectiveness of risk management disclosure in UAE banks?. Cogent Business & Management, 10(2), 1-28. https://doi.org/10.1080/23311975.2023.2238394.
Abu Hussain, H., & Al-Ajmi, J. (2012). Risk management practices of conventional and Islamic banks in Bahrain. Journal of Risk Finance, 13(3), 215-239. https://doi.org/10.1108/15265941211229244.
Antunes, J., Hadi-Vencheh, A., Jamshidi, A., Tan, Y., & Wanke, P. (2021). Bank efficiency estimation in China: DEA-RENNA approach. Annals of Operations Research, 5(1), 1-19. https://doi.org/10.1007/s10479-021-04111-2.
Asllanaj, R. (2018). Does credit risk management affect the financial performance of commercial banks in Kosovo?. International Journal of Finance & Banking Studies, 7(2), 49-57. https://doi.org/10.20525/ijfbs.v7i2.902.
Bussmann, N., Giudici, P., Marinelli, D., & Papenbrock, J. (2020). Explainable AI in Fintech risk management. Frontiers in Artificial Intelligence, 3(26), 1-5. https://doi.org/10.3389/frai.2020.00026
Colesnic, O., Kounetas, K., & Michael, P. (2020). Estimating risk efficiency in Middle East banks before and after the crisis: A met frontier framework. Global Finance Journal, 46, 100484. https://doi.org/10.1016/j.gfj.2019.100484.
Elamer, A. A., Ntim, C. G., & Abdou, H. A. (2020). Islamic governance, national governance, and bank risk management and disclosure in MENA countries. Business & Society, 59(5), 914-955. https://doi.org/10.1177/0007650317746108.
Facchinetti, S., Giudici, P., & Osmetti, S. (2020). Cyber risk measurement with ordinal data. Statistical methods and applications, 29(1), 173-185. https://doi.org/10.1007/s10260-019-00470-0.
Ferreira, C. (2021). The efficiency of european banks in the aftermath of the financial crisis: a panel stochastic frontier approach. Journal of Economic Integration, 36(1), 103-124. https://doi.org/10.11130/jei.2021.36.1.103.
Gaganis, C., Galariotis, E., Pasiouras, F., & Staikouras, C. (2021). Macroprudential regulations and bank profit efficiency: International evidence. Journal of Regulatory Economics, 59(2), 136-160. https://doi.org/10.1007/s11149-021-09424-5.
Giudici, P., Hadji-Misheva, B., & Spelta, A. (2020). Network based credit risk models. Quality Engineering, 32(2), 199-211. https://doi.org/10.1080/08982112.2019.1655159.
Grassa, R., Moumen, N., & Hussainey, K. (2021). What drives risk disclosure in Islamic and conventional banks? An international comparison. International Journal of Finance & Economics, 26(4), 6338-6361. https://doi.org/10.1002/ijfe.2122.
Hair, J., Anderson, R., Tatham, R., & Black, W. (2018). Multivariate data analysis. US: Prentice-Hall: Upper Saddle River, NJ, USA.
Hassan, M. K., Khan, A., & Paltrinieri, A. (2019). Liquidity risk, credit risk and stability in Islamic and conventional banks. Research in International Business and Finance, 48, 17-31. https://doi.org/10.1016/j.ribaf.2018.10.006.
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115-135. https://doi.org/10.1007/s11747-014-0403-8.
Henseler, J., Ringle, C. M., & Sarstedt, M. (2016). Testing measurement invariance of composites using partial least squares. International Marketing Review, 4(1), 23-34. https://doi.org/10.1108/IMR-09-2014-0304.
Hu, S., & Zhang, Y. (2021). Covid-19 pandemic and firm performance: Cross-country evidence. International Review of Economics & Finance, 74, 365-372. https://doi.org/10.1016/j.iref.2021.03.016.
Khalid, S., & Amjad, S. (2012). Risk management practices in Islamic banks of Pakistan. Journal of Risk Finance, 13(2), 148-159. https://doi.org/10.1108/15265941211203198.
Kozarevic, E., Nuhanovic, S., & Nurikic, M. B. (2013). Comparative analysis of risk management in Conventional and Islamic Banks: the case of Bosnia and Herzegovina. International Business Research, 6(5), 180-193. https://doi.org/10.5539/ibr.v6n5p180.
Masood, O., Al Suwaidi, H., & Darshini Pun Thapa, P. (2012). Credit risk management: A case differentiated Islamic and non-Islamic banks in UAE. Qualitative Research in Financial Markets, 4(2/3), 197-205. https://doi.org/10.1108/17554171211252529.
Rehman, Z. U., Muhammad, N., Sarwar, B., & Raz, M. A. (2019). Impact of risk management strategies on the credit risk faced by commercial banks of Balochistan. Financial Innovation, 5(1), 44-54. https://doi.org/10.1186/s40854-019-0159-8.
Rwayitare, J. B., Shukla, J., & Ruhara, C. (2016). Credit risk and commercial bank profitability in Rwanda. International Journal of Advanced Research, 4(9), 294-325. https://doi.org/10.21474/IJAR01/1482.
Shafique, O., Hussain, N., & Hassan, M. T. (2013). Differences in the risk management practices of Islamic versus conventional financial institutions in Pakistan: An empirical study. The Journal of Risk Finance, 14(2), 179-196. https://doi.org/10.1108/15265941311301206.
Williams, R., Bertsch, B., Dale, B., Van Der Wiele, T., Van Iwaarden, J., Smith, M., & Visser, R. (2006). Quality and risk management: what are the key issues? The TQM Magazine, 18(1), 67-86. https://doi.org/10.1108/09544780610637703
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Phan Thi Linh
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
