GROUP ASSIGNMENT

BANK OPERATIONS

BMBO5103

LECTURER: DR. VINH VO

STUDENTS:
1. BUI MAI NGUYEN ANH CGS00016225
2. PHAN PHU CUONG CGS00016245

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I. Introduction about Military Bank (MBB)

1. General information
Full name
: Military Commercial Joint Stock Bank
Chartered capital
: 11.256.250.000.000 VND
Chairman
: Mr. Le Huu Duc
Stock code
: MBB
Listing date
: 01/11/2011
Shares outstanding
: 1.125.625.000
Share price
: 13.500 VND
P/E
: 6,0
Beta
: 1,0
Tax code
: 0100283873
Establishment License
: 0054/NH-GP (09/14/1994)
Business license
: 0100283873 (01/31/2013)
Main business scope
: Payment deposit saving, Valuable bills negotiating, Loans
for consumption, family economy development, export bills negotiating; Foreign
exchange; Financial advisory
2. Organizational Structure (2011 2015)

(Source: MBB, 2013)

3. Establishment and Development history
With the idea of developing a corporate financial institution and a military enterprise to a
Commercial Joint stock Bank, after an active preparation period of 18 months, on 04 November
1994, MBB started its official operation with head office at 28 Dien Bien Phu, Hanoi, with a
charter capital of VND 20 billion and 25 employees.
In 1994, MBB was established with the initial charter capital of Vnd20 billion and the purpose
of providing financial support to military enterprises. Since 2000, MBB developed strongly
beyond the scope of a bank and step by step, became a group starting with the establishment of 2
member entities which are Thang Long securities Co., Ltd, currently known as MBB securities
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Joint stock Company (MBS) and MBB assets Management Company (MBAMC) to diversify its
range of services towards a multitask and modern financial institution.
In 2003, after 8 years of effective operation, MBB decided to reorganize itself to develop in a
faster, stronger and more sustainable manner under the MBB reorganization project. Accordingly,
MBB worked with a foreign consulting company to develop the 2004-2008 strategy with a vision
towards 2015. In the following year, MBB became the first commercial joint stock bank to offer
its shares via public bidding with total par value of VND 20 billion. After that, MBB entered into
a three-party agreement with Vietcombank and Viettel group with respect to payment of
telecommunication fees for Viettel and a cooperative agreement with Citibank in 2005. This
strategic cooperation helps MBB access to a wider range of customers and deliver faster services,
in the meantime set a foundation for MBB to develop high- tech products and services, and also
access to a wider range of banking management solutions.
In 2006, MBB continued its business expansion with the establishment of Hanoi fund
Management Company (HFM), which is currently MBB Capital Management Joint stock
Company (MBB Capital). MBB successfully implemented the project of information and
technology modernization Core Banking T24 of Temenos group (Switzerland). Two years later,
MBB started the process of organizational restructuring, improving and implementing the
personnel strategy under the organizational model of the period 2008-2012. Viettel group became
a strategic shareholder and MBB increased its share capital to VND 3,400 billion. MBB was the
first commercial bank to complete and apply the internal credit rating system.
In 2009, MBB completed the increase of its chartered capital to VND 5,300 billion. MBB was
awarded Labor Medal grade 3, and the ISO 9001:2008 Certificate from Bureau VERITAS
Certification (UK). The 247 Customer Center was launched. In 2010, Mr. Le Cong was appointed
as the new CEO. He signed and implemented the project on consultation and development of
2011-2015 strategies with visions towards 2020 with McKinsey. The first branch located in a
foreign country was launched in Laos. MBB was assessed and rated E+ by Moodys, a worldwide
credit rating organization. MBB achieved initial successes in the implementation of the
development strategy in the southern region and invested in construction of the database center
and the provision center with the total investment capital of USD 10 million.
During the year 2011, MBB successfully appointed the new Chairman and transferred its
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administration and military function to be under the Ministry of national defense and its Party
Committee to be directly under the Central Military Commission. Additionally, MBs shares have
been successfully listed on Ho Chi Minh City Stock Exchange HSX since 1 November 2011. in
2011, another success of MBB is launching its second international branch in PhnomPenh
Cambodia after a fruitful year of its first international branch in Laos. MBB implemented its
strategic model for 2011-2015, as well as its business model and deployed strategies for the
southern region, the Central Region and the Central Highland. MBB successfully upgraded Core
T24 from R5 to R10.
In 2012, MBB successfully shifted its organizational model following the development
strategy for 2010-2015. With pre- tax profit of VND 3,090 billion, MBB was a leader in
commercial banking sector (excluding banks with a dominant stake held by the state) in terms of
roe and secured its strong position among the top 5 largest commercial banks in Vietnam. In
particular, regarding operation scale, MBB is also enjoying an industry-leading position in
Vietnam considering indicators from labor productivity, return on equity to capital mobilization
growth, credit growth, profit, etc
In 2013, MBB continued to recognize its remarkable success in the banking and financial
market of Vietnam. the business targets were essentially achieved at high levels: total assets
reached over Vnd180,000 billion, profits reached VND 3,022 billion, the highest level among the
group of banks with no state-owned controlling shares, fund mobilization increased by 16%,
outstanding loans increased by 18% (1,5% times higher than the market average). Meantime,
non-performance loans were still controlled below the rate of 2.5% as planned. This was the year
when MBB received valuable prizes granted by the Communist Party, the state, the Ministry of
Defense, and local and international organizations.
II. Credit risks and Liquidity risks at commercial banks
1. Credit risk
Credit risk is the rst of all risks in terms of importance which refers to a risk of loss
arising from the inability of the bank's customer to meet their obligations and collateral not
securing the bank's receivables. The loss from the customers failure to comply with their
obligations to service debt is called default risk, a major source of loss in credit risk. Default
triggers a total or partial loss of any amount lent to the counterparty. Credit risk also includes
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country risks and settlement risks, the former representing a credit risk associated with
foreign receivables by country and the latter relating to the clearing and settlement process
involving the risk of losing a receivable being settled (Pohjola, 2014).
In banking portfolio, Credit risk plays a critical role because the default of a small number of
important customers can generate large losses, potentially leading to insolvency. There are various
default issues: delay in payment obligations; restructuring of debt obligations due to a major
deterioration of the credit standing of the borrower; bankruptcies. Simple delinquencies, or
payment delays, do not turn out as plain defaults, with a tough inability of lenders to face debt
obligations. Many are resolved within less than 3 months. Restructuring is very close to default
because it results from the view that the borrower will not face payment obligations unless its
funding structure changes. Plain defaults imply that the non-payment will be permanent.
Bankruptcies, possibly liquidation of the rm or merging with an acquiring rm, are possible
outcomes (Pohjola, 2014).
According to Pohjola (2014), there are some basic measures that can be used for measuring
and managing credit risks in commercial banks:
Firstly, setting clear and tough Credit risk policy. The risk policy and

guidelines define

principles governing the diversification and customer selection in respect of total exposure, as
well as the use of collateral and covenants, with a view of ensuring a suitably diversified loan
portfolio in order to avoid too much risk concentrations by country, customer sector, industry,
credit rating, group of connected clients or time period.
Secondly, setting Credit risk limits. The exposure limit is a maximum amount on customerspecific exposure and uncovered exposure and is annually confirmed for at least corporate and
institutional customers and credit institution. An exposure limit may also include restrictions in
terms of maturity or product.
Thirdly, establishing proper Credit process. The regular credit process plays an important role
in credit risk management. From the risk management perspective, its key stages include credit
standing assessment (credit rating), credit approval and execution, which are separate
processes.
2. Liquidity risk

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In finance, the term "liquidity" is used in many different ranges. From the perspective of assets,
liquidity is the ability to convert assets into cash easily and quickly with a reasonable cost. Under
the general business perspective, the amount of liquidity and cash equivalents owned enterprises.
However, this term is used when the angle of bank management would mean "the bank's ability to
seek and use the funds to meet the payment requirements, payment or credit to customers during
each period."
Liquidity at the time of determination can be assessed through indicators of the status of net
liquidity (NLP) or liquidity gap, based on the input (the total supply of liquidity) and output
(aggregate liquidation ) of the cash flows at that time.
Liquidity at the time of determination can be assessed through indicators of the status of net
liquidity (NLP) or liquidity gap, based on the input (the total supply of liquidity) and output
(aggregate liquidation ) of the cash flows at that time.
Supply is the amount of liquidity available or may have in the short term for bank use. This
cash flow to be created from the following sources:
-

Deposits from customers will receive.

Revenue from the provision of services.
The credit will be earned.
Asset sales are sales and use.
Borrowing from money market.
Issue of shares on the market.

In the supply of liquidity, cash flows earned from capital raising deposit accounts and large
volume supply of liquidity for the commercial bank.
Liquidity demand is the source of money that banks will have to spend in a short time. This
flow of money is made from the following sources:
-

Customer Deposits draw

Disbursement of credit contracts
Payment of loans and payment of interest
Buying back shares
The cost of providing the service and interest cost
Payment of dividends to shareholders

In the liquidity demand that Commercial Banks face on, the amount of money require to
disburse the large amount for the credit contracts accounted.
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Net liquidity status (NLP) is calculated by the following formula:

NLP = Liquidity Supply Liquidity Demand
Such a state is a net liquidity gap between aggregate supply and aggregate demand liquidity at
a time. At that point, if NLP> 0, i.e. the provision of excess liquidity to meet liquidity
requirements, the bank liquidity surplus or excess cash without interest; whereas if NLP <0,
liquidity demand exceeds supply liquidity, the banks liquidity deficit or shortage of cash to pay.
NLP = 0 case, the state bank liquidity balance, this is a perfect state, but very difficult to achieve
in practice the activities of banks. (Leonard M & Peter N 2006)
There are some reasons which the commercial banks face on with the liquidity risks such as:
-

Due to maturity of assets and liabilities with the asymmetry come from the metabolic
function of NH maturities: mobilizing deposits from the public for short-term loans to
long-term credit such as assets have maturities of longer debt maturities of the assets of the
cash-flow of assets disproportionate to the cash flow which needed to meet the payment

upon maturity of the debt assets, making it difficult for banks have to find the source offset.
Due to the financial assets are sensitive to fluctuations in interest rates. Interest rate
changes influence the psychology of depositors. The customer prefer high interest rates,
and also affect the decision of the creditors, who want low interest rates. In case, interest
rates rise, the customer will have to send the withdrawal demand on higher interest where
the debtor also drain the credit line with the agreed interest rates low and minimize new
loan to avoid pay more. When interest rates fall, the opposite reaction. In both cases,
fluctuations in interest rates affect both the lending and deposit flows, also affect to banks
liquidity. In addition, rising interest rates also increase the market value of financial assets

sold and rising borrowing costs in the currency market

The requirements for banks meet liquidity needs perfectly. If the commercial banks do not
meet the liquidity requirements, so banks will erode customer confidence, then put the
bank into a dangerous position financially. So, if the banks are able to work long-term and
sustainable development issues to ensure the liquidity of the banks which should be given
special priority.

Liquidity risk arises in the general MBB and mobilizing capital in the process of managing the
monetary status of the MB. Liquidity risk includes the risk of not having the ability to raise assets

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under the maturities and interest rates as well as appropriate risk due to the inability to liquidate
an asset with a price and within a reasonable time period. MBB using risk measurement
methodology in accordance with the scale of operation and the availability of information
systems, thereby meeting the requirements of risk mitigation. Liquidity risk is measured through
the use of indicators related to cash flow, ability to raise capital, liquidity, assets of MB. In
addition, MBB has the specialized department updates the information economy and foreign
direct impact to business books and MB's business strategy as well as forecasts of volatility factor
markets: exchange rates, interest rates, gold prices have had timely warning of risk. MBB also
develop and apply the quota system, each level of jurisdiction based on the measurement results
for each category of risk. (MBB Annual Report, 2012)
III. Credit risk management and Liquidity risk management at MBB
1. Credit risk management
1.1. Credit risk policies
In 2012, The Bank has maintained a policy of credit risk management to ensure the following
basic principles:
-

Set up an appropriate credit risk management environment;

Operate in a healthy process for granting credit facilities;
Maintain an appropriate management, measurement and monitoring credit process; and
Ensure adequate controls for credit risk.

The approval process for granting credit must go through several management levels to ensure
a credit facility is reviewed independently; together with the credit limit applied to each
competent level. In addition, the participation of Credit Council in the credit approval model also
helps to ensure a highest quality and concentrated approval process.
The Bank has used internal credit scoring system approved by the SBV as a management tool
of credit risk, under which each customer is classified at each level of risk. The classification can
be amended and updated regularly. Data and results of customers credit scoring on the system are
controlled and centralized at the Head Office. This is the basis for granting, providing services to
customers as well as providing provision for credit losses as regulated.
With the objective of best credit risk management, in 2013, MBB concurrently developed a
foundation and focused on its action plans to mitigate credit risks in the context of a difficult
market. orientations set for credit risk management in 2013 at MBB are: to be proactive in risk
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forecast and prevention; to develop a sound and appropriate process of granting and approving
credits; to establish strong measurement, administration and supervision tools for credit risks; to
specialize and modernize non-performance loan collection and management activities. As a result,
MBB has succeeded in ensuring good credit growth (of 16.2%) and also good control of nonperformance loans (with a non-performance loan ratio controlled at less than 2.5%).
In addition to focus on debt portfolio management and non-performance loan settlement,
MBB has actively worked on developing a sound and scientific system of credit risk management
regulations and policies to meet the demand for business expansion and risk limitation. This has
helped speed up the processes of and ensures the quality of credit appraisal, loan management and
problem loan settlement, and limitation of arising credit risks.
The Bank has invested in developing risk control tools in accordance with advanced standards,
oriented to the Basel ii standards. MBs internal credit rating system started to be applied in 2008
with the consensus method; in 2012, the internal credit rating system was redesigned following
the statistic method and was initially applied for the individual customer and Micro SME
segments and is currently under research for application to other corporate segments. The loan
origination and credit rating sys- tem for individual customers (CRA) was completed and put into
operation, which has doubled the appraisal capacity and shortened the lead time for loan decisionmaking. Specially, MBB has introduced and piloted some loan products for individual customers
with automatic appraisal and approval, which is a channel to expand and develop customers on an
on-line basis in the future. In addition, MBB is conducting research for introduction of an early
warning system for credit activities.
1.2. Credit procedure of MBB
a. Stage 1: Prepare loan applications.
Loan applications are the basis of establishing credit relationships. Depending on the customer,
type of loan, credit scale that borrowers provide appropriate information. Loan documents
basically need the following information: documents proving legal capacity, financial capacity
and repayment documents related to collateral assets, the proposal for a loan.
b. Stage 2: Analysis of credit
This is an important step to determine the ability of current and future the customer in their
using and repaying the loans. The analysis also seeks situations lead to credit risks for banks, the
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ability to predict recovery, expected term measures to mitigate the risks.

c. Stage 3: The credit decisions
After analysis, research and evaluation, MBB will decide to accept or refuse to lend to loan
applications from customers.
d. Stage 4: Disbursement.
Once you have decided to provide loans, the Bank will carry out to release money for
customers based on the credit agreement signed between the customer and the Bank.
Disbursement, by the Bank, is often performed in cash or transferred to the account of their
customers or replace direct payments for units sold, units provide.
e. Stage 5: Credit and Collection Supervisor of principal, interest, problems arising handling.
After disbursement of the loans held for customer credit officer is responsible for checking the
use of the actual loan customers, the current status of collateral, the financial situation of the
customer ... to ensure ability to pay their debts.
When the customer has paid all debts to banks, credit officers in coordination with the
accounting department test, comparing the amount of repayment of principal, interest, fees ... to
finalize the loan. After finalizing the loan, the Bank liquidates the credit agreement, the
mortgaged collateral assets.
With the credit process, has helped MBB limit risk and improve operational efficiency credit.
Bank helps build organizational model, reasonable work, building relationships in the work of
each employee and each department, helps to determine the powers and responsibilities clearly.
Figure 2. Credit procedure of MB

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(Source: MBB Annual Report, 2013)

2. Liquidity risk management:
2.1 Liquidity risk policies in MBB
At MB, agencies and departments responsible for liquidity management include:
-

Risk Management Committee is responsible for assisting the Board to approve the general

policy of the bank risk management.

ALCO Committee was established with the main function is to provide the strategic
investment policy related to symmetry and asymmetry of the assets and liabilities of the
bank, and is assisting the department for the board value of the inspection and monitoring
overall risk management activities in particular liquidity and asset management - general
creditors.
- Risk Management Division at the Department whose main task is to assist the Director
General in proposing liquidity risk policies as well as interest rate risk, credit risk and
operational risk, only plans maintain business continuity plans to deal with unexpected
situations, setting limits, measure and report risks, construction and popular culture of risk

management throughout the enterprise.

Block funding is where MBB RRTK centralized administration. Block funding include

ALM, Sales and Product Development department.

ALM Department is proposing to study the structure of assets - liabilities in each period,
construction and deployment models RRTK measurement, research and development

proposed mechanism of internal capital purchase and the purchase price of capital.
The sales department directly under the block purchase capital funds, currency trading

market to make a profit and to meet the capital needs of the customer money.
Compliance with the provisions of SB related liquidity risks, MBB always focuses on strict
observance of the provisions of SB to ensure better security in general and banks in
particular liquidity. On reserve at the central bank, MBB always perform 100% reserve
requirement reserve requirement ratio is the central bank under the provisions in the period
in question, besides, also maintaining a reasonable amount of excess reserves and nature
reserve to pay interbank, also strictly comply with the regulations on the safety ratio of
activity of credit institutions and the central bank's minimum capital rules issued by CP
(until 30/06/2010, MBB implementing decisions 457/2005 / QD-SB, Circular 15/2009 /
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TT-SB and decree 141 / ND-CP, after 10/2010, NH implementing Circular 13/2010 / TTSB 19 amendments and circulars Circular 13).
2.2 MBs liquidity management
MBB also focus on liquidity risk management, capital ratio of short-term and medium-and
long-term loans in 2008 or before are very low. 2009 MBB boost lending interest rate subsidy
program of the government, however, still lower than the rate requested by the central bank at
30%. In 2010 this percentage dropped to 17.62%.
MBB implements risk management system liquidity at the Head Office through centralized
management of funds under the capital purchase internally. In this management mechanism, the
"loan-posts" which are replaced by "buy-sell" funds between branches and resources of the
Department Office, together with the activity, the liquidity risk is transferred to the Board head.
In the management of liquidity risk, the Head of the capital to buy the entire branch and sell
the funds needed for this branch, this work is done "reciprocal" in the center of the capital, the
epidemic transfer of cash flow are only nominal. So when it comes to payment for customer
deposits or loans disbursed, the branches just make "buy funds" means the Head of branch capital
balances at the reduced basis which branches do not care to find the funds to pay without selfliquidity risk management. Thus, liquidity risk is transferred to the Head Office, Block Funds at
the Department to track the purchases and sales of such capital calculations, identifying and
measuring liquidity risk systems and timely measures to meet liquidity when needed.
However, to minimize potential liquidity risk, the branch is constrained by a limited number
when making purchases with Head attest capital:
- Payment limit: The maximum amount for a transaction "buy funds".
- Net difference Limits: Maximum level echoes on account of internal capital transfer.
IV. Credit risk indicators of MBB
1. Indicators for assessing credit risk
The credit risk indicators highlight the use of non-performing loans ratios (NPLs) which are
the alternative of asset quality, and the allowance or provision to loan losses reserve. The Nonperforming loans, as defined in , are as follow:
-

Substandard loans (overdue 91-180 days)

Doubtful loans (overdue 181-360 days)
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Loss (overdue over 360 days)

The bank is regulated to back up the bad debts by providing adequate provisions to the loan
loss reserve account. The allowance for loan loss to total loans and the provision for loan loss to
total loans should also be taken into account to estimate thoroughly the quality of loan portfolio
(Uyen Dang, 2011).
In order to measure the Asset quality of a bank, those ratios below will be calculated:
1.1.

NPLs to total loans;

NPLs to total equity;
Credit loss provision ratio; and
Total investment to total assets ratio
NPLs to total loans/ total equity

This ratio describes the percentage of NPLs in total loans and total equity of a bank and its
trend throughout the chosen period. Monitoring the level and trend of NPLs is vital for identifying
potential problems in the collection of receivables and is at the same time indicative of
deterioration in the quality of the loan portfolio. Analysis of the level of NPLs in relation to the
allowances for impairment, regulatory reserves and capital provides insight into banking sector's
capacity to absorb losses resulting from NPLs (National Bank of Serbia, 2012). Normally, the
ratios should be as small as possible, which means that, in order to be evaluated as well-operated,
banks should keep the ratios at below 1%.
1.2.

Credit loss provision ratio

Provision for credit losses is an estimated amount to be lost and is treated as an expense on the
bank's financial statements. As the share of NPLs in total lending was significant, an additional
analysis must be carried out from the aspect of the banking sectors ability to provide sufficient
cover for such loans from reserves for estimated losses under balance sheet receivables. The
amount of provisions needed mostly depends on the loan not being repaid, the quality of the loan
collateral or bank regulation (National Central Bank, 2014). Normally, high ratio tells that the
quality of the credits of the bank is negative and debt recovery ability is low. Low ratio may
reflect improving quality of the loans or the loss provisions are not set properly.
1.3.
Total investment to total assets ratio
Total investment to total assets ratio compares liquid assets being held by an individual against
the total assets accumulated. Investments in stocks, mutual funds or other such investments,
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which can be converted to cash easily, are considered as liquid assets. Apart from these liquid
assets, total assets also include illiquid assets such as real estate or other such investments which
require more time to convert to cash. One should hold at least 20% of his/her total assets as liquid
assets.
2. Credit risk indicators of MBB
Table 1. NPLs-to-loans and NPLs-to-equity of MBB, 2009 - 2013
Ratio
NPLs to loans

2009

2010

2011

2012

1,61%

1,28%

1,62%

1,87%

2013
2,50%

NPLs to Equity

6,24%

6,29%

9,10%

10,14%

13,66%

(Source: analyzed by the Author)

Figure. Credit risk indicators of MBB, 2009 2013
100,000,000,000,000
90,000,000,000,000

85972766702807

80,000,000,000,000
73165823165254
70,000,000,000,000
57952296461413

60,000,000,000,000
50,000,000,000,000

48058250000000

40,000,000,000,000
30,000,000,000,000

29140759000000

20,000,000,000,000

15148181884054.
12863905823645.
8882349000000.9642143051767.
10,000,000,000,000
6888072000000.
2,146,074,736,980
1,371,638,409,651
467,742,000,000613,171,000,000937,382,811,308
0
2009
2010
2011
2012
2013
Non-performing loans

Total Loans

Total equity

(Source: analyzed by the Author)

The chart illustrates the amount of non-performing loans in comparison with total loans and
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total equity of MBB from 2009 to 2013 while the table tells how many percent that nonperforming loans account for in total assets and in total equity during the same period.
It is clearly that the loans of MB Bank grew well during the time, which was at 6.888,072
billion VND in 2009 then gradually increased and reached 15.148,182 billion VND in 2013.
Besides that, its non-performing loans did experience a upward trend from 2009 to 2013 yet still
held at an acceptable rate, which accounted for 1,28% - 2,50% of total loans and about 6,24% 13,66% of total equity. However, compared with the criteria ( 1%), those 2 ratios were still
higher and even had a trend of increasing throughout the time, which was not a good sign the
NPLs managing of MBB.
Figure 3. Total investment and total assets of MBB, 2009 2013
175609964065835.180381063610338.
138831492308446.
109623198000000.
69008288000000.
48,111,592,101,323
44,396,097,783,362
22,218,375,647,443
17,500,738,000,000
11,083,366,000,000
2009

2010

2011
Total invest ment

2012

2013

Total assets

(Source: analyzed by the Author)

Table 9. MBB investment-to-assets and credit loss provision ratio, 2009 - 2013
Ratio

2009

2010

2011

2012

2013

Total investment to total assets

16,06%

15,96%

16,00%

25,28%

26,67%

Credit loss provision ratio

1,36%

1,22%

1,11%

2,77%

2,19%

(Source: analyzed by the Author)

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The table shows the percentage of MBBs total investment compared with its total assets
during five years from 2009 to 2013 and the chart above illustrates the amount of total investment
in relation with the amount of total assets throughout the chosen period.
It is obvious that the assets of MBB grew well during the time, which was at 69.008,288
billion VND in 2009 then gradually increased and reached 180.381,064 billion VND in 2013.
Nevertheless, the ratio during this period was below the requirement as mentioned in ranking
scheme. Meanwhile, the Credit loss provision ratio fluctuated in an upward trend from 1,36% in
2009 to reach 2,19% in 2013.
In short, NPLs of MBB still marked some problems in NPLs management of MBB. Investment
to assets ratio were mostly below the average yet drawing an increasing trend which mean that
MBB did pay more attention to keep more and more liquid assets. Another good point is that
MBBs credit loss provision ratio (2009-2013) stood at low rate within the acceptable limit in
comparison with the criteria (0,75%). Although the bank had many efforts in setting credit risk
management policies, via those indicators, it is clear that the bank had problems in managing the
risk and should take stronger actions in order to limiting the effects caused by the losses from its
credit activities.

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V. Liquidity ratio of MBB

MBBs profitability ratio was fairly high. Although, MBB raised its capital several times
during the year to boost up its financial capacity, the shareholders earnings still remained at high
level. Especially, the Return on Equity (ROE) reached the record of 29.02%, much higher than
26.6% of 2009. The Return on Total Assets of 2.56% was lower than the prior year but still higher
than other banks; EPS (Earning per Share) for 2010 was nearly VND 2,845. During the year,
while the vast majority of banks were concerned about liquidity issues, MBs liquidity ratios were
maintained at safe levels. In particular, MBs liquidity always met the requirements of the State
Bank of Vietnam as well as the managements expectation. The results were as follows:
The percentage of loans/deposits (LDR) of MBB downward

trend, from 74% in 2009

down 65% in quarter 2/2012. Cause in 2009 and 2010, the
growth rate of loans
to

higher customer growth customer deposits, along with the boost bank lending activities. But the
year 2011 and quarter 2/2012, as the economy in trouble, banks tightening policies implemented
to control credit risk resulting growth rate loans plummeted faster than the growth deposit growth.
Compared with the major banks in the industry, this rate of MBB quite safe, lowest among listed
banks, the possibility of liquidity risk is not high MBB.

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(Source: MBB)
MBB's liquidity is guaranteed to liquid assets ratio of total assets at relatively high levels
(30%) compared with a large number of banks in the industry, only to EIB (39%), SHB (39%)
and VCB (32%). The liquid assets (cash, deposits at the central bank, gold deposits at other banks
and loans to other banks) have the ability to turn into cash quickly, to ensure good liquidity needs
of banks. Thus, the ability MBB liquidity problems is not high.

(Source: MBB)
The always maintain capital adequacy ratio CAR accordance with regulations will help ensure
banks can get support payment term debts, as well as additional support for their business
activities.

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(Source: MBB)
VI. Conclusions and Recommendation for Improving Credit risk Management and Liquidity Risk
Management of MBB
1. To the Credit risk management of MBB
Firstly, the bank has to comply with the regulations on ensure the safety of in the operation of
commercial banks. The regulations on ensuring the safety of the operation of financial institutions
include the overall regulations on minimum capital adequacy, lending limits, affordability, and the
ratio of credit granted. This is one of the methods reduce risks which is very important not only to
ensure the safety of each commercial bank , but also ensure the safety of the payment system,
enhance the competitiveness of domestic commercial banks , contributing to social and economic
development. This is also a necessary condition for Vietnam's banking system to implement WTO
accession commitments on opening up financial markets.
Secondly, MBB should focus on improving the quality of the evaluation: this is the first stage
of the credit process and decide whether or not to grant credit, so the quality of the evaluation is
considered a leading measure of risk prevention. Evaluation process needs to stick to the Banks
credit procedure, the authorized staff need qualified knowledge and experiences to analyze the
credit applications, the reliability of the initial data. Moreover, the evaluation should focus on the
collection and handling of information about customer, using evaluation criteria such as NPV,
IRR, sensitivity analysis...
Thirdly, the bank should pay more attentions to supervising and monitoring the customers use
of loans. Most of corporate applying for loans all have a specific and feasible business project.
Nevertheless, the probability of misusing, intentionally appropriating of loans for other business
activities can still occur.
Fourthly, the bank should establish an Internal Control Team for each of the corporate
customer and Individual Customer Department in the Credit and Investment Division of MBB.
The purpose of this suggestion is to make sure that there will be an authorized group to be in
charge of evaluate on the customer before final evaluation from Risk Management Division. This
will help the bank double check with care and more detail the information from customer to
ensure their ability to repay the loans, and therefore, reducing the risks arising from Nonperforming loans.

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In summary, the risks in the lending activities to MBB may occur at all different levels. In most
of the cases, the bank will be caused to have losses in profit because of the irrecoverable interest
from loans. In much worse cases, the bank will not be able to recover the loss loans, which causes
the bank capital losses and in the worst prospect, the bank will go bankrupt. Therefore, the bank
managers should be very careful before making decisions.
2. To the Liquidity risk management of MBB
Firstly, increasing awareness and consciousness and initiative of the senior management of the
liquidity risk management in accordance with safety standards. Including strengthening the
participation of RMC and ALCO on liquidity risk management at the strategic level, specific
responsibilities linked to each council and request the full implementation of the necessary role of
governance liquidity risk. This means that the RMC and ALCO to operate more effectively in the
development and revision of policies and systems monitoring, regular monitoring activities
liquidity management entire bank.
Secondly, enhanced awareness and capacity of the asset management system - debt monitoring
and management of the asymmetry of the portfolio's assets and liabilities on the balance sheet,
thereby contributing to good governance, sound risk bank. Continue to improve and enhance the
level of maturity of the asset management process - debt. Because of MBB ALCO built as staff of
the Board of Directors but the structure and function of the sum of ALCO, ALCO leadership and
management, while the main function proposed specific policy on liquidity risk was undertaken
by risk management Division recommended to the management of liquidity risk effectively, MBB
required coordination and close operations of these two agencies. MBB should also consider
setting up a separate asset management - debt under general manager to undertake a more indepth governance assets - debt, especially the implementation of the liquidity test appropriate.
Finally, mounting liquidity work with the management of other risks have been and will be
implemented MBB management including credit risk, market risk (interest rate and exchange
rate) and operational risk. (Bessis J 2012)

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