How to choose businesses with good and effective risk management

Experts assess that a business or a bank is operating well and effectively, risk management is always focused and the cost of risk is low. Risk management is increasingly being accepted by businesses and organizations. listed banks pay more attention.

After strong fluctuations, Vietnam's stock market is entering a recovery phase along with positive macroeconomic growth. However, external risks are still present when the global economy is slowing down.

On the positive side, many commented that after lessons from previous economic crises, the banking systems as well as businesses have paid more attention to governance to minimize risks.

Experts assess that risk management in the current context is a very important factor for businesses. That not only helps businesses withstand external shocks, minimizing losses for the market, but also protects investors.

Regarding the challenges faced by domestic enterprises, Mr. Nguyen Hung, General Director of Tien Phong Commercial Joint Stock Bank (TPBank) said that Vietnam has just come out of the pandemic and businesses have started to recover. Businesses will have to make a lot of efforts, not to mention the events and fluctuations in the world that affect economic activities in the country or businesses. For example, inflation, USD fluctuations as well as Fed rate hikes. High commodity prices create certain pressure on domestic inflation, which leads the Government and the State Bank to take measures to control inflation to achieve the target set by the National Assembly. This is a series of events that occur and have effects, making it more difficult for businesses. However, Mr. Hung hopes the situation can get better in the last months of the year. According to the World Bank as well as a number of other reputable organizations, Vietnam's economy in the second half of 2022 may grow at a rate of about 6.9%-7.5%.

According to Mr. Tran Minh Tuan, Vice President of Smart Invest Securities (AAS), risks to businesses usually come from three basic factors. The first factor is market risk, the second is operational risk, the operation of the business and the third is financial risk. Most of the capital capacity of Vietnamese enterprises is quite weak. After a certain period of core business and production has achieved certain success, often businesses will expand to other investment activities but the capital structure is not tight. Most of the manufacturing businesses as well as the real estate sector often face this problem, leading to an imbalance in financial activities.

Meanwhile, on the bank's side, when it has to stand in the two roles of both lending capital and being a listed company, Mr. Hung assessed that risk management is very important. The bank has many types of risks such as credit risk, operation, information technology system, security, market risk, etc. The world banking industry in general and Vietnam in particular have standards. certain risk management that the bank must comply with. In Vietnam, the State Bank of Vietnam has regulations on Basel II and only a few banks have achieved this standard at present… In general, the banking system must always be ready to ensure continuity. Never in the past two years of the pandemic has the bank set such a level of severity, but the bank has managed to pull through. However, these two years are also a time of sublimation for the banking industry in general.

Agreeing with TPBank's CEO, Mr. Tuan said that the pandemic period is a boost for both business organizations and market participants to approach and familiarize themselves with digital channels.

Facing pressures from the global economy, the opening of more credit "valves" to open up capital for businesses will also be carefully considered by the State Bank. Regarding the question that banks' risk management plays an important role in getting more credit, Mr. Hung said that this year's rapid growth has caused banks to run out of room. Besides, the bond channel after some incidents at the beginning of the year is currently stalled. Currently, all capital sources are channeled into credit channels.

According to Mr. Hung, the SBV has criteria for allocating credit "room". The first is the rating system of the State Bank. The second will relate to whether the bank uses the right credit “room” with the right orientation or not. Along with that are issues related to support for the soundness and stability of the credit system in general.

According to an expert from AAS, the access to medium and long-term capital through the securities channel from additional issued shares to bonds has been limited and much worse. This leads to demand for capital flowing to the credit channel of banks.

About macro solutions to support businesses to recover strongly after the epidemic as well as to cope with challenges from outside. TPBank's general director said that regulators will increasingly control the market and regulations will be stricter, along with international standards that are gradually being applied to Vietnam. Going forward, according to the roadmap, the Ministry of Finance requires listed companies to comply with financial standards IFRS 9 by 2025.

As for operations on the stock market, experts from AAS assessed that in 2022 there will be many fluctuations related to transparency issues, and the provisions of the law are expected to be amended to make the market more strict.

Experts also give advice to investors to choose businesses with good and effective risk management. In particular, Mr. Hung said that banks should look at the bad debt ratio. Low NPL ratio means the bank has good risk management. The second point is the ratio of the reserve fund that banks have deducted to ensure that if bad debt occurs later, that fund can compensate. There are also ratings from international organizations, domestic organizations…

According to Mr. Tuan, the longer businesses operate in the market, the more sustainable their development will be. In addition, during the operation process, information about the business must be very transparent. In addition, the evaluation of reputable organizations is also one of the factors that investors need to refer to in the country.