Risk management of Bac Ninh development investment fund

s well as proposing a system of solutions to enhance risk management for Development Investment Funds in Vietnam. 7 In other words, these works mainly address issues related to the risk management theory of some business entities in some countries and Vietnam, but none of the works mentioned to the risk management of the Bac Ninh Development Investment Fund. Therefore, this is a new research direction and the author made that in addition to helping the Bac Ninh Development Investment Fund to develop sustainably, there will be significant contributions to the field of practical application of risk management in Vietnam. 1.3.2. Research gaps From domestic and foreign studies on risks and risk management of financial institutions, research and development investment funds of PhD students find some research gaps as follows: - The rationale system of risk and risk management associated with the administration of a financial institution (development investment fund), responsible to the State for investment, lending and security. However, it is not logical and systematic to serve socio-economic development in Vietnam. - The risk management process of the development investment fund in Vietnam in general and Bac Ninh in particular has many differences from other economic organizations (such as banks), so this process needs to be clarify. - The external environment, internal environment is the main factor the impact on fund operations and factors that constitute risk and determining how to respond to the risks of these funds, however, this is a problem that the aforementioned studies haven't mentioned. - The reality of risks and risk management in domestic financial institutions, especially local development investment funds, should be carefully studied and analyzed, thereby proposing solutions to manage appropriate risk treatment. 1.4. Questions, research hypotheses 1.4.1. Research question Question 1: Does Bac Ninh Development Investment Fund inherit experience of risk management of other financial institutions in risk management? Question 2: What are the risks faced by Bac Ninh Development Investment Fund in operation, direct investment, lending and guarantee? Question 3: How does risk management of the Bac Ninh Development Investment Fund take place? 8 Question 4: What factors affect risk management at the Bac Ninh Development Investment Fund? Question 5: What is the solution to improve risk management for Bac Ninh Development Investment Fund in the period of 2019-2025? 1.4.2. Research hypotheses Hypothesis 1: Risk management of the development investment fund basically inherit the risk management of financial institutions, including: developing risk management plans, risk identification, risk analysis and evaluation, risk handling, monitoring and reporting Hypothesis 2: In the process of operation, investment and lending of investment funds in general, Bac Ninh Development Investment Fund also encountered a series of risks such as capital loss, market risk, and institutional risk... These risks arise from various sources such as from customers, from the fund's activities, from the macro environment... Hypothesis 3: Risk management of Bac Ninh Development Investment Fund are often associated with lending, direct investment and credit guarantees; this activity is identified through the stages of risk management planning, risk identification, risk analysis and evaluation, risk handling, monitoring and consultancy. Hypothesis 4: Risk management of Bac Ninh Investment and Development Fund are influenced by management, business organizational structure and operational institutions, human resources of the Fund and customers' deliberate fraud. Meanwhile, the less influential factors are customers' awareness and ability to repay debts, corporate culture... Hypothesis 5: Developing a reasonable risk management strategy, considering this as a basic component of the Fund's business strategy and strictly implementing the organization will minimize risks and control risks in process of promoting direct investment, lending and guarantee. Chapter 2: THEORETICAL AND PRACTICAL BASIS FOR RISK MANAGEMENT IN DEVELOPMENT INVESTMENT FUNDS As is well known, the Development Investment Fund is a financial institution because according to Siklos, Pierre, 2001, and Robert E. Wright and Vincenzo Quadrini, 2012, financial institutions are financial institutions that are established by law and engaged in business activities as a financial intermediary in the process of transferring capital from lender to borrower. 9 These financial institutions include banks, entrusted businesses, insurance businesses, development investment funds, brokerage companies and other investment agents. The content of this chapter will focus on the following key aspects.. 2.1. Overview of risks, risk management 2.1.1. Risk The concept of risk became the center of theory and practice in financial institutions from Markowitz's research over 80 years ago. Accordingly, the risk is the level of instability of the rate of return, based on a measure of variance and standard deviation. However, risk management has only emerged as an independent issue in recent decades. The author of the dissertation said that risks are basically risks, probabilities of an event, and negative impact on the operation of a financial institution. In summary, risks are present in all aspects of life in different forms depending on each stage, characteristics of industries and fields. Therefore, businesses need to develop an appropriate risk management program to minimize risks and improve business efficiency. Depending on the characteristics of the industry, one can use different management tools and methods and make the best use of the positive effects from the factors affecting the risk management process. 2.1.2. Risk management concept It can be concluded that the author fully agrees and shares the risk management concept of Roebt and Bob as pointed out above, but needs to add some aspects, such as risk management of a development investment fund is a decision-making process that ensures the highest level of security by reducing the impact of risk-assessing factors. In business practice, risk management should be seen as an integral part of the Development Investment Fund’s development strategy. It must be emphasized that, after being identified, and risk management will be an integral part in the operation of the funds and managers need to monitor the extent of its impact to the financial situation and business status. Ultimately, risk management aims to eliminate or at least mitigate the effects of factors that may harm to business process of the Development Investment. In other words, "Managing risk is both a science, just as the art to identify, analyze, process, control and monitor risks to help Development 10 Investment Fund achieve the best; while contributing prevent and prevent unexpected risks”. Therefore, referring to risk management means referring to proactive, positive management processes, discovering potential risks which have not been identified on departments seize and apply opportunities from factors affecting the operation of risk management; from there, work out coping plans as well as contingency plans. Moreover, this step should be done in a scientific way, in combination with the methods and tools appropriate, apply the right time and business requirements of Development Investment Fund to promote the highest efficiency of the governance process risk. 2.2. Local development investment fund 2.2.1 Investment fund concept 2.2.2. Local development investment fund A local Development Investment Fund is a financial institution established by local governments, operating as a financial enterprise, under the management of the Ministry of Finance (vertically) and provincial People's Committees (horizontal). In which, local governments own 100% capital. For more than a decade since the government issued Decree 138 (2007), local Development Investment Funds have been proactive and flexible in business activities and have successfully accomplished their goals and missions due to localities shall allocate to attach development investment funds. 2.3. The content of risk management at the development investment fund It can be said that, from the above approaches, the author of this work thinks that the inner meaning of risk management, basically includes (diagram 1 below): 1. Building a risk management plan; 2. Risks identifying; 3. Risks analyzing and assessing; 4. Risks handling; 5. Risks monitoring, advice and reporting. 11 (2) Risks identifying (1) Building a risk management plan (4) Risks handling (5) Risks monitoring, advice and reporting (3) Risks analyzing and assessing Diagram 1: Internal function of risk management 2.3.1. Building a risk management plan It should be noted that, from a business management science perspective, developing a risk management plan is the first and decisive factor. The work that a financial institution, including development investment funds, must do at this stage is to grasp the environmental characteristics in which the business is operating, on which basis, draft a management plan. Managing risks associated with business strategy. In this plan, external environmental factors and the internal operating mechanism of the business are considered in terms of regulations, requirements, codes, standards, industry guidelines as well as documents of enterprises, related organizations, reports as well as business plans, operations and risk management of enterprises in the previous period (previous year, previous quarter)... etc. The tools used to develop risk management plans include SWOT (Strengths, Weaknesses, Opportunities, and Challenges) and PEST (Political, Economic, Social and Technical technologies) in a framework. 2.3.2. Risks identifying Using the information gathered from the context, and classified by the SWOT and PEST analysis tools, the next step is to identify risks that may affect the achievement of the business goals, even the activities 12 and initiatives of the business. It should be noted that, in some cases, risks might be opportunities and strengths, which are often not recognized or ignored by the enterprise. Risk identification of a specific system, business or activity may contain a large number of potential risks. In fact, receive comprehensive risk is a screening process, a process where the potential risks are considered, forecasting, classification and the corresponding contingency plans. 2.3.3. Risks analyzing and assessing Risk analysis involves considering the source of the risk, its consequences, and the ability to estimate inherent risk and unintended risks without local control. This step also includes identifying control methods, estimating impacts, quantifying the extent of damage and on-site control methods. Qualitative, semi-quantitative and quantitative techniques are the analytical techniques applied to this step, depending on the risks, the purpose of the analysis as well as information on the available data. 2.3.4. Risks handling This is an important content in risk management. Along with risk assessment is the development of cost selection criteria system, thereby improving the effectiveness of risk treatment. Methods of dealing with risks in some cases are not necessarily mutually exclusive or require appropriate in all circumstances. Depending on specific circumstances, specific requirements, businesses can choose one or several suitable ways. 2.3.5. Risks monitoring, advice and reporting One thing to note is that the characteristics of risk are dynamic, so it needs to be periodically reviewed formally. Risk monitoring is the inspection of the implementation of the risk management plan system through risk verification. This work also includes monitoring the handling of risk parameters at an acceptable level of risk or having exceeded the threshold and any adjustments in the event of a change in the risk assessment step. 2.4. Factors affecting risk management The following will discuss in more detail the main factors affecting risk management. 2.4.1. The role of leadership 2.4.2. The organizational structure of the enterprise and the operating mechanism 2.4.3. Corporate culture 13 2.4.4. Human resources 2.4.5. Information technology (IT) 2.4.6. Customer 2.5. Experience in risk management of some development investment funds 2.5.1. PYN Fund (Mutual Fund Elite) and IDG (IDG Ventures Vietnam) 2.5.2. Bac Giang Development Investment Fund 2.5.3. Hanoi Development Investment Fund 2.5.4. Thai Nguyen Development Investment Fund In order to ensure these funds operate safely and effectively in the area, the immediate solution of each province is to improve their financial capacity, quality and operation scale; contribute positively to the local socio-economic development, detect and promptly handle violations and problems; attaching importance to professional fostering, ethical and law education for the contingent of officials and employees, raising the quality of administration and administration, ensuring safe, efficient operation, strengthening relationships closely link the system vertically (Ministry of Finance) and horizontally (People's Committee of provinces and cities). It can be said that this is the experience and Bac Ninh Provincial Development Investment Fund can refer, especially in terms of preparing necessary conditions to identify and handle risks coming from the natural, economic and environmental environment, society, from customers and from within the Fund. Chapter 3: CHARACTERISTICS OF STUDY AREA AND RESEARCH METHODS 3.1. Characteristics of the study area 3.1.1. Some natural, economic and social characteristics of Bac Ninh province 3.1.2. Bac Ninh Development Investment Fund Bac Ninh Development Investment Fund (hereinafter referred to as the Fund), in English name, Bac Ninh Development Investment Fund, was established under Decision No. 192 / QD-UBND dated June 5, 2015 of People's Committee of Bac Ninh province on the basis of transferring the status quo of assets, equipment and executive apparatus of the Credit Guarantee Fund for small and medium-sized enterprises in Bac Ninh province. According to Article 1 of Decision No. 192/QD-UBND, the Fund is a State-owned financial institution under the People's Committee of Bac Ninh Province, performing the function of financial investment and development investment. The Fund has a legal status, charter capital, a balance sheet, a seal, and is allowed to open accounts at the State Treasury and commercial banks 14 operating legally in Vietnam. The Fund's specific functions and tasks are to receive budget capital, mobilize medium and long-term capital from domestic and foreign individuals and organizations to provide loans, invest in projects, enterprises and develop socio-economic infrastructure of the province, provide credit guarantees for small and medium-sized enterprises according to regulations. The Fund's charter capital is VND 500 billion. The Fund operates under the model of a policy bank, implementing the principle of financial autonomy, preserving and developing capital. The Fund is limited liability within the equity of the Fund. The Fund's functions, duties, responsibilities and powers are clearly demonstrated through the following activities: Firstly, development investment and financial investment Second, guarantee activities, namely credit guarantees Thirdly, trusteeshiping and receiving activities. 3.2. Research models Based on the systematization of theoretical basis in Chapter 2, and the survey, collecting data related to risk management, factors affect on risk management of Bac Ninh Development Investment Fund. The author offers the research model shown in the diagram below: + Model of risk management content at the Fund in accordance with Diagram 2 below Diagram 2: Content of risk management Content of risk management Building a risk management plan Risk identifying Risk anlayzing and assessing Risks handling Risks monitoring, advice and reporting 15 Risk management the role of leadrship Organizational structure.... Corporate culture Human resources Information technology Custormer + Model of the main factors affecting the risk management under the Diagram 3 Diagram 3: Factors affect on risk management 3.3. Approach and research method 3.3.1. Approach method The topic approaches in an interdisciplinary and multi-dimensional direction from the perspective of history, economics, politics and law; combine the bottom-up approach (from corporate customers, individual customers borrowing from the Development Investment Fund) and from the top (from the state management agencies of the Development Investment Fund) to do clarify the risk management of the Fund.. 3.3.2. Research method In this dissertation using theoretical research methods (analysis, synthesis, systematization of documents, comparisons...), practical research methods include (actual investigation by questionnaires, interviews directly officers in charge of risk management and management at the Fund, agencies related to the Fund, customers are entitled to borrow, guarantee; their observations and assessments). These are popular high- quality scientific research methods that allow the author to synthesize, inherit and analyze existing materials to perform the tasks set out in a specific dissertation. 3.3.2.1. Analysis and synthesis methods 16 This method is used in the whole process of project implementation, to evaluate and research the existing and domestic collected documents, thereby forming the theoretical framework in chapter 2, assessing the real situation of risk and risk management in Bac Ninh Development Investment Fund in chapter 3. This is a very important research method in the dissertation. 3.3.2.2. Comparative method Compare the situation of risk management in Bac Ninh Development Investment Fund and investment funds in other provinces; compare the situation and the requirements of renovating risk management provided by the state funds or other funds derived from it draw out their inadequacies and clarify their causes. This method is also used to assess the change of research phenomenon over time. In this study, the comparison method is used to compare figures on labor, investment, guarantee... at this Fund 3.3.2.3. Investigation and interview methods 3.4. Study sample size 3.5. Choose a template In accordance with the capacity to implement the dissertation in terms of time, cost..., the author uses a non-probability sampling method, although the method is objective and represents the whole not by the selection method random sample. However, the author will try to apply information sources to select the most representative sample group through quota sampling in the form of loans that the Investment and Development Fund is implementing for customers; for those who are lent by the Fund, they will be balanced in the number of survey samples. 3.6. Scale design The design of a scale with two contents is the construction of the questionnaire content and a scale for the questionnaire. 3.7. Survey method 3.8. Processing and analyzing data methods Data were analyzed by statistical, comparative and quantitative methods to identify risk management and factors affect on risk management at Bac Ninh Investment and Development Fund. 17 Chapter 4: CURRENT SITUATION OF RISK MANAGEMENT OF BAC NINH DEVELOPMENT INVESTMENT FUND According to the Decree Estimate the number 37/2013/ND -CP, Bac Ninh Development Investment Fund is one of institutional finance, operate as a business. The Fund was established based on the inheritance of equipment and personnel structure of Bac Ninh SME Credit Guarantee Fund. After 4 years of establishment, the Fund has affirmed the role of a state-owned financial enterprise to perform the function of financial investment and development investment in the province. Throughout that process, the Fund's risk management have been focused. 4.1. Risk management situation of Bac Ninh Development Investment Fund The current situation of risk management is analyzed and evaluated in association with the Fund's business operations and implemented in accordance with the theoretical framework mentioned in Chapter 2, specifically as follows: 4.1.1. Building a risk management plan Risk management plan of the Bac Ninh Development Investment Fund, first based on the legal text and simultaneously develop and promulgate documents of the Fund. Accordingly, the Fund's risk management focuses on debt classification, provisioning and use of risk provisions; application of risk handling forms and other risk management measures in investment lending activities (lending activities), direct investment, capital contribution to establishment of enterprises (investment activities), credit guarantee activities of the Fund. For lending, investment and trust activities For guarantee activities 4.1.2. Identify risks Risk identification for the Fund's business operations is to identify risk information, including what are the risks? risk sources, influencing factors, risk constituents This process includes many tasks ranging from finding, identifying and forecasting risks associated with investment lending activities, direct investment and guarantee. A common risk in business operations of the Fund is the risk of capital loss. This risk is identified through the Fund's business activities, customers, and business environment. 18 4.1.2.1. In investment, lending and credit guarantees activities 4.1.2.2. Surveying and identifying risks of investment loans and credit guarantees 4.1.3 Risks analyzing and assessing 4.1.3.1 Analysis and assessment of risks to investment lending, direct investment and credit guarantees 4.1.3.2. Case study 1 (case study 1): on risk analysis and assessment activities at Bac Ninh Development Investment Fund through direct investment 4.1.2.3. Surveying Fund’s analysis and risk assessment activities 4.1.4. Risk handling Since its foundation, the Fund has applied various measures to deal with risks in investment, direct investment and guarantee activities. 4.1.4.1. Dealing with risks of the Fund 4.1.4.2. The second case study (case study 2): on risk handling activities at Bac Ninh Development Investment Fund through credit guarantee 4.1.4.3. Surveying the Fund's risk handling activities 4.1.5. Monitoring, advice and reporting 4.1.5.1 Monitoring, consulting and reporting for investment lending, direct investment and credit guarantees 4.2. The main factors affect on the risk management 4.2.1. Statistical analysis of factors affecting the risk management of Bac Ninh Development Investment Fund 4.2.2. Testing the reliability of the scale through Cronbach’s Alpha reliability coefficient in analyzing factors affecting risk management activities 4.2.3. Exploratory factor analysis (EFA) 4.2.4. Results of the model 4.2.5. Testing research hypotheses 4.2.5.1. Correlation analysis 4.2.5.2. Multivariate regression analysis 4.2.6. Discuss regression results 4.3. Assessing risk management at Bac Ninh Development Investment Fund 4.3.1. Result 19 Since the Fund's Risk Management Regulation came into effect, the Fund’s risk management have achieved some remarkable results as follows: Firstly, risk management were recognized very early since its establishment. The steps in the risk management process have been carried out relatively effectively, contributing to promoting the Fund's business activities in recent years. Secondly, professional staff are responsible for regularly updating information, monitoring and reporting signs that may incur risks in the process of lending, direct investment, credit guarantee and proposing measures, risk management contingencies, for leaders to consider. Thirdly, regularly training, fostering and improving professional skills and professional ethics for staff. Improve the management level, risk monitoring capacity and sense of personal responsibility in assigned risk management.