Step 1: Collect information and relevant legal documents
The grading officer must collect information and documents including legal documents (Certificate of business registration, enterprise charter, capital allocation decision/minute of capital contribution...), economic records ( Production and business plan, Report on implementation of production and business plan, Latest quarterly (yearly) financial statements at the time of grading: Balance sheet, Report on business results business, Cash flow statement, Notes to financial statements, List of outstanding loans at credit institutions, economic organizations, domestic and foreign individuals, Details of revenue by industry) and other information collected from the following sources: direct customer interviews; to visit customers in the field (office headquarters, production and business locations...); mass media; market research reports of professional organizations; information from the Center for Prevention and Handling of Risks of the Bank for Agriculture and Rural Development of Vietnam (Center for Women and Risk Management of the Bank for Agriculture and Rural Development of Vietnam); Credit Information Center of the State Bank (CIC); Other sources of information…
In addition to the legal and economic records provided by the customer, the scorer will synthesize other information according to the Report on the results of information collection and customer evaluation.
Step 2: Register customer information on the scoring system
Based on the customer profiles provided and collected information, the scorer will register the customer information on the scoring system. The order of registration on the system includes:
Determine the business lines of the economic organization
The identification of the client's business is based on the client's main business activity. The main business activity is the activity that brings in more than 50%
revenue or more and account for the highest proportion of total annual revenue of customers.
In case a customer conducts multi-industry business but there is no industry with revenue accounting for 50% of the total revenue, the credit officer is entitled to choose the industry that accounts for the highest proportion of revenue or has the most potential for growth in the business. industries in which the customer is active to select industries. For customers whose business activities fluctuate continuously and change the industry according to the above determination, the scorer selects the industry according to the principle of maintaining 2 consecutive years in that industry before changing to another industry.
Enterprise size
The scorer will enter the following information into the system to determine the size of the business:
Table 2.5: Determination of enterprise size | ||
STT | Targets | How to determine |
first | Equity | Target No. 411 - Equity - on the Balance Sheet. |
2 | Number of employees | Is the actual average number of employees in the year that the enterprise employs |
3 | Net Revenue | Target No. 10 - Net revenue from selling goods and providing services - on the income statement. |
4 | total assets | Target number 270 - Total assets - on the Balance Sheet. |
(Source: Agribank ) | ||
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Completing the credit rating system of Bank for Agriculture and Rural Development of Vietnam - 1 -
Completing the credit rating system of Bank for Agriculture and Rural Development of Vietnam - 2 -
Current Status Of Agribank's Credit Activities -
The Ranking Criteria, The Proportion Of The Set Of Criteria For Individual Customers -
Separation Of Duties Between The Grading Department And The Crediting Department -
Completing the credit rating system of Bank for Agriculture and Rural Development of Vietnam - 7
Each indicator will have 8 ranges of values from 1 to 8 points. The sum of the scores of the four indicators will be used to determine the scale.
Large scale: from 22 points to 32 points. Medium scale: from 12 points to 21 points.
Small scale: less than 12 points.
The scores of the criteria used to determine the size of the enterprise do not constitute the total score of the enterprise.
Economic information
When determining whether the financial data of an enterprise is audited or not. Filling in the financial information of the enterprise is completely based on the financial statements provided by the enterprise, including:
Balance sheet
Report on business performance
Cash Flow Statement
Step 3: Scoring, ranking and classifying customer debt
The financial information will be evaluated through a set of 14 financial indicators (Table 2.6).
The scorer does not have to calculate the financial indicators, these criteria will be automatically calculated by the software, linked to the set of standard values designed in the rating system (social system) and determine the results of points and grades. .
Table 2.6: Financial indicators | ||
Targets | Calculation formula | |
I | Liquidity indicator | |
first | Current ability to pay | = Current assets / Current liabilities |
2 | The ability to pay quickly | = (Current Assets – Inventories)/Current Liabilities |
3 | Instant payment ability | = Cash and Equivalents Cash/Current Liabilities |
II | Performance Indicators | |
4 | Working capital turnover | = Net sales/Average current assets |
5 | Inventory turnover | = Cost of Goods Sold/Average Inventory |
6 | Accounts Receivables Turnover | = Net sales/average accounts receivable |
7 | Efficiency of using fixed assets | = Net sales/Average residual value of fixed assets |
III | Debt balance ratio | |
8 | Total liabilities/Total assets | = Total liabilities/Total assets x 100% |
9 | Long-term debt/Equity | = Long-term debt/Equity x 100% |
IV | Income target | |
ten | Gross profit/Net revenue | = Gross profit from sales and service provision / Net revenue x 100% |
11 | Operating profit/Net revenue | = Gross profit from sales and service provision - Selling expenses - General and administrative expenses / Net revenue x 100% |
twelfth | Return on Equity | = Profit after tax/Average equity x 100% |
13 | Return on Assets | = Profit after tax/Average total assets x 100% |
14 | Ability to pay interest | = (Profit before tax + Interest expense)/ Interest expense x 100% |
Source: Agribank | ||
Non-financial information:
Non-financial information will be sorted into 5 groups of indicators: Ability to repay debt from cash flows; Management qualifications and internal environment; Relations with the Bank; External factors; Other operational characteristics.
The scoring structure of the set of non-financial and non-financial indicators is classified by type of ownership.
In case the customer already has a credit relationship:
Table 2.7: Weight of non-financial scores of customers who have a credit relationship | ||||
STT | Targets | DNNN | Enterprises with foreign investment capital outside | DN other |
first | Debt repayment capacity (3 indicators) | 6% | 7% | 5% |
2 | Management qualification (9 indicators) | 25% | 20% | 25% |
3 | Relationship with banks (13 indicators) | 40% | 40% | 40% |
4 | External factors (8 indicators) | 17% | 17% | 18% |
5 | Other performance characteristics (13 points pepper) | twelfth% | 16% | twelfth% |
Total (46 indicators) | 100% | 100% | 100% | |
(Source: Agribank) | ||||
In case a new customer does not have a credit relationship:
Table 2.8: Weight of non-financial scores of new customers who have a credit relationship for the first time | ||||
STT | Targets | DNNN | Enterprises with foreign investment | DN other |
first | Debt repayment capacity (3 indicators) | 14% | 15% | 13% |
2 | Management qualification (9 indicators) | 37% | 35% | 37% |
3 | Relationship with banks (13 indicators) | 0 | 0 | 0 |
4 | External factors (8 indicators) | 19% | 19% | 20% |
5 | Other performance characteristics (13 indicators) | 30% | thirty first% | 30% |
Total (46 indicators) | 100% | 100% | 100% | |
(Source: Agribank) | ||||
Among the non-financial indicators, there are some indicators that are automatically recognized by the system based on the history of credit relationship at Agribank, the rest are evaluated by the assessors.
Ratings are based on the collected information. Details of non-financial indicators are shown in Appendix 02.
Step 4: Approve customer scoring
After completing the scoring and customer rating, the scorer reports the scoring results from the rating system, submitting it to the approver for checking and approval on the rating system.
Step 5: Prepare a report summarizing the results of scoring, grading and classifying customer debt
The grading department prepares a report summarizing the results of grading, rating and classification of debts to submit to the Director.
Step 6: Approve the report summarizing the results of grading, classification and debt classification of the Branch
After receiving the report on results of grading, rating and classification of debts from the Scoring Department, the Branch Director will approve the report and be responsible to the Chairman of the Members' Council, the General Director for the implementation of the report. Currently scoring and rating customers.
Step 7: Synthesize and report the results of scoring, ranking and classifying debts of the Agribank system.
The Customer Rating and Rating Department of the Center for Risk Prevention and Handling is responsible for making a report summarizing the results of scoring, rating and classifying customer debt in the whole system and submitting it to the Director of the Center for Natural Risk Management and Risk Management and sending it to the General Manager. governor.
2.4. Compare Agribank's rating system with other commercial banks in Vietnam
2.4.1. Credit rating system of ACB
2.4.1.1. Introducing ACB's rating system
ACB is one of the pioneering commercial banks in building an internal credit rating system. ACB applies the method of estimating credit risk provisions according to international standards IAS 39 8 including two parts: Classification of loans and Provisioning. ACB applies 2 scoring systems:
- Scoring system for review (Scoring Review): for the purpose of assessing customer's risk and at the same time serving for credit profile review, customer rating results are used as a in the bases for making credit decisions and building customer policies.
- Scoring system for debt classification (Scoring Debt classification): is a tool to classify debts according to international practices and based on the results of debt classification to calculate and make provision for risks. According to regulations on debt classification, setting up and use of provisions to deal with credit risks in banking activities of the State Bank from time to time.
ACB's internal credit rating system was built including the following components: Credit system for enterprises; Credit social system for business households; Personal social network system.
Personal credit rating system
Personal customers borrow capital for consumption: The scoring criteria includes 2 groups of criteria: Personal (40 %); Debt repayment capacity (60%).
8 IAS: International Accounting Standards
Customers borrowing capital for production, business/investment : The scoring criteria includes 3 groups of criteria: Personal information, business owner is a business establishment (proportion 10%); related to business establishments (accounting for 55%); Business plan/investment plan (weight 35%)
ACB's corporate credit rating system:
ACB's corporate credit system includes two scoring systems:
Scoring system for review (Scoring Review): for the purpose of assessing the risk of the business and at the same time serving for the review of credit records, customer rating results are used as one of the the basis for making credit decisions and building customer policies.
Scoring system for debt classification (Scoring Debt classification): is a tool to classify debts according to international practices, set up and use provisions to deal with credit risks.
The scoring content of ACB's corporate credit rating system includes financial and non-financial scores. The evaluation of financial factors is based on the quantitative method through the analysis of the most recent financial statements. The groups of financial indicators to be considered include the group of liquidity indicators, the group of operational indicators, the group of debt ratios and the group of income indicators. Non-financial factors are assessed in detail according to the classification of financial statements or non-financial statements and enterprise size.
Scoring Review
For customers without financial statements, non-financial information is sorted into 5 groups of indicators: The support of capital contributors/Board of Management to the Company's operations, Efficiency of business plans; Risks from financial factors - Source of payment
in debt; Reputation in the relationship between ACB and other credit institutions; Stability of business environment/industry risk.
For customers with financial statements, non-financial information is sorted into 5 groups of indicators corresponding to each size: Efficiency/stability in production and business activities; Debt repayment capacity/Business plan; Stability of business environment/industry risk; Transaction status/Reputation relationship at ACB and credit institutions; The stability of the input/output market/competitiveness of the enterprise/ The support of capital contributors/the Executive Board to the Company's operations.
Scoring Debt classification
For customers without financial statements, the non-financial score is determined based on: Risks related to business operation; Business plan/business situation; Assess risks from the business' operating environment; Assess risks from unusual events; Risk assessment from financial factors.
For customers with financial statements, non-financial information is also sorted into 5 groups of indicators corresponding to different sizes: Debt repayment capacity of the enterprise; Relations with the Bank; Factors affecting the industry; Factors affecting the operation of the Enterprise; Management qualifications and internal environment / Management ability of the business owner.
2.4.1.2. Compare credit rating system of Agribank and ACB Individual customer ratings
Agribank and ACB jointly developed individual customer ratings, including personal identity and debt repayment ability. However, the proportions of the two banks with these indicators are different. While Agribank values the personal ratio more highly when using the weight ratio for these indicators at 60%, ACB evaluates the debt solvency ratio higher (60%).
In the group of indicators on personality, ACB built 15 indicators of which 11 are similar to Agribank. These are the basic factors that directly affect the borrower. Compared with Agribank, ACB did not include the criterion "Evaluating the relationship of the borrower with family members" in the scoring, but evaluated 4 more criteria: Length of stay in the current location, Relationship of the borrowers. Borrower with the community, Civil and criminal legal capacity of relatives, Marital status. However, these indicators are difficult to assess and have little impact on the borrower's ability to repay.
As for the group of indicators on the borrower's ability to repay, ACB built a group of 11 indicators, much more than the 4 targets of Agribank. However, there are some overlapping indicators such as "Borrower's total monthly income" and "Stable monthly net income", "Debt ratio past due at the time of assessment" and "Overdue debt situation". term of the current outstanding balance”.
Business customer ratings
ACB's corporate credit rating system is different from other banks when it uses two different scoring systems when approving loans and classifying debts. Scoring for approval has a higher score than debt classification, which helps ACB develop better customer policies and reduce risks when deciding to grant credit. The establishment of different scoring criteria between large/medium/small and very small enterprises shows that ACB's goal is to develop the retail banking system when approaching a very large number of customers. small. The ranking of these businesses is also based on information about the development potential of the business and the management ability of the business owner/Executive Board.
2.4.2. Vietcombank's credit rating system
2.4.2.1. Introducing Vietcombank's rating system
Bank for Foreign Trade of Vietnam has developed and implemented a credit rating system since 2003 under the guidance of the State Bank and the advice of other banks.
financial expert of the World Bank (WordBank), and changed in 2010 to better suit new regulations and socioeconomic situation.
Personal Credit Rating
VCB's personal credit rating also includes two groups of criteria about the customer's identity and debt repayment ability.
Group of personal indicators: Age; Academic level; Home ownership status; Marital status; The number of people is directly economically dependent on the borrower.
The group of customer debt repayment criteria includes: Type of agency currently working; Time working in the current area of expertise; The nature of the current job; Form of payment of salary or other income; Form of labor contract; The total monthly income of the borrower and the co-payer; The situation of principal and interest repayment with other credit institutions in the past 12 months.
From the rating results combined with the actual debt status of customers, VCB will classify these debts into 5 corresponding debt groups.
Business Credit Rating
Vietcombank gives credit ratings to corporate customers based on financial and non-financial criteria.
Financial indicators: Group of liquidity indicators; Group of activity targets; Group of targets for debt balance; Income target group.
The set of non-financial indicators includes:
Ordinary and potential businesses: K ability of customers to repay debts; Management qualifications and internal environment; Relations with banks; Industry influence; Factors affecting business performance.
Micro-enterprises: The level of business management and operation; Relations with banks; Assess the industry and factors affecting business operations; Assess the business situation.
Vietcombank uses in non-financial numbers by type of business. Enterprises will be classified into: state-owned enterprises, OECD foreign-invested enterprises 9 , other foreign-invested enterprises, public joint-stock companies, and other enterprises.
Total Score = TC Score x TC Weight + PTC Score x PTC Weight
If it is a microenterprise, the non-financial score is multiplied by the risk factor.
Based on the total final ranking score, enterprises will be classified into 10 corresponding categories according to increasing risk level from AAA to D.
Vietcombank also scores newly established businesses and classifies debts based on the number of points achieved and the ability to repay loans.
2.4.2.2. Comparison of credit rating system of Agribank and Vietcombank
Individual customer ratings
Compared to Agribank, VCB's individual customer rating criteria are quite simple, not fully assessing the risks that may be encountered such as legal risks (criminal record), occupational risks, and the ability to obtain credit. compensation when facing life risks (life insurance), assess the creditworthiness and reputation of family members that may affect working psychology and ability to repay debts; The net income for debt repayment and the ratio between the source of debt repayment and the amount to be paid in the period have not been assessed.
9 OECD: Organization for Economic Cooperation and Development
Business customer ratings
Vietcombank as well as Agribank focuses on the type of business, but is more detailed when dividing the types of businesses. However, Vietcombank's credit rating system has advantages over Agribank when it has built its own set of business scoring criteria. microenterprise with family size to match the actual situation of this business.
Compared with 46 non-financial indicators of Agribank, Vietcombank uses more indicators (58 indicators) because Vietcombank has broken down a number of indicators to keep a close eye on customers' situation as well as to match its credit policy. me.
Summary table comparing credit cooperatives of Agribank with ACB and Vietcombank
Table 2.9: Comparison of Agribank's credit system with commercial banks | |||
Corporate customers | |||
Agribank | ACB | VCB | |
Rank | ten | ten | 16 |
Customer classification | Ordinary enterprises, newly established enterprises | Ordinary enterprises, micro enterprises, newly established enterprises | Ordinary enterprises, potential enterprises, micro enterprises, Newly established business |
Classify career | 34 | 26 | 52 |
Scoring period | At the time of credit and quarterly | At the time of credit granting: Scoring for approval Quarterly: Scoring debt classification | Quarterly |
A new customer establish | No scoring | Scoring according to non-financial indicators | Scoring according to non-financial indicators |
Individual customers | |||
Agribank | ACB | VCB | |
Scoring period | Credit timing and quarterly | 3 months/time | When granting credit and when there is a big change affecting the ability to repay |
Evaluate TSDB | Have | No | No |
2.5. Evaluation of Agribank's credit rating system
Agribank's credit rating system was implemented after other banks, so it has learned from experience and updated in accordance with the regulations of the State Bank. Agribank's credit rating system with intertwined criteria, comprehensively reflects the actual aspects of the business so that the bank can make accurate credit decisions and minimize risks. The credit rating system has overcome the rigidity of debt classification by number of days past due by neutralizing financial and non-financial criteria to help banks standardize customer classification.
2.5.1. Some results achieved:
The credit rating model is a risk management tool in the credit appraisal and decision process. The credit system has helped Agribank strengthen the supervision and management of credit risk for a large number of customers. The model is built based on the standards and regulations of the State Bank, suitable for domestic and foreign rating systems. The rating model follows a strict process and a set of criteria is built to comprehensively evaluate customers based on a variety of evaluation criteria both financial and non-financial, thereby assisting the bank in classifying customers. types of customers, applying appropriate credit policies and making the right credit decisions, minimizing risks. The subdivision of the criteria and the application of weights helps the assessment to achieve highly accurate results. According to Agribank's regulations, one of the lending conditions is that customers have no debt of group 4 or group 5 at Agribank and other credit institutions (equivalent to ratings C, D on Agribank's internal credit system). As for customers who have outstanding loans and are graded C, D, they are not allowed to increase their outstanding balance and have a plan to gradually reduce their outstanding loans.
The credit rating model is built according to the characteristics of credit activities and in line with the development orientation of the bank. With the credit rating system,
the measurement and identification of risks, customer assessment is done uniformly and synchronously. Updating customer information on the IPCAS system makes scoring easy because some financial indicators will automatically score, just enter the collected information and the system will also update the important process. customer's credit system for the most accurate scoring. In addition, the unified scoring system on the same system makes it convenient to refer to the credit rating results for customers.
Customer classification is important for the bank to apply credit support policies for good and potential customers such as interest rate incentives, collateral requirements.... Besides, In addition, the credit rating also helps the bank to make an accurate decision on credit granting, rejecting or having a high level of safety requirements depending on the customer's grade. For example, one of the conditions for Agribank to consider granting short-term unsecured credit is when a customer is rated A or higher according to Agribank's internal credit rating regulations and is granted short-term credit. no guarantee up to 50% for BBB rated customers.
In addition, the credit rating system also has a debt classification function. The determination of the final debt group of customers will be calculated by aggregating the results of classification by number of days past due and classification by credit scoring. Standardizing the classification of debts will help banks make and use provisions to handle credit risks accurately and manage risks well.
The bank may re-classify a customer when there is enough basis to re-evaluate the customer's information such as debt repayment ability, asset volatility, customer's source of income, so that measures can be taken. appropriate to minimize risks for the bank such as reducing outstanding loans, adding more collateral...or increasing the loan limit, applying preferential regimes for customers.