The Ranking Criteria, The Proportion Of The Set Of Criteria For Individual Customers

Compared with the internal credit rating system of other commercial banks in Vietnam. Agribank 's internal rating system is more diverse in terms of rating objects

: In addition to the rating object being individual and corporate customers, there is also a rating object: financial institutions. Financial institutions applied to cooperatives include: Banks, finance companies, finance leasing companies, securities companies. This is a progressive step of Agribank's rating system in line with the development trend of modern banks when the open market is increasingly developing and plays an important role in the policies of the State Bank. On the other hand, the relationship between financial institutions is increasingly closely linked, and their influence on each other is becoming more and more obvious.

2.5.2. Some limitations of Agribank's credit rating system

2.5.2.1. The ranking criteria, the proportion of the set of criteria For individual customers

In the set of criteria for ranking individual customers, the weighting between the personal criteria and the debt repayment ability criterion is 60:40, which is not reasonable. Because the weight of the personal indicator is high, when the customer has a good character but has no source of payment or has no willingness to repay the bank debt, the rating score is still high, not suitable for the current situation of the debt.

For corporate customers

There is no set of indicators to reflect the growth of the business

In the set of financial indicators of the enterprise, there are four sets of indicators: liquidity indicators, operational indicators, leverage ratios, and income indicators. These sets of indicators have not yet reflected the growth in business operations. Therefore, it is necessary to add to the set of financial indicators of the enterprise more growth indicators (revenue growth, profit growth) to more fully reflect the activities of the enterprise.

Need to consider tax policy factors for businesses

Return on equity = Profit after tax / Average equity. Return on assets = Profit after tax / Average total assets. According to the above calculation, we see that there are problems that need to be raised, that is, the profit after tax of the enterprise and the profit before tax of the enterprise will have a big difference due to the differences in tax policies: the business is entitled to tax deferral. , enterprises are entitled to preferential tax... Therefore, different tax policies will reflect the difference in profit after tax of enterprises.

Consider the relationship of Firm size and risk

The grading scale of the enterprise includes the following criteria: Equity, Number of employees, Net revenue, Total assets. The larger these indicators, the higher the score, the lower the risk. That is, the larger the business, the lower the risk. However, reality shows that this view has its own problems. Especially in an era of rapidly changing technology, larger companies often have greater risks than small and medium sized companies.

There is no distinction in the proportion of short-term, medium- and long-term debt for banks

different professions

Depending on different industries, the structure and ratio of short, medium and long-term debt are different. A manufacturing business is different from a service business. In which, there are relevant criteria for payables:

- Liquidity indicator: related to the liquidity problem of the business. There are three criteria: Current liquidity, quick payment ability, and instant payment ability.

- Leverage ratio: Total liabilities/total assets, Long-term debt/equity.

While the total liabilities/total assets ratio is the same, a high short-term debt ratio is normal for one industry but problematic for another industry, as is the opposite for medium and long-term debt.

For example, for the industrial production sector that requires investment in machinery, fixed assets account for a high proportion of total assets, the high proportion of short-term liabilities compared to total assets is an inadequacy. This shows that the enterprise has used short-term capital to invest in fixed assets. Or, working capital has not been used efficiently because of excess working capital.

However, in the scoring method of Agribank's internal credit rating system, there is not a deep distinction between the proportions of short-term debt, medium-term debt, and long-term debt for different industries, but generally applied to all sectors. career. This can distort the true financial health of the business.

2.5.2.2. Inaccuracy of data, input information

The first limitation of credit rating is that it depends on the information collected, but the source of information is limited and the accuracy of this information is difficult to verify. Non-audited financial statements often do not accurately reflect the actual situation of the business, cash and non-invoice purchases are still common. Therefore, the current Agribank's scoring base is mainly based on customer profiles such as reports related to production and business activities, input and output economic contracts... the grading staff The scorer will re-evaluate this information and collect additional information from other sources for grading purposes.

2.5.2.3. Limited human resources and not yet separated between the scoring department and the credit granting department

The organizational model and scoring team are still limited. Currently, scoring is still a step in the credit appraisal process and the credit officer is the person on duty

Due to continued implementation, the separation of responsibilities in credit and risk management has not yet been ensured. The scoring is done at the branch and by the people involved in the credit granting decision, so its independence and complete objectivity are not guaranteed.

As for financial indicators, when the figures of the financial statements do not accurately represent the actual situation of production and business of the enterprise, the scores achieved on these indicators are also misleading, leading to risks for the company. bank. As for the non-financial indicators, it depends a lot on the subjective assessment of the grading staff. In order to accurately assess non-financial indicators, the raters must have a large amount of knowledge and understanding of the subject's field of activity. The ability, qualifications and experience of the scorer will determine the quality of the rating.

At Agribank today, the customer scoring is done directly by the credit officer, so the quality is not high and uniform. There are many reasons affecting the quality of scoring, in which part is due to the fact that the information summary sheet applies to all industries and areas of customer activity, so it does not cover all the necessary information, but it is still quite poor. are general and do not yet reflect the specifics of each industry; the capacity and experience of credit officers are limited, so the criteria have not been accurately assessed; having a high non-financial scorer to compensate for the low financial score, masking problem debt...

The fact shows that the staff performing the grading often impose their own subjectivity leading to many illogicalities between: non-financial indicators together, between non-financial indicators and financial indicators but the system The management system does not warn or exclude, but completely depends on the subjectivity of the scorer, so the grading results are misleading, leading to skewed decisions.

2.5.2.4. Agribank's own information system has not been built yet

Agribank has not yet built an internal customer information system to serve the scoring and rating of customers. Therefore, when it comes to obtaining information, customers face many difficulties due to difficulty in accessing reliable information sources, and the cost of collecting information is expensive.

Besides, although Agribank has developed a modern and stable IPCAS system, in order to meet international standards according to Basel standards, Agribank needs to invest more in its information technology system.

2.5.2.5. There is no industry average, industry risk to compare

Currently, data and information on Vietnam's industry are still limited and difficult to access. It will be difficult for businesses to locate their activities because there is no industry average to compare. Mainly businesses compare themselves this year compared to previous years. This comparison only determines the growth rate of the business, but cannot show the performance of the business with the industry in which the business operates.

Determining the level of industry risk is very important, because industry risk is systematic risk, each business will be affected by the risk of that industry.

2.5.2.6. The role of credit information centers is still limited, there is a lack of reliable credit rating agencies.

Vietnamese credit rating agencies were born and developed according to the general trend of the economy, although this field is still new and at an early stage compared to developed countries in the world. In recent years, credit rating agencies have developed in-depth by applying rating system software according to international standards and publishing rating publications, providing credit indicators. annual duty.

However, in recent times, the activities of Vietnam's corporate credit rating agencies have not been outstanding and have not developed commensurate with their roles and tasks in the economy.

Credit Information Center (CIC)

The predecessor of CIC was the Risk Information Department under the Credit Department - State Bank. In April 1999, its name was changed to Credit Information Center (CIC) under the Credit Department - State Bank. In February 1999, CIC became a non-business organization under the State Bank according to Decision No. 68/1999/QD-NHNN9 dated February 27, 1999 of the Governor of the State Bank, on the basis of reorganization of CIC under the State Bank of Vietnam. Department of Credit. In December 2008, CIC was re-established under Decision No. 3289/QD-NHNN dated December 31, 2008 of the Governor of the State Bank of Vietnam and became a non-business organization under the State Bank, implementing the autonomy and autonomy regime. financially responsible for all regular operating expenses.

The business credit rating analysis product at CIC was launched and piloted from 2002, until 2004 and was officially provided to credit institutions, in 2006 the business credit rating analysis business was approved by the Governor. SBV approval is an official operation of the Vietnam National Credit Information Center. That has confirmed the role, position and importance of corporate credit society in credit information activities.

CIC is the only unit in Vietnam that has strengths in credit society such as:

- Financial data of large enterprises is the basis that allows CIC to build measures that reflect the financial situation of enterprises, to provide a set of financial indicators reflecting the activities of enterprises in industries with appropriate sizes. fit.

- The credit history assessment data of enterprises is complete and accurate, with the credit information database of 100% of credit institutions.

Despite such many advantages, the Credit Information Center (CIC) only plays the role of aggregating credit relationships and the results of debt classification of customers at credit institutions. This synthesis has a certain delay compared to reality because the SBV only summarizes based on the reports of credit institutions. Currently, CIC has developed products to support the internal credit rating system of credit institutions such as solution package and Credit Plus+ corporate credit rating model. These products are only used by credit institutions as a reference condition, not a determining factor when granting credit.

Vietnam's independent credit rating agencies

Currently, no independent credit rating agencies in Vietnam have the capacity, reputation, and reputation to convince the market that their rating results are independent, objective and reflective. accurately reflect the credit quality of the rating object.

The limitation of these rating agencies is partly due to the incomplete and low accuracy of the information sources serving the ratings, leading to many difficulties in the assessment and classification. The lack of supplies from reliable organizations such as tax, customs, audit... or general data related to the industry or economic field in which the customer operates makes it difficult to assess the situation. actual business activities, operational prospects, market share... difficult to achieve high efficiency.

Conclusion Chapter 2

Chapter 2 gave an overview of the credit activities of the Bank for Agriculture and Rural Development of Vietnam. The author focuses on analyzing the current situation of the internal credit rating system at the Agricultural Bank. Although Agribank's internal credit rating system was born late compared to the provisions of Decision 493, it has basically complied with international standards and regulations of the State Bank. The credit rating system has shown its role as an effective risk management tool, helping the bank to quantify possible risks and offer appropriate risk prevention and compensation policies.

On the basis of analyzing the current situation of Agribank's credit rating system in comparison with theoretical models, comparing with the rating system of other commercial banks, from which, the advantages are drawn, weaknesses of Agribank's credit system. Proposing solutions and recommendations to improve Agribank's credit system, gradually meeting international standards on banking risk management, firstly following Basel II standards and then Basel III.

CHAPTER 3

SOLUTIONS TO COMPLETE THE CREDIT RATE SYSTEM OF BANK FOR AGRICULTURE AND RURAL DEVELOPMENT OF VIETNAM

In the business activities of commercial banks, especially in lending activities, risks are inevitable, and a low risk ratio is what every bank is aiming for. Bank administrators will use risk management tools to minimize arising risks. Credit transaction is considered completed only when the bank recovers all principal and interest. Credit risk refers to the likelihood or probability of completing that credit transaction. An efficient and well-managed commercial bank is when the risks are controlled to an acceptable level and do not affect the bank's operations.

In Vietnam, in order to best manage risk, managers must use risk quantification models most effectively. In particular, the models applied to credit risk management are important because credit is still the largest revenue-generating segment in commercial banks' activities. A good credit rating system will be an effective tool to help the bank make the right decision when granting credit. However, as analyzed above, risk is inevitable, so the bank must simultaneously use supporting measures such as making provision for risks, decentralizing credit, training professional staffs, etc. closely supervise banking activities so that the banking system can develop more sustainably and integrate with the region and the world.

Risk management according to international practices is the goal of the State Bank and commercial banks. The State Bank of Vietnam has issued documents regulating the construction of

Credit rating system as a tool for debt classification and credit quality management. Commercial banks have tried to build and perfect their internal credit society system according to the regulations of the State Bank, closely following international standards and suitable to the economic conditions in Vietnam.

Agribank's credit rating system has been built and completed to classify customers, relatively accurately reflect credit quality and debt classification according to regulations of the State Bank and international standards. . The customer scoring results on the credit system will be one of the bases for Agriabank to make credit granting decisions, credit policies, control measures and timely handling. However, in the context that the world and Vietnam have many fluctuations and have great impacts on the entire economy, it is necessary and urgent to perfect the credit card system in order to closely follow the changes of the market.

3.1. Agribank's development orientation to 2020

Bank for Agriculture and Rural Development of Vietnam is a commercial bank with 100% state capital and the largest bank in the Vietnamese banking system in terms of capital, assets, human resources, and network of operations. activities, the number of customers with a system of branches and transaction offices spanning 64 provinces and cities across the country; play a key and pillar role in the country's economy, especially in agriculture, farmers and rural areas; carry out the important mission of leading the market; taking the lead in seriously observing and implementing the policies of the Party and State, the direction of the Government and the State Bank of Vietnam on monetary policy, capital investment for the economy. Entering a new phase of deeper and more comprehensive integration, but at the same time facing more competition,

development orientation in the direction of a strong, modern and reputable financial-banking group in the country, reaching out to influence the regional and world financial markets.

To achieve the above objectives, Agribank focused the whole system on implementing synchronous solutions, which are: Implement appropriate capital mobilization measures for each type of customer, region and region; strengthen and expand cooperation relations with organizations, economic groups and corporations; Implement drastically the Project on restructuring Agribank's operations when approved by the Government; Renovate the mechanism of management and administration of business plans in the direction of improving the initiative and flexibility; Focus on improving credit quality, analyze and properly assess the status of bad debts and drastically implement measures to handle, recover and reduce bad debts; Consolidating and consolidating the organizational structure of Agribank's operating apparatus and the system of business administration and management mechanisms, building a modern management process in all professional aspects, focusing on improving the quality of human resources ; Consolidate the internal inspection and control system in the direction of improving quality and efficiency, reviewing and correcting the one-stop transaction process and post-inspection; Continue to modernize banking technology, develop modern products and services, increase service market share in urban areas, and quickly deploy products and services to serve "Tam Nong"; Improve the efficiency of marketing and communication activities associated with social security activities, thereby contributing to brand promotion, improving position and competitiveness, etc., continuing to affirm the position and prestige of the company. The largest commercial bank in Vietnam. improve service market share in urban areas and quickly deploy products and services to serve "Tam Nong"; Improve the efficiency of marketing and communication activities associated with social security activities, thereby contributing to brand promotion, improving position and competitiveness, etc., continuing to affirm the position and prestige of the company. The largest commercial bank in Vietnam. improve service market share in urban areas and quickly deploy products and services to serve "Tam Nong"; Improve the efficiency of marketing and communication activities associated with social security activities, thereby contributing to brand promotion, improving position and competitiveness, etc., continuing to affirm the position and prestige of the company. The largest commercial bank in Vietnam.

Thus, one of the key tasks of Agribank is to improve credit quality, analyze and properly assess the status of bad debts, and drastically implement measures to handle, recover and reduce bad debts. Bad debt is a burning problem of commercial banks and more than ever, now is the time for commercial banks to maximize risk management tools to ensure stable development. and sustainable.

The goal set for the credit system of Agribank is to maximize its role in classifying and evaluating customers to best control credit risk when making credit granting decisions. A very important role of the credit system is to accurately reflect credit quality at a given time in order to make reasonable decisions on inspection, supervision, provisioning and handling to preserve credit quality. capital and stabilize the bank's operations.

Completing Agribank's credit system must strictly comply with regulations of the State Bank, adhere to international standards, and be suitable to Vietnam's economic conditions and Agribank's development orientation. Besides, the credit socialization system must ensure consistency, accuracy and efficiency in customer scoring.

3.2. Solution to complete Agribank's credit rating system

With a system of nearly 2,300 branches and transaction offices nationwide and the number of customers with credit relations reaching tens of millions, monitoring and managing credit risk is a very important job. The internal credit system has helped Agribank perform quite well the assessment, classification and rating of customers. However, besides the advantages, Agribank's internal credit rating system still has some limitations. Therefore, in order to maximize the role of the internal credit rating system in managing and enhancing credit quality, Agribank in particular and the State management agencies in general need to take measures. suitable for building and perfecting the credit system.

3.2.1. Step by step perfecting and building credit rating method according to Basel standards

Currently, Agribank is using the basic internal credit rating system (F-IRB). Considering the present time, it is suitable for Agribank's technical, technological and human infrastructure.

According to the researchers, the credit rating analysis process must ensure the concordance between 4 factors: Rating theory, Data integrity, Rating method, Effective use of rating models class.

Currently, the credit rating results of Agribank have not been fully tested for the appropriateness between the above four factors. At Agribank, the data on credit ratings, debt classification and provisioning are in charge of the Risk Management Department. On the basis of the database of customers with credit relationships at Agribank, the Risk Management Committee summarizes the customers with the difference between the results according to internal credit ratings and the results of real quantitative classification. economic. Analyze the cause of this difference to check whether the ranking method and rating model is correct, appropriate or not to adjust accordingly. This conformity verification should be used by technical and quantitative analysis to perfect the current internal credit rating system and step by step approach to building an enhanced internal credit rating system (A. -IRB) according to Basel II standards.

3.2.2. Completing credit rating criteria

3.2.2.1. For individual customers

Through analysis of Agribank's credit rating system and other rating systems. The author proposes to change the proportion between the criteria of identity and the customer's debt repayment ability, placing the role of the factor of debt repayment ability higher than the factor of identity. Because according to the author's opinion, information on solvency is a quantitative factor with higher reliability than information on personal identity, so the proportion is higher.

Table 3.1: Percentage of individual customer scores
Criteria	In application	Author's recommendation
Criteria about personality	60%	45%
Indicators of ability to repay debt	40%	55%

Maybe you are interested!

3.2.2.2. For corporate customers Add a set of growth indicators

For the set of financial scoring criteria of enterprises, Agribank's credit rating system is applying a lack of a set of growth indicators: revenue growth, profit growth. Therefore, the author proposes to add a set of growth indicators. And adjust the set of financial indicators of the enterprise with the following proportions:

Table 3.2: Percentage of financial scores of corporate customers
TARGETS	PROPORTION
TARGETS	In application	Author's recommendation
1. Liquidity indicator	30%	28%
3. Performance indicators	25%	22%
4. Debt balance ratio	20%	18%
5. Income target	25%	22%
6. Growth target		ten%
TOTAL	100%	100%

Consider excluding the difference in tax policy to evaluate the profit after tax of the enterprise

The difference in tax policy will make a difference in the profit after tax of the business. Making a mistake in evaluating the performance of the business. So when evaluating, the author proposes to consider how the tax policy is being applied to businesses so that this difference can be eliminated in order to compare and analyze objectively and accurately.

Consider the issue of business size and risk

Due to the rapid and strong development of science and technology, large-scale enterprises may face greater risks than small and medium-sized enterprises. Especially for enterprises with large investment in machinery and equipment. Because, large enterprises often find it more difficult to change technology because the cost of this change is high. So from the point of view of enterprises with a larger scale, there will be a lower risk in many cases of problems and conflicts.

Therefore, the author proposes to review and adjust the relationship between scale and risk for industries sensitive to science and technology in Agribank's ranking system.

There is a distinction in the proportion of short-term, medium- and long-term debt for each industry

The same index on the proportion of short-, medium- and long-term debt, but for different industries, reflects the financial health of different businesses. A manufacturing business is different from a service business.

Therefore, Agribank's internal credit rating system must distinguish between short-term, medium- and long-term debt ratios for different industries. Criteria