Consumer lending activities of banks face many risks. Therefore, internal control plays an important role in identifying, measuring and evaluating activities, etc. to promptly detect and prevent risks in consumer lending activities. , thereby proposing appropriate risk management measures, improving the efficiency of consumer lending of banks. Regular and serious internal control activities will greatly affect the efficiency of the bank’s consumer lending activities.
In addition, the quality of human resources also plays an important role in evaluating the performance of a bank. An officer with a good attitude, professional ethics, in the process of approaching to serve customers will create customers’ trust and create a good image in each customer. Moreover, a qualified credit officer with banking experience and qualifications will reduce risks when that officer gives correct appraisal results, helping to ensure loan effectiveness.
A bank with a sound and reasonable credit risk management strategy will help the bank to identify and measure possible risks and have strict supervision and control to ensure that the safety of capital sources as well as improving the efficiency in credit card activities of the bank.
A reasonable credit policy helps credit card activities to grow effectively and sustainably while ensuring the control of bank risks. Credit policies need to be suitable to customers’ needs, identify potential customers in order to offer incentives, limit lending to customers with high risk, besides CVTD must also conform to general regulations and be more professional and convenient for customers.
The bank’s reputation is also an indicator of the effectiveness of lending activities. Reputation is the image of the bank in the eyes of customers, the customer’s assessment of the bank’s activities. Customers often choose long-standing banks with good business performance, safety and soundness. Moreover, a bank with a good reputation will attract more customers, which is the premise for mobilizing large capital sources to the bank at a cheaper cost and saving time.
From there, the bank will have resources for lending activities in general and credit card activities in particular.
It can be said that the qualitative indicators reflecting the effectiveness of lending activities are based on generalization, and it is difficult to define standards. In order to evaluate more accurately, it is necessary to base on a system of specific quantitative indicators including those related to credit card activities of the bank.
1.2.2.2. Quantitative indicators
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Activities Of Using Capital (Mainly Lending Activities)
In addition to qualitative indicators, the effectiveness of credit card activities is also evaluated through quantitative indicators as follows:
CVTD’s capital turnover
CVTD’s capital turnover = CVTD debt collection / Average credit balance
Credit turnover ratio reflects the number of capital cycles of commercial banks to customers of credit card activities, indicating whether the loan collection time is fast or slow. This ratio increases, showing good loan management and high lending efficiency. On the contrary, this index is low, indicating that there may be uncertainties in the capital recovery process. Through that, the bank will soon take measures to remind and urge customers, and promptly limit possible risks. This is also the basis for the bank to decide whether to lend in the next time or not. Besides, it is also necessary to consider a factor that is the average outstanding loan balance. When the average loan balance is low, it makes the credit turnover large, but it does not reflect the high loan quality because it shows the poor lending ability of the bank.
Sales of consumer loans
Credit turnover is the total amount of money that a bank credits during a period, it reflects all credit accounts that the bank has issued for a loan in a certain period of time, regardless of whether the loan has been recovered or not and reflects reflects the volume of lending activities during the period. This is an accurate and absolute indicator of lending activities in the long run, showing the ability of lending activities over the years.
Proportion of CVTD sales = CVTD sales * 100% / Total loan sales
Outstanding consumer loans
Credit card balance is the amount that customers are borrowing from the bank at a time.
This indicator is often used in conjunction with the credit card sales target to reflect the bank’s credit card operations. The larger the credit card balance, the faster the growth rate of outstanding loans, proving that the bank has a reputation and diversified and rich customer service. And conversely, low consumer loan balance shows that the bank is not able to expand its customer network, credit card activities are not good. However, it does not mean that the higher the outstanding balance, the more effective the credit card activities.
Equity ratio = Total outstanding loans * 100% / Total outstanding loans
This indicator shows what percentage of total bank loans are consumer loans. This large indicator means that the bank has strengths in credit card activities, the customers that the bank is targeting are individuals and households. On the contrary, if this indicator is small, it shows that the bank’s potential in consumer lending is low, or maybe credit cards are not included in the bank’s lending policy. At such banks, it is possible that the customers they target are those who come to borrow for business purposes.
Revenue from debt collection CVTD
Debt collection is the total principal amount recovered by the bank from disbursements during a given period.
Proportion of revenue from debt collection CVTD = Revenue from debt collection CVTD*100% / Total revenue from debt collection
This indicator reflects in a certain period of time with a certain loan turnover, how much money a bank can earn from loan sales. The higher this indicator, the better it is evaluated, showing that the bank’s capital recovery is more effective. This high ratio also reflects that the bank’s credit accounts have achieved good results, the repayment ability of customers is at a stable level, and the bank’s risk is reduced.
Rate of overdue debt in CVTD
Overdue debt (NQH) is a debt of principal or interest that a customer cannot pay at the due date as agreed in the credit contract.
The overdue debt ratio in the credit portfolio is the percentage between the NQH and the bank’s total outstanding loans at a certain time, usually at the end of the month, quarter, or year. This ratio indicates at the time of determining how many dong for every 100 dong a bank has given a consumer loan, which is NQH.
Ratio of NQH = NQH of Credit * 100% / Total outstanding loan balance
For banks, the failure of customers to pay on time can affect the liquidity as well as business activities of the bank, the ability to collect loans is low. Banks need to take effective measures to minimize losses in a timely manner such as strengthening the work of urging customers to pay debts when they are due, actively collecting overdue debts as well as closely monitoring the financial situation of customers. customers to minimize the risks in lending may come. The effectiveness of lending activities is also partly demonstrated through NQH. The higher the NQH ratio, the more likely the bank is facing credit risk and is likely to lose capital.
NPL ratio in CVTD
Bad debts are debts with very low recoverability. According to Decision 493/2005/QD-NHNN, debt from group 3 to group 5 is bad debt and the ratio of bad debt to total outstanding loan is about 2% – 5% is acceptable.
NPL ratio in CVTD = CVTD bad debt * 100% / Total outstanding loan balance
The bad debt ratio in the credit portfolio reflects the proportion of bad debt in the total outstanding loans of the bank, showing how many VND in 100 VND of credit card debt is bad debt. The higher this ratio, the more it reflects the risks in consumer lending of large banks. Bad debt reflects the bank’s difficult ability to recover capital at this time, which is no longer at the normal level of risk but is at risk of capital loss. There are many measures to solve bad debts, depending on the actual situation of the business, the bank can offer different measures from debt extension to sale of special assets.
Ratio of bad debt to overdue debt in CVTD
The ratio of bad debt to overdue debt in the credit CV shows how many VND is currently out of 100 VND being overdue debt. If this ratio is high due to bad debt in credit portfolio, this indicator reflects the bank’s ability to recover bad debts, the bank faces many risks in credit card activities, and the bank’s credit card performance is poor. But if this ratio increases due to a decrease in overdue debt in the credit portfolio, it reflects the bank’s credit card activities more effectively.
NQH bad debt ratio = CVTD bad debt * 100% / CVTD overdue debt
Restructured debt ratio (NCCL) debt repayment term in CVTD
When customers have difficulties in paying loan interest and principal, customers can ask the bank to consider restructuring that loan. Debt restructuring can be done in many different forms, including changing the repayment term, repayment period, number of repayments, and the amount of each installment.
NCCL rate for repayment term = NCCL for loan repayment term * 100% / NQH CVTD
The NCCL ratio of the repayment term in the credit portfolio tells us how much of the current 100 dong of overdue debt has been restructured by the bank.
Ratio of defaulted debt in CVTD
Debts that cannot be recovered are called default. The ratio of bad debts to total outstanding loans tells us how many VND out of 100 VND of bad debt currently cannot be recovered.
Ratio of lost debt in CVTD = Bad debt CVTD * 100% / Bad debt CVTD
Provision ratio (DPRR) CVTD
According to Article 2 of Decision 493/2005/QD-NHNN stipulates: “Risk provision is an amount set aside to make provision for possible losses due to customers of a credit institution failing to comply in the commitment”. Therefore, banks use the risk reserve fund to offset overdue debts of customers when risks occur so as not to affect the bank’s profits. Currently, to assess the issue of setting up and using reserve capital, banks use the following criteria:
Appropriation rate DPRR CVTD = DPRR CVTD deducted * 100% / Loan outstanding balance
The DPRR ratio for consumer loans shows how much the provisioning structure is on the total outstanding loans for consumer loans. According to current regulations, the larger the group of bad debt accounts for the total loan balance, the more DPRR banks have to deduct. The higher this ratio, the greater the potential credit risk that the bank is facing, the lower the effectiveness of credit card activities.
Ability to offset risks for credit accounts
In the market economy, commercial banks have to operate in a fiercely competitive environment, subject to the great influence of the laws of supply – demand, the law of competition, etc., so they must regularly face risks from all side. If the bank does not know the financial situation, creditworthiness of the partner’s solvency, does not understand, and cannot check the specifications and efficiency of the project it is sponsoring, the loan risk is unavoidable thing.
Coverage ratio of CVTD = Deducted DPRR / Dissolved debt
If the coverage ratio is less than 1, the bank is not able to cover the risk. If the coverage ratio is equal to 1, the bank has enough capacity to cover the risk in the credit portfolio. If the coverage ratio is greater than 1, the DPRR is greater than the credit balance that has been dealt with.
Income from CVTD activities
A loan is considered effective when it generates income for the bank. Banks do business with the ultimate goal of profit. Effective credit card activities will help the bank not only get the initial capital but also earn interest to pay for expenses and make more profits.
Income from credit card = Interest from credit activities * 100% / Total income
This indicator reflects the profitability of the bank’s credit portfolio, it shows the rate of interest arising from consumer lending activities per unit of income.
1.2.3. Factors affecting the improvement of the efficiency of consumer lending activities
The process of formation and development of any type of banking service is also influenced by many objective and subjective factors. Therefore, when promoting the efficiency of business operations in general or promoting the efficiency of credit card activities in particular, banks must always research and analyze influencing factors to have appropriate strategies and plans. , bringing high efficiency to the bank.
1.2.3.1. The subjective factor
Group of factors belonging to the bank
Bank’s policies and regulations: credit policy, customer care policy before and after credit granting; regulations on interest rates and credit fees; loan application procedures; Appraisal time¼ All of these factors have a direct impact on the customer’s loan demand.
The bank’s human resources: The bank’s human resources represent the image of the bank in the eyes of customers. A bank with highly qualified staff and attentive and dedicated service is a competitive advantage, as it can enhance the ability to attract customers and enhance the bank’s position. In addition, a team of professionally trained credit officers has a direct influence on consumer lending, helping banks reduce lending risks through their direct contact with customers. , customer appraisal as well as monitoring the entire process of using capital of customers.
Scientific and technological level of the bank: A bank equipped with modern technologies will make business operations more efficient. Banks can manage customers more easily, saving labor as well as management costs. In addition, the improvement of technology can increase convenience for customers, banks bring products to customers more conveniently and their services will be more known.
Quality of appraisal: Appraisal is the pre-credit analysis stage of the credit process. This is the most important step, deciding the quality of credit analysis, whose main content is to collect and process information related to customers and evaluate information about customers’ repayment ability, calculating feasibility of the project, appraisal of special assets….In credit card activities, this work has a great influence on the loan’s effectiveness, as the credit bureau’s customers are often small and difficult customers. look for information. The appraisal is not carried out in the correct order according to the credit process, which will cause risks for the bank..
Internal inspection and control activities: Inspection and control is the stage after disbursement, helping the bank to have information about the use of capital of customers. The implementation of strict inspection and control helps the bank manage customers’ activities according to certain regulations and charters, thereby quickly detecting customers’ mistakes and offering solutions to help customers. ensure safety and efficiency in lending activities and increase profits for banks.