Completing the credit rating system of corporate customers at Lien Viet Post Commercial Joint Stock Bank

The maximum total score multiplied by the weight of the group of non-financial information indicators that cause financial difficulties for enterprises is one hundred points.

Step 5: Determine the final total score to rank the business by multiplying the scores of the above steps (the score has multiplied the weights of the financial indicators, the forecast criteria and the non-financial information indicators of the enterprise). enterprises in Steps 2, 3, 4) with the respective weights of each group, then add them together to get the final total score as shown in Table 3.6. The basis of the highest proportion of non-financial indicators is to support the limitations of quantitative methods when calculating financial indicators. However, the weight of the non-financial criteria group compared to the total weight of the other two groups is not too different to maintain balance, not too biased and subjective when ranking.

Table 3.6: Summary score of enterprise credit society according to the proposed amendment of the topic

TT	Targets	Unweighted score (maximum)	Proportion	Weighted Points (maximum)
first	Financial indicators	100	30%	30
2	Forecast indicators	50	30%	15
3	Non-financial indicators	100	55%	55
total score	100%	100

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(Source: proposal of the topic)

Thus, the maximum score achieved by the enterprise after this step is 100 points, based on this final score, the enterprise credit rating according to nine ratings as presented in Table 2.5 (Page 38) has been detailed. in Chapter II of this thesis.

The credit scoring model proposed by the subject is not too complicated, but it still ensures that the rating is not too high, which makes it subjective when making credit decisions, and also ensures that it is not too low to cause banks to give up business opportunities. when turning down a good customer.

After implementing the credit policy, corporate customers will continue to be graded on their bank debt repayment status according to three levels: Good (Always repay on time, or new customers), Medium (Have had past due debts in the past). However, there are no past due debts, ie customers are in the probationary period) and bad (Overdue debts) as shown in Table 3.7 to serve the loan classification according to Article 7 of Decision 493. /2005/QD-NHNN.

Table 3.7: Evaluation of the debt repayment situation of enterprises according to the proposed amendment of the topic

Status of loan principal and interest payment	Evaluate
Always pay your debt on time, or new customers	Good
Have had past due debts, are in the trial period	medium
Having past due debt	Bad

(Source: proposal of the topic)

Loan classification for corporate customers is calculated according to the results of the two-way matrix between the credit rating and the debt repayment situation, detailed as in Table 3.8, including five levels: Qualified debt, outstanding debt , subprime debt, doubtful debt, and potentially forfeit debt.

Table 3.8: Business loan classification matrix according to the proposed amendment of the topic

Credit insurance level / Debt repayment situation	Good	medium	Bad
AAA AA A BBB	Eligible debt	Debt notes	Subprime debt
BB	Debt notes	Debt notes	Subprime debt
REMOVE	Debt notes	Subprime debt	Doubtful debt
CCC	Subprime debt	Doubtful debt	Irrecoverable debts
Old CC	Doubtful debt	Irrecoverable debts	Irrecoverable debts

(Source: proposal of the topic)

Verifying credit rating model of corporate customers of LienVietPostBank after adjustment

Using the data and information of the subjects presented in Chapter II of this topic, combined with the modified and supplemented model presented in this Chapter to conduct verification.

The topic of using the scoring model proposed in Section 3.2.2 (Page 55) Chapter III of this topic for credit socialization for Joint Stock Company B (Group of capital construction investment, medium-sized) has been approved. The review in Section 2.5.2 (Page 43) Chapter II of this topic shows that the total score of the enterprise in the financial indicators has been multiplied by 55.6 points as presented in Table 3.9. The baseline score is determined according to Table I.7 of Appendix I and Table 3.3 (Page 56).

Table 3.9: Scoring of the financial indicators of Joint Stock Company B by the revised model as proposed by the topic

Targets	Unit	Value	Initial score	Weight	Weight score
Liquidity target group
1. Short-term solvency	Time	1.06	40	14%	5.6
2. Quick payment ability	Time	0.86	80	8%	6.4
Activity target group
3. Inventory Turnover	Ring	5.27	100	8%	8
4. Working capital turnover	Ring	1.23	60	8%	4.8
5. Accounts receivable turnover	Ring	1.94	20	8%	1.6
6. Efficient use of assets	Time	1.06	60	4%	2.4
Debt balance group
7. Liabilities/Total Assets	%	86.98	20	15%	3
8. Liabilities/Equity	%	14.96	100	15%	15
Income target group
9. Profit before tax/Revenue	%	1.79	20	8%	1.6
10. Profit before tax/Total assets	%	1.90	20	6%	1.2
11. Profit before tax/Equity	%	14.61	100	6%	6
Total weighted score	55.6

(Source: Scoring according to the proposed model of the topic)

Joint Stock Company B is an equitized enterprise, not in the manufacturing industry, so the default risk index is determined as shown in Table 3.10. The calculation results show that the index Z” = 0.726 (Z” < 1.1), which means that the enterprise is in a dangerous area, with a high risk of bankruptcy.

Table 3.10: Determining the default risk index of JSC B by Altman’s Z-score statistical function

Targets	Unit	Value
Total assets (TA)	Million dong	281.730
Current Assets (CA)	Million dong	258.042
Short-term debt (CL)	Million dong	244.459
Working Capital (CA-CL)	Million dong	13.583
Retained earnings (RE)	Million dong	5.508
Earnings before interest and taxes (EBIT)	Million dong	7.838
Intangible Assets (IA)	Million dong	24
Book value of debt (TL)	Million dong	245.052
Book value of equity (BV=TA-IA-TL)	Million dong	36,654
X1 = (CA-CL)/TA	0.048
X2 = RE/TA	0.020
X3 = EBIT/TA	0.028
X4 = BV/TL	0.150
Z” = 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4	0.726

(Source: Extracted and calculated from LienVietPostBank’s outreach data)

The total score multiplied by the weight of the group of indicators predicting financial difficulties of JSC B is 12 points as shown in Table 3.11.

Table 3.11: Scoring indicators for forecasting financial difficulties of JSC B by the modified model proposed by the topic

Targets	Evaluate	Initial score	Weight	Weight score
1. Risk of default (Z-score)	Danger area	20	40%	8
2. Bank debt repayment of subjects holding 25% of the charter capital of the enterprise	Ever had debt extension, or loan restructuring, currently no past due debt	40	ten%	4
Total score by weight	twelfth

The non-financial information indicators of JSC B are scored as shown in Table 3.12 with the total score multiplied by the weight of this group of indicators is 71.6 points.

Table 3.12: Scoring of non-financial information indicators of JSC B by the modified model proposed by the topic

Targets	Evaluate	Initial score	Weight	Weight score
first	Management qualifications and internal environment	20%
1.1	Judicial history of the head of the business/business owner	Good criminal record, no criminal record, no criminal record	100	2%	2
1.2	Education level of the head of the business/business owner	University	80	2%	1.6
1.3	Experience, executive capacity and management quality of the business owner/leadership	Management experience and quality are quite good, the leadership apparatus is stable	80	5%	4
1.4	Reputation and relationship of the business owner in the market, with relevant agencies	Normal relationship	60	4%	2.4
1.5	Internal control environment, organizational structure of enterprises	Internal control processes are established but not regularly updated and checked. Good organizational structure	80	2%	1.6
1.6	Internal HR environment of the enterprise	Good	80	3%	2.4
1.7	Business strategic vision of the enterprise	Having a vision and business strategy, but the feasibility in some cases is still limited	60	2%	1.2
2	Factors outside the business	ten%
2.1	Industry development prospects	Relatively developed and promising	80	2%	1.6

Table 3.12: Scoring of non-financial information indicators of JSC B by the modified model proposed by the topic

Targets	Evaluate	Initial score	Weight	Weight score
2.2	Influences from the policies of the State, Government, local authorities	Does not have its own policy or is not heavily influenced by the policy (if any)	40	3%	1.2
2.3	Stability of input materials	Relatively stable or volatile but have little impact on business operations and profits	60	2%	1.2
2.4	The possibility of the company’s products being replaced by “substitute products” according to the assessment of GMOs	Relatively difficult	80	first%	0.8
2.5	The ability of new businesses to enter the market (in the same industry/business field) as assessed by GE	Difficult, requiring large capital and labor investment, high level	80	first%	0.8
2.6	The degree of dependence of the enterprise’s business activities on natural conditions	There is a dependency but the effect is not significant	80	first%	0.8
3	Relations with CIs	24%
3.1	Overdue debts/total current outstanding loans of enterprises at credit institutions	0%	100	4%	4
3.2	Number of times of debt restructuring, Late payment of interest, Number of times of insolvency/late payment commitments in the past 12 months at credit institutions	0	100	4%	4
3.3	Debt repayment history of enterprises with Lien Viet Bank	Always pay your debt on time	100	4%	4
3.4	Using loan capital for wrong purposes when borrowing capital at Lien Viet Bank	Never used capital for the wrong purpose	100	3%	3
3.5	Percentage of average deposit balance (in the last 12 months) / Average outstanding balance of enterprises at Lien Viet Bank (in the last 12 months)	<2%	20	4%	0.8

Table 3.12: Scoring of non-financial information indicators of JSC B by the modified model proposed by the topic

Targets	Evaluate	Initial score	Weight	Weight score
3.6	Average number of transactions with Lien Viet Bank	< 2	20	5%	first
4	Operational characteristics of the business	forty six%
4.1	Position and competitiveness of enterprises in the market	Branded but commonly known, the position belongs to a stable development group. Be subject to competition but have a clear direction of development to improve its position.	60	5%	3
4.2	Scope of business activities (scope of product consumption)	Only within Vietnam or the surrounding border area	80	4%	3.2
4.3	Supplier relationship	Fully active and with multiple input options	100	3%	3
4.4	Relationship with output partners	The output market is huge. Enterprises are not dependent on a small number of output partners, fully actively developing sales	100	5%	5
4.5	Main substance	quantity	newspaper	fox	talent	Report truthfully, completely, with audit, sent on time	100	5%	5
4.6	Applying modern management model (ISO) and advanced technological processes	Do not apply	20	2%	0.4
4.7	Achievements are widely recognized	Never received awards from organizations	20	2%	0.4
4.8	Net cash flow trends	Downtrend (positive period net cash flows)	60	3%	1.8
4.9	Quarterly revenue growth rate compared to the same period last year	< 20%	80	2%	1.6
4.10	Coverage of property that can be damaged	No insurance	20	3%	0.6
4.11	Separation of duties and powers in business leadership	There is a separation, but it is not complete and reasonable	60	3%	1.8
4.12	Medium and long-term debt repayment capacity	1 time	60	2%	1.2

Table 3.12: Scoring of non-financial information indicators of JSC B by the modified model proposed by the topic

Targets	Evaluate	Initial score	Weight	Weight score
4.13	Diversify industries and business fields	No diversification	60	2%	1.2
4.14	Sources of debt repayment of enterprises according to the assessment of the CBA	Reliable source of debt repayment, businesses are fully capable of paying debts on time	100	5%	5
Total weighted score	71.6

(Source: Grading according to the proposed model of the topic)

Thus, the total credit score of Joint Stock Company B is 59.6 points as Table 3.13, equivalent to the BB rating as presented in Table 2.5 (Page 38) Chapter II of the topic. With this credit society, Joint Stock Company B is assessed as Low effective operation, medium financial potential and management capacity, medium risk, may face difficulties when adverse economic conditions persist for a long time. , limit credit expansion, focus only on short-term credit and require adequate collateral. Comparing the credit performance of Joint Stock Company B with the fact that bad debt has occurred shows that it is completely consistent. If in 2010, enterprises were properly assessed according to their capacity and risk, then the bank’s credit policy towards Joint Stock Company B was tightened by limiting or reducing credit limits and required If the demand for assets is sufficient, if this is the case, it is difficult for enterprises to expand the scale of business activities in 2011.leading to many risks for enterprises in the year-end period. And so, the bank also better control the increase in bad debt.

Table 3.13: Summary score of corporate credit society of Joint Stock Company B by the modified model proposed by the topic

STT	Targets	Scores are not weighted	Proportion	Points have been weighted
first	Financial indicators	55.6	30%	16.6
2	Forecast indicators	twelfth	30%	3.6
3	Non-financial indicators	71.6	55%	39.4
total score	100%	59.6

(Source: Grading according to the proposed model of the topic)

On the basis of the credit rating of JSC B as above, with the assessment of the repayment status of banks at an average level, the enterprises’ loans are classified as “Debts to pay attention” according to the matrix combining the level of Credit society and assessment of loan repayment are as presented in Table 3.8 (Page 67).

Using the post-adjusted credit scoring model as described above to re-evaluate the credit capacity of JSC A (belonging to the group of light and medium-sized industries) reviewed in Section 2.5.1 (Page 40) Chapter II of this topic. The credit rating results of Joint Stock Company A achieved the final total score multiplied by 58.9 points, equivalent to the BB credit rating as detailed in Appendix V. This result is also completely consistent This is consistent with the assessment of the current situation of the business at the end of 2011. The ranking of loans of JSC A according to the matrix combining the level of credit and debt repayment situation gives the result “Debts needing attention. idea”. Judging by the actual situation with the current difficult economic conditions and low construction demand,The bank’s lending to JSC A medium and long term to implement the construction material factory project is likely to generate overdue debt and bad debt, leading to the possibility of not fully recovering the principal and bank loan interest.

Solutions to complete the CBA system at Lien Viet Post Commercial Joint Stock Bank

Assessing the credit risk of corporate customers or borrowers in general, based only on the credit scoring model, the results achieved may still be far from reality due to the continuous fluctuations of credit institutions. economic conditions and business environment. Almost no analytical method or a complex system can completely replace the experience as well as the professional judgment of the operational staff. Therefore, LienVietPostBank still needs to have a close coordination between human factors and technology in the credit society of corporate customers in order to effectively manage credit risk.

Through analyzing the outstanding achievements and limitations of the CBA model being used at LienVietPostBank, the topic proposes solutions to improve the CBA system at Lien Viet Post Commercial Joint Stock Bank as follows:

Amending and supplementing the enterprise credit society model in the direction of adding a group of indicators for predicting the risk of enterprise bankruptcy (mainly Altman’s Z-score function), adjusting the weights and adding in the criteria group financial and non-financial, supplementing the loan classification matrix, etc. to properly reflect the corporate credit society and the corresponding debt classification as proposed to amend the corporate credit model presented in Section 3.2 (Page 52) ) Chapter III.

Strengthening the actual inspection of customers’ business activities before and after lending. LienVietPostBank’s branches need to collect timely information about customers’ movements in order to adjust credit policies flexibly and reasonably.

Branches of LienVietPostBank need to urge and encourage businesses to comply with the law on accounting and auditing. The business credit scoring results of the model proposed by this topic are influenced by compliance with accounting standards and especially by international accounting standards because of the use of a failure risk prediction model. Debt is widely used in the world.

Building a complete information system of LienVietPostBank. Like other commercial banks, LienVietPostBank also faced difficulties in accessing information sources to serve the credit socialization. In order to have a separate database, serving the credit socialization, LienVietPostBank must establish a central information system. Branches are obliged to report periodically or upon unexpected request information on relevant business customers. contact at the branch to the storage center. When needing information, branches will ask the center to provide information. In addition, setting up a specialized software program to perform credit transactions also helps data to be entered accurately and synchronously throughout the system.

In the condition that the internal resources of the bank itself are not synchronized and inadequate, LienVietPostBank can take advantage of the experience, technology, and management level of auditing organizations and organizations. Leading credit society through consulting programs, supporting strategic partners to perfect its credit society system. It is necessary to establish an information exchange channel between banks on the basis of competition and cooperation in order to achieve the common goal of preventing and minimizing risks in credit activities.

Strengthen ethics training, improve professional qualifications and skills in analysis and assessment.