Analysis of Credit Situation and Credit Risk Management of Vietnam Bank for Agriculture and Rural Development, Vinh Thuan Branch

customer lending policy. In order for the bank's credit activities to grow and develop in the right direction, safely, effectively, sustainably and with risk control, the bank must develop a certain, reasonable credit policy that is appropriate to the bank's characteristics.

+ Credit process: With increasingly diverse and rich credit activities and a more competitive environment, credit activities have more potential risks. Therefore, it is necessary to put in place measures to control and limit risks and one of the effective management and control methods is to build a credit process in a certain order from when the customer requests a credit profile until the loan is fully paid off. Building a reasonable credit process will contribute to improving the effectiveness of credit risk management activities to minimize risks and increase business profits for the bank.

2.3.4.4. Risk financing.

When risks occur, banks must determine the losses in human resources, assets and legal values. From there, measures to overcome and handle risks are proposed. When there are measures to handle but the loan capital is still not recovered, the bank must propose appropriate credit risk financing measures to ensure normal bank operations and a balanced capital structure.

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Credit risk financing is to compensate for credit risks that occur to improve the financial health of the bank, but not completely eliminate the debt for customers. For financed loans, the bank still monitors credit risks until the debt is recovered. Sources of capital to finance credit risks include: Credit risk reserve fund, financial reserve fund, and government subsidies.

+ The risk reserve fund is formed after classifying credit levels based on the assessment of the loan risk level and is accounted for in the bank's operating expenses.

+ The financial fund is formed on the basis of the financial reserve ratio, which is set aside annually and this fund is used to compensate when the fund set aside in expenses is not enough to cover actual losses.

+ In addition to the sources that banks use to finance risks, they can also be compensated from government subsidies in cases of force majeure.

2.3.5. Document review

Currently, there are many studies on risk management activities of many different banks, but with more diverse and richer research methods to delve deeper into the study of credit risk management situation at a specific bank. According to the new and more complete structure, this study has presented many positive and negative aspects that exist in the banking system, with many solutions proposed for banks to improve and develop more. Including the following studies:

The study “Credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade” (Luu Thi Viet Hoa, 2014) shows the situation and credit risk management at the bank. The study uses qualitative and quantitative models to measure risk. From there, there are measures to apply better risk management for banks.

In the study “Credit risk management at Kon Tum Province Investment and Development Bank” (Phan Thanh Hien, 2011), the author presents theories on risk to apply in practice credit risk management activities to suit the conditions and characteristics of each bank’s operations. At the same time, the study implements solutions to improve credit risk management to contribute to minimizing risks in credit activities.

The study by author Pham Kim Yen (2011) "Measures to limit risks in credit activities and practical application of those measures at the branch of the Bank for Agriculture and Rural Development of Vinh Thuan District - Kien Giang" points out the causes of credit risks and offers some solutions to limit credit risks at the bank. In the research area, where there are many individual customers mainly in the agricultural production industry, the study focuses on limitations and solutions to limit risks.

The study "Analysis of credit situation of production and business households at the Bank for Agriculture and Rural Development, Phu Tan District Branch, An Giang Province" (Dang Minh Chau, 2016) uses the method of comparing absolute and relative numbers and the Binary Logistic model to examine the trend of fluctuation in credit situation of production and business households and propose solutions for further development of the bank.

Based on the theoretical basis of previous studies, the author's research applies practical factors of the Bank for Agriculture and Rural Development, Vinh Thuan Kien Giang branch, in addition to making comments on risks and risk management. In

The study combines qualitative and quantitative methods in the Binary Logistic model to estimate to understand the actual situation in the locality to see how people's lives affect loan risks. From there, propose measures to overcome credit risks at the bank.

CHAPTER 3. ANALYSIS OF CREDIT SITUATION AND CREDIT RISK MANAGEMENT OF VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT, VINH THUAN BRANCH - KIEN GIANG

3.1. OVERVIEW OF VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT.

3.1.1. Formation and development process.

In 1986, the 6th Party Congress initiated the renovation policy, identifying renovation in the banking system as the key step. On March 26, 1988, the Council of Ministers (now the Government) issued Decree 53/HDBT establishing specialized banks, including the Vietnam Bank for Agriculture and Rural Development. This moment is considered an important milestone marking the birth of Agribank - a specialized bank leading the way in investing in a field with the most difficult risks.

In 1990, it was renamed Vietnam Bank for Agriculture, operating for 6 years, on November 15, 1996, the Governor of the State Bank signed Decision No. 280/QD-NHNN officially changing the name to Vietnam Bank for Agriculture and Rural Development. With three name changes to suit the development situation of the country, in accordance with the functions and tasks of a banking system operating in a market mechanism in a large area of Agriculture - Rural Areas - Farmers.

In the journey of growth and development of the national economy, agriculture and rural areas are identified as the leading "front". Under the direction of the Party, the Government, and the State Bank, with the will and courage to overcome all difficulties and challenges, with creative breakthroughs and new ways of doing things, Agribank undertakes important political tasks in the rural agricultural credit market, affirming its leading role in investing in the field that has made many positive contributions to the achievements of Vietnam's economic innovation. With the results achieved in 2009, Agribank is honored to be the first bank to receive the Top 10 Golden Star Award twice in a row.

In 2014, the restructuring project was implemented with the goal of continuing to be the pioneer and leading commercial bank in the rural financial market. By 2015, the Agribank restructuring project was completed with results achieving most of the set goals and plans, ensuring that Agribank both fulfilled its political tasks as a State-owned commercial bank, taking the lead in implementing policy credit and social security, and

Ensuring business performance in the context of increasingly fierce integration and competition.

With a newly established starting point of total assets of less than 1,500 billion VND; total capital of 1,056 billion VND, of which mobilized capital accounted for only 42%, the remaining 58% had to be borrowed from the State Bank; total outstanding debt of 1,126 billion VND, of which 93% was short-term; bad debt ratio of over 10%; Customers were state-owned enterprises and cooperatives, most of which were operating at a loss, lacking jobs and always facing the risk of bankruptcy, up to now, Agribank has become the leading State-owned commercial bank in Vietnam in terms of total assets, capital, outstanding debt, and a network of 2,300

branches and transaction offices , a staff of more than 40,000 officers and employees and a number of customers. As of December 31, 2016, Agribank continued to maintain its leading position among commercial banks in the 2016 Vietnam Top 500 Largest Enterprises Ranking with the following overall scale:

- Total assets reached 1,000,000 billion VND, an increase of 390,000 billion VND compared to the time before restructuring.

- Total capital: 924,000 billion VND, an increase of 392,000 billion VND compared to the time before restructuring.

- Total outstanding credit balance is 795,000 billion VND, an increase of 327,000 billion VND, of which agricultural and rural loans account for 70% of Agribank's total outstanding loans and 51% of the total outstanding loans of the entire banking sector invested in this field.

Despite certain ups and downs, along with the economic recovery, appropriate solutions and policies of the Government, the State Bank and the efforts to rise up with the determination of more than 40,000 employees at 2,300 branches and transaction offices, Agribank's business activities are stable and growing well, completing the restructuring project for the period 2013-2015 and entering the implementation of the business strategy for the period 2016-2020.

- Vietnamese name: Vietnam Bank for Agriculture and Rural Development.

- English name: Vietnam Bank For Agriculture and Rural Development.

- Abbreviation: VBARD

- Head office: No. 2, Lang Ha, Ba Dinh district - Hanoi capital.

3.2. Overview of Vinh Thuan district, Kien Giang province.

Vinh Thuan District, Kien Giang Province, is a district located in the U Minh region of Kien Giang Province, 80km from the center of Rach Gia City.

by land and 100km by water to the east and 50km northeast of Ca Mau city, with geographical coordinates from 9 degrees 22' to 10 degrees 42' north latitude and from 105 degrees 3' to 105 degrees 19' east longitude.

With a natural area of 394.8 km². Vinh Thuan district consists of 1 town and 7 communes. The terrain is a delta plain, a saline alum land, a tropical monsoon climate characterized by two distinct rainy and sunny seasons. The rainy season begins around May and ends in early November. This area rarely experiences storms and floods. The main wind direction is southwest northeast. With a population of more than 91,000 people; the total labor force of the district is about 47,890 people, in which the majority of laborers are in agriculture, forestry and fishery.

3.3. The formation and development process of the Bank for Agriculture and Rural Development, Vinh Thuan, Kien Giang branch.

Vinh Thuan Branch of the Bank for Agriculture and Rural Development is a unit under the Bank for Agriculture and Rural Development of Kien Giang Province - a member unit of the Bank for Agriculture and Rural Development of Vietnam. Established under Decision No. 53/HDBT dated March 26, 1988 of the Chairman of the Council of Ministers (now the Government) on the basis of the entire transfer of the State Bank branch of Vinh Thuan district.

The branch's headquarters is currently located in Vinh Dong 2 Quarter, Vinh Thuan Town, Kien Giang Province.

Initial mobilized capital (at the end of 1980 was 350 million, by 2016 the mobilized capital balance was 203,998 million VND.

The outstanding loan balance at the end of 1988 was only over 1 billion VND and mainly invested in State-owned enterprises and partly invested in the collective economy. By the end of 2016, the outstanding loan balance reached 324,504 million VND. The number of employees of the branch at the end of 1988 was 43 officers. After more than 25 years of innovation and reform of operating policies, the number of employees of the banking system and job transfers, retirement, resignation... is now 21 people.

3.3.1. Organizational structure and operations of departments.

3.3.1.1. Organization of management apparatus.

The State Bank of Vietnam , Vinh Thuan District, performs monetary business functions and has its headquarters in Vinh Thuan Town, the cultural center of the district.

The State Bank of Vietnam , Vinh Thuan District currently has 21 officers and employees, including:

- Board of Directors: 03 people.

- Sales department: 06 people

- Accounting and treasury department: 08 people

- Inspector: 02 people

- Administration - security: 02

MANAGER

VICE PRESIDENT

SALES DEPARTMENT

INSPECTOR

ACCOUNTING DEPARTMENT

– BUDGET

Figure 3.1. Organizational chart of Agribank Vinh Thuan branch

3.3.1.2. Functions and tasks of departments.

Director (GD): Is the person who runs the bank's operations, directly directs departments, guides and supervises the proper implementation of functions and tasks assigned by superiors. The Director has the right to decide on issues related to the organization of appointment, reward or discipline of officers and employees.

Deputy Director (VP): Responsible for assisting the Director in operations, supervising the operations of the units' departments, urging compliance with established regulations, directly managing the Business Department and the Accounting - Treasury Department, and representing the Director in managing the bank's operations when the Director is on business trips.

Business Department (Credit Department): Tasks of direct transactions with customers, consulting, checking customer records. Directly appraising customers' loan projects and collecting customers' debts until maturity. Monitoring the situation between capital use and capital sources, capital needs to implement investments. From there, submit to the Director for planning and decision.

Accounting and treasury department

- Accounting department: Carry out payment procedures, disburse loans to customers according to the orders of the Director or authorized person; Accounting, follow up on customer records, account for lending transactions, debt collection, overdue debt transfer, assign financial targets, financial settlement, salary settlement for affiliated branches, make payments to the State budget.

- Treasury department: Directly collects and disburses when there is an occurrence during the day and is responsible for checking cash and checks in the warehouse daily. At the end of each day, closes the treasury book and works with the accountant to monitor arising treasury transactions to promptly correct errors.

3.4. Functions and tasks of the Bank for Agriculture and Rural Development, Vinh Thuan, Kien Giang branch.

With the function of a state-owned commercial bank, the State Bank of Vietnam - Vinh Thuan Kien Giang branch performs the following operations:

- Short-term loans for individuals and organizations that need to use capital in production and business activities. Medium and long-term loans for economic organizations that need long-term capital with specific goals and the ability to meet capital sources.

- Capital mobilization and service provision:

+ Receive term and non-term savings deposits.

+ Open payment and deposit accounts for economic organizations and individuals.

+ Western Union fast money transfer service.

+ Foreign exchange business pays remittances.

3.5. Loan process of NHN 0 &PTNT, Vinh Thuan Kien Giang branch .

In order to conduct business activities effectively and with quality, the bank conducts lending according to the following process:

Step 1: Receive, collect information and guide customers to create loan application.

The credit officer in charge of the area receives the loan application, business production plan/investment project to advise and guide the customer to provide preliminary information, necessary to set up the loan application. Present documents related to the collateral, to advise the customer. The credit officer collects

Analysis of Credit Situation and Credit Risk Management of Vietnam Bank for Agriculture and Rural Development, Vinh Thuan Branch - Kien Giang

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