Bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch

quickly and conveniently, on that basis, it can help the Bank make appropriate credit decisions for customers.

Branches should continue to expand and coordinate with other agencies, organizations and individuals to be able to grasp updated information about customers. The Credit Information Center (CIC) or the Vietnam Chamber of Commerce and Industry (VCCI) are reputable agencies that can provide reliable information about customers' production and business situation.

Branches should also proactively conduct direct surveys at customers' production facilities to have the most objective view, or to verify the accuracy of the collected information.

Regularly update and supplement the credit manual: the appraisal must be accompanied by other credit conditions, especially conditions on total outstanding loans and financial structure of customers, to ensure the level of safety in business. To effectively implement this requirement, it is necessary to focus on quantitative analysis, quantifying the level of risk of customers through evaluating data, and at the same time combining with qualitative analysis (analysis of macro, micro environment, internal environment of customers, credit relationship history with the bank...) to recognize potential risks and the ability to control and limit those risks of the bank.

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In quantitative analysis, apply and perfect the customer credit scoring and rating system. This system needs to be regularly adjusted to suit the reality and economic conditions of Vietnam, and should not be rigidly based on calculations of countries with dissimilar conditions. Through the use of quantitative models, the level of risk will be reasonably quantified, reflecting more clearly the level of risk of expected loans and building measures to prevent and limit risks before granting credit to customers. Efforts to determine reasonable credit limits will help banks always be proactive and have effective solutions to control credit risks.

Based on the approved credit limit, each time a loan is granted, the main focus is on analyzing the risks of that loan option to reduce the time it takes to process transactions. In this analysis, it is necessary to focus on the legality of the option.

loan project, supply source, market and consumption capacity... At the same time, it is necessary to present expected risks, the bank's control capacity and handling scenarios when bad situations occur.

In the appraisal of investment projects, the situation of increasing the actual value of the project to borrow more and rent more land is quite common. This has led to risks because the actual equity capital of the borrower accounts for a low proportion, leading to low responsibility of the customer, and at the same time, when the risk occurs, the ability to recover the debt has decreased. To ensure objective and accurate determination of the value of the secured assets, it is necessary to hire an independent, reputable valuation or auditing organization to conduct a full audit of the settlement of the value of the project and the valuation of the assets.

Based on cooperation, the State Bank connects data warehouses between banks to supplement, increase the completeness and accuracy of the data warehouse, not only customer data but also industry assessments and forecasts, as a foundation for credit analysis and appraisal.

In addition, in the integrated economy, Vietnamese enterprises in general must compete with both domestic and foreign enterprises. To enhance reputation and brand, ensure rights and obligations, customers have joined together, organized and established associations such as business associations, industry associations, to act as a bridge between customers and other organizations, quickly access support programs, preferential policies of the State, strengthen the connection between enterprises, promote production, product consumption, improve the efficiency of production and business activities of each enterprise. Therefore, the Branch needs to build connections with local authorities, Hanoi City Business Association, Young Entrepreneurs Association... to grasp information about enterprises as well as production and business situation, capital needs, use of services of customers, and at the same time convey information of Vietinbank Thang Long Branch to customers to create a regular relationship between the government, enterprises and the Bank.

Regularly coordinate with all levels, sectors, and the Steering Committee for Economic Development Investment of Hanoi City to seek assistance in all aspects, from appraisal, credit granting, collection, and handling of bad debt cases.

3.2.5. Strengthening coordination of bad debt handling measures

- Conduct business control of customers with bad debt.

Vietinbank Thang Long branch needs to seriously implement the work of controlling the business activities of customers with bad debts. The staff can conduct research and find out the causes of customers' debts, thereby giving appropriate advice to customers. Customers can rely on that to improve the business situation of the enterprise and then pay off the debt to the bank.

This monitoring activity requires coordination between management and periodic bad debt classification.

The first thing is to conduct a bad debt investigation. This is an important basis for handling bad debt with customers later. Bad debt handling needs to be done regularly and can be done in the following directions: Monitoring each loan and monitoring the overall credit portfolio.

- Proactively handle bad debt

There should be a separate monitoring department so that the transfer of overdue debt is carried out seriously and strictly. Vietinbank Thang Long branch should also use tools to finance credit risk costs.

+ Internal funding

Banks can completely use the costs from the reserve fund that have not been used to finance risk costs. Proactively increase provisions, use DPRR to handle bad debts according to the provisions of the Law, accept reduced profits or losses. This will help banks quickly compensate for losses, reduce corporate income tax. At the same time, it can reduce the salary fund but increase the internal financial capacity of the bank.

+ External funding

Funding from bad debt recovery. Banks can negotiate with customers to extend debt collection time and consider reducing interest rates appropriately for customers with temporary financial difficulties. Customers may need more time to restructure their business operations. In addition, banks can ask customers to sell unnecessary assets and inventories. If customers do not agree, they will initiate a lawsuit.

Financing from collateral processing. Banks can negotiate for customers to sell their collateral themselves or authorize a third party to sell the assets to collect bad debts. In addition, banks can sell customers' debt assets. There are 2 types of debt sales: Participation loan and debt assignment.

Funding from insurance costs. In case of a customer's risk such as a car accident, insurance companies will pay compensation. Customers can receive money from the compensation of insurance companies, thanks to which they can continue their business activities to pay off the debt to the bank.

- Diversify bad debt handling methods

Depending on each customer, the Branch needs to have different methods to approach them. Avoid the case of approaching bad debt handling in a too mechanical way.

For customers who often pay late, we must be persistent in cooperating until they cooperate. When customers have an aggressive attitude, we need to calmly respond to all possible situations, be vigilant, and be flexible until they return to normal and have a cooperative attitude. In case the customer still refuses to cooperate, the bank can completely sue the customer.

For customers with a soft attitude, you need to be vigilant and avoid trusting them too much because in many cases, the branch seems to be able to collect the debt, but in fact, the customer uses that soft attitude to deal with it. They can lie about the current situation and intentionally delay the payment date. For these customers, you need to have a firm attitude, clearly set the date and time of payment, and avoid the situation where the customer uses a soft attitude to delay the payment.

In cases of objective reasons such as storms, earthquakes, etc., the Branch can consider and create conditions to reduce loan interest and extend the repayment period. This will create conditions for customers to be able to repay their debts.

In case of discovering that the business is losing money or facing business risks. The branch needs to regularly approach and cooperate to better understand the problem and come up with solutions so that they can overcome the situation of losing money and business risks and repay the loan to the branch. Litigation should be avoided because it can damage the reputation of customers and affect the image of the branch.

- Convert debt into equity capital associated with corporate restructuring

Normally, when dealing with bad debts, banks often use debt collection measures to resolve them, however, this measure still has many disadvantages and if it continues to operate like this, it can sink deeper into the crisis. For example, debt collection and real estate asset auctions during a period of frozen real estate prices can be harmful and cause the market to collapse faster. In addition, the thorough debt collection, regardless of the difficulties of the business, can increasingly worsen the bad debt situation. Therefore, the Branch needs to have other measures to handle bad debts, which is to handle bad debts through the intermediary of the Debt and Asset Trading Company of Enterprises (DATC) under the Ministry of Finance. And it will be applied to customers that the Bank sees as having potential.

Vietinbank Thang Long branch needs to cooperate with DACT to quickly handle bad debts. The branch can reduce the value of debt assets to avoid further depreciation, recover capital and conduct effective business activities.

The final important issue is how to restructure businesses successfully and operate stably. To do this, debt sales and restructuring need to be carefully studied to achieve the highest efficiency. This is one of the new directions in thoroughly handling debt and improving the financial situation of the economy in general and of creditors in particular. Branches can transfer money from the form of credit to the form of capital contribution and operate based on this form. This is beneficial for both businesses and commercial banks.

3.2.6. Rearrange human resources, implement specialized training programs to improve the quality of human resources

In any activity, the human factor is always the most important and decisive factor. Therefore, banks must always pay attention to improving their management and operation capacity. The appointment of positions related to credit activities requires objectivity, proper procedures, and the selection of people with real capacity and qualities to effectively manage activities. The arrangement and assignment of credit officers and risk management officers must be selected and appropriate to the actual capacity and requirements of the required professional expertise as well as the assigned field of work.

In addition to training in banking operations, additional training is needed in a number of fields such as construction, transportation, shipbuilding, etc. to improve the quality of appraisal and understanding of investment fields, thereby assessing the effectiveness and feasibility of projects and plans.

It is necessary to arrange staff to manage bad debt who have experience in credit work, and must be trained in depth in credit risk analysis skills, investment portfolio analysis to raise warning issues to limit bad debt.

In addition, Vietinbank Thang Long branch should create conditions for competent and capable staff to study long-term at home and abroad.

In the process of credit appraisal and analysis at Vietinbank Thang Long branch, there are still many factors of experience, prediction and subjective conclusions of appraisal officers, analysis officers and risk managers. Therefore, bad debt management depends a lot on improving the qualifications and professional capacity of the bank staff, which is also very important in strengthening the bad debt management of the Branch. Equipping knowledge to manage bad debt is not only for CBTD, risk management officers but also at all levels of leadership to each credit officer and bad debt management officer.

To build a team of good, professional, business-savvy, ethical, qualified staff who can meet work requirements with high quality and productivity, Vietinbank Thang Long branch needs to focus on the following aspects:

- Must develop human resource development strategy, have short-term, medium-term and long-term development plans. Regularly provide professional training for credit officers, appraisal officers, risk analysis and management officers at branches or send them to training at Vietinbank Human Resource Training and Development School.

- Regularly educate and train moral qualities for civil servants, gradually building a team of civil servants with ethics and professional capacity to meet the requirements of assigned tasks.

- Standardize the staff: rejuvenate the team of CBTD, risk management staff with standards on professional qualifications, foreign languages, computers, basic knowledge of law, market... along with analytical and evaluation skills to meet job requirements.

- Encourage staff to self-study additional classes to improve their knowledge and supplement their professional knowledge for daily use such as: Project appraisal, investment project management, business accounting, law, foreign languages, information technology, etc. through supporting study costs; include staff self-study criteria in the criteria for considering emulation titles.

- Implement income distribution according to position and actual work results of each individual, care about the spiritual life of staff, respect talent, create favorable conditions for individual talent to promote capacity, strengths and develop.

- The branch should arrange staff in departments/teams appropriately based on professional qualifications and aspirations of staff to use the right people for the right job, especially credit officers because this is the force that directly creates profits for the branch.

For bad debt management staff, Vietinbank Thang Long branch needs to regularly coordinate with Vietinbank Human Resource Training and Development School and related units to organize training courses, refresher courses, and knowledge training to improve the capacity to assess, measure, analyze bad debt, handle bad debt, participate in litigation, etc.

At the same time, pay attention to nurturing a source of professional and experienced staff to train and appoint to important positions holding key factors in the process of credit risk management of the branch. Specifically:

Firstly , always attach importance to credit work and the quality of credit officers, appraisal officers and risk management officers. There are specific regulations on inspection, implementation, and control of credit procedures, regulations, and policies; decentralization of decision-making authority in accordance with the capacity and qualifications of officers, detailed and clear regulations on functions and tasks associated with material responsibilities for each department related to credit granting, appraisal, debt collection and bad debt handling and credit risk limitation...

Second, it is necessary to regularly evaluate the capacity of staff through the results of performing assigned tasks, through organizing professional exams to rearrange staff, assign work more suitable to the capacity and strengths of each staff and job position. There is a change and rotation of staff, to avoid collusion between credit officers and customers in the process of credit appraisal and credit risk assessment, credit activities will not be objective, concealing potential risks of credit risks.

It is possible to transfer and rotate credit officers between departments at the head office and transaction offices with each other, in order to evaluate and consider the most objective way in arranging and assigning officers. Through this evaluation process, officers are classified, and at the same time, there is a plan to train and retrain officers, even having to handle the rearrangement of labor and assign them to other more suitable jobs or reduce the staff when they do not meet the requirements of the task.

3.3. Some recommendations

3.3.1. For the State Bank

- The State Bank should annually organize interbank conferences to learn from experience and enhance understanding and cooperation among the banking system, especially in bad debt management.

- The State Bank should encourage banks to innovate technology, modernize all stages of business processing to create a customer database and manage and make good use of this database. At the same time, it is necessary to analyze, evaluate and classify credit risks to promptly warn in order to limit credit risks.

Bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch - 14

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