- Overdue for more than 360 days; or
- Debt repayment period is restructured for the first time and is overdue for 91 days or more according to the restructured period; or
- The debt repayment period is restructured for the second time and is overdue according to the second restructured period; or
- Debt repayment period is restructured for the third time or more, whether it is overdue or not; or
- Blocked or pending; or
- Customers are organizations or businesses that are dissolved or bankrupt according to the provisions of law or individuals who are dead or missing.
Group 5 | Group 5 | Group 5 | Group 5 | Group 5 |
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Source: Joint Stock Commercial Bank for Foreign Trade of Vietnam (2010), Policy on debt classification, provisioning and use of credit risk reserves [25]
Thus, it can be seen that in practice, the results of internal credit rating will result in customer grouping into 10-16 groups depending on the scoring model of each bank. These customer groups have different score ranges reflecting corresponding risk levels. However, according to Decision 493/2005 of the State Bank, currently Vietnamese commercial banks still only classify into 5 debt groups (Group 1 to Group 5). This has led to customer groups with different risk levels being classified into the same debt group. In addition, the provision for risk loss in the same debt group is the same, while these loans with different risk levels will inevitably lead to different levels of loss. This is the inadequacy that needs to be overcome in the debt classification and provision for risk loss at Vietnamese commercial banks.
The status of bad debt groups at Vietnamese commercial banks in the period 2006 - 2011 is reflected in table 3.9 as follows:
Table 3.9: Classification of bad debt at Vietnamese commercial banks (2006 – 2011)
Unit: Million VND
Bank | Group 3 debt | Group 4 debt | Group 5 debt | Total bad debt | |
2006 | Vietinbank | 504,959 | |||
VCB | 546,512 | 437,093 | 877,095 | 1,860,700 | |
BIDV | 6,231,741 | 333.121 | 2,124,541 | 8,689,403 | |
VBARD | 3,502,797 | ||||
ACB | 13,041 | 9,006 | 11,115 | 33,162 | |
2007 | Vietinbank | 419,054 | 367,086 | 256,137 | 1,042,277 |
VCB | 1,038,498 | 847,829 | 1,710,727 | 3,597,054 | |
BIDV | 3,426,703 | 212,096 | 1,117,609 | 4,756,408 | |
VBARD | |||||
ACB | 9,167 | 7,078 | 10,320 | 26,565 | |
2008 | Vietinbank | 846,985 | 803,542 | 536,818 | 2,187,345 |
VCB | 921.191 | 813,087 | 3,467,767 | 5,202,045 | |
BIDV | 2,832,544 | 413,369 | 937,321 | 4,183,234 | |
VBARD | 3,050,609 | 2,556,242 | 2,246,671 | 7,853,521 | |
ACB | 223,605 | 66,982 | 18,127 | 308,174 | |
2009 | Vietinbank | 230,305 | 332,955 | 437,549 | 1,000,809 |
VCB | 440,649 | 394,977 | 2,663,058 | 3,498,684 | |
BIDV | 3,531,482 | 864,493 | 1,172,630 | 5,568,605 | |
VBARD | 3,041,239 | 2,553,475 | 3,927,838 | 9,522,552 | |
ACB | 24,776 | 88,502 | 141,402 | 254,680 | |
2010 | Vietinbank | 924,605 | 410,692 | 203,241 | 1,538,538 |
VCB | 1,164,353 | 390,534 | 3,592,665 | 5,147,552 | |
BIDV | 3,597,664 | 819,244 | 2,007,578 | 6,424,486 | |
VBARD | 2,091,574 | 3,248,190 | 5,968,413 | 11,308,177 | |
ACB | 64,759 | 58,399 | 169,648 | 292,806 | |
2011 | Vietinbank | 1,071,421 | 220.213 | 912,537 | 2,204,171 |
VCB | 1,257,457 | 653,072 | 2,347,430 | 4,257,959 | |
BIDV | 5,244,120 | 420,305 | 2,458,264 | 8,122,689 | |
VBARD | 7,928.9 | 3,459.3 | 8,276.1 | 19,664.3 | |
ACB | 274,973 | 345,655 | 297,339 | 917,967 |
Source: Annual reports of commercial banks (2006 – 2011)[26]
Year 2008
It can be seen that the debt group with the largest proportion at banks is substandard debt (group 3 debt). In particular, at BIDV and ACB, this debt group accounts for 70% of total bad debt. At VCB alone, the debt group with the largest proportion is debt with the possibility of losing capital (66.7%).
Chart 3.7: Bad debt by group at Vietnamese commercial banks in 2008
Source: Annual reports of commercial banks (2006 – 2011)[26]
Year 2009
This year, under the influence of the economic crisis and recession, group 5 debt of banks has increased significantly. Of which, the bank with the highest group 5 debt is still VCB, accounting for 76.1% of total bad debt, followed by ACB, group 5 debt accounts for 55.6% of total bad debt. The remaining banks also have a much higher proportion of group 5 debt compared to total bad debt than previous years, reflecting the general difficult situation of the economy during the recession.
Chart 3.8: Bad debt by group at Vietnamese commercial banks in 2009
Source: Annual reports of commercial banks (2006 – 2011)[26]
2010
With the efforts of the government and banks, group 5 debt has tended to decrease. However, this year, group 5 debt of VBARD and ACB still accounts for over 50% of total bad debt, especially VCB is still the bank with the highest group 5 debt balance of 73.6%.
Chart 3.9: Bad debt by group at Vietnamese commercial banks 2010
Source: Annual reports of commercial banks (2006 – 2011)[26]
2011
In 2011, bad debt and bad debt ratio of Vietnamese commercial banks both tended to increase, increasing by about 50% compared to the same period last year. In which, group 5 debt accounted for a common level of about 30 - 56% of total bad debt. It can be seen that bad debt in 2011 at Vietnamese commercial banks was mainly real estate debt. Thus, in the current environment, the trend of increasing bad debt is visible, because the domestic business environment is still very difficult, macroeconomic policies are implemented in a tightening direction, public investment is reduced, and input costs are increased.
Chart 3.10: Bad debt by group at Vietnamese commercial banks 2011
Source: Annual reports of commercial banks (2006 – 2011)[26]
3.2.2.2. Measuring bad debt
In risk assessment and measurement activities, Vietnamese commercial banks have used one of the following two methods: Qualitative risk measurement method and quantitative risk measurement method.
In there:
Qualitative risk measurement method: This is a risk measurement method based mainly on classical credit analysis.
Advantages and disadvantages
Advantage:
- Qualitative method takes advantage of the experience of experts in the field that needs to be evaluated and analyzed on a simple technology platform, a stable information storage system, can use available records, use non-quantifiable, simple and uncomplicated factors.
- This method can be applied to individual loans, affected by regional factors such as customs and practices, which if based only on quantitative factors will not lead to an accurate decision, it is necessary to rely on the opinions and experience of experts.
Disadvantages:
- Qualitative methods based on expert assessments may be subjective, risk factors and probabilities are not specifically quantified. When faced with a loan, this method can only determine whether the loan is risky or not, but cannot calculate the probability and level of loss of the loan. Therefore, the assessment method is often inaccurate, not dynamic and not developmental.
Currently, Vietnamese commercial banks are applying qualitative risk measurement methods including:
Table 3.11: Vietnamese commercial banks apply qualitative risk measurement methods
An Binh
Bao Viet | North Asia | Great Asia | Ocean | |
East Asia | Southeast Asia | Gia Dinh | First | Great Faith |
Shipping | Prosperous Vietnam | Technical Commerce | West | My Xuyen |
Viet A | Vietnam Trust | Saigon Industry and Trade | Gasoline | Pioneer |
South Asia | PT Mekong Delta House | South Vietnam | Hanoi House | Orient |
South | Global Oil and Gas | Kien Long | Farming Karma |
Source: Le Thi Huyen Dieu (2010), "Scientific argument on determining credit risk management model in Vietnam's commercial banking system"[4]
Quantitative risk measurement method
Quantitative measurement method is a risk management method based on software that systematically enters and runs data, and is based on risk measurement techniques according to international practices. The quantitative measurement model often used by Vietnamese commercial banks is the VAR model. Advantages and disadvantages
Advantage:
- For commercial banks: The quantitative method based on the internal credit rating system (IRB) as recommended by Basel II has shown its superiority thanks to its flexibility and suitability to reality. This advantage is demonstrated through the accurate determination of the risk probability of each type of bank asset during the period, as well as each type of credit and each type of investment. IRB also allows banks to measure risk components (PD, LGD, EAD, ...) based on the actual performance of the bank.
them and thereby calculate more accurately the minimum amount of capital they need to hold, contributing to ensuring the safety of banking operations as well as bringing about remarkable progress in the method of managing credit risks.
- For central banks: IRBs also contribute to fundamentally changing their management thinking. Now, supervisory agencies not only focus on whether commercial banks have accurately classified problem loans, but also on whether banks can rank loans according to their credit quality and risk level, and whether banks regularly update these ratings according to the quality of borrowers' operations.
Disadvantages:
Quantitative methods require high requirements on the volume and quality of information sources to develop the model. Moreover, quantitative measurement methods can calculate the risks of loans specifically but may not explain reasonably on some qualitative aspects.
Currently, some Vietnamese commercial banks have applied quantitative risk measurement methods. In other words, these are banks that have successfully built and applied the Internal Credit Rating System in their risk management activities. The internal credit rating system of these banks is quite effective and contributes greatly to the evaluation and ranking of loans. Specifically, these banks are:
Table 3.12: Vietnamese commercial banks apply quantitative risk measurement methods
Industry and Trade
Saigon Thuong Tin | Lien Viet | Asia | |
Foreign Trade | Army | International | Investment and development |
Source: Le Thi Huyen Dieu (2010), "Scientific argument on determining credit risk management model in Vietnam's commercial banking system"[4]
In early 2006, BIDV signed a contract to hire the credit rating organization Moody's to conduct assessment and rating, thus BIDV is considered the first foreign commercial bank in Vietnam to be assessed and rated by a rating organization.