individuals and businesses. The credit process includes 9 specific steps outlined in the diagram:
Table 7: SeABank credit business process [14]
Steps to follow
Implementation content | The performer | |
1 | Client | Customer Service and Aesthetic Specialist determine |
2 | Receive customer records | Customer Service and Aesthetic Specialist determine |
3 | Loan appraisal | Head of Customer Service and Audit determine |
4 | Review and judgment Re-evaluation (over limit) Cool Cool browse browse | Head of Department/ Director/ Association Branch Credit Re-assessment specialist Board of Directors / Headquarters Credit Council / Management Board |
5 | Complete credit profile | Customer and Appraisal Specialist / Credit Support Specialist / Support Manager |
6 | Disbursement | Customer and Appraisal Specialist / Credit Support Specialist / Support Manager / Other units |
7 | Check and monitor loan capital Restructure debt repayment period | Customer Service and Aesthetic Specialist Credit Support Specialist /Risk Management Specialist |
8 | Debt Collection | Customer Service and Aesthetic Specialist Credit Support Specialist /Debt Handling Specialist |
9 | Release, file | Customer Service and Aesthetic Specialist Credit Support Specialist |
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Step 1: Contact customers, guide to create profile: Marketing, introduce products, customers come to apply for loans.
Step 2: Receive loan application: Guide procedures and receive loan application, transfer collateral documents to appraisal department.
Step 3: Customer and collateral appraisal.
Step 4: Review and make a decision: Collect documents and submit them to the Credit Committee and Credit Council. Credit specialists collect documents and reports from departments to submit to the credit committee. In case of exceeding the limit, the decision is submitted to the Board of Directors for review and approval.
Step 5: Complete credit profile.
Step 6: Implement credit decision: Disbursement, issuance of guarantee, opening LC.
Step 7: Check and handle loans: Credit officers check after lending, purpose of capital use, financial situation, operations. Appraisal department checks collateral. Credit officers monitor principal and interest collection, analyze risks. Check the process of principal and interest collection.
Step 8: Credit specialist proceeds to collect debt. Step 9: Finalize the credit contract and save the file.
2.4.5. SeABank credit rating system:
Credit risk assessment is a method of analyzing the necessary data to make an important decision on whether or not to grant credit to a customer. SeABank applies the rating system according to Decision No. 661/2009/QD-TGĐ dated September 23, 2009. The credit rating system is a method of quantifying the risk level of a customer through the assessment process using a unified scale. This is an important objective tool in customer assessment, credit rating is conducted as follows:
Step 1: Determine the industry and business field.
Step 2: Score financial and non-financial indicators.
Step 3: Summarize the scores, based on the summation scores, the credit officer will classify customers into levels A, A+, B, B+, C, C+. Thus, depending on the specific customer, the credit officer will assign an appropriate credit rating to assess the risk level of the credit. Currently, SeABank has built a form
Credit ratings for individuals and business customers. Each credit rating has many different scoring factors, for example: Credit ratings for individuals include:
Family background factors such as: criminal record, age, education level, occupation, working time, number of dependents, annual income of individual, annual income of family.
Financial factors such as: Loan ratio on total loan application, debt repayment status with the bank (check CIC), interest payment status, total debt on real estate value and other assets that can prove the legal ownership of the borrower, type of collateral, value of collateral compared to loan capital....
Credit ratings for corporate customers include:
Non-financial factors such as: liquidity indicators, operating indicators, indicators
debt balance, income target...
Other factors such as: Management level, transaction situation with the bank, external factors...
Depending on each specific case, the Credit Specialist will evaluate the customer based on the above factors. Sometimes a customer can be evaluated as below average, but if the collateral is much larger than the loan capital, the evaluation level is average or good, because the loan capital is much smaller than the customer's collateral. The result is divided into 6 different levels of credit risk.
Table 8: SeABank's credit rating
Point
Classification | Evaluate | Risk group | |
87-100 | A+ | Excellent | Short |
74-86 | A | Good | Short |
61-73 | B+ | Medium | Medium |
48-60 | B | Below average | Medium |
35-47 | C+ | High risk of non-recovery | High |
0-34 | C | Very high risk of non-recovery | High |
(Source: SeABank credit process)
For the above ranking, SeABank will refuse to lend to customers with credit ratings from Below Average (B) or below.
Table 9: SeABank's customer rating ratio table
Status
Customer Classification | 2009 | 2010 | 2011 | |
1 | Credit balance | 9,626 | 20,512 | 19,641 |
2 | Number of customers | 18,632 | 29,797 | 31,054 |
3 | Customer Rating A+ (Excellent) | 93 | 149 | 234 |
4 | Customer rating A (Good) | 6,521 | 7,449 | 8,124 |
5 | Customer Rating B+ (Average) | 11,179 | 20,858 | 22,696 |
(Source: SeABank credit process)
In 2010, banks focused too much on promoting credit activities, so customer ratings accounted for about 70% of the B+ (average) rating. It can be said that this is a high-risk customer group, leading to a sharp increase in bad debt ratio in 2010 and 2011.
Maximum loan ratio based on collateral value:
- Gold, silver, precious stones, precious metals: 80% of appraised value.
- Means of transport:
+ Vehicle in circulation: Maximum loan amount is 50% of appraised value.
+ Unregistered vehicles:
- For cars, ships, airplanes: 70% of the appraised value.
- For motorbikes: 80% of the appraised value.
- Vehicles and specialized machines for road construction: 50% of the assessed value.
price.
- Machinery, equipment, production lines: 60% of valuation value.
Particularly for equipment lines formed from loan capital of
SeABank, maximum loan amount is 70% of appraisal value.
- Goods and raw materials: 70% of valuation value.
- Valuable papers: Equal to 90% of valuation value.
- Property rights arising: Equal to 90% of the valuation value.
- Land use rights and assets attached to land: Equal to 70% of appraised value.
Table 10: Classification of overdue debt by collateral of SeABank
Status
Collateral (billion VND) | 2009 | 2010 | 2011 | |
1 | Valuable papers | 11.20 | 35.10 | 41.30 |
2 | Land use rights and attached assets on the ground | 109.60 | 213.20 | 264.80 |
3 | Means of transport | 36.50 | 165.20 | 201.60 |
4 | Goods, raw materials | 5.50 | 10.20 | 15.60 |
5 | Property rights arise | 3.60 | 4.90 | 5.30 |
6 | Machinery, equipment production line | 10.20 | 8.1 | 8.7 |
7 | Other collateral | 4.40 | 2.30 | 2.70 |
Total overdue debt | 181 | 439 | 540 | |
(Source: SeABank General Planning Department)
Looking at the table above, we can see that the collateral for overdue loans is mostly land use rights, assets attached to land and means of transport.
Table 11: Classification of overdue debt ratio by collateral of SeABank
Status
TSBĐ Ratio/Year (%) | 2009 | 2010 | 2011 | |
1 | Land use rights and attached assets on the ground | 61% | 49% | 49% |
2 | Means of transport | 20% | 38% | 37% |
3 | Other assets | 19% | 14% | 14% |
(Source: SeABank General Planning Department)
In 2009, the collateral in overdue debt was mainly real estate, accounting for 61%, and means of transport accounting for 20%. In overdue debt in 2010 and 2011, the collateral was mainly real estate (accounting for 49%) and cars (accounting for 37 to 38%). This shows that overdue debt in 2010 and 2011 was mainly due to loans to buy cars and secured by assets formed from loan capital. This is a risk in the process of debt collection and recovery of collateral because real estate is a means of transport that is very difficult to manage and inspect. If left for a long time, it will depreciate quickly and the value of the means of transport will decrease. It is difficult for banks to fully recover both principal and interest.
2.4.6. SeABank credit inspection and monitoring process:
Check, monitor and handle arising issues in a timely manner to ensure that the credit is used for the right purpose, the principal and interest are fully recovered on time, and safety in credit activities is ensured. This process is regulated by SeABank under Decision No. 863/2009/QD-TGĐ dated April 11, 2009. All credit grants must be comprehensively checked and monitored throughout the credit granting process for customers.
Based on the information collected at the facility and accounting books, customer specialists and appraisers regularly check the loan after disbursement to fully and promptly grasp the customer's operating situation as well as fluctuations in collateral assets.
Inspection and supervision are based on lending regulations and post-lending inspection procedures and must ensure:
- Closely check the production and business situation, customer financial situation (revenue, tools, profit and loss situation, receivables, payables, overdue debts), customer operating status (sales, inventory)...
- Check the progress and effectiveness of investment and business plans and projects using loan capital...
- Check and evaluate the developments of the collateral.
Periodic post-loan checks must be carried out by customer and appraisal specialists and relevant units and individuals in accordance with SeABank's regulations.
Scope and frequency of monitoring:
+ At least 2 months/time for the following loans:
- All loans have at least 1 period of late payment of principal and/or interest.
- All loans with outstanding balance of 2 billion VND or more.
- Loans with outstanding balance from 500 million VND or more to less than 2 billion VND have one of the following conditions:
* Collateral formed from loan capital.
* Collateral is machinery, equipment, production lines, means of transport, goods.
* The loan has been extended/adjusted by SeABAnk.
+ For loans not covered by the above provisions, the inspection frequency is as follows:
- Loans with outstanding balance from 500 million VND to less than 2 billion VND: Check every 6 months.
- Loans with outstanding balance under 500 million VND: If it is a medium-term or long-term loan, check every 6 months; if it is a short-term loan, check when there are signs of abnormality.
2.4.7. SeABank credit risk handling and provisioning:
To effectively handle bad debt, the bank arranges a risk management specialist at each level 1 branch to develop specific plans and measures, and advise the branch on appropriate decisions for timely and on-schedule handling.
SeABank's risk provisioning is done monthly, this activity has increased in absolute and relative numbers over the years. The bank made provisions according to Article 8 of Decision 493 of the State Bank on general provisions in 2009 and 2010. SeABank only made provisions at the rate of 0.15% of outstanding loans from groups 1 to 4. However, by 2011, according to Decision 18 amending Decision 493 dated April 25, 2007 of the State Bank, SeABank had fully made provisions at the rate of 0.75% of total outstanding loans.
SeABank's provisioning costs are as follows:
Table 12: SeABank's provisioning costs
Target (billion VND)
Year 2009 | Year 2010 | 2011 | |
Total outstanding debt | 9,626 | 20,512 | 19,641 |
Total bad debt | 161 | 323 | 328 |
Provisioning costs | 82 | 163 | 68 |
(Source: SeABank Annual Report 2009, 2010 and 2011)
According to Decision 493, credit institutions (CIs) shall classify debts and set up specific provisions according to the provisions of Article 6 or Article 7 [17].
Basically, debt classification according to Article 7 is a comprehensive assessment of the financial capacity and repayment ability of customers, applying assessment standards according to international practices (Basel II). Meanwhile, debt classification according to Article 6 is only based on the assessment of the repayment ability of each individual loan. Currently, commercial banks in
Most countries still classify debt according to Article 6: The specific provisioning ratio is prescribed as:
- Group 1 (Standard debt): 0%.
- Group 2 (debts needing attention): 5%.
- Group 3 (Substandard debt): 20%
- Group 4 (Doubtful debt): 50%.
- Group 5 (Debt with potential loss of capital): 100%.
Table 13: Overdue debt classified by SeABank group
Debt group (billion VND)
Year 2009 | Year 2010 | 2011 | |
Group 1 debt | 9,445 | 20,142 | 19,333 |
Group 2 debt | 20 | 116 | 212 |
Group 3 debt | 56 | 70 | 32 |
Group 4 debt | 70 | 82 | 26 |
Group 5 debt | 35 | 102 | 38 |
(Source: SeABank Financial Reports 2009, 2010 and 2011)
Thus, we see that the higher the overdue rate, especially in groups 3-5, the larger the risk provision. According to 2010 data, SeABank focused on promoting credit activities, outstanding loans increased sharply by 113% compared to 2009, but there is a potential risk of overdue debt increasing, specifically in 2011, group 2 debt increased significantly by 1.8% compared to 2010.
In addition, the sharp increase in group 5 debt ratio has affected the bank's business performance, leading to a decrease in profits. Faced with this situation, SeABank's Board of Directors decided to limit credit growth and promote bad debt recovery. The results showed that the group 3-5 debt ratio decreased sharply, especially group 5 debt decreased by 37% compared to 2010. Next was group 4 debt decreased by 31%. Realizing that, the bank needs to pay more attention to credit risk management.