Credit risk management at Vietnam International Commercial Joint Stock Bank - Hanoi Branch

In addition, credit risks often arise due to the credit officer's initial assessment being inaccurate, leading to subjective errors. Therefore, to prevent risks, the work of classifying and assessing customers in detail according to each industry, legal status, financial situation, etc. must be assessed in a specific and detailed manner. The detailed assessment also helps credit officers to advise customers on credit products that best suit their needs, which also helps to minimize risks from the beginning.

3.2.2. Strengthen training to improve the quality of human resources for risk measurement and prevention.

In any process or model, people are still the key factor. Due to many reasons such as limited professional expertise and legal knowledge, or low sense of responsibility, or lack of professional ethics, it can lead to violations of professional processes, mechanisms, policies, and laws, leading to RRTD arising, causing loss of bank assets. Therefore, if the staff meets the requirements of business operations as well as credit risk management activities, the branch will certainly minimize losses caused by RRTD. This solution aims at some specific solutions:

- Effectively arranging and assigning professional staff based on the principle of the right person for the right job, assigning work suitable to the ability, qualifications and strengths of each person will avoid risks in business operations.

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- Each officer also needs to be placed in a competitive environment, encouraging employees to cultivate their own ethics and supplement their professional knowledge. The branch creates more incentives or rewards and punishments and clearly defines responsibilities, obligations and benefits to motivate the sense of responsibility and creativity of each officer.

In addition, the application of information technology in risk management activities should also be given more attention at the branch level. Although investing in technology and facilities is the bank's job to improve risk management capacity,

However, the branch itself can also use technology to support risk management such as: statistics on customer account revenue in a period, installing a customer account money tracking system, etc. This also greatly supports the prevention and control of credit risks.

3.2.3. Diversify customer portfolio and market segments

If the branch's customer portfolio is too concentrated in a specific industry, field or market segment, the branch's operations will depend on that industry, field or customer segment; if market fluctuations affect the branch's target customer portfolio at a certain time or even for a long period, the risks in that industry, field or customer segment will be more latent, and the branch's risks in credit activities will increase. Diversifying investment fields allows VIB Hanoi to disperse risks in the credit granting process, limit unfavorable conditions and take advantage of favorable conditions of each customer, industry, and field in each certain period. With a diversified customer portfolio, no matter what time or business conditions of any industry or field are difficult, VIB Hanoi will not face systemic risks.

- In addition, on the basis of that principle, applied to the credit granting method, the branch should also diversify different credit granting methods to overcome the disadvantages of each form of credit granting as well as depending on the conditions of the customers, apply them a suitable credit granting method. This not only reduces operating costs for customers but also increases the profitability of customers, thereby helping the bank to minimize RRTD, increase profits. Providing a diverse portfolio of credit granting methods is also a competitive advantage, compared to other banks in attracting new customers and maintaining relationships with old customers.

3.2.4. Strengthening the effectiveness of post-lending inspection and control

Any activity without inspection and control or poor quality of inspection and control will lead to unpredictable consequences.

The same goes for bank credit activities, post-loan inspection and control is an indispensable step in the process of monitoring the movement of credit capital from loan disbursement to the recovery of both principal and interest. Through the post-loan inspection and control process, credit officers can promptly detect the causes of credit risk. In case credit risk has arisen, the post-loan inspection and control process can also help the branch have a detailed view of credit risk, thereby proposing the most effective measures to handle credit risk.

For customers who borrow capital, credit officers must regularly grasp the financial situation and production and business situation of customers, thereby being able to control the purpose of using the customer's loan capital and at the same time being able to support customers in the process of expanding relationships with business partners, improving profitability. In particular, branches must also pay attention to information related to debt repayment capacity, liquidity of collateral assets, thereby having necessary handling measures when customers cannot repay debts according to the contract.

In recent years, the difficult and unstable business environment has not only made business operations more difficult but also significantly reduced credit quality, manifested in more bad debts and overdue debts, and more bankruptcies. Therefore, credit officers must closely follow customers' business activities, on the one hand, review and re-evaluate the quality of credit at the branch; on the other hand, increase on-site inspections of customers and inspections of projects that the bank is financing to have a more specific view of the current business operations of customers. Thereby, signs of RRTD and violations in the use of loan capital will be better understood and at that time, banks will also have timely and flexible handling plans to help credit activities be safer and of higher quality.

The purpose of strengthening internal control inspection is to make all VIB Hanoi staff strictly comply with current regulations on credit activities, promptly detect and recommend unreasonable and impractical things to take remedial measures. Implement well the provisions in

VIB's credit policies and regulations on loan approval processes and procedures, loan application management, and monitoring of customers' loan usage; resolutely not lending to projects that are not feasible or economically inefficient despite having collateral; promptly detecting and handling cases of lending in excess of prescribed limits, customers using loans for the wrong purposes, strictly controlling all loans with collateral to ensure that assets are easily auctioned when necessary and promptly preventing other customer behaviors that affect the safety of loans.

3.2.5. Other solutions

To improve credit risk management capabilities at branches, in addition to the above solutions, VIB Hanoi can use some other solutions such as:

- Consulting and providing additional information to customers during the process of borrowing capital to implement business plans: It can be said that information in the banking system is extremely rich and diverse due to the nature of operations that require contact with most economic sectors, industries, and fields; must pay attention to all micro and macro factors that can affect the repayment of loans... This information is not only useful for banks but also useful for the operations of customers. Therefore, consulting for businesses, banks can do and need to do, not only for the benefit of businesses but also for the benefit of banks. Banks can carry out this work through customer conferences or periodic meetings with customers to advise and guide businesses to invest in the future.

Combining insurance with credit aims to improve the quality of credit risk management. When selling products, insurance companies must also conduct a detailed assessment and evaluation of customer-related issues. Therefore, close coordination with insurance companies will help banks have more channels of information about customers, enhancing the bank's risk management capabilities.

3.2.6. Increase secured lending:

In fact, in the current volatile economic situation, the potential risks for credit activities are very high. Therefore, lending with collateral is a necessary requirement to limit risks for banks in case customers cannot repay their debts. For new credit loans, branches need to require customers to have collateral right from the time of credit approval, and for customers who have been approved for credit, customers are required to provide additional collateral for the loan with a value corresponding to the current outstanding debt. Especially for loans with the risk of bad debt and overdue debt, branches must find ways to increase collateral and mortgage assets.

During the process of reviewing and appraising collateral, CBTD needs to pay attention to the following characteristics of the asset:

- Belongs to the ownership, management and use rights of the borrower or guarantor:

To prove these conditions, the borrower or guarantor must present a Certificate of ownership and right to manage and use the property. In case of mortgaging land use rights, the borrower or guarantor must have a certificate of land use rights and be able to mortgage in accordance with the provisions of the law on land. For assets that the State assigns to an enterprise for management and use, the enterprise must prove its right to pledge, mortgage or guarantee such assets.

- Belongs to the type of assets allowed to be traded:

Assets that are allowed to be traded are understood as types of assets that the law allows or does not prohibit from being bought, sold, donated, given, converted, transferred, pledged, mortgaged, guaranteed and other transactions.

- No dispute at the time of signing the guarantee contract:

To satisfy this condition, the branch requires the borrower and the guarantor to commit in writing that the property has no disputes regarding ownership or rights to use and manage the property and must be legally responsible for their commitment.

- Must buy insurance if required by law:

For assets that are required by law to be insured, the branch requires the borrower and the guarantor to present an insurance contract for the loan guarantee period. In the case of a long-term loan, the borrower and the guarantor may present an insurance contract for a shorter period, but must have a written commitment to continue to purchase insurance for the following period until the end of the guarantee period.

- Transferability of assets:

In order to ensure the ability to collect debts quickly, branches should only choose assets that are easy to transfer and sell on the market to accept as collateral. Houses with small value, located deep in alleys, specialized machinery and equipment, special goods... are types of assets that need to be considered with extreme caution when accepting mortgages and pledges.

- Fast deterioration and loss of value over time:

Branches should not accept assets that are perishable and depreciate rapidly over time as collateral. In the case of securing loans with shipments of goods formed from the loan capital, branches may consider accepting them on the condition that they can manage and supervise the shipments and that the shipments are easy to sell on the market in case of risks.

3.3. Recommendations

3.3.1. Recommendations to the Government and relevant Ministries and branches

The government must have a decisive attitude in restructuring state-owned enterprises, leaving only effective enterprises, enterprises necessary for people's livelihood, and equitizing state-owned enterprises.

It is necessary to strictly control and enhance responsibility in granting business establishment and registration licenses to enterprises in accordance with the actual capacity of that enterprise.

The State needs to continue to improve and amend, promulgate laws and documents in the form of laws related to the activities of the economy in general and to the activities of the economy in particular.

Banking activities in particular create a legal corridor for business activities and commercial banks to go in the right direction.

The State needs to take measures to ensure a stable economic environment, contributing to ensuring the effectiveness of credit capital provided by banks to the economy. The State should have stepping stones or solutions to remove difficulties caused by changes and adjustments to mechanisms and policies related to the entire economy.

In policy making, it is necessary to appropriately balance the goals of meeting the requirements of economic development, monetary stability and sustainable development of the commercial banking system. Too sudden an impact on the operations of commercial banks is necessary.

There should be specific regulations related to the disclosure of financial information, avoiding the situation of tightening the change of business orientation with verification by the auditor, and stricter regulations on the conditions of the auditing company when they perform sketchy or dishonest audit reports. Because the current reality shows that the quality of many auditing companies is not guaranteed.

Develop and perfect legal regulations to ensure the rights of creditors of banks in handling collateral, direct relevant ministries and branches to stipulate procedures and order for handling collateral quickly and effectively; legal regulations related to secured transactions, registration of secured transactions, regulations on granting property ownership documents, regulations on business sectors, etc.

Restructuring outstanding debt and handling bad debts is already difficult, the process of improving and limiting the occurrence of more bad debts at the present stage is even more difficult. To solve this problem, of course, the banks themselves must be aware and take responsibility. In fact, the Debt Management and Asset Exploitation Companies of commercial banks have been established, but they are only places to store bad debts transferred from parent banks, the function only stops at the stage of appraising the value of financial assets as well as managing mortgaged goods until the assets are sold or liquidated; and to handle these debts, the Debt Management and Asset Exploitation Companies do not have a trading market. To further support commercial banks in general,

As for commercial banks in particular, the Government needs to develop a mechanism to develop a secondary market for the purchase and sale of bad debts of commercial banks.

3.3.2. Recommendations to the State Bank of Vietnam: Perfecting the banking legal system

- Quickly complete the draft Law on the State Bank, Law on Credit Institutions, Law on Deposit Insurance and Law on Supervision of Banking Safety Activities.

- Coordinate with agencies in handling bad debts, removing procedural difficulties in the process of foreclosing secured assets. There should be specific instructions on the order, procedures, and responsibilities of credit institutions, or the police agency, or local authorities, or the Department of Natural Resources and Environment as a legal basis for issuing inter-sectoral circulars to provide further guidance to banks to improve the effectiveness of coordination, speed up progress, and specify the work in the execution of judgments.

- Research, revise, and perfect regulations on foreign exchange, debt classification, safety assurance... in accordance with international practices, standards, and actual conditions in Vietnam.

Effective monetary policy management

- Flexibly manage interest rate policies and other tools to support commercial banks to ensure liquidity and safety in business operations.

- Flexible exchange rate management according to market signals, encouraging exports, controlling imports, and taking timely intervention measures to stabilize the foreign exchange market.

- Closely monitor, analyze, evaluate and forecast domestic and international economic and monetary developments, especially in the credit sector, to propose appropriate solutions in monetary policy management to achieve monetary and credit targets set by the National Assembly and the Government. At the same time, ensure that credit institutions operate in accordance with the SBV's direction and limit risks.

Credit risk management at Vietnam International Commercial Joint Stock Bank - Hanoi Branch - 11

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