Credit risk management is carried out reasonably: Through the survey results, the average value is 4.42; it is rated at level 5, the level of strongly agree. This shows that the Branch has carried out credit risk management relatively appropriately.
The branch always cares about credit risk funding: Through the survey results, the average value is 4.34; assessed as highly agree. This shows that the branch has always cared about credit risk funding.
However, in the credit risk handling work of Agribank Thai Nguyen branch, there are still some limitations. Risk handling options and the selection of risk handling methods are still not reasonable. According to the survey results, staff at the branch only rated it at an average level with scores of 3.02 and 2.89, respectively.
3.2.2.3. Credit risk management, control and mitigation
* Objectives and strategies for credit risk management at Agribank Thai Nguyen branch
- Do not concentrate too much credit on one customer, one industry, customer groups, related industries, one currency, and in one location.
- When deciding to grant credit for a large project, it must be done collectively (many members participate in the loan decision through many levels of review and voting on the activities of the credit council), ensuring objectivity.
- Apply credit limit and/or credit term depending on branch capacity.
* Credit risk management policy of Agribank Thai Nguyen Branch
First, comply with regulations on credit mechanisms and policies:
- The total outstanding credit balance for a customer must not exceed 15% of Agribank's equity.
- The total outstanding credit balance for a customer and related parties must not exceed 25% of Agribank's equity.
- The total outstanding credit balance for a subsidiary, affiliate of Agribank or an enterprise over which Agribank holds control must not exceed 10% of Agribank's equity.
- The total outstanding credit balance for all subsidiaries, affiliates of Agribank or enterprises over which Agribank holds control must not exceed 20% of Agribank's equity.
- Total outstanding loans to the 10 largest customers must not exceed 30% of Agribank's total outstanding loans.
- Total outstanding loans for 01 industry/sector must not exceed 10% of total outstanding loans of Agribank.
- Bad debt ratio: not exceeding 3% of total outstanding debt.
- The ratio of bad credit balance does not exceed 5% of total outstanding debt.
- The ratio of outstanding loans with secured assets must reach at least 60% of total outstanding loans.
(i) Credit allocation policy:
Classification by geographical area: The General Director of Agribank divides the scope of credit granting by geographical area based on the branch system. Agribank Thai Nguyen is only allowed to grant credit to customers within the geographical limits of Thai Nguyen province.
Allocation by loan term and loan type: Every year, Agribank assigns credit targets according to loan term structure and loan type. In 2016, the medium-term credit ratio was 33.62% of total outstanding loans, foreign currency credit was 6% of total outstanding loans.
(ii) Policy on debt classification, provisioning and use of RRTD reserves:
Currently, Agribank Thai Nguyen is reviewing and re-evaluating the debt classification, provisioning and use of RRTD reserves according to Decision No. 450/QD-NHNo of the Board of Directors of Agribank. RRTD reserves include general provisions and specific provisions. General provisions are the amount set aside for undetermined losses. The current general provisioning ratio is 0.75% of total outstanding debt from groups 1 to 4; Specific provisions are the amount set aside based on the specific classification of debts according to each debt group. Currently, this provisioning ratio is prescribed as follows: Group 1 debt: 0%, group 2: 5%, group 3: 20%, group 4: 50%, group 5: 100%.
Agribank relies on the internal credit rating system to classify debts; makes full risk provisions according to regulations to ensure safety in credit activities, and proactively responds to any risk situations that may arise. Specifically:
Table 3.14. Internal credit rating table for debt classification at Agribank Thai Nguyen branch
Tone
Rating | Debt classification | |
From 94 to 100 | AAA | Group 1 |
From 88 to under 94 | AA+ | Group 1 |
From 83 to under 88 | AA | Group 1 |
From 78 to under 83 | A+ | Group 1 |
From 73 to under 78 | A | Group 1 |
From 70 to under 73 | BBB | Group 2 |
From 67 to under 70 | BB+ | Group 2 |
From 64 to under 67 | BB | Group 2 |
From 62 to under 64 | B+ | Group 2 |
From 60 to under 62 | B | Group 3 |
From 58 to under 60 | CCC | Group 3 |
From 54 to under 58 | CC+ | Group 3 |
From 51 to under 54 | CC | Group 3 |
From 48 to under 51 | C+ | Group 3 |
From 45 to under 48 | C | Group 4 |
Under 45 | D | Group 5 |
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(Source: Agribank Thai Nguyen branch)
Agribank uses the risk reserve fund to handle bad debts in accordance with regulations and continues to be responsible for recovering these debts.
(iii) Policy on determining jurisdiction:
Agribank Thai Nguyen branch has the right to approve credit limits, make decisions on credit granting, sign credit contracts and contracts related to lending at the following levels: the approval level of the Credit Council of the affiliated branch is 50 billion VND or less for working capital, 20 billion VND or less for project investment; the approval level of the Branch Director is 20 billion VND or less for working capital, 15 billion VND or less for project investment. If exceeding the above level, the affiliated branch submits to the higher Credit Council, Agribank Thai Nguyen branch, for consideration and decision.
(iv) Lending policy: Agribank stipulates in detail in Decision No. 66/QD/NHNo of the Board of Directors on lending to customers. Agribank considers and decides to lend when customers meet the following conditions:
Have civil legal capacity, civil conduct capacity and bear civil responsibility according to the provisions of law.
Legal use of loan capital.
Have financial capacity to ensure debt repayment within the committed period.
Have a feasible and effective investment project, production, business and service plan; or have a feasible investment project, life service plan that complies with the provisions of law.
Implement regulations on loan guarantees as prescribed.
(v) Credit guarantee policy:
Agribank Thai Nguyen's credit guarantee policy is implemented according to Decision No. 35/2014/QD-NHNo of the Board of Directors of Agribank, detailing the selection of security measures, management of secured assets and debt collection measures. In addition, Agribank uses customer rating results to consider applying credit guarantee measures:
Table 3.15. Customer ranking at Agribank Thai Nguyen branch
Rating
Credit perspective | Collateral ratio (=Total fair value) TSBMT/Credit balance) | |
AAA | Credit Priority | ≥ 0% |
AA+ | ||
AA | ||
A+ | ||
A | ≥ 10% | |
BBB | Credit available | ≥ 20% |
BB+ | ||
BB | ≥ 30% | |
B+ | ||
B | Consider handling bad debt and problem debt | ≥ 40% |
CCC | ||
CC+ | ≥ 70% | |
CC | ||
C+ | ||
C | ≥ 100% | |
D | Credit must be guaranteed. guarantee all | |
Customers not yet rated use | Credit must be fully secured. |
(Source: Agribank Thai Nguyen branch)
Second, comply with the credit process for customers. Based on the lending regulations, to implement lending, Agribank Thai Nguyen applies separate credit processes for each customer: 766/2014/NHNo-KHDN stipulates the credit process for institutional customers; Decision No. 836/2014/NHNo-HSX stipulates the credit process for production households and individuals of the General Director of Agribank.
The credit granting procedures of Agribank Thai Nguyen branch have met the requirements:
- Ensure credit granting complies with legal regulations.
- Ensure attention is paid to credit inspection and monitoring steps during and after credit granting, promptly detecting signs of emerging risks.
- Ensure independence and objectivity in risk assessment between departments proposing/originating credit granting, reviewing risk appraisal and approving credit granting, including clearly separating the responsibilities of each department.
Third, regularly assess credit risk: Credit quality is the basic criterion for assessing credit risk in banking operations.
Through the survey results on credit risk management organization activities, the staff rated quite highly, ranging from 3.18 - 4.21, of which 01 observed variable reached the level of strongly agree and 02 observed variables reached the level of agree. Bank leaders often pay attention to credit risk management activities, planning work is implemented promptly and synchronously. These are the strengths of the Branch that need to be promoted in the coming time. However, it is necessary to improve the work of detailed planning for each department, arrange a reasonable personnel structure to promote the best work efficiency. (Table 3.14)
Table 3.16. Survey results on risk management and mitigation activities at Agribank Thai Nguyen branch
STT
Content | Point | Meaning | |
1 | Branch leadership's attention to the work Credit risk management is big. | 4.21 | Totally agree |
2 | Planning for risk management activities credit is taken seriously | 4.03 | Agree |
3 | The operational plans of each department are specific and clear regulations | 3.08 | Medium |
4 | The results of credit risk management organization are quite consistent with the actual developments at the Branch over the years | 4.05 | Agree |
5 | The organizational structure of credit risk management is reasonable | 3.18 | Medium |
(Source: Author's survey)
3.3. Factors affecting credit risk management at Agribank - Thai Nguyen Branch
3.3.1. Objective factors
In addition, in reality, our country's legal system is not yet complete and consistent, leading to frequent fraud and misappropriation of bank capital. On the other hand, due to the consequences of the economic crisis, both individuals and businesses are basically doing very poorly, the ability to generate income, profit and customer development should affect the ability to pay debts.
+ Economic environment
The economic environment, laws, state policies, especially monetary and credit policies such as the general economic situation of the country, the legal system, and economic policies of the state also greatly affect the credit risk management of Agribank Thai Nguyen branch. In recent times, the economic situation has fluctuated a lot, gold and foreign currency prices have increased in each period, commodity prices have increased continuously, deposit and lending interest rates have also changed continuously,.... The economy has always maintained a growth rate but mainly developed in breadth, increasing the volume
The quality of human resources and increased investment capital have not focused on increasing labor productivity and improving labor efficiency, so growth quality is low and not really stable.
+ Cultural and social environment
Natural and social environments such as storms, floods, droughts, epidemics, or acts of theft, fraud, robbery, loss of property of customers and banks... have a significant impact on credit risk management. In fact, many businesses and individuals have lost property, even gone bankrupt due to the impact of nature, especially activities related to production loans.
The habit and practice of Vietnamese people in consumption is to save, accumulate enough before spending. If they earn ten dong, they only dare to spend seven or eight dong. Most individuals think that borrowing from banks is not good, they do not want anyone to know that they have to borrow from banks, they do not even want to reveal that they have borrowed. Even the intellectual class with high income is not used to spending first, paying later, meeting current consumption needs immediately with future income. Among those who use Agribank services in Thai Nguyen province, 60% are introduced by acquaintances, so people have little relationship with the branch.
+ Legal environment
The business activities of Agribank Thai Nguyen branch are greatly affected by the policy systems of the State Bank. In general, they are not consistent and clear. Some issued documents cause difficulties for the operation of the banking system. For example:
+ The procedure for foreclosing assets of overdue customers is still cumbersome, time-consuming and costly for the bank. Therefore, many customers of Agribank Thai Nguyen branch when overdue do not cooperate with the bank. The foreclosure of assets still faces many difficulties, affecting business activities.
+ In addition, the current litigation in court is still prolonged and goes through many stages, easily creating conditions for debtors to have intentions, at the same time causing damage to the Bank. The litigation time from the time of filing a lawsuit until the court's decision takes effect and then until the property is auctioned to recover the debt often lasts nearly a year, not to mention the case where there is a decision to suspend the settlement of the case.
The case was settled under Article 38 of the Ordinance on Procedures for Settlement of Cases. This situation caused Agribank Thai Nguyen branch to suffer capital stagnation while the branch had to pay interest on deposits to depositors. This was a huge loss, not to mention the costs incurred in litigation.
+ Industry environmental competition
When joining the WTO, Vietnam committed to opening up the banking market. In general, Vietnam's WTO commitments in the banking sector have allowed foreign credit institutions to be present in Vietnam in various forms, expanding the scope and types of banking services, creating a level playing field for banks. Foreign banks with large capital, high management level and advanced technology are really becoming a huge challenge for Vietnamese banks, including Agribank Thai Nguyen branch.
In addition, domestic banks are also competing to increase capital, expand networks, diversify products, and implement many policies to attract customers... making competition between banks increasingly fierce. Competitors of Agribank Thai Nguyen branch are increasing, making difficulties even greater.
3.3.2. Subjective factors
+ Business strategy and organizational model
Agribank Thai Nguyen branch always strives to increase mobilized capital and outstanding credit each year, demonstrating the increasing trust of customers in the branch. The branch's marketing policies to attract customers have achieved initial success, although lacking breakthroughs. Although the ratio of bad debt in total outstanding debt is considered the lowest among all branches of the Bank, it has recently tended to increase, which is considered a potential risk of bad debt of the branch. Some other business activities, although bringing relative profits to the branch, the increase rate each year is uneven, showing that the branch's human resources and policies have not really achieved the desired results.
For branches, the organization is relatively good, but the control activities are weak. Most of them are formal, there are no clear evaluation criteria and activities.