Credit risk management for individual and household customers at Joint Stock Commercial Bank

responsibility, only inspect and supervise the credit activities of the Branch. Moreover, during the inspection and supervision process, the inspectors need to pay more attention to warning signs of risks in the credit activities of the Branch such as inaccurate assessment and classification of the risk level of customers by the analyst, granting credit based on uncertain commitments and lack of customer guarantees, growth rate too fast, exceeding the control capacity and capacity as well as the capital of the Bank, drafting binding conditions in the credit contract that are ambiguous, unclear, not specifying the repayment schedule for each loan, intentionally compromising credit principles with customers despite knowing the potential risks, incomplete credit records, lack of compliance or incomplete compliance with current regulations on credit procedures, credit approval, etc.

Regarding the supervision of loan use : The branch needs to closely monitor the use of capital, the progress of completion of each item, closely monitor the payment cash flow, and check the use of capital in accordance with regulations, because if the use of loan capital is for the right purpose and effectively, customers can repay the principal and interest on time. Monitor the debt repayment situation of the unit, ensuring the debt repayment progress as committed. The granting of new credit is only implemented based on the principle of selecting feasible and effective options, with guaranteed payment sources and the branch has the ability to control the payment source. For secured assets, the unit is required to complete legal procedures in accordance with current regulations when the secured assets meet the conditions for pledge, mortgage and registration of secured transactions, it is recommended to purchase insurance for the unit's business establishments and the Bank is the first beneficiary in the insurance contracts.

If violations are detected in the process of using loan capital for the wrong purpose, the supervisor can recommend debt collection before the due date or transfer the debt to overdue. In addition, identifying risks through warning signs is also an important task that determines the business efficiency of the Branch, it requires credit officers to always monitor and supervise loans to promptly detect signs of risks and take timely measures to handle them. Detecting signs of risks requires communication within the system, all officers are responsible.

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Responsible for informing credit officers and risk officers of signs of risk, creating a flexible information mechanism.

In addition, timely reporting in accordance with risk requirements is also a powerful tool to support credit risk control and management. The report is accompanied by charts, diagrams, summary data tables and uses traffic light symbols with red, yellow, and green signals to represent credit risk levels. The reports must clearly show the hot spots of the situation, customer portfolio details, specific action plans, as well as the results of handling the existing problems set out last time to continue to avoid repeating such mistakes to have a direction for the next action. The reporting period can be weekly, monthly, quarterly, daily reporting and instant reporting.

3.2.2.3 Human policy

In any unit, the greatest asset is the human, the human is the most important factor in the entire machine that determines the success or failure of an organization, so the development direction must always put the human factor first. In recruitment, if the unit sets the goal of human resource quality as a vital factor, the training and working process will be professional, stable and thereby significantly reduce risks in the working process, avoiding inherent errors that can be prevented.

Thus, it can be seen that the results of credit risk management depend largely on the qualifications and professional capacity of the Bank's staff, specifically:

For management and executive staff

In the operation of any unit, the role of the management and executive staff will form the business habits or business culture of the unit, which is the fastest reflection of the working style of the enterprise. For the Bank, this is even more evident, especially in credit activities, the management and executive capacity of the management staff has a special meaning in creating the management and executive capacity of the Branch. A strong management and executive staff not only ensures that the Bank's credit activities are disciplined and unified, but also knows how to promote the dynamism and creativity of each person, thereby

effectively carry out the Bank's business operations, avoiding unnecessary risks in business operations.

Therefore, to effectively manage credit risks and limit credit risks, the prerequisite is that the management team needs to pay attention to cultivating professional ethics, improving business management skills, understanding the law and knowledge of risk management right at the Bank, especially credit risk management so that the Bank's apparatus can operate effectively.

For operational staff

The operational staff is the thread that weaves the picture of the Bank's landscape. Whether that picture is complete and sustainable or not requires regular training in professional ethics as well as deep expertise. To achieve that, it is not only an effort from one side, the staff, in addition to self-improvement, also needs to be regularly trained at widely recognized prestigious organizations to improve their capacity to assess, measure and analyze credit risks. Therefore, to perfect credit risk management and limit credit risks, the Branch needs to equip itself through the process of recruiting, using, training and nurturing a team of specialized and experienced staff in credit risk management. Specifically:

+ Develop policies for recruiting, using, rewarding and promoting staff appropriate to job requirements and responsibilities. At the same time, the recruitment process should cooperate with organizations outside the Bank that have expertise and reputation in human resources to minimize negativity in the recruitment process.

+ Periodically organize and coordinate with superior banks and foreign banks to open classes, training courses and workshops to update banking knowledge,

special

especially for cadres who demonstrate good ability and capacity.

+ Improve technical skills, professional capacity, market understanding, knowledge

Legal knowledge for credit officers to have a general and comprehensive perspective to help make more realistic and objective comments and assessments in lending decisions.

+ Knowledge of customer service skills, information research skills, negotiation skills, analysis, synthesis, and deduction skills are mandatory requirements and are evaluated periodically on detailed scoring sheets for each of those criteria.

+ Resolutely eliminate officials with weak moral character, lacking honesty or transfer to other departments if lacking professional expertise.

+ It is necessary to apply a method of credit assessment analysis in a more scientific, methodical and professional way to support staff in their work. Improve the understanding of risk assessment staff about legal knowledge to handle work closely, avoiding being taken advantage of by customers.

+ Job rotation and conversion mechanism (for example, for employees it is 02 years, for managers it is 05 years) to strengthen internal supervision, avoiding undetected risks.

Officers in the bad debt handling system in particular and debt handling in general need to be freed from the idea that they are unlucky and at a disadvantage when assigned the task. In fact, this is a professional task that generates income for the Bank. In terms of expertise, they have to handle relationships with customers and debt handling partners that are diverse and complex, especially cases where customers have difficulties in business, lack of goodwill to cooperate, etc. Therefore, the arrangement and assignment of officers for this task cannot be taken lightly. Officers must be selected who are enthusiastic, determined, experienced, and knowledgeable about credit work and customer work. There must be appropriate incentive and evaluation policies so that officers doing this work can wholeheartedly devote themselves to the task.

The branch needs to create a channel of cooperation with experts and scientists to listen, learn and apply research on risks and risk prevention to help the Bank's leaders in issuing and amending the Branch's risk management policies as well as updating economic information related to risks, especially credit risks. Thereby, the teaching to improve knowledge about risks for the Branch's risk management staff will be more frequent.

3.2.2.4 Changes in technology

Vietinbank's information technology center needs to research and develop a software system applicable to the entire banking system in storing customer data banks, serving the analysis, assessment, and measurement of credit risks quickly and accurately. The information technology infrastructure needs to meet the following needs:

Technology to collect, analyze, evaluate, and measure risks, accurately indicate loan risk status and risk portfolio by industry so that the Vietnam Joint Stock Commercial Bank for Industry and Trade system can have timely prevention policies.

For the software currently used internally at Vietnam Joint Stock Commercial Bank for Industry and Trade, there needs to be a plan for system maintenance and upgrade to ensure that it meets user requirements. The information technology center needs to build and complete the enterprise rating system software to link programs together so that data is unified and highly centralized, convenient for management. Specifically, integrate and link internal credit rating software with software to assess the current status of loan collateral, determine the level of risk reserves that must be set aside; Link customers between scoring periods to be able to monitor customer changes in rating and debt group as well as control customer information fluctuations over different periods.

Build a cash flow management program for customers, for each type of product.

product

Build software program to monitor and control credit limits

by industry

Build a database of customers, economic development, industries, and fields to create data sources for reporting analysis.

In summary, developing personal credit activities is a strategic business direction of the entire NHCTVN system in general and NHCTPY in particular. With the above solutions, the expected results are:

- Strive to reduce the overdue debt ratio and ensure it is always at an acceptable level of 1%.

- Achieve the number one position in the selected segments: focus on the individual customer segment for short-term production and business and consumer lending.

- Understand the credit risk level of customers, thereby building a price appropriate to the risk level and perfecting the early warning system for overdue debt.

- Improve appraisal quality, quality in each lending stage to better monitor customers and credit officers; closely manage customer operations, anticipate potential customer needs; maximize customer potential.

Estimated cost of implementing the solution:

Technology equipment costs: Currently, at the credit officer branch, there is software on the LOS system for credit rating scoring. Thereby, credit officers enter credit information into the software to make an appraisal report, the data will be linked to the credit scoring section automatically. This method has many advantages such as saving time, less errors, confusion because the large volume of indicators has been decoded and linked from customer data when the officer appraises and the results are less influenced by the subjective opinions of the credit officer. However, because the rating scoring table has many criteria, more weights, the system has not yet updated the weights and points for each period to suit the changes of the market economy. Therefore, upgrading the credit rating system is very necessary and may cost NHCTVN a certain amount.

Opportunity cost: with the above solution, NHCTPY tightens some industries, some loan terms (mainly focusing on production and business loans and short-term loans). It is expected to miss the opportunity to lend to the group of individual customers for medium and long-term consumption loans and the group of short-term customers operating in industrial and other non-commercial sectors of about 80-90 billion VND. Equivalent to the difference between output and input of 0.9-1% of the profit from lending of about 810 million VND.

3.3. Recommendations

3.3.1. Recommendations to the Government

To contribute to preventing and limiting personal credit risks for banks, the Government is requested to:

Research and develop a system of circulation of checks, bills of exchange and alternative payment systems to cash payments to help manage and use borrowed capital for the right purposes.

Issue regulations to facilitate the establishment of valuation companies, expand the conditions for establishing valuation companies beyond state-owned enterprises, joint-stock companies and foreign-invested enterprises, and create conditions for joint-stock companies to participate in valuation activities.

Direct the Ministry of Finance to coordinate with relevant ministries and branches such as the State Bank, Ministry of Planning and Investment, General Statistics Office, etc. to standardize a number of basic indicators as a basis for ministries and branches to evaluate and classify for management purposes.

Allow the establishment of branches of the National Registration Bureau for Secured Transactions under the Department of Justice in localities to facilitate the registration of secured transactions.

3.3.2. Recommendations for the State Bank

Establish branches of the Credit Information Center in major cities. Improve the quality of information based on information collection inside and outside the industry. Amend and supplement the regulations on operations and exchange of credit information in the banking industry. Further improve the quality of credit information at the Credit Information Center of the State Bank to meet the demand for updated and accurate information about customers. Appropriate propaganda measures are needed so that commercial banks clearly recognize their rights and obligations and benefits in providing and using credit information.

Coordinate with relevant units to regularly organize training courses and update knowledge to improve the capacity to assess, measure, analyze and control credit risks.

Strengthening the effectiveness of credit inspection and control at commercial banks to limit and prevent credit risks.

3.3.3. Recommendations for Vietnam Joint Stock Commercial Bank for Industry and Trade

Comply with the regulations of the State Bank on safety ratios in the operations of credit institutions of credit institutions according to Decision No. 457/2005/QD-NHNN dated April 19, 2005, Circular 36/2014/TT-NHNN stipulating limits and safety ratios in the operations of credit institutions; Circular on debt classification, provisioning to handle risks in banking operations of credit institutions according to Decision No. 15/2010/TT-NHNN dated June 16, 2010 issued by the Governor of the State Bank and other relevant regulations on loan guarantees.

- Strengthen internal control work with the important goal of building a system to search for potential negative trends, instability and shortcomings in bank operations to propose corrective measures.

- Appraising investment projects and business production plans is considered the most important step before deciding to lend, the level of trust in the transaction process with the bank, referring to credit information of the Credit Information Center (CIC) under the State Bank... Consider the scientific basis of establishing an investment project, the time of establishment until borrowing capital, expected income, interest and payback period...

- During the lending process, the bank needs to have a suitable loan disbursement plan. For individual customers, cash can be disbursed one time or the entire loan, because the amount of personal loans is usually not as large as that of businesses.

- Closely monitor the use of capital by customers. If any violations are detected in the process of using the loan capital such as wrong purposes, etc., the credit officer will recommend early debt collection, transfer of overdue debt or refer it to the law enforcement agency for handling. For personal credit, the credit officer needs to closely monitor the borrower's income to urge debt collection on time. If due to objective reasons the debt is not repaid, when the borrower submits an application for an extension, the credit officer will confirm and request the bank director to extend the debt according to regulations.

- Depending on the level of trust for each customer, appropriate loan security measures must be applied, such as: having collateral, pledging to secure the loan, securing the loan with assets formed from the loan capital or securing with credit...

Credit risk management for individual and household customers at Joint Stock Commercial Bank - 15

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