Credit risk management for personal loans at Nam A Commercial Joint Stock Bank - Quang Ninh Branch

There is an inspection from the bank. Therefore, it is necessary to constantly improve and innovate inspection methods, flexibly apply inspection measures depending on each time, each object and purpose of the inspection. For customers who are businesses borrowing for the first time, they must go through the credit council to screen and select customers with effective financial capacity to limit risks.

• Control

Organize the implementation and improve the capacity of the control system during credit operations and the internal audit system to ensure the independence of the internal control department. Strengthen the monitoring of loan use and customer payment cash flows, specifically:

- For loans: During the loan approval process, checking before lending is necessary, however, after disbursing the loan, Nam A Bank - Quang Ninh Branch also needs to check the use of the loan, check if the customer uses the loan for the right purpose. If after disbursing the loan, the credit officer does not check, the customer may not use the loan for the right purpose, borrow the account to pay and then withdraw cash to spend for the wrong purpose, leading to high risks for the bank.

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- Regarding payment: In addition to checking the loan capital, Nam A Bank credit officers - Quang Ninh Branch also need to pay attention to the customer's payment source, requiring businesses and buyers to transfer money to the customer's account at Nam A Bank - Quang Ninh Branch to repay the loan, not allowing cash withdrawals. Nam A Bank credit officers - Quang Ninh Branch should also control customer deposits and spending from deposit accounts must have the bank's consent, avoiding the phenomenon of customers not paying the debt but using the payment for other purposes, when the debt is due, they cannot pay.

- Build a highly effective internal control and audit team, operate independently, strengthen online control, promptly update high-risk areas, and prevent sensitive areas that may pose risks to the bank.

- Increase qualified staff who have experience in credit operations to supplement the Control Department. During the credit activity inspection process, it is possible to increase staff directly from the credit department or credit appraisal and management to conduct the inspection together.

- Regularly train to improve professional skills for Control Department staff. It is necessary to define responsibilities for control staff. There is a reward and punishment system to increase responsibility in control activities.

3.2.4. Improve the handling of overdue debt, bad debt, and doubtful debt

This is the most important measure to minimize the damage that has occurred. Handling overdue debt requires Nam A Bank - Quang Ninh Branch to carry out the following contents:

• Analyze the cause of each customer's overdue debt, and then take measures to resolve it. For customers with temporary nature and normal production and business activities, Nam A Bank - Quang Ninh Branch needs to consider the ability to repay the debt and the production and business plan in the coming time to decide to lend. Lending with guaranteed capital recovery helps customers overcome difficulties and have measures to repay the debt, for example, the following method can be applied:

- Determine debt restructuring method: Based on the business production plan of the enterprise, the enterprise proves its ability to repay when due after debt restructuring, then Nam A Bank - Quang Ninh Branch should restructure. To restructure debt for enterprises, Nam A Bank - Quang Ninh Branch must closely monitor debts and customer activities after restructuring.

For businesses facing financial difficulties, business losses, difficult to overcome, overdue debts with unidentified payment sources, Nam A Bank - Quang Ninh Branch needs to strictly manage the above loans and customers as follows:

- For secured loans, Nam A Bank - Quang Ninh Branch should:

Find financially capable customers to take back debts from customers in difficulty to continue effectively exploiting assets to ensure debt repayment ability.

The bank can also review the collateral, property status, and legal documents to be able to auction the property to recover capital.

Coordinate with Ministries, Departments and Branches to liquidate and auction loan collateral assets as directed to recover capital.

In case the assets are not enough to recover the capital, the customer is forced to pay the remaining amount through the sale of assets, otherwise Nam A Bank - Quang Ninh Branch will declare the enterprise bankrupt. This issue has recently been "strongly" implemented by Nam A Bank.

- For unsecured loans:

In this case, Nam A Bank - Quang Ninh Branch needs to strictly control the financial resources of the enterprise, receivables, payment sources of the projects through annual capital announcements for the construction sector - the main sector of Nam A Bank - Quang Ninh Branch, collection period for other sectors and require customers and investors to commit to transfer payment to the customer's bank account.

- For bad debts that are assessed as recoverable: regularly follow up, urge debt collection, monitor the situation and support, advise customers when necessary, encourage customers to repay debts, partially waive interest rates, restructure loan term extension for customers to repay debts for customers who are willing to repay principal.

- For debts showing signs of bad debt collection: control customers, utilize revenue sources (collateral), and request the guarantor to pay the debt on their behalf.

- For bad debts that cannot be recovered: use RRTD reserves to cover losses or transfer to asset management and debt exploitation companies to continue monitoring and finding debt recovery measures or auctioning assets, selling debts, and suing customers.

Advise clients to sell ineffective assets that are not needed to repay loans.

• Measures to file a lawsuit in court:

Currently, in economic relations in Vietnam, filing a lawsuit in court has not become a habit for everyone, while in a market economy we need to gradually get used to resolving economic cases through economic courts. Nam A Bank - Quang Ninh Branch filing a lawsuit in court will have an effect on customers who are not willing to fulfill their debt repayment obligations.

In addition, Nam A Bank - Quang Ninh Branch also needs to note that risk provision handling is an internal matter of the bank and must not be disclosed to customers about risk handling to avoid the phenomenon of customers being slow to pay.

3.2.5. Improving the quality of human resources

In a market economy, the human factor is always considered an important factor because people are the foundation of development and people will decide the success or failure of any activity that occurs. For credit activities, the human factor plays an even more important role, deciding the quality of credit, service quality and image of the bank, thereby deciding the effectiveness of the bank's credit activities. Therefore, it is proposed that the quality of human resources needs to be further improved and focused mainly on the following issues:

- Regarding training: It is necessary to have a plan and continuously implement professional training programs for staff to promptly meet the human resource needs when expanding the network of activities to avoid the case of lack of human resources which will lead to the use of staff who are not suitable for their professional qualifications and job positions as well as focusing too much on a number of staff, which leads to staff not having time to check and manage loan records well. Properly paying attention to staff training will contribute to limiting possible RRTD.

- Regarding working capacity: Credit officers are required to regularly research, study, master and properly implement current regulations and must constantly improve their working capacity, especially the ability to detect and prevent tricks to take advantage of customers.

- Regarding moral qualities and sense of responsibility: Each bank officer must always consciously cultivate his or her professional moral qualities and have a sense of responsibility in his or her work, especially those officers who directly work in credit because this field of work is very sensitive and most susceptible to falling because of the temptation of money and material things in front of them. Therefore, banks must pay special attention to the moral qualities of bank officers, this is a very important factor to be able to limit the occurrence of credit risks.

In addition, Nam A Bank - Quang Ninh Branch needs to build a reasonable human resource treatment policy, implement an open financial mechanism to attract talents and maintain enough quality human resources to be able to undertake the credit activities of the Branch. Because the daily credit growth is not synchronized with the quantity and quality of the credit staff in charge, it can easily lead to many potential risks in credit activities.

In fact, the work intensity of the staff of Nam A Commercial Joint Stock Bank - Quang Ninh Branch in the past time has been quite stressful, even overtime work is quite common. This has led to the limitation of activities of contacting customers, checking and controlling loans. Therefore, to ensure credit safety, enough human resources to catch up with new business opportunities, increasing human resources in both quantity and quality will help the bank ensure the pace of credit growth while ensuring credit quality.

It is necessary to pay more attention, demand more and have a clearer attitude towards credit officers to limit risks in lending such as:

- Regarding working capacity: requires officers involved in lending activities to regularly research, study, master and properly implement current regulations and must constantly improve their working capacity, especially the ability to detect and prevent tricks to take advantage of customers.

- Regarding moral qualities and sense of responsibility: each bank officer is required to always cultivate moral qualities and uphold a sense of responsibility. The higher the position of the officer, the more exemplary he/she must be.

Banks need to have a reward and incentive system for staff with outstanding achievements, they should be commended, rewarded, have their salary increased ahead of schedule or promoted to a higher position; for staff with violations

The level at which education can be persuaded or disciplined. Only then will discipline in credit activities, the reputation of the bank will be increasingly enhanced and credit quality will certainly be significantly improved.

Nam A Commercial Joint Stock Bank - Quang Ninh Branch needs to strengthen the development of a risk management culture throughout the bank so that each individual in each department is aware of their responsibilities in credit risk management. The bank needs to regularly organize communication programs for each block and the entire bank, organize workshops and teambuilding sessions between departments in the risk management block and business units so that employees can clearly understand the risks and raise awareness of risk prevention for each employee.

3.3 Some recommendations to strengthen credit risk management in lending activities of Nam A Commercial Joint Stock Bank - Quang Ninh Branch

3.3.1. Recommendations to the State

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 banking system, avoiding excessive tightening or loosening, and sudden changes in direction that affect the operations of banks.

Continuing to improve the legal system is an urgent requirement. The State must constantly create a healthy legal environment to encourage production and business, creating a solid legal corridor so that economic sectors can confidently invest capital.

Specific recommendations:

- In promulgating and implementing legal policies and mechanisms, it is necessary to quickly and promptly grasp all developments of the socio-economy, and to collect complete and objective opinions from agencies, sectors and enterprises to ensure accurate and effective implementation in accordance with actual conditions;

- Promote the financial market, first of all the interbank market and the money market to define the operational framework of banks, create more opportunities to reduce risks, improve the efficiency of capital use and diversify risk reduction tools in banking activities.

- In the process of auctioning mortgaged assets to recover debts, the Bank encounters many difficulties in the processing stage because the enforcement documents are still very slow. Therefore, the enforcement agency needs to have a quick procedure to hand over the secured assets to the Bank. To create conditions for the Bank to auction secured assets quickly and effectively, the State should establish a formal market for auctioning assets that the Bank needs to auction. To standardize and ensure the market operates formally, the State needs to: legalize the auction market; establish a company or auction center with strict direction, inspection and control; build a streamlined and effective auction implementation process.

3.3.2. Recommendations to the State Bank of Vietnam

Improving the quality of operations of the State Bank of Vietnam's Credit Information Center (CIC): This is a reliable information channel that helps banks deal with the problem of asymmetric information, thereby contributing to improving the quality of loan analysis. Credit information must include all information about the borrowing situation of customers at credit institutions, there must be a comprehensive analysis of customers to note that central commercial banks also need to provide the risk level of each industry, each field of operation of enterprises as a basis for classifying and ranking enterprises. In addition, it is necessary to focus on innovating and modernizing equipment, establishing a system so that the collection and provision of credit information is smooth and timely. The State Bank needs to have a policy of selecting and training staff to manage the Credit Information Center who are not only knowledgeable about information technology such as exploiting information via the Internet and other support tools, but also have the ability to collect information, analyze, synthesize and give appropriate comments and warnings instead of dry statistical reports for banks to refer to.

The State Bank of Vietnam strengthens inspection and supervision of commercial banks' operations: Lending inspection and supervision activities need to be carried out more frequently and the qualifications of inspectors need to be improved to be able to promptly detect errors and violations in regulations on ensuring safety in banking operations, especially lending operations... To promptly and thoroughly handle them and effectively take preventive measures.

Research and deploy derivative instruments such as credit swaps. This is a tool of a highly developed financial market to help commercial banks prevent and insure against credit risks, share risks and create flexibility in managing each bank's loan portfolio.

3.3.3. Recommendations to the Head Office

• According to Nam A Bank's policy, Nam A Bank does not conduct credit rating for customers who have no history of relationship with the bank, new customers, customers with no source of income... In reality, at the bank, there are customers who are potential units, with really good non-financial information, however, financial information is incomplete or non-existent, or vice versa; customers established to implement projects, customers marketed by the management board. For these customers, Nam A Bank's current rating system cannot perform the rating. Therefore, to ensure comprehensiveness and long-term effectiveness, the internal credit rating system should build a new credit rating system for these customers and eliminate unachievable criteria.

• Nam A Bank needs to redefine the necessity of information sources from cash flow statements in customer rating.

• Nam A Bank should issue detailed documents assessing non-financial indicators for the entire system. Develop a more detailed scoring scale for non-financial indicators. In addition, Nam A Bank can supplement new non-financial indicators based on conducting a large-scale survey, selecting and screening non-financial factors that have a strong impact on the majority of economic organizations to serve as a basis for determining non-financial criteria.

Credit risk management for personal loans at Nam A Commercial Joint Stock Bank - Quang Ninh Branch - 13

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