Current Status of Corporate Social Responsibility Activities at Vib International Bank

VIB's credit review was conducted by Ernst & Young Auditing Company and under the supervision of consultants from CBA. The scope of the project is to review the entire credit portfolio and examine VIB's credit granting processes to provide independent assessments of the bank's credit portfolio, identify weaknesses that have reduced credit quality and increased bad debts that need to be addressed in the coming time.

 Operational risk management (ORM ): The operational risk management model is implemented according to the 3-layer protection model.

- First layer of protection: Implemented at direct business units and operational support departments.

- Second layer of protection: Implemented at management units in which the Quality Management Department has its management role enhanced and is the main responsible unit, acting as the focal point for coordinating management and inspecting the activities of direct business units.

- Third layer of protection : Performed by the internal audit department, performing independent risk control functions, not participating in operational activities and management.

VIB has achieved many significant achievements in operational risk management such as: Organizing the review and revision of internal regulations to prevent loopholes that cause operational risks; Revising the set of procedures for anti-money laundering, anti-terrorist financing and economic and trade sanctions (AML/CTF/ETS) to comply with current regulations of the State Bank...

2.2.3. Current status of corporate credit activities at Vietnam International Bank (VIB)

2.2.3.1. Documents regulating credit ratings of international banks

Credit rating activities of VIB International Bank are carried out in accordance with regulation No. 203/2009/QD-VIB dated February 2, 2009, and also based on Lending Regulation No. 1356/2006/QC-VIB dated May 23, 2006 of the Board of Directors and amended by decision No. 4862/2007/QD-VIB dated November 29, 2007. This regulation includes both personal and corporate credit ratings.

In this regulation, the most basic aspects of credit rating activities are clearly stated such as: Concept of credit rating, subjects and scope of credit rating, purpose of credit rating, principles of credit rating, and the regulation also clearly states credit scoring.

Based on what criteria, how are those criteria determined, how is the score determined and given. And the most important part is determining the classification of customers based on credit scores.

Table 2.7 International Bank's Corporate Credit Classification Table

Group

in debt

Point

Class

Risk Level

Group 1

Debt covered

standard

90 – 100

AAA

This is the group of customers who are able to repay the loan.

especially good

81 – 90

The customer's ability to repay the loan is not much worse than that of the AAA-rated customer. The ability to repay the loan is very good.

75 – 80

KH is more likely to be negatively affected by

external factors and economic conditions. The repayment capacity is assessed as good.

Group 2

– Debt needs attention

idea

70 – 75

BBB

The customer has indicators that show that the customer is fully capable of repaying the debt. However, adverse economic conditions and changes in external factors are more likely to affect the

impair the customer's ability to repay

65 – 70

Customers are less likely to default than groups B to D. However, these customers are facing many potential risks or impacts from adverse business, financial and economic conditions.

affecting the customer's ability to repay the debt.

Group 3

– Underperforming loans

standard

60 – 65

Customers are at higher risk of default than BB customers. However, they are currently able to repay the loan. Business, financial and economic conditions are likely to affect

Customer's ability or willingness to pay

56 -60

CCC

The current customer's ability to pay is impaired, depending on the favorable business and financial conditions.

53 -56

Group 4 debt

45 – 53

The customer has filed for bankruptcy or taken similar actions but the customer's debt repayment is still maintained.

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20 – 45	D	The customer is unable to pay the debt, the loss has actually occurred.
Source: Regulation No. 203/2009/QD – VIB on internal control

Group 5 debt

2.2.3.2. Information technology system and scoring software

trust the internal system then the system will return the result. In addition to the first scoring, the maximum number of times that can be corrected for each customer is 2 times, after which the scoring and ranking must be approved. Confirmation of the customer's financial information is only done once. This increases the objectivity of the ranking model and ranking results.

VIB Bank's corporate credit reporting is performed through the bank's internal software system. After collecting financial and non-financial information of customers, Corporate Customer Relations will then enter the information.

Diagram 2.3 Scoring process when using scoring software at VIB

Source: Internal XHTD manual of VIB International Bank

Figure 2.1 XHTD software used in internal XHTD system

Source: Internal XHTD manual of VIB International Bank

Figure 2.2 Scoring results table and corporate credit rating of International Bank - VIB

Source: International Bank's scoring results table

2.2.3.3. Credit scoring process at VIB International Bank

This new system is divided into 3 groups: corporate customers; individual customers and financial institution customers, with 70 sets of credit rating criteria. Corporate customer credit scoring is divided into 2 customer groups: Group 1 includes large, medium and small-sized enterprises, Group 2 is micro-enterprises.

Steps to follow:

- Step 1: Determine the economic sector : Determining the business sector is based on the production and business activities that bring in total revenue in 3 consecutive years of the customer or the sector in which the enterprise has the most potential for development among the sectors in which the enterprise has potential for development.

- Step 2: Determine the scale: Scale is based on the following criteria: Owner's equity, Number of employees, Net revenue, Total assets. Each criterion is calculated on a scale of 1

-8 points. The scale of the KH will be determined based on the total score of the above 4 criteria. Large scale from 22 -32 points, Medium scale 12 - 21 points, Small scale from 11 - 6 points.

- Step 3 – Determine the type of ownership of the Enterprise

- Step 4 – Score financial indicators: Liquidity indicators, operating indicators, debt balance indicators, income indicators.

- Step 5 - Scoring non-financial indicators including : Indicators assessing customers' debt repayment ability, Indicators of management level and internal business environment, Indicators of relationships with banks, Indicators of factors affecting the business sector, Indicators of factors affecting business operations.

- Step 6 – Summary of scores and credit rating: Customer score = Financial criteria score * Financial weight + Non-financial criteria score * Non-financial weight

Monitoring process:

- At the Branch, rating unit:

Customer Relationship Manager enters scoring information. Branch Manager and business unit approve scoring information and are ultimately responsible for the input information for customer credit rating scoring. Branch Manager is responsible for reviewing credit scoring results, customer classification, controlling and approving rating results.

- At the Credit Monitoring Department:

Collect credit scoring results, prepare classification reports to serve risk provisioning and other purposes as required.

- At the credit policy department: Prepare a report on the results of the entire system's rating implementation, evaluate and propose adjustments, supplements, and amendments to the content and proportions of the criteria sets of the Credit Rating System to submit to the Board of Directors.

 Evaluation criteria: The criteria used to rank VIB's customers' creditworthiness are divided into two large groups: Financial criteria and Non-financial criteria. VIB's criteria set includes 70 criteria.

Financial indicators include coefficients reflecting the ability to pay, activity indicators, debt balance indicators and income indicators. The coefficients of these groups of indicators are familiar coefficients according to common theory.

Non-financial indicators: including indicators reflecting debt repayment capacity; indicators on management level and internal environment of the enterprise, customer relations indicators; Factors affecting the industry; Factors affecting business activities. These groups of indicators are divided into 3 sub-groups based on the source of information entered into the system: Group of indicators that input information from the outside manually, then the system will calculate based on available formulas (34 indicators), Group of indicators taken from VIB's database system (11 indicators), Group of selected indicators (57 indicators).

- Indicators reflecting debt repayment ability such as: revenue ratio transferred to VIB, Expected net income, Expected depreciation expense, Medium and long-term loans for investment in fixed assets, cash and cash equivalents, receivables that can be converted into cash within 6 months, average ROA, ROE for the whole year, the last 3 years, asset insurance level, debt repayment source...

- Indicators reflecting management level : Qualitative assessment of the owner's capacity (capital, executive management, experience), criminal record, number of years of experience of the manager in the business field, educational level, relationship of the Board of Directors with the governing body, department organization, human resource environment, business goals, willingness to pay debt, marketing strategy...

- Factors affecting the industry : industry prospects, government policies, assessment of risks of disruption to businesses in the industry, etc.

- Factors affecting business operations : competitive position, ownership of business locations, stability of output, dependence on inputs, assessment of waste treatment and pollution reduction, etc.

Using credit rating results:

- As a basis for applying different credit policies: each customer group after being classified will be applied credit policies by VIB bank on: customer marketing policy, credit granting policy (products and services, limit, approval time), interest rate policy (customers with higher credit rating will enjoy preferential interest rates with the application of the smallest minimum profit level), loan guarantee policy, service policy, service fee, deposit policy.

- Is the basis for determining the limit of the collateral ratio, thereby determining the limit of the granted credit limit.

- Is the basis for deciding to refuse or agree to grant credit to customers.

- Assess the current status of customers during the loan monitoring process, and set up risk provisions...

2.2.4. Achievements, problems and causes of XHTD activities at VIB International Bank

2.2.4.1. Results achieved:

During the period from 2006 to 2008, the International Bank conducted scoring and credit rating for customers according to two simple criteria for individual customers and corporate customers. Since January 2009, the International Bank (VIB) has applied a new credit rating system with 70 sets of credit rating criteria. The new rating system was created with the help of the auditing company Ernst & Young, which has significantly contributed to the screening and classification of customers. The credit rating results are used by administrators to determine the maximum credit limit for each customer and regulations on collateral. The achievements of the current rating system are:

 The ranking system is modern and has tried to overcome subjectivity in scoring quantitative indicators by including non-financial indicators. The scoring and ranking system is performed automatically through the software on the system after the Customer Relationship Manager enters information. This reduces errors in the calculation process and saves time in ranking. At the same time, entering financial information is only done once, and the maximum information modification is

no more than twice, this makes the scoring avoid the situation where the staff intentionally makes mistakes, modifies information to get high scoring and ranking results. This increases the objectivity of the model and the reliability of the scoring.

 VIB Bank has built a synchronous credit rating system with a regulated legal framework, dividing the authority and responsibility of each individual and department in credit rating, and monitoring the accuracy of that rating. In particular, it has built a detailed rating approval process through the bank's internal network software and provided a scoring handbook. In addition to having a standard process for scoring each customer, the bank also has a reporting system that synthesizes the ratings of all customers in the system to evaluate, review the level of risk and propose solutions.

 Financial indicators are indicators that generally reflect the current state of business operations of the enterprise. Non-financial indicators are diverse and rich, with a large number of indicators, and have included a number of new meaningful non-financial variables in the rating model. In particular, there are a number of variables that modern models now include such as: Property insurance level, Ownership of business locations, assessment of waste treatment and pollution reduction... This allows the rating model to have more information about customers to evaluate and provide a rating result that is more reliable and most reasonable for customers.

 The information technology system serves the scoring work to the maximum. The customer's scoring results are saved in the bank's internal network system and those results are used in the entire system, making customer transactions open everywhere in the system smooth and fast.

 In addition to building a complete system, VIB International Bank also organizes short-term training courses on credit rating activities, business analysis and evaluation such as: short-term financial statement analysis, debt group and NPL analysis and management... for credit officers, in order to improve theoretical and practical knowledge to help these credit officers evaluate businesses more accurately and honestly.

2.2.4.2. Difficulties and problems

 Reliability of input information sources: The result of credit rating depends largely on the information about the customer when entering the system. Rating results

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