on the basis of documents and papers provided by customers such as: Invoices, warehouse receipts, payment records, current status of materials and assets formed from loan capital at the time of inspection. BIDV Cam Pha branch stipulates the inspection time for loans after disbursement is a maximum of 7 days for loans disbursed in cash and a maximum of 10 days for loans disbursed by transfer.
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General Comments on the Current Status of Credit Risk Management and Factors Affecting Credit Risk Management at Vpbank -
Current Status of Factors Affecting Credit Risk at Vietnamese Commercial Banks in the Period 2008 - 2016:
- For corporate customers and individual customers engaged in production and business activities: Every 6 months, customer management officers must conduct an actual inspection of the customer's production and business activities, evaluate the financial situation, revenue, cash flow, loan collateral, receivables, etc. to evaluate the customer's operating situation and ability to repay bank loans.
- For projects under investment and construction: Every 3 months, check the project progress, acceptance status, payment, and customer's equity participation.
- Individual customers: Periodically check the financial situation and debt repayment sources of customers once a year to promptly identify signs of risk.
Checking secured assets: Periodically check secured assets to assess changes in the current status of secured assets compared to the time of signing the mortgage contract or the time of the most recent inspection (if any), and re-evaluate secured assets. Periodic inspections are carried out a maximum of every 12 months for real estate and every 6 months for personal property.
The Risk Management Department is responsible for monitoring the Branch's loan portfolio and performing internal inspection functions and tasks, including checking compliance with mechanisms, regulations, business processes and legal regulations in the business activities of specialized functional departments, especially credit activities. At the same time, the Branch also established credit inspection teams, conducting cross-checks between departments to promptly detect errors, correct them and learn from experience.
2.3.5. Current status of credit risk control measures
To control credit risks, BIDV Cam Pha branch implements credit procedures and credit management according to BIDV regulations. The specific procedures depend on the customer (organization, individual), whether it is assessed for risk or not, and whether the decision-making authority is the BIDV branch or head office. However, the credit procedure can be summarized through the following basic steps:
Customer marketing, credit proposal : Customer management staff market to customers, receive information about customers' needs for using BIDV's products and services, guide customers to provide and create credit profiles according to regulations.
Credit analysis, credit proposal report : After receiving complete loan documents from customers, customer management staff conduct credit analysis, prepare credit proposal report. The report evaluates aspects such as: Legal status (through ID card, household registration, business license, tax registration certificate, decision to appoint legal representative, etc.); Financial situation (through analysis of financial statements of corporate customers, documents proving income sources for individual customers); Feasibility of production and business plan/life service plan; Secured assets; Internal credit rating results; Relationship and creditworthiness of customers with credit institutions (through the State Bank of Vietnam's Credit Information Center). To accurately analyze customers and loans, customer management staff must have solid professional skills, certain knowledge in many different production and business fields and general social knowledge to have accurate assessments. The credit proposal report and all documents are forwarded by the customer management officer to the appraisal officer for credit appraisal.
Credit appraisal : Based on the Credit Proposal Report and all documents transferred by the customer management officer, collecting additional information (if necessary), the credit appraisal officer conducts the appraisal, agrees/disagrees with the proposed content, and adds additional comments (if any).
Approve Credit Proposal Report
In case the loan is under the approval authority of the Proposal Report approval level (Deputy Director of Customer Management, Head of Personal Customer Department/Transaction Department): Based on the approval opinion (agree/disagree), the customer management department will notify the customer of the approval/rejection of credit granting.
In case the loan must go through risk assessment, transfer the entire file together with the Appraisal Report approved through risk assessment and submit to the higher authority (Branch Director, Credit Council, BIDV Head Office) for credit approval. Based on the final approval opinion of the competent authority (agree/disagree), the customer management department notifies the customer of approval/rejection of credit granting.
Negotiate conditions, draft and sign contracts : The Customer Management Department negotiates with customers on credit conditions approved by competent authorities, drafts Credit Agreement/Guarantee Agreement to be signed between BIDV and customers, completes credit conditions, hands over documents to the Credit Management Department for storage, and enters data into the system.
Disbursement, issuance of guarantees : Receive disbursement documents from customers, check the purpose, disbursement conditions, and credit limit of customers; Take full responsibility for checking the content and nature of disbursement documents (legality, validity of invoices, disbursement documents, economic contracts, etc.), prepare disbursement proposals, specific credit contracts/withdrawal lists/debt receipts to submit to competent authorities for approval according to the authority hierarchy.
Loan management, monitoring, debt collection according to contract : Including post-loan inspection, periodic customer assessment and evaluation, collateral, debt collection urging, etc.
Credit adjustment (if any) : Based on information captured during the process of monitoring, checking, reviewing and evaluating loans/customers or other information
Warnings from relevant departments such as Risk Management, Credit Administration or from customer requests, the customer management department proposes to make credit adjustments (if any) in accordance with the actual situation of the customer/loan such as: increase/decrease credit limit/limit, debt extension, adjustment of repayment period, adjustment of credit security, interest rate adjustment, interest exemption/reduction, etc.
In the appraisal and credit granting process for customers, based on identified and measured risks, depending on each type of risk, each customer, BIDV Cam Pha branch has applied risk control measures such as:
- Require revenue transfer to customer deposit accounts at BIDV Cam Pha branch at least equivalent to BIDV's capital financing ratio in total outstanding debt at all credit institutions to monitor and supervise business activities and customer financial situation.
- Requirement to purchase insurance for secured assets such as machinery, equipment, means of transport, purchase insurance during construction and project implementation,
...first beneficiary belongs to BIDV Cam Pha branch
- BIDV Cam Pha branch does not accept inventory or goods in circulation during business operations as collateral in deciding to grant credit to a customer/loan.
2.4. Assessment of the current status of credit risk management at Vietnam Joint Stock Commercial Bank for Investment and Development - Cam Pha Branch
2.4.1. Results achieved
In the context of the economy with many positive and negative fluctuations, the business activities of BIDV Cam Pha branch generally developed stably, with good growth in outstanding loans. The branch's credit risk management has been increasingly improved and has achieved positive results, specifically:
The credit organization model is changed accordingly.
With the goal of becoming a modern bank, the organizational model of BIDV Cam Pha branch has been organized to focus on customers, promote and improve customer service. The organizational structure including Customer Management, Risk Management and Credit Administration has created a separation of functions and tasks of each department in credit activities, helping BIDV Cam Pha branch improve the quality and efficiency of operations, increasing the ability to limit credit risks. At the same time, the organization of the internal control inspection model has contributed to improving the quality of inspection and control work, promptly detecting and clarifying credit quality.
Internal credit rating system is applied effectively
The application of the internal credit rating system has brought about effectiveness in the Branch's credit risk management, specifically:
- The internal credit rating system is the premise for perfecting credit granting processes and procedures, thereby improving the credit quality of the Branch.
- Internal credit rating system helps to control the entire credit portfolio as well as systematically evaluate borrowers.
- Based on the scoring results according to the internal credit rating system, debts are classified in accordance with standards, customer policies are consistent with debt classification policies, and credit quality is initially tightly controlled.
Credit structure has positive changes
The credit structure by customer group has shifted towards gradually reducing the proportion of loans to large enterprises to avoid credit concentration, gradually increasing the proportion of loans to small and medium enterprises and individual customers. This is completely consistent with the economic development trend of Vietnam and the world because the private economic sector is a dynamic economic sector, developing rapidly and increasingly accounting for a significant proportion of the total national income.
Increase the proportion of commercial loans, individual customers (retail) and gradually reduce the proportion of loans to the mining industry of coal enterprises in the area.
In loan appraisal and approval, BIDV Cam Pha branch is more cautious in selecting projects and customers to decide on lending and is gradually shifting the structure of secured loans, strengthening the legality of secured assets, and gradually reducing outstanding loans without secured assets.
Risk prevention and mitigation are emphasized.
BIDV Cam Pha branch has applied loan insurance conditions to prevent risks in case of risky events for individual customers, implemented through the Bank for Investment and Development of Vietnam Insurance Company (BIC). The implementation of loan insurance products has created additional tools to prevent and limit possible risks while generating additional revenue from services.
The inspection work before, during and after lending is carried out seriously . The branch has issued documents with detailed regulations and instructions on the inspection content, inspection time limit... thereby enhancing the responsibility of customer management staff and customers for the loan, thereby limiting the risks that may occur.
2.4.2. Problems and causes
2.4.2.1. Existing problems
Although BIDV Cam Pha branch has made many efforts to strengthen credit risk management, there are still many limitations. The limitations are shown in the following contents:
The rate of bad debt and group 2 debt is on the rise.
Although the credit quality of BIDV Cam Pha branch is quite good with a low ratio of bad debt and group 2 debt, always below 1% of total outstanding debt, it has been on a strong upward trend in the past 2 years. In 2019, bad debt increased by 57%, group 2 debt increased by 213% compared to 2018.
compared to 2018. The high increase in group 2 debt is a factor that carries many risks because of the possibility of transferring from group 2 debt to bad debt, at the same time increasing interest and reducing branch profits.
Credit portfolio and credit structure are still unreasonable.
Although BIDV Cam Pha branch has made efforts to improve the credit structure by product and industry to avoid credit concentration, outstanding credit is still concentrated in a number of industries with a relatively large proportion such as mining, construction, trade, other areas such as manufacturing and services, although growing, still account for a very modest proportion, not really creating a balanced and safe credit structure by industry. The medium and long-term lending ratio of the Branch is expected to increase again in 2020 because at the end of 2019, there were still a number of medium and long-term lending contracts that the Branch had signed but had not disbursed yet with a large number of disbursement commitments (Khe Cham coal processing plant project VND 490 billion, wastewater treatment system - TKV Environmental Company VND 88 billion), this poses many challenges for BIDV Cam Pha branch in terms of credit structure by term in the coming time.
The ratio of unsecured debt is large, the quality of secured assets is not good.
Good.
The unsecured debt ratio of BIDV Cam Pha branch although
has improved in a positive direction, gradually decreasing over the years, but is still large (in 2019 it was 33.8%), this comes from the granting of short-term unsecured credit to all coal enterprises under the Vietnam National Coal - Mineral Industries Group, Dong Bac Corporation, Cam Pha Cement Company (600 billion VND).
Assessing the quality of collateral assets such as the ability to sell the assets, the legality of the assets is the basis for debt recovery in case of risks. However, the quality of collateral assets at BIDV Cam Pha branch is not yet guaranteed. For large enterprises in the coal industry, collateral assets for medium and long-term loans are all assets formed from projects, which are tunnel systems, systems
conveyor belts, specialized equipment systems in coal mining, etc. These are all specialized assets, used in a narrow scope for businesses in the mining sector, the possibility of selling them is extremely difficult. With some other fixed assets, the valuation of secured assets of corporate customers is currently mainly based on accounting book value, not assessed according to market value, so when risks occur, the proceeds from the sale of secured assets are often not enough to cover the loan, leading to losses for the bank.
Credit information collection : Information collection is based only on reports without considering the accuracy and reliability of the information in the reports, so the collected information is not guaranteed to be close to the loan needs and the actual situation of the business. This can easily lead to the risk of customers making dishonest reports to serve the monitoring work of the Branch.
For individual customers, collecting credit information, especially information on financial status, is still difficult due to the habit of using cash in Vietnam, incomplete records, and unreliability.
Credit information analysis : The credit information analysis system is carried out through scoring and ranking customers. However, the calculation of these indicators is actually for reference only because these parameters depend on the truthfulness of the customer's financial statements. In reality, the customer's financial statements are not reliable enough, especially private enterprises. The customer's business reports often show higher profits than the actual level in order to borrow capital easily, making the quality of credit measurement not guaranteed.
Evaluation criteria for information analysis and customer classification are still sketchy : For business classification, there is a lack of important criteria such as business lines, scale of operation, operating ratios such as inventory turnover, receivable turnover, profitability ratios such as ROE, ROA...