CHAPTER 3: CURRENT STATUS OF FACTORS AFFECTING CREDIT RISK AT VIETNAMESE COMMERCIAL BANKS IN THE PERIOD 2008 - 2016:
3.1 Credit risk status in the period 2008 - 2016:
3.1.1 Credit growth rate
Table 3.1: Total outstanding credit for Vietnam's economy 2008 - 2016 (unit: trillion VND)
Year
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
Outstanding debt credit | 1363.9 | 1875.4 | 2483.6 | 2389.6 | 3090.9 | 3477.9 | 3970.5 | 4655.9 | 5505.4 |
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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 Credit Risk Management at Vietnam Bank for Agriculture and Rural Development -
Current status of credit risk at Saigon Thuong Tin Commercial Joint Stock Bank, Lam Dong branch - 1 -
Current Status of Credit Risk Management for Individual Customers at Vietnam Technological and Commercial Joint Stock Bank - Thai Nguyen Branch -
Factors Affecting Credit Risk Management of Commercial Banks
40
37.5
35
32.43
30
25
23.4
20
17.02
18.25
15
14.33
12.52
14.16
Speed
increase
Chief Credit Officer
10
8.85
5
0
2008 2009 2010 2011 2012 2013 2014 2015 2016
(Source: State Bank) Chart 3.1: Credit growth rate in Vietnam in the period 2008 - 2016
Source: General Statistics Office In 2008, the financial crisis broke out and negatively affected
The global financial system, and the banking industry, are no exception to these negative impacts. The credit growth rate of 54% in 2007 decreased to 23.4% in 2008. In the face of high inflation, the State Bank of Vietnam tightened monetary policy to
Controlling the growth of total outstanding credit, limiting ineffective credit. The credit tightening policy also forces commercial banks to carefully consider lending projects to avoid making wrong lending decisions and aggravating the current recession. Controlling outstanding credit also helps capital to be used more carefully and effectively, limiting bad debt and losses to the economy.
Since the end of 2008 and the beginning of 2009, the State Bank has begun to loosen monetary policy to support liquidity and facilitate effective credit growth. The economy began to recover from the second quarter of 2009, the demand for loans from businesses increased sharply, which meant that credit growth also increased. According to the State Bank's report, the credit growth rate in 2009 was 37.5%, exceeding the credit growth target of 30% that the State Bank set at the beginning of the year. However, the capital mobilization rate did not keep up with the credit growth rate when capital mobilization increased by only 28.7%; leading to a capital imbalance in commercial banks.
In 2010, the monetary and credit markets were relatively stable, with credit growth reaching 32.43% compared to the end of 2009, although the State Bank only set a credit growth target of less than 25% due to concerns about inflation. In 2011, the economy faced a series of difficulties and challenges: inflation rose again (nearly 18.7%), interest rates increased, making it difficult for businesses to access capital, and the macro economy was unstable due to impacts from the world market such as the public debt crisis in Europe; commodity prices, oil prices... increased and developed complicatedly. Therefore, monetary policy during this period was consistently managed in a tightening direction, limiting the credit growth rate of the entire banking system to 14.33%. By around September 2011, these monetary tightening measures began to take effect when the rate of consumer price inflation began to decrease after many consecutive months of rapid increase, and inflation was thus also restrained in the final months of the year.
The economic situation in 2012 continued to be affected by global economic instability due to the financial crisis and the public debt crisis in Europe. The problem of liquidity
The domestic banking system's balance sheet was tense from the end of 2011 to 2012, the State Bank had to apply a policy of ceiling interest rates on deposits, along with a ceiling interest rate on loans, to reduce the interest burden and create conditions for businesses to access capital. The credit structure was managed by the State Bank in the direction of expansion along with the safety of credit institutions' operations. Therefore, although the credit growth rate was low, only about 8.85% compared to 2011, the credit structure has shifted in a positive direction, in line with the Government's goals. Credit provided and supported in the right fields and needs has contributed to improving credit quality and enhancing the efficiency of the economy.
Table 3.2: Structure of outstanding credit in Vietnam in the period 2012 - 2016
2012 | 2013 | 2014 | 2015 | 2016 | |
Agriculture, forestry industry, fisheries | 9.64% | 10.53% | 9.85% | 10.00% | 10.15% |
Industrial | 29.28% | 27.86% | 25.73% | 23.29% | 21.84% |
Build | 9.31% | 9.90% | 9.58% | 9.72% | 9.23% |
Commerce | 19.54% | 19.32% | 18.74% | 17.76% | 18.22% |
Transport, telecommunications | 4.28% | 3.65% | 3.39% | 3.28% | 3.48% |
Service activities other | 27.96% | 28.75% | 32.70% | 35.95% | 37.08% |
(Source: State Bank)
Entering 2013, the global economy began to show signs of recovery. The State Bank of Vietnam no longer focuses too much on credit growth rate, because when growth is too hot, credit quality will not be guaranteed, leading to high bad debt ratio and increased risk of inflation as in the period 2007 - 2009. Therefore, since 2012, the State Bank of Vietnam has maintained the credit growth target at a low level but focused on credit quality, focusing credit on the industrial production sector, agriculture, small and medium enterprises, high-tech enterprises... By the end of 2013, outstanding credit increased by 12.52% compared to the end of 2012. The State Bank of Vietnam has directed credit capital to priority sectors, so credit quality has been increasingly improved.
2014 marked another successful year for the State Bank in operating monetary policy proactively and flexibly. At the end of 2014, the economy's credit balance increased by 14.16% compared to the same period in 2013. The credit structure continued to shift in a positive direction, focusing credit on production and business activities in priority areas according to the Government's policy through grouping and assigning credit growth targets.
In 2015 - the last year of the 5-year plan, our country's economy has had positive changes and recovered in many areas. Credit growth reached 17.26% compared to the end of 2014, the highest level since 2011. Credit continued to focus on the production and business sector, especially the group of high-tech enterprises with a credit balance growth rate of 43.07%, showing the rapid development of this group of industries and also a positive sign for the economy when enterprises apply modern technology to production, contributing to increasing labor productivity and competitiveness of goods in the market.
In 2016, the first year of the 5-year Socio-Economic Development Plan 2016 - 2020, our country's economy faced many difficulties due to the slowing growth of the world economy, the underdeveloped commodity market affecting the export sector, along with unfavorable developments in the domestic climate situation. This posed many challenges for the State Bank in managing monetary policy and banking operations. However, the results achieved were quite positive. Credit growth in 2016 reached 18.25%; close to the set target. The State Bank's credit policy was directed towards expansion, increasing capital supply to the economy to support and promote production and business, while focusing on credit quality, avoiding overheating growth. In particular, for businesses or customers facing difficulties in debt repayment due to the consequences of natural disasters and climate change, the State Bank also considers reducing interest rates, restructuring debt repayment terms... to create conditions for businesses to continue production.
business. Thanks to that, credit growth achieved the set target, in line with the market situation and made positive contributions to the economy.
3.1.2 Bad debt ratio
Chart 3.2: Bad debt ratio and credit growth in Vietnam from 2008 - 2016
40
6
37.5
35
5.22
32.43
5
30
25
3.79
4
23.4
3.3
20
3.25
2.52
2.9
17.26
3
2.8
18.25
Credit growth
15
2.17
2.05
14.33
14.16
12.52
2
Bad debt ratio
10
8.85
1
5
0
0
2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: State Bank, General Statistics Office Facing mounting difficulties as the world economy falls into crisis
In 2008, bad debt in Vietnam also tended to increase. Specifically, the bad debt ratio increased from 1.7% in 2007 to 2.17% in 2008. The impact of the financial crisis caused economic growth to slow down, inflation to increase and production of domestic enterprises to face many difficulties. In addition, overheated credit growth in 2007 and the first months of 2008 was also one of the reasons for the increase in bad debt ratio, when credit institutions only cared about increasing total outstanding debt without paying attention to the quality of loans. Therefore, the State Bank of Vietnam has advocated controlling and tightening credit in the last months of the year, when the global recession became serious, in order to control the growth rate.
credit growth and make commercial banks more cautious in making lending decisions to limit bad debt.
In 2009, the world economy continued to experience a year full of fluctuations when the growth rate decreased by 1.1%; oil and gold prices had complicated developments, budget deficits increased in many countries including the US... In the country, the currency market, foreign exchange market and gold market also had many fluctuations. The bad debt ratio of the entire banking sector as of December 31, 2009 accounted for 2.05% of the total outstanding debt of the economy. The sluggish real estate market pushed up bad debt in the real estate sector. The credit growth rate was too fast in 2009 at 37.73%, while the initial target was only 30% and the capital mobilization growth rate was 28.7%, which was also one of the causes of bad debt, causing capital imbalance in the banking system.
Since the end of 2009 and the beginning of 2010, the State Bank has begun to shift its monetary policy from loose to tight, requiring credit institutions not to lower lending conditions, strictly controlling capital in non-production sectors, real estate, securities investment... showing the State Bank's determination to tighten credit and reduce the bad debt ratio. By the end of 2010, the bad debt ratio of the commercial banking system was 2.52%, equivalent to about VND 58,000 billion. According to the State Bank's assessment, this bad debt figure is still under control, although it has increased significantly compared to 2009. Therefore, the bad debt problem in 2011 has not been assessed as serious, and credit institutions still handle bad debt themselves by setting aside risk provisions, restructuring debts or handling collateral to recover capital.
2011 was a year of great turmoil for our country's economy, interest rates continuously increased due to inflationary pressure, the gold market and exchange rates had unusual fluctuations, domestic enterprises encountered many difficulties due to narrowed credit policies and reduced competitiveness... In the face of the above situation, bad debt also began to increase to 3.3% of total outstanding debt, equivalent to a value of 85,000 billion VND, this was also the first time in the history of the banking industry that the State management agency proactively announced the debt ratio.
bad. In fact, the bad debt situation is not a recent occurrence but has been accumulated over a long period of time. As the economic situation worsens, the bad debt problem becomes more obvious and urgent than ever.
In 2012, bad debt broke out as an inevitable consequence after accumulating for a long time. This was also a year of decline for the banking industry when the growth rate was the lowest in 20 years, the industry's profits decreased, many credit institutions were operating at a loss, etc. Bad debt skyrocketed, by the end of 2012, the bad debt ratio of the whole industry was assessed at about 5.22%. Of which, bad debt with real estate collateral accounted for 70% of total bad debt. In the face of this situation, the State Bank of Vietnam has taken measures such as adjusting and restructuring debt terms, developing regulations on debt classification, setting up risk provisions, etc. As a result, the growth rate of bad debt began to slow down in the last months of 2012, however, the actual bad debt figure is still high.
2013 marked a clear step forward in the Government's determination to deal with bad debt, which was the establishment of the Vietnam Asset Management Company (VAMC) on June 27, 2013 with a charter capital of VND500 billion. As of December 31, 2013, the bad debt ratio in the banking system was 3.79%, equivalent to VND146,500 billion; of which the bad debt purchased by VAMC was nearly VND40,000 billion. In general, although the bad debt ratio in 2013 showed signs of decreasing thanks to the efforts of the Government and the State Bank, it was still at a high level, and credit quality had not really improved.
In the first months of 2014, bad debt of the banking system tended to increase rapidly because the macro economy had not improved, domestic goods consumption was slow... However, by the end of the year, the bad debt handling process had achieved impressive results. The bad debt ratio at the end of 2014 was 3.25%; VAMC bought back 123,000 billion VND of bad debt principal, of which more than 4,000 billion VND was handled. On the side of the State Bank, there were also synchronous solutions to handle bad debt such as allowing credit institutions to adjust interest rates, restructure debt repayment terms; strengthen inspection and supervision, apply new regulations on safety ratios and debt classification... Commercial banks themselves also
Increase risk provisions to ensure liquidity and limit future risks.
2015 was an unexpectedly successful year for the banking industry when the bad debt ratio was estimated at about 2.9% of total outstanding loans. VAMC continued to play its effective role by purchasing about VND 107,000 billion of bad debt as of December 31, 2015, contributing to reducing the bad debt ratio of the whole system to below 3%. Domestic enterprises have begun to focus on applying high technology and scientific and technical advances in production and business activities, evidenced by the credit growth rate of this group of enterprises increasing to 43.07%, thereby improving productivity and competitiveness in the market. The results of bad debt handling have contributed to improving liquidity, expanding credit scale and promoting economic growth. By 2016, the bad debt ratio of the whole system decreased slightly from 2.9% in 2015 to 2.8% of total outstanding loans. According to data from the National Financial Supervisory Commission, credit institutions have handled about VND95,000 billion of bad debt, of which handling through debt collection and sale of collateral accounts for 52.6%, through risk reserves is 26.6% and selling to VAMC is 21%.
3.2 Current status of factors affecting credit risk of Vietnamese commercial banks in the period 2008 - 2016
3.2.1 Macro factors
3.2.1.1 GDP growth rate:
Table 3.3 GDP growth rate in Vietnam from 2008 – 2016
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
GDP (%) | 6.31 | 5.32 | 6.78 | 5.89 | 5.03 | 5.42 | 5.98 | 6.68 | 6.21 |
(Source: General Statistics Office)