Direction and Objectives of Credit Risk Management of Vietnam International Commercial Joint Stock Bank - Thai Nguyen Branch

Debt group

Number of customers	Percentage of customers whose business activities are regularly checked	Cash flow ratio through VIB/business collect	Number of credit products in use	Average time of relationship with VIB
Debt covered standard	279	70.61%	43.61%	2.14	3.91
Subprime debt standard	11	45.45%	14.73%	1.25	2.32

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Source: Author's synthesis

Through the table above we can see quite clearly when separating customers by debt group:

+ The standard debt group has a regular business activity inspection rate of up to 70.61%, however, the substandard debt group only has a inspection rate of 45.45%. According to bank regulations, 100% of loan customers must have their business activities inspected every 3 months. Although the inspection is not fully implemented, it can be seen that the cause of overdue debt is closely related to the fact that credit officers regularly inspect customers' business activities. In other words, one of the main causes of credit risk comes from the lack of responsibility of credit officers.

+ The standard debt group has a cash flow transfer ratio through VIB/revenue of 43.61%, while the substandard debt group is only 14.73%. This shows that business customers transferring money through bank accounts can help us evaluate the operating situation, controlling cash flow is controlling risk. Therefore, credit officers need to improve their skills, put risk control conditions into credit approval conditions and require customers to thoroughly implement them.

+ The standard debt group uses more credit services and has a longer relationship with the bank than the substandard debt group. Specifically, the standard debt group uses 2.14 credit services compared to 1.25 services of the substandard debt group. The standard debt group has a longer relationship with VIB than

3.91 years compared to 2.32 years for the substandard debt group. We can see the relationship between the number of services customers use, the length of relationship with debt status. Thus, banks can completely assess the level of risk when providing services to customers based on the above criteria.

Chapter 4

SOME SOLUTIONS TO ENHANCE CREDIT RISK MANAGEMENT AT VIETNAM INTERNATIONAL COMMERCIAL JOINT STOCK BANK THAI NGUYEN BRANCH

4.1. Direction and objectives of credit risk management of Vietnam International Commercial Joint Stock Bank - Thai Nguyen Branch

4.1.1. Credit risk management orientation of Vietnam International Commercial Joint Stock Bank - Thai Nguyen Branch

Risk management is always considered the top priority at VIB Thai Nguyen to meet the goal of stable and sustainable credit growth. The Bank will continue to study measures to improve the quality of risk management towards international standards, ensuring transparency, efficiency and modernity, on the basis of growth combined with risk control. Specifically:

- Completing the RRTD management framework: A quality risk management system must be placed in a suitable risk environment. A risk strategy that clearly defines the general risk tolerance level, and the RRTD tolerance level in particular, is the guideline for the operation of the RRTD management system. Furthermore, the RRTD management framework includes general credit development strategies, basic and important credit policies, which are a necessary element in the RRTD management system. Therefore, the bank's risk strategy must be formed based on comprehensive and specific assessments of the bank's business situation, expected profits of shareholders and the domestic economic context. The Board of Management is the body ultimately responsible for approving the bank's risk strategy.

- Building a reasonable credit granting process: To build a reasonable credit granting process, banks need to set up credit granting criteria, appropriate authority decentralization mechanisms, reflecting the risk characteristics of the bank. In addition, credit policies for new loans and old loans need to be reviewed and considered regularly in accordance with the risk strategy for each period.

- Continue the roadmap to complete the risk management model according to international standards: Accordingly, all risk-adjusted values ​​of individual credits to investment portfolios are determined, helping to manage risk management effectively and accurately.

Currently, VIB Thai Nguyen has successfully implemented the RRTD management model according to the standards applied by the Australian Bank. The bank has many advantages in terms of financial potential as well as technology, so it is fully capable of continuing the roadmap of 100% standardization according to international standards.

- Improve the quality of credit monitoring and control

According to the Basel Committee, ensuring the effectiveness of internal credit monitoring and control is one of the essential principles of credit risk management. The work of assessing risk metrics, risk management quality, compliance with procedures, regulations, and credit limits must be performed regularly by risk management departments and other independent monitoring departments.

4.1.2. Credit risk management objectives of Vietnam International Commercial Joint Stock Bank - Thai Nguyen Branch

Building VIB Thai Nguyen into a leading branch in the joint stock commercial banking system, providing banking services such as credit, money transfer, payment, LC, guarantee, etc., operating according to international practices, with quality approaching international standards. Safe operations, risk management within reasonable limits, strong and sustainable development, serving well the needs of

Customer demand with multi-field - multi-product - service - utility with quality and increasingly innovated and improved.

The bank's priority goals for the period 2016-2020 are:

- Striving to be the leading branch in the system of providing personal financial services and consumer loan financing in Thai Nguyen province.

- Achieve a healthy balance sheet; thoroughly resolve bad debt issues, reduce overdue debt ratio.

- Bank growth based on profitability and sustainability.

- Apply international best practices.

- Improve and further develop the system of transaction offices in the branch.

- Provide high quality services to selected target markets; develop product distribution channel network.

Basic indicators for the period 2016 - 2020:

+ Average growth rate: total assets is 15%/year, capital is 21%/year, credit is 17%/year, investment is 31%/year.

+ Profitability: ROA > 1%; ROE > 25%;

+ Bad debt ratio below 1%.

4.2. Some solutions to enhance credit risk management of Vietnam International Commercial Joint Stock Bank - Thai Nguyen Branch

4.2.1. Perfecting modern risk management according to international standards

To ensure that VIB's credit activities develop in the right direction, achieve the goals of safety, efficiency, sustainable growth and risk control as well as gradually move towards international practices, VIB's credit policy needs to complete the following basic contents:

- Decentralized authorization mechanism: Decentralization and authorization in credit approval are carried out according to the following principles:

+ Comply with the provisions of law and VIB's regime on credit activities, ensuring safety, quality and efficiency.

+ Determine the initiative and self-responsibility of management levels in credit activities, comply with the credit approval process from the credit approval stage to the control stage.

+ Appropriate to the characteristics of the organization and operation, scale, conditions, capabilities and characteristics of each unit, appropriate to the capacity of the decentralized and authorized person as well as the risk control capacity of the decentralized unit.

- Focus on the content:

a. Develop a credit granting process for each specific field and industry, combining all stages from credit provision to guarantee, LC issuance... in which the process must be suitable for each field, closely linked to customer needs, capital structure requirements of the enterprise, and business characteristics of each industry.

b. Credit and services are two closely linked activities. To fully exploit the potential for cooperation with corporate customers, it is necessary to develop a mechanism and process for providing a comprehensive credit service product package including credit supply and insurance services, foreign currency trading, international payments, etc. At the same time, deploy the application of flexible lending interest rates and service fees according to the principle of product and service packages. Based on the products and services that customers will use from VIB such as credit, deposits, international and domestic payments, foreign currency trading, etc., at the same time, deploy the application of commitment fees, early repayment fees, focal fees, project appraisal fees, credit limit fees, etc. VIB needs to develop a flexible loan pricing policy to ensure the most competitive loan interest rates to attract customers.

c. Regarding corporate credit, VIB Thai Nguyen has not achieved results in line with its potential in import-export financing activities. This is an increasingly developing field when Vietnam joined the WTO, so VIB Thai Nguyen should continue to promote import-export financing activities, develop specific policies for each customer group and import-export sector, and develop mechanisms to encourage branches to promote import-export financing activities. It is recommended that VIB organize customer conferences in the import-export sector in each region, including both existing and potential customers.

d. For retail credit: VIB builds, evaluates the effectiveness and perfects the mechanism for home loans, car loans, financial leasing, consumer credit... The issuance of products must be closely linked to reality, accordingly, when products are launched, they must be deployed by branches and accepted by customers. For each product launched, there must be a plan to research and select locations for deployment, select customers and evaluate effectiveness. The expansion of products must be deployed and specified step by step, closely linked to control, evaluation of utility and quality.

4.2.2. Strictly implement lending procedures and regulations

Compliance with the bank's credit procedures, regulations and credit orientation in each period is a mandatory requirement and has a decisive meaning for the bank's credit quality. Strengthening training and propaganda for credit officers as well as control departments at branches to better understand the meaning of compliance with procedures, firmly grasp the regulations issued by VIB, regularly posting news of violations caused by individuals who violate the regulations to warn, deter and remind each employee of their responsibility in work.

4.2.3. Perfecting a comprehensive credit risk management strategy

* Strengthen internal control activities to improve credit risk management capabilities

Internal audits must be conducted periodically and unexpectedly to detect errors and warn of signs of violations. Every year, the internal audit system must inspect all branches in the system to detect and promptly prevent violations of procedures and regulations, avoiding serious consequences that must be handled later, which will be very costly for the bank.

Credit risk monitoring should be divided into: monitoring of individual loans and monitoring of the overall credit portfolio as discussed above.

- Monitor each loan regularly to detect early warning signs for timely corrective action. The establishment of an internal credit scoring system as mentioned above will also be used to assess the current status of borrowers, it is an important credit monitoring tool, the internal credit scoring system needs to monitor signs that indicate the possibility of deterioration of credit and customer status. Monitoring of each loan is also done through:

+ Review and analysis of financial statements should be conducted regularly to evaluate the performance of loan customers.

+ Visiting customers on site: To have a clear picture of the customer's operating situation, analyzing financial reports is not enough, credit officers need to regularly visit customers on site, from which they can determine the existence and actual status of factories, machinery, equipment.