Evaluation of Credit Risk Management at Agribank

Thus, through a survey of 210 customers who are in relationship with Agribank Thai Nguyen branch, it shows that: Customers have a correct assessment of the actual operations of the branch, credit officers have not regularly controlled loans, sometimes the minutes of checking the use of loan capital are still made in a formality because when checking the business activities of customers, they are afraid that customers will misunderstand and cause trouble for customers. The time for appraisal and loan proposal is sometimes still delayed because a credit officer manages many customer files. At Agribank Thai Nguyen branch, there has not been any case of lending against the credit granting process, but there are a few reputable customers and flexible lending based on collateral because officers see the good income to repay the debt of the customers. Therefore, the branch needs to promote and attract more customers who need to transact at Agribank Thai Nguyen branch. This is one of the extremely important factors contributing significantly to credit development results.

Thus, it can be seen that in order to limit risks, the identification of risks and causes of credit risks has been focused on by Agribank Thai Nguyen branch. The types and causes have been analyzed quite fully and comprehensively, thereby creating a basis for appropriate risk reduction measures.

3.4. Evaluation of credit risk management at Agribank - Thai Nguyen Branch

3.4.1. Results achieved

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* Credit risk management at the State Bank of Vietnam - Thai Nguyen Branch is increasingly effective and complete.

Outstanding loan quality and credit structure have changed positively in recent years.

Firstly , group 2 debt and bad debt are well controlled, while total outstanding debt increases steadily and annually, which shows that the Bank's credit risk management measures have had positive results.

Second , the credit structure is adjusted towards the target of Agribank Thai Nguyen branch, which is to maintain the proportion of agricultural and rural loans.

and farmers, especially production household credit accounts for over 80% as directed since its establishment; adjust to reduce the proportion of loans to the group of state-owned enterprises; gradually increase the proportion of secured loans; strictly control outstanding loans in some sensitive sectors and fields with high risks such as real estate and securities.

Third , the bad debt ratio of Agribank Thai Nguyen branch in recent years has gradually decreased and is often below 1%, far lower than the allowable limit according to international practice as well as in Vietnam which is 3%. Meanwhile, the recovery rate after risk handling is also at a large scale and rate.

Therefore, on the one hand, it ensures that the profits of Agribank Thai Nguyen branch increase and are sustainable, on the other hand, it still ensures credit expansion, meeting the capital needs of the economy with strictly managed credit quality.

* Customer scoring and ranking system is being built closer to international practice.

The customer scoring regulations have been implemented by Agribank Thai Nguyen branch according to Agribank's instructions in a simple, clear, easy-to-understand and easy-to-implement manner. Furthermore, the customer scoring regulations in the Credit Handbook have built a customer scoring system in both qualitative and quantitative criteria. This shows that the bank's scoring system has become more detailed, complete and in line with international standards.

The credit handbook is issued and implemented throughout the system, as well as regulations on classification, ranking, and evaluation of loan customers based on many criteria and standards according to international practices, not only helping to continuously improve the effectiveness of credit risk management but also contributing to improving the awareness, professional expertise, and professional working style of the credit staff.

* Debt classification and bad debt management are carried out in accordance with the instructions of the State Bank and Agribank.

Agribank Thai Nguyen province branch has resolutely and appropriately implemented the current policies and mechanisms on provisioning and risk handling that have been issued and fully deployed.

Pursuant to Circular 02/2013/TT-NHNN dated January 21, 2013 and Circular 12/2013 dated May 27, 2013 amending a number of provisions of Circular 02/2013/TT-NHNN dated January 21, 2013, Agribank issued Decision No. 450/QD-HDTV-XLRR of the Board of Members directing branches and units to be proactive in setting up provisions and handling risks, and at the same time develop plans and propose active and thorough measures to recover debts that have been handled for risks. According to Decision No. 450/QD-HDTV-XLRR, setting up risk provisions includes: general provisions and specific provisions. General provisions are set aside at 0.75% of total outstanding debt from groups 1 to 4. For specific provisions, outstanding debt is classified into 5 debt groups with low to high risk including: Standard debt, debt requiring attention, doubtful debt, substandard debt and debt with potential loss of capital. Corresponding to the 5 debt groups are specific risk provision rates: 0%, 5%, 20%, 50%, 100%. In addition, Agribank Thai Nguyen branch has also established a specific provision deduction rate for each group of collateral assets according to Agribank's instructions.

Regarding credit risk provisioning: the total amount to be set aside includes general risk provisioning and specific risk provisioning. General risk provisioning must be set aside at 0.75% of total outstanding debt from group 1 to group 4.

Specific provisions are calculated for each debt according to the formula:

R = (A - C) * r

In there:

R: specific provision amount to be set aside; A: principal balance of debt; C: deductible value of collateral; r: specific provision rate.

Specific provision ratios for debt groups: group 1: 0%; group 2: 5%; group 3: 20%; group 4: 50%; group 5: 100%.

* Risk provisioning and handling are carried out seriously.

+ Credit risk management has been closely monitored by branches in the system. Problematic risky debts have been promptly transferred to bad debts and provisions have been made according to the prescribed provisioning ratio.

+ Information and reporting work is maintained regularly and is relatively accurate and timely, so the Board of Members and General Director of Agribank always have a firm grasp of the situation.

to be aware of the provisioning and risk handling situation of the entire system. From there, there are active and timely directive measures.

+ Being aware of the role of provisioning, branches are increasingly responsible for setting up provisions for their branches. Therefore, the number of risk provisions increasingly reflects the quality of debt in the Agribank system.

* Abundant workforce, increasingly specialized level and awareness of credit risk prevention are increasingly improved, ethical risks in credit activities of Agribank Thai Nguyen branch are increasingly reduced to a minimum level.

In the current situation, the requirement for quality and qualifications of staff is an important factor in improving competitiveness. In recent years, through recruitment and focusing on training and retraining, the qualifications of Agribank staff in Thai Nguyen province branch are increasingly improved.

Through the implementation of the model, regulations on credit risk management have raised the awareness of credit officers and related officers. Awareness and style in dealing with customers are constantly being renewed. Especially ethical risks, with behaviors such as: intentionally violating, colluding with customers to withdraw money from banks, borrowing, falsifying documents, formal appraisal,... in credit activities at Agribank Thai Nguyen branch have continuously decreased and almost disappeared.

Through the implementation of regulations, rules, procedures and training courses as well as through practical work, the staff's qualifications, especially professional qualifications and operational qualifications, are improved and become more professional.

* Inspection and control of business activities are constantly strengthened.

This enhancement is demonstrated in three aspects:

- Documents, regulations and internal inspection and control procedures are constantly improved in accordance with general regulations and the actual situation of Agribank.

- The staff assigned to this job are increasingly selected to be more suitable, having good moral qualities, solid professional skills, and effective working methods.

- Organize regular, scientific implementation, according to topics and combined with cross-checking.

3.4.2. Some limitations

First, limitations in risk identification

There is still the idea that the risk level should be as low as possible, without taking into account the correlation between income and risk. The culture of risk management has not been thoroughly implemented in the Branch. Due to the new market mechanism, the awareness of bank staff about risks in general and credit risks in particular inevitably has certain limitations. Information on risk recognition is not complete, timely, systematic and inaccurate. This problem is reflected in the quality of credit appraisal reports and management reports. At the same time, there is no hierarchy between information updaters and information users, and manual reporting is the main problem. Specifically:

- For risk identification activities of all credit activities:

There are no complete reports or summaries of credit risks at the Branch.

There are no risk identification scenarios based on analysis and assessment of the operating environment and market development trends.

Providing information to serve the assessment, analysis and risk identification in the credit granting process sometimes has low reliability.

- For risk identification activities of each credit:

The activity of identifying risks of each credit at the Branch has not yet been implemented in practice and has not been taken seriously by those who implement it.

The capacity of officers directly appraising and managing credit is still limited and does not fully meet the actual needs of the job. Credit officers lack the ability to monitor and supervise customers and loans.

Second, limitations in credit risk measurement activities

The system supporting the measurement and analysis of credit risk still lacks uniformity. Currently, Agribank Thai Nguyen branch only has an internal credit rating system to assess customer risks, but this system still has some limitations, specifically:

- The customer scoring and ranking system does not really evaluate the customer's ability, and its application in practice is still a formality.

Customer scoring at the branch is only done manually, without the support of computer software (not yet automated), with relatively simple criteria, not taking into account qualitative factors. Therefore, the assessment of loan customers is often not true to the customer's ability.

Although in the Credit Handbook, Agribank is building a customer scoring model with full qualitative and quantitative criteria, it has only been piloted in some branches, and there have been no specific training sessions for each credit officer at the branches, so the grasp of scoring information is not consistent throughout the system. The application to credit granting and other regulations in lending is still a formality.

- Regarding the system of analytical indicators, each industry and each field has its own operating characteristics. The system of scoring indicators for enterprises operating in different fields is different. However, in reality, the current system of indicators still does not reflect the specific characteristics in the operations of each separate industry.

- Weak industry analysis ability, in addition to the lack of industry-specific standard indicators, therefore, it is not possible to provide warnings and directions for credit activities, in order to limit investment in inefficient industries and economic sectors. This also affects customer rating results because credit officers often give inaccurate scores for industry evaluation indicators according to the internal credit rating system.

- The rating method is still subjective, the current assessment method applied by the bank is the rating method, in which credit officers are the ones who directly update information and score each assessment indicator according to the scoring instructions issued by Agribank. Currently, some non-financial indicators are rated qualitatively, based on the assessment of the credit officer directly in charge. This method requires credit rating officers to understand all assessment contents, collect full customer information and give subjective assessments of these indicators. This rating mechanism is mainly performed manually by credit officers and is managed by leaders.

Credit approval results and customer ratings do not guarantee high accuracy, are easily interfered with by the implementer, and do not create a cumulative database to serve the calculation of risk parameters in the branch's risk management.

- In addition, the information sources used in credit rating work at Agribank Thai Nguyen branch are still limited because Vietnam currently does not have information on average financial indicators of industries and industry groups, so analyzing credit ratings of businesses borrowing capital also encounters certain difficulties. When conducting credit ratings, the bank itself must also synthesize data from its customers, plus the experience of experts to provide standard data for customer evaluation. Specialized information that officers directly evaluate and rank collect from many sources: Internet, businesses, competitors... Agribank Thai Nguyen branch has not yet created an information system that can respond promptly and effectively to the analysis and forecasting of the monetary situation, interest rates, credit, and business situation of businesses.

Third, limitations in credit risk control activities

In recent years, credit risk control activities at Agribank Thai Nguyen branch have been carried out according to a guideline and quite sketchy, in the style of having to follow credit procedures, while specific orientation and control quality have not been guaranteed.

- For each loan: The appraisal reports have not yet provided specific and effective risk control plans. If not rejected, the main requirements in controlling loan risks are only at the level of the customer's financial situation, the socio-economic efficiency of the loan plan, project, and collateral.

- Regarding the post-lending management process: This process has not yet provided a specific control plan that can respond promptly and appropriately to the actual developments of the customer situation.

- For all credit activities: There has been no research to use appropriate control strategies; control techniques are not effective, and there is no control plan for the entire period.

Fourth, the credit process is still quite simple.

Currently, the credit process of Agribank Thai Nguyen branch is quite simple. Agribank Thai Nguyen branch does not have an appraisal department.

Independent, no risk management department, all loan approval decisions are made by the credit department. According to this process, only one officer performs the operations, so it always has potential risks, while the coordination between other operational departments to limit risks is not good, so sometimes it will not ensure objectivity in lending decisions, debt collection... In addition, lending may not anticipate all possible risks (credit officers borrowing from others, officers intentionally making mistakes in the process, officers collecting debts from customers but not paying them to the bank.)

- The current credit control inspection is mainly carried out after the loan is granted, so it is not preventive in nature. The situation of copying information provided by customers without comparing and analyzing with other sources of information is quite common. Types of risks and measures to minimize risks of customers are not mentioned in detail in the reports.

Fifth, information technology in credit risk prevention is still limited.

In the process of implementing credit information work, Agribank Thai Nguyen branch has encountered many difficulties. In recent years, Agribank has promoted the application of information technology in its operating processes but has not yet met the requirements. Technology investment and technology application are not synchronized, so the efficiency of use is not high. Therefore, it is not able to provide timely and accurate information to serve the management and operation work. The instability of technology has significantly affected the operation and development of each branch as well as the entire system.

The current computer transaction program applied by Agribank (IPCAS Program) has been designed and put into operation. However, due to the process of completing and implementing the auxiliary modules, the program has not been implemented synchronously, so Agribank Thai Nguyen branch still collects information and reports manually, which is time-consuming and inaccurate. One reason that needs to be noted in order to have a solution to prevent it is that the compliance with regulations by operating staff in the process of collecting customer information into the system (for example, creating customer codes, entering required customer information) is not strictly implemented. The software system is built to standard, but if there are errors in data entry at each branch, it will lead to incorrect data in the entire system.

Evaluation of Credit Risk Management at Agribank - Thai Nguyen Province Branch

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