Experience in Risk Management and Consumer Credit Development of Thai Banks

(a) Provide general information about the Bank such as its operating network, exchange rates, interest rates, fee schedules, stock prices, and procedures and documents related to products and services provided to customers;

(b) Support, answer, and advise customers during the use of banking products and services (Inbound service support): Check information on balances and statements of all types of accounts, check information on savings books, checks, and information on each specific transaction. Advise customers when using banking products and services.

(c) Perform marketing and sales functions to the outside via phone (Outbound sales & Telemarketing functions): Conduct market research, survey customer opinions on the bank's products and services, proactively advertise when there are new products and services...

(d) Carry out operational transactions such as: Money transfer; Bill payment of other service providers; Card services (statements, pending transactions, card issuance, card locking when the customer reports a lost card, etc.)

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(e) Providing registration and appointment setting services: Customers can register to open an account, issue a card, borrow capital, or use investment and insurance services through the Contact Center without having to go directly to the Bank.

At TTDVKH, most transactions are performed automatically (70% self-service), which has saved significant costs for the Bank and customers are not limited by space and time. Each customer uses a personal access code and password to perform transactions without the assistance of bank staff. With a very secure customer identification measure, each customer uses an access code issued by the Bank when the customer registers to perform transactions at the counter and can be changed at ATMs or Contact Centers.

1.3.1.3 Experience in risk management and consumer credit development of Thai banks

The 1997-1998 financial and monetary crisis caused the Thai banking system, which had been operating for hundreds of years, to be shaken. Many commercial banks went bankrupt or merged, forcing Thai banks to review all policies, methods, and procedures of banking operations, especially the credit sector in retail banking operations. Along with diversifying credit products and services, banks have identified target customers, proactively marketed to customers, and quickly and thoroughly implemented risk management with measures such as:

(a) Separate and clearly assign functions to departments and comply with the steps in the process of handling personal loans:

At Bangkok Bank, the two departments of receiving and processing applications and the department of appraising loans for individual customers were previously merged into one. Now, the bank has split them into two independent departments. In which, the appraisal department must have a credit appraisal report and a risk rating report. Similarly, Siam Commercial Bank also built a model for organizing and implementing credit services based on the principle of clearly defining the responsibilities of three departments: Customer Marketing, Appraisal Department and Loan Decision Department... This is a fundamental change of the banks to ensure objectivity, the marketing and sales (credit staff meeting customers) and the credit decision department are independent of each other.

(b) Apply automated loan decision making process:

Kasikorn Bank (a bank with strong lending to individual customers) has received loan applications from customers through direct channels such as branches, direct marketing staff, or indirectly through mail, Internet channels or Contact Center. Then the bank centrally processes the data checking. New data will be entered into the program to check the records and collect data.

ensure complete input data. Next, the bank will have a confirmation department (usually in the Contact Center) call the borrower to verify their real existence (requests received through indirect channels) or check through the Government's credit management agency. From there, the bank processes the input information through the credit scoring system and makes automatic decisions. The analyst confirms the credit limit, in accordance with the scoring program and gives opinions on funding.

Kasikorn Bank has applied credit rating as an automated decision-making tool for consumer loans and unsecured loans. The bank has used a statistical model of existing customer information and transaction information such as legal history, transaction history, payment history and other historical data to forecast risks, and applied scoring based on criteria such as gender, age, marital status, work experience, customer deposit balance... to make decisions on loan amounts.

After using these measures, overdue personal customer debt has decreased from 40% to single digits.

1.3.1.4 Experience in improving the competitiveness of China's domestic banking system

China’s experience shows that banks have prepared quite thoroughly for the race when the country joined the WTO, especially the four major banks that are considered very active in the process of restructuring and consolidating their strength. For Bank of China, the focus is on improving management capacity to ensure efficiency by establishing economic expert groups to review and analyze data as well as advise on the feasibility of operations based on current socio-economic conditions.

These expert groups operate from central to local levels. The goal is to improve accountability, increase transparency and reduce bad debts; For the Industrial and Commercial Bank of China, the focus is on upgrading the electronic banking capabilities of the organization with software designed for the Chinese market. The plan is to increase the number of customers using ATMs, mobile phones, using banking services via the Internet and other electronic means; Develop software to help assess and evaluate credit risk; Expand the consumer credit market because this area often has low bad debt rates; Re-evaluate target customer groups. The ability to provide more products, including many new products through a variety of distribution channels, brings advantages to banks that the technological revolution in emerging markets as well as in other markets brings.

For China Construction Bank, the goal is to become a global bank with international capital management capabilities, and the bank has focused on enhancing its customer information management and internal management capabilities.

In order to be competitive in the future, Chinese commercial banks have actively prepared for new competition with foreign banks that have a lot of experience operating in market mechanisms.

1.3.1.5 Experience from subprime lending at US banks

The financial crisis from subprime lending (supprime crisis) that occurred in the US and spread to some countries in recent times has caused serious consequences. Subprime lending is understood as the person with capital (bank) lending to customers with bad credit history. The creditor is clearly aware that the quality of his loan is bad, but the credit risk is mainly compensated by high lending interest rates and expectations of collateral value.

Mortgages will continue to increase. Real estate loans are considered by banks to be less risky when the US economy is growing prosperously. Homebuyers can easily borrow hundreds of thousands of US dollars by simply declaring their monthly income to the bank (self-reported income loans). This type of loan accounts for about 40% of the total subprime loan market with an approximate size of 400 to 500 billion USD in outstanding loans.

Banks were hit hard by falling property prices and rising interest rates. In early 2007, the collapse of New Century Financial, a subprime lender, left Barclays with a $900 million loss. French, German and Canadian banks suffered the same fate, as did many major US investment banks.

1.3.2 Experience of foreign bank branches in Vietnam in developing retail banking activities [63,65]

Previously, the activities of most foreign bank branches in Vietnam were to serve domestic customers who came to invest in Vietnam, and domestic customers who had investment and business activities in the country of that bank. However, with Vietnam being a member of the WTO and a potential market of nearly 86 million people, foreign banks in Vietnam have been strongly shifting to the retail banking market. Among foreign banks in Vietnam, HSBC, ANZ Bank and Standard Chartered Bank are the banks that have taken the lead in implementing retail banking services. Before 2006, the retail activities of foreign bank branches were not clear, only a few services were implemented by HSBC, ANZ such as loans for buying houses, cars, credit cards... But after that, foreign bank branches had plans to strongly develop retail banking activities towards individual customers.

(foreigners living and working in Vietnam, Vietnamese people with high income).

Especially with the license to become a 100% foreign-owned bank, the 3 major banks HSBC, Standard Chartered Bank, ANZ have become the leading banks in developing retail banking services. By focusing on each customer segment, foreign banks in Vietnam have launched very suitable and convenient products and services for customers.

Although the time of operation in the retail banking sector is not long, foreign banks have achieved certain successes: (i) ANZ Bank Vietnam won the award "Best Retail Bank in Vietnam" in 2007 and 2008 with recognition for bringing customers the best products and services (with the highest rate of automatic transactions on total transactions), creating a surge in retail revenue and leading all banks in Vietnam (including international and domestic banks) in terms of operating profits and growth in the number of customers; (ii) Standard Chartered Bank Vietnam has been very successful with its chain of asset management products, including surplus deposit accounts, multi-currency savings programs, business service packages for individual customers, and savings accounts; (ii) HSBC Bank Vietnam is a successful bank in penetrating the market. With systematic marketing campaigns, convenient transaction times (no lunch break), modern transaction methods such as developing electronic transactions, customers can send documents by post, the time to respond to customers is fast, customers can also register for banking services via phone..., previously 9/10 of HSBC's individual customers were foreigners, but now, on the contrary, Vietnamese people account for 50 - 60% of this bank's individual customers.

Thus, there has been a clear shift in the operations of foreign bank branches in Vietnam. In addition to still focusing on providing services for foreign direct investment (FDI) and related financial services for domestic customers, many foreign banks have now really paid attention to and penetrated the retail banking market. With their good reputation, perfect service quality and global image, in the coming time, foreign bank branches, especially 100% foreign-owned banks, will be very strong competitors of Vietnamese commercial banks.

1.3.3. Lessons learned that can be applied to Vietnamese commercial banks

Through analyzing the experiences of some countries and foreign banks in Vietnam in developing banking activities, it is possible to summarize and draw some lessons for Vietnamese commercial banks as follows:

- Vietnamese commercial banks need to focus on investing and upgrading information technology systems to serve the diversification of products and services, developing high-tech utility services to meet the increasing needs of customers. Modernize and develop distribution channels such as Internet banking, SMS banking, Phone Banking, ATM, POS... to quickly process a huge volume of transactions of the population, save time, serve customers more quickly and conveniently, save costs, and increase profits. Strengthen cooperation, exchange information, maximize capital and technology support from international financial institutions.

- Banks need to research and build a standardized and complete customer relationship management (CRM) system to serve the development, classification and management of customers, risk management, sales, and at the same time serve the identification and improvement of service quality. This is a decisive factor.

determination in researching and providing suitable products and services, optimal pricing policies to develop NHBL activities.

- Banks focus on risk management through measures such as:

+ Invest in and build a system to control and manage credit risks. Clearly separate functions between the customer transaction department (front office) and the customer re-evaluation and monitoring department (back office), approve loans based on full collection of customer information, ensuring objectivity in decision making. Establish a credit scoring system and customer history across the industry.

+ Strengthen internal inspection and control, improve and upgrade the internal control system, strictly implement compliance at all branches of banks to prevent risks.

+ Build and train a team of experts in NHBL operational risk management, strengthen ethical risk management, and at the same time raise the sense of responsibility, self-awareness and professional ethics of staff directly working.

- Build a modern retail operation process according to international standards, build an accounting system and set up indicators and evaluation reports for each product and service, build and complete a system of indicators to evaluate the safety and efficiency of the bank's retail operations in accordance with Vietnamese practice and international standards.

- Banks need to have a strategy to improve the quality of customer service because the products of banks are increasingly similar, interest rates and fees are no longer the only factors attracting customers, service quality will become the next battlefield in the battle for competitive advantage in retail banking activities. Service has a great impact on the initial choice of customers when deciding to transact at a bank. Therefore, commercial banks should soon complete the establishment of

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