Overdue may reflect an inaccurate risk. Therefore, banks must be careful when considering credit quality by analyzing what maturity is considered overdue.
- Bad debt ratio
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In overdue debts, there is a part of "problem" debts or bad debts, these are debts that are likely to lead to the loss of all the capital that the bank lends, so banks need to pay attention to this index.
This indicator reflects how much of the total outstanding debt can be lost.
According to Decision 18/2007/QD-NHNN on amending and supplementing a number of articles of the Regulations on debt classification, provisioning and use of reserves to handle credit risks in banking activities of credit institutions issued under Decision No. 493/2005/QD-NHNN dated April 22, 2005 of the Governor of the State Bank of Vietnam, it is stipulated that: Bad debt (NPL) is debt in groups 3, 4 and 5: Group 3 (Substandard debt) includes: debt overdue from 91 days to 180 days; debt with restructured repayment term for the first time, except for debt with restructured repayment term for the first time classified into group 2 according to the provisions of Point b of this Clause; debt with interest exempted or reduced because the customer is unable to pay interest in full according to the contract; debt classified into group 3 according to the provisions of Clause 3 of this Article.
Group 4 (Doubtful debt) includes: debts overdue from 181 days to 360 days; debts with restructured repayment terms for the first time overdue less than 90 days according to the first restructured repayment term; debts with restructured repayment terms for the second time; debts classified into group 4 according to the provisions of Clause 3 of this Article.
Group 5 (Debts with potential loss of capital) includes: debts overdue for more than 360 days; debts with restructured repayment terms for the first time overdue for 90 days or more according to the first restructured repayment term; debts with restructured repayment terms for the second time overdue according to the second restructured repayment term; debts with restructured repayment terms for the third time or more, including those not yet overdue or already overdue; frozen debts, debts awaiting settlement; debts classified into group 5 according to the provisions of Clause 3 of this Article.
The ratio of bad debt to total outstanding debt is the ratio that assesses the credit quality of a credit institution. Bad debt has a very high risk, the ability to recover capital is relatively difficult, the bank's capital at this time is no longer a risk, but it causes damage to the bank. This is a direct result of the quality of the credit granted to customers. A bank with a high bad debt ratio shows that the credit quality of the bank is very low and at this time it is necessary to review all of its credit activities, otherwise the consequences are unpredictable.
In short, a bank with good quality operations must have high total outstanding debt, appropriate outstanding debt structure, low overdue debt and avoid bad debt.
* Credit capital usage situation:
- Credit capital turnover
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This is an indicator that banks often calculate annually to evaluate the ability to organize credit capital management and credit quality in meeting customer needs.
This coefficient reflects the number of cycles of credit capital. The higher the credit capital turnover, the faster the bank's loan source circulates, participating in many production cycles and circulation of goods. With a certain amount of capital, but due to the fast credit capital turnover, the bank can meet the capital needs of businesses, on the other hand, the bank has capital to
continue to invest in other areas. Thus, the higher this coefficient is, the better the credit capital organization situation is, the higher the credit quality is.
- Capital efficiency
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This is an indicator reflecting the scale and ability to utilize capital in lending of banks, it tells us how much of the mobilized capital is used in lending. The higher the efficiency, the more effective the business activities and vice versa.
* Credit performance:
It is impossible to say that a credit is of high quality when it does not bring income to the bank. Revenue from credit activities is the main source of income for the bank to exist and develop. Profits from credit prove that loans not only recover the principal but also benefit, ensuring the safety of the loan capital. On the other hand, especially for the poor borrowers, credit activities are considered to be high when the poor, thanks to loans from banks, can develop their economy, escape poverty and repay their debts fully and on time to the bank.
Lending performance is reflected in the profit from lending activities. Specific evaluation criteria are as follows:
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From the banking perspective, if the bank only focuses on reducing and
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As a policy bank, improved credit quality is only truly meaningful when it contributes to improving hunger eradication and poverty reduction.
1.3. Factors affecting the quality of lending to the poor
Lending activities for the poor of the bank are the activities that bring the greatest economic and social efficiency and are also the main activities of the VBSP. The quality of lending activities is affected by many factors, including subjective factors from the bank and objective factors from outside.
1.3.1. Subjective factors
First, lending policy:
Lending policy is a system of measures to expand or restrict lending to ensure the operational goals of a bank. Each bank builds its own lending policy in different forms. Normally, lending policy can be a verbal directive from the bank's management or a set of behaviors, practices and customs...
For the VBSP, lending policies are expressed in written form. This document includes standards, guidelines and limits to guide the lending decision-making process. When developing lending policies, managers have paid attention to the consistency between the content of the policy and the Government's socio-economic development guidelines. A good lending policy will help banks have a solid foundation to ensure safe and effective loans.
Second, the loan process:
The lending process includes regulations that must be implemented during the process of providing capital and debt collection. It starts from investigation, establishing records, loan approval, disbursement, checking the process of using loan capital, collecting interest until debt is recovered. The quality of lending depends on the good implementation of regulations in the lending process.
In the lending process, the loan investigation, profile establishment and loan approval steps are very important, and are the basis for quantifying risks in the lending process. Lending to the poor is essentially an investigation to examine and accurately conclude on the borrower, the purpose of using the loan, the ability to repay the loan, and possible risks to help the bank choose the best option. The step of checking the lending process helps the bank understand the cause of the development of the loan provided in order to take corrective actions or intervene when necessary to prevent possible risks.
Debt and interest collection is a decisive factor for the survival of a bank. The bank's sensitivity through interest and debt collection to promptly detect unusual phenomena for each loan, provide accurate and timely handling measures will minimize overdue debts and that has a positive impact on loan quality.
Third, internal control and inspection:
Internal control audits are audits of the implementation of lending policies, lending procedures and procedures related to loans. Periodic audits are conducted to detect violations for timely handling. The quality of lending to the poor depends on the level of detection of errors and the effectiveness of corrective measures.
Fourth, capital capacity:
In improving the quality of lending, capital plays an important role. Banks with abundant capital will create conditions to increase lending capacity. On the other hand, the term of capital mobilization also greatly affects the term and turnover of loans.
Fifth, the organization of the bank:
Organization is the work in which the bank arranges its activities through the establishment of specialized departments. Departments
This department coordinates and supports each other in the process of making credit decisions. The organizational structure of the bank needs to be arranged scientifically, ensuring smooth coordination, no overlap, and close relationships between departments. This will create conditions to promptly meet customer needs, helping banks monitor and closely manage loans, ensure healthy bank credit, lend to the right subjects, effectively manage and promptly detect and handle problem loans, thereby improving loan quality.
Sixth, qualifications and ethics of credit officers:
Credit officers are those who directly participate in credit granting activities, and are an important factor that directly affects the quality of lending. Reality has shown that the quality and qualifications of credit officers are the decisive factors in the success or failure of banking activities in general and lending activities in particular.
A credit officer with professional ethics will be conscious of completing his/her professional work well, strictly comply with the provisions of the law, and be devoted to his/her work. A credit officer with good professional skills and experience will accurately assess the borrower... From there, he/she will analyze the customer's real ability and capacity to make a decision on whether or not to lend. In addition to professional knowledge and enthusiasm for the job, a credit officer also needs to understand the law, understand the economic and social environment... to be able to guide customers carefully. Thus, a good credit officer with good qualities will help the bank prevent and limit errors and risks that may occur when performing his/her duties.
1.3.2. Objective factors
In addition to the factors of the VBSP, there are many external factors affecting the quality of lending activities for the poor at the bank.
One is the poor factor:
The poor are the ones who directly use the bank's capital to conduct production and business activities. Whether the bank can recover the loan or not depends on the borrower. The poor factor directly affects the quality of the bank's loans. When coming to the bank to apply for a loan, the poor must meet the bank's lending conditions in the following aspects: The poor must be the right borrower, that is, a poor household whose name is on the list of poor households announced locally from time to time. The bank must consider the purpose of the poor household's capital use. An unreasonable purpose of use will affect the quality of the loan.
Second, Associations - Organizations:
The VBSP partially entrusts the implementation of some stages in the lending process for the poor to the Associations and Mass Organizations. The quality of the activities of the socio-political organizations greatly affects the quality of the VBSP's lending activities for the poor.
Third, the legal environment .
Any economy that wants to be stable and develop also needs a suitable legal corridor, the legal corridor is the visible hand of the State to influence the economy to direct the economy to develop according to its goals and regime. The activities of the People's Credit Fund are one of the economic activities in the overall economy, so it is also influenced by the legal system, especially the Law on Credit Institutions. Talking about the legal environment means talking about the synchronization of the legal system, the completeness and uniformity of sub-law documents, and at the same time, it is closely linked to the process of law enforcement and the level of education of the people.
Completing the mechanism and demonstrating the industry's credit in accordance with the Banking Law and in accordance with practice is important to improve lending quality.
Currently, our country has many laws, but there are still many shortcomings that are not close to reality, affecting socio-economic activities in general and lending activities in particular. In such conditions, how to apply and implement existing laws to create a complete legal corridor for the activities of the People's Credit Fund is an issue that greatly affects lending activities.
Fourth, the economic development policies of the Party, State and local government:
The basic characteristics of the lending system are determined by the nature and structure of economic management. The level of economic development of the locality determines the scale and volume of credit investment. Therefore, the scope and level of lending to the poor must be consistent with the economic development policies of the Party, the State and local authorities.
Five, the economic environment:
A prosperous economy will create favorable conditions for poor households to produce and do business with high profits. On the contrary, when the economy is in recession, production and business stagnate, poor households will lose money and will not be able to repay bank loans. Therefore, the economic environment directly affects the quality of bank loans.
Sixth, the natural environment:
The natural environment also has a significant impact on business activities. Unforeseen changes in the natural environment such as natural disasters, earthquakes, droughts, floods, fires, etc. all affect the production and business activities of customers, especially for the Social Policy Bank, customers mainly borrow capital to develop the agricultural, forestry and fishery sectors, which are