General Assessment of Credit Risk Management Status at Vietnam Joint Stock Commercial Bank for Investment and Development

BIDV Trang An requires customers to provide additional collateral to secure 100% of outstanding loans (by pledging or mortgaging assets of the customer or a third party) in cases where the consumer loan customer does not have collateral and the customer's debt repayment source is seriously reduced or there are adverse changes such as: job loss, unpaid leave, early retirement, major property damage, the work unit goes bankrupt/dissolved or loses the ability to pay salaries to employees...

d. Risk transfer measures

- Require customers to buy insurance: 2018 is the year that BIDV Trang An promotes the sale of loan insurance, when the new regulation on unsecured consumer loans 3569/QD-BIDV Trang An issued on June 7, 2018 requires 100% of unsecured loan customers to buy insurance.

At the same time, in 2018, BIDV Trang An promoted the implementation of preferential credit packages with reduced interest rates for customers participating in loan insurance. Accordingly, loan customers purchase insurance with a maximum insurance amount equal to the customer's loan amount at BIDV Trang An, but not higher than the maximum liability that the insurance company can provide insurance according to current regulations at the time the customer is granted credit by BIDV Trang An, the insurance purchase period is determined from the time the customer is granted credit by BIDV Trang An to the time the customer completes the obligations arising with the bank, the beneficiary of the insurance is BIDV Trang An.

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2.3.2.4 Credit risk management

According to BIDV Trang An's regulations, group 5 debts or debts in which customers die or go missing will be handled with risk provisions. The principle of using risk provisions is as follows: Use specific provisions set aside for each debt to handle, sell off secured assets according to the agreement with the customer and according to the law to recover the debt. In case the specific provisions are used and the amount collected from the sale of assets is not enough to cover the risk of the debt, the general provisions must be used to handle.

At BIDV Trang An, when bad debt arises, in addition to specialized officers implementing measures to accelerate debt collection, the Risk Management Department will coordinate with other departments.

business department to work with customers, negotiate to sell assets to recover debt, in case the customer does not cooperate, BIDV Trang An will initiate a lawsuit to the competent People's Court, the court will accept the file and handle the assets for the bank and the customer. Debts after using the proceeds from the asset auction but still not enough to recover, BIDV Trang An will record off-balance sheet and continue to monitor.

Insurance settlement is only carried out when customers encounter objective risks such as illness, death, disappearance, permanent disability, etc. In this case, the risk from unrecoverable loans due to customers' inability to pay will be compensated by the insurance company to the bank.

2.4. General assessment of the current status of credit risk management at Vietnam Joint Stock Commercial Bank for Investment and Development - Trang An branch

2.4.1. Results achieved

First, about Risk Identification

- The identification work through the assessment of the actual situation is done quite well. For customers borrowing capital for production and business, after receiving the customer's request and assessing the customer's loan needs, the staff will conduct an assessment of the actual business situation of the customer. The actual assessment work will usually be carried out by the staff and controllers or department heads, so the assessment work will not depend on the subjective opinions of individual staff but will have the additional assessment of people with more experience.

- Identification through analysis of collateral: The customer management department strictly complies with the regulations on collateral assessment, asset valuation in accordance with the decision on land and house prices of the competent authority and market prices depending on the valuation method. Asset valuation is also controlled by officers and leaders of the lending department. For collateral assets being movable property, BIDV Trang An requires customers to purchase insurance and transfer the insurance beneficiary rights to BIDV Trang An throughout the loan period.

- The work of identifying risks during credit granting by the Credit Management Department is well performed, actively contributing to preventing errors that can lead to legal risks for the Bank.

Second, on Risk Measurement

- Debt classification at the Bank is carried out monthly, in compliance with the regulations of BIDV Trang An and the State Bank. Debt classification is closely monitored and controlled by the risk management department at BIDV Trang An and is also supervised by the Credit Management Board of the Head Office.

Third, on Risk Control

- BIDV Trang An's risk control work is quite good, demonstrated by the employees' compliance with procedures and regulations; reasonable decentralization of credit decision authority; good valuation of collateral assets; and design of credit interest rates appropriate to the level of risk.

- BIDV Trang An's risk provisioning is also closely monitored by the Head Office and regularly inspected internally, so BIDV Trang An strictly complies with provisions.

- Debt collection urging of customer management staff: due to the implementation of the salary payment mechanism based on business results, customer management staff also pay close attention to the ratio of debt requiring attention and bad debt in their total monthly outstanding debt. This salary payment mechanism also encourages staff to limit chasing credit growth targets while ignoring risks.

Fourth, on Risk Management

BIDV Trang An's risk handling source is mainly from handling collateral assets, because most of the credit records are legally guaranteed and in accordance with regulations, so it is also very convenient for BIDV Trang An to recover debts from the auction of collateral assets. However, there are still some cases where assets cannot be handled because the collateral records are not fully legal, such as cases where the assets of households are mortgaged but do not have full signatures of all household members. This difficulty is partly due to the fact that the legal documents regulating household assets are not clear, and the guidance or answers from BIDV Trang An's Head Office on this issue are not yet specific.

2.4.2. Limitations, problems and causes

2.4.2.1. Limitations

Firstly, although a system of signs of customers who are likely to pose risks to the bank has been established, it has not been implemented regularly and seriously. The signs of identifying the branch's RRTD are still simple and do not reflect the RRTD that the branch may encounter.

Second, although bad debt has been controlled at a low rate, the risk of bad debt increasing still exists if there is no way to handle and prevent group 2 debt from turning into bad debt. The loan appraisal process is not strict due to lack of information from staff, the analysis, evaluation, and comments on inaccurate information are subjective, mainly based on data and documents provided by customers without collecting information through partners, management agencies, tax authorities, etc., leading to limited assessment of management capacity, ability to operate production and business plans and financial situation, with staff immediately using incorrect data for appraisal, while the appraisal stage is the most important stage in deciding to lend.

Third, the Branch has not used a variety of measures to prevent credit risks in lending to science and technology. Measures such as credit insurance have not been used by the branch.

Fourth, the results of internal credit scoring are still subjective: Credit rating is mandatory when approving credit but only depends on the customer management staff, the results and information entered into the internal credit rating system have not been independently reviewed by the risk management department according to the correct procedure.

Fifth, although BIDV Trang An organizes internal credit file checks 2 to 3 times a year, this work only stops at checking the surface of the file and does not conduct actual checks, so the internal check results only discover additional legal risks but do not control potential risks arising from customers or loan plans.

Sixth, the branch's measures for handling and financing RRTD in KHCN lending are still limited, and the handling and financing of RRTD in KHCN lending is still slow. For example, the handling of customers' collateral depends on the Court's decision, so the branch's RRTD handling time is very long.

2.4.2.2. Causes of limitations

a. Subjective causes

- BIDV Trang An has not focused on developing loan insurance, only implementing it in products with mandatory insurance regulations. BIDV Trang An also sets quarterly insurance sales targets for credit officers, but most credit officers and customers are not aware of the benefits associated with insurance, so the development of loan insurance products is still limited.

- At BIDV Trang An, there are no specific regulations or incentive mechanisms for customer management staff in selling loan insurance to customers, or in other words, the work of selling loan insurance has not received proper attention, so risk prevention by insurance is very poor.

- BIDV Trang An has not focused on diversifying corporate credit products. BIDV Trang An's loans are mainly for housing and business purposes. Other types of credit such as credit cards and guarantees rarely arise.

- The number of staff working in customer management at BIDV Trang An is quite small, not meeting the needs of a large number of corporate customers at BIDV Trang An. Meanwhile, the work is not specialized, causing customer management staff to take on too many tasks, not taking into account capital mobilization and marketing of bank products and services, but only credit, customer management staff is both marketer, credit appraiser, and drafter of credit files and documents, without a support department, causing overload of work.

- Credit officers have not paid attention to risk identification. Risks related to customer ethics, natural disasters, or industry risks of BIDV Trang An customers are often passive and difficult to recognize. The identification of risk manifestations depends on the subjective perception of customer management officers, and is still based on experience and tradition. In addition, the large number of young and inexperienced customer management officers also partly affects the risk identification work and cannot avoid legal risks of credit records later.

- Credit officers have not paid attention to risk identification. Risks related to customer ethics, natural disasters, or industry risks

BIDV Trang An's customers' profession is often passive and difficult to clearly recognize. Identifying risk manifestations depends on the subjective perception of the Customer Management Officer, and is also based on experience and tradition.

- Customer service managers chase targets and ignore signs of risk recognition. They usually only focus on collateral and the current financial capacity of customers and ignore other signs.

- Most of the corporate credit loans do not conduct CIC information lookups, because BIDV Trang An does not have specific regulations on looking up CIC information before lending and staff are not interested in this important task.

- The work of checking the purpose of capital use and checking the business performance of customers after granting credit has not been done well, mainly in a formality. The reason is that the staff has not really paid attention to this work, on the other hand, the number of staff doing customer management work at BIDV Trang An is quite small, the work is not specialized, causing the customer management staff to be overloaded, so they cannot meet the control stage after lending.

- Annual revaluation of collateral and monitoring and management of collateral after mortgage or pledge are difficult. Due to the large number of customers that an individual customer management officer manages, a customer sometimes has dozens of collateral assets, so annual revaluation of assets encounters many obstacles.

- BIDV Trang An's current reporting system is still manually generated and complicated. The reporting system is not modern, the processing speed is slow, and it is not user-friendly, making it difficult for BIDV Trang An to collect general information about customers and related customer groups.

- Branches lack market and industry information in credit granting, leading to inaccurate credit appraisal.

b. Objective reasons

- The legal environment for banking activities in general is still incomplete and inconsistent, the overlap in legal documents causes difficulties for operations as well as the resolution of disputes arising in credit activities.

CHAPTER 2 SUMMARY

In the content of chapter 2, the author focused on analyzing and evaluating the current status of credit risk management at BIDV Trang An. From there, the author drew out the results achieved, the limitations, and at the same time identified the causes of the limitations in credit risk management at BIDV Trang An. This is the basis for the author to propose solutions and recommendations in chapter 3.

CHAPTER 3: SOLUTIONS TO IMPROVE CREDIT RISK MANAGEMENT OF VIETNAM JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT - TRANG AN BRANCH

3.1. Forecasting economic trends and directions for improving credit risk management at Vietnam Joint Stock Commercial Bank for Investment and Development - Trang An branch

3.1.1. Forecast of economic trends and banking performance to 2025

The world economy in general and Vietnam in particular in 2021 face a huge challenge to continue the recovery momentum with the expectation of GDP growth in previous years due to the Covid-19 pandemic that has been, is and will continue to be very complicated in the coming time. Therefore, instead of the growth target of 6-8% in previous years, it is forecasted that Vietnam's economy can only maintain a growth rate of ~ 3-4% in 2021.

In general, with such an economic and financial situation, the operations of banks as well as businesses, residents... will face many difficulties. However, with the Government's support policies and the ability to control the epidemic well, these difficulties will be partly reduced, and this is also an opportunity for the economy to filter out weak entities and develop entities with better adaptability. Input costs of enterprises have decreased under the impact of sharp declines in energy prices. Low interest rates continue to provide financial support for investment and consumption. However, businesses and individuals with weak financial capacity will still have difficulty accessing loans. Demand for goods and services remains weak due to the general impact of the whole world during the epidemic period, but will be more positive after 2021 when there is a mechanism to control the epidemic, gradually open the global economy... the price level continues to stabilize.

It can be seen that during the period when the epidemic began to affect Vietnam from the beginning of 2019 until now, the banking system has been a bridge for the Government to support businesses and residents through policies to reduce interest rates, restructure debt, provide financial support... At the same time, commercial banks have also maintained internal stability, growth and risk control throughout the past time.

General Assessment of Credit Risk Management Status at Vietnam Joint Stock Commercial Bank for Investment and Development - Trang An Branch

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