Regarding the purpose of borrowing capital for consumption/business investment, the factor of borrowing to buy a house/buy a car is no longer statistically significant. That is, to some extent, it can be understood that if a customer borrows capital from a bank to buy a house/buy a car but has other business and consumption activities, the ability to repay the bank is higher than that of customers who only use it to buy a house/buy a car. On the other hand, reality has also proven that credit loans related to the purpose of buying a house/car are usually medium- and long-term loans, with a long credit period, so the possibility of credit risk is higher than for short-term credit loans for business purposes.
3.4. General comments on the current status of credit risk management and factors affecting credit risk management at VPBank
3.4.1. Some results achieved
The Bank has built a credit risk management model in accordance with international standards (Basel 2 Agreement) with 03 layers of defense. With this model, all members of the VPBank system must participate in the risk management process. Therefore, this model ensures that risks in each of the bank's operations are identified, controlled and minimized.
The first line of defense is the business, sales, customer service specialists, branches, and operational units at headquarters... The main tasks of these units are to identify, assess, prevent, report, and monitor risks arising in business operations (lending) and other operational processes; protect the interests of the unit through self-assessment of risks and control of the effectiveness of each unit.
The second line of defense is the risk management, compliance, operational risk management and legal departments. This line has many tasks, the most important of which is to independently assess and control (check and balance) the effectiveness of the system in the first line of defense; manage key risks through setting risk appetite/lending policies, building credit and lending procedures/guidelines, monitoring, early warning, portfolio management…; supervise internal control programs, compliance…
The third line of defense is the internal audit department. This department is under the Board of Supervisors and not under the Board of Management of the Bank, so the assessment of the first two lines of defense and possible risks is carried out independently and objectively.
After a period of strict compliance with the 3-layer defense management model at the Bank, safety standards have been followed and gradually approaching advanced management standards in the world, in particular, creating a culture of awareness and risk control.
risk in each employee of the bank. Each individual, from customer service specialists to support staff, must comply with regulations and procedures and be aware of the responsibility to assess, detect risks early and find ways to prevent risks from arising. This has shown that VPBank has thoroughly instilled in all employees a clear view that risk management is carried out by the entire system, not just the responsibility of the risk management department. This is the foundation that helps the bank maintain, stabilize and develop its operations.
The Bank has established a framework system, mechanism and credit risk management policy ensuring the following basic principles:
- Establish an appropriate credit risk management environment;
- Operate under a sound credit granting process;
- Maintain an appropriate credit management, measurement and monitoring process;
- Ensure adequate control over credit risk
VPBank's credit risk management system operates on the principle of independence and centralization. With this principle, the task of developing policies, determining limits and controlling risks is carried out independently and centrally at the focal point, the Risk Management Division. The reports of the Risk Management Division are the basis for the Executive Board and the Board of Directors to make decisions on credit activities. The bank has implemented the use of scorecards for each different customer segment and each product; applied the credit risk early warning system for the SME and individual customer segments, built stress testing scenarios to respond to unforeseen risks that arise, thereby helping the bank prepare appropriate and timely risk handling measures, minimizing damage caused by risks, ensuring the ability to collect and handle overdue debts, etc.
VPBank has also built many new models using advanced techniques according to international standards, exploiting big data to help select customers, increase cross-selling, improve portfolio quality and increase early debt collection efficiency. In its business development plan, VPBank identifies the consumer finance market segment, unsecured loan products, and small business credit. This is a segment that contains many risks because this segment often popularizes unsecured credit. Therefore, VPBank has conducted research and learned from experience, and hired international consultants. After a period of developing this market segment, VPBank has achieved certain results in credit risk management activities. Specifically:
Based on data from telecommunications companies such as Mobifone and Viettel, the bank has built a customer scoring system in credit granting activities, initially bringing efficiency in attracting new customers to the Personal Banking Division. The bank has also deployed an automatic approval model with the support of scoring models for unsecured loan products, thereby increasing the quality of credit granting and building a Corporate Customer Information Management System (CLOS). The CLOS system allows automatic management of corporate customers from account opening, customer classification, credit granting to financial monitoring and debt collection later. These are the factors that have contributed to VPBank's success. According to statistics, in 2017, VPBank's retail banking revenue in 2017 increased by more than 66% compared to 2016. The number of VPBank's retail customers increased significantly with more than 2.7 million customers, leading to outstanding loan balance growth of 83%. Regarding credit cards, from the 5th position among Vietnamese banks in terms of the number of cards issued and spending in 2016, VPBank rose to the 3rd position in terms of the number of cards issued and the 2nd position in terms of spending in 2017. Specifically, the number of cards issued by the end of 2017 reached 198,000 cards, an increase of 132% compared to 2016, while card spending continuously reached new records and exceeded the level of more than 2,000 billion VND spent per month. At the end of 2018, VPBank was the bank with the largest number of active credit cards in the market, with more than 400,000 cards from the parent bank and more than 1 million cards from FE Credit. Unsecured personal loans (UPL), VPBank's strong product, continued to grow with a balance increase of 54% and revenue increase of 114%. By the end of 2018, UPL products contributed 30% of total revenue of the entire individual customer segment. For Vietnam Prosperity Bank Finance Company Limited (FE Credit), the loan growth in 2018 was 19%, continuing to consolidate its leading position, accounting for more than 55% of the consumer finance market share.
3.4.2. Some limitations and causes of limitations
Some limitations in risk management at VPBank
VPBank's current risk management has generally achieved certain successes. Risk management at the bank is built on the basis of international standards and regulations of the State Bank of Vietnam. However, in general, in the process of implementing risk management, there are still some limitations:
VPBank's current risk management organization still has some limitations, reducing the effectiveness of risk management activities. This is shown in the following 2 aspects:
The first round of RRTD control is the business department. For this department, the task of RRTD control is reflected in the process of performing daily operations such as: contacting customers, including assessing the reasonableness of customers' credit needs, assessing customers' financial capacity, debt repayment obligations, customer reputation, development in customers' business activities, etc., thereby making decisions to propose appropriate credit. In addition, through the above information, bank officers can also detect early risks that may arise during the credit relationship with VPBank. However, at present, these still have limitations, that is, credit officers have not really assessed the accuracy of all the information provided by customers, thereby drawing conclusions and recommendations that are not really suitable for the customers' capacity. These have led to risks arising in the bank's credit granting. In addition, in reality, there are also cases where bank staff do not evaluate and update customer information in a timely manner, leading to risks such as customers' debt repayment sources being insufficient due to poor business performance, customers' business lines tending to develop slowly, leading to customers' business loan purposes not being guaranteed, etc. This is also one of the causes of RRTD for banks. According to the author's statistics, when asked about their assessment of credit facilities, the responses of bank staff on a 5-point scale (1 = disagree 5 = completely agree) are as follows:
Table 3.25. Results of customer evaluation of Vpbank officers and employees
Unit: %
STT
Content | Proportion | |||||
Scoring | 1 | 2 | 3 | 4 | 5 | |
1 | I can accurately assess the ability to perform obligations. customer credit | 4.2 | 39.1 | 40.1 | 16.6 | |
2 | I believe in credibility my customer | 46.3 | 41.9 | 11.8 | ||
3 | I trust my clients to do business. business/use loan effectively | 10 | 38.4 | 22.1 | 29.5 | |
4 | My customers are sure will definitely find a way to pay off the bank | 5.2 | 49.1 | 39.8 | 5.9 | |
5 | Customers use the account loan for the right purpose registered | 10.4 | 37 | 17.3 | 35.3 | |
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(Source: According to the author's survey results)
Thus, according to the above survey results, the assessment of the ability to use capital, perform credit obligations, and customer reputation for bank employees is a limited issue. According to the survey, the answers when asked about these issues are those who choose points 3,4 the most, usually accounting for approximately 70% of all interviewees, so although bank officers have a relatively certain assessment of customers, approximately 30% of employees have not really met this requirement, leading to VPBank's RRTD management still facing limitations in the implementation process. This is consistent with the author's research hypothesis 2. It is the limitations in professional expertise that have been making VPBank regularly among the top banks with high overdue debt rates in the Vietnamese commercial banking system.
The coordination between departments in RRTD management at some points is not really effective. According to the survey when asked about the coordination between stages in credit activities, there are still fluctuations in the range of 15-18% of surveyed staff who are not satisfied with the coordination in credit departments, this is also relatively consistent with the assessment of customers when conducting a survey on their satisfaction with the stages in credit granting activities at VPBank. These numbers are quite consistent with the actual occurrence of credit activities in the bank, so the author's research hypothesis 1 is not appropriate. Obviously, participating in the credit process includes many departments including: business, appraisal, approval, post-loan monitoring and inspection, debt processing and collection. Although VPBank has regulations on the coordination and responsibilities of each of these departments, the main operational objectives of these departments are different, so at times there will be limitations in coordination with each other to manage risks in credit granting. This is also a common limitation for the system of commercial banks.
Limitations encountered in the collection of complete customer information data to be able to comprehensively assess customer risks. Originating from the fact that Circular 36/2014/TT-NHNN is replaced by Circular 41/2016/TT-NHNN in the regulation of capital adequacy ratio for commercial banks, according to which the total value of risky assets is determined according to the risk level of off-balance sheet and on-balance sheet assets. With Circular 41, for these assets, to be recognized as risky assets and apply the risk level according to regulations, banks need to collect a lot of information data. For example, for receivables from enterprises that are not credit institutions or foreign bank branches, when determining the credit risk coefficient, Circular 41 requires information on revenue, leverage ratio, equity, etc.
Ownership is determined based on the data of the most recent audited annual financial statements (consolidated financial statements) for enterprises subject to independent audit; the most recent audited annual financial statements (if any) submitted to the tax authority (with evidence of submission to the tax authority) for enterprises not subject to independent audit. Thus, in the current operational reality of VPBank, VPBank's strategic customers are SME enterprises (the characteristics of these enterprises in Vietnam are not professional in reporting financial and business activities), so collecting sufficient data to calculate the level of credit risk ratio application is relatively difficult.
Limitations in the process of managing RRTD, there are still some violations and loopholes in the credit file work. Through direct interviews with credit officers, these violations and loopholes mainly focus on the provision of documents attached to the credit file that may be incomplete at the time of inspection such as: post-loan inspection minutes on the financial situation of capital use, business situation of customers, ... documents proving the purpose of capital use that need to be provided after disbursement but have not been collected, ...
Causes of limitations
Objective reasons
Firstly , the State Bank's regulations and guidelines for credit risk management still have limitations. Currently, although the State Bank has issued documents guiding the implementation of credit risk management according to Basel 2, there is still a lack of regulations related to the construction and operation of internal credit rating systems and early warning of credit risks. Commercial banks in Vietnam are building their own internal credit rating systems, so the criteria for scoring credit risks for the same customer at different banks may not be the same, thus there are discrepancies between commercial banks in assessing credit risks arising for customers.
Second , in Vietnam, the use of information from independent credit rating organizations is relatively difficult. The implementation of Basel II requires the participation of independent rating organizations in determining the risks of financial assets, transactions or partners. However, in Vietnam, most businesses or financial assets are not rated. The reason may be that the customers of Vietnamese commercial banks themselves have not been rated by independent organizations. In addition, the cost of hiring these organizations to perform the rating is quite high, so most of the customers of commercial banks in Vietnam do not have credit rating information from independent organizations. Independent rating criteria and results
is an important basis for commercial banks to conduct internal credit ratings, as well as to adjust the methods, content, and rating methods to ensure accuracy. Due to the lack of this source of information, the quality of internal credit ratings of Vietnamese commercial banks will also be affected. This leads to difficulties for Vietnamese banks in assessing and pricing customers. According to the Basel 2 Agreement, the management agency has the right to review and evaluate whether banks meet the standards for using internal risk assessment systems to classify and evaluate the probability of default of customers. However, in reality in Vietnam, the banking inspection and supervision agency does not have enough human resources with sufficient qualifications and experience to assess and appraise the risk assessment systems of banks.
Third , the customer information and data system is not complete, synchronized, transparent and reliable. According to Entrofine (2014), to implement Basel II, banks need to have at least 635 data fields on customer information, receivables by customer group, internal credit rating results for customers, transactions with partners, risk mitigation techniques, provisioning, and transactions on the business book. Entrofine's (2014) observation also shows that the difference in the average database of banks in Vietnam compared to the Basel Committee's requirements is 65%. To meet this requirement, banks need time (2-3 years) to thicken the database, collect missing data fields through amending internal regulations and connecting with CIC; thereby building a data warehouse to serve risk management according to Basel 2 [3]. Due to the characteristics of the Vietnamese market economy in the stage of completion, growth and development, so the information reports on the situation of borrowers such as: income, business situation, ... may not have accurate and complete information. This is a big difficulty for Vietnamese commercial banks in managing RRTD according to international standards.
Fourth , the increasingly fierce competition of the market economy is also one of the objective causes of RRTD, leading to the risk management efficiency not being as expected. At present, free trade agreements have come into effect, so the domestic market will no longer be an advantage for Vietnamese enterprises. In addition, due to the impact of inflation, prices of all types of service costs tend to increase, which has made difficulties for enterprises in Vietnam pile up on difficulties. The decline in business performance of enterprises will also reduce the ability to fulfill credit obligations to commercial banks.
Subjective causes
Firstly , the personnel in departments related to credit activities still have limited qualifications and awareness of risk management. In fact, currently, the majority of the risk management team at the bank is transferred from credit officers, and the requirements for personnel working in risk management must be those who are knowledgeable about credit activities, have knowledge of risk management models, and have experience in implementing risk management activities. Therefore, this is one of the limitations that reduces the effectiveness of risk management at VPBank. In addition, the limitation in the level of awareness of VPBank is also reflected in the assessment and approval of credit facilities. Not all bank staff have the same capacity, some staff have not accumulated enough experience and professional capacity, which can lead to incorrect proposals and approvals. In addition, professional ethics in credit activities are also disregarded by some staff. These bank staff may, for their own benefit, collude with customers to create fake documents to take advantage of and defraud the bank's capital. These problems can completely arise in VPBank's credit activities. According to the author's survey results, for VPBank staff working in positions related to credit activities, when asking for opinions on the bank staff's creativity and flexibility in each customer segment, more than 80% of respondents agreed and completely agreed with this; and for VPBank's customers, the question about their ability to work well and solve problems quickly also gave similar results.
Second, VPBank's risk management model has not been properly arranged in some departments. Currently, the bank's post-loan inspection and supervision activities are being carried out by three departments: credit supervision, post-loan control and internal control inspection. Although these departments have assigned tasks regarding the frequency of inspection of specific credit grants, such as: for credit supervision, internal control inspection will conduct inspection and supervision in batches or by topic, and for the post-loan control department, each officer of this department will follow the credit grant throughout the customer's credit relationship with VPBank, however, it is clear that the tasks of these three departments are basically quite similar, so sometimes there is not really good coordination, and there is also a mentality of dependence. On the other hand, RRTD management is not only understood in the sense of not letting risks happen, but must be understood more broadly as ensuring that commercial banks always maintain stable profits. Thus, we must have parallel credit development activities but still have to ensure