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Loan Outstanding Structure by Economic Sector


2.3.1.4. Loan balance structure by economic sector

Table 2.7: Outstanding loans classified by economic sector in the period 2007-2011

Unit: Billion VND


Target

Year

2007

Year

2008

Year

2009

Year

2010

Year

2011

Total outstanding debt

23,846

27,320

35,721

48,041

58,288

State-owned enterprise

4,531

3,278

4,644

5,764

6.412

Proportion

19%

12%

13%

12%

11%

LLC, JSC, Private Enterprise

6,677

10,018

14,646

23,060

29,144

Proportion

28%

37%

41%

48%

50%

Foreign invested enterprise

4,054

4089

5358

8,167

8,743

Proportion

17%

15%

15%

17%

15%

Other economic components

8,584

9,835

11,074

11,049

13,989

Proportion

36%

36%

31%

23%

24%

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Loan Outstanding Structure by Economic Sector

Source: Report of State Bank of Dong Nai province

In total outstanding loans, outstanding loans to LLCs, joint stock companies and private enterprises account for a fairly high proportion and have increased over the years, from 28% in 2007 to 37% in 2008; 41% in 2009; 48% in 2010 and up to 50% in 2011. This is explained by the increase in the number and scale of private enterprises and LLCs due to increased capital and new registrations. Commercial banks in the area are currently increasing loans to private enterprises, because of the high efficiency of these enterprises. Meanwhile, the proportion of loans to state-owned enterprises has also decreased correspondingly from 19% in 2007 to only 11% in 2011.

Foreign-invested enterprises have a large proportion of outstanding debt that has not changed much, around 16%. Other economic sectors have a proportion of outstanding debt that has gradually decreased from 36% to 24% in 2011.


Outstanding loans to the state economic sector tend to decrease due to the inefficient nature of business operations. Currently, banks have become more autonomous in lending to this economic sector, the proportion of outstanding loans to the state economic sector has decreased because some effective state enterprises have converted their form into joint stock companies.

2.3.2 Current status of credit risk

2.3.2.1 Loan balance structure classified by debt group

Currently, commercial banks in the province measure and control risks mainly through indicators such as the ratio of overdue debt (group 2-5), bad debt group (3-5), debt with the possibility of losing capital (group 5) accounting for what percentage of total outstanding loans, increasing or decreasing compared to the previous year to have measures to control credit risks, ensuring stable business operations.

Table 2.8: Outstanding debt classified by debt group in the period 2007-2011

Unit: Billion VND


Target

Year

2007

Year

2008

Year

2009

Year

2010

Year

2011

Total outstanding debt

23,846

27,320

35,721

48,041

58,288

Qualified Debt

(Group 1 debt)

23,402

24,847

32,863

45,590

53,392

Proportion

98%

91%

92%

95%

91.6%

Overdue debt

(Debt group 2-5)

444

2,473

2,858

2,451

4,896

Proportion

1.9%

9.1%

8.0%

5.1%

8.4%

Bad debt

(Debt group 3-5)

111

934

857

815

2,740

Proportion

0.5%

3.4%

2.4%

1.7%

4.70%

Bad debt

(group 5)

33

231

522

269

874

Proportion

0.14%

0.85%

1.46%

0.56%

1.5%


Source: Report of State Bank of Dong Nai province

In addition to analyzing the above indicators, large commercial banks in the province use personal credit scoring and internal credit rating for corporate customers. However, the criteria for credit scoring and internal credit rating are set by each bank to implement in its banking system. Currently, there is no independent company providing scientific and objective internal credit scoring and rating, so the results of credit scoring and internal rating of banks do not have high scientific value, and still contain many subjective factors when implementing, which sometimes leads to refusing to lend to good customers and agreeing to lend to bad customers.

Starting from 2005, commercial banks have classified debts according to Decision No. 493/2005/QD-NHNN dated April 22, 2005 instead of classifying debts according to Decision No. 488/2000/QD-NHNN5 dated November 27, 2000. Therefore, overdue debts from 2005 onwards have increased significantly compared to before. In 2007, the overdue debt ratio accounted for 1.9% of total outstanding debt, but in 2008 this ratio skyrocketed to 9.1%, in 2009 it was 8.0%, in 2010 it decreased to 5.1% but in 2011 it increased to 8.4%.

In 2007, the country's economy developed strongly, credit balance grew strongly, loan turnover was high, but by the end of 2007, the economy showed signs of recession. The result of the growth policy and credit loosening in 2007 was one of the reasons leading to the high increase in overdue debt in 2008.

2008 was the year with a sudden increase in overdue debt, with four banks having debts.


The reason for the increase in bad debt and overdue debt is due to the Government's policy of tightening credit to fight inflation. Banks have cut credit limits and at the same time, credit interest rates have increased. The situation of borrowing capital of enterprises has encountered many difficulties, leading to high product costs, reduced profits, along with a decline in financial capacity, slow capital circulation, failure to properly implement the bank debt repayment plan, leading to a sudden increase in overdue debt. Enterprises with financial difficulties all encounter obstacles in paying for goods. The collection of


Slow sales, businesses not paying debts on time, leading to banks having to adjust debt terms, extend debts and transfer overdue debts to appropriate debt groups. Some credit institutions have not carefully surveyed customers, feasible plans, lent capital for the wrong purpose, customers' business is ineffective, there is a risk of bankruptcy, banks have difficulty recovering or cannot recover capital and interest. Another reason leading to high overdue debt is high interest rates, businesses paying debts have to borrow new loans with interest rates much higher than overdue interest rates and overdue penalties, thus leading to the mentality of delaying payment of due debts to enjoy low interest rates.

In addition, there are some causes of high overdue debt in 2008 such as lending through intermediaries, taking a percentage of the loan service due to mortgage settlement, not evaluating the loan plan, and lending with mortgaged assets as collateral through property authorization contracts.

In 2009, the economy showed signs of recovery, but there were still difficulties. Overdue debt and bad debt decreased both in proportion and in absolute numbers compared to 2008 because banks with high bad debt ratios, including the Long Thanh branch of the Bank for Industry and Trade, actively applied debt collection measures. However, debt with the possibility of losing capital increased due to the transfer of debt groups from low debt groups to higher debt groups. As a result, in 2009, the debt ratio with the possibility of losing capital accounted for 1.46%, an increase of 125% compared to 2008.

In 2010, overdue debt and bad debt decreased sharply due to the characteristics of the State's economic policies having certain delays, a series of stimulus measures to stabilize economic growth in 2009 only showed their effectiveness to a small extent in 2009. The effectiveness of the measures to stimulate economic growth was most clearly shown in the first 10 months of 2010, specifically, overdue debt in 2010 accounted for 5.1% of total outstanding debt; bad debt accounted for 1.7% of total outstanding debt; debt with the possibility of losing capital accounted for 0.56% of total outstanding debt. In addition to the State's macroeconomic policies, overdue debt in 2010 decreased because the debts, overdue debts, bad debts, and debts with the possibility of losing capital were handled and taken off the balance sheet, the country's economy recovered, which was the basis for enterprises.


Enterprises expand production and business activities, businesses have revenue to pay debts and develop.

In addition, the State Bank of Dong Nai province has strengthened inspection and closely monitored credit quality, placing commercial banks in the province under special control if they have bad debt of over 10% for three consecutive months. Increasing the frequency of inspection and flexibly applying inspection and monitoring measures is the basis for increasing the credit quality of commercial banks in the province.

In 2011, overdue debt increased significantly, from 5.1% in 2010 to 8.4% at the end of 2011, of which bad debt accounted for 4.7%, an increase of nearly 3% compared to 2010. This is a worrying figure for the banking sector in the province. Bad debt over 3% means there is a problem, not to mention the reported information data does not fully reflect the bad debt situation of the banking system in the province. Large bad debt is mainly concentrated in the non-state economic sector, showing that credit management and credit risk management in this economic sector need more attention.

2.3.2.2 Overdue debt by economic sector

Table 2.9: Overdue debt by economic sector in the period 2007 - 2011

Unit: Billion VND


Year

2007

2008

2009

2010

2011

Total overdue debt

444

2,473

2,858

2,451

4,896

State-owned enterprise

98

148

120

86

166

Proportion

22%

6.0%

4.2%

3.5%

3.4 %

LLC, JSC, Private Enterprise

115

1,187

1.425

1,384

2,835

Proportion

26%

48%

50%

57%

57.9%

Foreign invested enterprises

71

396

401

294

548

Proportion

16%

16%

14%

12%

11.2 %

Other economic components

160

742

912

687

1,297

Proportion

36%

30%

32%

28%

26.5 %

Source: Report of State Bank of Dong Nai province


Overdue debts of commercial banks in Dong Nai province are mainly concentrated in non-state enterprises such as limited liability companies, joint stock companies and private enterprises. From 2007 to 2011, the proportion of overdue debts for these types of enterprises was 26%; 48%; 50%; 57%; and 57.9%, respectively. Meanwhile, overdue debts for state-owned enterprises in 2007 were very high at 22%, but in the following years only accounted for a small proportion and tended to decrease over the past 3 years. By the end of 2011, overdue debts of state-owned enterprises accounted for only 3.4% of the total overdue debts of the whole industry.

Other economic sectors also have a fairly high proportion of overdue debt in the total overdue debt in Dong Nai province: 36% in 2007; 30% in 2008; 32% in 2009; 28% in 2010 and decreased to 26.5% in 2011.

Foreign-invested enterprises also have overdue debt, but the proportion is not large compared to other types of enterprises.

The proportion of overdue debt of economic sectors (Table 2.9) although there is a big difference between economic sectors, if compared with the proportion of outstanding debt of these economic sectors in the total outstanding debt (Table 2.7), we can see that the proportion of overdue debt of economic sectors reflects quite honestly the proportion of outstanding debt of those economic sectors. This allows us to confirm that the ratio of overdue debt to outstanding debt of each economic sector is equivalent. In other words, overdue debt reflects the general situation of the economy, not just any economic sector.


2.3.2.3 Overdue debt by economic sector

Table 2.10: Overdue debt classified by economic sector in the period 2007 - 2011

Unit: Billion VND


Year

2007

2008

2009

2010

2011

Total overdue debt

444

2,473

2,858

2,451

4,896

Agriculture, forestry and fishery

49

47

84

191

422

Proportion

11%

2.0 %

2.9%

7.8%

8.6%

Industry and construction

177

1,116

1,126

1,007

2.203

Proportion

40%

45%

39 %

41%

45%

Trade and services

111

941

1,197

958

1,630

Proportion

25%

38%

42%

39%

33.3

Other industries

107

369

451

295

641

Proportion

24%

15%

16%

12%

13.1

Source: Report of State Bank of Dong Nai province

Through the table of data, it can be seen that overdue debt mainly focuses on outstanding loans for the industrial and construction sectors, by the end of 2011 this proportion was 45%. This completely reflects the development status of this economic sector, especially in the construction sector, which is facing many difficulties in production and business with the decline of the real estate market. The trade and service sector also has a fairly high proportion of overdue debt, by the end of 2011 overdue debt had a proportion of 33.3%. It should be noted that while other sectors have a high proportion of overdue debt, lending to the agricultural sector has a proportion of overdue debt of less than 10%, which is a great effort of the banking sector in Dong Nai province. This is also an important lesson in loan management and debt collection of commercial banks with outstanding loans for the agricultural sector in the province.

2.3.2.4 Status of provisioning and use of credit risk provision

Most commercial banks in the area have classified debts, although not according to Article 7 of the State Bank's regulations, but have also classified debts and set aside risk provisions according to the prescribed ratio. At the same time, they have also used reserves.


room to handle group 5 debt according to reported data of commercial banks in the area

Table 2.11 Provisions and use of credit risk reserves for the period 2007-2011 Unit: billion VND


Target


2007


Year 2008


Year 2009


Year 2010


2011

Opening balance

period

35,556

51,425

148,286

455,387

564,054

Provisions

during the period

62,345

385,216

698,378

420, 923

1,196,575

Use

during the period

46,566

288,335

401,277

312,256

569,332

Closing balance

period

51,425

148,286

455,387

564,054

1,191,307


2.4 Current status of credit risk management of the commercial banking system in Dong Nai province

2.4.1 Assessment of the current status of credit risk management of the commercial banking system in Da Nang province Most commercial banks in the province currently apply the theoretical models of credit risk management to identify and classify types of credit risks, to develop and implement appropriate credit policies as well as to monitor and supervise credit to control credit risks. However, due to the characteristics, characteristics and goals that banks pursue differently, the

Credit risk control is also different. Like some state-owned commercial banks such as Vietinbank and Vietcombank, the lending of these banks is often directed to state-owned enterprises, corporations or loans under government support programs, so debt collection is sometimes very difficult and debts can be restructured or sometimes written off.

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