Orientation and Objectives of Credit Risk Management at Agribank

The management information on the IPCAS system is designed to be relatively complete, but currently the amount of customer information needed for management on the IPCAS system is still lacking and not updated. The information entered into the system by branches is mostly basic information; other information such as financial information and credit information is almost ignored. Although IT equipment has been continuously invested and equipped over the years, it is still lacking.

3.4.3. Causes of limitations

3.4.3.1. Subjective causes

One is: Policy regime, process, credit scale

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Credit policies and regulations have not kept up with changes in the financial market and have revealed many points that are not suitable for reality, affecting credit quality and risk management. Specifically, in the past, credit inspection and supervision were mainly done after lending and were carried out by credit officers, so the work became overloaded and credit risk control in lending was still limited, not objective and thorough, but only dealt with the superiors, which easily led to credit risks at the branch. In addition, regulations on lending subjects and non-lending subjects were not flexible, procedures were cumbersome, lending decisions had to go through many levels, and low lending limits were not suitable for economically disadvantaged areas, limiting people's ability to receive credit capital, leading to difficulties in expanding credit and not being able to implement customer policies.

Second: The level of inspection and supervision of the implementation of credit risk management objectives and contents is still limited. The above situation is due to two main reasons:

+ Firstly, the outdated credit management technology system does not meet the requirements of centralized credit management. Agribank Thai Nguyen branch is implementing the project to modernize banking technology IPCAS (IntraBanking payment customer accounting system) deployed by Agribank to overcome this problem, but the implementation is slow, there are still many errors and some other shortcomings in the stability of the system as well as the level of users.

+ Second, the credit control and inspection apparatus is under the management and direction of the branch directors, therefore, the effectiveness of inspection and supervision

Low independence. Inspectors and controllers still have family relationships, feelings and respect, so the quality of inspection and control is not high.

+ The quality of credit application appraisal at the branch is still low. The main reason is that the system of criteria for appraising applications is still heavily qualitative, not paying attention to the reliability of information, especially financial information provided by customers (for example, not requiring audited financial statements). In addition, the subjective working attitude and lack of appropriate caution of credit officers have increased credit risks with loans. Credit officers at the branch often tend to work based on convention, trust traditional customers and ignore the steps of evaluating changes related to customers.

Second: Specific orientation and strategy for credit risk management have not received due attention.

Currently, Agribank Thai Nguyen branch does not have a specialized department for credit risk management, but only general business instructions such as: warning or limiting credit in some fields and industries. In other words, risk management has not been a top priority in the branch's strategic planning. Therefore, there is a lack of a strong message for the entire branch about risk management. In addition, the shift in lending strategy has not been carefully researched by the organization, mainly following the direction of Agribankk, not taking into account the economic cycle, the actual conditions of local customers.

Third: Incomplete database and credit information

The collection, storage and processing of new information has been of interest to the branch since the new core banking system was deployed (about five years ago). Previously, although loan transaction processing software and reporting systems had been developed, the information exploited at the whole bank level for management, operation and risk control was mainly manually compiled, leading to major limitations in processing volume and quality. In addition, the shortcomings in historical data could not be overcome, combined with the limitations in the branch's risk management work, which only focused on serving transactions and not on reporting and risk management, causing the branch's credit information system to still show the following weaknesses:

Regarding time: Information for risk management is first built on each customer and each loan. However, entering customer and loan information still has to be done manually, and thus leads to delays in information analysis.

Regarding accuracy: The database and credit information collected are designed on the basis of general credit policies, but are still subject to human control. Meanwhile, the work of checking, monitoring, and comparing paper records and machine records has not been focused on. Because customer information is still entered manually, the reliability has not reached the necessary requirements.

Regarding completeness: The database and credit information collected are only used to process customer transactions, so information about credit contracts and documents related to loans are not automatically stored. In addition, information about rejected loans is not stored, making the goal of risk quantification based on statistical models impossible to achieve.

Fourth: Low quality of human resources, not really reasonable use, large staff, old age.

This means that although there is experience in credit operations, the ability to grasp new operations and apply information technology to credit management may be limited. The quality of newly recruited employees is sometimes not as high as that of other commercial banks, but they are dynamic, quickly grasp changes in information technology and apply them to their work. In addition, in recent years, the strong development of commercial banks in Thai Nguyen has created competitive pressure and attracted highly experienced personnel. Agribank Thai Nguyen branch also has to face the problem of "brain drain" because competent and experienced employees are often attracted by salary and bonus policies and tend to leave the bank. This greatly affects the branch's business activities and credit risk management in particular.

3.4.3.2. Objective causes

One: The business environment is not stable.

Causes from the environment, economic policies and remote monitoring of the State Bank: the State's development orientations are constantly changing,

Adjusting policy mechanisms affects the entire economy. The policy mechanisms of the Government and the State Bank on lending, loan guarantees, bad debt handling, etc. still have many issues that are not suitable to reality, and innovation and amendment are slow. The State Bank's lending regulations and the Bank's instructions have some points that lack specific provisions, so when implementing, there are still problems, and there are many different interpretations that can easily lead to risks. Legal documents on mortgaged assets still have many shortcomings, especially in determining the ownership of assets used as mortgages.

The process of auctioning assets is the value of land use rights and assets attached to land is still complicated, the land is mortgaged but the bank cannot decide on its own but must seek the opinion of the local state management agency or file a lawsuit in court. The law has not yet issued full legal documents on the authority of the lender or the competent authority in auctioning mortgaged and pledged assets... There is no mechanism to force the borrower to hand over the secured assets to the bank for processing when unable to repay the debt. This leads to the situation where customers are slow to fulfill their debt repayment obligations and the bank has not yet recovered.

The statistical ordinance has so far revealed many shortcomings, due to the fact that businesses that violate the ordinance have not been strictly handled. The bank's lawsuit procedures are still cumbersome. The State Bank has not yet overcome the remote monitoring and on-site inspection (i.e. maintaining continuous analysis and monitoring activities via computer networks for all credit institutions in the banking system). On the other hand, like other commercial banks, banks are not used to exchanging information about customer situations with other banks due to competition, so up to now, the information system at the State Bank's credit center (CIC) has not met the needs of banks.

Second: Natural disasters, storms, floods, and epidemics frequently occur on a large scale in the local area, causing great damage to crops, property, and human lives, seriously affecting the business activities of farmers and individual business households, thereby greatly affecting the effectiveness of credit risk management at the branch. In addition, agricultural insurance activities are not yet developed, and implementation is still difficult and fragmented.

Third: Causes from the customer side

For customers who are businesses in the area, mainly small and medium enterprises, a common situation today is that businesses do not strictly comply with the financial reporting regime, they themselves do not see the importance of financial reports, so the preparation of financial reports sent to banks is not complete and in accordance with regulations. Financial reports sent to banks are of poor quality: shown in two aspects: lack of information and incorrect information. Lack of information will make it difficult for banks to analyze and evaluate the current situation of customers, bank staff must go to the business to verify the information, causing inconvenience and wasting time. In addition, very few businesses currently conduct financial report audits. Therefore, it is difficult for branches to detect errors in the implementation of accounting regimes of these businesses. As a result, credit decisions are sometimes inaccurate.

Causes from collateral: Collateral from branch loans is often real estate or means of transport. Risks of price fluctuations in the market, difficulty in selling assets, asset depreciation or change in status also cause credit risks for banks.

Chapter 4

SOLUTIONS TO IMPROVE CREDIT RISK MANAGEMENT ACTIVITIES AT THE BANK FOR AGRICULTURE AND RURAL DEVELOPMENT OF VIETNAM - THAI NGUYEN PROVINCE BRANCH

4.1. Orientation and goals of credit risk management at Agribank - Thai Nguyen Branch

4.1.1. Credit risk management objectives at Agribank - Thai Nguyen Branch

The goal of Agribank Thai Nguyen Branch is first of all to focus on improving the quality of human resources, building a team of cadres with good political qualities, high qualifications, scientific working style, mastering technology to build Agribank Thai Nguyen Branch into a modern bank, developing safely, sustainably, with high competitiveness, maintaining and gradually expanding market share, proactively balancing capital sources to increase local credit growth, serving well the task of developing the local economy - society, creating a strong enough financial foundation to meet the requirements in the new period. Ensuring jobs, stabilizing life and increasing income for employees - workers. Doing a good job in charity, social and humanitarian work.

- Capital increases by at least 18%/year, in which medium and long-term capital accounts for 20% or more

- Credit balance increases by 15%/year or more, in which medium and long-term balance accounts for 47% of total balance.

- Bad debt < 1%

To successfully implement the above strategic goals, Agribank Thai Nguyen Branch has identified the basic factors affecting success, which are:

- Market size

- Machinery, equipment, information technology modernization

- Qualifications of officers and employees in the Bank

- Target customers

Determining the above factors will help Agribank Thai Nguyen Branch expand its operations, improve credit quality in the Bank, thus best meeting customer requirements.

4.1.2. Credit risk management orientation at Agribank - Thai Nguyen Branch

Based on the socio-economic conditions in the area, the development trend of the bank and the direction of the Board of Directors and the Board of Directors of the Vietnam Bank for Agriculture and Rural Development, in the coming period, Agribank - Thai Nguyen Branch will continue to have comprehensive development in all areas of operation, aiming at the goal of "safe and effective" operation. In the coming time, Agribank's strategy for the period (2017-2020) and vision to 2025, strives to become one of the 20 modern banks with leading quality, efficiency and prestige in the Southeast Asia region. In which, Agribank - Thai Nguyen Branch especially focuses on the strategy of:

- Prioritizing credit quality over credit expansion: Agribank Thai Nguyen Branch needs to continue to shift investment direction, prioritizing credit provision to customers with reputation for the Bank, focusing on production and business households, small and medium enterprises, gradually capturing the market in densely populated areas...

- Complete the foundation and conditions to ensure effective risk management. First of all, it is necessary to establish a close relationship between the risk prevention information department and the credit department. The information system must be invested and modernized to match the requirements of risk management.

- Perfecting the strict credit risk monitoring and measurement process to improve efficiency and limit risks in credit activities. Banks need to develop regulations to review, analyze, and evaluate each loan, each customer group, and develop policy frameworks so that credit officers can handle their work flexibly. The principle of perfecting the credit risk monitoring and measurement process is to enhance prevention through information, strict control, and flexible delegation of handling authority.

- Improve the effectiveness of RRTD handling, focusing on handling outstanding debts and bad debts. Regularly check the implementation of debt classification in affiliated units according to the general regulations of Agribank and accurately reflect the current situation, fully implement the risk provisioning regime. Have a reward and punishment mechanism.

clearly and promptly to motivate and encourage staff while also limiting potential risks early.

- Continue to implement the restructuring project according to Agribank's overall plan, focusing on internal control, ensuring appropriate safety in banking activities in general and credit activities in particular.

In addition, in banking activities, there are types of risks: credit risk, market risk and operational risk. To achieve good business results, the Bank needs to orient itself to be able to control types of risks, including credit risk. In the coming time, Agribank - Thai Nguyen Branch will build an internal risk management model according to international standards Basel 2 from the organizational structure, operating model, policies, regulations, credit granting processes and credit risk management to build a credit risk measurement system according to the internal approach.

4.2. Solutions to improve credit risk activities at Agribank - Thai Nguyen Branch

4.2.1. Solutions to improve and enhance credit risk identification and analysis

Ensure the honesty, reliability and accuracy of information

Completing the work of identifying and analyzing credit risks can be considered a group of solutions that create a foundation and premise for the development of transparent and sustainable credit activities. First of all, it is necessary to deeply understand the decisive factor in warning and limiting risks for credit activities, which is credit appraisal and analysis. Credit risks start from careless and inaccurate credit analysis and appraisal, leading to wrong lending decisions. This is the key step to ensure credit risk limitation with the highest efficiency and least loss. The appraisal process needs to meet the requirements on the quality of analysis and time of making decisions, ensuring reasonable caution based on profit and risk analysis as well as meeting the requirements on customer service quality. To address these requirements, the content of credit appraisal and analysis needs to ensure the honesty and accuracy of information, especially information related to lending decisions.

Orientation and Objectives of Credit Risk Management at Agribank - Thai Nguyen Province Branch

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