Thang Long Branch, therefore the author's research topic does not overlap with previous studies. The above research works will be valuable references for the thesis. During the research process, the student focused on inheriting and selecting ideas related to the topic, aiming to learn more deeply, propose solutions to improve bad debt management more suitable to the actual conditions of Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch in particular and the entire system of Vietnam Joint Stock Commercial Bank for Industry and Trade in general.
3. Research objectives and tasks
- Systematize some theories on bad debt and bad debt management of commercial banks
- Analyze the current debt management situation at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch from 2017 to 2019.
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- Proposing solutions and recommendations to strengthen bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch from 2020 to 2025.
4. Research Objects and Scope
- Research object: Research thesis on QLNX at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch.
- Scope of research
+ Regarding the content: Within the scope of the master's thesis, the thesis focuses on researching bad debt management in credit activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch.
+About space: Research at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch
+ About time: The topic focuses on theoretical and practical research on bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch in the period of 2017 - 2019, proposed development solutions for the period of 2020 - 2025.
5. Research methods
The thesis uses the following research methods:
- Secondary data collection method
The author collected secondary information on the current status of credit activities, bad debts and bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch (credit regulations, policies and principles, reports on bad debts of the bank). The secondary information collection reflects the situation of bad debt developments of Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch from 2017 to 2019. The secondary information was collected by the author from the report on bad debt handling and risk provisions of Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch from 2017 to 2019.
- Data processing method
+ Synthesis method: data collected from bad debt and bad debt management to synthesize, create data tables, calculate absolute and relative numbers related to bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch in the period 2017 - 2019
+ Analysis method: Through the established data tables, analyze the fluctuation trends over time, thereby analyzing the advantages and limitations in bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch. Analyze the causes of existing limitations. From there, propose solutions to strengthen bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch.
+ Comparison method: Based on the collected data, compare the situation of bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch from 2017 to 2019 to clarify the results that the Bank has achieved in bad debt management activities and what the Branch has not done well in this activity. Compare by space, time; Compare by absolute numbers, relative numbers....
6. Structure of the research topic
In addition to the introduction, conclusion and list of references, the thesis is divided into 3 chapters:
Chapter 1: Theoretical basis of bad debt and bad debt management of commercial banks
trade
Chapter 2: Current status of bad debt management of joint stock commercial banks
Vietnam Industry and Trade - Thang Long Branch.
Chapter 3: Orientation and solutions to strengthen bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long Branch.
Chapter 1
THEORETICAL BASIS OF BAD DEBT AND BAD DEBT MANAGEMENT AT COMMERCIAL BANKS
1.1. Overview of bad debt and the impact of bad debt on commercial banks
1.1.1. Credit and credit risk of commercial banks
1.1.1.1. Commercial bank
Commercial banks have been formed, existed and developed for hundreds of years associated with the development of the commodity economy. The development of the commercial banking system has had a great and important impact on the development of the commodity economy. On the contrary, when the commodity economy develops strongly to its highest stage - the market economy, commercial banks are increasingly perfected and become indispensable financial institutions. Commercial banks play the role of brokers and intermediaries for the meeting between supply and demand of money through mobilizing temporarily idle capital from residents and organizations in society and then granting credit to individuals and organizations in need and providing banking services to the economy. Banking activities reflect the economic situation, the strength or weakness of the economy is clearly reflected through banking activities.
To determine the most accurate and general concept of commercial banks, people often have to rely on the nature and purpose of their operations in the financial market, and sometimes combine the nature, purpose and objects of operations.
According to Nguyen Van Tien: “A commercial bank is a special “enterprise”, operating in the field of monetary and credit. Its main activity is to mobilize capital from enterprises, idle capital from the population and use that capital for lending to get the interest rate difference. Lending activities reflect the relationship between one party being the lender and the other party being the borrower according to the current credit mechanism and law” [16]
According to Phan Thi Thu Ha, “Banks are financial institutions that offer the widest range of financial services – especially credit, savings and payment services – and perform the widest range of financial functions of any business firm in the economy” [4].
Article 04 of the Law on Credit Institutions 2017 (Law No. 17/2017/QH14) clearly states: “A bank is a type of credit institution that can perform all banking activities according to the provisions of this Law. According to the nature and objectives of operations, types of banks include commercial banks, policy banks, and cooperative banks”.[14]
“A commercial bank is a type of bank that carries out all banking activities and other business activities as prescribed by the Law on Credit Institutions with the aim of making profit” [14].
Thus, through some concepts of commercial banks, we can understand that commercial banks are a special type of enterprise that trades in currency with the goal of making profit, and it has the following characteristics:
- As a credit institution
- Is an organization authorized to receive public deposits with the responsibility to repay.
- Is an organization that is authorized to use public deposits to lend, discount and perform other financial services. This is different from a non-bank credit institution.
1.1.1.2. Commercial bank credit
Up to now, there are many different concepts of credit. According to the history of credit activities, the initial simple concept of credit is: "Credit is a borrowing relationship with the repayment of both principal and interest after a certain period of time, the agreement between the borrower and the lender on the loan amount, interest rate, term and method of repayment (one-time payment or installment payment)" [16]. But if only understood in this simple sense, credit only reflects a certain aspect, is still general in nature, and does not cover the whole of credit activities.
According to Nguyen Van Tien (2013), “ Credit is a form of credit granting, in which a credit institution transfers or commits to transfer to a customer a sum of money to be used for a specific purpose within a certain period of time according to the agreement with the principle of repayment of both principal and interest ” [16]. This is also the concept used in the thesis.
Thus, the lending relationship of commercial banks must satisfy the following characteristics:
It is a temporary value transfer relationship: The right to use capital is transferred to the user for a certain period of time, while the right to use capital belongs to the owner. That is, during the loan period, the lender has no right to claim and vice versa, when the loan expires, if the borrower does not pay, it will violate the law.
Ensuring repayment in time and value: This is the most basic characteristic of a credit relationship, meaning that when the loan term expires, the borrower must pay both principal and interest. Thereby, we affirm that credit is repayable but not equivalent (receiving a larger amount of money than the initial amount). This is the basic sign to recognize a credit relationship.
The credit relationship of commercial banks is built on the basis of trust between the lender and the borrower. It can be said that this is a prerequisite for establishing other lending relationships, because only with trust will they lend, here trust means that they will recover the debt with an amount of value greater than the initial value.
1.1.1.3. Risks in credit activities of commercial banks
Risk is the uncertainty related to the loss that will be incurred in the future. Risk is the unexpected events that when occurring lead to the loss of the bank's assets, a decrease in actual profits compared to the expected or having to spend an additional amount of money to be able to complete a certain financial transaction.
Banking activities always contain risk factors, especially and often credit risks. Credit risk, in its most basic concept, is the possibility that a customer receiving a loan will not perform or not fully perform its obligations to the bank, causing losses to the bank, that is, the possibility that the customer will not pay, not fully pay, on time both principal and interest to the bank. There are many definitions from different perspectives of credit risk.
According to Nguyen Van Tien (2013), "Bank credit risk is the potential loss to the debt of a credit institution or foreign bank branch due to the customer's failure to perform or inability to perform part or all of his/her obligations as committed" [16].
Thus, credit risk arises when one or more parties in a loan contract are unable to pay the other parties. A commercial bank is a financial intermediary that performs the business of borrowing money from one party to lend to another. Thus, credit risk for banks comes from both the lender and the borrower. In addition, credit risk is manifested by a high rate of overdue debt. In countries where this rate is up to 5% of total outstanding debt, it is considered alarming.
1.1.2. Concept and nature of bad debt of commercial banks
1.1.2.1. Concept
- According to the Central Bank of the European Union, bad debt in commercial banks includes:
+ Irrecoverable debt, including:
Expired debts or debts with no basis for debt compensation;
The debtor is in hiding or missing, with no assets left to pay the debt;
Debts for which the bank cannot contact the debtor or cannot find the debtor;
Debts in which the debtor ceases business operations, liquidates assets or suffers business losses and the remaining assets are not sufficient to repay the debt;
+ Debt can be collected but not fully paid to the bank.
These are debts that are not secured by collateral or the collateral is not sufficient to repay the debt. The debtor does not contact the bank to pay the interest or principal within the payment period, or circumstances indicate that the debt will not be fully recoverable, such as: Debts that the debtor has agreed to pay in the past, but the remaining amount cannot be compensated, or debts in which assets are transferred for payment but the remaining value is not enough to cover the entire debt; Debts that the debtor has difficulty paying and requests a debt extension but cannot compensate within the agreed time; Debts in which the collateral is not sufficient to repay the debt or the collateral at the bank is not legally accepted, resulting in the debtor being unable to repay the bank in full; Debts in which the Court declares the debtor bankrupt but the compensation is less than the outstanding debt [29].
- According to the concept of bad debt of the International Monetary Fund (IMF):
In its Guidelines for Calculating Financial Soundness Indicators for Countries (IFRS)2, the IMF defines non-performing loans as follows: “A loan is considered non-performing when payments of principal or interest are past due by 90 days or more; when interest payments that are past due by 90 days or more have been capitalized, restructured, or delayed by agreement; when payments are less than 90 days past due but there are clear signs that the borrower will not be able to repay the loan in full (borrower bankruptcy). After a loan is classified as non-performing until the time when the loan must be written off or the principal and interest on the loan are recovered or a replacement loan is recovered [30].
- According to the Basel Committee:
A debt is considered to be in default (bad debt) when one or both of the following conditions occur: (i) the bank finds that the borrower is unable to repay the debt in full when the bank has not taken any action to attempt to recover it, such as foreclosing on securities (if held); (ii) the borrower is more than 90 days past due on the debt.
- In Vietnam ,
Currently, the concept of bad debt according to the regulations on debt classification, provisioning and use of reserves, to handle credit risks in banking activities of credit institutions, issued under Circular No. 02/2013/TT-NHNN dated January 21, 2013 of the Governor of the State Bank of Vietnam and has some amendments in Circular No. 09/2014/TT-NHNN dated March 18, 2014 of the Governor of the State Bank of Vietnam. Accordingly, bad debt is defined as follows:
“Bad debt is debt belonging to the following groups: group 3 (substandard debt), group 4 (doubtful debt), group 5 (debt with potential loss of capital)”
Debt group 3 (Substandard debt), group 4 (Doubtful debt) and group 5 (Debt with potential loss of capital) mentioned above, specifically regulated according to Clause 1, Article 10 of Circular 02/2013/TT-NHNN and Circular 09/2014/TT-NHNN as follows:
+ Group 3 (Substandard debt) includes:
Debts overdue from 91 days to 180 days; Debts with first-time debt extension;