Problems and Causes of Problems in the Credit Cycle.

activities between individuals and departments to meet the requirements of quick work processing, time saving, high efficiency and high accuracy.

Thanks to the application of strict control procedures in lending activities, implementation of inspection and control in each stage, and multi-round inspection and control, risks have been minimized.

Vietinbank Lam Dong's internal inspection and control activities comply with three basic principles: the principle of assignment and division of tasks; the principle of non-concurrent holding; and the principle of authorization and approval. Specifically, the principles are expressed in the control procedures:

- Division of responsibilities according to the principle of division of labor and the principle of non-concurrent holding of responsibilities:

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The division of responsibilities for control activities is carried out by the Branch in accordance with the prescribed procedures. The division of responsibilities is specifically and clearly stated in each document, dispatch, and policy of the Central Bank. The responsibilities of the officers, the Science and Technology Department, the Risk Management Department, and the Board of Directors are clearly separated, do not overlap, and ensure that no individual or department holds multiple functions and tasks in the same inspection and control process, ensuring independence in the work of each department, division, unit, and individual.

- Delegate the authority to approve transactions appropriately: the delegation of authority to approve transactions is carried out based on discussions in the Branch's board meeting. The authorization of approval is based on the regulations of the State Bank and is based on the principle of ensuring the independence and professional capacity of the authorized person. The authorization of approval to the Branch's Board of Directors is stipulated by the General Director of the bank in each specific period. The authorization authority under the authority of the branch director is decided and considered by the branch's board of directors for reasonableness. For example: the deputy head of the corporate customer department is authorized to approve when the head of the department is absent; the deputy director is authorized to approve credit granting when the director is absent.

- Documents and books must be complete: documents and books must always be complete, reasonable, legal and valid. With the use of modern software, especially the program

ECM, iCdoc... have supported the storage, circulation of documents, and management and control of electronic documents throughout the system to take place quickly and effectively. Thereby contributing to ensuring the strictness and completeness of documents and archived documents to avoid loss, save storage costs, and make them easy to access and search. In addition, it is also controlled by multiple layers on the system to minimize errors. Ensure documents and records are always complete, legal, and valid.

- Physical control of assets and books: through modern financial management software ERP and other programs, assets, materials, and financial issues of the NHCT system, from branches and departments to the Head Office, are publicly transparent, detailed in each item, regularly checked and controlled, synchronously and scientifically throughout the system.

3.2. Problems and causes leading to problems in the credit cycle.

3.2.1. Existing problems:

Credit granting organization structure: The organization structure of the unit is gradually changing to suit the new credit granting model. However, the organizational structure transformation is not really fast, stable, and appropriate. Some officers and employees are not appointed to the right position, so they have not yet fully developed their capacity.

Regarding human resources: Although human resources policy is always a top priority for the management, improving the qualifications of staff, especially credit officers, has not been very effective. Practical measures to encourage, motivate, and maximize the capacity of staff have not been really focused on and cared for by the Branch. Currently, the branch is in the process of completing the conversion of the control model to the new Basel II model, applying many modern technologies, so staff have not had time to adapt, have not mastered the changes, and lack experience, so it is very difficult to perform the work.

About the system of documents and regulations:

- Because the model conversion is in the process of completion, NHCT has issued many new regulations applicable to converted and unconverted branches, causing overlap between the new and the old. Which documents and regulations should be applied?

Which… staff do not understand clearly, creating many mistakes, wasting time fixing and searching.

- Some regulations in the lending process are quite complicated, troublesome, unnecessary and not really flexible: For example, for some customers' collateral assets, although they are appraised and valued by officers and credit authorities, the process requires a third party to appraise and value them or must be transferred to Vietinbank's ACM for appraisal and valuation, causing difficulties and wasting time for customers as well as the bank. In terms of the bank, after appraisal and valuation, although only 50% of the asset value is lent (at a low risk level), the safety of the capital source is guaranteed but it is not approved. In addition, if the bank hires an independent organization to appraise and value them, it will cost more, reducing the branch's profits. For customers, in the condition of lacking production capital, need to borrow from the bank but have to pay in advance a cost of valuation, appraisal of collateral assets, on the other hand, when spending this large cost, it is not certain to get benefits, so this is a very difficult problem for customers.

On loan control activities:

To shorten the time for lending, there are still some CBQHKH who do not follow the lending process correctly. For example, notifying customers is not done at the Branch, the notification method is mainly by phone or direct meeting. Such notification saves time but is legally wrong and will affect the credit quality of the Branch. Some credit officers after disbursement do not immediately scan and store the records on ICdoc but synthesize many disbursement records for many times before performing this operation. Some credit officers have customers sign the cash withdrawal form, payment order before sending the records to the accounting department for transaction. Although this problem does not greatly affect credit control, it is the basis for many unexpected risks, affecting the reputation and credit quality of the Branch.

Regarding the application procedure, the branch requires complete documents to be allowed to grant credit. However, in some cases, customers do not have complete documents, causing difficulties for the bank in the approval process.

The work of checking and controlling the use of capital by customers after disbursement is not timely or faces many difficulties in practice. Credit officers and risk officers are taking this work lightly, not performing on schedule, possibly behind schedule, or when performing, customers cause difficulties, do not cooperate, customers use sophisticated cover-up measures, so it does not bring timely results of inspection and control to have remedial measures when there are risks.

In the process of handling collateral to recover capital, there are many difficulties due to the long time, leading to many costs. According to regulations, collateral can be handled through litigation, but in reality, litigation is very slow and time-consuming, leading to slow capital recovery by the bank, slow capital turnover, and reduced business efficiency.

Although the appraisal of collateral is carried out in a very systematic and procedural manner, in some cases, the appraisal staff lacks experience, leading to incorrect valuation and assessment of collateral, which can be lower than the actual value or higher, affecting the credit granting work. The appraisal work mainly uses market prices, which are safe and have lower risks but are not flexible, leading to low lending levels and limits, reducing the potential profits of the Branch. Appraisal and valuation of collateral often carry the subjective opinions of credit officers and appraisal teams, so errors and risks can easily occur when lending.

3.2.2. Cause:

- Reasons from the customer side:

In the current period, the domestic and international economic situation as well as the local economy are extremely complicated. Economic activities in all fields, especially the banking and finance sector, are facing difficulties, making the credit control work of Vietinbank Lam Dong face many difficulties: increasing inflation, unstable fluctuations of the real estate market affecting the valuation of collateral, many businesses are operating at a loss, increasing bad debt, and difficult to collect debts...

Direct causes from customers: moral hazard, business losses, poor operations and management; concealment of facts, dishonest reporting, misuse of capital, some customers intentionally defrauding...

Asymmetric information: when making loans, the bank is at a disadvantage because the information collected is provided by the customer, or collected from other information channels, leading to information for decision making that may contain many errors, risks, or be falsified. On the other hand, the customer always tries to provide the most beneficial information for themselves to be approved for a loan.

- Reason from the Branch:

Branches do not have specialized tools, specific and practical models to assess risks and measure expected losses, and appraisal opinions are often subjective. The appraisal of financial status through customer-provided information often contains many risks, and documents are often incomplete, so it is difficult for appraisal officers to synthesize and cover the customer's situation, leading to many subjective and one-sided opinions.

Some credit officers have not properly implemented the lending procedures, processes, and regulations of the Branch and the Central Bank, making credit granting risky.

The work pressure on officers and employees performing the lending process is very high, affecting the quality of work performance, leading to errors and risks in the process of granting credit and making lending decisions.

Ethical hazard: some cases of staff taking advantage of their positions to intentionally facilitate the granting of credit to familiar customers.

Due to the lack of market understanding and information by employees during the control process, it affects the appraisal and decision-making process, creating great potential risks in loans.

Due to uneven professional qualifications of staff, some staff lack experience and have not received specialized training.

The work of controlling the use of capital after lending has not received due attention. Some risk management officers ignore it, do not implement it or implement it carelessly, or due to lack of information, draw incorrect conclusions.

3.3. Evaluate the implementation of regulations and control procedures by bank staff.

- Corporate customer service staff:

- Department leader: The head of the corporate customer department, in addition to performing the functions of a department head, also concurrently holds the function of customer relations, which creates great work pressure for the head of the department. However, the inspection and approval work is always performed well and strictly by the head of the department. In some cases, the head of the department can authorize the deputy head of the corporate customer department to perform the work to reduce pressure and improve work efficiency. The deputy head of the corporate customer department is also an officer who has worked for many years in the field of banking credit, so it can be said that he has extensive experience in inspection and control activities. In addition to the function of reviewing, inspecting and controlling, the head of the department also guides and instructs subordinates to complete documents, edit documents, and perform analysis and appraisal work. A gentle working spirit and attitude, both directing and deterring, encouraging and motivating, supporting and guiding employees carefully and enthusiastically, especially some young employees lacking experience in all fields, creating comfort, reducing occupational pressure, helping to improve work quality.

- Customer relations officers: Customer relations officers always try to find markets and do marketing to find new customers for the bank. The attitude of the officers towards customers is very gentle and friendly, making customers feel comfortable and receive maximum support from the bank. The officers work with principles, rules, independence and impartiality, thus creating trust and a good impression for customers. However, in some cases, the officers are not really quick in contact work, and the work of building ideology compared to other banks in the area is still weak.

- Analysis staff: Although risk analysis has been focused on by the Corporate Banking Department and Branches, there are still many weaknesses. Risk analysis staff do not have much experience in this field. Analysis often requires consultation and guidance from department leaders. Some staff do not collect information from many different sources to make the information more abundant and detailed, but only rely on information on the State Bank's CIC and information provided by customers, along with some other sources to evaluate and give opinions, so the results are often subjective, one-sided, and contain many risks.

- Appraisal staff: This work is performed quite well by an experienced employee with a high sense of responsibility in the work. Therefore, it can be said that the appraisal work is always guaranteed to follow the correct process, correct policy procedures, the appraisal results are highly accurate, and contain few risks.

- Credit file processing staff: Some credit file processing staff are still negligent and careless in the steps. Especially for disbursement files and documents, the work of storing files on the system and software is not done continuously according to the process: some files and documents after disbursement are not scanned and stored immediately but are only done at the end of the week or when necessary; credit contracts and guarantee contracts are often drafted by staff without documents, drafted according to a stereotyped template, without variation or editing to suit each case, so when submitted for signing and approval, they are often returned, wasting time to redo and delaying the work. Staff applying information technology and office informatics in drafting documents is not really good, not quick, leading to time wasted in preparing and editing loan files.

- Risk management department staff:

The performance of risk management staff can be assessed as follows:

after:

- The method of performing the work of checking and controlling records is still subjective.

Instruct staff of the Business Planning Department to draft documents more than checking and reviewing.

- The checking and censoring of appraisal and analysis reports of the Business Planning Department is very strict. Officers review each item and each word to find errors, and compare the information on the reports with related documents in great detail.

- Controlling the use of loans is not really good, officers only rely on the information provided by customers to evaluate, rarely going to the field to survey. For some prestigious customers in the market, officers and employees also guide them on how to provide information to give appropriate control results.

- Cash disbursement control is very strict. Customers must present sufficient documents to prove that cash disbursement is reasonable and in accordance with regulations.

The new Risk Management Department staff will approve the cash disbursement, any errors or unreasonable cases will be immediately rejected.

- Director, deputy director:

- Directors and deputy directors do not always perform all tasks carefully. In some cases, due to high work pressure, directors and deputy directors may sign approvals without carefully reviewing documents and records, only relying on the trust of subordinates to approve and make decisions, leading to some errors not occurring.

- The Director is often absent, traveling to many places, authorizing the Deputy Director to perform work, so in some cases beyond the authority of the Deputy Director, the work is delayed, and new procedures must be performed. On the other hand, there are some areas where the Deputy Director may not be specialized or have much experience, leading to some unexpected errors.

- The Director and Deputy Director have not clearly expressed their management philosophy to all staff, so some employees do not grasp it and may perform work in the wrong direction, spending more time correcting and overcoming errors.

- Sometimes the board of directors is too strict at work, creating stress and putting great pressure on staff, affecting their work efficiency.

- Administrative staff:

Administrative staff are very responsible for keeping records and seals. Staff who store seals and perform stamping tasks are assigned separately from other departments. The review and stamping work are carried out separately, so in some cases, errors and fraud can easily occur. Administrative staff do not have the following knowledge about professional operations in the lending field, so when stamping, they do not recognize documents and papers that are falsified or fake. At the same time, staff do not perform checks and controls when stamping. Although no fraud has occurred, this is an opportunity for other officers and employees to commit fraud, falsify documents, ignore errors, and not edit as required.

- Transaction accounting staff:

- Accounting and transaction work requires high precision to limit all risks, so transaction office staff always perform their work with high spirit and attitude.

strictly in every step. Officers and employees always promote caution, independence, and proper and sufficient implementation according to the procedures and policies of the Branch as well as of the Central Bank. The work is quite stressful and the workload is large, so the employees are always highly focused and have a high sense of responsibility. But in some cases, the employees cannot stand the pressure of work, some young employees do not have experience in performing the job, so mistakes are inevitable. However, the mistakes are always corrected promptly to avoid the stagnation of transactions, which upsets customers and reduces the reputation of the Branch. That is thanks to the employees with a high sense of responsibility, the harmony and solidarity among the employees, helping each other to perform the work. On the other hand, thanks to the wisdom and flexibility in directing, arranging personnel suitable to their qualifications and abilities, arranging employees to correct mistakes, thus preventing as much as possible errors and risks from occurring in all jobs.

3.4. Some solutions to contribute to improving the internal control system of lending activities at Vietin Bank Lam Dong:

3.4.1. Development orientation and development strategy of Vietinbank Lam Dong in the coming time.

In 2014, it is expected that there will be many difficulties and challenges for the Vietnamese economy in general and the banking industry in particular. With experience in leading and directing the bank's operations, while closely following the policies of the Government, the State Bank of Vietnam, the State Bank in the area and the Vietnam Joint Stock Commercial Bank for Industry and Trade, together with the direction of the locality, the Lam Dong branch of the Joint Stock Commercial Bank for Industry and Trade will strive to promote its strengths and achievements, constantly innovate, seek opportunities in challenges, develop sustainably, dominate the market, and be determined to achieve the following goals:

Mobilized capital reached 2,000 billion VND.

Outstanding loans of the economy reached 2,400 billion VND.

Recovery of handled debt reached 12,300 million VND

Banking service revenue reached 12,500 billion VND

Profit reached 61,534 million VND. Of which profit from business activities was 50,954 million VND.

In order to implement the set plan, the Joint Stock Commercial Bank for Industry and Trade - Lam Dong Branch implements the following specific tasks:

- Capital mobilization activities: Vietinbank Lam Dong continues to promote growth in all capital mobilization sources. Strengthen capital mobilization of all domestic and foreign currency sources, within the area and outside the area, especially focusing on mobilizing stable capital sources from residents and organizations. Implement policies and products in a timely manner, manage interest rates appropriately and closely to the market. Attract and exploit traditional customers with large deposits, long-term international capital sources to maintain and increase capital sources to balance lending activities. Promote capital restructuring towards increasing long-term and stable capital sources. Understand the characteristics and market developments in the area of operation to proactively deploy effective capital mobilization products, flexibly apply cross-selling products, capital mobilization products to create a difference in deposits.

- Credit activities:

Vietinbank Lam Dong strives to increase credit growth with quality, efficiency and sustainability. The branch continues to increase credit, especially short-term credit, credit for key industries, priority areas for encouragement; regularly grasp information on economic forecasts, capital markets in the area, improve the quality of analysis, assessment, and forecasting to have clear credit orientation for each customer, product group, and industry; expand credit and banking services in customer groups; improve the quality of customer appraisal, project appraisal, loan plans, strengthen customer management, regularly monitor, classify, and evaluate production and business activities, financial capacity of customers to promptly reduce outstanding debt for customers with reduced ability to repay. Further improve management and operation capacity, tighten credit discipline, focus on inspection, control, and supervision of credit risks and operational risks, minimize group 2 debt and arising bad debt, actively handle asset sales to recover debt, and handle outstanding bad debt.

Foreign exchange business activities: The branch will focus on implementing long-term business goals and orientations to continue improving its foreign exchange market share.

Branches, synchronously deploy marketing plans for foreign exchange products; expand cooperation with customers inside and outside the area, export customers, customers with foreign currency revenue to enhance the ability to exploit and meet customers' foreign currency needs; develop new investment banking and currency trading services such as currency derivatives, interest rates, exchange rates to maximize investment opportunities and minimize risks.

- Service fee collection activities:

Domestic payment activities: The branch continues to implement solutions to ensure the safety of payment activities, implement management, monitoring, inspection/control mechanisms for payment services at the Head Office and transaction offices; promptly update and prepare machinery and equipment to improve application utilities to support users, enhance automatic processing capabilities... to expand and ensure the quality of payment transactions; deploy new payment products; expand the customer base, distribution channels and market share of the branch's payment services.

International payment and trade finance activities: The branch tries to change the customer structure, select and focus on low-risk industries and fields, innovate mechanisms, deploy trade information in the direction of modern banking, based on the assessment of goods flow and cash flow, breaking away from traditional credit thinking under the direction of the State Bank.

Card services: The branch continues to maintain market share in all card business segments, promoting research and implementation of new card projects and technologies, pioneering in keeping up with the technological trends of the Bank. Improving and enhancing the quality of card products and services to create differentiation through quality and added value, especially developing new card products and services with superior utility features. Building and implementing marketing programs to promote the brand and attract more customers to use Vietinbank's card products and services.

3.4.2. Difficulties of Vietinbank Lam Dong in the coming time.

Overcoming the general difficulties of the economy as well as the bank, under the direction of the Joint Stock Commercial Bank for Industry and Trade and its branches, in 2013

The industrial and commercial banks have achieved certain results. However, there are still some problems and difficulties that need to be overcome in the coming period:

- Operating market share: is a large commercial bank with prestige and traditional brand, but the market share of the Branch as of December 31, 2013 and mobilized capital accounted for about 1700/21,541 billion VND) and outstanding loans accounted for (1600/26,757 billion VND) in the area. This year's market share compared to last year in terms of capital increased by 0.64%, but lending activities decreased by 0.35% compared to last year. Thus, in general, the market share of Vietinbank Lam Dong Branch compared to other local banks is still low, this is a key issue that needs to be promoted for growth next year to achieve the set targets.

- In the appraisal and investment lending work, the reception and processing of information is sometimes not timely and inaccurate, leading to low investment decisions, bad debts, and the need to set aside risk provisions, affecting business results.

- Customer care, marketing, advertising, increasing capital mobilization, promoting lending, cross-selling products and services, and developing operating networks to increase market share have received attention in the past year but have not yet met the requirements. This is a core point that needs to be overcome in the coming year.

- Credit quality is uneven, the ratio of medium and long-term loans is still high, restructuring of loan portfolio is slow, in some departments bad debt and potentially risky debt still has the risk of arising, and credit management for customers with weak business performance is not resolute.

- The service revenue/total income ratio is still low because there are too many competing banks in the area. Although the branch has paid attention and focused on this, it has not yet met expectations, especially revenue from lending, trade finance and remittances.

3.4.3. Complete solutions.

Based on the current business situation, internal control and future directions of the Branch, I would like to propose some of the following solutions to contribute to improving the internal control system in general and the internal control activities of the lending process for corporate customers in particular.

- Perfecting lending policy:

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