Research on Bad Debt and Factors Affecting Bad Debt

This study has drawn conclusions about the limitations: the credit risk management strategy is not comprehensive, the credit risk management model is not suitable, the credit granting process is still inadequate, the credit risk measurement system is not synchronized, there is a situation of credit concentration in some industries and customer groups, the bank has not built a system to monitor and warn early credit risks. The above situation leads to the fact that Vietnam Joint Stock Commercial Bank for Industry and Trade easily encounters credit risks. The causes leading to the limitations in credit risk management activities at the bank: there is no specific direction and strategy for the bank's risk management, the bank has not focused on developing risk quantification measures and credit monitoring processes, the risk management department's staff is limited, the level of credit decision authorization for branches is high, inspection and supervision activities have not been given due attention. In short, credit risk is a major cause of bad debt in banks.

Nguyen Tuan Anh (Credit risk management of the Bank for Agriculture and Rural Development of Vietnam, 2012) believes that credit risk management of banks is very important. The thesis has proposed a credit risk management model according to the rules and standards of modern banks to meet the requirements of stable and sustainable development of the Vietnamese banking industry; and a model for measuring current and future risks, thereby building a customer scoring and ranking system according to international standards. Approaching the credit risk management standards according to the BASEL Committee, combined with Vietnamese standards, the thesis has provided a complete system of qualitative and quantitative criteria to evaluate the effectiveness of credit risk management of commercial banks in Vietnam - something that previous studies in Vietnam have not fully provided. At the same time, the thesis recommends the risk provisioning ratio of the Vietnam Bank for Agriculture and Rural Development as well as the proposal to emphasize that the Vietnam Bank for Agriculture and Rural Development needs to quickly change the credit risk management model, establish a risk management committee, reassign the functions and tasks of each unit, and build a reporting system according to international standards. On the other hand, the thesis also makes a number of recommendations to the State, the State Bank and a number of relevant ministries and branches to focus on perfecting the legal environment, specifically the certification of land use rights in localities, amending the Land Law, regulations on handling asset auctions, amending Decision 493 of the State Bank, switching to using indirect tools in monetary policy management and reducing administrative measures in the management of the State Bank.

1.1.1.2 Studies on bad debt and factors affecting bad debt

There are many researchers in the world and in the country discussing bad debt and factors affecting bad debt. Here are some typical works:

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Mohd Zaini Abd Karim, Sok-Gee Chan, Sallahudin Hassan (Bank efficiency and non-performing loans: evidence from Malaysia and Singapo, 2010) propose to investigate the relationship between non-performing and non-performing loans and their impact on NPLs. To achieve the objective, cost efficiency is estimated using the stochastic cost frontier approach of the Greene (1990) efficiency feedback model. The cost efficiency scores are then used in the second stage of simultaneous equation Tobit regression to determine the efficiency of non-performing loans. The results show that there is a significant difference in the cost efficiency of banks. The simultaneous equation Tobit regression results also clearly indicate that: higher loan does not reduce the cost efficiency. This result also supports the poor governance hypothesis proposed by Berger and De Young (1992) that poor governance results in bank organizational performance and thus escalates the level of bad debt.

Raphael Espinoza and Ananthakrishnan (Nonperforming Loans in the GCC Banking System and their Macroeconomic Effects, 2010) argue that nonperforming loans have a broad impact on the banking systems of the GCC countries. The study shows that: under an electronic control system, from 1995-2008 with about 80 banks in the GCC region: the increase in the nonperforming loan ratio along with the development of the economy is pushing the interest rate, the risk increases significantly. This model implies that: the cumulative impact of long-term macroeconomic shocks over a three-year period is indeed large. Industry-specific factors related to risk and efficiency are also related to future nonperforming loans. The study also investigates the feedback effect of increasing nonperforming loan ratio on growth using a VAR (vector autoregressive) model. According to VAR the dashboard may be an important issue, although the short-lived feedback effect of losses on banks' balance sheets on economic activity.

Nguyen Thi Thu Dong (Improving credit quality at Joint Stock Commercial Bank for Foreign Trade of Vietnam in the integration process, 2012) has put forward the concept of bank credit quality according to international standards. In addition, she has also been very successful in applying the logistic regression model to test the model and research hypothesis in the analysis of factors affecting the credit rating of corporate customers at the Bank for Foreign Trade of Vietnam. The study proposes the possibility of applying the above model in improving credit quality at the bank. However, there is still a limitation that it has not clearly specified the method to build a system to monitor the structure and quality of credit investment portfolios.

Roland Beck, Petr Jakubik and Anamaria Piloiu (Non-Performing loans What matterSin addition to the economic cycle, 2013) argue that non-performing loans always go hand in hand with the economic cycle. This study analyzes the macroeconomic factors of non-performing loans across 75 countries over the past decade. The factors that significantly affect non-performing loans are: real GDP growth, stock prices, exchange rates and lending rates. These

This result is reliable to alternative econometric specifications.

Alwyn Jordan and Carisma Tucke (Assessing the Impact of Nonperforming Loans on Economic Growth in The Bahamas, 2013) argue that economic growth leads to a reduction in nonperforming loans. This study examines the extent to which economic output and other variables affect nonperforming loans in the Bahamas using a vector model. It also seeks to determine whether there is a feedback effect from nonperforming loans to economic growth. The data used in this study spans the period from September 2002 to December 2011. The main results show that economic growth leads to a reduction in nonperforming loans, and there is a small but significant feedback effect from nonperforming loans to output.

Rabeya Sultana Lata (Non-Performing Loan and Profitability: The Case of State Owned Commercial Banks in Bangladesh, 2015) argues that non-performing loans affect profitability in commercial banks in Bangladesh. This study explores a series of issues: non-performing loans, growth, regulation and banking relationships by using some ratios and linear regression models of econometric techniques. The representative study results from 2006 - 2013 show that: the non-performing loan ratio of state-owned commercial banks is very high (accounting for more than 50% of the total non-performing loans of the banking sector) in the past 8 years.

Moh Benny Alexandri and Teguh Iman Santoso (Non Performing Loan: Impact of Internal and External Factor: Evidence in Indonesia, 2015) argue that bad debt affects endogenous and exogenous factors. This study examines the influence of domestic and foreign banks on the level of bad debt in Indonesian development banks. This is a quantitative study using panel regression analysis data for the period 2009 - 2013. The research subjects include 26 banks. The influencing factors are: safety ratio - CAR, efficiency level - ROA, growth rate of gross domestic product - GDP and inflation rate. The prediction model used is Random Effects Model - REM panel data model. The results of this study conclude that: the efficiency level of banks will reduce the level of bad debt.

Nguyen Thi Hong Vinh (Bad debt of the Vietnamese Commercial Banking system, 2017) used GMM dynamic panel data estimation to assess the influencing factors as well as the impact of bad debt at commercial banks in the period 2005 - 2015. The thesis has contributed to the theory and the relationship between bad debt and specific factors, industries as well as macroeconomic factors of emerging countries like Vietnam. In addition, the thesis provides empirical evidence on the existence of factors affecting bad debt as well as the consequences of bad debt for the Vietnamese banking system. However, the study still has some limitations: (i) not accessing the source of bad debt documents of each Vietnamese commercial bank from the Inspection and Supervision agency or organizations;

international organizations to more accurately assess the bad debt situation of Vietnamese commercial banks. The study also has not yet collected specific bad debts of each bank sold to VAMC over the years 2013-2015 to clarify the nature of bad debts of Vietnamese commercial banks;

(ii) Systemic bad debt of Vietnamese commercial banks is affected by other factors such as cross-ownership structure between banks, but the thesis has not mentioned it due to lack of access to data sources.

1.1.1.3 Research on bad debt management of commercial banks

Nguyen Thi Hoai Phuong (Bad debt management at Vietnamese commercial banks, 2012) believes that bad debt always exists with the development of commercial banks, so it is necessary to manage bad debt at Vietnamese commercial banks. The thesis studies the content of bad debt management according to the approach of the Banking and Finance major and according to the 4-step bad debt management process, proving that only when bad debt is recognized and measured accurately, banks can manage it effectively. Therefore, in the bad debt management process, it is necessary to supplement the method of measuring bad debt. Banks must estimate the probability of default of the loan, thereby determining with what probability of default it is considered bad debt. Banks must develop a process and organize the measurement of bad debt losses, in order to have appropriate prevention and handling methods, and must calculate EL: expected loss and UL: unexpected loss through 3 basic risk components (PD: Loan default probability, LGD: Loss level when default, EAD: Loan balance). The study proposes classifying debt into 10 groups, corresponding to 10 levels of loss provisioning from 0% to 100%; and affirms that the overall credit risk management model is an effective model in managing bad debt for Vietnamese commercial banks. Unlike previous studies that only large banks with strong financial potential can apply this model. The study has demonstrated that Vietnamese commercial banks with small scale of operation and weak financial capacity can still apply the model, based on building technological, information and management links to ensure meeting the operating conditions of the model.

Nguyen Thi Thu Cuc (Bad debt management at the Bank for Agriculture and Rural Development of Vietnam, 2015) believes that bad debt management is very necessary for agricultural banks - which account for the majority of Vietnam's economic market share . Research on bad debt management from the perspective of the Banking and Finance major and the content of bad debt management of commercial banks according to the 4-step process has concluded: The goal of bad debt management is to control bad debt at a level that the bank can accept on the basis of balancing the risks and expected profits of the bank in each period. Bad debt management must always aim at controlling the bad debt ratio at a reasonable level to ensure safety in the business operations of each commercial bank through a system of

policies, measures and management tools of each bank. The thesis has established criteria for evaluating the bad debt management of commercial banks and analyzed factors affecting bad debt management as a basis for a practical survey. The bad debt management process at Agribank still has shortcomings such as: the identification, measurement and assessment of bad debt is inaccurate, not updated, not in line with international practices, leading to bad debt not reflecting the true risk nature of the debt, risk provisions are not sufficient; the detection, monitoring and prevention of bad debt are not timely, not highly effective, the risk management model still has many shortcomings; the bad debt handling is slow, not really effective, and risks and losses have not been completely handled. The thesis has clearly analyzed the causes of the limitations of the bad debt management process at Agribank, including 6 objective causes and 7 subjective causes. Based on the viewpoint and objectives of bad debt management at Agribank, the thesis proposes solutions to strengthen bad debt management at Agibank in the coming time such as: Completing the strategy and model of credit risk management, reorganizing the credit risk management apparatus; Completing the identification, assessment and classification of bad debts; Improving the effectiveness of bad debt handling measures of the bank; Improving the quality of human resources associated with professional ethics education; Focusing on sustainable credit growth.

Tran Thi Thanh Diep (Bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade, 2017), Master's thesis, National Economics University. The thesis uses desk research method to collect data and information for the research process. The research only stops at the general perspective of studying the bad debt management activities of Vietnam Joint Stock Commercial Bank for Industry and Trade in the period of 2014-2016.

1.1.2 Research gaps and scientific and practical values inherited from the thesis

1.1.2.1 Research gap

Through an overview of research works by domestic and foreign authors, the researcher draws the following conclusions:

Firstly, overseas research projects are conducted in highly developed economies and banking sectors. There, market conditions, management models, legal corridors governing the economy and internal conditions of banks are very different from the characteristics of the current Vietnamese economy and commercial banking system.

Second, some domestic research projects conducted in previous periods (the works of Nguyen Duc Tu (2012) and Nguyen Thi Hoai Phuong (2012) on RRTD/QLNX management): old data information, while the business environment, legal policies, and management level have changed. Although,

Past research, however elaborate and serious, may have practical value at the time of publication, but may no longer be entirely relevant to the current context.

Third , most of the published studies approach from the perspective of Finance - Banking (studying the process of managing RRTD/QTNX from the stage of identifying, measuring risks, classifying to handling bad debts), not studying from the perspective of Economic Management (studying management content according to management functions: (1) Developing and promulgating policies, strategies for bad debt management and bad debt management processes; (2) Model of organization of bad debt management apparatus; (3) Organizing and implementing bad debt management activities).

Thus, it can be affirmed that in published studies, there are very few comprehensive studies on bad debt management in credit activities of Vietnam Joint Stock Commercial Bank for Industry and Trade according to management functions (Issuing policies, strategies, bad debt management processes; Organizational model of bad debt management apparatus; Organizing implementation of bad debt management activities) in the most recent period (2012-2018).

From the above comments, the thesis author believes that there are some following gaps:

This has suggested the author to research in order to carry out his thesis topic well:

- Theory on content, evaluation criteria and factors affecting the quality management of a commercial bank according to the approach of economic management.

- Current status of bad debt and bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade (current status of building and promulgating bad debt management policies, strategies and processes; current status of choosing bad debt management organizational model; current status of organizing and implementing bad debt management activities) in the period 2012-2018.

- Solutions to improve and enhance bad debt management of Joint Stock Commercial Bank for Industry and Trade

love Vietnam

1.1.2.2 The scientific and practical values of the thesis are inherited

During the research process of the thesis topic, the researcher consulted and developed some theories on bad debt and credit risk management of commercial banks; referred to information sources and data drawn from the research of Nguyen Duc Tu with the thesis on Credit Risk Management at Vietnam Joint Stock Commercial Bank for Industry and Trade, 2012; of Tran Thi Thanh Diep with her master's thesis on Bad Debt Management at Vietnam Joint Stock Commercial Bank for Industry and Trade, 2017.

1.2 Research questions

From the above synthesis and analysis, the thesis will focus on answering the following questions:

- What does bad debt management include? What criteria are used to evaluate the current status of bad debt management of commercial banks?

- What is the current situation of bad debt management at Vietnam Joint Stock Commercial Bank for Industry and Trade?

What are the main factors affecting bad debt management in credit activities at Vietnam Joint Stock Commercial Bank for Industry and Trade? Advantages, limitations and causes of limitations and shortcomings in bad debt management activities at Vietnam Joint Stock Commercial Bank for Industry and Trade at present?

- What solutions need to be implemented in bad debt management to prevent and control bad debt at Vietnam Joint Stock Commercial Bank for Industry and Trade in the coming years?

1.3 Research method of the thesis topic

1.3.1 Methods of collecting information and data

To ensure comprehensiveness, objectivity and accuracy, the thesis uses a combination of two sources of information:

* Primary information

Primary information was collected by in-depth interviews to make accurate comments and assessments of the contents presented in the thesis. The interviewees were officers with many years of experience working at Vietnam Joint Stock Commercial Bank for Industry and Trade, including: Business Division, Legal Division, Risk Management & Anti-Money Laundering, Internal Audit Division and Board of Directors (Exhibit 2 ). In addition, to make the topic objective, the author interviewed a number of subjects who were managers and specialists of the State inspection and supervision agency of the State Bank Branch in the province/city (Exhibit 7).

The interview questions were conducted according to the topic and research content: (1) What are the interviewees' perceptions of bad debt management activities in credit activities of Vietnam Joint Stock Commercial Bank for Industry and Trade?; (2) Opinions on bad debt management policies at Vietnam Joint Stock Commercial Bank for Industry and Trade; (3) Assessment of the credit risk management organization model in the period 2012-2018 at Vietnam Joint Stock Commercial Bank for Industry and Trade?; (4) What tools does Vietnam Joint Stock Commercial Bank for Industry and Trade currently use to measure bad debt?;

(5) Opinions on the control and reporting activities of bad debt management of Vietnam Joint Stock Commercial Bank for Industry and Trade; (6) Assessment of: compliance of Bank staff at each position; level of compliance; Professional qualifications, legal knowledge; Ethics of bank staff of Vietnam Joint Stock Commercial Bank for Industry and Trade?; (7) Main/effective solutions to improve bad debt management activities of Vietnam Joint Stock Commercial Bank for Industry and Trade

? (Excerpt 3).

The number of officers interviewed was 65 people. Including: Business Division; people from Legal, Risk Management & Anti-Money Laundering Division; Internal Audit Division and Board of Directors, and managers, specialists from banks, State Treasury Agencies of State Bank branches in provinces/cities (Ph lc 2).

To conduct an in-depth interview, the researcher first sends the Interview Letter to the Interviewee and conducts the interview (Ph L c 1). The interview content is fully recorded as a basis for analysis and evaluation.

for research purposes (Ph lc 3). The interview time was from 60

minutes to 90 minutes.

* Secondary information

In addition to primary information, NCS collects 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 (credit regulations, policies and principles, reports on bad debts of the bank). In addition, NCS also collects secondary information on the situation of bad debts of commercial banks in general and Vietnam Joint Stock Commercial Bank for Industry and Trade in the period from 2012 to the end of 2018.

Secondary information is collected by NCS from the websites of the State Bank,

Vietnam Joint Stock Commercial Bank for Industry and Trade, and other commercial banks...

1.3.2 Methods of synthesizing and processing information and data

* Primary information processing

For primary information collected by in-depth interviews with experts, the researcher transferred the data from the interview to a word file. The synthesis of interview opinions was done twice to ensure complete “copying” of the information. These data were compiled into a file in the qualitative data folder. Next, the data was screened, analyzed, and synthesized for use in some of the content of the topic.

The research results are not only based on synthesizing the opinions of interviewees according to specific content but are also synthesized to draw general assessments, compared with the results of qualitative analysis through collected secondary data (Ph lc 4).

The main method used in the thesis is the qualitative method combined with in-depth interviews with experts, economic managers, specialists, senior specialists, and senior specialists of the State Treasury of the State Bank of Vietnam at the provincial/municipal level.

* Secondary information processing

With the secondary information collected, NCS uses statistical research methods, comparison, analysis, synthesis; uses supporting tools such as graphs, to analyze bad debt management activities in credit activities of Vietnam Joint Stock Commercial Bank for Industry and Trade, on that basis, evaluates, compares, and draws conclusions about bad debt management activities in credit activities of Vietnam Joint Stock Commercial Bank for Industry and Trade. In addition, NCS uses logical reasoning and methodology.

1.4 Thesis research process

The research process of the thesis was carried out by the author according to the following process:

The steps are illustrated in Figure 1.1 below:

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