Resolute and Diverse Methods of Handling Bad Debt

Agribank regularly reviews and inspects problem debts and bad debts; classifies debts, sets aside provisions and completes records for debt restructuring according to regulations, avoids accumulation at the end of the year; restructures debts (adjusts debt terms, extends debts); provides seasonal loans, loans to overcome force majeure risks (natural disasters, epidemics, etc.); handles debt suspension, debt cancellation, interest reduction, etc. promptly and in accordance with current regulations.

Develop a plan to sell bad debt to VAMC.

Research and develop a mechanism to remove difficulties and encourage business activities of branches in two urban areas of Hanoi and Ho Chi Minh City.

3.2.7.2. Full and realistic provisioning

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Agribank must make full and realistic provisions, specifically:

- Separate provision for each loan: The provision is calculated as the difference between the book value of the loan and the present value of future cash flows from the loan, including expected cash flows from collateral, discounted to the present at the initial effective interest rate of the loan according to the discounted cash flow method.

- Group Provisions: Group provisions are determined for groups of loans with similar risk characteristics and no individual impairment indicators. Loss rates are determined for each group of loans based on historical information through the application of models such as migration models or roll rate models.

3.2.7.3. Capital adequacy ratio (CAR) according to Basel II

Agribank should deploy and apply the method of calculating capital safety ratio according to Basel II standards using advanced methods such as: Standardization method, advanced method through building a comprehensive risk management project including management of RRTD, market, credit, interest rate.

3.2.7.4. Resolute and diverse methods of handling bad debt

Agribank needs to establish a specialized Debt Settlement Steering Committee at the Head Office to focus on directing, inspecting, and urging branches to support them in the process of handling bad debts, especially branches with high bad debt ratios, newly merged branches, bad debts with large outstanding balances, and inter-branch borrowers. Maintain and improve the quality of warnings about bad debts and potentially risky debts to branches to have appropriate handling measures and prevent bad debts from arising;

Continue to organize analysis and assessment of the ability to recover bad debts and debts that have been restructured, work with customers to develop plans and solutions for handling bad debts and debts that have been restructured in detail, specific to each debt; reassess the current status of collateral, origin, legal documents, value of collateral, liquidity of types of collateral to propose measures to liquidate and handle collateral to recover debts appropriate to each type of collateral. In case collateral, projects, etc. have not been sold, carry out procedures to establish Agribank's rights to collateral through filing a lawsuit in court;

Continue to implement solutions and rescue mechanisms for customers borrowing capital at Agribank who are facing difficulties according to the direction of the Government and the State Bank; classify the outstanding loan situation according to customer groups (customers who are still operating, have the ability to restore production or customers who are unable to overcome losses and must dissolve or go bankrupt, etc.) to apply policies on debt restructuring, redetermination of debt repayment terms, exemption and reduction of loan interest, adjustment of loan interest rates, additional loans to complete projects, working capital loans for customers to operate to generate revenue to repay debts to Agribank or handle project and collateral transfers to recover debts;

Review the list of bad debts eligible for debt sale to VAMC, complete documents and legal procedures to sell debts in accordance with the provisions of Circular No. 19/2013/TT-NHNN dated September 6, 2013 of the State Bank of Vietnam regulating the purchase, sale and handling of bad debts of asset management companies of credit institutions in Vietnam; The team controls documents and performs procedures for selling debts to VAMC at the Head Office to receive, process and support Agribank branches to promptly resolve problems arising in selling debts to VAMC; coordinate with VAMC to manage, monitor, collect debts, and handle debts sold to VAMC according to the content of VAMC's authorization contract, handle issues related to VAMC's special bonds; review and complete documents for selling debts to the Debt Trading Company - Ministry of Finance (DATC) and other functional organizations.

3.2.8. Perfecting the customer credit scoring and rating system (RMS)

According to Basel II recommendations on internal credit scoring and customer rating systems, “for commercial banks, an effective internal credit rating system is required”. To achieve Basel II recommendations, Agribank's RMS system must validate the ability to discriminate, the consistency of the system and the estimation of relevant risk components on a regular and systematic basis.

The set of indicators of the Agribank's internal customer rating and credit scoring system (RMS) at the time of construction according to the expert method lacked verification by mathematical methods such as: Statistical probability, modern data analysis because at that time Agribank did not have a historical database for the above analysis methods. On the other hand, the set of indicators was built from 2007 to now, more than 7 years, so some indicators on industry, business environment, etc. have had many fluctuations and changes that need to be verified (AR-Accurate Ratio) and evaluate the correctness of the credit scoring and customer rating system to verify the results that the credit scoring and rating system gives such as: Score, class and debt group with the ability to "not pay debt" to compare and contrast with actual loans.

When Agribank upgrades its credit scoring and customer rating system, it requires the system to be able to provide early warning signs of potential risks such as: the possibility of increasing debt groups, transferring bad debt groups, signs of debt repayment history such as the number of overdue days, restructuring history along with other signs such as signs of customers' financial capacity, signs of instability from the industry, business sector, etc. From these warning signs, it is possible to estimate the possibility of RRTD that may occur such as "probability of default (PD)", "expected default loss (LGD)" and "unexpected default loss (EAD)".

The operating mechanism of Agribank's internal rating system needs to be kept confidential for system users such as: It is necessary to clearly separate the tasks of lending officers and scoring officers to avoid interference in the system and scoring according to the subjective wishes of lenders.

Agribank needs to supplement and complete the logical binding criteria for scoring criteria such as: Information of financial statements, Balance Sheet, Business Activity Report, Cash Flow Report; non-financial criteria with quantitative information such as: Customer's debt repayment history, number of overdue days, debt restructuring history, etc. For example: When a customer has overdue debt or has had debt restructuring, it is impossible to score the qualitative criterion "debt repayment history in the past 12 months" with an absolutely high score, etc.

3.2.9. Innovating customer strategy and improving marketing efficiency to closely approach the reasonable loan needs of all subjects.

In banking business, customers play a particularly important role because they are not only the users of output services, but also the providers of input capital for the bank. Therefore, building the right customer strategy is an indispensable task for Agribank to be able to do business effectively.

Agribank needs to promote customer service in the coming time such as researching and classifying customers to have appropriate policies to satisfy the needs of each different customer group such as:

- For Households: Divided into 2 areas: rural and urban areas:

+ In the agricultural sector: The poor households and policy beneficiaries will be gradually transferred to these households to borrow from the Vietnam Bank for Social Policies and microfinance institutions. Agribank will provide lending services on trust; for the remaining customer group, Agribank strives to account for 70%-75% of households.

+ In urban areas: Agribank focuses on investing in small-scale industrial production households, business households, and private enterprises that produce, process, and consume agricultural, forestry, and fishery products; accelerate the supply and development of banking utilities and services.

- For Enterprises: Agribank focuses on giving priority to small and medium enterprises, enterprises operating in the agricultural sector and employing many rural workers, cooperatives processing and consuming agricultural products associated with export, supplying materials for agriculture, farmers, building small hydroelectric plants...

- For Corporations 90 and 91, Agribank will focus on giving priority to enterprises implementing projects related to electricity production and supply; fertilizers; pesticides; construction and renovation of rural infrastructure, food purchasing, etc.

Based on the actual capacity and conditions of Agribank, the reputation of customers in lending, payment, foreign currency trading... Agribank will apply preferential interest rate mechanisms; prioritize capital balance; exempt or reduce equity capital in investment projects, not apply or apply loans partially secured by assets,...

Sign comprehensive contracts or cooperation agreements, providing maximum utility products to customers.

In addition, Agribank does well in the following stages:

- Perform customer care well such as guiding customers for the first time to make transactions, declaring information, answering customer questions, consulting, introducing Agribank products to customers; building a culture of transaction staff style such as: Civilized and polite style, attitude, unique dress style with Agribank's characteristics. Receive and withdraw money at home (other locations) as designated by customers to avoid risks for customers during travel; give gifts and text messages on birthdays, March 8, October 20, major holidays, Lunar New Year; opening transaction points, ...; organize annual customer conferences to both strengthen relationships and understand customers' wishes and financial capabilities, thereby having appropriate measures to exploit their needs, the right target, avoiding waste for Agribank. When customers receive attention and dedicated service, they will be more attached to Agribank.

- Improve the effectiveness of marketing activities: Increase advertising and propaganda about the forms and benefits of deposit products and banking services to all people and choose appropriate forms of communication, good people and good deeds, communication associated with social security activities to expand business, enhance the position, reputation and brand of Agribank. Focus on improving and innovating Agribank's online newspaper, striving to become a media that many domestic and foreign readers are interested in, contributing to regularly updating promotional information for the Agribank brand.

- Develop customer policies in the direction of building package products according to customer groups: large customers, production household customers, customer groups according to each industry, economic sector, crops, livestock, etc.; develop a number of mechanisms and policies to consider selecting a number of branches with financial capacity and management capacity in Hanoi and Ho Chi Minh City as focal points to access loans for large projects, carry out political tasks assigned by the Party and State; implement cooperation programs with ministries, branches, large corporations, economic development programs, social security of the City... to expand credit associated with banking services, enhance the reputation of Agribank.

- Organize analysis and evaluation of credit granting activities for loan programs, industries, fields, and production household loans to develop solutions.

specific credit investment for each industry and field; summarize, evaluate and replicate the linked lending model according to industries and investment objects in a closed direction from production to consumption and export to link loan cash flow management and cross-selling of banking products and services.

- Effectively implement lending programs to serve agriculture and farmers according to: Decree 41; lending to support post-harvest loss reduction according to Decision 63; lending to support housing according to Circular No. 11/2013/TT-NHNN dated May 15, 2013 of the State Bank; interest rate support for poor districts according to Resolution No. 30a/2008/NQ-CP of the Government; lending for coffee replanting in the Central Highlands; import-export lending program with preferential interest rates; national target program for new rural construction.

3.2.10. Strengthen effective coordination with ministries, branches, and socio-political organizations

Agribank needs to strictly comply with the policies of the Party, State and Government on socio-economy in general, on agriculture and rural areas in particular and the direction of the State Bank of Vietnam; seek the attention, support and close and effective relations with Ministries and Branches to create position and strength for Agribank as well as combined strength in operations;

Have flexible and sensitive solutions and plans to exploit more capital from projects related to agriculture and rural areas of the WB, ADB, non-governmental organizations, etc. to create and increase investment trust capital. Use effectively to maintain existing investment trust capital;

Coordinate with functional units of the Ministry of Agriculture and Rural Development to update information, forecast development trends, and warn of risks in industries and seedlings to help make lending to the agricultural sector effective.

Party committees and Party cells at Agribank branches need to thoroughly study Resolution No. 26-NQ/TW, Resolutions of provincial and municipal Party Congresses, and improve awareness, capacity, qualifications, and professional ethics of Party members, officers and employees.

The goals and operational orientations of branches must comply with Agribank's direction but must also be closely linked to the political tasks of the Party Committee and local authorities. Each Agribank branch must continue to work with the entire system.

affirming the role and position of a commercial bank in the financial and monetary market in rural areas.

Agribank needs to closely and effectively coordinate with the Central Farmers' Association and the Vietnam Women's Union to effectively implement the Joint Resolution when the Government issues a Decree on credit policies for agricultural and rural development; direct localities to periodically inspect and evaluate the implementation of the Joint Resolution, promptly and seriously correct and overcome the limitations and weaknesses that have been discovered; further develop and improve the operational efficiency of the lending group; strive to increase the number of borrowing members by 1/3 by the end of 2013; and increase the average outstanding loan per member by 2 times.

3.2.11. Improving the quality of human resources associated with preventing ethical risks of staff in credit activities

In chapter 1, the thesis clearly analyzed the subjective factor, which is the human factor in the management of credit risk of commercial banks; at the same time, in chapter 2, the thesis also clarified the current situation of moral risk in credit activities at Agribank. In general, human is the decisive factor for development, especially in the current fierce competition and financial and personnel losses in the management of credit risk at Agribank. Therefore, in order to survive and develop in a business environment that is changing day by day, to overcome the shortcomings and limitations of the past, Agribank needs to do well the following:

- Change the labor structure towards increasing the proportion of highly qualified workers, not placing too much emphasis on degrees but ensuring the real capacity of human resources; there must be adequate treatment for highly qualified workers; regular professional training appropriate to the jobs being undertaken.

- It is necessary to have a regular plan to foster the necessary knowledge so that bank staff have a deep understanding of the profession, promptly grasp the pace of development and constant changes of the market economy, and have the ability to skillfully use advanced and modern banking technologies; build a team of staff with good moral qualities, strong political will, and dedicated work for Agribank.

- Resolutely build a human resource development strategy; need to build a team of credit officers with solid professional skills, understanding of laws and mechanisms

State policies, business management knowledge in market mechanisms and international economic integration, acumen in collecting, analyzing and processing accurate customer information for investment direction.

- We must train a team of credit officers who are good at one thing but know many things, or a credit officer who does both lending and borrowing must also know how to do banking services well.

- Strengthen training in skills appropriate to the assigned tasks, improve professional skills; regularly organize professional training courses for new credit officers in the bank and organize retraining courses for officers working in credit through short-term/long-term courses; have a plan to train in-depth analytical skills in the field of unit finance and accounting for credit officers monitoring loans for corporate customers.

- Reallocate workload reasonably, do not let credit officers be overloaded with workload or customers under management, strengthen inspection and supervision to promptly detect, prevent and immediately handle any negative incidents that may occur.

- Strengthen training of good managers with comprehensive knowledge, courage and professional capacity to help senior leaders in effective business operations.

- There needs to be appropriate policies to attract talented people and good staff to meet the business development and integration requirements of Agribank.

- There should be strict reward and punishment policies for those working in credit, specifically:

+ Have good policies in selecting staff with professional ethics, dedication to the industry, sense of organization and discipline and high sense of responsibility.

+ Have a suitable remuneration and salary policy and bonus for those working in credit to ensure that it is commensurate with the work they undertake, because they are the ones who directly generate the main income for the bank and are also the ones who can bear the most risks.

+ For credit officers who lack professional ethics and a sense of responsibility for lending, causing capital loss, Agribank needs to resolutely and strictly handle them, such as compensating for lost loan amounts, disciplining them, and dismissing them.