Solutions for developing application information systems in the current Vietnamese banking system

1.2.4.2. Benefits of the banking information technology system

The banking information system creates great benefits not only for commercial banks, the central bank, and customers, but also for the entire economy. These conclusions can be found in Appendix 14 attached. Below we will study the 9 most common benefits as follows:

- Improving credit quality, sharing positive information has created a push effect, helping good customers have more opportunities to access bank credit capital, with a lower interest rate (due to reducing the cost of self-investigating information). Selecting good customers helps commercial banks improve credit quality and not miss business opportunities.

- Expanding credit scale, TTTD contributes to ensuring the safety of banking system operations and developing credit expansion, expanding production loans, as well as consumption, buying houses, buying cars, and credit cards.

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- Create benefits for borrowers, help to learn about partners, simplify the transaction of buying and selling goods, opening agencies, and make it easier to access credit capital when there are records stored in the credit information system. In particular, it effectively supports the development of SMEs, which are units lacking in collateral and experience in accessing credit capital, but are a type that accounts for a large proportion and plays an important role in the economic development of the country.

- Changing lending policies of commercial banks: in many developing countries, lenders often require loans to be collateralized for the entire value, or more than the loan value. The reliability of available information, along with an understanding of corporate creditworthiness and credit scoring techniques, can contribute to better lending strategies. Reliable information can guide commercial banks to change from collateral-based lending to information-based lending, which is a new, modern trend in credit operations.

- Limit the use of cash payments in developing countries, by contributing to the development of the card market. The TTTD system helps identify new accounts, manage existing accounts, thereby expanding credit cards, reducing cash spending.

- Contribute to making the information environment transparent and healthy . Thanks to information technology activities, in many countries where there was no information market or a small market, an information market has gradually formed. The impact of the market has made the information environment in that country increasingly transparent and healthy.

- TTTD has a positive effect in transforming the borrower structure from the informal sector to the formal financial sector, gradually eliminating the black market credit market, especially in developing countries.

- Helps change the business ethics of borrowers , because if done well, borrowers with bad intentions and fraud to borrow money from banks will be detected early by the credit information system, thereby discouraging those with bad intentions, gradually improving the credit culture of borrowers.

- Contributing to the recovery and development of the socio-economy, the WB has introduced an index called the TTTD index . The analysis results show that there is a positive relationship between the sharing of TTTD with labor productivity and economic growth [33] .

In summary, the banking credit information system contributes to limiting credit risks, helping to select good customers to improve credit quality and expand credit; shifting borrowers from the informal financial sector to the formal sector; contributing to improving borrower ethics and credit culture; thereby contributing to promoting economic development. These conclusions have been proven by mathematical tools through the econometric problem of Craig McIntosh, professor at the University of California at San Diego and Bruce Wydick [28 ] University of San Francisco (September 2004), translated and published in the Journal of Banking Science and Training, No. 7/2005 and summarized in Appendix No. 10.

1.2.4.3 WB survey results on the benefits of the TTTD system

According to the WB survey data (2001-2002) [35] for 34 countries with relatively strong TTTD activities, it shows that banks can benefit from using TTTD as follows:

- Reduced processing time: 55% of banks responded that their time was reduced by at least 25%, while 9% of banks responded that there was no change.

- Cost reduction: 49% of banks responded that they reduced costs by at least 25%, while 12% of banks responded that they did not change.

- Bad debt reduction: 62% of banks responded that they reduced it by 25% or more, 5% of banks responded that it remained unchanged.

Regarding the role of TTTD reports, a WB survey of 34 Latin American banks in 1999-2000 showed that:

- Regarding mortgages: 30 banks answered that TTTD is very important, 12 banks answered that it is less important.

- Regarding financial information: 24 banks answered that TTTD is very important, 17 banks answered that it is less important.

- Borrower history with the bank: 24 banks answered that TTTD is very important, 18 banks answered that it is less important.

And the results of cost reduction and time savings from TTTD reports and credit scoring of some banks are as follows:

- A Canadian bank: processing time reduced from 9 days to 3 days, within 18 months of credit scoring being implemented.

- A US bank: processing time reduced from 3-4 weeks to a few

hour.

- A bank in the Netherlands: processing time reduced from 8-10 hours to 15

minutes for existing customers and 45 minutes for new customers.

- An American bank: the average cost of processing a small business loan decreased from $250 to $100 after implementing a credit scoring system.

1.3. Development of banking information system

1.3.1. Concept and development trends of banking information technology system

Development is a process of progress for a sector in a certain period, usually a year, including both increase in scale and increase in quality. Development theory holds that there is a dialectical relationship between growth and development, growth is a necessary condition for development. From that, it can be understood that the development of the banking information system is a process of progress in a period, including increase in scale of information activities, increase in service output and increase in quality of information services with the purpose of ensuring the safety of the banking system.

Development trends of banking information technology system

Nowadays, under the impact of economic globalization, the impact of high specialization, the influence of transnational economic corporations and major global challenges such as resource depletion, environmental disasters, natural disasters and wars... have caused many changes in the basic activities of the world economy. TTTD activities are also not outside of those impacts, following the following trends:

Firstly , the world is strengthening the development of credit information activities to create protective barriers for the safety of developing banking activities in the world, to cope with the huge potential challenges that are threatening the stability of the global economy.

Second , highly specialized, a TTTD company usually does not provide all services, but specializes in forming corporations, in which separates the TTTD reporting company from the corporate XLTD company, between reporting on businesses and individuals.

Third , developing countries have been rapidly establishing consumer credit agencies to contribute to consumer lending, card credit and SME development.

Fourth , banks around the world are perfecting and developing internal rating systems (including corporate credit rating and individual credit scoring) as required by the Basel II Agreement. Although Vietnamese commercial banks have not yet had to comply with this agreement, the Governor of the State Bank of Vietnam has stipulated that commercial banks must organize internal rating since August 2007.

1.3.2. Criteria for assessing the level of development of the banking information system

Research to develop criteria for assessing the level of development of the banking information system is very necessary, but also very difficult, currently Vietnam does not have standards for assessment. To serve the research, based on the 3 assessment criteria given by the WB, I have researched the practical activities of Vietnam's information system and consulted the activities of other countries to develop 14 criteria for assessing the level of development of the banking information system, which can be applied in Vietnam as follows:

(1) The TTTD Index, issued by the World Bank in 2004, is based on 6 key factors measuring the scope, accessibility and quality of available TTTD of each country's banking TTTD system. Each factor is assigned 1 point out of a total of 6 points of the TTTD Index, including (i) collecting and providing both positive and negative TTTD (negative information to prevent credit risks, positive information to select good customers); (ii) collecting and providing TTTD for both businesses and individual borrowers; (iii) collecting and providing TTTD for credit institutions, other financial institutions (finance companies, financial leasing companies), insurance companies, funds, etc.; (iv) storing historical data for over 5 years; (v) limiting the collection of loans with a value of over 1% of GDP/person; (vi) laws stipulating that consumers have the right to access their own stored data. This is the most general index, applied by the World Bank to evaluate the overall level of TTTD activity of each country. The higher the index, the better; in Asia, the average index is 4.

(2) The coefficient of collecting loan customer records per 1,000 adults, for public credit information agencies. This is a criterion set by the WB, only applicable to countries with public credit information agencies. This criterion shows the development of public credit information agencies and the coverage of information of public credit information agencies in each country. The criterion has a value from 0 to 1. If there is PCR, the higher this coefficient is, the better. This is an indicator that talks about the breadth of credit information development, generally, it is necessary to combine the third indicator to have enough basis for assessment. For countries that do not have private credit information agencies, this is the only indicator to assess the coverage of credit information activities.

(3) The coefficient of collecting loan customer records per 1,000 adults, for private credit information agencies, shows the development of private credit information agencies, the coverage of credit information and shows the level of credit culture in each country. This is an indicator given by the WB, only applicable to countries with private credit information agencies. The indicator has a value from 0 to 1, the higher the index, the better. This is an indicator that talks about the breadth of credit information development, in general, it is necessary to combine the second indicator above to have enough basis for assessment, because there are countries that only have private credit information agencies like the US, or countries that only have public credit information agencies like Vietnam.

Add up the above indicators 2 and 3, the higher the better, there are countries that achieve the indicator value up to 1, which means collecting 1000 loan customer records per 1000 adults, the average in Asia for developing countries is 0.3.

(4) Number of credit institutions participating in information sharing out of the total number of existing credit institutions, showing the level of participation in information sharing among credit institutions in each country. Value from 0

- 100%, the higher the better. This is also an indicator of the breadth of development. The more credit institutions participate in the banking credit information system, the more complete the credit information database and the higher the sharing.

(5) The number of financial institutions participating in information sharing out of the total number of existing financial institutions, showing the level of information sharing among financial institutions.

main. The value from 0 - 100%, the higher the better. Encouraging non-bank financial institutions such as insurance companies, investment funds, pension funds, etc. to participate in sharing TTTD will contribute to ensuring more safety for consumer personal loans.

(6) The number of customer loan records over the total number of actual customers, showing the coverage level of TTTD for loans. The value is from 0 - 100%, the higher the better, the higher the value, the more positive the sharing of TTTD is and the effect of preventing credit risks is truly effective.

(7) The collected outstanding debt on the total actual outstanding debt of commercial banks shows the coverage level of TTTD. The higher the value from 0 - 100%, the better.

(8) Loan size is collected, countries have regulations on loan size from a certain level, the lender must report to the credit information agency, the smaller the better, the general level is 1% of GDP/person.

(9) News update time, showing the timeliness of the information, is usually once a month, but the shorter the update time, the better.

(10) Response time shows the completeness and availability of stored information, usually within the day.

(11) Increase the number of responses to user requests, reflecting the growth in the scale of output of information services, the higher the better.

(12) Increase revenue and profit from providing information services to information users, the higher the better.

(13) The level of standard technology application is online, which shows the level of technology application, direct access to collect and respond to information is good.

(14) The ability to recover information when there is an incident shows the redundancy to ensure continuous information in all situations. Calculated by the number of hours the network system is down in 1 year, the lower the better.

1.3.3. Factors affecting the development of the banking information system

1.3.3.1. Capacity of subjects participating in the banking information system

The most important factor affecting the development of the banking credit system is the internal factor of the operational capacity of the entities that make up the banking credit system. The operational capacity of the entities, or of the credit agencies, depends on the following factors:

- The organizational model and apparatus of the TTTD agency must be suitable to the type of TTTD service performed, must be streamlined, compact, and have a modern structure.

- Regarding human resources, including senior human resources performing management and operational tasks and expert-level human resources must be people with good ethics, deep professional qualifications, understanding of technology and the ability to analyze and process information independently.

- Regarding technology, it must be advanced and modern, applying the achievements of information technology and communications in all stages of collecting, processing, storing and providing information.

- TTTD products and services must be diverse, of high quality, meet user requirements, and be accepted by the market.

1.3.3.2. Information technology and communications

Nowadays, information is increasingly large in volume and diverse in types. If done manually, it will be extremely costly in terms of labor, assets, and time, but still cannot ensure the content, quality, accuracy, and safety of information. Therefore, the application of information technology to information technology activities is a matter of course. The advantage of information technology today is not only in processing information quickly, accurately, promptly, and at high speed, but it can also connect and transmit information from one place to another, with less obstacles of distance and time.

Furthermore, as the economy grows, the size of banks' customers increases, which requires credit institutions to

perform its functions based on the most modern technological solutions with the effective support of information technology and communications. It would be impossible to store, process and preserve such a large database system without appropriate technological solutions. Similarly, to increase the speed and efficiency of information collection, both initial information and periodically updated information, the TTTD must apply modern communication methods and automatic, online information collection methods based on information technology. In the process of information processing, credit scoring, and credit scoring based on analysis, comparison, and comparison of a large volume of indicators in the information warehouse, information technology is indispensable. The need to access and exploit the information warehouse of the TTTD also requires immediateness, accuracy, and safety, further emphasizing the need for the most advanced information technology and communications solutions.

Suppose that without information technology, to collect, store, and process millions of customer records, it would require the efforts of hundreds of workers, and a huge warehouse to store documents. Especially, it would be necessary to update daily outstanding debt information for millions of customers, create thousands of responses a day, and transmit information back and forth, which is a huge amount of files. One more thing to mention is that if information is collected, processed, and responded to manually, the accuracy cannot be high, and it cannot be quick and timely. Thus, it can be said that information technology has helped credit information companies increase labor productivity thousands of times, ensure quick, accurate, and timely information, and reduce costs to lower information costs, which means lowering input information costs for credit activities.

Information technology for TTTD activities must focus on both software and hardware. Software for TTTD must be capable of creating and maintaining a reliable database, ensuring the integrity of information with appropriate characteristics for verification and security, and must be capable of identifying objects by using

using algorithms and search tools. It must support quick and easy access and search for information. Especially for countries that are transitioning to a market economy, this software must be open so that it can be promptly edited, replaced, and supplemented when there are changes in regimes and policies. Hardware also needs to be taken into account to ensure that if there is a serious incident, it is easy to have an alternative solution to bring the TTTD network back to normal operation quickly. Special attention is paid to the server system and backup system that meet the standards required by the regulations. The connection of information to the Internet as well as the connection line with units within the bank and credit institutions must have large bandwidth, high frequency, and avoid congestion.

1.3.3.3. Banking credit market

In a market economy, all activities of economic entities depend on the market and must comply with the laws of the market, which are the laws of supply and demand, the laws of competition and the laws of value. These laws govern and determine the existence and development of all sectors in the economy. Banking credit activities must also comply with these laws.

In fact, the banking credit information market is an imperfect market, because among the participating entities, there are some organizations that do not conduct credit information business such as public credit information agencies, usually under the Central Bank, operating for the purpose of ensuring safety and stability of the banking system, with the nature of protecting banking business, not for business, not for profit; or joint stock credit information companies established by banks in conjunction mainly to have information to prevent risks, although they are companies but not for profit, not for business purposes. However, up to now, all banking credit information agencies in the world sell information, almost no organization gives away information for free. Credit information organizations

The company is operating as a public utility enterprise (or a public service unit as in Vietnam) and must cover part of the costs, the remaining part will be compensated.

Another issue that makes the banking information market imperfect is the mandatory requirement that banks must report and exploit information to prevent risks to public information organizations, that is, the law requires commercial banks to participate in reporting to the banking information system. Currently, according to statistics, about 30% of countries in the world have public information organizations. However, this mandatory requirement is no longer important because most banks voluntarily buy information for their own benefit first and foremost.

The banking TTTD market has the following characteristics:

- The banking information technology market is e-commerce, influenced by communication networks and the internet.

- The banking information technology market is not limited to one country, but has global information technology exchange linkages.

- Banking information goods are different from other material goods in that the same information can be sold to many people, sold many times, and the more it is used, the higher the value of the information.

A better understanding of the banking information technology market will help us have a more realistic perspective and solution for market development, an important factor for the development of the banking information technology system.

The banking information market of each country mainly depends on the scale of banks, other financial institutions and credit scale. Some main subjects using banking information are as follows:

(1) Commercial banks and financial institutions : the characteristic of commercial banks is that they operate in the field that faces the most risks in the economy, and in the context of international economic integration, although there are many advantages, commercial banks also face many challenges such as increasingly fierce competition and increasingly diverse risks. Therefore, the banking credit market is increasingly becoming more and more

should be urgent and a matter of survival for commercial banks. Commercial banks, as the main input data providers, are also the users of the output information of this system.

Non-bank financial institutions such as finance companies, financial leasing companies, insurance companies, pension funds, investment funds, development support funds, export support funds, etc. play the role of sharing information, being both the main source of information and users of information.

(2) Other organizations : Currently, in addition to financial institutions, many countries also allow other organizations to participate in the credit information system such as: telephone companies, leasing companies, installment sales companies... These members also participate in sharing information and are allowed to use credit information to serve business activities to prevent and limit risks and protect consumers.

(3) The Central Bank is also the one who exploits information to serve the task of state management of currency, credit and supervision of the activities of commercial banks.

(4) For enterprises, credit information enables business entities to assess their own and their partners' business capacity and ability, thereby choosing appropriate partners and investment plans, increasing production and business efficiency, and bringing more profits to enterprises. Therefore, enterprises are also customers participating in the banking credit information market.

Price of TTTD goods

There are many ways to calculate the value of information goods. Usually, the cost of information is calculated by the total cost of creating information, including the cost of computer systems; communication networks; building software for exploitation and use; information security software; collecting input data; processing and analyzing information; labor; office... According to another way of calculating, information serves decision making, so it must be considered through how that information contributes to that decision and the results of the organization's behavior after implementation.

Solutions for developing application information systems in the current Vietnamese banking system - 5

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