Some Solutions to Improve Credit Risk Management in Lending to Individual Customers at Vietnam Bank for Agriculture and Rural Development

Consider buying and selling debt or filing a lawsuit to recover debt quickly and effectively.

- In the past, credit risks due to issues related to credit officer ethics were numerous and the consequences were also very serious. Therefore, regular training is needed to improve the capacity, qualifications, ethics and experience of officers in their work, limiting errors that occur in their work.

- The branch is located in an area with a rapidly developing economy but fierce competition. Therefore, to increase credit growth and ensure safety, the branch has targeted expanding its network and establishing more transaction offices in the economic development center of Yen Phong district.

3.2. Some solutions to improve credit risk management in lending to individual customers at Vietnam Bank for Agriculture and Rural Development - Yen Phong Branch

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3.2.1. Strengthening credit risk identification in personal customer lending

To enhance the effectiveness of risk recognition in lending to SMEs, the Branch needs to implement the following solutions:

- Analyze types of risks:

For a long time, when analyzing credit levels, banks often focus on the current reality and do not analyze the risk factors that may occur in the future. Only by recognizing and accepting the risks that will appear can we carry out good prevention work. This is a difficult task and plays a decisive role in RRTD management. To evaluate relatively, we should evaluate the following factors:

+ Market risk: when will the market become saturated, vibrant or frozen…

+ Policy risks: State and international policies...

+ Natural disaster risk

+ Risks from customer subjectivity

- Strengthen and improve the credit information system:

To have good risk assessment and identification, it is necessary to strengthen and improve the credit information system. Agribank Yen Phong Branch needs to update credit information accurately and regularly.

The task of assessing RRTD before granting credit must be performed by the RRTD Management Department to ensure the objectivity of the assessment. At the same time, Agribank Yen Phong branch needs to add more signs to identify RRTD in lending to SMEs, specifically:

Group of signs related to banking relationships

- Delay or cause difficulties or obstacles for the Branch in the process of periodic or sudden inspection of the use of loan capital, finance, and production and business activities without convincing explanation from the customer.

- Delay in sending or postponing financial reports as requested without convincing explanation from customers.

- Requesting to extend or adjust the debt term multiple times without valid reason.

- Unusual decrease in deposit account balance at the Branch.

- Late payment of interest due.

- Failure to pay principal in full and on time.

- The level of borrowing is constantly increasing, requiring loans beyond demand.

- Collateral does not meet standards.

- Signs that the customer is expecting unusual income not from the main business or from the activities proposed in the loan application.

- There are signs of seeking working capital funding from many sources, especially from the Branch's competitors.

- Use short-term financing for medium and long-term operations.

- Accepting to use high-priced funding sources under all conditions. Therefore, to improve the effectiveness of credit risk management, the Branch must first focus on identifying the above signs.

Group of signs related to non-bank relationships

- Deviation between actual revenue or cash flow and the expected level when the customer requests credit.

- Changes in government policies such as tax impacts, import and export, changes in macroeconomic variables: exchange rates, interest rates, changes in production technology... adversely impact customers' strategies and production and business plans...

3.2.2. Perfecting credit risk measurement in personal customer lending

Agribank Yen Phong Branch must develop a method of managing RRTD in lending to customers, calculate and provide parameters (quantification) accurately, appropriately and replace the current emotional method. To achieve the goal, a good method is always an important factor and determines success, as well as brings good efficiency. The method of managing RRTD in lending to customers is a way and measure to ensure the implementation of the risk management function and task of the manager. The management method here includes the skills of pricing, evaluating, and measuring in an environment with continuous fluctuations in technology, law and macro factors. The method of risk management in lending to customers must meet the following requirements: Diverse and appropriate (due to the diversity of risks, requiring the risk management method to change and adapt to each different type of risk); feasible (capable of being applied in practice); highly effective (taking into account development factors, ensuring high efficiency at the lowest cost), flexible (suitable for different times and circumstances).

It is necessary to build a model to quantify the level of risk. Agribank has been perfecting the Internal Rating System to classify customers on a quarterly basis. However, this System only aims to evaluate customers who have had a credit relationship with the Bank and has not yet assessed the level of risk before granting credit.

Currently, Agribank Yen Phong Branch is applying the internal credit rating system, which is one of the leading risk measurement systems recommended by the Basel Committee. However, applying more new measurement tools helps the Branch have a more comprehensive view of risk from each customer, each loan, each industry, each field.

To do this, the branch needs to:

Complete the input data collection organization with highly reliable information, updated regularly;

Improve the credit rating process by specializing the staff performing internal credit rating work of science and technology according to business lines;

Perfecting the use of credit rating results: it is necessary to use the results to determine interest rates, boldly apply them to determine restrictive terms in credit contracts.

Building a complete internal credit rating system of KHCN not only serves the appraisal work well but also provides a comprehensive and updated information data system, which contributes significantly to better RRTD management.

3.2.3. Strengthening credit risk prevention and control

- Credit risk prevention

Branches need to use additional credit insurance measures to prevent risks. Credit risks arise from many diverse causes that sometimes banks cannot foresee. Using insurance tools and applying loan security measures to limit losses when risks occur is extremely important. Therefore, to minimize credit risks, branches need to require borrowers to purchase insurance during the construction process and construction insurance (for investment projects), cargo insurance, insurance for the borrowers themselves, etc. In fact, in the past, thanks to the use of this requirement, loan losses caused by natural disasters or borrowers' illness, disease, and traffic accidents have been paid by the insurance agency, significantly reducing losses.

- Strengthen credit inspection and supervision

Agribank Yen Phong Branch needs to take measures to strengthen the work of checking and supervising credit effectively and effectively in order to propose preventive measures as well as effectively set aside and use RRTD reserves.

Bank staff regularly monitor borrowers' behavior, loan purposes, business operations, and debt repayment processes.

Monitoring of credit collateral to avoid borrowers violating the terms agreed in the contract. Timely detection and handling of problem loans and loans with high probability of being irrecoverable is an effective measure to help limit risks in credit activities. Monitoring should be carried out in many forms such as:

- Depending on the characteristics of each loan, the loan usage check can be carried out immediately after disbursement or periodically once a month, once a quarter, but not more than once every 6 months.

- In case of detecting any unusual signs or risks, propose a surprise inspection.

- Regular inspection at customer's premises; Monitor customer's production industry situation.

- Check through information collected from different sources.

- Check cash withdrawal loans no later than one week after disbursement.

- Check the valuation of mortgaged assets according to current price and physical assets.

-Check through information collected from different sources.

Customer debt monitoring must be conducted consistently and systematically according to the content specified in the lending regime and regulations. Lending, problem debts as well as debt inspection results must be promptly reported to relevant leaders for timely handling measures in accordance with the analyzed functions and tasks.

3.2.4. Perfecting the handling and financing of credit risks in personal customer lending

- For the use of collateral for loans

Completing the legal aspects of loan collateral assets to facilitate the handling of collateral assets, a second source of debt collection when credit risks occur. Through the handling of some loan collateral assets, it is shown that the ownership of the assets is unclear, there are no documents certifying ownership, so selling the assets is very difficult (notary office

Notarized contracts, buyers are afraid...). The reason for this situation is that customers are afraid of the cost so they do not register property ownership (especially for factories and constructions on land), banks do not urge customers to complete procedures on secured assets, the registration of property ownership on land is difficult in terms of procedures, time-consuming and costly... so many properties on land, especially factories and constructions on mortgaged land at the Branch do not have documents on property ownership. Therefore, the loan security documents are incomplete, causing difficulties in the process of handling secured assets to recover debt. To minimize legal risks, it is necessary to agree that completing the property ownership registration procedures after the project is completed is a credit condition, and at the same time, seriously carry out the inspection work, continuously review the legal documents and the status of the " secured " assets.

- Diversify in credit granting and co-financing loans with other banks

Branches need to diversify types of credit, diversify customers and products, and terms to disperse credit risks. On the other hand, the trend of modern banks today is to diversify investments in providing other banking products and services. Because credit activities are risky activities, branches need to develop other business activities such as providing non-credit products: card services, payment services, electronic banking services, money transfer services, safe deposit box rental services, cash flow management, etc.

In addition, the Branch can conduct co-financing lending. Co-financing lending is the process of organizing the implementation of credit granting by the co-financing party with the participation of two or more credit institutions, in which Agribank acts as the focal point or a member for one or a part of the project, production, business, service, investment development and life plan. Using this form, the Branch can overcome the weakness in credit granting capacity by co-financing with other banks. In particular, the Branch can also access the credit risk management capacity of large banks with experience in this field. The fact that many banks lend together will help share the loss when RRTD occurs.

3.2.5. Improve the quality of the Branch's staff

The staff is always the decisive factor in the effectiveness of all business activities of the bank. Improving the quality of the staff is to improve the effectiveness of banking operations in general and credit operations in particular in order to bring the best business results for the bank, minimizing possible losses. In this solution, it is necessary to focus on the following contents:

- Improve the recruitment and placement of staff: This is an important input stage, so it is necessary to develop and publicize basic standards for selecting credit officers and control officers, not only with knowledge of professional banking expertise but also with knowledge of society, law, health, communication skills, etc. Only then can we recruit good employees with working ability. At the same time, arrange staff in positions suitable to their professional qualifications to maximize work efficiency. After staff are recruited, the Branch should arrange time for professional training for new staff, only when they are assessed as meeting the standards will they be assigned to work in credit to reduce risks in the bank's lending activities.

- There needs to be an assessment of the quality and results of training and development of staff at the Branch. In the past, staff training, including credit staff, has been carried out annually, mainly through professional training sessions for staff, opening basic banking training classes... However, the assessment of the effectiveness of these sessions has not been carried out regularly. The Branch needs to have a way to evaluate the results of the sessions, otherwise this training will only be a formality. The assessment will help the Branch to propose learning content, methods, time, and subjects to improve the effectiveness and achieve the purpose of the training.

- In addition, the Branch needs to increase the time for credit officers to interact with other banks to learn practical experiences in lending. Through this interaction, experience and knowledge can be exchanged and learned. This is quite important, because experience plays a very important role in lending.

- Require credit officers to research and grasp information about customers, socio-economic information, markets, prices, etc. on their own to have comprehensive knowledge for lending work (especially research in Credit Information magazine, in reality very few credit officers read these types of documents while they are very useful for lending work). Information on the media is sometimes quite an important clue for credit officers to use in their lending activities. Require each officer to improve accuracy in their work, especially in professional techniques and responsibilities of officers in lending activities.

- Training and improving professional ethics for staff, implementing well the Agribank Cultural Standards to improve the quality of credit activities. To do this, the Branch needs to do a good job of rewarding and punishing staff, must be clear, linking work efficiency with salary and bonus. For staff with good achievements, it is necessary to commend and reward both materially and spiritually commensurate with the results they bring, even proposing to increase salary early or promote, appoint to a higher position. For staff with violations, depending on the nature and extent, they can be educated or disciplined. Thereby, improving the sense of responsibility of staff for work and work efficiency.

- Strengthen the management capacity of the Board of Directors. Branch or transaction office leaders must be people with good management and personnel management capacity and comprehensive knowledge of banking operations. Through that, the arrangement of the right person for the right job will ensure good implementation, thereby credit management is carried out in accordance with the provisions of the law, the State Bank and Agribank, and can cope with difficulties in lending activities. Leaders also need to have good ethics to ensure effective and safe credit activities. Therefore, leaders of branches and transaction offices themselves must regularly study, improve their professional qualifications, and accumulate their management experience to improve the efficiency of business activities in general and credit activities in particular.

Some Solutions to Improve Credit Risk Management in Lending to Individual Customers at Vietnam Bank for Agriculture and Rural Development - Branch

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