The above data shows that in 2013, bad debts at the branch suddenly arose, the amount of risk provisions of the branch increased significantly and focused mainly on specific risk provisions. In 2013, the amount of risk provisions increased by more than 11 billion VND compared to 2012. In 2014, both the overdue debt and bad debt ratios decreased compared to 2013, so the risk provision ratio of the bank also decreased from 1.98% to 1.07%. The provisioning measure is a form of self-insurance for the Bank, this is a necessary and important thing in the current conditions to help Son Tay Branch be more proactive in managing and handling its bad debts.
Table 2.8: Table showing the ratio of DPRR/Total bad debt of the branch in the period 2012 - 2014
Unit: Billion VND
Target
2012 | 2013 | 2014 | |
Amount of DPRR provision | 23.76 | 34.85 | 17.45 |
Bad debt balance | 1,430 | 22,206 | 15,612 |
DPRR/Bad debt ratio | 16.6 | 1.57 | 1.12 |
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(Source: Financial report for the period 2012 - 2014)
Thus, in the past 3 years, the Bank Branch has always set aside risk provisions in excess of the bad debt balance at the Branch, providing sufficient basis to offset losses caused by bad debt when necessary. In fact, the Bank always has many measures to minimize losses caused by bad debt and the DPRR fund is often only the last tool used in force majeure situations to handle the consequences of a certain bad debt. Therefore, the maintenance level of the DPRR fund is quite cautious, ensuring the necessary credit safety for banking business activities.
2.2.2. Causes of bad debt:
2.2.2.1. Subjective causes:
Bad debt of banks can come from many sides, but first of all it comes from the banks themselves.
- The branch's credit policy has played an important role and been effective in credit management and control, but has also revealed certain shortcomings and limitations. In order to implement the annual business plan assigned by the Head Office, the branch has often accepted low-quality loans to achieve its growth targets and complete its business targets. The consequence of this lending is that bad debts arise quickly when the business operates ineffectively or the financial market situation fluctuates complicatedly.
- Due to inaccurate assessment and classification of customer risk levels, the credit scoring and customer credit rating process still has some limitations, leading to customer loans with many potential risks that credit officers cannot fully anticipate. When bad fluctuations occur, customers cannot repay the principal and interest as originally planned, resulting in bad debts for the bank.
- The system of checking and monitoring credit activities has not really been effective. Currently, the branch has not yet introduced an effective remote monitoring tool for credit operations to control, detect and promptly prevent deviations, unintentional or intentional errors in the operations of officers in positions in the credit processing chain.
- The qualifications and experience of credit officers at Son Tay Branch are still inadequate. Credit officers are mostly young, with an average credit age of about 2 years, the number of officers working in credit is about 10 officers (including 3 department heads), on average each officer has to take on about 30 customers with an average outstanding debt of about 250 billion VND. In addition, credit officers are also under pressure to grow other products and services such as capital mobilization, guarantees, etc. Therefore, in the analysis of socio-economic information, analysis and evaluation of loan projects, there are still many limitations, subjectivity, slow detection of potential risks, leading to
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Mistakes in lending decisions lead to poor credit quality over time, resulting in bad debt.
On the other hand, due to the large workload and large number of specialized customers, credit officers have little time to visit customers, so they cannot promptly grasp the production and business situation and financial situation of customers, leading to slow response when customers encounter unfavorable situations, newly discovered risks occur, leading to bad debt for the bank.
2.2.2.2. Objective reasons:
Besides subjective causes from the bank, bad debt at Son Tay Branch also comes from some objective causes such as:
Unfavorable business environment.
In 2011, inflation increased, followed by an interest rate race among banks, with lending interest rates continuously increasing at high levels, at times increasing to 22-25%/year, surpassing the profit margin of many businesses. The pressure to pay interest weighed heavily on businesses borrowing capital, leading to high costs, reduced profits, and a significant decrease in the financial capacity of businesses, slow capital turnover, failure to properly implement bank debt repayment plans, leading to a sudden increase in overdue debt and bad debt. Businesses with financial difficulties encountered obstacles in paying for goods, slow collection of sales proceeds, businesses not paying debts on time, leading to banks having to adjust debt terms, extend debts and transfer debts to overdue debt and bad debt. By 2012, inflation was better controlled, interest rates began to tend to decrease. The operating interest rates and maximum capital mobilization interest rates in VND were adjusted down by 5-6%/year. Along with that, the State Bank has also reduced the ceiling interest rate for mobilization many times to reduce the lending interest rate level, support and remove difficulties for production and business activities of enterprises. The stable downward trend of market interest rates has been maintained in 2012, 2013, and 2014, although
However, business activities of enterprises have not yet recovered, there are still many difficulties so the ability to repay debts to banks is poor.
The ability to manage and operate production and business activities of customers is still limited. In fact, in our country, not all leaders have knowledge and skills in business administration, ... This limitation leads to poor business organization, ineffective use of borrowed capital, and inability to repay debts to banks according to the signed loan contract. Poor financial management is also a common phenomenon in the market economy. Enterprises that want to sell goods must accept to sell on credit to buyers, but partners are reluctant to pay, so borrowers do not have the resources to repay the bank. Especially in difficult times such as the period of 2012-2014, weak demand leads to a large inventory of enterprises, and if goods cannot be sold, no one wants to pay for imported goods. This leads to a chain of links in the economy causing overdue debts to banks.
Enterprises deliberately deceive banks, have no goodwill to repay the bank. Currently, the situation of customers dealing with banks in providing dishonest financial data is common. When borrowing capital, customers want to create a healthy financial situation for themselves to be able to easily access loans, are willing to draw up financial reports, profitable investment projects to be accepted by the bank for loans. In addition, bank officers mainly only analyze the business situation of customers based on the financial reports provided by the borrowers, and the assessment and understanding of the real financial capacity of customers is still weak. This makes it difficult for banks to grasp the situation of production and business activities as well as the management of loans at the borrowing unit. In addition, the phenomenon of many customers deliberately appropriating bank capital, using loans for the wrong purpose is also quite common. Many customers do not want to apply for a bank loan because they have to wait for the review and resolution time.
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Therefore, when borrowing capital from the Bank, after using the loan capital for production and business activities and recovering the capital, customers continue to use the proceeds for other purposes such as investing in real estate, machinery and equipment... instead of repaying the bank as initially committed, which leads to customers not being able to repay the Bank's debt in full and on time, causing bad debt at the bank.
The information system in the market is not transparent, complete and timely. On the part of the borrowers, the lack of necessary information greatly affects the business performance of the customers. In the context of a market economy, understanding information is extremely important, it can decide the success or failure of all activities and production and business projects of corporate customers. For individual customers, understanding information about the market such as the prices of goods they want to buy (cars, real estate, studying abroad, building materials, etc.) can help significantly reduce costs if purchased at the right time. Due to lack of information and not understanding the economic situation, many borrowers have launched products that are not suitable for market demand, leading to unsaleable products. Many customers invest at the wrong time, causing high costs, low efficiency, wasting capital, and not being able to repay the bank. On the bank side, incomplete and untimely information leads to incorrect assessments of borrowers and investment projects, leading to inaccurate lending decisions. In addition, slow and incomplete information also causes difficulties for credit officers in managing and monitoring loans after disbursement, delays in detecting customer violations as well as recognizing loan risks, leading to slow response when risks occur.
2.3. Current status of bad debt handling at Vietnam Joint Stock Commercial Bank for Investment and Development - Son Tay Branch:
2.3.1. Bad debt handling organization model of Vietnam Joint Stock Commercial Bank for Investment and Development - Son Tay Branch:
The management, detection and handling of bad debts at the Vietnam Joint Stock Commercial Bank for Investment and Development - Son Tay Branch is carried out by the Credit Management Department and the Risk Management Department at the Branch. This task is part of the credit risk management process, which is clearly decentralized from the central to local levels in the Vietnam Joint Stock Commercial Bank for Investment and Development system.
Credit Council
General Director
Risk Management Committee
TW | Deputy General Director of RR Management | |
Diagram 2.2: BIDV's Risk Management Model
Board of Directors
RR Management Committee
RR Processing Council | |
Credit Management Department
Credit Risk Management Department
Branch Manager
Deputy Branch Manager | |||
Department of Business Administration , Science and Technology , Credit Management , Risk Management | |||
Grassroots Credit Council
The detection and handling of bad debt is carried out by the Branch sequentially through 7 basic steps:
Step 1: Detect signs of problem debt and classify debt
Step 2: Check the problem debt profile
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body
Step 3: Asset valuation
Step 4: Meet and discuss with customers
Step 5: Develop and approve a specific problem debt resolution plan.
Step 6: Take specific debt settlement measures
Step 7: Save the file
With a bad debt handling organizational structure that has a close relationship in the bad debt handling process, a clear separation of tasks and a scientific and effective coordination mechanism, the bad debt handling activities of bank branches have become more professional, conducted in a methodical, orderly manner and ensuring compliance with the law. At the same time, BIDV has created for itself a bad debt handling apparatus with appropriate and unified related policies, helping the bank to focus on bad debt handling on the one hand, and on the other hand, still concentrate resources on profitable activities, ensuring the stable development of the bank.
2.3.2. Bad debt handling measures of Vietnam Joint Stock Commercial Bank for Investment and Development - Son Tay Branch:
Every year, based on the results of debt classification and risk provisioning, Son Tay Branch proactively reviews and develops plans and measures to handle bad debt while controlling the increase in bad debt to bring the bad debt ratio below the industry average, ensuring safety in the bank's credit activities.
Developing a detailed plan for handling bad debt for each loan, each customer according to each group of handling measures helps the bank's Board of Directors have a comprehensive picture of the bad debt situation as well as specific solutions to handle bad debt, give correct instructions, create favorable conditions for officers to handle bad debt according to the measures built in the plan, and easily monitor and urge the debt handling process.
In the past time, Son Tay Branch has proactively reviewed and developed plans to handle and recover bad debts according to specific measures as follows:
2.3.2.1. Handling bad debts through direct recovery and through foreclosure of secured assets:
Credit officers, credit administrators and credit risk managers at the Branch proactively review, analyze and evaluate the actual situation of customers (revenue, inventory, receivables, etc.) to request customers to proactively sell inventory, focus on debt collection as well as other legal sources of revenue of customers to repay bank loans. At the same time, credit officers must closely monitor customers' cash flows (especially cash flows from revenue of corporate customers through deposit accounts opened at the branch) to promptly collect debts, avoiding customers using this source for other purposes.
For assets securing loans, when customers do not fulfill their loan repayment obligations, according to current regulations, banks have the right to request the handling of the secured assets to recover the debt. The request for handling of secured assets to recover the debt can be done by requesting customers to sell the assets themselves or filing a lawsuit in court to request the sale of secured assets to recover the debt.
During the period from 2012 to 2014, Son Tay Branch recovered 72 billion VND through direct debt collection and auction of secured assets. This is a fairly positive result, however, with this measure, the bank still faces many legal difficulties in the process of handling assets, especially secured assets such as land use rights.
2.3.2.2. Debt settlement by debt restructuring method:
Debt restructuring is a measure used when a debt is due but the branch assesses that the customer is unlikely to repay the debt to the branch according to the previously signed repayment schedule due to the customer's difficulties in production and business. However, if the branch implements the restructuring,
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