VPBank's Credit Growth Compared to the Whole System

The outstanding debt to total assets ratio of the bank has increased steadily over the years, with the growth rate fluctuating between 9% - 11%, the lowest outstanding debt/total assets ratio of the bank in 2012 was 43.1% and the highest in 2017 was 70%. By 2018, the outstanding debt/total assets ratio was: 68.7%. Thus, it is clear that VPBank's annual income has a large contribution from credit activities. Also according to statistics, if comparing the total outstanding debt/equity value ratio of the bank each year, the average ratio is 8.53%. In order to match the growth rate of credit activities, the bank has adjusted to increase equity each year, the average equity growth rate is ~36.2%. In addition, VPBank's credit growth rate compared to the entire banking system is recorded as follows:

Table 3.3. VPBank's credit growth compared to the whole system

(unit:%)

Year

2010

2011

2012

2013

2014

2015

2016

2017

2018

February 2019

Credit growth

whole banking system

row

27.65

9.1

12.51

14.16

17.29

18.71

18.17

8.4

VPBank's credit growth

26.8

49.1

23.8

26.2

17.3

14.7

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(Source: Author's synthesis)

Looking at the above statistics table, it can be seen that VPBank's credit growth rate in the 5 years from 2012-2017 was always higher than the credit growth rate of the entire banking system. Especially in 2014 and 2015, the growth rate reached 49%. However, by the end of 2018, VPBank's credit growth rate decreased compared to the end of 2017, reaching only 17.3% but still higher than the industry average. The reason for such a sudden increase is that in 2014, VPBank established VPBank Finance Company (VPB FC) to expand and focus on the consumer credit network, so in the first 2 years after implementing this plan, VPBank's credit growth rate had such a leap. The plan to focus on the strategic segment of credit for individual customers of the bank has gradually brought positive business results to the bank. This

It is clearly shown that starting from 2017, 79% of VPBank's total operating income came from strategic segments. In 2018, despite a decline in credit growth rate due to strong competition from other commercial banks in VPBank's target strategic customer segment, this segment still contributed a large proportion to the total income of the segments at VPBank. Specifically as follows:

Unit: %

(Source: VPBank Annual Report 2018)

Figure 3.3. Contribution to total income of segments at VPBank in 2017-2018

According to statistics, in the first year of the third phase of the strategy (2018), 80% of operating income was contributed by the strategic segment. In which, FE credit, with its leading position in the consumer finance sector (accounting for 55% of Vietnam's market share), generated more than VND 16 trillion in revenue, contributing 52% to the total operating income of the entire bank. The KHCN segment continued to have a successful year with a growth rate of 22% compared to the previous year (accounting for 18% of VPBank's total revenue in 2018), demonstrating its spearhead role as a strategic segment. The Small and Medium Enterprise (SME) Customer segment recorded a TOI increase of 34% in this segment, thanks to its strong focus on the micro-SME sub-segment with simple unsecured loan products that created a breakthrough in margin interest, contributing 6% of the bank's total income. In 2018, the Small Business Credit Division had high growth in both total net revenue and loan scale thanks to the construction of a nationwide network to help small businesses receive timely financial support, accounting for 4% of the bank's total revenue. The satellite business segments of the Large Corporate Clients Division, the Financial Markets Division, the Financial Institutions Center and Transaction Banking... also

marking many positive changes, increasing income for the Bank, contributing 20% to revenue for the entire system.

Unit: billion VND

Source: VPBank's business results report 09 months/2018

Figure 3.4. Loan structure by type

VPBank's loan structure at the time of Q4/2017 had a total outstanding loan balance of: VND 196,673 billion, of which VND 127,993 billion (accounting for 65.1% of total outstanding loan balance) was secured loans, unsecured loans were VND 72,096 billion (accounting for 34.9% of total outstanding loan balance). By the end of Q3/2018, these figures changed as follows: secured loans increased by VND 9,075 billion compared to Q4/2017, accounting for 64.9% of total outstanding loans at this time, unsecured loans also increased by VND 5,344 billion compared to Q4/2017, accounting for 35.1% of total outstanding loans. Thus, it is clear that unsecured loans (without collateral) account for a significant proportion of the loan structure at VPBank and if the bank does not have good measures to manage these loans, the risks arising from granting credit to unsecured customers are very high.

Unit: % (Source: VPBank Annual Report 2018)

Figure 3.5. Loan structure by segment

In general, at the end of 2018, VPBank continued to focus its business activities on four strategic segment pillars: Consumer Finance (FE credit); Individual customers: Production households and small traders; Corporate customers. This is reflected in VPBank's lending structure by segment. Specifically, at the end of 2018, the strategic customer segment accounted for 68% (equivalent to VND 150,934 billion) of the total outstanding loans of customers .

As mentioned above, VPBank's current business orientation is in the retail market, with the core customer segment being individuals, business households and small and medium enterprises. Therefore, the scale of lending to the household employment sector and the production of household consumer goods always accounts for the highest proportion in VPBank's total outstanding loans by sector. Specifically: On December 31, 2017, outstanding credit was VND 80,966 billion (accounting for 44.34% of total outstanding loans at this time), and on December 31, 2018, this proportion was VND 93,833 billion (accounting for 42.26% of total outstanding loans).

VPBank's business results in recent years have helped VPBank achieve its goal of becoming one of the largest non-state joint stock commercial banks in Vietnam. One of the important factors contributing to

Part of this success is the shift in focus to retail credit activities since 2012, which has brought great results to VPBank. Revenue from the individual customer segment, consumer finance and small and medium enterprises currently accounts for nearly 80% of the Bank's total revenue. In the period from 2012 to 2017, VPBank's credit growth has always been maintained at 36.2%, 2.4 times higher than the average growth rate of the banking industry in the same period. This is also the result of implementing a business strategy focusing on the retail market segment. By 2018, although VPBank's credit growth rate had declined, only at over 17% due to increasingly fierce competition among Vietnamese commercial banks in VPBank's strategic customer segment, VPBank's credit growth rate was still higher than the industry average in 2018 (14%).

3.2.1.2. Current status of credit risk at VPBank

In recent years, with a business strategy focusing on potential but risky segments (consumer credit, bonuses, etc.), VPBank has quickly joined the group of banks with the most effective operations in recent years and is aiming to become the leading retail bank in Vietnam... Some indicators to reflect credit risks at VPBank in recent years are as follows:

Table 3.4. Some indicators reflecting credit risk at VPBank

Unit: %

Target

06 month /2019	2018	2017	2016	2015	2014	2013	2012	2011	2010
Bad debt ratio	< 2	3.2	2.9	2.03	2.56	2.54	2.81	<3	1.82	1.2
Provision rate preventive		4.9	4.1	3.3	2.6	1.1	1.6	1.1	0.5	0.4
Credit growth rate	7.33	17.3	16.96	24	27.6	40	42	26	16	66

Source: VPBank's annual report from 2010 - June 2019 [5]

VPBank's credit growth rate from 2010 to 2018 averaged ~34.3%. VPBank's bad debt ratio remained at 2.51%; overdue debt balance tended to increase gradually each year with an average growth rate of ~30.6%, and the average provisioning ratio increased by 2.2%. These figures all reflect the actual credit performance of VPBank from 2010 to June 2019: the credit growth rate has always been high compared to the industry average of ~ 16%, so the rate of RRTD is quite large, this is reflected in the bad debt ratio of VPBank in recent years at a level approaching 3% (the level prescribed by the State Bank), especially in 2018, the Bank's bad debt ratio was 3.2%, higher than the State Bank's regulations, this is completely consistent with the increase in the provisioning ratio in 2018 is completely reasonable. The reason for this RRTD is that the form of consumer credit (one of VPBank's main credit products) is quite risky, especially when the economy is entering a downward cycle.

3.2.2. Credit risk management model at VPBank

Since its establishment, VPBank has undergone structural and organizational changes to perfect the risk management model suitable for each stage of the business process. The credit risk management model at VPBank over the periods has always ensured compliance with the management, operation and business strategy requirements of the Bank. VPBank is implementing a centralized credit risk management model.

(Source: website VPBank.com.vn and author's synthesis)

Figure 3.6. Credit risk management model at VPBank

Functions and tasks of some departments in the RRTD management system at Vpbank:

Board of Control:

Supervise compliance with the provisions of law and VPBank's Charter in the management and operation of VPBank; be responsible before the law and the General Meeting of Shareholders for the performance of assigned tasks and powers; Be responsible for issues related to the internal audit department, the internal inspection and control system according to the regulations of the State Bank. Have the right to use independent consultants and the right to access, fully, accurately and promptly provide information and documents related to the management and operation of VPBank to perform assigned tasks. Currently, VPBank's Board of Supervisors has 03 members, of which 02 are full-time members, directly under the Board of Supervisors, which is the Internal Audit Division. Annual professional work: VPBank's Board of Supervisors periodically reviews VPBank's financial statements audited by an independent auditing unit; supervises the activities of VPBank's Board of Directors according to the criteria of functions and tasks as prescribed by law, VPBank's Charter, and the Resolution of the General Meeting of Shareholders.

QTRR Block:

As a unit under the VPBank Headquarters, established by the Board of Directors, under the direct management of the General Director and in charge of risk management activities throughout the VPBank system. Risk management includes credit risk, market risk and operational risk to ensure VPBank's business activities are safe and effective.

Organizational structure of risk management block:

(Source: Regulations on organization and operation of Risk Management Block)

Figure 3.7. Organizational structure diagram of VPBank Risk Management Division

In the risk management block related to the credit sector, there are specialized functional departments in charge of: KHCN credit risk department, credit risk department

SME, CMB, CIB and FI credit risk department, debt management and collection center, debt structuring department, credit monitoring department, project board to promote risk management improvement (RIAT- Basel 2). These departments are responsible for the entire risk issues related to the customer segment they manage, acting as a bridge between the QTRR block and the individual customer, SME, CMB, CIB and FI blocks; consulting on risk aspects for credit products offered by these blocks; proposing and managing the quality of credit portfolios; building and managing the debt classification system and risk provisioning; participating in the development of regulatory documents guiding the management of problem loans across the VPBank system; submitting to competent authorities for approval financial solutions for problem loans; debt collection;… Credit monitoring department performs the function of monitoring high-risk group 1 debts according to VPBank's regulations in each period. Debt structuring department: acts as the focal point for receiving and appraising problem debt structuring plans and channeling financial solutions. Debt management and collection center: is the focal point for receiving debts that need to be channeled, appraising and evaluating channeling proposals of business units, monitoring credit and giving independent opinions on channeling proposals, developing debt collection plans, and reminding customers of debts. It can be seen that, with the current organizational structure of VPBank's Risk Management Division, RRTD management is very interested in and focused on development by the Executive Board.

Credit block:

As a unit under the General Director, the main function of the Credit Division is to appraise and approve credit for customers in the appraisal and approval stream of the Credit Division, to implement; advise and assist the Executive Board in managing and operating the entire system on re-appraisal operations; propose ideas to improve credit-related activities such as credit policies, credit appraisal, credit approval, etc. In addition, in order to manage credit risks most effectively, VPBank's Credit Division also established a post-loan control department to manage post-credit activities for each customer. The function and task of the Department is to inspect and supervise the bank's regulations and specific credit approval content of business units and related support units; promptly detect risks and coordinate with related professional departments to prevent and handle post-loan risks arising, etc.

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