Solutions to limit bad debt in real estate lending at Joint Stock Commercial Bank for Investment and Development - 10
In order to effectively limit credit risk in real estate lending , like other banks, BIDV Quang Trung is always cautious, careful and accurate in the appraisal of loan projects. Next is to select the most suitable borrowers with stable financial capacity and highly feasible investment projects. With such a method of risk management, BIDV Quang Trung has somewhat limited its risks, but compared to other banks, these forms are only traditional forms without many new forms. Currently, some banks have provided accompanying services such as consulting and brokerage in real estate business, etc. This is an issue that banks need to pay attention to when implementing the principle of credit risk management in the field this sensitivity of the bank.
Credit risk at BIDV Quang Trung has been limited to a certain extent, but the actual level of credit risk restriction is still worth discussing. With the most recent bad debt figure of 0.02% (June 30, 2013) compared to the total outstanding loans, this is a dream figure in the current difficult banking situation. Although in 2013, the phenomenon of frozen real estate market affected the operation of many banks.
Although very successful in limiting credit risks, in credit activities of BIDV Quang Trung, there are still some weaknesses such as:
Loan structure is still unbalanced Currently, the bad rate in real estate lending of BIDV Quang Trung is at a very low level. It seems that the credit quality has improved a lot. But actually the current loan portfolio is potentially very risky.
Although the structure has changed, in general, the structure of medium and long-term loans still accounts for a high proportion of total assets, up to 21% is outstanding loans for real estate business while the bank’s capital is mainly short-term. term. Credit growth is higher than capital growth. Focusing on medium and long-term loans will have many potential risks such as: + Medium and long-term investment capital mainly focuses on infrastructure projects, consumer loans, and long payback period. But for loans, the collateral is real estate, with such a long term, the risk due to real estate price changes is unavoidable. For example, in 2012, the frozen real estate market made many commercial banks difficult.
+ The bank’s mobilized capital structure is mainly short-term, medium-term and long-term, accounting for a very low proportion, but medium and long-term loans account for a high proportion (nearly 60%). Thus, BIDV Quang Trung has taken a large amount of short-term deposits for long-term loans. But short-term deposits are often withdrawn and deposited regularly while the remaining capital in long-term projects can cause the risk of insolvency for the bank. Although this case is unlikely to happen, it is also a remarkable issue for BIDV Quang Trung to avoid risks.
+ The period of economic growth, consumer sentiment and investment usually have an extension. This is a matter of law, depending on the economic cycle. However, the debt repayment capacity, especially of medium and long-term projects, may change a lot when the economic cycle comes to a halt.
+ Medium and long-term credits focus mainly on large-scale, complex projects whose due diligence requires a high level of expertise that, by true market standards, may exceed capacity capacity, experience and supervisory ability of credit officers.
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- Current Status Of Bad Debt In Real Estate Lending At Joint Stock Commercial Bank For Investment And Development Of Vietnam And At Bidv Quang Trung Branch
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- Solutions to limit bad debt in real estate lending at Joint Stock Commercial Bank for Investment and Development - 11
- Solutions to limit bad debt in real estate lending at Joint Stock Commercial Bank for Investment and Development - 12
Abuse of collateral Currently, to decide on a loan, according to regulations, BIDV Quang Trung mainly considers the bank’s debt collection from business plans and collateral.
However, the reality shows that banks mainly consider collateral as a criterion for lending because it is still difficult to consider debt repayment capacity such as credit officers must be more qualified in finance, have to Analyze many factors about the market, about the borrower’s operation situation. While debt collection from collateral is almost always real estate, there are many risks such as land price risk, especially in our country, and debt collection from the sale of collateral in general is also very time consuming and expensive. bank fees. Therefore, BIDV Quang Trung’s management should direct credit officers to determine revenue sources and assess customers’ debt repayment ability through the order of priority: Revenue from business plans and projects (first source of revenue) ) followed by income from the sale of collateral (the second source of income, also known as provisional revenue) and finally from other revenue sources such as:production and business, from funding sources, other capital… to minimize credit risk.
CONCLUSION CHAPTER 2
In chapter 2, the main content is mentioned is the situation and causes of bad debt in real estate lending at BIDV Quang Trung branch and in the whole Vietnamese banking system in particular. In addition, the content of chapter 2 also mentions the impact of bad debt in real estate lending on the operation of the banking system and BIDV Quang Trung branch. Based on the analysis of chapter 2, the content of chapter 3 will propose some solutions to limit bad debts in real estate lending at BIDV Quang Trung branch.
CHAPTER 3: SOLUTIONS TO CONTROL NORTH DAILY IN LANING FOR REAL ESTATE BUSINESS AT BIDV BANK – QUANG TRUNG BRANCH
3.1 Orientation on limiting bad debt in real estate lending at BIDV Vietnam – Quang Trung branch
The socio-economic situation in 2013 has had positive changes, in the right direction, solutions to curb inflation and stabilize the macro-economy have been effectively promoted; However, the real estate market continues to face a crisis and depression, occurring with most of the real estate segments, affecting the production and business situation, the capital is backlogged, affecting the real estate market. to other industries such as cement, iron and steel, interior decoration…
The biggest success, covered during the renovation process of BIDV Quang Trung branch in recent years, has been the change in management methods, business practices and economic thinking. Therefore, the Bank has successfully completed its business targets, maintained stability and growth, and enhanced its reputation with customers, domestic and foreign partners. That result was achieved thanks to the combination of efforts of the leaders and all employees of BIDV Quang Trung, the support of the Government, the State Bank, ministries, branches, local authorities and organizations international organizations (operating in the field of Banking – Finance).
However, from now to the next decades, the operation of commercial banks in our country must continue to be deeply and comprehensively renewed in line with the Party’s line to adapt to the market mechanism, serve and promote development. develop the country’s economy, increase the ability to integrate with the world. Thus, the task of new commercial banks in the coming years is to find ways to create and develop their own strengths. Banks that do not innovate strongly will not have the opportunity to survive and develop. Especially in the current period, when Vietnam joins WTO, foreign banks with strong financial potential, professional qualifications and long experience will be fierce competition for Vietnamese commercial banks. .
Well aware of that, BIDV Quang Trung has researched and built for himself a long-term development strategy (specifically from now to 2020) on the basis of assessing the advantages and disadvantages in the economic context – social and international situation.
This strategy is the guideline for all activities, information and action coordination in the branch.
BIDV Quang Trung’s operating motto: safety – efficiency – safe growth in all business fields, efficiency brings socio-economic significance, growth in line with the country’s economic development and monetary policy of the banking industry. Providing perfect banking services to customers, deeply grasping the motto of bringing success to customers as the responsibility and obligation of the Bank is the motto of BIDV Quang Trung.
Orientation for lending activities in general and especially real estate lending in particular:
Maintain and keep credit growth rate, enhance credit quality and efficiency. In which, the focus is on lending to customers who are small and medium enterprises (customers account for nearly 80% of the total outstanding loans at the branch). Besides, still maintaining relationships with large enterprises and other financial institutions.
Ensuring credit capital needs for customers who are import-export businesses, trading in raw materials, construction… Promote investment for businesses operating in the fields of basic construction, transportation transportation… Focus on medium-long-term loans for projects and economic fields encouraged and prioritized by the State such as oil and gas, electricity, postal services, aviation, railways… Increasing investment in the field of production and business of consumer goods, first of all, to invest in the expansion of the scale and technological innovation of the existing facilities.
Promote trust credit activities and accelerate disbursement of projects with foreign capital that have been committed.
Stop investing and gradually withdraw outstanding loans from real estate businesses that do loss or are unstable, with unhealthy financial situation. Limit lending for real estate projects in the current situation of the real estate market.
Continue to focus on implementing credit risk management in the real estate sector, to avoid letting the branch fall into the bad debt crisis in real estate lending like the whole commercial banking system is facing.
With the motto of operating for the success of customers, BIDV Quang Trung always associates its activities with the development of businesses. Therefore, the future orientation of the branch should achieve the following objectives:
Firstly, ensure balance and initiative in capital. Use appropriate forms of credit, invest in services to meet the needs of customers to the fullest extent.
Second, perform well research on the capabilities and needs of customers at present and in the future. Along with that is to further promote the implementation of Marketing activities at all stages, all professional departments, internal departments of the Bank.
Good implementation of customer policy will be a key step for the Bank to increase the number of customers, thereby expanding high-quality credit investment opportunities, improving the bank’s reputation, and increasing business efficiency as well. contribute to the development of the country. Orientation to limit and manage bad debts in real estate lending:
In 2012, although the Branch has taken measures and efforts to reduce overdue debt, it has not been thorough. Looking forward to 2013, the Branch has plans in this work as follows:
Strengthen the inspection work before, during and after lending. In which, appraisal is one of the important stages in deciding the effectiveness and safety of the loan.
Loan records in particular and credit records in general: Step by step arrange, correct according to the regime and keep carefully.
Paying attention to the collection of due debts, overdue debts, collection of loan interests, collection of risky debts. This should really be monitored regularly for each loan.
Every month, credit officers and related departments must work closely together in notifying each other of due debts so that credit officers can urge customers to pay their debts on time or extend their debts if necessary, avoiding excessive debt transfer. term if not needed.
To implement the above plan, it is necessary to have the coordination of relevant agencies such as the State Bank, the Government… along with the Head Office, in addition, the cooperation of customers in debt repayment is also required. on time, in accordance with the contract.
3.2 Solutions to limit and manage bad debts in real estate lending at BIDV Vietnam – Quang Trung branch
3.2.1 On building effective risk prevention measures
The branch has developed a risk management strategy in line with the bank’s own business strategy from time to time and can be flexibly adjusted depending on credit market developments. The bank’s risk management strategy in general to limit bad debts in real estate loans has initially been consistent with the bank’s strengths and weaknesses, opportunities as well as threats. from the business environment.
For the real estate market, customers operating in this field mostly use real estate as collateral. When the market went downhill and banks simultaneously tightened their debts, customers were forced to sell houses and real estate, causing an oversupply in the market. Meanwhile, if demand increases slowly or even decreases, real estate prices will continuously decrease. Consequently, the value of the collateral also decreased sharply, even below the mortgage price when borrowing, and it was difficult for the bank to sell the collateral to recover the debt. This is why banks are now very cautious in lending to customers related to the real estate sector.