Solutions to limit bad debt in real estate lending at Joint Stock Commercial Bank for Investment and Development

In addition, loans for real estate business , despite high interest rates, do not have additional services, have a long loan period, and pose great risks while banks are limited in their medium and long-term credit ratios. However, the bank’s risk management strategy has not been concretized and has not been consistently mastered for all departments in the bank. On the other hand, this strategy is only approached from the perspective of risk management of individual loans, but has not been approached from the perspective of credit portfolio management.

Therefore, branches need to be aware of the potential risks that may occur before accepting loans to customers, especially in the field of real estate lending to prevent and minimize the risks. bad debts arising in this area adversely affect the credit situation of the branch.

Besides, building and implementing credit management process is also a very important task in the bank. The branch has strictly implemented the credit management process in real estate lending: from appraisal, loan disbursement to pre- and post-lending inspection… The construction, implementation and management Strict credit management process has helped the branch avoid the risk of bad debts arising, detect and correct mistakes and shortcomings in the bank’s business activities in a timely manner. In addition, branches also need to regularly inspect and supervise all types of credit on a certain period of time, develop plans, programs, and contents of the inspection process carefully and in detail. , control and regularly monitor large loans,Strict and regular management of problem credits.

In addition, the branch needs to continue to improve the stage of risk assessment, assess the solvency of customers and rank customers. The risk assessment stage is considered to be the decisive step in limiting credit risk. Each bank has its own scoring and ranking process, but each evaluation process is subjective and sometimes does not cover many cases that occur in reality.

Assessing the customer’s debt repayment ability including: Determining the right source of revenue, analyzing and assessing the collection ability, the time of debt collection and making a commitment with the customer to perform is a very important job to ensure implementation. commitments to the Branch’s Board of Directors are also the basis for the implementation of commitments in the credit contract. After solving difficulties together, if the customer still cannot do it, the loan termination will both ensure the legality and ensure the branch’s business culture.

The customer credit scoring process currently used by the branch is a fairly standard process and is used by many commercial banks. Demonstrating success in the bank’s credit risk reduction performance. This system allows credit officers to evaluate on financial, legal and operational criteria. The rating is based on the results of risk assessment and collateral assessment.

This system has been helping a lot to the bank’s operations, so it is very important to continue to maintain and improve this process.

At present, staff at the branch are too focused on the second source of debt collection (from collateral) while the first source of debt collection (from business plans and projects) is rarely mentioned. While this is the main source of repayment of customers. Credit officers should compare and analyze the situation of loan use, calculate and determine revenue sources, assess debt repayment ability on that basis as a commitment and specific repayment schedule with customers. Credit officers must determine the source of revenue and assess the debt repayment ability of customers through the order of priority: revenue from business plans and projects (first source of revenue) followed by receipts from the sale of collateral assets. secured (the second source of income, also known as provisional revenue) and finally from other sources of income such as: from production and business, from funding sources, other capital… In the process of determining revenue sources, assessing ability to receive,To make a commitment to the customer about the progress of debt repayment, staff should combine assessment and check the accuracy of the data, the development trend (worsening or gradually improving) to have the right investment plan to ensure the right investment. safe, effective.

In addition, the business can only take part of the profitsrepay the debt and the capital to remanufacture to ensure normal operation. For businesses that still have credit relations, they can use them to repay old debts and borrow new ones, and for businesses that have cut their credit relationships with branches, they cannot repay by any means. However, officials still have to calculate to know if the enterprise is still in production and whether production is profitable or lossy? To accurately assess whether a business produces a loss or a profit and confirms whether there is a profit to repay the debt? It should be noted that some expenses that businesses often avoid such as depreciation of fixed assets, interest on bank loans… Pay special attention to accounting and allocating amounts to be deducted and paid according to regulations, not accounting. , allocate the deducted, paid as many businesses are currently doing for the purpose of falsifying business results.

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The form of continuing to lend to raise debt must be evaluated very carefully for each option and once the loan is granted, it is necessary to strengthen the management to achieve the goal of debt reduction.

In addition to the above revenues, the enterprise may also have a number of other amounts that can be obtained such as funding sources from the governing body, due investments, sale of other assets, issuance of shares, etc. must be evaluated and evaluated on a case-by-case basis.

3.2.2 Solutions to strengthen bad debt management in real estate lending at BIDV Quang Trung

3.2.2.1 Solutions to prevent bad debt from arising

– Completing customer information system

The more information the Bank knows about customers in terms of both quantity and quality, the lower the risk for the Bank in credit activities. In addition, the search for information related to customers such as information about the customer’s business line or closely related industry or how the input and output factors change. Along with that, the fluctuations of the domestic and international economic developments will affect the business activities of customers or not.

Although the State Bank now has a CIC credit information center in the credit support and risk management department, the updated information is still slow or incomplete. In addition to exploiting information from the State Bank or at the Bank itself, information needs to be exploited from many other sources such as the mass media, customers’ partners and through contact with customers. customers or related relationships.

– Training and developing resources

This is a limitation not only in BIDV but almost other banks in Vietnam. With the motto not only providing to meet the needs of customers but also consulting to help businesses overcome difficulties, use capital effectively to help business operations better. However, because there are many professions, although bankers are trained from economic schools specializing in finance and banking, their knowledge of each profession is still limited and they do not have a clear understanding of each profession. specific. Therefore, it is important to pay attention to the following measures:

+ Standardize credit officers: Credit officers are a very important part of the branch, who bring great profits to the bank but can also bring risks to the bank.

+ Appropriate qualifications: right from the recruitment stage, the branch needs to have some basic and strict standards. Officials must have formal training at prestigious universities, foreign language and computer skills are required in their future jobs.

+ Ethical qualities: this is an important standard for credit officers, deciding the issue of moral hazard in business.

+ Social understanding and communication ability: this is a factor that helps customers and banks understand each other better, making customers have sympathy for the bank. A good credit officer’s communication ability will easily find out a lot of information about customers for loan appraisal and management. + The Bank needs to develop a training policy to improve the quality of credit officers or other departments effectively, specifically to encourage the staff working at the Bank to continue studying to improve their skills. professional knowledge and market knowledge, send staff to participate in risk prevention training courses on the Head Office or classes organized by the State Bank of Vietnam and the Banking Association.

+ Encourage material benefits for credit officers: it is necessary to build a reward system in accordance with business requirements and profit goals of the bank.

– For the management system

Although bad debt is sometimes an objective factor, at the same time, the branch must also take preventive measures to limit the arising of bad debt. This is a regular measure and is set out at all stages in the branch’s operation. Therefore, in order to limit the arising of bad debt, the branch needs to strictly implement the credit and risk management process, which are:

+ Strictly implement the credit management model according to customer groups (internal rating system), properly classify, and apply customer policies and have detailed management hierarchies to each credit officer.

+ Modernize appraisal processes, especially for projects because the level of funding for projects is very large and high risk. Simultaneously, applying software for financial analysis and appraisal, deploying this system to the necessary credit management levels.

+ For the credit risk management system: The bank needs to conduct research to assess the operation situation of customers, especially large customers, thereby building an appropriate credit limit. Annually review business strategies appropriate to the economic situation, assess the risks involved as well as their acceptable level of risk. Focusing on the field of real estate lending, avoiding spread investment leads to low efficiency. Thereby, it is necessary to carefully study the development as well as the trend of each industry and economic sector and then have appropriate investment policies.

+ Credit process: strictly follow the credit process, this is a permanent solution in credit activities, not to be taken lightly and skip a step. Credit officers need to perform checks before, during and after lending.

+ Internal control activities: strengthen internal inspection and control to detect, prevent and promptly correct mistakes in business activities. Besides, it also detects and prevents ethical risks caused by relevant officials. + Strengthen inspection and supervision of borrowers to monitor possible risks:

Credit officers need to make unscheduled visits to their customers to check the loan use situation and the client’s production and business situation to have preliminary assessments of the loan project’s effectiveness. Along with that, credit officers should exploit different sources of information about customers. Thereby regularly adding information to the customer’s profile to accurately reflect the current situation of the customer and help the bank be more proactive in its relationship with customers. Banks need to learn carefully to take measures to help customers overcome difficult times and also limit the risk of increasing debt recovery.

+ Encourage borrowers to open accounts at their branches: in order to facilitate monitoring of customers’ production and business activities, branches should encourage customers to open transaction accounts at banks. Thereby, the branch can soon detect questionable issues so that there can be marketing measures to introduce the benefits of the payment means provided by the bank. In addition, the branch should also constantly improve service quality to suit the needs of customers.

In addition, it is necessary to make provision for risks to create financial resources for the bank to manage overdue debts and bad debts every year. The fact shows that bad debt settlement by this solution accounts for a rather high proportion of bad debt management solutions in real estate lending. Thereby, the effective use of this solution will reduce bad debts arising from commercial banks. BIDV Quang Trung needs to pay more attention to improving the efficiency of risk provisioning. However, the use of the reserve fund is also in the order of priority such as non-collectible debts, low-recoverable debts, and higher-recoverable debts. With recoverable debts, minimize the use of reserve funds and vice versa.

3.2.2.2 Solutions for bad debts in real estate business loans that have arisen

– Review all overdue debts, analyze and classify debts periodically

This is considered a prerequisite work in the management of overdue debt arising.

For good management, the branch must first understand the outstanding balance of the bank in general, each type of loan, each customer group and each specific customer. As a result, appropriate and effective remedial measures are proposed. Therefore, the following issues should be ensured:

+ The analysis must indicate the causes of each debt, the difficulties encountered in the management process (handling overdue debts). Synthesize the current status of outstanding debt of each customer and each type of loan… The analysis should be done seriously to avoid generalization and formality.

+ Deploy to each department, each credit officer to be responsible for overdue debts that he/she is in charge of.

+ Conduct regular and continuous analysis on a monthly, quarterly and annual basis.

Have a clear plan to manage bad debts, especially bad debts in real estate lending.

In order for bad debt management to be carried out quickly and smoothly, BIDV Quang Trung needs to have a clear management plan, because if it is merely a slogan to handle arising debts without specifying the roadmap, implementation, method of implementation and not having a plan in the near future will not work at all.

+ Classification of debts Banks need to analyze in detail the debts to take measures to deal with each type of overdue debt. This work should take place on a regular and continuous basis, to urge the collection of overdue debts for credit officers. For enterprises that have ceased operations and are only overdue debtors, the Bank should carry out procedures to file a court for dissolution or bankruptcy according to regulations.

+ Restructuring debts According to the regulations of the State Bank, the transfer of overdue debts and the restructuring of debts are two completely separate things. Debt restructuring is simply to help businesses have a repayment plan suitable for the difficult period they are facing. In order to help businesses, the Bank needs to analyze the current status of those debts, potentially risky debts and risk-treated debts to assess the debt recovery ability through secured debt analysis. , it is not guaranteed to take appropriate action. In addition, it is very important to have a close relationship with the Party committees, local authorities and relevant functional departments in lending and debt recovery. Currently, BIDV Quang Trung’s main measure is to take it to court, so having a good relationship with those agencies is extremely important.