Bank credit activities
The concept of bank credit
Bank credit is defined as a transaction where a credit grantor, such as a bank or credit institution, provides an asset to a credit recipient, which can be an individual, enterprise, or other entity, with the expectation that both the principal and interest will be repaid.
Bank credit has four basic characteristics:
- Transactional assets in bank credit are diverse, which can be in the form of currency, real assets, or signatures
- Risks in bank credit are inevitable and cannot be eliminated
- Full repayment of principal and interest is the essence of credit in general and bank credit in particular
- Repayment in bank credit is unconditional
Credit classification
Bank credit can be classified into several categories based on various criteria, each having a particular administrative function
Credit classification by the purpose of using loan
- Credit for production and business includes all credits to finance production and business Borrowers can be businesses, economic organizations, economic households, etc
- Consumer credit includes credits to meet the needs of buying houses, cars, spending, personal/household activities, etc
- Credit to other financial institutions is usually financed by large credit institutions/banks to small credit institutions to meet part of their loan needs
- Short-term credit includes credits with a term of 12 months or less, the main purpose of which is to finance seasonal working loan shortages and short-term consumption
- Medium-term credit includes credits with a term of more than 12 months to
60 months (5 years), the purpose is usually to finance fixed assets
- Long-term credit includes credits with a credit period of more than 5 years with the same purpose as medium-term credit
Credit classification by credit-granting method
Direct credit refers to the lending process where the bank engages directly with the borrower, conducting thorough assessments and analyses before granting credit This relationship involves both parties reaching a mutual agreement, culminating in the signing of a credit contract.
- Indirect credit is credit made by the Bank based on the redemption of undue debts on sale paper, commercial paper, and so on
Credit classification by the nature of security and creditworthiness of the borrower
- Secured credit is a type of credit made based on security measures following the provisions of the Civil Code (mortgage, pledge, guarantee, entrustment, etc.)
Unsecured credit refers to a loan granted solely based on the borrower's creditworthiness, economic efficiency, and repayment capacity derived from the cash flow of a specific project or plan, without requiring any collateral.
Credit classification by type of credit
Under Vietnam's Law on Credit Institutions, banks are authorized to engage in multiple forms of credit extension These include lending, discounting, guarantees, factoring, and financial leasing services, available to both organizations and individuals.
Lending is a credit-granting process where a borrower provides a specified sum of money to a customer for a designated purpose, with an agreement on the repayment of both principal and interest over a predetermined period.
- Discount is the purchase with a term or purchase with recourse to the beneficiary's negotiable instruments and other valuable papers before maturity
A bank guarantee is a credit extension where the bank assures the recipient that it will meet financial obligations on behalf of the customer if the customer fails to fulfill their agreed commitments.
- Factoring is a form of credit-granting to a seller or a purchaser through an acquisition with the right to recourse to receivables or payables arising from the sale of goods
Financial leasing is a medium to long-term credit option that involves an asset lease agreement In this arrangement, the lessor purchases an asset selected by the lessee, allowing the lessee to utilize it for a specified duration under a contractual agreement.
Concept of personal credit
Personal credit, as defined by Tran Huy Hoang (2007), is a type of credit extended to individuals for consumption or to aid in production and business activities This form of credit can be utilized by various individuals, including small traders, farmers, small business owners, students, and household representatives who may sign credit contracts on behalf of their families.
Features of personal credit
The overall size of bank lending is substantial, driven by a large volume of personal credit loan requests, despite each individual loan being relatively small This phenomenon is partly due to the low value of products and consumption habits, as well as borrowers' prior investments in valuable assets, prompting them to seek bank support for personal spending.
Managing personal loans is costly for banks, as they invest considerable time and resources in evaluating and gathering information about applicants prior to approving loans Additionally, the high volume of small-value personal loans complicates the management process for financial institutions.
Personal credit involves significant risks due to the potential for rapid changes in individuals' and families' financial circumstances, often influenced by employment or health issues The evaluation of personal credit lending is often based on limited information, which can lead to difficulties when problems arise Additionally, personal financial data can be as complex and opaque as corporate financial records, which are usually kept confidential.
Personal credit is a significant profit generator for banks due to the elevated costs and risks associated with these loans Consequently, banks typically charge higher interest rates on personal loans compared to other lending types This high return on personal credit contributes substantially to the overall income of the bank.
Credit risks in banks
Concept of credit risks
Credit risk is recognized as the most significant risk in banking, as outlined by Joel Bessis (2010) It refers to the potential for a counterparty to default on payment obligations This risk is categorized into several components: default risk, migration risk, and exposure risk, which reflects the uncertainty regarding the future value of the amount subject to loss at the time of default Additionally, "loss given default" (LGD) represents the expected loss, typically less than the owed amount due to recoveries from third-party guarantees or collateral Counterparty risk, a specific type of credit risk, arises particularly with derivative products, where the risk can transfer between counterparties.
Credit risk, as defined by the Basel Committee (2000), refers to the potential that a borrower or partner will not fulfill their obligations as agreed This risk of loss for a bank arises from the bankruptcy of the contractual party, which is characterized by a significant failure to adhere to the terms of debt repayment and interest obligations.
Personal credit risk, as defined by Ho Dieu (2001), refers to the financial risk associated with potential losses incurred when extending credit to individual customers This risk arises when borrowers are unable to meet their contractual debt obligations related to the bank credit they receive.
Classification of personal credit risk
There are several approaches to classify credit risk depending on the research aim and criteria Personal credit risk is classified into the following categories, according to Nguyen Minh Kieu (2009):
Overdue repayment risk, also known as loan backlog risk, occurs when a borrower does not fulfill their contractual obligations to repay debt, which may include failing to pay either the principal, interest, or both This situation represents a significant credit risk for lenders.
The risk of repayment incapacity refers to the potential for a borrower to be unable to repay a loan, leading to either partial or total loss for the lender This credit risk results in the bank being unable to recover the loan amount, ultimately establishing an irrecoverable debt.
Factors of credit risk
Credit risk arises from various objective and subjective factors Key objective factors include the political, legal, and commercial environment, along with the characteristics of the borrowers On the other hand, subjective factors stem from within the bank, such as insufficient transparency, inadequate credit policies, and the qualifications of management personnel.
Political and legal environment factors
The political environment significantly influences banks' credit activity, as an unpredictable socio-political climate creates challenges for both consumers and banks in pursuing investment and business expansion, particularly in credit Additionally, socio-political instability fosters distrust among citizens and investors, negatively impacting banks' loan activities.
The regulatory environment plays a crucial role in the Bank's credit risk management process A coherent legal framework is essential for the effective functioning of a market economy, enabling safe banking operations Proper regulations promote growth and stability in the banking sector, while inadequate regulations can hinder development and compromise the security of banking activities.
The economic environment is reflected through the economic cycle, the macroeconomic policies of each period and the impacts of the globalization trend, specifically:
Banking operations, particularly lending activities, are significantly affected by the economic development cycle As the economy grows and stabilizes, credit activity tends to increase and become less risky Additionally, government economic policies, including taxation and import-export regulations, indirectly influence credit activity.
Globalization is a driving force that influences the economic, political, and social dynamics of nations Changes in the global economic and socio-political landscape directly affect the operations of businesses and commercial banks, highlighting the interconnectedness of economies worldwide.
The factors influencing loan approval include the customer's business and administrative management skills, financial condition, employment status, intended use of the loan, and the customer's willingness to repay.
Credit risk may arise from subjective elements, including the effectiveness of credit policies, the qualifications and ethical standards of credit officers, insufficient monitoring and control post-borrowing, and weaknesses in internal auditing practices within banks.
A lack of transparency in the Bank's credit policy can lead to misleading credit activities, including extending loans to inappropriate borrowers, misallocating funds for unintended purposes, and creating opportunities for users to breach contracts and violate state laws.
The credentials and professional ethics of credit officers significantly influence credit risk Inadequate evaluation of a borrower's loan usage plan, repayment capacity, and willingness can lead to substantial risks Additionally, unethical behavior by credit employees, such as violating regulations, concealing information, or falsifying documents, poses serious threats to the integrity and stability of the bank.
Effective debt monitoring is crucial for credit officers and banks to ensure proper loan utilization and adherence to repayment plans, thereby safeguarding the client's ability to repay.
The effectiveness of a bank's internal inspection is crucial for its overall success and compliance with laws, regulations, and ethical standards A robust internal control system ensures adherence to management processes and mitigates operational risks Consequently, any laxity in internal inspections can significantly jeopardize the bank's operations and expose it to various risks.
The collaboration among commercial banks remains uncertain, impacting the effectiveness of the Credit Information Center (CIC) This collaboration is crucial for managing risks associated with clients who hold loans across multiple banks A lack of information exchange can lead to clients exceeding their credit limits, creating challenges for banks The CIC is essential for providing timely and reliable customer evaluation data; however, despite significant advancements, it still faces issues such as basic client information, lengthy update times, and slow result delivery.
Credit risk measurement
To effectively assess credit risk, it is essential to consider both direct indicators like overdue debt, bad debt, and credit risk provisions, as well as indirect indicators such as credit size, growth rate, and structure These factors play a crucial role in identifying potential risks for banks.
1.2.4.1 Direct indicators of credit risk measurement
These are particularly important indicators, reflecting the Bank's credit risk, specifically:
Overdue debt occurs when a borrower fails to repay part or all of a loan within the agreed repayment period This situation is characterized by two key criteria that indicate the status of the debt.
Overdue debt ratio = Total overdue outstanding balance
The overdue debt ratio measures the balance of unpaid principal and interest, indicating the amount of overdue debt relative to the total outstanding balance This ratio serves as a fundamental indicator of the quality of a bank's credit activities, highlighting the portion of debt that remains unrecovered.
Percentage of customers with overdue debt Total number of customers with overdue debt
The total number of customers with outstanding balances indicates the proportion of overdue borrowers among every 100 clients, serving as a crucial measure of the bank's credit policy effectiveness A high number of overdue debts relative to the bank's targets suggests increased risk, while a lower figure indicates better credit management.
Bad debt refers to bank loans that are either overdue or unlikely to be fully repaid by the borrower According to Article 10 of Circular No 02/2013/TT-NHNN, bad debt encompasses categories 3, 4, and 5 The assessment of bad debt is indicated by specific financial metrics.
Bad debt ratio Total bad debts Total loans
The bad debt ratio is a key indicator of the credit quality of commercial banks, reflecting the proportion of loans that are unlikely to be repaid A high bad debt ratio signals a decline in current income, as these loans become unprofitable or yield minimal returns.
Risk provisions are amounts allocated within operational costs to account for potential losses from debts owed by credit institutions and branches of foreign banks These provisions are categorized into specific provisions, which are designated for anticipated losses on individual debts, and general provisions, which cover undefined potential losses not tied to specific debts The primary purpose of risk provisions is to safeguard banks against losses incurred when customers are unable to fulfill their payment obligations due to circumstances such as dissolution, bankruptcy, or death.
Risk provision ratio = Risk provision amount
This indicator shows what percentage of the loan balance is provisioned The higher this indicator, the worse the Bank's credit quality is and the capacity to recover debts is
Credit risk coverage ratio = Risk provision has been set up
The credit risk coverage ratio indicates a bank's capacity to manage overdue debts by comparing the amount of provisions set aside for bad debts to the actual bad debts A ratio greater than 1 signifies that the bank has sufficient provisions to cover potential losses from loans when risks arise.
1.2.4.2 Indirect indicators of credit risk measurement
In addition to the above-mentioned direct credit risk measurement criteria, banks can also use indirect measurement criteria to reflect credit risk such as:
The credit scale serves as an indirect measure of credit risk; a rapid increase in this scale may indicate a misalignment with the bank's management capabilities, thereby heightening credit risk Key indicators that illustrate the credit scale are essential for understanding its implications.
Growth of outstanding loan Outstanding loan year t – Outstanding loan year (t-1)
The outstanding loan growth rate from the previous year reflects the steady and consistent increase in banks' credit balances, aligned with economic conditions This trend demonstrates effective management of banking credit risk and highlights the ongoing development of banking credit operations.
The growth rate of outstanding loans is closely linked to the economic growth rate, specifically the GDP growth rate It is essential to monitor this relationship to prevent countercyclical phenomena, where rapid credit growth occurs despite a slowing economy.
If the Bank increases its credit offerings by loosening lending criteria, there is a risk that customers may misuse the loans or struggle to manage their intended purposes, ultimately posing a threat to the Bank's stability.
The credit structure refers to the concentration of credit within specific industries, fields, currencies, and more It can be classified into several categories: credit structure by economic sector, which analyzes lending across different industries; credit structure by type of customer, focusing on various borrower profiles; credit structure by loan term, which examines the duration of loans; credit structure by currency, assessing the impact of different currencies on credit distribution; and credit structure by collateral, which evaluates the types of assets securing loans.
Credit risk management
Concept of credit risk management
Credit risk management, as defined by Moody's Analytics, involves implementing strategies to minimize losses by thoroughly understanding loans and provisions for credit risk over time Essentially, it equips managers with the necessary tools to effectively manage loans and address potential credit risks.
The Basel Committee defines credit risk management as the strategic implementation of measures aimed at optimizing the return on investments while controlling credit risk exposure This approach emphasizes the importance of maintaining credit balances within acceptable limits to ensure that potential losses from credit risk remain manageable for the bank, ultimately maximizing profitability.
Credit risk management procedure
The credit risk management process includes the following stages: credit risk identification; credit risk analysis, assessment, and measurement; credit risk response, credit risk control
Credit risk identification involves recognizing potential risk indicators from transactions and a bank's credit portfolio This process plays a crucial role in the bank's credit monitoring procedures, helping to pinpoint credit risks that will inform future credit decisions Effective tools for identifying credit risk are essential for maintaining control during the credit-granting process.
- The risk warning system, which is often employed in the credit monitoring process, detects abnormal indicators of issue debt on an unstable loan portfolio
- During the periodic evaluation, an internal risk rating methodology is employed Includes: (i) borrower ratings; (ii) loan security ratings
- Debt classification system is used in the periodic review process to categorize existing debt in the portfolio based on its quality
Customers and the Bank itself might both exhibit signs of credit risk
Group of signs originating from the customers
- Group of signs relating to the Bank relationship:
The trajectory of customer accounts at the Bank differs significantly, marked by a decline in deposit account balances, challenges in salary payments, and an increase in requests for working loan support Additionally, there is a rise in commercial liabilities and difficulties in meeting payment obligations as they arise.
Lending activities can fluctuate, leading to challenges for banks in monitoring loan usage and the operational status of businesses This often results in delays or complications, especially when customers frequently request loan renewals.
To optimize financing strategies, businesses should consider utilizing short-term financing for long-term operations, even if it means accepting higher-cost funding sources Additionally, reducing payables and increasing accounts receivable can help improve cash flow, although this may lead to a negative shift in alternative payment ratios.
- Group of signs related to customer management method:
Frequent changes in the management system or executive board can pose significant risks for customers, especially when there is a lack of alignment on objectives Arbitrary management practices, fragmented decision-making, inadequate planning, and familial governance issues can lead to disputes in the governance process, further complicating effective management.
- Group of signs closely related to financial and accounting information of customers:
Inadequate preparation or delays in financial data can lead to a disproportionate increase in debt ratios, signaling potential risks for clients A decline in cash flow, despite rising sales, indicates that customers may be exhibiting signs of financial instability.
- Group of signs of technical and commercial matters:
Technical and commercial challenges in product development can arise from various factors, including fluctuations in exchange and interest rates, shifts in consumer preferences, new technological advancements, loss of key suppliers or major clients, changes in tax policies, and evolving market conditions.
Group of signs arising from the Bank
- Group of signs from the credit risk identification criteria of the Bank:
Credit risk is determined by factors such as credit size, credit structure, overdue debts, bad debts, and risk provisions When these elements become imbalanced or exceed acceptable limits, the available credit capacity diminishes, leaving the bank vulnerable to potential risks.
- Group of signs comes from the qualifications of the credit officer and the management capacity of the Bank administrator:
This category of indicators highlights flawed evaluations and categorizations of customer risk levels, including the approval of credit based on ambiguous and unsecured commitments It also encompasses excessive credit expansion that exceeds manageable limits and the bank's lending practices influenced by atypical events, such as mergers or alterations in the legal status of branches.
- Group of signs comes from the Bank's policy:
This set of indicators highlights a credit policy that is either excessively strict or overly lenient, allowing customers to exploit lending for speculative activities such as real estate purchases and securities trading Additionally, the presence of preferential loan policies and designated loans, combined with lax credit processes, further complicates the lending landscape.
- Group of signs arising from the economy:
Adverse developments are impacting the environment, business sectors, and the overall economy, with countercyclical credit growth occurring at an alarming pace during economic decline Notably, the rate of credit growth significantly exceeds the GDP growth rate, highlighting a concerning trend.
1.3.2.2 Credit risk analysis, assessment, and measurement
The following stage is to assess, evaluate, and measure credit risk based on the indications of credit risk
Analyze and assess customer risk
Effective customer risk assessment involves analyzing and evaluating individual customers and their specific debts from the initial contact through the lending process and beyond Currently, this analysis primarily relies on recent payroll and financial statements In addition to gathering customer information, it's essential to obtain data from their partners, banks with existing credit relationships, work agencies, and customer service centers focused on risk control and money laundering prevention A comprehensive analysis should incorporate both qualitative and quantitative criteria to ensure the most accurate conclusions.
Qualitative criteria focus on the inherent characteristics of customers rather than numerical data, and are illustrated through the 6C model, which includes Character, Capacity, Cash Flow, Collateral, Conditions, and Controls In contrast, quantitative metrics provide measurable data to evaluate performance and outcomes.
- Character: this is the element that shows the reputation, goodwill to repay the customer, is considered the most important in the customer analysis factors
- Capacity: this is a factor to evaluate the customer's financial situation at the time of analysis
- Cash flow: this is the factor that is considered the center of the analysis because it indicates the customer's ability to repay
- Collateral: is a commitment of the customer to the Bank in the event that the customer is not willing to pay the debt or fails to pay the debt
- Conditions: factors of macroeconomic or industry circumstances that will affect the borrower's ability to repay on time
- Control: factor is an assessment of whether changes in legislation may adversely affect a borrower's creditworthiness or the Bank's ability to meet quality standards
Model of internal credit rating system
The internal credit rating system model, widely adopted by banks, utilizes a set of criteria tailored to each customer, with varying scales reflecting the criteria's nature and significance By assessing both financial and non-financial factors, banks assign scores to each criterion, culminating in a total score that indicates the customer's creditworthiness Higher scores signify better ratings, leading to more favorable lending conditions, while lower scores result in stricter terms Each bank has the flexibility to establish its own criteria and scoring system in alignment with its credit policy.
Under Basel II, banks utilize an internal data-driven system to assess the probability of credit loss, defining key variables such as Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) These variables collectively enable banks to calculate the Expected Loss (EL).
For each specific period, the estimated loss can be calculated according to the following formula:
To respond to credit risks, commercial banks might employ instruments such as
Overview of VPBank - Ben Thanh Branch
General introduction about VPBank
Full name: PROSPERITY VIETNAM COMMERCIAL JOINT STOCK BANK Short name: VPBANK
Head office: No 89 Lang Ha, Lang Ha Ward, Dong Da District, Hanoi City
Vietnam Prosperity Joint Stock Commercial Bank, originally known as the Joint Stock Commercial Bank for Non-State Enterprises (VPBank), was founded on August 12, 1993, making it one of Vietnam's earliest joint stock commercial banks Over its 28 years in the banking sector, VPBank has significantly grown, establishing a network of 228 transaction locations and employing nearly 28,000 staff members.
VPBank's commitment to sustainable and innovative business practices has significantly enhanced its brand strength and led to remarkable achievements over the years In 2017, the bank was recognized as one of the Top 3 Commercial Joint Stock Banks by Vietnam Report and was voted the "Happiest Place to Work." The following year, VPBank excelled by winning 12 consecutive awards for its outstanding products and services, solidifying its position as one of the Top 10 largest private enterprises in Vietnam Building on these successes, in 2019, VPBank garnered prestigious domestic and international accolades for its dedication to human development, including recognition as the "Happiest Place to Work" by Anphabe and Nielsen.
In early 2021, VPBank made history by ranking 243rd in the "Top 250 Banks with the Most Valuable Brands in the World," as recognized by Brand Finance, a leading global brand valuation consultancy This achievement marked VPBank as the first private bank in Vietnam to earn such a prestigious position, highlighting its commitment to excellence and innovation in the banking sector.
General introduction about VPBank Ben Thanh Branch
VPBank – Ben Thanh Branch, located at 1-1A-2 Ton Duc Thang, Ben Nghe Ward, District 1, Ho Chi Minh City, officially opened on June 24, 2016 It is one of only two branches in the city area, alongside the VPBank – Ham Nghi branch, and operates within the VPBank Tower building.
Located in District 1, the vibrant administrative, cultural, commercial, and financial hub of Ho Chi Minh City, our branch prioritizes a "Customer Focus" approach We continuously innovate our style, model, and facilities to enhance the consumer experience Our products and services are regularly upgraded to reflect contemporary trends and incorporate additional conveniences, ensuring we save our customers time while fostering their comfort, trust, and happiness.
VPBank Ben Thanh Branch has successfully enhanced consumer comfort and trust while attracting new clients, contributing to overall happiness With the growth of the economy and banking system, the dedicated managers and employees at VPBank have played a crucial role in strengthening the bank's position in the city Since its establishment as a level 5 branch, VPBank Ben Thanh has impressively advanced to the status of Super Branch within just three years.
Organizational structure, functions, and tasks of VPBank - Ben Thanh Branch
Figure 2-1 - Organizational structure of VPBank – Ben Thanh Branch
(Source: Personal Customer Department of VPBank – Ben Thanh Branch)
Organizational structure VPBank – Ben Thanh Branch is divided into departments with separate tasks and functions Specifically:
The branch manager holds the highest authority within the branch, overseeing all operations and activities In addition to the director, this key figure ensures the branch runs safely and efficiently while successfully meeting the established business plan.
The accounting and customer service department is responsible for executing banking operations and facilitating direct transactions with customers, including payment services, account openings, and deposit mobilization for savings and other financial needs.
The personal customer department focuses on delivering a range of products and services tailored for individual customers, including credit products, card services, and loan mobilization Additionally, it actively seeks opportunities to cross-sell these offerings in collaboration with partners.
Small and medium enterprise department (SME)
Accounting and customer service department
Established in 2018, the priority customer department aims to cater to the growing demand of high-end clients in Vietnam by offering tailored products and services designed specifically for individuals with sophisticated financial needs.
The small and medium enterprises Department (SME) provides card products, payment solutions, credit products, guarantees, import and export financing, etc to the small and medium enterprise segment.
Business performance of VPBank - Ben Thanh Branch in the period of 2018 -
Overall assessment of VPBank's business results - Ben Thanh Branch
Table 2-1 - Business performance of VPBank – Ben Thanh Branch in 2018 - 2020
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
In 2019, the socio-economic conditions of our nation were influenced by a slowing global economy, marked by trade tensions between the United States and China and geopolitical uncertainties that heightened volatility in global trade and investment Despite these challenges, the country's socio-economic landscape showed improvement, with a notable GDP growth of 7.02%, steady expansion in trade and services, and an 11.8% increase in consumption compared to the previous year This positive trend contributed to the consistent growth of the banking industry, exemplified by the successful performance of VPBank Ben Thanh Branch, which achieved increased profits, enhanced loan mobilization, and a well-controlled bad debt ratio.
In 2020, the global economy faced unprecedented challenges, particularly impacting Vietnam amid the Covid-19 pandemic Despite this, Vietnam's GDP impressively grew by 2.91 percent, making it one of only three Asian nations to achieve positive growth VPBank, recognizing its crucial role in economic recovery, partnered with the banking sector to support the government's dual goals of efficiency and proactive epidemic response VPBank and its Ben Thanh branch experienced a successful year, driven by effective management and a dedicated workforce implementing flexible strategies The branch reported strong credit growth, surpassing the overall banking industry, alongside significant increases in loan mobilization and profits, while successfully reducing the bad debt ratio.
Loan mobilization of VPBank – Ben Thanh Branch
Table 2-2 - Loan mobilization of VPBank – Ben Thanh Branch in 2018-2020
Value Ratio Value Ratio Total Loan mobilization 866,346 1,003,680 1,141,412 137,333 15.85% 137,732 13.72%
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
In 2019, VPBank - Ben Thanh Branch experienced a significant loan mobilization increase of 15.58%, growing from VND 866 billion to VND 1,003 billion Individual client deposits accounted for over 50% of the bank's loan mobilization structure, rising by 13.59% compared to the previous year The branch's attractive deposit interest rates, reaching up to 7.7% for a 12-month term, facilitated an 18.11% increase in term deposit mobilization The bank's competitive interest rate strategy and tailored sales and marketing programs played a crucial role in achieving this success in deposit mobilization.
As 2020 nears, VPBank has taken proactive steps to lower both deposit and lending interest rates in line with State Bank Circular 01, aiming to support customers affected by the pandemic and foster favorable conditions for economic recovery following the adverse impacts of Covid-19.
VPBank has lowered its deposit interest rates for long-term deposits, now offering 5.1% per year for 12-month terms and 5.2% for 24-month terms, marking the lowest levels in the market In contrast, competitors such as NCB provide more attractive rates of 7% and 7.4% for the same durations, while OCB offers 7.1% for a 12-month term Other banks like SCB and VietLoan Bank are also competing in this space with similar rates.
VPBank has faced significant challenges in the loan mobilization sector, with a deposit growth rate at the Ben Thanh Branch dropping to 13.75 percent compared to 2019, and individual client deposits experiencing a negative growth rate of 5.98 percent Despite these obstacles, VPBank has continued to innovate by launching new programs aimed at supporting small and medium-sized enterprises (SMEs) Notably, the bank introduced a product bundle linked to payment gateways like Ecompay and Simplifi, facilitating e-commerce transactions for businesses Additionally, VPBank is collaborating with VNG Cloud on a program designed to aid SMEs in their digital transformation journey, helping them to bring innovative products and services to market These initiatives have successfully attracted a significant number of corporate clients, resulting in a 47.73 percent increase in loans mobilized from this sector.
Credit activity at VPBank - Ben Thanh Branch
Table 2-3 - Credit activity of VPBank – Ben Thanh Branch in 2018-2020
Value Ratio Value % Total outstanding loan
Customer 451,911 537,269 606,295 85,357 18.89% 69,027 12.85% Small and medium enterprises
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
In general, the total outstanding loan of the VPBank Ben Thanh branch tends to expand year by year and is always greater than the industry's average credit growth
In 2019, despite a sector credit growth rate of only 13%, the Bank's credit balance increased by 17.27% compared to 2018, driven primarily by the individual client sector In 2020, the Bank's credit balance rose by approximately 13.22%, surpassing the industry average of 12.13%, demonstrating effective and sustainable growth amid the Covid-19 pandemic The slowdown in credit balance growth indicated the Bank's recognition of potential lending risks, prompting a shift in credit development strategies to minimize these risks This approach reflects the Bank's commitment to achieving growth while prioritizing quality, efficiency, and sustainability, including the reorganization of its loan portfolio to limit unproductive lending.
VPBank - Ben Thanh Branch is committed to VPBank's strategy of becoming a leading retail bank in the region and country, with individual customer loans consistently making up over half of the loan balance In 2019, the outstanding loans for individual clients rose from 451.911 trillion VND to 537.269 trillion VND, marking an 18.89% increase However, in 2020, due to lending restrictions on industries affected by the epidemic, personal credit growth slowed to 12.85% Similarly, outstanding loans for small and medium enterprises (SMEs) grew by 15.04% in 2019 but only reached 13.76% in 2020.
Credit risk management organizational structure at VPBank
The organizational structure of VPBank's credit risk management is strictly organized according to various levels of management, with the specific structure as follows:
Administrative Council is ultimately responsible for the quality and effectiveness of credit risk management and the level of risk of the Bank
The Board of Directors is accountable for implementing risk management across the organization, ensuring adherence to the strategic direction established by the administrative council.
The Supervisory Board, elected by shareholders during a general meeting, holds senior management responsibility for overseeing the Internal Auditor's functions This oversight is crucial for managing internal audit activities related to credit risk management, ensuring that necessary and timely actions are implemented to address any weaknesses in credit risk management.
Internal auditors play a crucial role in independently assessing compliance with credit risk management policies and regulations They evaluate the effectiveness of the credit risk management system and ensure that credit risk rules and procedures are properly implemented.
The ALCO Council was established to mitigate market and liquidity risks by closely monitoring fluctuations in interest and currency rates, as well as other potential threats This proactive approach ensures the development of effective strategies for managing and optimizing financial resources.
The Risk Management Committee is responsible for advising the Board of Directors on the development and supervision of the risk management framework, strategies, credit risk appetite, and related credit risk management policies.
The Credit Council plays a crucial role in advising the Board of Directors on implementing VPBank's credit risk management framework, ensuring its effectiveness throughout all stages It develops appropriate control mechanisms while adhering to both the Bank's policies and state regulations Additionally, the Council supports the Board and Administrative Council in the approval, management, and monitoring of credit risk issues.
The Risk Management Division is responsible for developing internal documentation related to credit risk management and overseeing the implementation and management of policies, regulations, and processes associated with credit risk.
The Business Division, along with the Credit Appraisal, Approval, and Processing Divisions, plays a crucial role in daily credit risk management and the implementation of the credit risk management policy.
Credit activities of personal customers at VPBank – Ben Thanh Branch 32 2.3.3 Overdue debt and risk provision for personal customers at VPBank – Ben
Personal credit has long been a key focus for the Bank, which has adapted its credit control and development strategy in response to economic shifts This has led to a more selective loan portfolio that prioritizes quality control By emphasizing strategic segments and leveraging sales support technology, the Bank has fostered an environment for these sectors to regain strong growth momentum, thereby maintaining their significance in sales Overall, the Bank's credit activities for personal customers have consistently shown steady growth over the years.
2.3.2.1 Outstanding loans classified by term
Table 2-4 - Loan classification by term of VPBank – Ben Thanh
Value Ratio Value Ratio Total outstanding loans from personal customers
Short-term loan 149,457 186,416 212,691 36,959 24.73% 26,275 14.09% Medium-term loan 202,912 231,648 263,713 28,736 14.16% 32,065 13.84% Long-term loan 99,542 119,205 129,892 19,662 19.75% 10,687 8.97%
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
Throughout the year, the outstanding debt by term has risen significantly, with the Bank focusing mainly on medium and long-term loans, which constitute 43% and 34% of the total loan structure, respectively In 2018, short-term loans amounted to VND 149 billion, representing 22.03% of the overall loan balance.
Since 2019, the objective for short-term loans has risen by 24.73 percent to VND 186 billion; however, in 2020, growth in this area has slowed due to a lending strategy focused on minimizing unsecured loans to mitigate risks Conversely, medium-term loans have demonstrated steady growth, increasing by approximately 14 percent over the three-year research period, indicating a positive trend.
2.3.2.2 Outstanding loans classified by type of loans
Table 2-5 - Loan classification by type of loans of VPBank –
Value Ratio Value Ratio Total outstanding loans from personal customers
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
Loans are often distributed unevenly, with home loans, primarily aimed at purchasing real estate, making up a significant portion of personal customer loans This trend has seen consistent growth, with increases of 17.83% in 2019 and 15.53% in 2020 This expansion can be attributed to VPBank's attractive interest rate policies in collaboration with major real estate partners like NoVaLand, Vingroup, and Ecopark However, an overreliance on real estate lending poses risks for the bank, particularly if the market faces downturns.
Auto loans and unsecured consumer loans are significant components of VPBank's loan portfolio, each representing over 25% of total outstanding loans These products have consistently driven credit growth, with auto loans increasing by 16.71% in 2019, although growth slowed to 11.5% by the end of 2020 Unsecured consumer loans also showed strong performance, growing by 21.73% in 2019, indicating effective targeting of potential clients However, due to tightened lending policies in 2020, auto loans saw a slight growth of 11.24% It's important to note that while unsecured consumer loans can be profitable, they may pose risks for banks if economic conditions deteriorate.
2.3.3 Overdue debt and risk provision for personal customers at VPBank – Ben Thanh Branch
Table 2-6 - Debt classification for personal customers of VPBank –
Value Ratio Value Ratio Total outstanding loans from personal customers
Standard debts 423,614 508,663 571,978 85,049 20.08% 63,315 12.45% Special mention debts 16,856 15,903 20,978 (953) -5.65% 5,075 31.91% Sub-standard debts 3,132 4,354 5,063 1,222 39.02% 709 16.28%
Doubtful debts 3,389 3,545 3,698 156 4.60% 153 4.32% Potentially irrecoverable debts
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
Standard bank debt has seen substantial growth, with increases of 20.08% in 2019 and 12.45% in 2020, consistently representing over 93% of the bank's overall debt structure.
The rate of overdue debt has been on the rise annually, with an increase of 1.09% from VND 28,297 billion to VND 28,605 billion in 2019 compared to 2018 The economic impact of the pandemic in 2020 significantly hindered customers' ability to repay debts on time, leading to a staggering 19.97% surge in overdue debt, primarily due to a notable rise in debt levels by the end of the year Additionally, the ratio of special mention debts decreased by 5.65% in 2019 but saw a sharp increase of 31.91% by the end of 2020.
Between 2018 and 2020, VPBank experienced a significant increase in sub-standard debts, rising from VND 3.13 billion in 2018 to VND 5.06 billion by the end of 2020, marking a 39.02% increase in 2019 and a 16.28% rise in 2020 Additionally, doubtful debts grew approximately 4.5% annually, climbing from VND 3.39 billion in 2018 to VND 3.698 billion in 2020 While potentially irrecoverable debts showed improvement with decreases of 2.38% in 2019 and 4.68% in 2020, these reductions were insufficient to address the growing issue of overdue debts at VPBank.
Table 2-7 - Bad debt and overdue debt ratio for personal customers of VPBank – Ben Thanh Branch in 2018-2020
Overdue Debt Ratio and Bad debt Ratio
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
The Bank has implemented a conservative and selective loan growth strategy focused on credit quality management, resulting in a significant reduction in bad debt over time The bad debt ratio improved from 2.53 percent in 2018 to 2.36 percent in 2019, reflecting enhanced debt collection efforts By 2020, the ratio further decreased to 2.2 percent, thanks to the Bank's supportive policies, including interest exemptions and reductions, which encouraged timely repayments from clients.
Between 2018 and 2020, the Bank made significant efforts to manage bad loans, maintaining a bad debt ratio below 3%, despite the market norm where many leading banks achieved ratios under 1% This commitment reflects the Bank's adherence to the guidelines set forth in Circular 200.
Table 2-8 - Risk provision for personal customers of VPBank – Ben
(Source: Personal Customer Department, VPBank - Ben Thanh Branch)
Research indicates a positive correlation between the bad debt ratio and credit risk provisions in banks Additionally, risk provisions positively influence marginal interest income, the bad debt ratio, and bank size, while negatively affecting income relative to total assets Therefore, prioritizing risk provisions is essential for the effective functioning of banks and for mitigating potential risks.
Despite the Bank's positive strides in managing bad debt, overdue debt levels remain elevated To address potential risks effectively, the Bank needs to strengthen its risk provisioning Data indicates a steady increase in the Bank's provision levels, rising from 6.2 billion VND in 2010 to 8.07 billion VND in 2020, reflecting a proactive approach to risk management However, this heightened risk provision may reduce the Bank's profits due to increased expenses To ensure both safety and profitability, it is essential for banks to classify loans properly and enhance customer assessment and selection in line with regulatory requirements.
Current situation of credit risk management for personal customers at
Credit risk identification
VPBank prioritizes risk identification as a crucial element for effective information gathering, inspection, prevention, and oversight, aimed at reducing potential risks This process is prominently reflected in the Bank's credit business operations.
In the business unit, the credit officer serves as the initial point of contact for loan consultations and customer information collection, ensuring the accuracy and completeness of the data provided Based on this information, the credit officer conducts a preliminary risk assessment of the customer Additionally, customer service specialists play a crucial role in the account opening process by verifying customer identities in compliance with anti-money laundering regulations and FATCA, providing early warnings of potential issues Finally, the manager conducts a thorough review and re-evaluation of the credit application before it is forwarded to the centralized appraisal and approval center.
At the centralized appraisal and approval center, loan applications are categorized based on customer demographics, credit limits, and loan types, subsequently decentralized to one of five levels within the credit approval structure: the senior credit committee, regional credit council, approval specialist, centralized credit processing center, and credit board Approval experts utilize their professional expertise to identify credit risks through comprehensive information assessments, fieldwork, and direct communication with customers, either via telephone or in-person meetings This continuous credit risk identification process is crucial for the bank to detect any abnormal signs throughout the lending cycle, ultimately guiding the decision to grant or refuse credit.
Effective credit risk management hinges on the crucial process of risk identification, particularly prior to granting credit To enhance the skills of credit officers in customer appraisal and assessment, the Bank routinely conducts training courses focused on risk prevention techniques.
Credit risk measurement
To enhance the quality of credit appraisal and approval, VPBank has developed an internal credit rating system that assesses customer credit risk using a standardized scoring method based on both financial and non-financial metrics This credit rating system serves as a valuable tool for evaluating and classifying customers, increasing transparency in the credit approval process, and aiding in the identification of risk factors for informed credit decisions The internal credit rating for personal customers is conducted through a structured process.
The credit officer will be responsible for collecting all kinds of documents (including legal documents, financial records, collateral documents, loan plans, loan application documents, CIC, etc.)
Step 2: Determine background, financial factors and ability to repay
Before submitting an application to the credit appraisal and approval center, the sales department verifies the authenticity of customer documents and assesses their financial capacity and ability to repay debts At the credit appraisal center, experts re-evaluate the customer's legal status, loan purpose, financial position, and repayment capability using the documents provided by the credit officer.
After evaluating customers, experts assign credit scores using the "Credit Rating System," which includes various scoring factors tailored to each customer type A perfect score across all factors results in a total of 100, while the lowest possible score can fall below zero These credit scoring results are documented in a "Credit Rating Sheet," and based on these results, customers are categorized into six distinct levels of credit risk.
Table 2-9 - VPBank Internal Credit Rating System for Personal Customers
Score Ratings Risk Group Evaluation
35-47 C+ High High risk of non-recovery
0-34 C High Very high risk of non-recovery
(Source: VPBank’s Credit Rating Manual Document)
To evaluate credit quality for recommendations to the Credit Committee or Credit Council, credit appraisal experts must assess collateral alongside risk ratings This combined analysis leads to a final determination of credit quality Collateral is classified into three levels—Strong, Medium, and Weak—based on the type of collateral and the loan-to-asset ratio.
Table 2-10 - VPBank Internal Credit Rating System for Collaterals
No Type of collateral Ratio of loan to value of fixed assets
Bank guarantee issued by the Government or State
Bank, State-owned Bank Strong
Valuable papers issued by the Government or State- owned Bank
4 Real estate in the districts of large city urban centers
Commodities that are common and easy to transfer
Real estate in suburban districts of large urban areas of the city or in urban districts of the province
VPBank-acceptable receivables or collateral
Real estate on the outskirts of the city in the province or other real estate in the countryside
Old production machinery or acquired from another unit, or new but outdated technology
13 Uncommon goods or long- term inventory
(Source: VPBank’s Credit Rating Manual Document)
Step 5: Combined Credit Assessment (Credit Rating Result)
Table 2-11 - VPBank Internal Credit Rating Result
Low risk Medium risk High risk
Collateral Assessment Strong Excellent Good Average
(Source: VPBank’s Credit Rating Manual Document)
The credit appraisal expert will use the “Combined Credit Assessment” to conduct the assessment In this table, horizontally, are the customer's risk ratings, divided into 3 groups:
- Low risk group under types A+ and A
- Medium risk group includes types B+ and B
- High risk group includes types C+ and C
Vertically are the ratings of collateral assessment, also divided into 3 groups:
- Group of collateral assets “Strong”
- Group of collateral assets “Average”
- Group of collateral assets “Weak”
The result of the combined credit rating is located at the intersection between the risk rating and the collateral assessment of that customer
The Credit Committee will use the combined credit assessment results as a key factor in approving loans, ensuring that only customers with an average or higher credit rating are considered To mitigate potential credit risks, priority will be given to those with a "good" credit rating.
Credit risk monitoring and control
In order to well implement risk management measures and promptly respond to market fluctuations, VPBank Ben Thanh Branch always adheres to internal regulations on credit risk monitoring and control
The Bank actively manages credit risk by monitoring and controlling each credit extension, conducting periodic assessments before re-granting or altering existing credit conditions This process includes re-evaluating current credit facilities to maintain relationships with reliable customers Additionally, the Bank recognizes that restricting credit can lead to overdue risks, posing potential threats to its financial stability.
Bank credit officers are responsible for periodically assessing customers with loans, evaluating their use of funds, the effectiveness of the loans, and the current status of collateral such as property and transportation This process is essential for identifying potential risks to the bank However, it is often neglected or inadequately executed.
To assist credit officers in managing repayment schedules, the Bank has implemented a comprehensive debt reminder system for all loans This system ensures that customers receive timely notifications about their upcoming debt obligations Depending on the specific loan type and customer profile, reminders may be delivered via SMS, phone calls, written notices, or in-person visits If a customer is identified as at risk of late repayment, the credit officer will escalate the situation to the appropriate authorities to formulate a repayment plan and necessary measures to support the customer in meeting their obligations.
Credit risk monitoring is essential for evaluating the adequacy of risk provisions based on debt classification results, in line with State Bank regulations It ensures compliance with legal credit limits and VPBank's internal policies while effectively managing actual credit risk status.
Credit risk financing
In the process of credit risk management, the Bank has proactively prevented and handled credit risks by different measures such as:
VPBank – Ben Thanh Branch strictly adheres to the regulations set by the State Bank and its internal policies regarding credit risk provisioning The bank makes provisions for credit losses, which encompass both specific and general provisions.
The general provision is calculated at a rate of 0.75% on the total outstanding loans from groups 1 to 4, excluding deposits at domestic credit institutions and foreign bank branches in Vietnam, as well as deposits at foreign credit institutions Additionally, loans and term purchases of securities to credit institutions and foreign bank branches in Vietnam are also exempt from this provision.
The specific provision amount for each customer is calculated by subtracting the amortized value of the collateral from the total principal balance and then multiplying the result by the specific provisioning rate applicable to each debt group.
Group The specific provision rate
(Source: Circular 11/2021/TT-NHNN of the State Bank of Vietnam)
To effectively manage bad debt, credit officers closely monitor customers' loan usage and encourage them to meet their contractual obligations They assess the status of collateral assets to evaluate recovery possibilities, allowing them to choose suitable measures for addressing bad debts, which are then submitted to the relevant authorities for approval.
VPBank implements several strategies to manage bad debts, including ongoing lending to support operational continuity and restore loan commitment capabilities The bank enhances loan security by adding collateral, rescheduling repayments, and potentially reducing or waiving interest rates while focusing on principal repayment For recoverable bad debts, VPBank actively monitors and assists customers, while for debts showing signs of deterioration, it leverages revenue and secured assets for recovery In cases of non-recoverable debts, the bank utilizes provisioning to mitigate losses or transfers them to an asset management company for continued oversight and recovery efforts.
It is essential to document all work related to each client's credit file, as this record will serve as evidence of adherence to policies and procedures from the initial credit application to the final settlement of debts Additionally, the profile clearly outlines the individuals and organizations involved in the credit review and processing stages.
Between 2018 and 2020, the economy experienced significant fluctuations; however, through effective management, the Bank successfully maintained the ratio of bad debt to total outstanding loans within the targeted plan of less than 3%.
Assessing the current situation of credit risk management of personal
Achievements
Effective credit risk management is crucial for sustainable development, and VPBank Ben Thanh Branch has seen significant progress in this area in recent years This success is attributed to the branch's commitment to the Bank's development policies and strategies.
The centralized credit appraisal and approval model enhances labor productivity and reduces operating costs, allowing credit officers to focus on sales and market expansion Additionally, it strengthens risk control through a unified procedure and improved data management, leading to more efficient and accurate client assessments.
Over the years, the quality of debt at the Bank has improved significantly, particularly regarding bad debt, which, despite remaining relatively high compared to the industry average, has consistently decreased and stayed below 3% This positive trend is attributed to the dedicated efforts of the Bank's staff in enhancing debt quality Additionally, the credit procedures at the Branch have proven effective, and the temporary handling methods for bad debts are being implemented in line with VPBank's internal credit risk management standards.
The internal credit rating system is continuously updated and optimized, utilizing both financial and non-financial criteria alongside additional data sources to enhance assessment accuracy Integrated within the loan origination system, this scoring model efficiently identifies potential customers and streamlines processing times Existing customer credit ratings are reviewed periodically, especially before contract renewals or changes, coupled with actual compliance inspections This proactive approach enables the Bank to swiftly update customer situations and evaluate the implications of any changes, ultimately facilitating the early detection and prevention of potential credit risks associated with customer downgrades.
VPBank has consistently leveraged technology as a key strength, implementing numerous digitization projects to enhance operational processes and develop innovative products and services To bolster credit risk management, the bank utilizes advanced technologies such as electronic customer identification (eKYC) through facial recognition, voice authentication, and optical recognition, alongside geolocation data for customer record verification This strategic approach has enabled VPBank to effectively manage bad debts while maintaining a robust retail banking strategy and increasing focus on unsecured lending products.
Limitations
Despite some successes in enhancing credit risk management at the Bank, significant limitations persist that must be addressed soon These challenges, whether arising from subjective or objective factors, negatively impact the Bank's personal credit risk management efforts.
The analysis indicates a declining trend in the bad debt ratio among banks, yet VPBank's overdue debt ratio remains elevated compared to its peers, particularly in the context of the current unstable economic climate While the rate of overdue personal credit debt at VPBank is not critically high, the rise in overdue debts from 2018 to 2020 highlights significant challenges in credit risk management.
Debt management and recovery face significant challenges, as evidenced by the ongoing issues with high overdue debts Despite the bank's heightened focus on improving these processes, debt collection efforts have not yielded satisfactory results Many customers continue to struggle financially, making it difficult for them to meet their repayment obligations.
Despite improvements in staff quality, it remains inadequate to meet the standards for credentials and professional ethics A contributing factor is the youth and inexperience of many credit officers, limiting their ability to effectively assess and address emerging issues The primary concern is moral hazard, which can arise among certain credit officers during the lending process, particularly when evaluating and documenting client income.
The credit officers' proficiency in information technology remains limited, particularly in utilizing the bank's available technologies for customer search and appraisal For instance, the CRM system has effectively integrated Big Data to enhance these processes.
AI technologies play a crucial role in identifying new customers, automatically evaluating customer risks, and monitoring customer activities Despite their potential, these systems have not received significant attention or effective utilization by credit officers.
Finally, the Bank continued to place a greater emphasis on house loans and unsecured consumer loans, which may potentially pose problems to the Bank if the economy enters a slump.
The cause of the limitations
➢ Inadequate process execution and a lack of post-borrowing supervision and management
At VPBank, the credit appraisal and granting processes are conducted meticulously; however, the monitoring of loan status post-disbursement has not received adequate attention Currently, credit officers are tasked with a diverse range of responsibilities beyond loan products, including acquiring new clients, managing credit cards, opening checking accounts, mobilizing deposits, and promoting life insurance.
Due to their heavy workload and a mindset focused on not troubling consumers, credit officers often neglect the crucial tasks of inspection and monitoring after lending This inadequate oversight can lead to customers misusing loans or encountering repayment challenges, ultimately increasing the bank's credit risk.
➢ Inadequate qualifications, awareness, and professional ethics of credit officers
The young and relatively inexperienced staff at banks often face limitations in professional qualifications and customer appraisal, leading to a lack of awareness regarding potential risks Despite participating in online risk management courses, credit officers frequently undervalue the importance of credit risk management in banking operations Their desire to provide convenience to customers can result in a lax approach to appraising loan documents, relying heavily on customer authenticity Additionally, the professional ethics of credit officers are crucial in mitigating credit risks, as moral hazards may arise from personnel recruitment practices or collusion between management and employees to conceal information and inflate mortgage values Furthermore, inconsistent lending policies and inadequate oversight contribute to these moral hazards, highlighting the need for improved risk management practices within the banking sector.
➢ Instability of the economy due to the impact of the Covid-19 pandemic
In terms of economy, most countries fell into a recession, the global economy and trade declined sharply, including Vietnam In general, the demand of the economy
The reduction in consumption, investment, and exports has led to decreased production activities and economic growth, disrupting the supply chain This stagnation in commercial business has forced many companies to downsize or declare bankruptcy, resulting in a rising unemployment rate These challenges have directly impacted customers' ability to repay loans, despite the Bank's supportive measures such as interest rate reductions and debt rescheduling As a result, the ratio of overdue debt has been trending upward, complicating credit risk management.
➢ The customer data information system is incomplete and synchronous between the Banks
Currently, commercial banks restrict the sharing of customer information with other banks due to competitive concerns Furthermore, the data in the state bank's credit information system (CIC) lacks the necessary accuracy, timeliness, and completeness required by banks This information is crucial for effectively assessing and measuring customer credit risk.
Moral hazard in banking can originate from either the bank or the borrower, leading to detrimental effects for both depositors and the institution Borrowers may engage in dishonest practices, such as concealing or falsifying information, which obstructs accurate customer assessment A crucial factor in credit risk is the borrower's willingness to repay loans; if they are reluctant to meet their debt obligations, banks face challenges in collection efforts Additionally, risks escalate when borrowers misuse loans, such as utilizing business loans for real estate investments or applying short-term loans for long-term projects.
Employment status, financial capability, and business management skills significantly contribute to risk formation Throughout their professional and business journeys, customers often encounter unforeseen events that exceed their control and management abilities These unpredictable occurrences can adversely impact their repayment capacity, particularly in today's volatile economic landscape.
In Chapter 2, I evaluated the credit risk management practices at VPBank - Ben Thanh Branch, highlighting its significant achievements in credit activities and personal credit risk management, which have positively impacted profit growth and maintained low levels of bad debts However, the analysis also identified several limitations in the bank's personal credit risk management Therefore, it is crucial for management to conduct a thorough review and implement strategies to effectively reduce overdue debts, bad debts, and irrecoverable debts, ultimately enhancing credit quality and improving the efficiency of credit operations in the future.
SOLUTIONS TO IMPROVE PERSONAL CREDIT RISK MANAGEMENT AT VPBANK - BEN THANH BRANCH