To achieve the goal of becoming one of the best retail banks, STB has needed to improve risk management caused by credit activities.. During the process of research, studying, experienci
INTRODUCTION
Background of the study
Banking plays a vital role in facilitating the smooth operation of the economy, with commercial banks serving as essential financial intermediaries In today's landscape of deep economic integration, both individuals and businesses face a heightened demand for capital to support their personal and production needs Consequently, the importance of commercial banks in providing credit has become increasingly critical.
Credit activities are a primary income source for banks, but they come with significant risks, making effective credit quality management essential for sustainable development The importance of loan quality in a bank's growth cannot be overstated, as a strong credit risk management system enhances competitiveness and reduces operational risks Consequently, joint stock commercial banks can greatly benefit from exploring strategies to improve credit risk management, particularly in the context of global economic integration and the fourth industrial revolution Ultimately, managing credit risk is not only a crucial objective but also vital for ensuring the long-term sustainability of banks.
In response to the ongoing transformation in the banking sector, STB is committed to enhancing its business operations While the bank has experienced significant growth in credit activities in recent years, it is essential to recognize the accompanying risks, particularly the potential for bad debt and overdue accounts.
In the course of my research and internship at Sai Gon Thuong Tin Commercial Joint Stock Bank - Ha Dong branch, I have gained valuable insights into credit risk management and its significant impact on banking operations With the support of my professors and colleagues, I have decided to focus my graduation thesis on the topic of "Credit Risk Management at Sai Gon Thuong Tin Commercial Joint Stock Bank – Ha Dong Branch."
This graduation thesis examines the current state of credit risk management within this branch and offers solutions and recommendations aimed at minimizing these risks effectively.
Rationale of the study
After 31 years of establishment and development, STB has always maintained the spirit of pioneering, innovating in thinking, and perfecting in action, steadfastly overcoming challenges, forging a reputable brand and a model of success for a restructured bank STB was established with the aim of optimizing comprehensive, cutting-edge and versatile financial solutions for customers; maximizing value for partners, investors and shareholders With the vision of becoming the leading modern and diverse retail bank in Vietnam, STB always strives tirelessly, focusing on strong development in both quality and scale, continuing to make more marks on its journey to affirm its position in the Vietnamese retail market in the banking sector affirm its position in the market Vietnam retail in the banking sector
As the economy rebounds from the Covid-19 pandemic, the competition among banks for credit capital has intensified, driven by rising demand Banks that struggle with credit provision and management risk falling behind in this competitive landscape Therefore, enhancing credit risk management at STB - HDB is crucial for maintaining financial stability and boosting market competitiveness.
Objectives of the study
This thesis analyzes the credit risk management practices at Sai Gon Thuong Tin Commercial Joint Stock Bank's Ha Dong branch and proposes strategic solutions and recommendations to enhance the credit risk management process, transforming potential risks into opportunities for the bank's growth and stability.
To clarify of the topic, the following need to be classified:
Firstly, analyze STB - HDB’s performance according to the following aspects: capital mobilized and lending activities
Secondly, investigate and analyze the actual credit risk situation of STB - HDB based on supplied data and quantitative indicators of credit quality
Thirdly, provide solutions to enhance credit risk management at STB - HDB
The thesis clarifies the research objective by answering the following questions in turn:
Question 1: What are the criteria that clarify the current status of credit risk management at the branch and how are they implemented?
Question 2: What are the solutions to enhance credit risk management capacity at the branch?
Significance of the study
The thesis emphasizes the theoretical aspects of bank credit risk while analyzing the current situation of STB and HDB It highlights the critical need for enhanced credit risk management in these banks, which is vital for ensuring financial stability The insights provided are valuable not only for STB and HDB but also for regulatory authorities, investors, customers, and the broader banking sector Additionally, this thesis serves as a valuable reference for students seeking to deepen their understanding and conduct research related to STB.
Scope and limitations of the study
The study's scope was Sai Gon Thuong Tin Commercial Joint Stock Bank – Ha Dong branch from 2021 to 2023 The thesis studied risks from credit activities that banks provide to customers
The restricted access to internal branch data concerning strategic activities has hindered data availability, limiting the depth of analysis Additionally, the findings and recommendations presented in this study may not be universally applicable to other banks and financial institutions due to generalizability constraints.
In addition, time constraints made the thesis not have the most comprehensive overview because it cannot be carried out on all branches of STB.
Definition of terms
Credit quality refers to an assessment of how well an entity can meet its debt obligations (Jakir Hossain, 2021)
Credit risk refers to the potential for a loss to result from a borrower's inability to fulfill contractual obligations or repay a loan (Vishnava, 2024)
Credit risk management involves analyzing both current and historical financial data of borrowers to assess their financial behavior, including aspects such as debts, repayment patterns, and loan terms (Preksha AB, 2023) The outstanding balance is defined as the total amount owed on any debt that accrues interest, such as credit cards (Kevin Payne, 2023).
Bad debt refers to an amount of money that must be written off by a creditor if a borrower defaults on the loans (Alicia Tuovil, 2023)
This study focuses on "Credit Risk Management at Sai Gon Thuong Tin Commercial Joint Stock Bank – Ha Dong Branch," prompted by the significant growth in banks' credit provision and the heightened concern over credit risk management The introduction provides essential background information and outlines the rationale for selecting this topic The thesis analyzes the bank's business outcomes, specifically examining capital mobilization and lending activities over a three-year period from 2021.
2023 Next, it examines and evaluates the current credit risk management of STB - HDB and offers recommendations and ways to raise it at this branch
LITERATURE REVIEW AND THEORETICAL
Review of the related literature
Credit remains a critical subject in banking and finance research, highlighting the significance of credit risk management Numerous projects and studies, both domestically and internationally, have explored this topic through various formats such as journals, theses, and dissertations This article provides an overview of key research findings in the field.
Nguyen Lan Khanh (2010) examined the factors contributing to the decline in credit quality, highlighting their significant impact on credit risk management at Vietnam International Commercial Joint Stock Bank (VIB) Utilizing practical research methods and mathematical statistics, the study analyzed VIB's operations and current credit risk management practices While the author proposed solutions to enhance credit risk management, the recommendations primarily targeted the state bank and government, lacking specific guidance for VIB itself This oversight resulted in a lack of focus, as the main subject of the research was VIB, and the absence of tailored recommendations diminished the study's effectiveness.
In her 2017 research, Luong Thu Phuong utilized both primary and secondary data to develop an indicator system for assessing credit quality and evaluating the effectiveness of credit risk management at commercial banks, specifically focusing on the National Citizen Commercial Joint Stock Bank (NCB) during the period from 2013 to 2015 The study highlighted the significance of external risk factors and categorized the risks impacting NCB Based on these findings, the author proposed detailed solutions and recommendations aimed at improving credit risk management efficiency at NCB.
Nguyen Thuy Linh (2020) emphasized the importance of improving credit risk management during the restructuring phase of Vietnam's banking system and credit institutions The study analyzed the capacity for credit risk management amid significant transformations occurring in the country.
The Technological and Commercial Joint Stock Bank has yet to provide effective recommendations for both authorities and the bank itself to enhance operational capacity and reduce credit risks.
In her 2022 study, Truong Thi My Nhung examined credit risk management solutions for individual clients at Agribank - Quang Trung branch Utilizing both quantitative and qualitative methods, she analyzed the branch's current practices in managing credit risk, focusing on factors such as capital, outstanding debt, and overdue debt among individual customers Although information was gathered through a questionnaire directed at credit officers to pinpoint the causes of personal credit risk, the author did not distinctly identify solutions for each identified cause Consequently, the findings derived from both methodologies remained somewhat generalized.
The book by Alastair Graham and Brian Coyle (2000) explores various business contexts where credit risk arises, detailing its types and methods for prediction and control However, it lacks recommendations for improving risk management and control capabilities, leaving it somewhat incomplete.
K Njanike's (2009) research highlights the critical role of effective credit risk management in the survival of banks, emphasizing that unmanaged credit risks can lead to severe consequences However, the study's reliance on primary data from survey participants introduces subjectivity, limiting its objectivity Additionally, while the research identifies the causes and effects of credit risk management, it falls short by not offering solutions or recommendations for competent authorities to enhance the credit risk management process.
In summary, existing literature on bank risk management offers a comprehensive overview of risk types and measurement techniques Each topic is shaped by its unique development framework, which aligns with the prevailing circumstances, strategies, and societal orientations of the banking system during different periods Consequently, this thesis aims to further explore these aspects in depth.
This article evaluates credit risk management during the current volatile economic period, addressing gaps overlooked in previous discussions It specifically focuses on the case of Sai Gon Thuong Tin Joint Stock Commercial Bank's Ha Dong branch, providing insights into effective strategies and practices for mitigating credit risk.
In this way, through the process of overviewing research and analysis from studies on credit risk governance, the author noticed:
Numerous studies, both domestic and international, have explored various research directions related to credit risk governance frameworks However, current research primarily offers preliminary insights into the regulatory aspects set forth by the State Bank.
Effective credit risk management requires commercial banks to regularly review and adapt their policies and methods to align with changing contexts Many studies conducted over two years ago lack current relevance, particularly given the significant fluctuations in the banking industry from 2021 to 2023 due to the Covid-19 pandemic This ongoing crisis has diminished the applicability of previous research, highlighting the need for updated insights in the field.
Despite the absence of dedicated research on enhancing credit risk management at STB - HDB, the importance of risk management remains a critical topic among executives at STB - HDB and other banks This thesis analyzes STB's risk management capabilities and provides recommendations aligned with STB - HDB's strategic objectives in risk management initiatives.
Because there are still research gaps like the above, the topic selection of the author is extremely essential and meaningful in terms of theory and practice.
Theoretical framework
2.2.1 Overview of commercial credit activities
Bank credit refers to the total amount of money that an individual or business can borrow from financial institutions, such as banks, in the form of loans This financial resource is essential for funding various needs and investments, providing access to capital for growth and operations.
8 repaid at the end of the loan term, as specified in the loan covenant and formally agreed upon
When obtaining credit, lenders and service providers often charge fees, interest, and other costs The total borrowing expenses are determined by the credit agreement's terms, the loan amount, and the repayment duration.
Bank credit is defined by five key characteristics: the borrower, the lender, the interest rate, the terms of repayment, and the type of loan Additionally, commercial banks adhere to several lending principles, including managing the purpose of borrowing, ensuring repayment capability, and requiring the repayment of both principal and interest on the borrowed funds.
2.2.2 Credit risk in lending activities of commercial bank
There are many concepts about risk in banking business activities:
Credit risk refers to the potential losses that may occur if a borrower or partner fails to fulfill their obligations as outlined in the agreement According to the Council of European Development Bank (2017), this risk encompasses situations where the counterparty does not adhere to their debt repayment commitments (Bessis, 2002).
Circular 02/2013/TT-NHNN, issued by the State Bank of Vietnam on January 21, 2013, defines credit risk in banking as the potential loss faced by credit institutions and foreign bank branches due to customers failing to meet their obligations under credit contracts.
Bank credit risk encompasses various concepts, primarily referring to the potential losses a bank faces when borrowers fail to meet their obligations outlined in credit agreements This type of risk is recognized as a fundamental concern in the realm of bank lending activities.
Depending on the context and specific purpose of the classification, credit risk can be classified into the following two ways: a) Based on the risk’s causes
Figure 2.1: Classification of credit risk based on its cause
If based on the causes of credit risk, there are 2 main types, which are:
Transaction risk is a type of credit risk that emerges from deficiencies in the lending transaction and approval processes, particularly during customer evaluation It encompasses three main categories: selection risk, which arises from inadequate assessment of the borrower's creditworthiness; operational risk, linked to the management of lending activities; and assurance risk, which involves breaches of assurance standards in credit contracts and collateral agreements.
Portfolio risk refers to the potential decline in performance or value of an investment portfolio due to various factors It can be categorized into two main types: internal risk, which arises from the unique characteristics of individual assets and economic sectors, and concentrated risk, which is linked to specific customers, sectors, loan types, or geographical areas Additionally, portfolio risk can be assessed based on the objectivity and subjectivity of its causes.
Credit risk arises from both objective and subjective factors Objective causes include external elements like market fluctuations, interest rates, natural disasters, and epidemics In contrast, subjective causes stem from actions—either unintentional or intentional—that lead to financial losses for both lenders and borrowers in credit activities.
2.2.2.3 The cause of credit risk
The risks in the credit granting process of banks have many causes originating from various sides: the lender, the borrower, and from the external environment
(1) The cause of credit risk from the customer borrowing
Understanding the motivations behind a large, diverse customer base seeking small loans is crucial, as various risk factors can influence their borrowing decisions.
Lack of financial capacity: The job and production of the borrowers are not going smoothly and encountering difficulties so customers borrow money without enough financial ability to repay debts
Misuse of borrowed capital for unintended purposes and a lack of intention to repay debts can significantly impact banks, resulting in financial losses and challenges in debt recovery When customers divert funds away from their intended use or demonstrate unwillingness to fulfill their repayment obligations, it creates substantial risks for financial institutions.
The lack of transparency in financial situations poses significant challenges for banks, as many customers submit unverified information, fake documents, and falsified financial capacity statements to secure large loans This dishonest behavior undermines the banks' ability to effectively mitigate credit risks.
(2) The cause of credit risk from banks
The bank's credit policy has significant shortcomings, as it often lacks clarity and consistency, leading to an unreliable credit process When the focus is primarily on profit, the bank exposes itself to elevated credit risks.
The bank's appraisal process lacks clarity and emphasis, resulting in poorly analyzed loans and inadequate assessment of customer information This oversight leads to unsuitable loan plans and inappropriate lending conditions, which ultimately create barriers that increase risk Consequently, these factors contribute to incorrect lending decisions, exposing both the bank and its customers to potential financial risks during the lending process.
Effective post-lending management and supervision are essential responsibilities for credit officers, yet many banks fail to adequately monitor how borrowers utilize their funds This lack of oversight can hinder banks' ability to assess changes in customers' repayment capabilities, potentially leading to increased financial risk Proper management after the loan is crucial to ensure compliance with credit contract terms and to safeguard the bank's interests.
Experience on credit risk management and lessons for STB - HDB
2.3.1 Asia Commercial Joint Stock Bank (ACB)
ACB stands out as a leading commercial bank in Vietnam, particularly recognized for its effective management practices, especially in credit risk management As the first Vietnamese bank to release an ESG Sustainable Development Report, ACB provides a clear insight into its governance efforts and commitment to sustainable practices.
ACB's credit policy prioritizes efficient capital utilization for lending while addressing environmental challenges The bank emphasizes resource and energy efficiency, ensuring sustainable development aligned with its strategic goals ACB is pioneering the development of green credit, a relatively unexplored area in the banking sector, and has recently limited funding for projects that negatively impact the environment.
ACB has implemented the program "Credit Insurance Purchase" for individual customers who borrow without collateral, this has helped the bank limit risks when customers do not repay debts
ACB has effectively addressed customer challenges and provided timely support to mitigate credit risks, resulting in a low bad debt ratio of just 1.2% and a high coverage ratio of 95% With non-performing loans (NPLs) below the industry average, ACB demonstrates superior credit standards by maintaining limited exposure to real estate developers This data underscores the effectiveness of ACB's credit risk management system Furthermore, the completion of Basel III and ILAAP enhances ACB's resilience to systemic risks, enabling the bank to navigate financial crises more effectively.
2.3.2 Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)
BIDV has prioritized risk management in its lending activities, achieving notable success By utilizing a customer ranking system, the bank has effectively implemented measures to select loan applicants, enabling it to quantify the risk level associated with each customer.
BIDV has implemented risk reduction strategies for its customers, including asset collateralization and third-party guarantees The bank evaluates the scope of these guarantees based on the trustworthiness, legal capacity, and financial strength of the parties involved.
BIDV has launched a debt management and asset exploitation company to handle collateral assets, including mortgages and guarantees, while also aiding in asset trading and auctioning Additionally, the bank has adopted essential tools to effectively manage liquidity and interest rate risks, focusing on interest rate sensitive gaps and fluctuations in net interest income.
2.3.3 Lessons for STB - HDB in credit risk management
Firstly, STB - HDB need to comply strictly with the regulations of branch itself,
STB and the State Bank on credit management in commercial banks
Secondly, banks should align their internal credit management systems with the State Bank's STB-HDB conditions, ensuring compliance with both national and international standards.
Next, STB - HDB should enhance the quality of the workforce, training employees in credit to become “proficient expertise - standard professional practice”
Moreover, STB - HDB must invest in building and developing technology infrastructure, establish a data bank to support risk assessment, processing, and monitoring in credit risk management, and provide objective results
To effectively reduce credit risk, commercial banks must focus on minimizing internal risk factors, including human resources, management systems, and management processes By enhancing these areas, banks can improve their overall management processes and mitigate potential risks.
This chapter references numerous prior studies that serve as essential resources and insightful guidelines for this thesis, incorporating new research and perspectives that enhance the depth and analysis of the subject matter.
Chapter two provides essential theoretical foundations on credit risk and its management, outlining key processes, problem-solving measures, and criteria for evaluating effectiveness It also includes case studies from a commercial bank and a state-owned bank, offering insights for STB and HDB to enhance their credit risk management practices.
RESEARCH METHODOLOGY
Locale of the study
The research subject is Sai Gon Thuong Tin Commercial Joint Stock Bank - Ha Dong branch which located in 474 - 476 Quang Trung Street, La Khe Ward, Ha Dong District, Hanoi City.
Research design
This thesis employs a quantitative approach to examine credit risk management practices at STB - HDB, utilizing primary and secondary data gathered from annual financial reports, quarterly updates on the bank's website, and other official online sources covering the period from 2021 to 2023 To ensure clarity in analysis and comparison, the collected data will be assessed for relevance and subsequently organized into tables, charts, and graphs for effective presentation.
This thesis employs secondary data processing methods, including synthesis, analysis, and comparison, to meet its research objectives The analysis and synthesis methods utilize aggregated data, while the comparison method focuses on evaluating changes in indicators over time and aligning them with current state regulations Tools such as tables, trend charts, and structure charts facilitate this comparative analysis By implementing both absolute and relative comparison methods, the thesis provides a comprehensive understanding of the bank's operational performance.
Data gathering procedure
The process of collecting information and processing the collected data from raw data into data used for analysis and comparison goes through 3 steps
(Source: The author self-synthesized)
First of all, it is necessary to determine the research objective in order to obtain information accurately collected
Using STB - HDB's annual financial reports through websites and other online sources with a high level of reliability to collect data during the period from 2021 to
2023 After collecting, gathering them together to move to the data processing step Step 3: Handling the gathered data
To optimize data analysis, it is essential to filter the collected information, retaining only relevant data while eliminating unnecessary elements Once the pertinent data is selected, it can be organized into tables and charts, converting the information into numerical values and percentages for effective analysis and comparison.
Sources of Secondary Data
This thesis utilizes data from official reports, the STB website, and other reputable financial, banking, and securities sources to ensure the accuracy and relevance of the information presented To enhance analysis and facilitate deeper understanding, tools like Excel and Microsoft Word are employed for data visualization.
Validity and Reliability
The data utilized in this article is sourced directly from the audited consolidated financial statements available on the official STB - HDB website Additionally, information has been compiled from reputable online resources in finance, banking, and securities, including CafeF, SSC Government, and Vietstock Key metrics such as capital mobilization, outstanding debt, overdue debt, and bad debt are derived from reliable and transparent sources.
26 financial reports for calculation and analysis
The information sources cited are verified by reputable authorities, including the State Bank's inspection department, and are well-regarded by readers for their objectivity Additionally, these sources undergo evaluation by leading global auditing firms such as Deloitte, Ernst & Young (E&Y), and PricewaterhouseCoopers (PwC), ensuring that the secondary data is both accurate and reliable.
Self-Reflection on Secondary Data Collection Analysis
The credit risk management data at STB - HDB is sourced objectively, fostering trust through its transparency and authenticity, as it is derived from various reliable sources that yield consistent results However, the study faces challenges due to the unavailability of certain necessary data online and the absence of subjective customer assessments regarding STB - HDB products and services This gap in publicly accessible secondary data presents an ongoing issue, highlighting that, despite the data collected for analysis, there are still limitations that need to be addressed.
Chapter 3 clarified the transparency and accuracy of information used in the thesis Most evaluations relied on secondary information from highly exact sources
FINDINGS AND DISCUSSION
Overview of STB - HDB
4.1.1 The formation and development of STB - HDB
Sai Gon Thuong Tin Commercial Joint Stock Bank (STB), established in 1991, has consistently innovated and adapted to modern trends, positioning itself among the fastest-growing banks in Vietnam With nearly 570 transaction points across 48 provinces and cities in Vietnam, Laos, and Cambodia, STB offers a diverse range of products and services, including electronic banking, loan packages, and insurance In 2023, STB's commitment to digital transformation and operational innovation has earned it numerous accolades, such as "Best Digital Transformation Bank 2023" and being ranked among the "Top 10 Prestigious Private Joint Stock Commercial Banks 2023," solidifying its market position and influence.
Established in November 2019, the Ha Dong branch, located at 474 - 476 Quang Trung Street, Ha Dong District, Hanoi City, has quickly become a leading contributor to the STB system's growth Initially starting with 31 employees, the branch now boasts a workforce of 109, reflecting its remarkable development over five years STB - HDB has solidified its presence by expanding its network with several affiliated transaction offices in the Ha Dong district, including locations in Van Phuc, Hoai Duc, and Thach That.
The Ha Dong branch, backed by a team of talented and virtuous leaders alongside a dynamic and professional young staff, is steadily establishing its reputation by delivering exceptional customer experiences with the bank's products and services In 2023, STB - HDB proudly received the award for being an outstanding branch.
In recent years, STB - HDB in the northern region has garnered multiple accolades, including the Customer Service Excellence Award and the Highest Transaction Volume Award, highlighting the branch's commitment and significant contributions to the STB banking system.
4.1.2 Organizational structure of STB - HDB
Figure 4.1: The structure of STB – HDB
(Source: General administrative department of STB - HDB)
STB - HDB has established a modern and professional management structure that enhances business development through a synchronized approach across all levels The organization is led by a Board of Directors, which holds the highest authority in decision-making and operational management, supported by specialized departments that collaborate on various branch activities The business department focuses on managing customer relationships and achieving sales targets for products such as currency trading and international payments Meanwhile, the risk control department is responsible for inspecting and managing risks associated with branch operations Additionally, the support department facilitates credit activities and transaction processing, while the accounting and treasury department oversees financial management and accounting functions.
The administration department plays a crucial role in supporting the director's office, analyzing the implementation status of various books and reports, and overseeing internal financial transactions within the branch As bank activities involve multiple stages, each stage is managed by different departments, necessitating close collaboration and comprehensive cooperation to ensure work efficiency This integrated approach enables the organizational system to function cohesively, aligning with the strategy of becoming the leading, modern, and versatile branch within the STB system.
Business performance of the branch from 2021-2023
After 5 years of formation and development, STB - HDB has always completed the set targets and tasks STB - HDB is always proud to be in the top branches with the fastest growing speed in the STB system in the northern region in particular and the whole system in general
Table 4.1: Business results of STB - HDB from 2021 to 2023
Amount Ratio (%) Amount Ratio (%) Amount
(Source: Financial statement of STB - HDB)
From the table 4.1, in general, the above indicators of STB - HDB increased
Between 2021 and 2023, STB - HDB experienced a steady growth in total assets, increasing by approximately 13% In 2022, total assets reached 2,715 billion dongs, reflecting an increase of 324.5 billion dongs compared to 2021, while showing a decrease of 378.5 billion dongs from 2023.
In the face of the global financial crisis and domestic economic challenges, the State Bank's tightened monetary policy significantly impacted the business results of STB - HDB and the banking sector as a whole However, through effective regeneration facility configuration, the branch achieved remarkable growth, with after-tax profit rising to 23.13 billion dongs in 2022, marking a 47.80% increase In 2023, profits surged nearly 1.5 times compared to the previous year, reflecting a growth rate of 53.09% Despite the difficulties in the domestic economy and fluctuations in the international financial market, the branch maintained strong after-tax profits, contributing positively to the overall development of the STB banking system This performance signals promising opportunities for expanded scale, scope, and quality within STB - HDB.
Over the past three years, operational income has experienced substantial growth, particularly between 2021 and 2022, when it nearly doubled with a remarkable growth rate of 47.64% However, by the end of 2023, this figure is projected to see only a slight increase of 0.1%, reaching a total of 120.06 billion dongs.
In addition, operating costs also gradually increased, specifically in 2023, an increase of 14.406 billion dongs compared to 2021
CIR (cost-to-income) = Total operating expense
The Cost-to-Income Ratio (CIR), calculated by dividing total operating income by total operating expenses, is a key indicator of a bank's operational efficiency A lower CIR signifies higher efficiency in managing expenses relative to revenue STB is currently in the final phase of a comprehensive restructuring of its banking system, entering a robust recovery phase marked by rising operational indicators and revenue growth However, the impact of the Covid-19 pandemic in 2021 posed significant challenges to this recovery process.
CIR of the main branch was still quite high (upper average) at 55.1% By the end of
In 2022, the cost-to-income ratio (CIR) for STB - HDB significantly decreased to 13.3%, indicating improved stability compared to 2021 However, in 2023, the bank's expenditures surpassed its earnings, leading to an increase in the CIR to 49.3%.
Table 4.2: Capital mobilization of STB - HDB from 2021 to 2023
Deposits from customers and valuable papers issued
(Source: Financial statement of STB - HDB)
The capital mobilization of STB - HDB has shown significant growth over the past three years, with deposit sources consistently increasing by approximately 240 billion dongs annually In 2021, the branch's capital mobilization reached 2,099.46 billion dongs, which further rose to 2,304.08 billion dongs in subsequent years.
In 2023, mobilized capital reached 2,633.59 billion dongs, continuing an upward trend from 2022 The majority of this capital, over 90%, came from customer deposits and issued valuable papers, totaling 2,475.86 billion dongs by year-end, which was an increase of 271.45 billion dongs compared to 2022 Deposits from credit institutions represented a minimal share The steady growth in capital mobilization enhanced the bank's liquidity during challenging economic conditions Additionally, mobilization through term deposits increased consistently over the years, driven by higher interest rates compared to demand deposits.
Between 2021 and 2023, the rate of demand deposits consistently remained only one-fifth that of term deposits, which were four times higher than demand deposits during this period In 2023, capital mobilization from demand deposits reached 508.58 billion dongs, accounting for 19.31%, while term deposits totaled 2,125.01 billion dongs, representing 80.69% Although the amount of demand deposits increased steadily from 2021 to 2023, their proportion declined as term deposits experienced significant growth.
The Covid-19 pandemic has triggered a significant economic crisis, leading to unusual fluctuations in the capital market throughout 2022, particularly due to heightened competition among banks to raise interest rates for capital mobilization In the latter half of 2022, banks intensified their efforts to attract deposits, resulting in competitive pressures that impacted their capital mobilization, lending practices, and overall business efficiency Amidst the potential risks associated with investment avenues like stocks and real estate, many customers turned to savings as the safest investment option Despite these challenges, STB - HDB has proactively implemented effective capital raising strategies to stabilize their capital mobilization efforts.
Credit activities are the main activities that bring the biggest profits to the bank,
33 accounting for 70-80% of the bank's total profits, so it is always of interest and development at STB - HDB
Between 2021 and 2023, the branch experienced significant growth in outstanding credit loans, with a continuous increase in loan balances and a strong focus on credit quality In 2021, the total outstanding loans reached 1,779.5 billion dongs, comprising 1,043.78 billion dongs for individual customers and the remainder for economic organizations Following a challenging pandemic period, by the end of 2022, consumer demand and business capital needs surged, leading to a notable rise in credit activities, with loan accounts for both customer groups increasing by approximately 216 billion dongs each This growth propelled the branch's total outstanding debt to 2,012.06 billion dongs, reflecting a 13% increase aligned with STB's allocation limits The upward trend continued into 2023, with an additional rise of 202.34 billion dongs in loans.
Table 4.3: Credit activity of STB – HDB from 2021 to 2023
(Source: Financial statement of STB - HDB)
However, in terms of credit structure, the loan rate for individual customers
From 2021 to 2023, the loan rate for economic organizations has steadily increased, while the demand for capital among individual customers and economic organizations has decreased By 2023, individual customers represented 55.18% of the loan rate, compared to 44.82% for economic organizations, indicating a shrinking need for capital across both groups.
Figure 4.2: Outstanding debt structure over time of STB - HDB from 2021 to 2023
(Source: Financial statement of STB - HDB)
Over the past three years, STB - HDB has experienced a slight increase in outstanding debt across short-term, medium-term, and long-term categories Notably, short-term loans dominate the branch's debt profile, totaling 1,397.63 billion dongs, which represents 63.2% of the overall outstanding debt.
In 2023, the rise in outstanding debt is a natural consequence of short-term loans primarily used for consumption, small business operations, and daily life expenses, especially as the economy recovers from a crisis Additionally, the sector has integrated consumer loans with medium and long-term loans, amounting to 816.77 billion dongs.
Short-term Medium and long-term
Figure 4.3: Structure of debts by currency unit of STB - HDB from 2021 to 2023
(Source: Financial statement of STB - HDB)
In 2023, the need for physical distancing to combat epidemics limited international trade, leading to a strong emphasis on domestic business activities As a result, the branch's loan balance was predominantly composed of loans in dongs, which constituted approximately 96.97% of the total, with only a small portion allocated to loans in foreign currencies and gold.
Current status of credit risk management at STB – HDB
4.3.1 Mechanism of credit risk management
Effective credit activities require credit policies that align with the bank's development goals during each period In recent years, STB and STB-HDB have consistently introduced policies aimed at maximizing credit activities while maintaining high credit quality Currently, STB-HDB is implementing its 2023 credit policy as part of the bank's strategy for the final phase of the banking system restructuring project, set to conclude by the end of 2024.
The credit policy for outstanding loans involves the credit management department closely monitoring and managing the growth rate of loans at the branch level When this growth exceeds the maximum limit set by STB, the department will issue risk warnings In 2023, the total outstanding debt of STB - HDB reached VND 2,214.4 billion, reflecting a 10% increase from 2022 This target is subject to adjustment based on the board of directors' resolutions and the actual business conditions.
STB - HDB's credit activities are categorized into two main terms: short-term loans, which last up to 12 months and constitute 63.2% of total outstanding loans, primarily supporting small-scale production and businesses, and medium to long-term loans, ranging from 12 to 60 months, aimed at financing fixed asset purchases, making up 36.8% of outstanding loans The bank determines the credit term based on factors such as the mobilized capital term, loan request timing, and the scale and efficiency of capital utilization However, challenges in customer revenue sources due to external factors have led to a lack of strict enforcement of debt maturity regulations Consequently, STB - HDB must continuously review its capital sources to make necessary adjustments to debt maturity terms.
Policy to restructure debt repayment time and maintain the same debt group:
To assist customers struggling with business operations and loan repayments due to the impact of the Covid-19 pandemic, STB - HDB implemented a policy on March 13, 2020, that includes restructuring repayment timelines, waiving or reducing interest and fees, and maintaining the classification of debts that meet the criteria outlined in Circulars No 01/2020/TT-NHNN, No 03/2021/TT-NHNN, and No 14/2021/TT-NHNN.
Between 2021 and 2023, STB - HDB has consistently adjusted its credit interest rates in response to the complex fluctuations in the market, adhering to the regulations set by STB and the State Bank This flexible interest rate adjustment policy enables STB - HDB to remain competitive with other financial institutions while aligning with current market conditions.
Collateral serves as the bank's ultimate protection against bad debts, necessitating adherence to the bank's classification of collateral and customer ranking within its credit rating system.
In the banking system, credit granting authority varies by level, with STB - HDB limited to approving loans within specific authorizations Each branch and department has distinct decision-making powers regarding credit and guarantees, with responsibilities for approving credit limits, granting loans, and signing contracts divided among different levels Loan approval at the branch management level can be executed by the Branch Board of Directors or higher-level managers, who must assess the strategic risks and benefits for the bank Specifically, branch directors can approve loans up to 5 billion dongs, while transaction managers can authorize loans up to 2 billion dongs For loans exceeding 2 billion dongs at the transaction office, approval must be escalated to the branch level.
4.3.2 Legal basis for credit risk management
STB - HDB has conducted credit scoring and customer ranking on the internal credit rating scoring system according to Decision 493/2005/Q/NHNN dated April
On February 22, 2005, the State Bank of Vietnam issued Circular No 13, which established an internal credit scoring system This system evaluates customer risk and collateral to quantify credit risk, enabling banks to analyze, assess, score, and rank loans effectively.
The internal credit rating system at STB - HDB aims to enhance customer management by establishing a comprehensive information system categorized by credit profiles This initiative supports the development of policies aimed at improving credit quality and strategically managing the credit portfolio Additionally, it serves as a foundation for determining provisioning levels for bad debts, controlling customer default risks, and estimating actual losses through statistical modeling The credit scoring and ranking process at STB - HDB begins with the collection and aggregation of relevant customer information.
Step 2: Determining industry, profession, field, business scale, the debt repayment ability of customers
Step 3: Scoring financial and non-financial indicators
Step 5: Summarizing scores and making rank
Step 6: Approving scoring results and ranking
After credit scoring, customers will be classified into 5 groups, each group has a different level of credit risk as shown in the table below:
Table 4.4 Result of customer risk rating
Rating Debt classification Group of debt
(Source: Risk Control Department of STB)
Credit officers utilize information and loan documents to identify, score, and categorize customers into specific groups based on a ranking system Following this, they assess and appraise the customers' collateral assets, which must comply with the asset criteria set by STB - HDB These criteria include the value of the collateral, the term, and any downward trends in asset guarantees After evaluating the collateral assets, credit officers classify them into designated groups.
(Source: Risk Control Department of STB)
Loans are approved based on a customer's credit score and collateral assessment STB - HDB prioritizes customers with good to excellent credit ratings, as they demonstrate a strong ability to repay debts and possess suitable collateral Specifically, the bank considers granting credit to those with a credit score of A or higher alongside a collateral rating of B or higher, or a credit score of BBB or higher with a collateral rating of A Conversely, customers falling into lower credit categories are typically denied credit due to identified risks and inadequate repayment capabilities.
4.3.3 The process of credit risk management
The credit process is organized according to a system between departments within the bank At STB - HDB, the credit granting process is carried out in 6 steps, specifically as follows:
Consulting and receiving customers' loan needs
The credit officer assists customers by preparing a credit application using the bank's designated form, which mandates the submission of detailed information and essential documents in line with the specific credit granting policies It is crucial that all provided information is accurate and valid to facilitate the subsequent appraisal process.
Upon receiving the complete loan documents, credit officers analyze and verify data for appraisal, which must take place at the customer's home or manufacturing site to gain a comprehensive understanding of the customer's income sources, business health, product market demand, and collateral value This information allows credit officers to evaluate customers based on their behavioral, production, and financial capabilities, scoring them on the feasibility and effectiveness of the loan plan A crucial step in this evaluation is checking the customer's outstanding debt information with the CIC Ultimately, based on the credit assessment and the entire application dossier, credit officers select qualified customers to proceed with the credit application.
Credit officers are responsible for submitting credit application and appraisal documents to their superiors for approval Loans within the branch's credit limit are authorized by the branch manager, while transaction managers handle approvals at the transaction office Larger loans require submission to the credit council and credit committee for a thorough re-evaluation of the customer's profile Following the appraisal, the credit officer will inform the customer of the loan decision, whether it is approved or denied If approved, a credit contract will be signed between the bank and the customer.
Completing all documents, legal procedures and banking solutions
Once the credit contract is signed and all legal formalities concerning collateral are fulfilled, the leaders will authorize the disbursement for the customer For high-value, long-term loans, disbursement will occur in multiple tranches to effectively monitor customers and mitigate credit risks.