ABSTRACT The objective of the topic is to investigate the status of credit risk management for personal customers of MBBank-Son Tay Town Branch, thercby proposing appropriate measures to
Rationale 28 2 Objectives 8 3 The subject and the scope of the research 9 4, Research methodology 9 5 Struettre of the thesis ào sec _
Currently, credit activity is a vital component of commercial banks' operations, generating the majority of their total income and supporting economic growth However, it remains one of the riskiest aspects of banking, requiring effective credit risk management to ensure safe business practices Implementing robust credit risk management strategies is essential for enhancing the quality and efficiency of banking activities and fostering the sustainable development of commercial banks.
In Vietnam, credit risk management in commercial banks has traditionally received limited attention, despite rising bad debt ratios and increasing average default levels With heightened competition and greater integration of banking and financial markets, banks are now compelled to implement robust risk management reforms to enhance operational resilience The expanding personal customer segment offers profitable opportunities but also introduces potential risks that banks must carefully navigate Recognizing this, Military Commercial Joint Stock Bank (MBBank), especially its Son Tay Town Branch, has made significant efforts to improve credit risk management practices to mitigate risks and achieve better financial outcomes However, challenges remain in effectively managing credit risks for personal banking This highlights the importance of developing tailored credit risk management strategies to ensure sustainable growth in personal banking services.
-Synthetizing and systcmatizing the thcorctical fundamentals about credit risk management
~ Analyzing and cvahuating the Teal situation of credit risk management in MBRank Son Tay + Suggesting some solutions lo improve the efficiency of credil risk managernent
‘The research quostions must be answered (o clarify the above objectives
+ What is the basis about credit risk and credit risk management?
+ How doas the credit risk management at MBBank - Son Tay Town Branch work? What are the advantages and disadvantages?
+ Tow lo improve the credit risk management al MBRank - Son Tay Town Branch?
3 The subject and the scope of the research
+ The subject of the rescarch is credil risk management for persanat banking al MBBank - Son Tay Town Branch
- The scope of the research focuses on the credit risk management at MBBank - Son Tay
This study employs a variety of research methods, including descriptive statistics, synthetic analysis, comparative techniques, and expert evaluation, to analyze data more effectively The primary data used in this research are secondary sources collected from various channels such as financial statements, business operation reports, documents, and policies of MBBank Son Tay Town Branch Additionally, the research draws upon academic works, reference books, journals, and government legal policies related to credit risk management, ensuring a comprehensive and reliable analysis.
The thesis includes four chapters:
Chapler 1: Overview about rescarch situation, theorctical basis about credil risk and eredit risk management
Chapter 3: Status of credit risk management at MBBank Son Tay Town Branch
Chapter 4: Solutions for improvement of eredil risk management at MBBank — Son Tay
OVERVIEW ABOUT RESEARCH SITUATION, THEORETICAL BASIS
RESEARCH METHOD
Business operation results of MBBank — Son Tay Town in 2014-2016 3.2 Status of credit aclivily for personal customer of MBBank — Son Tay Town Branch 36 3.3.1 Credit risk management apparatus at MBBank — Son Tay Town Branch 36 3.2.2 Credit policy for personal customer af MBBank — Son ‘Tay ‘Lown Branch
Table 3.1 Capital mobilization of MBBank— Son Tay Town in 2014 - 2016
Capital mobilization by credit organization] — 0.01 0.01 0.01
Capital mobilization fiom economid 280.244 176.171 751.090 organivalions and residents
| Capital mobilization from economid 76.469 71.675 10.245 ganizations f+ Capital mobilization from residents 203.775 104.496 240.845
(Source: Business operation result statement of MBBank — Son Tay Town Branch in 2014-2016)
According to the above table, the situation of capital mobilization at MBBank — Son Tay
Town Branch has not really developed effectively Particularly, in 2014, the mobilization was 280.25 billion dong, but then decreased sharply to 176.18 billion dong, equivalent to
In 2015, the capital mobilization of MBBank - Son Tay Town Branch was 37%, but by 2016, it had gradually stabilized and increased by 42.6% to 251.1 billion dong The significant decline in capital mobilization in recent years was primarily due to global economic difficulties and crises Despite these challenges, MBBank - Son Tay Town Branch implemented effective policies and measures to raise capital, leading to a gradual stabilization of its capital mobilization.
Figure 3.2.Capital mobilization by objects
(Source: Business operation result statement of MBBank — Son Tay Town Branch in 2014-2016)
The primary source of capital mobilization came from residents, who contributed 95.61% of the total, while economic organizations accounted for 4.39%, highlighting the significant role of individual depositors Capital mobilized from credit institutions was negligible, indicating limited reliance on institutional funding The majority of deposits, 98.8%, were held in Vietnamese Dong (VND), whereas foreign currency deposits made up only 1.2%, reflecting the dominance of domestic currency in the local banking sector.
Figure 3.3 Capital mobilization by currency type
(Source: Business operation result statement of MBBank — Son Tay Town Branch in 2014-2016)
MBBank Son Tay Town Branch has successfully achieved its capital mobilization goals through diversified products and flexible mobilization strategies By offering adjustable interest rates aligned with market conditions, the branch has enhanced its financial performance This achievement reflects MBBank's effective approach to capital mobilization, strengthening its position in the banking sector.
Town Branch in conditions of a difficult economy and cutthroat competition among commercial banks as currently
Table 3.2 Credit activity of MBBank — Son Tay Town Branch
Criesbi Outstanding ¡ng (Outstanding| Proportion |Outstanding| Pro port portion |
(Source Business opcration result statement of MBBank — Son Tay Town Branch in 2014-2016)
The outstanding credit balance at MBBank – Sơn Tây Iown Branch has steadily increased over the years, reaching 771.7 billion dong by the end of 2015, which represents a 24% growth compared to 2014 In 2016, the branch’s outstanding balance reached 754.6 billion dong, marking a 22.2% increase year-over-year.
In 2012, credit growth experienced a notable increase, but by 2015, it had decreased by 2.2%, reflecting fluctuations driven by various motivating factors These include the demand for capital from borrowers, the overall economic environment, and the specific conditions in Son Tay Town Despite facing a challenging socio-economic situation in 2016, which negatively impacted the bank's operations and led to a slight reduction in outstanding balances, MBBank Son Tay Town Branch maintained a relatively stable customer base Overall, the branch’s credit activities have shown consistent and stable development over recent years.
Figure 3.3 Credit outstanding balance by term (Source: Business operation result statement of MBBank in2014-2016)
The current credit structure aligns with MBBank's approved policy, with 20.7% of total outstanding loans being short-term and 79.3% medium to long-term Over 90% of loan balances are denominated in VND, while foreign currency loans account for approximately 10% The bank's credit activity has expanded significantly, resulting in diversified products and a positive shift in credit structure.
The structure of outstanding balances across various terms complicates capital mobilization efforts, making it challenging to arrange sufficient loan resources Additionally, this uneven distribution may lead to liquidity pressures during certain periods, highlighting the need for effective financial planning and risk management strategies.
Figure 3.4 Credit outstanding balance by currency type
(Source: Business operation result statement of MBBank — Son Tay Town Branch in 2014-2016)
Between 2014 and 2016, the global and domestic economies faced significant challenges, impacting the banking sector in Vietnam During this period, Vietnamese banks struggled amidst the effects of the global economic crisis and recession, which further intensified competition within the domestic banking market Despite these difficult conditions, MBBank strived to navigate the prevailing economic uncertainties and maintain its growth trajectory.
~ Son Tay Town Branch has partly proved its right direction and efficiency of the Board of
Directors, the Board of Managers and all employees of MBBank — Son Tay Town Branch in period 2014-2016 and maintained its position in the competitive environment among banks as currently
3.2 Status of credit activity for personal customer of MBBank — Son Tay Town Branch
3.2.1 Credit risk management apparatus at MBBank — Son Tay Town Branch
The Board of The Board af
ALCO Council The Board of
Internal Risk Management Credit Council
‘Management, Del Seulement and Re- appraizal
Figure 3.9 Credit risk management apparatus at MBBank
The credit risk management system at MBBank Son Tay Town Branch is well-developed, featuring a multi-level vertical management structure This organizational framework ensures effective oversight and control of credit risks, reinforcing the bank's commitment to sound risk management practices.
Credit Council Advising the Board of Gencral Directors on credit risk management in
MBBank’s operations include independent supervision, evaluation, and proposing strategic recommendations from various departments These proposals are submitted to the Board of Directors for approval, ensuring sound governance and decision-making Additionally, MBBank provides expert advice on credit operation processes and operational procedures related to credit risk management, enhancing the bank’s overall risk mitigation and operational efficiency.
ALCO Council: Performing the task of supervising, managing and coordinating the bank's borrowing and lending strategy, managing the capital structure, developing new products
Besides that, ALCO Couneil makes an important contribution on supervising and managing market tisk
Internal Supervision Division: Advising the Board of General Directors 40 conduct internal inspection, examination, assessment of adequacy, effectiveness and efliciency within
The Risk Management Division is a key operational department within the Head Office responsible for providing advice and assistance to the General Director in supervising and managing various operational and other risks Its organizational structure typically includes specialized departments such as risk management, debt settlement, and re-appraisal, all working together to ensure comprehensive risk oversight and mitigation.
At present, there are no credit risk management division at the branch, but only credit officers at the customer relation department with additional fimction of riskeheck
3.2.2 Credit policy for personal customer at MBBank —Son Tay Town Branch
MiBank’s Loan Policy at the Son ‘Tay’ Town Branch is regularly updated to align with current socio-economic conditions, ensuring responsible and sustainable lending practices The bank's loan activities are designed to be conducted safely and responsibly, reflecting a commitment to financial stability and customer security Key aspects of MBBank’s loan policy for personal customers at the Son ‘Tay’ Town Branch include specific criteria that prioritize risk management, customer affordability, and transparent lending procedures to promote long-term financial health.
Customer objects) MBBank — Son Tay Town Branch considers Joan for individuals wha may guarantee the following conditions
- Having a stable occupation and income: working time is over 12 months, monthly income is over 3 million VND per month
- Custorners have debis/lotal assets less than 70%
- Customers have total monthly payables/ monthly gross income less than 80%
- The remaining income will be enough for mninimum living expenses
- Customers have no business losses in two consecutive years
- Tlousehoids and individual business have continuous time of business operation within more than onc year
- Having good credit history, good personal history, good social relations, and no criminal records,
Collateral: The 2 sols accapled by MBRank — Sơn Tay Town Branch as collateral for loans include:
- Saving book, deposit balance, other valuable documents accepted by MBBank Son Tay
- Residential house, residential fand, apartments with full tegal papers
- Warehouse and offices on stable and long-term owned land with full and legal ownership papers,
- Machine, equipment, means of transport commonly used in the market
The loan term at MBBank — Son Tay Town Branch depends on the specific product type, loan stage, and the customer's ability to meet repayment obligations Currently, the branch offers personal loans with a maximum term of up to 15 years MBBank — Son Tay Town Branch assesses each borrower's eligibility to determine the appropriate loan duration, ensuring responsible lending and tailored financial solutions.
Loan amount: ‘rhe loan amount for customers is determined by MBBank — Son Tay Town
MBBank Son Tay Town Branch offers loans tailored to customers' local needs and repayment capabilities, ensuring that the loan-to-value ratio for each type of collateral is maintained within permissible limits To manage risk and promote responsible lending, the branch sets maximum loan amounts for individual customers based on their collateral type and financial profile These loan limits are designed to align with the bank’s policies and ensure sustainable credit issuance, providing customers with financial support while safeguarding the bank’s interests.
A collateral-free consumption loan can be up to ten times the proven monthly income, with the monthly installment not exceeding 80% of the accumulated income The maximum loan amount is limited to 250 million dong, ensuring accessible financing for consumers while maintaining manageable repayment terms.
+ Loan for individuats amd houscholds borrowing capital to scrve their production and business without having business registration certificate is 500 million dong
- Loans for consumption activities (with collateral) without docunents evidencing the clear purpose of capital use is maximum 500 million dong
+ Loan for other needs must ensure that the monthly repayment amount (principal and interest) docs not exezed 80% of the accumulated income proven by cach customer
Loan interest rate: ‘he loan interest rate for personal customer at MBBank — Son Tay
Town Branch is quile flexible and thers is a difference belween loans based on the crileria:
+ Loan tore: The longer the loan term is, the higher (he interost rats is
- Loan amount: The lower the loan amount is, the lower the loan interest rate is
- Loan purpose: Loans for consumption purposes normally have higher interest rate than loans for production and business purposes
SOLUTIONS FOR IMPROVEMENT OF CREDIT RISK MANAGEMENT
Solutions for improving credit risk management at MBBank — Son Tay Town ÔÔÔỎ 54 1 Improvement and enhancement of customer information collection eee SA 43.2 provement of the qualily of customer appraisal - a) 3 Improvement of credit scoring system 4, Training and effective use of human resource
43.1, Improvement and enhancement of customer information collection
The primary challenge facing the branch is that the information collection process mainly focuses on appraisal aspects such as customer identity and project potential, which hampers the overall credit assessment Incomplete or inaccurate credit information systems hinder effective customer analysis, leading to poor decision-making Currently, the branch's credit operations are passive in updating lender information, relying mostly on records, documents, and customer-provided data that are often outdated, incomplete, or unreliable This results in imprecise, subjective, and unscientific assessments, increasing the bank’s exposure to risk and reducing profitability Furthermore, customers may face disadvantages if the bank underestimates their financial capacity and business activities due to insufficient or inaccurate data, adversely affecting their financial prospects.
‘measures to complete and upgrade the information system are proposed as follows:
Establishing comprehensive databases categorized by similar features and characteristics is essential for efficient data management Implementing a reliable information system with robust software like IPCAS ensures seamless data organization and retrieval Additionally, setting up a robust information security system is crucial to prevent data leaks and maintain the confidentiality of sensitive information.
- Next, diversifying sources of information Information must be collected from various sources, such as
— The loan protile must have certification of audits of different levels depending ou the type of borrowers and at the same time be updated regularly
Besides the information from Credit Information Center (CIC) of the State Bank of
Vietnam the bank shonld tring experts lo help in consulting and evaluating the technical parameters The bark can also collect information from customers’ partners and other banks
Establishing a credit information team as a channel to help the branch deal with information asymmetric, hones reduce the risk
— Proactively building an information network relating to the market value of collateral assats such as price fluctuation of real estate, equipment and machinery
43.2, Improvement of the quality of customerappraisal
Improving the quality of appraisal is crucial for strengthening the relationship between banks and their customers A key factor in this process is the bank's proactive effort to identify and implement strategies that enhance the accuracy and reliability of customer and loan project evaluations By focusing on these initiatives, banks can better assess creditworthiness, build customer trust, and ensure more effective loan approvals Ultimately, high-quality appraisals contribute to improved customer satisfaction and stronger financial stability for the banking institution.
Actively seeking comprehensive customer and project information enables banks to provide tailored services, attract loyal clients from competitors, and meet customer demands efficiently Maintaining close relationships with loyal customers and understanding their partners' needs help strengthen trust and facilitate access to valuable information Establishing dedicated departments for monitoring and archiving data ensures systematic collection and quick retrieval of relevant insights During the assessment process, analyzing key factors such as customer needs, partner relationships, and project potential is essential for identifying profitable opportunities and enhancing overall service quality.
+ The bark as s the togal capacity of customers through the status of the documents
‘The documents are required to be full and valid to ensure the establishment and operation of the business is legal
The bank assesses a customer's financial standing by analyzing financial statements and external information, focusing on key financial indicators These analyses help the bank understand the customer's liquidity, solvency, and overall financial health Based on this evaluation, the bank develops contingency plans to address potential issues that could arise during project implementation, ensuring mutual financial stability and risk management.
- The feasibility of business projects and plans is a key factor for the snecess of enterprises
Therefore, the cffectivencss of the loan scheme is the most important issuc to evaluate during customer appraisal process
When evaluating a project, predictions are inherently uncertain, making the focus on credit safety crucial For short-term loans, banks should assess the borrower’s ability to repay quickly, with repayment capacity constituting at least 30% to 40% of the loan amount In contrast, long-term loans prioritize the equipment's technological advancement and competitiveness, ensuring assets are modern enough to produce high-quality products It is essential to account for asset depreciation and verify that profits remain sufficient to repay the loan before equipment becomes obsolete, given the rapid technological growth today Additionally, bank lending terms must adhere to established limits, considering the short life cycle of modern equipment due to fast-paced technological advancements.
43.3, Improvement of credit scoring system
The oredit-scoring system of the bank has boon quilc detailsd and avcurate, However,
2s still find it difficult to apply due fo a variety of reasons, The main reason 1s that input data provided by customers is inaccurate ‘The data in the financial customer service employ
Controlling all 56 statements is nearly impossible, which is why customer service employees often do not rely heavily on the credit-scoring system Instead, the lending process primarily depends on thorough appraisal and the employees' own observations Therefore, the credit-scoring system should be considered a supporting tool rather than the sole basis for decision-making in the assessment process.
An effective branch assessment requires an integrated model that combines internal indicators from recorded documents with external factors such as working conditions and employees' educational backgrounds Accurate data collection from customers is crucial, necessitating collaboration between banks and customers, as well as monitoring and standardizing financial statements for reliable evaluation.
434, Training and effective use of human resource
The human factor is crucial in the operations of a commercial bank, as employee professionalism directly impacts risk management Limited qualifications, lack of responsibility, or inadequate ethical standards can lead employees to violate procedures, policies, and laws, resulting in significant losses for the bank Ensuring employees meet the necessary business requirements can significantly reduce subjective damage and operational risks Addressing these issues involves enhancing professional training, reinforcing compliance with regulations, and promoting a strong ethical culture within the bank.
Effective risk management is essential for bank leadership, focusing on disseminating knowledge and experience to employees Updating risk management mechanisms and regulations is crucial when new regulations or amendments are issued, ensuring compliance and effectiveness The Board of Directors should consider both subjective insights and scientific proposals from experts to enhance decision-making Investing in potential employees through short-term international training at leading banks or professional on-site courses by experienced professionals can significantly improve their technical skills and risk awareness This approach leads to high efficiency and rapidly strengthens the risk management capacity of MBBank - Son Tay Town Branch.
Actively pursuing training opportunities and initiating short-term courses on professional knowledge and skills are essential to enhancing employees' qualifications across all banking sectors By implementing targeted training programs, the bank aims to improve professional competencies, support career development, and ensure staff stay updated with industry best practices These initiatives foster a skilled workforce, ultimately contributing to overall organizational growth and improved service quality.
Effective employee arrangement is essential for organizational success, emphasizing the principle of placing the right person in the right job Aligning work assignments with employees’ abilities, qualifications, and strengths helps optimize performance and reduce operational risks Properly matching talent to roles ensures smoother business operations and enhances overall productivity.
To enhance employee performance, it is essential to create a competitive work environment complemented by appropriate incentives, rewards, or penalties based on performance Clear communication of duties, rights, and obligations ensures employees understand their roles, fostering accountability Regular motivation and feedback boost their sense of responsibility and stimulate creativity, ultimately leading to increased productivity and engagement.
43.4 MBBank — Son Tay Town Branch needs to modernize the information technology sytem
Continuing the implementation of the Information Technology Modernization Project, the focus is on applying the latest technologies to enhance risk analysis and assessment Establishing a comprehensive and continuous information network ensures seamless information accessibility and real-time updates, which significantly improve the quality of lending decisions These efforts also support effective management and integration with both local and international banking institutions, fostering a more efficient and interconnected financial ecosystem.
Equipment including personal computers, servers, intrane! optical fiber cables should be fully facilitated at each branch/business unit to support the employees’ work