54 SOME SOLUTIONS TO REDUCE CREDIT RISKS AT VIET NAM PROSPERITY JOINT STOCK COMMERCIAL BANK

ACADEMY OF FINANCE ---SOME SOLUTIONS TO REDUCE CREDIT RISKS AT VIET NAM PROSPERITY JOINT STOCK COMMERCIAL BANK Major : English for Finance and Accounting Student code: 155D2202010060

ACADEMY OF FINANCE -

SOME SOLUTIONS TO REDUCE CREDIT RISKS AT VIET NAM

PROSPERITY JOINT STOCK COMMERCIAL BANK

Major : English for Finance and Accounting

Student code: 155D2202010060

Supervisor: Ms Pham Phuong Oanh

[Hanoi-2019]

DECLERATION

Thereby declare that this graduation thesis is based on my work except forquotations and citations that have been duly acknowledged I also declare that it hasnot been previously or simultaneously submitted at Academy Of Finance or otherinstitutions

Graduation thesis authorNguyen Thanh Quang

ABSTRACT

This research involves identifying the credit performance of Viet Nam ProsperityJoint Stock Commercial Bank between 2015 and 2017 The goal is to show that thefirm could improve its income results through both of internal and external sources.This has been done by analyzing financial and credit risk ratios throughout the years,which includes debt ratios and capital turnover ratios Upon the analysis on thesefactors, it becomes clear that VP Bank was getting better with the decrease in the loss

of outcome to achieve the target corporate goal in the long run Through showing thefinancial wealth of VP Bank, this research highlights the importance of running thebusiness with careful strategies in order to survive in the modern economy

ACKNOWLEDGEMENT

No thesis can be completed without a great deal of help and encouragement I

am exceedingly grateful to all people for giving me such huge supports

Firstly, I would like to give my heartfelt thanks to my instructor, Ms PhamPhuong Oanh at Academy of Finance for her enthusiastic supervision from thebeginning of forming thesis’s topic until the completion Despite of busy timeschedule, she still spent a lot of time listening to my opinions whenever necessary,contributing her comments and ideas, and correcting thesis draft

Secondly, I express profound gratitude to my thesis guide, Mr Bui Thanh Hai –

a credit officer of VP Bank He helped me to collect all essential data, explained mewhat I am confused, provided me useful advice to comprehend problems in the thesis

I also wish to send my heartfelt thanks to all staffs of the VP Bank, who created awelcomes condition for me during the time I was taking field study there

For the valuable knowledge and studying encouragement, my sincere thanks go

to all my teachers in the Faculty of Foreign Language – Academy Of Finance, whohave provided me with worthy lessons throughout 4 years of study

Lastly, from the bottom of my heart, I want to dedicate this report to my parents,who created all the greatest opportunities for me to fulfill my studies and desire Theyare always support me unconditionally Everything I do, I know I have them beside

me and that thought is the motivation for me to overcome all the difficulties and stressduring not only this internship but also my whole life

Sincerely thanks again for all of your support and inspiration!

LIST OF ABBREVIATION

VP Bank Vietnam Prosperity Joint Stock Commercial Bank

C&I Commercial and industrial

DSCR Debt service coverage ratio

REITs Real estate investment trusts

PSE Professional sales employee

UPL Unsecured personal loan

SME Small and medium enterprise

NFS Non - financial service

CMB Commercial banking division

FDI Foreign direct investment

IFC International finance corporation

ICBS Industrial and commercial bank of China

Table 2.1: Analysis of total asset structure of VP Bank in period 2015-2017

Table 2.2: Analysis of liabilities structure of VP Bank in period 2015-2017

Table 2.3: Analysis of total operating income of VP Bank in period of 2015-2017

1 Rationale of the study

2 Aims to the study

3 Methodology

4 Scope of the study

5 Organization of the study

CHAPTER 1: LITERATURE REVIEW

1.1 OVERVIEW OF CREDIT AND BANK CREDIT

1.1.1 The basic definition of credit and bank credit

1.1.2 Role of bank credit

1.1.3 Classification of bank credit

1.2 CONTENTS OF BANK CREDIT RISKS

1.2.1 The basis definiton of risks

1.2.2 Concept of bank credit risks

1.2.3 Some indicators of credit activity evaluation

1.3.CAUSES OF BANK CREDIT RISKS

1.3.1 From the Bank

1.4: THE IMPACTS OF BANK CREDIT RISKS……… 15

1.4.1: For customer ………15

1.4.2: For the Bank ………………16

CHAPTER 2: THE STUDY

2.1 GENERAL INFORMATION ABOUT VIETNAM PROSPERITY JOINT STOCKCOMMERCIAL BANK

2.1.1 Brief intriduction about the company

2.1.2 The formation and development process

2.1.3 Organizational structure of the Bank

2.2 THE PRACTICAL SITUATION OF CREDIT AND CREDIT RISKS AT VP BANK 2.2.1 Area of banking operations

2.2.2 Business performance results

2.2.3 The situation of credit activity

2.2.4 Risk management system at VP Bank – Kim Lien Branch

2.3 THE GENERAL ASSESSMENT CREDIT ACTIVITY AT VIET NAM PROSPERITYJOINT STOCK COMMERCIAL BANK

CHAPTER 3: SOME SOLUTIONS TO IMPROVE CREDIT PERFORMANCE AT VPBANK

3.1 THE DEVELOPMENT ORIENTATION OF VP BANK ………

3.1.1 Social - economic context

3.1.2 Aim and operating orientation of VP Bank

3.2 SOME SOLUTIONS TO IMPROVE CREDIT PERFORMANCE AT VP BANK3.2.1 Promoting the capital mobilization

3.2.2 Marketing and customer service improvement

3.2.3 Diversifying credit products

3.2.4: Improving professional qualifications of credit officers ……… 53 3.2.5: Loan monitoring promotion ……….54

3.2.6: Participating in credit insurance………54

3.3 RECOMMENDATIONS

CONCLUSION

REFERENCES

INTRODUCTION

1 Rationale of the study

International economic integration is an inevitable trend of mankind,taking place strongly not only in the region but also around the world.With this trend in mind, Vietnam has also made strong steps to bring a lot

of development opportunities for its economic sectors Through manydifficulties and challenges, our economy has achieved encouragingachievements To achieve that, there is a significant contribution of thebanking industry as an "economic lever" through credit activities

Bank credit is a tool to finance capital for the economy, contributing to thepromotion of the balanced development of other industries and sectorsaccording to the State's orientation Credit activity is the main business ofthe Vietnamese commercial banking system, bringing about 80-90% ofeach bank's income, but its risks are not small Excessive high credit riskwill greatly affect the banking business Facing the opportunities andchallenges of the process of international economic integration, the issue

of improving the competitiveness of commercial banks, particularlyimproving credit quality and minimizing risks, has become necessary

Actually, there are many internal and external reasons causing credit riskssituation for the Bank in Viet Nam The lack of management skill, forexample, can limit the profitability and competiveness of the Bank As aresult, many theories as well as some solutions related to credit activityissues are carried out

Starting from the urgency of the problem, I decide to carry out research

about credit activity My graduation thesis titled: “Solutions to credit risks

at Viet Nam Prosperity Commercial Joint Stock Bank” is carried out

2 Aim of the study

The aims of the study are to research about credit activities and creditrisks situation of the Bank in order to suggest some solutions to creditrisks prevention of the Bank

3 Scope of the study

Because of the limited time and scale, this research only focuses on thecredit activities and credit risk situation of Viet Nam ProsperityCommercial Joint Stock Bank over period of three years from 2015 to2017

4 Methods of the study

Method of gathering documents and data is mainly base on bank’sinternal

documents, specially from financial report Data collected were used toanalytic credit activity and credit risks situation in Viet Nam ProsperityJoint Stock Commercial Bank From that analytic, we suggest the bestsolutions to the credit risks reduction.This data were been collected fromfinancial report and the reports of credit operations in 3 years 2015 and2017.The selected method in the thesis to write this study is statistics,analyzing and summarizing to analyze the bank’s credit acticity Lastly, Ialso use knowledge I have acquired during the time I study in Academy ofFinance to do this research

5 Organization of the study

My graduation thesis is divided into three main parts:

Chapter 1: The study - Overview of credit and bank credit

at VP Bank

Chapter 3: Some solutions to credit risk reduction at Viet Nam Prosperity

Joint Stock Commercial Bank which shows the suitable solutions basing on orientation of the Bank

CHAPTER 1: LITERATURE REVIEW

1.1: OVERVIEW OF CREDIT AND BANK CREDIT

1.1.1: The basic definition of credit and bank credit

Credit is an economic category, it is born, exists and grows with the development

of a commodity economy In a narrow sense, credit is borrowed, in which twosubjects are borrowers and lenders will agree on an interest rate and a certaindebt term In a broad sense, credit is the mobilization of the surplus capital Thus,the concept of credit can be given as follows: credit is a borrowing relationshipbased on the principle of repayment (both capital and interest) after a certainperiod of time

Bank credit is a credit relationship between a bank and credit institutions witheconomic sectors such as businesses, organizations, individuals, households inwhich the bank act as intermediaries to mobilize capital for the above objects anduse the mobilized capital to lend So in the above relationship, the Bank is both aborrower and a lender

( Source: https://www.investopedia.com/terms/b/bank-credit.asp )

As a borrower, the Bank receives deposits or issues certificates of deposit, bonds,

operating capital.

As a lender, the Bank provides credit to all economic sectors in various formssuch as lending, discounting valuable papers, guaranteeing and financial leasingthrough activities This bank can provide timely capital to the economy whilemaximizing the efficiency of its capital use.In other word, bank credit is theaggregate amount of credit available to a person or business from a bankinginstitution It is the total amount of funds financial institutions provide to anindividual or business A business or individual's bank credit depends on theborrower's ability to repay and the total amount of credit available in thebanking institution

1.1.2: Roles of bank credit

There are some important roles of bank credit

The first is its contribution to promoting production and circulation ofgoods.Bank credit helps businesses shorten the time to accumulate capital,quickly invest to expand production, and contribute to speeding up the capitalconcentration and capital accumulation for the economy In the presentconditions, along with the deepening of international distribution andcooperation, the mobilization process is not limited to the national level and italso forms relationships around the world

Another role of bank credit is contributing to stabilizing currencies and prices.Credit has reduced the amount of cash left in circulation by taking advantage ofidle capital in society Therefore, bank credit is considered one of the effectivemeasures contributing to reducing inflation and stabilizing the currency On theother hand, by providing credit to the economy, supporting enterprises tocomplete their production and business plans, making production more and

more developed that meet the demand of society Bank credit alsocontributes tostabilizing the domestic price market Thus, bank credit has contributedsignificantly to stabilizing the currency, facilitating price stability, which is animportant prerequisite for production and circulation development

Lastly, bank credit also brings developing economic relationships with foreigncountries Under current conditions, the economic development of a country isalways associated with the world market, bank credit has become one of themeasures to connect economic relations between countries For developingcountries and our country in particular, credit plays a very important role inexpanding the export of goods and at the same time thanks to external credit toindustrialize and modernize the economy

1.1.3: Classification of bank credit

1.1.3.1: In term of the using purpose

Bank credit can be divided into the following groups

Loans for industrial and commercial production

A commercial and industrial (C&I) loan is a type of loan made to a business orcorporation as opposed to an individual Commercial and industrial loans can bemade in order either to provide either working capital or finance capitalexpenditures like machinery or a piece of equipment This type of loan is usuallyshort-term in nature and is almost always backed by some sort of collateral

Commercial loans usually charge flexible rates of interest that are tied to thebank prime rate Many borrowers must also file regular financial statements, atleast annually or more frequently in the case of borrowers that carry higher risk

Lenders usually require proper maintenance of the loan collateral property andhold borrowers to certain covenants such a debt service coverage ratio (DSCR).

Small and medium-sized businesses make up the bulk of borrowers for C&I loansbecause they generally cannot generate sufficient cash flow to continuously self-fund operations and because they lack the access to the equity and bond marketsthat large companies enjoy

To further refine the definition of C&I loans, they are distinct from consumerloans and real estate loans Banks break out these loan categories in their

Loans for personal consumer

An amount of money lent to an individual (usually on a nonsecured basis) forpersonal, family, or household purposes Consumer loans are monitored bygovernment regulatory agencies for their compliance with consumer protectionregulations such as the Truth in Lending Act Also called consumer credit orconsumer lending In other words, a consumer loan also known as a personal is asecured or unsecured loan with fixed terms issued by a bank or financingcompany that may be used for any purpose but is typically tied to the purchase of

a specific item Unsecured loans are issued based on the creditworthiness of theborrower while secured loans are collateralized by the personal property of theborrower

Loans for commercial real estate

A commercial real estate loan is a mortgage loan secured by a lien oncommercial, rather than residential, property Commercial real estate (CRE)refers to any income-producing real estate that is used solely for businesspurposes, such as retail centers, office complexes, hotels and apartments

Typically, an investor (often a business entity) purchases commercial property,leases out space, and collects rent from the businesses that operate within theproperty Financing, including the acquisition, development and construction ofthese properties, is typically accomplished through commercial real estate loans.Commercial real estate loans are typically made to business entities formed forthe specific purpose of owning commercial real estate Entity types includecorporations, developers, partnerships, funds, trusts, and real estate investmenttrusts or real estate investment trusts (REITs).

Loans for import and export business

Import and export loans use the goods being shipped or proof of the transaction

as the collateral for the loan which provide working capital for your business

1.1.3.2: In term of the credit term

According to this criteria, bank credit can be divided into the followingcategories The first one is short-term loans which are loans with a term of lessthan one year For example, when your business doesn't qualify for a line ofcredit from a bank, you might still have success in obtaining money from then inthe form of a one-time, short-term loan (less than a year) to finance yourtemporary working capital needs Another one is medium-term loans that is loanwith a maturity generally between one year and 10 years For example, if oneborrows $10,000 to pay for college, and must repay it in seven years, then he/shehas taken out a medium-term loan The purpose of this type of loan is usually tofinance investment in fixed assets Lastly, long-term loan is a loan that is to

be paid back over a period of timebetween three and ten years, and sometimesfor as long as twenty years The purpose of this type of loan is usually to financeinvestments in portfolios

1.1.3.3: In term of the creditworthiness of customers

Unsecured lending (UL)

An unsecured loan is a loan that is issued and supported only by the borrower'screditworthiness, rather than by any type of collateral Because unsecured loans,sometimes referred to as signature loans or personal loans, are obtained withoutthe use of property as collateral, the terms of such loans, including approval andreceipt, are most often contingent on the borrower's credit score Borrowersmust generally have high credit ratings to be approved for certain unsecuredloans

An unsecured loan stands in direct contrast to a secured loan, in which aborrower pledges some type of asset as collateral for the loan, in turn increasingthe lender's "security" for providing the loan Unsecured loans are bigger risksfor lenders, and as a result, they typically have higher interest rates and requirehigher credit scores than secured loans such as mortgages or car loans In someinstances, lenders will allow loan applicants with insufficient credit to provide acosigner, who can take on the legal obligation to fulfill a debt should theborrower default

candidate for a regular bank loan It is a way for people who need financialassistance to secure funds when they otherwise may not qualify to acquire them.And the guarantee means that the lending institution does not incur excessiverisk in issuing these loans.

1.1.3.4: In term of the lending method

Loan by item or loan each time

Lending by one time is the method of lending, each time borrowing Customersand banks must apply for necessary loans and sign credit contracts

Lending by credit limit

Bank and customer determine and agree on a credit limit, maintaining for acertain period of time Credit limit is the maximum level of outstanding loansmaintained within a certain period of time agreed by the bank and customer in

1.2: CONTENTS OF BANK CREDIT RISKS

1.2.1: The basic definition of risks

Risk means the possibility of something bad happening at some time in the

future; a situation that could be dangerous or have a bad result In other word, it

is a person or business that a bank or an insurance company is willing orunwilling to lend money or sell insurance to because they are likely/unlikely topay back the money

( Source: http://www.businessdictionary.com/definition/risk.html )

Risk takes on many forms but is broadly categorized as the chance an outcome orinvestment's actual return will differ from the expected outcome or return Riskincludes the possibility of losing some or all the original investment Differentversions of risk are usually measured by calculating the standard deviation of thehistorical returns or average returns of a specific investment.

1.2.2: Concept of bank credit risk

1.2.2.1: The definition of bank credit risk

Credit risk is the probable risk of loss resulting from a borrower's failure to repay

a loan or meet contractual obligations Traditionally, it refers to the risk that alender may not receive the owed principal and interest, which results in aninterruption of cash flows and increased costs for collection Although it isimpossible to know exactly who will default on obligations, properly assessingand managing credit risk can lessen the severity of loss Interest payments fromthe borrower or issuer of a debt obligation are a lender's or investor's reward forassuming credit risk

When lenders offer mortgages, credit cards, or other types of loans, there is a riskthat the borrower may not repay the loan Similarly, if a company offers credit toits client, there is a risk that its clients may not pay their invoices Credit risk alsodescribes the risk that a bond issuer may fail to make payment when requested

or that an insurance company will be unable to pay a claim

Joel Bessis (1998), Risk management in Banking Credit risk is understood from

losses due to customers not being able to repay a debt or a decrease in credit

Credit risk is the type of risk that arises when one of the parties to a creditcontract is unable to pay the other parties For commercial banks, credit risk

arises in case the bank does not collect both principal and interest of loans, orpayment of principal and interest on time If all bank loans are paid in full and ontime both principal and interest, the bank is not subject to credit risk Conversely,

if the borrower is unable to pay the debt or deliberately fails to pay the debt, therisk arises Credit risk is not only limited to lending activities but also includesmany other credit activities of commercial banks such as: guarantee activities,foreign trade financing, financial leasing

1.2.2.2: Some indicators of credit activity evaluation

Loan outstanding on mobilized capital

This indicator reflects the efficiency of using capital of banks, how much bankscan borrow compared to the mobilized capital besides, the efficiency of usingbank deposits

Debt

A = x 100%

Mobilized capital

Targets of debt collection turnover on loan sales

Debt collection revenue

Loan revenue

This indicator evaluates the credit efficiency of debt collection by banks It

reflects in a certain period of time, with how much capital the bank will earn.The higher the ratio shows, the better the bank's debt collection revenue and the lower the ratio, the lower the bank's debt collection revenue, which adversely affects the bank's development

Target overdue debt on total outstanding loans

If the bank's bad debt figures are low, the bank's operations are effective In contrast, credit data is high, the bank's credit activity is still ineffective

Credit capital turnover

Debt collection revenue

Average debt

The credit capital turnover target of the bank measures the bank's credit rotationspeed, the bank's debt recovery time is fast or slow The faster the capitalturnover is, the better the investment is Thus speeding up the credit capital cyclecontributes to reducing risks and increasing credit performance, which bringsthe desired profit

All of these indicators are closely related to each other and serve as a basis forassessing a bank's credit performance

1.2.2.3: Acessing of bank credit risk

Credit risks are estimated based on the borrower's overall ability to repay Toassess credit risk on a consumer loan, lenders look at the five C's: credit history,capacity to repay, capital, the loan's conditions and associated collateral

Some companies have established departments solely responsible for assessingthe credit risks of its current and potential customers Technology has affordedbusinesses the ability to quickly analyze data used to assess a customer's riskprofile

1.3: CAUSES OF BANK CREDIT RISK

1.3.1: From banks

A bank is a special business that borrows money at low interest rates and thenlends at a higher interest rate to enjoy the interest rate differential Therefore,banks always carefully consider before lending to effectively avoid the risk oflosing capital Therefore, credit risk due to bank causes often accounts for a smallproportion and the main reasons can be listed as below

Firstly, the bank does not have enough information about statistics and targets

to analyze and evaluate customers leading to ineffective determination of theloan application, or the determination of the loan term and repayment is notconsistent with the customer's business plan

Secondly, it may be due to the loose in the process of inspection and supervisionafter lending, so it is not timely to detect the phenomenon of using loans forwrong purposes.The bank is too confident in collateral, guarantee and insurance

risks in capital recovery process At present, there is a phenomenon that somebanks run by quantity (according to plan) but neglect to respect the quality of theloan, too optimistic, believe in the success of the business plan to control the theamount of credit reduced effectively.

The last reason causes from the lack of the ethical and professional qualification

of the staff Bank may lack a specialized department to monitor, manage risks,manage the maximum credit limit for each customer in each industry jobs andproducts of different localities to disperse risks and necessary forecasts in eachperiod Credit officers do not follow the loan process properly or because thecredit process is lacking and inappropriate Banks violate the principles inlending, lending beyond safety ratios, or lack of collateral and pledge Due to thelow quality of credit officers, it is necessary to appraise customers to lendincorrectly or credit officers violating ethics in lending, colluding with customers

to lend to banks in contravention of regulations or Credit officers takes up loans,leading to overdue debts and increasing bad debts

1.3.2: From customers

Risks from customers are the main reason leading to risks in credit operations ofbanks It is very difficult and complicated that prevent credit risk fromcustomers Risks occur often by the following reasons

Firstly, it is the lack of financial capacity Borrowers do not have enough financial

capacity to pay debts, leading to difficulties in recovering debts of the Bank.Specifically, the financial reasons here include many factors, which may be due tonon-compliance with the original plan, unreasonable financial planning, incurredunforeseen expense items When customers borrow money to expand theirbusiness scale, most of them concentrate on investing in material assets, but fewcustomers

dare to boldly innovate to provide management and investment for theapparatus monitor business, finance, accounting in accordance with standards

The business size that is too big for the management mindset is the cause of thebankruptcy of viable business plans that should have been successful in reality.Accordingly, weak business management ability causes business losses ofenterprises, seriously affecting customers' ability to repay debts, increasing theproportion of overdue debts and bad debts in banks.

Secondly, the lack of customer’s legal capacity also causes credit risk Whencustomers lack legal capacity, the bank's debt recovery is also difficult due toprocedural and time constraints

Thirdly, using capital for wrong purposes is one of the main reasons for thebank's credit risk It is the fact that customers use their loans not according to theagreed purpose in the credit contract This leads to customers losing money andbeing unable to repay the bank

1.3.2.2: From enterprise

Because in the course of business activities, enterprises have their businesslicenses revoked, which leads to production and business failure and are unable

Professional capacity and leadership prestige of enterprises are reduced, moralprofession is weak, lack of interest to well implement the stages of theorganization, business management or trade restrictions Professional career ofbusiness employees leads to weak business and loss

The change in state policy also affects the production and business activities ofenterprises, thereby affecting the bank's ability to recover debts

1.4: THE IMPACTS OF BANK CREDIT RISK

1.4.1: For customers

Credit risk occurs particularly due to overdue debts that arise, businesses thatborrow capital must bear an overdue interest rate of a high interest rate, makingthe total debt of customers to banks increase rapidly Their financial situation aremore difficult, the ability to pay debts to banks is getting lower and lower.Moreover, customers who generate overdue debt are a sign of the inefficiency ofcustomers and the reputation of customers will be reduced Therefore, they willface many difficulties when they want to borrow capital from that bank or otherbanks to restore production and business activities.

1.4.2: For the Bank

Financially, due to not being able to collect debt (principal and interest), the Banksuffered a decrease in revenue while still paying interest, causing imbalance inthe revenue and expenditure of operations The main overdue debt is theconsequence that the Bank incurs no debt, and the Bank cannot recover itsworking capital, the Bank is unable to guarantee working capital, limiting boththe service and business capabilities of the bank

Socially, from credit risk to liquidity risk, distrusting among people affects thepsychology of depositors Once this happens, the customer will simultaneouslywithdraw money massively at the Bank and disturb the business operations ofthe Bank If the Bank does not have timely countermeasures, the bank's entiresystem will collapse

CHAPTER 2: SITUATION OF CREDIT ACTIVITY AND CREDIT RISK AT VIET

NAM PROSPERITY JOINT STOCK

COMMERCIAL BANK 2.1: General information about Viet Nam Prosperity Joint Stock Commercial Bank

2.1.1: Brief introduction about the company

As one of the earliest established commercial banks in Vietnam, VPBank has made steady developments throughout its history Especially since 2010, VPBankhas grown tremendously with the development and implementation of a

comprehensive transformation strategy with the support of one of the world's leading strategic consulting companies Under this strategy, VPBank aims to become one of the top 5 joint stock commercial banks in Vietnam and one of the top 3 retail joint stock banks in Vietnam in 2017

This vision is realized by two main strategy:

Drastic organic growth, focusing on individual and SME customer segments, and exploring opportunities in the segment of large corporate customers and

Customer's trust in VPBank also strengthens with the continuous increase in the number of new customers and mobilized capital More particularly, VPBank is becoming an address to attract talents in the banking and financial sector These key elements have been, are, and will become VPBank's strategic weapons in the journey towards the goal of becoming one of the top 5 joint stock commercial banks in Vietnam and one of the top 3 retail joint stock commercial banks

Vietnam in 2017

VPBank believes that with the above vision and strategy, the bank will fulfill its mission of bringing the highest benefits to customers, paying attention to the interests of employees and shareholders, and cultural construction strong

business, and contribute effectively to the development of the community

2.1.2: The formation and development process

Vietnam Prosperity Joint Stock Commercial Bank (VPBank) was established onAugust 12, 1993 After nearly 25 years of operation, VPBank has developed itsnetwork to 219 transaction points with a staff of nearly 24,000 employees By theend of 2017, VPBank's charter capital has increased to VND 15,706 billion

VPBank is gradually asserting the reputation of a dynamic bank with stable andresponsible financial capacity to the community In 2017, VPBank closed its 5-year journey (2012-2017) with great achievements in scale and profit, makingVPBank one of the leading joint stock commercial banks in Vietnam

Especially, 2017 is a historic milestone for the bank when nearly 1.5 billionshares were officially listed on HOSE, attracting great attention of domestic andinternational investors

The outstanding growth of VPBank shows vividly at the level of expanding thenetwork of branches and transaction points nationwide with the diversifieddevelopment of sales and distribution channels With constant efforts, VPBank'sbrand has become more and more strong and confirmed through manyprestigious awards Particularly in 2017, VPBank received 20 domestic and

international awards continuously, showing the recognition of prestigiousorganizations for VPBank's impressive growth in brand value.

These international awards once again affirm the quality of products, services,prestige and outstanding competitiveness of VPBank in the financial and bankingmarket in Vietnam, while affirming the development orientation Correct Bank ofthe past time In the coming time, VPBank will focus on innovating products andservices to bring superior benefits to customers and especially focus onimproving service quality towards an international standard bank

2.1.3: Organizational structure of the Bank

MANAGEMENT

COMMITTEE

BOARD OF DIRECTORS

HUMAN RESOURCE

COMMITTEE

EXECUTIVE COMMITTEE ASSET

MANAGEMENT

BOARD

CREDIT COUNCIL

GENERAL MANAGER OPERATING RISK

Strategy and project management

Human resource management Finance Risk management

SHAREHOLDER’

ASSEMBLY

The organizational structure of Viet Nam Prosperity Joint Stock Commercial bank – Kim Lien Branch

VP Bank - Kim Lien Branch

PSE Loan

Relationshipmanager

Sale centerBusiness

department

Customer service

room

2.2: The practical situation of credit and credit risk at Viet Nam Prosperity Joint Stock Commercial Bank

2.2.1: Areas of banking operations

VPBank's goal is to become a leading retail bank among joint-stock commercialbanks in Vietnam in terms of scale and market share, service quality whichcreates the highest profit for shareholders, creating stable and growing jobs foremployees, contributing positively to the State Budget, for the generaldevelopment of the economy and social

VPBank conducts its main business activities in the field of finance and banking,carries out business activities under the License granted by the State Bank andother business activities in accordance with legal regulations

2.2.2: Business performance results

Table 2.1: Analysis of total asset structure of VP Bank in the period

In 2016, VPBank shifted its focus to strategic customer segments and selectedmarkets, and decreased activities in low-performing areas After developing andstrengthening foundational systems for robust growth for three years (2013–2015), VPBank moved to phase 2 of its transformation program in 2016 with thefocus on improved quality growth and continued selective volume growth TheBank aimed to deliver quality, sustainable growth and develop an efficient,prudent balance sheet.

VPBank’s total assets reached VND228,771 billion, up 18% y-o-y Asset structurecontinued to improve towards sustainability, with customer lending – which rose24% during the year – accounting for 62%, and the securities portfolioaccounting for 18%

In 2016, VPBank continued to develop its core Retail Banking and SME Bankingsegments, and expanded the Household Banking business Their impressivevolume growth over the past year has affirmed the appropriateness andfeasibility of these three segments

Credit balance (including customer lending and corporate bonds) in 2016 went

up by 24% y-o-y, equivalent to over VND31,400 billion The increase was greaterthan the industry average and presented major changes in different customersegments Strategic segments, with their outstanding growth, contributed about77% to total credit balance The loan balance of the Retail Banking division rose

by 50%, and that of the SME Banking division by 30% The newly establishedHousehold Banking division recorded a loan balance of nearly VND2 trillion,while the Consumer Finance company enjoyed a 60% y-o-y increase in loanbalance Following modified guidelines, the corporate divisions focused onselective loan balance growth, portfolio restructuring, accelerating off-balance

Lending product structure was also moved towards high-yield products such asunsecured personal loans, consumer loans, and credit cards By focusing on aretail model, VPBank successfully developed and implemented solid systems ofrisk management, credit approval & processing, and debt collection to effectivelycontrol risks associated with large volume growth of retail products VPBank isone of the pioneering banks in Vietnam in developing a ‘big data’ scoring modelfor retail customers As a result, unsecured lending volume in 2016 doubled toVND20,700 billion against the end of 2015.

In 2016, VPBank continued to focus on reviewing and completing creditunderwriting criteria to control NPLs Scorecards for loan applications of retailand SME customers and a credit rating model for corporates and financialinstitutions allowed the Bank to select customers with good credit quality, andthe completed specialized debt collection system brought further positive results.Consequently, the Bank’s NPL ratio was kept under control, below 3%

Investment activities were diversified with a stronger focus on interest rate andderivative products based on market opportunities to boost the Bank’sprofitability while controlling and managing liquidity risks Total securitiesportfolio (excluding corporate bonds) by the end of 2016 had reachedVND40,880 billion – an increase of VND5,006 billion, equivalent to 14% y-o-y –with the biggest contribution from Governmentguaranteed bonds issued bycredit institutions