(Luận văn thạc sĩ) solutions to limit credit rish at vietinbank ba dinh branch

To clarify the objective of the overall study of the topic, the author focuses on clarifying the following specific research objectives: - Researching on the rationale related to credit

ĐẠI HỌC QUỐC GIA HÀ NỘI

KHOA QUẢN TRỊ VÀ KINH DOANH

-

LÊ DIỆU MY

SOLUTIONS TO LIMIT CREDIT RISHS

AT VIETINBANK- BA DINH BRANCH

GIẢI PHÁP HẠN CHẾ RỦI RO TÍN DỤNG TẠI NHTMCP CÔNG THƯƠNG VIỆT NAM-CHI NHÁNH BA ĐÌNH

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2020

ĐẠI HỌC QUỐC GIA HÀ NỘI

KHOA QUẢN TRỊ VÀ KINH DOANH

-

LÊ DIỆU MY

SOLUTIONS TO LIMIT CREDIT RISHS

AT VIETINBANK- BA DINH BRANCH

GIẢI PHÁP HẠN CHẾ RỦI RO TÍN DỤNG TẠI NHTMCP CÔNG THƯƠNG VIỆT NAM-CHI NHÁNH BA ĐÌNH

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS NGUYỄN THỊ KIM OANH

HÀ NỘI - 2020

DECLARATION

The author confirms that the research outcome in the thesis is the result of author’s independent work during study and research period and it is not yet published in other’s research and article

The other’s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration

Date………

CONTENTS

INTRODUCTION 1

1 Significance of the study and problem statement 1

2 Literature review of previous researhes 2

3 Research objectives 3

4 Research questions 3

5 Methodology and scope 4

6 Structure of the study 4

CHAPTER 1 THEORYTICAL BACKGROUND OF CREDIT RISK FOR COMMERCIAL BANK 5

1.1 Theoretical framework of credit risk 5

1.1.1 Definition of risk and credit risk in commercial bank 5

1.1.2 Classification of credit risk 6

1.1.3 Characteristic of credit risk 6

1.2 Factors influence on credit risk of commercial banks 7

1.2.1 Internal factors 7

1.2.2 External factors 8

1.3 Credit risk assessment in commercial banks 11

1.3.1 Process of credit risk assessment 11

1.3.2 Qualitative criteria for credit risk assessment 12

1.3.3 Quantitative criteria of credit risk assessment 12

1.4 Impact of credit risk on financial performance of commercial banks and economy 18

1.5 Experiences on credit risk management 20

1.5.1 Experiences from Vietnam commercial banks 20

1.5.2 Experiences from International Commercial banks 21

1.6 Methodology in this thesis 24

1.6.1 Research method 24

1.6.2 Evaluation criterion using to assess credit risk of Vietinbank - Ba Dinh branch 25

1.6.3 Data collection and description 25

CHAPTER 2.CURRENT SITUATION OF CREDIT RISK MANAGEMENT AT VIETINBANK – BA DINH BRANCH 26

2.1 Overview of Vietinbank - Ba Dinh branch 26

2.1.1 General information of Vietinbank - Ba Dinh branch 26

2.1.2 Organization structure of Vietinbank - Ba Dinh branch 26

2.1.3 Key financial performances of Vietinbank - Ba Dinh branch 27

2.2 Credit operation of Vietinbank - Ba Dinh branch 29

2.2.1 Credit products of Vietinbank - Ba Dinh branch 29

2.2.2 Credit growth of Vietinbank - Ba Dinh branch in the period 2009 – 2018 44

2.3 Credit risk management at Vietinbank - Ba Dinh branch 45

2.3.1 Credit risk management model at Vietinbank - Ba Dinh branch 45

2.3.2 Policies of credit risk management at Vietinbank - Ba Dinh branch 47

2.4 Assessement of credit risk control at Vietinbank - Ba Dinh branch 51

2.4.1 Loan structure at Vietinbank - Ba Dinh branch 51

2.4.2 Overdue debt ratio at Vietinbank - Ba Dinh branch 51

2.4.3 Restructed debt ratio at Vietinbank - Ba Dinh branch 53

2.4.4 Total nonperforming loan at Vietinbank - Ba Dinh branch 53

2.4.5 Capital use efficiency at Vietinbank - Ba Dinh branch 55

2.4.6 Credit risk provision at Vietinbank - Ba Dinh branch 55

2.5 The reason for credit risk of Vietinbank – Ba Dinh branch 56

2.5.1 Survey results on the causes of credit risk 56

2.5.2 The reasons from macroeconomic environment 57

2.5.3 The reasons from borrowers 58

2.5.4 The reasons from the bank 59

CHAPTER 3.RECOMMENDATIONS FOR CREDIT RISK MANAGEMENT IN VIETINBANK – BA DINH BRANCH 62

3.1 Conclusions 62

3.2 Development strategies of Vietinbank 66

3.3 Solutions to credit risk management in Vietinbank – Ba Dinh Branch 69

3.3.1 Solutions to prevent credit risks 69

3.3.2 Solutions to handle and limit losses from credit risks 73

REFERENCES 75

QUESTIONAIRE 76

INTRODUCTION

1 Significance of the study and problem statement

Credit activities are always one of the main business activities that bring revenue and profit to commercial banks in Vietnam However, along with bringing significant income to the bank, credit activities have the greatest risk, significantly affecting the source of income of commercial banks The consequence of credit risks in commercial banks is the increase in bank costs due to the increase in provisioning, loan interest income is reduced, loss of capital

or deterioration of the bank's image to the public

In addition, according to the Basel Banking Supervision Committee, poor loan portfolio management creates major problems for commercial banks (Basel Committee on Banking Supervision, 2000) Another author points out that credit risk management reduces the value of bank lending portfolio and reduces banks' total assets (Ping, 2015) Therefore, credit risk management at commercial banks is always concerned

From the viewpoint of managing the entire operation of the bank in general and credit activities in particular, an expected loss rate for credit activities must always be determined in the general operation strategy When a bank trades at a loss lower than or equal to the expected loss rate This is considered a success in risk management The bank must take many measures to affect credit activities to minimize credit risks in order to contribute to achieving the goal of safe and effective credit growth Therefore, how to effectively manage credit risk

is an issue that commercial banks are very interested in, especially in the volatile global financial and economic situation like today (Ping, 2015)

In the last 10 years, credit risk management activities throughout the banking system have many remarkable points The period from 2010 to 2012, using with high credit growth rate, non-performing loan of the commercial banking system in Vietnam increased from 2.52% to 4.47% in 2012 However, the real data on non-performing loan ratio as of 2012 is still doubtful Specifically, according to the data of the Banking Supervision Agency of the State Bank of Vietnam, the non-performing loan ratio is sometimes up to 8.6% According to Fitch Ratings, Vietnam's NPL ratio is 13% of total outstanding loans In the face of the risk of bank breakdown, which adversely affects the national financial security, the Government of Vietnam and the State Bank of Vietnam have taken actions to restructure the banking system and deal with non-performing loans

After 5 years of implementation, the restructuring of the banking system and the handling of non-performing loans have recorded remarkable results According to data from the National Financial Supervisory Commission, the non-performing loan ratio of the entire commercial banking system in Vietnam by the end of 2018 was 2.4%, a slight decrease of 0.1% compared to 2017 The total value of non-performing loans of credit institutions reached about VND 163 trillion Potential non-performing loans in debt structure, corporate bonds with debt structure, non-performing loans and entrusted receivables Organizations with high NPL ratios are mandatory banks, banks are under special control, weak banks are slow to improve However, credit risk provision increased by 30.1% compared to the end of 2017

2 Literature review of previous researhes

In Vietnam, in recent years, some researches are conducted to investigate the credit risk of commercial banks and Vietnam banking sector It is introduced some researches as follow:

Vo Minh Huong (2015) investigated credit risk management in banking industry – case study Joint stock commercial bank of foreign trade of Vietnam in the period of 2012 -

2014 The main research question aims to provide the relationship between a high credit growth and level of bad debts Based on qualitative method and interview expert method The findings of the analysis provided the possible explanations of the expanding credit growth accompanied by an escalating increase in the amount of bad debts About recommendation for greater credit risk management, author confirmed that Vietcombank need to invest more in its staff quality, information system and effective business strategy

Nguyen Anh Dung (2014) studied causes, consequence and effects of non – performing loan in Vietnam banking sector in the period 2011 - 2013 The research provided

a general look into non – performing loan, its causes and consequence is also revealed The results found that four main reasons of non – performing loan consisting the poor assets quality, shortage of capital capacity, shortage of liquidity and capital shortage for provision However, the research was conducted on short of time, the results are not too deeper

Nguyen Dinh Thanh (2014) researched the management of non – performing loan in Bank for Investment and Development of Vietnam (BIDV) – Quang Trung branch in the period 2010 - 2013 By using qualitative and quantitative method to measure and evaluate the related data, some findings is revealed Author has most attention for analyzing factors causing credit risk of BIDV – Quang Trung Branch The results found that both macroeconomic, borrowers and banks have impact on status of credit risk of BIDV – Quang

Trung branch Finally, author gave some recommendations for reducing non – performing of these banks Briefly, these is greater paper of analysis non – performing in both methodology and research process However, limitation of these is limited research scale In addition, research in the case of a branch would be difficult to apply to a whole generation On the other hand, short study duration is also a limitation in this study

From previous studies, some limitations were found as follow:

 Short research duration

 Research on a small scale

 Lack of a comparison between banks in a study by the authors

Overcoming the limitations of previous studies, the author investigated credit risk at banks and compare credit risk of Vietinbank with other commercial banks Specifically, in this study, the author selected 10 commercial banks had largest total assets of Vietnam banking sector in 2015 to conduct research The use of comparative method will show a overall background on the status of the credit risk of the banks On the other hand, the choice

of Vietinbank is a bank has the highest credit growth in the banking sector is also an initial study showed that the relationship of credit growth and credit risk Although the author does not use quantitative research models to specify that like as previous research However, by means of combination of analysis method and describe statistical, objective research hope to shows the reality of credit risk in the context of greater credit growth

3 Research objectives

The purpose of the overall study is to assess credit quality at Vietnam Joint Stock Commercial Bank for Industry and Trade To clarify the objective of the overall study of the topic, the author focuses on clarifying the following specific research objectives:

- Researching on the rationale related to credit risk and credit risk management activities in commercial banks;

- Analyzing, commenting and evaluating the status of credit risk management and credit risk management activities at Vietinbank Ba Dinh branch;

- Researching international experience and practices on credit risk management and improving credit risk management quality in commercial banks;

- From the research results found, the author proposes some solutions to improve the quality of credit risk management at Vietinbank Ba Dinh branch

4 Research questions

To clarify the research objectives set out, this study answers some of the following questions:

- What are the rationales related to risk of credit risk management in commercial banks?

- What situation of credit risk and credit risk management activities at Vietinbank Ba

Dinh branch?

- What experiences and international practices on credit risk management and credit risk

management quality improvement in commercial banks?

- What solutions are proposed to improve the quality of credit risk management at

Vietinbank Ba Dinh branch?

5 Methodology and scope

The scope of the study includes spatial scope and time range

Scope of space: Vietinbank Bank Ba Dinh branch

Time range: The study was conducted over a 10-year period from 2009 to 2018 Research using secondary data sources summarized from the branch's business performance reports, financial reports and annual reports In addition, the author also uses secondary data sources from books, newspapers, magazines and international studies to complete the research overview Regarding the method of data collection, the materials are collected through the internship process at the branch and downloaded on the Internet

Descriptive statistical methods are the methods used to describe the basic characteristics of data collected from research Some techniques are used as data representation by graphs, graphs; represent data by summary table, comparing data

6 Structure of the study

The thesis is divided into four chapters It starts with the introduction to give the necessities of thesis, what author goals to improve by the end of the thesis, which methodology are used throughout the thesis Then, some basic theoretical of credit risk, credit risk management model, relationship between credit risk and bank’s performance will be introduced in the second chapter The next chapter provided the information of thesis’s method based of assessing both strengthen and weakness of methodology in previous researches It also introduces some findings of credit risk and credit risk management at Vietinbank – Ba Dinh Branch in period of 2009 – 2018 On other hand, factors impact on effectiveness of credit risk management of Vietinbank – Ba Dinh also will be analyzed In final chapter, the brief conclusions are given From what discussed, some recommendations are draw for improvement of effectiveness of credit risk management

CHAPTER 1 THEORYTICAL BACKGROUND OF CREDIT RISK FOR

COMMERCIAL BANK 1.1 Theoretical framework of credit risk

1.1.1 Definition of risk and credit risk in commercial bank

As defined by the Basel Treaty, which was established in 2010 and Rose (2002), credit risk was the ability that banks would lose part or all of loans from events that threaten their solvency These unwanted events include customer bankruptcy or the intentional refusal to pay a customer's debt According to Circular No 02/2013 / TT-NHNN regarding the use of provisions to handle risks in operations of credit institutions and foreign bank branches, foreign bank branches, credit risks in banking operations are possible losses to debts of credit institutions The reason is that customers do not perform or are unable to perform part or all of their obligations as committed Thus, although the expression is different, the concepts of credit risk are generally converged at one point It is the loss that the bank may encounter from the failure to fulfill the customer's payment obligations

Credit risk is one of the great concerns of commercial banks The reason is that this risk not only directly affects the bank's performance and reputation but also determines the bank's existence and development Credit risk reduces bank's asset value, causes capital loss and affects the bank's solvency Bessis (2002) emphasized that banks need to pay special attention to credit risks because only a small number of banks' main customers are insolvent, which can lead to huge losses for the bank In particular, for banks that are poor in the financial services business, while credit is considered to be the main profitable business, the credit risk is even more noticeable

According to the Decision No 493/2005 / QD - NHNN (April 22, 2005) of the Governor of the State Bank of Vietnam,” Credit risk in banking activities of credit institutions

is the possibility of losses in banking operations of credit institutions because customers do not perform or are unable to perform their obligations”

Credit risk can be identified in two characteristics:

(1) Risk margin shows the damage that the risk caused

(2) The frequency of the risk represents the occurrence of that risk more or less, whether or not there is a rule

Thus, the credit risk arises when one or more parties in the credit contract are unable

to pay the other parties A commercial bank is a financial intermediary that performs this person's loan operation to lend to others Credit risk for banks comes from both lenders (bank

creditors) and borrowers (bank debtors) The first case is the depositor who wants to withdraw money and the bank cannot pay Actually, the nature here is the liquidity risk but it is closely related to the second case It is a bank that does not fully repay loans including principal and interest, or the payment of debts (including principal and interest) on time This happens when customers borrow money from banks that are unable to pay debts or intentionally fail to pay debts In addition, credit risk is expressed as high overdue debt ratio.

1.1.2 Classification of credit risk

Depending on the classification criteria, the credit risk is divided into different categories Based on the causes of risks, credit risks are divided into the following categories

Trading risk is a form of credit risk that is caused by limitations in transaction process and loan approval and customer evaluation Trading risks include the following types:

- Risk of choice: the risk related to credit evaluation and analysis process, loan plan to decide bank financing

- Guaranteed risks: the risks arising from guaranteed standards such as loan rates, types

of collateral assets, guaranteed subjects, etc

- Business risks: the risks related to the management of loans and lending activities, including the use of risk rating systems and problem loan processing techniques Portfolio risk is a credit risk that is caused by limitations in managing a bank's loan portfolio, which are classified into the following categories:

- Internal Risks: the risk comes from the characteristics of operating and using capital of borrowers, economic sectors

- Concentration risk: the risk that banks focus on lending too much to some customers,

an industry or in a certain geographic area or the same type of high-risk loan

1.1.3 Characteristic of credit risk

In order to actively prevent credit risks effectively, it is necessary and useful for banks

to recognize the characteristics of credit risks Credit risk has the following basic characteristics:

First, the inevitability of credit risk always exists and is associated with credit activities of commercial banks The status of asymmetric information has made it impossible for banks to grasp the risk signs in a comprehensive and complete way This makes any loan potentially risky for the bank Banking business is in fact a risky business at an appropriate level and achieves corresponding profits

Second, credit risks are diverse and complex This feature manifests itself in the diversity and complexity of the causes, forms and consequences of credit risks due to the bank's characteristic of monetary business financial intermediation Therefore, when preventing and dealing with credit risks, attention should be paid to all signs of risk, the nature of causes and consequences of credit risks in order to take appropriate precautions

Third, credit risk is indirect In credit relations, banks transfer the right to use capital to customers Credit risk occurs when customers experience losses and failures in using capital

In other words, the risks in the business operations of customers are the main cause of bank credit risk

1.2 Factors influence on credit risk of commercial banks

1.2.1 Internal factors

Credit policy

Credit policy of a commercial bank is a system of measures related to the expansion or narrowing of credit to achieve the planned objectives of that commercial bank, at the same time limit risks, ensure safety in the bank's business Any credit policy in the economy must meet three goals, including bank profits, low-risk security, and the health of credit A credit

policy must always cover the following issues:

- Limited geography, credit investment sector

- Method of lending

- Limit of repayment period and loan term

- Customer standards and collateral

- Minimum financial standards that customers need to achieve

- Loan rates for a customer or a group of customers

- Authority and procedures for liquidation of debt recovery

It can be seen that credit policy is the guideline for credit activities, ensuring credit activities

go in the right direction A proper and appropriate credit policy will attract many customers, expand lending, ensure profitability on the basis of legal compliance and disperse risks Depending on the characteristics and scale of the bank's operations in each period to build appropriate credit policies, comply with the provisions of law, avoid rules and gaps The objective is to limit customers' misuse

of loopholes in order to take advantage of capital to cause risks for banks In order for credit policy

to be effective, it needs to be written and clearly aimed at goals and strategies It aims to achieve that goal, creating large recoverable credits, ensuring profitability

Credit process

The credit process is a combination of the bank's rules and regulations in granting credit with specific steps set up in a certain order They are intertwined and intertwined since preparing documents for credit provision until the end of the credit relationship The construction and implementation of the credit process closely, reasonably and in accordance with the lending regulations will contribute to limiting risks and improving credit efficiency

Quality of personnel

People are the decisive factor in the success or failure of all business activities Business activities of the bank are always potential risks Therefore, to minimize risks, banks are required to have staff with high professional qualifications, ability to capture markets and analyze good information In addition, credit officers must be people with good moral character, high responsibility, honesty and integrity Once credit officers corrupt or collude with customers, create fake documents, create collateral that is not real, etc will cause great losses to the bank

Credit information

Credit information plays a very important role in managing credit quality and risk management Based on credit information, bank officers can analyze the current ability and potential of customers in using loans as well as repaying loans to banks On that foundation, the bank can see the risk risks and anticipate reasonable and timely risk prevention measures The greater the accuracy and timeliness of the information sources, the higher the risk of preventing credit risks

Internal control

This is a necessary and regular activity for all banks Control helps to detect errors due

to the causes of errors arising in the process of implementing credits Therefore, the management board can promptly remedy errors, avoid risks and ensure credit quality The internal control of the bank's business operations is more and more frequent, making it more and more strictly in the right direction

1.2.2 External factors

Economic environment

The economic environment is the first group of impacts because any business activity takes place in a certain economic environment Therefore, every good or bad variable of the economy has an impact on the bank's performance and can directly or indirectly cause credit risks

The economic environment affects the borrower's financial capacity and the success or failure of the borrower, from which it can affect the bank's operations The economic situation

also has a direct impact on the bank's operations, affecting supply, capital demand, etc The stable and flourishing economy will create favorable conditions for the development of production and business sectors The bank's capital is effectively used by customers, the customer's ability to repay the bank is higher or the credit risk is reduced However, besides the huge increase in credits due to the expansion of production enterprises have a large demand for capital If the credit management of the bank is not good, it will lead to the expansion of credit beyond the allowed limit, reducing the quality of credit and increasing credit risk In contrast, when the economy is in recession, production and business activities are stagnant and face many difficulties At that time, investment demand decreased, bank credit was stagnant; the ability of banks to recover loan capital was difficult Thus, the quality

of bank credit is not guaranteed, leading to the risk of credit borrowing is inevitable

In the context of strong internationalization today, the operation of banks is not only influenced by the domestic environment but also the international environment The integration process has given Vietnam many advantages, especially in the economic field However, massive inflows of foreign investment into the country will unbalance the supply and demand of money, causing high inflation As a result, people lost their trust in the bank They found that even if they got interest from the bank, it was not enough to offset the depreciation of the currency Thus, they no longer want to send money to the bank again, causing the capital supply to banks to be seriously reduced At the same time, due to the negative impact of the economic recession makes business slowdown Enterprises have no market due to declining purchasing power and their demand for capital has also decreased Business is stagnant, inevitably businesses are unable to pay debts to banks, causing risks to banks

Each different economy has a different development situation, so it will affect the operation of the bank in different directions Whatever environment exists, banks need to find appropriate adaptation measures

in business as well as protect the interests of the bank, it is necessary to have a consistent,

unified legal system and create a solid legal corridor Because the law is the basis for resolving complaints when disputes occur, the law has a very important position in banking operations A small change in the legal environment can create more risks for bank operations.

Good and strict legal environment helps credit participants to obtain a legal standard

to comply with and adjust their behavior in accordance with the provisions of law Only in the context that the subjects are strictly in compliance with the credit relationship, the new credit relationship will benefit both sides Accordingly, new credit quality is guaranteed and credit risk will be reduced In contrast, the weak legal environment, many gaps and unclear regulations will create conditions for the participants of the bank's loan to have the opportunity to appropriate bank capital or delay payment of debt on time Thus, the credit activity of the bank is ineffective, the credit quality is reduced leading to increased credit risk

In fact, Vietnam has now opened the monetary market Conditions to join this market are easier Clearly, the more openness of the law in banking business has created more competitive pressure for banks, pushing banks to face more difficulties in their operations Along with the economic environment, the legal environment creates an operating environment for commercial banks in particular and businesses in general

Natural and social environment

Natural disasters, fires, epidemics, etc are unforeseen causes that occur on a regular basis, which will cause significant losses to banks as well as banks' customers In particular, the credits are granted to the agriculture and forestry sector, the natural environment has a direct and clear influence Where the harsh natural environment leads to investment in some industries will not be effective Loans with no source to pay the bank, the bank's ability to recover debts faces many difficulties, leading to credit risks In the social factor, the indirect influence of credit risk is the trust between banks and customers

Credit is a borrowing relationship based on trust and trust between borrowers and lenders A credit relationship is a combination of three factors including customer needs, customers' capabilities and mutual trust between banks and customers A bank with great prestige will create high trust for customers, the ability to attract large capital Customers get the higher trust of the bank, the simpler and easier loan procedures and lower risk In addition, the level of education is not high or specifically, the lack of understanding of customers is also a factor affecting the quality of credit activities of the bank It makes it difficult for banks

to manage credit

Asymmetric information

When the customer comes to trade with the bank, they provide the bank with the information requested by the bank but whether the information is available or need to have the bank's inspection The fact that the bank is not aware of the information that is frequent, disproportionate information that each party has obtained is called "asymmetric information" Lack of information in transactions can lead to the opposite choice and moral hazard for the bank Building an effective customer evaluation system from which the bank can make the right decisions that overcome the opposite choice and the moral hazard of customers

1.3 Credit risk assessment in commercial banks

1.3.1 Process of credit risk assessment

This is a traditional, qualitative method to assess risks through studying customer loan records In the 6C model that banks used to use, these Cs include:

 Character: Credit officers must clarify the purpose of applying for loans from customers Whether the loan purpose of the customer is in line with the bank's current credit policy At the same time, credit officers need to consider the history of borrowing and debt repayment for old customers While for new customers, it is necessary to collect information from other sources such as Credit Risk Prevention Center (CIC), etc

 Capacity: This depends on the laws of the country For individuals, individuals under 18 years of age are not eligible to sign credit contracts For enterprises, it must be based

on business licenses, establishment decisions and decisions to appoint executives

 Cash: First of all, it is necessary to determine the source of repayment of borrowers such as cash flow from revenue from sales or income, money from selling - liquidating assets,

Credit risk management

or money from issuing securities, etc After that, it is necessary to analyze the financial situation of borrowers through financial ratios such as liquidity indicators, debt balance indicators, operational indicators, profitability indicators

 Collateral: This is a condition for banks to provide credit and a second asset that can be used to repay loans to banks

 Conditions: Commercial banks stipulate conditions depending on the credit policy from time to time to enforce the central bank's monetary policy in each period For example, for export loans provided that payment is made through commercial banks

 Control: Focus on issues such as changes in laws and regulations whether or not to affect borrowers Whether the borrower's credit requirement meets the bank's criteria

1.3.2 Qualitative criteria for credit risk assessment

Indicators on the customer side:

 The full legal basis, economic and technical basis of plans, production and business projects using bank loans

 The feasibility of business plans and projects

 Purpose of borrowing seriously, using capital for the right purpose, clear repayment plan

 Responsibilities of borrowers with loans

 Capacity, management experience, business, market power of customers

Indicators on the bank side:

 The correct implementation of the credit process

 Human level in credit work

 Implementation of collateral

1.3.3 Quantitative criteria of credit risk assessment

 The ratio of outstanding loans to mobilized capital

This ratio is calculated using the formula below:

This ratio reflects how much the bank lends against the mobilized capital It also speaks of the efficiency of using the mobilized capital of the bank, demonstrating whether the bank has been proactive in proactively generating profits from the capital

This large ratio shows the ability to take advantage of mobilized capital If this ratio is greater than 1, the bank has not performed well the mobilization of capital or mobilized

capital to participate in lending less and the ability of banks to mobilize capital is not good If this ratio is less than 1, the bank has not effectively used all mobilized capital, causing waste

 The ratio of overdue debt

Overdue debt is the most important ratio showing the credit quality of banks

Clause 6 Article 3 Circular 02/2013 / TT-NHNN has regulations on asset classification, appropriation and risk provisioning methods as well as provisioning to handle

operational risks of foreign credit institutions and bank branches

In other words, the overdue debt index reflects the amount of capital that the bank has provided to the customer who has not been paid by the customer on time when the principal

or interest is due (in case the bank does not adjust the term of principal or interest or is not allowed to issue a principal or interest debt) Higher the overdue debt ratio is, the lower the credit quality of the bank and vice versa

The objective of striving for commercial banks is to prevent overdue debts However,

in practice this is difficult to implement, so controlling and maintaining overdue debt at a

reasonable level is still acceptable and does not jeopardize the operation of the bank

According to international practice, the maximum net overdue debt that commercial banks are allowed to maintain is 5% That is, within that range, the banking activity is still considered to be in a good working state Net overdue debt is calculated by taking all the overdue debts divided by total outstanding loans after subtracting the reserve fund And this ratio must be less than or equal to 5% "Net" is understood that in addition to deducting the provision amount, any term of the total term that the customer must pay to the overdue credit institution (interest or principal), the total value of the loan from the overdue term will be converted by the credit institution to overdue debt even if the repayment period has not yet been paid Therefore, when we see the net overdue debt of an international commercial bank

at 5%, we should not rush to evaluate that the bank is performing poorly Because it really reflects the situation of overdue debt and behind it is a series of measures to prevent the bank has been prepared as soon as it arises (provisioning, treatment options, etc.) This means that the overdue debt is high, but the ability to recover these debts is huge because the newly arising overdue debts have been discovered by the bank and have a definitive direction According to international practice, any loan that cannot be repaid or principally owed is considered to be unprofitable and the remaining loan balance is transferred to overdue debt

This is to alert early bank administrators to a problematic loan If there is no timely preventive measure from the beginning of the problem, the consequences will inevitably be unpredictable

 Non-performing loan ratios

Circular 02/2013 / TT-NHNN, non-performing loan is debt of groups 3, 4 and 5 According to Article 10, Circular 02/2013 / TT-NHNN:

 Debts of Group 3 (Sub-standard debt) includes overdue debts from 91 days to 180 days; debt rescheduling for the first time; debt is exempted or reduced because customers are unable to pay the interest in full according to the credit contract; debt is being recovered according to inspection conclusions Debts fall into one of the following cases:

+ Debts of customers or securers are organizations and individuals that are not eligible for credit under the provisions of law by credit institutions and foreign bank branches;

+ Debts secured by stocks of the credit institutions or subsidiaries of the credit institutions; or the loan is used to contribute capital to another credit institution on the basis of a credit institution providing security assets by shares of the credit institution itself;

+ Unsecured or granted debts with preferential conditions or values exceeding 5% of the own capital of the credit institutions and foreign bank branches when granting to customers who are subject to credit restriction in accordance with law;

+ Debts granted to subsidiaries, affiliates of credit institutions or enterprises in which the credit institution holds control rights with a value exceeding the limit rates prescribed

debt must be recovered according to inspection conclusions but has expired up to 60 days but has not been recovered yet;

 Debts of Group 5 debt (potentially irrecoverable debt) includes overdue debt of more than 360 days; first-time rescheduled debts which are overdue for more than 90 days within the rescheduled payment term; restructuring debt repayment deadline for the second time overdue repayment term to be restructured for the second time; restructuring debt repayment period for the third time or more, including not overdue

or overdue; debt must be recovered according to inspection conclusions but has expired over 60 days but still has not been recovered; debt of customers being credit institutions announced by the State Bank and placed in special control, foreign bank branches are blocked with capital and assets

A bank with a higher ratio of non-performing loan/Total outstanding debt is lower in credit quality and vice versa

 The ratio of restructured debt

According to Circular 02/2013 / TT-NHNN, “Debt restructuring debt repayment term”

is a debt approved by a credit institution, a foreign bank's branch to adjust the repayment period and / or extend the debt for customers Customers are unable to repay principal and / or interest on time as stated in the contract but are evaluated by credit institutions, foreign bank branches to be able to repay the principal and interest in full within the rescheduled payment term The higher the proportion of structured debt is, the lower the credit quality because debt

is not reflected in its nature Only bad debts, which cannot be collected on time, must be restructured Debt restructuring can reduce non-performing loan and overdue debt, but this is the potential risk that the bank will face

 The ratio of debt structure

Structure ratios do not directly reflect credit quality However, through the structure criteria, it is possible to assess the level of risk as well as the potential risks to credit that affect credit quality

+ Proportion of medium and long-term loans:

This is a quantitative ratio, determining the credit structure in case the debt balance is divided according to the loan term Obviously, the longer the loan is, the higher the risk This

increase means that banks lend more medium and long-term loans, the higher the credit risk, the lower the credit quality Banks need to determine credit structure so that it is reasonable, safe and solvable

+ Proportion of loans secured by assets:

Secured lending is a form of lending based on guarantees such as mortgages, pledges

or a guarantee of a third person for a loan Collateral is meant to align the customer's responsibility for effective use of loans and repayment on time For banks, credit guarantee is the second source of debt when the first source of debt (cash flows) cannot pay the debt

Thus, the greater this proportion is, the higher the credit quality and vice versa

+ Proportion of lending according to the development of economic industries This proportion represents the debt balance according to the development of industries, trades and economic sectors in the total outstanding loans In each period of the Party and the State, the policy of economic development is carried out according to specific branches, trades and economic zones Therefore, there are special industries that are developed or encouraged and create favorable conditions for development The higher the proportion of loans to developing industries is, the higher the credit quality and vice versa

+ Proportion of cash loans, bank transfer loans

The distribution of outstanding loans according to this criterion indicates that in the total outstanding balance of the branch, how much the cash loan is and how much the loan transfer is Therefore, the potential risks of each loan can be seen Cash lending is a form of bank disbursements for customers directly in cash Cash lending has a huge risk, because it is difficult for banks to manage the use of customers' capital after disbursement This facilitates customers with the opportunity to use capital for the wrong purpose Lending by bank transfer

is a loan made by the bank in the form of payment by bank transfer to a third party who also deals with the borrower Compared to the form of cash lending, lending by bank transfer is much safer Through lending by bank transfer, the bank can control whether the client's capital usage is correct as in the credit contract Since then, it can be sure that banks' capital is strictly used by customers for the right purpose

Thus, if a bank's lending rate is too high, the risk of lending is very high, the management and control of the loan is very difficult

 The ratio of capital use efficiency

This ratio reflects the percentage of mobilized capital used for credit activities In the summary of credit assets accounts for 70% of total assets, so if this coefficient is low, the mobilized capital is large but the outstanding debt is small, leading to a stagnant capital On the contrary, credit outstanding increases too quickly, will raise problems While low mobilized capital has not been large enough, the demand for capital of customers has increased rapidly and requires an increasing amount of capital, leading to banks having to borrow money from the State Bank to offset the shortage But this source of capital has high interest rates, making banks have to spend a large amount of money leading to lower bank profits On the other hand, too much credit outstanding loans may lead to overheating credit growth, which has a potential for irrecoverable debt

 Rate of risk reserve

"Risk reserve" is the amount that is set up and accounted into operating expenses to be used for the losses that may occur to the debts of the credit institution, foreign bank's branch Risk reserve include specific reserve and general reserve

“General reserve" is the amount set aside for possible losses but not yet determined when a specific reserve is made

“"Specific reserve" is the amount that is set aside for possible losses for each specific debt

This ratio reflects the ability of each commercial bank to resist credit deterioration A bank with large overdue debts and large bad debts requires high risk reserve In order to ensure safety in business operations, banks need to perform well the classification of loans in groups to make full reserve, ensuring compliance with regulations

In addition to traditional measurement methods, credit risk is also measured by loan risk reserve Credit risk calculated by this method is considered a bank expense expressed by the amount set aside for possible losses to bank loans The way to determine this risk reserve

is based on the classification of the bank's debt by group, in which not only the bad debt group should make risk measurement more comprehensive From a research perspective, it is

much easier to collect data on credit risk using the loan risk reserve index Because this index reflected in the bank's financial statements is a more reliable figure than the bad debt target announced by the bank

According to Ahmed et al (1998) and Fischer, Gueyie and Ortiz (2000), loan loss provisions were positively related to bad debt rates Therefore, the higher the risk provision for loans, the lower the loan quality and the increased credit risk Since then, this measure had been increasingly used in studies related to credit risk (Tsolas and Charles, 2015; Sun and Chang, 2010; Chang and Chiu, 2006; Mester, 1996) In particular, Knaup and Wagner (2012) simultaneously measured credit risk by criteria such as loan risk provision, problem debt, debt

to total equity, unsecured debt The research results show that credit risk measured by loan loss provision has a more significant impact on the bank's business performance compared to the remaining measures of credit risk However, the selection of this indicator to describe credit risks also faces some objections from other researchers For example, Podpiera and Weill (2008) argued that the contingency rate was not entirely accurate to describe the risk because it was an estimate and depended heavily on the bank's risk management policy

In addition to the above two measures of direct credit risk, Sillah et al (2015) used Capital Adequacy Ratio (CAR) with level 1 capital on the total assets of the bankin their research to indirectly assess credit risk This index assesses the ability of banks to adapt to credit risks

Thus, the use of bad debt ratio, capital adequacy index or loan risk provision to describe credit risk was simultaneously used in a variety of relevant previous studies In the context of research in Vietnam, loan risk provision is considered more appropriate because the information on bad debt of commercial banks is not published publicly and the authenticity is not guaranteed Meanwhile, the provision expense for loan risk is an indicator that can be obtained in the bank's financial statements with the rate set up specifically guided

by the Ministry of Finance and the State Bank

1.4 Impact of credit risk on financial performance of commercial banks and economy

Credit risk is always hidden in the banking business, causing serious consequences, affecting many aspects of the socio-economic life of each country, even spreading across the globe When credit risk occurs, it affects many different entities First, the banks and customers themselves borrow, then the impact on the economy

Consequences of credit risks for banks

The failure to recover debts (principal, interest and fees) caused the capital of commercial banks to be lost Meanwhile, these banks still have to pay interest on operating capital, making profit decline If the profit is not enough, the bank must use its own capital to offset the losses This may affect the scale of commercial banks On the other hand, the high rate of overdue debt makes credibility, confidence in the financial potential of the bank decline, leading to reducing the ability of banks to mobilize capital More seriously, it could lead to liquidity risk, pushing the bank to the brink of bankruptcy and threatening the stability

of the entire banking system

Consequences of credit risk for customers

For borrowers who are incapable of repaying capital (interest) to banks, they have almost no opportunity to access bank loans even other sources of capital in the economy because they have lost prestige Opportunities for access to bank loans by other borrowers are also more limited when credit risks force commercial banks or lend or even narrow the scale

of operations Subjects who deposit money into banks are in danger of failing to recover deposits and interest if banks fall into bankruptcy

Consequences of credit risks for the banking system

The operation of a bank in a country is related to the banking system and economic, social and personal organizations in the economy Therefore, if a bank has bad performance, even leads to its inability to pay and bankruptcy, there will be chain effects that adversely affect banks and other economic sectors Without timely intervention of the State Bank and the Government, the fear of losing money will spread to all depositors As a result, they will withdraw money at commercial banks simultaneously, making other banks invisible to fall into insolvency

Consequences of credit risks to the economy

The banking system has a close relationship with the economy, is a channel to attract and provide money for organizations, businesses and individuals in the economy Therefore, credit risk has a direct impact on the economy At a low level, credit risk has limited opportunities for customers to access capital to expand production and business activities or consumption, adversely affecting the growth of the economy At a higher level, when a bank

is in a difficult situation that leads to bankruptcy, the chain effect is very likely to occur throughout the banking system It can create a crisis for the whole economy, negatively affecting the social life and development of the country

In short, a bank's credit risk occurs at different levels The lightest level is that banks have reduced their profits when they have to make provision and cannot recover loan interest The worst effect is when the bank fails to collect the principal and interest, and the bad debt with high rate leads to loss and loss of capital If this situation persists, the bank will be bankrupt, causing serious consequences for the economy in general and the banking system in particular Therefore, it is necessary for bank managers to be very careful and take appropriate measures to minimize risks in lending

1.5 Experiences on credit risk management

1.5.1 Experiences from Vietnam commercial banks

Experience of managing credit risk of HDBank

HDBank is one of the first banks to announce the successful implementation of the internal credit rating system including 9 sets of ranking criteria for 4 customers including financial institutions, economic organizations, business households and individuals The application of this system will help HDBank assess credit quality, customer grouping as well

as credit quantification, loan classification, provisioning, credit quality management effectively and comprehensively In the period of 2014-2018, HDBank's credit risk management results recorded positive results when continuously maintaining a low NPL ratio

In 2014, HDBank's bad debt ratio was 1.4%, in which HDBank was 1.27%, HDFinance was 4.83% In 2018, HDBank's NPL ratio was 0.97%, significantly lower than the 2% plan given The ratio of individual NPLs on June 30, 2019 only accounts for 1% of the total customer loan balance of the parent bank Consolidated NPL ratio, including consumer finance, fell to 1.4% from 1.5% at the start of the fiscal year

At the same time, HDBank has built a risk management and control block in compliance with international standards including departments (Risk Management, Valuation, Legislation, Internal Control Inspection, Debt Processing, etc.) These departments are closely linked to form a closed appraisal process to implement credit risk and non-credit risk management activities such as liquidity risk, exchange rate risk, legal risk, human risk and other activities Besides, the bank has also standardized many internal documents, the process

of appraisal and approval The aim is to promote remote monitoring, develop risk management standards, simplify loan procedures, and quickly disburse time (in only three days with valid records) These contribute to credibility and satisfaction for customers

Experience of managing credit risk of VIB

At VIB, the governance structure is clearly defined between the Board of Directors (BOD) and the Executive Board, in which the Board determines the strategy and the Executive Board is the executor of the strategy If this is not clear, this will lead to conflicts of interest In addition, independent committees such as the independent credit committee which empowered by the Chairman of the Board and has a member of the Board of Directors to participate, not only help the BOD to grasp the actual situation of credit situation but also ensure transparency and credit quality at VIB

In fact, risk management in Vietnam often faces problems with too little or too much data but not suitable for analyzing and evaluating opportunities or risk provisions To overcome this problem, there are specialized departments in VIB, consistent and consistent models from business units to support The 3-layer protection model (Business unit - Management unit - Internal audit) helps VIB strengthen management and inspection functions

of business units in particular and the whole system in general At the same time, it helps prevent vulnerabilities caused by other forms of risk such as anti-money laundering, anti-terrorist financing Currently, VIB is gradually changing the culture of risk management from

“controlling” to “cooperating” without affecting the quality of credit risk With the new model, VIB has achieved some achievements in credit risk management in the last 5 years By the end of 2014, VIB's NPL ratio decreased to 2.51% compared to 2.82% in 2013 At the end

of 2018, the NPL ratio was 2.52%, lower than the 2.64% level at the beginning of the year Thus, VIB's NPL ratio is always 3% lower than that of the State Bank

1.5.2 Experiences from International Commercial banks

Experience of managing credit risk of ANZ

Australia's ANZ Bank is one of Australia's leading banks, with assets worth $507 billion in 2009 and has more than 30,000 employees across continents The characteristics of ANZ credit risk management have some remarkable points such as:

- Quantitative risk measurement: Because it has built an integrated and centralized data system, ANZ can apply internal credit measurement model and RAROC model + Internal credit measurement model: ANZ applies this model according to the general process according to Basel II regulations However, ANZ evaluates the probability of non-payment of debt as a key criterion to see the credibility of borrowers in the customer rating process ANZ's credit rating system is designed to refer to Standard & Poor's credit rating organization and comply with strict Basel II rules

+ Model KAROC: ANZ Bank applies KAROC method and considers it a loan effectiveness method According to ANZ, KAROC method ensures that a loan is only approved when and only if the loan brings value to shareholders If the RAROC of the loan is lower than the ROE, the loan will decline, but if larger, it will be approved

- Centralized risk management organization ANZ measures risk according to the centralized risk management organization model, specifically as follows:

First, ANZ's risk management strategy decisions are focused on the Board of Directors

Second, to ensure a clear and clear credit decision, the structure of risk management in ANZ is divided into three divisions These include Business and Customer Relations, Risk Management, and Debt Management

Third, for large loans, the final decision is made by the Risk Management Committee and Risk Board

- Control of double credit risk: ANZ operates in a financial market developed over decades Therefore, all bank credit activities are closely monitored through shareholders and the market This contributes to the transparency and publicity of ANZ's information

In addition, ANZ also focuses on building a comprehensive internal credit control system including:

- The system warns of abnormal signs of the credits studied and put into operation so that it can be promptly overcome to avoid losses;

- The "crisis test" activity is carried out periodically or at times when the economy shows signs of instability The goal is to quantify the risks accurately in each period and take measures to prevent, risk provisions, appropriate price policies;

- Internal audit activities with unexpected inspection methods are being maintained very effectively to ensure absolute compliance in the system

Experience of managing credit risk of Commercial banks in the US

In fact, US commercial banks have controlled credit risks in the following ways: First, focus on nurturing long-term and integrated relationships with borrowers and serving all their financial needs As a result, lenders will better understand the financial

situation of customers and gain profits when selling diverse financial products Meanwhile, the borrower will have a long-term support with credit services

Second, focus on loan appraisal rather than loan control Cutting or shutting down the appraisal process will lead to bad debt In addition, lending loans at risk will not be worth considering the amount of work to be done so that the loan is not overdue

Moreover, commercial banks have used the credit scoring method to properly assess the status of each borrower Specifically, the credit scoring will be based on the formula available to measure and predict the level of risk of potential customers, designed to improve the loan appraisal process Typically, traditional credit scoring is often used for consumer loans, when relying on it to approve credit card or credit to buy cars, they are potential customers in a customer chain

Third, avoid using brokers because brokers are not motivated to bring higher quality loans, since they are paid based on loan quality

Fourth, borrowers are required to demonstrate their experience in business, providing collateral for both personal and corporate assets, whether or not collateral is needed This is to create a psychological incentive for the borrower to borrow

Fifth, focus on lending decisions to ensure consistency and control Although small or large lenders may differ in the method of loan consideration, both require at least one officer They do not assess the loan they will review the loan and make a final approval decision This structure eliminates the final approval decision from many scattered officials, concentrating approval on an officer or a group to ensure consistency, control and effectiveness in loan appraisal

Sixth, ask lenders to be responsible for the loan they lend Credit decisions are only good when the information presented, the analysis must be complete, most lenders believe in the lender's responsibility Although there are no units that emphasize penalties for officials when there is a bad debt, most cases of loan officers must support the recovery of bad loans

Seventh, apply credit ratings for new loans and re-evaluate them periodically over the life of the loan Accordingly, US commercial banks have a credit rating system or plan to create a grading program In a typical program, a new loan will be applied with a numerical value representing the level of risk at the time of loan appraisal During the loan period, this number can be reviewed, based on the borrower's repayment history and other factors When

problems are found, there is a way to identify and track bad debts This system is different from credit scoring, used earlier to make a loan decision

Eighth, determine bad debt early and strengthen the debt collection efforts very strongly It is necessary to keep track of early signs of bad loans in the future The best way to identify early signs is to always keep in touch with customers, not wait until the loan becomes overdue Positive identification and the search for the ability to recover debts in just a few days after a loan is delayed can reduce the time it takes to spend on debt recovery actions At the same time it allows lenders to adjust the repayment period or solve other borrowers' problems early

Ninth, the proposed exit for bad debts is more important than debt recovery The settlement of the bad debt should only be considered when it is the last way to recover the problem loan The reason is that recovery can be more effective through the continued repayment of an operating business rather than having to finalize the assets

1.6 Methodology in this thesis

1.6.1 Research method

In order to complete the thesis’s objective, the following approach is proposed

It will be used during researching, literature review and data collection of data regarding financing sources will use 3 approaches:

(1) Collect and research information available on website, journals, or other official sources of these financing sources;

(2) Evaluate feasibility of financing source for thesis and directly approach these sources to continue finding more detailed information;

(3) Classify sources and prioritize according to criteria proposed to aim at highest feasibility and benefits for assessing credit risk in bank and comparison with other banks and Vietnamese banking sector

From what were discussed above and based on strengths and advantages of author, to complete the thesis, the author used complex research methods, including: descriptive statistical method, analytical method and comparative method Descriptive statistical method, using tables, graphs and charts are used mainly in analyzing the financial performance, business activities and credit risk In addition, author used analytical method that is implemented to summarize what factors impacting on the credit risk and credit risk management in bank

1.6.2 Evaluation criterion using to assess credit risk of Vietinbank - Ba Dinh branch

In the scope of thesis, some indicators are selected to measure status of credit risk in Vietinbank – Ba Dinh Branch, which consist the following index and their formula as well:

 Total overdue loans

 Rate of overdue loan = Total overdue loan 100 (%)

Total outstanding loan

 Total bab debts

 Total non – performing loan

 Loan portfolio by maturity, type of customers

Total outstanding loan The basis of calculation of bad debts and non – performing loan from offcical financial data are pursuant to current Vietnamese regulators like the Circular No 02/2013/TT

- NHNN on providing on classification of assets, level and method of setting up of risk provisions, and use of provisions against credit risk in the banking activity of credit institutions, foreign bank’s branches and Circular No 09/2014/TT – NHNN amending Circular No 02/2013/TT – NHNN Bad debts (NPL) are recognized as group 3, 4 and 5 in compliance and non – performing loans is group 5 In this compliance of regular, overdue loan includes group 2, 3, 4, 5 of loan

1.6.3 Data collection and description

In the scope of the thesis, secondary data was mostly used for analysis Source

of secondary data is various and it includes bank’s annual reports, audited finance statements of bank, websites, annual reports of SBV, finance journals and banking sector reports of national and international units On the other hand, in order to have a conceptual review of credit risk, its relationship with other factor, CRM…, a lot paper, international publication, and issues, researches which is relevant with credit risk or non – performing loan in commercial banks that will be used

CHAPTER 2 CURRENT SITUATION OF CREDIT RISK MANAGEMENT AT

VIETINBANK – BA DINH BRANCH 2.1 Overview of Vietinbank - Ba Dinh branch

2.1.1 General information of Vietinbank - Ba Dinh branch

Bank Vietinbank Ba Dinh branch was established in 2008 The process of construction, development and innovation of Vietinbank Ba Dinh branch is associated with the renovation stages of the industry Along with the whole system, Vietinbank Ba Dinh branch has expanded its activities in many fields, diversified and expanded business activities

to create a fast, strong and comprehensive development step continue to affirm the leading and key role of a large commercial bank in the area

Functions of Vietinbank Ba Dinh branch:

 Being the receiving point, organizing the implementation of products / services, managing products / services at the branch (product management)

 Directly sell retail and non-credit retail credit products / services (capital mobilization, payment, currency exchange, card, E-banking, treasury, financial advice ); is the focal point for proposing marketing programs, finding new customers, consulting, customer care

 Complete the application procedures and retail credit procedures according to the authority and regulations and professional processes of Vietinbank

 Implementing the after-sales policy: analyzing and evaluating customers and proposing measures to take care of, maintain and increase the use of customers' products / services (customer management)

Duties of Vietinbank Ba Dinh branch

 Selling banking products / services and Retail banking services (Retail credit, other personal and non-credit deposits)

 Customer management: update customer information, evaluate customers, take care

of customers and implement and propose measures to attract, maintain relationships and develop customers

 Product / service management: a focal point for deploying and managing major retail banking products and services at branches, organizing deployment, reporting, proposals

2.1.2 Organization structure of Vietinbank - Ba Dinh branch

As of December 31, 2018, Vietinbank Ba Dinh branch has 8 functional rooms with 4 transaction offices

BOARD OF DIRECTORS

CUSTOMER

MANAGEMENT

DIVISION

OPERATION DIVISION

RISK MANAGEMENT DIVISION

INTERNAL MANAGEMENT DIVISION

DIRECT DIVISION Organization model of Vietinbank - Ba Dinh branch

 Board of directors

 Customer Management Division

- Individual customer office

- Business customer office

 Operation Division

- Credit Administration office

- Customer Transaction office

 Risk Management Division

- Risk management office

 Internal Management Division

- Financial Accounting office

- Integrated Planning office

- Organization and Administration office

 Direct Division

2.1.3 Key financial performances of Vietinbank - Ba Dinh branch

Banks are always concerned about how to achieve the highest profitability with an acceptable level of risk, while still fulfilling the bank's business plan This is also the primary goal of Vietinbank Ba Dinh during the business process in the banking sector.The following table shows more clearly the results achieved by Vietinbank Ba Dinh in the last 3 years:

Business results of Vietinbank Ba Dinh in the period of 2016-2018

2017/16 2018/17

1 Total assets (VND billion) 6.851 8.440 9.319 23,2% 10,4%

2

Total outstanding loans at the end

of the period (VND billion) 4.953 5.207 6.146 5,1% 18,0%

3

Capital mobilization at the end of

the period (VND billion) 6.159 7.648 8.759 24,1% 14,5%

1 Profit before tax (VND billion) 183,45 196,00 237,7 0,7% 21.3%

2 Net service revenue (VND billion) 35,7 28,9 33,4 -8% 15,5%

(Source: Integrated Planning office of Vietinbank Ba Dinh)

The above table shows the pre-tax profit of Vietinbank Ba Dinh with growth and

stability over 3 years In 2017, this index increased by 0.7% compared to 2016 In 2018, it

increased by 21.3% compared to 2017 The average growth rate of 2016-2018 reached 14% / year Operation scale has grown quite well, quality guaranteed Most of the scale targets such

as total assets, capital, and outstanding loans achieved good growth rates In 2016, Vietinbank's total assets reached 6,851 billion VND and by 2018 this value reached 9,319 Billion VND In addition to the growth in assets, the financial efficiency shown by the income from credit activities increased continuously over the years is also a part of the resources for Vietinbank to strengthen the financial capacity of its branches This is also a part of resources for Vietinbank to reinvest in retail activities of its own branches

With all production and business activities, the target of scale and quality of customers

is the first criterion to show the development and success in business Vietinbank Ba Dinh always focuses on customer development and care Customer development in the area of Vietinbank Ba Dinh has achieved some remarkable results in the period 2016-2018 The number of customers over the years is shown in the following table:

Statistics of customers of Vietinbank Ba Dinh branch in the period of 2016-2018

(Unit: Person, %)

Growth rate 2017/16

Growth rate 2018/17

Average growth rate

Total customers 88.075 120.861 132.218 37,23% 9,40% 23,31% Total individual

customers/total customers 97,98% 98,24% 98,07%

(Source: Integrated Planning office of Vietinbank Ba Dinh)

From the results table, the number of customers of Vietinbank Ba Dinh has increased steadily over the years in the period of 2016-2018 In 2016, the total number of individual customers reached 86,296 people, accounting for 97.98% of the total number of customers of the branch In 2017, the size of individual customers increased 37.59% to 118,734 people In

2018, the number of individual customers reached the absolute value of 129,672 people, an increase of 9.21% compared to 2017

2.2 Credit operation of Vietinbank - Ba Dinh branch

2.2.1 Credit products of Vietinbank - Ba Dinh branch

 Consumer loans

Vietinbank provides the credit product “consumer loans” for individual and household customer having stable income and financial capability to repay the loans for borrowing needs to serve their lives, such as purchasing consumer goods and family items Vietinbank provides the credit product “consumer loans” for individual and household customers having stable income and financial capability to repay the loans for borrowing needs to serve their lives, such as purchasing consumer goods and

family items

Main feature

- Currency: VND

- Loan term: maximum 60 months

- Loan amount: maximum 80% of the cost

- Interest rate: fixed, floating; overdue interest rate is 150% of due interest rate

- Loan security: with or without assets as collateral or third-party guarantor

- Disbursements: full disbursement or in partial disbursements (multiple disbursements)

- Repayment of principle and interest: single or multiple principle payment, monthly repayment on interest or regular repayment as negotiated

Main feature

- Currency: VND

- Maximum loan term: 5 years

- Maximum loan amount: up to 85% of total capital requirements according to estimates or of the total contract value stated in the purchase or sale contracts of customers

- Lending rates: fixed, floating Overdue interest rate not exceeding 150% term loan interest rate

- Loan security: with or without assets as collateral or third-party guarantor

- Disbursements: full disbursement or in partial disbursements (multiple disbursements)

- Repayment of principle and interest: single or multiple principle payment, monthly repayment on interest or regular repayment as negotiated

 Loans against valuable papers

“Loans against valuable papers” is a product of Vietinbank credit for individual customers who legally own the pledged assets, having the needs for loans serving their lives

Main features

Papers that can be pledged: must be papers that are legally issued and transferable, including saving books, bill of exchange issued by commercial banks, treasury bills, treasury bonds, public debt; shares, bonds, fund certificates issued by enterprises

- Currency: VND

- Term: not exceeding the remaining term of the valuable papers With listed stocks, bonds and fund certificates: not exceeding 06 months

- Loan amount: up to 80% of the total costs in the contract

- Interest rate: fixed, floating; overdue interest rate is 150% of due interest rate

- Maximum loan amount shall not exceed the original price plus interest minus interest paid during loan period; up to 50% of the market price at the time of lending

as for listed securities; up to 50% of the IPO shares by State-owned companies, stocks companies issuing shares to increase capital and does not exceed 75% of the value of pledged assets; being the difference between the average bid price and preferential price for employees to buy preferred shares by the state-owned issuing company

joint Interest rate: fixed, floating;

- Loan security: by valuable papers, the rate prescribed by the Governor of the State Bank in each period

- Repayment of principal and interest: once and receive valuable papers back

- During the loan period, if the price of collateral stock reduced to 60% of the price at the time of collateral, then customers must provide additional assets or guarantee within 2 working days or Vietinbank shall collect the loan before the due date (specified in the contract)

- To use credit product "installment loan" of Vietinbank, customer needs to

have regular income and pledged assets for the loan

- Tenor must conform to business cycle and the ability to repay over the

agreed upon installment payment

Delivery channels

Vietinbank branches/transaction offices or E-banking

Technology applied

Vietinbank uses automated system (IPCAS) to track customer information,

accounts, amounts of interest payment, etc with the highest security and accuracy

 Loans for purchasing vehicles

Vietinbank introduces the credit product of “Loans for buying vehicles” to the customers who are individuals or households having the needs of loans for buying cars, motorbikes or other means of transport

Main features

- Currency: VND

- Term: Short, medium, long term

- Loan amount: maximum 85% of the total cost

- Interest: fixed, floating

- Loan security: with or without assets as collateral or third-party guarantor

- Disbursements: full disbursement

- Repayment of principle and interest: single or multiple principle payment, monthly repayment on interest or regular repayment as negotiated

 Loans for overseas studying

Individual and household customers who are relatives of students studying overseas can use the credit product “Loans for overseas studying” to cover costs of

living expenses and tuition fees of their relatives overseas

Main features

- Currency: VND, foreign currencies

- Term: Short, medium, long term

- Loan amount: negotiable, up to 85% of total cost

- Interest: fixed, floating

- Loan guarantee: with/without the guarantee of assets; guarantee by the third party

- Disbursements: full disbursement or in partial disbursements (multiple disbursements)

- Repayment of principle and interest: single or multiple principle payment, monthly repayment on interest or regular repayment as negotiated

Delivery channels

Vietinbank branches/transaction offices or E-banking

Technology applied

Vietinbank uses automated system (IPCAS) to track customer information,

accounts, amounts of interest payment, etc with the highest security and accuracy

 Short term loans for production, business operation

Vietinbank provides loans for customers including individuals and households

to cover the shortage of working capital for production and business

Main features

- Currency: VNĐ

- Type of loan: Short-term

- Loan amount: upon negotiation Customers must have equity participation of

at least 10% of the total capital needs

- Lending rates: fixed, floating

- Loan security: with or without assets as collateral and third-party guarantor

- Disbursements: full disbursement or in partial disbursements (multiple disbursements)

- Repayment of principle and interest: single or multiple principle payment, monthly repayment on interest or regular repayment as negotiated

Delivery channel

Direct mail, branches/transaction offices, ATM’s, Mobile Banking, Internet

Banking

Technology applied

Vietinbank uses automated system (IPCAS) to track customer information, accounts, signatures, photos, amounts of interest payment, etc with the highest security and accuracy

 Loans for crop season intervals

This is Vietinbank credit product for household or individual customers in the intensive cultivation of rice and having rice-growing areas intercropping with other

short-term plants of the next season interval, who are in need of loans for production

Main features

- Currency: VNĐ

- Term: Short term, not exceeding the term of the next crop

- Loan amount: not exceeding the actual balance of the previous loan contract Customers need to have equity participation of at least 10% of the total capital requirements

- Interest: interest rate applicable at the time of loan

- Loan security: with or without assets as collateral or third-party guarantor

- Disbursements: full disbursement or multiple disbursements

Repayment of principle and interest: single or multiple principle payment, monthly repayment on interest or regular repayment as negotiated

 Fixed assets loan

Vietinbank provides individual and household customers with “fixed assets loan” for buying fixed assets such as factories, heavy equipment and industrial machinery for project purposes