CHAPTER 2: CURRENT CIRCUMSTANCE OF RISK MANAGEMENT IN
2.2 Actual situation of credit risk management at Vietnam Joint Stock
2.2.1 Circumstance of credit risk at Vietnam Joint Stock Commercial Bank for Industry and Trade Thanh Xuan branch
+ The ratio of bad debt to total outstanding loans
Banking activities or any economic activities are inevitable of limitations and risks during operation. For the Bank's credit activities, the risk level is assessed through the overdue debt index. This is an indicator reflecting debts when the debt is due (including the debt rescheduling period) agreed in the credit contract and the customer cannot repay the debt to the bank. switch from a debit account to another management account called an overdue debt and notify customers. This entry reflects the bank's operating results and the credit quality of previous loans. This rate is accepted at a maximum of 3% if this rate is exceeded, the bank is in an alert state. At Vietinbank Thanh Xuan branch, this ratio is as follows:
Table 2.3. The ratio of outstanding debts and bad debts
Unit: billion VND
Targets 2017 2018 2019
Total loans 3889 5593 5900
Outstanding debt ratio 185.5 212.4 206.5
Outstanding debt balance 4,7% 3,8% 3,5%
Bad debts 89,45 111,86 109,74
Bad debt ratio 2,3 % 2 % 1,86%
Provision 29.265 15.457 4.445 (Sources: Finance and Accounting Department, Vietnam Joint Stock Commercial Bank for Industry and Trade - Thanh Xuan Branch, 2019)
With the orientation of "Reasonable, safe and effective growth", during 3 years from 2017 to 2019, Vietnam Joint Stock Commercial Bank for Industry and Trade - Thanh Xuan branch limited and increasingly reduced the ratio of Bad debt. In 2019, the bad debt ratio reached 1.86%, decreased by 0.14% compared to 2018 and in 2018, it decreased by 0.3% compared to 2017. However, the instability from the macroeconomy due to the global crisis and the existing difficulties in many industries makes bad debts and overdue debts of banks still exist and pose many potential risks. Allowance for credit losses of the branch tends to decrease over the years. In 2018, it was VND 15,457 million, down by VND 13,808 million compared to 2017 and only reached VND 4,445 million in 2019, showing that the bank has measures to minimize losses from credits, thereby increasing profits of the branch.
+ Regarding the provision rate on the total outstanding loans
This ratio refers to the bank's preparation for loans with credit losses through the appropriation of the annual credit reserve fund from the bank's income. Specifically, at the Vietnam Joint Stock Commercial Bank for Industry and Trade - Thanh Xuan branch, the level of credit risk provision is detailed in the following table:
Table 2.4. Proportion of provision to total outstanding loans
Unit: million VND
Target 2017 2018 2019
Difference from 2018/2017
Difference from 2019/2018
(%) (%) Credit Risk
Provision 30.088 16.578 5.656 (45) (66)
Debit Balance 3.889.396 5.593.604 5.900.721 43,8 5,49 Provision For Credit
Losses (PCL) 0,77 % 0,3 % 0,1 %
(Sources: Finance and Accounting Department, Vietnam Joint Stock Commercial Bank for Industry and Trade - Thanh Xuan Branch, 2019)
Analysing the above table, it can be seen that the bank's credit risk provision has decreased sharply over the years. In 2018, it was VND 16,578 million, reduced about VND 13,510 million compared to 2017, equivalent to 45%. In 2019, the rate decreased to only 5,656 million decreased by 66%.
Meanwhile, outstanding loans tended to increase in the period 2017-2019.
Specifically, in 2018, it was VND 5,593,604 million, an increase of VND 1,704,208 million compared to 2017, corresponding to an increase of 43.8%.
In 2019, it rose to 5,900,721 million, which is an increase of 307,117 million VND, equivalent to 5.49%. The provision for credit losses decreased over the years. The increase in outstanding credit shows good credit growth, but it always contains potential risks from loans. Meanwhile, the provision for credit risk decreased, although profit increased, this was a risky step for the bank. Therefore, the bank should take special measures for provision in the next phase.
2.2.2 Actual situation of risk management of Vietnam Joint Stock Commercial Bank for Industry and Trade - Thanh Xuan Branch
2.2.2.1 Managing borrowers
Vietnam Joint Stock Commercial Bank for Industry and Trade Thanh Xuan branch has built an internal credit rating system to evaluate corporate customers. This is the core credit risk management tool of Vietinbank and this
is also the basis for branches to perform customer relationship management with credit.
The internal credit rating system for corporate customers uses a method of scoring the financial and non-financial groups of each customer: combined with expert and statistical methods to rank customers. The method of scoring in this system of the Branch is also very popular, used by international organizations such as Moody's, S&P ..., whereby the customer ranking is done through scoring a set of targets related to the financial situation and production and business activities of customers.
These indicators reflect quite comprehensively the size, industry and prospects of the business, and they are related, complementary and maximized to minimize subjective errors of the assessor.
2.2.2.2 Credit structure
Right from its inception, Vietnam Joint Stock Commercial Bank for Industry and Trade has conducted its loan portfolio management and was built based on Vietnamese accounting standards and guidelines of the Bank.
country. This activity is analyzed according to the following contents:
* List of loans by term:
From 2017 to 2019, the ratio of medium and long-term outstanding loans increased stably (from 65.48% to 73.65%) equivalent to an increase of nearly VND 1,798 billion, which helped the Joint Stock Commercial Bank for Industry and Trade Vietnam has more and more conditions to develop in- depth, meet the needs of medium and long-term loans in the area, and these loans are often used to invest in expanding production and strengthening equipment. ... promoting strong and solid production and development,
contributing to improving the efficiency of the Bank's credit capital, creating a stable source of income. Outstanding short-term loans are also relatively stable (accounting for an average of about 33.33%) of total outstanding loans.
* List of loans by economic industry:
Joint Stock Commercial Bank for Industry and Trade of Vietnam always knows how to take advantage of its advantages in the industries and fields that I know well and the key industries of the country. Therefore, the proportion of outstanding loans to the service sector accounted for a relatively large and stable proportion over the years (the average proportion of this industry is often over 48%). Besides, Vietnam Joint Stock Commercial Bank for Industry and Trade, Thanh Xuan branch also attaches great importance to credit products in industries (an average rate is 38.87%).
Table 2.5. Lending report by industry
Units: Millions VND
Targets
Year of 2017 Year of 2018 Year of 2019
Amounts Proportio
n (%) Amounts Proportio
n (%) Amounts Proportio n (%) 1.
Industry 1.034.759,21 26,6 2.254.850,46 40,31 2.933.869,82 49,72 2.
Agricultur e,forestry, fisheries
15.656,25 0,4 1.493,72 0,03 22.439,61 0,38
3.
Services 2.838.981,08 73 3.337.260,41 59,66 2.944.412,52 49,9
(Source: Financial Accounting Department, Vietnam Joint Stock Commercial Bank for Industry and Trade - Thanh Xuan branch, 2019)
* List of loans by economic sector:
In recent years, the economy has shown signs of going down, but the state-owned enterprises' sector remains a reliable partner of the bank. The proportion of loans to state-owned enterprises from 2017 to 2019 always tends to increase (the average proportion is 66.04%). Besides, the bank also promotes credit with non-state businesses and individual and household sectors.
Table 2.6. Lending report by economic sectors
Units: Millions VND
Targets
Year of 2017 Year of 2018 Year of 2019
Amounts
Proporti on (%)
Amounts
Proporti on (%)
Growth
(%) Amounts
Proportio n (%)
Growth (%) 1. State
Enterprises
3.189.346,6
8 82 3.338.116,
25 59,68 4,67 3.329.498,93 56,43 (0,26)
2. Non-state
Enterprises 483.834,64 12,44 580.390,0
9 10,37 19,96 1.582.573,89 26,82 172,67 3.
Individual Or household Enterprises
216.215,22 5,56 1.675.098,
25 29,95 674,74 988.649,13 16,75 (40,98)
(Source: Financial Accounting Department, Vietnam Joint Stock Commercial Bank for Industry and Trade - Thanh Xuan branch, 2019)