CHAPTER 1: THEORETICAL BASIS OF PERSONAL CREDIT RISK
1.3. Factors affect personal credit risk management
1.3.1. Internal factors.
Internal factors of commercial banks that have essential effects on the personal credit risk management of commercial banks include:
Bank credit policy: Credit policy is only effective when built based on objectivity and the seriousness of promulgation and application. The development of unreasonable credit policies: such as the lack of a scientific credit policy, the governance of the loan portfolio by field forte, the appropriate model for quantifying the risk level of Since then, to determine the maximum risk premium and maximum safe credit limit for a customer as well as to make a risk provision, it has not been built by commercial banks. This will make it difficult for credit officers and regulators to make safe and effective credit decisions.
Internal credit process:
- Credit information is only practical when built based on collecting information of each bank about customers, industries, the economic environment in which customers are operating, about new documents that have been issued, about domestic and foreign market price movements. Especially warnings about the banking sectors that banks are and will invest in have not been regularly and systematically implemented. Sometimes, it also depends on quite a lot on the data provided by customers but has not actively searched for information or other words
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exists extreme information situation between commercial banks and borrowers. This leads to the opposite choice of commercial banks. Therefore, inadequate, inaccurate, and timely credit information will increase credit risks in commercial banks.
- The appraisal depends quite a lot on the data provided by customers. The appraisal is one of the essential stages in making loan decisions to help banks prevent credit risks. However, the assessment of the prestige, governance capacity, and financial capacity of the customers of commercial banks have many limitations. When assessing human resources, especially the leadership of customers, there is absolutely no basis, mainly listing qualifications and working years. Vietnam has no regulations on information transparency.
Therefore, it can be said that the reliability of the financial statements is not high, especially for private enterprises, so the analysis of the financial statements will not reflect the true nature of the financial capacity of the customer. In addition, there are many subjective and objective factors affecting the results of the loan plan/project, leading to the quality of evaluation of the loan plan/project is not practical. Therefore, the non-feasible project evaluation has the most significant impact on the ability of commercial banks to recover capital. The above reasons limit the quality of appraisal and limit corporate credit risks of commercial banks.
- There are many subjective and objective factors affecting the loan plan/project results, so the loan plan/project assessment quality is not regular, not systematic. Just stop at the level of checking on legal documents, periodically reassessing the value to adjust the loan balance or request additional customers. In addition, the subjective and objective factors affect the determination of the absolute value of the collateral between customers and commercial banks, which significantly affects the purchase and sale of the assets. Therefore, when there are risks, the disposition of assets to recover debt meets many difficulties. In addition, the legal mechanism for loan security is not precise, subject to the adjustment and domination of many overlapping legal documents, especially for real estate.
- The monitoring of the borrower's activities to comply with the terms set out in the credit contract between customers and banks reduces corporate credit risk at commercial banks.
The quality of human resources in credit activities: From credit approval level to credit proposing officer in case of limited capacity and expertise in the appraisal and control of decision-making or sensitive reasons leading to lack of ethics in the grant process credit. This is a group of factors that cause severe risks in personal credit risk management.
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The quality of the banking information system: Limited information, lack of information, and imbalanced information make it difficult for banks to expand and control credit, leading to contrary choices and ethical risks, increasing banks' risk of non-performing loans. The risk prevention information system has not promptly met the needs of banks when facing risks.
Internal control: The internal control is faster than the state bank inspection. It will help the bank to execute quickly and promptly when there are any problems. After all, checking that is done regularly with an enterprise will help reduce its risk. However, the internal inspection of banks is almost only to deal with, making the test results ineffective.
1.3.2. External factors.
Economic environment
- In the market economy, the Government's macroeconomic policy plays a decisive role in the operation of the national economy in general and commercial banks' monetary and credit business.
- Macro-economic policies of the Government include policies on the economy, finance, and monetary, and external economy. If the Government changes one of the above policies, it will immediately affect enterprises' production and business activities. The people directly affected are commercial banks and their business operations. Different products are always closely linked with business activities. Therefore, if the Government's macroeconomic policy is appropriately consistent with the reality, it will contribute to promoting production and business development, creating conditions for businesses to do business effectively. However, vice versa will also inhibit the production and business development, making businesses difficult, even losing money or bankruptcy.
Regulatory environment.
- In business activities, parallel to professional technical activities and legal activities such as signing economic contracts, financial investment, credit. The legality shown in business activities is always conducted based on the law. In other words, some businesses are restricted by law.
- In the current market economy, legal factors are conditions to ensure business activities, especially lending activities of commercial banks. However, that is why, if the legal environment is incomplete and lack synchronization, it will also cause difficulties and disadvantages for both enterprises and banks.
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- The economic and legal environment creates the business environment of businesses, and at the same time, creates a lending environment for commercial banks. The lending environment has a positive or negative impact on credit activities. It will contribute to limit or increase risks in the lending activities of commercial banks.
Social environment
- Significant fluctuations in the political economy in the world always affect the business of enterprises and banks. Today, along with the expansion of economic, cultural, and political exchanges between countries, world economic life has also changed. To develop the economy fully, it is necessary to open the economy to absorb modern technical and scientific achievements of developed countries, exchange, import and export goods, services and investment or borrow money from abroad. All these activities create the external economic relations of the national relationship. All these activities create the external economic relations of the countries together. Political changes can most likely lead to fluctuations in the international trade balance, currency exchange rates. In addition, it also affects the domestic market, such as the prices of raw materials, goods, services, market interest rates, and currency demand. This directly affects the production and business operations of enterprises, and the target is commercial banks.
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