Luận văn Improving credit limit system in Vietcombank’

he size of the customer (sales, assets, and equity) was discussed when assessing the risk. However, when applying the credit limit, should be based on these factors to ensure credit limit corresponding to the scale of operations of the business. The same level of risk, large-scale enterprises over the credit limit is greater than Strategic management portfolio of branches. Same level of risk, the credit limit of enterprises in the branch to extend to lower fields for the branch restriction, or expansion. Table below give examples of the adjustment of estimated credit needs to go to the credit limit. Credit officers use method to apply in specific cases. Table 2.10: Credit limit depend risk Customers by level of risk Order steps Adjustment credit needs scale Adjusted according to demand management strategy portfolio of branches As strategic branch Last credit limit last Low risk High risk Meet the priority needs of customers. This case can apply a credit limit greater demand for credit estimates The threshold of maximum credit limit - Credit limit <sales- Credit limit = credit limit last year x growth expected- Total debt / capital <90% (or total debt / equity <9 times) The priority areas to expand in future Apply the highest credit limit (which can be higher than estimated demand) Not the priority areas to expand, or limit the expansion Apply credit limit with the current transaction fact, even lower than Only meet the credit needs reasonable. This case, the credit limit should be at equal or slightly lower than the demand credit The threshold of maximum credit limit: - Credit limit <90% of sales- Credit limit = credit limit first year - Total debt / capital <70% (or total debt / equity <2.3 times) The priority areas to expand in future Apply credit limit at the maximum Not the priority areas to expand, or limit the expansion Reduce the credit limit, even apply credit limit = 0 (iei.e. no new loans and apply measures to recover debts) High risk Limit expansion of credit, only to continue trading on the basis of keeping and with a small credit limit. this case the credit limit is usually much smaller than estimated demand, even credit limit = 0 (no new loans, only debt collection) The threshold of maximum credit limit: - Credit limit <80% of sales- Adjustments reduced the credit limit last year - Total debt / capital <60% (or total debt / equity <1.5 times) The priority areas to expand in future Apply credit limit at the average Not the priority areas to expand, or limit the expansion reduce the credit limit, even apply credit limit = 0 (i.e. no new loans and apply measures to recover debts) (Source: Credit manual) Process for credit coring and rating customer at Vietcombank The ratings business is conducted through four steps: (i) identifying industry / sector, (ii) grading scale, (iii) scoring the indicators of financial and non-financial indicators, (iv) general points and classification Identifying industries / sectors VCB applied for four different scoring types sector vary, including: - Agriculture, forestry and fisheries - Trade and services - Construction Manufacturing The classification of enterprises according to domains/industries bases on production and business activities of the enterprise. Production and business activities are the operation brings 40% higher revenue. Grading scale Grading scale enterprises is to determine the type of business: large, medium, or small. Then combined with the field / profession has identified, conduct financial and grading criteria. Scale is determined on the basis of the independent four point criteria: business capital, labor, and the value of net revenue budget. Total score of 4 criteria are classified as follows: Total score Scale Under 30 Small From 30 to 69 Average From 70 to 100 Big Example: X Company limited (X Co.Ltd) is a big commercial & service company. Creditor evaluates customer's information then considered customer is whether big, medium or small company as below: Table 2.11: Scope of business No Criteria Unit Standard amount Standard point Gain Points 1 Capital VND bil 50 30 68 30 2 Number of labor People 1,500 15 450 6 3 Net of Revenue VND bil 20 40 379 40 4 Legal obligation for state budget VND bil 10 15 10 15 Total 100 91 So, X Co.Ltd gets 91/100 and is big size company. Based on selected information, creditor evaluated financial indicator for big manufacturing as below Scoring financial and non-financial indicators Financial indicator Financial indicator used to evaluate customers included: industry field, scope of business financial indicator (cash flow. ROI, ROE...) - Industry field: Manufacturing, service, construction... - Scope of business (capital, revenue, number of labor, legal obligations) Financial indicators (liquidity, quick payment, return on inventory, ROE. ROI. Interest payment ratio, cash flow ...). Creditor can use some of the financial indicators tables to evaluate customer. Non financial indicator - Management level (experience of manager, internal control, legible of business operation, strategy, budget and plan, achievement and failure...) - Meet debt obligation in the past includes credit information (meet debt obligation, restructure debt schedule, overdue loan in the past, number of commitment cannot meet their payable...) and non credit information (account balance in VCB, number of transaction at VCB, average ending balance in VCB, type of transaction in VCB ...) - Creditor has to collect information from others department to evaluate customer. Information is collected in system. - Economic environment This indicator evaluated based on prospective of customer's industry, the brand name, competitive advantage, competitors, and impact of officer’s policies and so on. - Other operation indicators This indicator evaluated based on company's strategy, other income, the independence with related parties, position and so on. After evaluating each non financial indicators, creditor summaries non financial indicator and calculate the point of non financial indicator depends on the percentage of each indicator. Based on selected information, creditor evaluated financial indicator for big manufacturing as below: Table 2.12: Customer point for commercial & service company: No Indicators % Scope of business Starting point Point 100 80 60 40 20 Liquidity indicators 1 Payment ratio 8%  1.16 60 4.8 2 Quick payment ratio 8%  0.68 60 4.8 Operating ratio 3 Return of inventory 10%  10.8 20 2 4 Average receive money 10%  22 100 10 5 Revenue/total assets 10%  3.18 100 10 Liabilities 6 Payable/total assets 10% 45 80 8 7 Payable/equity 10%   48 100 10 8 Overdue/total loan 10%  0 100 10 Income indicator 9 Profit before tax/revenue 8% 7  100 8 10 Profit before tax/total assets 8% 6.5  100 8 11 Profit before tax/Equity 8% 14.2  100 8 Total 100% 83.6 X Co.Ltd gets 83.6/100. This is a very high score for commercial & service company; reflex the effective of the company in business. Table 2.13 :2.13: Financial capital No Indicators 20 16 12 8 4 Total point 1 Interest Payment ratio (from net profit) > 4 times 20 2 Repayment of capital ratio (from net profit) >2 times 20 3 Cash flow trend in the past Increase rapidly 20 4 Operating cash flow growth > net profit 20 5 Cash & Cash equivalent/equity > 2.0 20 Total 100 Table 2.14: Management level No Indicators 20 16 12 8 4 Total point 1 Experience in specific industry business > 5 years 12 2 Experience of managers > 5 years 16 3 internal control Just set up 16 4 Achievement & Failure Have success in related field 20 5 Feasible of business operation and budget plan Specific, clear & careful business plan 20 Total 84 Table 2.15: Credit prestige rating No Indicators 20 16 12 8 4 Point Credit indicators 1 Meet debt obligation Always meet their debt obligation in last 36 months 20 2 Restructure debt N/A 20 3 Overdue history N/A 20 4 Number of failure commitment Not yet 20 5 Information supply as VCB's requirement Yes, fully information as requirement 20 Total 100 Non Credit indicators 1 Account maintained in VCB 1-3 years 12 2 Number of bank that customer maintained accounts 2-3 banks 12 3 Number of transactions per month in VCB 30-60 12 4 Number of various type transactions in VCB 1-2 8 5 Average ending balance per month of account in VCB <10 bil VND 4 Total 48 Creditor had to collect information from others department to evaluate customer. Information was collected in system. From debt obligation of customer, we can see that customer had good relationship with VCB. This indicator evaluated based on company's strategy, other income, the independence with related parties, position and so on. After evaluating each non financial indicators, creditor summaries non financial indicator and calculate the point of non financial indicator depends on the percentage of each indicator. The example of summary non financial indicator as below: Table 2.16: Summery of nonfinancial indicators: No Non financial indicators Proportion Point of each indicator Total point 1 Cash flow 27% 100 27 2 Management level 27% 84 22.68 3 Relationship in credit with VCB 18% 100 18 4 Relationship in non credit with VCB 13% 48 6.24 5 Economic environment 7% 70 4.9 6 Other factor 8% 65 5.2 Total 100% 84.02 General point and classification General points used to classify business at the total financial and other factors, taking into account the type of business ownership and financial statements are audited or not After a total score of the business community, the classification of customer base in the table below: Table 2.17: Grading enterprise Type Score achieved AAA 92.4 – 100 AA 84.8 – 92.3 A 77.2 – 84.7 BBB 69.6 – 77.1 BB 62.0 – 69.5 B 54.4 – 61.9 CCC 46.8 – 54.3 CC 39.2 – 46.7 C 31.6 – 39.1 D < 31.6 (Source: Credit manual) According to the Credit procedure guidance, X Co.Ltd was rated A. The customer had effective business result, strong competitive advantage, very good outlook, sound degree of stability, good ability to repayment, Low credit risk. However, the customer has quite low account in VCB and does few type transactions in VCB. Customer had a Specific, clear & careful business plan. Besides, customer is big enterprise, has brand name and has relationship with VCB in 3 years. The guarantee of customer is building and land that value is double amount credit requirement. The credit risk of customer is low. The bank issues credit limit as requirement, especially medium and long term loan, low requirement for guarantee.... In Vietcombank, the scale of customer rating has 6 grades includes: AAA, AA, A. BB. B. CC. C and D. Table 2.18: Customer rating Type Level of risk Viewpoint bank Credit Portfolio management AAA(Upper class) Potential strength, good governance capacity, operating efficiency, development prospects, goodwill goodAt low risk Priority meet the dental needs of credit with preferential interest rates, fees, duration and measures to ensure loan (applicable credit approved) Check the client periodically to update and strengthen relationships with customers AA(Very good) Operating efficiency, good prospects, good goodwillLow risk Priority to meet the demand for credit with preferential interest rates, fees, duration and measures to ensure loan (applicable credit approved) Check the client periodically to update and strengthen relationships with customers A(Good) Operating efficiency, the financial situation is relatively good, the ability to ensure repayment, there is goodwillLow risk Priority to meet credit demand, especially from medium-term credits or lessNot require high security measures of loan (applicable credit approved) Check the client periodically to update information BBB(Quite Good) Performing, promising development, but there are some restrictions on financial managementRisk average Can extend credit, no or limited application of the preferential conditionsCycle assessment and economic efficiency as long-term loans Check the client periodically to update information BB(Average) Operating efficiency but low potential financial and management capacity at an average, industry prospects stable (saturated)Average risk level. Customers can survive well in conditions of normal business cycle, but may be difficult when economic conditions become difficult and prolonged Limited credit expansion, just focus on short-term credits for measures to ensure loan performanceThe new loan or loans made with only long-term assessment of the economic cycle and efficiency, the ability to plan for repayment of loans Focused inspection using the loan status and collateral B(Lower Average) Effective and highly vulnerable to fluctuations, the ability to control limitsRisk. Any of the economic recession is the impact can be huge to this type of businessGenerally, the credit for this customer has no risk of capital loss immediately, but will be difficult if the business situation is not improved Limit credit expansion and focus recovery loansThe loan is made only in special cases to assess carefully the resiliency of our customers and the plans for loan security Enhance customer checks for debt and monitoring activities. CCC(Below average) Performing low financial capacity does not guarantee, the poor management, can have overdueRisk. Ability to repay the customer's weaknesses and if not overcome in time, the bank at risk of losing capital Minimize credit expansionExpansion measures, extend loans only if the plan is to overcome possible Enhance customer testSeek additional collateral CC(Below Standard) ErformingPerforming low financing does not guarantee, the poor management, poor ability to repay (with overdue)High risk. Ability to repay the customer's weaknesses and if not overcome in time, the bank will lose capital Not extend credit. Expansion measures, extend loans only if the plan is to overcome possible Enhance customer test C(Poor) Losses and less likely to recover, poor financial status, ability to repay does not guarantee (with overdue) and management is weakVery high risk. Likely the bank will not withdraw the loan Not expand the content. Find all measures to recover debts, including the handling of security assets soon Review the plan to give economic court D(Poor) Losses for many years, finance is not healthy, overdue (even bad debt), the management weaknessesSpecial risk. Likely the bank will not withdraw the loan Not extend credit. Find all measures to recover debts, including the handling of security assets soon Review the plan to bring to court the economic (Source: Credit manual) Assessing credit limit system at Vietcombank 2.4.1. AdvantagesAchievements Credit limit system has been operating smoothly, contributing to the development of the bank To compare the credit quality before and after applying credit limit systems we need to consider very important criteria is the ratio of overdue debt. Overdue debts are debt that are not be repaid on due date. When a debt is not paid on time, the entire remaining principal is transformed into overdue The rate of overdue = overdue / Total outstanding balance Credit limit system applied in Vietcombank since 2004. Over five years to apply, the credit quality of VCB improved remarkably, shown in the following table: Table 2.19: Over due ratio 2004 2005 2006 2007 Overdue/outstanding 2.8% 3.65% 2.66% 2.66% (Source: Balance sheet of Vietcombank) Look at the above table; we can see the percentage of the total overdue on outstanding balance of Vietcombank reduced over the years. Time credit limit system applied in 2004, the percentage of overdue debt has been significantly reduced from 3.65% in 2005 to just 2.66% in 2006 and 2007 Thereby, application of credit limit system for customers minimize risks, contribute positively improve credit quality at Vietcombank Credit limit system for customers does not only improve credit quality and effectiveness of the loan, but also creates a number of following advantages: First, credit limit system helps measure the risk of customer. Previously, to evaluate loans, credit staff uses similar criteria in the credit scoring process to assess clients. In fact, although all necessary information for analyzing customers are provided with full final conclusions but not identical and there is a huge difference between credit staffs. Because of having no standard to compare, analyzing customers is completely dependent on ability and experience, as well as knowledge of creditt staff on customer loans. Appraisal customers are still very general, not specific methods and mainly based on subjective opinions of each credit staff. The analysis generally are more accurate with the staff has skills and experience, the opposite situation occurs with young staff. Knowledge of the credit assessment is only stop in communicating experience among staff is not scientific method, not is uniform. Credit limit system helps bank determine total risk for each customer and reduce time of evaluating specific loan. Second, increasing objectivity in the process of decision. Without the support of the credit limit is subjectivity in accepting or rejecting customer loans is huge, and lead to errors in the loan business. If subjectivity is expressed by many cases, may be caused by personal interests of credit staff, or credit staff have a bad look about customer then deny granting loan. Such inaccuracies credit is influenced by aware of each staff, those individuals that human error is unavoidable in the course of work. For example, a person look very carefully financial indicator, others care to historical relationship with the Bank, or the capacity of the board of directors of companies. There fore, final conclusions do not reflect Comprehensive activities of enterprises. Apply credit limit system not only minimize subjectivity in the evaluation of customers but also help rating customers to each level of risk, help businesses access loans easily. Third, reducing requirement collateral of low risk customers . As credit scoring system, collateral only is one target of the criteria used for evaluation. Businesses with good ranking are granted loans without collateral. Currently, customers rank from BB + or higher is granted loan without collateral, along with the priority on charges, interest rates, this brought convenience to customers Fourth, reducing loans based on relationships. Previously, there is not a standard to evaluate customers and risks, bank usually only grant loans for traditional customers with lower risk. It is difficult for enterprise especially small and medium enterprise assessing bank loans in the first time. Although those are potential enterprise that Vietnam commercial banks is exploiting. With the support of the credit limit system, the Bank can precede scoring customers right from receiving application to assess risk and decide whether or not granting loan. Essentially, credit limit system is one of risk management tools. The application credit limit system to help banks build a basis to make decision, give staff a measure of credit risk. In addition, using credit limit system help bank create uniformity for decisions and reduce the rate of overdue debts. This allows credit office focused on application for loan that is rejected or accepted unclearly. Credit limit system is used to evaluate credit risk associated with new loan applications. After more than five years of application, credit limit systems have contributed much to the success of the credit activities in Vietcombank, but this system also contain many limitations. 2.4.2. DisadvantagesLimitations - The permission officials score and build credit limit for customers create flexibility conditions for granting loans and save time. However, this does not security of bank, branches do not have risk management departments, the grading and constructing credit limit is not evaluated by risk management department. Credit departments score by themselves so result may be not accurateive, cause risk to the bank - VCB has applied credit limit system for customers since 2004 but since then, VCB has not updated indicators and scoring criteria yet, nor review formula credit limit is reasonable or not. Economic situation changed a lot over time since 2004; so many indicators are no longer suitable. VCB also has never held a course explained to staff credits – who direct scoring customers about indicators and criteria to help credit officers understanding nature of those. - The grading and building credit limit are made manually in Word or Excel, there is not any automatic software supporting so it takes a lot of time and sometime results are not correct. VCB has not software to store results of the credit limit through the years for easy management and retrieval. Storing customer’s records only on papers causes inconvenience to credit officers - the people who receipt customers from previous staffs in evaluating customer’s history and forecasting customer’s future. - Authority of approving credit limit is not reasonable. In VCB, the credit limit exceeded authority approval will be submitted to the risk management department of Head office. It takes a lot of time to gather records for explanation and affect to time of loans. Many cases, Head office’s approvals does not help reduce risk because head office’s staff understand customer less than the branch so they can not give their own comments but almost based on the evaluation of the branch. 2.4.3. Causes of limitations 2.4.3.1. Subjective. Subjective causes The structure of Vietcombank is not strongly supportive to the credit sysmtemsystem Phần này rất quan trọng cần viết lại theo hướng: Mỗi một đề mục phản ánh một nghuyên nhân của nhược điểm – ví dụ như trên Giải thích rõ tại sao đẩy lại là nghuyên jnhaan của hạn chế nêu trên (Lưu ý đây là cơ sở cho các giải pháp được trình bày ở chương sau) The structure of the VCB, credit officers build credit limit and submit to Chief/Vice Chief for approval. For exceeded credit limit of branch, branch must submit to Head office for approval. The credit limit then is assessed again by the risk management department of Head office. However, the performance of this department is not high because the numbers staff of this department is not enough; quality of these staffs is also weak. Credit policies of Vietcombank are weak? Process credit revealed some limitations. At VCB, credit officers are looking for customers, analyze and assess customers, evaluate, grant loans then monitor loans. In the process of credit in the modern bank, a systematic structure in which multiple participants in one or several stages of work to specialized industry and minimize risk. With existing procedures, official credits of VCB do more work, so the level of depth in each profession is difficult. Document system is too large. The market situation and legal provisions are constantly changing, but there is no division tracking system updates, tracking documents. Each branch and staff self update, monitor, sometimes overlapping condition occurs in writing, regardless of any policy is valid. Some credit scoring and rating criteria is inconvenience The economy is changing very rapidly, appearing more new economics so business portfolio of VCB is not enough; staffs do not know group customers in which category Some non-financial indicators are not consistent with reality. Small businesses not reflect the nature of good repayment history, financial reports less (do not reflect enterprise business results to deal with tax policy) ... a non-target financial nature macro against small businesses not reflect the actual situation of customers. Therefore affect the results of the customer ratings are small business Evaluation criteria are applied to all business customers of the bank. In fact the large enterprises and small businesses have huge differences on the history of the business activities and scale of assets; turnover, labor ... so general criteria applicable to all type of business will not accurately reflect the real situation of enterprises. Information system is not enough to support credit activity Information system is not multi-dimension, processing information is slow. Information for assessing and analyzing is not enough, incomplete and incorrect. Standing on theoretical and practical aspects, analyzing credit first need complete information. However, VCB also has problems in collecting information fully and accurately to serve the process of analysis, evaluating customers. Information stored in VCB is too limited. Previously, each credit staff lending, managing loans and repayment of our customers does not save information about customers. Records are stored in bags, so searching information is very difficult. Credit Information center (CIC) is just exploiting the profile of customers for 2-3 years but not often, information is still slow, not updated so effectively of exploitation information is not high Information from state agencies: it is so difficult to get information from state agencies. Because there is none clear mechanism to coordinate, none technology into operation. In addition, these agencies also have specific regulations on security Staff quality Knowledge and expertise of staff are not strong? Credit officers have to deal so much work, they always are overloaded. So credit officers have not enough time to learn information about customers Professional qualifications of the staff credits are also very restrictive. Banks are rejuvenating staff so they have professional qualifications but lack experience, while analyzing credit information not only requires professional capacity but also relative experience Equipments (cần lý giải như đã nói ở trên: nó yếu như thế nào, và hậu quả của thực trạng này là gì, gắn với các nhận xét đánh giá về hạn chế ở trên; không viết ngắn gọn, không rõ ý như thế này) Equipments for building credit limit are not attended, not consistent with reality. Outdated and low efficiency equipments are not replaced in time affecting to effectiveness of formulation credit limit 2.4.3.2. Objective causes From customers To day, many businesses today is not strictly comply with financial reporting regime; they also do not realize importance of clear financial reports. Most of the financial reporting bank is poor quality, does not reflect the real financial condition and business operations of the business, so it is difficult for banks to analyze and assess the status of customers and take time to identify again contents of financial statements. On the other hand, very few companies perform audited financial statements. Normally, only state-owned enterprises are required audit financial statements, the remaining majority of enterprises, especially small and medium enterprises do not perform audited financial statements. Therefore, it is difficult to detect false in the observance of accounting system of these enterprises, so the information are used to analyze customer inaccurately. From the state (cần lý giải như đã nói ở trên: nó yếu như thế nào, và hậu quả của thực trạng này là gì, gắn với các nhận xét đánh giá về hạn chế ở trên; không viết ngắn gọn, không rõ ý như thế này) Information of state agencies is published rrestricted in publishing. Information about planning development sectors, infrastructure ... impact directly to property and business of customers. However, this information is often not published in detail, so it is difficult for the bank to predict accurately the impact of those events on activities of customers. Chapter 3 PROPOSED SOLUTIONS TO IMPROVE CREDIT LIMIT SYSTEM AT VIETCOMBANK Orientation of VCB’s credit activities Orientation VCB strives for growth of credit in accordance with economic growth, creates powerful changes in growth quality, credit quality, enhances competitiveness and performance VCB keeps target appropriate structure, creates a stable, integrate graduate into international practices, improve the credit system in principles scale and structure of credit is suitable to each locality, region, sector, industry and economic characteristics of clients. Promote the restructuring of the network clients, loan portfolio structure in the direction of credit activities associated with promoting the mobilization of capital to develop the products and services of modern banking. VCB control strictly proportion of middle - long term loans, extends to effective, profitable and low risk industries and areas. VCB raises the proportion of loans with collateral, handles positively bad debt, and recovers suspense interest. VCB promotes the strengths and overcomes weaknesses by using opportunities of the economy, continue to implement the direction of credit expansion and constructs traditional customers to improve operational efficiencies business and brand name Objectivities of VCB’s credit activities to 2012 In 2010, global economy has many signs of recovery, the largest economy out of recession. However, economies in developed countries continue to experience many changes and challenges in the process of rehabilitation and also strongly influence the market to import, export and capital investment. For the economic environment in the country, in 2010 is forecast to more than 2009 articles (6.5% of GDP, export market and FDI capital likely to flow back ...). However, to achieve medium to promote economic growth, moderate inflation may curb Vietnam to accept changes in monetary policy, fiscal year 2010. (i) first, to curb inflation, including monetary policy and fiscal policy will tighten to a certain extent, (ii) second, to the business, financial costs to family do not enjoy increasing support short-term interest rates, (iii) third, the competition between banks is becoming more fierce, especially between the groups bank shares, the foreign banks operating 100% of capital in Vietnam and other investment channels. Anticipate the fluctuations, economic challenges, the Government has defined the goal of socioeconomic development in 2010: executive needs careful and flexible fiscal policy, monetary policy contributed to restore economic growth, increase macroeconomic stability, ensuring value for money, striving to achieve economic growth at 6.5% and control inflation below 7%. To accomplish the objectives of government, state bank identified 11 tasks and implement solutions in banking. Pursuant to resolutions of the government and the orientation of the state bank in 2010 for banking operations, considered on the basis of business results achieved in recent years, VCB Board of Directors determined Categories objectives and key tasks for the system VCB Total assets reached 15% Mobilize capital from the economy 28% Outstanding debt 23% NPL 2,4-2,9% Profit before taxes reached 4.000 billion dong Orientation of credit activities helps VCB concretized goal-oriented business. Objectivities are increasing collateral of loans, increasing loans to 20% and reducing bad debt under 5%. Credit structure bases on the actual situation in the credit activities, economic environment and society, financial markets coming years on the principle of improving the performance of credit associated with the development and stability of national economy.Credit structure and reasonable direction to the manufacturing sector, exports, and continued attention to credit quality Credit growth coupled with the ability to mobilize capital, with rational structure and efficiency are improved Active participation, successful implementation of government programs, state-related banks, such as implementing programs to support medium and long term interest rate, loan program can guarantee VDB Note to seasonal issues in each industry, each region and the characteristics of each business to actively plan to pool funds in response to business loans Expand the list of SME customers, business and industrial parks and export processing in order to disperse risk and increase efficiency in the operation of credit and trade finance Improve and continue to build risk management tools such as credit rating systems, model analysis of industry ... Continue efforts to implement recovery of bad debt, debt was risk reserve process Orientation of credit activities helps VCB concretized goal-oriented business. Objectivities are increasing collateral of loans, increasing loans and reducing bad debt. Credit structure bases on the actual situation in the credit activities, economic environment and society, financial markets coming years on the principle of improving the performance of credit associated with the development and stability of national economy . Cần bổ sung phàn này với các nội dung (cần ít nhất 1,5 trang với các nội dung phù hợp: Tình hình thị trường nền kinh tế và thị trường thời gian tới (theo các nhận định chuyên gia của ngân hàng), ví dụ như tính cạnh tranh tăng lên, kinh tế hồi phục hay tăng trưởng nhanh lên, chậm lại, ngân hàng ngày càng cạnh tranh… Chiến lược của VCB (càn tham khảo các báo cáo thường niên hoặc Chiến lược của ngân hàng về các mặt: Mục tiêu chung, mục tiêu cụ thể, tăng trưởng vốn điều lệ, cổ động chiến lược, tăng trưởng tài sản, định hướng cho vay… Solutions to improve credit limit system at VCB Improve structure of VCB Phân tích rõ thêm mỗi giải pháp (neus chưa gắn với các nhận xét đahs giá ở phàn trên thì phải bổ sung hoặc chihr sửa lại), mỗi giải pháp cần làm rõ: Cơ sở của giải pháp (tại vù thực trạng yếu kém hoặc không phù hợp – như nhận xét ở phần trên) Mô tả giải pháp: cải tiến như thể nào: thành lập phòng nào mới, chuyển bộ phận nào sang bộ phạn nào… Tác động của giải pháp: làm như thế sẽ khắc phụ được hạn chế như thế nào Các bước thực hiện giải pháp, điều kiện thực hiện, bộ phận được giao hay có trách nhiệm thực hiện… As requiring of practice, not only in Head office, branches need risk management department to review loans and construction credit limit for customers. Activities of credit department and risk management department should be separate. Risk management function should be assigned to an independent division independents to business of the bank and will not engage in creating risks activities. For the credit structure of most banks, marketing, handing loans, disbursement, monitoring and evaluation, collecting debts... are in charge of credit officers without independent monitoring department, this easily leads to negative, causes more risks to the bank Model of the credit institutions must be built in direction of separating decision function and management function bases on delineation of responsibilities and functions among assessment, approval, and management. By then, credit department (front office) contact to customers, asses loans then move customer’s records to risk management department (back office) for analysis, independent verification and implementation role security to accurately build accurately credit limit for customers. All records of approved loans must be in debt management in order to create consistency, objectivity in store credit report and avoid arbitrarily editing documents after approval It is needed to separate corporate banking and personal banking department to specialize in each professiontask performance. Improve credit policies To ensure credit activities of banks is in accordance with the development, efficient and sustainable growth orientation, as well as gradually progress gradually to international practices, policies of credit banks must be built and implemented on the basic contents as follows: Improve decentralization, authorization mechanism The decentralization, the authority in approving credit complies in following principles: - Compliance with the provisions of the law and the regime of bank on credit activities to ensure safety, quality and efficiency - Determine the initiative, self-responsibility of all levels operating in credit activities, compliance credit approval process - In accordance with characteristics of organizations, activities, size, condition, capacity and features of decentralized, authorized persons/units. - Change decentralization and authorization annually for each branch, depending on business results of previous year, avoiding application of unreasonable decentralization, authorization for branches Improve decentralization, authorization mechanism The decentralization, the authority in approving credit complies in following principles: - Compliance with the provisions of the law and the regime of bank on credit activities to ensure safety, quality and efficiency - Determine the initiative, self-responsibility of all levels operating in credit activities, compliance credit approval process - In accordance with characteristics of organizations, activities, size, condition, capacity and features of decentralized, authorized persons/units. - Change decentralization and authorization annually for each branch, depending on business results of previous year, avoiding application of unreasonable decentralization, authorization for branches 3.2.2.2. Identify lending market for the bank - Bases on macroeconomic analysis, development trends, and potential financial risks of industry sectors, sectors in the economy, banks need to identify target market by identifying accepted business segments within the entire market. Factors as follows: + Internal risks derive from the goods themselves, the business environment, and the absolution + Position of sectors in the economy: industries have incentives development or not? + Prospects of sectors: consult experts in the industry; determine the location, competition, external factors + Position of industries in the business cycle: the industry is growing, saturated or recession phase? - Based on business strategy and ability to accept risk in the business of banking - Bases on the characteristics, strengths, limitations and available resources of bank on capital, facilities, qualifications and experience of staffs - Bank reviews, decides credit subjects in each stage to focus expansion of credit as following criteria: + By sector, discipline or key product + By region, territory + By customers + Selecting the suitable type of credit and other credit products for each period 3.2.2.3. Construct, improve policies on credit limit system - Policies for the credit limit for whole system: Bases on regulations of laws and the orientation of the state bank, depends on the business strategies of each bank, banks consider and decide credit limit in each period + Scale and rate of credit growth limit + Outstanding loans on total assets limit + List of industries and restrict lending domains - Credit limit for the industry, product, geographic Bases on analysis and reporting on development trends, capital requirements, risk level of industries, sectors and products in the market, limiting credit risk of main sectors - The bank builds credit limit in accordance with industry, product, geographic area in each period bases on financial capacity, bank's capital. + Credit limit for concentrated industries, products + Credit limit for key economy in each region + Credit limit for customers - The bank need to built credit limit for a group of banks and related customers bases on provisions of state banks, actual operation and development strategy. Improve credit scoring and rating System to internal credit ratings applied effectively, banks need to improve the direction of the following: Improve list of business fields Currently, business fields as processing of agricultural and food for animal products, packaging are not stipulated in list of business field for credit scoring system. VCB needs add to the list. Currently, VCB’s list of industries is divided into four sectors: agriculture-forestry-fisheries, trade services, construction, and industry. However, VCB should divides into multiple industry groups, such as distinguish mining and production industry in the industrial group. Improve financial indicators Currently, the credit scoring includes 11 full financial indicators, but it has not receivable and assets criteria... VCB need to adds more criteria to evaluates enterprises Coefficient = immediate cash payment / liabilities Number of days to pay = 360 x average value of accounts payable / cost of goods sold Number of days receivables = 360 x average value receivables / net sales Turnaround working capital = Net Sales / (average value assets and liabilities) Revenue growth Growth rate of net profit Coefficient of self-funded capital = equity / capital Improve non-financial indicators Currently, all businesses are used same in a scoring table. VCB requires grading table as for the scale of business: large enterprises, small and medium enterprises VCB should build different scoring table for the new establish business In addition, the VCB will also need to distinguish the financial report and audited financial statements not audited, because the accuracy of financial statements affected greatly to the establishment actual results Currently, all businesses are used same scoring table. VCB requires grading table as scale of business: large enterprises, small and medium enterprises Different scoring table for new establish business Improve information technology systems - Information system on credit limit must be built to ensure the provision of information, database of credit activities fully and clearly, accurately and regularly to help managers control credit activities effectively. VCB should have policies adapted to customers - Information are served directly to the construction credit limit + Build update and historical information systems for clients + Build information systems for administrative operations, credit reports, forecasting the development trend, analyzing and reporting credit trends,… Strengthen human resources The bank should concern to staff’s life, trains staffs regularly, takes care to material life, spirit of staffs, creates a friendly working environment, open solidarity, enhances professional ethics, monitors staff’s evolutions to eliminate collusion, concealing violations Hold professional training, processes, and guidance documents for credit officers regularly, especially texts of the VCB on credit limit for customers. Consist deeply to staffs about importance of using information and scoring financial and non-financial indicators, avoid raising levels of customers unreasonably VCB should organize quarterly and annually seminars for staffs exchange ideals, difficulties from practical works then draw business experience in improving efficiency management. In addition, for new and key business, VCB should hire foreign experts to build, manage, transfer and trains staffs VCB should have fair competition recruiting mechanisms to attract talent staffs. The bank should have a mechanism to encourage staffs as management staff in the work, increasing wages for workers, creating competitive and promotion opportunities equality for all staffs Recommendations Recommendation to related agencies To the Ministry of Finance Release decision requiring all financial statements of the enterprise are audited. Vietnam has joined WTO, so all financial reports are required transparency to create prestigious brand for business, and create trust of the bank when making credit scoring and give the credit judgments. To do this, the Finance Ministry should guide enterprises aware of the importance of transparency and the role of audit for the survival of enterprises, especially in accessing to bank capital. Each enterprise must change their thinking about audit. To Agency Tax Agency Release regulations requiring accurate financial report by business. This help to improve trust fortrust in commercial banks’ activities, which will make it easier for them to to access bank capital. easier To general statistics office General statistics office (GSO) should construct average financial indicators for each sector. The average financial indicators are very important for commercial banks in evaluating business. Commercial banks use these average financial indicators to compare indicators of enterprises healthy or weak situation of the business. However, there is still not having any full statistical analysis and reliability of standard financial indicators to analyze and assess the financial situation of enterprises. So in coming time, the General Statistics Office should carry out researches and offer reliable average indicators system, and continuously update criteria in general economy. This not only facilitates banks to analyze and assess business but also creates favorable conditions for enterprises in financial analysis and improves management. Recommendation to the State Bank State Bank should improve quality of credit information. CIC is one information channel helps banks in evaluating customers. CIC implements collecting enterprise’s information and other information related to currency trading, service of commercial bank, state agencies, foreign and domestic information, and regulations of laws. Then CIC provides information to banks. However, information from CIC is still poor in quality and quantity. This limits analyzing of commercial banks. Therefore, CIC must not only expand the scope of information but also improve the quality of information. To do this, banks must comply with following measures: - Works closely with commercial banks, information centers and other state agencies to gather further information about companies operating in the territory of Vietnam - Modify or supplement the regulations of the CIC organizations as requiring banks to implement proper roles and responsibilities when participating provider and exploiter information from CIC. State bank should have measures to deal with credit institutions are not strictly followed the regulations on providing or jamming information. - Consolidates staffs rapidly, apply new technology, modernize and automate all processing stages to create more professional information products. Simultaneously analysis and evaluate, rank credit risk business, forecasts and warn risk timely. - State Bank needs to build a legal corridor on specific security, supply, mining and processing information. Establish board to inspect, evaluate and certify information to ensure the legality, reasonable accuracy of the information loosen source of credit information and objects to be exploited through credit information. CONCLUSIONS Credit activities of commercial banks take has a very important role in promoting the development of economy and society. In the context of Vietnam's economy is in the phase of integration and growing approach to international practice, the demand for credit is growing. So credit activities bring profit to of commercial banks. Researching and proposing solutions to improve the quality of construction credit limit for customers is important task of the banks in the current phase Bases on methods research, sticks objectivity and scope of research, thesis completes the following tasks: - Study basic theories on credit and credit limit - Analysis current status of credit limit system at Vietcombank and evaluateevaluates causes of the limitations to overcome - Propose solutions to improve the quality of the credit limit at Vietcombank - Propose some recommendations to the State Bank and other related agencies Hope this study contributes a small part in helping build Vietcombank credit limit for customers more precisely, control customer’s risks thereby improve credit quality as expected. LIST OF REFERENCES 1. website 2. 1. Nguyen Van Tien. 2009. Commercial banks. Statistics publisher 2. Nguyen Due. 2001. Banking management. Statistics publisher 3. Ho Dieu. 2000. Bank credit. Statistics publisher 4. Nguyen Minh Kieu. 2008. Credit. Financial publisher 5. Nguyen Thi Mui. 2008. Bank management. Financial publisher 6. Phan Thi Thu Ha. 2007. Commercial bank. NEU publisher 7. 3. website 4.1. Credit Manual of Bank for Foreign Trade of Vietnam 8. 52. Report on business operations of the Bank For Foreign Trade of Vietnam in 2005, 2006, 2007, 2008. 9. 63. Reported sales of loans, debt collection of the Bank For Foreign Trade of Vietnam in 2004, 2005, 2006, 2007, 2008 10. 7. Nguyen Due. 2001. Banking management. Statistics publisher 8. Ho Dieu. 2000. Bank credit. Statistics publisher 9. Nguyen Minh Kieu. 2008. Credit. Financial publisher 10. Nguyen Thi Mui. 2008. Bank management. Financial publisher 11. Phan Thi Thu Ha. 2007. Commercial bank. NEU publisherwebsite 11. website 4. Le Van Tu. Currency, credit and banking. Statistics publisher. 5. Nguyen Van Tien. Risk management in the banking business. Statistics publisher. 6. Nguyen Van Tien. 2009. Commercial banks. Statistics publisher. 7. Phan Thi Thu Ha. 2009. Commercial bank management. Transportation publisher. 8. Web sites: www.creditscoring.com www.sbv.gov.vn www.vneconomy.vn www.kinhdoanh.com.vn www.chamdiemtindung.com www.beta.baomoi.com www.vietbao.vn www.vietcombank.com.vn Bổ sung thêm danh mục tài liệu tham khảo