Profit and risk banking focus on credit

Ms Nguyen Thi Thuy Dung  Definition The credit where money is exchanged and taken by someone who promises the lender to re-pay later at certain interest and time is called a loan   Using borrowed funds for purpose agreed in the credit contract Repayment of principals and interests on due dates as agreed in the credit contract Having capability of civil law, civil power and civil responsibility according to the law  The lawful purpose of loan’s use  Having financial ability to ensure repayment of loan  There are feasible and effective investment projects, production and business plans, plans for service life  Implementing regulations on loan security under the regulation of SBV ? The role of credit management department at headoffice, branches  Basis to decide about the lending period - Production cycle - Business activities - Investment recovery/ period of the projects - Repayment capacity of customers - Nature of lending funds of credit institutions Basis to decide the lending level - Fund requirements of customers - Value of collateral assets for loan - Repayment capacity of customers - Funding sources of banks - Credit limit of a customer and a customer group Agreement in the credit contract about the repayment of principals and interests - Repayment period can be: + Extended + Rescheduled + transfer total outstanding loans to overdue debts - Fees in case of pre-payment - Individual loan: required procedure is applied for each borrowing  Credit line: a line of credit is maintained for a period  Syndicated lending: some banks jointly finance one project  Hire purchase lending: pay in installments  Standby credit line: banks commit to lend within a certain credit line  Lending by overdraft line: allow customers to pay in excess of current account’s balance  Lending for investment projects: banks lend an investment projects ……  Steps Responsible agents Content Finding prospective customers and marketing to customers Credit officer (relationship manager RM) Review customers Contact customers Credit Appraisal Credit officer Evaluate the projects/ customers Propose types of loans, lending methods, etc Lending decision Credit Manager Credit Committee General Director Approve or disapprove the loans Disbursement Credit Officer Disbursement by tranfering money to customers’ accounts Monitoring and Supervising Credit Officer The use of loans The projects data in reality Steps Responsible agents Content Collecting principal, interest and fees Credit officer Notice customers in advance Collect on the due date Debt settlement Restructure debt maturity Debts classification Provisioning Credit risks management Ending contract End the contract Release the guaranteed assets Credit risks in the banking activities of credit institutions are potential losses that may arise in the banking activities of the credit institutions due to the failure of their customers to perform their obligations in accordance with their commitments  Loan loss provisions are an amount to cover for potential losses that may arise due to failure of customers to perform their committed obligations Loan loss provisions consists of specific provisions and general provisions  Debts are classified into five groups, including Group (standard debts); Group (debts, which need special attention); Group (sub-standard debts); Group (doubtful debts); and Group (potentially irrecoverable debts) Bad debts (Non-Performing-Loans) are debts, which have been classified under Group 3,4, and     The second quarter (Q2) profit report of banks showed that up to this point, banks have seen the impacts of the Covid-19 pandemic This is clearly shown by the decline in profits, partly due to the slow credit growth, while banks have had to increase provisions for risks of the bad debts and the potential debts from the borrowings of customers struggling by Covid-19 Although banks have been actively handling bad debts through auctions of secured assets The assets offered for sale are fairly diverse, including real estate, machinery, manufacturing equipment, and automobiles, etc However, the sale of bad debts is increasingly difficult, the number of buyers is modest despite sharp discounts This fact leads to the situation that many assets being auctioned up to several dozen times still cannot be sold many customers have taken advantage of the Covid-19 pandemic to delay repayment and handover of liquidated assets to credit institutions, making the process of handling bad debts and secured assets to remain very difficult Therefore, at this time, while the existing bad debts have not been completely resolved, the risk of new bad debt increase requires more drastic participation of police agencies and local authorities    NIM của các ngân hàng quý 2/2020 phản ánh rõ ảnh hưởng từ việc miễn giảm lãi cho khách hàng bị ảnh hưởng bởi dịch Covid-19 Theo Ngân hàng Nhà nước (NHNN), tính đến 8/6/2020, các ngân hàng miễn, giảm, hạ lãi suất cho hơn 403 nghìn khách hàng với dư nợ hơn 1,2 triệu tỷ đồng, cho vay mới lãi suất ưu đãi với doanh số lũy kế từ 23/1 đạt 978.529 tỷ đồng với lãi suất thấp hơn phổ biến từ 0,5 - 2,5% so với trước dịch Tăng trưởng cho vay khách hàng cuối quý 2/2020 thấp hơn tăng trưởng tiền gửi khách hàng (4,2%) Điều này khác với xu hướng những năm gần đây tăng trưởng cho vay khách hàng luôn cao hơn tăng trưởng tiền gửi khách hàng Trong năm 2019 và quý 2/2020, vấn đề sử dụng vốn ngắn hạn cho vay trung và dài hạn vẫn còn đó tỷ lệ cho vay trung dài hạn từ chiếm 48,7%-49,1% tổng dư nợ nguồn vốn ngắn hạn (dưới một năm) chiếm 80,1%-85,8% tổng cơ cấu huy động  -  - Why? Single bank has insufficient funds Share credit risk among banks Credit limit lent to each customers How? Banks jointly lend for one projects An agent bank and participating banks  -  - Why? Valuable papers: store of value How? A short-term credit form Transferring the papers’ ownership for bank to receive an among equal to par value minus discount rate  -  - Why? The origin of guarantee (page 84) How? Banks open a written certificate to the beneficiary at the consignor request Banks will be responsible for handling debt or obligations for the consignor   Debit card: cardholders can pay in advance based on the amount in their accounts Overdraft: allows individuals to withdraw money even if their accounts has no funds  - - Why the banks need a collateral asset for a loan? Information asymmetry Projects’ reality Changes in macro-economy Improve responsibility of borrowers Types of security transactions - Pledge or mortgage the assets of customers and third parties + Pledge: transfer of an assets + Mortgage: assets is held by borrowers - Third party’s guarantee: - The escrow of the borrower to third party: deposits part or all of responsibility for the bank    Lending amount vs value of collateral assets The lending amount = Value of security assets – Security margin Security transactions should be notarized or certified Topic 4: “What are the causes and effects of bad debts on banking business?”  Type of essay: Causes and effects essay  Structure of causes and effects essay: Topic 4: “What are the causes and effects of bad debts on banking business?”  Structure of causes and effects essay: + Introduction: General background; Thesis statement (This essay will explore the causes and effects of bad debts…) + Body: (1st Para): write about the causes of bad debts (There are several causes/ three main causes of bad debts ) (2rd Para): write about the effects of bad debts + Conclusion: The essay has highlighted the causes and effects of ….The causes include X, Y, Z and the effects include A, B, and C