INTRODUCTION
The rationale of study
In Vietnam's transitioning economy, the demand for capital has increased significantly, particularly as the country engages with key international organizations like the WTO, APEC, and ASEAN This engagement presents challenges for the enterprise sector, necessitating improvements in the banking system, a crucial component of national finance As Vietnamese businesses strive to enhance their integration capabilities, the current credit system faces critical issues related to capital supply, which is essential for economic growth.
Collateral serves as a vital asset for banks, acting as a key tool for recovering bad debts amidst the challenges posed by non-performing loans (NPLs) The ongoing and frequent management of this credit activity is essential for improving the reputation and operational efficiency of financial institutions.
Credit activity poses inherent risks, prompting commercial banks to engage in thorough stages of collection, processing, analysis, and evaluation prior to extending loans These processes are influenced by various subjective and objective factors, including bank policies, government regulations, and authority guidelines Consequently, collateral plays a crucial role in credit provision, enhancing debt recovery capabilities and mitigating risks This raises the question: what constitutes security property, and what is the current state of collateral in Vietnamese commercial banks?
In order to answer all those questions, I have decided to choose the topic
" Collateral management at Vietnam Public Joint Stock Bank, PVcombank " for my thesis.
Objective & research questions
This research examines the state of collateral management at Vietnam Public Bank, beginning with a clarification of theoretical aspects of property management It then investigates the causes and current practices related to collateral handling Lastly, the study offers solutions and recommendations specifically tailored for PVcombank to enhance its collateral management processes.
Scope of the study
This study focuses on the collateral management practices at Vietnam Public Joint Stock Bank (PVcombank) from 2013 to 2016, highlighting the current state of guaranteed asset management and proposing several solutions for enhancement.
Methodology of the study
In this research, I employed various methods for collecting, analyzing, and summarizing information, utilizing synthesis and comparison based on actual data Additionally, I drew upon the knowledge acquired during my university studies and my extensive internship experiences.
Structure of the study
The thesis is divided into four parts:
Chapter 1: The introduction which includes the rationale, objectives and research questions, scope and methods of study
Chapter 2: Literature review, this chapter gives a general overview of the collateral and collateral management at commercial banks
Chapter 3: This chapter refers to current situations of collateral management activities at Vietnam Public Joint Stock Commercial Bank
Chapter 4: This one concentrates on solutions and recommendations for guaranteed assets
THE THEORY OF COLLATERAL AND COLLATERAL
COLLATERAL
The banking system's credit activity is inherently risky due to challenges in capital sourcing and lending services, particularly when credit quality is poor and overdue debts are high To mitigate these risks, banks commonly utilize collaterals, which enhance debt recovery potential and reduce credit risks.
In the current Vietnamese law, relying on Article 4 of Decree 163/2006 / ND-
According to CP (Consolidated Document No 8020) on secured transactions, collateral refers to the property and assets that borrowers provide to secure a loan If borrowers fail to meet their loan obligations, lenders have the right to seize the collateral to recover their losses This collateral can include both existing assets and future assets that are permitted to be traded.
Article 105 of the Civil Code 2015 defines assets to encompass property, objects, currencies, valuable papers, and property rights Collateral can take the form of various objects, including transportation vehicles, precious metals, machinery, materials, and goods Additionally, when secured assets involve valuable papers, they can include a range of instruments such as shares, bonds, bills of exchange, promissory notes, checks, certificates of deposit, and other legally recognized valuable papers in Vietnam.
2.1.2 Characteristic of collateral a The characteristic
Guaranteed assets are legally owned by borrowers or third parties who pledge to utilize them to fulfill obligations to stakeholders These tradable collaterals can include current assets or those to be developed in the future The ownership of these assets is crucial for establishing mortgage rights, as they are used by property owners to meet their responsibilities.
For collateral to be effectively utilized, it must be legally permissible for transfer and trade These transactable assets are those that the law authorizes for various transactions, including purchasing, selling, gifting, transferring, pledging, mortgaging, and underwriting.
Thirdly, guaranteed assets need to be procured for a period of insurance by the law This feature aimed at ensuring the capacity of debts collection and reducing risk for bank
In addition, the property is not disputed at the time of signing the contract It is important to make sure that collateral could be secured
Finally, the collateral has the production-related which is sold in the market
In a supply and demand market, pledging assets facilitates smooth business transactions It is crucial for collateral to maintain a stable and competitive value, ensuring that asset worth is not likely to fluctuate in the future However, this approach comes with its own set of advantages and disadvantages.
Advantages of collateral are reducing the credit risk, diversifying, improving liquidity, getting higher profits, and economic capital savings which is netting counterparty exposures reduces economic capital required to trade
Increasing operational risk, legal risk, settlement and valuation risk are several disadvantages Moreover, raising market risk and decreasing trading activities lead to many difficulties for commercial bank
For the identification, evaluation, selection and disposal of collateral, banks or credit institutions are often grouped into different groups
Below are the typical categories commonly using: a Pledged assets
According to Article 309 of the Civil Law 2015, a pledge of assets involves the obligor transferring ownership of movable property to the obligee to guarantee the fulfillment of a civil obligation If the pledged property is registered, the parties can agree that the pledgor retains possession of the pledged asset or transfers it to a third party.
In a credit relationship, the pledge of property creates a "sub-contract" between the borrower (pledgor) and the lender (pledgee), requiring the borrower to transfer their property to the financial organization This sub-contract serves to secure the primary obligation of the credit agreement, ensuring the borrower's repayment responsibility rather than facilitating an asset transfer between the parties.
The list of pledged assets is governed by the State Bank of Vietnam's Decision
Movable assets, such as vehicles, tools, and machinery, are valuable resources that can be easily transferred, bought, or sold and are often used as collateral for loans from credit institutions These assets include production and business equipment, materials, goods, and personal property that serve essential functions for individuals and collectives.
Valuable financial instruments, including savings books, promissory notes, certificates of deposit, and bonds issued by businesses, banks, or the government, remain valid for payment and can serve as reliable forms of currency.
- Precious things in gold, precious stones and jewelry of gold
- For movable property insured, the value of the insurance contract also belongs to the pledged property
- Other assets if it is required by law b Mortgaged assets
According to Article 318 of the Civil Law 2015, mortgaging property involves the mortgagor using their property to guarantee the fulfillment of civil obligations to the mortgagee, without transferring ownership of the property to the mortgagee.
Mortgages typically require that the mortgaged property is a legal asset and that both parties consent to the mortgage agreement, often termed a "sub-contract," to guarantee the borrower's repayment obligations Additionally, the collateral must be owned by the borrower, who retains ownership of the property throughout the mortgage term.
- Asset, which is used as collateral for borrowing capital from credit institutions, is real properties that can easily be transferred or traded, including:
Houses and construction works attached to land, including those attached to houses or construction works
For the insured property, the value of the insurance contract also belongs to the mortgaged property
Production and business establishments such as factories, hotels, shops, warehouses, tools, machinery, equipment which is attached to factories, ships, and planes
Other assets if it is provided for by law
- The right to use land in accordance with the law on land
- Benefits, income, rights arising from the mortgaged property belonging to the mortgaged property are agreed upon by the parties or prescribed by law c Assurance is guaranteed by a third party
In a circumstance that a borrower is unable or does not possess any collateral assets, the customer uses a third-party asset as collateral for his or her loan
In the event that the borrower is unable to meet their debt repayment obligations, a third party will assume the role of the debtor This third party typically has a close relationship with either the borrower or the lending institution Additionally, the loan funds may be secured by assets that provide collateral for the borrowed amount.
This classification is based on the existence of the collateral In this case, collateral is its value formed from part or all of the borrowers
Collateralized assets are frequently utilized in securing other types of assets However, banks are often hesitant to select this kind of property due to the need for thorough examination of the asset formation process to prevent potential legal issues.
Types of assets typically formed by a loan which might be indicate:
- Means of transport such as tractors, container trucks, crane trucks, pickup trucks, and cars
- The collective and individual real estate such as high-rise buildings, apartment buildings, villas, adjoining villas, and houses
Choosing this type of asset is typically a decisive step due to its inherent risk It is frequently linked with insurance to mitigate the lender's exposure to potential losses.
(namely credit institutions) Insurance coverage when purchased is often associated with the full life of the asset and is usually required in most banks today.
COLLATERAL MANAGEMENT
Collateral management aims to safeguard a lender's debt reversionary rights, ensuring credit institutions can effectively uphold their property rights To achieve a successful collateral process, organizations must employ knowledgeable and vigilant staff, fostering safe and secure operations while remaining aware of potential pitfalls that could lead to unforeseen complications.
Therefore, the definition of collateral management is might be said as
Collateral management involves the systematic monitoring, auditing, and evaluation of assets and related documents to ensure their integrity and identify potential issues early, thereby mitigating the decline in asset value and reducing credit risk in unsecured financial transactions Banks play a crucial role in collateral management, employing various solutions to address breaches of contract by customers or third parties, ultimately aiming to minimize credit hazards.
2.2.2 The importance of collateral management
Collateral management plays a crucial role in mitigating credit risk in unsecured commercial transactions, enabling debtors to secure more favorable borrowing rates through credit enhancement It encompasses various aspects such as portfolio risk, capital adequacy, risk management, operational risk, and asset-liability management Key functions include the ongoing valuation of collateral and meticulous monitoring of customer details to ensure effective coordination among departments involved in collateral management Additionally, balance sheet techniques are employed to optimize bank resources and benefits while adhering to regulatory requirements and identifying funding opportunities from excess assets Common practices in collateral management include tri-party repurchase agreements and collateral arbitrage.
VuongThiThanh Mai – K16ATCC Page8 collateral outsourcing, and credit risk assessment are a small number of functions mentioned in collateral management”
The Vietnamese legal system has undergone significant changes, particularly in regulations governing transactions Recent updates to the law have broadened the scope of collateral objectives, enhancing the framework established by previous legal documents.
Decree No 163/2006/ND-CP, issued on December 29, 2006, provides comprehensive guidelines from the Government regarding the establishment and execution of collateral transactions This decree aims to ensure obligations are met and outlines the procedures for handling property in accordance with multiple articles of Civil Law.
According to Article 295 of the Civil Law 2005 and Article 4 of Decree 163, two essential conditions for collateral are established: the assets must be owned by the guarantor and must be legally permitted for trade.
Decree No 83/2010/ND-CP (Consolidated Document No 8019) on registration of collateral transaction
Land Law No.452013/ QH13 dated 29/11/2013
Law on Credit Institutions No 47/2010 / QH12 dated 29/06/2010
Enterprise Law No.68/2014/QH13 dated 26/11/2014
Inter-Ministerial Circular No 16/2014 dated 22 July 2014 by State Bank providing the guidance on collateral handling
Decree No 11/2012 / ND-CP dated 22 February 2012 by the Government stipulating the amendment of some articles of Decree No.163/2006 / ND-CP
Several guiding documents of Vietnam Public Joint Stock Commercial Bank on receiving, handling and managing collateral
The method of collateral management easily understood, cash or properties are passed from counterparty to another as security for a credit transaction.“In a
In a transaction between two parties, when party A realizes a mark-to-market (MtM) profit, party B incurs a corresponding MtM loss To mitigate the credit exposure resulting from party A's positive MtM, party B provides collateral, the specifics of which are agreed upon prior to the contract's initiation Collateral agreements are typically bilateral, meaning that an institution may require collateral in the event of a positive MtM and must also post collateral if faced with a negative MtM.
COLLATERAL MANAGEMENT AT VIETNAM PUBLIC
STATUS FOR COLLATERAL AT VIETNAM PUBLIC BANK
3.2.1 Status for bad debts at PVcombank
Non-performing loans (NPLs) are loans that are overdue or substandard, raising concerns about the debtor's creditworthiness and repayment ability, often occurring when a debtor declares bankruptcy or relinquishes assets Commercial banks categorize these loans into five groups, with Categories 3, 4, and 5 classified as bad debts From 2013 to 2016, the overall credit quality of banks was commendable, with the NPL ratio being effectively managed and remaining within the limits set by the State Bank of Vietnam.
SMEs Customer Department Corporate Customer Department Individual Customer Department
Table 3.1 Non-performing loan ratio at Vietnam Public Bank
(Source: Shareholders’ Meeting Report of Vietnam Public Bank, PVcombank)
The table presents the bad debt ratio across groups 1 to 5 from 2013 to 2016 According to the Vietnam Public Bank's shareholders’ meeting report, total loans reached 42,376 billion VND by December 31, 2014, an increase of 1,257 billion VND from the previous year Notably, debts in groups 2 to 5 decreased from 4,169 billion VND in 2013 to 2,648 billion VND in 2014, representing a decline of 3.89% to 6.25% In fiscal year 2014, the bank successfully recovered 221 billion VND in loans from groups 2 to 5, while debts in groups 3 to 5 significantly fell from 4.42% to 2.67% This data indicates that the non-performing loans (NPLs) ratio was effectively managed through PVcombank’s strategic policies.
By 2015, Vietnam Public Bank achieved a significant milestone as the bad debt ratio decreased steadily from 2.67% to 1.96%, marking a reduction of 0.71% This improvement was well within acceptable limits and effectively managed, thanks to the flexible enforcement and timely actions taken by the Board of Directors in debt recovery and management.
Figure 3.2 Non-performing loan ratio of PVcombank over 2013-2016e period
(Source: Shareholders’ Meeting Report of Vietnam Public Bank, PVcombank)
In 2016, Vietnam faced an unstable economic situation, leading to an increase in the non-performing loan (NPL) ratio across most commercial banks, including PVcombank, though it remained below the State Bank's regulation threshold of 3% Specifically, the bad debt percentage at Vietnam Public Bank rose steadily to 2.10%, while loans categorized from groups 2 to 5 saw a decline of VND 499 billion.
To conclude, the bad debt ratio from 2013 to 2015 decreased dramatically because of the growing economic situation in general and credit risk management of PVB in particular
3.2.2 Status of collateral at PVcombank
In the credit activity system, banks secure collateral from clients, which can be categorized into several groups such as transport vehicles, valuable papers, real estate, machinery, equipment, goods warehouses, and property rights At the Vietnam Public Joint Stock Commercial Bank, outstanding loans are classified based on these types of collateral.
Table 3.2.The outstanding loans classified in types of collateral
Collateral is the land use rights and assets attached to land
Security assets are existing assets and assets formed in the future
The table illustrates the outstanding loan volumes from 2013 to 2015, highlighting the bank's focus on secured loans, particularly in real estate, which dominated the portfolio This trend reflects the preferences of various customers, including individuals, households, and organizations, who frequently use collateral such as land use rights, houses, and other land-attached assets to meet their capital needs By accepting valuable assets as mortgage, PVcombank was able to provide substantial loans in line with regulatory lending percentages.
In 2014, valuable papers and savings books at PVcombank increased to 4,416 billion VND from 4,358 billion VND in 2013, signaling positive growth in the collateral sector However, this figure saw a steady decline of 0.052 billion VND from 2014 to 2015.
Figure 3.3 The outstanding loans classified in types of collateral (2013 – 2015)
In 2014, the real estate sector, particularly land use rights and associated assets, peaked at 14,310 billion VND but saw a sharp decline to 12,281 billion VND in 2015 Movable assets, primarily consisting of transportation, machinery, and production lines, experienced a significant increase in outstanding loans, rising from 5,856 billion VND in 2014 to 6,513 billion VND, and further climbing to 8,170 billion VND in 2015 Given the potential for wear and tear over time, PVB adopted a more cautious approach towards managing these guaranteed assets.
Finally, secured assets, which are existing assets and assets formed in the future, were a significant decrease from 2013 to 2014 of 1,498 billionVND In
2015, this collateral declinedsteadilyfrom 13,735 billionVND to 12,053 billion VND It meant that the economy is proved to be easier to recover base on enhancing the situation of collaterals.
REALITY OF COLLATERAL MANAGEMENT AT PVCOMBANK
Upon receiving secured documents, PVB staff conduct a preliminary assessment of various factors to mitigate potential challenges associated with guaranteed assets and to streamline the process of handling customer documentation.
Land use rights Savings book Assets formed in the future
Having enough types and numbers of documents as requirements
Having enough signatures and stamps of relevant agencies in the files
The consistence of content between different documents in the records
Having specific documents in the folders
3.3.1.1 Collateral are cash, gold, and precious metals
According to Guidance No 3889/2015/HD-PVB, PVcombank has established specific conditions for the receipt and management of collateral, including cash, gold, and precious metals These guidelines encompass aspects such as lending rates, handling procedures, and the management of guaranteed assets.
The collaterals were legally owned by the secured party, having been signed in the contract without dispute, solely guaranteeing customer obligations at PVcombank Gold and precious metals are produced and traded by authorized organizations of the State Bank of Vietnam (SBV), while jewelry is manufactured by limited companies.
When dealing with cash in VND and foreign currencies, collateral must adhere to the conditions set by Vietnam Public Bank for transfers and receipts Additionally, the bank only accepts USD, EUR, and other currencies as regulated by PVB.
Gold bullion, produced and traded by authorized organizations, accounts for 85% of the gold and precious metals market Limited companies contribute 40% through gold and jewelry, while other precious metals represent 30% Additionally, cash in VND and foreign currency is determined by the balance of deposit accounts, highlighting the importance of effective collateral management.
The bank actively monitors monthly price fluctuations of gold and precious metals listed by state jewelry companies Additionally, creditors track exchange rate variations for foreign currency, comparing them to the rates at the time of disbursement to ensure the collection of both principal and interest.
The management of PVcombank's rights has been influenced by State Bank policies regarding the reception and management of securities, as well as the collection and updating of information in the asset trading market Effective measures for handling collateral are essential in this process.
For gold and precious metals, PVcombank handles the collateral of customers to work off their debts
For foreign currencies, the balance on the customer's deposit account will be settled to recover the debt
3.3.1.2 Collateral are machinery, transportation, and production lines a Conditions to receiving and managing
Collateral is legally owned by the secured party and was agreed upon in the contract without dispute, solely guaranteeing the obligations of customers at PVcombank It is permitted to be actively traded, including activities like purchasing, selling, transferring, and underwriting through legal contracts This collateral demonstrates liquidity in the market and can also be insured.
According to PVB regulations, the transportation period for both new and used cars must not exceed five days from the date of mortgage or pledge Additionally, for airway, railway, and seaway transport, the time limit for circulation dictates that the duration from the date of manufacture to the date of mortgage should also remain within specified limits.
5 days for railway and seaway; 6 days for airfreight
For optimal efficiency, machinery, equipment, and production lines should be produced synchronously PVcombank only accepts fixed assets for mortgage from the production date to the mortgage date Additionally, for new machinery and equipment, PVB only allows pledges or mortgages for large quantities valued over VND 300 million, ensuring that the assets are synchronized and have good market liquidity.
Table 3.3 Regulations of receiving collateral’s period from the production date to the mortgage date
2 Machinery and equipment for agriculture 3
3 Machinery and equipment for chemical production 4-6
4 Machinery and equipment for building materials 7
5 Machinery and equipment for garment 3
6 Machinery and equipment for food processing sector 4
7 Machinery and equipment for telecommunications, broadcasting and computing 2
8 Machinery and equipment for pharmaceutical factory 3
9 Machinery and equipment for other sector 3
11 Machinery and equipment for the leather industry, stationery printing 4
12 Machinery and equipment for the paper industry 3
18 Measuring device of quantum mechanics 3
(Source: Official Letter No.7965/2014/HD-PVB) b The lending ratio
For machinery, transportation and production lineregistered over 60 days, PVB will give up to 60% of security value
For machinery, transportation and production line are not registered or less than 60 days, PVcombank will bring out at the maximum 70% of security value c The collateral management
Collateral files administration: Collecting and storing all required documents as well as verifying documents which are related to the security status
Management in the form of direct inspection: periodical checks according to regulations after lending, or realizing that the value of guaranteed asset has declined
Other methods of management: Collecting and updating the information of State policies as well as the fluctuation of assets trading market d The measures of handling collateral
Collateral is managed directly by the guarantor, while PVcombank retains only the original documentation of the guaranteed assets In specific circumstances, PVcombank may choose to oversee or engage a third party to manage the properties.
3.3.1.3 Collateral are projects which belong to bank a Conditions for receiving and managing
Bank projects encompass land use rights, future housing developments, early construction, and various other assets PVcombank approves these projects once the collateral documentation meets legal requirements, including thorough examination and evaluation of the investment initiatives.
To ensure proper management of project assets, it is essential to complete the mortgage process, including property rights, benefits arising, compulsory notarization, and registration of secured transactions Additionally, effective collateral management must be conducted for each project asset The bank is responsible for collecting input contracts and invoices at least biannually to assess the current value of the assets Furthermore, understanding the lending ratio is crucial for evaluating financial stability.
The lending rate, as defined by PVcombank regulations, represents the sponsor ratio relative to the total investments in projects over various periods This rate also applies to projects where a portion of the assets is established at the time of lending, highlighting the importance of collateral management in the lending process.
Collateral files management: For assets under the project that have not been formed, the legal documents comply with PVcombank regulations and do not
VuongThiThanh Mai – K16ATCC Page20 have to keep guaranteed assets records as archives With assets formed, the collateral records are made in accordance with the instructions of PVcombank
Effective management of property formation progress involves several key steps Initially, collateral inspections should be conducted after funds are lent to customers PVB must take responsibility for closely monitoring the ongoing developments in property formation Once projects are partially completed and classified as formed assets, PVB is responsible for inspecting, receiving, assessing, and storing credit records Additionally, regular inspections are performed in line with established guidelines to ensure compliance and oversight.
3.3.1.4 Collateral are real estates, the land use rights and assets attached to land a Conditions for receiving and managing
Relying on the general conditions of PVcombank’s regulations, the collateral must meet a number of requirements, as follow:
GENERAL ASSESSMENT
3.4.1 The results of collateral management
In response to a new business model and orientation, PVcombank has restructured its administrative framework and redefined departmental responsibilities The bank has implemented comprehensive KPIs across its system to enhance business performance, strengthen customer relationships, and improve collateral management Additionally, the establishment of a dedicated Customer Priority Department at branches stands out as a significant achievement in recent years.
Concurrently, it is necessary to ensure that the staffcomply with the bank’s policies and regulations, as well as their professional knowledge is developed,
VuongThiThanh Mai from K16ATCC Page26 has actively acquired and expanded resources to enhance the competitive edge of commercial banks, particularly PVcombank Management fosters a supportive environment for employees through consistent training, motivation, and reward policies Consequently, management activities effectively shape the behaviors of specialized departments, including financial control, administration, and organizational structure.
3.4.1.2 Enhancing the system operation and management
PVcombank has enhanced its internal documentation to align with collateral management activities and current economic conditions, resulting in significant benefits and risk mitigation Additionally, the bank has established a comprehensive warning system, restructured non-performing loans over the past few years, and effectively finalized its collateral handling procedures.
Vietnam Public Bank is collaborating with consulting firm Ernst & Young (E&Y) to analyze its administrative processes and improve its internal credit scoring system This partnership aims to enhance credit quality, increase the efficiency of credit appraisal and approval, and streamline the collateral recording process, ultimately reducing processing times.
By contrast, the bank has also hired experienced foreign experts to help them improve the management system followinginternational rules and ensure safety for PVcombank
In 2014, PVcombank collaborated with E&Y to develop comprehensive information technology (IT) strategies, focusing on enhancing IT management policies and unifying network infrastructure, security systems, and IT applications This initiative aimed to modernize the core banking system and electronic transaction systems, enabling the bank to offer high-quality, diverse products to customers based on a solid IT foundation Additionally, the bank advanced the implementation of Core Banking T24, prepared for MasterCard issuance, and optimized its ATM network.
3.4.2 The difficulties and shortcomings a The difficulties from valuation of collateral when handling and managing
At Vietnam Public Bank, the valuation of collateral is crucial for ensuring accurate assessments, requiring bankers to be well-versed in the strengths and weaknesses of various methodologies Given that customers seek loans for diverse purposes and offer different types of collateral, it is essential for staff to maintain objectivity in their evaluations Challenges often arise from issues related to asset liquidity and the depreciation of properties, which may occur when market values fall below original costs due to subjective biases Additionally, difficulties in obtaining and processing collateral information can further complicate the valuation process.
Existing data collection processes often suffer from inaccuracies due to poor information quality and handling Many surveys and data sources rely on internet-based information and financial reports from companies, leading to verification challenges and unreliable assessment results Additionally, difficulties in seizing collateral further complicate management and handling, diminishing overall reliability.
When guaranteed assets, particularly those in transit, are seized, PVcombank encounters significant challenges due to the non-cooperation of guarantors Many customers exhibit obstructive behaviors when it comes to surrendering these assets, complicating PVcombank's efforts to recover property This situation highlights the difficulties associated with collateral receipt and management.
Vietnam Public Bank has established a comprehensive procedure for the receipt and management of guaranteed assets from the Head Office to its Branches However, significant challenges persist, as credit managers often adopt passive roles, primarily focusing on approving files beyond their authority and struggling with the distinction between asset valuation and appraisal Additionally, the asset receipt and management process remains inflexible, failing to accommodate the diverse needs of various businesses and production procedures Furthermore, complications arising from the legal system exacerbate these difficulties.
According Clause 1 of Article 296 of the Civil Law 2015, an asset is allowed to fulfill multiple guaranteed obligations Individuals and organizations have the
In recent years, some enterprises have exploited virtual properties to manipulate financial reports, enabling them to secure loans from banks and deceive management This practice has resulted in severe consequences, including asset leakage, capital loss, and increased bad debts within various credit institutions, posing significant risks to the national economy.
3.4.3.Reasons for the difficulties and shortcomings
The qualifications and experience of PVcombank staff significantly contribute to credit risks in collateral handling A lack of awareness regarding legal regulations related to secured property management hampers the quality of collateral management Additionally, the bank's insufficient policy management and absence of controlled procedures, combined with inadequate employee training, lead to the acceptance of collateral that lacks clear appraisal of ownership sources.
Delays in the receipt and management of collateral can lead to significant challenges for banks and their clients Often, loan-secured documents are incomplete, failing to meet legal requirements at the time of mortgage acquisition, such as missing Certificates of Land Use Rights or notarized mortgage contracts As a result, when clients default on payments, banks face difficulties in recovering their investments, leading to substantial amounts of capital being tied up for extended periods.
Collateral assessment at Vietnam Public Bank faces significant challenges, particularly due to the subjective nature of legal evaluations This subjectivity results in a lack of comprehensive legal documentation for collateral, hindering the bank's ability to effectively manage and recover properties.
3.4.3.2.Objective reasons a From the competition in banking system
In today's competitive banking landscape, commercial banks must prioritize customer benefits to maintain their market share Excessive collateral requirements, cumbersome procedures, and strict valuation processes can lead to a loss of clients to competitors As a result, many commercial banks are adapting their credit policies to remain attractive and retain their clientele.
Vuong Thi Thanh Mai – K16ATCC Page 29 discusses strategies for attracting borrowers to sustain and grow business operations and market share This involves valuing collateral significantly below market value and raising the lending rate relative to total asset value compared to other banks Additionally, the regulatory environment plays a crucial role in shaping these policies.
In fact, various legal documents has regulated, guided and adjusted the secured relationship and collateral management such as Decree No 83/2010 / ND-
SOLUTIONS AND RECOMMENDATIONS TO ENHANCE
SOLUTIONS TO IMPROVE THE COLLATERAL MANAGEMENT AT
4.1.1 Solutions to improve the collateral management at Vietnam Public Bank
Secured management has become a critical concern for banks, highlighting the importance of effective asset management Proper collateral management is essential for accurate assessment, valuation, and minimizing capital loss Enhancing human resources and professional skills is vital to address these challenges effectively.
The collateral management process must continuously evolve, integrating innovative, scientific, and adaptable strategies tailored to the unique financial circumstances of each enterprise, the specific types of secured assets, and their production processes This approach is essential for delivering effective solutions for the supervision, inspection, and management of collateral.
In addition, in order to enhance the efficiency of handling and managing property at PVcombank, strengthening the human resources training is an important and long term measure
To enhance employee expertise, annual training plans should be established, focusing on specialized classes such as legal frameworks for collateral, credit risk management, and collateral valuation Engaging in discussions with industry experts will allow employees to benefit from their insights Additionally, Vietnam Public Bank must implement policies to attract and retain qualified personnel amid the growing influence of foreign credit institutions This includes developing a robust system of incentives, rewards, and competitive salaries aligned with business goals and profit orientation Strengthening internal control mechanisms is also essential for operational effectiveness.
In order to identify promptly frauds which relate to receiving and managing collateral as well as the credit activities,internal inspection control activities must be
VuongThiThanh Mai – K16ATCC emphasizes the importance of regularly monitoring and controlling collateral risks in banking This involves both overseeing the collateral portfolio and managing collateral for various loan types consistently Past incidents of significant economic fraud in commercial banks, where insiders manipulated loan records, highlight the need for vigilant behavioral surveillance of credit staff and bank leadership To mitigate these risks, it is crucial for the Vietnam Public Bank to implement stringent sanctions and enhance its collateral risk management model.
Secured assets should be identified, supervised, monitored, and managed strictly to protect bank’s legal rights by means of several methods
The first way is the implementation of collateral ranking as the foundation for receiving or refusing the properties as well as making decision of lending ratio
To enhance loan procedures at PVcombank, it is essential to clearly delineate the responsibilities of credit staff This includes the systematic gathering of collateral information, thorough evaluation of credit applications from clients, and accurate verification of all relevant records.
To improve property valuation, banks should prioritize the use of security instruments When signing loan contracts with collateral, it is essential for banks to mandate that clients purchase insurance for the collateral, which may include goods, machinery, equipment, vehicles, and various projects This practice helps mitigate potential losses and enhances overall risk management.
To safeguard their legitimate rights and interests, PVB must register secured transactions at the Registration Center, as mandated by Article 47 of Decree No 83/2010/ND-CP Following the acquisition of securities, collateral transactions should be accurately recorded in compliance with the provisions of the decree.
The State Bank's No 83/2010/ND-CP, issued on July 23, 2010, emphasizes the importance of recognizing ownership and managing collateral rights to prevent legal conflicts This framework establishes the bank's authority and mechanisms to ensure the enforcement of these rights effectively.
VuongThiThanh Mai – K16ATCC Page33 d Measuring of collateral
Valuation and appraisal are critical factors for real estate and land use rights To enhance asset evaluation efficiency, PVB must adhere strictly to the evaluation process while prioritizing thorough information collection This approach ensures that the information is objective and accurately reflects the current market conditions.
Understanding the layout of production, machinery, equipment, and warehouses is crucial when dealing with collateral such as machinery and production lines To comply with the supervision and management of secured assets, it is essential to include documentation on these layouts with credit files Effective management and tracking of collateral are vital for Vietnam Public Bank.
To effectively manage collateral, banks must thoroughly understand the business production process associated with mortgage projects By mastering this process, banks can gain valuable insights into asset utilization, enabling them to assess and manage risks more efficiently.
4.1.2 Solutions to the relationship between Vietnam Public Bank and customers
The signing of credit contracts requires strict adherence to regulations by both parties when guaranteed assets are involved Clients must provide comprehensive loan documentation to enable banks to assess the details of the portfolio, property origins, and loan purposes All parties in a financial cooperation contract are obligated to comply with legal provisions, as any non-compliance or breach can lead to collateral disputes To ensure the binding nature of the agreement, it is essential that all requirements are clearly stated and documented in writing Ultimately, a credit contract serves not only as a legal framework but also as a voluntary agreement that ensures the feasibility of its terms.
4.2 RECOMMENDATIONS FOR STATE BANK a Completing the systematization of legal documents
Systematization of documents relating to collateral should be improved based on State regulations as well as consideration during the application ofthe legal
Vuong Thi Thanh Mai – K16ATCC Page 34 discusses the impact of government regulations on commercial banks in Vietnam, particularly highlighting the challenges faced by PVcombank due to frequent amendments The State Bank of Vietnam (SBV) plays a crucial role in guiding banks through new legal documents, yet the overlapping and conflicting regulations create operational difficulties To alleviate these issues, it is essential for the SBV to provide clear, systematic, and timely directives regarding banking credit activities, especially in the area of secured loans, thereby facilitating the work of credit officers and enhancing overall supervision.
The Central Bank must oversee credit activities related to guaranteed assets and report findings to the Government to facilitate effective resolutions In cases of violations, the State Bank of Vietnam (SBV) should impose strict penalties on all clients, both domestic and foreign Additionally, enhancing the Credit Information Center is crucial for improving overall credit management.
Enhancing the effectiveness of the Credit Information Center (CIC) is crucial for commercial banks to fulfill customer information needs and facilitate efficient searches By transforming CIC into a comprehensive information library, it can significantly contribute to the advancement of credit operations in Vietnam, ultimately improving the quality and reliability of information within the financial market.
4.3 RECOMMENDATIONS FOR LEGAL FRAMEWORK OF VIET NAM