Subject Commercial Banking Credit Quality Of Mb Bank.pdf

Actual situation of credit quality of Military Bank MB Bank:..... Chapter IT: Actual situation of credit quality of Military Bank MB Bank.. Credit classification by credit purpose: - Cre

VIET NAM NATIONAL UNIVERSITY HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND LAW

SUBJECT: COMMERCIAL BANKING

CREDIT QUALITY OF MB BANK

TEACHER: NGUYEN THI DIEM HIEN

CLASS CODE: 221NH1503

GROUP: MB STT FULL NAME STUDENT CODE

1 Lam Gia Linh K204041165

Table of Content

I Overview of credit and credit quallity: csccsscscsssscssssccsssscssssssssnsnssssscsessnsnecessssnsnnsaeeeees 6

1 Bank Credits cccccsssccssssssssssssssssssssssssssscsssssessssscssanscesnaassnaessnnscsnaasessnasessnsesssnsesssasenesesees 6 1.1 The concept of bank CT€df: - «co 12 1 Họ HH 0.08 1 mg 6 1.2 Credit classification and types of bank Cr€dÏ(:, c-c si HH Y3, 6 1.3 The role of bank credit in the ma k€f €COTDOTTTV: 0G 0 kg 7

2 Bank credlif quÌÏy: - «5 cọ họ Họ h TH TH TH TH HP ni 0 th 7 2,1 Credif quaÌify COTC€D: c0 ”* 9.9 Họ HH HH HT 00 900904 7

2.3 Factors affecting credit u4ÌÏÊy: co sa 2 TY TH TH th gà men 0 8

II Actual situation of credit quality of Military Bank (MB Bank): .<«« 10

1.1 Capital mobilization WOTÌK: << 5 sọ họ h Họ HH TH g9 10 1.2 Activifies using CAIAÌ: co c2 0 Họ TH TH TH ng H0 018 k0 09 998 12

2 Status of credit quality at banikS: c0 91 9.53 9 0Ý ng 78 19

2.1 Quantitative iINGiCatOrs: ccssssssssssssccssscccccccessessnnnnnssceesesssesessssssssscesesceeeeaaeansens 19

IIL Some solutions to enhance credit quality at MB Bank: cccccssscesssscssssssnscseesesnsaes 28

2 Improve the ability to collect customer information s cccscsescssesccesstsssssssessneaeees 29

3 Promote marketing äCfÏVIÏS: sọ họ Họ Họ Họ nh Họ HH mg g0 29

IV Bibliography: «cọ 1.9 TH cọ Họ Họ cá T0 0000004 018 069014 29

List of Tables

Table 1.1 Mobilization of capital by term and by currency of Military Bank 10 Table 1.2.Table of loan norms, total and proportion of each fype ìì co 12 Table 1.3 Military Bank's revenue, expenses and profifs che see 14 Table 1.4 Total operating costs in dlefaiÌL - - G0 2211 112211122121112211111111110111 11111111 kkg 17 Table 1.5 Total outstanding balance; total and proportion of each type 20 Table 1.6 Table of measures of efficiency of capital use - c2 seo 22 Table 1.7 Table of ndicators of profitability from credif acfivifies 23

Table 1.10 Rate of credit risk provision c1 222112 n1 11 kh 211k kg 26 Table 1.11 Rate of credit risk proviSI0n c1 vn Hy HH ng ng 2 kg 27

List of Figures

Eigure 1.1 Capital mobilization by f€Fm 2 1121111211121 1111111111111 1111111 1k Hy ll Figure 1.2 Capital mobilization by CUrF€TCV Q SH nh nSS HS HH HH khe 12 Figure 1.3 Qutstanding balance by feF1m - - (Q0 1 v1 1S 119111111111 1 1 nhe 20 Eigure 1.4 Qutstanding balance by objecf - - c1 11211122 HH He nhe 21

INTRODUCTION

The financial market is crucial in a market economy since its strength has a large influence on each country's economy The banking sector, together with other economic sectors, is responsible for stabilizing the money market, managing and repelling inflation, creating jobs for employees, growing capital and foreign exchange markets, participating in payment assistance, and so on As

a result, if the economy is to be stable and develop, banks must also be stable and flourish Lending is an essential field in banking operations in which bank credit is the backbone relationship that determines all activities in the economy; it is also the main source of profit, influencing the existence and development of the bank It is also one of the most essential monetary policy regulating tools Commercial banks' loan balances today account for a very substantial share of their overall assets, ranging from 65% to 80%, with real estate serving as the primary security for these existing loans Credit has always been a particularly sensitive field to the vagaries of the economy and society, so at this moment when Vietnam and the world are facing an economic crisis and the freezing of the real estate market, bank credit faces more challenges and always carries significant nsks Although credit provides numerous advantages, it also has several hazards that have a direct impact on the bank's business operations as well as the interests of consumers

Commercial banks must first pay attention to the quality of loans to operate effectively and reduce risks Recognizing the importance of the issue, the MB team selected the topic "Credit quality at Military Bank (MB Bank)" The thesis consists of 3 chapters:

Chapter I: Overview of credit and credit quality

Chapter IT: Actual situation of credit quality of Military Bank (MB Bank)

Chapter IIT: Some solutions to improve credit quality at Military Bank (MB Bank)

I Overview of credit and credit quality:

1 Bank credit:

1.1 The concept of bank credit:

- Bank credit is the transfer of a bank's nght to use capital to a customer for a set length of time

at a set fee Individuals and businesses who borrow must make full payment of principal and interest when due Bank credit, like other credit relationships, has three components:

+ The right to use capital is transferred from the owner to the user

+ This assignment is temporary or definite

+ Transfers are subject to costs

1.2 Credit classification and types of bank credit:

The bank provides a variety of clothing for many customers with diverse goals in order to serve and meet the credit demands of each customer

1.2.1 Credit classification by time:

- Short term credit: Loans with a term of less than | year The purpose of this type of loan is usually to finance the purchase of liquid assets

- Medium term credit: This is a type of loan with a term of | to 5 years Loan purposes are typically financing investments in fixed assets or technical innovations that streamline production, process innovation, and new construction of small structures with fast payback periods

- Long-term credit: This is a type of loan with a term of more than 5 years The purpose of this type is usually to finance investment projects

1.2.2 Credit classification by credit purpose:

- Credit for production and circulation of goods: a sort of loan extended to manufacturers and merchants of commodities in order to fulfill capital requirements in the production and business process, such as reserving raw materials, lending production costs, or meeting shortfall demands Capital is used in the payment connection between businesses

- Real estate loan: is a type of loan to invest in real estate such as buying land, houses, or building, expanding land

- Consumer credit: is a type of loan to meet the consumption needs of individuals and households such as buying goods on credit, building houses or other necessary means

1.2.3 Classification according to the characteristics of capital turnover:

- Working capital credit: Used to form working capital for business organizations

- Fixed capital credit: Used to form fixed assets

1.2.5 Classification by type of loan:

- Item loan: is a type of bank credit extension in which consumers must submit a loan application for each loan with an interest rate, a payment term, and a specific loan amount

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- Lending via credit line: is a type of bank credit extension in which customers just need to complete a set of documentation for many loans The bank sets a restriction for consumers, but it only limits the outstanding balance, not the sales

1.2.6 Classification by method of loan repayment:

- Loans with a single payback term, also known as maturity loans, are loans in which clients retum the loan principal and interest only once when it is due Typically used for minor, short- term loans

- Installment loan: A loan in which the consumer must repay the principal and interest in equal installments on a regular basis This loan type is used for large loans with extended periods

- Loan repayment on demand: is a sort of debt that allows clients to repay the loan at any time Typically used for overdraft loans and credit cards

1.2.7 Classification by form:

- Commercial paper discount: 1s the bank's advance to the customer equal to the value of the commercial paper less the bank's income from owning an undue commercial paper (or a debenture)

- Loan: Money given by a bank to a customer with the promise that the consumer would repay both principal and interest within a certain time frame

- Guarantee: the bank's assurance that it will meet its financial obligations on behalf of its customers Although the bank was not required to issue money, it allowed consumers to profit from its reputation

- Leasing: When a bank spends money to purchase properties for consumers to rent under specified conditions Customers must pay both principal and interest to the bank after a specific period of time

1.3 The role of bank credit in the market economy:

- The bank has demonstrated its role in each country's development through the services it provides The banking system is a significant capital mobilization mechanism that effectively serves most enterprises’ and individuals' additional capital demands Furthermore, capital addition via the bank in the form of a loan is always coupled with the bank's inspection and control This helps to improve the economy's capital mobilization and capital usage efficiency

- Bank credits to the government are a vital source of funding for development projects Credit

is a crucial weapon in the government's economic strategy for sustamed economic development since banks implement economic policies, particularly monetary policies

- Banks are the main lending institutions for businesses, individuals and households, thereby promoting production and consumption development

- The bank serves as the society's treasurer, assuring the safekeeping of monetary funds, easy payments, and contributing to cost savings

2 Bank credit quality:

2.1 Credit quality concept:

- To begin, from the customer's point of view, quality is defined as "the degree to which the requirements of a set of inherent characteristics are met" in Article 3.1.1 of the ISO 9000:2005 standard

- Secondly, in terms of socioeconomic growth, bank credit is one of the most powerful forces and the most significant foundation in socioeconomic development, as it is the ability to support and meet the needs of the economy

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- Thirdly, from the standpoint of banking: A bank, like any other organization in the economy, conducts business with the primary purpose of maximizing equity

2.2 Credit rating criteria:

Commercial banks' primary business is credit As a result, credit measurement is a crucial component in measuring commercial banks' business success Many various indicators are provided depending on the objective of the analysis; each indication has different information, but there is a close relationship between them

2.2.1, Capital use criteria:

- This is an efficiency indicator that reflects credit quality and allows a bank's credit operations

to be evaluated The higher this index, the more successfully the bank has used the mobilized capital

2.2.2 Outstanding balance: Short-term (or medium-long-term) outstanding balance /Total outstanding balance:

- This is a quantitative indicator that determines the credit structure by dividing outstanding loans by loan term (short, medium, long term) This indicator also depicts the variation of a bank's proportion of different forms of credit balance over time The higher this ratio, the more developed the credit business and the more prestigious the customer relationship

2.2.3 Overdue debt ratio: Overdue debt/Total outstanding debt:

- Bad debts/Total outstanding loans

- Bad debts/Total overdue debts

- The overdue debt percentage is a key metric for assessing the quality of credit operations Banks with a low index have demonstrated high credit quality and vice versa

- Usually, the best overdue ratio 1s <= 5% However, this measure does not always accurately reflect a bank's credit quality Because, in addition to banks with a decent late debt ratio because they have performed effectively in the credit process, there are banks with low overdue debt due

to loan reversal, failure to transfer overdue debt in compliance with regulations, and so on 2.2.4, Indicators of credit capital turnover (credit turnover):

- Once a year, this measure represents a bank's capital used for loan losses The greater the size

of this indication, the better; it demonstrates that the bank's capital has moved fast, engaging in many production and business cycles

- In addition to the quantitative criteria listed above, many banks now utilize qualitative factors

to assess credit quality, such as compliance with regulations, credit regulations, document preparation, and so on loans, effective production and business plans, and so on

2.3 Factors affecting credit quality:

Credit quality is the result of a lengthy procedure that begins when the credit is approved and issued by the bank and ends when it is recovered Numerous dangers in that process could result

in the bank not recovering money and incurring losses Credit quality management necessitates a thorough grasp of the elements that influence it, which include:

2.3.1, Subjective factors (or groups of factors from the bank):

- Credit policy: Credit policy reflects the basic ornentation for credit activities, it has a decisive meaning to the success or failure of the bank

- Credit process: the credit process is the sequence of steps from the beginning to the finish of

a transaction inside a function or task that specifies how the organization accomplishes basic technical and professional procedures credit officers and bank executives The credit procedure is

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critical; if it is managed scientifically, it will allow for the performance of quality loans to be guaranteed

- Internal control: The more regular and stringent the mternal inspection of the bank's business activities, the more it will keep credit activities on track and in compliance with the credit regulation's principles and regulatory standards as well as the credit process, to prevent and restrict credit officer errors, assist credit actions in being repaired on time, and provide favorable conditions for credit quality improvement

- Personnel management: In order to improve business efficiency and credit quality, banks must have a team of good credit officers who are systematically trained, knowledgeable, and knowledgeable Rich in the market, particularly in the field of capital investment, mastering legal paperwork connected to credit activities

- Credit information: Credit activities require an excellent information system in order to achieve high efficiency and safety Banks must establish a thorough and adaptable information system in order to provide accurate and timely information, boosting their ability to prevent credit risks

2.3.2 Objective factors (Group of factors from the customer side):

- Reputation and ethics of the borrower:

+ Banks typically make credit decisions for borrowers only after thoroughly assessing criteria such as the borrower's reputation and repayment ability The borrower's stakeholders may

be to blame

+ Customers can defraud the bank through data, document, and property ownership fraud,

as well as using loans for unsuitable objectives, incorrect business objects, and business plans Fraudulent banking will certainly expose the bank to risks

+ The customer's reputation is also a source of concern; the customer's reputation is used to assess the customer's readiness to repay and faithfully perform the duties outlined in the contract

- Customer's business management capacity and experience:

+ The organizational capacity and business management experience of the borrower have a significant impact on credit quality This is the premise for customers to develop successful business abilities, and it 1s the foundation for customers to meet their pledge to repay the bank debt, both principal and interest, on time If the manager's qualifications are limited m many areas, such as education, practical experience, and so on, the firm is particularly prone to losses, resulting in poor debt repayment ability and negatively influencing the bank's credit quality 2.3.3 The group of environmental factors:

- Economic environment: A stable economy provides a good climate and environment for businesses to function in production and business and produce large profits, contributing to the success of the bank's business In the contrary instance, the instability obviously extends to the bank's activities, compromising credit quality and resulting in losses for the bank

- Political environment: One of the beneficial aspects for firms to operate efficiently will be the country's political stability Events that cause political instability, such as wars, partisan conflicts, embargoes, riots, demonstrations, strikes, and so on, can harm businesses and the entire economy general (paralyzing manufacturing, slowing commodities circulation, etc) (paralyzing production, stalling goods circulation, etc.) As a result, the money that businesses borrow from banks will be difficult to repay in full and on time, lowering credit quality

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- Legal environment: One of the parts of the external environment that affects the business activities of enterprises in general and commercial banks in particular is the legal system

- Competitive environment: This is a factor that strongly affects the quality of credit and takes place in two directions:

+ To begin, banks must constantly prioritize investing in superior equipment, growing qualified employees, and consolidating and promoting the bank's reputation and strengths in order

to dominate the competition This impact direction has aided in the enhancement of credit quality + Secondly, under pressure from severe competition, banks may disregard necessary credit conditions, raising the risk level and lowering credit quality

- Natural environment: Natural risk factors such as floods, fires, earthquakes, epidemics, and

so forth can cause unforeseen harm to both borrowers and banks Although these risks are difficult to foresee, they account for a tiny proportion of the total; on the other hand, banks sometimes share losses with insurance firms or are supported by the government

II Actual situation of credit quality of Military Bank (MB Bank):

1 Overview of the bank's business:

1.1 Capital mobilization work:

Table 1.1 Mobilization of capital by term and by currency of Military Bank

Unit: Million dong

By term

Notem | 98.425.733 33,95% 115.800.637 35.76% | 171.589.002 | 44.87% With term | 191.527.719 | 66.05% | 208.025.746 | 64.24% | 210.857.314 | 55.13%

By

currency

VND 258.669.245 | 89.21% | 294.871.565 | 91.05% | 360.252.412 94.2% Foreign

currency | 31.284.207 10.79% 28.954.818 8.94% 22.193.904 5.8% and gold

Source: MB Bank's annual report in 2019, 2020, 2021

- The table of capital mobilization by term and currency type shows that the amount of capital mobilized has increased steadily over the last three years Deposits with terms accounted for a substantial share of total deposits, whereas deposits in foreign currencies and gold tended to decline and accounted for a minor fraction of total deposits

- In 2019, the total deposit balance was VND 289.953.452 million The bank's capital mobilization was successful in 2020, when it grew from VND 33.872.931 million to VND 323.826.383 million Capital mobilization increased further in 2021, reaching VND 382.446.316 million Going into the analysis:

1.1.1 Structure of mobilized capital by term:

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Figure 1.1 Capital mobilization by term

Unit: Million dong

- In three years, demand deposits tend to rise continuously The reason for this is that a demand deposit is a currency that the depositor can withdraw at any moment, making it a less reliable source of money However, because the running costs are very low, this sort of deposit serves the primary goal is for remuneration Demand deposits totaled VND 98.425.733 million in 2019, accounting for 33.95% of total mobilized capital It increased by VND 17.374.904 million to VND 115.800.637 million in 2020, accounting for 35.76% of mobilized capital Demand deposits climbed by 55.788.365 from the start of the year to 171.589.002 by the end of 2021, accounting for 44.87% of mobilized capital

- Despite the growth, term deposits have declined in proportion to the total deposit sum Customers may deposit money without demand as a result of interest rate and market volatility Term deposits totaled VND 191.527.719 million in 2019, accounting for 66.05% of total deposit amount In 2020, the total deposit balance increased by 16.498.027 million VND to 208.025.746 million VND, representing 64.24% of the total deposit balance The proportion of term deposits

in total deposit balance will only reach 55.13% by the end o£ 2021, totaling VND 210.857.314 million

1.1.2 Structure of capital mobilization by currency:

lãi

Huy động vốn theo loại tiền

Figure 1.2 Capital mobilization by currency

Unit: Million dong

- The chart shows that capital mobilization in local currency has increased significantly over time, whereas capital mobilization in foreign currency has decreased In 2019, VND 258,669,245 million was mobilized in local currency, accounting for 89.21% of total mobilized capital The amount of local currency mobilized expanded quickly in 2020, rising from VND 36,202,320 million to VND 294,871,565 million, accounting for 91.05% of total capital mobilized In 2021, it will have risen dramatically to VND 360,252,412 million, representing 94.2% of mobilized capital

- The amount of foreign money mobilized in 2020 was 28,954,818 million VND, a decline of 2,329,389 million VND from the previous year, when it was 31,284,207 million VND In 2021, this figure fell by VND 6,760,914 million to VND 22,193,904 million, accounting for 5.8% of total mobilized capital

- The Covid-19 outbreak had a significant impact on Vietnam's economic position in the three years from 2019 to 2021, with just a minor recovery by the end of 2021 However, the capital mobilization situation of Military Bank (MB Bank) has steadily increased, demonstrating that the bank's capital mobilization strategy is effective, there are many customers care services, partly because this is one of the country's leading prestigious banks, it still retains customer's trust so that customers can put their idle capital in the bank

1.2 Activities using capital:

Table 1.2.Table of loan norms, total and proportion of each type

Unit: Million dong

Account | Proportion Account Proportion | Account | Proportion

Total loan 250,330,623| 100% 298,296,983 100% | 363,555,778 100%

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Source: Notes to the bank's financial statements for 2019 2020.2021

- Outstanding loans in VND in 2020 are VND 298,296 billion, an increase of about 48 billion compared to 2019, short-term loans in 2020 are VND 146,429 billion, an increase of about VND

28 billion, medium and long-term loans are VND 147,744 billion, an increase of VND 147,744 billion about 19 billion VND compared to 2019

- Outstanding loans in VND in 2021 is VND 363,555 billion, an increase of about 65 billion compared to 2020, short-term loans in 2021 are VND 166.663 billion, an increase of about VND

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20 billion, medium and long-term loans are VND 189,739 billion, an increase of VND 189,739 billion about 42 billion VND compared to 2019

- The increase in outstanding loans shows that the economic context is positive, production and business continue to expand, administrative reform is more positive, and the imvestment environment is increasingly improving This is considered a positive bright spot when credit flows continue to be directed into the fields of production and business, turning back to create impetus for economic development The increase in lending will increase the bank's profit and also show the right solution of MB bank to increase loan capital

- In terms of loan structure:

+ By term, medium and long-term loans always account for more than 50%, but in 2020, medium and long-term loans are slightly less than 50% (in 2019: 51.43%; 2020: 49), 53%; in 2021: 52.19% The rest is the proportion of short-term loans

+ By type, it can be seen that lending to individual economic organizations always accounts for the highest and most important proportion of approximately 97%, followed by lending to foreign organizations and individuals and margin trading loans and advances to customers + In general, the lending activities of MB bank are in a good direction, the strong increase in

2021 data also shows the success of the bank This success is due to the correct orientation of the borrowers who are retail customers, simple procedures, and the result of a dynamic staff, good

customer care

1.3 Financial results achievement:

Table 1.3 Military Bank's revenue, expenses and profits

Unit: Million dong