Valuation of collateral assets - real estate serving for loans at Commercial Bank 17 2.2.1.. LIST OF ABBREVIATIONS ABBREVIATIONS MEANING CBs Commercial Banks CAP Collateral Appraisal P
Necessity of research
In the lending activities of CBs, the CAP plays a crucial role as an indispensable step This process is not only a part of the credit granting procedure but also an effective risk management tool The main objective of CAP is to accurately assess the true value of assets used to secure the loan Through this, banks can determine risk management capabilities, ensuring safety and reliability throughout the lending process Before providing a loan, banks often require customers to provide collateral such as real estate, deposits, machinery, or vehicles However, effective utilization of these assets without causing loss in case customers fail to fulfill obligations requires a thorough and comprehensive CAP Through the CAP, banks obtain detailed information about collateral assets, from conditions and locations to their actual values This provides the bank with a comprehensive view of the customer's repayment ability in case of default."
The urgency of property valuation becomes evident when considering the potential consequences of not conducting this process correctly If assets are not accurately evaluated or lack the ability to repay the loan, banks face significant financial risks and burdens These repercussions not only impact the bank but also the entire financial and economic system, eroding investor confidence and causing general financial market instability Given these reasons, implementing a meticulous and reliable collateral appraisal process is incredibly essential for CBs This helps safeguard the bank's interests, enhances transparency and trust in the lending process, and ensures the stability of the financial system
Vietnam Maritime Commercial Joint Stock Bank is currently in the process of refining its real estate collateral valuation procedure, as operational challenges and errors sometimes affect the appraisal process Recognizing the importance of REA activities and their alignment with the bank's reality, I decided to select the topic: "VALUATION OF COLLATERAL ASSETS - REAL ESTATE SERVING FOR LOANS AT MARITIME
BANK (MSB) - HANOI BRANCH" for research The aim is to investigate REA activities in lending, analyze, and propose solutions to improve the quality of REA at the bank This study not only holds theoretical significance but also contributes to enhancing the bank's service quality
Research goals
This study focuses on the topic " VALUATION OF COLLATERAL ASSETS - REAL ESTATE SERVING FOR LOANS AT MARITIME BANK (MSB) - HANOI BRANCH" The main objective is to understand the current situation of real estate collateral assessment in the lending process at MSB's Hanoi branch and propose solutions to enhance the quality of asset valuation in this process Specifically, this research aims to achieve the following objectives:
Systematize and clarify the theoretical basis related to real estate collateral assessment for lending purposes at MSB's Hanoi branch
Analyze and evaluate the current status of real estate collateral assessment for lending purposes at MSB's Hanoi branch
Recommend improvements to the real estate collateral valuation process for lending purposes at MSB's Hanoi branch.
Object of research
Research Object: The research focuses on the theoretical framework of real estate collateral assessment for lending purposes at Maritime Bank of Vietnam, as well as the current status of this process at the bank.
Scope of research
Content: The study aims to investigate and provide recommendations to enhance the real estate valuation process at Vietnam Maritime Commercial Joint Stock Bank– HaNoi branch
Geographic Scope: At Vietnam Maritime Commercial Joint Stock Bank– HaNoi branch
Timeframe: During the period from 2022 to 2024.
Methodology
Methods used in the research process include:
Research Overview and Theoretical Framework: Utilizing methods of data collection, comparison, analysis, and selective information to prepare the theoretical content on collateral valuation for real estate lending at the bank
Current State of REA for Lending at MSB - Hanoi Branch: Data sources are gathered by collecting information, data, and documents related to REAs, such as contracts, approvals, regulations, and online materials, for research from the credit management department from 2022 to 2024 Information is also collected from colleagues at the branch regarding the REA process for lending at MSB Based on the collected data, the author employs statistical data analysis methods to better understand the current situation of REA for lending at MSB – Hanoi Branch
Proposed Solutions to Enhance Collateral Valuation for Real Estate Lending: Using synthesis, analysis, and logical deduction methods to demonstrate the alignment between theoretical foundations, practical situations, and proposed recommendations.
The significance of science and practical application
In terms of theory: The thesis systematically establishes a scientific theoretical basis regarding the content of collateral valuation for real estate, providing a foundation for practical research on collateral valuation for lending purposes at the research institution in a logical manner
In practical terms: The author presents specific and practical recommendations closely linked to the operational realities of the institution Consequently, banks can apply this research to enhance and improve the effectiveness of their collateral valuation activities.
Structure of research
Apart from the introduction, table of contents, general conclusion, and reference list, the thesis is structured into four main sections:
Part 2: Theory on Collateral Valuation for Real Estate Serving Lending at Joint-stock Commercial Bank
Part 3: Current Situation of Collateral Valuation at The Maritime Bank of Vietnam - Hanoi Branch
Part 4: Solutions to Improve Collateral Valuation for Real Estate Serving Lending at The Maritime Bank of Vietnam - Hanoi Branch
RESEARCH OVERVIEW
International studies
Research "The Role of Collateral in Credit Markets" by Raghuram Rajan and Luigi Zingales (2015) focuses on the significance of collateral assets in the lending process Specifically, it evaluates how the use of collateral affects credit relationships within the financial market Collateral assets not only enhance the safety of banks when providing loans but also influence credit relationships and lending decisions Rajan and Zingales conducted several studies to delve deeper into this issue, aiming to understand the impact of collateral assets in the credit market The authors examined the role of collateral assets in an environment where lenders and borrowers have identical information and similar beliefs about their future value They observed that lenders would not extend loans exceeding the market value of collateral assets, and loan volumes increase as the market value of collateral assets rises
Research "The Value of Collateral in Loan Renegotiation: Evidence from the Commercial Mortgage-Backed Securities Market" by authors Hui Chen, Rui Cui, and Zhiguo He focuses on the role of collateral in loan renegotiation The authors analyze how the value of collateral influences the renegotiation process of loan contracts, using data from the Commercial Mortgage-Backed Securities market However, this article shares similar limitations with others by not delving deeply into analyzing specific constraints of pricing standards and lacking up-to-date standards due to outdated data
Research "Safe Collateral, Arm's-Length Credit: Evidence from the Commercial Real Estate Mortgage Market" (2017) by Lamont K Black, John Krainer, and Joseph B Nichols examines the suitability of collateral in the commercial real estate mortgage market by comparing loans in financially issued collateral instruments While attracting significant attention, the article's discussions on credit evaluation and collateral assessment lack clarity and practical applicability
Research "The Impact of Collateral Characteristics on Bank Loan Terms: Evidence from the European Syndicated Loan Market" (2009) by authors Sreedhar Bharath, Sandeep Dahiya, and Anthony Saunders explores the impact of collateral characteristics on bank loan terms Focusing on the European syndicated loan market, the study provides evidence on how collateral characteristics affect loan terms The authors analyze the relationship between factors such as collateral type, value, and location with loan contract terms.
Domestic studies
In Vietnam, besides studying the role of Collateralized Property in lending activities at banks, many authors also delve into the valuation and pricing activities of Collateralized Property in various Credit Institutions across the country
Master's thesis in Finance - Banking by Vo Ngoc Luan (2017) titled "Improving REA Work in Lending Activities At BV Bank" systematically organized theoretical foundations regarding appraisal work for assets Based on this, the research analyzed and evaluated the current situation of Collateralized Property appraisal work in lending activities at branches of BV Bank The recommendations in the thesis are highly practical and closely tied to the bank's business operations
Master's thesis in Economics specializing in Finance-Banking by Pham Quoc Hung (2018) titled "Quality of Appraisal Regarding Real Estate at Viet Nam Maritime Bank." This study explored fundamental issues regarding the quality of REA at Maritime Bank, such as evaluation criteria, influencing factors, and lessons learned from other banks' appraisal experiences The thesis inherited theoretical research on securing loans with Collateralized Property, thereby proposing practical recommendations suitable for the actual business environment during the research period However, there are still some limitations, such as not deeply addressing specific contents of loan security work
Master's thesis in Economics specializing in Finance-Banking by Bui Thi Bich Cham
(2021) titled " Improving REA Work at SaiGon Bank For Industry And Trade." This thesis provided a comprehensive overview of the theoretical basis for collateral appraisal work in lending, analyzing limitations and root causes However, the solutions presented in the thesis are general and do not identify the limitations in the appraisal process stages, making it difficult to apply these solutions to the actual situation of the researched bank.
Research gaps
Topic valuation of collateral asset – real estate serving for loans in CB is highly interesting and has significant practical implications in the financial sector, specifically in banking Property appraisal is a crucial process directly supporting the lending activities of banks
In recent years, there hasn't been any study conducted regarding REA activities serving lending purposes at Vietnam Maritime Bank - Hanoi Branch Through exploring related studies on the topic, and improving the appraisal process to ensure collateralized loans at
CB both domestically and internationally, it's evident that this topic is not new Numerous studies have been undertaken, approaching various aspects and employing diverse research methodologies However, the main limitations of previous studies include:
Lacking focus on practical application: Research may excessively concentrate on theory and methods, neglecting their real-world application in the banking sector Insufficient attention to practical factors like lending processes and risk management can diminish the applicability of these studies in reality
Limitations in data and information: In some cases, data and information about the real estate market may be incomplete or not transparently disclosed, affecting the objectivity and reliability of appraisal methods
Lack of diversity in risk assessment methods: Despite the existence of various risk assessment methods, research might overly emphasize a few methods and fail to integrate them comprehensively, leading to errors and risks for banks Moreover, the lack of diverse valuation methods can result in shortcomings
Inadequate specificity in banking application: Studies may not delve deeply into the specific application of appraisal methods in the lending process of banks, reducing their practical applicability within the industry
Given that each bank has different policies and services regarding collateralized asset appraisal, conducting further research at different banks and timeframes is necessary to assess specific and accurate information about the Collateralized Real Estate Asset Appraisal
This study inherits theoretical foundations from previous research on property appraisal serving lending purposes at CB It aims to clarify relevant issues regarding REA in lending at CB, particularly at the Vietnam Maritime Bank - Hanoi Branch Based on the analysis of the current appraisal activities and practical examples, the thesis further delves into analyzing strengths, weaknesses, achieved results, and limitations in the appraisal process at the unit Building upon these foundations, the research provides appropriate solutions and recommendations to ensure the quality of the Collateralized Real Estate Asset Appraisal - Banking Sector at the unit during the study period and in the future Identifying gaps in time, legal aspects of real estate, and the lack of diversity in applying property appraisal methods and their real-world implementation will be specifically studied in this thesis to ensure the quality of Collateralized Real Estate Asset Appraisal - Banking Sector at the unit
In this introduction section, we examined the presence of previous studies on REA for lending purposes in both international and domestic banking contexts Through evaluating existing research, I observed deficiencies in applying practical methods and constraints regarding data and information, along with facing unique challenges of the real estate market in Vietnam Therefore, this study aims to fill this gap by focusing on developing appraisal methods integrated with new data, spatial, and temporal dimensions, hoping to significantly contribute to enhancing the efficiency of lending processes and risk management in the banking industry.
THEORY OF ASSET VALUATION - REAL ESTATE SECURED
Lending activities of Commercial Bank
Lending activities of CBs is a crucial part of their business operations, involving loans extended to individuals, businesses, and organizations across various sectors In the real estate domain, commercial bank lending often focuses on providing financial support for construction projects, property acquisitions, and real estate developments
CBs typically have clear and complex procedures for assessing and managing risks associated with real estate project financing This includes evaluating project feasibility, determining collateral values, assessing borrower repayment capacity, and establishing terms regarding interest rates, loan durations, and collateral requirements
During the lending process, CBs apply strict criteria to ensure loan viability and safety They often require collateral, such as real estate assets, to secure loans and mitigate risks Additionally, robust risk management practices, including frequent project evaluations and safeguards against market and credit risks, are integral to CB lending activities
In summary, CB lending in the real estate sector is a complex and meticulous process, conducted under careful control and management to ensure sustainability and effectiveness for both the bank and its clients
2.1.1 Characteristics of Commercial Bank loans
The main characteristics of CB lending activities include:
Stringent evaluation process: CBs typically employ rigorous assessment procedures for customers and projects to ensure the feasibility and safety of loans This involves evaluating the financial status of customers, project feasibility, and collateral value
Collateral requirements: CBs often require loans to be secured by assets such as real estate, shares, or other personal assets This helps ensure that the bank has a source of recovery if the borrower defaults
Flexible loan conditions: While there are basic borrowing standards, commercial banks can adjust loan terms based on the specific needs of customers and project characteristics This may include negotiating interest rates, loan terms, and repayment schedules
Risk Management: Commercial banks typically implement measures to manage and mitigate risks in the lending process, including regular assessment and monitoring of funded projects, while maintaining reserve funds to deal with emergencies
Diversification of Funding Sources: Commercial banks often utilize various funding sources for lending, such as customer deposits, borrowing from central banks, or other financial institutions This helps ensure stability and flexibility in lending operations
In summary, commercial bank lending activities are usually conducted under strict control to ensure sustainability and safety for both the bank and its customers
2.1.2 Loan types at Commercial Bank a Types of lending by Commercial Banks can be classified based on the method of providing loans and repayment methods:
Overdraft Facility: Overdraft is a form of lending where a Commercial Bank allows customers to use the balance in their current account to borrow a specific amount for a certain period and within a defined scope In this form, customers can "overdraft" their current account balance to pay for expenses or financial needs, instead of withdrawing money from the original account With overdrafts, customers do not need to provide collateral and can access flexible funding to meet their short-term financial needs However, forecasting the timing and amount of borrowing may be inaccurate due to mismatches between the customer's receipt and payment schedules This can lead to overpayments or insufficient funds in the account, causing financial issues for customers
An installment loan: is a lending arrangement where a CB allows customers to gradually repay their debt in periodic installments, rather than paying the entire loan amount and interest at once In this type of loan, customers can repay both the principal and interest in small increments over the loan term, typically agreed upon in advance in the loan contract
Installment payments facilitate easier repayment for customers, especially when the monthly repayment amount is tailored to their financial capabilities This helps reduce financial burdens and enables customers to manage their finances more effectively throughout the loan period Moreover, installment loans are often applied to medium and long-term borrowings, particularly for financing the purchase of durable assets or long- lasting consumer goods This allows customers to experience and utilize assets without having to pay the full amount upfront Instead, they can make smaller periodic payments over an extended period
Non-installment lending is a form of borrowing where customers are required to make a single payment at a predetermined time specified in the contract, instead of repaying the debt periodically as in installment lending In this type of lending, the loan amount along with the interest is agreed upon beforehand and is paid by the customer in one lump sum either when the contract ends or at a specified time This form is often used for short-term loans or specific purposes such as large one-time expenses, purchasing special assets, or meeting other short-term financial needs Making a single payment simplifies the borrowing and repayment process, reducing the financial burden on customers However, it's important to note that the interest rate for this type of loan may be higher compared to installment loans due to the higher financial risk for the bank when there's no regular repayment schedule b Types of loans can also be classified based on lending method:
Direct lending is a form of lending where CBs directly provide loans to customers without involving any other intermediary organizations In this form, customers receive the loan amount directly from the CB and repay the debt directly to the bank Direct lending is typically applicable to individual or business loans with specific loan amounts without the need for intermediaries from other organizations This increases convenience and direct interaction between customers and the bank, while minimizing fees and costs associated with intermediaries However, it's important to note that direct lending may require customers to meet financial standards and collateral requirements if necessary, depending on the type of loan and the conditions of each specific transaction
Indirect lending is a form of lending where CBs conduct lending through intermediary organizations or other entities, not directly to customers Typically, in this form, CBs collaborates with organizations such as cooperatives, production groups, farmers' associations, veterans' associations, women's unions, and other organizations to provide lending services to individuals or businesses The operation of indirect lending involves CBs providing funds to these intermediary organizations, which then continue to provide lending services to end customers This helps expand the scope and accessibility of CBs to a wider range of customers, especially those in rural areas where access to traditional financial services may be limited However, indirect lending may have limitations such as control and management of risks associated with loans Additionally, intermediary organizations may impose specific requirements or conditions on customers when providing lending services
2.2.1 Concept of collateral assets - real estate
2.2.1 Concept of collateral assets - real estate
In finance, secured assets - real estate is a concept referring to the use of real estate such as houses, land, or other real estate assets to secure loans from a financial institution such as a bank These assets are valued and pledged as collateral for the loan, meaning that if the borrower fails to repay the debt, the financial institution has the right to seize and sell the assets to recover the borrowed amount
By using secured assets - real estate, borrowers may receive lower interest rates and more flexible borrowing terms For financial institutions, having secured assets helps reduce risk and increase the chance of capital recovery in case of borrower default
In this concept, secured assets - real estate play a crucial role in ensuring the stability and reliability of the credit lending process
2.2.2 Types of collateral assets - real estate
According to banking regulations and the law, various types of REPs are commonly allowed to be used as collateral for borrowing from banks, specifically:
Land: There are many different types of land commonly used as collateral for borrowing from banks in the market: Urban land, rural land, agricultural land, non-agricultural land, land leased for one-time payment, land leased for annual payment, project land, land for production and business purposes, etc Land plays a crucial role in the lives of individuals, social organizations, and each country, as each nation has its own land ownership boundaries
Land serves as a fundamental asset in securing loans, facilitating financial transactions, and fostering economic development
Residential real estate is understood as real estate used for living purposes, serving the household and individual needs rather than for investment to earn profits It includes apartments, single-family homes (detached houses, semi-detached houses, luxury villas, townhouses on main streets, townhouses with gardens, traditional rural houses)
Commercial Residential Real Estate: Commercial residential real estate defined in this standard is understood as residences built for living and business purposes, rental, lease with purchase option, including residences specified in this section and tourist villas
Commercial Real Estate: Commercial real estate specified in Appraisal Standard No 1 includes shopping centers, office buildings, hotels
Industrial Real Estate: Industrial real estate specified in Appraisal Standard No 11 includes land and construction works suitable for land use purposes as prescribed by law, such as cement production plants, dyeing factories, seafood processing plants, food processing plants
2.2.3 Benefits of collateral assets - real estate for lending
Benefits of Property Valuation for Loan Purposes:
Accurate Valuation: Property valuation ensures the precise determination of the real value of real estate assets, providing reliable information about the property's value used as collateral for the loan
Risk Reduction for Banks: By assessing property value, banks can ensure that the collateral value is sufficient to offset the loan in case the borrower defaults This reduces the risk banks face in lending and enhances financial system stability
Risk Management: Property valuation offers detailed information on the condition and value of the asset, enabling banks to understand the risks associated with using the property as loan collateral This allows banks to establish more effective risk control measures in credit management
Enhanced Transparency: The property valuation process is transparent, providing both borrowers and banks with a clear understanding of the property's value and the basis for determining that value This fosters transparency and trust in the lending process and helps avoid disputes over property value in the future
Ensuring Fairness: Property valuation ensures that both borrowers and banks are treated fairly, with the use of property value determined as objectively and accurately as possible[6]
Legal Compliance Support: Property valuation provides evidence of the property's value, supporting legal compliance in dispute resolution, inheritance, and purchase and sale transactions
Therefore, property valuation for loan purposes is not only a necessary process to ensure transparency and fairness in lending activities but also brings many other benefits to both borrowers and banks
2.2.4 Concept of asset valuation for lending at MSB
When researching property valuation, scholars worldwide have provided various definitions:
According to the Oxford Dictionary, "Property valuation is the estimation of the monetary value of an object or property"; "it is the estimation of the current value of assets in business"
Professor W Seabrooke of the University of Portsmouth, United Kingdom, defines property valuation as "the estimation of the value of specific property rights in monetary terms for a defined purpose."
Fred Peter Marrone, Marketing Director of AVO, Australia, states that property valuation is "the determination of the value of real estate at a given time, considering the nature of the property and the purpose of the valuation Therefore, property valuation involves applying market comparison data collected and analyzed by appraisers, then comparing it with the property to be valued to establish its value."
According to Dr Lim Lan Yuan from Singapore, property valuation is an art or science of estimating the value for a specific purpose of a specific asset at a particular time, considering all the characteristics of the property as well as examining all the fundamental economic factors of the market, including various investment options
According to Vietnam's 2012 Price Law, the concept of price appraisal is given as follows:
"Price appraisal is the determination by agencies and organizations with price appraisal function of the monetary value of assets according to the provisions of the Law on Prices." The Civil Code is consistent with the market price at a certain place and time, serving a certain purpose according to valuation standards.”
In general, the concepts related to appraisal share common factors:
- Pertaining to assets, real estate, or ownership rights
- Based on specific requirements and purposes
- A specific location, time, or period
- Utilizing market data and factors
Therefore, the concept of property appraisal can be understood as an art or science of estimating asset value in accordance with market conditions at a specific location and time, for a particular purpose, based on recognized standards such as international or national norms
CURRENT SITUATION OF VALUATION ACTIVITIES AT MSB
Overview of MSB Hanoi Branch
Vietnam Maritime Commercial Joint Stock Bank Maritime Bank was established on November 12, 1991 in the port city of Hai Phong In 2005, the Bank officially moved its headquarters to Hanoi, opening a new period of development with a larger scope of operations than 2016, marking 25 years of development and continuous efforts Maritime Bank has achieved great strides Steady progress and become a prestigious banking brand in Vietnam As the first private joint stock commercial bank established in Vietnam, Maritime Bank was born at a time when this model was still quite new with debates about the appropriateness of the model still unresolved However, with the pioneering spirit of bold investment, the creative thinking of the founders and the unanimity of Maritime Bank's staff, it has proven the great potential of the commercial banking model Share trading and achieved remarkable achievements
Constantly expanding scale: Starting from a private bank for young people with 24 shareholders with a charter capital of 40 billion VND and a few branches in major provinces such as Hai Phong, Quang Ninh, Ho Chi Minh City Currently, Maritime Bank has a strong policy in terms of both scale and financial potential, with a charter capital of VND 15,275 billion and a wide operating network of nearly 300 branches, transaction offices and nearly 500 ATMs nationwide country, receiving support from customers Trusted by more than 2.1 million individual customers, nearly 50,000 large corporate customers and financial institutions nationwide (updated data 2022)
Boldly investing in technology platforms: Since its inception, Maritime Bank has made a big mark in the Vietnamese banking industry by pioneering the application of modern technology and being the first commercial bank to apply for a payment license international Building Core Banking using centralized data for the first time in Vietnam and being replicated for use in most banks in the long term; The bank for the first time applied LAN and WAN computer networks to shorten money transfer time from weeks to minutes, and it didn't stop there During a quarter of a century of establishment and development, the Bank has continuously invested in upgrading technology platform system to promptly update new standards of a modern bank to better serve
Efforts to improve product and service quality: Aiming to bring the best experiences to customers and partners when using the bank's products and services, in addition to continuously improving the Maritime technology platform The Bank regularly launches new programs to increase additional benefits For individual customers, Maritime Bank is a family bank that not only provides benefits to customers but also to relatives and friends through optimally designed product packages based on the actual needs of each customer group For business customers, Maritime Bank is a chain bank that provides finance to both businesses and their partners to help optimize business efficiency towards strong and sustainable development in the Dong Hanh region.customers
Focus on risk management: As one of 10 banks selected by the State Bank to pioneer in implementing Basel II compliance Maritime Bank has established the Basel II Project Steering Committee with members being leaders Senior leaders of the board of directors and executive council established a separate Basel II center and a specialized risk tool model to successfully implement the project Currently, the bank is maintaining a strong capital adequacy ratio exceeding the requirements of the State Bank Thanks to a solid foundation, the bank can well implement new business plans in accordance with the proposed strategy go out
With continuous efforts throughout the stable operation process, contributing positively to the Vietnamese banking system along with bringing increasingly better product and service values to customers and partners, Maritime Bank has been honored to receive many awards from prestigious domestic and foreign organizations such as: "Best Bank in Vietnam for small and medium enterprises" initiated by Euro Money magazine in 2016 and "Best Bank in Vietnam for small and medium enterprises" initiated by Euro Money magazine in 2016 and "Best Bank in Vietnam for small and medium enterprises" initiated by Euro Money magazine in 2016 and “Best digital transformation 2023” awarded by Global Brands
Table 2: Organizational structure of MSB Bank - Hanoi Branch
General Director of Corporate Customers
Director of Corporate customer manager
Director of Corporate customer managemnet a Credit activities
Table 3: Credit outstanding during the period 2022-2023 (Unit: Billion Vietnamese Dong)
Source: Customer Relationship Management Department- MSB Hanoi branch
The data table above describes outstanding credit debt divided by target in the period from
2022 to 2023 at MSB - Hanoi Branch In general, the Branch's credit balance tends to increase gradually over the years, short-term credit balance accounts for the highest proportion in both reporting years, while long-term credit balance only accounts for a small proportion between 9% and 11% Based on customer segment, the credit balance of corporate customers has slightly increased and vice versa, for the individual customer segment, the proportion of individual customers has decreased slightly over the years MSB Bank - Hanoi Branch has actively offered the most preferential interest rates for individual customers The branch also competes and attracts a large number of loyal customers inside and outside the area, but still trivial Therefore, according to the direction of the leadership of the Customer Management Department, the Branch will focus on promoting the number of SMEs customers - small and medium enterprise customers By 2023, it can be seen that the credit balance of the corporate customer group has increased significantly from 9,024 billion vnd to nearly 9,800 billion vnd, accounting for 95.64% of the total credit balance at the branch of 10,200 billion vnd With the efforts of leaders and staff at all levels, we have helped the Branch develop in accordance with the business strategy set by the board of directors b Other activities
Hanoi branch has organized many activities for employees to participate in physical and health improvement activities, such as on the last Saturday of the month, employees have the opportunity to participate in running race at Hoan Kiem Lake, this is one of the policies to help bank staff improve their health, raise their working spirit, practice time skills and especially build close relationships between members within the agency In addition, the branch also organizes many domestic and international field trips that have been proposed and approved by the management board with the purpose of exploring new tourist destinations, new cultures and people Most importantly, it helps reduce stress and fatigue after a long period of intense concentration at work
During the period of 2023 and the first quarter of 2024, with the efforts of the management board to find potential customers for the branch and the continuous efforts of the staff, the Hanoi Branch has excellently ranked first entire northern system of business activities Thanks to the talent in management of leaders at all levels as well as strong capital, Hanoi Branch was able to surpass many other branches in the North and can compete healthily with other banks other products in the same area with more attractive interest rates.
Current status of Valuation of Collateral Assets - Real Estate at MSB Hanoi
3.2.1 Legal Basis for Conducting Asset Valuation at Maritime Bank - Hanoi Branch
Due to the complex nature of collateral valuation, the Government as well as MSB Bank have issued laws, decrees, regulations, and other regulatory documents with the purpose of guiding and guiding the government appraisers, some documents are listed below:
Regarding law: Based on the following Laws:
- Law on Credit Institutions No 47/2010/QH12 dated June 16, 2010, amended and supplemented on November 20, 2017;
- Civil Law 2015 issued on November 24, 2015; Price Law No.: 11/2012/QH13 issued June 20, 2012;
- Land Law No 45/2013/QH13 issued November 29, 2013;
- Housing Law No 65/2014/QH13 issued November 25, 2014
- Decree No 90/2014/ND-CP issued on September 29, 2014 of the Government on asset valuation;
- Decree No 177/2013/ND-CP of the Government detailing and guiding people to implement a number of provisions of the Price Law;
- Decree No 89/2013/ND-CP amending and supplementing February 24, 2021 of the Government detailing the implementation of a number of articles of the Price Law on Price Appraisal
- Circular 38/2014/TT-BTC issued on March 28, 2014 of the Ministry of Finance guiding a number of articles of Decree No 89/2013/ND - CP;
- Circular 06/2014/TT-BTC issued on January 7, 2014 of the Ministry of Finance promulgating Vietnam Valuation Standard No 13;
- Circular 158/2014/TT-BTC issued on October 27, 2014 of the Ministry of Finance promulgating Vietnam Valuation Standards No 01, 02, 03 and 04;
- Circular 28/2015/TT-BTC issued on March 6, 2015 of the Ministry of Finance promulgating Vietnam Valuation Standards No 05, 06 and 07;
- Circular 126/2015/TT-BTC issued on August 20, 2015 of the Ministry of Finance promulgating Vietnam Valuation Standards No 08, 09 and 10;
- Circular 145/2016/TT-BTC issued on October 6, 2016 of the Ministry of Finance promulgating Vietnam Valuation Standard No 11;
- Circular 122/2017/TT-BTC issued on November 15, 2017 of the Ministry of Finance promulgating Vietnam Valuation Standard No 12;
- Circular 45/2013/TT-B TC issued on April 25, 2013 of the Ministry of Finance guiding the management, use and depreciation of fixed assets;
- Circular No 13/LB-TT BTC-XD-VGCP dated August 18, 1994 on methods to determine the remaining value of works;
- Circular 45/2013/TT-BTC guiding the management, use and depreciation of fixed assets
- Official Dispatch No 1076/QD-VCB-QLRRTD issued on June 25, 2021 promulgating the process of appraisal of collateral assets; Official Dispatch No 1077/QD-VCB-QLRRTD issued on June 25, 2021 promulgating the quality control process for collateral valuation
- Decision No 1021/QD-HĐQT-QLRRTD issued on August 18, 2021 of Vietnam Maritime Commercial Joint Stock Bank stipulates as follows:
1 The valuation of collateral - real estate must ensure objectivity, with priority given to determination on the basis of market value at the time of valuation, except in cases where asset value is determined on the basis of non-market value according to the instructions of the CEO from time to time
2 Determining the value of collateral - real estate: The value of real estate is agreed upon by MSB and the guarantor, in accordance with the price determined by the valuation unit according to MSB's regulations The value of real estate valuation agreed between MSB and the guarantor must be done in writing of the collateral valuation
3 Time to value collateral - real estate: First valuation: Secured assets - Real estate must be valued before the competent authority approves credit unless otherwise specified in MSB's policies/processes/products from time to time (if any) but ensure the principle that real estate must be valued before the time of credit granting (disbursement/guarantee issuance, L/C ) Revaluation: According to the provisions in clause g of this article The value of real estate as the basis for MSB to grant credit to customers must ensure:
does not violate the regulations on revaluation time limit at MSB: for valuations performed internally by MSB
used according to legal regulations: for valuations performed by third parties
4 The unit performing the valuation: The valuation of collateral - real estate will be performed by MSB's valuation department (internal valuation) or by hiring a third party to perform the valuation (outsourced valuation) Asset valuation analysis is carried out in accordance with regulations issued by the General Director from time to time MSB prioritizes the use of internal valuation In case of approval from the Director of Information and Property Management/authorized person/competent authority according to regulations of the General Director, the President will perform outsourcing valuation (except for assets) protection must be evaluated by an organization with appraisal function according to the provisions of law)
5 Valuation is performed internally by MSB, including: Valuation of collateral is carried out by the Center for Valuation and Management of collateral; Valuation of collateral assets is carried out jointly by the Center for Valuation & Asset
Management and the business unit; Valuation of collateral is performed by the business unit
6 Outsourcing pricing: Outsourced valuation units on the list approved by MSB from time to time: perform valuation of secured assets at the request of MSB and in accordance with the capacity of the Valuation Unit Real estate - Real estate must be valued by an organization with the function of price appraisal
7 Revaluation period (for assets being used to secure the Customer's credit obligations at MSB): Based on the volatility of each type of collateral, the maximum period is that a collateral needs to be inspected for its current status/re-value (counted from the time of checking its current status/valuation/re-valuation) closest) is specified in Appendix No PL01/QD.RR.049
8 The handling of revaluation results is carried out according to MSB's collateral management process for each period, ensuring the following principles: The increased value of revalued collateral is only accepted to secure the customer's collateral-secured credit obligations when the customer has completed the collateral documents and loan security procedures in accordance with the law and MSB
3.2.2 Objectives of Asset Valuation – Real Estate serving Loans at MSB Bank – Hanoi Branch
The goals of valuation often include:
Determining the value of fixed and real estate: One of the main goals of the valuation process is to determine the fair and accurate value of fixed and real estate assets This helps banks have a clear view of the value of assets they own or pledge from customers
Evaluate the ability to secure a loan: REA activity provides necessary information for banks to evaluate the ability of assets to secure a loan Understanding the value of assets helps banks clearly determine the level of risk and the ability to recover capital in case customers cannot pay their debts
Ensuring transparency and fairness: : REA activity ensures transparency and fairness in the process of determining asset value This is important to create trust from customers and business partners, while minimizing the risk of legal disputes
Improve risk management and credit decisions: : REA activity helps banks better understand the risks associated with specific assets and manage them effectively Information from the appraisal process provides the basis for decisions on granting loans, helping banks optimize risk management and maximize benefits from the loan
With these goals, REA process plays an important role in supporting risk management and ensuring the sustainability of banks' lending activities
3.2.3 Methods Applied to Asset Valuation – Real Estate at MSB Bank – Hanoi
Based on Circular 114/2004/TT-BTC issued by the Ministry of Finance on November 26,
2004, the appraisal officer of the Debt Management Department at MSB Bank - Hanoi Branch will base on the contents in the above document to carry out valuation of customer collateral In addition, based on the land price framework issued by a competent state agency, the value of land is also calculated on the basis of the determination coefficient of MSB - Hanoi Branch (x) price according to the land price framework
Evaluation of Collateral Asset Valuation Activities at MSB Hanoi Branch
Through the work of REA of secured assets and real estate at MSB Bank - Hanoi Branch, it has helped us understand the basic contents and assess the risks of loan plans and customers' ability to repay debt From the author's perspective, this work has achieved certain achievements as follows:
Firstly, valuation staff at MSB are trained on valuation methods, laws and real estate market knowledge to ensure that the process of valuation of real estate assets takes place professionally
Second, in terms of law, appraisal officers strictly follow the guiding documents on asset valuation issued and set out by competent state agencies
Third, the staff at MSB - Hanoi Branch always put customers first, prioritize and support as much as possible However, the bank has also accurately assessed the risk and repayment ability of customers to ensure the safety of the bank's lending activities In addition, the assessment of customers' financial capabilities through consideration of net revenue, the ability to create future value of assets, credit records and other factors also contributes to ensuring Ensure that customers have enough ability to repay debt and maintain collateral for future loans
Although the results of customer valuation of collateral - real estate are quite positive, in order to meet new requirements, the work of REA in MSB - Hanoi Branch in recent years still has some difficulties and problems following restrictions
3.3.2.1 Regarding the quality of appraisal staff:
The workforce of highly specialized and experienced staff is quite small, most of them are young appraisers, new to the profession and do not really have much experience Through practical examples of real estate valuation using the comparative method, it can be seen that this method does not require too much highly specialized expertise but is largely based on the appraisal experience of the appraiser, so This has caused the appraisal results to not be highly reliable and accurate Not only that, appraisals using the direct comparison method often have higher risks because the appraiser only relies on inference and they can overestimate the value for personal gain, thereby leading to Errors in the loan process destroy customers' reputation and trust in the bank's services
Because the real estate market is constantly fluctuating, there are many cases where real estate prices increase excessively, but there are also many cases where prices decline due to a quiet real estate market, leading to sparse buying and selling activities in the real estate market Since then, considering real estate prices as a reference for valuation is not accurate, the valuation results have large errors This greatly affects customers' loan limits
The valuation process at banks often requires caution and detail to ensure accuracy and transparency in assessing asset value However, there may be cases where this process becomes lengthy, time-consuming and quite loose, depending on many different factors such as whether the real estate asset is located in a remote area, or has other characteristics
In particular, it can also make the appraisal process time-consuming because it is difficult for the appraiser to access information and data related to the collateral In some cases, special real estate may require inspection Carefully consider legal requirements, such as regulations on land use rights and property ownership, while appraisers are also under pressure from KPIs, time or customer requests T.here is a risk that the appraiser may make a hasty assessment and work quickly to meet the request This can lead to skipping some important steps in the valuation process or not having enough time to research and determine an accurate value
During the appraisal process at the bank, the work is mainly performed by professional appraisers Technology can assist in automating some parts of the appraisal process, but the final decision remains with the appraiser The lack of technology support can cause some difficulties in valuation, such as time-consuming, errors and inconsistency Valuations performed manually can lead to the possibility of errors and inconsistencies between appraisers Besides, it also causes difficulties in managing and tracking information related to assets and projects Collecting, processing and storing information can become complex and prone to errors However, it should be noted that technology cannot completely replace the role of humans in valuation work The combination of technology and people can create the best results in valuation work at banks
Firstly, appraisers lack capacity: Some appraisers lack professional capacity in valuation operations and practical experience, and lack of professional support conditions such as comparative data sources, which can cause a series of problems Issues such as employees may not have an in-depth understanding of valuation methods and only apply them mechanically and inflexibly, leading to incorrect valuations and having to re-price, consuming more costs costs and time to amend contracts and related procedures, causing loss of efficiency and business opportunities The bank only maintains a modest valuation force, while the valuation work is often overloaded, which also leads to difficulty ensuring quality Furthermore, in some cases, appraisers may encounter issues related to ethics and transparency in assessing property value Unethical behavior can lead to a lack of transparency and trust in the appraisal process
Second, about market psychology: The real estate market is unstable due to fluctuations in investors' psychology For example, GDP growth, inflation, labor market, political instability, migration trends or changes in lifestyle, can affect the need to buy or borrow from home owners invest They are worried and fearful about the economic future or are concerned about policy changes that could lead to price declines and instability in market activity The rapid and unstable fluctuations of the real estate market have a direct impact on asset values and make the valuation process difficult
Third, loose valuation process: The lack of a clear process and lack of strict inspection and control by the State Bank leads to inconsistency and ineffectiveness in valuation work Departments such as credit department, appraisal department and internal audit department may not be closely linked in the valuation process This leads to a lack of consensus on asset value and the potential for risks that are not thoroughly identified Besides, the source of input information for REA work plays a very important role in the valuation process and largely affects the valuation results, however the input quality is not high, difficult to collect and lacks systematicity system, information is not updated regularly And currently, there is no unit that provides complete and reliable information and input data sources, while competent agencies under state management often lack information and do not know what to do updated regularly, sometimes with errors, especially for special real estate, or lack of information about the real estate market will make the valuation process sketchy and lacking in objectivity, leading to negative impacts to the accuracy of the valuation results, and there may even be conflicts of interest between related parties
Fourth, lack of modern information and technology systems: if MSB - Hanoi Branch does not invest properly in the technology system, collecting, storing, and processing collateral data may be difficult and causes delays in the valuation process Furthermore, the lack of modern technology systems can also affect the accuracy and reliability of valuation results Currently, valuation activities in the financial market are overloaded, but the quantity and quality of appraisers still have many shortcomings, making it difficult to meet a large volume of work and value consulting assets of the whole economy, thus greatly affecting the quality of valuation activities Therefore, the support of advanced technology software can minimize the workload and pressure for appraisers
The content of part III summarizes the formation and development process of Vietnam Maritime Bank in general and Hanoi branch in particular In addition, the process of valuing collateral - real estate and practical examples in real estate appraisal at the branch have shown an overview of the current situation of collateral valuation at the bank From the analysis and assessment of valuation activities at MSB - Hanoi Branch, it can be seen that there has been progress in valuation work, reflected in the improvement in the quality of appraisers, construction Build trust and satisfaction with services and ensure proper pricing in accordance with the law However, there still exist some limitations and difficulties mainly coming from the professional capacity of staff, the lack of modern technology, the appraisal process still faces many time problems, about the connection between departments, and an inevitable factor is the fluctuation of the real estate market From these limitations, the author has specifically pointed out the causes of the respective limitations to form specific solutions to help the Bank cope with these challenges
In summary, REA activitiy at MSB Bank - Hanoi Branch needs to focus on improving and enhancing service quality to ensure the reliability of valuation results and the stability of valuation activities and related activities other officials in the bank.
ENHANCING COLLATERAL ASSET VALUATION ACTIVITIES TO
4.1.Direction for Developing Collateral Asset Valuation Activities to Support
Lending at MSB Hanoi Branch
Vietnam Maritime Bank MSB - Hanoi Branch has proposed a series of plans and strategies to optimize and improve the quality of REA services to serve lending activities during the period from 2023 to 2025 The goal of these options is to increase the efficiency and accuracy of the valuation process Here are some important proposed solutions:
First, the purpose of real estate valuation here is credit, so in the valuation process, there needs to be consistency in applying different valuation methods and complying with the safety regulations of the Government, banks, as well as the guidelines set forth by Center for Evaluation and Management of Collateral Assets of MSB Bank
Second, building a database of REPs and classifying them is an important step to have reliable information, support REPs and forecast price trends, helping to determine reasonable prices, accurately reflects market value
Third, REPs management and evaluation need to be done professionally to ensure quality, ensuring that all mortgaged real estate at the bank is strictly managed and supervised
Fourth, all REPs at the bank has documents proving the relationship of use or ownership according to the provisions of law, with careful document retention
Fifth, the valuation work needs to be closely linked with professional appraisal units at home and abroad to increase the efficiency of information collection, thereby improving the quality of valuation work and ensuring accuracy and transparency in the valuation process
4.2.Solutions to Enhance Collateral Asset Valuation Activities for Lending at MSB Hanoi Branch
4.2.1 Solutions regarding the quality of appraisal staff
First, strengthen the training of appraisers: MSB - Hanoi Branch needs to orient to enhance the quality of REA by investing in improving the professional qualifications of employees of the valuation department and other departments Related activities include training staff on new pricing methods and updating specialized knowledge to improve appraisal capacity This helps ensure accuracy and objectivity in pricing, thereby enhancing the reliability and attractiveness of lending services
Second, capacity management: Build a capacity management system such as defining the necessary skills and knowledge for each stage of the appraisal career; Establish periodic inspection programs and evaluate the performance of appraisal staff; Develop a personal development plan for each appraisal officer to promote strengths and improve weaknesses; Monitor and evaluate the development progress of appraisers according to the proposed plan to ensure that real estate appraisers are progressing and meeting job requirements
Third, encourage a sense of responsibility: Create conditions to encourage the appraiser's sense of responsibility and commitment to work quality through establishing reward programs to honor officials have excellent performance in completing tasks such as physical rewards or even career advancement opportunities Furthermore, create a positive working environment where responsibility and commitment are appreciated and promoted This can contribute positively to the development and success of valution work
4.2.2 Solutions regarding real estate market fluctuations
First, increase reporting on the real estate market situation: Before the appraiser sets an appropriate value, the relevant departments in the valuation process need to increase updating trend reports fluctuations in the real estate market, experts, organizations and reputable appraisal units, classify price data and issue warnings for appraisers to pay attention and consider promptly to avoid situations must re-evaluate
Second, Apply flexible evaluation models and methods: Using flexible evaluation models and methods helps banks quickly adapt to market fluctuations Diverse and flexible models can help forecast asset values in many different situations
Third, further evaluate risk factors: Real estate market fluctuations often come with risk factors Banks need to evaluate and identify potential risk factors, such as price risk, liquidity risk, policy risk, and project integrity Evaluating additional risk factors helps banks have a clearer view of real value and enhance risk management
Fourth, Identify scenarios and evaluate impacts: Banks can identify and evaluate different market scenarios and their impact on real estate values This helps the bank have a comprehensive view and prepare a response plan depending on the market situation
4.2.3 Solutions regarding the process of appraising collateralized real estate assets
First, Build a strict process: Developing and building real estate appraisal processes in a strict, scientific way and complying with legal standards and regulations will help optimize time and costs for the bank customers and customers, while increasing the bank's reputation and creating customer trust in the bank's valuation results
Second, inspection and evaluation: Strengthen monthly or quarterly inspection and evaluation of the management and use of mortgaged real estate When performing an inspection, there must be a specific and detailed assessment of the condition of the mortgaged real estate such as: Loss, loss of value, increase in value causes and solutions
Third, focus on the legality of real estate: to prevent and minimize real estate legal risks, banks need to specifically stipulate steps to evaluate the legality of real estate Specifically, closely coordinate with competent agencies such as People's Committees at all levels, land registration offices, departments of natural resources and environment to confirm the legality of mortgage documents
Technology plays an important role in improving the valuation process at banks and below are some technology solutions that can be applied:
First, Valuation software: Using specialized valuation software helps increase the efficiency and accuracy of the process This software can provide tools and features to support information gathering, data analysis, value calculation and report generation It can also integrate forecasting and statistical models to provide more accurate asset assessments