Internal Credit Rating according to market segmentation at Agribank

1 INTRODUCTORY Objects and scope of research 3.1 Objects of research - The thesis research Internal Credit Rating operation according to market segment to individual customers having credit relations to Agribank in Vietnam 3.2 Scope of research 3.2.1 Space of research Rationales According to the International Treaty about the safety standard for capital, Internal Credit Rating has become an efficient tool for commercial banks to manage the risk in lending and control credit risk, especially for Agribank According to Decision No 214/QĐ-NHNN on 30th, January, 2011 of the Governor of The State Bank of Vietnam, Vietnam Bank for Agriculture and Rural Development (Agribank) was transformed into Stateowned one-member Limited Company As the main bank operating in the field of agriculture, rural and farmers, credit is the major operations of the bank: Credit surplus accounts for approximately 79% over total assets, Income from credit activities takes up 70% total income Therefore, the risks in the business of Agribank tend to focus on credit operations According to Decision No 1197/QĐ-NHNo-XLRR, written on October 18th, 2011, Agribank has been put into use, operate the Internal Credit Rating consulted by Ernst & Young Company since 2007 and it has worked on decreasing risks in credit operations However, the applying and making this Internal Credit Rating has some defects in content as: Customer classification; rating criteria,… From practical operation and research, Internal Credit Rating system of Agribank, the Author choose the topic of “Internal Credit Rating according to the market segment at Agribank” to make researches and decrease shortages on both reality and theory Research objective - General objective: Making the Internal Credit Rating Models according to market segment - Specific objective: Analyzing and evaluating elements come from customers; analyzing discrepancies about the influence level of elements from come from customers from different regions; evaluating the practicality of applying Internal Credit Rating at Agribank in order to create the Internal Credit Rating Model according to market segment; suggesting solutions to complete the Internal Credit Rating system at Agribank Research about market segment theories; practical research about Internal Credit Rating according to market segments to enterprise customers, household customers, individual customers, financial institution customers,… of Agribank and some of the largest commercial banks in Vietnam On that basis, this offers the Credit Rating system to individual customers of Agribank according to market segment 3.2.2 Time of research - Secondary data: The statistics system about credit and statistics in relation to customers of Agribank system and other commercial banks in Vietnam… through websites, statistics from General Statistics Office in years since 2010 to 30/6/2015 - Primary data: Using questionnaire which are sent to the individual customers of Agribank in 48/63 provinces, cities in all regions of Vietnam The survey includes approximate 210 forms each market segments, performed from 11/2014 to 4/2015 Research Methodology 4.1 Researching Method 4.1.1 Qualitative method The thesis uses the aggregation, analysis, statistics, comparison and experting methods to clarify and to prove the ideas and evaluations The thesis also uses the logical methodology to point out opportunities and challenges in Internal Credit Rating operation according to market segment 4.1.2 Quantitative method Analyzing by running secondary data of Agribank and the commercial banks system for over years; secondary data are collected directly from individual customers of Agribank with 1123 observes completed over 1470 observes established Applying statistical model to test and applying econometric model to suggest models for each of the market segment 4.2 Research questions (1) Which are the criteria for market segmentation? What are the connections between market segment and creating Internal Credit Rating criteria system? Influence Level? (2) How to create the Internal Credit Rating system which adapts to different market segments? What are the baremes to exactly evaluate customer’s ability? 4.3 Research model The author recommends this research model: implement and complete the Internal Credit Rating operation at Commercial Banks in Vietnam 5.2 In terms of reality The research results can be immediately applied in Internal Credit Rating operation at Agribank; helping researchers and banking administrators have a more detail look at a new methods in measuring and evaluating criteria of Internal Credit Rating system approached The results can be used as a useful referenced statistics system for people who care about Internal Credit Rating of Commercial banks Group of customer’s information with bank elements (independent variable) Impact by different targets Group of Relationship between customer and bank criteria Group of Relationship between customer and bank criteria (already influenced on customer information with bank) (Independent variable) Influence on different targets Customer’s ability to repay debt (dependent variable) Thesis contribution 5.1 In terms of theories The thesis systemizes general theoretical about Internal Credit Rating, criteria, elements which have impacts on the result of Internal Credit Rating The thesis also evaluates, measures system of criteria in evaluating Internal Credit Rating according to market segment; other shortages and the result of the thesis is the premise for other researchers to CHAPTER I: THE OVERVIEW OF THE RESEARCH 1.1 Some Internal Credit Rating Models The first part of the thesis has introduced well-known Credit Rating models now being used worldwide and in Vietnam According to that, the thesis has evaluated the advantages and disadvantages of these models which include: - The Grading model: is the model which is used popularly by Credit Rating agencies worldwide such as: Moody’s; Standard and Poor; Fitch - The Scoring model of Altman: is a quantitative model according to the modeling of relationships between variables thereby reflecting credit quality and those elements which affects credit quality from the customers - The Logistic model: Is a mathematical regressive model in which the variable (Y) is a dependent variable and all others are independent - The Personal Credit Scoring model of FICO: Is a means of credit control attached to each individuals in some developed countries, assisting credit organization to estimate credit risk - The Personal Credit Scoring applied for retail banks in Vietnam (2006) - The Individual Credit Rating of Ernst & Young (E&Y) 1.2 Some scientific paper involving in Internal Credit Rating The thesis has presented other PhD thesis involving in Internal Credit Rating Operations of Commercial Banks in Vietnam These contents are presented from 1.2.1 to 1.2.5 From those, author has brought ideas, opinions and evaluation about the advantages and disadvantages of Internal credit rating 1.3 Some articles, researches involving in Credit Rating The author has done some researches and represented 12 scientific paper and published on world famous magazine involving in Credit Rating 1.4 The gap between researches On the base of researching different models, researches and articles about Credit Rating, the author has discovered some problems to delivery research on Firstly, Credit Rating methods, making criteria system, bareme and ratings in Commercial banks are different from each others Secondly, Internal Credit Rating system is not made for different kinds of group of objects Thirdly, the criteria in Credit Rating system are often identified using the experting method, thus the final results remain some shortages Fourthly, the group of individual customer is not completely focused That role specifically expresses in contents: identifying customer’s choice; customer’s credit demand orientation; early identifying the ability of finishing duties of customer; predict, prevent and cope with credit risk 2.1.3 Market segment basis The thesis has presented criteria which are often used in market segment One of them is segmentation according to economic region The thesis has mentioned Circular No 193/UB-VP on 11/2/1963 which is about doing research on economic region dividend In different periods, for the sake of economic develop, Vietnam economy has divided the economic into different regions At present, the General Statistic Office has made surveys on the statistics of the economic and the population of 63 provinces which are divided into regions which are: (1) The Northern midlands and mountainous area (including 14 provinces); (2) The Red River Delta (including 11 provinces); (3) The North Central area (including provinces); (4) The Central Coastal area (including cities and provinces); (5) The Central Highlands (including provinces); (6) The South East (including provinces); (7) The Mekong River Delta (including 13 provinces) The thesis has summarized some common features of these regions and researches and statistics evaluation have been made to identify the discrepancies of the impact of the criteria on customer debt repayment ability using the model in Chapter IV and Chapter V according to market segment of Agribank 2.1.4 Reality of Vietnamese economic region dividing At present, in Vietnam, the economic regions are usually divided by geographical dividend; resident qualification or by income 2.2 Internal Credit Rating in commercial banks 2.2.1 The Internal Credit Rating definition By doing researches on theories and reality about Credit Rating, on the aspect of an researcher on Internal Credit Rating Operation of one Commercial Bank, the author has brought the definition: Internal Credit Rating is a risk measurement tool of Commercial Bank on the basis of analyzing, evaluating, rating customers through the customers’ information CHAPTER II: THEORETICAL BASE AND THE REALITY OF INTERNAL CREDIT RATING ACCORDING TO MARKET SEGMENT OF COMMERCIAL BANKS IN VIETNAM 2.1 Market segments of commercial banks 2.1.1 Market of commercial banks From researches about theory of the market, the author has generalized the market of commercial banks is a place where customers are guided and satisfied with their banking and financial services using 2.1.2 Market segment for Commercial banks On the researching basis involving in market segment, the author has brought the definition of market segment for Commercial bank: “Market segment for Commercial bank is the dividend of customers into different smaller groups of customers who have the same routines or culture or hobby; or who have the same potential credit ability, etc The thesis has analyzed and pointed out: market dividing plays an important role in business in general and in risk management in specific 7 2.2.2 Internal Credit Rating Method At present, Commercial Banks usually use Internal Credit Rating Methods which are experting and econometric method Especially, the econometric method including main models which are Logistic regressive models and factor analysis model The thesis also pointed out the advantages and disadvantages of the mentioned methods 2.2.3 The role of risk management in credit operation at Commercial Banks The role of risk management in credit operation at Commercial Banks specifically expresses such as Decrease and Prevent credit risk in the bank; decrease the damage, help customer avoid risk in credit operation and in finishing debt obligation therefore contribute to the stability and development of the whole society 2.2.4 The role of Internal Credit Rating in credit risk management at Commercial Banks The thesis has quoted the definition of bad debt from Basel Committee about bank supervision (2005) which exaggerate the most important operation in bad debt management which is increase solutions to prevent bad debt increasing The author has pointed out solutions to conduct to prevent credit risk, of which has been applied in Internal Credit Rating operation It could be said to be one of the most important solutions which help Commercial Banks classify customers and make the efficient credit decision 2.3 Internal Credit Rating according to market segment of Commercial Bank 2.3.1 Internal Credit Rating according to market segment of Commercial Bank Definition On the definition basis about Internal Credit Rating of one commercial bank at 2.2.1 and the definition about market segment at 2.1.2.2, the author has brought the definition that Internal Credit Rating according to market segment is rating and evaluating the ability of repaying debt of the credit customer of one commercial bank based on the criteria system which suit for the customer’s features on each segment which are suitable for the bank’s operation 2.3.2 Internal Credit Rating according to market segment Features There are features: (1) Internal Credit Rating system created based on internal market segment of commercial bank; (2) Internal Credit Rating system which has suitable criteria system for groups of customers in the same segment; (3) different criteria system on different segment 2.3.3 The role of Internal Credit Rating according to credit customer in limiting credit risk at commercial bank The role of Internal Credit Rating according to market segment has been analyzed in detail and presented in main content: The role in credit risk management; in customers management and in policy planning 2.4 The reality in Internal Credit Rating according to market segment operation at commercial banks in Vietnam, experiences 2.4.1 The foundation and development of Internal Credit Rating according to market segment in commercial banks in Vietnam The foundation and development of Internal Credit Rating is divided into periods: The period of implementation of the centered and planned economy (from 1952 to 1988) and the period of gradually open economy converted to market mechanisms (from 1989 to date) From 1989 to present, State bank of Vietnam has established many rules to control and manage the bad debt situation at commercial bank Enterprise Credit Rating was first mentioned in Decision No 57/2002/QDNHNN to solve the bad debt rapidly, make the finance healthier, reduce risk for credit organization and enterprise and improve credit growth for the economy 2.4.2 The reality in Internal Credit Rating according to market segment operation in some commercial banks in Vietnam The Internal Credit Rating system in Commercial Bank in Vietnam nowadays is usually created for groups of customers: enterprises; individuals; individual businesses; financial institution The author has modeled the grading Internal Credit Rating of commercial bank in Vietnam using this model: 10 Grading objectives segment individual loan for consumption customer individual business customer collecting information - Family/household - The possibility of debt repayment - Collateral enterprise customer others - BY INDUSTRY SEGMENT - BY SCALE SEGMENT - BY POSSESSION SEGMENT Grading according to criteria system - Financial Criteria - Non-financial Criteria Summarize customer rating Model 1.2: Internal Credit Rating according to segment model in commercial banks in Vietnam On basis of researching reality of segmenting Internal Credit Rating of some big commercial bank in Vietnam, the author has come to a conclusion: Internal Credit Rating of commercial banks in Vietnam had market segment However, the segmenting is still simply and only focus on enterprise customer 2.4.3 Assessment of reality of Credit Rating according to market segment operation at some commercial banks in Vietnam By assessing the reality of Credit rating operation at commercial banks in Vietnam, the author has achieved some results such as: Creating index system, bareme which are in detail; dividing customers into the ability of using and repaying loan; assessing customers with varied perspectives Besides, the thesis has confirmed that the Internal Credit Rating operation in commercial banks in Vietnam has basic limits and pointed out the origin of each limit such as: (1) lack of unification in creating Internal Credit Rating of commercial banks; (2) criteria system has not yet created based on the influence level on loan use and repay ability of the customer; (3) lack of local influence element; (4) the limit of applying IT in credit risk prevention of commercial banks 2.4.4 Experience for Agribank Agribank need to complete the Internal Credit Rating system in ways: Firstly, it is necessary to create the market segment based on seriously assessing different elements of local, environment, etc which is the foundation to create the Internal Credit Rating system Secondly, the criteria system created must be suitable for each segment based on quantificating the criteria through applying economic mathematics model Thirdly, it is necessary to synchronize the technology system to decrease the sensation elements influencing credit rating markers 11 12 CHAPTER III: THE REALITY OF INTERNAL CREDIT RATING ACCORDING TO MARKET SEGMENT AT AGRIBANK 3.1 Agribank overview 3.1.1 The foundation of Agribank From the foundation on March 26th , 1988 to October 10th, 1996, Agribank had its name changed twice: According to Decree No 53/HDBT on March 26th, 1988, it was named Vietnam Bank for Agriculture, after that, the name was Vietnam Bank for Agriculture and Rural Development and Agribank in English On January 31st, 2011, according to Decision No 214/QD-NHNN, Agribank was transformed into one-member Ltd State own 100% capital Company Model organizational structure of executive management of Agribank is modeled as below: 3.1.2 Overview of Agribank operation Until July 31st, 2015, the total assets of Agribank was over 797.959 billion VND, the total liabilities was over 742.473 billion VND; the total authorized capital was 29.605 billion VND; the total loans was 607.242 billion VND; there was approximately 40.000 personnel There was 2.300 branches and transaction rooms and million customers including about 3.4 million individual customers which took up 85% and 0.6 million individual business and enterprise customers which took up to 15% The IT system, scale, processing speed and total average transaction processing speed is the greatest in commercial bank system of Vietnam Agribank business was flexible by distributing a variety range of products from traditional to modern ones and there was 253 of those 3.1.3 The business performance of Agribank Until April 30th, 2014, Agribank was the leader of the commercial bank system on the market share in terms of: capital raising, credit, card issued which respectively took up to 16.6%, 17% and 20% MEMBER COUNCIL CONTROL BOARD HUMAN RESOURCES COMMITEE ASSETS MANAGEM ENT COMMITTE GENERAL DIRECTOR MEMBER COUNCIL ASSISTING DEPARTMENT RISK MANAGE MENT COMMITT EE 16.6% Other state-owned commercial banks 43.8 CHIEF ACCOUNTANT CENTERS SYSTEM JOINT-VENTURE BANKS, COMPANIES DEPUTY GENERAL MANAGER SPECIFIC BOARDS SYSTEM HEAD OF INTERNAL CONTROL BOARD BUSINESS UNITS EXCHANGES, BRANCHES SYSTEM TYPE I,II BRANCHES SYSTEM TYPE III, TRANSACTION OFFICES Agribank 39.6% Joint-stock commercial banks Chart 3.2: the capital raising market share of some commercial bank in Vietnam until December 31st, 2014 13 17% 14 Agribank NHTM quốc doanh 51% 32% NHTM cổ phần Chart 3.3: The credit market share of commercial bank system in Vietnam until December 31st, 2014 By credit investment, Agribank has contributed to poverty elimination, economic development and policy implication 3.2 The reality Internal Credit Rating according to market segment operation at Agribank Creating and completing Internal Credit Rating system is one of the biggest solution which will help Agribank exactly assess the ability of capital using and debt repayment of the customers in order to effectively prevent credit risk in the system 3.2.1 The reality of credit market segment at Agribank Currently, there are not any documents about credit market segment However, documents system involving to credit operation and credit customers market segment analysis was clearly divided in each guidance document involving to credit operation Beside credit segment customers below, Agribank also manages the credit operation on 10 regions at Annex 23 attachment With the credit management dividend method of Agribank, its market segment is quite similar with the way The General Statistics Office divide economic regions which was presented at Chapter II 3.2.2 The reality of Internal Credit Rating according to market segment operation of Agribank Implementing regulations at Article Decision No 493/2005/QDNHNN on April 22nd, 2005 issued by State Bank, Agribank promulgated Decision No 1197/QD-NHNNo-XLRR which guided how to use and operate the Internal Credit Rating system The Internal Credit Rating system of Agribank was created based on the segment of groups of customers: (1) Enterprises; (2) Individual; (3) Farm Household; (4) Household Business; (5) Financial Institution With each of the groups above, Agribank has a distinct procedure and criteria system The author has aggregated the Internal Credit Rating according to customers segment procedure of Agribank which will be presented below: Customer information Register Customer segment Economic organization/ institution customer Enter financial, non-financial information Individual customer Enter personal data; debt repayment ability; business plan Rating, classify debts Report customer rating Collateral rating Summarize and make decision The thesis has described the scoring stages, criteria set, scoring methods, bareme of groups of customers in detail Such as: - The enterprise customers is scored by using the method of assessing financial criteria and non-financial criteria, which were created 15 16 based on 34 branches divided into 10 groups Each criteria set has 60 criteria including 14 financial criteria and 46 non-financial criteria with stages - With individual customers, Agribank created a unique criteria set to rate used for all the individual customers The criteria sets include 20 criteria divided into parts: personal data (12 criteria); the ability of debt repayment (4 criteria); collateral information (4 criteria) - With farmer customers, Agribank only created 01 criteria system for scoring including 22 criteria - With business units customers, Agribank created enormous criteria sets and scoring methods including 55 criteria divided into big parts - With financial institution, there are criteria sets: financial criteria set and non-financial criteria set 3.2.3 Some circumstances of scoring borrowers at Agribank In the research range presented at Chapter I, the subject the author chose to research was the individual consumer at Agribank The author did research some circumstances of individual consumer in detail at Agribank from the beginning of 2012 to 2014 The result of research on the reality of Internal Credit Rating at Agribank on individual customers show that there are some cases: the credit rating was very good but there were still bad debts and vice versa 3.3 Assessing the reality of Internal Credit Rating according to market segment operation at Agribank 3.3.1 Achievements The Internal Credit Rating according to market segment operation at Agribank has achieved some results which are presented in the following contents: Scoring model for Internal Credit Rating at Agribank was created according to the instruction of The State Bank; Agribank has created criteria to identify, measure, control risk and step by step increase risk management according to the international standard; having established policy documents about debt classifying and risk provisioning; having segmented customers into groups; credit rating system for enterprise customers has created based on customer segments such as branch, scale and form of business ownership 3.3.2 Shortcoming & Causes - Because of the large quantity of customers, there are quite many difficulties in implement Internal Credit Rating documents - When scoring the Internal Credit Rating, some criteria are not suitable and influenced by sensation - The scoring system and the bareme are not clearly calculated, it is because the criteria has not been assessed by experting method - Market segment in Internal Credit Rating is only clearly implemented for enterprise customers From the below analysis shown, Agribank need to overcome difficulties in order to improve the Internal Credit Rating system Customer rating Total customers at Bank A Đã có NQH 12 tháng %overdue debt customer/total customers AAA AA A BBB BB B CCC CC C D Total 324 2.134 11.000 2.215 439 165 322 174 453 132 17.358 40 1.240 1.269 272 62 21 33 69 3010 1.23 1.87 11.27 57.29 61.96 37.58 6.52 0.00 7.28 52.27 17.34 CHAPTER IV: RESEARCHING, MAKING SURVEY AND DATA PROCESSING PROCEDURE 4.1 Researching procedure Chapter IV presented researching procedure including: - Describe how to create scale; - Set up questionnaire; - Preliminary survey, primary survey - Data analysis 17 4.1.1 The Qualitative analysis result Qualitative analysis includes - Making the preliminary scale: preliminary survey scale was made based on aggregating information from bank; general researches in Chapter I; criteria system presented in individual credit rating system of commercial banks in Chapter II Researching questions used questionnaire from customers - Expert interview: to reassess the suitability of surveyed criteria The experts suggest the necessity of the criteria as well as adding or removing others in the official research - Preliminary interview: The preliminary interview is implemented at Agribank branches in the country, each branch interview leaders about the criteria used in researching 4.1.2 Quantitative research Sample survey: Number of established: (branches) * 30 (customers) * (regions) = 1470 samples Individual customer list at each region was surveyed based on random selection from customer list of branches in regions The survey result was 1400 collected including 1123 valid Data collected from valid samples were encrypted and analyzed The suggested model is logistic regressive with signals This model is convenient for calculating the customer possibility of customer in the characteristic of target variable and measuring the impact of factors (in the role of independent variable) Including: each target variable Y is correspond with model that independent variables are selected if the correspond factor can change the possibility of status The model formula is: With factors which are presented using qualitative variables, we can point out the discrepancies of those qualitative variables by using the following formula: In this research, the author selected coefficient P value (sig) < 0.1 which ensures the reliability for statistical tests 18 Gender Age V01 V24 V25 DEBT REPAYMENT ABILITY V30 … Model 4.1: The impact of factors on customer debt repayment ability 4.2 Data analysis results The thesis has implemented and presented the analysis results through parts: the statistics of the features of survey subjects at 4.2.1; the statistics of the description of the bank relation factors at 4.2.2; the analysis results of how customers’ features influence on their relations with the bank at 4.2.3; the analysis results of how bank relations influence on the customer debt repayment ability at 4.2.4 The aggregated result show that the models assessing the customer debt repayment ability using the variables of the relation between customer and bank has high suitablity and trustworthy and it is also suitable for analyzing the content above CHAPTER V: THE MODEL OF INTERNAL CREDIT RATING ACCORDING TO MARKET SEGMENT AT AGRIBANK, RESULTS AND SOME RECOMMENDATIONS 5.1 Suggestions for the Internal Credit Rating according to market segment at Agribank 5.1.1 The basis theory about customers segment who have credit relation at Agribank Based on the theory of the research overview at Chapter I and the market segment at Chapter II, the author clearly pointed out the research 19 20 orientation on Internal Credit Rating according to market segment of the thesis: The customer objectives segmented are those who have consumer loan in Vietnam and regions: (1) The Northern midlands and the mountainous area including: Son La, Dien Bien, Lai Chau, Lao Cai, Ha Giang, Cao Bang, Lang Son, Hoa Binh, Yen Bai, Phu Tho, Tuyen Quang, Thai Nguyen, Bac Giang, Bac Kan (2) The Red River Delta including: Vinh Phuc, Bac Ninh, Ha Nam, Hung Yen, Hai Duong, Hai Phong, Thai Binh, Nam Dinh, Ninh Binh, Ha Noi, Quang Ninh (3) The North Central area including: Thanh Hoa, Nghe An, Ha Tinh, Quang Binh, Quang Tri, Thua Thien Hue (4) The Central Coastal area including: Da Nang, Quang Nam, Quang Ngai, Binh Dinh, Phu Yen, Khanh Hoa, Ninh Thuan, Binh Thuan (5) The Central Highlands including: Gia Lai, Dak Lak, Dak Nong, Lam Dong, Kon Tum (6) The South East including: Binh Phuoc, Tay Ninh, Binh Duong, Ho Chi Minh City, Ba Ria Vung Tau, Dong Nai (7) The Mekong River Delta including: Long An, Tien Giang, Ben Tre, Tra Vinh, Vinh Long, Dong Thap, An Giang, Kien Giang, Can Tho, Hau Giang, Bac Lieu, Soc Trang, Ca Mau 5.2 The logistic model of Internal Credit Rating following market segment processing result 5.2.1 Criteria system of each segment analysis The thesis has presented the result of the influence level and the comparison of the influence of 30 criteria in each region The result show that the criteria of the influence on the customer debt repayment ability in each region are different The inspection results are suitable with the qualitative analysis in each region at Chapter II 5.2.2 The criteria segmenting result The thesis has presented the result of implementing Binary regression logistic analysis method with the dependent variable is the customer debt repayment ability and the independent variables are those which describe the relations with the customers The result is the influence of the factors in group relation with the bank in regions (including the influence of 23 personal data criteria in each region) 5.2.3 The customer scoring logistic model combination The method which determine this possibility is implemented in steps: Step 1: Collecting customer information Step 2: Estimating the possibility of variables featured by the relations with the bank using the results of regressive models Step 3: Calculating the values of variables showing the relations between the bank and the customers Step 4: Calculating the possibility of overdue principals Step 5: Rating each customer All of the above steps are implemented on one file which calculates each customer using their information automatically The file consists of sheets: Customer information sheet includes the encrypted information; The other is used to determine values: The possibility of overdue debt, rating on the calculation basis With customers in each region, the index as well as the coefficient is determined based on each different region The thesis has presented the method of scoring Internal Credit Rating of the customer by performing specific example 5.1.2 Model suggestions By researching and implementing model at Chapter IV, models are used as followed: • Customer’s relations status assessing model according each target variable – logistic regression model using variables from V24 to V30 (correspond with questions 24 to 30) The analyzed results can set up the customer segment frame in ways: • The first is dividing possibility level of the status from bad to good (or vice versa) according to each region • The second is scoring each status of explanation variable based on customer rate at different status of the target variable according to each region 21 22 Following the current rating regulation at commercial bank, the thesis has recommended the system of 10 levels in Internal Credit Rating from AAA, AA, A, etc, CCC, C, D according to the following table: AAA AA A BBB BB B CCC CC C D 3525< 6555908545-54 75-84 95+ 44 34 25 74 64 94 89 a Collecting data: because of time limit as well as scale and range of research, the survey results of the thesis still remains incomplete Therefore, Agribank should survey in the wider range to ensure the accuracy and trust level of the criteria in the testing and statistics procedure b About the information system: To guarantee the valued data source of the customers for the system to process in the Internal Credit Rating operation, Agribank need to collect information from variety of sources: from the customers, banks, credit information system of the commercial banks system; suggesting solutions in order to better off the customers and markets information source c Continue to make better researches, tests on variance between regions in order to increase the accuracy level of the credit rating according to market segment results Table 5.32: The individual customer rating table: All the steps above are implemented similarly with customers from different regions, there are only differences when using the coefficient determined in each region mentioned in criteria system and segment in each region 5.3 Model result discussion 5.3.1 Analysis result Firstly, the criteria set did work and influence on the customer debt repayment ability in regions Secondly, the rating model based on each region has calculated the influence level of criteria on customer debt repayment ability in each region using the influence on the criteria of relations with the bank Thirdly, this Internal Credit Rating system can be integrated on the Ipcas technology background of Agribank based on updating criteria and region density Fourthly, the Internal Credit Rating method is quite simple and easy to apply and save money 5.3.2 Disadvantages There are main disadvantages: (1) the information collected through surveys are the information come from the customers, thus it cannot be totally legit, (2) research scale of the thesis is still limited in both space and time therefore influence on the model calculating result 5.4 Some recommendations 5.4.1 Recommendations on some contents which are necessary to research on With the target of improving the Internal Credit Rating system at Agribank and commercial banks in Vietnam, the thesis recommends some contents which are necessary to research on including: 5.4.2 Macro solutions recommendation: The thesis has recommended sets of solutions to complete the internal credit rating operation at Agribank and the commercial banks system Those are: - Micro solutions for state agencies and the state bank (1) It is necessary to create strong juridical lobby for the commercial bank system in the internal credit rating operation Currently, the document for guidance and direction for commercial banks to deploy internal credit rating operation of the State bank is document No 493/NHNN in 2005, commercial banks almost separately created the internal credit rating system for credit customer without synchronization (2) Standardizing the Internal Credit Rating method shown in contents: Firstly, the Internal Credit Rating systems of commercial banks were approached on the basis of the Basel II standard Secondly, the Credit Rating operation must apply the appropriate rate adjustments in order to decrease the differences in the result of Internal Credit Rating of the same customer between commercial banks Thirdly, the regulations of the necessary and sufficient conditions for expert to participate in creating the credit rating system is necessary 23 24 The Internal Credit Rating system must be approached based on the Basel II standard (3) Setting up the juridical frame in trading and providing information about the manufacture and business operation of individuals, enterprises and credit information between commercial banks in Vietnam (4) Enhancing the officers quality in Internal Credit Rating operation for other kinds of customers in the future After years of research, the thesis achieved some remarkable results Firstly, regional influence on the criteria in the Internal Credit Rating system are tested and proved by running the model of 23 criteria independent variables and criteria – dependent variables model in a survey with 1470 observations forms conducted in regions; Secondly, the influence level of the criteria in each segmented regions has been calculated while the foundation of the credit rating systems for individual customer with the criteria set which truly has impacts on the Agribank credit customer debt repayment ability; Thirdly, the adjustment coefficient among each region and scoring system in the board classification ratings is determined Fourthly, groups of solutions has been recommended such as: micro and macro solutions to overcome the disadvantages of the Internal Credit Rating operation in commercial banks system in general and Agribank especially With the mentioned results, the author has completed the target research plan./ 5.4.3 The micro solutions: (1) Programming specific software for internal credit rating operation (2) Applying the segmenting method/model in Internal Credit Rating operation in Agribank (3) Setting up the criteria system suitable with each market segment (4) Enhancing the human resources quality in Agribank system GENERAL CONCLUSION Credit risk management of commercial banks in general and especially of Agribank is the most important problem for banks to survive and develop Credit risk management is the foundation for banks to increase their ability of competing then develop the national economy Internal Credit Rating is one of the most important tools in internal credit risk management operation in each banks As presented, the author has analyzed the generalization of the credit rating operation in the world and in Vietnam up to the present, figured out the gap in researches as well as methods, credit rating models The author has researched on theoretical and practical matters about the market and market segment; the market factors which influence on the internal credit rating operations; the role of market segment on internal credit rating operations of commercial banks in Vietnam, especially Agribank Thereby, the author emphasized the advantages and disadvantages which is necessary to overcome, solve and improve for the Internal Credit Rating system of Agribank mentioned in the thesis Based on that, the thesis has concentrated on researching and creating the Internal Credit Rating following market segments system for Agribank credit individual customers in Vietnam, which will be the pioneer [...]... solutions for state agencies and the state bank (1) It is necessary to create strong juridical lobby for the commercial bank system in the internal credit rating operation Currently, the document for guidance and direction for commercial banks to deploy internal credit rating operation of the State bank is document No 493/NHNN in 2005, commercial banks almost separately created the internal credit rating system... system for credit customer without synchronization (2) Standardizing the Internal Credit Rating method shown in 3 contents: Firstly, the Internal Credit Rating systems of commercial banks were approached on the basis of the Basel II standard Secondly, the Credit Rating operation must apply the appropriate rate adjustments in order to decrease the differences in the result of Internal Credit Rating of... methods, credit rating models The author has researched on theoretical and practical matters about the market and market segment; the market factors which influence on the internal credit rating operations; the role of market segment on internal credit rating operations of commercial banks in Vietnam, especially Agribank Thereby, the author emphasized the advantages and disadvantages which is necessary to. .. Therefore, Agribank should do survey in the wider range to ensure the accuracy and trust level of the criteria in the testing and statistics procedure b About the information system: To guarantee the valued data source of the customers for the system to process in the Internal Credit Rating operation, Agribank need to collect information from variety of sources: from the customers, banks, credit information... survive and develop Credit risk management is the foundation for banks to increase their ability of competing then develop the national economy Internal Credit Rating is one of the most important tools in internal credit risk management operation in each banks As presented, the author has analyzed the generalization of the credit rating operation in the world and in Vietnam up to the present, figured... Recommendations on some contents which are necessary to research on With the target of improving the Internal Credit Rating system at Agribank and commercial banks in Vietnam, the thesis recommends some contents which are necessary to research on including: 5.4.2 Macro solutions recommendation: The thesis has recommended 2 sets of solutions to complete the internal credit rating operation at Agribank. .. system; suggesting solutions in order to better off the customers and markets information source c Continue to make better researches, tests on variance between regions in order to increase the accuracy level of the credit rating according to market segment results Table 5.32: The individual customer rating table: All the steps above are implemented similarly with customers from different regions, there... advantages and disadvantages which is necessary to overcome, solve and improve for the Internal Credit Rating system of Agribank mentioned in the thesis Based on that, the thesis has concentrated on researching and creating the Internal Credit Rating following market segments system for Agribank credit individual customers in Vietnam, which will be the pioneer ... internal credit rating operation (2) Applying the segmenting method/model in Internal Credit Rating operation in Agribank (3) Setting up the criteria system suitable with each market segment (4) Enhancing the human resources quality in Agribank system GENERAL CONCLUSION Credit risk management of commercial banks in general and especially of Agribank is the most important problem for banks to survive... the same customer between commercial banks Thirdly, the regulations of the necessary and sufficient conditions for expert to participate in creating the credit rating system is necessary 23 24 The Internal Credit Rating system must be approached based on the Basel II standard (3) Setting up the juridical frame in trading and providing information about the manufacture and business operation of individuals,