PART 2: PART 2: CURRENT BACKGROUND OF THE CREDIT QUALITY AT BAOVIET COMMERCIAL JOINT STOCK BANK
2.2. The reality of the credit quality at Bao Viet Commercial Joint Stock Bank In addition to examining regulations, laws, and credit systems, we must extensively
analyze the bank's credit performance to have a better in-depth understanding of BaoViet Bank's credit operations. Loan sales are one of the most visible measures of a bank's credit performance.
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Table 2. Loans and debt collection sales of BaoViet Bank 2019-2021 Unit: Billion VND
2019 2020 2021
Loans to customers 5317 5742 6870
Loan sales 17594 20653 23704
Debt collection sales 13970 16521 19432
Source: BVB Financial Report The total amount of money issued by the bank to customers throughout the income statement, involving new loans and loans for re-credit, is referred to as loan sales.
BVB loan sales totaled VND 17594 billion in 2019. By 2020, the banking sector will encounter various challenges due to the effect of variables within and without the economy; however, loan revenue remains at VND 20653 billion, representing an increase of 18.92 percent over the period in 2019. This implies that adjustments in credit policy to strengthen BVB credit quality in 2020 have had a very positive impact. Furthermore, this has a positive effect. Part of this is due to BaoViet Bank's promotion of new loan products with various utilities and incentives, such as transportation loan packages, shipbuilding loans, or finance loan packages, with the goal of expanding the client network.
Figure 2. Loan Turnovers Of BaoViet Bank in the period of 2019-2021
Source: Analysis from data provided by BVB
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Customers' commercial activities have faced many difficulties by 2021, as a result of the danger of the Covid-19 virus on all parts of the economy, resulting in the banking system's credit growth being recorded. Revenue fell to a multi-year low of
12.45 percent. Recognizing the seriousness of the pandemic, BaoViet Bank, under the guidance of the State Bank of Vietnam, made timely changes to its credit policy to assist customers in dealing with the consequences of the epidemic, such as cutting interest rates and restructuring loan repayment, adjustability in the credit process... Because of the efficiency of current policies, the bank's loan sales in 2020 reached VND 23704 billion, representing a 15.43 percent increase over the same period previous year.
Figure 3. Debt collection turnover of BaoViet Bank in the period of 2019-2021 Unit: Billion VND
Source: Analysis from data provided by BVB Debt collection turnover is an indicator that measures how much capital customers have required to pay to the bank during the accounting period. In 2019, BaoViet Bank collected 13970 billion VND in capital, which also included capital recovered from outstanding loans from the previous year along with new loans made throughout the
year. After 2020, the total amount of capital collected from clients reached 16521 billion VND, a jump of 19.56 percent over the same period the previous year. This
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demonstrates that BVB's credit recovery potential has been markedly improved.
Due to the epidemic's impact, BaoViet Bank's debt collection operations encountered several challenges by 2020. In particular, BVB's debt revenue in 2021 was 19432 billion VND, a 14.55 percent increase during the same period in 2020.
Although the bank's debt collection capacity remains positive in 2021, compared to 19.56 percent in 2020, it can be noted that the bank's debt collection ability is declining.
Table 3. Total outstanding loans to customers of BaoViet Bank 2019-2021 Unit: Billion VND
2019 2020 2021
Loans to customers 23475 27303 31284
Source: BVB Financial Report Figure 4. Total outstanding loans to customers of BaoViet Bank 2019-2021
Unit: Billion VND
Source: Analysis from data provided by BVB
IndividualEnterprises & other economic organizations 60,58%
39,42%
2020
Individual
Enterprises & other economic organizations 57,43%
42,57%
2019
The total outstanding loans of BaoViet Bank have achieved results between 2019 and 2021. BVB's total loan amount was VND 23,475 billion in 2019, representing a 16.34 percent increase over 2018. The year 2020 is a challenging year for the banking credit system, as the Vietnamese economy faces challenges. Despite challenges in reducing domestic enterprises' production and business activities as a result of the epidemic's impact, as well as uncertainly in the world's economics and politics, Bao Viet Commercial Joint Stock Bank remains one of the biggest bright spots, with total credit growth reaching 18.6 percent and bad debt ratio 1.82 percent.
The overall loan amount at BaoViet Bank in 2020 was VND27,303 billion, an increase of 17.67 percent from the previous year. The total outstanding loans to BaoViet Bank customers reached VND 31,284 billion in 2021, representing a 16.95 percent growth. Credit growth has slowed in comparison to the 18.6 percent growth rate in 2020, but in an incredibly tough year for the market in general and the banking system in particular, this really is an incredibly successful annual growth.
Figure 5. Structure of outstanding loans by customers of BaoViet Bank in the period of 2019-2021
2021
36,99%
63,01%
Individual Enterprises & other economic organizations
Source: Analysis from data provided by BVB According to the graph, personal credit always maintains a stable proportion, accounting for the most of total outstanding loans at BaoViet Bank, and tends to expand gradually year after year. In particular, the percentage of personal loans in 2019-2021 is 57.43 percent; 60.58 percent and 63.01 percent, respectively. This is a result of the management's specific attention, as well as the efficiency and stability with which the personal credit department operates. The firm credit and other economic groups are still limited in comparison to individual credit. In particular, the share of outstanding corporate credit amounts for 42.57 percent of the bank's total loan balance in 2019. This fraction falls to 39.42 percent in 2020, then drops to 36.99 percent in 2021. This is mainly due to the economy's two exceptionally difficult years, when the effects are caused by economic issues. Socioeconomic factors have a significant impact on enterprise trading activities, resulting in a drop in credit activity. This is an exceedingly challenging problem for BVB, needing the bank to develop new policies that are more appropriate to the socioeconomic condition, as well as be more effective in encouraging business lending, particularly in the manufacturing sector. When Vietnam's economy recovers from the epidemic in 2022, the demand for capital will be immense, presenting a fantastic opportunity for commercial banks that know how to capitalize.
We can identify the bad debt ratio and the late debt ratio that are essential indicators to assist analyze the quality of BaoViet Bank's credit - by analyzing and assessing BaoViet Bank's bad debt and overdue debt in the period 2019-2021.
Table 4. Overdue debt ratio of BaoViet Bank in the period of 2019-2021 Unit: %
Targets 2019 2020 2021
Overdue debt ratio 0,87 0,74 0,76
Source: Analysis from data provided by BVB In the year 2019-2021, BaoViet Bank's overdue debt ratio is constant, with no significant fluctuations. In 2019, BVB's overdue debt ratio accounted for 0.87 percent of the bank's total outstanding loans, despite significant attempts to resolve bad debts and overdue debts. By 2020, despite a challenging year for the bank's credit activities, the overdue debt ratio had reached 0.74 percent of the total loan balance, a 0.13 percent decrease from the previous year, primarily to the proper policies in an approach to strengthening credit quality. Faced with the economic effects of the epidemic, initiatives to restructure debt payment terms, lower interest rates, and maintain loan groups intact, the bank's overdue debt ratio totaled 0.76 percent of the total outstanding loans in 2021 as a slight growth over 2020. In general, in aspects of overdue debt ratio, the bank's credit quality in the period 2019-2021 has already seen improvements, particularly in the aspect of economic fluctuations. Nevertheless, there are still barriers when the total overdue balance is still high and shows signs of increasing in the coming years.
Table 5. Bad debt ratio of BaoViet Bank in the period of 2019-2021
Unit: %
Targets 2019 2020 2021
Bad debt ratio 0,74 0,57 0,61
Source: Analysis from data provided by BVB BVB's bad debt ratio was 0.74 percent of total outstanding loans in 2019. By the end of 2020, BVB's total bad debt had reached VND 147 billion, down 11.64 percent from the previous year, with a loan amount of 0.57 percent, down 0.16 percent from the previous year. This demonstrates that the bank's credit policies have been successful in limiting risks and overcoming bad debts, paying attention to credit monitoring and administration, and enhancing the effectiveness of bad debt collection. by expediting the settlement of debts transferred to VAMC and aggressively boosting risk provision. When the economy is significantly affected by the Covid-19 epidemic in 2021, businesses suffer multiple challenges in manufacturing and commercial operations, resulting in an inability to pay bank loans and a significant impact on credit quality of bank, particularly the bad debt ratio. Thanks to those timely policies, the bank's bad debt ratio in 2021 is 0.61%, down 0.13% compared to 2018. In general, based on the bad debt percentage, BVB's credit quality has improved year after year, particularly in the two most challenging years of credit activity, 2020 and 2021. Nevertheless, the bank's bad debt balance continued to expand rapidly, the bad debt ratio continued to rise, and the bank's debt collection capabilities was still hampered by business assistance programs. As a result, BaoViet Bank must continue to establish strategies to improve credit quality, specifically the bad debt ratio, especially in 2021, when the
market's capital demand increases, in order to re-build the business and overcome the impacts of the pandemic.
Table 6. Provisions for credit risks at BaoViet Bank in the period of 2019-2021 Unit: Billion VND
2019 2020 2021
Loans to customers 23415 27506 31879
Risk Provision 264 244 278
General Provision 117 168 225
Specific Provision 78 46 54
Source: Financial Statements of BVB With the bad debt and overdue debt ratios increasing compared with the same period last year, BVB has established a provision for risks of 264 billion dong, with a general provision for group debts. Groups 1–4 are VND 117 billion, with a VND 78 billion dedicated allocation for all debt groups. By 2020, with general credit provisions and particular provisions of VND168 billion and VND48 billion, respectively, the bank has undertaken numerous policies to increase the efficiency of credit operations and overcome the problem of bad debts and overdue debts. The drop in the specified provision level in 2020 compared to 2019 demonstrates that the bank has done exceptionally well in resolving the bad debt position, particularly with bad debt. Customers' production and business activities would suffer severe challenges in 2021 as a result of the Covid-19 epidemic, reducing the bank's capacity to collect debts and contributing to a rise in bad debts and overdue debts.
As a result of the epidemic condition, BVB's risk provision expense has skyrocketed in 2021. BVB's total credit risk expense this year has reached the threshold of VND 278 billion, an increase of VND 34 billion over 2020. The general and particular provisions for the year reached VND 225 billion and VND 54 billion, respectively, rising from the same period last year. As a result, banks must develop policies
rapidly to handle and avoid bad debts and overdue debts from expanding, particularly in 2021, when the global pandemic
scenario has not ended the economy's capital needs. Economic growth is required to battle and overcome the epidemic's impacts.
Table 7. Provision ratio of BaoViet Bank in the period of 2019-2021 Unit: %
2019 2020 2021
Risk Provision Ratio 1,08 0,9 0,94
Source: Analysis from data provided by BVB The risk provision ratio set by BVB reached 1.08 percent in 2019, when the ratio of bad debt and overdue debt was the maximum in the three-year research period. The recorded provision ratio dropped from 1.08 percent to 0.9 percent by the end of 2020, when the bank has better addressed the condition of bad debts and overdue payments due to substantial adjustments in credit policy. This demonstrates that BaoViet Bank's credit quality has been significantly improved. By 2021, the number of problematic loans and outstanding payments had skyrocketed due to the Covid- 19 pandemic, despite the bank's support for extending the payback time for customers afflicted by the epidemic. In addition to the fact that the bank has been unable to collect debts from extended loans, the bank must provide a total risk provision of more than 278 billion VND, at a rate of 0.94 percent. This demonstrates that BVB's credit quality, as measured by the risk provision ratio under the pressure of the epidemic, has begun to decline, forcing the bank's early implementation of corrective policies, especially since the global epidemic status remains uncertain.
2.3. Assess the current status of credit quality