INTERNSHIP REPORT Subject Improving The

ACADEMY OF FINANCE UNIVERSITY OF TOULON
MASTER TRAINING PROGRAM INSTITUTE OF BUSINESS ADMINISTRATION
INTERNSHIP REPORT
Subject: Improving the Management of Non - Performing Loans in Joint
Stock Commercial Bank - The case of Vietcombank _ Thai Nguyen Branch
NGUYỄN VIỆT ANH
DEGREE: Master in Corporate Finance and Management Control
Tutor IAE Toulon: Jacques MARTIN

Tutor AOF: TA Huy Hung
Company representative: MAI Trung Khanh
Year: 2015 - 2016
1
THANK
My most humble and sincere thanks to:
First and foremost, my supervisor, Dr. TA Huy Hung for suggesting the topic of this
research and encouraging me to pursue it. I am grateful for his invaluable advice and
comments as well as for his dedication and constant support throughout the duration of
this project.
Mr. Tran Thuy Duong, director of VCB THAI NGUYEN, and other Deputy Directos and
managers, as well as members of the staff at VCB THAI NGUYEN, for providing me with
insights, statistics, among other supporting documents for my research.
My family for their love, patience and support throughout the writing process and the
duration of the Master course.
Thai nguyen, 06th September 2016
Nguyen Viet Anh
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EXECUTIVE SUMMARY
For the last few decades VCB has consistently remained one of the largest commercial
banks in Vietnam – placing itself among the key players in funding and supplying banking
services and also serving as an important intermediary for the State Bank’s fiscal and
monetary policies. Since its inception in June 2013, VCB – THAI NGUYEN Branch
(hereby known as VCB TN for short) has become one of the most effective branches in
the VCB system.
In the wake of the global economic downturn at the end of 2012, however, the banking
sector was hit hard since most if not all clients were affected to varying degrees. As
businesses downsized to stay alive and many individuals going bankrupt, problems started
arising for even the most bullet-proof of financial institutions, namely VCB. Non-
performing loans (NPLs) skyrocketed, which had a dual effect: banks’ profits started to go
down from writing off bad debts and lending came to a halt, thus disrupting the flow of
capital in the whole economy. Owing to these factors, VCB TN has been facing many
challenges as its market share shrinks, loyal customers either leave or go out of business.
To make matters worse, VCB TN’s credit rating has been downgraded due to the sheer
amount of NPL it carries.
As someone who is directly involved at VCB TN’s operations, I decided on the topic of
“Improving the Management of Non-performing Loans in Joint Stock Commercial Banks
– The Case of the Joint Stock Commercial Bank for Foreign Trade of Vietnam (VCB) –
Thai Nguyen Branch” for the final project
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LIST OF ABBREVIATIONS
Agribank Vietnam Bank for Agriculture and Rural Development
BIDV Joint Stock Bank for Investment and Development of Viet Nam
BOD Board of Director
CEO Chief Executive Officer
CIC Credit Information Center
FED Federal Reserve
GD General Director
NPL (NPLs) Non-performing loan (Non-performing loans)
SBV State Bank of Vietnam

SWIFT Society for Worldwide Interbank Financial Telecommunication
UN United Nations
VCB Joint Stock Bank for Foreign Trade of Vietnam
VCB TN Joint Stock Bank for Foreign Trade of Vietnam – Thai Nguyen Branch
(VCB Thai Nguyen)
Vietinbank Vietnam Joint Stock Commercial Bank for Industry and Trade
VND Vietnam Dong
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LIST OF TABLES INDEX
Figure 2.0: VCB TN’s organization

Table 2.1: Fund mobilization of VCB TN from 2013 to 2015
Figure 2.2: Deposits from Customers of VCB TN from 2013 to 2015
Table 2.3: NPL rate of VCB against other banks
Table 2.4: 10 branches with the highest amount of NPL and NPL ratio as of 31/12/2015
Table 2.5: Financial result of VCB TN from 2013 to 2015
Table 2.6: VCB TN’s NPL from 2013 to 2015
Figure 2.7: NPL rate curve of VCB TN from 2013 to 2015
Table 2.8: Loan classification of VCB TN from 2013 to 2015
Table 2.9: Loan classification by time to maturity of VCB TN from 2013 to 2015
Table 2.10: NPL classification by time to maturity of VCB TN from 2013 to 2015
Table 2.11: Loan classification by business structure 2013 to 2015
Table 2.12: VCB TN’s NPL classification by business structure 2013 to 2015
Table 2.13: VCB TN’s loan classification by industries 2013 to 2015
Figure 2.14: System of documents governing credit activities at VCB
Figure 2.15: Credit authorization at VCB
Figure 2.16: Credit granting process at VCB
Table 2.17: Proportion in using handling measures of VCB TN from 2014 to 2015
Figure 2.18: Proportion in using handling measures of VCB TN from 2014 to 2015
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TABLE OF CONTENT
THANK .........................................................................................................................................2
EXECUTIVE SUMMARY .........................................................................................................3
LIST OF ABBREVIATIONS .....................................................................................................4
LIST OF TABLES INDEX .........................................................................................................5
TABLE OF CONTENT...............................................................................................................6
INTRODUCTION: ......................................................................................................................8
PART I: ANALYSIS OF NPL AT VCB THAI NGUYEN ......................................................9
CHAPTER 1: INTRODUCTION TO VCB THAI NGUYEN .................................................9
1.1. The organization of VCB THAI NGUYEN ........................................................................9
1.2. VCB THAI NGUYEN’s organizational structure .............................................................9
1.3. VCB THAI NGUYEN’s activities from 2013-2015 ..........................................................10
CHAPTER 2: CURRENT STATUS OF NPL AT VCB THAI NGUYEN 2013-2015 .........14
2.1. NPL status and loan classification .....................................................................................14
2.2. NPL structure at VCB THAI NGUYEN ..........................................................................16
2.3. NPL by industries ...............................................................................................................18
Chapter 3. NPL MANAGEMENT AT VCB THAI NGUYEN DURING 2013 – 2015 .......21
3.1. Mechanisms for credit management at VCB THAI NGUYEN ......................................21
3.2. The process of managing and handling NPL at VCB THAI NGUYEN ........................26
3.2.1. Establishment of loan handling at VCB THAI NGUYEN ..............................................26
3.2.2. Risk handling process at VCB THAI NGUYEN .............................................................27
3.3. The application of the measures ........................................................................................29
PART 2: IMPROVING THE MANAGEMENT OF NPL .....................................................31
Chapter 1. THE REASONS FOR THE INCREASE OF NPL DURING 2013-2015 ..........31
1.1. The reasons from macroeconomic environment ..............................................................31
1.2. The reasons from the borrowers .......................................................................................31
1.3. The reasons from the bank ................................................................................................32
CHAPTER 2: MANAGEMENT’S PROSPECT ON THE FUTURE OF VCB THAI
NGUYEN ...................................................................................................................................36
2.1. The objective of VCB THAI NGUYEN in coming years ................................................36
2.2. The future of managing NPL at VCB THAI NGUYEN..................................................36
Chapter 3: RECOMMENDATIONS TO IMPROVE THE MANAGEMENT OF NPL AT
VCB THAI NGUYEN ...............................................................................................................38
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3.1. Building orientation for credit operations ........................................................................38
3.2. Enhance the quality of credit evaluation before granting credit, inspection during and
after granting the loan ...............................................................................................................38
3.3. Improving the structure of credit operations and credit risk management ..................39
3.4. Devising a reward and discipline system for individuals and groups ............................40
3.5. Training, developing and standardizing staff capacity related to credit operations ....41
3.6. Developing an effective information system .....................................................................41
3.7. Flexibility in handling NPL ................................................................................................42
GENERAL CONCLUSION: ....................................................................................................45
REFERENCES...........................................................................................................................47
APPENDIX 1 - LIST OF INTERVIEWEES ..........................................................................48
APPENDIX 2 – LIST OF QUESTIONNAIRE FOR THE IN-DEPTH INTERVIEW .......49
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INTRODUCTION:
In the banking sector, credit activities account for most of the bank’s total income. However,
these activities are inherently risky - especially emerging economies like Vietnam’s. Because
of many factors, namely a lack of transparency in the information system, underdeveloped risk
management processes, and low professionalism among bank officers – the need for a
working model of credit risk management is more urgent than ever.
P. Volker, former chairman of FED, once said:" If banks do not have NPLs, it is not
business." For all commercial banks, credit risk is a fact of life. Even the world’s leading
banking institutions cannot escape from NPLs, simply because there are many factors
beyond human control. What separates an effective risk management model from an
ineffective one is how much controllable risk it can reduce or eliminate altogether.
The biggest challenges commercial banks in Vietnam now face are a weak financial
position and an extremely high rate of NPLs per total outstanding loans. The problem here
is not only to collect NPLs from previous years quickly but also to prevent NPLs from
increasing. Only then can Vietnam’s commercial banks get back on their feet financially
and remain competitive.
Take an example from VCB Thai Nguyen: from the year 2013 to 2015, our cumulative
credit shooting almost 20 - fold (from 45 VND billion to 932.78 VND billion). At the
same time, our NPL rate up to 1.74% (The NPL was 16.2 VND billion). Our credit
activities became much less efficient amid a surge in credit risk and liquidity risk. The
aftermath was not just financial – our credit rating was demoted and our brand name
suffered.
Therefore, one of our top priorities at VCB Thai Nguyen is to standardize risk
management practices in the shortest time frame. Managing NPLs in compliance with
current international standards will enable commercial banks to provide better products
and services at a lower price by allowing a quicker capital turnover rate and of course, a
smaller allowance for bad debts, which cuts directly into net profit.
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PART I: ANALYSIS OF NPL AT VCB THAI NGUYEN
CHAPTER 1: INTRODUCTION TO VCB THAI NGUYEN
1.1. The organization of VCB THAI NGUYEN
VCB TN was established in 2013. From a humble start with only about 45 billion VND in
total loans and a relatively small customer base, the branch has grown over the years, with
outstanding loans increasing almost 20-fold after three years. VCB TN prides itself on
having the smallest workforce in relation to net income in the VCB system, normally a
branch of comparable size and profitability has around 150 employees. At VCB TN, we
make do with just over 50, around 35 of whom are directly involved in customer activities.
Over the years VCB TN has built trust and close relationships with many big partners in
various industries. Most of the big companies in iron and steel sector are VCB TN’s loyal
customers. Thaihung Trading Joint-stock Company is one of the biggest companies in iron
and steel sector in VN; Alutec Vina; SEVT – electronics giant; Glonics Vietnam company,
are all VCB TN’s customers. We also handle cash and provide lines of credit for hundreds
of small and medium-sized companies.
1.2. VCB THAI NGUYEN’s organizational structure
At the moment, VCB TN has 4 specialist departments in headquarters and 1
business office with a total of employees, 90% of whom hold a bachelor’s degree.
- Customer activities: Customer department and Customer Services department
 Wholesale banking: Service Quality is a focal point of maintain and develop

relationships with clients on all aspects of operations. The banking business greatly
values trust, therefore a good relationship with customers can sometimes mean the
difference between a long-term partnership or no business at all. The department
performs general customer evaluation and business analysis, which then will be
forwarded to upper management under the form of a report and a proposal.
 Retail banking: Like the wholesale department, the retail department builds
relationship, albeit with individuals. A large portion of our total deposit comes from
the general public. Currently about one fifth of V C B ’s total outstanding loans are
loans made to individuals. They are an important source of capital and income for any
commercial bank. The department also markets and develops specific products for
personal use such as personal banking, credit card, debit card, wire transfer, currency
exchange, among other things.
- Supporting activities: Accounting department and Department of human

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resource and Treasury
 Accounting department: recording banking transactions compliance with

accounting principles and regulations, and reporting to VCB HO, SBV, BOD.
 Department of human resource and Treasury:

- Human resource activities : Recruiting, evaluating, managing and training staff;
developing; incentive policies; fulfilling administrative activities of the bank.
- Information technology activities : Managing and maintaining information
technology systems related to banking business activities.
- Treasury activities : Management the Cashflow of the Branch, precious assets,
valuable papers and prints at the branch
Director
Customer Customer Accouting Department of

Department Services Department human
Department resource and
treasury
Figure 2.0: VCB TN’s organization

1.3. VCB THAI NGUYEN’s activities from 2013-2015
- Fund mobilization:
As of 31/12/2015, the total deposit from customers reached more than 837.322 VND
billion, up 182.9% compared to 2014. This is considered as the highest increase since the
string of positive deposit growth from 2013 to present. This can be attributed to VCB’s
good performance in recent years. The table 2.1 below summarizes the fund mobilization
of VCB TN in the past few years.
Unit: VND Billion
Item % against % against
2013 2014 2015 Target
2014 targets
Deposits
60.00 296.00 837.32 740.34 182.90% 113.10%
from
customers (Source: VCB TN’s Financial Statements from 2013 to 2015)
Table 2.1: Fund mobilization of VCB TN from 2013 to 2015
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From the start of 2013, the BOD of VCB drastically assigned the fund mobilization target
to all branches and VCB TN was assigned to reach the target at 740.34 VND billion in
fund mobilization in 2015. As of 31/12/2015, this goal has been achieved, exceeding
target by 13.1% (Figure 2.2).
Unit: VND Billion
Figure 2.2: Deposits from Customers of VCB TN from 2013 to 2015
- Credit activities:
From early in 2015, the BOD assigned the target of NPL ratio in the whole system at less
than 2%. However, NPL ratio of the whole system the beginning of the year was nearly
3% because of the strong growth of credit, but NPL ratio fell to 2.1% at 30/09/2015 and
1.76% at the end of the year, rasing the ratio of reserves on the balance of NPL up to 95%.
It means that if there is 100 VND in NPL , VCB has 95 VND backup. This is the highest
rate in the entire banking system of Vietnam.
Unit: %
Credit Institution 2013 2014 2015
NPL rate NPL rate NPL rate
VCB 2.5% 2.29% 1.76%
Vietinbank 0.82% 1.1% 0.95%
BIDV 1.8% 2.25% 1.62%
Agribank 6.00% 5.8% 6.32%
Other Joint stock Banks 0.85% 1.04% 0.62%
Banking system 3.70% 4.08% 3.79%
(Source: Financial Reports)
Table 2.3: NPL rate of VCB against other banks
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From 2013 to 2015, VCB did not fare the best in terms of NPL management among the
largest state-owned banks and other Join stock Banks as a whole. However, by 2015, its
NPL rate has dropped well below its level in 2014, showing VCB’s effort in reducing and
controling NPL.
Unit: VND Billion
Branch NPL NPL rate
VCB Headquarter 238 3.1%
VCB Hoan Kiem 201 3.8%
VCB SGD 198 2.3%
VCB South Saigon 205 3.3%
VCB Tay Ho 142 5.2%
VCB TN 16.2 1.74%
VCB Thang Long 280 3.7%
VCB Bac Ninh 100 4.0%
VCB North Hanoi 170 3.2%
VCB South Ha noi 49 2.7%
(Source: NPL report in 2015)
Table 2.4: 10 branches with NPL and NPL ratio as of 31/12/2015
Throughout the year 2015, VCB achieved a lower NPL rate than 2014. However, a few
branches saw their NPL rate drastically increase. Among those branches, VCB TN had
among the lowest amount of NPL, accounting for 1.74% of VCB's total NPL (NPL report
in VCB system).
- Financial results:
As of 31/12/2015, the branch's profit before provision increased to 33.6 VND billion,
while profit after provision was 17.4 VND billion, up 16.77% compared to 31/12/14.
However, in 2015, VCB TN only set aside 16.2 VND billion for provision and allowance.
Details of VCB TN’s financial statements are described in Table 2.5.
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Unit: VND Billion
2013 2014 2015
Item
Amount Amount Amount
Profit before tax before
8.9 20.1 33.6
provisions
Provisions and allowance

for credit risks expense 0 5.2 16.2
Profit before tax after

8.9 14.9 17.4
provisions
(Source: Financial Statements of VCB TN from 2013 to 2015)

Table 2.5: Financial result of VCB TN from 2013 to 2015
It can be said that the higher NPL will seriously affect the competitiveness in the banking
business. High NPL ratio not only reduces the solvency of banks, decreases efficiency in
allocation of asset and liability as well as the liquidity of capital, but also increases the
feasible of losing capital as result reducing the profitability of banks, increases level of
risk as well as loss of customers’ trust for banks. Therefore, managing and reducing NPL
ratio can be considered as the most important duties of VCB TN in this period.
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CHAPTER 2: CURRENT STATUS OF NPL AT VCB THAI NGUYEN 2013-2015
2.1. NPL status and loan classification
- NPL status:
As of 31/12/2015, total loans of VCB TN were 932.778 VND billion, up 63.3% compared
to 2014. Meanwhile, NPL was 16.2 VND billion, up 11 VND billion compared to 2014
and significantly exceeded the goal of 1.80% assigned by the BOD. Detailed figures are
provided in Table 2.6 and Figure 2.7.
Unit: VND Billion
Item 2013 2014 2015 +/- against 2014 +/- % against 2014
Loans 45 592 933 341 157.60%
NPL 0 5.2 16.2 11 312.00%
NPL rate 0% 0.8% 1.74% 0.94% 200.2%
Table 2.6: VCB TN’s NPL from 2013 to 2015
This high record figure reflected the increase in VCB TN’s market share and its higher
liquidity and credit risk. Therefore, the important duty of VCB TN is to reduce the NPL
ratio to get the target. This figure also showed a part of the weakness in the credit risk
management, in the quality of disbursement monitoring as well as in the NPL management
of VCB TN.
Unit: %
Figure 2.7: NPL rate curve of VCB TN from 2013 to 2015
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- Loans classification:
VCB TN implemented loan classification and provisioning risk under Article 6 (for
individuals) and Article 7 (for businesses) of Decision No.493/2005/QD-NHNN issued by
the SBV since 2006. The internal credit ratings system has been built to ensure a
streamlined quality management process from the stage of evaluation, approval to the
stage of cash disbursement as well as collateral management. The internal credit rating
policy also help the manager control the loan classification, provisioning and use of
allowances to handle risk. This set of regulations also helped determine the rights and
responsibilities of departments as well as individuals involved in the process. The
following Table 2.8 is loan classification results over the years from 2013 to 2015.
Unit: VND Billion
2013 2014 2015
Item
Amount % Amount % Amount %
Group 1 – Current
45.00 100% 532.8 90.00% 820.88 88.00%
debt
Group 2 – Special
0.00 0% 54.00 9.12% 95.70 10.26%
mentioned debt
Group 3 - Sub-
0.00 0.00% 2.00 0.34% 8.90 0.95%
standard debt
Group 4 – Doubtful
0.00 0.00% 3.00 0.51% 4.70 0.50%
debt
Group 5 – Loss
0.00 0.00% 0.20 0.03% 2.60 0.28%
debt
Total Loans 45.00 100% 592.00 100% 932.78 100%
Table 2.8: Loan classification of VCB TN from 2013 to 2015
As shown in Table 2.8, in 2013, Total loan was 45 VND Billion, Group 1 debt reached
100% of total loans. In 2014, Group 2 debt reached 9.12% while NPL accounted for
0.88% of total loans. As of 31/12/2015, Group 3, 4 and 5 both increased, amounting to the
3.6% NPL rate. Thus, only in three years from 2013 to 31/12/2015, the branch's NPL
increased significantly, from 0.88% to 1.74%. With current economic situation which is
getting more and more difficult, Group 2’s ratio of 10.26% might be a potential risk,
which will raise NPL ratio and affect asset quality of the bank when this group change to
low credit rating groups
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2.2. NPL structure at VCB THAI NGUYEN
To better understand the loan structure, as well as the proportion of NPL in each type
of loans we further analyzed the types of loan structure in the VCB TN as below:
- Loans by time to maturity

When it comes to time to maturity, loans are divided into three categories: short
term, medium term and long term. The data were summarized in Table 2.9. In Table
2.9, from 2013 to 2015, the proportion of short-term loan on total loan of VCB TN
increased, while medium term and long term has a downward trend. Specifically, as of
31/12/2015, short term loans accounted for 65% and medium and long term loans
accounted for 35%.
Unit: VND Billion
2013 2014 2015
Item
Short term 38.67 85.93% 426.36 72.02% 606.18 64.99%
Medium to long term 6.33 14.07% 165.64 27.98% 326.60 35.01%
Total 45.00 100.00% 592.00 100.00% 932.78 100.00%

Table 2.9: Loan classification by time to maturity of VCB TN from 2013 to 2015
However, at that time the interest rates which had maturity from 1 month, 3 months,
6 months or 12 months were the same as 6.5%. Especially, there was some stress time
that the short term interest rate of deposit was higher than the long term interest
rate, and the customers tended to deposit in short-term reflecting the illiquidity in
banking industry (Interest rate report of SBV). This problem will cause the unbalance in
managing assets and liabilities of the bank, increase liquidity gap and liquidity risk, credit
risk for VCB TN.
NPL classified as repayment period is described in the Table 2.10.
Unit: %
Item 2013 2014 2015
% NPL Short term 0% 59.20% 68.98%
% NPL Medium term 0% 7.05% 10.94%
% NPL Long term 0% 33.76% 20.07%

Table 2.10: NPL classification by time to maturity of VCB TN from 2013 to 2015
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As shown in Table 2.10, Since 2014 to 2015, short and medium term NPL fell while
long term NPL skyrocketed. As of 3 1 /12/15, VCB TN’s NPL short-term was 68.98%,
medium-term was 10.94% and long term was 20.07%. Considering the current
economy, the increase in the proportion of long term NPLs reflects a big problem in
long term financial capacity. The weakness and inefficiency of cash flow management
of the customers, as the result, will affect the credit quality of the bank.
- Loan classification by business structures:

When it comes to types of business, loans are divided into five categories of asset such
as loans for State owned companies, Limited companies, Joint stock and private
companies, Foreign invested enterprises, and for Individuals.
Unit: VND Billion
2013 2014 2015
Item
State owned
0.00 0.00% 0 0.00% 3.36 3.70%
enterprises
Limited companies 13.60 30.22% 193.41 32.67% 283.15 30.36%
Joint stock and
26.70 59.33% 346.79 58.58% 407.16 43.65%
private companies
Foreign companies 0.00 0.00% 0 0.00% 117.1 12.55%
Individuals 4.70 10.44% 51.8 8.75% 90.86 9.74%
Total Loans 45.00 100% 592.00 100% 932.78 100%

Table 2.11: Loan classification by business structure from 2013 to 2015
As in Table 2.11, in 2015, 8 6 . 5 6 % o f loans came from three groups of companies

which were limited companies group accounting for 3 0.36%, Joint stock and private
companies group accounting for 4 3 . 6 5 %, and Foreign companies group accounting for
12.55%. State owned enterprises group accounting for only 3 . 7 % while Individuals
remained at 9.74%. In 2015, NPL rate of JSCs was the highest, this group was
accountied for 92.59% of total loans, followed by Individuals contributing to 7.41% as
described in Table 2.12.
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Unit: %
Item 2013 2014 2015
% NPL State owned 0.00% 0.00% 0.00%
% NPL Limited companies 0.00% 0.00% 0.00%
% NPL Joint stock and
0.00% 96.15% 92.59%
private companies
% NPL Foreign invested
0.00% 0.00% 0.00%
enterprises
% NPL Individuals 0.00% 3.85% 7.41%
Table 2.12: VCB TN’s NPL classification by business structure from 2013 to 2015
In 2015, percentage of NPL for JSCs slightly decreased from 96.15% to 92.59%, but NPL
for this Group still increased from 5 VND billion to 15 VND billion. This is because the
BOD assigned the target of strong Credit growth to the branch, so the NPL rate still
increased.
2.3. NPL by industries
2013-2015, outstanding loans and NPLs mostly rest in Processing and manufacturing,
construction, transportation, and real estate and consulting service. These sectors are
strongly affected by the fluctuation of the economy. Details of NPLs for each sector are
given in Table 2.13.
Unit: %
Item 2014 2015
Processing and manufacturing 0% 20%
Construction 12% 27%
Trading and service (rice, coffee) 0% 0%
Hotel and restaurant 0% 0%
Transportation 8% 0%
Real estate and consulting service 80% 53%
Community services 0% 0%
Household service 0% 0%
Total 100% 100%
(Source: Internal report from 2013 to 31/12/2015)
Table 2.13: VCB TN’s NPL classification by industries 2013 to 2015
Based on data collected from internal credit rating report of VCB TN and in-depth
interviews, I will analyze the macroeconomic risks that affect sectors having high
proportion of overdue loans which causes the most difficulties in doing business of
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the borrowers in VCB TN. These risks are unfavorable to borrowers in VCB TN and
becoming one of the reasons that cause the NPL to increase, making loans in group 1
and 2 become NPL in the near future.
 Real Estate and Consulting Service:

The economic crisis has caused the demand for real estate (especially high value
structures) to significantly decrease. Moreover, the government has issued tight monetary
policy and limited credits to non-manufacturing sectors, making it more challenging
for investors to pool sufficient capital. As of 2 014, NPL in real estate and consulting
service accumulated up to 80%. Potential NPLs from this sector are investments in
properties such as Grade A+ properties, 4-5 star hotels and luxury apartments. When
real estate market goes down, these segments are the first to be affected, causing stress
on cash flow of investors and making them unable to pay their debts.
 Construction:
The capital of construction enterprises primarily derive from the state budget, ODA
loans and bank loans. However, the source from the state budget is currently limited due
to the government’s policy to control inflation; lacking this source, these enterprises will
be seriously affected in terms of financial support.
Moreover, these enterprises are likely to use bank loans for improper purposes such as to
invest in real estate or other financial instruments. However, they do not analyze and
assess the risk of these projects or balance their capital use, resulting in negative cash
flow and financial loss.
The enterprises of this sector, especially companies having projects in real estate
development, are having big problem as their partners are delaying the payment. As a
result, the loans of these companies are more likely to become NPL in the near future.
 Processing and manufacturing:

Due to fluctuations in the market, the manufacturing enterprises face the consumption of
output, particularly the proprietary product (Black Tea, Green Tea, Tea hook, ...) in the
province has leveled off, the price is relatively low, besides, due to the incresinng price of
agricultural materials, farmer in the region’s raw reduce invesment to materials-intensive
of the manufacturing enterprise, causing yields to decline. However, the price of product is
even lower compared with every year, the operation of processing factories reach only
50% capacity.
From the above analysis, the author can draw some conclusions for NPL of VCB TN
as below
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 NPL ratio was quite high (1.74% by the end 2015) and tend to increase annually,
especially in group 3 and group 5 from 2014 to 2015. In addition, loan in group 2 was
slightly high which can easily turn into NPL anytime, particularly in the recession of
economic, causing NPL ratio to rise.
 Outstanding loans and NPL in medium-term and long-term tends to increase,

which reflects a big problem in long term financial capacity. The weakness and
inefficiency of cash flow management of the customers, as the result, will affect the
credit quality of VCB TN.
 Most NPLs come from private and joint stock companies, Individuals. This situation
reflected the limited financial capacity of existing borrowers who have long banking
history with VCB TN.
 Sectors having most NPLs and overdue loans are Processing and manufacturing
construction, real estate and consulting service. The economic crisis has led to a
reduced public investment, high inflation and high interest rates, which decrease
demand in many industries. As a result, many enterprises were affected and had to
face with an even more unfavorable financial situation.
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Chapter 3. NPL MANAGEMENT AT VCB THAI NGUYEN DURING 2013 – 2015
3.1. Mechanisms for credit management at VCB THAI NGUYEN
- Regulation of credit activities:

With the goal of healthy financial status, increasing credit quality, reducing NPL ratio to
lowest level, trying to gradually approach the international practice, in recent years, VCB
TN has constantly improve efficiency of credit activities from the stage of granting credit
to the stages of inspection and controlling the use of loans, the monitoring process for debt
recovery, ensuring the lowest limit of overdue loan, NPL incurred.
To actively control the overdue loan, NPL in recent years, VCB has developed systems
and policies, risk management processes, supporting for the control of increasing in NPL
of VCB. The BOD issued policies regarding lending, guarantee, credit risk management...
CEO based on these policies issued the instruments, approved rules, specific procedures
for types of loans to the branches in VCB’s system. Figure 2.14 describes the system of
documents related to credit activities at VCB and VCB TN.
BOARD OF DIRECTORS
(Issued risk management policy)
REGULATION OF LOANS, POLICY OF CREDIT POLICY OF PROVISION BANK’S REQUIRED

GUARANTEES, INTEREST GUARANTEE FOR RISKY ASSET RESERVE
EXEMPTIONS
CEO
LIMIT, TOOLS PROCESS SPECIFIC PROCEDURE
- CREDIT APPROVAL - BIG ENTERPRISES - SECURITIES LENDING

- REGULATION OF CREDIT - SMES - REAL ESTATE LENDING
UNION - INDIVIDUAL LOAN - LOANS FOR FDI
- FUNCTIONS OF THE CREDIT - FACTORING - SYNDICATED LOANS
DEPARTMENT - MANAGING AND
- PAYMENT L/C
- CREDIT RATING HANDLING BAD DEBT
- PARTITION INVESTMENT - FOREIGN CURRENCY
- LENDING POLICIES FOR LOANS
SPECIFIC INDUSTRIES
(Source: VCB’s internal policy)
Figure 2.14: System of documents governing credit activities at VCB
21
From figure 2.14, the CEO issues credit policies, which outlined the processes for each
economic sector based on the business environment and industries’ specifics. VCB TN has
complied with the all regulations promulgated by VCB headquarter. Specifically as
follows:
- The credit approval process at VCB TN:

The central credit committee determines the maximum line of credit for one customer. The
composition of this committee is generally decided by the CEO himself. At VCB TN, the
Director appoints the branch’s credit council and also takes a role as the chairman of this
council.
At VCB we use a hierarchical system of decision-making whereby each level from
branch’s deputy director to the Central credit committee (top managers only) have a
certain “range” they can work on without having to consult upper levels. This is done to
empower lower level managers and also to reduce the burden of bureaucracy. Figure 2.15
elaborates further on this matter. Please note that these figures may vary depending on
each client’s creditworthiness and depending on the macroeconomic environment.
Limits to amount of the credit with each level of management
Central credit commite: More than 300 billion
CEO: 200 billion to 300 billion
Branch’s credit commitee: 30 billion
Branch’s Director and VPs: Less than 10 billion
(Internal credit policy of VCB)

Figure 2.15: Credit authorization at VCB
From figure 2.15, the deputy director at VCB TN can approve a line of credit less than 10
billion VND. When the customers are eligible for more than that amount, the council of
credit at VCB TN will have a meeting for the approval this loan. If the line of credit
exceeds 30 billion VND, VCB TN must forward all required documents to the risk
management department at VCB headquarter for approval. Since 2014, as NPLs at VCB
TN significantly increased, the CEO decided to reduce the maximum amount of credit
VCB TN can grant from 300 billion to 200 billion. This limit can be changed in the future
when NPL rate reduces.
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- Credit granting process at VCB TN:
Figure 2.16: Credit granting process at VCB TN
Credit granting process was developed in compliance with current regulations by the SBV
and the relevant government agencies.
Proposal: credit officers (known as customer relations officer) gather all relevant
paperwork from customers, using those documents as inputs for further analysis. The
customers are wholly responsible before the law for the accuracy of such documents.
However, checking for the accuracy of customers’ documents is the credit officer’s
responsibility. Information is fed to VCB’s internal credit rating system, analyzed further
by the credit officers themselves, who will determine whether or not credit can be granted.
If the customer is eligible, the credit officer will write a report and a proposal. Higher-
level managers will determine if credit should be granted based on the report and their
own subjective opinions.
Approval: after the credit officers finish evaluating the customer’s needs and financial
plan, the relevant department conducts risk assessment for the loan in question. At VCB
TN if the loan is sizeable beyond a predetermined amount it has to pass a thorough risk
assessment. Based on the proposal and the risk assessment report, the director decides
whether the loan will be granted. All legal proceedings after this step are standardized and
required by law. Signed documents are carefully grouped and archived as well as input
into VCB TN’s database.
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Monitoring cash flow: after a full or partial cash disbursement (for lines of credit and
project loans), on a periodical basis, the credit officer is responsible for updating relevant
information regarding:
o How the customers are using the provided fund
o Is there any disruption in the customer’s cash inflow
o Is there any change in the customer’s financial plan.
Should the credit officer find any abnormalities regarding the above items, he/she must
contact the customers about the problem and report to upper managers in order to devise
necessary changes in the loan’s terms and conditions.
Monitoring collaterals: for collaterals (including third party assets used as collateral)
which are machinery, equipment, buildings, etc…, the credit officer must physically
inspect for damages, loss, changes of ownership on a regular basis. In the case of a
guarantee contract involving a third party, he/she also has to monitor the financial strength
of the guarantor as far as the obligations are concerned.
Adjustment: based on the customers’ particular needs and financial positions, the credit
terms and conditions may be adjusted.
Collection: customers are notified of the loan’s due date at least 10 days prior. If the
customers are unable to pay off in time, on a case-by-case basis, the credit officer
recommends appropriate measures to his/her superiors.
Debt handling: When a loan becomes overdue, credit monitoring department immediately
informs the credit officer to contact the customers to sort things out. Such loans (which are
now NPLs) are closely monitored, the customers’ credit-worthiness is demoted, additional
interests and fees are likely to incur, along with a host of other changes to the loan’s terms
and conditions. Above all, however, all involved parties must work together to make sure
that the overdue loan is paid off as soon as possible.
End of contract: After the loan is paid off in full, the bank releases the hold on assets and
returns them to the customers.
The above process has been largely standardized at VCB TN. The regulations are devised
so as to remove as much confusion and ambiguity as possible. Using this streamlined
process, VCB TN is able to grow rapidly despite not having a sizeable workforce.
- Evaluating customers:
The internal credit ratings system help VCB TN assess credit more efficiently while
maintaining relatively good control of the credit portfolio. This system takes into
consideration even external factors such as economic conditions, regulatory changes and
incorporates both financial and non-financial criteria when rating a customer. Around the
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world banks are constantly in the quest for a more sophisticated system that can essentially
act as the eye in the sky for every one of its loans. In the future VCB needs to further
improve its system so as human errors are minimized while the role of objective judgment
from staff is not undermined.
- Customer policies in credit operations:

VCB TN qualifies or disqualifies customers using the following criteria:
 Customers must be individuals/organizations eligible for financial transactions.

Eligibility is determined by relevant government’s regulations.
 Customers must prove their ability to pay off the loans.
 Collaterals must be able to be traded, their ownership status must be unambiguous.
 Duration of the loans must be appropriate with each respective financial product.
Strategic customers with strong financial backings according to VCB’s internal credit
rating system will be considered preferred customers who enjoy “special” treatments
including, but not limited to, more lenient conditions for granting credit, lower interest and
fees, tailored products and services, etc…
- Policies for collaterals:

VCB TN reserves the right to fully decide whether or not it grants credit to customers. The
vast majority of loans are secured loans with VCB putting a hold on collaterals. The
conditions for an asset to be used as collaterals are numerous. The most important
principles are:
 Collaterals must be under the lawful ownership of the borrowers or a third party
involved in the process and;
 Collaterals can be sold/traded with relative ease.
- Supervision and inspection system at VCB TN:

The department of risk management was established at VCB TN for the purpose of
monitoring all internal operations of the bank to assess compliance with policies and
procedures and regulations. In theory such operations can be effective in detecting and
handling violations. In addition, all staff at management level is also responsible for
monitoring and inspection operations within the banking organization.
- The credit information collection system:
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Currently at VCB TN, the collection of credit information was performed by client
department. The credit officers proactively access customers and deploy, find down
necessary information for credit activities and monitor as well as manage the detail,
accurate and confidential of this information. Credit information Systems at VCB TN
collected by different credit officers, from various sources. Besides self-collected
information, the credit officers were only supported by the central credit information of
state banks. This limitation of lacking information had made difficult and less exact for the
evaluation and classification credit customers of VCB TN.
3.2. The process of managing and handling NPL at VCB THAI NGUYEN
3.2.1. Establishment of loan handling at VCB THAI NGUYEN
In 03/2015, by order of Mr. Tran Thuy Duong, director of VCB TN, a group consist of the
director himself, one deputy director and two specialists was to be put in charge of
handling bad debts. The handling loan group proactively identifies the right risky loan.
The risky loans for customer are one of the characteristics, as followings:
 It was the NPL which was classified under the result of classification and provisions
of the VCB and state banks regulations in each period.
 Loans which had been handled by the provision reserve cannot collect and currently
recording in off balance sheet.
 The loan of customers which have not yet been classified as NPL have some signs of
risky, as followings:
o The production of customer’s business interrupted, ceased (due to loss of customers,
products lose their competitiveness, strikes, continuous losses, the business sector at risk ...)
o The project of customers face with the difficulty problem as delayed or terminated
deployment.
o Customers use the loan in the wrong purposes which lead unbalance financial status
(using short-term capital for long-term investment).
o Customers are not willing to cooperate (not providing timely reports as required, acts
of shirking or hiding information, unwillingness to take all sources of cash flow to pay debt).
o Customer or the legal representative person, sued, may affect their ability to repay
loans.
o Customers have NPL in other credit institutions.
On the basis of risk assessment for each client, VCB TN actively applies some remedial
measures to collect NPL, as follows:
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(a): Special monitoring. Branches inspected the operations of borrowers frequently,
and required the borrowers report their financial statement regularly to grasp the situation.
(b): Continue to grant credit with stricter conditions such as increase collateral,
change the ways to grant credit, or increased controlling the loans.
(c): Collecting outstanding loans in a gradual manner.
(d): Requires additional collateral to ensure higher safety for the loans.
(e): Stop granting credit.
(f): Reduce interests.
(g): Restructure
(h): Require the guarantor to perform the obligation in place of the borrowers
(i): Sell the collaterals
(j): Sell the loans
(k): Request additional collaterals from third parties
(l): Sue the borrowers
(m): Other measures permitted by law.
Depending on the level and nature of the NPL, VCB TN may propose to transfer these
loans to the handling loan department of VCB headquarter. The transferring documents
must clearly stating the situation of consumers, content of debt, the measures already taken
to handle the loans and the difficulties arising in handling loans and proposing further
direction to handle these loans.
The handling loan department of VCB headquarter is responsible for managing NPL
portfolio, monitoring the implementation VCB TN in making collection of NPL plan and
advising for the manager of VCB TN the new method or process to collect NPL.
The establishment of the handling loan group of VCB TN showed the determination in
handling NPL of the branch. VCB TN considered that handling NPL is the first key tasks
in the business of banking, reform in the way of thinking and doing of the manager of the
branches, raise awareness and responsibilities of individuals as well as groups in handling
NPL, improving the efficiency of handling NPL at VCB TN
3.2.2. Risk handling process at VCB THAI NGUYEN
VCB TN can take any of the above steps to recover the loan. After that, a report will be
forwarded to VCB Headquarters. When all measures have failed except for using the
provision to handle the debt, VCB TN must submit detailed documents to VCB
Headquarter for further instructions. Firstly, the documents of risk handling must have
sufficient grounds to prove eligibility to use the above mentioned measures. The submitted
documents to the risk management department at VCB Headquarter must include: the
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proposal, the minutes of meetings of the credit council clearly showing VCB TN’s
solutions to each NPL incurred, the loan contract, the loan collateral reports and other
documents related to the disbursement and collection the loans.
Risk handling process of VCB TN includes three steps:
 Step 1: Credit officers are responsible for background check, research, and analysis
in order to propose a list of loans which are eligible to use provision reserve to handle as
well as propose the process measures and prepare a proposal submitting to Head quarter.
 Step 2: Managers of the respective department of customer relations review the

credit officer’s report to before forwarding to the director.
 Step 3: The risk handling council of branch reviewed the short list of loans eligible
to be handled by the risk handling committee of VCB headquarter.
In all cases, the branch shall be fully responsible for the correctness and accuracy of data
and records of proposal loans.
After receiving a written acceptance from the risk handling committee of VCB
headquarter, VCB TN uses specific provision reserve to process credit losses for loans
which are no longer to recover. VCB TN also conducts urgent sale of collateral which are
suitable with the agreement between VCB TN and the borrowers as well as compliance
with law and regulations. If the proceeds from the sale of security assets do not offset the
credit risk of loans, VCB TN uses general provision reserve to handle. At that time, VCB
TN shall transfer the debts which have been using provision reserves to handle risk from
recording in balance sheet account to record in off balance sheet account and continue to
monitor the implementation of schemes for debt recovery.
Before the 15/11 annually, the credit officers make a report to assess the performance of
debt handling and the reasons why said NPL has not been paid in the current fiscal year.
This also includes a plan by which NPL can be recovered in for the next fiscal years.
For loans deemed unrecoverable, VCB TN has completed the documents proving that they
are in fact unrecoverable and propose to write off these loans out of the balance sheet.
For specific regulations on the steps of risk handling process of VCB TN as well as the
consistent documents and regulations of risk handling in the whole system, the treatments
of NPL by using provision reserve were really methodical, scientific, easy to manage as
well as control, high initiative created for the branch when the proposed list of bad loans to
be treated, to ensure the prescribed by law as well as guidance of BIDV. Thereby, the
operation efficiency in processing NPL of VCB TN also increased, meeting the
management needs and requirements of the business of banking
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3.3. The application of the measures
Based on the results of periodic loan classification, VCB TN conducted the review, plans
for treatment, recovery of NPL by specific measures. According to the Table 2.17, the
measure of special monitoring loans (measure a) and measure of continue to grant credit
with sticker conditions (measure b) is the top priority.
Unit: VND million
Measures 2014 2015 Average %
a 3,601 10,698 7,149 66.74%
b 1,288 4,014 2,651 24.75%
c 0 0 0 0.00%
d 0 0 0 0.00%
e 38 29 34 0.31%
f 0 120 60 0.56%
g 0 0 0 0.00%
h 267 618 442 4.13%
i 0 332 166 1.55%
j 25 0 13 0.12%
k 0 0 0 0.00%
l 0 50 25 0.23%
m 0 344 172 1.61%
Total 5,219 16,205 10,712 100%
Table 2.17: Proportion in using handling measures of VCB TN from 2014 to 2015
Figure 2.18 shows that measure (a) was used most for collecting NPL of VCB TN with
the rate up to 66.74%, the measure (b) used rather as accounted for 24.75%.
Figure 2.18: Proportion in using handling measures of VCB TN from 2014 to 2015
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Credit officers and client manager at VCB TN inspected loans more frequently, required
the borrowers regularly report their production and business situation in the period,
actively reviewed, analyzed and evaluated actual operations of the borrowers (revenue,
inventory, accounts receivable...). Credit officers also closely monitor the cash flows of
business of borrowers (especially with borrowers opened accounts at the bank) to
promptly collect loans. VCB TN also required additional collateral for the loans from the
borrowers to increase security for the bank.
It can be seen that VCB TN focuses on the application of two methods to handling almost
NPL, especially in difficult economic conditions. The borrowers with weak financial
capacity cannot afford to pay the loan even though they were closely monitored by the
bank. In very bad cases where the collateral has to be sold as a last resort, the result is not
pretty. It is not always easy to sell a borrower’s assets because of many factors the bank
has no control over, most prominently legal problems. The measure of suing the borrowers
accounted for only 0.23%.
Other measures such as stop granting credit, interest reduction, selling of debts were also
used but with not nearly enough. The measures of handling NPL were not applied
diversification which may be one reason why the NPL ratio in current years increases.
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PART 2: IMPROVING THE MANAGEMENT OF NPL
Chapter 1. THE REASONS FOR THE INCREASE OF NPL DURING 2013-2015
According to the above analysis from part 1 and the result of in-depth interview, the
reason causing increase of NPL at VCB TN can classify in three parts :
1.1. The reasons from macroeconomic environment
i. Global economy.
By the end of 2013 the developed world has largely gotten out of the recession starting in
2008 and once again in 2012. However, the ripple effect is still felt in the
developing world as export, transportation and construction have not fully recovered. The
capital market of Vietnam is still in shambles, due in part to the lack of a cash inflow.
Large amount of unsold inventory also drives down the price of such assets, further
complicating the problems between banks and borrowers, because oftentimes inventory is
used as collateral.
ii. Real estate market downturn
Real estate market downturn has caused serious impact on many related sectors such as
steel, cement, and construction, as result creating huge inventories in these sectors. In
2013, inventory of processing industry increased by 23% over the same period of last year,
especially some sectors had high increasing rate of inventory such as steel up 32%, cement
up 64%, plastic products up 55%, and fertilizer up 56% (economic report 2014). This
matter forces the market price of these products to go down. Outstanding loans in these
sectors of VCB TN accounted approximate 70% (17% in construction and 53% in real
estate) therefore it was much more prone to negative effects from the real estate market.
iii. Tight monetary policy investment
The years 2013 saw the government pursuing a low money supply and high interest rate,
which at some point reached a record 20%. This is followed by a market collapse which
drove interest rate to just 10% in a year, effectively putting a huge strain on borrowers
who had to borrow at the peak rate
1.2. The reasons from the borrowers
i. Borrowers have weak financial capacity and are highly dependent on bank capital.
The top 10 borrowers at VCB TN have an outstanding loan of around 800 billion VND,
accounting for almost 85% of the branch’s outstanding loan. Most of those 10 companies
are in the real estate business, which suffered heavily from the market collapse at the end
of 2014. Those customers are VCB TN’s long-time partners, so handling NPL for them is
a delicate matter at VCB TN, requiring not only a competent workforce but also enough
flexibility to ensure both parties’ survival.
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ii. Corporate managers lacking both competency and experience
Many otherwise financially sound companies are plagued by poor decision-making. As the
Vietnam’s economy arguably grows faster than its people can adapt, many top managers
struggle to understand new technologies, or to plan a sustainable business strategy. They
stick with what did well in the past instead of scrutinizing into details such as cash flow,
revenue and risks. Many businesses have gone out this way: top managers overshoot their
revenue estimate, borrow way too much for their cash inflow, then become insolvent.
iii. Borrowers invested in too many projects for their financial capacity.
When a business funds its investment in an area it has no expertise in with operating cash
flow or borrowed money, it is taking a substantial risk. But when it does so in several
industries outside of its own, that is when disaster happens. By 2012, many companies
from industries such as manufacturing, exporting, petroleum, and telecommunication
poured money into real estate, banking and the stock market using borrowed money. This
move greatly inflates those markets, causing the bubble to burst shortly after.
iv. Information provided by borrowers is inaccurate.
Some the financial statements of borrowers are not audited by an independent auditor or
the tax authority.
v. Difficulty in selling collaterals
Assets used as to collaterals for the obligations of the borrowers account for roughly 70%
of total outstanding loans. It is therefore unlikely that in the event of a default, the bank
can fully recover the loan. Furthermore, some loans are secured by machinery, equipment,
production lines which are purposely built. Although they are highly valuable to the right
party, they are difficult to liquidate. Some loans are mortgages, which, under the
Vietnamese property law, cannot be considered the borrowers’ property until it has been
amortized. Because the borrowers do not technically own the assets, they cannot be
registered as collateral. In many cases, a certain building has been operating for years yet
the owners cannot register it because he has not paid off his debts
1.3. The reasons from the bank
i. The process of evaluation and approval of credit
 Credit officers have not focused on risk assessment for the group of related
companies or the transfer funds between related companies, as result not accurately
calculate their own capital needs and working capital cycle, leading inaccurate in
approving credit limit for customers. “Credit officers usually evaluate the effectiveness of
the project, and not assess the operations and cash flow in all activities of the company.
The projects which are evaluated might be truly good, but the difficulties which come from
32
other activities will affect the repayment capacity of customers” said Mr. Vu Anh Duc,
corporate customer manager. This can be seen the weakness in evaluation process of client
officer at VCB TN.
 Credit officers have not analyzed the crisis situations in lending decisions, especially
in granting credit for long-term projects. In the period of 2013 - 2015, VCB TN had
provided credit to many investment projects in the field of maritime transport, real estate,
cement, steel... But at that time, the evaluation only assessed the performance of the
projects in normal economic conditions, steady growth without assessing the impact of the
crisis-economic factors (including the crisis in the economic cycle) to the ability to pay
debts of borrowers.
 Credit officers do not thoroughly evaluate the financial capacity of the borrowers in
lending projects. There are many unfinished projects due to lack of capital, forcing the
bank increase the lending rate to complete the project or customers borrow other banks, or
use short-term capital to invest in long-term projects. This situation will reduce efficiency,
increase risk compared with an initial evaluation plan. The credit officers may also not pay
attention to the demand of working capital especially for projects with large capital needs,
such as steel, cement, leading to stagnation of production, which affects the efficiency and
capacity to repay loan of the borrowers. From talking with Ms. Dao Thi Thanh Ngan,
credit officer who manages Mai Nam JSC, the author found that, Mai Nam JSC had been
too ambitious with their project. Borrowing heavily from the bank even before finding a
big enough customer base, the company is in deep trouble now that they are unable to
borrow anymore, yet their project lacks capital to even take shape and being able to
generate revenue. However, when she analyzed before granting credit to the company, she
did not carefully evaluate the potential development of these projects and put too much
trust in the borrower’s risky investments.
ii. The operation, disbursement, management after granting the loan
 The management after granting the loan is not good. The staff do not closely monitor
the situation of production and business activities of enterprises in order to detect early
signs of risk to have early treatment measures minimize losses. “Credit officers have not
evaluated thoroughly the quality of customer’s assets such as receivables, inventory,
uncompleted assets, financial investments which have high potential of risk in case the
value of customer’s asset reduce against market value”, said Mr. Nguyen Sy Tung,
internal auditor. She also pointed that “the credit officers have not carefully evaluated the
credibility factor, the capacity of owner, or the company's leadership. Therefore, there are
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some cases that the credit officers were provided by inaccurate reports, data and
documents, or the borrowers not cooperate in the process of debt recovery”.
 The bank does not properly evaluate the situation of the customer who borrows
money from many banks at the same time. The bank has not closely tracked, collected and
evaluated sufficient information about the business activities of other projects which were
implemented by using other loans not borrowing at VCB TN. This problem leaded the
customers use the loans which borrowed in one bank to pay for other debt in other banks
or used for other purposes, or borrowed exceed their capacity to invest in various projects,
leading to inefficiency of the business. There are many cases which the borrowers used
cash receivable of VCB TN lending projects to offset the shortage of liquidity for other
investment activities without paying the due loans of VCB TN. “Working capital
requirement of MECOLAND in 2014 was 80 billion VND. The company borrows money
from three banks and one financial leasing company with total outstanding loan of 100
VND billion. They used the loans which borrowed at VCB TN to deposit in another bank
to benefit from the difference”, said Mr. Nguyen Giang Son, deputy manager of the
department of corporate customers relations.
 The bank did not regularly update information about market volatility of the
commodity. From talking to Mr. Nguyen Quang Huy, credit officer, he said that “I usually
collect the information of the customer before granting credit. During and after granting, I
only collect invoices, contract, other related documents and sometimes update information
of the market if there was affected serious to customers”. This matter made them not
timely identify risks in the market which can affect borrowers’ business, and cannot warn
potential risks and consult customers suitable way to reduce losses. VCB TN also had less
periodically reviewed the credit of investment projects, leading not timely detect the lack
of capital, the increasing of the total investment, delayed risks, market volatility, the
implementation of credit conventions, or shortages of working capital, which affect the
financial performance as well as the borrowers’ ability to repay debts.
iii. Personnel problems
 VCB TN did not controlled and clearly defined responsibilities in the management,
prevention and detection of risks and treatment of NPL – especially the risk management
department. VCB TN has not issued regulation to clearly define the obligations and
responsibilities as well as sanctions for violation of each staff that makes NPL happen or
increase. As of now, most of the responsibility once NPL incurs lies on the customer
relations department. Because of the absence of sanctions, the credit officers should not
34
really be responsible for reducing risk and treatment of bad debts in credit activities.
 In addition, there are no separation of functions for credit officers (focused on

marketing, customer contact, creation of credit). This limitation reduces the objectivity
and accuracy in evaluating the borrowers of VCB TN, increasing credit risk for the bank.
 The debt handling department is still primitive and is usually tasked with large
NPLs.
Individuals and small businesses’ NPLs are still handled by the credit officers.
iv. The application of measures to handle NPL at VCB TN has not really varied,
making the result of recover bad debt low.
 The main measures to handle NPL are now using as a special monitoring NPL and
continue to grant credit with sticker conditions and declining the outstanding loans. Other
measures such as requires the guarantor to perform the obligation for the borrowers,
stopped granting credit, exemption or reduction of interest to increase the collection of
loans, sale of security assets, sale of debt or sue the customer ratio were used with lower
ratio against with other handling measures used.
 Other measures such as requires additional collateral to ensure higher safety for the
loans as of low percentage of collaterals used to guarantee for the loans, or assign the
representative staff of the bank to participate in the management of the operation of the
borrowers have not applied yet
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CHAPTER 2: MANAGEMENT’S PROSPECT ON THE FUTURE OF VCB
THAI NGUYEN
2.1. The objective of VCB THAI NGUYEN in coming years
Taking advantage of technology, brand reputation, VCB has strived to become a leading
bank Vietnam and the Southeastern Asia area. VCB TN focuses on developing modern
banking products, expanding operational network, applying flexible interest policy,
developing financial derivatives such as swaps and options. Besides, VCB TN also shifts
to retail services sector, invests and develops e-banking services activities.
VCB TN should also devise customer policies that catch up with modern trends and
practices in the industry, define market segments to provide the appropriate products for
the right customers. VCB TN also gradually develops the brand and culture to further
develop their prestige, image and brand name to its customers.
The major goal in the period 2015-2020:
 The average growth rate of total assets is 15-20% per year
 The average credit growth rate is 15-20% per year
 The average growth rate of capital mobilization is 15-20% per year
 Profit after tax increases 20-25% year-on-year
 The ratio of NPL does not exceed 2.0%

2.2. The future of managing NPL at VCB THAI NGUYEN
VCB TN needs to further strengthen the control and management of credit growth, credit
quality, NPL, and strives to make enough provision reserve of credit risk in compliance
with the regulations of VCB Headquarter and the SBV.
VCB TN will restructure customer portfolio following the direction of reducing the
number of customers with low rating focusing on potential customers with a stronger
financial background. The bank also reviews and monitors the borrowers whose loans
belong to group 2 to find the right solutions in time and avoid this group moving into
group 3.
In the process of handling NPL of the borrowers, VCB TN assesses, analyzes the
customers’ operation as well as their ability and attitude find out the suitable measures for
each of them, following these guidelines:
 If the customer is willing to pay from positive the positive cash flow from their
business and have feasible plan for repayment, VCB TN will restructure schedule of
payments.
36
 VCB TN actively collaborates with customer for selling collaterals in case the
customers are willing but unable to pay.
 VCB TN proactively use measures such as selling debts, interest exemptions

complied with regulations, conventions of VCB Headquarter and VCB TN to make the
handling process quickly and efficiently
VCB TN reserves the right to sue customers if they are unwilling to repay the loans
37
Chapter 3: RECOMMENDATIONS TO IMPROVE THE MANAGEMENT OF
NPL AT VCB THAI NGUYEN
3.1. Building orientation for credit operations
i. Changing the approach of credit evaluation: assessment should be approached on the
macroeconomic level, the whole portfolio level (by sector, a customer group, or the
overall of a customer) and the specific transaction levels to limit the investments focusing
on high risky sectors, or mainly granting big amount for a customer, customer group.
ii. Building credit portfolio structure (structure for the industry, term structure, the sector
and the region) to set up risk-reducing measures. The more diverse a bank’s portfolio is,
the lower the default risk.
For loans that are likely to turn into NPL, the bank need to actively review and propose
financial restructuring options before the loans are overdue
3.2. Enhance the quality of credit evaluation before granting credit, inspection
during and after granting the loan
i. VCB TN needs enhance the quality of credit evaluation, select customers before
granting credit in areas such as assess risks in group of companies related to each other to
determine the exact needs of customers and assess the weakness or strength of working
capital, receivables, inventory, technology, ability to manage the enterprises as well as the
ethics of the leader.
ii. The credit officers need to prepare reports and business plans for clients to define
develop or eliminate customers and orientate measures to reduce risk, and set up interest
policy consistent with the nature of risk
iii. The credit officers need to focus periodically on checking during and after granting
credit in order to detect early signs of risk to minimize the damage to the bank. They also
focus on making notebooks to collect and assess information from customers periodic
monthly, quarterly in followings matters:
o Monitoring and managing the forming of asset correspond with granting loans,
cash flow of the projects.
o Assessing customer’s loans at other banks.
o Assessing the quality of inventory, accounts receivable, payable.
o Monitoring the flow of money, debts, cash flow in the group of relevant
customers.
o Monitoring of collateral formed from the loan, set up management process for
inventory rotation.
38
o Monitoring, collecting and evaluating information about other projects which are
being implemented by the clients
o Regularly updating information on market fluctuations, industry and business
environment of customers
o Regularly to review and analyze financial statements of borrowers to evaluate the
current status of operation of borrowers.
o Regularly actually visit customers: To have a clear picture on the production and
business activities of customers. In addition to analyze the financial statements of clients,
credit officers need to regularly actually visit customers, which could determine the
existence, difficult, the actual status of the customer (the situation of buildings, machinery,
equipment, collateral as well as capture the situation production and business customers).
Moreover, the trips can also help banks verify the quality and accuracy of financial reports
as well as the using loans of the borrowers.
iv. Credit officers must periodically report the result of monitoring and analyzing the risk
as well as problem of investment projects to propose overall solutions.
v. Credit officers must also fulfill the conditions of approval and recommendations from
VCB headquarter in order to minimize risks.
Credit officers must also periodically review credit limits for customers, especially the
borrowers who are unable to pay loans. In case the customer does not provide financial
statements, information on production and business activities, reducing the cooperation in
doing business, the credit officers should reduce outstanding loan to explore, collect and
evaluate additional information from the borrower
3.3. Improving the structure of credit operations and credit risk management
 Starting from practical demands of credit activities as well as recommendations by

the Basel Committee, the departments of customer relations, risk management and risk
handling departments must be separated in both operations and authority. Credit risk
management should always be independent, while the customer relations department must
not participate in credit approval.
 The construction of the line of credit which is based on determining the overall risk
(through the implementation of credit rating, industry analysis, the ability to develop
customers in the future...) will be made by the credit risk management department which
carried out independently to ensure separation of functions. The customer relations
department will be responsible for all of the inputs from customers, providing information
to the credit risk management division as well as monitoring and inspecting compliance
39
with the loan contract. The separation between the credit marketing division and credit
risk management division helps with objectivity and ultimately, safety. Credit risk
management division will at the same time cross-check with the customer to detect signs
of risks. Credit risk management therefore is a continuous process, from the moment the
loan is proposed until it matures
3.4. Devising a reward and discipline system for individuals and groups
VCB TN has not issued specific regulations on liability and sanctions against individuals
and groups causing NPL beyond a certain limit. In many cases, credit officers proposed
shady projects with questionable feasibility, subsequently causing a spike in NPL and
simply walk away without punishment. Therefore, VCB TN needs to quickly issue such
procedures to hold individuals and groups responsible. Specifically, the regulations issued
should follow these principles:
 Fair, objective, transparent;
 Hold upper management partially responsible;
 The rewards and punishments must be carried out in compliance with laws and
regulations;
 Incentivize all staff to take part in collecting NPL.

The regulations should clearly state the sanctions imposed on individuals and
groups. Specifically as:
- For individuals:
The sanctions:
 Criticism.
 Reprimanded and notified within the branch.
 Warning and notified in the system.
 Suspension of work: person responsible for violation must move to another

department within the bank and restrain participating in credit activities to focus on
collecting NPL within a maximum of six months
 Forced to resign
 Brought to court (in extreme cases)
 Demotion, dismissal
40
- For groups:
 Criticism.
 Warning
 Demotion
Restrict activities: Disciplined groups will be barred from some if not all of operations
involving credit activities.
Disciplined cases must be attached to the emulation, appointment, classification and
payment in relevant areas.
The splitting of responsibilities for credit staff will ensure fairness in evaluating the quality
of work, boosting efficiency as well as creating the of mind for the staff
3.5. Training, developing and standardizing staff capacity related to credit operations
 The bank needs to build up standardized criteria by which an employee’s

performance can be fairly judged: competency, professional qualifications, practical
experience, knowledge, self starter, ability to work independently and in a team, etc…
 The HR department should offer training programs to improve staff’s competency.

Training must be focused, meaning lower level staff learns to deal with daily tasks, while
upper level management learns about planning and organizing. Employees in the debt
handling department usually have a tougher job that varies case by case; therefore, they
need special attention. Debt collection staff also regularly updated information on the
areas concerned the debt collection.
 The reward and discipline policy should be clear-cut based on the quality of work.
Fair policies must be are the premises for a high morale and work ethic among employees.
 Employees should be rotated around different departments to deepen their

knowledge and experience in different areas. In the long run this will improve their ability
to work in teams since they understand the other team members’ job better
3.6. Developing an effective information system
VCB TN should develop a mechanism to exchange information effectively, ensure regular
contact, continuous and timely updating of critical information between functions in the
operation of credit. Credit risk management can only be successfully by solving the
problem of information exchange mechanism. Therefore, the establishment of mechanism
must ensure the separation of functions to perform specialized and increasing objectivity
without losing the ability to capture and control information of credit risk management
division. For this, the key information in the lending process should be periodically and
41
extraordinary updated by the credit officers and forward this information to credit risk
management division to analysis, assess the potential risks. In addition, banks should
develop information systems and analysis of comprehensive information, supplying
accurate, reliable and professional information to concerned division.
By developing new and improved infrastructure, VCB TN may also diversify its own
revenue-generating activities – in other words, reducing its dependence on credit activities.
It has been proven in developed countries that retail banking can be a safe and stable
source of revenue for commercial banks. Services such as credit card, car payment,
foreign exchange, derivative-related services and insurance all benefit from a modern
information system. As of 2014, VCB Headquarter has realized the importance of such
operations and has chosen VCB TN as one of the first branch to open a retail-focus
business center whereby retail customers can choose from a great variety of services
tailored to fit their individual needs
3.7. Flexibility in handling NPL
3.7.1. Improving debt collection practices
Based on the results of the analysis, banks should take appropriate measures to encourage
customers to find the funds to repay their debts as quickly as possible, as interest rates for
overdue loans are usually rigged at 150% of the normal rates. After detecting signs of NPL
incurred, banks should immediately put the borrowers on a special watch list, paying
attention customer's cash inflow account which is opened at the bank to collect debt
promptly. Banks also need to actively collaborate with customers to devise debt
amortization plans. The role of the debt collector cannot be undermined. In order to
achieve the desired results, the debt collector must be highly knowledgeable and adaptable
to different situation since no two customers are exactly alike.
For debt recovery to achieve the best results, VCB TN need to build an incentive
mechanism for employees and departments who successfully collect NPL. To maximize
the value of NPL recovered, VCB TN should develop reward employees with a bonus as a
percentage of the value recovered.
Besides, in case of NPL causing by the deliberate acts of the credit officers, the bank
needs to hold such employees accountable fully for the losses
3.7.2. Debt restructuring
Some NPL arose due to extraordinary situations that the borrowers could not foresee. In
case the customers are still in business and are still capable of paying off the NPL in later
years, the bank may consider restructuring the loans so as to ensure the borrowers’
42
financial solvency. This has a dual effect: as it helps the borrowers stay in business, it also
helps the bank recovery an otherwise unrecoverable loan should a bankruptcy occur.
In order to qualify for restructuring, however, borrowers need to provide the bank with
proof that temporary insolvency was caused by unforeseeable factors. They also need to
devise a feasible debt restructuring plan which at least must include a new business plan
and/or additional collateral
3.7.3. Effective use of allowance to handle NPL
To ensure safe operations in the case of risk occurring, VCB TN must strictly comply with
Decision No. 493/2005/QD-NHNN dated April 22, 2005 by the SBV about the Regulation
on classification of debts, appropriation, setting up and use of reserves for handling credit
risks in banking activities of credit institutions loan classification, provision and use
provision reserves to handle NPL and reduce credit risks in banking activities credit
institutions and Decision No. 18/2007/QD-NHNN of April 25, 2007, on amendment of
and addition to a number of articles of the regulations on classification of debts, and
establishment and use of reserves to deal with NPL. As of now, treatment of bad debt by
using provision reserve accounts for the largest proportion of the solutions for handling
NPLs in commercial banks in Vietnam because this option is always available to banks.
However, VCB TN needs to classify loans so as to truthfully reflect the financial status of
the borrowers. Besides, VCB TN should also raise awareness among debt collectors to
recover as much as possible because these loans are added back to the banks’ income in
later years
3.7.4. Improving handling of collaterals
The inspection and review all credit files is the first required step in process of handling
NPLs. VCB TN should thoroughly review and audit all customer files to add the missing
records and detect the new assets which are not mortgaged yet, and ingeniously require the
borrower add more collaterals to secure for the loans.
VCB TN should reassess residual value of the collateral and classify that property on three
aspects: the ownership, the legal and the ability to sell products on the market to choose
the appropriate form of treatments.
Firstly, for the properties which are easy to sell or transfer in the market and qualified
legally, VCB TN must actively coordinate with customers to sell them in the market in the
shortest time to recover debts.
Secondly, for these assets which are qualified legal, but difficult in selling or transferring
as of specialization of these properties, VCB TN has actively cooperated with both clients
and relevant agencies or the auctioned centers and public information on the mass media
43
3.7.5. Selling of NPLs
Vietnam Asset Management Company (known as VAMC for short) was established by
Decision No. 843 / QD-TTg dated May 31,2013 of the Prime Minister, is one of the
projects handling bad debts of State Bank that the credit institutions have created for the
long term.
By participating in the debt market, VCB TN may sell NPLs for companies specialized in
debt collection, who are not under the strict restraints of the banking industry. The
proceeds from sales will help VCB TN process further NPLs, minimizing loss in time and
resources.
44
GENERAL CONCLUSION:
Managing NPL effectively in banking operation to reduce NPL rate and to increase the
quality of credit activities and financial capacity is the top priority at VCB TN, more now
than ever before. Based on thorough research and analysis, the main reasons causing
increase NPL at VCB TN are as followed:
 Macroeconomic: Economic crisis accompanying with tightening public investment

and restricting real estate investment caused demand in many industries decline. High
inflation, high interest rates made the financial cost of enterprise increase, and the
domestic and foreign market become worsen.
 Borrowers: The borrowers simply borrow too much an too spread-out, effectively
increasing the risk for all parties involved. Short-term loans are used for long-term capital
investment without a second thought to sustainable growth. In a perfect world those
extremely risky investments can pay off hugely to the corporate owners but in this
particular case, they do not.
 Banks: Customer evaluation was sub-par. Credit officers as well as their superiors
either cannot or choose not to foresee the level of risk involved in huge loans with
questionable feasibility.
Therefore, to improve managing NPL, reduce NPL ratio, VCB TN should:
 Have detailed planning aimed for safety in credit operations
 Enhance the quality of credit evaluation before granting credit, inspection during and
after granting the loan.
 Improving the organizational structure of credit operations and credit risk

management
 Promulgating rules for determining responsibility and penalty for individuals and
groups in credit activities
 Training, developing and standardizing staff capacity related to credit operations
 Developing a mechanism to exchange information effectively
 Flexibility in using the measures to handle NPL

As NPL management is a complicated issue, the final project has some limitations which
are the collection of primary data. Because of the different and diversified characteristics
of the borrowers, the questions and number of interviewees might not enough to represent
the whole picture. The reasons causing increase NPL may be subjective and, thus, might
45
not fully reflect the current situation. The further work needs more technical skills and
larger scope. Therefore, it is suggested that future researches might extend the scope to the
Vietnamese banking sector for a more accurate result
46
REFERENCES
1. Brian W. Clarke, 2001, Handbook of International Credit Management, Gower Pub Co
2. Waymond A.Grier, 2000, Credit Analysis of Financial Institutions, London Euromoney
3. T.V Gopalakrishnan, 2004, Management of Non-performing loan advances, Indian
Institute of banking and finance
4. Decision No. 18/2007/QD-NHNN dated April 25, 2007 of the State Bank on
amendment of and addition to a number of articles of the Regulations on classification of
debts, and establishment and use of reserves to deal with credit risks in banking operations
by credit institutions
5. VCB, VCB TN website, company profile and annual report, financial statements from
2013 to 2015 period
6. VCB and VCB TN internal materials of Non-performing loans and Credit management
from 2013 to 2015
7. VCB and VCB TN internal regulations, processes and Decisions promulgated by BOD,
CEO, and Member’s Council
8. VCB and VCB TN five years strategy 2013 – 2015 period report
9. Vietnam’s Law governing Credit Institutions
10. Basel Committee on Banking Supervision, Principles for the management of Credit
Risk, September 2000, from http://www.bis.org/publ/bcbs75.pdf
11. William Coen, Principles for the Management of Credit Risk, Basel Committee on
Banking Supervision from http://www.bis.org/publ/bcbs54.htm
12. Yixin Hou, The effect of Non-performing loan - Some Bank-level Evidences, from
http://www.qass.org.uk/.../Hou.doc
47
APPENDIX 1 - LIST OF INTERVIEWEES
Num Name Position/Departmen
I Board of Directors
1 Mr. Tran Thuy Duong Director
2 Mr. Le Tuan Phan Deputy Director
II Corporate customer department
4 Mr. Vu Anh Duc Customer manager
5 Mr. Nguyen Giang Son Customer deputy manager
6 Mr. Do Van Phuc Customer deputy manager
7 Mr. Nguyen Quang Huy Credit officer
8 Mr. Nguyen Van Duy Credit officer
9 Ms. Luong Thi Hoai Thu Credit officer
10 Ms. Nguyen Thi Van Anh Credit officer
11 Ms. Dao Thi Thanh Ngan Credit officer
12 Mr. Nguyen Dang Trung Credit officer
III Risk management department
13 Mr. Vu Duc Toan Manager
14 Mr. Dang Tuan Linh Deputy Manager
15 Ms. Ngo Kieu Nhung Officer
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APPENDIX 2 – LIST OF QUESTIONNAIRE FOR THE IN-DEPTH INTERVIEW
The content of questionnaire is designed and answered for purely research purposes of
analyzing the management of NPL at VCB TN. Responses to this questionnaire will be
used to develop general findings and conclusions without specific reference to institutions,
clients, except where information may be independently available in the public domain.
A. QUESTIONNAIRE FOR BANKING DIRECTORS AND MANAGERS

1. Could you please tell me the operation of the production and business of
borrowers at VCB TN in the recent years?
2. What are the current policies on managing credit and NPL at VCB TN?
3. What are the reasons causing the increasing NPL at VCB TN?
4. How did you manage and handle to reduce the NPLs? Which methods were
considered most effective in handling this problem?
5. What types of security/ collateral do bank require and what is the preferred form
used?
6. What proportion of corporate lending is secured?
7. Describe the key problems that exist in the creation, recording and enforcement of
security and collateral?
8. What are the organizational structure of a credit recovery group and the process
for decision-making? What are the standardized procedures for handling credit
recovery at VCB TN?
9. Which qualification requirements and training process for staff in credit
department, especially for staff in a credit recovery group?
B. QUESTIONNAIRE FOR BANKING STAFFS

1. Have you carefully analyzed the situation of crisis which can negatively affect to
the business of borrowers when granting credit to them?
2. How often do you monitor and update information about the volatility of sectors
which affect the business of borrowers?
3. What reasons cause the difficulties in doing business of the borrowers?
4. Have you considered the situation of incomplete project due to lack of own capital
causing the borrowers use short term liabilities or lending other banks with
expensive cost to offset its own capital?
49
5. In the evaluation process for credit, have you evaluated the quality of customer’s
assets such as receivables, inventories, assets in progress, and carefully analyzed the
ability in management or element of trust of leaders in doing business of the
borrowers? Do you analyze the difficulties which may be happened from other
activities throughout the company?
6. Have the financial statements of borrowers audited by third party and certified by
the tax authorities yet when the borrowers provided them to the bank?
7. How often do you inspect using of loans from the borrowers after granting credit?
What criteria do you focus on when auditing?
8. Have you regularly monitored and identified the companies related to borrowers
as well as tracked the transfer of money, debts, cash flow in the group of customers
associated with each other?
9. What type of information do you collect from corporate borrowers to assess
business activities and projects being implemented by the customer?
50

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ACADEMY OF FINANCE UNIVERSITY OF TOULON

MASTER TRAINING PROGRAM INSTITUTE OF BUSINESS ADMINISTRATION

NGUYỄN VIỆT ANH

DEGREE: Master in Corporate Finance and Management Control

Tutor IAE Toulon: Jacques MARTIN

Year: 2015 - 2016

My most humble and sincere thanks to:

Thai nguyen, 06th September 2016

Nguyen Viet Anh

Agribank Vietnam Bank for Agriculture and Rural Development

BOD Board of Director

CEO Chief Executive Officer

CIC Credit Information Center

FED Federal Reserve

NPL (NPLs) Non-performing loan (Non-performing loans)

SBV State Bank of Vietnam

VND Vietnam Dong

Figure 2.0: VCB TN’s organization

- Customer activities: Customer department and Customer Services department

 Wholesale banking: Service Quality is a focal point of maintain and develop

- Supporting activities: Accounting department and Department of human

 Accounting department: recording banking transactions compliance with

 Department of human resource and Treasury:

Customer Customer Accouting Department of

Figure 2.0: VCB TN’s organization

Figure 2.2: Deposits from Customers of VCB TN from 2013 to 2015

Provisions and allowance

Profit before tax after

(Source: Financial Statements of VCB TN from 2013 to 2015)

Figure 2.7: NPL rate curve of VCB TN from 2013 to 2015

- Loans by time to maturity

(Source: Financial Statements of VCB TN from 2013 to 2015)

(Source: Financial Statements of VCB TN from 2013 to 2015)

- Loan classification by business structures:

(Source: Financial Statements of VCB TN from 2013 to 2015)

As in Table 2.11, in 2015, 8 6 . 5 6 % o f loans came from three groups of companies

 Real Estate and Consulting Service:

 Processing and manufacturing:

 Outstanding loans and NPL in medium-term and long-term tends to increase,

- Regulation of credit activities:

REGULATION OF LOANS, POLICY OF CREDIT POLICY OF PROVISION BANK’S REQUIRED

LIMIT, TOOLS PROCESS SPECIFIC PROCEDURE

- CREDIT APPROVAL - BIG ENTERPRISES - SECURITIES LENDING

- The credit approval process at VCB TN:

Central credit commite: More than 300 billion

CEO: 200 billion to 300 billion

Branch’s credit commitee: 30 billion

Branch’s Director and VPs: Less than 10 billion

(Internal credit policy of VCB)

Figure 2.16: Credit granting process at VCB TN

- Customer policies in credit operations:

 Customers must be individuals/organizations eligible for financial transactions.

 Customers must prove their ability to pay off the loans.

 Collaterals must be able to be traded, their ownership status must be unambiguous.

- Policies for collaterals:

 Collaterals can be sold/traded with relative ease.

- Supervision and inspection system at VCB TN:

- The credit information collection system: