credit management
a. Measures to prevent credit risks to prevent credit risk, many measures need to be applied include:
Establishing appropriate credit policy (KredX, 2018): Credit policy includes: Customer policy, policy scale and credit limit and interest rate policy. Developing appropriate credit policies helps strengthen specialization in credit analysis, creating a common consistency in credit activities to limit risks, and improve profitability (Rose, 2001).
Only accept customers with the following income for POS (Point Of Sale) process (Rose, 2001):
• Client whose income is from salary with bank statement
• Client who are enterprises or household businesses
Based on the final approval decision, send email to CSO (Chief Security Officer) informing the loan amount, tenor and rate on the debt taking day so that CSO can prepare the loan notice (an integral part of credit contract) and send to the customer (Rose, 2001).
Credit analysis and investment project appraisal (KredX, 2018): This is to assess the feasibility of business and production plans and investment projects that customers apply for loans, and evaluate the ability to pay debts.The bank will collect some infor on customer to get general idea (legal, marriages, financial status), loan need (max loan amount, loan tenor, loan purpose and method). Instruct customer in collecting full information with authenticity, accuracy; ensure the preapproved result match the official approval result (Rose, 2001).
Collect customer credit history fully and exactly (KredX, 2018): monthly principal, interest, loan tenor and fulfill in application form. This is the basis for banks to make lending decisions as well as build appropriate and quick response measures for credit when this situation occurs. To measure credit risk, banks often build appropriate models to quantify risks (Ficm, 2010).
Credit rating (KredX, 2018): The credit rating system must be built for each customer as a basis for consideration and approval of credit, credit quality management. It depends on customer’s income and their working status (Ficm, 2010).
Credit guarantee (KredX, 2018): The application of credit guarantee measures by assets to prevent risks for banks, create an economic and legal basis to recover debts to borrowers like property, car and registration license if the car registration has been granted (Ficm, 2010).
Buying credit insurance (KredX, 2018): If unfortunate the customer falls into unemployment, there is no income to pay the debt, and the insurance company will pay (Ficm, 2010).
Setting up a reserve fund for credit risk (KredX, 2018): All commercial banks must set up a reserve fund to fix risks if any bad situations occur (Ficm, 2010).
b. Measures to handle when credit risks have occurred (Rose,2001)
When credit risk has occurred, measures to be taken include:
First, exploitation measures (Rose,2001): When borrowers face financial difficulties due to unfavorable business situation, the bank may use measures such as: Giving advice to help borrowers recover their business situation based on an understanding of customers and markets; Loan extension for customers: Loan extension is an extension of the principal repayment period (principal and interest) exceeding the loan term agreed before in the signed credit contract.In cases where customers are able to restore the business situation, banks may consider applying additional capital allocation measures to "raise debt". Besides, transferring bank credit into equity of enterprises is also one of the exploitation methods applied.
Secondly, liquidation measures (Rose,2001): Common liquidation measures include: Bank convinces customers to sell collateral by themselves.The bank sells financial assets for debt collection as agreed in the contract for use legal measures to recover debt.
Third, debt sale (Rose, 2001): Debt sale is the transfer of debt, whereby the debt seller transfers the debt holder's right to the debt buyer and receives payment from the debt buyer.
Fourth, debt deletion (Rose,2001): Debt relief (principal and interest) is a measure of not recovering the principal and interest for customers who are in danger of being unable to pay debts after applying all recovery and handling measures debt as prescribed.
Question 2:
a.
In order to ensure the views and objectives of the Resolution, to ensure the legal rights and interests of related parties, Resolution 42/2017 / QH14 stipulate when dealing with bad debts and secured assets of bad debts. It must ensure the principles such as publicity, transparency, protection of legitimate and legitimate rights and interests of credit institutions, foreign bank branches, organization of purchase and sale, handling of bad debts and agencies and organizations, relevant individuals; consistent with the market mechanism on the principle of prudence, ensuring the interests of depositors and maintaining the stability and safety of the system; not using the state budget to handle bad debts; agencies, organizations and individuals that have committed acts of law violation to occur bad debts and must take responsibility according to law provisions in the course of handling bad debts (SBV, 2017).
Liabilities of lenders (VAMC, 2017):
• To closely coordinate with credit guarantee funds in providing loans to customers according to agreements between the parties, the provisions of this Circular and relevant law provisions.
• On a monthly basis (by the 10th of the following month at the latest), the lender shall send a report on the situation of lending to small and medium enterprises with guarantee of credit guarantee funds by economic sectors to State-owned branches in provinces, cities where the credit guarantee fund's head office is located under Appendix No. 01 issued together with this Circular.
• In the course of implementation, if any problems or difficulties arise, they shall be reported to the State Bank branch in the province or city where the credit guarantee fund is located.
The amount of provision is calculated into the bank's capital cost.Classify debt groups as follows (SBV, 2017):
• Group 1 (standard debt) includes:
- Types of due debts that credit institutions evaluate to be able to fully recover both principal and interest on time
• Group 2 (debt to note) includes:
- Debts which are overdue for less than 90 days
- Debts with restructured repayment term within the rescheduled term
• Group 3 (sub-standard debt) includes:
- Debts which are overdue from 90 days to 180 days
- Restructured debts which are overdue for less than 90 days within the rescheduled term
• Group 4 (doubtful debt) includes:
- Debts which are overdue from 181 days to 360 days
- Restructured debts which are overdue from 90 days to 180 days according to the restructured term
• Group 5 (potentially irrecoverable debt) includes:
- Debts which are overdue for more than 360 days
- Debts are waiting for the government to handle it
- Debts with restructured repayment term, which are overdue for more than 180 days within the rescheduled term
Specifically, according to Circular 09/2014 / TT - NHNN dated March 18, 2014, the Circular amended and supplemented a number of articles of Circular 02/2013 / TT-NHNN, the rate of specific provision for credit risk for each debt group: Group 1: 0%; Group 2: 5%; Group 3: 20%; Group 4: 50%; Group 5: 100%. Level of general provision: The amount of general provision to be deducted is determined by 0.75% of the total balance of debts from Group 1 to Group 4 (Moj, 2010).
b.
Pursuant to the 2005 Civil Code in Article 373, it is clearly stated that "Loans secured by mortgage guarantee must be made in writing clearly stating the loan amount, loan purpose, loan term, interest rate and , obligations and responsibilities of borrowers, banks, lending credit institutions and security organizations ”. Currently, according to the provisions of the law, there is no content that proposes criminal prosecution for customers with unsecured loans without repaying debts due to financial difficulties. So if the customer fails to pay the debt to the financial company, it will be civil liability.
If the customer borrows assets that cannot be repaid by assets, they can be refunded in cash according to the value of the property according to the reference at the time of loan repayment, but must be approved by the lender (Moj, 2005). This debt repayment location is the place of residence or the location of the lender's head office or at another location under the agreement of both parties (Moj, 2005).The time when the loan is repaid and the borrower does not repay the loan or repay incomplete, the borrower will have to pay interest on the loan which is delayed at the basic interest rate prescribed by the credit institution (Moj, 2005). The penalty amount will be calculated starting from the time of late payment of debt multiplied by the delayed principal amount. The principle is not to charge the penalty on the accrued interest (only on the principal) (Moj, 2005).
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