TOPIC: Credit rating to customers in commercial banks:

rationality and issues

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Deadline là 21h thứ 3 ngày 11/02/2020 nhé

OUTLINE

I. Overview about credit rating in commercial banks

1. Definition
A credit rating is an evaluation of the credit risk of a prospective
debtor (an individual, a business, company or a government),
predicting their ability to pay back the debt, and an implicit forecast of
the likelihood of the debtor defaulting. The credit rating represents an
evaluation of a credit rating agency of the qualitative and quantitative
information for the prospective debtor, including information
provided by the prospective debtor and other non-public information
obtained by the credit rating agency's analysts.

Credit reporting (or credit score) – is a subset of credit rating – it is a

numeric evaluation of an individual's credit worthiness, which is done
by a credit bureau or consumer credit reporting agency.

2. The role of credit rating

 The credit rating system is very important in managing and
controlling credit risk and should be used at the after stages of the
credit cycle:
 Consideration of loan financing: assessing credit risk of loan
applications and supporting the determination of interest rates,
collateral requirements and credit limits. Applications that do
not meet basic criteria will be rejected immediately without
further consideration.
 Monitor individual loans: credit risk rating for borrowers when
considering funding is a standard way for credit officers to base
on assessing the status of the borrower.
 Monitor the entire loan portfolio: when the credit scoring
system is fully implemented, the bank can assess the quality of
the entire credit portfolio by using a grading-based
classification. credit risk.
 The independent credit review unit will check the accuracy of
the credit risk scoring and, if deeming it necessary, reclassify it
and propose to increase the reserve level.
 Credit rating system provides the basis for managing credit risk.
Scoring is the process of classifying customers, selecting the
best customers to lend. Moreover, this is also a measure to
provide the best precautions for the bank and minimize the risk
of bad debt.
 Through the credit rating system, provided the bank with
accurate and complete information to help the bank make the
right and timely decisions.
 Credit rating helps the bank build credit policies and customer
policies. Based on customers' points, the bank classifies
customers and applies appropriate policies on loan interest
rates, credit limits and loan periods.
For good-ranking customers, banks can apply preferential interest
rates, long loan terms to entice customers to become long-term
customers of the bank. For customers with low credit rating, banks
can tighten security measures to limit risks.

3. Factors affecting the quality of evaluation and ranking

In order to apply the method of scoring and credit rating, commercial
banks must meet certain conditions of facilities, staff, information
sources, and firstly, the bank must build a credit scoring system.
 To apply this method, the bank must build the content of the
credit scoring system from the steps of the process of scoring
and rating businesses, credit scoring criteria (financial and non-
financial criteria), criteria for classifying business lines,
classifying enterprises, system of standards for scoring
indicators, how to aggregate scores, ranking enterprises and
finally policies for business groups to suit the characteristics of
each group. This is the most important condition when applying
this method and the more scientific, detailed, specific, clear and
complete the more accurate the credit scoring system and
business rating system.
 Information collection system: In order to assess enterprises,
the Bank must collect information about enterprises. Sources of
information collection can come from the enterprises
themselves, from the database of banks, from the State bank,
other banks, competitors as well as customers of the businesses.
Collected information will determine the accuracy of corporate
evaluation so the reliability of the source of information is of
primary concern to the bank.
 Infrastructure: The credit scoring system and business ranking
system are complex and require high accuracy, therefore, it
requires banks to invest in facilities. quality, information
systems, software to help banks collect, store and process
information faster and more accurately.
 Personel: In the work of scoring and ranking enterprises, staffs
must have a degree of information technology to use credit
scoring software. Moreover, besides financial indicators, the
bank also uses non-financial indicators to evaluate businesses,
which require employees to be truly competent because non-
financial criteria require ask the analyst to have an overview of
all industries, fields, factors affecting the development of the
business, ... so the staff is necessary when applying the credit
scoring and business rating methodology.
 4. Some credit rating models
a. Model ratings Moody's and Standard and Poor's
b. Quality model based on factor 6C
c. Consumer credit score Model

5. The process of credit rating

Process of grading, classification of enterprises is done scientifically
and accurately follow the steps already preset to ensure accurate
assessment of business allows commercial banks to make the right
decisions about credit. It consists of eight steps:

II. VP Bank – current issues of credit rating

1. Raising capital situation
2. Credit operations
 Minh làm 2 phần này,đọc nội dung trong các ảnh trên
cộng với tìm hiểu thêm các bài báo liên quan vấn đề này
xong dựa vào số liệu ở các báo cáo 2015-2018 của VP
Bank để nhận xét cho hợp lý nhé. Số liệu nào cũng phải
kèm ghi chú mở ngoặc là thuộc báo cáo của năm nào bên
cạnh nhé. Nếu cần file gốc để cop xong dịch cho nhanh thì
cho tôi email để tôi gửi cho nhé vì file này khá nặng

3. Financial situation and business results

 Bình làm phần này nhé.

4. The process of credit scoring and ranking businesses

An làm phần này nhé. Đây này là đoạn 2.3.2 trong tài liệu.
Phần này chủ yếu dịch ra tiếng anh là chính nhưng cần
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sẽ bàn thêm để rút ra vấn đề vs solution
III. Solutions