Banking Operations Chapter 3

LOGO

CHAPTER III
BANK LOANS

PhD. Nguyen Thi Thu Trang

MAIN CONTENT
The concept and characteristics of
bank credit
Bank credit classification
Factors affecting credit performance
Contents to ensure safety and
minimize risk in credit activities

REFERENCES
Banking business course
Legislation:
Circular 39/2017 replaces loan regulation
1627
Civil Law 2015
Bank's Credit Handbook

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THE CONCEPT AND CHARACTERISTICS OF

BANK CREDIT

Manners to transfer capital

Direct capital transfer
Direct and brokered capital transfer
Indirect capital turnover

THE CONCEPT AND CHARACTERISTICS OF

BANK CREDIT
WHAT IS CREDIT?
SURPLUS No meet demand
LACK
MONEY OF
MONEY

BANK

intermediary

WHAT IS CREDIT?

Credit in Latin is Credo which means

trust.
Credit is a method of transferring
funds from lenders to borrowers

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WHAT IS CREDIT?

Credit is a temporary transfer of

an amount of value (property) from
the owner to the user for a certain
period of time; when due, the user
must repay an amount greater
than the original value.

WHAT IS CREDIT?

Credit relationship contains three

contents:
1) There is a transfer of the right to
use capital from the owner to the
user.
2) This transfer is for a limited time.
3) This transfer comes with interest

BANK CREDIT
An asset transfer relationship (capital) between
a lender (bank or other financial institution) and
a borrower (individuals, businesses and other
entities), in which the lender transfers property
for the borrower to use for a certain period of
time as agreed, the borrower is responsible for
unconditionally repaying the principal and
interest to the lender when the payment is due.

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CONCEPT
Bank credit is an agreement by a
bank for a customer to use an asset
(money, real property or reputation)
with the principle of repayment by
lending, discounting (rediscounting),
giving finance lease, bank guarantee
and other operations.

FEATURES OF BANK CREDIT

Transactional assets in diversified bank credit

Risks in bank credit are inevitable and cannot
be ruled out
The repayment of both principal and interest
Refund is unconditional

Question

Distinguish between asset transactions

in credit and normal commodity
transactions?

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CLASSIFICATION OF BANK CREDIT

Based on purpose
Real estate credit
Industrial and commercial credit
Agricultural credit
Consumer credit

CLASSIFICATION OF BANK CREDIT

Based on credit period
Short-term credit
Medium-term credit
Long-term credit

CLASSIFICATION OF BANK CREDIT

Based on customer credit
Unsecured Credit
Secured credit

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CLASSIFICATION OF BANK CREDIT

Based on the refund method

Installment Credit
One-time debt repayment
credit
Refund credit on request

CLASSIFICATION OF BANK CREDIT

Bases of credit origin

Direct credit
Indirect credit

CLASSIFICATION OF BANK CREDIT

Based on the form of credit

value
Credit in money
Credit by property
Credit by prestige

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Question

WHAT IS DIFFERENT BETWEEN

BANK CREDIT AND LOANS?

CREDIT PROCESS
Is a summary of a bank's job
description from the time it
receives a loan application from a
customer until it decides to lend,
disburse, collect debt and liquidate
a credit contract.

Meaning of credit process

Improve credit quality and reduce

credit risk.
As a basis for the assignment of
rights and responsibilities for different
parts of credit activities.
As a basis for setting up loan
documents and procedures.

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Basic credit process

Step 1: Make a loan application

Step 2: Credit analysis
Step 3: Make a credit decision
Step 4: Disbursement
Step 5: Credit monitoring
Step 6: Credit liquidation

Step 1: Make a loan application

Objective: Guide customers to
complete loan documents in case
customers meet the conditions for
credit extension
Work content: Contact, notice,
specific instructions

Step 1: Make a loan application

 Credit application form
 Documents proving the legal capacity of
the client
 Documents proving the customer's ability
to absorb credit capital and repay credit
capital
 Documents relating to credit guarantees
or specific credit conditions.

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Step 1: Make a loan

Implementation organization:
Credit officers do it right after
contacting customers

Step 2: Credit analysis

Credit analysis is to determine the current
and future ability of the customer to use the
loan and repay the loan.
Target:
- Predict risk, find measures to limit risk
- Analyze the reliability of information collected
from customers in step 1->comment on
customer's attitude and goodwill

Step 2: Credit analysis

Work content:
Customer information collection
and analysis

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Step 2: Credit analysis

Profile from borrowers
- Legal records
- Records of financial situation
- Profile of the business plan and strategy of the
enterprise
- Project or loan plan with a plan to use the loan and
repay the loan
Information stored at the bank
Information from surveys, interviews
Other sources of information

Contents to be analyzed

CAMPARI
5C

CAMPARI
Character
Albility
Margin
Purpose
Amount
Repayment
Insurance

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5C
Character
Capacity
Cash
Collateral
Conditions (External)

Step 2: Credit analysis

Implementation organization:
Credit officer
Appraisal agencies
Analyst
….

Step 3: Make a credit decision

Objective: Credit decision is the
approval or disapproval of a loan
Content:

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Step 3: Make a credit decision

Updated information from the market,
relevant agencies;
Credit policy of the bank, regulations on
credit activities of the State;
Sources of bank loans when making
decisions;
Evaluation results.

Step 3: Make a credit decision

Implementation organization:
Credit officer
Head of Credit Department
Director/ General Director

Step 4: Disbursement
Objective: Provide money to
customers
Content: The Bank will issue money
to customers according to the credit
limit signed in the credit contract.

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Step 4: Disbursement
Implementation organization:
Credit officer
Accountant

Step 5: Credit monitoring

Objective: Check the implementation
of the terms committed under the
credit contract
Content:

Step 5: Credit monitoring

Does the customer use the capital for the
right purpose?
Control the level of credit risk arising in
the process of using credit capital;
Follow up on the implementation
Monitor and record the implementation of
the credit process of relevant
departments/individuals at the bank.
Debt review and classification

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Step 5: Credit monitoring

Implementation organization:
Credit officer
Head of Credit Department

Step 6: terminate the credit contract

Objective: track and store customer

information
Content:
Default liquidation
Mandatory liquidation
Implementation organization

FACTORS AFFECTING CREDIT ACTIVITIES

Bank's business strategy and goals

Own capital and internal conditions of
the bank
Socio-economic environment in the
country
Trends of international integration in
the banking sector

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FACTORS AFFECTING CREDIT ACTIVITIES

 Bank's business strategy and goals

FACTORS AFFECTING CREDIT ACTIVITIES

 Own capital and internal conditions of the

bank

FACTORS AFFECTING CREDIT ACTIVITIES

 Socio-economic environment in the country

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FACTORS AFFECTING CREDIT ACTIVITIES

 Trends of international integration in the banking sector

CONTENTS TO GUARANTEE SAFETY,

MINIMIZE RISKS IN CREDIT ACTIVITIES

Bank's credit policy

Loan and customer rating system
Credit portfolio risk measurement model
Diversification in credit portfolio structure
Use modern technical tools to minimize
portfolio risk

CONTENTS TO GUARANTEE SAFETY,

MINIMIZE RISKS IN CREDIT ACTIVITIES

Bank's credit policy

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CONTENTS TO GUARANTEE SAFETY,

MINIMIZE RISKS IN CREDIT ACTIVITIES
Loan and customer rating system

CONTENTS TO GUARANTEE SAFETY,

MINIMIZE RISKS IN CREDIT ACTIVITIES
Credit portfolio risk measurement model

CONTENTS TO GUARANTEE SAFETY,

MINIMIZE RISKS IN CREDIT ACTIVITIES
Diversification in credit portfolio structure

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CONTENTS TO GUARANTEE SAFETY,

MINIMIZE RISKS IN CREDIT ACTIVITIES

Use modern technical tools to minimize portfolio

risk

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