Group 7

Nguyen Chi Hieu

Nguyen Thi Nhung
Nguyen Co Thach
Tran Hoang Linh
Le Ha Phuong
Nguyen Thuy Duong
Overview
Definition

Credit risk refers to the probability of loss

due to a borrower’s failure to make
payments on any type of debt
 Economic Legal Environment Due To Borrowers Due To Subjective
Evnironment Reasons
 Economic Economic development cycle
Evnironment
Risks due to the process of financial
liberalization and international integration
 Many gaps in law enforcement
Legal Environment
Debt recovery time is quite long,
complicated and costly as well as
manpower
 Using capital for wrong purposes,
Due To Borrowers not willing to pay off debts
 Unclear credit policy leading to
misleading credit, creating loopholes
for capital users to circumvent the
law and ultimately the bank suffers
Due To Subjective
Lack of supervision and post- Reasons
lending management.
If a commercial bank has a bad
debt ratio on the total debt, there
is information about the bank's
failure to recover its debt or that
the bank is put into a special
control by the state bank
In order to have sufficient
capital to provide credit to
customers, the bank must
mobilize from organizations
and residents
When a debt is considered to be overdue,
the bank's income is reduced immediately,
partly because it does not collect the
original interest or debt as committed, while
still paying interest on the mobilized source,
partly because of the management and
supervision costs incurred
Credit risk affects the
reputation, liquidity and
profitability of the bank
Situation
 6

Non-Performing Loans of commercial banks in Vietnam

5.35 in the period of 2015-2017
5

4 4.16
% NPLs

3
2.89 2.95
2.79
2.69

2 2.27 2.19
1.96 1.931.9
1.86 1.86 1.84 1.86
1.68 1.72 1.67 1.61 1.64
1.61 1.61 1.58
1.48
1.32 1.32
1 1.14 1.2 1.13
1.02
0.92 0.88
0.71

0
Sacom bank Vp bank Exim bank BIDV SHB Vietcom bank MB Bank Viettin bank ACB Techcom bank Average
2015 1.86 2.69 1.86 1.68 1.72 1.84 1.61 0.92 1.32 1.67 1.86
2016 5.35 2.79 2.95 1.96 1.93 1.48 1.32 1.02 0.88 1.58 2.19
2017 4.16 2.89 2.27 1.61 1.9 1.14 1.2 1.13 0.71 1.61 1.64
 Non-Performing Loans of commercial banks in Vietnam
in the period of 2015-2017

2015-2016
6

Sacombank, Eximbank and VPBank were the 4

3 banks with the highest NPL ratio among
surveyed banks. In particular, Sacombank 3
2015
was the bank with the largest NPL ratio of 2016
2
5.35%. 2017
1
Bad debt ratio of the whole system is still
0
high at 2.19%, the average internal NPL ratio
of commercial banks is 2.46%
 Non-Performing Loans of commercial banks in Vietnam
in the period of 2015-2017

6 2016-2017
5
Statistics from 2017 financial statements of
4 10 large and medium banks of Vietnam
showed that the total bad debt was at 60,533
3
2015 billion dong, only slightly increasing by 0.7%
2 2016 compared to the beginning of the year.
2017
1
In general, the ratio of bad debt to customer
0 loans was 1.63%, down from 1.92% in 2016
6 Non-Performing Loans of commercial banks in Vietnam
in the period of 2015-2017

5
Sacombank and VPBank
were two banks with bad
debt ratio above the State
4 Bank's allowed level with
4.16 respectively BIDV also has NPL ratio of 1.61%.
Vietcombank and VietinBank
2015
3 closely followed each other with
2016
5.35
1.14% and 1.13%
2017

2 4.16

2.89 2.95
2.692.79
2.27 2.19
1 1.96 1.931.9
1.86 1.86 1.72 1.84 1.86
1.68 1.61 1.61 1.671.581.61 1.64
1.48
1.321.2 1.32
1.14 1.13
0.921.02 0.88
0.71

0
Sacom bank Vp bank Exim bank BIDV SHB Vietcom bank MB Bank Viettin bank ACB Techcom bank Average
Increase the pressure on
inflation, production and
business activities

Bad debt with big credit lines

lead to the risk of banking and
financial system crisis and the
entire economy
Use capital uneffectively, reduce
profits, higher cash flow risks,
decrease solvency for the bank's
payments. goods and reputation
in their credit business activities
Increase operating costs, the burden of
debt repayment for banks,
reduce the rate of capital transfer with
banks, directly affecting the relationship
on both sides

The bank must be more cautious with

loans to avoid subsequent bad debts,
resulting in banks having money
without lending, and the economy still
continues to be thirsty for capital.
Limited Liability Company For A
Management Of Vietnamese
Credit Assets

Charter capital: VND 500 billion

100% chartered capital owned

by the State
 Legal basis

Decree No. 18/2016 / ND-CP

Amend and supplement Clause 2 Article 14 as follows:

"The Company manages assets of bad debt of credit institutions

according to market value on the basis of agreement and value
of bad debts re-assessed.

Credit institutions are gradually allocated into operating

expenses the difference between the book value minus the
purchase and sale value of the debt purchased according to the
market value and the value of the risk reserve deducted for the
Account itself
 Legal basis

VAMC is allowed to buy bad debts of credit institutions

at market value on the basis of agreement and price, the
value of bad debt is revalued.
 Legal basis

Decree 61/2017 / ND-CP

Article 4:
“Cases where the initial prices of bad debts and security assets of bad
debts must be appraised
1. Bad debts purchased by the Asset Management Company at the book
value by special bonds that, when determining the reserve price for
auction, the Asset Management Company cannot reach agreement with
the credit institution to sell. debt on starting price.

2. Bad debts purchased by the Asset Management Company at market

value.

3. Security assets of bad debts that, when determining the reserve price
for auction, the Asset Management Company cannot reach agreement
with the securing party on the reserve price.”
 Legal basis
Enabling VAMC to determine and agree on the value of bad
debts / collateral based on market prices, determined by a
professional valuation company

In particular, the decree gives VAMC the final choice when

choosing a valuation company and the right to reduce the price
until a buyer is found
This opens up opportunities for banks with strong financial
situation to buy and handle bad debts.

The average bad debt ratio of the whole credit system has
gradually decreased from 17.21% of outstanding loans
(september 2012) to below 3% in the period of 2015 - 2017
VAMC Activites
5 Conditions To Be Purchased By VAMC
Bad debts of credit institutions, including bad debts in the activities of granting credit,
buying corporate bonds, entrusting to purchase corporate bonds, and other activities as
prescribed by State Bank products

Bad debts with secured assets

Bad debts and security assets must be legal and have valid dossiers and papers

Borrowers still exist

The balance of bad debt or bad debt balance of borrowers

is not lower than the level prescribed by the State Bank
VAMC Activites

VAMC Bond Bad Debt

VAMC Activites

Total: 280 trillion VND

Each year 56,000 billion VND

Bidv is one of the first 10 commercial banks in Vietnam
selected by the State Bank to implement Basel II

The bank's income comes mainly from credit,

accounting for 70-80% of revenue or more
900000

Credit structure over time at BIDV

800000

193183
700000

208195
600000
172266
500000

151423 168073
400000

66930
300000

468986
200000
368834
298711
100000

0
2015 2016 2017
Short-term Mid-term Long-term
 Bad debts and overdue debts at BIDV
2015 2016 2017
Indicators Value Value
(billion Proportion Value (billion Proportion (billion Proportio
VND) (%) VND) (%) VND) n (%)
Standard debt 494066 94.6% 626515 94.8% 791545 94.86
Debt notes 18441 3.5% 22309 3.4% 29372.1 3.52
Sub-standard debt 4345 0.8% 5229 0.8% 3588.1 0.43
Doubtful debt 982 0.2% 962 0.1% 4923.2 0.59
Irrecoverable debts 4228 0.8% 6051 0.9% 5006.6 0.60
Total outstanding loans 100.0%
(excluding loans for loans
and entrustments) 522062 100.0% 661066 100.0% 834435
Industry
2.55% 2.45% 2.34%
2017
BIDV continued to actively implement and
complete the project of equipping loan
management solutions to support the
proposal, appraisal and approval of credit
for the whole system

2016
BIDV completed and implemented a
new internal credit rating system and
debt classification program and set up
risk provisions
creating an important step in collecting
necessary data in order to build a model
to quantify credit risk according to
international standards ( Basel II).
EL (expected loss) = PD x EAD x LGD

PD (probability of default): measures the probability of a

customer not being able to repay a debt over a period of
time, usually 1 year

EAD (exposure at default): total outstanding debt at the

time the customer fails to pay the debt.

LGD (loss given default): the proportion of lost capital on

the total outstanding loan at the time the customer fails to
pay the debt
Control, prevention and treatment of credit risk

BIDV has built a fairly consistent credit system and policies

Deploying the centralized credit granting and credit

risk management model

Establishing and promoting the role of internal

inspection and control department

In 2016, BIDV completed and implemented a new

internal credit rating system and debt classification
program and set up risk provisions
RISK PROVISIONING

Indicators Unit 2015 2016 2017

Balance of provision for credit risk
billions VND 6623 7517 10064
at the beginning of the period
Provisions for appropriation in the
billions VND 5007 4937 9900
period
Redundancy numbers used to
billions VND 3907 2547 8962
handling risk
Balance of credit risk reserve at the
billions VND 7517 10064 11350
end of the period
total loans billions VND 598434 723697 866885
Proportion of provision % 1.26% 1.39% 1.31%
Percentage to handling risk / total
% 0.7% 0.4% 1%
outstanding loans
Thank You