Past Paper: Commercial Bank Management 1 PDF

**Học phần:** Commercial Bank Management 1 **Bộ môn:** Ngân hàng và thị trường tài chính **Số tín chỉ:** 03 **MỤC LỤC** {#section.TOCHeading} [Question Group 1 3](#question-group-1) [1. Financial system. Financial intermediation system. 3](#financial-system.-financial-intermediation-system.)...

**Học phần:** Commercial Bank Management 1 **Bộ môn:** Ngân hàng và thị trường tài chính **Số tín chỉ:** 03 **MỤC LỤC** {#section.TOCHeading} [Question Group 1 3](#question-group-1) [1. Financial system. Financial intermediation system. 3](#financial-system.-financial-intermediation-system.) [2. Commercial bank definition. Roles and classifications. 4](#commercial-bank-definition.-roles-and-classifications.) [3. How does a bank differ from most other financial-service providers? Why are banks and other financial intermediaries so closely regulated by state authorities? 5](#how-does-a-bank-differ-from-most-other-financial-service-providers-why-are-banks-and-other-financial-intermediaries-so-closely-regulated-by-state-authorities) [4. Describe the banking services? 6](#describe-the-banking-services) [5. Explain the differences between retail banking and wholesale banking services? What are the advantages and disadvantages of developing retail banking services in Vietnam? 7](#explain-the-differences-between-retail-banking-and-wholesale-banking-services-what-are-the-advantages-and-disadvantages-of-developing-retail-banking-services-in-vietnam) [6. Bank\'s source of funds? Why does bank diversify its liability sources? 8](#banks-source-of-funds-why-does-bank-diversify-its-liability-sources) [7. Explain the characteristics of each bank\'s source of funds? 9](#explain-the-characteristics-of-each-banks-source-of-funds) [8. Explain the functions and the operations of the credit activity for a commercial bank. Describe the importance and the components of issuing a lending policy for a bank. 10](#explain-the-functions-and-the-operations-of-the-credit-activity-for-a-commercial-bank.-describe-the-importance-and-the-components-of-issuing-a-lending-policy-for-a-bank.) [9. Explain the lending procedure. What steps should a lender go through in trying to resolve a problem loan situation? 12](#explain-the-lending-procedure.-what-steps-should-a-lender-go-through-in-trying-to-resolve-a-problem-loan-situation) [10. Explain 5C\'s model? How does bank evaluate the credit trustworthy of customers? 14](#explain-5cs-model-how-does-bank-evaluate-the-credit-trustworthy-of-customers) [11. Explain the conditions for a property to be recognized as collateral at commercial banks? 16](#explain-the-conditions-for-a-property-to-be-recognized-as-collateral-at-commercial-banks) [12. What do you know about Vietnamese commercial bank system? 17](#what-do-you-know-about-vietnamese-commercial-bank-system) [13. Give an example of retail banking services that a Vietnamese bank you know 18](#give-an-example-of-retail-banking-services-that-a-vietnamese-bank-you-know) [14. What are the trends affecting the development of banking services in Vietnam today? In your opinion, how does the industrial revolution 4.0 affect the activities and services of commercial banks? 19](#what-are-the-trends-affecting-the-development-of-banking-services-in-vietnam-today-in-your-opinion-how-does-the-industrial-revolution-4.0-affect-the-activities-and-services-of-commercial-banks) [15. Discuss the current issues in raising funds for Vietnamese commercial banks? 20](#discuss-the-current-issues-in-raising-funds-for-vietnamese-commercial-banks) [16. What are the risks and difficulties regarding collateral management in lending activities at Vietnamese commercial banks? What are the solutions for handling those issues? 21](#what-are-the-risks-and-difficulties-regarding-collateral-management-in-lending-activities-at-vietnamese-commercial-banks-what-are-the-solutions-for-handling-those-issues) [17. Analyze the non-performing debt (NPL) situation of Vietnamese commercial banks in recent years. 23](#analyze-the-non-performing-debt-npl-situation-of-vietnamese-commercial-banks-in-recent-years.) [18. Why did the State Bank of Vietnam decide on implementing the restructuring Vietnam\'s commercial banking system for the period 2011 - 2015? What is the focus of restructuring Vietnam\'s commercial banking system for the period 2011-2015? 24](#why-did-the-state-bank-of-vietnam-decide-on-implementing-the-restructuring-vietnams-commercial-banking-system-for-the-period-2011---2015-what-is-the-focus-of-restructuring-vietnams-commercial-banking-system-for-the-period-2011-2015) [19. What are the difficulties of credit evaluation for individual customers in Vietnam? 26](#what-are-the-difficulties-of-credit-evaluation-for-individual-customers-in-vietnam) [20. Explain your opinion on the following argument: \"Commercial banks only implement their business to maximize shareholder returns. They have no duty or roles on the monetary policy of a country\". 27](#explain-your-opinion-on-the-following-argument-commercial-banks-only-implement-their-business-to-maximize-shareholder-returns.-they-have-no-duty-or-roles-on-the-monetary-policy-of-a-country.) [21. The impact of Covid-19 pandemic on lending activities of Vietnamese commercial banks? What are the responses and measures that Vietnamese commercial banks have taken? 28](#the-impact-of-covid-19-pandemic-on-lending-activities-of-vietnamese-commercial-banks-what-are-the-responses-and-measures-that-vietnamese-commercial-banks-have-taken) [Question Group 2 29](#question-group-2) Question Group 1: ================= 1. Financial system. Financial intermediation system. ----------------------------------------------------- **[Definition:]** **The financial system** refers to the network of institutions, such as banks, insurance companies, markets, and stock exchanges. The primary function of the financial system is to distribute savings from individuals and business to productive investments, allocate capital efficiently, and manage risks. **There are two ways of transferring funds in financial system: Direct finance and Indirect finance.** Direct finance is a method of financing where borrowers borrow funds directly from the financial market without using a third party service, such as a financial intermediary. This is different from indirect financing where a financial intermediary takes the money from the lender with an interest rate and lends it to a borrower with a higher interest rate. **[Definition:]** **Financial intermediation** refers to the practice of linking an investor and borrower. Acting as a third party, an intermediary aims to meet the financial needs of both parties to mutual satisfaction. There are different types of financial intermediaries, from banks to private equity firms: - Banks: Commercial and central banks serve as financial intermediaries by facilitating borrowing and lending on a widespread scale. Credit unions and building societies also work in the same way, but on a cooperative basis. - Stock exchanges: Investors can buy and sell stocks via a third-party stock exchange, facilitating security trading. - Mutual funds: These actively manage capital pooled together by shareholders. Fund managers make recommendations and purchase stock in companies, serving as middlemen between the businesses and investors. A mutual fund can benefit all parties involved, providing companies with capital and shareholders with assets. - Financial advisors: Investment brokers or financial advisors provide an additional level of guidance. They give expert advice to businesses or individuals, collecting funds and investing them in bonds, equities, or securities. - Insurance companies: An insurance company also qualifies as a financial intermediary because it takes the money from businesses or individuals to secure them against various risks. Insurance premiums are pooled together to pay for claims as necessary. When banks act as financial intermediaries, they can accept deposits. However, other types of intermediaries don't involve a deposit. Instead, the intermediation process involves the movement of funds from one party to another. The intermediary acts as a factor in this case, managing the cash flow. Examples of this type of intermediary could include a financial advisor, who connects investors with businesses, or a pension fund that collects money from members and distributes payments to pensioners. 2. Commercial bank definition. Roles and classifications. --------------------------------------------------------- **[Definition:]** **Commercial bank** is a financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products life certificates of deposit (CDs) and savings accounts to individuals and small businesses. **[Roles:]** Commercial banks are an important part of the economy. They not only provide consumers with an essential service but also help create capital and liquidity in the market: - Commercial banks ensure liquidity by taking the funds that their customers deposit in their accounts and lending them out to others. - Commercial banks play a role in the creation of credit, which leads to an increase in production, employment, and consumer spending, thereby boosting the economy. **[Classification:]** Types of commercial banks in Vietnam - State-owned commercial banks: State-Owned Commercial Banks are financial institutions that a government or state has specifically chartered primarily to provide commercial banking services. - Joint-stock commercial banks: a type of commercial bank that operates as a corporation owned by shareholders. - Joint-venture commercial banks - 100% foreign-owned commercial banks - Foreign bank's branches 3. How does a bank differ from most other financial-service providers? Why are banks and other financial intermediaries so closely regulated by state authorities? ------------------------------------------------------------------------------------------------------------------------------------------------------------------ **3.1.** Banks differ from most other financial-service providers in several key ways, primarily in their functions, regulatory environment, and the nature of their services. Additionally, the close regulation of banks and other financial intermediaries by state authorities is driven by the need to maintain financial stability, protect consumers, and ensure the integrity of the financial system. \- Nature of Services - Banks: Banks provide a wide range of services that include accepting deposits, making loans, and facilitating payment transactions. They engage in both the provision of financial goods (like loans) and services (like account management). - Other Financial-Service Providers: These may include investment firms, insurance companies, and financial advisors that primarily offer specialized services such as investment management, risk assessment, or insurance underwriting. They typically do not accept deposits or provide traditional banking services. \- Regulatory Framework - Banks: Banks are heavily regulated entities subject to stringent requirements set by central banks and financial regulatory authorities. This includes capital adequacy standards, liquidity requirements, and consumer protection laws. - Other Financial-Service Providers: While they are also regulated, the level of oversight may be less rigorous compared to banks. For instance, investment firms may face different regulatory standards focused on market conduct rather than deposit protection. \- Revenue Generation - Banks: The primary source of revenue for banks comes from the interest rate spread between deposits and loans. They also earn fees from various banking services. - Other Financial-Service Providers: These entities often generate revenue through fees and commissions for their advisory or management services rather than through interest on loans. \- Risk Management - Banks: Due to their role in safeguarding public deposits and providing credit, banks must adhere to strict risk management practices to mitigate default risks associated with lending. - Other Financial-Service Providers: While they also manage risks, the focus may vary significantly based on their specific service offerings (e.g., investment risk for asset managers versus credit risk for lenders). **3.2.** The close regulation of banks and financial intermediaries by state authorities is driven by several critical factors. First and foremost is the need for financial stability. Banks are integral to the economy as they facilitate credit creation and maintain liquidity within the financial system. Close regulation helps prevent systemic risks that could lead to bank failures or broader economic crises. By ensuring that banks operate within a sound framework, regulators can mitigate potential disruptions to economic activity. Consumer protection is another vital reason for stringent regulation of banks. Given that banks hold substantial public deposits, regulations are designed to protect consumers from unfair practices and ensure transparency in banking operations. This includes safeguarding depositors\' funds through insurance mechanisms such as deposit insurance schemes that protect customers in case of bank insolvency. Furthermore, regulatory oversight plays a crucial role in preventing fraud and mismanagement within banks. By implementing rigorous compliance requirements and monitoring activities, regulators can detect illicit activities such as money laundering or insider trading before they escalate into larger issues that undermine public trust in the banking system. Lastly, maintaining market integrity is essential for fostering a competitive environment where consumers have access to various financial products. Regulation ensures that banks operate fairly within the financial markets, promoting competition while preventing monopolistic practices that could disadvantage consumers. 4. Describe the banking services? --------------------------------- We can classify banking services into two types: - **Traditional banking services** - Carrying out currency exchanges: The first service banks offered was currency exchange. A banker stood ready to trade one form of coin or currency (such as dollar) for another (such as francs and pesos). - Discounting commercial papers and making business loans: Early in history, bankers began discounting commercial papers, making loans to local merchants who sold the debts. - Offering saving deposits: Making loans proved so profitable that banks began searching for ways to raise additional loanable funds. One of the earliest sources of these funds consisted of offering savings deposits. - Safekeeping of valuables and certification of value: During the Middles Ages, bankers and other merchants began practice of holding gold and other valuables owned by their customers inside secure vault, thus reassuring customers of their safekeeping. - Supporting government activities with credit. - Offering checking accounts (demand deposits): A checking account that permitted depositors to write drafts in payment for goods and services that the bank or other service provider to honor immediately. - **New services provided by banks** - Financial advising: Many service providers today offer a wide range of financial advisory services, from helping to prepare financial plans for individuals to consulting about marketing opprtunities at home or abroad for business. - Managing cash: Some banks tend to specialize mainly in business cash management services, bank agrees to handle cash collection for business firm and to invest any temporary cash surpluses. - Providing consumer loans. - Offering Equipment Leasing. - Dealing in securities: Offering Security Brokerage and Investment Banking Services. 5. Explain the differences between retail banking and wholesale banking services? What are the advantages and disadvantages of developing retail banking services in Vietnam? ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- +-----------------------+-----------------------+-----------------------+ | **Difference** | **Retail banking** | **Wholesale banking** | +=======================+=======================+=======================+ | **Description** | Smaller banks serving | Larger commercial | | | primarily households | banks serving | | | and small businesses | corporations and | | | | governments. | +-----------------------+-----------------------+-----------------------+ | **Customer base** | Retail banks serve | Wholesale banks serve | | | individual customers. | corporate clients, | | | | financial | | | | institutions, and | | | | other large | | | | organizations. | +-----------------------+-----------------------+-----------------------+ | **Products and | Retail banks offer a | Wholesale banks offer | | services** | range of financial | a range of | | | products and services | specialized financial | | | that are designed to | products and services | | | meet the needs of | that are tailored to | | | individual customers. | the needs of | | | | corporate clients and | | | | financial | | | | institutions. | +-----------------------+-----------------------+-----------------------+ | **Revenue** | Retail banks generate | Wholesale banks | | | revenue by charging | generate revenue by | | | customers for | charging fees for | | | services such as | services such as | | | overdraft fees, ATM | underwriting, | | | fees, and credit card | advisory services, | | | interest. | and syndicated loans. | +-----------------------+-----------------------+-----------------------+ | **Risk** | Retail banking is | Wholesale banks deal | | | generally considered | with large | | | to be less risky than | corporations and | | | wholesale banking. | financial | | | Retail banks deal | institutions that | | | with individual | have a higher risk | | | customers who have a | profile. | | | lower risk profile. | | +-----------------------+-----------------------+-----------------------+ | **Regulation** | Retail banking is | | | | subject to more | | | | stringent regulations | | | | than wholesale | | | | banking. This is | | | | because retail banks | | | | deal with individual | | | | customers who do not | | | | have the same level | | | | of financial | | | | knowledge as | | | | corporate clients and | | | | financial | | | | institutions. | | | | | | | | While some banks | | | | still focus on | | | | wholesale or retail | | | | banking, many | | | | economies no longer | | | | have fully | | | | independent wholesale | | | | or retail banks. The | | | | majority of banks | | | | combine their retail | | | | and wholesale banking | | | | activities. Some | | | | banks have dedicated | | | | divisions or units | | | | that work with | | | | corporate clients. | | | | | | | | Both wholesale and | | | | retail banking demand | | | | various levels of | | | | expertise and | | | | understanding. There | | | | are, nevertheless, | | | | several widely shared | | | | crucial success | | | | characteristics, such | | | | as client focus, | | | | technological | | | | investment, etc. | | +-----------------------+-----------------------+-----------------------+ Pros and cons of developing retail banking services in Vietnam: +-----------------------------------+-----------------------------------+ | **Advantages** | **Disadvantages** | +===================================+===================================+ | \- Retail banking helps increase | \- Retail banking requires a | | the financial inclusion and | large investment in technology, | | access to banking services for | infrastructure, human resources, | | the large population of Vietnam, | and marketing, which can be | | especially in rural areas. | challenging for some banks, | | | especially the small and | | \- Retail banking diversifies the | medium-sized ones. | | income sources and reduce the | | | credit risk for the banks, as | \- Retail banking faces a high | | retail loans are less vulnerable | level of competition from both | | to economic shocks than corporate | domestic and foreign banks, as | | loans. | well as non-bank financial | | | institutions, such as fintech, | | \- Retail banking enhances the | consumer finance, and insurance | | customer loyalty and | companies. | | satisfaction, as well as the | | | brand reputation and recognition | \- Retail banking is subject to | | of the banks, by offering a wide | more stringent regulations and | | range of products and services | supervision from the authorities, | | that meet the customer needs and | such as the State Bank of | | preferences. | Vietnam, which can impose higher | | | capital requirements, prudential | | | ratios, and consumer protection | | | standards. | | | | | | \- As banks expand their retail | | | lending activities, they may | | | encounter higher rates of | | | non-performing loans due to | | | borrowers\' varying | | | creditworthiness. This can strain | | | banks\' financial health if not | | | managed effectively. | +-----------------------------------+-----------------------------------+ 6. Bank\'s source of funds? Why does bank diversify its liability sources? -------------------------------------------------------------------------- **6.1. Bank's source of funds** - **Owner\'s capital** For commercial banks, owner\'s capital is stable and mandatory in business. Banks use this capital to equip facilities, purchase real estate, personal property, equipment, etc. to serve their operations. In addition, a part of owner\'s capital is used to contribute capital to joint ventures, loans, and purchase shares of other companies. With its protective function, owner\'s capital is considered a collateral to create trust with customers and maintain liquidity in case the bank suffers losses. Owner\'s capital is also the basis for calculating safety ratios in banking operations. Not only stopping at the initial capital when established, owner\'s capital is increased during the operation process, along with the scale and position of the bank. So, \"Owner\'s capital is the private capital of a commercial bank, including the initial capital and the capital increased with the development of the commercial bank\". - **Deposit capital** Banks operate in the monetary sector, mobilizing capital, using capital and providing services. Banks mobilize capital from organizations and individuals, pay interest on those deposits, and use capital for their business purposes of lending and investing with the goal of maximizing profits. Therefore, deposit capital is an important source of capital in the business activities of a commercial bank. Banks open deposit accounts to keep and make payments on behalf of customers, thereby mobilizing money from businesses, organizations and residents. So, "Deposit capital is the monetary assets of organizations and individuals that the bank is temporarily managing and using with the responsibility of repayment". - **Borrowed capital** To meet the urgent liquidity needs and the strong development of credit activities, banks need to supplement new sources of capital more abundant than traditional sources of capital and banks have turned to the money market. Usually, the State Bank/SBV regulates the ratio between mobilized capital and owner\'s capital. Therefore, at specific stages, banks have to borrow to meet business needs when the mobilization capacity is limited. Commercial banks can borrow capital from: state banks, other credit institutions and financial markets. - **Other capital** \- Payment money: Non-cash payment activities include international payment, domestic payment and internal payment activities. These activities form the payment capital of commercial banks. - International payment: Payment money includes deposits of customers for opening letters of credit, checks during the payment process\... during the payment waiting period. - Domestic payment: Payment money includes amounts of money - customers transfer payment orders requesting money transfers but after the clearing time; money waiting for payment of guaranteed checks\... - Internal payment: Payment money includes unpaid taxes, unpaid salaries\... \- Trust capital: Trust capital is the amount of money the trustor transfers to the trustee to carry out the trust content. This is the capital that commercial banks are authorized by the government, non-governmental organizations or international financial organizations to carry out a certain task. Trust operations include: lending trust, investment trust, financial leasing trust\... With this function, commercial banks play the role of an intermediary financial institution, a channel for capital to those who receive capital for the right purpose. This source of capital adds to the total business capital of commercial banks. **6.2.** Diversification can help banks manage their risk by spreading it across different types of assets and businesses. By diversifying their loan portfolios, banks can reduce their exposure to any industry or sector, which can help them avoid losses during economic downturns or other unexpected events. 7. Explain the characteristics of each bank\'s source of funds? --------------------------------------------------------------- - **Owner\'s capital** \- The proportion of owner's capital in total capital is usually very small (usually 5-10%). \- It is highly stable and is always supplemented during the existence and development of commercial banks. \- It determines the scale of commercial bank operations and is a factor determining the safety ratio in commercial bank operations. - **Deposit capital** \- Deposits account for a large proportion of the total capital of commercial banks. \- Commercial banks operate mainly thanks to deposits. Because this source of capital accounts for a large proportion, most of the main activities of banks must rely on this source of capital. \- Deposits are an unstable source of capital, customers can withdraw their money without being bound, if there is any, the bank will only punish by paying interest lower than the interest committed to the customer. Therefore, commercial banks need to maintain a reserve amount to ensure liquidity, ready to meet customers\' withdrawal needs. This is demonstrated by the fact that commercial banks comply with the State Bank\'s requirements in maintaining a minimum cash balance in the fund, a minimum balance at the State Bank. In addition, to better ensure payment capacity, commercial banks also deposit money at credit institutions. \- In the context of competition and general economic development, deposit products are increasingly diverse in form, integrating many features, being cyclical and having many accompanying solutions to attract customers. - **Borrowed capital** \- Borrowed capital entails a certain percentage of interest on the capital involved and is usually fixed for a certain period, usually until repayment. \- It involves the full repayment of the principal amount and the interest amount. \- Borrowed funds are procured based on the requirements of the business. It might be short term, medium-term or long term depending upon the situation. \- They are mostly charged against the company's assets except for debentures, wherein sometimes they can be secured or unsecured debentures. \- Lenders of such funds have no say in the business's operations and are also barred from taking part in any of the meetings or voting at such meetings. - **Other capital** \- The proportion of owner's capital in total capital is usually small. 8. Explain the functions and the operations of the credit activity for a commercial bank. Describe the importance and the components of issuing a lending policy for a bank. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **[Functions of credit activity:]** - Providing Capital for Economic Development: By extending credit to businesses and individuals, commercial banks facilitate investments in new projects, expansion of existing businesses, and consumption, all of which contribute to economic growth. - Earning Interest Income: The interest earned from loans is a primary source of revenue for commercial banks. This income helps the bank cover its operating costs and generate profits for shareholders. - Liquidity Management: Credit activities help banks manage their liquidity by converting short-term liabilities (deposits) into longer-term assets (loans). This balance is crucial for maintaining the bank\'s financial stability. - Risk Management: Through the diversification of their loan portfolios, banks can manage and mitigate risks associated with lending. This involves evaluating the creditworthiness of borrowers and setting appropriate interest rates. **[Operations of credit activity:]** - Loan Origination: This is the process of identifying potential borrowers and assessing their creditworthiness. It involves: - Credit Analysis: Evaluating the financial health, credit history, and repayment capacity of borrowers. - Risk Assessment: Determining the level of risk associated with the loan and deciding on the interest rate and terms. - Loan Approval: Based on the analysis, the bank\'s credit committee or officers make a decision on whether to approve the loan. This includes: - Setting Terms: Deciding on the loan amount, interest rate, repayment schedule, and any collateral required. - Documentation: Preparing and signing the loan agreement, which outlines the terms and conditions. - Loan Disbursement: Once approved, the loan amount is disbursed to the borrower. This can be done in a lump sum or in tranches, depending on the type of loan and the agreement. - Loan Servicing: This involves the ongoing management of the loan, including: - Payment Collection: Monitoring and collecting regular payments from the borrower. - Interest Calculation: Calculating and applying interest charges to the outstanding loan balance. - Loan Monitoring: Regularly reviewing the loan performance to ensure timely repayments and assess any potential issues. This includes: - Credit Review: Periodically reassessing the borrower\'s financial situation and the loan\'s risk profile. - Problem Loan Management: Identifying and managing delinquent loans, which may involve restructuring the loan terms or initiating collection procedures. - Loan Repayment and Closure: Upon full repayment of the loan, the bank will close the loan account and release any collateral held. This process includes: - Issuing a Clearance Certificate: Providing the borrower with documentation that confirms the loan has been fully repaid. - Collateral Release: Returning any collateral to the borrower, such as property deeds or securities. **[Components of issuing a lending policy:]** One of the most important ways a lending institution can make sure its loans meet regulatory standards and are profitable is to establish a written loan policy. Such a policy gives loan officers and management specific guidelines in making individual loan decisions and in shaping the overall loan portfolio. The actual makeup of a lenders loan portfolio should reflect what its loan policy says. Otherwise, the loan policy is not functioning effectively and should be either revised or more strongly enforced. A written loan policy should contain: (1) A goal statement for the entire loan portfolio (i.e., statement of the characteristics of a good loan portfolio in terms of types, maturities, sizes, and quality of loans). ------ ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- (2) Specification of the lending authority given to each loan officer and loan committee (measuring the maximum amount and types of loan that each employee and committee can approve and what signatures of approval are required). (3) Lines of responsibility in making assignments and reporting information. (4) Operating procedures for soliciting, evaluating, and making decisions on customer loan applications. (5) The required documentation that is to accompany each loan application and what must be kept in the lenders files (financial statements, security agreements, etc.). (6) Lines of authority detailing who is responsible for maintaining and reviewing the institutions credit files. (7) Guidelines for taking, evaluating, and perfecting loan collateral. (8) Procedures for setting loan rates and fees and the terms for repayment of loans. (9) A statement of quality standards applicable to all loans. (10) A statement of the preferred upper limit for total loans outstanding (i.e., the maximum ratio of total loans to total assets allowed). (11) A description of the lending institutions principal trade area, from which most loans should come, and how well the lender is serving its area. (12) Procedures for detecting and working out problem loan situations. 9. Explain the lending procedure. What steps should a lender go through in trying to resolve a problem loan situation? ---------------------------------------------------------------------------------------------------------------------- **[Lending procedure:] (p528)** **Step 1. Finding Prospective Loan Customers** Most loans to individuals arise from a direct request from a customer who approaches a member of the lenders staff and asks to fill out a loan application. Business loan requests, on the other hand, often arise from contacts the loan officers and sales representatives make as they solicit new accounts from firms operating in the lenders market area. Increasingly the lending game is becoming a sales position. Sometimes loan officers will call on the same company for months before the customer finally agrees to give the lending institution a try by filling out a loan application. Most loan department personnel fill out a customer contact report. This report is updated after each subsequent visit, giving the next loan officer crucial information about a prospective client before any other personal contacts are made. **Step 2. Evaluating a Prospective Customer's Character and Sincerity of Purpose** Once a customer decides to request a loan, an interview with a loan officer usually follows, giving the customer the opportunity to explain his or her credit needs. That interview is particularly important because it provides an opportunity for the loan officer to assess the customers character and sincerity of purpose. If the customer appears to lack sincerity in acknowledging the need to adhere to the terms of a loan, this must be recorded as weighing against approval of the loan request. **Step 3. Making Site Visits and Evaluating a Prospective Customers Credit Record** If a business or mortgage loan is applied for, a loan officer often makes a site visit to assess the customers location and the condition of the property and to ask clarifying questions. The loan officer may contact other creditors who have previously loaned money to this customer to see what their experience has been. Did the customer fully adhere to previous loan agreements and, where required, keep satisfactory deposit balances? A previous payment record often reveals much about the customers character, sincerity of purpose, and sense of responsibility in making use of credit extended by a lending institution. **Step 4. Evaluating a Prospective Customers Financial Condition** If all is favorable to this point, the customer is asked to submit several crucial documents the lender needs in order to fully evaluate the loan request, including complete financial statements and, in the case of a corporation, board of directors resolutions authorizing the negotiation of a loan with the lender. Once all documents are on file, the lenders credit analysis division conducts a thorough financial analysis of the applicant, aimed at determining whether the customer has sufficient cash flow and backup assets to repay the loan. The credit analysis division then prepares a brief summary and recommendation, which goes to the appropriate loan committee for approval. On larger loans, members of the credit analysis division may give an oral presentation and discussion will ensue between staff analysts and the loan committee over the strong and weak points of a loan request. **Step 5. Assessing Possible Loan Collateral and Signing the Loan Agreement** If the loan committee approves the customers request, the loan officer or the credit committee will usually check on the property or other assets to be pledged as collateral in order to ensure the lending institution has immediate access to the collateral or can acquire title to the property involved if the loan agreement is defaulted. This is often referred to as perfecting the lenders claim to collateral. Once the loan officer and loan committee are satisfied that both the loan and the proposed collateral are sound, the note and other documents that make up a loan agreement are prepared and signed by all parties to the agreement. **Step 6. Monitoring Compliance with the Loan Agreement and Other Customer Service Needs** The new agreement must be monitored continuously to ensure the terms of the loan are being followed and all required payments of principal and interest are being made as promised. For larger commercial credits, the loan officer will visit the customers business periodically to check on the firms progress and see what other services the customer may need. Usually a loan officer or other staff member enters information about a new loan customer in a computer file known as a customer profile. This file shows what services the customer is currently using and contains other information required by management to monitor a customers condition and financial service needs. **[Resolving a problem loan situation:]** **(p544)** (1) Lenders must always keep the goal of loan workouts firmly in mind: to maximize the chances for recovery of funds. ----- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- (2) Rapid detection and reporting of any problems with a loan are essential; delay often worsens a problem loan situation. (3) The loan workout responsibility should be separate from the lending function to avoid possible conflicts of interest for the loan officer. (4) Loan workout specialists should confer with the troubled customer quickly on possible options, especially for cutting expenses, increasing cash flow, and improving management control. Precede this meeting with a preliminary analysis of the problem and its possible causes, noting any special workout problems (including the presence of competing creditors). Develop a preliminary plan of action after determining the lending institutions risk exposure and the sufficiency of loan documents, especially any claims against the customers collateral other than that held by the lender. (5) Estimate what resources are available to collect the troubled loan, including the estimated liquidation values of assets and deposits. (6) Loan workout personnel should conduct a tax and litigation search to see if the borrower has other unpaid obligations. (7) For business borrowers, loan personnel must evaluate the quality, competence, and integrity of current management and visit the site to assess the borrowers property and operations. (8) Loan workout professionals must consider all reasonable alternatives for cleaning up the troubled loan, including making a new, temporary agreement if loan problems appear to be short-term in nature or finding a way to help the customer strengthen cash flow (such as reducing expenses or entering new markets) or to infuse new capital into the business. Other possibilities include finding additional collateral; securing endorsements or guarantees; reorganizing, merging, or liquidating the firm; or filing a bankruptcy petition. 10. Explain 5C\'s model? How does bank evaluate the credit trustworthy of customers? ------------------------------------------------------------------------------------ To evaluate customers' credit trustworthy, commercial banks carry out a detailed study of the critical aspects of a loan application: character, capacity, cash, collateral, and conditions. **(p530)** **Character** The loan officer must be convinced the customer has a well-defined purpose for requesting credit and a serious intention to repay. If the officer is not sure why the customer is requesting a loan, this purpose must be clarified to the lenders satisfaction. The loan officer must determine if the purpose is consistent with the lending institutions loan policy. Even with a good purpose, however, the loan officer must determine that the borrower has a responsible attitude toward using borrowed funds, is truthful in answering questions, and will make every effort to repay what is owed. Responsibility, truthfulness, serious purpose, and serious intention to repay all monies owed make up what a loan officer calls character. **Capacity** The loan officer must be sure the customer has the authority to request a loan and the legal standing to sign a binding loan agreement. This customer characteristic is known as the capacity to borrow money. For example, in most areas a minor (e.g., under age 18 or 21) cannot legally be held responsible for a credit agreement; lenders would have great difficulty collecting on such a loan. Similarly, the loan officer must be sure the representative from a corporation asking for credit has proper authority from the company's board of directors to negotiate a loan and sign a credit agreement binding the company. Usually this can be determined by obtaining a copy of the resolution passed by a corporate customers board of directors, authorizing the company to borrow money. Where a business partnership is involved, the loan officer must ask to see the firms partnership agreement to determine which individuals are authorized to borrow for the firm. A loan agreement signed by unauthorized persons could prove to be uncollectible and result in substantial losses for the lending institution. **Cash** This feature of any loan application centers on the question: Does the borrower have the ability to generate enough cash ---in the form of cash flow ---to repay the loan? In general, borrowing customers have only three sources to draw upon to repay their loans: (a) cash flows generated from sales or income, (b) the sale or liquidation of assets, or (c) funds raised by issuing debt or equity securities. Any of these sources may provide sufficient cash to repay a loan. However, lenders have a strong preference for cash flow as the principal source of loan repayment because asset sales can weaken a borrowing customer and make the lenders position as creditor less secure. Moreover, shortfalls in cash flow are common indicators of failing businesses and troubled loan relationships. This is one reason current banking regulations require that the lender document the cash flow basis for approving a loan. **Collateral** In assessing the collateral aspect of a loan request, the loan officer must ask, Does the borrower possess adequate net worth or own enough quality assets to provide adequate support for the loan? The loan officer is particularly sensitive to such features as the age, condition, and degree of specialization of the borrowers assets. Technology plays an important role here as well. If the borrowers assets are technologically obsolete, they will have limited value as collateral because of the difficulty of finding a buyer for those assets should the borrowers income falter. **Condition** The loan officer and credit analyst must be aware of recent trends in the borrowers line of work or industry and how changing economic conditions might affect the loan. A loan can look very good on paper, only to have its value eroded by declining sales or income in a recession or by high interest rates occasioned by inflation. To assess industry and economic conditions, most lenders maintain files of information---newspaper clippings, magazine articles, and research reports---on the industries represented by their major borrowing customers. **Control** In addition to the traditional five Cs of credit that we have just reviewed some loan experts add a sixth factor--- control. The control element centers on such questions as whether changes in law and regulation could adversely affect the borrower and whether the loan request meets the lenders and the regulatory authorities standards for loan quality. The control factor also considers the adequacy of the supporting documentation that accompanies each loan and whether a proposed loan seems consistent with current loan policy. 11. Explain the conditions for a property to be recognized as collateral at commercial banks? --------------------------------------------------------------------------------------------- Examples of the most popular assets pledged as collateral for loans include the following: (p535) **Accounts Receivable.** The lender takes a security interest in the form of a stated percentage (usually somewhere between 40 and 90 percent, depending on perceived quality) of the face amount of accounts receivable (sales on credit) shown on a business borrowers balance sheet. When the borrowers credit customers send in cash to retire their debts, these cash payments are applied to the balance of the borrowers loan. The lending institution may agree to lend still more money as new receivables arise from the borrowers subsequent sales to its customers, thus allowing the loan to continue as long as the borrower has need for credit and continues to generate an adequate volume of sales and loan repayments. **Factoring.** A lender can purchase a borrowers accounts receivable based upon some percentage of their book value. Moreover, because the lender takes over ownership of the receivables, it will inform the borrowers customers that they should send their payments to the purchasing institution. Usually the borrower promises to set aside funds in order to cover some or all of the losses the lending institution may suffer from any unpaid receivables. **Inventory.** In return for a loan a lender may take a security interest against the current amount of inventory of goods or raw materials a business borrower owns. Usually a lending institution will advance only a percentage (30 to 80 percent is common) of the estimated market value of a borrowers inventory in order to leave a substantial cushion in case the inventorys value declines. The inventory pledged may be controlled completely by the borrower, using a floating lien approach. Another option, often used for auto and truck dealers or sellers of home appliances, is called floor planning, in which the lender takes temporary ownership of any goods placed in inventory and the borrower sends payments or sales contracts to the lender as goods are sold. **Real Property.** Following a title search, appraisal, and land survey, a lending institution may take a security interest in land and/or improvements on land owned by the borrower and record its claim---a mortgage ---with the appropriate government agency in order to warn other lenders that the property has already been pledged (i.e., has a lien against it) and help defend the original lenders position against claims by others. **Personal Property.** Lenders often take a security interest in automobiles, furniture and equipment, jewelry, securities, and other forms of personal property a borrower owns. A financing statement may be filed with state or local governments in those cases where the borrower keeps possession of any personal property pledged as collateral during the term of a loan. To be effective, the financing statement must be signed by both the borrower and an officer of the lending institution. On the other hand, a pledge agreement may be prepared (but will usually not be publicly filed) if the lender or its agent holds the pledged property, giving the lending institution the right to control that property until the loan is repaid in full. **Personal Guarantees.** A pledge of the stock, deposits, or other personal assets held by the major stockholders or owners of a company may be required as collateral to secure a business loan. Guarantees are often sought in lending to smaller businesses or to firms that have fallen on difficult times. Then, too, getting pledges of personal assets from the owners of a business gives the owners an additional reason to want their firm to prosper and repay their loan. 12. What do you know about Vietnamese commercial bank system? ------------------------------------------------------------- **[Structure:]** Vietnam\'s banking system operates under a two-tier structure: \- Central Bank: The State Bank of Vietnam (SBV) serves as the central bank, responsible for monetary policy, financial regulation, and supervision of the banking sector. \- Commercial Banks: The second tier consists of various types of commercial banks, including: - State-Owned Commercial Banks (SOCBs): These include major banks like Vietcombank, BIDV, VietinBank, and Agribank. They dominate the market and are heavily involved in financing state-owned enterprises. - Joint-Stock Commercial Banks (JSCBs): A growing number of private banks operate under this model, with about 27 JSCBs currently in operation. - Joint-Venture and Foreign Banks: There are also several joint-venture banks and wholly foreign-owned banks that contribute to the competitive landscape. As of early 2024, there are approximately 35 domestic commercial banks in Vietnam, with SOCBs holding significant market shares. **[Economic role: ]** The banking sector plays a crucial role in Vietnam\'s economic development by facilitating capital flow, supporting investment, and providing financial services to individuals and businesses. The sector has seen substantial reforms since the 1990s, transitioning from a monobank system to a more diversified banking framework that encourages competition and private sector participation. **[Challenges Facing the Banking System:]** \- High Non-Performing Loans (NPLs): One of the persistent challenges for Vietnamese banks is the high level of non-performing loans. Many state-owned banks struggle with NPLs primarily due to lending to state-owned enterprises that may not be financially viable. This issue has raised concerns about asset quality and overall financial stability within the sector. \- Regulatory Compliance: Vietnamese banks face difficulties in meeting international standards such as Basel III due to regulatory constraints and low capital buffers compared to regional peers. The capital adequacy ratios (CARs) for many banks remain below optimal levels, necessitating improvements in capital management practices. \- Competition and Integration: With Vietnam\'s increasing integration into global markets through trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), local banks face heightened competition from foreign institutions. This competition pressures domestic banks to enhance their service offerings and operational efficiencies. **[Recent developments and responses:]** **Government Initiatives** The Vietnamese government has initiated several measures to strengthen the banking sector: - Privatization Plans: There are ongoing efforts to reduce state ownership in major banks to promote private investment and enhance operational efficiency. - Loan Forbearance Policies: The SBV has implemented loan forbearance measures under Circular 02 to assist borrowers affected by economic disruptions, extending these policies through the end of 2024. **Technological Advancements** To remain competitive, many Vietnamese banks are investing in digital transformation. This includes adopting modern banking technologies such as core banking systems and customer relationship management (CRM) tools to improve service delivery and customer engagement. **Focus on Risk Management** Banks are increasingly prioritizing risk management frameworks to address issues related to asset quality and compliance with regulatory standards. This includes enhancing credit assessment processes and improving transparency in operations. 13. Give an example of retail banking services that a Vietnamese bank you know ------------------------------------------------------------------------------ One prominent example of retail banking services in Vietnam is offered by VietinBank, which is recognized as one of the leading commercial banks in the country. VietinBank provides a comprehensive range of retail banking services designed to meet the diverse needs of individual customers. Here are some key services they offer: **Retail Banking Services at VietinBank** \- Deposit Accounts - Current Accounts: VietinBank offers various current account options that allow customers to manage their daily transactions efficiently. - Savings Accounts: Customers can choose from different savings products, including term deposits with competitive interest rates. \- Loan Products - Personal Loans: VietinBank provides unsecured personal loans for various purposes, such as education, home renovation, or personal expenses. - Home Loans: The bank offers mortgage loans for purchasing or renovating homes, with flexible repayment terms and competitive interest rates. - Auto Loans: Customers can finance vehicle purchases through VietinBank\'s auto loan products. \- Credit and Debit Cards: VietinBank issues a range of credit and debit cards, catering to different customer needs. Their card offerings include features like cashback rewards, travel benefits, and online shopping discounts. \- Digital Banking Services - VietinBank iPay: This mobile banking application allows customers to conduct transactions online, pay bills, transfer money, and manage their accounts conveniently from their smartphones. - E-wallet Services: VietinBank has also ventured into digital wallets, enabling customers to make payments easily through mobile devices. \- Insurance Products: The bank offers various insurance products, including life insurance and health insurance, as part of its retail banking services, providing customers with additional financial security. 14. What are the trends affecting the development of banking services in Vietnam today? In your opinion, how does the industrial revolution 4.0 affect the activities and services of commercial banks? ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **[Trends affecting the development of banking services:]** There are five major trends influencing the development of banking services in Vietnam: The first trend is the rapidly growing digital revolution, creating digital economies focused on the production, collection and protection of data. This growth brings new opportunities and markets, especially in the banking sector, but also increases regulatory and cybersecurity risks, the report said. The second trend is the increasing economic fragmentation due to rising populism, nationalism and protectionism, which is a threat to globalization, causing uncertainty in global supply chains and international governance. The third trend is the rise of common global challenges, including climate change, pandemics, geopolitical conflicts, high inflation, rising prices, falling consumer demand, etc. Around the world, governments are working to address global crises, while private sector actors are increasingly playing a larger role in addressing these challenges. The fourth trend is that despite efforts to combat persistent economic and social inequality, headwinds persist, and vulnerable populations will continue to be left behind. Climate change is disproportionately affecting less developed countries and regions; digital transformation is widening the gap between countries and generations; and urbanization is projected to increase steadily in the coming decades... All of this exacerbates inequality. The final major trend that will impact the future of banking is the rise of ethical standards. As consumers become more vocal about environmental and social issues, they will expect companies to play an increasingly larger role in addressing them. This trend will continue to accelerate as investment moves toward mainstream adoption and as efforts to decarbonize economies continue to multiply. **[The industrial revolution's impacts:]** In my opinion, under the impact of the 4.0 technology revolution, Vietnamese commercial banks will apply scientific and technological achievements to modernize and digitize current services in the traditional banking model. Current banks will digitize and modernize themselves, innovate technology to change their business models to maintain relationships with customers and core banking services. New technologies (including Cloud Computing, Big Data, AI and DLT) are widely applied to improve current banking products, services and operations; something that the current infrastructure cannot do. Accordingly, traditional banks can apply the following technology trends: \(i) Applying new technologies such as biometrics, Video, Chatbots or AI can help banks have the capacity to maintain customer relationships remotely, while still securing transactions, minimizing the risk of money laundering and terrorist financing. \(ii) Innovate payment services, expand mobile payment services with third-party cooperation, integrate with the bank\'s existing technology platform. \(iii) Provide fully or partially automated consulting services by Robots, digital asset management tools and additional services to customers to maintain competitive advantages in retail banking markets, retain old customers and attract new ones. \(iv) Digitize the lending process to meet customers\' needs for time, convenience and cost when making credit decisions. Digitization requires more efficient interfaces, processing tools, integration with legacy systems and document management systems, as well as customer authentication and fraud prevention tools. This can be done through the development of the bank\'s own lending platform, purchasing an existing system, or outsourcing the service to a third party. 15. Discuss the current issues in raising funds for Vietnamese commercial banks? -------------------------------------------------------------------------------- Raising funds for Vietnamese commercial banks, particularly state-owned banks, presents several significant challenges. These issues are primarily rooted in regulatory hurdles, stagnant capital growth compared to private banks, and broader economic conditions. **Regulatory Hurdles** State-owned commercial banks face stringent regulatory requirements when attempting to raise capital. For instance, banks like VietinBank have been waiting for approvals from the State Bank of Vietnam and the Ministry of Finance to retain profits for capital increases. The process has been slow, with VietinBank proposing to retain profits from 2023 to 2028 without any capital injection thus far1. Similarly, Vietcombank has faced continuous delays in its plans to issue new shares, which are critical for increasing its charter capital15. This bureaucratic bottleneck hampers their ability to respond swiftly to market needs. **Stagnant Capital Growth** While private joint-stock banks have significantly increased their capital---doubling that of state-owned banks---state-owned banks have seen only modest growth. By mid-2024, the total charter capital of state-owned banks was approximately 228 trillion VND, reflecting a mere 4.75% increase since the end of 2023. In contrast, private banks experienced an 8.35% increase, reaching a total of 587.85 trillion VND5. This disparity highlights a competitive disadvantage for state-owned banks in the rapidly evolving banking sector. **Economic Conditions and Competition** The economic landscape poses additional challenges. The banking sector has been grappling with high non-performing loans (NPLs), which rose significantly due to unfavorable economic conditions and difficulties in collateral liquidation4. This situation is exacerbated by a general slowdown in credit growth; as of early 2024, credit growth was only 1.34%, far below the State Bank\'s target of 15% for the year. Moreover, rising competition from fintech companies and alternative lenders is reshaping the market dynamics. Many small and medium-sized enterprises (SMEs) are turning to these alternative sources due to the challenges they face with traditional banking24. This shift not only pressures traditional banks to innovate but also diminishes their market share in key segments. **Bond Issuance as a Strategy** In response to these challenges, many Vietnamese banks are increasingly turning to bond issuance as a means to raise long-term capital. In August 2024 alone, banks issued bonds worth approximately 27 trillion VND, which accounted for 87% of total corporate bond issuance in the market3. However, this strategy must align with regulatory requirements regarding capital adequacy and safety ratios, which have become more stringent over time. → In summary, Vietnamese commercial banks face a complex array of issues in raising funds. The combination of regulatory delays, stagnant growth compared to private competitors, adverse economic conditions, and increased competition from non-traditional lenders creates a challenging environment for these institutions. Addressing these issues will be crucial for state-owned banks to enhance their capital base and maintain competitiveness in the evolving financial landscape. 16. What are the risks and difficulties regarding collateral management in lending activities at Vietnamese commercial banks? What are the solutions for handling those issues? ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **[Risks and difficulties:]** Collateral management in lending activities at Vietnamese commercial banks faces several risks and difficulties, primarily due to the unique economic and regulatory environment in Vietnam. These challenges not only affect the banks\' ability to manage credit risk but also impact their overall lending operations. Below are the key risks and difficulties, along with potential solutions. **Information Asymmetry** Vietnam\'s banking sector is characterized by significant information asymmetry between lenders and borrowers. This situation makes it difficult for banks to accurately assess the value and quality of collateral. Many borrowers may provide inflated valuations or misrepresent the condition of their assets, leading to potential losses for banks if the collateral needs to be liquidated12. **Quality of Collateral** The quality of collateral can vary widely, impacting its effectiveness in mitigating credit risk. Banks often rely on real estate as collateral, which can be illiquid and subject to market fluctuations. Poor-quality collateral increases the likelihood of losses in the event of borrower default1. Additionally, the legal framework surrounding property rights can complicate enforcement actions during foreclosure processes. **Regulatory Constraints** The regulatory environment in Vietnam imposes specific requirements on collateral types and valuation methods. Changes in regulations can create uncertainty, making it challenging for banks to adapt their collateral management practices effectively3. Furthermore, strict regulatory frameworks may limit the types of assets that can be accepted as collateral, reducing flexibility in lending. **Costly Foreclosure Processes** The process of foreclosing on collateral is often lengthy and costly, which can deter banks from pursuing recovery actions when borrowers default. This inefficiency can lead to increased non-performing loans (NPLs) and financial losses for banks. **Market Volatility** Economic fluctuations and market volatility can significantly affect the value of collateralized assets. For instance, during economic downturns, property values may decline sharply, leading to inadequate coverage for outstanding loans. **[Solutions:]** **Enhanced Due Diligence** Banks should implement more rigorous due diligence processes when assessing collateral. This includes thorough property appraisals and independent valuations to ensure that the collateral\'s value is accurately represented. Utilizing technology and data analytics can help improve assessment accuracy and reduce information asymmetry. **Diversification of Collateral Types** To mitigate risks associated with relying heavily on real estate, banks should consider accepting a broader range of collateral types, including financial instruments like stocks or bonds, which may offer better liquidity and market stability3. This diversification can help reduce exposure to specific asset classes that may be more volatile. **Streamlined Foreclosure Processes** Banks need to work with legal experts to streamline foreclosure processes and reduce costs associated with asset recovery. Establishing clear legal frameworks that facilitate quicker resolution of defaults can enhance recovery rates and minimize losses from NPLs. **Improved Risk Management Frameworks** Developing comprehensive risk management frameworks that incorporate both credit risk assessment and collateral management is essential. This includes setting clear policies for collateral valuation, monitoring asset quality over time, and adjusting lending practices based on changing market conditions. **Training and Capacity Building** Investing in training programs for bank staff on effective collateral management practices can enhance their ability to assess risks accurately and make informed lending decisions. A well-informed workforce is crucial for navigating the complexities of collateral-based lending in a challenging economic environment 17. Analyze the non-performing debt (NPL) situation of Vietnamese commercial banks in recent years. --------------------------------------------------------------------------------------------------- **[Current situation:]** According to data from the State Bank of Vietnam (SBV), by the end of 2022, the total equity capital of commercial banks (CBs) applying Circular No. 41/2016/TT-NHNN, dated December 30, 2016, regulating the capital adequacy ratio for banks and foreign bank branches was VND 422,786 billion, an increase of 15.23% compared to the beginning of the year. The capital adequacy ratio (CAR) reached 9.04%. In the past 5 years, the credit market share of the Vietnamese banking system has been clearly divided, in which the lending market share of the state-owned commercial banks still accounts for the majority of 51.8%, the joint stock commercial banks are 41.3% and foreign commercial banks are 6.9%. In the period from 2016-2020, the NPL ratio (NPL) and the group 2 debt ratio tend to decrease. The positive reduction in the annual NPL ratio shows that the bank\'s asset quality has improved year by year. However, from 2020 to now, under the pressure of the economy as well as the complicated developments of the pandemic, the NPL ratio has tended to increase again (from 1.4% in 2020 to 1.62% in 2021), but the ratios are still kept within the safe threshold. Some large banks, such as Agribank, BIDV, VietinBank, Vietcombank have extended and postponed tens of thousands of billions of VND of bad debt for customers, but many businesses and people have applied for extension and postponement of debt and have been rejected by banks because\... the quality of collateral and mortgaged assets do not meet the requirements. Although the NPL ratio of the entire banking industry has decreased to below 3%, however, at the end of the second quarter financial report of 2023, a series of financial reports of banks showed that bad debt pressure is increasing. Of the 28 banks, only 2 units recorded a decrease in bad debt compared to the beginning of the year. As of June 30, 2023, the average NPL ratio of the 28 banks was 2.02%, an increase of 0.41 percentage points compared to the beginning of the year. The average bad debt coverage ratio decreased from 127% to 105%. In terms of bad debt scale, VPBank is the bank with the largest bad debt with VND 31,864 billion, up 27% compared to the end of 2022. The 3 positions after VPBank are all in the Big 4 group, of which, BIDV recorded VND 25,970 billion, up 47%, doubtful debt doubled to nearly VND 5,300 billion; Agribank at VND 25,945 billion, up 9%; and VietinBank at VND 17,308 billion, up 10%. Overall, the NPL ratio on the balance sheet of the whole system is being controlled at below 3%, but bad debt at 7 banks has exceeded this level. **[The root causes:]** Firstly, the domestic and international macroeconomic context is facing many difficulties and disadvantages, businesses are operating at a standstill, production scale is shrinking, inventories are increasing, and revenue sources are depleted, affecting the ability to repay debts, thereby causing bad debts to increase, although the State Bank has had a mechanism to restructure and maintain the debt group. In addition, due to the COVID-19 pandemic, the bad debt handling activities of the banking industry are facing more difficulties, even getting worse, because the real estate market is \"frozen\" and most corporate customers lack output. Secondly, the debt trading market in Vietnam is not yet complete, debt handling tools are still rudimentary, and the process of handling outstanding debts over the past many years is still facing many difficulties. Third, difficulties in selling mortgaged assets to settle debts. Banks are facing difficulties in selling secured assets to recover debts, even though the price has been reduced very low compared to the loan value. Banks are rushing to auction debts and sell secured assets. The number of debts and assets for sale in recent times has increased rapidly, from low-value to high-value segments, with values ​​of several hundred million to hundreds of thousands of billions of VND. However, liquidating assets is difficult. Many large-value debts and secured assets related to real estate have been put up for sale 10-20 times but are still \"unsold\". For example, VietinBank has announced a list of nearly 400 secured assets that need to be handled, including many 4-5 star hotels and office buildings worth hundreds of billions of VND across the country. 18. Why did the State Bank of Vietnam decide on implementing the restructuring Vietnam\'s commercial banking system for the period 2011 - 2015? What is the focus of restructuring Vietnam\'s commercial banking system for the period 2011-2015? ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **[Reason for restructuring:]** In recent years, the domestic commercial banking system has made significant progress in terms of asset size, transaction network, service products, as well as banking technology system. Due to the rapid growth in quantity, up to now, the commercial banking system has a network covering all provinces and cities in the country, especially commercial banks have built a system of branches covering districts and communes; the network of the commercial banking system is spread throughout all regions of the country, thereby increasingly meeting the demand for banking products and services, contributing significantly to promoting economic development. In addition, under the pressure of increasing charter capital to meet the requirements of competition and international economic integration, as well as meeting the requirements prescribed in Decree No. 141/2006/ND-CP dated November 21, 2006, the minimum charter capital of commercial banks must reach 3,000 billion VND. Up to now, banks have completed the minimum capital regulations, including some banks with quite high charter capital such as: VCB, BIDV, Viettinbank\... Outstanding loans have increased rapidly in recent years. In fact, the Vietnamese commercial banking system has been playing a dominant role in the credit market share (87% of the entire system), which is a significant source of capital contributing to promoting economic growth, contributing to poverty reduction, and stabilizing social order. Foreign exchange management policies have been gradually liberalized; implemented in the direction of promoting decentralization and delegation of management authority to enhance the sense of responsibility and operational efficiency of each locality, while creating conditions for businesses and people to conduct foreign exchange transactions. In addition, the State Bank has abolished many types of licenses in a direction consistent with the requirements of international integration, gradually reforming administration, creating favorable conditions for foreign economic activities. The banking technology system has made remarkable progress, clearly showing that if in the past, in the payment stage, it took from a day to a week to complete a payment transaction, today thanks to technological innovation, the payment time has been shortened to just minutes, even seconds. Moreover, thanks to technological innovation, the commercial banking system has introduced many value-added products and services based on information technology platforms such as: ATM, POS, EDC, internet banking, online banking\... **[Main focus of restructuring:]** The focus of restructuring the commercial banking system includes: financial restructuring; business restructuring; governance system restructuring; ownership restructuring. - Financial restructuring of commercial banks is to increase the scale and quality of equity capital of commercial banks and handle bad debts. Although it only accounts for a small proportion of business capital, equity capital is very important for the existence and development of commercial banks. Its scale and quality create the foundation for operations, ensure safety, maintain trust and regulate the operations of commercial banks. In the process of financial restructuring, a very important content is to know the exact amount of bad debts in order to have effective handling steps. - Business restructuring is to consolidate and rectify operations to improve the operational efficiency of commercial banks and meet international standards and practices. Business restructuring includes the following contents: service restructuring, personnel restructuring, technology restructuring, and restructuring of organizational and operational models. - Restructuring the management system is of particular importance to commercial banks, because they are businesses dealing in money, so they have high risks and a great impact on the financial system and the entire national economy. Restructuring the management system of commercial banks must comply with the 14 basic principles of the Basel Committee issued in 1999, revised in 2006. - Restructuring ownership has a decisive impact on the functions, tasks, scope of operations and compliance with legal regulations of each type of commercial bank. Following the general trend in countries, the restructuring of ownership is to gradually increase the proportion of state ownership and gradually increase the proportion of ownership of other economic sectors. Most countries focus on attracting foreign investment in the banking sector. 19. What are the difficulties of credit evaluation for individual customers in Vietnam? --------------------------------------------------------------------------------------- Credit evaluation for individual customers in Vietnam faces several significant difficulties, primarily stemming from data limitations, regulatory challenges, and socio-economic factors. **Data Limitations** One of the main challenges is the lack of comprehensive credit data. The absence of a robust credit database makes it difficult for banks to accurately assess the creditworthiness of individual borrowers. Many potential borrowers do not have formal credit histories, which complicates the evaluation process. This issue is particularly pronounced for individuals in rural areas or those engaged in informal employment, as they may lack traditional banking relationships or documented income sources. **Regulatory Challenges** The regulatory framework governing credit evaluation can also hinder effective assessment. Vietnamese banks are often required to adhere to strict lending criteria, which may not align with the realities of individual borrowers\' financial situations. For instance, the implementation of credit guarantee schemes has faced criticism due to impractical conditions that limit access to loans for many individuals. These stringent requirements can prevent banks from lending to potentially creditworthy customers who do not meet all formal criteria1. **Socio-Economic Factors** Economic conditions further complicate credit evaluation. High levels of non-performing loans (NPLs) in the banking sector signal underlying issues with asset quality and borrower repayment capabilities. This situation leads banks to adopt more conservative lending practices, making it harder for individuals with marginal creditworthiness to secure loans4. Additionally, the economic slowdown and rising interest rates have strained household finances, increasing the risk associated with lending to individual customers. **Financial Literacy and Understanding** Another critical factor is the level of financial literacy among potential borrowers. Many individuals may not fully understand the implications of taking on debt or how their financial behavior affects their creditworthiness. This gap in understanding can lead to poor financial decisions that ultimately affect their ability to repay loans, thus complicating the evaluation process for banks. → In summary, the difficulties in credit evaluation for individual customers in Vietnam are multifaceted, involving data limitations, regulatory challenges, adverse economic conditions, and varying levels of financial literacy among borrowers. Addressing these issues will require concerted efforts from both financial institutions and regulatory bodies to enhance data collection methods, streamline lending processes, and improve financial education initiatives. 20. Explain your opinion on the following argument: \"Commercial banks only implement their business to maximize shareholder returns. They have no duty or roles on the monetary policy of a country\". ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- In my opinion, it is true that commercial banks implement their business to maximize shareholder returns. But it is wrong if we claim that commercials bank have no duties or roles on the monetary policy of a country. To begin with, it is true that commercial banks, like any other for-profit enterprises, have a primary obligation to their shareholders. This involves pursuing strategies that enhance profitability, increase stock prices, and provide dividends. This profit motive drives many of their operational decisions, including lending practices, fee structures, and investment strategies. However, to assert that commercial banks have no role in monetary policy is an oversimplification. Commercial banks serve as crucial intermediaries in the financial system. They channel funds from savers to borrowers, facilitating economic activity. By doing so, they play a vital role in the transmission of monetary policy. For instance: - Interest Rate Adjustments: When central banks adjust interest rates, commercial banks respond by changing their lending and deposit rates. This affects borrowing costs for consumers and businesses, thereby influencing overall economic activity. - Credit Availability: The lending decisions made by commercial banks can either stimulate or constrain economic growth. During times of economic expansion, banks may increase lending, while during downturns, they may tighten credit availability. Commercial banks operate within a regulatory framework established by central banks and financial authorities. These regulations often include requirements related to capital adequacy, liquidity, and lending practices that align with national monetary policy goals. For example: - Reserve Requirements: Central banks may impose reserve requirements that dictate how much money commercial banks must hold in reserve versus how much they can lend. This mechanism directly influences the money supply and liquidity in the economy. - Support During Crises: During financial crises, central banks may rely on commercial banks to implement measures that stabilize the economy, such as participating in liquidity support programs or facilitating government-backed loans. While maximizing shareholder returns is a fundamental goal for commercial banks, they also have responsibilities toward other stakeholders, including customers, employees, and the communities in which they operate. Increasingly, there is recognition of the importance of corporate social responsibility (CSR) in banking practices: - Ethical Lending Practices: Banks are expected to engage in responsible lending practices that do not exploit borrowers or contribute to financial instability. - Community Investment: Many banks participate in community development initiatives and support local economies through targeted lending programs. → In conclusion, while it is accurate to say that commercial banks aim to maximize shareholder returns as their primary business objective, it is essential to recognize their significant roles in monetary policy and the broader economy. Their activities directly influence economic stability and growth through credit intermediation and compliance with regulatory frameworks. Additionally, as societal expectations evolve, commercial banks are increasingly held accountable for their impact on various stakeholders beyond just shareholders. Thus, a more nuanced view acknowledges both the profit motive and the broader responsibilities that commercial banks hold within the financial system. 21. The impact of Covid-19 pandemic on lending activities of Vietnamese commercial banks? What are the responses and measures that Vietnamese commercial banks have taken? -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- **[Covid-19 pandemic's impacts on lending activities:]** **Decline in Credit Growth** The pandemic caused a notable downturn in credit growth across the banking sector. Initially, credit growth slowed due to reduced demand from businesses and consumers amid economic uncertainty. By 2023, credit growth had remained sluggish, particularly in labor-intensive sectors like export-oriented manufacturing, which were heavily affected by global supply chain disruptions. However, there was a resurgence in credit growth towards the end of 2023, primarily driven by the real estate and construction sectors as economic conditions began to stabilize. **Increase in Non-Performing Loans (NPLs)** The economic fallout from COVID-19 led to a rise in non-performing loans, reflecting borrowers\' difficulties in meeting their repayment obligations. NPL ratios increased significantly during the pandemic, putting pressure on banks\' asset quality. By the end of 2023, the formation rates of NPLs remained high, indicating ongoing challenges for banks in managing credit risk. **Changes in Borrowing Behavior** Many individuals and businesses became more cautious about taking on new debt due to economic uncertainty. This shift resulted in decreased demand for loans, particularly in consumer finance sectors such as personal loans and credit cards. The overall lending landscape became more conservative as both lenders and borrowers adjusted their expectations in response to the pandemic\'s economic impact. **[Responses and measures:]** **Interest Rate Adjustments** In response to the economic challenges posed by COVID-19, the State Bank of Vietnam implemented several interest rate cuts aimed at stimulating lending and supporting economic recovery. Commercial banks followed suit by lowering their lending rates to make borrowing more attractive for consumers and businesses. This strategy was intended to encourage credit uptake and support economic activity during recovery phases. **Restructuring Loan Terms** To alleviate pressure on borrowers, many banks adopted measures to restructure loan terms. This included extending repayment periods or allowing borrowers to maintain their debt classification despite temporary payment difficulties. Circular 02/2023 from the State Bank permitted banks to restructure loans without downgrading borrowers\' credit ratings, which helped reduce immediate financial stress on affected customers. **Increased Focus on Digital Banking** The pandemic accelerated the shift towards digital banking solutions as customers sought safer and more convenient ways to manage their finances. Banks invested in enhancing their digital platforms to facilitate online lending processes, improve customer service, and expand access to financial products. This transition not only catered to changing consumer preferences but also aimed to streamline operations amidst physical distancing measures. **Strengthening Risk Management Practices** Commercial banks have also focused on improving their risk management frameworks in light of increased NPLs and economic uncertainty. This includes enhancing credit assessment procedures, increasing loan loss provisions, and adopting more stringent lending criteria to mitigate future risks associated with potential defaults Question Group 2: ================= **1.** Bank A has the following figures (unit: billion dong) **Asset** **Balance** **Interest (%)** **Liabilities** **Balance** **Interest (%)** ----------------------------- ------------- ------------------ ---------------------------- ------------- ------------------ Cash 1220 Demand deposits 3210 3 Deposits at the state bank 760 1.2 Short term savings 3970 13.5 Deposits at the other banks 2100 7.5 Medium-long term savings 1650 13.5 Government securities 780 11.5 Short term borrowings 1240 13.2 Short term loans 2570 17.5 Medium-long term borrowing 620 17.1 Medium term loans 2360 18.7 Equity 530 Long term loans 680 20 Other assets 750 Knowing that: income from services (fixed fee income) is 33 billion dong; income from investment activities is 12 billion dong; expenses excluding the loan loss provision are 45 billion dong; overdue debt proportion that is unable to collect the interest is 5%. Income tax rate is 25%. **Category** **Proportion (out of total loan balance)** **Collateral value** -------------- -------------------------------------------- ---------------------- 1 80% 2800 2 10% 380 3 3% 120 4 5% 90 5 2% 50 The balance of loan loss provision for last year was 171 billion dong. 1\. Calculate weighted average interest cost 2\. Calculate NIM (net interest margin) 3\. Calculate the average loan rate so that ROE = 25% **2.** **Year 0** **1** **2** **3** **4** ------------------------------------------------- ------------ -------- -------- -------- -------- **Project expense** 20,400 **R&D expenditure** 2,000 **Working capital** 1,500 1,500 3,000 **Revenue** 8,000 16,000 40,000 40,000 **Cost of goods sold** 4,000 8,000 20,000 20,000 **Administrative expenses** 800 1,600 4,000 4,000 **Depreciation** 5,600 5,600 5,600 5,600 **Earnings before tax** -2,400 -800 10,400 10,400 **Tax** 720 240 3,120 3,120 **Net earnings** -1,680 560 7,280 7,280 **Changes in operating assets and liabilities** 1,500 1,500 3,000 **Depreciation adjustment** 5,600 5,600 5,600 5,600 **Net cash flow** -22,400 5,420 7,660 15,880 12,880 a\. Evaluate the net cash flow report of the above project b\. As a credit officer, would you approve this project, knowing that: The discount rate of the project is 20% The corporate income tax rate is 25% **3.** Company A is considering a project of investing in a production line with a total initial investment of USD 500,000. It is expected that when this line is put into operation, there will be 10,000 products per year produced and sold each year. The selling price of each product is expected to be 50USD in the first year, then increasing by 10% per year. The production cost of 1 product unit in the first year is 25 USD, then the production cost increases every year by 5%. 1\) As a credit officer, please prepare a report to determine the net cash flow of the project? 2\) Can the above project accept a loan? Explain? Know that: \- Estimated timespan of the production line is 5 years. \- The Company applies the straight-line depreciation method \- The company\'s income tax rate is 25%. \- The opportunity cost of equity is 26% \- Owner\'s equity in the project is 40% of the total investment. The company expects to lend the rest of the investment with an interest rate of 12%/year./. **4.** Create a table of loan amortization in which: \- A person borrows money in 05 years \- The present value of the borrowing is \$20,000 \- The interest rate is 12% p.a \- The payment is at the end of the period