BASIC ISSUES OF LENDING TO BUSINESS CUSTOMERS
COMMERCIAL BANK AND ACTIVITIES OF COMMERCIAL BANK
A commercial bank is a financial institution that is licensed to perform a wide range of banking services, including accepting deposits, extending credit, and offering payment services These banks engage in monetary transactions and related business activities, playing a crucial role in the economy by facilitating financial operations.
- Commercial banks are allowed to accept demand deposits, time deposits, savings deposits and other types of deposits.
- To issue certificates of deposit, promissory notes, bills and bonds to raise capital at home and abroad.
- Commercial banks may borrow capital from the State Bank in the form of refinancing according to the provisions of the Law on the State Bank of Vietnam.
- Commercial banks may borrow capital from credit institutions, domestic and foreign financial institutions according to the provisions of law.
Commercial banks may grant credit in the following forms: lending, discounting, rediscounting, credit card issuance, guarantee, domestic factoring, international factoring for authorized banks make international payments.
- Commercial banks must open a deposit account at the State Bank and maintain on this deposit account an average balance not lower than the required reserve level.
- Commercial banks open payment accounts for customers; provide means of payment; provide payment services; perform international payment services and other payment services after being approved by the State Bank.
- Commercial banks may organize internal payments and participate in the national inter-bank payment system.
Commercial banks are required to establish or acquire subsidiaries and affiliates to engage in various business activities, including securities underwriting and brokerage, managing and distributing securities investment fund certificates, managing stock portfolios, buying and selling stocks, as well as offering financial leasing and insurance services.
Commercial banks play a vital role in the financial ecosystem by establishing and acquiring subsidiaries and affiliated companies These institutions operate in various sectors, including collateral management, overseas remittance, foreign exchange, gold trading, factoring, credit card issuance, consumer credit services, payment intermediary services, and credit information management.
Commercial banks are permitted to invest in and acquire shares of companies involved in sectors such as insurance, securities, remittances, foreign exchange, gold, factoring, credit card issuance, consumer credit, intermediary payment services, and credit information However, any investment in enterprises outside these specified fields requires prior written approval from the State Bank.
1.1.2.5 Trading, providing foreign exchange services and derivative products
Commercial banks are allowed to invest in and acquire shares of companies involved in sectors such as insurance, securities, remittances, foreign exchange, gold, factoring, credit card issuance, consumer credit, intermediary payment services, and credit information However, any investment in enterprises outside these specified fields requires prior written approval from the State Bank.
- Commercial banks may participate in bidding for Treasury bills; buy and sell negotiable instruments, government bonds, treasury bills, State bank bills and other valuable papers on the money market.
Commercial banks have the authority to engage in various banking activities, including receiving and managing entrusted funds, as well as acting as agents in insurance and asset management sectors, in accordance with the regulations set forth by the State Bank.
- To perform cash management services, banking and financial consulting services; services of management, property preservation, rental of cabinets, safes.
BASIC ISSUES OF LENDING TO BUSINESS CUSTOMERS IN
1.2.1 Definitions lending to business customers
According to the Enterprise Law No 60/2005/QH11 promulgated on November
29, 2005: “An enterprise is an economic organization with its own name, assets, stable transaction office, and business registration as prescribed by law for the purpose of conducting business activities.”
An enterprise is defined as an independent economic entity, which may or may not possess legal status, that operates under its own name and is responsible for its production and business activities Each enterprise has distinct operational goals based on its establishment purpose, although most aim to maximize profits, with a few exceptions in the public sector.
1.2.1.2 Definitions of lending to business customers
Corporate lending by commercial banks involves extending credit to businesses, where banks provide a specified amount of money for designated purposes over an agreed-upon timeframe This arrangement includes the obligation for the enterprise to repay both the principal amount and interest as per the terms established with the bank.
1.2.2 Characteristic of lending to business customers
Commercial banks are unique enterprises that specialize in money and banking services, with lending being their most profitable activity The characteristics of commercial loans offered by these banks play a crucial role in their financial operations.
Businesses operate across various sectors, leading to a diverse customer base with varied loan demands This includes financing for construction projects aimed at construction companies and investment loans for industrial plants, particularly in industries such as coffee and rubber export.
The capital of enterprises is essential for fulfilling production and business requirements, facilitating the expansion of production scale This includes borrowing funds to acquire raw materials, purchase fixed assets, construct factories, upgrade equipment, and implement scientific and technological advancements in production and business processes, often involving substantial loans.
Obtaining a business loan involves complex procedures due to the intricate legalities surrounding business operations, which differ significantly from individual loans Additionally, the substantial loan amounts and the valuation of collateral can be challenging, as many business assets are typically tied up as mortgages on factories and production equipment.
- Borrower's source of repayment from sales (T-H-T'), profits, depreciation and other lawful sources of income.
Corporate customers typically offer a more robust and reliable information system compared to individual clients and business households This is largely due to their established accounting information systems and comprehensive financial statements The financial data provided by these customers, including tax reports and financial statements, varies in accuracy depending on whether the statements are audited, the credibility of the auditing organization, and the overall quality of the financial information presented.
- Risks arising from corporate lending often cause large losses for commercial banks Therefore, the leaders of commercial banks are very interested in risk management of corporate loans.
1.2.3 Classifications of lending to business customers
Based on the loan term, people are divided into 3 types: short-term loans, medium-term loans and long-term loans.
Short-term loans, typically with a term of less than one year, are designed to address immediate capital needs, such as enhancing working capital and meeting payment obligations These loans are considered low-risk due to their quick repayment periods, which mitigate the impacts of interest rate fluctuations, inflation, and macroeconomic instability As a result, short-term loans often come with lower interest rates compared to other forms of credit.
- Medium-term loans with terms from 1 to 5 years.
- Long-term loans with a term of more than 5 years.
Medium-term and long-term loans are essential for acquiring fixed assets, upgrading equipment and technology, expanding production and business operations, financing business projects, purchasing transportation means, and establishing new production facilities.
A loan for investment in fixed capital is designed to assist businesses with financing their production and operational projects This loan product specifically supports enterprises in acquiring essential fixed assets, including machinery, equipment, and factories, to enhance their production capabilities and overall business growth.
- Loan for production and business: this is a loan to meet the borrowing needs of small business and production objects of enterprises.
1.2.3.3 Classified by form of lend
A credit line represents the maximum loan amount that a bank agrees to provide to a customer for a specified duration This credit limit is established based on the customer's borrowing needs and the bank's capacity to accommodate them Once the credit limit is defined, the customer can access funds up to that specified amount.
- Loans according to investment projects: banks lend money to customers to invest in development of production, business, services and investment projects in service of life.
- Repayment in installments: The loan is paid in installments and is repaid when the full amount of principal and interest under the credit contract is terminated.
- One-time repayment: Loan capital and interest are paid once upon maturity.
CRITERIA FOR EVALUATING LENDING ACTIVITIES TO BUSINESS CUSTOMERS
This indicator represents the total credits issued by a bank to a customer over a specific timeframe, regardless of whether the amounts have been collected Typically, sales are assessed on a monthly, quarterly, or yearly basis, reflecting the total funds borrowed by customers from the bank during that period.
Growth rate=Loan sales next year−Loan sales last year
Debt collection turnover refers to the total sum of money that a bank or credit union has successfully collected from accounts, or the total amount reimbursed by customers to the bank within a specific timeframe.
Growth rate=Debt collection next year−Debt collection last year
Outstanding debt serves as a key indicator of the total amount of loans issued by the Bank that remain unpaid at a specific point in time To assess the outstanding balance, the Bank evaluates both loan turnover and debt collection metrics.
Debt=Loan sales−Debt collection revenue
Bad debt refers to overdue debts that are unlikely to be collected, typically arising when a borrower, such as a customer, fails to repay a loan due to financial losses or bankruptcy This situation often results in insolvency for the borrower, leaving banks unable to recover the lent amount.
The bad debt ratio measures the proportion of uncollectible debts to a commercial bank's total outstanding loans, serving as a key indicator of the bank's credit quality and management effectiveness A higher bad debt ratio signifies lower credit quality, while a lower ratio indicates better credit management and debt recovery efforts by the bank.
Bad debt ratio=Totalbad debt
REGULATIONS OF STATE BANKS ON BAD DEBTS
1.4.1 Regulations of the State Bank on debt classification
According to Circular No 11/2021/TT-NHNN, there are 5 groups as follows:
(i) The debt is due and assessed as being able to fully recover both principal and interest on time;
Debts overdue for less than 10 days are considered recoverable, with the expectation of full repayment of both principal and interest on time.
(iii) Debts classified into group 1 according to the provisions of Clause 2 of this Article.
Group 2 (Debts needing attention) includes:
(i) Debts that are overdue for up to 90 days, except for debts specified at Point a (ii) of this Clause and Clause 3 of this Article;
(ii) The debt with which the first repayment term is adjusted is still due, except for the debt specified at Point b, Clause 2, and Clause 3 of this Article;
(iii) Debts classified into group 2 according to the provisions of Clauses 2 and 3 of this Article.
(i) Debts that are overdue from 91 days to 180 days, except for debts specified in Clause 3 of this Article;
(ii) The first debt extension is still due, except for the debt specified at Point b, Clause 2, Clause 3 of this Article;
Debts that are exempted or have reduced interest rates due to the customer's inability to pay the full agreed amount, excluding those specified in Clause 3 of this Article, are addressed here.
(iv) Debts in one of the following cases have not been recovered within less than
30 days from the date of issuance of a decision on recovery:
- Debts violating the provisions of Clauses 1, 3, 4, 5, 6, Article 126 of the Law on Credit Institutions (amended and supplemented);
- Debts violating the provisions of Clauses 1, 2, 3, 4, Article 127 of the Law onCredit Institutions (amended and supplemented);
- Debts violating the provisions of Clauses 1, 2, 5, Article 128 of the Law on Credit Institutions (amended and supplemented);
(v) Debts within the recovery period according to inspection and examination conclusions;
Debts arising from early recovery decisions made by credit institutions and foreign bank branches must be collected from customers who have breached their agreements If these debts remain unpaid, they should be recovered within 30 days from the date of the withdrawal decision.
(vii) Debts classified into group 3 according to the provisions of Clauses 2 and 3 of this Article;
(viii) Debts to be classified into group 3 according to the provisions of Clause 4, Article 8 of this Circular.
(i) Debts that are overdue from 181 days to 360 days, except for debts specified in Clause 3 of this Article;
(ii) First-time rescheduled debt is overdue for up to 90 days according to the first- time rescheduled repayment term, except for the debt specified in Clause 3 of this Article;
(iii) Debts which have been rescheduled for the second time are still due, except for the debts specified at Point b, Clause 2, and Clause 3 of this Article;
(iv) Debts specified at point c(iv) clause 1 of this Article which have not been recovered within 30 days to 60 days from the date of decision on recovery;
Debts identified for recovery based on inspection and examination findings must be collected within 60 days following the conclusion of these assessments; any debts not recovered within this timeframe require immediate attention.
Debts requiring recovery due to breaches of agreements by customers with credit institutions and foreign bank branches must be addressed within 30 days under early debt recovery decisions.
60 days from the date of the decision to withdraw;
(vii) Debts classified into group 4 according to the provisions of Clauses 2 and 3 of this Article;
(viii) Debts that must be classified into group 4 according to the provisions of Clause 4, Article 8 of this Circular.
(i) Debts that are overdue for more than 360 days;
(ii) First-time rescheduled debt is overdue for 91 days or more according to the first rescheduled repayment term;
(iii) The second rescheduled debt is overdue according to the second rescheduled repayment term;
(iv) Debts which have been rescheduled for the third time or more, except for debts specified at Point b, Clause 2 of this Article;
Debts outlined in point c(iv) of clause 1 that remain uncollected for over 60 days from the recovery decision date, as well as debts identified for collection based on inspection and examination findings that have exceeded the 60-day collection deadline, are considered overdue and require immediate attention for recovery.
Debts that are to be recovered following the early debt recovery decisions of credit institutions and foreign bank branches will include amounts owed by customers who have breached their agreements These debts must be collected within 60 days from the date of the withdrawal decision; otherwise, they remain outstanding.
(viii) Debts of customers being credit institutions are under special control, foreign bank branches are having their capital and assets frozen;
(ix) Debts classified into group 5 according to the provisions of Clause 3 of thisArticle;
(x) Debts to be classified into group 5 according to the provisions of Clause 4, Article 8 of this Circular.
1.4.2 Regulations of the State Bank on the current allowable bad debt level
The State Bank of Vietnam's Directive No 01/CT-NHNN, issued on January 13, 2022, emphasizes the importance of implementing effective solutions to manage and reduce bad debts in the banking sector The directive aims to prevent the emergence of new bad debts and maintain the bad debt ratio on balance sheets at a safe level, specifically targeting a rate of below 3%.
FACTORS AFFECTING LENDING TO BUSINESS CUSTOMERS
Capital serves as the fundamental requirement for a bank to operate effectively It signifies the bank's potential and strength; therefore, disregarding other influencing factors, a bank's ability to attract more capital directly correlates with increased business opportunities.
The credit activities of banks are heavily influenced by their capital levels, with those that mobilize substantial capital gaining a competitive edge over their less capitalized counterparts A stable capital source provides banks with the robust resources necessary for credit growth, enabling them to invest in large-scale projects and expand lending across various sectors Consequently, mobilized capital not only increases the available funds for loans but also plays a crucial role in determining the overall loan size.
A bank's credit policy encompasses a set of strategies aimed at either expanding or restricting credit to meet specific objectives while minimizing risks and ensuring the safety of its lending operations.
Credit activities are essential for commercial banks, as the deposit and lending functions shape the bank's public identity and offerings A well-defined credit policy is crucial for managing capital mobilization, lending practices, interest rates, and credit products, while also addressing credit risk management and customer acquisition strategies to meet strategic business goals.
Commercial banks must establish specific goals during certain periods to effectively adjust their operations Implementing a sound credit policy enables banks to optimize their capital when lending, facilitates credit expansion, and ensures business safety This approach is essential for enhancing the credit quality of commercial banks.
1.5.1.3 The size of the bank's operations
Commercial banks, known for their extensive reach and strong market reputation, facilitate capital mobilization and enhance the scale of funds available for loans This not only simplifies the borrowing process for customers but also builds trust in the banking system, ultimately leading to an expansion of the bank's lending capabilities.
1.5.1.4 The quality of human resources and the bank's infrastructure and technology
The bank's technical and technological infrastructure significantly influences customer psychology during transactions, playing a crucial role in retaining existing clients and attracting new ones.
Modern banks equipped with advanced technology and high-quality facilities streamline procedures, reduce transaction times, and enhance convenience for borrowers This technological support not only attracts more customers but also allows banks to expand their loan offerings Additionally, it facilitates quick and accurate information collection, leading to more effective credit analysis, planning, and policy development.
In the banking sector, while advanced machinery and equipment play a crucial role, the contribution of human resources is equally significant to the bank's success Business lending requires staff to possess a broad skill set, including critical thinking and problem-solving abilities Credit officers must demonstrate keen insight and adaptability, skillfully navigating challenges without rigidly adhering to principles, which is essential for attracting customers while maintaining safety and competitiveness Ultimately, this profession transcends mere technicality; it is an art form within the realm of business.
The business lending process is crucial for banks, as it enhances lending quality and reduces risks A well-structured lending process clearly defines the responsibilities and authorities of each department involved, facilitating effective control over lending activities This framework allows for the identification of weaknesses that require adjustments and enables the proposal of improvement measures to enhance loan quality and boost competitiveness in credit granting.
1.5.1.6 Interest rate (Including deposit interest rate and lending interest rate)
Interest rate is the price of the right to use a unit of borrowed capital in a certain unit of time (day, week, month, year).
Commercial banks can adjust their mobilized capital by altering interest rates, allowing them to expand or contract their credit scale Typically, an increase in deposit interest rates boosts the amount of capital banks can mobilize, facilitating greater lending to businesses Conversely, a decrease in deposit interest rates may reduce mobilized capital, potentially leading to a decline in business loans.
Commercial banks can utilize interest rate tools to regulate the volume of corporate loans, where an increase in lending interest rates typically leads to a decrease in the size of business loans, and conversely, a decrease in rates tends to increase loan sizes.
Thus, interest rate is also one of the decisive factors to the development of business loans of commercial banks.
1.5.1.7 Marketing activities of the bank
Bank marketing encompasses a range of activities, including market and customer segmentation, identifying opportunities and needs, selecting potential customers, and fulfilling their requirements These efforts aim to achieve specific goals and enhance profitability Effective marketing strategies not only facilitate the expansion of lending operations but also improve the overall quality of business loans.
1.5.2.1 Political, legal, socio-economic environment
Vietnam boasts a stable political environment, which fosters confidence among both domestic and foreign investors This stability encourages investment in production and business ventures, while also creating a conducive atmosphere for lending activities, particularly for commercial banks.
The current legal environment in our country has undergone significant reforms to establish an equitable and fair framework for all businesses, promoting a cohesive legal system This unified policy mechanism respects and upholds the right to freedom of enterprise, ensuring that all types of businesses can operate under consistent regulations Additionally, efforts are being made to develop and enhance the legal framework to provide stability, clarity, and transparency in the investment environment, particularly regarding investment promotion policies and regimes.
EXPERIENCE OF EXPANDING ACTIVITIES OF BUSINESS LOANS
In previous studies related to this topic, the authors have found the causes and solutions and this is also the author's reference solution for this topic.
Research by L.T.X Trang (2013) on expanding lending to corporate customers at the Bank for Agriculture and Rural Development in Cam Le district, Da Nang city, offers several strategies for enhancing lending operations Key recommendations include diversifying the types of business clients, optimizing the structure and formats of enterprise loans, and implementing loan insurance policies tailored for businesses.
A study conducted by L.H Hieu in 2014 examined the expansion of business loans at the Bank for Agriculture and Rural Development's branch in Thanh Khe district, Da Nang city The author proposed several strategies to enhance lending to corporate clients, including the effective refinement of customer policies, the flexible diversification of banking products, and the broadening of the customer base.
In the study by N.T.H Thanh (2018) on enhancing business lending at the Bank for Agriculture and Rural Development of Vietnam's Lien Chieu Branch in Da Nang, key solutions are proposed to expand lending activities These include strengthening marketing efforts, refining the business lending process, implementing flexible interest rates, and diversifying credit programs and loan products.
In Chapter 1, we explored the functions of commercial banks, focusing specifically on business lending We gained insights into the concepts, characteristics, classifications, and evaluation criteria associated with business lending activities Additionally, we examined the State Bank's regulations regarding debt classification and acceptable levels of bad debt Furthermore, we identified the internal and external factors influencing enterprise lending, including internal aspects such as capital sources, interest rates, marketing strategies, and lending processes, as well as external influences like the political and legal environment, socioeconomic conditions, supportive lending policies, and corporate characteristics.
THE SITUATION OF LENDING TO BUSINESS CUSTOMERS
OVERVIEW OF AGRIBANK SOUTH DA NANG BRANCH
2.1.1 Introduction to Agribank Nam Da Nang Branch
- Full name: Vietnam Bank For Agriculture and Rural Development – South Danang Branch
- Abbreviated name: Agribank South Danang Branch
- Address: 228, 2/9 Street, Hoa Cuong Bac Ward, Hai Chau District, City. Danang
- Website: http://www.agribank.com.vn
Established under Decision No 785/QD-HDTV-TCTL on the basis of separation from Agribank Da Nang City Branch takes effect from October 15, 2019.
The Vietnam Bank for Agriculture and Rural Development - Nam Da Nang Branch, previously known as the Hai Chau Branch of Agribank Da Nang, is now part of Agribank's Southern Industry network.
Da Nang is a branch of type I, first place under Agribank Vietnam.
Since its re-establishment, Agribank of Southern Industry Da Nang has operated steadily, overcoming challenges posed by the Covid-19 pandemic With the dedication of its leadership and staff, the branch has achieved notable success over nearly three years of operation Recent business results demonstrate that Agribank of Southern Industry Da Nang has solidified its position in the market, emerging as a reputable commercial bank in Da Nang city.
2.1.2 Organizational apparatus of Agribank Nam Da Nang Branch
2.1.2.1 Organizational diagram of Agribank Southern Branch
Agribank Nam Da Nang Branch operates with a structured organizational model that includes its headquarters and eight affiliated type II branches The headquarters employs 91 officials and staff members across eight professional departments and five associated transaction offices.
Figure 2 1 Organization chart of Agribank South Danang Branch
(Source: General at Agribank South Da Nang Branch)
According to the above diagram, the organizational structure of Agribank Nam
Da Nang Branch includes: 01 President, 03 Vice President, 08 Departments, including:Corporate customer departments, Personal customer department; Capital planning department; General department; Accounting Department and Fund department;
Service and Marketing Department; Inspection, internal control and computing department In addition to 08 departments with 05 affiliated transaction offices, including:
+ Transaction office Hoa Cuong- Khue Trung
+ Transaction office Nguyen Van Linh
+ Transaction office Nguyen Tri Phuong
Type II Branches: Agribank Nam Da Nang Branch in addition to the headquarters, there are 08 branches of type II and 10 affiliated transaction offices including: Hoa Vang District Branch (Head Office and 02 Transaction Office), CN Cam Le District (Department of Department and 03 Transaction Office), CN Lien Chieu District (Department of Office and 02 Transaction Office), CN Hoa Khanh Industrial Park (Department of Office and 02 Transaction Office), Con Market Branch (Head Office and 01 Office Translation), Tan Chinh Branch, Mr Nguen Khiem and Market Branch.
2.1.2.2 The duties of the departments i) Corporate customer departments
The primary objective is to guide the Branch Director in establishing clear targets and strategies for corporate customers, while also enhancing the credit portfolio This involves classifying and recommending policies aimed at expanding credit access and improving overall credit efficiency.
Marketing, developing products, services and providing bank utilities to corporate customers in the area.
Debt classification, debt handling, debt analysis for corporate customers.
Implement regulations, processes, professional guidance on credit issuance, debt handling for corporate customers in the branch.
Risk management in the field of corporate customer credit.
Inspect and supervise the implementation of credit regulations and processes for corporate customers within the branch's management. ii) Personal customer department
The primary objective is to guide the branch director in establishing clear targets and customer strategies tailored for production households and individuals This includes developing a comprehensive credit portfolio, classifying customers effectively, and proposing targeted production and credit policies aimed at expanding credit access and enhancing overall credit efficiency.
The focal point for summarizing reports on handling and recovery of XLRR debt; Summarize and report the results of XLRR debt recovery at the branch.
To advise and propose the Board of Directors to assign the planning targets, the recovery of bad debts, XLRR debt at the branches of type II, affiliated transaction offices.
Marketing, selling products, services and providing bank utilities to production households and individuals in the area.
Carry out debt classification, debt handling, debt analysis for production households and individuals.
Implement regulations, processes, professional guidance, debt handling for production households and individuals in the branch. iii) Capital planning department
The primary objective is to summarize and guide the development of the branch's business strategy in alignment with local socio-economic growth and Agribank's regulations This includes providing direct advice on formulating an effective capital mobilization strategy for the branch.
The focal point develops a short, medium and long -term business plan of Agribank's business orientation.
This article outlines the proposal for the assignment, management, adjustment, and settlement of business plans across headquarters, branches, professional departments, and affiliated transaction offices It emphasizes the importance of summarizing, analyzing, and recommending solutions to effectively achieve the business planning targets set for the branch.
Management of capital balance, ensuring structures of terms, currency, deposit, and managing safety coefficients as prescribed.
Effective risk management in capital, capital balance, and monetary operations is essential It involves adhering to regulations and established risk management processes while overseeing debt asset management Key considerations include interest rate risk, exchange rate fluctuations, and various terms associated with these financial instruments.
Debt classification, risk provision, risk handling as prescribed; Secretary of theCouncil for Handling Risks at the Branch.
BUSINESS RESULTS IN 3 YEARS
2.2.1 Capital mobilization situation of Agribank South Da Nang branch
The branch has prioritized capital mobilization activities, concentrating on gathering temporary currency capital from residential areas, businesses, and economic organizations An analysis of the capital mobilization situation over the three-year period from 2019 to 2021 highlights the effectiveness of these efforts.
2019 Proporti on 2020 Proporti on 2021 Proporti on 2020/2019 2021/2020
Amoun t % Amoun t % Amoun t % Devia nt
(Source: Summary report of business activities in 2019-2021 Agribank of Southern Industry Danang)
Residential Deposits Deposits from economic organi- zations
Deposits with credit institutions Treasury Deposits
Issuance of valuable papers Other deposit
Figure 2 2 Capital mobilization situation of Agribank Nam Da Nang branch, period 2019-2021
The branch has done well the forms of deposit mobilization, especially residential deposits The proportion of customers' deposits (residential deposits) always accounts for the majority of the total capital (~ 77%).
In 2019, Agribank of Southern Da Nang mobilized a total capital of VND 1,485,633 million, which increased to VND 1,522,355 million in 2020, marking a rise of VND 36,722 million (+102.47%) By the end of 2021, this figure surged to VND 1,685,783 million, reflecting a substantial increase of VND 163,428 million (+110.74%) This growth can be attributed to the impact of multiple Covid-19 outbreaks on the city's key economic sectors, particularly tourism and hospitality, leading individuals and businesses to prefer depositing their funds in banks Additionally, the implementation of a free domestic payment policy and money transfer services within and outside the Agribank system since May 17, 2021, has further attracted temporary deposits.
Despite many times the whole city Da Nang must carry out social ways underDirective 16 but in general, the mobilized capital of Agribank of Southern Industry targets.
2.2.2 Loan situation of Agribank South Danang Branch
Credit activities are a crucial component of banking operations, generating the highest revenue for branches and addressing the significant loan demands of customers in Da Nang The lending performance of the branch over the three-year period from 2019 to 2021 illustrates this trend.
Table 2 2 Loan situation at Agribank Southern Branch, period 2019-2021
Unit: Trieu Dong Đơn vị tính: triệu đồng
Amount Amount Amount Deviant Ratio
(Source: Agribank Accounting Department of Nam Da Nang Branch)
Loan Sales Debt collection revenue Outstanding Debt Bad Debt 0
Figure 2 3 Loan situation at Agribank Southern Branch, period 2019-2021
Through the data table 2.2 we can see:
In 2020, loan sales experienced a significant decline, totaling VND 1,793,254 million, a decrease of VND 466,287 million or -20.6% compared to 2019 However, in 2021, the sector rebounded, with loan sales reaching VND 2,284,226 million, reflecting a growth rate of 27.4% from the previous year This fluctuation can be attributed to the severe impact of the Covid-19 pandemic in 2020, which led businesses to prioritize financial management over borrowing As the pandemic was brought under control in 2021, coupled with government support packages and a gradual return to normalcy, businesses began to seek loans to aid their recovery and resume production activities.
In 2020, debt collection revenue fell to VND 1,678,526 million, a decrease of VND 606,110 million or 26.5% compared to 2019's VND 2,284,636 million However, in 2021, this figure rebounded to VND 2,018,559 million, marking an increase of VND 340,033 million, or 20.3% from the previous year Despite the decline in 2020, improvements in management, processing, and recovery strategies in 2021 have positively impacted the bank's debt collection performance.
In 2020, the outstanding debt rose to VND 1,710,496 million, marking a 7.2% increase or VND 115,090 million from VND 1,595,406 million in 2019 By 2021, this figure further escalated to VND 1,956,162 million, reflecting a 14.4% growth, which translates to an increase of VND 245,666 million compared to the previous year Despite the continuous rise in outstanding debt, post-loan control within the sector has not been adequately tightened, leading to concerns over cash flow management in alignment with agreements between businesses and banks.
In 2020, bad debt reached VND 8,716 million, reflecting a significant decrease of 39.3% or VND 5,649 million compared to 2019 However, the trend reversed in 2021, with bad debt rising to VND 13,383 million, marking an increase of 53.3% or VND 4,667 million from the previous year.
Bad debt ratio: In 2020, 0.51% decreased compared to 2019 by 0.39%, but in
In 2021, the debt recovery rate rose to 0.17%, a notable increase from 0.68% in 2020 Despite the bank's efforts to implement various strategies for debt recovery, these measures have proven to be largely ineffective.
Table 2 3 Business results in Agribank Nam Da Nang branch, period 2019-2021
Amount Amount Amount Deviant Ratio
Profitability 233,428 448,658 382,977 215,230 92.20% (65,681) -14.64% Income from service activities 18,550 10,869 8,895 (7,681) -41.41% (1,974) -18.16%
(Source: Summary report of business activities in 2019-2021 Agribank of Southern Industry Danang)
Figure 2 4 Business results in Agribank Nam Da Nang branch, period 2019-2021
From the data on the table above, we can easily see:
The bank's primary revenue source is its credit activities, with total income reaching VND 514,326 million in 2020, marking a significant increase of VND 181,345 million or 54.46% from 2019 In 2021, the income further rose to VND 673,265 million, reflecting an increase of VND 158,939 million, which is a 30.9% growth compared to the previous year.
In 2020, the branch's interest costs significantly contributed to its overall expenses, totaling 445.3 billion VND, which marked an increase of 181.5 billion VND or 68.83% compared to 263.8 billion VND in 2019.
In 2021, the cost increased to VND 40.152 million, equivalent to 9.02% compared to 2020.
In 2019, Agribank Nam Da Nang Branch reported a profit of 69,226 million VND, which slightly decreased to 69,026 million VND in 2020 However, in 2021, the profit surged to 187,813 million VND, marking an impressive increase of 118,787 million VND from the previous year Despite the challenges posed by the pandemic, the branch successfully met its targets, thanks to the effective leadership of the Bank Board of Directors and the dedicated efforts of its experienced and skilled staff, resulting in consistent growth and positive business outcomes.
ANALYSIS OF THE SITUATION OF AGRIBANK BUSINESS LOANS IN
2.3.1 Business lending process at Agribank South Da Nang Branch
According to Chapter IV, Section 1 of Decision No 1225/QD-NHNO-TD, which outlines the Loan Regulation, the general loan process for the Agribank system, including the South Danang Branch, is established to ensure efficiency and compliance.
Figure 2 5 Loan steps at Agribank Branch of Danang
Bước 1: Receive, collect, evaluate documents and information about customers' loan needs
Receiving loan demand, guiding customers on loans, documents, procedures, loan interest rates and products of Agribank
Information income, records, documents on loan customers, capital use plans, TSBDs (if applicable to property protection loans).
Review, fully, legal and valid assessment of preliminary loans.
Survey on loan demand, TSBD (if applied lending with property protection).
Receive, collect, evaluate documents and informatio n about customers' loan needs
Coordinate with customers to manage the CIF department by registering information and issuing customer codes in the IPCAS system, ensuring all amendments and supplements comply with regulations.
Scoring internal rating of customers.
Assess the response to the conditional loan Proposing lending reports
In this stage, the appraiser evaluates the loan using relevant information, loan documents, and reports on lending proposals, and may request additional income information if necessary.
Determine the total outstanding loans of customers.
The results of the internal credit rating of customers, including credit rating results at credit institutions and other foreign bank branches (if any).
When evaluating customers' ability to meet loan conditions, it is essential to assess their civil legal capacity and civil act capacity at the time of borrowing Additionally, the legality of the intended capital use must be verified, along with the feasibility of the proposed capital use plan Furthermore, it is crucial to evaluate the financial capacity of the customer to repay the debt and ensure a transparent and healthy financial situation, especially for those applying for maximum lending interest rates as prescribed by the State Bank.
When evaluating the TSBD's lending potential with property security, it is crucial to assess the completeness of its records, legal standing, and recovery capabilities Additionally, analyzing the feasibility of meeting guarantee commitment obligations for third-party secured loans is essential to ensure financial reliability and risk management.
In the loan proposal report, include comments on the evaluation results and sign off with your appraisal content, indicating whether to approve or deny the loan If you disagree with the lending decision, clearly articulate your reasons for not approving the loan and submit your feedback for consideration Ensure that you sign the report and clearly state your full name in the appraiser section.
Bước 3: Re-appraisal through the credit council at Agribank where the lender
The decision to re-evaluate a loan, whether in part or in full, is determined by the authorized personnel at Agribank, who also oversee the loan approval process and maintain the loan documentation.
The re -evaluation person is not the loan appraiser.
If a loan is approved by the Credit Council, the process and details must adhere to the regulations governing the organization and operation of the Credit Council within the Agribank system.
Executors: The person who decides to lend.
Loan decisions are made by evaluating various factors, including loan documents, proposals, customer relationship suggestions, appraiser assessments, and any necessary re-evaluations Additionally, minutes from credit council meetings, if available, play a crucial role in the decision-making process Ultimately, the authority responsible for approving the loan will consider these elements to determine whether to approve or deny the lending request.
In case of a loan agreement
- For loans under its authority:
+ The lending decision person to comment and sign the approval on the Loan proposal report.
When Agribank approves a loan, the Deputy Director is tasked with overseeing the disbursement and management operations This process includes not only the approval of the loan agreement but also the Deputy Director's signature and the transaction office's seal These elements are essential for executing the disbursement procedure with the customer, managing the loan dossier, and ensuring proper loan management Additionally, customers must register their loan limits in the IPCAS system.
When a loan exceeds the authorized limit, the lending officer must document the loan approval and prepare the necessary dossier and documentation for the customer, as directed by the manager.
In case of refusing loans
Sign a notice to customers refusing to lend and the reason for refusing to lend when customers request. branch, period 2019-2021
2.3.2.1 General situation of business lending activities at Agribank Nam Da Nang Branch, 2019-2021
Amount Amount Amount Deviant Ratio
(Source: Agribank Accounting Department of Nam Da Nang) Table 2 4 General situation of business lending activities at Agribank Nam Da
In 2021, the financial sector saw a significant recovery, with a total of VND 862,295 million, marking an impressive increase of 83.18% compared to 2020, despite a notable decline of 37.34% from 2019 This rebound can be attributed to the concerted efforts of officials and the implementation of supportive policies and packages, which encouraged businesses to be more open to borrowing, ultimately leading to growth in the sector.
Business customer debt revenue in 2020 only achieved VND 427,185 million, down VND 307,325 million, equivalent to a decrease of 41.84% compared to 2019 In
2021, VND 632,415 million, an increase of VND 205,230 million, equivalent to the level of an increase of 48.04% compared to 2020 Debt collection sales decreased in
In 2020, the bank faced significant challenges in managing and recovering debts due to the adverse effects of the Covid-19 pandemic on businesses However, by 2021, there was a notable improvement in debt recovery, signaling a positive trend for the bank's operations The outstanding loans to business customers reached 640,923 million VND in 2020, reflecting an increase of 70,565 million VND, or 12.37%, compared to the previous year This recovery in lending is crucial, as effective debt management supports the bank's overall business performance.
In 2021, the financial index reached 745,855 million VND, reflecting an increase of 104,962 million VND, or 16.38% compared to 2020 This steady growth over the years indicates that the post-loan control within the branch has not been sufficiently tightened, leading to concerns about cash flow management in accordance with the agreements between businesses and banks.
In 2021, the debt recovery measures implemented by the branch were less effective, resulting in a significant increase of 79.46% compared to 2020 The year 2020 experienced the most severe impact from Covid-19, leading to a decline in this index compared to 2019, despite the branch's successful debt recovery efforts during that challenging period.
2.3.2.2 The situation of lending to business customers at Agribank South Da Nang by term, 2019-2021
Amount Proportio n Amount Proportio n Amount Proportio n Deviant Growt h rate Deviant Growth rate
Table 2 5 The situation of lending to business customers at Agribank South Da Nang by term, 2019-2021
Short term Medium, long term
Figure 2 6 The situation of lending to business customers at Agribank South Da Nang by term, 2019-2021
RECOMMENDATION FOR EXPANDING LOANS TO
BASIS OF PROPOSED SOLUTION
3.1.1 Overall assessment of research subjects (SWOT)
To provide effective solutions, we must analyze the data from Chapter 2 and assess the appeal of the Branch's lending products for corporate clients Additionally, utilizing the SWOT model will enable us to evaluate the Branch comprehensively and address these critical questions.
The mobilized capital of Agribank South Da Nang branch has grown steadily for
3 years, despite 2020 being heavily affected by the epidemic, total mobilized capital in
In 2020, Agribank South Da Nang branch experienced a remarkable 102.7% increase in mobilized capital compared to 2019, demonstrating its strong financial capacity to lend to businesses This growth can be attributed to the Branch's strategic promotions aimed at attracting idle funds from the economy.
Agribank South Da Nang branch consistently maintains a bad debt ratio that is lower than the industry average, indicating the effectiveness and high quality of its loan portfolio.
Agribank South Da Nang branch has demonstrated impressive business results, experiencing a slight decline in 2020 followed by a significant rebound in 2021 This remarkable performance can be attributed to the effective leadership of the Bank's board of directors and the dedicated efforts of a skilled and experienced team Furthermore, the branch's ability to manage and control costs effectively highlights its operational efficiency.
According to Table 2.3, the income structure of Agribank's South Da Nang branch predominantly relies on credit activities, unlike Techcombank, which has a balanced income distribution with 50% derived from credit activities and 50% from non-credit activities.
According to Table 2.2, Agribank South Da Nang branch's outstanding business loan debt does not align with its potential, as the percentage of loans to corporate customers remains low in the overall outstanding balance over the years.
The State Bank's policy to maintain a 2% annual interest rate for commercial loans during 2022-2023 aims to assist businesses in overcoming challenges and encourages them to secure financing to resume production and operations.
In addition, the Government's support packages for businesses also partly give businesses closer access to the branch's loans.
Although the pandemic has ended, in the coming time, there will be two crises that will cause banks and businesses to face many challenges.
The ongoing crisis between Russia and Ukraine is anticipated to disrupt trade for businesses, leading to increased costs and higher prices for raw materials imported from Russia This situation is expected to have a detrimental impact on the global economy, with Vietnam facing particular challenges as a result.
Global inflation is experiencing complex fluctuations, leading to a reduction in bank mobilized funds as depositing money results in currency depreciation Consequently, this decline impacts bank credit activities Additionally, the rising import prices of certain raw materials and inputs for domestic production in the first quarter of 2022, compared to the same period last year, further affect the import and export operations of businesses.
In response to the post-epidemic recovery, political changes in Europe, and rising inflation, Agribank's South Da Nang branch aims to boost corporate loans to alleviate financial challenges faced by businesses.
Next, it will continue to lend to agriculture because this is a traditional activity of the Branch, especially for high-tech businesses.
To align with the digital transformation trend, Agribank South Da Nang branch is prioritizing loans for businesses engaged in digital transformation, green technology, and those with three affiliates, while also supporting companies with diversified investment markets.
PROPOSED SOLUTION FOR EXPANDING AGRIBANK'S BUSINESS
3.2.1.1 Transforming income structure from credit activities to non-credit activities
To enhance the structure of Agribank South Da Nang branch, it is essential to encourage non-cash payment methods and expand access to financial services and lending products for both businesses and individuals.
To achieve success in its transformation process, Agribank South Da Nang Branch must establish a comprehensive strategy with clear goals and a detailed roadmap, ensuring that all levels and departments within the branch are actively engaged in the transition.
Focusing on customer needs is essential for developing products and services that not only meet existing demands but also introduce new ones By implementing appropriate pricing strategies, businesses can enhance customer experience and satisfaction Additionally, expanding financial services through modern distribution channels on electronic devices is crucial in developed areas, while also recognizing the importance of traditional channels in regions with limited technology access This approach can strengthen brand recognition and ultimately increase customer demand for financial services.
Investing in technology system development and customer database creation is essential, while also prioritizing system security and the confidentiality of customer information Additionally, it is crucial to build and train human resources to effectively navigate the bank's digital transformation journey.
3.2.1.2 Increase the proportion of loans to business customers
First, proactively contact the business registration agency to find new businesses, and quickly establish relationships with these customers in many aspects to strengthen strategic cooperation.
To successfully grow your business, focus on acquiring new customers while also prioritizing the retention of existing ones through exceptional service and a strong customer care policy Additionally, actively expand your market by attracting new clientele, but ensure you carefully evaluate potential customers based on their business viability, the effectiveness of their projects, and the low-risk nature of their investments.
3.2.1.3 Continue to promote total mobilized capital
To enhance its total mobilized capital amidst intense competition and complex developments, the Branch must prioritize strategic solutions that address current market challenges.
To effectively attract customers, particularly businesses, commercial banks must implement strategic policies in response to the growing competition from both local and foreign banks Understanding the advantages that domestic banks hold over international competitors is crucial Key strategies to enhance customer acquisition include targeted marketing efforts, competitive interest rates, a diverse service portfolio, and fostering strong customer relationships through tailored policies.
A well-structured interest rate policy plays a crucial role in generating capital for the Branch by effectively mobilizing resources from the economy While interest rates may vary across different periods, maintaining an appealing rate is essential for retaining existing customers and attracting new ones.
To enhance competitiveness with other commercial banks in the city, the Branch should implement a robust marketing policy aimed at attracting new customers Moving forward, it is essential for the Branch to adopt a strategic and well-structured approach to this initiative, ensuring maximum effectiveness in its promotional efforts.
3.2.1.4 Try to keep bad debt ratio below industry average
To keep the bad debt ratio below the industry average, the Branch must effectively implement Resolution 42/2017/QH14 from the State Bank and closely monitor the impact of the epidemic on clients' business activities This involves proactively assessing and forecasting potential damages to provide timely support as needed Additionally, the Branch should identify potential debts at risk of becoming bad debts and implement strategies to prevent new bad debts from emerging, while also reducing costs to facilitate loan interest rate reductions for clients.
3.2.2.1 Improving and upgrading information technology
Agribank South Da Nang branch needs to have an investment strategy, update modern machinery and equipment for its branches Fully equipped with synchronous units.
Agribank South Da Nang branch needs to focus on training to improve the level of banking technology for officials and employees.
We are set to digitize the appraisal of loan documents, enabling swift and precise evaluations that will streamline the loan process and enhance overall appraisal efficiency.
Technology must always innovate to exploit information related to the Enterprise.
Regularly plan to check and maintain the internal network system to ensure stable operation.
Agribank South Da Nang branch needs to select capable, qualified and ethical staff to be assigned to the credit department.
Agribank South Da Nang branch must constantly improve the quality of credit officers.
Allocate enough and reasonably assign tasks to staff, avoiding the situation of assigning too much work to one officer.
Renovating the remuneration policy for credit officers in terms of salary, bonus
The Agribank South Da Nang branch should implement comprehensive training programs focused on corporate lending, which include corporate financial analysis, valuation techniques, project loan appraisal, and essential legal knowledge related to banking activities, as well as enhancing customer communication skills.
3.2.2.3 Continuously improve processes and activities
To enhance efficiency, Agribank South Da Nang branch must streamline its loan processing time by reducing the duration of each operational step Credit officers should conduct preliminary facility visits to assess the necessary requirements for mortgaged properties and provide guidance on preparing loan documents and procedures This proactive approach will help ensure that businesses submit complete applications, minimizing the risk of delays and the need for resubmission.
Currently, although the reduction of documents has reduced the complexity of lending activities for enterprises, along with it, the appraisal time has not been significantly reduced.
3.2.3.1 Building relationships with all levels of government
Branches should consistently engage with state management agencies at both the industry and local levels to stay informed about the latest guidelines and policies This proactive approach enables branches to tailor their policies and interest rates to meet specific circumstances, thereby facilitating easier access to loans for businesses and effectively addressing their challenges in a timely manner.
3.2.3.2 Build relationships with industry associations
Branches must establish connections with agencies and industry associations to gather essential information about various sectors, which can enhance lending activities Maintaining consistent relationships is crucial for promptly identifying newly established businesses, allowing branches to swiftly engage with these customers in multiple facets to reinforce strategic partnerships.
3.2.3.3 Maintain relationships with law enforcement agencies for bad debt recovery