Microsoft Word FINAL THESIS 21 04 2020 docx UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LE HUNG CUONG Student ID 22170008 Issues in Credit Granting Process in VP bank MAS[.]
UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LE HUNG CUONG Student ID: 22170008 Issues in Credit Granting Process in VP bank MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – 2019 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LE HUNG CUONG Student ID: 22170008 Issues in Credit Granting Process in VP bank MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Prof TRAN HA MINH QUAN Ho Chi Minh City – 2019 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com EXECUTIVE SUMMARY This research is developed with the objective of identifying the main problems that lead to the downturn of credit growth rate of VPBank during 2018 It was captured that VPBank has faced up with lower credit growth rate in 2018 and this symptom was explained by some problems, namely SBV’s credit growth cap, peer-to-peer lending, overlapped products, lower lending interest rates from bigger banks, higher document processing time, impolite collection activities, slow SMS and mobile internet banking, lack of live banking services, high lead time for customer complaints, incorrect information by sales teams, and less attractive advertising contents However, only two problems are actually existed, namely higher document processing time and incorrect information by sales teams Other problems have not had high impact or have no impact in coming years Based on that, the researcher proposes set of solutions to help VPBank to further decrease the time required for document processing and to reduce adverse impact from wrong information provided by sales officers The set of solutions are translated to change plan with detail solutions, detail actions, people management, and communication LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com PART I - BACKGROUND 1.1 Company background 1.1.1 History of establishment and development Vietnam Prosperity Joint Stock Commercial Bank (VPBank) was established in 1993 Over 25 years of doing business in Vietnamese financial and banking industry, the bank achieved outstanding result since its charter capital was reached US$681.49 million and total asset was more than US$12 billion in the financial year of 2018 VPBank has been listed in Ho Chi Minh Stock Exchange (HOSE) with 1.33 billion shares were issued to public investors VPBank conducted the transformation in 2010, remarked by new logo and brand identify as well as the focus on modern retail banking business under the consultation from McKinsey & Company In 2011, the bank implemented different business initiatives consulted by McKinsey & Company and successfully raised charter capital to balance with new business capacity and development In 2012, VPBank achieved national brand value and it established risk management division to monitor risk issues in bank wide level In 2013, VPBank was rated at B3 by Moody and it conducted Information Technology and Risk Management Master Plan In 2014 and 2015, VPBank focused on mass consumer market by establishing VPBank Finance Company Limited (FECredit) and the bank was among largest corporate income tax payers in Vietnam The year of 2016 remarked a big leap since VPBank moved to new head office and total asset was over US$8 billion The bank also received a loan from International Finance Corporation (IFC) with cheap price In 2017, VPBank conducted Initial Public Offering (IPO) and it successfully issued 1.33 billion shares and raised nearly US$300 million from public investors Moody rated VPBank as B2 which was known as an upgrade from the last rating in 2013 Digital banking services have been developed in order meet new business opportunities in the market 1.1.2 Market share An illustrative way to capture market share of VPBank is through its market capitalization in comparison with other banks and financial institutions listed in Vietnam stock exchanges According to the data obtained from cophieu68.com, there are 26 listed banks and financial institutions with total market capitalization of US$39 billion Currently, VPBank has been ranked at 6th position with US$2.1 billion, lower than VCB (US$10.8 billion), BIDV (US$5.2 billion), TCB (US$3.8 billion), CTG (US$3.5 billion) and BVH (US$2.8 billion) Based on this statistics, current market share of VPBank is 5% in term of total market capitalization value LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 1.1.3 Vision, mission, core values The vision of VPBank is to become one of the largest joint-stock commercial banks and one of the leading retail joint-stock commercial banks in Vietnam To support this business vision, the bank conducts two different missions The first mission is to conduct aggressive organic-growth with high attention to retail, small and medium enterprises (SMEs), consumer finance, and corporate segment The second mission refers to strong investment and continuous development of foundation systems, including human resource, information technology, risk management, and operation Moreover, there are core values which are being maintained in VPBank, including make the difference, ambition, customer focus, trust, people development, and productivity Toward the long-term and sustainable development, VPBank committed to deliver banking products and services to the customers with professionalism, simplicity, dedication, and difference 1.1.4 Organization structure Currently, VPBank has been organized by high standardized organization structure General Shareholder Meetings takes the higher position in the structure and it is being supported by Board of Directors Chief Executive Officer (CEO) is managing advisory units (finance, risk management, human resource management, strategy and project management) and business units (retail banking, household banking, SME banking, commercial banking, corporate and investment banking, digital banking services, financial institution and transactional banking) and operating and supporting units (credit, operations, information technology, legal and compliance, business intelligence competency center, and marketing and communication) Moreover, current organization structure addresses the importance of different committees, including human resource committee, risk management committee, credit committee, operational risk committee, credit and collections committee Supervisory board and internal audit are established to support Board of Directors in entire banking management and monitoring LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Figure 1: Organization structure of VPBank Source: VPBank’s annual reports (2017) LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 1.2 Symptom During the period of 2014-2018, business performance of VPBank is summarized below: Table 1: Business performance of VPBank Indicator Total asset Equity Saving Lending Lending growth Total operating income Profit before tax ROA ROE Unit US$m US$m US$m US$m 2014 2015 2016 2017 2018 7,698 423 5,619 3,696 8,826 609 6,925 5,317 10,222 768 7,705 6,464 12,226 1,307 8,789 8,041 14,028 1,508 9,524 9,476 43.86% 21.57% 24.40% 17.85% % US$m 296 549 754 1,102 1,349 US$m 76 141 220 358 399 % % 0.99% 17.92% 1.60% 23.12% 2.15% 28.69% 2.93% 27.38% 2.85% 26.47% Source: VPBank’s annual reports (2019) VPBank’s total asset was nearly double from US$7,698 million in 2014 to US$14,028 million in 2018 Equity was raised from US$423 million to US$1,508 million during the period The bank attracted depositors with value in 2018 recorded at US$9,524 million while lending value was US$9,476 million Total operating income in 2018 was stood at US$1,349 million and profit before tax was US$399 million Although VPBank achieved many remarkable results, the bank faced a shortfall in returns on asset (ROA) and returns on equity (ROE) in 2018 In more detail, ROA of the bank increased from 0.99% in 2014 to 2.93% in 2017 but it dropped to 2.85% in 2018 Similarly, ROE in 2018 was 26.47% lower than ROE in 2017 The comparison between the target and actual result for the financial year of 2018 provided more detail about the symptom of the bank Table 2: 2018 target vs actual performance of VPBank Indicator Total asset Saving Lending Profit before tax Unit Target Actual US$m US$m US$m 15,598 10,486 9,943 14,028 9,524 9,476 US$m 469 399 Source: VPBank’s annual reports (2019) Target vs Actual -10.1% -9.2% -4.7% -14.8% LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com In March 2018, VPBank delivered a business plan for 2018 in which total asset was expected at US$15,598 million but actual result was captured at US$14,028 million or the actual result is 10.1% lower than the target Similarly, saving size and loan size were lower than the target of 9.2% and 4.7% Profit before tax was not achieved the target since it was US$399 million and it was lower than the target by nearly 15% Lending is key symptom since lending is important item of total asset and the lower lending size affects to total asset In addition, saving was decreased but it was not the issue since the bank has good funding resources from Internal Finance Corporation When lending size is decreased, the profit from interest income is decreased From 2014 to 2018, the structure of net interest income of VPBank is presented below: Table 3: Structure of net interest income of VPBank Indicator Interest income Interest expenses Net interest income Net interest income Unit 2014 2015 2016 2017 2018 US$m 585 854 1,145 1,503 1,748 US$m 335 383 468 595 676 US$m 249 471 678 907 1,072 % growth - 88.92% 43.79% 33.88% 18.11% Source: VPBank’s annual reports (2019) It was observed that net interest income of VPBank was increased only 18.11% in 2018 compared to 2017 and it was a big drop compared to 33.88% as growth rate of net interest income in 2017 It was captured that the growth rate of net income has been decreasing and the trend has been continuously since 2016 Moreover, lower net interest income is not by high interest expenses Table above shows that interest expenses in 2018 increased 27.14% and 13.61% in 2017 but interest income increases 31.27% and 16.30% Therefore, it is concluded that the weaknesses in lending activities is the business symptom in the case study of VPBank It is translated to the fact that when the bank has lower lending volume, its net interest income will be decreased and it reduces the bank’s profits since large of income source is from lending activities In the next section, the initial cause-effect map is prepared and it is developed to point out what the main reasons of lower growth rate in lending portfolio of the bank A focus group of discussion was conducted between the researchers and some branch managers of VPBank and the findings are categorized into several causes or explanatory factors LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 1.3 Initial cause-effect map As mentioned earlier, the interviews with focus group of branch managers helps to capture initial causes that leader to lower lending growth of VPBank during 2018 branch managers were participated into the interviews To protect the personal information of branch managers, the researcher codes the name of each branch manager as A, B, C, D, and E For all interviewees, an interview question of what the causes of lower lending size during 2018 was asked and their answers are summarized below Branch manager A said that one of the main reason for lower lending size in 2018 was the credit growth rate cap by State Bank of Vietnam (SBV) He mentioned that SBV only allowed local commercial banks to grow their credit at maximum of 14% However, VPBank was exceeding this level since the third quarter of 2018 He provided the credit growth rate of VPBank was more than 15% after quarter III of 2018 and therefore, the head office team asked him to postpone disbursement activities Branch manager B indicated that his branch faced with the shortfall in unsecured lending due to the new peer-to-peer lending activities in the North of Vietnam He noted that Vietnam has a population of about 96 million, GDP per capita in 2018 is nearly US$2,590 so that Vietnam is considered a potential market for retail banking, and this trend is expected to continue Moreover, a large number of Vietnamese people have not yet access to banking products and services, and will become a source of retail banking In particular, in the era of information technology, retail banking activities will be strongly supported when there are millions of new customers from rural to urban areas and having quick access to financial products through the application of new technology He confirmed that there are new players in Vietnamese financial market with high investment funded from foreign investors in order to provide super convenient unsecured loans to lower income customers Normally, the third and the last quarter of a year was good time for unsecure lending due to the customers wanted borrowing money to purchase some stuffs (i.e smartphone, durable goods) but his branch suffered a big drop in customer demand His sale officers could not achieve the sales target for the third and the fourth quarter because of peer-topeer lending form He also noted that peer-to-peer lending platform is faster compared to traditional banking process as the customers can receive the loan in less than 24 hours while the normal disbursement time of VPBank is about days However, he questioned about the quality of peer-to-peer lending since it has very high interest rate (i.e more than 60% per annum) LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Branch manager C provided the same reason as Branch manager A and B She noted that her branch could not grow lending portfolio due to SBV’s cap and the raise of peer-to-peer lending has been a threat Moreover, she emphasized the overlap in product structure of VPBank Currently, retail banking division provides unsecure lending to individual and household customers SMEs banking division also provides loan to micro-SME customers which is quite similar to household customers VPBank has FECredit which is providing unsecured lending to individual customers She explicated that the bank should review product policy and to combine products from different division into single package She concerned that the overlapping leads to future business growing issues She often faced up with the situation of one customer is categorized as household business and retail customers, leading to different loan booking for two segments Branch manager D has strong experience in banking and finance He mentioned that the demand for banking services has been increasing recently, especially retail banking services Focusing on retailing activities is becoming a trend of commercial banks to diversify revenues, increase business efficiency and reduce operational risks Only in the period of 2016-2018, the income from retailing activities of banks increased every year with a large growth rate He indicated that VPBank cannot compete with bigger banks like BIDV, Agribank and Vietcombank in term of interest rate Generally, the interest rate of VPBank is always higher than BIDV, Agribank, and Vietcombank due to these banks have cheaper sources of funds He took an example of Agribank since this bank is offering the loan package to lower income customers with interest rate is much cheaper than current 25% as unsecure lending interest rate of VPBank BIDV and Vietcombank are providing auto loan and home loan with cheaper interest rate compared to VPBank His concern was further expanding to current operating cost of VPBank was high since the bank has been conducting fast growing business strategy with number of branches and network have been increasing rapidly The bank did not care about the growth quality for the last few years and it might be the issue in the long run perspectives Branch manager E provided another reason for lower lending growth rate She indicated that document processing time in VPBank was higher than other banks He noted that TPBank offered loans to the customers in 1.5 days while her branch’s average document processing time is 3-5 days, depending on lending products A home loan may take more than week to finish and to disburse to the customers She provided another concern related to collections activities of VPBank Some customers went to her branch and claimed for impolite debt collection reminders LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... high lead time for customer complaint resolution They issues will be captured and reflected in final cause-effect map The last interview session was made with branch managers in order to detect... with branches managers on VPBank’s technologies, branch location, service quality, and reputation, final cause-effect map is prepared 15 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com... information by sales teams Lending growth rate decreased Less attractive advertisement content Figure 4: Final cause-effect map Source: Prepared by the research ( PART II – PROBLEM JUSTIFICATION 2.1 Problem