Luận văn tốt nghiệp về đề tài: Nâng cao chất lượng cho vay doanh nghiệp vừa và nhỏ tại Ngân hàng TMCP Ngoại thương Việt Nam Vietcombank Chi nhánh Thành Công. Đề tài được viết bằng Tiếng Anh: Improving the Quality of Lending Activities to Small and Mediumsized Enterprises at Join Stock Commercial Bank for Foreign Trade of Vietnam Thanh Cong Branch và đạt 9.8 điểm.
THEORETICAL BACKGROUND OF LENDING ACTIVITIES
Overview of Small and Medium-sized Enterprises (SMEs)
1.1.1 Definition of Small and Medium-sized Enterprises (SMEs)
Enterprise is an economic organization established in accordance with the provisions of law, with the aim of manufacturing, doing business, or providing services to meet the demand of the economy and society.
In Vietnam, an enterprise is explained by the following concept: “An enterprise is an economic organization with its own name, assets, and transaction office established or registered for establishment in accordance with the law for business purposes” (Clause 10, Article 4 of the Enterprise Law 2020) Depending on the characteristics of the form of organization in different fields, enterprises can be known under different terms: factory, enterprise, company, shop, …
1.1.1.2 Definition and criteria for determining Small and medium sized enterprises.
● Criteria for determining SMEs of some countries in the world
In fact, there are a lot of different concepts of SMEs around the world The main reason for this difference is the criterion used to classify the size of enterprises. Indeed, most countries classify them based on the size of their capital and the number of employees The way used to classify SMEs is also different Some countries distinguish four types of SMEs such as: small enterprises, medium enterprises, large enterprises and very large enterprises Some countries classify enterprises into: micro enterprises (usually household businesses), small enterprises, medium enterprises,large enterprises and extremely large enterprises depending on the characteristics of each country as well as its stage of economic development
According to the World Bank concept, SMEs are small businesses in terms of size capital, labor or revenue SMEs can be divided into three categories based on that size, including micro enterprises, small enterprises and medium enterprises In which, micro enterprises are enterprises with the number of employees under 10 people, small enterprises with the number of employees from 10 to less than 50 people, while medium enterprises have from 50 to 300 employees.
Here is how to classify SMEs in some countries in the world.
Table 1.1 Criteria for determining SMEs of some countries in the world
(Source: Annual report from APEC)
● Criteria for determining SMEs in Vietnam
In Vietnam, according to the provisions of Article 5 of Decree 80/2021/ND-CP dated August 26, 2021 in terms of supporting for the development of SMEs: “SMEs are independent enterprises that are legally registered and operated according to the prevailing laws, and are classified into three levels including micro, small, and medium according to the size of total capital (total capital is equivalent to total assets determined in the enterprise's balance sheet) or the average number of employees per year (total capital) The details as follows:
Table 1.2 Criteria for determining SMEs in Vietnam
(Source: Article 5 of Decree No 80/2021/ND-CP)
The purpose of such classification is both to implement guidelines and policies as well as strengthen the state management regarding supporting SME development in our country because of the important role of SMEs towards the national economy.
1.1.2 Characteristics of Small and Medium-sized Enterprises
According to Nguyenn Van Le (2014), SMEs are different from other types of enterprises because of its distinct characteristics, as follows:
● SMEs are easily established, diversified trades and business areas
Given its limited amount of capital and labor, the relatively small size of the firm has created some advantages for SMEs such as: Ease of entry into the market, the quick ability of capital recovery, ease of establishment SMEs are operating under various forms of enterprises, such as private enterprises, limited liability companies, joint-stock companies, etc under a variety of sectors and professions.
Thanks to its small size, its ability to utilize local labor and resources and the flexibility to meet the market demand, SMEs can grow quickly, and has become a contributing factor to stabilizing social life, promoting economic growth and development.
● Limited management capacity, financial management and competitiveness
Most SMEs in Vietnam share similar traits such restricted production and business activities, a predominance of family firms, and a lack of connections within the sector Therefore, their management capacity is quite weak and they also often work on emotions, leading to the low quality of management.
Low expertise of the business owner and managers has a significant impact on internal management, strategic business planning, particularly in corporate financial management, which results in inefficient capital utilization.
Due to the limited scale and executive management capacity, and weak financial capacity, it is difficult for SMEs to innovate their technology and infrastructure, in order to attract high-skilled labor, leading to low quality product produced and reduced competitiveness in the market.
SMEs are easily established due to their small capital requirements However, their small equity and lack of collateral for money borrowed make banks reluctant to lend to them because of the high risk of lending.
Their financial capacity is limited, so it is very difficult for SMEs to mobilize capital in the market, therefore the majority of SMEs are in short supply.
● SMEs' performance depend on fluctuations of the business environment
Low capital size, seasonal production and business, lack of long-term business strategy, lack of diversified capital leading to the low levels of diversification of business activities and stability of enterprises Therefore, the changes in the macroeconomic and business environment tend to have a significant impact on SMEs' performance.
However, due to its small size, SMEs also have advantages in easily redirecting business and even moving its production site more easily in comparison with larger firms.
1.1.3 Roles of SMEs towards the economy
According to the Vietnam Association of Small and Medium Enterprises, the country has about 800,000 enterprises, of which SMEs account for over 98%. Although SMEs have small size, a lot of studies of experts and managers in Vietnam as well as other countries acknowledged that SMEs play an important role in economic and social development The role of SMEs in socio-economic development are as follows:
● Contributing significantly to economic growth
Not only SMEs in Vietnam but also in other countries contribute to economic growth Statistics show that SMEs contribute about 40% of GDP, 30% to the state budget, 33% of industrial output value and 30% of export value per year on average.
In 2000, SMEs contributed more than 40% of the country's GDP, if cooperatives, households and individual business households are included, this sector contributed to GDP growth of 60% In 2015, the contribution of private enterprises, private sector and individual households remained at 43.2% of GDP As of December 2020, SMEs contributed up to 45% of GDP The SME sector always maintains its economic growth rate even when the economy falls into crisis This contribution of SMEs is significant, and economic researchers as well as managers agree on the need to support the SME sector as the foundation for economic development and social stability.
● Providing a large number of jobs for the population, resulting in increasing incomes for workers, and contributing to poverty alleviation
Theoretical Background of Lending Activities to SMEs in Commercial Banks
1.2.1 Overview of Lending Activities to SMEs
Loan is a temporary transfer of an amount of property or value of the owner to the borrower for a certain period of time, until the payment term, the borrower must return to the owner a certain amount which is greater than the original value (Phan Thi Thu Ha, 2009).
According to the Law on Credit Institutions No 47/2010/QH12, it is stipulated:
“Lending is a form of credit extension whereby the lender assigns or commits to hand over a sum of money to the customer for use for the specified purpose within a certain period of time as agreed upon with the principle of repayment of both principal and interest.”
In a loan relationship, the lender delivers its assets to the borrower for the use of an agreed period of time and trusts that the borrower will repay both principal and interest in full However, when lending, lenders not only rely on trust but also on other conditions such as loan collateral, loan purpose, borrower's repayment ability, etc.
Thus, lending activities for SMEs can be understood as an agreement between the bank and the SME, whereby the bank transfers capital to the SMEs for use on the principle that a larger amount of capital is returned to the bank than the initial capital amount when the due date (Nguyen Van Le, 2014).
1.2.2 Characteristics of Lending Activities to SMEs
Lending to SMEs is a form of financing for SMEs through credit agreement. Subjects of this type of loan are SMEs The characteristics of SMEs loans can be summarized through a number of factors as follows:
-Purpose of using loan: SMEs borrow capital for many different purposes, but there are some main purposes as follows: Borrowing to supplement working capital to finance their production and business activities in the short term , loans to implement investment projects in the medium - long term
-Loan size: The size of loans depends on the business cycle of the enterprise, the size of investment projects or the size of signed contracts The size of the loan is usually not large.
-Sources of debt repayment: Including sources from effective use of loans, depreciation of assets of enterprises and other stable sources that enterprises commit to use to repay loans to banks.
-Duration of loans: Depending on the purpose of using the loan, but in general,
SMEs often borrow capital to satisfy production and business demand in the short term rather than medium and long term loans because of the SMEs’ business cycle are usually short-term and the demand for loans of SMEs is mostly to meet working capital needs, to pay for short-term activities such as purchasing raw materials for production, paying employees' salaries, borrowing loans according to the credit line to meet the purchase and sale transactions with suppliers and customers as well as short- term investment projects.
-Collateral: This is an important condition for the bank to make a decision to lend to an enterprise as well as to decide on the size of the loan In theory, collateral should always be worth more than the value of the loan However, a common situation of SMEs in Vietnam is that they do not have enough collateral for loans or even do not, or if they do, they do not fully meet the requirements of loan collateral as required by the bank.
-Profits in lending to SMEs: Lending in general and lending to SMEs in particular is one of the sources of high profit for banks besides other profitable business activities.
1.2.3 Roles of Lending Activities to SMEs
It is clear that SMEs play an important role in economic development Once lending activities to SMEs are improved, these enterprises can continue their operations and boost the quality of their products, contributing to the GDP of the country In addition, the statistics show that SMEs account for about 98% - a very high proportion among businesses and they are located in not only urban but also rural areas, which helps the country reduce the development gaps between regions. Moreover, when SMEs have more money to operate through receiving credit from banks, they need a large amount of labor Therefore, lending activities to SMEs is considered as a method to create more job opportunities, contributing to reducing the unemployment rate as well as poverty rate.
Lending to SMEs is a profitable activity for banks, which has always been in the bank's business development strategy However, it also brings more risks for the bank A bank which has good performance in lending activities will gain a lot of profits and have enough revenue to partially cover expenses such as capital mobilization costs, operating expenses,employee payment, etc Additionally, lending to SMEs will help banks improve their competitiveness in the market economy, raise their market share, and build their relationship with SMEs, thereby creating favorable conditions for banks to increase capital mobilization and develop in the future.
Commercial banks continue to be the biggest and most significant source of financing for businesses in general and SMEs in particular due to their reputation and capacity to meet the capital needs of businesses in terms of both quantity and duration by utilizing the power of financial leverage and the tax deduction of borrowed capital.SMEs are encouraged to be active and proactive in understanding the market and utilizing information to conduct their business activities successfully because when businesses borrow capital from banks, they are under pressure to repay (including principal and interest) As a result, when using capital, these businesses will have to consider how to utilize that loan source to bring the highest efficiency for themselves.
As a result, it will increase the economic efficiency of projects and plans and bring a lot of profits to business operations In addition, the market economy is constantly changing unpredictably, along with the high need for capital This will make the bank's supervision of loans to SMEs more closely, causing enterprises to constantly look for appropriate and wise solutions, be sensitive to market changes, thereby offering new strategies to be able to compete with other enterprises in the market This has contributed significantly to increasing the competitiveness of SMEs.
The Quality of Lending Activities to SMEs
1.3.1 Concept and Viewpoint Regarding the Quality of Lending Activities to SMEs
In view of customers, the quality of lending services means meeting the expectations and satisfying the diverse needs of customers The evaluation of service quality in lending is through the customer's expectations "before" when using the service, feeling "during" and "after" the process of using the service This view was also proposed by Parasuraman, Zeithaml and Berry (1985, 1988) They mentioned in the definition of service quality as follows “Service quality is the expected gap between products or services and customers' perceptions and feelings when using that product or service Gronroos (1998) also described “Perceived service quality is the difference between expected service quality and perceived service quality”.
According to the European Organization for Quality Control: Quality of a product is the ability of a product or service to satisfy the required needs of the user.
According to Philip B Crosby in his book "Quality is something for free" mentioned: "Quality is conformance to requirements".
According to ISO 9000-2000: Quality is the degree to which a set of inherent characteristics fulfills requirements.
Although the concepts of the quality of lending services in the banking industry are still different and inconsistent, there is a common understanding that the quality of lending services is "the gap between customers' service expectations and their perception of service quality." after using the service.
Thus, it is clear that “The quality of SMEs’ lending is the timely and adequate response to the capital needs for SMEs, in line with the bank's capabilities and local economic development goals This loan source will be utilized in the business production process in the most efficient way, generating a larger amount of money to fully repay the bank with both principal and interest on time The quality of lending to SMEs is evaluated by the efficiency of the financing and the ability to collect principal and interest That is a proportional relationship: “ the higher the quality of the loan, the higher the efficiency and debt collection ability and vice versa” The quality of SMEs lending is also evaluated in the bank's ability to expand financing (lending, hire- purchase, etc) in accordance with the needs of customers A product cannot be considered as high quality when it does not meet the needs of its buyers.
According to the above definition, it can be seen that the quality of SMEs loans is assessed from three perspectives: banks, SMEs (customers) and the economy From the perspective of customers' benefits, the quality of lending is the satisfaction of customers' reasonable requirements with reasonable interest rates, loan terms, and simple procedures Regarding commercial banks, the quality of lending is reflected in the scope, extent and credit limit which must be suitable with the ability of each bank while still ensuring profits, thereby improving the competitiveness of themselves in the market For the economy, the quality of lending must contribute to creating social efficiency such as serving production and business, creating jobs for the population, increasing products for society, and promoting economic growth Because of the limited time and resource, the scope of the thesis is only based on the bank's point of view.
1.3.2 Criteria Evaluating the Quality of Lending Activities to SMEs
Credit Turnover of SMEs = Revenue Debt Collection of SMEs
Average Outstanding Loan of SMEs Beginning Outstanding Loan+Ending Outstanding Loan
This ratio shows how many times the bank has given SMEs loans In other words, the capital that banks give to SMEs has been used in the business cycle of enterprises, and the higher the capital turnover, the faster the loan from banks has turned Fast credit turnover implies that the capital turnover rate of SMEs is high, SMEs operate effectively with the bank's loan capital, reflecting good management in lending activities for SMEs as well as good quality of credit On the contrary, the low ratio indicates that there may be problems in the capital recovery process, thereby the bank will soon take measures to remind and urge customers, and promptly limit possible risks This is also the basis for the bank to decide whether to lend in the next time or not.
Loan sales of SMEs is the total amount of money the bank has lent to enterprises during the period The loan sales of SMEs reflects the results of the bank's loan expansion and credit growth If other factors are fixed, the higher the loan sales, the better the bank's loan expansion On the contrary, the decrease in loan sales while other factors are fixed implies that the bank's lending activities are not good.
SME Loan Sales in Total Loan Sales = Loan Sales of SMEs
The proportion of loan sales to SMEs implies how many percent of loan sales in the loan structure The higher this ratio, the higher the position of SMEs in total lending In other words, the bank focuses on lending to SMEs and meets the needs of businesses, showing signs of good loan quality.
Total outstanding loan is an indicator reflecting the amount of money the bank provides to the economy at a point in time Total outstanding loans include short-term, medium-term and long-term loans The low total outstanding loan shows the bank's weak performance, inability to expand the lending, their poor marketing performance, and the low qualifications of their staff However, it does not mean that the higher this ratio, the higher the loan quality because the bank has to bear lending risks from those loans The indicator of total outstanding loans only reflects the credit size of the bank and the prestige of the bank towards the enterprise.
- Short-term Outstanding Loan = Short−term Outstanding Loan of SMEs
- Medium and Long term Outstanding Loan =
Medium∧Long term Outstanding Loan of SMEs
Total Outstanding Loan of SMEs
-Outstanding SMEs’ Loan in Total Outstanding Loan
SMEs Outstanding Loans in Total Outstanding Loan = Outstanding Loan of SMEs
The ratio of outstanding SMEs’ loans in total outstanding loans implies the proportion of SME loans in the total outstanding loans of the bank In other words, this indicator reflects the structure of the bank's outstanding loans Of the total outstanding loans, outstanding loans to SMEs will account for how many percent Analyzing the structure of outstanding loans will help the bank know what type of lending needs to be promoted to improve their lending activities.
SMEs Loan Profit in Total Loan Profit = Loan Profit¿SMEs ¿
This indicator indicates the proportion of profit from lending activities to SMEs of commercial banks in total loan profit in general This statistic highlights the important role of SMEs lending activity in generating profit for the bank The more profit the bank generates from lending to SMEs, implying that the more effectively it has managed to increase outstanding loan, recover and handle debt The higher the ratio, the better the quality of SMEs loans, the more efficient the bank's business operations and vice versa.
SMEs’ Debt Collection = Revenue Debt Collection of SMEs
This indicator evaluates the quality of loans to SMEs It reflects that in a certain period of time, with a certain amount of lending to SMEs, how much loan sales the bank will get The higher this ratio, the more efficient the bank's capital recovery and vice versa.
According to Circular No 11/2021/TT-NHNN dated July 30, 2021 issued byState Bank of Vietnam (SBV), debts are classified into 5 groups:
● Group 1: Standard debts/loans includes unmatured debts/loans rated likely to be fully recovered in terms of both principal and interest by due dates; debts/loans that are less than 10 days overdue and are rated likely to be fully recovered in terms of delinquent principal and interest, and likely to be fully recovered in terms of the remaining principal and interest by due dates.
● Group 2: Debts/loans needing attention includes debts/loans which are up to
90 days overdue;debts/loans with first-time adjusted repayment terms that are unmatured.
● Group 3: Sub-standard debts/loans includes debts/loans which are from 91 to 180 days overdue; debts/loans with first-time extended repayment terms that are unmatured; debts/loans on which interest is exempted or reduced due to the borrower's inability to pay in full as agreed upon; debts/loans falling within the recovery periods under inspection and examination conclusions; debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered within a period of less than 30 days from the effective dates of recovery decisions.
● Group 4: Doubtful debts/loans includes debts/loans which are from 181 days to 360 days overdue; debts/loans with first-time rescheduled repayment terms that are up to 90 days past due from the first-time rescheduled maturity dates; debts/loans with second-time rescheduled repayment terms that are unmatured; debts/loans that need to be recovered under inspection and examination conclusions, but are not yet recovered in up to 60 days after expiry of the recovery deadlines; debts/ loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered in 30 and 60 days from the effective dates of recovery decisions.
● Group 5: Debts/loans likely giving rise to loss includes debts/loans that are more than 360 days past due; debts/loans with first-time rescheduled repayment terms that are at least 91 days past due from the first-time rescheduled maturity dates;debts/loans with second-time rescheduled repayment terms that are past due from the second-time rescheduled maturity dates; debts/loans with third- or more-time rescheduled repayment terms; debts/loans that need to be recovered under inspection and examination conclusions, but are not yet recovered in more than 60 days after expiry of the recovery deadlines; debts/loans that need to be recovered under premature debt recovery decisions of credit institutions or foreign bank branches due to borrowers’ breach of agreements with them, but are not yet recovered in more than
SITUATION OF THE QUALITY OF LENDING ACTIVITIES
Overview of the Joint Stock Commercial Bank for Foreign Trade of
2.1.1 History of Establishment and Development
2.1.1.1 Joint Stock Commercial Bank for Foreign Trade of Vietnam
● Name of business: Joint stock commercial Bank of Foreign Trade of Vietnam.
● Address: No.198 Tran Quang Khai Str., Ly Thai To Ward, Hoan Kiem Dist., Hanoi, Vietnam
● Website: www.vietcombank.com.vn
Vietcombank was originally the Foreign Exchange Bureau under the National Bank of Vietnam established according to Decree No.443/TTg dated January 20th,
1955 of the Prime Minister In 1961, the Foreign Exchange Bureau was renamedForeign Exchange Department under The State Bank of Vietnam pursuant to DecreeNo.171/CP dated October 26th, 1961 of the Council of Ministers This unit simultaneously carried out advisory functions, performed policy research on foreign exchange control and engaged in international banking operations This was a step forward, paving the way for the establishment of specialized banks and foreign banking operations later on.
To conform to international practices on foreign banking operations, on October 30t, 1962, the Council of Ministers issued Decree No 115/CP on the establishment of the Bank for Foreign Trade of Vietnam - tasked with foreign exchange trading, international payments, international credit, and foreign trade loans The Bank was also tasked with participating in the management of foreign exchange; contributing to monetary and public property protection; enhancing and expanding economic, political relations and cultural exchanges with foreign countries.
After a preparation period, the Bank for Foreign Trade of Vietnam (Vietcombank) was officially introduced and put into operation as a banking entity specialized in foreign trade Vietcombank had 2 major “missions” Internally, Vietcombank provided advisory opinions to the State Bank of Vietnam on management of foreign exchange Externally, it engaged in monetary trading, extended credit and carried out foreign banking operations such as import-export payments, loan payments and international aid Vietcombank also provided banking services for international organizations in Vietnam and processed money transfer, cheque clearing transactions with foreign countries, etc.
During its 60 years of growth and development, Vietcombank has contributed significantly to the stability and growth of the national economy, upholding the role of a major foreign trade bank in facilitating efficient domestic economic growth as well as expanding influence in the regional and global financial community Originally a specialized bank for foreign trade, Vietcombank nowadays has become a universal bank, providing customers with a wide range of leading financial services in international trade; from traditional services such as money market, capital market, credit, project financing, etc., to modern banking services such as forex trading and derivatives, card services, e-banking, etc.
As at December 31, 2021, Vietcombank has 121 Branches with 476 transaction offices operating in 56/63 provinces and cities across the country: 28 branches in theNorth (23.1%); 15 branches in Hanoi (12.4%); 16 branches in Northern-Central(13.2%); 14 branches in the Southern-Central and Highland Regions (11.6%); 18 branches in Ho Chi Minh City (14.9%); 14 branches in Eastern-Southern Region(11.6%); and 16 branches in the Western-Southern Region (13.2%) As at December
31, 2021, Vietcombank maintains correspondent relationships of 1,173 correspondent banks in 95 countries and territories worldwide (Vietcombank’s Annual Report 2021).
With the high efforts to overcome all difficulties and challenges in order to continue the heroic tradition of the 60-year history of establishment and development, Vietcombank has always been on the progress to achieve sustainable development to become a leading bank in Vietnam, and maintain its leading position in many important fields of activity such as: Import and export payment; trading foreign currencies and cards; remittances; as well as targeting important indicators on: equity size; total assets; raise capital; loan; profit.
Vietcombank is continuously voted as "Best Bank in Vietnam '' by prestigious organizations in the world Vietcombank is also the first and only bank in Vietnam getting the Top 500 World Banks according to the voting results announced by The Banker Magazine; the only Vietnamese bank in the Top 30 strongest banks in the Asia-Pacific region according to The Asian Banker; is the only representative of Vietnam in the Top 1,000 largest listed companies in the world ranked 937th by Forbes Magazine In 2022, Vietcombank was included in the list of "100 best places to work in Vietnam'' (by Anphabe and Intage company) Vietcombank was voted 1st in the banking industry, 2nd in the whole Vietnamese market, maintaining its leading position for 5 consecutive years as a bank with the best working environment in Vietnam.
With wisdom and enthusiasm, Vietcombank staffs have always been strived to build Vietcombank to develop more and more sustainably, with the goal of maintaining its position as the No 1 bank in Vietnam by 2025; become one of the 100 largest banks in Asia; one of the 300 largest banking and financial groups in the world, one of the 1,000 largest listed companies in the world, making great contributions to the development of Vietnam.
2.1.1.2 Joint Stock Commercial Bank for Foreign Trade of Vietnam - Thanh Cong Branch
● Name of business: Joint stock commercial Bank of Foreign Trade of Vietnam - Thanh Cong Branch
● Address: No 1 Thai Ha, Trung Liet ward, Dong Da district, Hanoi city
Joint Stock Commercial Bank for Foreign Trade of Vietnam - Thanh Cong Branch (also known as Vietcombank Thanh Cong) was established under Decision No 525/QD/TTCBDT of the Chairman of the Board of Directors of Bank of Vietnam and officially operated since on December 21, 2001 as a Level II branch under the Level I branch - Vietcombank Hanoi
Vietcombank - Thanh Cong branch was born with the expectation of bringing success to Vietcombank The name "Vietcombank Thanh Cong" is not only a name, but also a goal of the efforts of all officers and employees in the branch Entering business activities with many difficulties, but with the attention and direction of the Central Bank of Vietnam and Hanoi branch, Vietcombank Thanh Cong has gradually matured and grown stronger, creating a position and trust for a large number of customers in the Hanoi capital.
By the end of 2006, after nearly 5 years of operation, Vietcombank Thanh Cong had achieved many outstanding achievements, on par with other first-class branches of Vietcombank's banking system Therefore, on December 8, 2006, the Chairman of the Board of Directors of Vietcombank signed Decision No 914/QD/TCCB-DT on the establishment of a successful Vietcombank branch on the basis of upgrading from a level II branch to a new Level I branch from January 1, 2007 Since then, Vietcombank Thanh Cong has performed independent accounting and is a member directly under Vietcombank.
After more than 21 years of operation, with the motto of taking technology as the foundation, human resource development is the top priority, focusing on saving costs and improving management and strategy levels, from only 31 employees on the first day of establishment, the branch now has more than 200 employees In terms of human resources, over the past time, Vietcombank Thanh Cong has been flexible in the use of staff, supporting young talent to hold management positions Up to now, the leadership team at the departmental level of the branch is relatively young in the system They are all qualified and have a sense of responsibility in their work The rejuvenation of the workforce in recent years has created conditions for VietcombankThanh Cong to add new human resources and increase its ability to quickly access new information technologies, on that basis creating many new products and modern banking services, expanding the business scale of Vietcombank Thanh Cong and contributing to promoting the capital's economic development.
In terms of business results, Thanh Cong Branch has achieved many significant achievements in many consecutive years, being rewarded as the unit that successfully completes the task and the leader in business performance in the whole system of
Vietcombank The branch has made many breakthroughs with a customer network of nearly 300,000 businesses and individuals in the area.
2.1.2 Organizational Structure of Vietcombank - Thanh Cong Branch
Vietcombank Thanh Cong branch currently has its branch office at No 1 Thai Ha,
Trung Liet ward, Dong Da district, Hanoi city, where the Board of Directors and professional departments work at The Executive Board of Vietcombank - Thanh Cong
Branch includes 1 Director and 3 Deputy Directors in charge of different professional areas Currently, the organizational structure of Vietcombank - Thanh Cong Branch is divided into 8 specialized departments in the branch office and 8 affiliated transaction offices located in different districts throughout Hanoi city As of December 31, 2022, the total number of employees of the branch is 208 staffs Structure details are as follows:
Figure 2.1 Organizational structure of Vietcombank - Thanh Cong Branch
Figure 2.1 Organizational structure of Vietcombank - Thanh Cong Branch
(Source: Internal reports from Vietcombank - Thanh Cong Branch)
7 Transaction Office: Trung Hoa – Nhan Chinh, Lang Ha, Tay Ho Tay, Ham Nghi, Van
Phuc, Duy Tan, My Dinh
2.1.2.2 Functions of Departments in Vietcombank - Thanh Cong Branch a Corporate Banking Department
Functions: A professional department that directly deals with wholesale customers, provides banking products and services, performs and manages credit operations under the guidance of Vietcombank In addition, the department also has the function of advising the Branch Manager, summarizing and analyzing the business performance of the Branch The target customers of the department are wholesale business customers (large enterprises, FDI companies - foreign direct investment companies, financial institutions).
- Exploiting capital in VND and foreign currencies from businesses
General Assessment of the Quality of Lending Activities to SMEs at the
Despite suffering from the negative impact of Covid-19 in general as well as fierce competition with other banks in the same region, Thanh Cong branch achieved some achievements in lending to SMEs in the period 2020-2022, specifically as follows:
● SMEs outstanding loan increased with the growth rate of 8.29% in 2021 and 10.26% in 2022, in which the growth rate of SMEs short-term outstanding were 12.68% and 12.74%, and that of SMEs medium and long-term outstanding loan were 0.45% and 5.29% over three mentioned years
● SMEs loan sales increased with the growth rate of 3.47% in 2021 and 11.75% in 2022
● SMEs loan profit increased with the growth rate of 7.55% in 2021 and 19.93% in 2022
● SMEs debt collection revenue increased with the growth rate of 7.82% in
● SMEs customers using loan services increased with the growth rate of 4.84% in 2021 and 15.38% in 2022
● SMEs bad debt ratio was maintained below 1%
Given the challenges brought on by the Covid epidemic, there had still been an increase in the number of SMEs clients, SMEs outstanding loan, SME loan sales,SMEs loan profit and SMEs debt collection and SMEs bad debt ratio was below 1% during the past three years These successes are attributable to the branch leadership's careful guidance and management, as well as the efforts of all workers in attractingSMEs customers Overall, lending activities to SMEs at the branch was relatively stable, with no negative growth during the Covid-19 period, which is considered as a good sign for the branch's SMEs lending activities, contributing partly to achieving the targets of the entire Vietcombank system.
2.3.2.1 Limitations of SMEs lending activities at the branch
Overall, the branch's SME credit quality in 2022 has improved significantly, but those above improvements are still not commensurate with the branch's existing resources The branch still faces some limitations as follows:
Small scale of lending activities to SMEs: Although SMEs loan sales, SMEs outstanding loans and the number of SMEs using loan services increased over years, the growth rate of those criteria at the branch was still low in comparison with that of other branches under Vietcombank Both SMEs outstanding loan and SMEs loan sales witnessed the growth rate below 12% over years Even the growth rate of SMEs loan sales in 2021 was less than 4% and the number of SME customers accessing credit in
2021 was just increased by less than 5%.
Small proportion of SMEs lending in the total of the branch: The ratio of SMEs outstanding loans, SMEs loan sales and SMEs loan profit were still small compared to the total number of the whole branch, accounting for less than 4%, 2% and 9% respectively during the inspection years The proportion of SMEs outstanding loans, SMEs loan sales and SMEs loan profit even gradually decreased over the years, showing that SMEs lending activities had not been focused on by the branch and the branch had not met the goals oriented by the Head office towards SMEs.
Limited credit quality management: Although SMEs' bad debt has been managed under 1% which is considered an acceptable level but an absolute value of bad debt still increased over years Besides, the decrease in SMEs debt collection ratio in 2022 shows that debt management is still not pretty tight Moreover, the SMEs overdue debt ratio and SMEs non-performing loan to overdue debt ratio increased in
2022 presents potential risks in lending activities to this segment.
2.3.2.2 Reasons for limitations a Subjective reasons
Inadequate market research: Vietcombank - Thanh Cong branch has been unable to implement market research effectively, which resulted in a lack of knowledge about the socioeconomic context and the current market in the operating areas of the branch The main reason is because: the branch has not conducted market research much though, especially the SMEs segment, and has not established a department specializing in market research.
Limited SMEs customer network: The branch's SMEs customer network has not been expanded, not commensurate with the branch's scale This can be explained by some reasons including: the branch has not implemented a unified and methodical strategy of finding new customers; the departments responsible for customer acquisition and loan appraisal are still not separate; the reward and penalty mechanisms to create incentives in introducing customers to the branch's loans are not maintained regularly, leading to the branch's customer relationship officers not investing more effort and being proactive to attract more potential customers; the branch has not aggressively deployed customer search channels such as strengthening product marketing communication or collaborating with SMEs associations; the number of credit officers of the branch are still low compared to other branches of the same scale or branches under Vietcombank.
Lack of skilled employees: most of the customer relationship staff working at the branch are still young, therefore not having enough experience and sales skills, making it challenging to develop a SMEs customer network.
Strict lending mechanisms and policies for SMEs: The lending policy for the
SMEs segment is still relatively cautious and strict, especially in the regulations on collateral The main reason comes from the business side because the financial transparency is not high, the truthfulness of the vouchers and invoices provided by the SMEs is not verified Besides, in the context of restructuring banking operations, Vietcombank is increasingly promoting the application of risk management standards according to international practices, thereby requiring more and more transparency in fianancial information as well as the customer's collateral Therefore, it is not possible to implement solutions on lowering credit conditions This is also the operational strategy of the branch: not lowering lending standards to pursue profits, so the appraisal of SMEs loans is also stricter.
Inadequate promotional marketing for SMEs products: The branch has not promoted many marketing programs to advertise products to customers, especially SMEs The reason is that the branch needs to get approval from the Vietcombank Head office regarding the funding for advertising programs and marketing content in order to ensure brand identity , avoiding negative influence on the brand's image.
Not paying too much attention to the SMEs segment: More than 70% of the branch's outstanding loans still belong to large state-owned enterprises and large corporations, especially steel, coal and electricity enterprises instead of the SMEs segment This reduces the sustainability of the bank's lending activities because investing too much capital in a certain group of customers poses many risks in the case of dealing with modifications in government policies or fluctuations in market risk, etc.
Limited access to SMEs information: The access to information about SMEs is still limited because until now, the branch still mainly exploits information through directly researching businesses and through the Credit Information Center (CIC). Moreover, the branch has not been able to exploit to the fullest extent information of SMEs from associations, industries, tax authorities, customs authorities, etc. b Objective reasons
Economic impact of the Covid-19 crisis and trade tensions: The COVID-19 pandemic had a great impact on the production activities of many businesses, mainly SMEs, which had to reduce their business scale or even have to suspend their operations Along with challenges caused by trade tensions, the COVID-19 epidemic negatively impacted the SMEs community because this type of businesses have limited financial capacity, human resources and market share According to the assessment of economic experts, the SMEs community is the most vulnerable object with a great risk of bankruptcy In addition, Covid - 19 pandemic, along with trade tension between USA - China and Nga - Ukraine brought some challenges to economic growth during the inspected years In particular, the Covid-19 pandemic resulted in significant decrease in the good consumption, and disrupted the supply chain, making input materials scarce and more expensive This made it difficult for SMEs to repay their loans because they were not able to rotate their capital quickly. Therefore, they can be considered as high-risk customers regarding lending activities in the view of the banks, leading to banks being reluctant to allow SMEs to access the credit The above reasons partly explain the low growth and scale of the branch's loan sales and outstanding loans, along with the increase in SMEs bad debt ratio over years.
SOLUTIONS AND RECOMMENDATIONS TO IMPROVE THE
Development Orientation of Lending Activities to SMEs at the Joint Stock
3.1 Development Orientation of Lending Activities to SMEs at the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Thanh Cong Branch in the short-term period (2023 - 2025)
SMEs lending is an activity that Vietcombank puts priority on from now until
2025, contributing to achieving the goal of becoming the No 1 retail bank in Vietnam. The whole Vietcombank system has set a target of 10% growth in outstanding loans to SMEs In addition to expanding the scale of lending activities to SMEs, Vietcombank set a goal that branches need to control credit risk effectively by continuing to keep the bad debt ratio below 1%.
In 2023, Vietcombank - Thanh Cong branch will continue to invest in human resources to designate high-skilled leaders to manage transaction offices with an aim of increasing the scale as well as quality of SMEs lending activities after the unsatisfactory results of the last 3 years According to the business plan in 2023 provided by the branch, the branch expects total outstanding loans to SME to grow by 20%, reaching VND 963 billion and the non-performing loan ratio below 1.5% in the next year.
3.2 Solutions to Improve the Quality of Lending Activities to SMEs at the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Thanh Cong Branch
3.2.1 Enhance the effectiveness of customer service
Customers play a significant role in the growth of the bank's lending activities. However, Thanh Cong branch currently has not been able to attract the number of SMEs customers commensurate with the level of development of this local target customer as well as Vietcombank's brand position in the market Therefore, it is necessary to increase the effectiveness of customer service to fit the current situation of the branch.
3.2.1.1 Enhancing the customer care and Increasing the retention of traditional customers
Maintaining your regular customers is essential, especially in light of the fierce competition among commercial banks If the bank's services are good, its existing customers can help it attract new customers in addition to helping it maintain earnings and market share In order to maintain customers who have a credit relationship with the bank, particularly those who have a stable financial status as well as a solid payment history Here are some recommendations for the branch:
Improving SMEs customer database: the branch should divide SMEs customers into different groups according to their frequency of use and customer value, it will help the bank determine the customer service level and provide different lines of credit, incentive fees, and interest rates for each customer.
Enhancing the quality of lending services to customers: The branch should improve the capacity of meeting the requirements from the customers such as: procedure time, consulting quality, financial security, etc to improve the relationship between the customer and the bank.
Establishing SMEs Research and Development Department: Currently, research and orientation for investment activities at the branch must follow the general direction of Vietcombank's headquarters However, the industry reports created by Vietcombank occasionally lack information, do not keep up with market changes as well as being suitable with local economic characteristics The research and development of customers at the branch have not been systematically operated As a result, the branch needs to establish a specialist banking research and development committee with the separate function of researching customer needs, market fluctuations, competitor’s operating policies, and other factors This will help the branch management and sales departments get an overview of the general economic situation in the area of operation, thereby promptly making adjustments for specific policies for each customer to gradually improve the competitiveness of the bank.
Utilizing internal resources at the branch: People are always the key factor of any commercial activity Therefore, customer service is not only the responsibility of some departments specializing in credit provision, but also needs the cooperation of all positions at the bank The 208 employees will help to bring more SMEs customers to the branch through their personal connections In order to motivate each employee, the branch must also develop a reward and punishment mechanism linked to labor productivity and efficiency from consumer recommendations Employees are currently evaluated monthly in accordance with a set of criteria for assessing the quality of work (KPIs) Accordingly, all income from salary and quotient of all employees will be attributed in points based on the volume and quality of work completed By assigning the quota of introducing SMEs borrowers to each employee in the whole branch within a specific period of months, quarters, etc Employees who complete the target will be awarded a certain number of points and the employees who do not will receive deducted points, which will affect each person's income and motivate all employees to join together in finding customers instead of just credit officers as at present.
Developing marketing campaign: The branch needs to implement more promotional campaigns for SMEs products in the social media, along with organizing more marketing events such as seminars or customer conferences, thereby being able to directly introduce the benefits of their products and services to SMEs customers and exploit the benefits of word- of-mouth marketing as well as make a brand stand out from the competitors
Developing more training programs for the employees : The branch should establish more training courses for the staffs, especially courses specializing in sale and marketing skills, thereby the employees can use marketing knowledge to know the insight of the customers and then use sale skill to persuade more SMEs enterprises to access to loan services
Improving proactive communication with SMEs' associations and organizations: Capturing data and information related to SMEs through associations and administrative agencies will help the branch to be able to better understand the characteristics of each industry and business type Therefore, the branch can be aware of the challenges that SMEs are facing currently in order to introduce appropriate services for SMEs’ needs.
3.2.2 Improve loan conditions regarding receiving collateral
Currently, Vietcombank's SME lending restrictions on collateral are still rather strict, making it challenging for SMEs to obtain bank loans As a result, the ThanhCong branch may soon contemplate offering loans to SMEs with a more flexible collateral ratio based on each customer's credit rating In order to limit credit risks for the bank, the grant of unsecured credit without collateral should only be applied to meet the temporary short-term capital needs of the business used for some expenses such as paying wages and salaries, pay insurance, etc with an aim of assiting SMEs to pay for their daily operations When approving for giving loan without requiring collateral or just receiving only a portion, the branch need to focus more on credit file appraisal and just giving credit once SMEs meets some mimum requirements such as:
- According to Vietcombank's internal credit rating system, a customer with a credit rating of A or higher, along with never having a history of debt from group 2 (debts/loans needing attention) or higher at credit institutions.
- The enterprise need to provide enough necessary invoices, vouchers and documents to demonstrate reasonable production costs.
- The detailed business plan provided by the enterprise should be assessed by the bank as feasible
- The enterprise has good financial and administrative capacity
- The products and services of the enterprise is developing strongly and are assessed by the bank as having potential in the future
- The enterprise has a payment account at a bank and conducts regular transactionsThe bank can control the operating cash flow of the enterprise to collect debt as soon as the business has a source of income
Additionally, the branch can adjust the regulations on acceptance of other types of collateral (such as equipment, machine, sales contract, etc) besides high-liquidity assets (mostly real estate), giving SMEs more flexibility when it comes to mortgage collateral, however SMEs still have to meet the minimum requirements of the bank.
3.2.3 Controlling the quality of lending activities to SMEs
Recommendations to Improve the Quality of Lending Activities to SMEs
3.3.1 Recommendations to the State Bank of Vietnam
First, SBV needs to issue regulations on monetary policy management in a stable and long-term orientation, ensure the goal of stabilizing the macro-economy and curb inflation, creating favorable conditions for commercial banks as well as businesses to be proactive in planning their operational strategies.
Second, it is necessary for SBV to strengthen communication regarding implementation of monetary and foreign exchange policies to increase the public and investors' confidence in the consistency of the policies issued by the government, thereby enhancing the stability of the financial system Especially in managing interest rates, SBV needs to create confidence in a medium-term stability so that commercial banks can provide long-term and stable interest rate loans to businesses SBV needs to continue to keep the interest rate level at a stable and low level to support SMEs, and maintain the ceiling of lending interest rates for priority areas due to business activities still facing many difficulties.
Third, SBV should issue clear, timely regulations and guidelines for commercial banks to follow when implementing preferential policies for priority industries in general and SMEs in particular These guidelines should be issued to each commercial bank separately to ensure that the banks' implementation is synchronized to achieve the best efficiency.
Fourth, SBV needs to establish policies to further develop the finance leasing form in the system of commercial banks to assist SMEs boost production capacity under conditions of constrained capital, without suffering from blocked funds in fixed assets, helping SMEs quickly innovate their technology.
Fifth, a credit guarantee fund for SMEs needs to be introduced in order to support these businesses in meeting the bank's loan conditions.
Sixth, SBV should encourage commercial banks to use corporate credit assessment techniques to improve their capacity to make unsecured loan commitments.
Seventh, it is crucial to invest capital and human resources to improve the quality of the credit information system by modernizing technology, regularly collecting and processing information so that information is updated as quickly as possible in order to bring this information center into a useful hedging data store for the credit activities of the entire banking system.
Last but not least, strengthening inspection and supervision of commercial banks to ensure that they properly adhere to regulations and policies of SBV as well as the law, and quickly identify their flaws and limitations in order to take corrective action in order to ensure transparent credit operations.
3.3.2 Recommendations to the Joint Stock Commercial Bank for Foreign Trade of Vietnam
Vietcombank is the direct management agency of the Vietcombank - Thanh Cong branch, so the regulations and guiding documents issued by Vietcombank have a great influence on the business activities of all branches Therefore, in order to improve the quality of SME lending activities at Vietcombank - Thanh Cong branch in particular and the whole Vietcombank in general, some recommendations are proposed, as follows:
In order to help SMEs access loans conveniently, Vietcombank must first develop credit policies that focus on improving conditions and streamlining procedures in terms of lending activities The introduction of preferential methods for SMEs enables branches to take a more active role in evaluating loans and making decisions.
Second, Vietcombank should build a database system and regularly update the information of important economic sectors and areas, especially SMEs more frequently in order to provide information for branches in credit activities In addition, Vietcombank also needs to update specialized software for credit appraisal, helping bank staff to query information quickly and effectively, shortening appraisal time as well as improving credit quality.
Third, in order to improve the quality of its SMEs loan operations,Vietcombank must establish a team in charge of such operations This committee will update and process information towards SMEs, along with supporting SMEs lending activities at branches.
Fourth, Vietcombank needs to strengthen the supervision of branches The inspection must be done on a regular basis to make sure the branch is adhering to the regulations as well as the assigned goals In addition, the regular inspection helps to detect timely violations and difficulties that the branch is facing in order to take collaborative action to address them.
Fifth, Vietcombank could enhance lending to SMEs by utilizing low-cost capital sources such as funding from the government or through collaboration with international financial institutions.
Sixth, Vietcombank should lessen the amount of tasks that credit officers have to do In some Vietcombank branches, a credit officer is still in charge of a variety of duties, including finding customers, compiling dossiers of appraisal reports, appraising assets, preparing loan agreements, as well as disbursing, overseeing, and urging consumers to pay their debts Post-lending supervision is ineffective at Vietcombank since only one credit officer handles such a significant quantity of work, affecting the process of monitoring and managing loan quality at Vietcombank Therefore, in order to limit and control risks more carefully and effectively in the future, Vietcombank needs a new management model that divides those tasks into numerous stages by establishing a separate department.
Finally, Vietcombank should actively conduct communication programs to promote its services, goods, and brand image in order to draw more customers’ attention.
In conclusion, SMEs, like all other business types existing in Vietnam's market economy, are progressively playing a crucial role However, SMEs frequently have significant financial difficulties, particularly as they strive to restore their production and operations amid the devastating effects of the Covid-19 pandemic Since a bank's capital is the most cost-effective, safe, and reliable source of funding for SMEs, the bank's lending activities are therefore vital.
Additionally, SMEs financing operations need to be promoted due to the dynamism and rapid growth of SMEs in terms of quantity and quality Banks must pay close attention to and support SMEs, especially in context with the current economic situation Furthermore, banks' primary priority is always loan quality Achieving the objective of being the top retail bank in Vietnam would be made possible thanks to the high quality of SMEs loans, which will enable Vietcombank in general and the Thanh Cong branch in particular to maximize added value.
The thesis researched and analyzed the quality of lending activities to SMEs at Vietcombank - Thanh Cong branch The thesis includes three main parts, as follows:
First, the thesis summarized and clarified the general theoretical backgrounds of SMEs lending activities and the quality of SMEs lending activities at commercial banks.
Second, the thesis evaluated and identified the current situation of lending activities to SMEs as well as the quality of lending activities to SMEs at Vietcombank
- Thanh Cong branch, thereby finding limitations in loan quality management towards SMEs at the branch.
Last, based on limitations and causes found, the thesis proposed some solutions and recommendations with an aim to improve the lending activities to SMEs at Vietcombank - Thanh Cong branch.
However, because of limited knowledge and time, the thesis still has many limitations Therefore, I look forward to receiving comments from the teachers in the school's thesis grading committee to develop my thesis more strongly and clearly
1 Christian, G (1998, 5 4) Marketing services: the case of a missing product Journal of Business and Industrial Marketing, 13, 322-338 10.1108/08858629810226645