Factors affecting credit decisions for small and medium sized enterprises in vietinbank – hanoi branch

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON FACTORS AFFECTING CREDIT DECISIONS FOR SMALL AND MEDIUM-SIZED ENTERPRISES IN VIETINBANK – HANOI BRANCH CAT BAO CHAU ID No: 21071818 Intake Supervisor: Dr Tran Ngoc Mai September 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014126258271000000 TABLE OF CONTENTS CHAPTER 1: INTRODUCTION 1.1 Rationale 1.2 Research Objectives 1.3 Subjectives and Scope 1.3.1 Research subjective 1.3.2 Research scopes 1.4 Methodology 1.5 Structure: CHAPTER 2: LITERATURE REVIEW 2.1 Small and medium-sized enterprises 2.1.1 Small and medium-sized enterprises definition 2.1.2 Characteristics of small and medium-sized enterprises 2.1.3 The role of SMEs in the economy 2.2 Factors affecting credit decisions for small and medium-sized enterprises11 2.2.1 Consideration elements in credit decision-making process concerning small and medium sized enterprises 11 2.2.2 Factors affecting credit decisions for small and medium-sized enterprises 12 2.3 Research Background 19 2.4 Research Gap 21 CHAPTER III: FACTORS AFFECTING CREDIT DECISIONS FOR SMALL AND MEDIUM-SIZED ENTERPRISES AT VIETINBANK HANOI BRANCH IN CURRENT CONTEXT 22 3.1 Introduction of Vietnam Joint Stock Commercial Bank for industry and trade – Hanoi Branch 22 3.1.1 The establishment and development of Vietnam Joint Stock commercial bank for industry and trade – Hanoi Branch 22 3.1.2 Business performance of Vietnam Joint Stock Commercial Bank for Industry and Trade – Hanoi Branch 23 3.2 Credit services for small and medium-sized enterprises customers at vietinbank hanoi branch in current context 28 3.2.1 Current credit for small and medium-sized enterprises customers 28 3.2.2 Current non-performing loan of SMEs customers at VietinBank Hanoi Branch 29 3.3 Factors affecting credit decisions for small and medium-sized enterprises customers at vietinbank hanoi branch in current context 30 3.3.1 Descriptive statistics of the study sample 30 CHAPTER IV: DATA AND METHODOLOGY 37 4.1 Sampling and data collection method 37 4.2 Data analysis methods 37 4.3 Research model and research hypothesis 40 4.3.1 Research model 40 CHAPTER 5: ESTIMATION RESULTS AND MAJOR FINDINGS 49 5.1 The Logit model regression results identify factors affecting credit decisions 49 5.2 The Tobit model regression results identify factors affecting credit line 53 5.3 Comment on the regression results 55 CHAPTER VI: RECOMMENDATIONS 64 6.1 Recommendations to the state bank 64 6.2 Recommendations to small and medium-sized enterprises 64 6.3 Solutions to improve the accuracy of credit decisions for smes at vietinbank hanoi branch 66 CONCLUSSIONS 68 REFERENCES 69 APPENDIX 72 LIST OF TABLE Table 2.1: Criteria for identifying SMEs by country Table 2.2 Classification of SMEs in Vietnam Table 3.1: Capital mobilized over the years .24 Table 3.2: Credit balance of VietinBank Hanoi Branch over the years 28 Table 3.3: Credit balance of SMEs customers at VietinBank Hanoi Branch 29 Table 3.4: Non-performing loan of SMEs 29 Table 3.5: Sample statistics according to business operation period and the experience of the business executives .30 Table 3.6: Sample statistics according to educational background of the business executives 31 Table 3.7: Sample statistics according to the number of credit institutions in relation with the enterprise and the duration of bank relationship 32 Table 3.8: Sample statistics according to collateral 32 Table 3.9: Statistics of financial indicators .33 Table 3.10: Statistics of financial indicators .35 Table 3.11: Statistics of credit granting 36 Table 4.1: Description of variables in the research model 41 Table 4.2: Variables included in the regression model .43 Table 4.3: Logit model hypothesis 44 Table 4.4: The Tobit model hypothesis 46 Table 5.1: Omnibus Tests of Model Coefficients .49 Table 5.2: Model Summary .50 Table 5.3: Classification Table 51 Table 5.4 Variables in the Equation 51 Table 5.5: 1st regression results of the Tobit model 53 Table 5.6: 2nd regression results of the Tobit model 54 Table 5.7: Summary of factors affecting credit decisions for SMEs at VietinBank – Hanoi Branch 58 Table 5.8: Logit model hypothesis test results 59 Table 5.9 Tobit model hypothesis test results 61 CHAPTER 1: INTRODUCTION 1.1 Rationale Since the Doi Moi reform in the 90s of the last century, Vietnamese Party and State have affirmed the consistency the policy of multi-sector economic structure, the economy has shifted from a centralized bureaucracy including to a socialist-oriented market economy Private enterprises had the trend of emerging SMEs gradually play a crucial role in stabilizing and developing the market economy The number of SMEs accounts for the majority of the economy and tends to increase rapidly However, each SME still witnesses some limitations in terms of capital size, human resources, employees’ qualifications as well as the ability to access external sources of capital which means bank credit Vietnam Joint Stock Commercial Bank for Industry and Trade is an institution with long history with many strengths in business VietinBank Hanoi Branch is one of the units with high credit balance and credit quality of corporate customers However, the fact is that the development of SME customers is not commensurate with the potential of the branch Total line of credit for small and medium enterprises is still significantly low which affects the branch’s efficiency and business stability Factors that affect the credit decisions for small and medium-sized enterprises is one of the most concerned subjects that authors and organizations are paying attention to for a long time Some studies are made, however they are considered as lack of data, unreal assumption and even unreasonable statistic methods Undeniably, each factor has its own impact, on the other hand, the level of influence is more important In fact, the factors may not go as they are projected Therefore, some more details about this topic should be quantitatively carried out so that there would be specific conclussions about not only the exact factor but also the influence level Besides, it is necessary to make my own contributions to the business activities of SME fields in the branch Thanks to practical exposure and accumulated knowledge, I would have conditions when collecting data and the experiences of colleagues to complete this research on small and medium enterprises aspects Based on the aforementioned statements, I come up to the topic: "Research on factors affecting credit decisions for small and medium-sized enterprises in Vietnam Joint Stock Commercial Bank for Industry and Trade – Hanoi Branch" 1.2 Research Objectives The research aims at identifying the factors that affect credit decisions for SMEs in VietinBank – Hanoi Branch and further figuring out the impact level of each specific factor via quantitative model On the basis of the research, research results is not only be applied to evaluate the credit worthiness of any SME but also be considered as a reference for VietinBank in Hanoi when making decisions to grant credit to SMEs The research results are also a basis for SMEs to improve their ability to access to credits from VietinBank in particular and the system of commercial banks in general In addition, I also make recommendations to the State Bank of Vietnam and VietinBank - Hanoi Branch 1.3 Subjectives and Scope 1.3.1 Research subjective Factors that impact on SME credit decision at VietinBank , Hanoi Branch 1.3.2 Research scopes In terms of space: Hanoi Branch and trading room both have credit extension activities for SMEs In terms of time: The data is collected during the period from 2019-2021 in the context that VietinBank was oriented to boost resources for strong growth and dominate the credit market share of SMEs 1.4 Methodology There is applied a combination of qualitative and quantitative research methods, including: Statistics method: Synthesis, analysis and evaluation of factors affecting SME credit decisions at Hanoi Branch Quantitative method: using Logit regression model and discrete linear regression model to determine the factors influencing the decision Credit and credit levels for SMEs at VietinBank – Hanoi Branch Sampling method: the research sample was collected through a poll to the subjects who were credit officers These people directly managed SME customers at Hanoi Branch 1.5 Structure: The research is structuralized into chapters: Chapter 1: Introduction Chapter 2: Literature Review Chapter 3: Overview of Vietnam Joint Stock Commercial Bank for Industry and Trade – Hanoi Branch Chapter 4: Data and Methodology Chapter 5: Estimation results and major findings Chapter 6: Recommendations