(Tiểu luận) topic overview of vdb

NATIONAL ECONOMICS UNIVERSITY -*** - DEVELOPMENT BANK Topic: Overview of VDB Group 7: Nguyễễn Hoàng Anh Vũ Thị Lan Anh Hà Quỳnh Trang Nguyễễn Xuân Kiễn Lễ Thùy Linh Nguyễễn Thị Tình I Overview of Vietnam Development Bank: The process of establishment and development of VDB: On May 19th, 2006, the Prime Minister issued Decision No 108/2006/QDTtg on the establishment of the Vietnam Development Bank, to carry out investment credit and export credit policies of the State VDB has an operational term of ninety-nine (99) years upon the effectiveness of this decision On September 3rd, 2015, the Prime Minister issued the Decision No.1515/QĐ-Ttg on VDB’s organization and operation regulations, according to which:  VDB is a policy bank operating in the form of a one-member limited liability company (OPC) with 100% state-owned charter capital  VDB is a legal entity operating in accordance with Vietnamese laws, having its own charter capital, stamp, and account registered at the State Bank of Vietnam (SBV), State Treasury, and at domestic and foreign commercial banks  VDB is entitled to participate in the interbank payment system and to provide its customers with settlement services as regulated by the laws  VDB is owned by the State The Government manages in a unified way, rights and duties arising from its state ownership of VDB  VDB operates for non-profit purposes to carry out credit policies of the State and others as stipulated by the Government or the Prime Minister  The State budget shall compensate for interest rate differences and management fees  VDB is guaranteed by the Government for its solvency and is exempted from government tax and obligations to the State budget for contribution  VDB has a compulsory reserve rate of 0% (zero percent) and does not have to make deposit insurance  VDB’s current charter capital is VND 30.000 billion Functions of Vietnam Development Bank: 2.1 Fund mobilization: The Development Bank is entitled to raise capital from many channels, including: a Issuing bonds guaranteed by the Government in accordance with law provisions b Issuing bonds, promissory notes, certificates of deposit, valuable papers in VND in accordance with law provisions c Having loans from Vietnam Social Security, domestic, foreign financial and credit institutions in accordance with law provisions d Having access to SBV’s refinancing in accordance with law provisions and of SBV’s guidance e Receiving trusted funds of domestic and foreign organizations f Mobilizing other capital sources in accordance with the provisions of law Among them, the issuance of government-guaranteed bonds is the most important capital mobilization channel, with the scale of mobilized capital regularly accounting for over 90% of the total mobilized capital of the Bank for many years The characteristics of the capital mobilized from the issuance of government-guaranteed bonds is that the term is quite long, commonly 5-7 years, the maximum can be up to 15 years or even longer Because of this important feature, the government-guaranteed bond capital is very suitable for lending activities for projects in the list of State investment credit loans at the Development Bank, because most projects that VDB lends usually have a payback period of about 8-10 years, many projects even have a payback period of up to 15 years or longer Also from this feature, the issuance of governmentguaranteed bonds is used as the main source of capital for the general operations of the Vietnam Development Bank as well as the State's investment credit activities 2.2 CREDIT ACTIVITIES: 2.2.1 INVESTMENT CREDIT : a Lending conditions: - For projects: o Being projects which are on the list of those eligible for investment credit stipulated by the Government o Fully carrying out investment procedures under law - For borrowers: o Investors have profitable production and business projects and plans which are able to prove their solvency o Investors have at least 20% of equity participation in project and are capable of funding project and meet specified financial requirements in the State investment credit policy o Investors shall provide loan security complied with regulations and law o Investors shall buy asset insurance at insurance enterprises lawfully operating throughout the loan term o Investors shall implement bookkeeping and prepare financial statements in accordance with the Law, and have their annual financial statements audited by independent auditors b Credit conditions: - Loan maturity: o The loan maturity shall be determined based upon capital-recovering capacity of the project and solvency of the investor in accordance to the nature of the production and business of each project but shall not exceed 12 years o The General Director of the Vietnam Development Bank shall decide the loan maturity for each project - Loan amounts: o Loan amount for each project does not exceed 70% of the total investment cost of the project (excluding working capital) provided that the maximum loan amount for each project owner shall not exceed 15% of the actual charter capital of the Vietnam Development Bank o Loan amount to each project and investor is decided by the General Director of the Vietnam Development Bank in accordance to the law o In special cases in which projects and investors must take loans exceeding the maximum levels specified above, the Vietnam Development Bank shall report such cases to the Ministry of Finance for further submission to the Prime Minister for consideration and decision 2.2.2 EXPORT CREDIT a Lending conditions:  Exporters (including Vietnamese enterprises and economic organizations exporting goods made in Vietnam) have export contracts of goods on the list of those eligible for export credit  Having profitable production plans and business plans appraised and loan provision approved by the Vietnam Development Bank  Exporters have full legal capacity and full civil act capacity  Exporters shall buy asset insurance at insurance enterprises lawfully operating throughout the loan term  Exporters shall implement bookkeeping and prepare financial statements in accordance with the Law and have their annual financial statements audited by independent auditors b Credit conditions:  Loan amount: o A loan amount must not exceed 85% of the value of a signed export contract, an L/C in case of pre-shipping contract, or of a validate bill of lading in case of post shipping o Provided loan amount to any exporter must not exceed 15% of the actual charter capital of the Vietnam Development Bank o The Director General of the Vietnam Development Bank shall decide the loan amount in each case o In special case in which exporters must take loans exceeding the maximum amount specified above, the Vietnam Development Bank shall report such cases to the Ministry of Finance for further submission to the Prime Minister for consideration and decision  Loan maturity: o The loan maturity shall be determined based on the capitalrecovering capability relevant to characteristics of each export contract and solvency of exporters but shall not exceed 12 months Document continues below Discover more from: Tài cơng TCC1 Đại học Kinh tế… 415 documents Go to course Cau hoi on thi Tai 15 chinh cong Tài cơng 100% (5) Tài-chính-cơng-1 128 (2021) Tài công 100% (3) Tổng hợp câu hỏi 17 sai Tài cơng 100% (2) NỘI DUNG ƠN TẬP10 TCC-CLC Tài cơng 100% (2) CÁC DẠNG BÀI TẬP TỰ LUẬN THI MƠN… Tài cơng 100% (2) Quản trị trình kinh doanh o The maximum loan maturity for exported seagoing ship is 24 Tài 100% (2) công o The General Director of the Vietnam Development Bank shall months decide the loan term for each commodity 2.2.3 VDB on-lending activities: VDB can be regarded as an important “agent" for the government to receive and refinance official development assistance in Vietnam  In particular, ODA gives priority to the following areas: - Infrastructure - Energy - Industrial production - Agriculture, fishery processing, - … ODA also support targets that need to be prioritized such as small and mediumsized enterprises, remote areas, and particularly difficult areas  Forms of on-lending activities: There are two types of on-lending loans: o On-lending activities from foreign funds without risks: If the borrower fails to repay the debt on time, the Ministry of Finance will be responsible for repaying the loan VDB refinanced in accordance with the refinancing authorization contract signed by VDB and the Ministry of Finance In this form, the bank is responsible for the management and recovery of debts and does not assume credit risk The income of VDB is the refinancing service fee paid by the Ministry of Finance o On lending activities from foreign funds bearing risks: If the borrower is unable to repay the debt, VDB will be responsible for repaying the debt In this form, the bank will select the loan project according to the object specified in the Refinancing Agreement, and then the bank will be responsible for evaluating and approving the loan, stipulating the refinancing interest rate, and organizing the management and recovery of the debt VDB bears all the credit risks of refinancing VDB's income from this activity is the difference between the refinancing interest rate and the lending rate of the Ministry of Finance  Some key national projects under the VDB’s on-lending management: o Hanoi - Hai Phong Expressway (Korea capital: USD 200 million) o Ho Chi Minh - Long Thanh - Dau Giay Expressway (ADB, JICA capital: USD 546 million) o Phu My thermal power plant (JICA’s capital: 507.6 million USD) o … 2.3 GUARANTEE: VDB has obtained a solvency guarantee from the government and is exempted from performing certain financial obligations Therefore, in terms of organization and management, the bank fully meets the requirements of the guarantee institution The guarantee activities of VDB include: - SME guarantee of loans from commercial banks: o Guaranteed subjects are enterprises of all economic sectors (including cooperatives) with a maximum charter capital of VND 20 billion and employing a maximum of 500 people These enterprises borrow capital from commercial banks to finance business development projects VDB does not guarantee for businesses operating in the fields of consulting, real estate trading, securities trading, and services (except for freight, education and medical services); loans for businesses to pay debts of other Credit Contracts - Export Credit Guarantee: o The subject of the guarantee are exporters who have export contract but not borrow the State's export credit loans o The guarantee period is consistent with the loan term and must not exceed 12 months o The guarantee does not exceed 85% of the value of the Export Contract or the value of the Letter of Credit o Guarantee fee is equal to 1% of the guarantee amount - Credit guarantee for investors: o The subjects of guarantee are investors whose projects are eligible for investment credit loans and need to be guaranteed to borrow capital at other credit institutions In case the investor fails to repay the debt, VDB shall repay the debt to the credit institution on behalf of the investor Therefore, the investor is required to accept debt and is responsible for paying VBD the amount paid by the bank plus interest calculated at the overdue debt interest rate o Guarantee amount and guarantee fee: the guaranteed amount will correspond to the loan amount, but does not exceed the total investment amount of the project (excluding working capital) The customer does not have to pay the guarantee fee 2.4 POST-INVESTMENT SUBSIDIES: 25/06/2012 - 12.0 03/06/2013 04/06/2013 - 11.4 10.8 10.5 Now BTC Circular 14/11/2013 BTC Circular 11/08/2014 No.108/2014/TT9.5 18/05/2015 19/05/2015 - 04/06/2013 No.161/2013/TT- 10/12/2014 11/12/2014 - BTC Circular No.77/2013/TT- 10/08/2014 11/08/2014 - 25/06/2012 No.104/2012/TT- 13/11/2013 14/11/2013 - BTC Circular BTC Circular 11/12/2014 No.189/2014/TT8.55 BTC Circular 19/05/2015 No.76/2015/TTBTC  According to VDB’s statistics, medium and long-term lending interest rates in Vietnamese dong in 2013 are mainly at 11.5 – 13 %/year, in 2014 at 9.5 – 11 %/year, and in 2015-2019 at – 11 %/year The data on this table shows that since 2013, the investment credit interest rate is no longer significantly lower than the normal lending rate of commercial banks, even VDB’s investment lending rate at some times is higher than the medium and long-term lending rate of commercial banks  In addition, the fact that commercial banks allow lending in foreign currencies at lower interest rates than lending rates in VND or lending to large and reputable customers at lower-than-normal interest rates also makes the State’s investment credit capital even less attractive - Loan procedures: Loan procedures are also one of the reasons that makes VDB’s investment credit become less attractive Since the sources of e-commerce capital are all state capital, the use of these capital sources must comply with the very strict provisions of the law related to many different fields (construction investment, bidding, auditing financial statements ) For example: o According to the provisions of Decree No 75/2011/ND-CP, enterprises borrowing e-commerce capital must fully comply with investment procedures as prescribed by law and must conduct an independent audit of annual financial statements o According to the provisions of the Law on Bidding, investment projects using state e-commerce capital from 30% of the total investment or over VND 500 billion must select contractors by the Law on Bidding o According to the provisions of the Law on Public Investment in 2014, the State's e-commerce capital is public investment capital and the decision on investment policies for projects using the State's ecommerce capital must comply with the principles, order, and procedures prescribed by the Law on Public Investment Full compliance with the above regulations, often requires a lot of documents issued by many different agencies, while most Vietnamese enterprises have no experience in implementing these procedures Therefore, in many cases, enterprises cannot complete all the procedures to borrow from VDB, or still complete all these procedures but spend a lot of time, leading to the loss of business opportunities In contrast to this situation, enterprises borrowing capital at commercial banks not have to meet the above-mentioned requirements, especially those that require a lot of time like providing the order of construction investment and contractor selection  Businesses will choose commercial banks as loan sponsors instead of VDB because the simplicity of the credit granting procedures of these banks helps businesses take advantage of opportunities by reducing capital withdrawal time loans to support production and business activities - The risk-handling mechanism: Investment credit is an area that contains many risks stemming from the risks of construction investment activities (prolonged investment and payback period) Meanwhile, the policy on risk handling in the State's e-commerce activities prescribed by the Government over the past time still has many limitations, according to which, most of the risk handling measures (debt freezing, principal cancellation, interest debt cancellation, debt sale) are decided by the Ministry of Finance and the Prime Minister; and VDB's competence to adjust debt repayment terms, extend debts for projects and loans at risk is limited With the above-limited authority, VDB's risk handling has encountered many problems because the measures that VDB has applied not fully solve the risks arising or not have a significant effect in supporting borrowing enterprises to overcome financial difficulties Therefore, many enterprises and projects, after being adjusted for debt repayment or debt extension, still cannot restore production and business activities to pay debt for VDB Meanwhile, the application of more effective risk-handling measures (debt freezing, interest debt cancellation, principal cancellation) requires many documents and procedures, and it must go through the review process of many agencies (Ministry of Finance, Ministry of Planning and Investment, State Bank, Government Office, Prime Minister) 3.2 Export Credit: As for export lending, VDB followed with the Prime Minister's directives to stop new lending for export credit projects in order to concentrate on loans recovery in 2017 Reason: In the past years, the state budget has arranged a portion of the development investment expenditure estimate to finance the investment credit and export credit activities carried out by VDB The interest rate difference compensation and management fees that the state budget has spent on these credit activities since the establishment of VDB till the end of 2021 has reached VND 45,428 billion The amount of money allocated from the state budget has contributed a huge part to the total income of VDB each year (Figure 1) Figure 1: The revenue structure of VDB from 2006 to 2021 Source: Calculation from VDB's annual report However, the state budget has not fully and promptly implemented the compensation of difference in interest rate and management fees for investment and export credit activities of the State at VDB according to actual arising numbers, especially after 2010 This is because of difficulties in balancing sources to allocate development investment expenditure estimates Therefore, due to limitations in capital, from objective reasons such as the credit policy applied to VDB as well as subjective reasons like the weakness in the credit risk management In 2017, VDB rearranged its organizational structure, stopped a number of activities (export credit, post-investment support and guarantee for enterprises to borrow commercial bank loans, etc.), focusing on investment credit activities, and on-lending of ODA; financial restructuring; consolidating and improving the efficiency of management and administration; recovering bad debt, etc 3.3 Other limitations of VDB:  As a bank implementing State policies, VDB still lacks many basic services of a credit institution such as international payment, lending of working capital,etc  Operating capital is mainly from the State budget, mainly from issuing bonds and mobilizing other organizations, but is very limited  VDB's risk management mechanism has not been issued synchronously  Investment credit, on-lending of entrusted capital, and on-lending of foreign capital are among the services offered, but only for projects on the government's extremely limited list  The only payment service that VDB is allowed to provide to customers is domestic payment The above fact causes VDB borrowers to switch to commercial banks for their service needs Because after completing the project investment, businesses still need other banking products and services to nurture, operate and develop the project Therefore, commercial banks can benefit from the current mechanisms and policies of VDB, quickly improving their position by serving customers with extremely diverse and convenient products and services Therefore, VDB is no longer as prominent as before when commercial banks themselves can it and is even better than VDB in terms of loan terms and a wide range of banking goods and services Sometimes, commercial banks are also chosen by the Government to replace VDB in receiving ODA capital and lending back Some development banks from other nations, like KDB and DBJ, have arrived to Vietnam in search of investment opportunities Because commercial banks have all the required infrastructure, they are chosen to serve as correspondent banks III Suggestions for improving VDB efficiency: With the government: The Government needs to study and issue a sufficient legal framework and mechanism so that VDB can operate like a normal bank, get working capital loans, actively mobilize capital, and deploy banking services The list of borrowers that need to be expanded according to the national strategy from time to time, because Vietnam is still a developing country, there are still many industries, fields and localities in need of support from the Government through investment and development policy The Law on Development Bank should be considered and submitted to the National Assembly for promulgation The government needs to focus on designing and implementing a modern VDB model: full operation of a commercial bank but oriented to implement the State's policies; a complete synchronous VDB from capital mobilization, financing, debt settlement, effectiveness and efficiency In which, the Government clearly defines the scope (subjects of industries, regions, fields ) to be supported by the state budget with interest rates, capital sources, etc., And government assigns VDB to mobilize capital to finance in the form of profitable business and selfresponsibility according to market principles and clearly defining the State's support incentives With the Ministry of Finance: The main existing problems in the operation of State credit policy at VDB are the lack of capital, the lack of credit conditions according to the newly issued Decree, the lack of regulations on debt handling and risk handling, and the lack of many businesses sufficient banking services to serve borrowers In fact, VDB has been operating for many years in a state of imbalance of sources due to insufficient charter capital from the State budget, the difference in interest rates not yet being compensated, very limited resources from designated organizations due to fierce competition from other financial institutions that also need to raise capital Therefore, it is necessary for the Ministry of Finance to focus and regulate capital sources outside the state budget for VDB such as the entire on-lending capital and entrusted capital In particular, the Ministry of Finance gives priority to VDB to exclusively mobilize temporarily idle capital from the social insurance fund With leaders and staff of VDB: 3.1 Improve project appraisal capacity at the bank 3.1.1 Project appraisal organization and process: Defining clearly which department the project appraisal task belongs to is the immediate work of VDB The requirement for this department is to be independent from customer relations (receiving), credit management and credit risk management Only then can the objectivity of the appraisal results be ensured Accordingly, the project appraisal department will be located in the Appraisal Department/Department in the bank, not in both the Credit and Appraisal department as at present 3.1.2 Completing and supplementing project appraisal contents: First, VDB must quickly develop a system of appraisal contents for each specific funding area Currently, VDB has new regulations on appraisal for all projects, so it takes time Therefore, at this time, VDB must make efforts to develop a system of appraisal contents for each specific funding area The fact shows that information related to technology aspects (parameters of fixed assets, technical processes) is always difficult to identify in the appraisal contents Therefore, this content needs to be guided in detail and meticulous In order to have a separate appraisal content system for each field, VDB must coordinate with management agencies (ministries, branches) and research units to find out information related to the fields, regularly update legal documents regulating the fields, information on new technologies, domestic and foreign markets related to input factors and output products of each field Second, VDB must quickly build an information system for appraisal VDB may establish a separate department in charge of updating and managing this system; or assign each appraiser to update information related to the field they appraise After that, the collected information will be transferred to the information management department for collection and classification, when needed, they will connect to this system for lookup All the above information must be managed by specialized and modern software so that the appraisal staff and the management department can connect easily Therefore, a dedicated computer system and internal network must be installed and used throughout the VDB system Third, VDB should establish a network of experts and consulting organizations, and at the same time strengthen economic cooperation in the project appraisal For large-scale and complex development projects, when VDB appraises, it is advisable to cooperate with independent specialized organizations or hiring reputable domestic and foreign consulting firms Currently, international development organizations such as WB, ADB have built a rather rich database system for project appraisal activities including research books, manuals, situational research documents In case, the software calculates the effectiveness of the project and these organizations also have a lot of good economic experts working Therefore, the strengthening of cooperation between VDB and these organizations will be very useful for the bank to improve the capacity of the project appraisal 3.2 Improve risk management capacity at banks: 3.2.1 For credit risk management: Credit risk is the possibility that a customer will not pay or be unable to pay part or all of the principal or interest to the bank as committed This is the biggest potential risk in a bank, it directly affects the safety of capital as well as the bank's profitability Credit risk arises due to many reasons, both subjective (on the bank's side) and objective (on the customer side and the bank's operating environment) For VDB, the probability of loss from credit activities is greater regardless of the bank in the economy Therefore, in the coming time, credit risk management activities at VDB should focus on the following issues: • Firstly, build a system of documents, regimes, regulations, processes and procedures for credit granting uniformly and clearly throughout the system • Second, build safe limits in credit activities of banks • Third, perfect the internal credit rating system • Fourth, establish and improve the operational capacity of the credit monitoring system, creating the foundation for the early warning system • Fifth, proceed to classify debts and make provision for credit risks based on the quality and risk level of the loan and the financial situation of the customer 3.2.2 For market risk management: Market risk is understood as the risk that occurs due to changes in market factors such as interest rates, exchange rates, stock prices and commodity prices that affect the value of assets in the table balance sheet as well as the offbalance sheet portfolio of the bank Important issues related to market risk that need to be addressed include: • Develop market risk tolerance for each period • Building a system of measurement tools and market risk management software • Market risk management through risk prevention measures and operations • Building an information system for market risk management 3.2.3 For operational risk management: Operational risk is a risk arising from human factors (negligence, fraud, taking advantage of loopholes in regulations); due to weakness in technology, information and internal control systems; or due to external factors (natural disasters, floods) This type of risk occurs in all aspects of a bank's operations Operational risk management in a bank includes the following contents: • Identify operational risks - Identify signs of risk - Identify incidents of operational risk: that is, loss of property, reputation and people - Identify suspicious, unusual transactions • Measure operational risk Operational risk is measured through two methods: quantitative and qualitative Thereby identifying acceptable risks and unacceptable risks • Prevention and mitigation of operational risks • Operational risk monitoring 3.3 Adding a number of activities to meet the needs of customers: Activities that VDB needs to supplement in the near future include: • The first is payment intermediary activities, including completing domestic payment services and deploying international payment services For domestic payments, VDB moves to participate in the interbank electronic payment system because this is a payment system with a nationwide payment range and short payment time For international payments, joining the SWIFT network (Association for Worldwide Interbank Financial Telecommunication) is the most modern today Payment products that VDB can provide to customers include: - For domestic payment: payment by collection order, payment order, check and card - For international payments: remittance payments, collection entrustment and documentary credits • The second is the activity of leasing fixed assets (Leasing): Leasing of fixed assets is a medium and long-term credit activity of the bank, in which the bank allows the customer to use the property for a specified period of time, the customer must pay the rent during that time For VDB in particular and for Development Bank in general, this is a typical activity of this type of bank It represents the technical support role of the Development Bank for projects To carry out this activity, VDB must establish a separate department to manage leasing activities or establish a subsidiary under the bank Because leasing of fixed assets is also a credit activity, it is necessary to develop this activity In addition, the bank must have staff with specialized knowledge of the types of fixed asset used in certain fields • The third is foreign currency trading: Foreign currency trading is the banking activity of buying and selling foreign currencies on the basis of the difference between buying and selling exchange rates and complying with regulations on foreign exchange management of the State Bank The requirement to develop foreign currency business is that VDB must set up a separate department to implement this activity, and at the same time strictly manage risks related to exchange rates and have a modern technology system to support them To assist banks in predicting fluctuations in supply and demand of foreign currencies and exchange rates in domestic and foreign markets 3.4 Improve the quality of bank staff, in which the focus is on appraisal staff and credit management staff VDB must give priority to regular and regular professional and ethical training for the appraisal staff At VDB, it is not possible for staff to both appraise and manage credit and risk management or other jobs together It can be said that the appraiser is a prerequisite for the success of the appraisal With the current situation of appraisers at VDB, it is important to strengthen the organization of training courses on project appraisal Through these courses, the appraiser is able to acquire the techniques and procedures for appraising the project's financial performance and socio-economic efficiency Teaching staff should be people with high experience in banking, good experts from international organizations with similar funding activities as VDB Along with regularly opening professional training classes for staff, VDB also has to develop and publicize regulations on handling responsibility for objects in order to establish a strict mechanism to consider and handle clearly, transparently and publicly the responsibility of units and individuals that have made mistakes that cause damage to the bank In which, VDB needs to focus on assessing violations that need to be handled based on the credit granting process Finally, VDB needs to research to develop an appropriate salary policy that both ensures fairness based on the work performance of each department, each staff member, and acts as a motivating force for the bank's staff successfully complete the assigned work, and at the same time, attract many talents to the bank