INTRODUCTION
REASON FOR CHOOSING THE TOPIC
In 2015, the banking sector experienced a resurgence, largely attributed to commercial banks identifying small and medium enterprises (SMEs) as key target customers facing significant challenges Since 2014, these banks shifted their focus from individual customers to lending to SMEs, aiming to boost outstanding loans While the individual loan amounts may be modest, the large volume of loans helps banks diversify and mitigate credit risks effectively.
Individual customers are becoming crucial to the strategic growth of commercial banks, necessitating a diverse range of modern and competitive banking products and services, particularly in the area of credit offerings.
Vietnam Joint Stock Commercial Bank Prosperity (VPBank) has consistently embraced innovation and enhanced operational efficiency, earning four esteemed awards from international organizations in 2014, including "Best Commercial Bank Vietnam 2014" and "Best Trade Finance Bank Vietnam 2014." In 2015, VPBank further solidified its reputation by receiving six prestigious accolades, such as "Best Commercial Bank of the Year" and "Best Innovation in Retail Banking."
However, besides the advantages in economic integration, trade barriers and fierce competition from commercial banks have brought about opportunities and challenges in the personal loan activities of VPBank
During a practice in VP Bank Lang Ha, it was found that personal loan activity is facing many difficulties, not really commensurate with the current growth potential
From the above reasons, I chose research topic: "SUGGESTIONS TO
IMPROVE PERSONAL LOANS IN VIETNAM PROSPERITY BANK – LANG
HA BRANCH" to graduation thesis
PURPOSE OF THE THESIS
The most important purpose of the thesis is to analyze the situation and assess the performance of personal loans in VPBank Lang Ha based on theoretical and practical
Thereby, some suggestions to enhance personal credit will be given.
THE SCOPE AND LIMITATION
This study examines personal loan activities at the VPB Lang Ha branch, specifically analyzing both unsecured and secured loans from 2014 through the first quarter of 2023.
In 2016, the evaluation of credit efficiency will focus solely on specific products, sizes, and criteria, supported by relevant literature that will be cited and reviewed.
THE RESEARCH’S METHODOLOGY AND DATA COLLECTION
The main research’s approach could be identified as:
Summarizing information gathered in all media means
THESIS STRUCTURE
The paper included four chapters following:
Chapter 2 Theoretical background of the study
Chapter 3 Research methodology and data analysis
THEORETICAL BACKGROUND OF THE STUDY
BACKGROUND OF PERSONAL LOAN
A personal loan, often classified as an unsecured loan, is designed to address borrowers' immediate financial needs It is ideal for those seeking quick access to funds, featuring manageable interest rates and minimal documentation requirements Borrowers have the flexibility to use personal loans according to their needs without restrictions on the intended purpose of the funds.
Customer lines consist of individuals or households seeking loans for consumer needs or business activities The demand for personal loans varies and is often influenced by social, economic, and cultural factors.
Term of personal loan depends on the aim and types of specific loan which has different terms such as short, medium and long term
Retail commercial banks hold a significant portion of personal loans, contributing to a substantial share of the total outstanding loans within the banking sector.
Personal loans typically involve smaller amounts and higher numbers, leading commercial banks to incur significant costs in acquiring customers, approving applications, and monitoring loans Consequently, the expenses associated with personal loans tend to be higher than those for corporate loans.
Personal loan interest rates tend to be higher than those of other financial products offered by commercial banks due to the increased costs and elevated risks associated with personal loans.
Credit risk associated with personal loans poses significant challenges for commercial banks due to the unpredictable financial circumstances of individuals, which are influenced by employment status and health conditions Additionally, individuals and households often face competitive constraints in the market and are vulnerable to economic and social changes Consequently, banks encounter heightened risks when borrowers experience unemployment, accidents, or bankruptcy.
Personal loans offer substantial profit potential for commercial banks due to their higher interest rates compared to other forms of credit This increased profitability stems from the elevated costs and risks associated with personal lending Consequently, the significant returns generated from personal loans contribute meaningfully to the overall income of commercial banks.
TYPES OF PERSONAL LOAN
An unsecured loan relies solely on the borrower's creditworthiness rather than collateral, meaning no property is required to secure the loan To qualify for an unsecured loan, borrowers typically need to possess a strong credit rating.
Secured loans are financial products backed by collateral, such as real estate or vehicles, which the lender holds until the loan is fully repaid, including interest and fees These loans can also be secured with assets like stocks, bonds, or personal property, making them a common choice for borrowing substantial sums of money.
Secured loans usually often lower rates, higher borrowing limit and longer repayment term than unsecured loans
BENEFITS OF PERSONAL LOAN
Personal loans do offer many benefits to customers There are some of the most important ones:
Flexibility of use: personal loans are multipurpose They can be used for various different types of purposes, ranging from travel expenses, purchasing furniture to house or car improvements
Simple and fast procedures: getting the personal loans is very fast In some cases, borrowers can get the loan even within 3 days
Minimal documentation required: Normally, personal loans don not need much documentation, especially unsecured loan Hence the processing time is quicker
One significant benefit of unsecured loans is that they do not require collateral, making them accessible without the need for security Additionally, the loan tenure for unsecured loans is typically much shorter than that of home or car loans, providing borrowers with quicker repayment options.
Installment repayments involve monthly interest payments along with principal repayments, either on a monthly basis or at maturity, typically falling within the long-term range Opting for a longer amortization period, like 20 years, results in lower monthly payments, making them more manageable for borrowers.
Personal loans enhance the competitiveness of commercial banks against other credit institutions by attracting new customers and fostering stronger relationships Additionally, they serve as an effective marketing tool, significantly boosting the bank's brand awareness among the public.
Therefore, the bank also mobilizes more deposits from residential sources In addition, the personal loans also facilitate the expansion and diversification of the
Ha Thuy Nga K15.ATCA 6 business, generate income and reduce risks for banks, increase efficiency of credit operations.
FACTORS AFFECTING PERSONAL LOAN
The financial capacity and moral integrity of borrowers are crucial factors influencing future repayment behavior, directly impacting loan effectiveness and bank risk A stable and regular income is the primary source for loan repayment, making it essential for customers with higher incomes to secure safer loans.
Effective policies that promote domestic and attract foreign investment can drive economic growth, lower unemployment rates, and raise income levels for workers Additionally, various long-term factors significantly influence personal credit demand.
The lending activities of individual customers are significantly influenced by social, economic, and political environments In a well-developed economy characterized by high per capita income and a stable political climate, personal lending operations tend to function smoothly, fostering steady growth and minimizing issues Conversely, when competition among banks is intense, lending activities can become challenging, impacting the overall effectiveness of financial services.
Asymmetric information between consumers and banks presents challenges for both parties, as banks struggle to obtain accurate and timely data on the creditworthiness and repayment capabilities of individuals and households This lack of reliable information leads to subjective evaluations and appraisals, ultimately impacting the overall quality of credit assessments.
The first factor influencing credit effectiveness is the business strategy, which encompasses the ability to compete successfully in the market This includes strategic decisions regarding product selection, addressing customer needs, and gaining a competitive advantage over rivals while also identifying new opportunities Based on these strategies, banks evaluate business plans to ensure targets are met Specific plans that directly impact lending efficiency include credit growth strategies, marketing initiatives, and human resource policies.
Effective credit policies, such as setting competitive credit limits, interest rates, terms, and collateral requirements, are essential for attracting more borrowers In contrast, banks that fail to align with customer needs risk limiting their lending capabilities and diminishing their competitiveness in the market.
The evaluation of the lender is a crucial step in the lending process, as a thorough appraisal enhances the security of bank loans Additionally, the simplicity and speed of loan procedures contribute significantly to customer satisfaction with the bank.
2.4.2.4 The quality of credit officers
Credit officers play a crucial role in customer interactions by guiding them through loan procedures, collecting necessary documentation, and processing information to make informed lending decisions To minimize credit risks for the bank, these professionals must possess strong analytical and evaluative skills, along with a high level of responsibility Additionally, maintaining professional ethics and a friendly demeanor is essential for fostering customer trust and loyalty towards the bank.
CRITERIA TO EVALUATE THE EFFICIENCY OF PERSONAL LOAN
The following indicators are evaluated according to Circular No 49/2004/TT-BTC, issued on June 3, 2004, which provides guidance on assessing the financial performance of state credit institutions This assessment aligns with Article 17 of Decision No 271/QD-TTg, dated December 31, 2003, from the Prime Minister, establishing regulations for monitoring and evaluating the performance of state-owned enterprises.
This study evaluates personal loan activities in Vietnamese commercial banks, focusing specifically on the VPB – Lang Ha Branch.
The personal credit operational efficiency indicator reflects the growth of personal loans, which contributes to an increase in outstanding loans As banks enhance their services, customer interest continues to rise However, it is essential to evaluate this indicator in relation to the bank's total outstanding credit at a specific time, considering the overall structure of personal credit.
2.5.1.2 The structure of personal credit
The structure of outstanding personal credit = x 100%
The personal loan investment indicator demonstrates the bank's commitment to the personal credit sector, with a higher index indicating a stronger focus on this area Personal credit plays a vital role in the overall credit activities of banks, highlighting its significance in their financial operations.
2.5.2 The capital for safe use criteria
Banks often face challenges with overdue loans and customers who struggle to repay their debts This situation is a natural aspect of banking credit activities, highlighting the necessity for commercial banks to effectively manage and control these issues within acceptable limits.
When banks cannot control overdue loans, it impact negatively on credit activities
Delinquency rate of personal loan = x 100%
In which: Overdue loans at maturity is defined as classified by the State Bank of Vietnam, under the debt groups from group 1 to 5 with the level of increasing risk
The overdue loan ratio is a crucial metric for evaluating the effectiveness of credit and personal loan operations High levels of overdue loans pose significant risks for banks, potentially leading to loan losses that can impact deposit payments and diminish liquidity.
Bad debt ratio of personal loan = x 100%
"Bad debt" refers to the debts categorized under Groups 3, 4, and 5, and the bad debt ratio serves as a key indicator of the credit quality within credit institutions, often referred to as the delinquency rate A higher bad debt ratio indicates a decline in personal loan activity, reflecting weakness and inefficiency in lending practices.
2.5.3.1 The return of personal loans
Profits (personal loans) = Revenues (personal loans) – expenses (personal loans)
Revenues from personal credit operations include interest income and fees collected as collateral valuation, notary fees and registration of security transactions, etc
Cost of personal credit is the charges which the bank pays such as capital mobilization, property valuation fees, appraisal fee, etc
This formula directly influences the input and output of personal credit operations, as banks closely monitor expenses and revenues Achieving higher results with lower costs remains a primary objective for financial institutions.
Profit ratio of Personal loan = x 100%
This indicator reflects the contribution of personal loans to gross margin, showing how much profit is generated per 100 dong A high index signifies effective personal loan operations, highlighting their importance as a key profit source for banks Consequently, banks are implementing strategies to expand and enhance their lending activities.
Profitability ratio of Personal loan = x 100%
This ratio indicates the profitability or direct reflection of personal loan This indicator shows an average outstanding personal loan which will generate much profit
A high profit margin and elevated interest rates on personal loans indicate that the bank is effectively utilizing its funds and managing personal credit operations efficiently.
RESEARCH METHODOLOGY AND DATA ANALYSIS
OVERVIEW OF VIETNAM PROSPERITY BANK AND VPB LANG HA BRANCH
3.1.1.1 Introduction of Vietnam Prosperity Bank
Vietnam Prosperity Joint-Stock Commercial Bank (formerly known as Vietnam Joint-Stock Commercial Bank for Private Enterprises) was established on 12 August
1993 After 22 years of operation, VPB has increased its charter capital to VND 8 056 billion, raised the number of transaction points to over 208, and had a workforce of more than 12,400 employees
As one of Vietnam's pioneering Joint-stock Commercial banks, VPB has demonstrated consistent growth throughout its history Since 2010, the bank has experienced significant expansion, driven by a strategic transformation program developed in collaboration with a leading global consulting firm.
VPB aims to establish itself among the top five joint-stock commercial banks and the top three retail joint-stock commercial banks in Vietnam by 2017, driven by a two-pronged strategy to achieve this vision.
Aggressive organic growth, focusing on personal and SME customers, and exploiting opportunities in the segment of large business customers and consumer credit
Building strong foundation systems in terms of organization, human resources, technology, operation, etc
The support for the implementation of the above strategy is the VPB corporate culture which is nurtured and built on six core values:
VP Lang Ha, established on January 1, 2013, at 52-54 Lang Ha Street in Dong Da District, Hanoi, serves as a legal representative of the Thang Long Branch Through continuous efforts, the Lang Ha branch has grown significantly and has been recognized with various awards for its achievements.
2013: Best raising capital in Thang Long Branch
2014: Outstanding disbursement in Thang Long Branch
Like other Vietnamese commercial banks, Vietnam Prosperity Bank – Lang Ha
Branch has main business activities such as:
Receiving term deposits from individuals, enterprises
Making loans for individuals, enterprises
Discounting negotiable bonds and valuable papers
Providing others products and services on behalf of Chairman and the permission of State Bank of Vietnam
Providing foreign exchange and gold trading, etc
VPB offers a wide range of modern and effective services and products tailored to the unique needs of residents and economic regions In addition to traditional banking options, the bank is enhancing its electronic banking services, providing customers with a convenient and secure banking experience that includes valuable features.
Diagram 3.1 Organizational structure of VPB LHA Branch
Source: Administrative documents of VPB Lang Ha
The board of directors included director and vice – director They take responsibility of management, operating the business activities of the branch, ensuring the effectiveness and development of the branch
The Teller division offers essential account services to customers, including processing deposits and loan payments, cashing checks, and issuing savings withdrawals They manage night and mail deposits, sell cashier's checks, traveler's checks, and Series E bonds, and provide assistance both in-person and over the phone Additionally, they maintain transaction records, prepare currency transaction reports, and focus on cross-selling bank products by addressing inquiries, informing customers about new services and promotions, and directing them to branch representatives to meet their needs.
The Customer Relationship Division, known as Credit One, focuses on driving sales activities for both existing and potential customers to meet financial targets This division emphasizes cross-selling the bank’s diverse products and services, effectively addressing customer inquiries, and providing exceptional service through strong communication and teamwork.
SME Division: offers a wide-range of financial products to Small & Medium
Enterprises can access a comprehensive range of solutions, including transaction accounts, trade finance, and various financial products Additionally, a diverse selection of lending options is available, featuring unsecured loans, working capital, and financing for commercial vehicles and construction equipment.
The Credit Assistance Division plays a crucial role in managing customer credit by conducting credit checks, processing applications, and collecting overdue payments Credit assistants are tasked with establishing credit lines, setting limits, and addressing customer inquiries regarding account issues and product eligibility Additionally, they are responsible for accurately recording customer data in electronic databases to ensure efficient service delivery.
3.1.4 The overview of major business operations
Table 3.1 General operational situation from 2014 to 1 st quarter 2016
Source: Finance reports of branch 2014 – Q1/2016
It can be seen that the fund mobilization growth met the demand for capital and liquidity of the branch Specifically, the total mobilized capital at the end of 2015 was
In 2015, VPB experienced remarkable growth, achieving 850 billion VND, reflecting a 26.89% increase since 2014 This impressive growth can be attributed to the official launch of unified brand identity documentation, which revitalized the branch's signage and interiors, making them modern and appealing to customers.
Ha Thuy Nga K15.ATCA 15 official website’s domain www.vpbank.com.vn was certified by Verisign and Globalsign across in October 2015
The banking system focused on reforming procedures to enhance simplicity, convenience, and professionalism, offering advanced and tailored products that provide additional benefits to customers, such as flexible principal withdrawal savings and interest-tiered savings Notably, the "Gift of Gratitude - Thank You Announcement" program contributed to a significant increase in mobilization, reaching 1,070 billion in 2015 Additionally, VPBank effectively managed deposit sources in line with market conditions and the board of directors' directives to ensure operational safety and business efficiency.
In early 2016, VPBank launched its "Online Savings with Great Interest Rates" initiative to boost E-banking and increase deposits, resulting in a significant rise of 215 billion VND in deposits.
In 2015, outstanding credit increased by 970 billion VND, representing a 25.16% rise compared to 2014 The introduction of Easy Banking Electronic Banking, featuring high-tech innovations and competitive services such as account opening via text message, instant card issuance within five seconds, and rapid consumer loans, significantly attracted a large customer base to the bank.
The bank achieved significant milestones through customer-focused product initiatives and diversified distribution channels It established partnerships with major real estate developers in Vietnam to facilitate financing for home buyers, while collaborations with key auto dealers boosted the auto loan portfolio Notably, VPB partnered with Vin Group, a leading entity in Vietnam's real estate sector, offering preferential home loans with interest rates starting at 6.99% per annum for Vinhomes project investors, which attracted a substantial number of new customers seeking home loans.
In the first quarter of the year, VPBank introduced the "Preparing for Future with VPBank’s Lending Package" program, offering a competitive interest rate of 6.99% per annum This initiative aims to support customers in meeting their investment and consumption needs during the Tet holiday, specifically benefiting borrowers of home, auto, household business, and personal loans.
Ha Thuy Nga K15.ATCA 16 automatically received the package offers Therefore, the amount of outstanding credit in the first quarter of 2016 was 85 VND billion
The branch experienced significant growth, achieving a larger market share compared to its competitors Its credit growth was meticulously managed to ensure high credit quality, aligning with the strategic credit growth plan established by VP Bank.
Table 3.2 The General business performance of LHA Branch
Source: Finance reports of branch 2014 – Q1/2016
CURRENT SITUATION OF PERSONAL LOAN IN VP BANK LANG HA
Meeting spending needs quickly, conveniently and without security assets The product provides customers with loan limit maximum tenfold of salary
This financial product offers customers immediate access to cash, allowing for a loan limit based on a maximum of six months' salary It provides up to 200 million for unsecured overdrafts and up to 300 million for secured overdrafts.
VPB offers financial support to customers with solid business plans facing funding challenges, providing a maximum loan limit of 80% for working capital loans and 90% for fixed asset investments The loan terms extend up to 12 months for working capital and up to 60 months for fixed asset investments, ensuring flexibility and accessibility for businesses in need.
Installment Loans Financing Working Capital for Household Business:
Customers lack business capital or plan to increase working capital to expand business VPB will support loan limit up to 90% of working capital loan
The credit product for individual customers with stable income and the demand for loans to buy accommodation (including apartments, villas, townhouses) in the real estate projects
Personal Loans for house construction and Renovation
This product offers customers the chance to enhance their living standards in their dream homes, with a loan limit of up to 90% of the construction or renovation costs, subject to the maximum lending limit on pledged assets as set by VPB.
The products for individuals wishing to buy a car for personal travel, but not for business or rental The product supports up to 80% of the invoice value of the mortgage
Loan secured by passbook or valuable papers issued by VP Bank:
The product is intended for individuals holding savings account/savings book or the valuable papers issued by VPB with urgent needs for capital
Personal installment loans with collaterals
This product addresses diverse personal consumption needs, enhancing customers' quality of life It offers a loan limit of up to 100% of expenditures for items such as household furniture, education, weddings, and medical expenses, with a maximum cap of VND 500 million.
This product supports students in completing their application documents for studying abroad and paying fees during the study period – Bridging Dreams
Overall, VPBank launched new products and services tailored to meet customer’s particular demands and profile
3.2.2 The size of personal loan services
Table 3.4 The number of personal loan customers from 2014 to Q1/2016
Source: Finance reports of branch 2014 – Q1/2016
In 2014, LHA Branch prioritized expanding its customer database to enhance cross-selling and up-selling opportunities, launching various campaigns and product policies aimed at increasing the quality and quantity of current accounts As a result, the customer base grew from 980 in 2014 to 1,420 in 2015, marking a significant increase of 440 customers, or 45%.
In the first quarter of 2016, the branch welcomed 620 customers, with personal loan clients rising to 170, reflecting a positive trend in line with VPB retail banking's development strategy This increase underscores the branch's strong reputation and quality in the personal credit market.
3.2.2.2 The revenues of personal loans
The revenues of PLs increased over the period of 2014 - Q1/2016, reflecting the growth of business activities in the branch
Table 3.5 Revenues of Personal loans in LHA between 2014 – Q1/2016
Revenues from collecting personal loans
Source: Finance reports of branch 2014 – Q1/2016
It is clear that the revenues from PL had considerable growth In 2015, the revenues increased more than 1.5 times in comparison with 2014 In the first quarter of
2016, with growth maintained at a high level (25%), the revenues from PLs reached
In the first quarter of 2016, personal loan revenues rose to 193 billion, up from 151 billion in the same period of 2015, marking a positive trend that developed over more than two years This growth reflects the branch's strategic expansion of personal loan offerings in recent years.
3.2.2.3 The outstanding credit of personal loans
Table 3.6 The outstanding credit of personal loans (LHA)
Number Percent Number Percent Number Percent
Source: Finance reports of branch 2014 – Q1/2016
Between 2004 and early 2016, the total outstanding credit for personal loans (PLs) saw an overall increase Notably, secured loans consistently outnumbered unsecured loans, with unsecured loans representing one-third of the total PLs outstanding credit This proportion exhibited a downward trend, decreasing from 39.29% to 38.36% by 2015.
Both unsecured and secured loans have seen significant growth in volume, with outstanding credit for unsecured loans rising to 295 billion VND, an increase of 18 billion VND Additionally, secured loans have experienced a doubling of their outstanding credit.
The majority of products were successfully developed, with a particular emphasis on UPL and specific secured loans, including household business loans, personal car and home loans, collateralized personal installment loans, and personal loans for house construction and renovation However, the outstanding credit for other products remained minimal in comparison to the total.
EVALUATION OF THE QUALITY OF PERSONAL LOANS
3.3.1 Evaluation by the general criteria
3.3.1.1 Credit growth of personal loans
Table 3.7 Credit growth of personal loans in LHA Branch (2014 – Q1/2016)
Source: Finance reports of branch 2014 – Q1/2016
Generally, outstanding of PLs had strong and stable growth over the years The figure of outstanding credit of PLs rose to 55.04%, respectively 262 billion in
In 2015, VPBank launched a five-year retail banking strategy aimed at becoming one of the top three retail joint-stock commercial banks in Vietnam by 2017 This strategy focused on enhancing its commercial banking model, streamlining transaction processes, and offering innovative, competitive personal products To navigate a challenging economic environment and low capital absorption among enterprises, VPBank consistently implemented a diverse range of credit programs and packages with competitive interest rates tailored to the market and various customer segments.
Moreover, a comprehensive cooperation agreement with the firms also contributed to the increased number of customers for LHA In 2015, revenues from PLs increased 64.03% against the same period in 2014, reaching 789 billion
The first quarter of 2016 reached 230 billion outstanding loans of PLs, up 23% compared to the same quarter in 2015 Revenues from PLs in Q1/2016 also
Ha Thuy Nga K15.ATCA 23 grew rapidly by 25% from 193 billion to 241 billion over the same period This is a positive sign for growth in 2016 to LHA Branch
3.3.1.2 The structure of outstanding personal loans
From table 3.7, the growth of personal credit businesses in LHA Branch during the period 2014 – Q1/2016 was significant, the period marked a boom in the retail operations of VPB
However, this growth should be considered along with the credit activity of the branch
Table 3.8 The structure of outstanding personal loans LHA
Number Percent Number Percent Number Percent
Source: Finance reports of branch 2014 – Q1/2016
By the end of 2014, outstanding credit for PLs had risen to 476 billion, representing 61.42% of total outstanding loans In response to customer demand, VP Bank focused on delivering innovative and appealing credit products, including super speed loan options and preferential interest rates These offerings provided customers with enhanced access to valuable services, such as loans for officers, auto loans for both new and used vehicles, and mortgage loans against savings books.
In 2014, VPB received 4 prestigious awards by reputable international organizations, including “Best Commercial Bank Vietnam 2014”, “Straight-Through-
Process”, “Best Banking Product Vietnam 2014”, and “Best Trade Finance Bank Vietnam 2014”
In 2015, the branch successfully attracted new customers by offering a remarkable 400 billion in preferential interest rate packages These packages included a 6.99% rate for the first six months, followed by 7.99% for the first year, 8.99% for the first two years, and a final option of 9.99% for the first three years As a result, outstanding loans reached 738 billion, representing 76.08% of the total outstanding credit.
In the first quarter of 2016, VPB maintained its commitment to preferential interest rate programs while introducing a new brand identity system Personal loans surged to 230 billion, representing three-fourths of the bank's total outstanding loans.
Chart 3.1 Revenues and Outstanding Credit of PLs in LHA Branch from 2014 – Q1/2016
Source: Finance reports of branch 2014 – Q1/2016
We consider the growth and structure of personal loans in the form of classification
Table 3.9 Credit growth of personal loans in term of collateral in LHA Branch
Source: Finance reports of branch 2014 – Q1/2016
Over the years, the growth rate of secured loans has steadily risen, with a remarkable increase of 87.89%, reaching a total of 289 billion In contrast, unsecured personal loans (UPLs) also experienced significant growth at 42.78%, although this figure is beginning to decline.
This percentage continued to increase in a positive trend in 2015 when LHA branch performed more tightening measures, requiring collateral for a loan
In 2015, VPB LHA experienced a 40% decline in the growth rate of unsecured loans compared to 2014, reflecting a strategic adjustment in credit policies aimed at mitigating credit risks and enhancing overall effectiveness.
Secured loans with collateral constituted a significant portion of the branch's loan structure, rising from 60.71% in 2014 to 73.58% in 2015 Despite this increase, unsecured loans continued to play an important role, particularly personal loans without mortgages offered to VP Bank staff, loan officers, officials, and members of the People's Armed Forces.
3.3.2 Evaluation by the capital for safe use criteria
It would be evaluated by delinquency and bad debt ratio
Table 3.10 Delinquency rate in the total of delinquencyrate of the branch
Number Percent Number Percent Number Percent
Source: Finance reports of branch 2014 – Q1/2016
From 2014 to Q1 2016, the overdue and bad debt ratio in credit activity showed a positive trend, decreasing by 0.1% Throughout this period, the bad debt ratio for total credit remained below 3%, despite a slight rise from 0.67% to 0.76% in 2015 The economic challenges from previous years, coupled with the sluggish real estate market in 2014, led to financial difficulties for many customers, impacting their ability to repay debts.
VPBank prioritized stringent debt quality control alongside credit growth, ensuring that credit expansion was aligned with high-quality standards The bank successfully implemented a centralized credit approval system and enhanced its advanced scorecard systems, fostering a robust risk management framework This included an early warning system and effective collection mechanisms for both early and late payments As a result, VPBank maintained a safe bad debt ratio, reducing delinquency and bad debt to 2.04% and 0.76% respectively in 2015.
The delinquency rate for personal loans has shown a positive trend, consistently maintained at around 3% and gradually decreasing over the years In 2014, the overdue loan ratio was 2.06%, which further declined to 1.96% in 2015, indicating improved management of personal credit risks within the branch.
The bad debt ratio for personal loans, particularly in Groups 3, 4, and 5, showed a slight increase, rising from 0.69% to 0.83% in 2015 This increase highlights the growing risks associated with unsecured loans, which make up a significant portion of the credit structure.
In the first quarter of 2016, delinquency rate was a negligible proportion, a significant reduction compared to the same period last year
The delinquency and bad debt ratio of credit operations at the LHA branch consistently remained below the industry average, indicating strong credit quality With a rate under 3%, VPB LHA is dedicated to maintaining high credit standards through diligent customer evaluations and effective risk management, ensuring that credit operations are both safe and efficient.
3.3.3 Evaluation by the return criteria
Table 3.11 Return criteria from personal loans in the branch from 2014 to Q1/2016
Source: Finance reports of branch 2014 – Q1/2016
In recent years, the personal debt balance continuously increased, especially in
In 2014, the total outstanding loans reached 476 billion, representing 61.42% of the market share Fortunately, the costs associated with personal loans (PLs) decreased, while revenues experienced consistent growth over the years As a result, profits from PLs rose significantly from 35 billion to 53 billion in 2015.
Expenses for PLs was 81 billion in 2014 and this figure rose to 123 billion in
In 2015, revenues surged from $115 billion to $175 billion, highlighting a growth rate that outpaced cost increases This indicates the branch's effective strategy to minimize expenses while achieving significant revenue growth.
In the last two years, VPB LHA has successfully managed a variety of loans, including home, auto, and unsecured loans, while effectively implementing cultural sales in its new project The branch has minimized operating expenses for PLs, resulting in only a slight increase in costs, which remain low in comparison to the credit growth of PLs.
EVALUATION OF THE EFFICIENCY OF PERSONAL LOANS
Firstly, personal outstanding credit grew considerably and brought high profits to the bank
Personal outstanding credit reached 476 billion in 2014 and this figure rose to
In 2015, the bank's total profits reached 738 billion, with profits from personal loans (PLs) operations increasing by 18 billion compared to 2014 The higher interest rates on personal loans, particularly unsecured personal loans (UPLs), allowed the bank to achieve greater profits from the same capital investment, significantly contributing to the overall profitability of the institution.
Ha Thuy Nga K15.ATCA 30 was also the credit risk in control level so it may become the most interesting activity of the branch in the future
Secondly, the loans were evaluated fairly safe
The delinquency ratio has steadily declined, indicating improved safety levels for loans, largely attributed to collateralized lending Additionally, customers' stable incomes have bolstered the bank's capital recovery capabilities In 2015, while there was a notable rise in medium and long-term loans, the bad debt ratio increased slightly yet remained manageable at under 3% The primary challenge in personal lending lies in insufficient borrower information, complicating the appraisal and evaluation processes.
However, the client assessment of VP Bank was conducted in a scientific and accuracy manner, thanks to modern personal credit management software
Thirdly, system innovation projects with brand identity and the expansion of the retail system brought about positive results
Since 2014, a series of innovations was implemented by banks towards international retail banking standards like launching brand identity campaign and changing excellence retail banking model 4Ps (Product, Place, Process, People)
The bank pioneered E-Banking in Vietnam with its Easy Banking and online retail banking shop, attracting a rapidly increasing customer base due to its convenience, simplicity, and innovative features.
The enhancement of the lending process, alongside advancements in technologies like T24 for loan document management, VPB scoring for credit ratings, and FinOne for credit submission approvals, has enabled the bank to reduce operating costs while sustaining a substantial profit margin However, there are notable limitations and underlying causes that need to be addressed.
Firstly, some of the personal loan products are not really popular with customers
The bank's credit product portfolio is diverse, yet only a few products, including loans for officers, armed forces personnel, and car buyers, have experienced rapid growth In contrast, other offerings like student loans, overdrafts, and installment loans for mobile phones have seen sluggish growth and represent a minor segment of the personal loan market.
VP Bank has yet to fully leverage credit card lending products, despite their growing significance in driving consumer spending, particularly in Vietnam's promising market.
Secondly, although the bad debt ratio of personal loans was still at a safe level but tended to increase slightly over the years
Despite the State Bank of Vietnam's regulations keeping the bank delinquency rate below 3%, the accumulation of overdue medium and long-term loans has complicated debt recovery efforts Additionally, the approval of loans is influenced by the subjective judgments of credit officers Consequently, as personal loans have grown, there has been a slight increase in the bad debt ratio over the years.
Although there were many improvements in the lending process, many customers still complained about it
Many individuals remain psychologically hesitant to engage with bank loan products, despite improvements in attitudes towards banking services This fear significantly impacts the willingness to utilize personal loans, highlighting the importance of addressing psychological barriers in financial decision-making.
Ha Thuy Nga K15.ATCA 32 people have the habit of saving before consumption When having borrowings, they feel the burden of debt repayment obligations so this impatcs personal loans
In a rapidly developing economy, fierce competition among banks is evident as they strive to capture greater market share by investing in modern infrastructure and diversifying their product and service offerings Lending policies have become more flexible, enhancing customer care, marketing, and after-sales services The presence of three major foreign banks—Standard Chartered Bank, HSBC, and ANZ—along with over 30 foreign bank sub-branches operating in Vietnam, intensifies the competitive landscape even further.
Business strategies often incorporate innovation, yet they remain constrained Compared to personal loans, business loans present several advantages; they typically offer larger amounts at lower costs, with substantial profits for lenders In contrast, personal loans tend to incur higher costs and carry greater risks, leading banks to exercise caution in their lending practices.
VP Bank's human resources for personal loans have not adequately trained credit officers in sales skills and retail customer relationships Although personnel have been prepared since 2013 to focus on the retail sector, significant improvements in effectiveness have not been observed Notably, the delinquency ratio for unsecured loans has shown a slight increase over the years Furthermore, the absence of a dedicated credit risk management division has resulted in credit officers being responsible for evaluating, monitoring, and collecting debts.
Inefficient marketing activities hindered the branch's success, despite efforts in 2014 and 2015 that included leaflet distribution and road shows in local markets and crowded residential areas These campaigns ultimately failed to yield effective results.
Ha Thuy Nga K15.ATCA 33 number of customers that is aware of bank’s products is not high Therefore, credit products are not popular, especially UPL
Many advertisements for personal loans emphasize the lending process and features rather than highlighting the benefits these loans offer This oversight can lead to customers overlooking the advantages of personal loans, which is crucial for stimulating demand Consequently, the primary clientele for personal loans tends to be traditional customers or those referred by family and friends.
The last is credit policy
Generally, VPBank’s interest rate is higher than the others’ For example, ANZ’
Interest rates (IR) for unsecured loans range from 18% to 25%, while secured loans have rates between 8% and 12% at MBB In contrast, VPBank presents borrowers with IRs from 20% to 32% for unsecured loans and 13% for secured loans These varying interest rates significantly influence credit activity in the market.
Product policies at VPB lack consistency, leading to challenges in the lending process The Business Intelligence Competency Center is responsible for researching, creating, and modifying credit products to align with customer segments However, the decision-making and announcement processes are slow and inconsistent, causing confusion among staff and complications in executing lending procedures.
SOLUTIONS AND RECOMMENDATIONS
DEVELOPMENT ORIENTATION OF PERSONAL LOANS IN VPB LANG HA
Consumer demand in the economy is growing strongly
Vietnam's economic growth rate is robust, with a GDP of 6.68% in 2015, projected to reach 6.7% in 2016 The country boasts a population exceeding 90 million, characterized by a favorable demographic structure, where the labor force constitutes about two-thirds of the population However, despite high consumption demand, many consumers, particularly the younger generation, face financial constraints, making personal loans (PLs) a vital resource for achieving financial stability.
The field of personal loans have growth potential
On February 4, 2016, Vietnam and 11 other countries signed the Trans-Pacific Partnership Agreement (TPP) in Auckland, New Zealand This agreement, along with the economic growth and tax reduction strategies of the WTO, is expected to drive an increase in automotive demand in the near future By 2020, urban population growth is projected to reach 45% of the national total, significantly boosting the demand for housing and consequently increasing the need for home loans and unsecured loans.
Disadvantages: Some difficulties as SBV will continue to maintain prudent monetary policy when setting credit growth target of 13-15%, which leads to forced competition for the CBs
Although the demand for personal loans is not small, few consumers meet the loan requirements
Many consumers struggle with personal loans due to the lack of a registration book or the inability to prove their income This challenge is compounded by high personal lending rates, which range from 20% to 32%, and stringent lending conditions.
The legal environment is not complete
Legislation and management processes related to Red book issuance and car registration remain complex and challenging, leading to consumer confusion and complicating banks' ability to assess collateral effectively.
The economic environment is not really stable development
Commodity, real estate, automotive prices change constantly Interest rates fluctuate as well, while personal loans are mainly medium and long terms
4.1.2 Development orientation of personal loans
In the future, the branch should prioritize the development of traditional consumer loans linked to utility services, as this lending type has proven to attract a significant customer base and generate substantial profits for the bank By targeting individual customers, the branch can implement tailored policies to effectively grow this segment.
To meet consumers' financial needs, lenders can reduce interest rates or offer preferential rates based on borrowing limits By providing a wider range of products and services, customers can access lower interest rates Additionally, offering insurance for borrowers, increasing credit limits, and developing unsecured personal loans (UPL) can further enhance financial accessibility.
Focusing on young, customer-oriented personal lending is a crucial strategy, as this demographic represents a significant portion of Vietnam's population Young clients have diverse financial needs, including loans for purchasing homes, cars, and consumer goods.
SOLUTIONS TO IMPROVE PERSONAL LOANS IN VPB LANG HA
Based on the analysis of the current state of personal loan operations at the branch, this paper identifies the development-oriented strategies of VPB while forecasting both opportunities and challenges in the coming years Consequently, several solutions are proposed to enhance performance and address potential difficulties.
4.2.1 Improving capacity of credit officers by KPIs
The business has established a robust human capital management foundation by efficiently acquiring top talent and implementing effective training, development, motivation, and reward strategies, leading to successful retention of key employees Currently, the branch benefits from a team of young, well-qualified employees with bachelor's degrees; however, this salesforce lacks experience, product knowledge, and customer relationships Therefore, it is crucial to enhance staff expertise and general knowledge to address the growing needs of customers The bank can adopt several measures to achieve this goal.
Encouraging employees to participate in training and retraining programs is essential for enhancing their professional skills This includes not only providing legal knowledge but also improving their understanding of policies and documents pertinent to credit activities.
Using Key Performane Indicators (KPIs) to measure value, assess the capacity of credit staff Then the branch should have rewards for excellent officers to encourage the others
4.2.2 Improving the quality of the appraising, supervising and monitoring the personal loans
Overdue debts and bad debts often stem from lenient lending practices and inadequate borrower assessments The evaluation process for loans is frequently hindered by incomplete or missing information To address these challenges, financial institutions should enhance their management strategies.
Credit officers must maintain regular communication with customers, ideally once a month, to update essential information regarding their financial status, residence, and family circumstances In the event of any changes that could impact a customer's repayment ability, credit officers are responsible for promptly reporting these developments to the director to implement suitable measures.
A branch can implement a customer database system to securely store essential information, including private details and creditworthiness This system streamlines the process of assessing and appraising customers, significantly reducing time while enhancing accuracy.
Implementing policies on management of safe loans to limit risks
VPB Lang Ha recommends that borrowers securing a loan purchase property insurance for the duration of the loan, designating VPB as the beneficiary For instance, if the collateral is an apartment or land, customers should consider fire and explosion insurance If the collateral consists of vehicles, appropriate insurance for those assets is advised.
Additionally, the branch should establish risk management division which is independent from credit department in order to forecast the risks and take measures to handle debt problems
Effective marketing is crucial for the success of your business, particularly in the banking sector Key marketing activities such as media engagement, advertising, distribution channel establishment, and customer service significantly influence customer psychology, which is often shaped by majority-driven habits.
To enhance its marketing efforts, the bank should leverage mass media channels such as television, newspapers, radio, and social networks The ongoing global technology revolution significantly impacts daily life, making the development of E-banking crucial for improving the bank's competitiveness Investing in mobile and internet banking services is essential for future growth Furthermore, VPB should collaborate with unions, organizations, companies, and enterprises to broaden its marketing network and attract a larger customer base from these sectors.
To enhance efficiency, the Branch should establish a dedicated marketing department focused on researching customer sentiment and promoting the brand professionally This will enable the identification of the right market direction and customer segments, ultimately leading to the implementation of effective strategies.
Ha Thuy Nga K15.ATCA 38 performing market segmentation, developing a strategy to focus on customers who have good incomes
4.2.4 Continuing to improve policies for personal loans
VP Bank has enhanced its personal lending process to better cater to borrowers' needs Nevertheless, there are several recommendations to further improve these loan offerings.
Expanding lending to individual customers
In today's competitive banking landscape, customers are increasingly sensitive to service fees and interest rate changes Retail banking primarily targets individuals with stable wage incomes, often overlooking self-employed individuals and homemakers without regular earnings To broaden its customer base, banks should develop tailored products for business owners and homemakers, provided they meet specific criteria and demonstrate strong moral character.
VPBank can develop loan products tailored for salespeople in major cities, who, despite being self-employed and lacking a fixed salary, exhibit sensitivity to interest rates These individuals, often with stable income sources, are likely to maintain timely repayments if they meet the bank's requirements and demonstrate good creditworthiness.
Developing strategies with reasonable interest rate
In today's highly competitive landscape, where credit products can be easily replicated, interest rates remain a crucial differentiator Therefore, establishing a well-structured interest rate policy is vital for banks to maintain their competitive edge.
VPB should implement a priority lending rate policy tailored for VIP clients, traditional customers, and those with bank accounts To maximize market potential, the bank frequently provides promotions, reduced interest rates, and lucky-draw programs, encouraging increased transactions through E-banking and the online BankStore Supermarket.
4.2.5 Developing and modernizing Electronic Banking system
Digital technology and online channels have been becoming increasingly important and inevitable for customers in banking transactions VPBank should
Ha Thuy Nga K15.ATCA 39 consider digital banking services to be a focal point of the Bank’s development strategy, via three approaches:
Continuous and deep digitization in every traditional banking transactions and services
Strengthening partnerships with financial technology companies with a view to rapidly implementing disruptive, innovative ideas in banking services
Establishing a standalone digital bank to meet the requirements of early- adopters
4.2.6 Diversifying products and enhancing competitiveness
The branch should develop personal loans in terms of the purpose, the form, the customer approach and the repayment method
SOME RECOMMENDATIONS TO IMPROVE THE EFFICIENCY OF PERSONAL
Objective factors significantly influence a bank's credit operations, highlighting the need for attention from relevant authorities to enhance the effectiveness of consumer loans To address this, I propose several key suggestions for improvement.
4.3.1 For VP Bank Lang Ha Branch
The Lang Ha branch operates within the organizational framework of VP Bank, making it directly influenced by the bank's operational policies Consequently, both the Region Director and VP Bank are essential in providing support to the Lang Ha branch.
The credit operation orientation is to improve the quality of personal loans, boosting retail banking services
To enhance the lending process for personal loans, it is essential to tailor flexible lending conditions and credit policies to meet the unique needs of each borrower Additionally, conducting thorough market research is crucial for improving current personal credit offerings and developing innovative new products.
Supporting fund for strengthening the advertisement activities
Implementing the advertising programs, sponsoring events to help popular brand of VPB, creating favorable conditions for the branch to attract more customers
Performing review of personal loan product packages to reduce ineffective product
Fostering rapid expansion of core customer segments and selected market segments as defined in the Bank’s strategy
VPBank emphasizes the need for comprehensive guidelines and targeted strategies for personal loans to navigate intense competition and diverse consumer needs This includes enhancing the lending framework for overseas employees and expanding offerings in automobile loans.
To enhance competitiveness and attract top talent, the bank must complete its salary regime and recruitment strategies Additionally, it is essential to cultivate a professional workforce that exhibits agility and efficiency in the inspection of operational documents and collateral, thereby preventing mispricing and mitigating the risks of illegal procedures.
Giving regularly the priority policy for the credit staff for living conditions as well as the financial support packages with preferential interest rates
Making a difference in business operations based on product factor, diversifying products
Simplifying lending process and requirements for borrowers
Enhancing its advanced technology system to ensure smooth support for rapid business growth and service quality improvement
Focusing on high performance quality and efficiency in every key aspect, considering reducing or offering preferential interest rate in the fierce competition environment
Creating the link between Bank – Insurance – Customer to limit credit risks
Innovating and modernizing banking technology to save costs, serve customers more conveniently and increase customer satisfaction with services of VPBank
In theoretical basis, analyzing the situation at VP Bank Lang Ha Branch, the paper focuses on solving some of the following issues:
The first is some theoretical basis for the personal credit operation of commercial banks in general and applying to analyze as well as clarify the research problems
The thesis examines the status of personal loans at VPBank LHA Branch from 2014 to Q1 2016, highlighting that while VP Lang Ha has taken appropriate steps aligned with market trends, it faces limitations due to customer financial evaluations and intense competition among banks.
To enhance personal loans at VPB and specifically LHA, it is crucial to implement solutions that improve the evaluation processes and training of credit officers through key performance indicators (KPIs) Additionally, focusing on the quality of loan products will help mitigate credit risks effectively.
In the highly competitive and ever-changing economic landscape, VP Lang Ha requires assistance from relevant authorities to enhance personal loan offerings, address consumer demands, and ultimately improve the quality of life for individuals.
In 2016, VPBank Lang Ha faces both opportunities and challenges that will shape its operations With a strategic business approach, responsiveness to market changes, and strong leadership from the board of directors, the dedication of loan officers will play a crucial role in driving sustainable development for both VPBank and VPB LHA in the future.