BACKGROUND OF THE STUDY
INTRODUCTORY
In the fast-paced environment of modern life, Vietnam is transforming from a developing agricultural nation into a more advanced economy through economic integration and increased competition This shift presents both significant challenges and opportunities for the Vietnamese people, motivating them to strive for new successes As individuals invest in various sectors such as agriculture, industry, and services to generate profits, many lack substantial liquid assets, primarily relying on real estate and financial instruments Consequently, they turn to banking services to meet their financial needs The rapid growth of the banking sector has made it easier and more convenient for customers to access the services they require.
Many customers are hesitant to mortgage their properties for loans due to the risk of losing them in adverse situations With busy lives, they prefer quick and simple solutions, leading them to choose unsecured loans over secured ones However, unsecured loans have not gained popularity in the Vietnamese banking system, forcing customers to turn to other credit institutions like FE Credit and HD Finance, which often charge exorbitant interest rates In response to this demand, banks are focusing on developing lending products tailored for individuals, particularly unsecured loans, resulting in increased popularity of this loan type.
Vietnam's banking system features a variety of institutions, including state-owned banks, urban joint-stock commercial banks, foreign banks, and joint ventures As the country continues to integrate economically, I have chosen to apply for a position as a customer relationship officer at Australia and New Zealand Banking.
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ANZ, an international bank, is focused on differentiating its operational strategies from those of domestic banks A noticeable trend in the current banking system is the emphasis on serving individual customers rather than businesses, despite the smaller loan sizes for individuals This shift, however, allows banks to diversify and mitigate credit risks through a higher volume of personal loans.
In a recent practice session at ANZ Hanoi, it was observed that the unsecured loan sector is encountering significant challenges, failing to align with its potential growth Consequently, I have chosen to conduct research on the advantages and disadvantages of offering unsecured loans at ANZ's third branch in Hanoi, which will be a key focus of my graduation thesis.
THESIS OBJECTIVES AND RESEARCH QUESTIONS
This thesis analyzes the performance of personal loans, particularly unsecured loans, within the Australia and New Zealand Banking Group It combines theoretical insights with practical assessments to evaluate the current situation of personal credit Additionally, the study offers recommendations to improve personal credit offerings.
SCOPE AND LIMITATION
This study examines the unsecured loan activities of the Australia and New Zealand Banking Group from 2014 to the first quarter of 2016 It will specifically focus on various products, their sizes, and specific criteria to assess the efficiency of these loans, incorporating relevant literature for a comprehensive review.
RESEARCH METHOD AND DATA COLLECTION
The main research’s approach could be identified as:
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Summarizing information gathered in all media means
THESIS STRUCTURE
The paper included four chapters following:
Chapter 1 Background of the study
Chapter 2 Theoretical background of unsecured loan activities
Chapter 3 Real statistics and analyzation of unsecured lending activities in Australia and New Zeland Bank in the Southern of Vietnam
Chapter 4 Recommendation and solution to improve the current unsecured loan situation
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BACKGROUND OF UNSECURED LOAN
An unsecured loan is a type of financing that does not require collateral, relying solely on the borrower's creditworthiness To qualify for an unsecured loan, borrowers typically need to possess a strong credit rating, as this is a key factor in the approval process.
According to the current situation of baking sector, banks are capable of varying unsecured loan into some types as mentioned below:
2.1.2.1 Unsecured loan belong to income
Customers with a stable monthly income can qualify for unsecured loans from banks, which provide a straightforward way to access funds To apply, customers need to demonstrate their monthly earnings and confirm whether they receive their salary through a banking system Banks assess the applicant's documentation, particularly their bank statements or pay slips, to determine the loan amount and repayment terms.
2.1.2.2 Unsecured loan belong to the limit of credit cards
A credit card is a financial tool issued by banks that allows the holder to borrow funds for purchases, with the obligation to repay the bank at the end of a specified period The credit limit set by the issuer can reflect the bank's trust in the cardholder's financial responsibility; a low limit may suggest limited confidence, while a high limit indicates belief in the individual's ability to manage debt Consequently, a customer's credit card usage serves as a clear indicator of their financial capacity, providing banks with tangible evidence for lending decisions.
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2.1.2.3 Unsecured loan as overdraft loan
An overdraft is a credit extension from a bank that permits account holders to withdraw funds even when their balance is zero This facility allows individuals to borrow a predetermined amount, enabling continued access to money despite insufficient account funds Importantly, an overdraft is considered an unsecured loan, where customers are only required to pay interest based on the amount used and the duration of the borrowing.
A key service offered by banks is the provision of loans to individual customers without requiring personal property as collateral, which plays a crucial role in the banking sector Although this type of loan poses significant risks for commercial banks, it remains a focus alongside developmental strategies The following highlights the unique features that set this lending activity apart from other loan types.
Many individuals prefer applying for unsecured loans with lower amounts, as these loans are flexible enough to meet their consumption needs The limited loan amounts are also influenced by the borrowers' creditworthiness, which restricts the lending capacity This characteristic of unsecured loans has attracted a significant number of interested borrowers, enhancing their trust in this type of financing option.
Unsecured loans are personal loans accessible to both homeowners and tenants, making them an ideal choice for those unable to secure traditional loans Tenants benefit significantly from unsecured loans, as they cannot provide collateral, while homeowners who prefer not to use their property as security can also find relief from financial challenges through this loan type.
Borrowing objectives are driven by the consumption needs of individuals and their families, significantly influenced by their economic environment and psychological factors In a stable and growing economy, these influences become even more pronounced, shaping customer behavior and lending decisions.
Nguyen Thi Thanh Hai highlights that during periods of economic growth, individuals generally maintain a positive outlook and anticipate higher income levels, which motivates increased spending In contrast, economic recessions lead to currency instability, diminishing consumer confidence and prompting customers to prioritize saving over borrowing from banks.
Unsecured loans typically carry higher interest rates compared to other loan types offered by commercial banks This is primarily due to their reliance on the borrower's creditworthiness, which exposes banks to greater risk in case of defaults Additionally, because these loans often involve lower amounts and consistent or increasing fees throughout the approval process, banks tend to set higher interest rates to accommodate various costs associated with lending.
The credit limit for unsecured loans represents the maximum amount banks can offer to borrowers This limit is determined by various factors, including the borrower's personal needs, income, credit history, and overall creditworthiness.
Unsecured loans are favored by many borrowers due to their swift application processing times Since these loans do not require property assessment or collateral, much of the paperwork is simplified, allowing for a quicker loan approval process.
The absence of collateral in unsecured loans accelerates the approval process, allowing borrowers to receive funds swiftly This quick turnaround makes unsecured loans ideal for those in need of immediate cash.
FACTORS AFFECTING UNSECURED LOAN
2.2.1.1 Legal framework of Vietnam central bank
Effective policies that encourage domestic investment and attract foreign investment can significantly boost economic growth, lower unemployment rates, and enhance income levels for workers Additionally, long-term factors play a crucial role in influencing personal credit.
Nguyen Thi Thanh Hai – ATCA K15 Page 7 demand
Over the past century, the growth of the global economy has motivated individuals to continually invest in and develop various aspects of their lives This has led to the establishment of financial institutions and the significant use of secured loans before the emergence of unsecured loans In Vietnam, unsecured loans are a relatively new concept, creating a competitive landscape among financial institutions, particularly within the banking sector Key factors driving this competition include interest rates, credit limits, approval processes, and administrative timelines.
To attract a significant number of potential customers, banks streamline administrative processes by simplifying legal documentation related to income verification, temporary residence addresses, and credit ratings In today's fast-paced world, individuals are overwhelmed with work and seek to simplify their financial interactions, making efficient documentation processing a key factor in customer acquisition.
Credit limit proved for the customers applying an unsecured loan is lower than that for secured loan
2.2.1.3 Specialized skills of bank staffs
Careers in finance offer rewarding and lucrative opportunities, but they also come with high pressure and demanding challenges due to the emotional and mental demands of the field Credit staff play a crucial role in consulting borrowers and managing funds, directly influencing the bank's reputation and the success of loan agreements Additionally, banks must adhere to financial policies and regulations set by the State Bank of Vietnam and the government A skilled workforce is essential for the effective operation of credit activities, particularly lending, which helps mitigate credit risks for both customers and the bank In the recruitment process, firms prioritize five key skills that are essential for bank staff, along with relevant areas of study that can help candidates develop these competencies.
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A strong intellect, particularly in analytics, mathematics, finance, and economics, is essential for a credit officer, as it aids in fulfilling various job requirements While extreme intelligence is not necessary, intellectual curiosity is vital; it encourages credit officers to not only excel in their specific roles but also to understand how their work integrates with that of colleagues and other factors in the broader context This curiosity drives them to tackle complex problems and develop innovative solutions tailored to their unique situations.
While the media frequently highlights the lucrative salaries of credit staff, it often overlooks the long hours, hard work, and self-discipline required to achieve these rewards Credit professionals, from entry-level positions to top sellers, operate in high-pressure environments, necessitating the ability to perform under intense scrutiny and demands Although some of these traits may be innate, they can also be cultivated through life experiences and the successful completion of challenging tasks.
In today's globalized world, broad-mindedness enhances cultural understanding and is essential for working in international business Proficiency in multiple languages, particularly in fields like investment banking, is a highly valued skill Academic backgrounds in sociology and anthropology, combined with advanced linguistic abilities—such as fluency in languages like English or Japanese—are increasingly sought after Participating in study abroad programs is an excellent way to develop these essential skills.
Relationship building is a crucial skill for credit staff, as it significantly impacts client acquisition and retention Developing strong social and relationship-building abilities is essential, especially when navigating challenging interactions and high-pressure situations Maintaining a positive attitude and high energy can foster sustainable connections with clients, even in difficult circumstances.
Nguyen Thi Thanh Hai from ATCA K15 emphasizes the importance of meeting monthly targets set by managers, which aids in the development and maintenance of valuable data on existing clients Consequently, strong interpersonal skills are essential for credit staff to achieve success in their roles.
An unsecured loan is primarily based on the borrower's creditworthiness, leading many banks to approve loans only for customers with stable incomes For instance, individuals with a high average monthly income of around 10 million dong may still be deemed ineligible if their income fluctuates significantly over recent months, such as earning 2 million, 15 million, and 13 million dong consecutively.
Unsecured loans typically have higher interest rates compared to secured loans backed by property Customers generally seek to obtain necessary funds while minimizing interest costs Banks offering competitive interest rates on loans provide significant advantages to borrowers, making them a more attractive option.
The Credit Information Center (CIC) is an institution managed by the central bank of Vietnam, responsible for collecting, recording, analyzing, and restoring credit information for individuals and businesses As a key component of the banking system, banks are required to submit all relevant documentation regarding loans, borrowers, credit limits, and settlement processes to the CIC This information is maintained in the CIC's database, influencing customers' future credit activities Consequently, individuals with a poor credit history may face significant challenges when applying for new loans.
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SOME INDEXES AFFECTING APPROVAL PROCESS
To determine suitable loan limits and terms, banks analyze customers' average income over the past three months alongside their credit history This assessment categorizes customers into three groups, allowing bank staff to estimate their debt repayment capacity effectively.
Table 2.1 Average income amount of customers
- I : the average income amount of customer calculated during the 3 most recent months
- A: a rate created from ANZ reflects the total ability to repay a debt amount corresponding to the financial capacity of borrowers
- D: the amount of money customers have to pay for other credit institutions per month ( in some cases that customers have no relationship with any credit institutions, D = 0 )
- Cr: the average limit of all credit card the customer owning
2.3.2 Bad debt ratio of personal loan
Loans are classified into five groups as follows:
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Standard debts, according to the Bank’s assessment, could be fully recovered by both principal and interest, when they come to due date
Debts which are overdue for less than 10 days, according to the Bank’s assessment, both overdue principal and interest could be fully recovered in accordance with the remaining repayment schedule
Debts are overdue from 10 days to 90 days
First time rescheduled debts, according to the Bank’s assessment, including both principal and interest could be fully recovered within the rescheduled term
Debts are overdue from 91 days to 180 days
Loans characterized by borrowers exhibiting identifiable weaknesses that may threaten repayment are known as high-risk loans Financial institutions heavily depend on the available collateral to secure these loans, which are further categorized into two distinct subgroups.
• Loans where some lost, either principal or interest, is possible after taking account of market value of security
• Rescheduled loans where concessions have been made to the customers on interest or principal such as to render a loan “non- commercial” to the banks
Banks should allocate specific provisions for certain accounts while also maintaining general provisions based on the value of any collateral It is advisable for banks to accrue interest to a suspense account instead of the profit and loss loan account If interest has been overdue for a significant period, it may be prudent not to accrue interest at all.
Debts are overdue from 181 days to 360 days
This refers to loans where collection in fill is improbable and the institution expects to sustain a loss of principal and/or interest, taking account of
Nguyen Thi Thanh Hai emphasizes the importance of accurately assessing the market value of securities and making specific provisions for anticipated losses Additionally, it is crucial to halt the accrual of interest on these loans or transfer it to a suspense account.
Debts which are overdue for more than 360 days
Loans deemed uncollectible occur after all collection efforts, including collateral realization and legal proceedings, have been exhausted Any outstanding principal and interest that cannot be recovered from the collateral's market value must be fully written off Additionally, interest on these accounts should no longer be accrued.
"Bad debt" refers to the debts categorized under Groups 3, 4, and 5, and the bad debt ratio is a key indicator of the credit quality within financial institutions Often referred to as the delinquency rate, a higher bad debt ratio signifies weakened and ineffective personal loan activity.
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REAL STATISTICS AND ANALYZATION OF UNSECURED
GENERAL BACKGROUND OF AUSTRALIA AND NEWZELAND BANK
ANZ boasts a rich heritage spanning over 180 years, operating in 34 global markets including Australia, New Zealand, Asia, the Pacific, Europe, America, and the Middle East As one of Australia's top four banks and the largest banking group in New Zealand and the Pacific, ANZ ranks among the world's top 50 banks The bank's world headquarters is situated in Melbourne, where it originally opened as the Bank of Australasia in Sydney in 1835.
1838 and our history involves many different banks
ANZ has been dedicated to Vietnam since 1993, being one of the first foreign banks to establish a presence in the country With eight branches, transaction offices, and a savings kiosk in major cities like Hanoi and Ho Chi Minh City, ANZ Vietnam caters to a diverse range of customers, including retail, wealth management, consumer finance, institutional, and commercial clients.
750 employees, and named the Best Retail Bank in Vietnam in The Asian Banker’s International Excellence in Retail Financial Services Awards 2013
In 2008, ANZ was among the first three fully foreign-owned banks to receive a banking license from the State Bank of Vietnam, enabling its local incorporation This license facilitated ANZ's expansion strategy in Vietnam, resulting in the establishment of additional branches and representative offices in Hanoi and Ho Chi Minh City in 2009.
ANZ Vietnam serves as a crucial hub for the Greater Mekong Region, which encompasses Vietnam, Cambodia, Laos, Thailand, and Myanmar This strategic position is integral to the Bank's broader super regional strategy, facilitating connections among customers across these countries.
Nguyen Thi Thanh Hai – ATCA K15 Page 14 with markets across the region
ANZ’s key corporate responsibility initiatives, namely Money Minded Vietnam, Project 3E and our partnership with Blue Dragon Children’s Foundation, focus on developing the local communities we serve
Money Minded is our flagship adult financial education that helps people improve their financial skills, knowledge and confidence
Project 3E, an educational initiative launched in November 2013 in collaboration with the Saigon Children's Charity and the local government, focuses on Educate, Enrich, and Employ This three-year program aims to sustainably provide quality education to over 4,000 disadvantaged children in the Long My district of Hau Giang province, Vietnam.
In partnership with Blue Dragon, we are dedicated to offering financial assistance and volunteer support to over 2,000 underprivileged children, including homeless street children, through the community initiative known as Blue Dragon House.
Relationship Banking – corporate and institutional banking, mergers & acquisitions
Global markets and loans encompass a range of services including structuring and customer solutions, corporate and institutional sales, and commodities solutions These offerings extend to wealth distribution, trading, debt capital markets, syndications, structured leasing, and asset finance Additionally, project and structured finance, along with structured export finance, play a crucial role in facilitating financial transactions and investments.
Transaction banking – trade and supply chain, payments and cash management, and clearing services
Relationship Banking - Signature Priority Banking
Products - current and savings accounts, bank assurance, term deposits, dual currency investment, foreign exchange, structured deposits, credit cards, unsecured lending and mortgage
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3.1.2 Organizational structure of HN3 – ANZ
Diagram 3.1 Organizational structure in HN3 – ANZ
Source: The internal documents for ANZ Bankers
The Sales Division is dedicated to identifying customer demand and facilitating the sale of products and services This department gathers essential customer information and uploads legal documents into the processing system for the Credit Assistance Division to handle The Sales Division operates through three main groups: direct sales, telesales, and exhibitions.
Direct sales involves marketing and selling products directly to consumers outside of traditional retail settings This approach requires effective customer relationship management, which includes engaging with customers in various environments such as shopping malls, businesses, and through online marketing programs By directly consulting and attracting customers, businesses can build strong relationships and drive sales effectively.
Telesales is a direct marketing strategy where salespeople engage potential customers by promoting products or services through phone calls, often leading to in-person meetings or web conferences Additionally, telemarketing may involve automated systems that deliver pre-recorded sales messages via automatic dialing.
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Exhibition is an organized presentation and display of salesmen to deliver some information surrounding loan products at shopping malls
The Credit Assistance Division plays a vital role in managing customer credit by conducting credit checks and processing applications Credit assistants are tasked with collecting overdue payments, establishing credit lines, setting credit limits, and addressing customer inquiries regarding account issues and product eligibility Additionally, they maintain accurate customer data in electronic databases and respond to general credit-related questions, ensuring a smooth and efficient credit management process.
The Verification Division for unsecured loans at ANZ operates centrally in southern Vietnam, eliminating the need for staff to visit customer addresses directly After reviewing documents, the team conducts phone calls to the customers' relatives and human resources to gather additional information Additionally, they analyze customers' monthly income to determine and propose an appropriate loan limit.
Branches are strategically located to meet customer demands promptly When customers are approved for a loan, they typically visit branches to withdraw funds, ensuring they have their identification card on hand.
3.1.3 General features of unsecured loan product in HN3 - ANZ
3.1.3.1 Loan standards for eligible customers
- Customers can be granted a loan without the use of property and supported only by the borrower's creditworthiness, rather than by a type of collateral
- The main goal to provide loan is to support for personal consumption like house repair, shopping, marriage, tuition, ect
- Customers with Vietnamese nationality do not accommodate in the United State over 183 days during a financial year
- Customers have temporary residence address or permanent address in Hanoi
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- Through the time customers applying loan at ANZ They are in age group of 21-55 for female and 21-60 for male
- The month income(details in the three most recent months) are over 8 million before taxes
- The time working in current workplace is just over 6 months and the total working period is over 1 year
Table 3.1 Interest rate policy for unsecured loan in ANZ
Tenor Loan amount Interest rate
25 - 500 million dong with amount equal to 10 times of income
50 – 199 million dong 22.5% for tenor of 12-48 months 19.5% for 60 tenor of 60 months
Over 200 million dong 20% for tenor of 12-48 months
Source: The internal documents for ANZ Bankers
ANZ offers two types of unsecured loans, excluding overdrafts, with interest rates ranging from 17% to 24%.
Case 1: ANZ determines that if the loan contract of customers is accepted with a loan amount under 50 million dong, the lending interest rate applied is 24% for all tenors
Case 2: ANZ determines that if the loan contract of customers is accepted with a loan amount of 50-199 million dong, the lending interest rate applied is
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22.5% for tenors of 12 months, 24 months, 36 months,48 months and 19.5% for tenors of 60 months
ANZ has established that for loan contracts exceeding 200 million dong, the applicable lending interest rate is set at 20% for durations of 12, 24, 36, and 48 months, while a lower rate of 17% applies for other specified tenors.
- Some occupations are not provided unsecured loan like sailors who often or sometimes work on board, people who belong to military except for Viettel enterprise and MB bank
RECOMMENDATION AND SOLUTION TO IMPROVE THE
SWOT OF PROVIDING AN UNSECURED LOAN
4.1.1 SWOT analyzation of unsecured loan for banks
Individual consumption significantly drives economic growth When a new product line is launched and attracts a large consumer base, it creates higher demand, prompting manufacturers to increase production This rise in supply contributes to robust economic expansion Understanding the factors behind economic growth, banks are enhancing loan products that do not require collateral As unsecured loans become more prevalent, consumer spending capacity increases, further stimulating both domestic and global economies.
The primary role of the modern banking system is to generate funds by accepting deposits from individuals with surplus money and providing loans to those in need, ultimately aiming for profit Achieving this objective necessitates thorough market research by bank staff on various loan products tailored for businesses and individuals Currently, there is a growing emphasis on personal loan products, as individual borrowers play a crucial role in assessing a bank's reputation, given that word-of-mouth marketing is highly effective Consequently, banks are increasingly focusing on projects aimed at individual customers, particularly in the area of unsecured loans.
Many banks now offer private unsecured loan products to remain competitive, as other financial institutions introduce loans with enhanced features Additionally, this approach helps banks mitigate credit risks by ensuring they receive both principal and interest payments on a monthly basis.
Nguyen Thi Thanh Hai – ATCA K15 Page 33 basis Subsequently, the banks will use this amount of money for signing another loan contract to get profit again
Unsecured loans are the most common form of lending globally, but they have only recently been introduced to the Vietnamese market As a result, the Vietnamese unsecured loan sector faces challenges such as identifying high-potential customers without bad debts, dealing with high interest rates, and the need for improved staff training and customer service skills.
High interest rates pose a significant challenge for banks, as they seek to mitigate risks and increase profits, particularly when borrowers lack collateral for mortgages Additionally, the emergence of this loan type means that banks are still working to build customer trust, making it difficult to identify eligible borrowers.
The central bank of Vietnam is set to introduce new circulars that will establish regulations for lending activities of financial institutions, particularly focusing on consumer credit These changes may lead to the separation of unsecured loans from the banking system, transferring them to credit organizations Consequently, banks are increasingly forming small credit institutions under their management to enhance their lending capabilities, as seen with ACB, BIDV, and Sacombank Additionally, some banks are acquiring financial companies for restructuring and diversifying their business strategies, exemplified by ACB's plan to launch a general financial limited company with a charter capital of 500 billion dong and Maritime Bank's acquisition of Fabric Company last year.
Mr Nguyen Dinh Tung, the General Director of Orient Commercial Joint Stock Bank (OCB), emphasized that the current market is segmented into various customer classes, each requiring high-quality products and efficient processing To enhance productivity and effectively meet customer demands, it is essential to establish a dedicated group focused on consumer loan products.
Nguyen Thi Thanh Hai – ATCA K15 Page 34 highlights the importance of risk prevention in the face of domestic market fluctuations Additionally, numerous foreign financial companies from Japan and Russia are looking to enter and expand their product offerings in Vietnam.
The emergence of new financial companies in Vietnam's banking system fosters flexibility in the financial market, allowing commercial banks to better manage credit risks This shift simplifies the central bank's ability to regulate cash flow Additionally, unsecured loans for consumers are typically small and short to medium-term, leading many borrowers to overlook high-interest rates due to the advantages of quick approval and the absence of collateral requirements.
Using property as collateral for a loan can be risky, as failing to repay the loan may result in losing the asset In contrast, unsecured loans do not involve any property as security, eliminating the risk of asset loss.
So, this type of loan is a risk-free option of raising necessary funds
In 2013, Stox Plus reported that the total financial capacity of Vietnam's credit market reached approximately 188 trillion dong, reflecting a credit growth of 12% and contributing 5.4% to the GDP The report highlighted that a significant portion of debt is tied to secured loans, primarily for cars, houses, and real estate, with only 4% of contracts being unsecured This underscores the need for credit institutions to implement promotional campaigns and innovative strategies to attract a broader customer base.
To effectively attract customers, it is essential to launch a diverse range of product lines while simultaneously prioritizing exceptional customer service, as this serves as a vital communication channel with existing clients.
4.1.2 Advantages and disadvantages for customers using unsecured loan
4.1.2.1 Advantages for customers using unsecured loan
Unsecured 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
Nguyen Thi Thanh Hai – ATCA K15 Page 35 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 documents required : Normally, personal loans don not need much documentation, especially unsecured loan Hence the processing time is quicker
The other advantage of unsecured loan is no collateral or security needed:
No need for security is required to obtain this loan and the loan tenure is much shorter compared to home loan or car loan
Installment repayments involve monthly interest payments and principal repayments, either on a monthly basis or at maturity, typically spanning the long term A longer amortization period, such as 20 years, results in lower monthly payments, making them more manageable for borrowers.
4.1.2.2 Disadvantages for customers using unsecured loan
Unsecured loans typically come with high interest rates due to the increased risk for lenders, as these loans are not backed by collateral Borrowers with poor credit ratings often face elevated costs when seeking unsecured bad credit loans, while those with good credit can secure more favorable interest rates, making borrowing less expensive.
Unsecured loans lack flexibility, as borrowers must commit to fixed monthly payments, such as £300 over five years This rigid repayment structure prevents adjustments to lower payments and incurs early repayment fees if the loan is paid off ahead of schedule.
The movement of bad debt ratio in group 2-5 in HN3 - ANZ 2014- Q1/2016
Source: Financial report in HN3 – ANZ 2014 – Q1/2016
The analysis of the chart and Table 3.4 reveals an inverse relationship between the bad debt rate and lending activities at HN3 – ANZ In 2015, the bad debt ratio increased significantly from 1.61% to 6.54%, but subsequently decreased by 0.78% to 5.76% in the first quarter of 2016 During this period, the volume of unsecured loans supported by HN3 – ANZ rose from 1,148 to 1,511, indicating a strong recovery following a minor financial crisis in risk management in 2015 By implementing effective measures, HN3 – ANZ successfully lowered the bad debt rate to 5.76% in early 2016.
HN3 – ANZ is seeking to expand its credit operations within a competitive domestic banking market, despite the challenges posed by outstanding credit The low delinquency rate, calculated by the ratio of loans with delinquent payments to the total number of loans held, indicates an improvement in the quality of credit officers and credit risk managers.
Bad debt ratio in HN3 - ANZ 2014 - Q1/2016
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When evaluating a loan application, banks consider various factors, with the Debt Service Ratio (DSR) being a crucial element The DSR is determined by four key components: average income, debt repayment rate, existing debts with other financial institutions, and the average credit card limit For a clearer understanding, let's delve deeper into the specifics of this index.
Customer A has received payments of 18 million dong, 19 million dong, and 14 million dong over the past three months Seven months ago, he signed a loan contract for 150 million dong with Techcombank, committing to monthly payments of 1.6 million dong for both principal and interest Additionally, he holds two credit cards from Vietcombank and ACB, with limits of 30 million dong and 20 million dong, respectively This information highlights Customer A's debt repayment capacity.
The average income amount: I = = 17 >16 (million dong)
The average limit for credit cards A using: Cr = = 25 (million dong)
Customer A has 7.35 million dong available to settle his loan application with the bank Based on the eligibility criteria, the bank will determine a suitable loan limit and repayment term for him.
The table below indicates the non-approval rate at HN3 – ANZ due to the loan contract does not adapt to DSR index:
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Table 3.6 The non-approval rate at HN3 – ANZ 2014 – Q1/2016
Number Percent Number Percent Number Percent
Source: Financial reports in HN3 – ANZ 2014 – Q1/2016
The data indicates a notable decline in the non-approval rate at HN3 – ANZ, decreasing from 13.6% in 2014 to 11.3% in 2015, and further dropping to 5.5% in early 2016 While this figure represents only a quarter of the year and may not fully capture the overall financial landscape, it signals positive progress in the development of unsecured loans at HN3 – ANZ, as well as improvements in the specialized skills of bank staff over recent years.
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CHAPTER 4 RECOMMENDATION AND SOLUTION TO IMPROVE THE CURRENT UNSECURED LOAN SITUATION
4.1 SWOT OF PROVIDING AN UNSECURED LOAN
4.1.1 SWOT analyzation of unsecured loan for banks
Consumer spending significantly drives economic growth, as evidenced by the launch of new product lines that attract numerous buyers, leading to increased demand This heightened demand encourages manufacturers to continue production, contributing to substantial economic expansion Understanding the factors behind economic growth, banks are enhancing their loan products, particularly unsecured loans that do not require collateral The development of unsecured loans boosts consumer purchasing power, thereby stimulating both the domestic and global economy.
The primary role of the modern banking system is to gather funds by accepting deposits from individuals with surplus money and providing loans to those in need, generating profit in the process Achieving this objective requires bank staff to conduct thorough research on various loan products tailored for businesses and individuals Recently, there has been a notable shift towards focusing on personal loan products, as individual borrowers play a crucial role in assessing a bank's reputation, with word-of-mouth marketing proving to be highly effective Consequently, banks are increasingly launching initiatives aimed at individual customers, particularly in the realm of unsecured loans.
Many banks now offer private unsecured loan products to stay competitive, as other financial institutions introduce loans with enhanced features Additionally, this approach allows banks to mitigate credit risks by ensuring they receive both principal and interest payments on a monthly basis.
Nguyen Thi Thanh Hai – ATCA K15 Page 33 basis Subsequently, the banks will use this amount of money for signing another loan contract to get profit again
Unsecured loans are the most common form of lending globally, but they have only recently become available to the public in Vietnam Consequently, the Vietnamese market faces unique challenges, including identifying reliable customers with no bad debts, managing high interest rates, and improving staff's customer service skills.
High interest rates pose a significant challenge for banks, as they aim to mitigate risks and increase profits, particularly when borrowers lack collateral for mortgages Additionally, the novelty of this loan type has hindered banks from establishing trust with customers, making it difficult to identify qualified borrowers.
The central bank of Vietnam is set to introduce new circulars that will establish rules for lending activities by financial institutions, particularly focusing on consumer credit These regulations may lead to the separation of unsecured loans from the banking system, shifting responsibility to credit organizations In response, banks like ACB, BIDV, and Sacombank are increasingly establishing small credit institutions under their management or acquiring other financial companies for restructuring and diversification, such as HD Bank, Maritime Bank, Techcombank, and SeA Bank For example, ACB plans to launch a general financial limited company with a charter capital of 500 billion dong, while Maritime Bank acquired Fabric Company last year.
Mr Nguyen Dinh Tung, General Director of Orient Commercial Joint Stock Bank (OCB), emphasized the need to categorize customers into distinct classes, highlighting their demand for exceptional products and swift processing To enhance productivity and effectively meet customer needs, it is essential to develop a specialized group focused on consumer loan products.
Nguyen Thi Thanh Hai from ATCA K15 highlights the importance of risk prevention in the face of domestic market fluctuations Additionally, foreign financial companies from Japan and Russia are strategizing to enter and expand their product offerings in Vietnam.
New financial companies are fostering a flexible shift in Vietnam's banking system, aiding commercial banks in spreading credit risks and simplifying cash flow management for the central bank Additionally, unsecured loans for consumers are typically small and short to medium-term, leading many borrowers to overlook high interest rates due to the advantages of quick approval and the absence of property collateral requirements.