Enhancing efficiency of credit operation at vietnam bank for industry and trade ( vietinbank) badinh branch,

STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty  GRADUATION THESIS ENHANCING EFFICIENCY OF CREDIT OPERATION AT VIETNAM BANK FOR INDUSTRY AND TRADE (VIETINBANK) – BA DINH BRANCH Student Lecturer Class Student ID : : Nguyen Duy Quang : : Tran Thi Xuan Anh (M.A) : ATCA – K14 : 14A7510289 20th May 2015 DECLARATION I declare that this thesis is the product of my own work and has not been previously submitted for my degree or examination in any other university All the sources I have used have been indicated and acknowledged by means of complete references Signature : Date : DEDICATION This thesis is dedicated to my beloved family and my precious friends for their tremendous spiritual support and encouragement ACKNOWLEDGEMENTS I would like to convey my heartfelt thanks to my beloved instructor as well as my mentor, Ms Tran Thi Xuan Anh, M.A, for her great inspiration, constant guidance and valuable support In spite of her busy schedules, she always found time to guide me through the thesis I also owe my deepest gratitude to all of my teachers at Banking Academy of Vietnam, especially those of the Faculty of Foreign Languages Last but not least, I offer my regards and blessings to all of those who supported me in any respect during the completion of the thesis Because of time constraints and limited capacity of the writer, this thesis will certainly not be free from defect Therefore, it is my hope that lecturers and readers of the thesis will sympathize and offer further contribution to it Hanoi, May, 2015 NGUYỄN DUY QUANG TABLE OF CONTENTS Content Page ACKNOWLEDGMENT TABLE OF CONTENTS LIST OF TABLES & FIGURES LIST OF ABBREVIATIONS CHAPTER ONE: INTRODUCTION 1.1Rationale of the study 1.2 Status Of Research 1.3 Aims Of The Study 1.4 Research questions 1.5 Research methodology 1.6 Thesis Structure CHAPTER TWO: LITERATURE REVIEW 2.1 Credit activities of commercial banks 2.2 Forms of Bank Credit 2.3 The quality of bank credit 10 2.4 The evaluating indicators of credit quality 13 CHAPTER 3: BANK CREDIT OPERATION AT VIETNAM 18 BANK FOR INDUSTRY AND TRADE (VietinBank) – BA DINH BRANCH – HA NOI 3.1 Introduction to Bank Credit Operation at Vietnam Bank For 18 Industry & Trade (VietinBank) – Ba Dinh Branch – Hanoi 3.2 Factors affecting the credit quality and business activities of 22 Vietnam Bank For Industry & Trade 3.3 Results from operating activities at Ba Dinh Branch – Vietnam 33 Bank For Industry and Trade 3.4 Situations of credit quality at Vietnam Bank For Industry & 38 Trade – Ba Dinh Branch 3.5 Assessment in the credit quality in Ba Dinh Branch CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO 44 49 IMPROVE THE QUALITY AND EFFIENCY OF BANK CREDIT OPERATON IN VIETNAM BANK FOR INDUSTRY & TRADE – BA DINH BRANCH 4.1 Orientation of Business Activities of Ba Dinh Branch In The 49 Future 4.2 Solutions to improve operational efficiency at the Vietnam 50 Bank for Industry and Trade – Ba Dinh Branch 4.3 Recommendations 53 4.4 CONCLUSION 55 4.5 REFERENCES 56 LISTS OF TABLES AND FIGURES FIGURE 3.1: GDP’S GROWTH RATE FIGURE 3.2: EXPORTS – IMPORTS – TRADE BALANCE OF VIETNAMESE GOODS FIGURE 3.3: THE MOBILIZATION OF CAPITALS IN BA DINH BRANCH FIGURE 3.4: ANALYSIS OF MOBILIZATION BY MATURITY FIGURE 3.5: DEBIT BALANCE IN BA DINH BRANCH FIGURE 3.6: THE RESULTS OF OPERATING ACTIVITIES IN BA DINH BRANCH FIGURE 3.7: STRUCTURE OF THE GROUP DEBT FIGURE 3.8: PROPORTION OF OVERDUE DEBTS AND BAD DEBTS FIGURE 3.9: BAD DEBTS RATIOS FIGURE 3.10: TOTAL LOANS/TOTAL DEPOSITS Note: All figures have been used from Ba Dinh Branh – Annual Report Also, the figures have also been extracted mostly from the year 2010 – 2013 to demonstrate problems and come up with solutions LIST OF ABBREVIATIONS SBV State Bank Of Vietnam CBs Commercial Banks VietinBank Vietnam Bank for Industry & Trade CHAPTER ONE: INTRODUCTION 1.1 Rationale of the study Since 90s of the 20th century, the economy of Vietnam has changed vigorously and marked obvious steps forward Our country has been in the process of integration into the international economy, with a huge number of opportunities, accompanied by challenges The government has been enacting numerous policies and measures with the aim of stabilizing the economy, as well as developmental growths Among those policies, Commercial Banks (CBs), known as a financial instrument, plays an indispensible role in those stabilizations Indeed, one of the most essential tasks of commercial banks is appropriately contributing to the capital regulatory in the economy, which is conducted by the process of capital mobilization and lending Therefore, should they operate effectively; commercial Banks will eventually promote their role towards the market economy under socialist orientation of our country However, Commercial Banks have been recently facing many difficulties: the increase of Bad Debts, the competition from foreign banks, liquidity… Especially, during my internship at Ba Dinh Branch - Vietnam Bank For Industry And Trade (Vietinbank), I myself have noticed not only those difficulties, but also realized some limitations in credit activities With a view to improving credit quality for banks, I have chosen the topic: “Enhancing efficiency of Credit Operation at Vietnam Bank For Industry And Trade – Ba Dinh Branch” 1.2 Status Of Research  Based on the quality of data and operational efficiency of Bank Credit to analyze, calculate, compare important targets, from then on, demonstrate the quality and operational efficiency of credit at the bank  Analyzing the relationship between the quality and credit efficiency Page  Seeking out causes leading to defects in credit operations at the bank, hence working out proposals and measures to improve the quality and credit performance 1.3 Aims Of The Study The study aims at providing a new picture of credit management at Vietnam Bank for Industry and Trade – Ba Dinh Branch, hence suggesting solutions and recommendations for better efficiency of Bank Credit Operation at this Bank 1.4 Research questions This thesis aspires to provide answers to two questions of concerns to practitioners, Bank managers or those who are interested in studying this banking activity in academia:  What are the major challenges of bank credit operation that Vietnam Bank for Industry and Trade has to confront now?  What are the feasible solutions to better the efficiency of this activity in the Vietnam Bank for Industry and Trade in particular and also might be employed in the bank credit operation in general? 1.5 Research methodology Based on the reasoning discussed above, I believed it was pertinent to take a qualitative approach along with an exploratory research design to inductively address our research question A case study strategy accessing qualitative data through observations and interviews best served this research approach Besides, information and data are also collected from wide range of sources such as meeting notes and documented reports of existing contracts and database of reliable market data providers in order to triangle the evidences and discussions, and increase validity and reliability of information, data and findings Page was in the direction of negative volatility, which makes business have unfavorable businesses, difficult and not at the joint of bankruptcy This inevitably reduced the client base of the branch Therefore, making “contribution” of the increasing of bad loans mainly came from the losses resulting inability to pay back debt, from the cooperate customer businesses In 2011, the ratio of bad debts was 0.3% and in 2012, it increased by 1% The main reason contributing to bad debts occurrence was the fact that businesses cannot continue to maintain businesses due to the burden of cost and output markets Furthermore, the implications were existing from the economic crisis in 2008, which has not yet been resolved, continuing to make the economy evolution difficult, make enterprises exhausted Thereby bad loans of branches gradually increased, even appeared to have no irrecoverable debts Specifically recognized in the period of 2010 – 2012, a sustained rise in the NPL ratio have relatively made large impacts on objective factors; however, it cannot be denied branch’s responsibility in the process of granting and processing credit (especially loans) Therefore, in the following years, the branch should set out solutions to more closely control the granted credits, technical evaluation before granting credit to minimize bad debts and particularly debts inability to recall 3.4.4 Total loans/total deposits FIGURE 3.10: TOTAL LOANS/TOTAL DEPOSITS Tổng dư nợ: Total loans Tổng vốn huy động: Total deposits Unit: Billion,% Page 44 Source: Report on the business branch in Ba Dinh Branch – Hanoi Through the figure 3.7, the branch saw the total loans experience high proportion of total resources and volatility of capital over the years 2010 was 85%, but by 2011 dropped 55.5%, and strongly rose up to 60.7% Among years, 2010 was the best year of most efficient use of capital, for every 100 units of capital used to mobilize 85 contracts for lending This rate increased total loans by the year 2010, which outpaced the growth rate of mobilization In the year 2011, the ratio is 55.5% lower, meaning that for every 100 units of capital raised, only 55.5 used to lend The reason is that total loans decreased by total capital rose came from the fact that 50% o branches unused funds In 2012, the ratio is 60.7%, still lower than in 2010 but generally improved over 2011 Just 100 units of capital deposited, there were 60.7 units used for lending 3.5 Assessment in the credit quality in Ba Dinh Branch 3.5.1 Advantages Over the years aforementioned, the business of the branch has been stable and strictly observed by the managing board Funds, loans have increased, ensuring solvency Firstly, the mobilization, with the advantage of one of four well – established state banks and a collection of young and beautiful staff, has enables the credit process smoothly and effectively The branch has been using many operational measures, giving new forms of customer appeal, so relentless mobilization increased over the years (from 1,523.4 billion in 2010, increasing to 2,190.2 billion), as well the annual average of 1,918 billion raised) to meet demands on uses of short – term capital over the areas Furthermore, medium and long – term funding, in contrast, helps reduce pressure from using capital costs and limiting risk In addition, the branch also conducted the lottery program and gifts such as savings “Exciting Summer”, “Spring Wealth”… and the interest exemption program for the poor, and Page 45 for those who are in need, discounts for customers using cards of the bank, associated with shopping and business center Credit growth associating with capital growth is a prime target of the branch In 2011, loans credit has been diminishing, but still achieved good results, being consistent with the economic situation, consistent with the economic situation, particularly in the field of lending to meet the needs of business processing and large projects in the capital city of Vietnam The branch has continued to lead the key role, contributing significantly to the achievements of social – economic development Structures of loans, including loans of SOEs and private customers has been strengthened, the proportion of short – term loans and long – term ones remain reasonable, facilitate better exploitation with potential features and advantages of the credit quality in Hanoi Bad debts, the most important criteria for assessing the credit quality of a bank have been partly coped with In recent years, the NPL ratio of branches are lower than specified, especially high in 2012, with 1% Besides, the ratio of overdue debts of Ba Dinh Branch has been well maintained, always lower than the rate prescribed 5% and tended to decrease over the year, from 3.7% in 2011 dropped to 1.3% in 2012 The debt recovery of Ba Dinh Branch is relatively good, as evidenced by the ratio of debt collection are maintained at the rate of 58% 3.5.2 Limitations Although credit activities in Vietnam Bank For Industry and Trade – especially at Ba Dinh Branch has achieved certain results and certain contributions in the development of VietinBank; however, the credit situation in the branch still exists some limitations Firstly, though the branch has been active in the work of raising capital to fund mobilization, maintain growth, there has been some existences: Page 46 - Major products lack individuality of the branch, lack forms of attractive financing arrangement in order to attract customers from the Bank - Forms of deposit terms are still monotonous, especially in the form of long – term capital, which further reduces the attractiveness from the customer - Structure, irrational capital short – term capital mobilization, long – term deposits still account for a small proportion, which cannot meet the demand of long – term loans, inconsistent with the structure - Banks and customers are always interested in interest rate factors as they will affect business profitability of banks, as well as incomes which customers can get Currently, VietinBank offers demands for capital raise by 0,1%/month, with terms ranging from 0.58%/month to 0.66%/month Compared to other local banks deposit rates were so low, making competitiveness factor of customer income Secondly, lending activity and quality of loans stills remains a problem Medium and long periods increasing the inflow of medium – long term is declining, forcing banks to use parts of their capital to lend and causing an imbalance in the structure and risk – taking The outstanding loans of corporate customer that increasingly diminished the majority of lending businesses in the province are mostly large firms, with the borrowing long – term, from then reduce the profitability of the branch To limit risks, Ba Dinh Branch should only focus on the security property – mostly collateral of customers, which are mainly real estate However, real estate freezes have caused many difficulties for banks in the price of selling when risk occurs Regarding credit balance, the proportion of debt in group has been descending and passing the higher debt group, especially until 2012 with irrecoverable debt (representing 0.4%) Increasing bad debt, of course, will reduce profit of this branch Besides, the efficiency of branch’s capital remains low, only 55.5% to 60.7% in the period of 2011 – 2012 The ratio of debt collection are Page 47 maintained stable, but the continuity of reduction of debt collection is matter of concern for Ba Dinh Branch in the near future Thirdly, the credit process came a major issue A strict credit procedure is important in credit activities However, the credit process of the branch is too lengthy and complex due to the undergoing of many stages from business customers to managing risk, and finally director Should requiring consensus between departments take a great amount of time, customer demand of early disbursement cannot be met Furthermore, credit process has been taken in a way “one – stop trading”, which means jobs – taking appraisal, developments of loans, monitoriation, recovery of debts will be made by credit officers This will facilitate the client in the transaction, fasten them dramatically, and the borrower will not have a problem in the transfer paper records between the banking departments However, it is the cause of some problems which greatly affect the credit quality of the branch Page 48 CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE THE QUALITY AND EFFIENCY OF BANK CREDIT OPERATON IN VIETNAM BANK FOR INDUSTRY & TRADE – BA DINH BRANCH 4.1 Orientation of Business Activities of Ba Dinh Branch In The Future Economics in 2013 are forecasted to be more difficult, with the aim of stabilizing macroeconomic, continuing to cure inflation and higher growth strives in the years to come Furthermore, the target also includes sticking to the policy of the government, the central bank and the direction of the commercial bank Vietnam Bank for Industry & Trade (VietinBank) is determined to overcome difficulties, further attempt to resolve some existences from 2012, finish business tasks in 2013 Here are the targets and methods of direction for the bank 4.1.1 Planned Targets Fulfilling the business plan targets of 2013 requires VietinBank to concentrate on efforts to implement, especially the following criteria: - Mobilized capital: 2.760 billion - Loans outstanding: 1,700 billion - Recovery of handling risk: 35.119 billion - Profit: 81.645 billion - Income from banking services reached: 13.900 billion - Profit from operations: 44.590 billion 4.1.2 Orientation activities Maintaining and promoting the leading role of a commercial banks, as well as continuing enhancing the brand, reputation and position of the banks, VietinBank has to stay focused on its resources and entire branches, by all means, to mobilize Page 49 multiple sources, as well as to proactively strengthen investment loans for economic development Increasing stable capital growth continues to be a leading task, as well as an indicator of the entire operations of the branch in 2013 Maintaining reasonable credit growth, loans growth should absolutely go double with credit quality, capital investment priorities and production Reduction of lending for real estate, non – production loan and investment loan stock must be gradually taken into account Besides maintaining existing customers, Ba Dinh Branch will continue to grow and broaden new customers with modern styles and excellent services The bank will try to focus on small and medium customers, develop “retailing” products, since this is a large market with full of potentials Concentrating on packages of supply products, banking services, thereby improving incomes from services must remain huge priorities Incomes from services will increasing the proportion of income structure, comparing between Ba Dinh branch in particular, and VietinBank in general The banks will need to ensure liquidity and safety of assets and deposits at all times Furthermore, Ba Dinh Branch will attempt to develop products and services by harnessing network technologies, focusing deeply on working in marketing, customer services While expanding and improving high quality services, the banks will need to stabilize, in terms of competitiveness and integrations 4.2 Solutions to improve operational efficiency at the Vietnam Bank for Industry and Trade – Ba Dinh Branch Credit activity has been the most major business activities, which brought about main source of income for the bank, as well as the whole branch However, since credit is a fairly complex operation with many risks, the bank will need to provide safe management and specific solutions in order to bring large revenues Here are some proposed solutions to overcome these problems and improve performances at Ba Dinh Branch Page 50 4.2.1 Raising capital Credit operations and capital raising activities have been sharing close relationship, with stable funding costs and lower capital mobilization Ba Dinh Branch should develop a plan for funding, in which this plan does not only affect credit activities, but also affect the entire operations of the bank With such importance, Ba Dinh branch should follow some following issues: Firstly, the branch should continue to focus fundraising on potential customers, both segmented and not segmented About the division of market segment, Ba Dinh should focus on two main types of customers: individuals and business Secondly, the branch needs to build capital mobilization plans, including: quantity structure and speed growth of capital over the previous years, making plans for raising capitals, interest rates policies, tools… to ensure the balanced uses of capital and ensure solvency Thirdly, the branch should strengthen capital to attract medium and long – term by increasing flexible interest rates, rather than short – term, as well as launch programs receiving instant gifts after depositing at the branch, attracting foreign currency from different activities around the cities Fourthly, the branch should strengthen the promotion, not only by headquarters, but also by its own branch, as individual plans to attract customers Furthermore, banking business relies on the basis of profit, thus adjusting reasonable interest rates to attract new customers To compete with other banks in terms of interest rates, the branch should further develop strengths of a state commercial bank, operating with history of more than 20 years of construction and development, especially reputation was confirmed both domestically and Page 51 internationally, to hit the customer’s preferences about the level of safety when depositing In addition, Branch should strengthen marketing activities, information and communication informing, promoting wider scopes to create effects on customers also, to improve service quality and facilities, because that is one of strengths to attract customers at the branch in Ba Dinh district 4.2.2 Loans Lending to stabilize growth and sustainability when ensuring amount of quality, the branch should: Firstly, the branch should actively support enterprises to overcome difficulties and challenges, thereby creating opportunities for businesses to continue trading and make profit for the branch Secondly, Ba Dinh branch should have the lending rate lower than the average level of other banks, so as to largely mobilize funds Thirdly, the branch should promote further its strength as positive advertising, publicity on TV, newspaper, radio or at the headquarters of the branch with banners, interest rates to attract customers wishing to borrow Fourthly, in order to limit losses on loans as collateral, mostly real estate lending, the branch should lower value when pricing (only for loans 40 – 50% of the property value, instead of 70 – 80% as before) In addition, the bank should regularly visit businesses establishments of producing, collecting customer date from various sources, such as interviews…to take advantage of the relationship to know best about the economic situation for the best treatment plan Finally, the bank should restricting portfolio of client loans for customers who have poor financial situation, ineffective business and production plan At the same Page 52 time, banks should limit lending to risk – prone fields, such as speculative lending, real estate lending, securities lending… 4.2.3 Handling delinquency, bad debts 4.2.3.1 Old debt settlement Banks should focus on recovery of overdue debts, stop credit relationship, by all means, to recover debts for the enterprise suffering losses, incapability to recover For customers who have renewed debts, overdue, the bank should focus on speeding, closely, monitoring the financial resources of the enterprise, sticking to business operations of the business, following closely on each investment projects to set out measures to collect debts, and strengthening financial supplement collateral to mitigate the risks that may occur - Performing a complete, complementary and closely management of credit profile - Increasing building inspections, processing control and debt collection - Having satisfactory policy with staff to fulfill the task to recover debts, overdue 4.2.3.2 Managing new lending - Perform reviews and regular evaluation and classification of debt owed to understand credit situation - Strengthening the management of loan capital for businesses, electing officials with full capacity abreast of all activities and unit revenues, to ensure the return immediately after the work is partially funded, not the business use loans outside the control of the unit Page 53 4.2.4 Some other solutions 4.2.4.1 Customer consistent policy To develop new customers and good quality, the branch cannot sit down at one place waiting for customers looking to banks but actively seek, drawing from other banks through preferential policies as well as the strength of Vietnam Bank for Industry and Trade The bank should clearly focus on identifying specific strategies to attract and retain existing customers, such as flexible interest rate policy, service attitude, birthday gifts, holidays, New Year regularly organizing counseling program services, products and customer care, simultaneously making customer opinion survey on quality of service… 4.2.4.2 Improving the quality of bank staff Staff plays a very important role in the development of banks Therefore, improving the quality of bank staff is very necessary These specific measures are as follows: - Regular processing on training to provide specialized knowledge, continuously facilitating , encouraging staff to study postgraduate courses to improve short-term support, research and other fields: law, foreign languages - No ceasing of the recruitment and training of young talents because they have the dynamics, creativity and confidence with a university degree and postgraduate - Have appropriate reward policy for staff to complete the tasks assigned such as raising sales, loans, overdue receivables, debt bad At the same time, banks should have policies to increase wage and income associated with quality and work performance to increase productivity, dedication and responsibility of the staff 4.3 Recommendations Page 54 4.3.1 Recommendations to the State Bank Being the specialized agency of state management in the field of monetary credit, SB should coordinate with the ministries concerned; provide additional and necessary editing documents to operate commercial banks safer SBV should review current documents, related to the handling of debts to the opinion of the commercial banks, to issue appropriate remedies with the current situation, such as the provisioning and use of provisions against risks, bad debts, overdue 4.3.2 Recommendations for Vietnam Bank for Industry & Trade – Ba Dinh Branch In spite of not understanding all the problems of the branch through a short practice time, I would like to have a number of comments as follows: - The banks should actively take the form of preferential interest rates for large customers and long - time customers, as well as small and medium enterprises to make the business become more effective - Applying the new products from the Central and propose ideas for new products to be more appropriate to the situation of the province to attract customers, improve competitiveness - The branch should build more based ATM (Automated Teller Machine) further to create favorable conditions for customers, from which attract more idle capital in residential as well as attracting the enterprise customers wishing payroll cards for employees themselves - The bank should encourage the reward for lending credit staff, the least risky and the good debt recovery staff monthly/quarterly 4.3.3 Recommendations to the Government and relevant ministries Page 55 The government needs to direct all levels and sectors of interest and provide further support, especially business losses, stagnant products and with delinquency, inability to repay bank loans The authorities need to check and regulate the certification, property ownership, in order to prevent any uses of collateral to borrow more places which causes loss of capital of the Bank The law of the regulations on safety in banking activities, often regular inspection, supervision and mandatory for banks should be come into force to fully implement the provisions law in credit activities Page 56 CONCLUSION Market economy and economic reforms require banks to improve their business operations, including muscle activity in the credit activity Improving credit performance is not only crucial to the survival and development of the bank itself but also directly affect on stimulating economic development, accelerating construction of the country, contributing to the stability and development of the social economy For most of the commercial banks in our country in general and Vietnam Bank for Industry and Trade – Ba Dinh in particular, to improve quality credit, especially in the area of lending is still a problem posing concerns to the agency center Through research and situation analysis of credit activities of Vietnam Bank for Industry and Trade, the report has drawn the outstanding achievements, as well as the remaining issues affecting operations of the branch From that, strong and seasoned solutions and recommendations to address these problems and facilitate conditions for implementing measures to enhance credit quality have been recommended However, it should be emphasized that in order to promote the effect of the measures to improve high credit performance is necessarily a struggle and in a need of coordinate efforts from three sides: from the banks, their customers, and conditions with support from the state devoting the relevant levels Hopefully the solutions proposed in the report could bring small contribution in improving and improving credit performance in Vietnam Bank for Industry and Trade, helping Ba Dinh Branch in the process of expanding, developing and becoming one of the most outstanding branches of VietinBank in Hanoi as well as Vietnam Page 57 REFERENCES (1) Decision No 493/2005 / QD-NHNN dated 22/04/2005 on loan classification, provisioning and uses of reserves (2) Decision No 18/2007 / QD-NHNN dated 25/04/2007 amended law on loan classification, provisioning and use of reserves (3) Report on the financial situation of the Vietnam Bank for Industry and Trade at Ba Dinh Branch in 2011, 2012, 2013 and 2014 (4) Documentation of the lending process of Vietnam Bank for Industry and Trade (6) Dr Ho Dieu (2009), Bank Credit, Statistics Publishing House (7) Dr Nguyen Van Tien, Managing commercial banks, Published by the University of International Economics (9) A number Website: - www.Vietinbank.vn - www.google.com.vn - www.sbv.gov.vn - www.hanoi.gov.vn - www.tapchinganhang.com.vn Page 58