Efficiency of consumer lending at joint stock bank for investment and development of vietnam (bidv) dong do branch situation and suggestions,graduation thesis

THE STATE BANK OF VIET NAM BANKING ACADEMY OF VIET NAM FACULTY OF FOREIGN LANGUAGES GRADUATION THESIS EFFICIENCY OF CONSUMER LENDING AT JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIET NAM (BIDV) – DONG DO BRANCH - SITUATION AND SUGGESTIONS Student: Tran Thi Hoang Anh Class: ATCA – K12 Supervisor: Nguyen Thi Hien Hanh (M.A) Ha Noi, May, 2012 Graduation Thesis Banking Academy ACKNOWLEDGEMENTS I would like to express my profound gratitude to all those who gave me the possibility to complete this thesis First of all, I want to give special thank to my supervisor, Mrs Nguyen Thi Hien Hanh (M.A), whose help, stimulating suggestions and encouragement helped me in all the time of research for and writing of this thesis Furthermore, my grateful thanks go to the Individual Customer Relationship Department of BIDV Dong Do Branch in general and Mrs Pham Thi Huong, my instructor, in particular, who supported and provided me with major materials and data collection for the study I would also like to acknowledge with much appreciation the role of my senior, Mr Nguyen Thanh Tung, who gave me some academic comments to make my thesis more logical and effective Last but not least, I am very grateful for my family and my friends, who encouraged and motivated me throughout the entire process Tran Thi Hoang Anh i Graduation Thesis Banking Academy EXECUTIVE SUMMARY Traditionally, most banks in Viet Nam only focus on loans to corporate clients while tend to ignore those to individual customers However, in recent years, thanks to globalization with the participation of many foreign banks in Viet Nam banking industry, consumer lending has become a more important part in the banking operations This operation would bring a lot of benefits to not only the banks, but also the customers and the whole economy Some experts have claimed that consumer lending will be a potential source of profit if banks pay much attention to this lending activity Therefore, it is necessary for banks in general and Joint Stock Bank for Investment and Development of Viet Nam in particular to assess their current consumer lending in some aspects like: revenue, profit and overdue debt By thorough assessment, some suggestions could be applied to enhance the efficiency of profitable consumer lending Tran Thi Hoang Anh ii Graduation Thesis Banking Academy TABLE OF CONTENTS ACKNOWLEDGEMENT i EXECUTIVE SUMMARY ii LIST OF TABLES AND FIGURES v LIST OF ABBREVIATIONS vi CHAPTER 1: INTRODUCTION 1.1 RATIONALE OF THE STUDY 1.2 AIMS OF THE STUDY 1.3 RESEARCH QUESTIONS 1.4 SCOPE OF THE STUDY 1.5 METHODS OF THE STUDY 1.6 ORGANIZATION OF THE STUDY CHAPTER 2: LITERATURE REVIEW 2.1 LITERATURE REVIEW OF CONSUMER LOAN 2.1.1 Definitions of consumer loan 2.1.2 Characteristics of consumer loan 2.1.3 Classification of consumer loan 2.1.4 Roles of consumer loan 2.2 LITERATURE REVIEW OF EFFICIENCY OF CONSUMER LENDING 11 2.2.1 Definition of efficiency of consumer lending 11 2.2.2 Indicators measuring the efficiency of consumer lending 11 2.2.3 Factors affecting the efficiency of consumer lending 12 CHAPTER 3: EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO BRANCH 17 3.1 OVERVIEW OF BIDV DONG DO BRANCH 17 3.1.1 Introduction to BIDV Dong Do branch 17 3.1.2 Business performance at BIDV Dong Do branch from 2010 - 2012 18 3.2 CONSUMER LENDING AT BIDV DONG DO BRANCH 21 3.2.1 Types of Consumer Loans at BIDV Dong Do Branch 21 3.2.2 Consumer Lending Performance at BIDV Dong Do from 2010-2012 24 Tran Thi Hoang Anh iii Graduation Thesis Banking Academy 3.3 ASSESSMENT OF EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO BRANCH 30 3.3.1 Achievements 30 3.3.2 Limitations 31 3.3.3 Reasons for limitations 32 CHAPTER 4: SUGGESTED SOLUTIONS TO ENHANCE EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO AND CONCLUSIONS 35 4.1 SOLUTIONS 35 4.1.1 Applying flexibly the customer policy of BIDV and building customer policies in accordance with the conditions of BIDV Dong Do 35 4.1.2 Promoting marketing activities 36 4.1.3 Developing transaction office network 37 4.1.4 Complying with processes and regulations governing consumer lending as a measure of risk management 37 4.1.5 Improving quality of the staff 38 4.1.6 Developing consumer lending to individual customers based on business customer relationships with BIDV Dong Do 39 4.2 RECOMMENDATIONS 40 4.2.1 To the State management agencies 40 4.2.2 To the State Bank of Viet Nam 40 4.2.3 To Joint Stock Bank for Investment and Development of Viet Nam 41 4.3 CONCLUSION 41 REFERENCES 43 Tran Thi Hoang Anh iv Graduation Thesis Banking Academy LIST OF TABLES AND FIGURES LIST OF TABLES Table 3.1: Fund Mobilization at BIDV Dong Do Branch (2010-2012) 19 Table 3.2: Funding structure at BIDV Dong Do Branch (2010-2012) 19 Table 3.3: Credit outstanding balance structure at BIDV Dong Do Branch 20 Table 3.4: Non-performing loan ratio at BIDV Dong Do Branch (2010-2012) 20 Table 3.5: Profit before tax at BIDV Dong Do Branch (2010-2012) 21 Table 3.6: Consumer outstanding balance at BIDV Dong Do Branch (2010-2012) 24 Table 3.7: Consumer loans classified by loan maturity at BIDV Dong Do 25 Table 3.8: Classification of consumer loans by products and service at BIDV 25 Table 3.9: Revenue from consumer lending at BIDV Dong Do Branch (2010-2012) 27 Table 3.10: Debt classification at BIDV Dong Do Branch (2010-2012) 28 Table 3.11: Profitability ratio from consumer lending at BIDV Dong Do Branch (2010-2012) 29 Table 3.12: Provision from consumer loan losses at BIDV Dong Do (2010 – 2012) 30 LIST OF FIGURES Figure 3.1: Funding structure at BIDV Dong Do Branch (2010 – 2012) 19 Figure 3.2: Consumer outstanding Balance at BIDV Dong Do (2010-2012) 24 Figure 3.3: Classification of consumer loans by products and service at BIDV Dong Do (2010-2012) 25 Figure 3.4: Revenue from consumer lending at BIDV Dong Do (2010-2012) 26 Figure 3.5: Debt classification at BIDV Dong Do (2010-2012) 27 Tran Thi Hoang Anh v Graduation Thesis Banking Academy LIST OF ABBREVIATIONS Abbreviations BIDV BIDV Dong Do Explanations Joint Stock Bank for Investment and Development of Viet Nam Joint Stock Bank for Investment and Development of Viet Nam – Dong Do Branch SBV The State Bank of Viet Nam NPL Non-performing loan IT Information Technology Techcombank Vietnam Technological and Commercial Joint Stock Bank SeABank Southeast Asia Commercial Joint Stock Bank CIC Credit Information Center GDP Gross Domestic Product CPI Consumer Price Index ANZ Australia and New Zealand Banking Group Limited HSBC Hongkong and Shanghai Banking Corporation Tran Thi Hoang Anh vi Graduation Thesis Banking Academy CHAPTER INTRODUCTION 1.1 RATIONALE OF THE STUDY Consumer loans had been introduced a long time ago in European countries as a tool to satisfy people’s expectations However, until the early twentieth century, most consumers had limited access to credit, or found it quite expensive Only the richer or more politically powerful were able to obtain personal loans from commercial banks because banks did not grant consumer loans to the general public Access to credit was a privilege reserved for the elite and getting a personal loan meant more than just filling out an application It required signing countless documents, often including co-signors, collateral, waiting for approval and, if approved, the applicant would have to endure a repayment lecture from the bank officer before receiving the loan Today, sophisticated processes allow consumers to get credit or a personal loan in a variety of manners In addition, as a result of the whole society’s development, people’s incomes have been increasing over time People now expect more things than ever before They not want to wait 20 years to accumulate enough money for a nice house, or years to afford a car That might lead to the prosperity of consumer loans in the world in general and in Viet Nam in particular In recent years, Vietnamese’s average income has been going up and their consumption demand, in turn, has been rising However, sometimes, their finance abilities are not sufficient to these demands Therefore, commercial banks have launched and developed consumer loans to help customers meet their needs sooner This operation has been noticed and flourished in recent times The participation of many commercial banks creates a fiercely competitive environment Moreover, the involvement of some worldwide famous retail banks like: HSBC, ANZ… forces banks introducing more new products services The activeness of this field is also added by a global payments technology company, Visa and other organizations Bank for Investment and Development of Viet Nam (BIDV) is not an exception in this sector Tran Thi Hoang Anh Graduation Thesis Banking Academy With 50-year experience and professional labor force, its target is to become one of the commercial banks holding the leading position in the retail sector However, since 2009, Vietnam’s economy has suffered detrimental effects of global economic crisis like: decreasing GDP and tightened consumption in the public Therefore, the government and the State Bank of Viet Nam have passed some regulations to stimulate production and consumption As a result, Viet Nam’s economy has gradually recovered The economic recovery leads to the increase in consumption demand, which is the condition for the development of consumer lending Moreover, in comparison with wholesale credit, consumer loans are gradually considered as a type of retail credit with many advantages such as: spreading risk, developing many services This is proved by its larger proportion in debt balance of many commercial banks as well as BIDV With the hope of providing a deeper view about consumer loans at BIDV Dong Do branch, the researcher attempted to investigate into the topic “Enhance efficiency of consumer lending at BIDV Dong Do Branch – Situation and Suggestions” 1.2 AIMS OF THE STUDY An attempt was made to study deeply efficiency of consumer lending operation in a branch of a particular bank The aims are:  To provide theoretical background of consumer lending operation, its types and benefits to equities in the economy  To analyze and evaluate efficiency of consumer lending in BIDV - Dong Do Branch  To suggest some solutions and recommendations to improve consumer lending at BIDV – Dong Do Branch 1.3 RESEARCH QUESTIONS The study was done to answer the two following questions: (1) How efficient is consumer lending at BIDV Dong Do Branch? (2) How to improve the efficiency of consumer lending at BIDV Dong Do Branch? Tran Thi Hoang Anh Graduation Thesis Banking Academy 1.4 SCOPE OF THE STUDY The study only focuses on consumer lending at BIDV Dong Do branch from 2010 to 2012 and suggested solutions to enhance this operation in the coming years The data of the study is achieved only at BIDV Dong Do Branch Hence, the evaluation is only practical to this branch, not to the whole BIDV system 1.5 METHODS OF THE STUDY 1.5.1 Research Methods The study uses some main research methods as follows: Quantitative research method Quantitative method is a research method, which is focused on the collection and analysis of numerical data and statistics The thesis takes BIDV Dong Do branch as a case study to analyze growth as well as efficiency of consumer lending over the last years, from that making some suggestions on how the branch can improve its operation Comparison method The study compares statistics in the period of 2010 – 2012, then indicating the increase or decrease of criteria over the years Summary method At the end of each chapter or section, the author summarizes its main content to help readers catch up with the thesis before introducing a new part 1.5.2 Research instruments The data in the study are secondary ones collected from various sources including the Internet, journals, textbooks and annual reports of BIDV – Dong Do Branch from 2010 to 2012 1.5.3 Subjects of the study The main subject of the thesis is consumer lending at BIDV Dong Do Branch The author clarifies the real situation and suggests some solutions to this operation Tran Thi Hoang Anh Graduation Thesis Banking Academy consumer outstanding balance However, in comparison with the banking system, the rate of group 2,3,4,5 debts at the branch was at a high level, as follows:  Group debts: By December 31st 2012, these debts were 26.217 billion, reaching a rate of 5.2% Despite decrease in last years, 5.2% was still significantly higher than the average rate of BIDV system, 1.7%  Bad debts (group 3-5 debts): By December 31st 2012, the branch had 12.551 billion of those debts, equivalent to NPL ratio of 2.5% Whereas, NPL ratio of BIDV system was 2.1%  In addition, in 2012, bad debts of 11.976 billion came from home loans, accounting for 95% of total NPL at BIDV Dong Do The high NPL ratio can lead the bank to lower income as well as liquidity risk Thus, it is very important for the branch to collect debts as soon as possibly and have more accurate appraisal of each application - Indicator shows the profitability of consumer lending In spite of the fact that consumer lending has a high profitability and brings a large amount of income to banks, consumer lending at BIDV Dong Do branch does not develop This is shown in the following table Table 3.11: Profitability ratio from consumer lending at BIDV Dong Do Branch (2010-2012) 2010 2011 2012 Average consumer outstanding balance (billion VND) 337 402 495 Profit from consumer lending (billion VND) 32.2 38.24 47.16 Ratio (%) 9.6% 9.5% 9.5% Source: General Statistics of BIDV Dong Do 2010 - 2012 In 2009, profitability ratio of consumer lending was 9.6% Then, it decreased slightly to 9.5% in the two following years This illustrates that consumer lending was not efficient With one unit of investment in consumer lending, BIDV Dong Do just earned very modest profit Tran Thi Hoang Anh 29 Graduation Thesis Banking Academy - Indicator shows the potential risk of consumer lending The lack of deliberation in appraisal and applicants’ analysis led to the branch’s severe overdue debt and NPL ratio The ratio of provision for consumer loan losses/average consumer outstanding balance at the branch was quite high Table 3.12: Provision from consumer loan losses at BIDV Dong Do (2010 – 2012) 2010 2011 2012 Provision for consumer loan losses (billion VND) 6.4 8.01 9.4 Average consumer outstanding balance (billion VND) 337 402 495 Ratio (%) 1.9% 2% 1.9% Source: General Statistics of BIDV Dong Do 2010 - 2012 In the period 2010 – 2012, provision ratio from consumer loans at the branch hovered around 2% This made the branch’s expense higher and affected badly to its profit Therefore, BIDV Dong Do needs to manage risk more carefully to enhance the efficiency 3.3 ASSESSMENT OF EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO BRANCH From the above statistics and analysis, it can be seen that BIDV’s consumer lending got both achievements and limitations In this part, both sides will be pointed out and the reasons for its limitations are also clarified 3.3.1 Achievements After analyzing consumer lending at BIDV Dong Do in the period 2010 – 2012, we see that the branch got some achievements as follows: Firstly, consumer lending was on the rise and remained its growth The spread of consumer lending contributed to improve the number of customers, implement product diversification policy, and increased the profit of the branch Tran Thi Hoang Anh 30 Graduation Thesis Banking Academy Secondly, consumer loan structure had positive movements The branch focused on many other types of loans apart from traditional consumer loans like home loan or unsecured loan Thirdly, the consumer lending growth supported the reputation and competitiveness of the branch One of consumer loans’ advantages is to serve a large number of clients Therefore, if a client is satisfied with a kind of the branch’s products and service, he or she might try to use other services, and could even become an effective advertiser In the previous years, the main customers of the branch were corporate ones, but now, there are more and more individual and household ones 3.3.2 Limitations Consumer lending at BIDV Dong Do Branch during the period of 2010 – 2012 also had some limitations: Firstly, consumer outstanding balance to total outstanding balance was still low The ratio was only around 13% In comparison with other banks like: Techcombank (41% in 2010), SeABank (55.9% in 2010), the ratio at BIDV Dong Do was much lower In comparison with potential market and the ability of the branch: BIDV Dong Do has a good potential market along with strong customer database; obviously, the scale of consumer lending at this branch could develop more remarkably Secondly, consumer loan structure focused too much on home loan and loan secured by mortgage of valuable papers Meanwhile, there was no loan for studying abroad It is necessary to diversify and develop more service to meet the demands of more clients Moreover, the rate of medium and long-term loan like home loan is by far the highest, which is a potential risk for the branch Thirdly, overdue debt and NPL ratios were very high These ratios at BIDV Dong Do were even larger than that of the BIDV system and tended to have an upward trend in the future If the branch does not apply immediate solutions, this situation could lead to risks like: liquidity risk, credit risk… In addition, in the future, a high NPL ratio could raise a question in the public about the quality of all BIDV Dong Do staff Tran Thi Hoang Anh 31 Graduation Thesis Banking Academy 3.3.3 Reasons for limitations By turning back to the social and economical context of Viet Nam as well as the real situation of banking system over the last years and through my internship at BIDV Dong Do, I can find out the following reasons: 3.3.3.1 Objective reasons Volatility in the Vietnam’s economy 2010 – 2012 was considered as a harsh period of the economy in general and of the banking industry in particular with many challenges like: frozen property market, double digit inflation rate, dramatically decreasing consumption demand… These all increased overdue loans and NPLs, impacting adversely consumer lending of the branch People’s psychology Some experts argue that characteristics of the Vietnamese differ from these of other people in many countries in the world For example, the American people are willing to pay late, even buy any item by installments or apply bank loans while the Vietnamese are only used to shopping or saving money to buy valuable assets by their own income Therefore, it may take a long time for people to change their traditional habit and adapt consumer loans Moreover, in the period of economic slowdown, people deduct their luxurious demand, big expenses, so it is not easy for consumer lending to develop The stiff competition amongst banks Currently, BIDV in general and BIDV Dong Do in particular have been facing tough competition with rivals in the market Furthermore, in the past few years, Vietnam's financial market witnessed volatile interest rates, creating interest rate race in the banking system This affected the lending operations of the BIDV Dong Do Lack of specific guidance and legislation The policy of the State law on consumer loans is still unclear The regulations on mortgage, home valuation, ownership transition are so complex These difficulties have had detrimental impacts on the bank’s consumer lending Tran Thi Hoang Anh 32 Graduation Thesis Banking Academy Customer information controlling system has low efficiency The Credit Information Center of the State Bank (CIC) is the only agency which tracks credit history of individuals and business borrowers at credit institutions However, CIC’s update is so poor For instance, many customers did have outstanding debts at credit institutions, but their information was not updated in CIC system This, then, leads to banks’ lack of information when making lending decisions 3.3.3.2 Subjective reasons Business strategy did not focus on developing consumer lending The branch’s credit was primarily focused on lending to businesses and households while paid little attention to consumer lending market Loans to enterprises are often very larger than consumer loans Moreover, with banks, consumer lending’s cost was higher than that of business loans and they would need more workforce to lend But in fact, profits from consumer loans are very high, often higher than those for other types of loans in the bank If the scale of consumer lending is high, the average cost of each loan will be small and will make a great profit With enterprises, transactions with banks are often long-term relationships, so to find new customers will be more difficult In addition, consumer lending market now is also a target market of many banks Thus, this is a potential market and should not be left Ineffective marketing activities Marketing strategy was not effective enough to promote the branch’s products and service Banks did not really help customers to recognize the benefits of consumer loans in the advertising message while this is essential to inspire customer needs Therefore, the main consumer customers to bank loans were traditional customers or through the introduction of relatives and friends Some too strict procedures For unsecured loans, BIDV Dong Do often required clients to be employees at stateowned enterprises or have a quite high level of salary The branch also asked customers to have an account at BIDV system It can not be denied that this might Tran Thi Hoang Anh 33 Graduation Thesis Banking Academy control risks; however, this might also make clients annoyed and pushed them away the bank Lack of regular training for the staff Credit officers are the one who directly consult customers; hence, they need to be trained regularly to improve their abilities However, from 2010 - 2012, at BIDVD Dong Do, the extra training for consumer credit officers (i.e., lessons about how to evaluate each type of customers more exactly, how to value collaterals) was not given a thorough attention Hence, the ability to judge the market and forecast coming risks was not good Moreover, to train the staff different ways to attract and take care of customers is a noticeable issue Inadequate appraisal and supervision The appraisal before lending was sometimes not thorough enough, identifying sources of repayment was incorrect, inconsistent with reality, calculating the repayment period was not reasonable Hence, customers did not have sufficient solvency Sometimes, inadequate supervision of credit officers led to increasingly overdue loans Some officers did not examine and control the loan usage of clients, driving to use loans in wrong or even illegal purposes Obviously, in such circumstances, it would be very hard for banks to collect debts Ineffective labor organization A survey of BIDV Head Office in 2012 - 2013 revealed that currently, one retail credit officer manages 50 clients on average with outstanding balance of about 20 billion VND The pressure of time and workload for credit officers is not seriously overloaded Therefore, there should be more specific assessment of the risks in organizing staff to adjust accordingly, avoiding collusion among officers and customers Tran Thi Hoang Anh 34 Graduation Thesis Banking Academy CHAPTER SUGGESTED SOLUTIONS TO ENHANCE EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO BRANCH AND CONCLUSIONS 4.1 SOLUTIONS 4.1.1 Applying flexibly the customer policy of BIDV and building customer policies in accordance with the conditions of BIDV Dong Do A bank can not attract customers if it does not either identify its target customers or understand what customers need Customers are the reason for existence and development of each bank Therefore, it is essential for BIDV Dong Do to build its own customer policy The bank should rank the customers of each type of consumer loans like: special class, first class, second class, third class From that, BIDV Dong Do could offer flexible interest rates Some preferred programs are as follows: - For customers who have savings accounts at the bank, but not want to use, they can use that money as collateral for consumer loans with preferred interest rates + Preferential interest rates: the higher class a customer belongs to, the lower interest rates he or she has to pay + Time preferences in the processing of transactions + Preferential exchange rates for customers who sells foreign currencies for the bank For individuals, to reduce the interest, the bank should advise clients which loan term and loan limits are the most appropriate to them Moreover, credit officers should suggest clients to repay as soon as possibly, manage their financial situation well avoid costs arising from overdue Furthermore, it is also very important for the bank to conduct loan applications more quickly For instance, Techcombank undertakes to adopt applications in maximum working days, while BIDV Dong Do does not that Obviously, with the same interest rates, clients will prefer the bank which can carry out all procedure faster Tran Thi Hoang Anh 35 Graduation Thesis Banking Academy 4.1.2 Promoting marketing activities The term “Marketing” was born a long time ago but marketing in banking industry was just approached and applied in the 1960’s In Vietnam, marketing in banking industry even appeared later, around the late 1980’s Until now, marketing application is still limited, mainly focuses advertisements while tends to ignore vital activities like: customer research and brand positioning With the motto "customer orientation", improvement of communication with customers and transaction offices development will significantly satisfy customers, create conditions to improve the performance of the bank - Communication activities: BIDV Dong Do should introduce themselves through newspapers, television, computer networks, and other forms of advertising such as: financing contests or handing out flyers These activities are useful in providing information to people Another way is to develop some type of supplementary services for consumer lending like: personal financial advice and real estate advice BIDV should also have a good relationship with media to promote their reputation with lower cost - Attracting potential customers: The key to promote the credit development is to attract clients This requires credit officers of BIDV Dong Do MB SGD to study consumer habits of customers to provide them suitable loans - Customer care activities: Mahatma Gandhi said that: "Customer is the most important visitor on our premises He is not dependent on us; we are dependent on him He is not an interruption in our work; he is the purpose of it He is not an outsider in our business; he is a part of it We are not doing him a favor by serving him; he is doing us a favor by giving us an opportunity to so." Obviously, customers take a vital part in any business Thus, the branch should have deep concern to customers, keep contact with them regularly, in turn, build loyal customer database of the bank For instance, with the regular and important clients, credit officers should give presents and wishes to them on their birthdays On Tet holiday, the branch could print calendar with the bank’s address, phone, products and service and hand out to Tran Thi Hoang Anh 36 Graduation Thesis Banking Academy customers In addition, the bank can hold conferences, customer meetings to introduce new products and services, to confirm that customer policy is a priority of the Bank, to exchange new currencies These activities will make good impression on customers who have a credit relationship with the bank More importantly, these people would become the most wonderful advertisers for the bank They will be the ones who attract new clients It can not be denied that claims from customers who have transactions with banks are worthy as many times as the advert on TV The staff should also ask clients whether they satisfy with the bank’s service or not If some customers not feel satisfied, credit officers should find out and solve the problem as soon as possibly - Public relations activities: BIDV Dong Do’s managers should also regularly participate in activities in the local community, attend cultural society organization These activities gather a large number of people at different ages, different jobs This is the most effective way to enlist new clients 4.1.3 Developing transaction office network Despite its quite small scale, transaction offices take an important part in contacting with customers in different places Customers often prefer the nearest bank from their homes, their offices to save their time and money Therefore, it is critical to develop the quality of the staff of transaction offices to expand customer network Moreover, to minimize risk, banks need to attract customers, whom the bank could get the most exact information Take the local customers in the district where the transaction office is located for example BIDV Dong Do now has a network of transaction offices, thus creating opportunities to reach customers with good financial strength and stability 4.1.4 Complying with processes and regulations governing consumer lending as a measure of risk management Strict compliance with regulations is a guideline for all activities Tran Thi Hoang Anh 37 Graduation Thesis Banking Academy - Complying with rules and regulations governing consumer lending is to manage risks as well as strengthen the role of Credit Management Division of reevaluation, tight control of the disbursement - Strengthening control and appraisal: in order to minimize risks when conducting consumer lending, BIDV Dong Do should further strengthen the inspection, control and appraisal before disbursement Particularly, for individual applicants, whose main source of repayment are salaries, the bank should makes sure that their salaries are stable and regularly monitor debt situation to have prompt solutions if any problem occur Moreover, in the appraisal process, BIDV Dong Do should check customers’ credit history on CIC system or other banks to have more information about customers Furthermore, BIDV Dong Do should also check practical use of loans, internal controls, directly check the financial status of borrowers regularly to detect and handle suspicious attitudes of customers in order to minimize risks that may arise 4.1.5 Improving quality of the staff The staff is the ones who directly contact with customers To maintain, expand and satisfy customers or not is to some extent due to the quality of the workforce Improvement of customer service quality of the staff in BIDV Dong Do always creates a sense of satisfaction and peace of mind for customers when customers contact the bank and their financial needs are met Improving the quality of service associated with the modernization of banking technology is seen as an important factor in the development strategy of BIDV Computerization of the business processes and the bank’s management and training for staff, bank employees to master all that technology are critical requirements Moreover, there will be more foreign banks entering Viet Nam market, creating fiercer banking environment more than ever Possibly, the only way to compete them is quality of all service There will be also more foreign customers, who require very high service quality Therefore, the key element to fulfill these targets is bank’s workforce Tran Thi Hoang Anh 38 Graduation Thesis Banking Academy Credit is the basic and the most profitable operation in banking activities, thus, to make high and sustainable profits for banks, a credit officer should have the following characters: - Having honesty and working ethics: they need to ensure maximum benefit of banks and obey regulations strictly - Having the capability to solve professional problem: to so, the staff must have expert knowledge, trained skills to handle information related to their work - Having the capability to predict the economic problems as well as the prospect of credit operations This is the vision of each individual, but it affects the operations of the bank To get accurate predictions from experience is the creation of credit officers - Having prestige in social relations: this represents working ethics and the communication ability It also has much influence on expanding and maintaining traditional customers - Having aptitude for learning, self-study, with the ability to work independently: in recent years, BIDV Dong Do has constantly improved the quality and quantity of human resources Every year, the bank publicly holds recruitment contests with many rounds of expertise, knowledge, foreign languages, communication skills to employ the qualified and responsible staff The bank regularly organizes training courses, the symposium, domestic training, short-term and long-term overseas courses for potential officers 4.1.6 Developing consumer lending to individual customers based on business customer relationships with BIDV Dong Do The development of consumer lending bases on good customers of the branch is an important idea to minimize risks and ensure the stability and sustainability of the individual customer BIDV Dong Do has built traditional corporate customers, who have good reputation and large scale This is an opportunity for BIDV Dong Do to offer retail products and service (especially consumer loans) to leaders, employees working at these enterprises Tran Thi Hoang Anh 39 Graduation Thesis Banking Academy With a quite large number of corporate customers, BIDV Dong Do will easily expand consumer outstanding scale but still ensure safety and efficiency 4.2 RECOMMENDATIONS 4.2.1 To the State management agencies The banking system is mainly under the regulations of the Government Therefore, to help banks develop their consumer lending, the Government should: Firstly, the government should improve the legal documents about consumer lending, consumer protection, etc to create a strict legal corridor for banks to develop credit activities Secondly, the government should have policies to encourage investment in production of consumer goods in order to increase their supply This will contribute to increase productivity, reduce unemployment and improve the average income As a result, consumer lending will have more opportunity to develop Thirdly, the government and the authorities should take measures to manage inflation, promote economic development to enhance consumer lending 4.2.2 To the State Bank of Viet Nam The State Bank of Vietnam (SBV) is the body representing the State in the field of banking, direct the activities of the bank, so it plays an important role in the development of banking activities in general and consumer lending in particular Firstly, SBV should soon complete the legal documents governing consumer lending as well as banking operations Complete system creates good conditions for consumer lending development There should be specific rules on the subject, type of consumer loans, creating a fully legal framework for this activity Secondly, SBV needs to develop banking information system This system is the inevitable requirement for modern banking This information system will help banks access to information related to the banking sector as well as customer information quickly, thereby promoting collaborative relationships amongst banks Thirdly, SBV should periodically hold seminars, training courses for banks’ staff about the latest news of property market, appraisal skills…This agency could also Tran Thi Hoang Anh 40 Graduation Thesis Banking Academy listen to banks’ opinions and recommendations to have suitable and quick changes in regulations as well as management method 4.2.3 To Joint Stock Bank for Investment and Development of Viet Nam - Credit Strategy: BIDV’s current credit portfolio is focused on wholesale customers By catching up with the trend of social development, the benefits that credit activity, especially consumer loans bring, it is time for BIDV o build a long-term strategy for overall credit activity and a roadmap to implement that strategy - Human Development Strategy: Human development is the core strategy of every business To develop consumer lending, BIDV needs a plan to recruit and develop honest and qualified credit officers to be able to attract more customers - IT infrastructure development strategy: A branch can not change this, thus, it needs the support of the head office BIDV should develop a strategy to develop long-term infrastructure technology, which can compete and keep up with the technological development in the world 4.3 CONCLUSION In the light of findings, the researcher managed to answer the two research questions Consumer loan means a credit relation between a bank and an individual or household customer, in which the bank transfers a certain amount of money to the borrower for consumable purposes such as a car, boat, home loan, recreational vehicles… under terms and conditions in the signed contract This type of loan brings many benefits to not only banks, customers, but also to the economy in general For banks, it is a source of income; for customers, it helps them to fulfill their immediate demands; and for economy, it boosts the economic development At BIDV Dong Do branch, consumer lending has been enhanced in recent years with larger outstanding balance The revenues from this operation witnessed an upward trend over the last years However, overdue loans and NPL ratio in consumer lending at this branch was higher than the average ratio of the BIDV system This rooted in the lack of credit officers’ responsibility and their carelessness in appraisal process Tran Thi Hoang Anh 41 Graduation Thesis Banking Academy To improve the efficiency of consumer lending at BIDV Dong Do Branch, management board should combine many solutions involving in staff quality, marketing strategies, customer choice together to get the highest and sustainable profit Tran Thi Hoang Anh 42 Graduation Thesis Banking Academy REFERENCES Banking Academy (2001) Bank Credit Statistics Publisher Banking Academy (2004) Commercial Bank Statistics Publisher Terminology Dictionary Retrieved May, 2012 from Terms Dictionary: http://www.bfinance.vn BIDV (2011, 2012, 2013) Annual Report 2010, 2011, 2012 BIDV BIDV Personal Loan Retrieved May 15, 2012 from http://www.bidv.com.vn BIDV Dong Do (2010, 2011, 2012) General Statistics 2010, 2011, 2012 BIDV Dong Do BIDV Dong Do (2013) Statistics about Consumer Lending BIDV Definitions: Consumer Loan Retrieved May 15, 2012 from US Legal Web site: http://definitions.uslegal.com/c/consumer-loan/ Peter S Rose, Sylvia C Hudgins (2008) Bank Management and Financial Services McGraw-Hill/Irwin Tran Thi Bich Phuong (2011) Solutions to enhance consumer lending at Military Bank Banking Academy Tran Thi Hoang Anh 43