Trang 1 BANKING ACADEMY OF VIETNAM FACULTY OF FOREIGN LANGUAGES ---@&?--- GRADUATION THESIS SOLUTIONS TO IMPROVE CREDIT OPERATION AT ASIA COMMERCIAL JOINT STOCK BANK – THANG LONG BRANCH
INTRODUCTION
Introduction
Banking is an essential service that plays a crucial role in stabilizing the money market, controlling inflation, and creating jobs in every country As part of the broader economic framework, banks contribute to the development of capital and foreign exchange markets In the context of global economic integration, Vietnamese commercial banks are expanding their business activities and enhancing their impact on the economy.
In a market economy, credit activities are fundamental for commercial banks, representing an essential economic relationship based on temporary capital use between banks and their clients, including organizations and individuals This relationship operates on the principle of repayment and is built on trust, addressing the capital needs of businesses and individuals Credit plays a crucial role in providing necessary funding for production and business operations, making it one of the core functions of commercial banking Despite the introduction of innovative products that yield high revenues, credit activities remain the primary source of income for commercial banks.
Bank credit serves as a crucial economic lever and a regulatory tool for the State, enabling the adjustment of production strategies, optimal utilization of idle capital, inflation control, and stabilization of purchasing power This framework fosters an environment conducive to effective capital access for businesses and individuals, ultimately contributing to the growth of the social economy.
Credit serves as the primary income source for commercial banks, yet it carries inherent risks that can significantly impact the banking system, customers, and the national economy Due to the serious implications of credit risk, enhancing credit operations has become a top priority for these financial institutions.
After three months of hands-on experience at the bank, I recognized the significance of researching and assessing the current state of credit performance This motivated me to select "Solutions to Improve Credit Operations at Asia Commercial Joint Stock Bank - Thang Long Branch" as the focus of my thesis.
Background of the Study
Since operating on June 4, 1993, Asia Commercial Bank has become one of the largest joint stock commercial banks in Vietnam with a strong system including: more than
350 branches/ transaction offices, 11,000 ATMs and more than 850 Western Union agents
ACB offers a wide range of diverse products and services, including credit, capital mobilization, international payment, and guarantees Its strong brand reputation has made ACB a preferred choice for numerous customers and large enterprises.
ACB – Thang Long stands as one of the largest branches of ACB in Northern Vietnam, primarily focusing on capital mobilization and credit activities As credit generation is the main profit driver for ACB – Thang Long, the branch prioritizes the development of its credit services to enhance financial growth and stability.
This thesis focuses on the significance of credit activities, specifically examining the credit operations at ACB – Thang Long The study aims to evaluate the current status of these operations and identify existing limitations Based on this assessment, the thesis will propose solutions to enhance the credit operations at ACB – Thang Long.
Despite numerous studies on bank credit operations, there is a lack of research focused on enhancing the credit operations of ACB - Thang Long from 2020 to 2022 Existing research often pertains to banks in varying economic contexts, making those solutions potentially unsuitable for ACB - Thang Long However, ACB - Thang Long can utilize the limitations identified in these studies to select relevant solutions The recommendations provided in these theses may offer valuable insights for improving ACB - Thang Long's credit operations.
Objectives of the Study
The study aims to achieve the following specific objectives:
Firstly, clarifying basic theoretical issues related to credit operation of commercial banks
Secondly, analyzing and assessing the current situation of credit operation at ACB Thang Long in the period from 2020 to 2022
Thirdly, pointing out the outstanding achievements and limitations and their causes of the credit operation at ACB – Thang Long in the period from 2020 to 2022
Finally, proposing solutions and recommendations to improve credit operation at ACB Thang Long Branch.
Significance of the Study
The research aims to assist ACB – Thang Long in enhancing its credit operations by applying the findings from this thesis Additionally, this work serves as a valuable reference for researchers and students interested in the field of credit operations.
Scope and Limitations of the Study
Research scope: The study focuses on researching credit operation at ACB –
Thang Long Branch in the period from 2020 to 2022
Limitations: The are some limitations existing the process of completing the research paper
The research focused exclusively on credit activities at ACB-Thang Long, which may limit the applicability of the findings to this specific branch Despite the various activities at ACB-Thang Long, the study was constrained by time, leading to a concentrated analysis on credit operations.
Definition of terms
Bank credit refers to the borrowing relationship between a lender, typically a bank or legal credit institution, and a borrower, which can be an individual or a business seeking funds In this arrangement, the bank provides the borrower with money for a specified purpose, establishing a financial partnership that facilitates access to necessary capital.
4 agreed period When the payment is due, the borrower is obliged to pay the principal and interest according to the original commitment
Bad debt: is money that commercial banks lend to customers that commercial banks assessed as unlikely to be recovered
Credit risk: is the risk that borrowers are not able to fulfill their debt repayment obligations as committed to the bank
Outstanding loan: is the total amount that customers borrow from bank and it needs to be paid to the bank at a certain time
Overdue debt refers to a situation where a borrower, whether an individual or a business, fails to repay the principal amount by the agreed-upon due date specified in their credit contract Those classified as having overdue debts, according to the CIC, may face significant challenges in securing loans from banks or other financial institutions.
Short-term loans are financial products with a repayment period of up to one year, commonly utilized by businesses to address temporary working capital shortages and by individuals to meet immediate spending requirements.
Medium and long-term loans are financing options that span from over one year to five years, specifically designed for acquiring fixed assets, implementing technical upgrades, and facilitating innovations These loans support the expansion and construction of small projects that promise rapid capital recovery.
Interest revenue: is the amount of money that banks earn from lending activities
Interest expense: is the amount of money that banks pay for customers who deposit money in bank
Group 1 (standard debts): are assessed as being able to fully recover both principal and interest on time These debts are overdue less than 10 days
Group 2 (debts needing attention): are assessed as being able to fully recover both principal and interest but customers show signs of being unable to pay their debts These debts are overdue from 10 to 90 days
Group 3 (substandard debt): are assessed as being unable to recover both principal and interest on time These debts are assessed as likely to lose These debts are overdue from 91 to 180 days
Group 4 (doubtful debts): are assessed as high-potential losses These debts are overdue from 181 to 360 days
Group 5 (potentially irrecoverable debts): are assessed as irrecoverable debts of principal and interest These debts are overdue more than 360 days.
Structure of the thesis
The thesis includes 5 chapters, specifically:
Chapter 1: Introduction This chapter gives an overview of the research and the aim to carry out it
Chapter 2: Literature Review This chapter reviews the related previous researches and the theoretical basic of credit operation at commercial banks
Chapter 3: Research Methodology This chapter illustrates the method used in the thesis In addition, this chapter also indicate the source and reliability of the data
Chapter 4: Results and Discussion This chapter analyzes and evaluates the current status of credit operation at ACB – Thang Long in the period from 2020 to 2022 Then, this chapter finds out achievements, existing limitations in credit operation and their causes
Chapter 5: Summary of findings, Conclusion and Recommendations This chapter summarizes the achievements and limitations in the credit operation of the branch in the period from 2020 to 2022 Then, this chapter propose recommendations to head office of ACB and ACB – Thang Long
LITERATURE REVIEW
Literature review
Commercial banks play a crucial role in the economic and social development of modern society Their primary functions include capital mobilization, lending, and various financial operations To achieve profitability, these banks must deliver high-quality banking services at low costs while upholding their reputation through operational safety and minimizing risks.
Historically, banks have faced bankruptcy due to complex investment products and poor credit quality, primarily stemming from inadequate customer due diligence and risk assessment This inability to manage bad debts has negatively impacted the overall performance of the banking system As a result, researchers and financial experts have focused on developing more effective credit management tools and models to address these challenges.
In today's volatile market economy, influenced by various economic, political, and natural factors, the assessment of banks' credit quality remains a crucial focus for investors Since 2012, numerous studies have explored ways to enhance credit quality at commercial banks from diverse perspectives and over different timeframes These research efforts have significantly contributed to a more accurate evaluation of the credit performance and quality of commercial banks, benefiting both financial institutions and economic scholars alike.
To ensure the scientific rigor and practicality of the thesis implementation, it is essential to gather insights from previous studies and reports that are acknowledged for their valuable content.
In her 2012 master thesis titled "Credit Quality of Bank for Agriculture and Rural Development of Vietnam - Trang An Branch," Le Thu Minh examines the credit quality of commercial banks, focusing specifically on Agribank The research employs comparative analysis and synthesis methods to evaluate the findings.
The thesis analyzes the current state of credit activities at Agribank Trang An branch, highlighting both the advantages and disadvantages It also presents innovative strategies aimed at enhancing the credit quality within the branch.
Nguyen Khanh Linh's 2012 master thesis, titled "Solutions to Limit Credit Risk at Bank for Investment and Development of Vietnam - Phu My Branch," systematically examines credit activities and the management of bad and overdue debts at BIDV, Phu My branch Utilizing synthesis, analysis, enumeration, and logical methods, the study emphasizes the importance of effective credit management in addressing these issues It ultimately proposes targeted solutions aimed at enhancing the credit framework and minimizing risks that could compromise the bank's credit quality.
The master's thesis by Ha Dinh Mui, titled "Improving Credit Operations for Farmer Households at the Bank for Agriculture and Rural Development of Vietnam - Mai Son Branch," systematically explores the essential role of bank credit in enhancing the economic development of farmers It evaluates the current credit operations at Agribank Mai Son branch, identifying both achievements and shortcomings that require further investigation The study offers targeted solutions and recommendations aimed at enhancing credit quality for farmers, positioning credit activities as a vital instrument for implementing the State's monetary policy This, in turn, supports economic restructuring in agriculture and rural areas, promotes infrastructure development, alleviates poverty, and progressively improves living standards.
In her 2014 master thesis, "Developing Credit Activities at Saigon - Hanoi Commercial Joint Stock Bank, Ha Noi Branch," Nguyen Thu Giang examined the credit activities implemented at the branch The thesis provided a detailed analysis of the various processes and stakeholders involved in the bank's credit operations, highlighting both the strengths and weaknesses of these activities in comparison to non-state joint stock banks.
SHB Bank stands out among the eight stock commercial banks due to its strengths in credit activities, which are highly valued by customers However, a recent study utilizing analytical and synthetic methods revealed that SHB's credit operations in Hanoi face several challenges, including low appraisal quality, a lack of diversity in credit products, and inadequate management of risk To address these issues, the thesis recommends several solutions for SHB Hanoi, such as improving collateral appraisal processes, diversifying credit product offerings, and enhancing risk management strategies.
Master thesis in economics written by Pham Anh Tuan in 2016 with the title
The article titled "Solutions to Improve Medium and Long-Term Credit Quality at Ha Nam Branch of Joint Stock Commercial Bank for Investment and Development" from The National Economics University emphasizes the significance of enhancing credit quality in the context of international integration Utilizing analytical, synthetic, and comparative methods, the study evaluates the current status of medium and long-term loans at SHB – Ha Nam Branch, identifying both successes and limitations that impact loan quality Additionally, it examines global best practices in improving credit quality and offers valuable lessons for SHB – Ha Nam Branch Key solutions proposed include enhancing appraisal processes and providing professional training courses for staff to elevate overall credit quality.
Recent studies on credit operations provide comprehensive assessments that serve as valuable resources for writers to reference and build upon Most existing research focuses on stable economic conditions, which are devoid of significant fluctuations that could impact economic development However, from 2020 to 2022, Vietnam faced substantial economic disruptions due to natural disasters, a fuel crisis, inflation, the US-China trade war, the Covid-19 pandemic, and the Russia-Ukraine conflict These factors have significantly affected the credit quality of commercial banks, highlighting the need for research that adapts to these challenging circumstances.
Previous studies highlight nine advantages that are highly practical and relevant to the current socio-economic landscape These insights aim to achieve long-term stability while effectively addressing and mitigating risks within the banking system and the broader Vietnamese economy.
The studies highlighted the need for enhancing credit operations, with each research presenting unique approaches tailored to the specific conditions of various banks and regions While these studies offered timely solutions, their applicability across different branches was limited This research paper focuses on data from the ACB - Thang Long Branch to identify limitations and their causes, proposing feasible solutions aligned with the branch's capabilities Given the branch's high transaction volume and diverse clientele, the author emphasizes the importance of effective post-lending credit management alongside loan expansion to maintain credit quality and prevent overdue accounts and bad debts Furthermore, the research incorporates general debt management strategies, adapting insights from existing studies to enhance practices at Asia Commercial Joint Stock Bank - Thang Long Branch.
The author conducted an analysis of the credit activities at ACB - Thang Long Branch, focusing on the period from 2020 to 2022, as there was a lack of existing research This study aims to identify effective solutions to enhance the branch's credit operations.
Commercial Joint Stock Bank ACB – Thang Long Branch.”
Overview of bank credit
The term "credit" appeared in the 15th century, derived from the Latin word
The term "creditum," meaning trust, defines the relationship between a borrower and a lender In this arrangement, the lender provides the borrower with the right to use funds for a specified period Consequently, the borrower is obligated to repay both the principal amount and interest punctually.
In general, credit is a form of borrowing based on trust between two parties
Bank credit refers to the borrowing relationship between a lender, typically a bank or legal credit institution, and a borrower, which can be an individual or a business seeking funds In this arrangement, the bank provides money to the borrower for a specified period, and upon the due date, the borrower is required to repay both the principal amount and the agreed-upon interest.
- Bank credit based on trust
Banks provide credit only when they have confidence in the borrower's responsible use of the loan, efficiency, and timely repayment ability Borrowers, on the other hand, must believe in their future earning potential to meet repayment obligations Consequently, banks focus on three key criteria when making lending decisions: the borrower's reputation, the feasibility of the proposed business plan, and the presence of loan guarantees.
Banks serve as financial intermediaries by borrowing funds to lend, necessitating that all bank credits have a defined term to ensure the repayment of mobilized capital To establish an appropriate loan term, banks must consider both the stability of their capital and the borrower's capital turnover When a bank possesses stable long-term capital, it is capable of offering substantial long-term loans Conversely, if a bank's capital is unstable yet it extends long-term credit, it risks encountering liquidity challenges Therefore, aligning the loan term with the customer's capital turnover is crucial for timely loan repayment.
- Bank credit is based on the principle of not only repaying the principal but also earning interest
A repayment is not considered a credit if it does not include a refund The total repayment amount must exceed the original loan value, as customers are required to pay back both the principal and interest, which represents the cost of borrowing This interest is essential for covering the bank's operating expenses and ensuring profitability, highlighting the fundamental nature of banking operations.
- Credit is a high-risk activity for banks
Assessing the safety of loan applications is challenging due to asymmetric information, which can result in adverse selection and moral hazard Additionally, debt recovery is influenced by external factors such as price fluctuations, interest rates, exchange rates, inflation, natural disasters, and epidemics When customers face unfavorable business conditions, their ability to repay loans diminishes, increasing credit risk for banks.
- Bank credit must be on the basis of an unconditional commitment to repay
The loan application and approval process is governed by stringent legal frameworks, including credit contracts, debt acceptance agreements, mortgage contracts, and guarantee contracts Borrowers are required to unconditionally commit to repaying the loan to the bank upon its due date.
Bank credit is governed by two fundamental principles: the loan capital must be utilized for its intended purpose, and both the principal and interest must be repaid promptly, as stipulated in the loan agreement.
2.2.3.1 Classification according to the subject of the loan
Personal credit: Serving the needs of using personal capital such as: buying a house, buying a car, doing business, covering personal life
Corporate credit: Serving the production and business activities of enterprises, investment in purchasing new equipment or supplementing working capital
Short-term loans are financial products with a repayment period of up to one year, designed to address immediate cash flow needs for businesses and meet the short-term financial requirements of individuals.
Medium-term loans are financing options that typically range from 1 to 5 years, designed to support the acquisition of fixed assets, facilitate technical improvements and innovations, and aid in the expansion and construction of small projects with rapid capital recovery.
Long-term loans are financial products with repayment periods exceeding five years, typically ranging from 20 to 30 years These loans are designed to fulfill substantial long-term needs, including financing for home construction, establishing new factories, and enhancing or expanding large-scale production operations.
- Real estate loan: is a type of loan related to the purchase and construction of houses and real estate in the industrial, commercial and service sectors
- Agricultural loan: is a type of loan to cover production costs such as fertilizers, pesticides, plant varieties, animal feed
- Industrial and commercial loans: are short-term loans to supplement working capital for enterprises in the fields of industry, commerce and services
- Personal consumer loan: is a type of loan to meet consumer needs such as buying expensive items and covering living expenses through issuing credit cards
2.2.3.4 Classification of creditworthiness for customers
- Unsecured loan: is a type of loan without collateral but only based on the customer's reputation
A secured loan is a type of financing that requires collateral, which remains with the borrower throughout the loan term The lender retains documents proving ownership of the collateral, while the borrower maintains ownership of the property Common forms of collateral for bank loans include land use rights, real estate assets, valuable papers, vehicles, and machinery.
The role of bank credit
The formation and development of bank credit play a crucial role in fostering economic growth and regulating cash flow, which is vital for a market economy The significance of bank credit is evident in various aspects of both the economy and society.
Bank credit serves as a vital intermediary that regulates and circulates cash flows in the market, fostering capital movement and stimulating economic development The commodity economy is closely linked to varying capital needs across industries and time periods, resulting in a mismatch between available market capital and the capital required for production and business activities Furthermore, production and business entities often face significant limitations in accessing idle capital By facilitating the circulation of idle capital to those in need, bank credit enhances cash flow flexibility and stability while ensuring profitability for capital owners.
In today's globalized economy, collaboration and trade with international partners are essential for success Bank credit plays a crucial role by providing businesses with stable capital, while additional banking services like guarantees and interbank money transfers enhance trade activities This support not only boosts the operations of production and business enterprises but also elevates their standing in the global market.
Bank credit plays a crucial role in promoting quality and economic efficiency by enforcing strict regulations on loan access Economic entities seeking loans must demonstrate the quality of their capital-utilizing projects and adhere to the capital-use agreements established with banks This regulatory framework helps banks mitigate risks, prevent fraud, and ensure that idle capital is allocated effectively and used for its intended purposes.
Bank credit serves as a primary revenue source for financial institutions, with interest income and related services contributing significantly to their overall earnings.
Bank credit establishes a vital connection between banks and economic entities, fostering effective communication and support This collaboration cultivates long-term partnerships, enabling banks to provide timely assistance for future projects.
Bank credit effectively addresses customer needs by providing both the quantity and quality of capital required Unlike commercial and personal credit, it plays a crucial role in fulfilling diverse customer demands.
Bank credit enhances the efficiency of capital utilization for businesses by imposing a responsibility on borrowers to repay the principal and interest within an agreed timeframe This obligation compels customers to utilize loan capital effectively, ensuring they meet their debt repayment commitments to the bank.
The importance to improve credit operation
Improving credit operations is essential for banks, customers, and the overall economy, as effective credit management yields significant benefits for all stakeholders involved.
From the bank's point of view, improving credit operation will bring the following benefits:
Improving credit can enhance the profitability of a bank's products and services By building trust with customers, banks can encourage them to explore and utilize additional offerings whenever the need arises.
Enhancing credit operations is essential for ensuring safety in the banking sector, as credit activities, while profitable, carry significant risks By improving credit practices, banks can mitigate these risks, ultimately increasing the security of their business operations.
Enhancing credit operations results in a more efficient system of credit products for customers This improvement directly benefits clients by significantly reducing the time required for loan appraisal and approval, ensuring they have timely access to capital for their production and business activities.
Effective credit operations enable banks to enhance payment functions, which in turn supports the production and circulation of goods This process reduces societal circulation costs, stabilizes currency flow, and encourages the adoption of non-cash payment methods Additionally, it aids in controlling inflation while fostering investment and promoting sustainable economic growth.
To sum up, improving credit operation is a really necessary issue that needs attention and focus not only on banks and customers but also the whole economy
This chapter reviews five prior studies on credit operations, analyzing their research methods and identifying gaps in the existing literature By highlighting these gaps, the thesis aims to determine appropriate research methodologies for future investigations in the field.
Bank credit is crucial for the operational success of commercial banks and significantly contributes to economic and societal development Various factors influence credit operations, making it essential for banks and researchers to analyze and evaluate these elements By understanding these factors, banks can implement effective strategies to enhance their credit activities.
RESEARCH METHODOLOGY
Locale of the Study
This research was conducted at Asia Bank's Thang Long Branch in Hoan Kiem District, the smallest district in central Hanoi, Vietnam, covering an area of 5.29 km² With 242 branches and sub-branches from 43 banks in the district, competition is intense To attract more customers, banks need to innovate their product offerings and enhance their credit operations, as lending activities are crucial for generating income The study specifically analyzes the credit operations of ACB – Thang Long Branch.
Long The data used in the paper was collected from the financial statement of ACB –
Thang Long in the period from 2020 to 2022 After analyzing the collected data, the study proposed solutions to improve credit operation for ACB – Thang Long.
Research Design
The author's research process was conducted as follows:
Step 5: Proposing recommendations Step 4: Analyzing Data and Finding limitations
Step 3: Valuing source of the Data Step 2:Collecting Data
Step 1:Determining the research topic
Research method
After referencing previous research papers, the thesis inherited the research methods of previous authors such as data collection method, descriptive statistical method, comparative method, analytical and synthesis methods
The study utilizes two primary data sources: internal data from the financial statements of ACB – Thang Long covering the years 2020 to 2022, and external data derived from published journal articles and prior research.
After gathering the data, a thorough analysis was performed using key methods such as numerical comparisons and visual representations like tables and charts This evaluation provided insights into the fluctuations of criteria within the credit activities at ACB – Thang Long.
Statistics encompasses a set of methods for collecting, synthesizing, and presenting data, aimed at analyzing, predicting, and facilitating decision-making processes It is typically divided into two main areas: descriptive statistics, which focuses on data collection, summarization, and the calculation of key characteristics to represent the research subject, and inferential statistics, which involves analyzing relationships between phenomena and making predictions or decisions based on the collected data.
The research mainly uses descriptive statistics with commonly used techniques as follows:
+ Graphical representation of data in which charts depict data or help compare data The data collected in the business results reports of ACB Thang Long branch from 2020 to
2022 was used to build a chart to compare the increase and decrease of the indicators over the years
This article presents a comprehensive summary of data through well-structured tables, facilitating easy observation and analysis It focuses on the criteria used to evaluate the credit operations of ACB Thang Long from 2020 to 2022, highlighting key insights and trends in the data.
Comparison involves analyzing quantified numbers and indicators with similar content and properties to identify trends and volatility across different sources and timeframes This process allows for an assessment of development trends, strengths, and weaknesses based on established criteria, ultimately aiding in the discovery of optimal solutions.
The comparative method is considering an analytical criterion by comparing it with an original criterion This is the most commonly used method of analysis
To apply the method of comparison and analysis, we must determine the original number, the conditions, and the goal to compare
This thesis analyzes fluctuations and growth rates of credit operation indicators by using original comparison numbers from previous periods The research is based on data collected by ACB - Thang Long from 2020 to 2022, providing insights into the dynamics of credit operations.
Conditions for comparing economic indicators must be consistent in content, calculation methods and units
The goal of this comparison is to assess both absolute and relative volatility, as well as to identify trends in the analysis Absolute volatility is measured by comparing the indicator's value between the analysis period and a base period In contrast, relative volatility is calculated by comparing the actual figure to the original value, adjusted by a factor that reflects the size of the analyzed indicator.
The thesis compares the current status of credit activities of ACB - Thang Long Branch to see the credit growth rate (absolute and relative numbers), the correlation indexes
Over the years, an analysis of the branch's credit operations reveals significant changes in key indicators such as capital mobilization, outstanding loans, and credit turnover By comparing these metrics, we can implement effective remedial measures and conduct thorough evaluations to enhance performance.
The comparison method includes comparing by absolute and relative numbers:
- Method of comparison by absolute number: is the subtraction between the value of the analysis period and the base period of economic expenditure
-> According to the formula: DY = Y1-Y0
The method of comparison by relative number involves calculating the difference between the economic indicator of the analysis period and the base period, then dividing this difference by the economic value of the base period This approach allows for a clear assessment of economic changes over time, providing valuable insights into trends and performance.
-> According to the formula: DY= Y1/ Y0
DY: volatility of economic indicators
Y1: indicator value for the year of analysis
Y0: the target value of the base year
The comparative is used to analyze credit operation at ACB - Thang Long in the period from 2020 to 2022
Analysis involves breaking down a subject into simpler components for clearer understanding, while synthesis reverses this process to identify connections and commonalities Together, analysis and synthesis are complementary methods that enhance research by providing a comprehensive view of the study object.
The topic focused on analyzing the current status of credit activities and proposing solutions to improve the credit operation After being collected, specific data on business
20 activities of ACB - Thang Long Branch from 2020 to 2022 was synthesized and analyzed The analysis of credit activities at Thang Long branch is based on the following aspects:
- Analyze indicators on credit scale, structure of credit balance, revenue from credit activities
- Analyze risk control criteria: rate of overdue debt, bad debt
This article analyzes key indicators of credit activities at ACB - Thang Long, focusing on overdue debt, bad debt, profitability, credit turnover, and capital efficiency The research synthesizes the relationship between scale, quality, and risk, providing a comprehensive overview of the bank's credit performance.
Source of Secondary Data
The research utilizes financial statements from ACB – Thang Long Branch covering the period from 2020 to 2022 To facilitate analysis, the collected data is organized and displayed using tables, line graphs, and pie charts This approach allows for a comprehensive evaluation of the current state of credit operations at ACB – Thang Long, focusing on data from the past three years, including the research year of 2020.
Evaluation of Secondary Data
Between 2020 and 2022, the Head of the Credit Department collected data to enhance the branch's credit operations This information, gathered from the branch's actual business activities, serves research purposes and is fully aligned with the numerical data reported to ACB headquarters.
Categories of Secondary Data
The thesis presents qualitative data collected from the financial statements of ACB – Thang Long, which serves various research purposes.
- Total revenue, total expenses, and profit
- Interest revenue, interest expenses, other revenue, other expenses
Validity and Reliability
The research utilizes financial statements from ACB – Thang Long Branch for the period 2020-2022, which were meticulously audited by KPMG, a leading global auditing firm This data, published on the ACB Portal, was further supplemented by internal information obtained during a two-month internship at the branch Access to this strictly controlled data is limited to the Director of ACB – Thang Long Branch, ensuring that all information used in the study is both valid and highly reliable.
This chapter focuses on analyzing the impact of various indicators on the credit operations of ACB – Thang Long, detailing the research methods employed It emphasizes the use of secondary data, outlining its sources and reliability, which enhances the credibility of the study's analysis results.
RESULTS AND DISCUSSION
Overview results
Since its establishment until 2022, ACB – Thang Long maintained steady growth and development This was shown by the following financial ratios over the years:
Table 4.1: Business results of Asia Bank – Thang Long Branch from 2020 to 2022
(Source: Financial Statement of Asia Bank - Thang Long Branch)
The data indicates that ACB – Thang Long has experienced a steady increase in total revenue over the years This total revenue comprises both interest revenue and other sources of income, with interest revenue consistently representing a larger share than other revenues.
Source: Analysis from provided data
The line graph illustrates the interest revenue rate of ACB – Thang Long from 2020 to 2022, highlighting that the majority of the branch's revenue stems from credit activities, which are inherently riskier than other services In 2020, the total revenue reached 168.97 billion VND, with interest revenue at 158.83 billion VND, making up 94% of the total This share decreased slightly in subsequent years, with interest revenue accounting for 91% in 2021 and 90% in 2022 Overall, the analysis indicates that lending activities are the primary revenue source for the branch, despite a gradual decline in the interest revenue ratio over the three years, dropping from 94% in 2020 to 91% in 2021, and further decreasing in 2022.
Figure 4.1: Interest Revenue Rate of ACB Thang Long from 2020 to 2022
24 slightly by 1% compared to the previous year The reduction in interest revenue ratio shows that the branch boosted revenue from other services besides lending activities
Source: Analysis from provided data
The line graph displays the other revenue rate of ACB – Thang Long from 2020 to
In 2022, revenue from services such as international payment fees, guarantee fees, and money transfer fees saw significant growth, aligning with the Prime Minister's Decision No 986/QD-TTG, which aimed for non-credit income to reach 16%-17% by 2025 From 2020 to 2022, the rate of other income rose from 6% to 10%, reflecting a 4% increase and demonstrating ACB – Thang Long's commitment to this strategic direction As competition among banks intensifies, promoting additional services has become essential for enhancing profitability, reinforcing the importance of expanding non-interest business activities in the banking sector.
Figure 4.2: Other Revenue Rate of ACB - Thang Long from 2020 to 2022
Incorporating 25 non-interest income activities can significantly enhance service fees, including check payment fees, money transfer fees, card service fees, and Internet banking fees These activities not only cater to a vast customer base but also complement and support other business operations, ultimately leading to indirect profit generation.
The restructuring of commercial banks' service portfolios has led to a diversification of income sources, effectively reducing their reliance on credit activities and minimizing operational risks.
From 2020 to 2022, ACB – Thang Long experienced significant revenue growth, starting with 168.97 billion VND in 2020 This figure rose to 210.28 billion VND in 2021, marking a growth rate of 24.45% By 2022, total revenue further increased to 257.71 billion VND, reflecting a growth rate of 22.56% compared to the previous year.
From 2020 to 2022, ACB – Thang Long experienced a significant increase in total revenue, driven by effective marketing strategies that included attractive interest rates and card incentives During the challenging economic climate caused by the Covid-19 pandemic, the bank offered preferential lending rates of 8% for individuals and 7% for businesses to facilitate access to capital Additionally, ACB – Thang Long eliminated card issuance and annual fees for both debit and credit cards while promoting a "Shopping with up to 2% cashback" program to encourage ATM card usage These initiatives not only helped retain existing customers but also attracted a substantial number of new clients to the bank.
Interest revenue accounted for 90% of total branch’s revenue In 2021, revenue from lending activities was 191.35 billion VND, an increase of 32.52 billion VND compared to
In 2022, ACB - Thang Long reported an impressive interest revenue of 231.939 billion VND, reflecting a significant growth rate of 21.21% compared to 2021 This increase can be attributed to the bank's adherence to Resolution 63/NQ-CP, which mandated a reduction in lending interest rates by up to 1% per year To further support the economy in overcoming the challenges posed by the Covid-19 pandemic, ACB - Thang Long introduced a preferential credit package aimed at fostering recovery.
26 interest rates for essential sectors such as healthcare and consumer goods When reducing interest rates, ACB – Thang Long attracted a lot of customers
Between 2020 and 2022, both revenue and expenses saw significant growth In 2021, total expenses reached 168.23 billion VND, marking an increase of 33.605 billion VND, or 24.96% from 2020 By 2022, total expenditures climbed to 206.171 billion VND, reflecting a growth rate of 22.55% compared to the previous year.
Between 2020 and 2022, the bank experienced a significant upward trend in interest expenses, which rose from 151.203 billion VND in 2020 to an increase of 32.733 billion VND in 2021 and 36.413 billion VND in 2022, reflecting a growth rate of 24.08% compared to the previous year This rise in interest expenses was primarily driven by an increase in deposit interest rates, encouraging customers to deposit their idle funds into the bank The growing interest expenses indicate a healthy increase in mobilized capital, enabling the branch to expand its credit activities and ultimately enhance profitability.
Despite the challenges faced during 2020-2022, ACB – Thanh Long experienced steady profit growth In 2021, the branch recorded a profit of 42.05 billion VND, marking an increase of 7.705 billion VND from the previous year As the economy began to recover from the Covid-19 pandemic, profits continued to rise, reaching 51.539 billion VND in 2022, an increase of 9.489 billion VND.
Capital mobilization plays a crucial role in banking activities because it affects the lending ability of banks
Table 4.2: Capital mobilization of ACB – Thang Long from 2020-2022
Source: Financial Statement of Asia Bank – Thang Long Branch
Between 2020 and 2022, ACB – Thang Long experienced a steady increase in total mobilized capital In 2021, the branch's mobilized capital reached 3,877 billion VND, marking an 8% rise from the previous year The upward trend continued in 2022, with total mobilized capital reaching 4,264 billion VND, an increase of 387 billion VND or 9.98% compared to 2021 Despite intense competition among commercial banks, ACB – Thang Long consistently maintained a robust level of mobilized capital, which includes both domestic and foreign currency.
Figure 4.3: Deposit structure by currency of ACB Thang Long in the period from
(Source: Analysis from bank data provided)
In terms of mobilized capital structure, it can be seen that the structure of deposits in Vietnam dongs accounted for a very large percentage compared to foreign currencies
From 2020 to 2022, the proportion of deposits in local currency experienced a slight decline, dropping from 97.5% in 2020 to 96.8% in 2022 In 2021, the total mobilized capital in local currency rose to 3,760.69 billion VND, reflecting an increase of 206.44 billion VND from the previous year By 2022, this figure further increased to 4,127.552 billion VND, marking a nearly 9.7% growth compared to 2021.
In 2022, the Covid-19 pandemic significantly impacted our country, leading to a decline in local currency deposits as individuals prioritized holding cash for essential expenses and health precautions Despite foreign currency mobilization representing a small portion of ACB Thang Long's overall structure, it rose from 2.5% in 2020 to 3.2% in 2022, driven by high inflation and the depreciation of the VND, prompting people to hoard foreign currencies As these currencies are challenging to preserve, many opted to deposit them in banks Additionally, the gradual economic recovery post-pandemic spurred increased import and export activities, resulting in businesses opening foreign currency accounts at ACB-Thang Long for international transactions, further contributing to the rise in foreign currency mobilization.
Figure 4.4: Structure of mobilized capital by customers ACB Thang Long in the period of 2020-2022
Source: Financial Statements of ACB – Thang Long
Between 2020 and 2022, mobilized capital from individual customers significantly contributed to ACB – Thang Long’s capital structure In 2020, personal deposits totaled 2,943.8 billion VND, representing 82% of the total mobilized capital This figure rose to 3,140.37 billion VND in 2021, marking a growth rate of 6.67% compared to the previous year By 2022, individual deposits further increased to 3,539.12 billion VND, highlighting a consistent upward trend in personal customer deposits.
31 increase of 398.75 billion VND compared to 2021 In 2022, individual customer deposits grew 12.7% compared to 2021
Achievements and Limitations
Although 2020-2022 was a difficult period for the economy in general and the banking industry in particular, ACB - Thang Long achieved outstanding achievements as follows:
Over the years, total mobilized capital has shown a steady increase, rising from 3,590 billion VND in 2020 to 4,264 billion VND in 2022 Despite the challenges posed by the complex development of the epidemic, which hindered traditional capital mobilization efforts, bank staff successfully utilized non-traditional channels like telesales to connect with customers These proactive measures contributed to the growth of mobilized capital during the 2020-2022 period.
Outstanding loan increased over the years, specifically: outstanding loan in 2020 was 3015 billion VND and this number increased to 3624 billion VND in 2022
ACB - Thang Long has diversified its outstanding loan structure to enhance risk dispersion, with a particular emphasis on short-term loans to mitigate debt recovery risks The value of short-term loans rose significantly from 2,714 billion VND in 2020 to 3,335 billion VND in 2022 Additionally, ACB - Thang Long is also looking to expand its offerings in medium and long-term loans.
In recent years, medium and long-term loans have seen fluctuations, decreasing from 301 billion VND in 2020 to 289 billion VND in 2021, but rising by 3 billion VND in 2022 This increase in loans has positively impacted the branch's profits and successfully addressed all customer borrowing needs.
The bad debt ratio at ACB - Thang Long consistently remained below regulatory limits, despite a gradual increase over the years Adhering to the State Bank of Vietnam's regulations, which cap the ratio at 3%, ACB aimed to maintain a target of under 1% From 2020 to 2022, the branch successfully aligned with this policy, achieving a bad debt ratio that fluctuated between 0.7% and 1%.
Despite ACB – Thang Long's strong performance in recent years, several limitations have negatively impacted its credit operations Key issues contributing to the decline in credit performance include various operational challenges that need to be addressed.
Between 2020 and 2022, the mobilized capital flow at ACB - Thang Long was not utilized effectively, with efficient capital remaining below 85%, indicating that outstanding loans were lower than the available mobilized capital This inefficiency resulted in lower profits for the branch, highlighting a lack of attractive policies to engage both new and existing customers Additionally, the branch's limited marketing channels contributed to insufficient awareness of its loan programs among potential customers.
Between 2020 and 2022, ACB - Thang Long experienced a rise in bad debt, escalating from 0.7% to 1% The Covid-19 pandemic disrupted credit control and significantly impacted production and business activities, leading to decreased customer income As a result, many customers struggled to meet their debt obligations, contributing to the increase in bad debt for the branch.
- Thang Long bad debt increase Therefore, ACB - Thang Long needs to take measures to limit the situation of losing capital
Processing time for loan application of ACB - Thang Long was quite long (about
ACB - Thang Long currently takes approximately 10 days to process credit applications, which involves multiple steps including document receipt, writing, customer appraisal, and collateral valuation This lengthy process has led to delays for customers seeking urgent disbursement, highlighting the need for ACB - Thang Long to implement measures that will shorten the credit granting timeframe.
ACB's collateral valuation is relatively low, with the Thang Long branch appraising assets at approximately 80% of market value, compared to Phuong Dong Bank's 95% This has resulted in a lower loan-to-capital mobilization ratio To address this issue, ACB – Thang Long should enhance its asset evaluation methods through more thorough surveys and training for staff in property appraisal skills, aiming to align valuations more closely with market prices.
ACB’s credit policy is stringent, allowing loans only to customers without any group 2 debt in the past 12 months The pandemic and global economic recession from 2020 to 2022 impacted many customers, resulting in delayed debt payments Consequently, these delays classified affected customers as group 2 debtors in the CIC system.
The limitations faced by ACB - Thang Long in its credit activities stem from both objective and subjective factors Subjective issues include the bank's stringent credit processes and the qualifications of its staff, while objective challenges arise from customers who may not meet loan requirements or are experiencing difficult business conditions.
The branch's appraisal policy proved ineffective, as customers provided inaccurate information and misused loans contrary to agreements, highlighting significant shortcomings in the branch's due diligence process.
The lengthy appraisal process of a customer's credit document, which involves multiple processing departments, often delays urgent disbursements needed for contract payments Consequently, many customers face challenges in accessing the necessary capital on time due to the complex loan procedures.
The capacity of loan officers at ACB - Thang Long is currently limited, primarily due to the young age and inexperience of the staff This lack of professional knowledge has led to challenges in customer due diligence, causing some loan officers to struggle with collecting accurate customer information.
ACB – Thang Long's marketing efforts for credit products are currently constrained, relying primarily on traditional methods like leaflet distribution and telesales These strategies have proven to be ineffective in attracting new customers To enhance customer acquisition, it is essential for the branch to explore and implement innovative marketing channels.
SUMMARY OF FINDINGS, CONCLUSION AND
Summary of findings
The thesis highlights the credit activities at ACB – Thang Long Branch, noting a year-on-year increase in outstanding loans while maintaining a low bad debt ratio in compliance with SBV regulations However, the branch faces limitations that hinder lending efficiency, such as ineffective use of mobilized capital, with outstanding loans falling below mobilized capital and efficient capital utilization below 85% Additionally, an increasing bad debt ratio is attributed to the limited appraisal capacity of loan officers and improper loan commitments by customers Prolonged loan processing times fail to meet customer needs, and low collateral valuations restrict access to desired capital Furthermore, strict credit policies, including restrictions on lending to customers with group 2 debt in the past 12 months, limit the branch's ability to engage potential clients.
Conclusion
In conclusion, ACB – Thang Long achieved positive results in its credit activities from 2020 to 2022, with a gradual year-on-year improvement in credit operations However, the growth in outstanding loans was modest, significantly affected by the Covid-19 pandemic and the global economic downturn The analysis highlighted the limitations in ACB - Thang Long's credit activities and proposed solutions to enhance the branch's credit operations.
Recommendation
5.3.1 To Head Office of Asia Commercial Joint Stock Bank
ACB should streamline its credit process to reduce loan application processing times For trusted customers, it is essential to relax stringent requirements regarding legal and financial documentation Furthermore, investing in staff training on appraisal skills will help expedite the customer appraisal process.
ACB should implement a range of professional training courses, including asset appraisal and business financial analysis, to improve staff qualifications These courses can be offered in both online and offline formats, ensuring accessibility for employees nationwide Additionally, ACB should consider sending staff abroad for further education to acquire new knowledge and valuable experience.
ACB should reevaluate its lending policies by considering the potential benefits of granting loans to customers with a history of group 2 debt from the past 12 months As market capital demand rises to support economic growth, these customers could represent valuable opportunities for the bank.
ACB must enhance both regular and irregular supervision and inspection at its branches and transaction offices to promptly identify any abnormal activities and violations Furthermore, this oversight enables the head office to address challenges faced by these locations and offers contingency strategies to mitigate potential economic fluctuations.
ACB's interest rate policy lacks flexibility, with general rates that do not cater to individual customer needs To strengthen relationships with loyal clients, ACB should consider offering more competitive interest rates Additionally, inconsistencies in interest rates across different branches and transaction offices for similar customers in the same industry highlight the need for a more standardized approach Improving these aspects is essential for ACB to enhance customer satisfaction and loyalty.
51 policy so that branches/transaction offices can be more proactive in granting loan to customers
5.3.2 To Asia Commercial Joint Stock Bank – Thang Long Branch
ACB – Thang Long needs to focus on collecting information from customers and analyzing the information accurately to make the right lending decision
- In terms of collecting information
Loan officers should diligently gather customer information not only through direct meetings but also by exploring additional sources This includes interviewing the customer's partners and suppliers and gaining insights into the customer's specific business sector.
- In terms of analyzing information
After having a reliable source of information, loan officers need to analyze them effectively Loan officers need to analyze the criteria of “enterprise size”, “solvency”, and
“business efficiency” to minimize lending risks In addition, in order to avoid bad problems during the credit granting process, the branch should conduct a re-appraisal of that loan
Regular and irregular audits are essential for evaluating the efficiency of business operations and customer capital utilization, enabling banks to proactively manage and mitigate risks Loan officers should assess customer attitudes and repayment willingness during these inspections As debt repayment deadlines approach, it is crucial for loan officers to remind customers to fulfill their payment obligations promptly as per their agreements.
In her master thesis titled “Solutions to Limit Credit Risk at Joint Stock Commercial Bank for Investment and Development of Vietnam – Phu My Branch,” author Nguyen Khanh Linh emphasizes the importance of implementing effective strategies to mitigate credit risk within the banking sector.
5.3.2.2 Improve the human resource quality
Many customers prioritize the service attitude and professionalism of loan officers over interest rates when selecting a bank for borrowing Recognizing this, ACB - Thang Long must enhance the quality of its human resources to better meet customer expectations.
At the stage of recruiting loan officers, the branch should recruit employees with qualifications, professional knowledge and solid professional skills, especially with good moral character and communication skills
ACB - Thang Long should promote employee participation in head office training programs to enhance their professional knowledge It is essential for employees to proactively stay informed about new regulations and policies regarding products while also cultivating ethical qualities in their work.
To enhance employee skills, the branch should organize additional training classes targeting areas of weakness Furthermore, conducting meetings with other bank branches to exchange experiences in credit management will provide loan officers with valuable knowledge that they can apply in their roles.
Effective leadership should implement a rewards system for loan officers who demonstrate enthusiasm and successfully fulfill their responsibilities Conversely, it is essential for the branch to enforce specific disciplinary actions for loan officers exhibiting poor work attitudes and negative behaviors that could harm the bank's reputation.
Branches must prioritize the attitude of loan officers towards customers, ensuring they provide enthusiastic and attentive service to foster strong credit relationships In addition to attracting new clients, it is essential for branches to nurture existing customer relationships by offering gifts on special occasions like birthdays and Tet, thereby promoting long-term loyalty.
In the competitive landscape of joint stock commercial banks, ACB - Thang Long must implement effective strategies to attract customers To thrive amidst fierce competition, the branch should prioritize proactive marketing efforts to showcase its products and services to potential clients.
Branch should attend events, customer conferences, business seminars to promote ACB's products and services to customers and thereby approaching potential customers
To enhance customer loyalty, branches should implement preferential policies for existing clients and organize seminars aimed at improving their operational knowledge, thus fostering competitiveness in the market These initiatives not only benefit customers but also elevate the prestige of ACB - Thang Long, encouraging satisfied clients to recommend ACB to their partners Additionally, branches must communicate these preference programs to existing customers via email to ensure timely awareness and engagement.
Branch needs to diversify marketing channels to attract more customers Branches can post promotions on Facebook and Tik Tok networks to reach a wide range of customers
Chapter 5 summarized the remaining limitations in the branch in the period from