Types of commercial bank lending andfactors affecting credit activities what do vietnamese commercial banksneed to do to improve credit quality

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION &TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY TYPES OF COMMERCIAL BANK LENDING AND FACTORS AFFECTING CREDIT ACTIVITIES.. Additionally,

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION

&TRAINING

BANKING UNIVERSITY OF HO CHI MINH CITY

TYPES OF COMMERCIAL BANK LENDING AND FACTORS AFFECTING CREDIT ACTIVITIES WHAT DO VIETNAMESE COMMERCIAL BANKS NEED TO DO TO IMPROVE CREDIT QUALITY?

Academic advisor: Dr Ngo Van Tuan

Group 6: Vo Hong Tham – 050609212204

Phan A Huy – 050609211958Pham Quynh Nhu – 050609211050Doan Thi Thao Nguyen – 050609210943Nguyen Thanh Thao – 050609211329Pham Nguyen Thanh Quy – 050609211189Tran Thi Thuy Thanh – 050609211304

Class: BAF301_231_9_TA_L12

Ho Chi Minh City, October 2023

IMAGE TABLE OF CONTENTS 4

CHAPTER 1: THEORETICAL FRAMEWORK AND LITERATURE REVIEW 5

1.1 Overview 5

1.1.1 Commercial bank 5

1.1.1.1 Definition 5

1.1.1.2 Types of commercial banks 5

1.1.2 Credit activities of commercial banks 5

1.1.2.1 Definition of credit activities 5

1.1.2.2 Classification of credit activities 6

1.1.3 Credit quality of commercial banks 7

1.1.3.1 Definition of quality 7

1.1.3.2 Definition of credit quality of commercial banks 8

1.1.4 Types of commercial bank lending 8

1.1.4.1 Classification based on the purpose of credit utilization: 8

1.1.4.2 Classification based on the credit term: 9

1.1.4.3 Classification based on the origin/source of credit: 9

1.1.4.4 Classification based on the nature of collateral/security or the creditworthiness of the borrower: 9

1.1.4.5 Classification of credit based on the form of credit issuance: .9

1.2 Grounded theories 10

1.2.1 Theory of credit risk in banking 10

1.2.2 Bad management theory and Bad luck theory 10

1.2.3 Transaction cost theory 10

1.3 Literature review 11

1.3.1 Foreign review 11

1.3.2 Domestic review 12

CHAPTER 2: STATUS OF CREDIT QUALITY AT JOINT STOCK COMMERCIAL BANKS IN VIETNAM 14

2.1 Overview of the System of Joint Stock Commercial Banks

in Vietnam 14

2.1.1 History of Formation and Development of Joint Stock Commercial Banks in Vietnam 14

2.1.1.1 Number of Joint Stock Commercial Banks in Vietnam 14

2.1.1.2 Number of Branches and Transaction Offices of Joint Stock Commercial Banks in Vietnam 14

2.1.2 Scale of Assets of Joint Stock Commercial Banks in Vietnam 14

2.1.3 Scale of Charter Capital of Joint Stock Commercial Banks in Vietnam 15

2.1.4 Characteristics of Vietnam's Joint Stock Commercial Banks (JSCBs) 15

2.1.5 Business Performance of Vietnam's JSCBs from 2022 to 202315 2.1.5.1 Capital mobilization 15

2.1.5.2 Lending activities 16

2.1.5.3 Cashless payment activities 16

2.1.5.4 Pre-tax profit 16

2.1.5.5 Operating income 16

2.2 Factors affecting credit quality at commercial banks in Vietnam 16

2.2.1 The subjective factor 17

2.2.2 The objective factors 18

2.2.2.1 Business and customer factors 18

2.2.2.2 Economic environment 19

2.2.2.3 Political and social environment 19

2.2.2.4 Regulatory environment 19

2.2.2.5 Natural environment 20

2.3 The credit quality evaluation criteria for commercial banks in Vietnam 20

2.3.1 Development criteria 20

2.3.1.1 In terms of width 20

2.3.1.2 In terms of depth – Product improvement 22

2.3.2 Quality criteria 22

2.3.2.1 Overdue debt rate 24

2.3.2.2 NPL Ratio 25

2.3.2.3 The provision for credit risk 25

CHAPTER 3: ORIENTATION AND RECOMMENDED IMPLICATIONS TO ENHANCE THE EFFECTIVENESS OF COMMERCIAL BANKS IN VIETNAM 26

Làm Phầần 3.1 thành t u, 3.2 h n chếếự ạ 3.1 Achievements 26

3.2 Limitations 28

3.2.1 Quality of information systems 28

3.2.2 Outstanding pressure 29

3.2.3 Ineffective lending activity management 29

3.2.4 Monitoring and supervision during and after lending 29

3.3 Implied recommendation 30

3.3.1 Strictly manage credit activities 30

3.3.2 Improve the quality of credit officers 30

3.3.3 Building a modern information technology system 31

3.3.4 Strengthening Capital Base and Safety Ratios 31

3.3.5 Handling Non-Performing Loans (NPLs) 31

REFERENCES 33

IMAGE TABLE OF CONTENTS

Table 1 Debt Classification and Allowance for Impairment According to Circular 02/2013/TT-NHNN 22

CHAPTER 1: THEORETICAL FRAMEWORK AND LITERATURE

REVIEW 1.1 Overview

State-Owned Commercial Banks (SOCBs): are financial

institutions entirely owned by the government, with 100% of its capitaloriginating from state funds

Joint-Stock Commercial Banks (JSCBs): are established

through capital contributions from shareholders and businesses, withlimitations on the number of shares each entity or individual can own

Joint-venture Commercial Banks (JVCBs): are set up through

a capital investment as part of a collaborative venture between aVietnamese bank and a foreign bank The foreign partner's contributiondoes not exceed 50%, and the bank is headquartered in Vietnam,operating under Vietnamese legal oversight with managementinvolvement from the foreign partner

Foreign-Owned Commercial Banks (FOCBs): are formed

using 100% foreign capital, in accordance with foreign laws, andauthorized to operate within the country

1.1.2 Credit activities of commercial banks

According to the textbook “Banking Business” by Dr Bui Dieu Anhand his co-authors, credit can be used from many angles and in manydifferent contexts (financial markets or historical origins, ) From theperspective of bank credit, credit is considered as a transaction activitybetween two entities with the credit grantor (bank, other creditinstitution) and the credit recipient (enterprise, individual or otherentities) The credit grantor is responsible for transferring assets to thecreditee on the principle of repayment of both principal and interest.This is considered a basic activity of the commercial banking system.Based on different ways, it is possible to distinguish bank creditinto many types, meeting many needs in credit management Based

on the textbook “Banking business” of Dr Bui Dieu Anh and theauthors, it can be classified as follows:

1.1.2.2.1 Classification by purpose of use

Credit for production and business: including credit loans to

finance production and business Borrowers (enterprises, smallbusiness households, ) use for the purpose of using working capitalaccording to seasonality, building factories,…

Consumer credit: meet the needs of buying houses, vehicles, Credit to other financial institutions: is an amount usually

financed by credit institutions or large banks to small creditinstitutions, with the purpose of partially supporting capital needs

1.1.2.2.2 Classification by credit tenure

Short-term credit: includes credit with a duration of less than

12 months This credit primarily finances shortfall working capital forshort periods of time for businesses Borrowers are diverse in society

Ch 1 - 12 Questions

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Medium-term credit: includes credit with a shelf life from 12

months to 60 months (5 years) This credit usually finances fixedassets (purchase of manufacturing machinery, technology, homerepair, )

Long-term credit: the purpose is almost the same as the

medium term, but the use period is over 5 years (large-scaleinvestment projects of enterprises, )

1.1.2.2.3 Classification by origin of the credit

Direct credit: includes credits created in the relationship

between the bank and the borrower

Indirect credits: include credits obtained based on the

acquisition of undue debts on negotiable notes, from the owner(discount, installment sale financing, )

1.1.2.2.4 Classification according to the nature of the

guarantee / creditworthiness of the borrower

Secured credit: based on security measures prescribed by law

(mortgage, pledge, guarantee, ) Most new, low-relationshipborrowers have to apply for a new guarantee granted by the bank

Unsecured credit: this type is only based on the

creditworthiness of the credit recipient, the ability to repay the debtfrom the cash flow of the loan plan or project, without the need foraccompanying loan security measures

1.1.2.2.5 Classification of credit by form of credit granting

The Law on Vietnamese Credit Institutions stipulates that banksmay grant the following credits to customers being organizations orindividuals:

Loan: the borrower assigns or undertakes to deliver to the

customer an amount of money to be used for a specific purpose within

a certain period of time as agreed with the principle of repayment ofboth principal and interest.

Discount: buy term or buy with retaining the beneficiary's right

to claim valuable documents and negotiable instruments whenpayment is not due

Bank guarantee: is a form of granting credit The Bank commits

to fulfill financial obligations on behalf of customers when customersfail to perform or fulfill their committed obligations

Factoring: is a form of granting credit to a seller or buyer who

retains recourse to receivables or payables arising from the purchaseand sale of goods or provision of services under a contract

1.1.3 Credit quality of commercial banks

Quality is a complicated notion that measures the benefits ofproducts, goods, and services Depending on the state of the economyand the viewpoint of the observer, the concept of “quality” can signifymany things

From the manufacturer's perspective: Conformity to specificationsdefines quality The degree to which a product complies with designrequirements determines whether it will satisfy all of the customer'sexpectations

From the consumer’s perspective: Quality covers all of thefeatures of a service, entity, or product that satisfy their demands andare appropriate for usage Or quality can be defined as both thesatisfaction of customers' needs and the value they receive

Quality is defined by ISO 9001:2015 as “The totality of featuresand characteristics of a product or service that have the ability to meetneeds and expectations.”

The achievement of credit growth, safety, and profitabilityobjectives is gauged by credit quality Credit quality is the extent towhich a bank complies with current domestic rules and regulations aswell as international standards in order to fulfill its goals of size, safety,and profitability (Ombaba, 2013) Additionally, according to Philip(2018), credit quality is a general indication of a commercial bank'scredit performance, showing the ability to manage credit activities tomeet requirements for economic development while limiting risks,ensuring capital safety, and its profitability.

Nguyen Van Tien and Nguyen Thu Thuy (2014) defined bankcredit quality as aggregate economic indicators, reflecting the level ofmeeting reasonable loan requirements of customers, in accordancewith credit policy, assuring the bank's financial stability and boostingsocio-economic development

1.1.4 Types of commercial bank lending

Credit for business and production: is a type of loan where

the borrowed money is used in the process of business and production.The business and production process involves the use of capital topurchase production factors, followed by combining labor to createproducts and consume them This is followed by the process ofreproduction

For business and production loans, they can be short-term, term, or long-term

medium-Consumer credit: is a type of loan that is intended for personal

consumption

Credit for other financial institutions: these types of credits

are usually provided by larger credit institutions or banks to smaller

credit institutions to meet some of their capital needs These creditsare considered wholesale credits.

Short-term credit: within 12 months or less Its purpose is to

provide seasonal working capital for businesses and short-termconsumer loans

Medium-term credit: more than 12 months up to 60 months.

Its purpose is to finance fixed assets and provide periodic workingcapital for businesses

Long-term credit: more than 5 years Its purpose is similar to

medium-term credit but is typically used for large-scale businessinvestments, personal home loans, and similar

Direct credit: includes loans that are formed directly in the

relationship between a bank and the borrower

Indirect credit: includes loans that a bank extends based on the

purchase of outstanding debts on invoices, trade bills, etc., from theirrightful owners Forms such as discounting, factoring, and installmentsales financing fall under this category

Secured credit: this type of credit is based on the use of legal

collateral measures defined by civil law, such as mortgages, pledges,guarantees, and personal endorsements Most new customers andthose with limited relationships with the bank are required to providecollateral to secure credit This regulation aims to create additionalsources of repayment in case the primary source of repayment cannot

be executed

Unsecured credit: is a type of credit that relies solely on the

borrower's reputation, economic efficiency, and the ability to repayfrom cash flows Typically, only customers with a high credit reputation,long-term relationships with the bank, regular repayment sources, and

a commitment to provide collateral when requested by the creditinstitution can qualify for unsecured credit

Lending: is a form of credit in which the lender commits to

provide the borrower with a specific amount of money for a designatedpurpose, for a set period, with the agreement that both the principaland interest will be repaid

Discounting: involves the purchase, with or without recourse, of

transferable instruments or negotiable documents of title at a discount.The discounting party acquires the right to collect the full face value ofthe instruments upon their maturity

Bank Guarantees: is a form of credit in which a bank commits

to the beneficiary to fulfill financial obligations on behalf of thecustomer if the customer is unable to do so The customer remainsresponsible for repaying the bank according to the agreed terms

Payment Guarantees: is a form of credit for buyers or sellers of

goods or services, where a financial institution purchases, with orwithout recourse, the rights to receive payments or the rights to makepayments arising from trade transactions

1.2 Grounded theories

1.2.1 Theory of credit risk in banking

According to Chaibi and Ftiti (2015), economic theory suggeststhat there are two groups of factors that influence credit risk in thecommercial banking system: macroeconomic factors (also known as

"systemic causes") and bank-specific factors (also known as systematic causes").

"non-Systemic risks are caused by adjustments to the financialmarkets (capital markets and currency markets) as well as the trading

of financial assets on these markets Unsystematic risk, on the otherhand, is a result of the organization itself or the features of the sector

in which it operates (Yurdakul, 2014)

1.2.2 Bad management theory and Bad luck theory

Berger & DeYoung (1997) put forward the theory of badmanagement, which argues that commercial banks with effectivemanagement will monitor credit risk well, which is considered a coreability of the bank On the contrary, poor management will increasecredit risk The author also brought up the Bad luck theory, which holdsthat commercial banks lend money to customers with the expectationthat they will repay the loan in the future However, if the customerdefaults on the loan, the bank not only loses money but also receives anegative evaluation from the market and authorities

1.2.3 Transaction cost theory

The concept of transaction costs was first mentioned by RonaldCoase in 1937, he pointed out that transaction costs include the totalcosts necessary for finding information, negotiating, signing contracts,comply with management and handle contract violations This theorywas then developed by Williamson (1985), arguing that transactioncosts due to asymmetric information between banks and borrowerscan impact banks' lending decisions due to high credit risk that banksmust face

1.3 Literature review

1.3.1 Foreign review

Author Mwafag (2015) studied 10 Jordanian commercial banksduring the period 2005-2013, using the ratio of credit base to totalassets as the dependent variable and 11 independent variablesincluding deposit ratio, non-performing loans ratio, capital ratio,liquidity ratio, asset size, loan interest rate, deposit interest rate,window interest rate, legal reserve ratio, inflation and economic growthrate The findings indicate that while bank size and economic growthhave a positive and significant impact on the proportion of creditfacilities granted by commercial banks in Jordan, the non-performingloans ratio, liquidity ratio, and window ratio have a negative andsignificant impact on the credit base ratio At the same time, theauthor recommended that Jordanian commercial banks avoid excessliquidity and concentrate more on lowering the non-performing loansratio

In the research they conducted, Murodovich and Jahongir (2022)examined the issues surrounding lending activities at commercialbanks, examined established procedures for bank lending and potentialissues that may arise, and examined elements that lower lendingefficiency and raise banking risks The article concludes that they aremostly to blame for the issues with how bank lending regulations areput together The essay analyzes bank lending practices and highlightsthe most important issues while also suggesting fixes

Yuniarti et al (2022) conducted a study discussing the factorsaffecting credit quality in the banking world The study uses adescriptive analysis method with primary and secondary data.Thefindings demonstrate that bank officials' knowledge of the debtor'sbusiness type has not been a factor in credit disbursement Meanwhile,key elements in carrying out credit lending operations include credit

disbursement policy, data analysis and future forecasting,implementation of credit training and supervision for debtors, debtor’s'economic activity, and debtor’s faith Based on the highest Bad Debt(NPL) value of 3.27 in June 2021, credit quality at PT Bank RakyatIndonesia (Persero) Tbk remained relatively good during the pandemic.

In the meantime, OJK raised the 5% NPL value cap for the pandemicperiod

An empirical study by Bashar Abu Khalaf and Sami Alajlani (2021)looked at the impact of bank size and loan diversification on theperformance of commercial banks in Jordan, including personal,mortgage, small- and medium-sized business, government, andcorporate loans Using data from thirteen commercial banks in Jordanbetween 2000 and 2018, the paper employs the Seemingly UnrelatedRegression (SUR) method of analysis The findings suggest that theperformance of Jordanian commercial banks is influenced by loandiversification Furthermore, the author suggests that banksconcentrate on lending in sectors like mortgage, personal, andcorporate lending that boost profits

1.3.2 Domestic review

Luong Huu Phuc and Le Nguyen Doan Khoi (2021) researched andidentified factors affecting credit activities of the Joint StockCommercial Bank for Investment and Development of Vietnam -Southwest Branch (BIDV Southwest) Research on a panel database inthe period 2013-2020 using the OLS least squares method which wasused to test the influence of macro factors and internal factors of thebank on credit activities Research results show that non-performingloans are influenced by the credit growth rate, profitability on equity,credit balance, and short-term debt balance This has important

implications for understanding important and effective factors formanaging non-performing loans ratio in banks.

Considering that internal control of credit activities at commercialbanks in Vietnam is necessary to prevent the risk of asset loss in bankcredit activities, Pham Quoc Thuan and his colleagues have researchedIdentify and measure the influence of factors on internal control ofcredit activities at commercial banks in Ho Chi Minh City (HCMC) andDong Nai province The research was conducted on 600 employeesrelated to credit activities at 10 commercial banks from June 2019 toFebruary 2020 Research methods combine qualitative andquantitative with the use of SPSS 20.0 software The findings of thestudy indicate that the following five control-factors: environment, riskassessment, control activities, information and communication, andmonitoring activities affect internal control of credit activities at tencommercial banks in Ho Chi Minh City and Dong Nai province.Additionally, credit efficiency is impacted by internal control of creditactivities at a significance level of 0.01

Dat Pham Tien and Kim Quoc Trung Nguyen (2023) conductedresearch to evaluate the impact of credit risk management on creditperformance at Vietnamese state-owned commercial banks Based onthe literature review and empirical studies, four factors related tocredit risk management practices are proposed in the research modelincluding: credit terms, customer appraisal, risk control credit risk anddebt collection policy Using information from a survey of credit officers

at state-owned commercial banks in Vietnam, the author uses thedescriptive statistical method and the linear regression model in SPSS

At a 95% confidence interval, the results demonstrate that credit term,client evaluation, and credit risk control have a positive impact on loan

performance The article also emphasizes the role of internal control as

a mechanism to reduce credit risk and improve credit performance.Duong Thi Hoan (2019) researched to identify factors affectingcredit quality at Vietnam Joint Stock Commercial Bank and analyzedthe influence of those factors on credit quality at banks Using SPSS22.0 software, the author combined qualitative and quantitativeresearch methods to accomplish the aforementioned goal The study'sfindings indicate that the following eight factors: credit officers, creditpolicies, management ability, banking technology, process credit, riskmanagement, organizational work, and mobilized capital affect creditquality in descending order of impact Additionally, the author suggests

a few ways to raise the standard of credit at Vietnam Joint StockCommercial Bank

Research by Ai Huu Tran and My Phan Thi Chieu (2021) aims toidentify what factors affect credit quality at commercial banks andanalyze how those factors affect credit quality Direct interviews with

347 survey participants: credit officers at the Head Office, creditdirectors of certain bank branches, and credit officers for commercialbanks to collect relevant data According to research results, thefollowing seven factors can be ranked in decreasing order of impactwhen it comes to credit quality: banking technology, credit officers,credit policy, and management ability mobilized capital, banking, riskmanagement, and organizational work Some suggestions are made inlight of the findings to enhance the quality of credit offered byVietnamese commercial banks

Vinh Hoang Le, Thanh Phu Ngo and Hai Phuoc Le (2021)researched factors affecting credit risk in joint stock commercial banks'lending operations in Vietnam Results from data analysis collectedfrom audited financial statements of 23 banks and macroeconomic

data from the General Statistics Office of Vietnam for the period 2009

-2019 show that credit risk, the ability to Lagged profitability andinflation have a positively correlated with credit risk, while bankcapital, bank size, economic growth and loan-to-deposit ratio have anegative impact

CHAPTER 2: STATUS OF CREDIT QUALITY AT JOINT STOCK

COMMERCIAL BANKS IN VIETNAM

2.1 Overview of the System of Joint Stock Commercial Banks

In the year 2022, the network of Joint Stock Commercial Banks inVietnam consisted of more than 9,000 branches and transaction officesscattered throughout the entire nation Notably, BIDV, Vietinbank, andVietcombank are the banks with the most extensive transactionnetworks across the country

2.1.2 Scale of Assets of Joint Stock Commercial Banks in VietnamThe overall assets of Joint Stock Commercial Banks in Vietnamhave been on a consistent upward trajectory year after year By thefirst quarter of 2023, they have reached a total value of over 12.7

quadrillion Vietnamese dong A report published by the VietnamBanking Association on the recent performance of its memberinstitutions reveals that BIDV leads the pack, boasting total assetsexceeding 2.1 quadrillion Vietnamese dong, which represents a 20%increase compared to the previous year In a similar vein, Vietcombankand Vietinbank have both surpassed 1.8 quadrillion dong in assets bythe close of 2022, demonstrating growth rates of 28% and 18%,respectively, in comparison to 2021.

2.1.3 Scale of Charter Capital of Joint Stock Commercial Banks in Vietnam

Data provided by the State Bank of Vietnam indicates that as ofMay 2023, the combined registered capital of state-owned commercialbanks has reached 190,433 trillion Vietnamese dong, and that of joint-stock commercial banks totals 472.211 trillion Vietnamese dong Thisreflects a 0.6% growth compared to the end of 2022

2.1.4 Characteristics of Vietnam's Joint Stock Commercial Banks (JSCBs)

Historical background: The majority of JSCBs were established

later than state-owned commercial banks, which may affect theirreputation and market position However, it also provides anopportunity for them to learn from the experiences and mistakes ofother banks

Scale: JSCBs are generally smaller or medium-sized banks, with

some exceptions This may affect their competitiveness against largerbanks

Diversification of activities: While JSCBs have diversified their

operations, credit activities still remain the main source of income

2.1.5 Business Performance of Vietnam's JSCBs from 2022 to 2023

In the first half of 2023, Sacombank led in deposit mobilizationwith approximately 501.583 trillion VND, followed by MBB with 475.406trillion VND, and ACB with 432.410 trillion VND This indicates theirsuccess in attracting deposits from customers There were significantvariations in the deposit growth rates among banks HDBank, KiênLong, NCB, SHB, VietABank, and VPBank showed higher deposit growthrates, with HDBank recording a growth rate of 43%, demonstratingtheir ability to build trust and attract new deposits

MSB (Maritime Bank) stood out with the highest credit growthrate, reaching 13.17% as of the end of March 2023 Additionally,Techcombank, VPBank, TPBank, and SHB also had high credit growthrates, surpassing the system's average growth rate Conversely, somebanks experienced negative credit growth, indicating a decline in theirlending activities Banks such as VietBank, ABBank, VIB, Eximbank,and ACB all experienced a decrease in lending activities

The proportion of cash circulation in total payment instrumentsdecreased by approximately 10% from August 2022 to July 2023,indicating a decline in cash usage in transactions

Vietcombank continued to lead with a significant pre-tax profit,growing by 18.5% compared to the same period in 2022 BIDVunexpectedly surpassed VietinBank and other major joint-stock banks

to claim the second position with their highest-ever profit VietinBank,although ranking third, still recorded a profit increase of 12.4% andcompleted over half of their 2023 plan MB is also a promising

candidate with impressive pre-tax profit and the highest proportion ofnon-term deposits in the system These banks demonstrate stabilityand strong growth potential, which is crucial for the banking sector andthe Vietnamese economy as a whole.

The 2.2% growth in total operating income of the banking sector

in Q2 2023 compared to the same period indicates stability and theability to generate income in the current economic environment Netinterest income accounted for the majority at 76.4%, while non-interestincome accounted for 23.6% This shows that credit activities remainthe main source of income for banks, but there is also a significantcontribution from non-interest activities

2.2 Factors affecting credit quality at commercial banks in Vietnam.

2.2.1 The subjective factor

These factors come from the bank Banks borrow money and usethat money to re-lend, the scale and scope of the bank's operationsdepends on many factors

Credit policy: this is a system of measures related to increasing

or limiting credit to achieve planned business goals and limit risks,ensuring safety in business activities banking business Applyingcredit policies appropriately helps credit officers make highly effectivelending and construction decisions, achieve many goals and minimizeerrors that occur while lending

Ability to mobilize capital: commercial banks are an

organization that borrows and re-lends, this shows that the ability tomobilize plays an important role in improving credit quality Exploitingcapital from people and deposits from economic organizations helpsensure capital supply, ready to satisfy customer needs When the need

for loans is satisfied, businesses can continuously produce and dobusiness, reinvest in production, and ensure full payment of bothprincipal and interest to the bank.

Quality of credit appraisal and lending process: lending

process is the concretization of credit policy Appraisal is consideredthe most important step as this is the condition for the bank to fullyrecover both loan principal and interest on time, quickly increasingcredit capital turnover Having a good grasp of the lending process andclosely coordinating the steps of the process helps banks control thecredit granting process and adjust credit policies to suit customers,limit credit risks, and ensure capital safety for banks

Organizational work and human resource quality of the bank: organizational work is to establish and concretize the positions

and relationships between departments in the bank in a reasonablemanner, ensuring the Flexible coordination is an important conditionfor banks to well meet the requirements of business borrowers Andwith the development of the market economy and science andtechnology, the staff needs to have high professional qualifications andadaptability to adapt appropriately and continuously update modernscientific and technological advances

Internal control: monitor and supervise the professional

activities provided by commercial banks, thereby continuouslyupdating information about the credit situation, promptly detectingviolations of the law, lending policies and principles, preventingnegative effects from the above acts as soon as possible and providingtimely handling plans Commercial bank leaders need to pay closeattention to the internal control process, thereby leading the bank inaccordance with the promulgated mechanisms and laws, improving thecredit quality and reputation of the bank

Credit information: credit information is an indispensable and

very important factor when managing bank credit This is the basis forofficials to analyze the financial situation, reputation, feasibility ofplans and projects that businesses apply for loans to make the rightdecisions, and come up with measures to monitor and handle debt forthe most effective

Science and technology to serve the Bank's operations:

This field is increasingly affirming its importance and improving thebank's credit quality in the era of digital transformation Banks areconstantly updating and developing to make the process of lendingcredit, performing transactions with customers, etc easier and moreconvenient Commercial banks can easily capture accurate, quick andtimely information, thereby making the right decisions

2.2.2 The objective factors

Own capital of businesses and customers: shows the

financial autonomy of the business, solvency and limited risk of thebusiness When a business's equity capital is too little and the need forloans is too large compared to its ability, it shows that the business'ssolvency is low, and the business easily falls into a passive state ofproduction and business, subject to a lot of pressure and pressure.difficulty paying due debt on time

Management capacity: demonstrates the enterprise's ability to

operate and manage in accordance with its operating goals andbusiness environment A company with good management capacitywill manage resources well, improve business efficiency, maximize thevalue of capital, and repay bank loans on time

Purpose of using capital of the business: commitment to the

purpose of using capital is one of the lending principles of commercial

banks so that businesses can use it for the right purpose andeffectively However, there are a few businesses that, afterdisbursement of capital, intentionally use the money for the wrongpurpose, causing capital loss and not being able to repay the bank,causing bad debt.

Regarding collateral: most loans that banks finance businesses

need collateral This type of asset needs to meet the standards of thelaw agency and the bank to be accepted by the bank

Inflation, economic cycles, interest rates, price indexes, thedevelopment of science and technology These factors directly affectthe expansion and improvement of bank credit quality for customers.commercial Bank

A stable socio-political environment is a prerequisite for makingpeople believe in the leadership of the party and state, creatingconditions to attract domestic and foreign investment and servingeconomic development Banks have more diverse opportunities toexpand and improve the quality of lending to businesses As investorsand business managers gradually become more hesitant to invest, it is

a negative sign when the socio-political environment is unstable Thiscauses the scale of project investment to shrink, leading to a decrease

in bank loan demand

An environment that includes all legal factors that affect bankingbusiness activities such as: legal system, enforcement measures andstrict compliance with the law The legal environment in whichbusiness entities strictly implement and do not violate promulgatedregulations will be a complete and stable environment, creating