Credit restructuring at the joint stock commercial bank for foreign trade of vietnam

For the purpose of systematizing, supplementing and clarifying the rationale of credit restructuring at commercial banks; Studying and analyzing the current situation of credit restructu

ACADEMY OF FINANCE - -

LE HUY HOANG

CREDIT RESTRUCTURING AT THE JOINT STOCK COMMERCIAL BANK FOR

FOREIGN TRADE OF VIETNAM

Major: Finance – Banking

Code: 9.34.02.01

ABSTRACT OF PHD DISSERTATION IN

ECONOMICS

Hanoi - 2024

Advisors: 1 PhD NGUYEN THUY LINH

2 PhD TRAN THI PHUONG DIU

The dissertation can be found at the library:

- National Library of Vietnam

- Library of the Academy of Finance

INTRODUCTION

1 URGENCY OF THE RESEARCH TOPIC

Credit extension is a crucial activity that generates the most revenue for commercial banks, but it also carries many potential risks Vietcombank's credit structure has recently undergone major changes to reflect the credit growth orientation linked with effective and sustainable credit restructuring However, Vietcombank still has some limitations: the credit structure is not optimal, mainly focuses on lending activities; the risk of portfolio concentration is still high, not strictly adhering to the principles of profit and acceptable risk level,

For the purpose of systematizing, supplementing and clarifying the rationale of credit restructuring at commercial banks; Studying and analyzing the current situation

of credit restructuring at the Joint Stock Commercial Bank for Foreign Trade of Vietnam; Proposing solutions to promote credit restructuring at the Joint Stock

Commercial Bank for Foreign Trade of Vietnam, I select the topic: "Credit restructuring at the Joint Stock Commercial Bank for Foreign Trade of Vietnam"

as the research topic of the dissertation

2 OVERVIEW OF THE RESEARCH SITUATION

2.1 Overview of studies related to the dissertation

Some foreign studies focus on the credit restructuring at credit institutions, the impact of credit restructuring on profits as well as the level of operational risks of credit institutions To measure the level of restructuring, the authors use the common method

of comparing the structure of objects between years/periods; the vector method, also

known as the cos factor, and Decomposition Measure method that will be applied by the

PhD candidate in the research process on credit restructuring at Vietcombank

Studies related to credit structure and credit restructuring at commercial banks have explained and completed the rationale of credit activities of commercial banks, credit management, loan portfolio of commercial banks in particular, Some topics have also mentioned the contents related to credit structure, lending structure, analyzed and evaluated the trend of lending restructuring of Vietnamese commercial

banks with different research perspectives and research scopes Some of the results of these studies will be selectively inherited and applied by the PhD Candidate to explain in line with the content of this dissertation

For studies about Vietcombank, most of the studies focus on topics of risk management, credit quality, and business performance Some of the contents in the above studies have helped PhD Candidate have a more specific view of the current situation of some activities, especially the situation of Vietcombank's credit management in previous periods The results of studies about Vietcombank in recent years have been filtered and inherited by the PhD Candidate to make appropriate comments and assessments on the current state of research at the Bank

2.2 “Gaps” in studies related to the dissertation

- Regarding theory: In the studies approached by the author, no research has

developed a system of measurement criteria on the scale, quality and efficiency of credit restructuring according to each form of credit extension and within each form

of credit extension of commercial banks

- Regarding practice: There should be a specific and comprehensive research

on credit restructuring of Joint Stock Commercial Bank for Foreign Trade of Vietnam, assessing causes and impacts of credit restructuring at the Bank on the efficiency and safety of business activities so that it can be applied scientifically and effectively in the practice of banking business operation and state management

2.3 Issues raised for the research of the Dissertation

* Issues raised in the research of theory:

The dissertation explains, systematizes and improves the system of criteria for assessing the scale and quality of credit restructuring of commercial banks, analyzing factors affecting the credit restructuring of commercial banks

*Issues raised in the research of the current situation:

Collect data, use research methods to clarify the current situation of credit restructuring according to each form of credit extension and within each form of credit extension at Vietcombank according to scale and quality criteria, thereby properly assessing this situation at Vietcombank

* Regarding solutions:

Based on the theory, practical basis, and operational orientation of Vietcombank, a system of solutions will be proposed for credit restructuring at Vietcombank until 2030

3 OBJECTIVES AND RESEARCH QUESTIONS OF THE DISSERTATION 3.1 Objectives and research tasks of the dissertation

3.1.1 Research objectives

The dissertation studies and proposes solutions to promote credit restructuring

in order to improve the quality and efficiency of operations at the Joint Stock Commercial Bank for Foreign Trade of Vietnam

3.1.2 Research tasks

Firstly, systematize some basic issues on credit structure of commercial banks; contribute to supplementing and clarifying basic theories on credit restructuring of commercial banks, study lessons on credit restructuring of some domestic and foreign commercial banks, thereby drawing lessons for the Joint Stock Commercial Bank for Foreign Trade of Vietnam

Secondly, survey, analyze and evaluate the current situation of credit structure and credit restructuring at the Joint Stock Commercial Bank for Foreign Trade of Vietnam in the past time, thereby clearly defining the achieved results, the remaining limitations and the causes of such limitations and shortcomings

Thirdly, on the basis of theoretical system and practical basis, the dissertation proposes a system of solutions and recommendations that contribute to promoting and improving the efficiency of credit restructuring at the Joint Stock Commercial Bank for Foreign Trade of Vietnam in the coming time

3.2 Research questions of the dissertation

In order to perform the proposed research tasks, the author of the dissertation will answer the following research questions:

- What is the credit structure and credit restructuring of commercial banks? What does credit restructuring at commercial banks include?

What factors affect credit restructuring at commercial banks? What criteria are used to assess credit restructuring at commercial banks?

- What is the current credit structure of Vietcombank and the current situation of credit structure at Vietcombank in the past time?

- What is the goal of Vietcombank's credit restructuring? What solutions help Vietcombank shift its credit structure appropriately and effectively?

4 SUBJECTS AND SCOPE OF RESEARCH

4.1 Subjects

The dissertation studies theoretical and practical issues on credit structure and credit restructuring at commercial banks

4.2 Scope of research:

- Regarding the research content: When referring to credit activities of

commercial banks, the dissertation only focuses on credit extension activities of commercial banks From the overview of credit structure at commercial banks, the author analyzes and evaluates the credit structure and credit restructuring of commercial banks between forms of credit extension and in each form of credit extension

- Regarding research space: The dissertation is carried out at the Joint Stock

Commercial Bank for Foreign Trade of Vietnam (excluding subsidiaries, joint ventures and affiliates)

- Regarding the research period: The dissertation studies the current situation

of credit restructuring at Vietcombank in the period of 2018-2023, orientations, solutions and recommendations to 2030

5 RESEARCH METHODOLOGY

The dissertation uses research methods: dialectical materialism method, historical materialism method, synthesis method, statistical method, comparison method, analytical method, inductive method, and mathematical method

6 SCIENTIFIC AND PRACTICAL SIGNIFICANCE OF THE DISSERTATION

The dissertation explains and clarifies the theoretical basis for credit restructuring of commercial banks In addition, the dissertation studies the lessons learned by some domestic and foreign commercial banks on credit restructuring, thereby drawing some valuable lessons for Vietcombank

The dissertation has studied and analyzed the current situation of credit restructuring at Vietcombank in the period of 2018-2023, and evaluated the achieved results and outstanding limitations On that basis, the author proposes more appropriate solutions for credit restructuring at Vietcombank in the coming time

7 NEW CONTRIBUTIONS OF THE DISSERTATION

- Systematize and supplement credit restructuring criteria of commercial banks;

* Regarding practice:

- Lessons learned: The dissertation studies the lessons learned from a number

of domestic and foreign commercial banks on credit restructuring, thereby drawing

some valuable lessons for Vietcombank

- Assess the current situation of credit restructuring in each form of credit

extension and within each form of credit extension at Vietcombank in the period of

2018-2023 according to 02 criteria groups of scale and quality

- Propose effective solutions for credit restructuring at Vietcombank

8 STRUCTURE OF THE DISSERTATION

Chapter 1: Theory of credit restructuring of commercial banks

Chapter 2: Status of credit restructuring at the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank)

Chapter 3: Solutions for credit restructuring at the Joint Stock Commercial Bank for Foreign Trade of Vietnam (vietcombank)

CHAPTER 1: THEORY OF CREDIT RESTRUCTURING

OF COMMERCIAL BANKS

1.1 GENERAL THEORY OF CREDIT EXTENSION AND CREDIT STRUCTURE OF COMMERCIAL BANKS

1.1.1 Credit extension of commercial banks

1.1.1.2 Forms of credit extension of commercial banks

Forms of credit extension of commercial banks include: lending, discounting, factoring, bank guarantee, Letter of Credit (L/C)

1.1.2 Credit structure of commercial banks

1.1.2.1 Concept

The credit structure of commercial banks reflects a set of credit extension types arranged according to different criteria and composed of certain proportions

1.1.2.2 Characteristics of credit structure of commercial banks

- Lending accounts for the largest proportion of credit extension forms at commercial banks

- The credit structure of commercial banks is always risky

- The credit structure of commercial banks is flexible and adjustable

- The credit structure of commercial banks is affected by the State management regulations

1.1.1.3 Classification of credit structure of commercial banks

* Credit structure in the form of credit extension: Loans, discounts,

guarantees, letters of credit, etc

* Credit structure within each form of credit extension:

- Lending structure:

+ Lending structure by term: short-term loans (up to 01 year), medium-term loans (from over 1 year to up to 5 years) and long-term loans (over 5 years)

+ Lending structure according to the purpose of loan use of customers: Consumer loans, Business loans

+ Lending structure by business line

+ Lending structure by type of customer: Loans to corporate customers, Loans

to individual customers

+ Lending structure by currency: local currency and foreign currency loans

- Bank guarantee structure: Loan guarantee, Payment guarantee, Bid guarantee, Contract performance guarantee, Product quality guarantee, Advance payment return guarantee, Reciprocal guarantee, Bill of exchange guarantee, Confirmation of guarantee, Co-guarantee, and Other guarantees

- Structure of letter of credit (L/C): L/C at sight, and Deferred payment L/C

1.2 CREDIT RESTRUCTURING AT COMMERCIAL BANKS

1.2.1 Concept

Credit restructuring of commercial banks is the change in the proportion of each type of credit extension in the credit portfolio of commercial banks at a certain time or period

1.2.2 Objectives of credit restructuring of commercial banks

The credit restructuring of commercial banks aims at: (i) restructuring credit to suit the capital structure; (ii) restructuring credit to improve the credit quality of commercial banks; (iii) restructuring credit to increase profitability for commercial banks; (iv) restructuring credit to contribute to economic growth

1.2.3 Contents of credit restructuring of commercial banks

1.2.3.1 Credit restructuring in the form of credit extension

Credit restructuring of commercial banks according to the type of credit extension is a change in the scale and proportion of each form of credit extension, with the main types including loans, guarantees, and L/C Depending on different time and orientations, the credit structure of commercial banks for each activity will shift and change from one form of credit to another

1.2.3.2 Restructuring in each form of credit extension of commercial banks

- Lending restructuring: (i) Lending restructuring by business lines; (ii) by customers: corporate customers, individual customers; (iii) by term: short term, medium term and long term; (iv) Market lending restructuring: between market 1 and market 2

- Guarantee restructuring

- L/C restructuring: (i) in a revocable form; (ii) according to the payment term

1.2.4 Method of credit restructuring of commercial banks

1.2.4.1 Proactive credit restructuring

* Concept: Proactive credit restructuring of commercial banks is the process of

implementing the credit structure in a planned and prepared manner

* Objectives of proactive credit restructuring: ensuring the appropriateness

between credit structure and capital structure; improving credit quality; increasing profitability; serving economic restructuring and economic growth

* Contents of proactivecredit restructuring:

- Develop a targeted credit structure:

+ Develop credit restructuring activities with the highest expected return (goal

of profit maximization) along with the defined level of portfolio risk

+ Build a credit structure with a defined profit and portfolio risk at the lowest level (minimizing risks)

At the same time, each commercial bank needs to clearly define the following contents: (i) Types of risks that commercial banks do not accept and need to take drastic actions to control such types of risks; (ii) Types of risks that commercial banks can accept to a certain extent upon introducing a new product, service, or business process; (iii) Types of risks that commercial banks can accept for competitive purposes

- Develop implementation mechanisms and policies: Implement risk management based on the principle of "three-loop control" including: (i) Loop 1 is the business entities acting as the entities directly responsible from the stage of risk identification, evaluation, control and mitigation; (ii) Loop 2 is the risk management

entities/ departments in charge of establishing policies, principles, control limits and independent monitoring of risk management; (iii) Loop 3 is the internal audit unit with responsibility for ensuring the reasonableness and efficiency of risk management in Loop 1 and Loop 2

- Adjustment of credit portfolio: (i) On-balance sheet adjustment: commercial banks will directly affect the credit scale or structure; (iii) Off-balance sheet adjustment: commercial banks will take measures including credit risk swap, securitization of debts, etc

1.2.4.2 Passive credit restructuring

According to this method of credit restructuring, the credit restructuring process of the bank takes place naturally, without a plan or preparation in advance The bank will carry out lend activities based on market demand, and accordingly, the credit structure automatically shifts according to the general developments in the market

1.2.5 Criteria for evaluation of credit restructuring and credit restructuring efficiency

of commercial banks

1.2.5.1 Criteria for measuring credit structure

Proportion of each type of credit extension

Proportion of outstanding loans of each type/sector in lending:

1.2.5.2 Criteria group for evaluation of credit restructuring of commercial banks

- Criteria of proportion deviation of each form of credit extension

- Ratio criteria and credit restructuring coefficient of commercial banks: (i) Credit restructuring ratio of commercial banks by vector method (ktd); (ii) Credit restructuring coefficient of commercial banks by Decomposition Measure (DM) method

1.2.5.3 Criteria group for evaluation of quality of credit restructuring of commercial banks

- Criteria reflecting credit quality: bad debt ratio and loss debt ratio

- Capital safety assessment criteria of commercial banks: Capital adequacy ratio (CAR)

- Criteria for evaluation of proportion of income from credit activities: Proportion of income from credit activities

1.2.6 Factors affecting the credit restructuring of commercial banks

1.2.6.1 Objective factors

- Economic development orientation in each period and macro-regulation policies of the State create a favorable economic environment for certain business lines, promoting credit growth in prioritized sectors

- The development of the socio-economic and market demand guides the work

of creating a credit portfolio to meet market demands

- The development of financial and monetary markets is a significant condition for commercial banks to carry out operations in a flexible and timely manner in providing financial products and services as well as adjusting the credit structure to suit business goals and strategies from time to time

- The more the estimated income from loans and accompanying products and services increases, the more commercial banks tend to increase the scale of such products and services

- The level of credit portfolio management capacity helps bank staff predict and identify the investment environment, capture market changes, as well as advise customers on effective business strategies

- The technology and digital transformation system of commercial banks enhances the efficiency of risk management, optimizes business processes in line with the orientation of the State Bank on digital transformation in the current banking sector

1.3 Experience in credit restructuring and lessons for the Joint Stock Commercial Bank for Foreign Trade of Vietnam

1.3.1 Experience in credit restructuring of some commercial banks

- Deutsche Bank in Germany established the Loan Exposure Management Group (LEMG), equivalent to a loan portfolio management department, and aadopted

a risk-reduction strategy to improve its credit profile by transferring loans for scale enterprises to retail and investment banking divisions Its main task is to reduce centralized credit risk and improve the transparency of the credit process

large Proactive capital restructuring at Vietnam Joint Stock Commercial Bank For Industry And Trade In its business strategy, Vietinbank affirms: (i) Lending is still a core business operation; (ii) adjusting the lending structure reasonably to ensure safety, efficiency and suitability with strengths; (iii) Strengthening credit risk management to ensure the bad debt ratio is below 3%; (iv) Diversifying lending activities, playing a market-orienting role under the direction of the State Bank from time to time; (v) Improving the efficiency of capital use and liquidity management of

Vietinbank

- Vietnam Technological and Commercial Joint Stock Bank (Techcombank) has maintained its credit restructuring strategy, from corporate bonds, loans for large-scale enterprises to individual customers and SME customers Techcombank takes advantage of the value chain with the goal of understanding each economic sector to understand customers and manage the entire cash flow in the value chain, ensuring safe and well-controlled restructuring and lending activities

1.3.2 Lessons for the Joint Stock Commercial Bank for Foreign Trade of Vietnam

Firstly, build and perfect business strategies in line with the orientation of commercial banks According to the modern banking governance framework, these policies are developed at the following levels: issue specific and detailed policies from the overall policy framework Next, promulgate guiding documents and guidelines for the implementation of policies and general implementation procedures, detailed procedures for each type of products and services to ensure consistent and effective principles of policies;