Financial analysis of corporate customers in credit activities at vietnam joint stock commercial bank for industry and trade east hanoi branch

BANKING ACADEMY OF VIETNAM FACULTY OF FINANCE GRADUATION THESIS FINANCIAL ANALYSIS OF CORPORATE CUSTOMERS IN CREDIT ACTIVITIES AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND T

The urgency of the subject

In 2023, the world grappled with significant turmoil as economic and ecological changes affected global prospects The ongoing Russia-Ukraine conflict heightened the risk of political disruptions, while tensions between Israel and Hamas obstructed a swift recovery in global trade Although inflation had eased from its 2022 peak, it remained elevated The lingering effects of the COVID-19 pandemic continued to disrupt economic activities, particularly in China Furthermore, central banks worldwide maintained tight monetary policies, which adversely impacted economic growth, investment, and consumption.

In 2024, it is expected that over 30% of countries globally will continue to face the threat of increasing debt risks

In 2023, despite global economic challenges, our country achieved positive results, ensuring macroeconomic stability and key balances The government effectively directed ministries and localities to implement key resolutions and programs aimed at economic recovery and development The Finance and Banking sector played a vital role as a backbone of the economy, facilitating capital mobilization for production and business, and promoting structural transformation This sector's stability and efficiency are crucial for enhancing people's lives and fostering an independent, self-reliant economy that actively engages in international integration.

2 stable and developing economy Conversely, a stable and developing economy leads to a stable, healthy, safe, and efficient banking system

Banks play a crucial role as financial intermediaries, making credit activities vital for economic capital circulation Given the inherent risks and uncertainties in credit, it is essential for banks to analyze the financial capacity of customers before making lending decisions This analysis helps banks assess the financial health of enterprises, guiding them in their credit decisions and ultimately reducing the risk of defaults.

At the Vietnam Joint Stock Commercial Bank for Industry and Trade, the non-performing loan ratio has shown fluctuations and instability based on customer debt status According to the bank's business activity report from 2020 to 2023, the non-performing loan ratio was 1.2% of the average outstanding balance at the end of 2020, decreased to 0.19% in 2021, and rose to 0.45% in subsequent years.

In 2022, there was a fluctuation of 0.22% in 2023, influenced by the COVID-19 pandemic, rising inflation, and challenges in evaluating future repayment capabilities for customer credit Consequently, I have selected the topic "Improving the Analysis of Enterprise Financial Reports to Enhance Credit Activities at the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch" for my thesis, aiming to bolster the branch's effectiveness in banking credit operations.

Thesis Purposes

Begin by conducting an in-depth study to organize essential theories related to enterprise credit activities and the financial analysis of businesses involved in banking credit operations, while also evaluating the quality of this analytical process.

The current state of financial analysis for corporate clients in credit activities at the Vietnam Joint Stock Commercial Bank for Foreign Trade - Dong Ha Hanoi Branch is crucial for understanding their financial health This evaluation focuses on assessing the effectiveness of financial analysis practices for corporate customers at VietinBank East Hanoi, highlighting areas for improvement and potential impacts on credit decision-making.

Branch, thereby recognizing achievements that need to be promoted and pointing out limitations that need to be overcome in the bank's financial analysis work

To enhance the financial analysis work for corporate clients engaged in credit activities at the Vietnam Joint Stock Commercial Bank for Foreign Trade - East Hanoi Branch, it is essential to implement targeted solutions and recommendations These should focus on streamlining data collection processes, adopting advanced analytical tools, and providing comprehensive training for staff Additionally, fostering closer collaboration with clients to better understand their financial needs will lead to more accurate assessments and improved decision-making Ultimately, these measures will optimize the efficiency and effectiveness of financial analysis, benefiting both the bank and its corporate customers.

Object and Scope of the thesis

Research object: Financial Analysis of Corporate Customers in Credit Activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

Spatial scope: Credit Activities at Vietnam Joint Stock Commercial Bank for

Industry and Trade - East Hanoi Branch

Temporal scope: Based on the data provided by the bank from the period of

Research Questions

The thesis focuses on addressing the following general questions for the research process:

What are the steps in the financial analysis process of corporate customers?

What is the current situation regarding the analysis of corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch?

What are the appropriate solutions to improve the analysis of corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch?

Research Methods

This thesis employs a range of qualitative research methods and analytical techniques, including comparative, classification, listing, and statistical methods, to deliver comprehensive results, observations, and evaluations in the analysis of financial data.

4 statements of corporate customers at the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

Statistical methods are used to compile and synthesize data and information from documents, reports, and assessments of the branch or from the credit specialists of the East Hanoi Branch

Primary data: Interviews with leaders and credit officers of the Transaction

Office, gathering information from the data warehouse of the Duc Giang Transaction Office - Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

The research utilizes secondary data sources, including textbooks and manuals on financial analysis and bank credit from the Banking Academy, as well as previous research works, master's theses, and doctoral dissertations available in the Library and digital Library of the Banking Academy Additionally, scientific journals such as the Scientific Technology Journal and Finance Accounting Journal provide relevant insights Financial information websites like Vietstock and Stockbiz offer consolidated financial reports and annual reports of banks and enterprises Furthermore, documents, files, and memoranda were requested from the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch to support the thesis research.

In addition, modeling methods through diagrams and tables are also used to visualize the research issues.

Literature review

Foreign research studies

In "Emerging Market Bank Lending And Credit Risk Control," Onyiriuba Leonard (2015) highlights the importance of banks assessing customers' repayment abilities beyond the provided documentation He stresses that credit analysts play a crucial role in assisting clients by recommending suitable credit packages that mitigate potential future risks.

In "Financial Reporting Analysis: Using Financial Accounting Information," 13th Edition, Charles H Gibson (2012) presents a comprehensive overview of financial analysis challenges faced by firms across 13 chapters The first 11 chapters explore various financial analysis issues, while the 12th chapter delves into sector-specific examination difficulties, recent industry reporting developments, and recommendations for improving standards Gibson outlines the impact of different sectors on business operations and concludes with strategies in the final chapter to enhance financial statement analysis by assessing a company's position within its industry.

Igor Zdravko Ski (2013) emphasized the significance of ratio analysis in his conference paper, highlighting its role in assessing a company's financial health, liquidity, risk, profitability, debt-paying capacity, and operational efficiency This analytical method is essential for identifying trends, providing insights into financial performance, and informing lending decisions made by commercial banks.

In their 2017 study, "The Role of Financial Analysis Tools in Granting Loans: Field Study on Banks Operating within Aqaba Special Economic Zone," Mohammad Abdullah and Laith Ahmad Mohammad highlighted the critical importance of financial analysis tools in the loan decision-making process of commercial banks The authors concluded that to mitigate credit risks, bank credit departments systematically categorize consumer loan applications by utilizing these financial analysis tools and procedures, aligning their practices with relevant international research.

6 discussed the role of techniques and indicators in credit analysis of financial statements, but it hasn't gone into detail or been very explicit about it

In the article "Equal Gains and Pains? Analyzing Corporate Financial Performance for Industrial Corporate Social Performance Leaders and Laggards," Jongmin Kim, Soonchul Hyun, and Ying Liu (2023) explore the impact of a company's social activities on its financial performance They highlight inconsistencies in the methodologies and reference materials used to assess this relationship To enhance financial capability efficiency for industry managers, the authors developed a new theoretical framework and employed more appropriate analytical techniques, yielding fresh insights into the correlation between corporate social performance and financial outcomes.

The article "Is the Corporate Financial Strategy in the Oil and Gas Sector Affected by ESG Dimensions?" by Alicia Ramirez-Orellana, MCarmen Martínez-Victoria, Antonio García-Amate, and Alfonso A Rojo Ramírez explores the impact of Environmental, Social, and Governance (ESG) factors on financial strategies within the oil and gas industry The authors analyze how increasing pressure for sustainable practices influences corporate decision-making and investment strategies They highlight the necessity for companies to integrate ESG considerations to enhance financial performance and stakeholder trust This research underscores the evolving landscape of the oil and gas sector, where adherence to ESG principles is becoming critical for long-term success.

In 2023, research indicated that social responsibility significantly impacts the financial efficiency and profitability of businesses The study revealed that oil and gas companies frequently enhance their environmental commitments to improve their financial standing.

The article "Financial Statement Analysis and Bank Lending in Nigeria" by Abolade Francis Akintola and Samson Ogundipe (2020) employs descriptive analysis to explore how financial statement analysis influences bank lending decisions in Nigeria It highlights the significance of financial indicators in shaping these lending choices and emphasizes the necessity for banks to adopt a decisive, proactive, and rigorous approach in their analysis This approach is essential for effectively addressing challenging debt situations and minimizing bad debt, ultimately leading to smoother bank operations and enhanced profitability.

Additionally, there are numerous related books such as "Financial Statement Analysis and Securities Valuation" by Stephen H Penman (2016), "Financial

Statement Analysis" by K.R Subramanyam (2014); which also discussed the topic of corporate financial statement analysis.

Domestic research studies

The Master's thesis in Economics by Le Tung Duong (2021) titled "Quality of Corporate Customer Credit at Vietnam Joint Stock Commercial Bank for Industry and Trade - Tien Son Branch" emphasizes the crucial need to enhance credit quality for corporate clients as a vital component of sustainable economic development It synthesizes key theoretical aspects of corporate customer credit activities while outlining achievements, challenges, and underlying causes that warrant attention The thesis conducts a comprehensive analysis of the existing credit quality issues at the research site and, aligned with the strategic goals of VietinBank - Tien Son Branch, proposes a set of solutions and recommendations aimed at relevant authorities to bolster corporate customer credit quality in the future.

In her graduation thesis titled "Improving Financial Analysis of Corporate Customers in Credit Review Activities at Petrolimex Petroleum Joint Stock Commercial Bank - Headquarters," Dao Minh Thu (2021) examines the current state of credit review analysis, providing a solid theoretical foundation for the bank's credit report analysis and review processes The author systematically outlines the strengths and weaknesses of each activity, offering comprehensive solutions to address identified challenges.

In his 2022 graduation thesis, "Solutions to Perfect the Financial Analysis of Corporate Customers in Credit Activities at Military Commercial Joint Stock Bank - Dong Da Branch," Le Hong Quan systematically outlined the corporate financial analysis process He identified existing shortcomings in financial analysis, including the economic nature of various items and deficiencies in indicators and reports Furthermore, the author provided insights into the underlying reasons for these issues and offered recommendations aimed at enhancing corporate financial analysis within credit activities.

The subject of Nguyen Thi Thuy (2015) master's thesis in economics was

"Enhancing the Quality of Financial Analysis of Enterprises in Credit Appraisal Activities at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong

Nguyen Thi Kim Anh (2018) conducted a study on the Vietnam Joint Stock Commercial Bank for Foreign Trade, focusing on the assessment of credit activity outcomes Unlike previous analyses, her research did not delve into the information, methodology, or content analysis aspects of financial reporting Additionally, she outlined the steps for customer enterprise assessment and provided strategies to overcome challenges in financial report analysis.

The doctoral dissertation "Improving Financial Analysis Content in Joint Stock Companies under Vietnam Cement Industry Corporation" by Pham Thi Quyen

In 2014, strategies were proposed to enhance the quality of financial analysis, focusing on better organization, refined analytical techniques, and improved indicators These recommendations enabled the management of Vietnam Cement Industry Corporation to make informed financial decisions, ultimately boosting the efficiency of their production and business operations.

In her 2019 master's thesis titled "Enhancing Financial Statement Analysis of Corporate Customers at Vietnam Investment and Development Bank - Cau Giay Branch," Hoang Thi Minh Huyen conducted a detailed analysis of financial indicators to assess clients and provide comprehensive solutions However, the study primarily focused on comparing financial achievements across different years and did not deliver objective assessments.

In her 2020 study, Vu Huong Giang focused on "Improving Financial Analysis at Hiep Huong Company Limited," conducting a detailed examination of the company However, the analysis primarily centered on financial indicators from the performance report and balance sheet, neglecting the cash flow statement Consequently, this oversight led to an inaccurate representation of the enterprise's financial condition and potential.

The enhancement of financial analysis for corporate clients at commercial banks has been a recurring topic of interest among various authors Each contributor offers a unique perspective shaped by differing contexts and ongoing research, leading to a variety of solutions and proposals in the field.

The current state of corporate customer financial analysis at each branch reflects the unique value of each study piece, aligning with branch development orientation and actual settings.

The integration and digital transformation trends are profoundly influencing banking activities, necessitating continuous updates to measures and approaches tailored to each unique economic context However, existing research, particularly concerning the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch, often has a limited scope Additionally, many studies fail to clearly define the overall status of the bank's enterprise customer system and overlook significant gaps in credit analysis and risk assessment.

This thesis presents a fresh perspective by addressing the financial analysis of corporate customer operations within a specific timeframe and location, drawing insights from previous studies' limitations Conducted at the Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch, it aims to enhance financial analysis and identify practical solutions tailored to the current context.

Thesis Structure

The thesis is structured into 3 chapters with the following content:

THEORETICAL BASIS OF CORPORATE FINANCIAL

Credit activities at commercial banks

Commercial banks are financial institutions that primarily accept deposits from customers, with the obligation to repay, and utilize these funds for lending and facilitating transactions Their operations are grounded in economic accounting principles, focusing on profit generation Legally, commercial banks can engage in various banking activities, including accepting term and demand deposits, discounting transactions, providing payment services, and mobilizing capital through the issuance of debt securities.

Credit represents a financial relationship where one entity provides a specified value to another for a designated period, with the expectation that the recipient will repay the amount within an agreed timeframe.

This transactional relationship encompasses the following elements:

A lender provides a specified value to a borrower, which may consist of currency or tangible assets, including goods, machinery, equipment, or real estate.

- The borrower is only permitted temporary use for a specified period, and after the agreed-upon period expires, the borrower must repay the lender

- The repayment value is typically greater than the initial value lent, meaning the borrower must pay back additional interest (loan interest)

In summary, credit is an economic domain reflecting the reciprocal use of capital between entities in the economy based on the principle of repayment of both principal and interest

The foundation of credit approval is the bank's confidence in the customer's responsible use of borrowed funds and their ability to repay the loan punctually This trust is essential in the credit relationship, as the bank must believe that the customer will utilize the loan as intended and can meet repayment deadlines In turn, the customer relies on their future earning potential and their dedication to fulfilling their financial obligations to the bank.

Credit refers to the ability to use a specified amount of money or assets without changing ownership rights It is primarily sourced from a bank's mobilized capital, which mainly comes from deposits made by individuals and organizations, both domestically and internationally.

Credit comes with a strict deadline and requires unconditional repayment As customers do not truly own the borrowed funds, they are obligated to repay the loan to the bank without exception.

The value of credit is preserved and enhanced through credit interest, which ensures that the repayment amount exceeds the original borrowing value Customers pay this interest as a cost for accessing borrowed capital, and it is essential for covering operating expenses and generating profits for banks.

Fifthly, the most inherent characteristic of credit is the high potential for risk

Customers may intend to repay their debts; however, challenging business conditions, economic fluctuations, and unforeseen events can hinder their ability to do so, resulting in potential credit risks for banks.

Credit is a fundamental economic concept that arises from the dynamics of the commodity economy It is driven by the need for profit from idle monetary capital and the necessity for capital accumulation, resulting in a monetary supply-demand relationship between borrowers and lenders Consequently, credit is an essential and objective component of the economic landscape.

Credit refers to the economic relationships involved in creating and utilizing funds to meet temporary capital requirements for production and living, based on the principle of repayment As such, it plays a crucial role in a market economy.

Credit activities play a crucial role in meeting the capital requirements for both production and business operations, as well as fulfilling individual consumption needs within the economy A common issue faced by enterprises is a temporary capital shortage The effective distribution of credit not only addresses these challenges but also aids in the overall regulation of the economy, fostering continuous production processes.

Credit activity fosters capital concentration and centralized production by channeling temporary monetary capital into businesses, state agencies, and individuals This capital is primarily lent to large, efficient enterprises rather than evenly distributed among all entities in need Such concentrated investment is crucial for mitigating credit risks and driving economic growth.

Credit serves as a vital financing tool for underdeveloped sectors and key industries In Vietnam, agriculture plays a crucial role in fulfilling societal needs and is significantly impacted by natural processes while also undergoing modernization and industrialization Consequently, it is essential for the government to prioritize investments in agricultural development to meet basic societal demands and foster growth in other economic sectors.

13 should focus credit on financing leading industries to create a basis and attract other economic sectors

Fourthly, credit contributes to enhancing the economic accounting system of enterprises (6) A fundamental characteristic of credit is operating based on repayment with interest Therefore, credit activities stimulate efficient capital utilization

When utilizing bank loans, businesses must adhere to credit practices by repaying loans as per the agreed terms and fulfilling all conditions outlined in the credit contract This commitment necessitates that enterprises concentrate on enhancing capital utilization efficiency, minimizing production costs, accelerating capital turnover, and fostering conditions that boost business profits.

Source of Income: Banks earn interest from credit products like loans and credit cards, which is a primary source of their income

Risk Management: The offer of credit allows banks to manage risk through credit diversification, creditworthiness assessments, and credit to various sectors

Customer Relationships: Providing credit helps banks build long-term relationships with customers, as many credit products involve recurring interactions and can lead to cross-selling other bank services

Economic Contribution: By providing credit, banks fuel economic growth, enabling businesses to expand and consumers to spend c) For Customers

Financial leverage allows individuals and businesses to access funds for investments when immediate capital is unavailable Through loans, lines of credit, or credit cards, customers can finance projects, acquire goods and services, or seize new business opportunities that would otherwise be out of reach.

Corporate financial analysis in credit activities

1.2.1 Definition of corporate financial analysis

Corporate financial analysis involves the examination and evaluation of a business's current and historical financial data to assess its financial health, identify potential risks, and forecast future opportunities This analytical process enables financial analysts to make informed decisions that align with their interests in the company.

Financial analysis of enterprises depends on both the data from financial statements and additional information from various sources This process elucidates the company's historical financial condition, highlights significant changes and trends, and uncovers the reasons for fluctuations in financial activities By identifying patterns in business operations, financial analysis serves as a foundation for informed decision-making and future forecasting.

Stakeholders and related parties of a business are keenly interested in the enterprise's financial activities and require comprehensive economic and financial information Each stakeholder approaches this information from unique perspectives and with distinct objectives Key stakeholders concerned about the financial health of the business encompass various groups, each with their specific interests.

- Investors (including current and future shareholders)

- Credit providers to the business such as banks, financial institutions, bondholders, other businesses, etc

Different stakeholders using financial information will make decisions with different purposes Therefore, financial analysis for each stakeholder will meet different objectives

Business financial analysis serves as a vital tool for assessing economic value, evaluating a company's strengths and weaknesses, and identifying both objective and subjective factors This analysis equips management with essential insights, enabling them to make informed decisions aligned with their strategic objectives.

1.2.2 Role of corporate financial analysis in the credit activities of commercial banks

Financial analysis of corporate customers is crucial for banks to make informed decisions about credit limits By understanding the financial situation, business performance, and repayment capacity of customers, banks can effectively assess risk levels This analysis allows banks to establish appropriate credit limits that ensure capital safety while maximizing profitability Ultimately, accurate credit limit decisions help minimize credit risk and enhance operational efficiency.

Financial analysis enables banks to evaluate a business's repayment capacity by analyzing key financial ratios, including liquidity, financial leverage, and profitability ratios This assessment helps banks determine if a business can meet its debt obligations promptly and completely, guiding their decisions on credit approval or denial.

Financial analysis is essential for credit rating assessments and appropriate provisioning, as it provides vital information for evaluating the risk associated with loans By classifying loans into various risk categories, banks can implement effective provisioning measures to protect against potential defaults This process enables banks to manage credit risks effectively, ensuring the stability and sustainability of the financial system.

Information used in corporate financial analysis

Financial reports are essential for formulating business, economic-technical, and financial plans within enterprises They offer a scientific foundation for improving corporate governance, optimizing capital utilization, boosting production and operational efficiency, and ultimately increasing profitability.

Under the current accounting regulations, specifically Circular No 200/2014/TT-BTC and Circular No 53/2016/TT-BTC from the Ministry of Finance, all enterprises across various sectors and economic components in Vietnam are required to adhere to a unified financial reporting system, which encompasses four distinct report forms.

- Cash Flow Statement (Form B03 - DN)

- Notes to Financial Statements (Form B09 - DN)

The balance sheet offers a comprehensive snapshot of an enterprise's current assets and the sources of capital used to acquire them at a specific moment It systematically organizes and presents items to enhance the ease of information comprehension and analysis.

19 sheet, credit assessors can evaluate the overall efficiency of capital utilization, short- term solvency, and financial structure of the enterprise

The balance sheet consists of two main sections: assets and liabilities, reflecting the principle of balance Assets are listed in descending order of liquidity, while liabilities are organized by their repayment urgency.

The income statement is a crucial financial report that summarizes a company's operational performance and overall business situation over a specific period, highlighting key activities related to operations, finance, and other activities.

(27) In other words, the income statement is a tool for presenting the profit- generating ability and business operations of the enterprise

The cash flow statement is a detailed financial report that outlines an enterprise's cash inflows and outflows, categorized into operating, investing, and financing activities over a specific period It enables users to identify cash sources, analyze company spending, evaluate liquidity, and project future cash flows There are two methods for preparing the cash flow statement: the direct method and the indirect method, which both present cash flows from investing and financing activities similarly, with the primary distinction being in the presentation of cash flows from operating activities.

The notes to the financial statements play a crucial role in the financial reporting system of a business, offering detailed insights and analysis that enhance the information found in the balance sheet, income statement, cash flow statement, and other essential disclosures.

The notes to the financial statements include the following basic contents:

- Characteristics of the enterprise's business activities

- Accounting standards and applied accounting policies

- Accounting period, and the currency unit used in accounting

- Supplementary information for items presented in the balance sheet

- Supplementary information for items presented in the income statement

- Supplementary information for items presented in the cash flow statement

Financial forecasting involves estimating a business's future performance to guide decision-making, relying heavily on financial analysis This process includes collecting relevant financial and non-financial information about the company's financial status, as well as examining financial reports Non-financial data not only validates the accuracy of financial figures but also offers insights into assessing the overall financial health of the enterprise.

Economic growth or recession significantly influences enterprise business outcomes, with government interventions—such as financial support programs, tax policies, and monetary measures—playing a crucial role in shaping business decisions A robust legal system and political stability further enable enterprises to operate efficiently within this framework.

Understanding the current industry situation is crucial for business development, as it directly impacts strategic decisions Analyzing industry trends from the past three years allows businesses to gain insights into market dynamics Additionally, forecasting future trends is essential for staying competitive and adapting to changes in the industry landscape.

- Legal framework for the business customers

- Ownership structure of the company

- Characteristics of the company's business operations: the main products and services the company is engaged in, physical infrastructure capacity, input sources, consumer markets, company scale, etc

- Organizational structure of the company

- Business strategy of the company in each period

- Market position of the company within the industry, competitors, and the company's competitive capabilities.

Method used in corporate financial analysis

Financial analysis of a business involves the use of diverse methods, including the comparative, exclusion, forecasting, and Dupont methods Each of these techniques serves distinct purposes and is applied to various aspects of the analysis, enabling analysts to gain comprehensive insights into the company's performance.

Comparative analysis is a fundamental approach in economic and financial analysis that aims to highlight differences and unique characteristics of subjects under study By identifying trends, patterns, and fluctuations, this method serves as a valuable tool for informed decision-making for stakeholders.

In financial analysis of enterprises, the comparative method is employed to analyze and evaluate changes in items/indicators using financial reports from multiple consecutive years:

Analyzing financial statement indicators over a 2 to 3-year period, both in absolute and relative terms, reveals long-term trends by comparing subsequent years to a base year This approach provides insights into the direction, speed, and trends of financial items over time Its simplicity and ease of use make it a valuable method for understanding financial performance.

22 application, and ability to identify trends in the indicators; however, its disadvantage is the inability to assess the quality of the information used for analysis

This method segments the overall process and outcomes into distinct components based on specific criteria, allowing for a deeper understanding of the formation and composition of results from various perspectives relevant to each management entity's interests over time In financial analysis, the enterprise's processes and results are typically detailed using economic indicators that align with these criteria.

- Detailing according to the constituent factors of the research indicator: detailing the research indicator into constituent parts

- Detailing according to the time of occurrence of the economic process and results: dividing the process and results into chronological order

- Detailing according to the spatial occurrence of the phenomenon and economic results: dividing the process and results based on the location of occurrence and development of the research indicator

The Dupont financial analysis method, created by F Donaldson Brown, an American electrical engineer and financial manager at Dupont, was designed to enhance financial planning and control In the early 1970s, after Dupont acquired a 23% stake in General Motors, Brown was responsible for restructuring GM's financial framework He applied the Dupont method to analyze GM's key financial indicators, a move praised by former GM chairman Alfred Sloan.

General Motors' success is largely due to Brown's financial planning and control system, which introduced the Dupont method to major U.S corporations This method has since become a standard in the financial analysis of business operations today.

1.4.3.1 Content of the Dupont analysis method

The DuPont method involves analyzing financial indicators through ratios, which fluctuate based on their respective numerators and denominators Each financial ratio is also shaped by the business's relationships with related parties and its internal financial activities By systematically establishing the connections between each financial ratio and its influencing factors, businesses can gain a clearer understanding of their financial operations, allowing for more effective management of these factors.

1.4.3.2 Steps to perform the Dupont analysis

Step 1: Gathering data from financial reports

Step 2: Performing calculations (using spreadsheets)

Step 3: Explaining the changes in ROA, ROE, etc

Step 4: If conclusions seem inaccurate, verify the data and recalculate

For example, from an investor's perspective, one of the most important indicators is the Return on Equity (ROE)

Since equity is a part of the total capital forming assets, it's prudent to split the ratio into two influencing factors:

Based on identifying the four factors influencing ROE, a company can implement several measures to increase ROE as follows:

Adjusting the capital structure of a company by optimizing the debt-to-equity ratio significantly influences its financial leverage This strategic alignment should reflect the company's unique financial circumstances and the prevailing conditions of the capital market.

- Influencing capital allocation structure by adjusting the ratio of short-term investments and long-term investments according to the characteristics of the business sector and the company's development cycle

- Improving the efficiency of short-term asset utilization through market development to increase gross revenue and managing working capital rationally and efficiently

- Enhancing the quality of products, services, and reducing the cost-to-revenue ratio to increase the profitability of the company's operations

Analyzing a company's financial situation using the Dupont model is crucial for effective financial management This model offers a thorough assessment of business efficiency and allows for an objective evaluation of the factors affecting it By identifying these elements, organizations can implement targeted strategies to enhance management and financial operations, ultimately leading to improved business efficiency over time.

Forecasting methods are essential for predicting a company's financial performance, with regression techniques being particularly popular for estimating future economic and financial indicators By analyzing historical data, analysts can generate insights that inform strategic decision-making and financial planning.

Regression analysis involves examining the relationship between independent variables and a dependent variable, often represented by a regression equation This mathematical approach allows for the explanation of past results and the estimation of future events Commonly utilized in financial assessments, regression methods, including simple and multiple regressions, help evaluate and forecast a company's financial outcomes.

The ratio method is an analytical technique that involves comparing financial indicators to assess a company's performance By systematically analyzing ratios over time, analysts can efficiently interpret data and identify benchmarks for financial evaluation This method is crucial for comparing a company's financial ratios with reference ratios, facilitating a comprehensive understanding of its financial health In banking credit operations, correlation comparison techniques are commonly employed, allowing for a comparison of a company's financial ratios with those of similar industry peers This approach provides banks with valuable insights into the company's financial standing relative to its competitors.

Process of analyzing the financials of corporate customers

Analyzing the financials of business customers at commercial banks involves a systematic process that includes specific sequences, methods, and procedures designed to evaluate financial data during credit operations This thorough analysis aims to meet the bank's objectives effectively.

Planning the analysis involves determining the content, scope, timeframe, and organization of the analysis The analysis content needs to be clear about the issues

The analysis may encompass the entire financial operations of a business or focus on specific issues like capital structure and liquidity This foundational understanding aids in creating a detailed outline for the analysis The scope can either cover the whole organization or target specific units for a more in-depth examination.

Credit specialists gather both financial and non-financial data to create a comprehensive database for analysis After collecting this information, analysts must select and verify the legality of the documents, ensuring the reliability of the sources The verification process extends beyond the documents used for analysis to include other pertinent materials, particularly original documents.

Analysts must calculate relevant financial ratios and create tables based on specific criteria, comparing them with previous periods, industry standards, or competitors This process enables them to assess the business's strengths and weaknesses and identify areas that need further analysis.

This article presents a comprehensive analysis of the operational and financial situation of the company, utilizing financial ratios, tables, and relevant data It emphasizes the importance of examining key aspects that significantly affect both the current and future financial health of the organization By identifying influencing factors, exploring their interrelationships, and assessing their impact on analytical indicators, the analysis aims to clarify the underlying dynamics of the company's activities.

After conducting a thorough analysis, it is essential to summarize the findings, draw informed conclusions, and forecast future development trends Ultimately, this process will determine whether the business qualifies for credit approval from the bank.

Lastly, it's important to monitor the health of the business after the credit decision to update the latest information about the business and ensure its appropriateness and reliability.

Contents of financial analysis for corporate customers

To effectively analyze asset volatility, comparison techniques such as horizontal and vertical analysis are essential Horizontal analysis evaluates a company's performance over time by comparing current financial results with those from a base year, enabling the identification of trends and changes in account balances This method allows companies to calculate the percentage of change, providing insight into the magnitude of financial fluctuations.

Horizontal analysis utilizes percentages to illustrate the percent change of each line item over time, while vertical analysis emphasizes the relationships between numbers within a single reporting period This approach facilitates easier comparisons of financial statements between companies and across industries by highlighting the relative proportions of account balances Furthermore, vertical analysis aids in time series analysis, allowing for the comparison of quarterly and annual figures over multiple years to assess trends in performance indicators To analyze an enterprise's asset structure, the proportion of each component in total assets can be calculated accordingly.

The capital structure and fluctuations of an enterprise reveal its current capital sources, defined as the proportion of each capital type within the total By analyzing the distribution of shareholders' equity, we can assess the company's financial strategy, risk level, and degree of financial independence or dependence This evaluation involves comparing the beginning and end of a period to identify changes in the proportions of capital sources The percentage of each capital type is calculated relative to the total capital.

1.6.1.3 Relationship between assets and capital

Effective capital financing requires aligning each asset with an appropriate funding source Businesses must balance safety in their capital structure with maintaining a reasonable cost of capital to optimize capital utilization Analyzing the balance sheet is crucial, focusing on three key factors: Net Working Capital (NWC), the working capital required, and the Debt-to-Equity Ratio (D/E).

NWC is the difference between the current assets and its current liabilities It's a commonly used measurement to gauge short-term financial health

Net working capital = Current assets - Current liabilities

A positive Net Working Capital (NWC) indicates that a company's current assets exceed its current liabilities, reflecting a solid financial structure and the capability to repay debts while retaining excess cash Conversely, a negative NWC suggests that the company cannot fully cover its short-term liabilities with its current assets, indicating a higher level of short-term debt than available resources.

29 has short-term resources Negative NWC is a sign of insufficient liquidity, poor short-term health, and potential problems meeting debt obligations when they come due (30)

Working capital needed is a short-term financial requirement that arises in the production and business processes but is not yet supported by a third party

Working capital needed = Business assets - Business liabilities

Business assets encompass short-term receivables, inventory, and other current assets reflected on the balance sheet that facilitate the company's production and operations Conversely, business debts refer to obligations owed to third parties, including payables to suppliers, employees, and various other liabilities.

A positive working capital requirement signifies that some of the company's assets are not financed by external sources, indicating a capital need Conversely, a negative working capital requirement implies that the company's third-party financing surpasses its short-term operational capital needs.

The D/E ratio is an important metric in corporate finance since it indicates how much a firm relies on debt to fund its operations rather than its own resources

A corporation with a high debt-to-equity (D/E) ratio often faces increased investment risk due to its reliance on debt funding Conversely, a low D/E ratio suggests that the company primarily utilizes equity from shareholders as its capital source, indicating a more secure financial position with less concern about debt repayment.

Debt in business can be advantageous, as borrowing costs are typically lower than using shareholders' equity, leading to higher profitability The choice between raising capital through debt or equity largely depends on the company's current stage of development.

In the introduction and growth stage, businesses with limited scope, poor revenue, and high costs shouldn't borrow money through debt because they won't be

Businesses should only seek to raise capital through loans once they have established a strong industry reputation, consistent cash flow, and the ability to manage debt effectively In the later stages of operation, declining sales and profits can hinder their ability to repay loans, making it crucial to ensure financial stability before taking on additional debt.

By comparing business income statements, analysts gain insights into a company's financial position and performance This data allows them to assess changes in sales, costs, and profits over time, providing a comprehensive overview of the company's financial health.

1.6.2.1 Income Statement using horizontal comparison:

The horizontal method of analysis is essential for assessing changes in financial statements over time, offering insights through a horizontal comparative report that highlights both absolute and relative figures This report is invaluable for analysts, as it not only presents data from a single year but also facilitates the examination of long-term business and financial trends By illuminating ongoing developments that affect a company's financial performance, this analysis provides a comprehensive understanding of the firm's financial health.

1.6.2.2 Income Statement using vertical comparison:

The vertical analysis method involves expressing each line item on a financial statement as a percentage of another item, such as representing all income statement items as a percentage of sales This technique simplifies the identification of changes in financial ratios relative to net sales, facilitating comparisons between companies or against industry averages Analysts utilize vertical comparisons to assess fluctuations in the income-to-expense ratio, which may vary due to changes in pricing, costs, or both.

The Cash Flow Statement is crucial for understanding a company's cash receipts and payments over a specific accounting period, offering a cash-based perspective that contrasts with the accrual-based data found in income statements While income is a key indicator of a company's performance, cash flow is equally vital for survival For instance, a company that solely relies on credit sales may show strong sales and income on its income statement but could face insolvency without actual cash inflow Additionally, the cash flow statement reconciles the beginning and ending cash balances on the balance sheet, highlighting the importance of liquidity in financial health.

The cash flow statement not only details the cash generated from operating activities but also offers insights into cash derived from a company's investing and financing activities This comprehensive data enables analysts to effectively address critical financial questions.

- Does the company generate enough cash from its operations to pay for its new investments, or is the company relying on new debt issuance to finance them?

- Does the company pay its dividend to common stockholders using cash generated from operations, from selling assets, or from issuing debt?

Factors influencing the financial analysis of corporate customers

The economic landscape and legal framework significantly influence business operations, shaping the production activities of enterprises Whether the economy or specific industry is experiencing growth or recession can greatly affect business opportunities, leading to fluctuations in input costs and output markets, ultimately impacting overall enterprise performance.

Positive economic impacts lead to expanded production and increased profits for businesses, enhancing overall efficiency Conversely, negative economic developments adversely affect enterprise operations Integrating sector-specific information with broader economic data provides a comprehensive and accurate overview of a company's financial health.

- False information from the business's customers

The analysis of a client's financial situation heavily relies on the accuracy of their financial statements and related documents, making their truthfulness crucial for commercial banks' investment decisions Instances of enterprises manipulating financial statements for profit have forced credit officers to invest additional time and effort in verifying information If credit officers lack vigilance and experience, it can result in flawed analyses and poor investment choices, ultimately causing financial losses for the bank.

The banking and finance industry plays a crucial role in the economy, where even minor errors can result in significant repercussions As a result, this sector is rigorously regulated through comprehensive legal frameworks to ensure stability and accountability.

Commercial banks must adhere to state regulations, guidelines from the State Bank, and their own policies regarding legal procedures, lending processes, and appraisals to ensure credit safety A robust and transparent legal environment is essential for enhancing the quality of financial analysis activities for corporate clients, benefiting both the banks and the overall financial system.

- Science & Technology: Thanks to the modern development of Science and Technology, analysis is faster, more convenient and more accurate

Analyzing financial institutions requires a systematic, step-by-step approach to ensure accurate results Enterprises should create a comprehensive analysis plan and establish a logical work order It is essential for administrators to assign specific tasks to the analysis team, with each member responsible for their part to guarantee the successful completion of all assigned duties.

Human resources play a crucial role in a bank's success, particularly through the expertise of credit officers These professionals must possess both training and experience to effectively understand market dynamics Additionally, maintaining high ethical standards and integrity is essential; any negligence or intentional misconduct by credit officers can lead to significant financial losses for the bank.

- System of facilities and science and technology

A modern and fully equipped system of physical and technical facilities can enhance the efficiency of credit officers and improve overall banking operations, ultimately saving time and effort for the entire banking system.

The integration of advanced technology in banking operations necessitates a simultaneous evolution of the banking system itself Furthermore, it demands a suitable technological infrastructure within the economy and a certain level of customer understanding and expertise.

- Flexible application of analytical methods

Different types of businesses require distinct analysis methods tailored to their specific needs New enterprises entering the market utilize different analytical approaches compared to established large companies For larger firms, it is crucial to conduct thorough evaluations using a variety of methods to achieve comprehensive and accurate analysis results.

Evaluating the financial health of businesses is essential for commercial banks during the lending process, as it allows them to determine customers' financial capacity and ability to repay debts This assessment helps banks identify financially stable clients, improve credit quality, and ultimately drive profitability In their role, banks not only lend but also provide advisory support to businesses, helping them address financial shortcomings by analyzing repayment capability, financial structure, and operational efficiency To enhance the effectiveness of this evaluation, bank staff should also consider non-financial indicators related to customers' borrowing needs, in addition to traditional financial metrics.

This chapter explores the theoretical framework for analyzing customer financials in lending activities at commercial banks, highlighting their crucial role in the economy It discusses the general theories behind financial analysis for lending, detailing its purpose, significance, and content, along with the relevant data sources Additionally, the chapter covers key analysis methods and their practical applications in the lending process.

CURRENT STATUS OF CORPORATE FINANCIAL

General introduction about Vietnam Joint Stock Commercial Bank for

2.1.1 History of formation and development

The Vietnam Joint Stock Commercial Bank for Industry and Trade was founded on March 26, 1988, following its separation from the State Bank of Vietnam as mandated by Decree No 53/CP issued by the Council of Ministers.

- Owner's equity: 93.247.451.000.000 VND (as of 30/06/2021)

Vietnam Joint Stock Commercial Bank for Industry and Trade was approved for listing on the Ho Chi Minh City Stock Exchange (HOSE) on July 16, 2009

- Par value per share: 10,000 VND per share

- Total number of shares: 4,805,750,609 shares

Throughout its 30-year formation and development journey, the bank has been divided into four main stages:

Stage I (from July 1988 - 2000): Constructing and transitioning from a single- level banking system to a two-tier banking system: Vietnam Industrial and Commercial Bank (Now Vietnam Joint Stock Commercial Bank for Industry and Trade - VietinBank) was established and began operations

Stage II (from 2001 - 2008): Successfully implementing the restructuring plan of the Industrial and Commercial Bank regarding debt handling, organizational model, policy mechanisms, and business operations

Stage III (from 2009 - 2013): Successfully implementing the equitization process, strong innovation, and breakthrough development in various banking activities

Stage IV (from 2014 until now): Focusing on building and implementing strategic management, technological breakthroughs, comprehensive banking operation innovation, promoting business growth while ensuring effectiveness, safety, and sustainability

By 2030, the bank envisions becoming a versatile and modern financial institution, aiming to rank among the top 20 strongest banks in the Asia-Pacific region By 2045, it seeks to establish itself as the most reputable bank in Vietnam, leading the Asia-Pacific market and gaining high international prestige.

Regarding its mission, VietinBank is a pioneering bank in the country's development, aiming to optimize benefits for customers, shareholders, and employees, based on five core values:

Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch is situated at 284 Ha Huy Tap, Yen Vien town, Gia Lam district, Hanoi City, and operates under the leadership of Ms Le Thanh Mai.

2022, VietinBank East Hanoi Branch was one of the 30 branches out of a total of

155 branches nationwide to achieve the excellent rating

2.1.2 Functions, duties, and organizational structure

The main activities of Vietnam Joint Stock Commercial Bank for Industry and Trade include carrying out banking transactions such as:

- Mobilizing and accepting short-term, medium-term, and long-term deposits from institutions and individuals

- Providing short-term, medium-term, and long-term loans to institutions and individuals based on the nature and capital capacity of the bank

- Facilitating payments between institutions and individuals

- Conducting foreign exchange transactions, international trade finance services, discounting of commercial papers, bonds, and other negotiable instruments

- Other banking services permitted by the State Bank of Vietnam

Graph 2.1 Organizational structure of Vietnam Joint Stock Commercial Bank for Industry and Trade

Graph 2.2 Organizational structure of VietinBank East Hanoi Branch

The organizational structure of VietinBank East Hanoi Branch is extremely diverse with a full range of departments to serve the smoothest and most effective working process.

Current status and credit approval process for corporate customers at

2.2.1 Business activities of Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch from 2020 to 2023

About the capital mobilization situation,

Since its inception, the bank has prioritized capital mobilization, recognizing it as the essential element that underpins its operational viability Effective capital mobilization is crucial for the bank's ongoing success and sustainability.

45 place through various methods, including attracting deposits from customers, issuing bonds, or raising funds from other investors

Capital is essential for a bank's existence, as insufficient capital can hinder its ability to maintain liquidity and stability, impacting core activities like lending, payments, and investments Consequently, effective capital mobilization and management are crucial components of a bank's business strategy Over the years, the capital sources of the bank's branch have shown consistent growth.

Table 2.1 Capital mobilization situation from 2020 to 2023

Average corporate customer capital source

Average individual customers capital source

Total end-of- period capital mobilization

Average non- term capital source

(Source: Financial Statements of VietinBank – East Hanoi Branch)

Over the past four years, VietinBank East Hanoi Branch has consistently increased its capital sources, culminating in a total capital mobilization of 15,421 billion VND by the end of 2023 This reflects a growth of 1,600 billion VND, or 12%, compared to the end of 2022 Notably, capital from corporate customers amounted to 2,652 billion VND, while individual customers contributed 11,008 billion VND, and other sources added 620 billion VND.

While most of the capital sources from corporate and individual customers of the bank have increased, the average non-term capital source (CASA) decreased in

In 2023, non-term deposits saw a significant decrease of 17% compared to previous years These deposits are generally viewed as a more stable funding source for banks, as they do not necessitate high interest payments like term deposits Various factors may contribute to this decline.

The CASA ratio is influenced by factors like interest rate fluctuations and shifts in customer demand and behavior To effectively cater to market needs, the branch must continuously evaluate and adapt its strategy.

About import and export payment activities,

In 2023, the total foreign currency purchases by customers amounted to 570 million USD, reflecting an increase of 82.9 million USD from the previous year Additionally, the total sales volume of foreign currency also reached 570 million USD, showing a growth of 82.2 million USD compared to the prior year.

2022 The cumulative profit from foreign exchange business in 2023 reached 32.3 billion VND, achieving 87% of the 2023 plan and increasing by 8.5 billion VND compared to the previous year

About financial situation and business results,

Table 2.2 Financial situation and business results at the branch over the years

(Source: Financial Statements of VietinBank – East Hanoi Branch)

The bank has experienced significant positive growth across all income and profit categories, demonstrating strong performance in both business operations and financial management The branch has effectively developed and executed plans for acquiring supplies and assets, while also improving physical infrastructure to enhance business activities and create better working conditions for employees.

The branch adheres to regulatory standards for cash reserves, ensuring compliance in cash management practices Cash transfer operations are conducted with utmost safety, while end-of-month inventory reports accurately reflect secured assets, essential seals, and valuable documents.

Table 2.3 Loan outstanding situation at the branch over the years (2020-2023)

Average balance of other loans

End-of- period loan balance

(Source: Financial Statements of VietinBank – East Hanoi Branch)

The credit structure emphasizes the manufacturing and business sectors, prioritizing areas with manageable risks to boost sales and generate new opportunities While the rise in loan balances reflects the bank's growth, it is essential to manage these loans carefully to maintain control over credit risks and ensure effective risk management practices.

Table 2.4 Situation of non-performing loans and overdue debt at the branch over the years (2020-2023)

(Source: Financial Statements of VietinBank – East Hanoi Branch)

As lending continues to rise, the volume of debt collection has also surged In 2023, non-performing loans decreased by 25%, yet Group 2 debt saw a dramatic increase of 385% This rise in Group 2 debt suggests that customers are beginning to exhibit concerning behaviors, such as late payments and declining repayment capacity Despite this, the risk associated with Group 2 debt remains lower than that of non-performing loans, allowing banks to actively monitor and manage this category to prevent further deterioration into non-performing status.

Despite the instability in debt and loan balances, the outstanding loan indicator demonstrates that the branch's credit activities are consistently expanding and improving, thereby enhancing overall effectiveness.

Enhancing the quality of financial statement analysis is crucial for banks to streamline the credit approval process for both corporate and individual customers This improvement not only benefits the bank by reducing risk but also supports customers in securing timely and efficient credit By focusing on accurate financial assessments, banks can foster stronger relationships with their clients and ensure a more effective lending environment.

In recent years, VietinBank East Hanoi Branch has made significant progress in its lending activities, yet it faces numerous challenges that require attention To enhance the effectiveness of its banking operations and reduce lending risks, the bank must focus on improving lending efficiency This involves boosting operational capacity to thrive in a competitive landscape while integrating with regional and global markets.

2.2.2 Credit approval process for corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

To align with the regulations set by the State Bank of Vietnam, each lending unit has established a comprehensive and precise lending process to enhance customer experience and prevent any potential inconveniences.

Step 1: Researching the purpose and guiding customers in preparing loan applications

To secure a loan, customers must clearly define its purpose, ensuring it complies with legal regulations Credit officers play a crucial role by informing customers about the bank's lending requirements and the specific conditions their business must fulfill Additionally, they provide guidance on the essential documentation needed for loan approval.

Current status of business financial analysis in credit activities at Vietnam

Credit officers help customers prepare a request letter for the foreclosure of collateral assets, along with the necessary loan documents, which are then submitted to leadership or authorized signatories for approval and stamping.

2.3 Current status of corporate financial analysis in credit activities at Vietnam Joint Stock Commercial Bank For Industry And Trade - East Hanoi Branch

2.3.1 Database serving financial analysis of corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

2.3.1.1 Information used in analyzing corporate financial statements

Information can be gathered from customers via interviews or direct discussions with business leaders and employees, as well as through paper records they provide Additionally, data can be sourced from third parties, including management agencies, audit firms, tax authorities, the State Bank's CIC, customers, and mass media outlets.

Types of information include industry information, business financial information and non-financial information

About the industry information, it is information reported and forecast about industry groups; average indexes of the industry or equivalent businesses in the same industry

About financial information, are the financial reports of the enterprise: Balance

The financial reporting framework includes essential components such as the Balance Sheet, Income Statement, Cash Flow Statement, and accompanying Notes to the financial statements It encompasses both general and detailed accounting records, covering items like debts, prepaid expenses, inventory, financial investments, and payable expenses Additionally, it features minutes of inventory for supplies, products, and goods, along with crucial documents like credit relationship reports with financial institutions, significant construction or purchase contracts requiring inspection, and debt confirmation records.

Non-financial information serves as both a preliminary and final report detailing an enterprise's operational status, development strategies, and business plans for each period It also includes the minutes from annual board meetings, providing essential insights into the company's overall performance and strategic direction.

This article provides insights into various aspects of organizational structure, including management staff qualifications, technological processes, and key business projects It explores the types and nature of products and services offered, along with their diversification strategies Additionally, it discusses the product lifecycle, branding, distribution networks, and market share, highlighting the essential elements that contribute to a company's success.

2.3.1.2 Principles for selecting financial statements for analysis

Principle 1: Grant credit to whichever legal entity, and analyze the financial statements of that entity In cases where a third party guarantees the entire value of that credit, analyze the financial statements of the third party

Principle 2: Choose the financial statements with the highest level of reliability that the business entity can obtain, with preference given to audited financial statements or tax settlement reports

The reliability of financial statements is evaluated from high to low as follows:

- Audited financial statements are more reliable than unaudited ones, but this depends on the credibility of the auditing organization, the scope and method of auditing, and the audit opinion

Tax settlement reports are critical as tax authorities typically focus on specific indicators concerning tax deductions and payable taxes These selected indicators generally exhibit greater reliability compared to the figures reported by the business entity.

- Financial statements prepared by the business entity

Additionally, the reliability of financial statements also depends on the effectiveness of internal control, internal audit, and the type of business entity (public companies are usually more transparent)

Notes: a) Request to analyze the financial statements of the parent company:

To assess the recognition of profits from long-term investment activities, it is essential to evaluate whether the entity reports profits that exceed or fall short of the declared dividends, and to determine if profits are recognized prior to formal announcements.

- Analyze the financial statements of the parent company, but also refer to the consolidated financial statements in order to:

+ Gain additional insight into the overall financial situation of the entire group of parent and subsidiary companies, thereby making general assessments of the parent company's capital investment activities

To effectively compare performance, obtain industry benchmarks for sectors like postal services, telecommunications, oil and gas, and electricity Additionally, request an analysis of the financial statements from private enterprises or SMEs to gain deeper insights into their financial health.

Analysts should prioritize careful evaluation of income statement data, particularly revenue and expense figures It is essential to cross-reference information from multiple sources, especially insights gathered through interactions with the enterprise.

Credit officers help customers prepare a request letter for the foreclosure of collateral assets, along with necessary loan documents, which are then submitted to leadership or authorized signatories for approval and stamping.

2.3.2 Methods of financial analysis for corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

The Comparative Analysis Method involves evaluating changes in financial statement items by examining multiple consecutive years of financial statements This approach analyzes both absolute and relative changes in indicators over a span of 2-3 years, facilitating an assessment of long-term trends by comparing figures to a base year By employing this method, one can observe the direction, speed, and overall trends of financial indicators over time.

The Structural Analysis Method involves calculating the proportions of items on financial statements and making comparisons to understand fluctuations in key indicators This approach assesses the significance of component indicators within the overall framework, enabling the selection of crucial indicators for in-depth analysis.

Financial leverage: Measures the debt structure relative to equity and total capital

Liquidity: Evaluates the ability to pay short-term debts by using assets easily convertible into cash

Operating efficiency: Assessing the effectiveness of asset utilization by the business

Growth potential: Evaluates the level of growth and scale expansion annually

Profitability: Measures the relationship between profit and revenue or investment value

Cash flow evaluation: Assesses the ability of the business to generate cash

Cash flow analysis is essential for evaluating a business's financial health, focusing on the Cash Flow Statement to assess the sustainability of past cash flows This method addresses critical questions, such as whether the business generates sufficient cash to support its operations and its capacity to produce cash from operating activities to meet financial obligations.

Cash flow forecasting is essential for businesses to assess their financial health, utilizing either direct or indirect methods based on available data This process evaluates the company's capacity to repay debts, determining whether there will be sufficient cash surplus for loan repayments or if additional borrowing or asset sales will be necessary to cover potential deficits.

2.3.3 Process of analyzing financial statements of corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

Graph 2.3 Process of analyzing financial statements of corporate customers at

(Source: Guidance on Financial Statements Analysis of Vietinbank)

Step 1: Gathering documents, processing data

Step 1.1: : Gather the information as mentioned in section 2.2.1.1combined with the principles in section 2.2.1.2

Step 1.2: Appraising the Data on the Financial Statements

General Review of Financial Statements

Appraising the data on financial statements (1.2)

Evaluating the quality of assets and capital

Analysis of adjusted financial statements

Appraising the data on financial statements (1.2)

Assessing the reliability, accuracy, and reasonableness of financial statements

Analyzing the structure and fluctuations of assets and capital (2.1)

Analyzing the efficiency of production and business operations (2.2)

Summarizing the results and drawing conclusions (3)

Check the compliance with depreciation methods and timing, revenue recognition methods, inventory accounting, provision for bad debts, and foreign exchange rate differences based on the financial statements' disclosures

Ensure consistency across each form and between different financial statements or between different financial reporting periods

Evaluate the Quality of Assets and Capital of the Enterprise

Analyzers consider according to the principle of materiality, selecting items affecting the financial position of the enterprise Any suspicions need to be rechecked (Conservatism principle)

Adjust the Enterprise's Financial Statements

Based on the results of reviewing the enterprise's financial statements, analysts prepare adjustments to the corresponding items on the Balance Sheet, Income Statement according to the guidelines

Step 2: Analysis of Adjusted Financial Statements and Step 3: Summarizing Results and Drawing Conclusions will be presented in section 2.2.4 below

2.3.4 Content of financial analysis for corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - East Hanoi Branch

2.3.4.1 Assets and Capital Structure and Fluctuations Analysis a) Assets Structure and Fluctuations Analysis

Purpose: Evaluate the fluctuations in the scale of operations, total assets, individual asset types, and the rationality of asset structure for the enterprise

SOLUTIONS TO IMPROVE THE CORPORATE

Development direction of Vietnam Joint Stock Commercial Bank for

In 2024, capital mobilization is a priority, with a strong emphasis on increasing CASA deposits to boost overall deposit growth from the start of the year Our strategy focuses on raising the share of CASA deposits within total funding sources at the branch, which will enhance the Net Interest Margin (NIM) and improve Net Interest Income (NII) It is crucial to comply with State Bank of Vietnam (SBV) regulations on deposit interest rate caps and adhere to internal bank rules concerning competition.

Enhance the mobilization of non-term deposits from financial institutions such as investment funds, insurance companies, and securities firms, as well as from conglomerates and corporations Leverage currency and interest rate derivative products to optimize capital costs while effectively hedging against interest rate and exchange rate fluctuations.

To effectively mobilize capital, it is crucial to launch impactful campaigns that recognize and reward individuals and teams for their outstanding achievements, thereby motivating employees to excel in their roles Additionally, prioritizing the needs of traditional customers, especially those with substantial deposits, is essential Enhancing service quality will serve as a vital competitive advantage against other credit institutions in the region.

To enhance the effectiveness of capital mobilization activities, it is crucial to actively research capital mobilization products, mechanisms, interest rate policies, and funding source policies Propose bank policies that improve product competitiveness tailored to regional needs Additionally, consistently monitor and evaluate the evolution of Net Interest Margin (NIM) across branches and business units to ensure timely adjustments and strategic direction.

For the business customer segment:

The branch focuses on key customer segments and target groups in 2023 according to the bank's direction:

New Customer Group: Exploit and allocate newly established customers automatically through the National Business Registration Portal data as per Circular 7868; Leverage chains, ecosystems; Enhance disbursement within the system

The primary target audience includes the management boards of industrial parks in Hanoi and surrounding provinces, as well as subsidiaries of state-owned enterprises and private entities connected to the sector Additionally, cash-rich customers such as hospitals, schools, and trade union funds represent a significant segment of this market.

Cash flow management: Cash flow management campaigns for key groups:

Merchants; Distribution commerce; Real estate - Building management boards; Logistics…

For the individual customer segment:

Improve the CASA retail ratio to reduce capital costs, narrow the gap with other commercial banks, and enhance the competitive advantage of VietinBank

To boost fixed deposit (FD) growth, VietinBank should leverage its extensive branch network to strengthen its brand presence in the local market This involves retaining and attracting high-value deposit customers while effectively mobilizing idle household funds, particularly from craft villages and during business cycles By controlling capital costs through competitive interest rate packages and tailored terms, and offering high-interest certificate of deposit products, VietinBank can optimize its fundraising efforts Additionally, staying informed about local compensation trends will enable the bank to mobilize public funds promptly and efficiently.

To enhance CASA growth, it is essential to focus on developing priority customers and retaining existing high-value clients This can be achieved by increasing the number of card-using customers with stable, high incomes through initiatives led by the Enterprise Customer Leadership and unit staff at VietinBank, while also engaging with proximity customers.

Develop salary payment units (enhance salary payments through state budgets, local governments, schools, departments, etc.), package solutions (products, service

120 policies, incentives, sponsorship, motivation ) for each customer group; Review lost salary payment customers; Deepen the file of salary-receiving customers; continue to rejuvenate the customer base

The primary objective for 2024 and beyond is to substantially boost credit availability, focusing on stable and effective growth Emphasis will be placed on supporting small and medium-sized enterprises (SMEs), retail clients, and foreign direct investment (FDI) customers A selective review and growth strategy will be implemented for large enterprise clients to ensure safe and efficient credit expansion.

For the business customer segment:

To enhance customer development, prioritize expanding the base of new small and medium-sized enterprise (SME) clients, with a particular focus on small and micro businesses Target customers within the supply chains of large enterprises, foreign direct investment (FDI) firms, and SME mini-chains Efficiently finance and refinance medium to long-term projects, while reviewing potential customer files that serve as input or output partners for current clients Additionally, explore potential import-export customers at the Head Office and compile a comprehensive list of these customers at the branch level.

Enhancing customer care and closely monitoring business needs will be crucial in 2024 and beyond To actively improve Credit NIM, it is essential to increase the share of medium to long-term lending while focusing on growth in key industries and sectors tailored to specific geographic areas.

To enhance credit quality control, it is essential to intensify inspection and monitoring processes to identify customers facing declines in their business and financial activities A thorough review and restructuring of the credit portfolio should be conducted for low-efficiency clients, while implementing targeted solutions to improve Return on Assets (ROA), such as negotiating interest rate increases and maximizing the use of ecosystem exploitation services through cross-selling Additionally, monthly assessments should be conducted to evaluate potential industries and sectors, with a focus on reducing the proportion of outstanding loans in volatile or struggling industries.

For the individual customer segment:

To achieve a retail loan portfolio that constitutes 40% of the total branch loan portfolio, VietinBank aims to focus on financially stable business owners who can provide substantial advantages By utilizing the existing business ecosystem, the bank plans to cross-sell financial solutions to employees, suppliers, distributors, and consumers associated with these businesses.

Efficient customer portfolio management: Prioritize products with high NIM loan balances; Review existing loan portfolios, adjust interest rates to align with the targeted NIM goal (from 2.4%);

Emphasize risk management by maintaining strict oversight of credit quality while scaling operations Regularly assess and monitor customers' business activities and income sources to promptly detect potential risks and implement necessary measures.

3.1.3 Management, handling, and recovery of NPL

In alignment with VietinBank's credit strategy, we prioritize governance to ensure both safety and effectiveness Our focus is on improving cash flow management efficiency while closely monitoring the utilization of loan capital and the condition of physical assets acquired through borrowing, alongside the operational performance of our clients.

To effectively manage debts, conduct regular reviews of debts under 10 days and closely monitor Group 1 debts that may carry hidden risks Engage with customers frequently to ensure timely and comprehensive updates on their information Implement strategies to reduce the occurrence of Group 2 debts and address new bad debts Additionally, keep track of customers' principal and interest repayment schedules to facilitate prompt debt recovery, and review credit files and assets to ensure legal compliance.

Recommendations to improve the financial analysis of business customers

in credit activities at Vietnam Bank for Industry and Trade - East Hanoi Branch

3.3.1 Recommendations for the State Bank of Vietnam

To effectively promote socio-economic growth and stabilize the banking sector, it is essential to conduct thorough research and consultations to identify goals that align with the country's specific conditions Additionally, refining the content of the Enterprise Law and the Law on Commercial Banks will support these objectives and enhance the overall implementation of relevant policies.

The government issues decrees to enhance business operations by coordinating with various ministries and localities to create a comprehensive support program This program includes policies that facilitate access to capital through initiatives such as the Enterprise Development Fund, the Credit Guarantee Fund for Enterprises, and the Startup Innovation Investment Fund.

The State Bank of Vietnam (SBV) should work closely with the Ministry of Finance to develop effective mechanisms and policies for managing debt within credit institutions It is essential to provide clear scoring standards that will guide financial institutions in assessing and evaluating debts Additionally, in partnership with the Ministry of Public Security, the SBV must ensure that decisive actions are taken against any opposition or threats to the safety of bank officials, in compliance with Vietnamese law Strengthening inspections of commercial bank activities is also crucial to promptly identify and rectify any errors or regulatory violations.

To enhance the lending activities of commercial banks, the State Bank of Vietnam (SBV) must strengthen inspection and supervision measures, particularly in customer analysis and assessment Authorized by the State, the SBV should establish regular inspection bodies to monitor credit institutions and address any violations effectively Additionally, it is crucial to enhance the roles of the Credit Information Center (CIC) and the Risk Prevention Center, ensuring they provide valuable insights for banks in customer evaluation The SBV should align its credit activities with the country's economic development goals and simplify the customer evaluation process in corporate lending, ultimately supporting customer needs and promoting credit growth in the banking sector.

To enhance the financial analysis of SMEs by commercial banks in Vietnam, it is essential to establish an information support center A major challenge affecting the effectiveness of financial assessments for SMEs is the accuracy of data Therefore, it is crucial for credit officers in banks to maintain regular communication to ensure reliable data collection and analysis.

In Vietnam, the Credit Information Center (CIC) currently collects credit transaction data from enterprises but lacks comprehensive financial and non-financial data integration with other sources like tax and customs authorities This gap creates risks for banks, as inaccurate information prolongs verification processes To address this, there is a pressing need to develop a centralized information center that provides commercial banks with extensive data, allowing for the establishment of industry averages crucial for evaluating financial fluctuations Continuous innovation at the CIC will enhance the credit granting process, enabling banks to capture timely information and improve the quality of financial analysis for their customers.

3.3.2 Recommendations for the Business Customers

Customers must adhere to all legal regulations and fulfill the mandatory terms outlined in their loan contracts with banks It is essential that the information provided to the bank is accurate and regularly updated to facilitate a swift credit analysis and approval process, ensuring loan limits align with the enterprise's needs Additionally, companies are required to submit their information quarterly and annually, maintaining truthful figures and accepting legal responsibility for any discrepancies in documentation as per Vietnamese law.

If you have questions while preparing your credit application, it's essential to seek assistance from credit officers for accurate guidance Relying on unofficial sources can lead to wasted time and unclear answers Credit officers possess the expertise to clearly outline the credit approval process and recommend necessary documents, helping you understand the information and adjustments needed for a successful application.

Thirdly, enterprises need to maintain transparency in financial management to ensure a healthy and sustainable relationship with the bank before, during, and after

Effective financial management requires timely and accurate recording of all enterprise transactions, ensuring compliance with legal and tax regulations It is essential to keep the bank informed of any changes in the business or financial status to collaboratively explore suitable solutions for both the enterprise and the financial institution.

The final chapter of the thesis proposes several directions for the development of activities at VietinBank - East Hanoi Branch, specifically at the Duc Giang

The Transaction Office seeks to improve the quality of financial analysis reporting in the credit granting process at the bank It also offers solutions to enhance analysis methods specifically for the Vietnam Joint Stock Commercial Bank for Industry and Trade, along with recommendations for the State Bank and business customers.

In 2023, a year marked by economic, political, and social challenges, the Vietnam Bank for Industry and Trade's credit officers demonstrated remarkable determination in financial analysis to enhance credit activities amidst fluctuations and prolonged inflation Credit operations are vital for banks, enabling businesses to thrive even in tough economic conditions To optimize credit services for corporate clients, skilled financial analysis is essential, as misjudgments in assessing client operations can result in bad debts, adversely affecting both the bank and the broader economy.

Through the examination and analysis of financial report analysis for corporate clients at VietinBank East Hanoi Branch, the thesis has achieved the following:

Before analyzing the current situation, the thesis undertook a theoretical study focused on the concepts, processes, and factors influencing the financial report analysis process for corporate clients at commercial banks in Vietnam.

The credit proposal report of Gia Bao Loc Trading Company Limited at the East Hanoi Branch highlights the current state and methods of financial analysis utilized at the branch While the analysis reveals some advantages, it also identifies significant weaknesses that require enhancement, both within the bank itself and from associated agencies.

The thesis seeks to address the weaknesses in financial analysis at VietinBank East Hanoi Branch by proposing targeted solutions Furthermore, it offers recommendations for relevant agencies to assist banks in improving the organization of financial report analysis within their credit activities.

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3 The official website of the VietinBank system: www.vietinbank.vn

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