Improving the quality of small and medium enterprises loans at military commercial joint stock bank – tay son branch

STATE BANK OF VIET NAM BANKING ACADEMY FACULTY OF BANKING GRADUATION THESIS TOPIC IMPROVING THE QUALITY OF SMALL AND MEDIUM ENTERPRISES LOANS AT MILITARY COMMERCIAL JOINT STOCK BANK

INTRODUCTION

Rationale of the research

The SME community has seen significant growth in both quantity and quality, with approximately 785,000 SMEs in the country as of 2022, representing over 98% of all enterprises These businesses are increasingly efficient, utilizing 60% of the labor force and contributing 40% to the GDP and 30% to state budget revenues This highlights the vital role SMEs play in bolstering the national economy, making them a crucial market for credit institutions in a large and expanding market.

SMEs play a crucial role in the economy but face significant challenges, particularly in accessing capital Statistics reveal that only 30% of SMEs secure funding from banks, forcing the majority to rely on personal funds or high-cost loans This funding gap stems from SMEs' difficulties in proving their capital, providing collateral, and managing cash flow effectively Additionally, stringent credit procedures imposed by commercial banks pose further obstacles, especially for newly established businesses Therefore, it is essential for commercial banks to facilitate better access to loans for SMEs, enabling them to enhance their production and business operations.

Military Commercial Joint Stock Bank – Tay Son Branch is committed to delivering exceptional banking products and services, with a particular focus on supporting small and medium enterprises (SMEs) Despite this dedication, the branch faces challenges in identifying potential new customers and managing loans effectively to minimize risks To address these issues, the thesis topic "Improving the Quality of Small and Medium Enterprises Loans at Military Commercial Joint Stock Bank – Tay Son Branch" aims to evaluate the current situation and develop practical solutions to enhance loan quality and operational efficiency at MB Tay Son.

Literature review

For the current research situation, there have been many scientific studies on the content of improving loan quality for SMEs, which can be cited as follows:

- Luu Thi Hai Yen (2017) has the concept of lending quality as follows:

Lending quality is essential for meeting the capital demands of customers in production and business activities, aligning with societal development and ensuring the sustainability of banks To evaluate the quality of loans to SMEs, it is crucial to analyze quantitative indicators such as bad debt ratios, loan turnover, profitability, and loan utilization performance Additionally, qualitative indicators like adherence to loan principles and proper credit processes are important However, the current analysis predominantly emphasizes quantitative metrics, leaving qualitative factors underexplored.

Dao Van Khoa's 2013 study, "Improving the Quality of SME Loans at Vietnam Joint Stock Commercial Bank for Industry and Trade – Cua Lo Branch," analyzes the lending activities of the bank both qualitatively and quantitatively The research identifies key issues in the current lending practices and proposes practical solutions to enhance loan quality However, the focus is primarily on ensuring that credit capital is utilized appropriately by enterprises, leading to measures that predominantly reflect the business perspective.

- Pham Phuong Thao (2013) with the topic "Improving the quality of loans to small and medium enterprises at Military Commercial Joint Stock Bank – Dong

The thesis conducts a comprehensive analysis of the lending practices at MB Dong Da, identifying existing shortcomings and their underlying causes It also proposes effective solutions aimed at enhancing the quality of loans provided to small and medium-sized enterprise (SME) customers.

Chavan and Gambacorta (2016) examine the quality of lending in Indian banks, highlighting that lending trends typically rise during economic upturns and decline in downturns Their research indicates that as loan sales to various economic sectors increase, bad debts also tend to rise They conclude that lending quality is considered good when the rate of overdue bad debts is low, emphasizing that effective lending practices align with the economic cycle.

In their 2013 study, Jun Yi Chen and Shu Ping Han investigate lending practices at commercial banks for small and medium-sized enterprises (SMEs) Utilizing secondary data, including total outstanding loans by component groups, total income, and overdue debt ratios, the authors analyze and compare these metrics across different years to evaluate credit quality Their findings highlight significant limitations in current lending practices, identify the underlying reasons for these shortcomings, and propose targeted solutions to enhance credit quality for SMEs.

Research gap

The quality of loans remains a critical focus for commercial banks, as it constitutes a significant portion of their credit structure and contributes to profitability Despite previous research on this topic, particularly at MB Tay Son, the evolving economic landscape necessitates ongoing attention and adaptation to loan quality Consequently, the evaluation criteria and proposed solutions from earlier studies may no longer be relevant today This underscores the importance of the thesis "Improving the Quality of Loans for Small and Medium Enterprises at Military Commercial Joint Stock Bank – Tay Son Branch."

Research objective

Overall objective: The main objective of this research is to improve the quality of loans for small and medium enterprises at Military Commercial Joint Stock Bank – Tay Son Branch

Systematically study the quality theory of SME lending, and evaluate the indicators and factors affecting the quality of SME lending

Analyze the situation of SME loan quality at Military Commercial Joint Stock Bank – Tay Son Branch

Propose a practical solution to improve the quality of SME loans at Military Commercial Joint Stock Bank – Tay Son Branch.

Research scope

This thesis aims to enhance the quality of loans provided to small and medium-sized enterprises (SMEs) at the Military Commercial Joint Stock Bank – Tay Son Branch The research covers the period from 2019 to 2022, utilizing data collected from the bank to analyze and improve loan processes for SMEs.

Research methodology

To learn about the situation of SME lending at the Military Commercial Joint Stock Bank – Tay Son Branch, the thesis uses the following methods:

- Methods of collecting primary data

To evaluate qualitative criteria, the thesis gathers primary data through customer surveys aimed at assessing the quality of SME loans at MB Tay Son A total of 120 customers were surveyed, with feedback obtained from 100 participants The survey includes 24 questions designed to measure five key factors influencing SME customer satisfaction, with responses rated on a five-point scale ranging from very dissatisfied to very satisfied.

- Methods of collecting secondary data:

To analyze quantitative indicators, the thesis uses actual statistics at MB Tay Son in the period of 2019 – 2022

The Military Commercial Joint Stock Bank – Tay Son Branch has analyzed its loan quality by examining actual statistics This evaluation focuses on key performance indicators that reflect the branch's lending effectiveness and financial health.

The report synthesizes, analyzes, and compares lending data from 2019 to 2022, highlighting fluctuations in the lending landscape and the quality of bank loans Based on these insights, recommendations are made to enhance the quality of SME lending at the Branch.

Research structure

In addition to the introduction, conclusion, abbreviated list, and list of diagram tables, the thesis is structured into 5 chapters:

Chapter 3: The reality of small and medium enterprises loans at Military Commercial Joint Stock Bank – Tay Son Branch, according to secondary data analysis

Chapter 4: Survey on quality of small and medium enterprises loans at Military Commercial Joint Stock Bank – Tay Son Branch

Chapter 5: General assessment, conclusion and recommendation

THEORETICAL BACKGROUND

Basics of Small and medium enterprises

2.1.1 The concept of small and medium enterprises

Small and medium enterprises are a common type of business in the economy

SMEs are experiencing significant growth globally, both in developed and developing countries The World Bank reported in 2022 that SMEs represent 90% of all enterprises worldwide and contribute approximately 40-50% to national GDPs Defined as businesses with limited capital, labor, and revenue, SMEs are categorized into three types: micro-enterprises, small businesses, and medium enterprises This highlights the vital role that small and medium enterprises play in the global economy.

According to Government Decree No 39/2020/ND-CP, small and medium enterprises (SMEs) are defined as independent production and business entities that are legally registered and have an average number of employees participating in social insurance not exceeding a specified limit.

200 people and a total annual turnover of not more than VND 300 billion or a total capital of not more than VND 100 billion"

2.1.2 Characteristics of small and medium enterprises

Small and medium-sized enterprises (SMEs) often operate with limited investment capital, typically relying on personal funds and business equity, which constrains their financial capacity With registered capital usually below 10 billion VND, SMEs benefit from short business cycles that allow for quick capital recovery, enabling reinvestment in modern technology and enhancing operational efficiency However, their restricted financial resources hinder access to credit, primarily due to inadequate collateral and unclear accounting practices that diminish market credibility As a result, SMEs frequently resort to borrowing from informal sources, such as friends and family, to sustain their operations.

The management capabilities in SMEs are often constrained, as many business owners are self-employed individuals who lack formal management training and are directly involved in production This dual role limits their management expertise and makes it challenging to attract skilled managers due to budget constraints and unattractive compensation packages Consequently, SMEs struggle to establish long-term strategic plans and are unable to keep pace with market dynamics Their limited capital hampers the adoption of new technologies, resulting in outdated equipment and poor product quality, which diminishes their competitiveness In today’s competitive market, leveraging advanced machinery and technology is essential for business growth and sustainability.

Small and medium-sized enterprises (SMEs) benefit from a plentiful labor force, leveraging their limited capital to maximize human resources, particularly in regions like Vietnam where labor costs are low The work environment in SMEs tends to foster closer and friendlier labor relations compared to large corporations, leading to employees feeling valued and motivated, which enhances productivity and business efficiency Additionally, the growth of the SME sector plays a crucial role in narrowing the socioeconomic divide, as it generates job opportunities for individuals with lower educational backgrounds, assisting the government in addressing social challenges.

Small and medium-sized enterprises (SMEs) are highly adaptable to market changes due to their dynamic nature and smaller scale of operations With limited investment capital, SMEs can quickly pivot their products to align with shifting consumer preferences, market fluctuations, and policy changes—an agility that larger corporations often struggle to achieve This adaptability allows SMEs to create unique advantages by fulfilling consumer needs effectively However, their limited production capacity and tendency to operate in less central locations pose challenges for market expansion, as many SMEs in Vietnam face difficulties in broadening their business reach.

Small and Medium Enterprises (SMEs) are vital to the economy due to their unique characteristics and potential for growth To ensure sustainable development, SMEs must leverage their strengths while addressing their limitations, ultimately enhancing their market reputation.

2.1.3 The role of small and medium enterprises in the economy

Small and medium-sized enterprises (SMEs) are vital to the economies of nations, as they generate employment opportunities for unskilled workers and drive national economic growth Additionally, SMEs facilitate economic restructuring, contribute to the industrialization process, aid in poverty alleviation, and help address various social issues.

Small and medium-sized enterprises (SMEs) play a crucial role in job creation, boosting worker income, alleviating poverty, and lowering unemployment rates As a significant business model in the market, SMEs are increasingly attracting a larger workforce to engage in their production and business activities Primarily focused on the service sector, these enterprises have a high demand for labor, contributing to economic growth and community development.

Inefficient operations in large enterprises frequently lead to plans for reducing staffing costs, resulting in a surplus of unemployed workers This pool of available labor often becomes a valuable resource for small and medium-sized enterprises (SMEs).

Small and Medium Enterprises (SMEs) play a crucial role in Vietnam's economic growth and social stability, representing over 98% of the country's total enterprises According to the General Statistics Office (2022), SMEs contribute more than 40% to GDP, 30% to the state budget, and 33% to total industrial output, while accounting for 29% of national turnover and employing 60% of the workforce Their diverse business activities enable them to meet essential consumer needs domestically and internationally, particularly in export-driven sectors like agriculture, seafood, and handicraft furniture, thereby significantly enhancing Vietnam's import and export performance.

The establishment of a significant number of small and medium-sized enterprises (SMEs) plays a crucial role in enhancing economic dynamism and efficiency Unlike large corporations, SMEs require less capital to start, leading to a higher growth rate in their numbers This flexibility allows SMEs to adapt their product offerings more readily, fostering innovation and responsiveness in the market Consequently, the proliferation of SMEs not only increases the total number of enterprises but also boosts competition, driving overall economic vitality.

Overview of small and medium enterprises loan at commercial bank

2.2.1 The concept of small and medium enterprises loan at commercial bank

The Bank plays a crucial role as a financial intermediary, channeling essential capital to society and serving as the backbone of national economies Its primary function is lending, which is vital for business funding and overall economic development Lending activities in commercial banks are defined as the provision of credit, where banks commit to granting loans to customers for specified purposes within an agreed timeframe, with the expectation of repayment of both principal and interest upon maturity.

Lending to SMEs involves commercial banks providing a specified amount of credit to small and medium-sized enterprises for designated purposes over an agreed timeframe This financial arrangement requires the borrower to repay both the principal and interest upon the loan's maturity.

2.2.2 Characteristics of small and medium enterprises loan

SME lending is influenced by specific characteristics of small and medium enterprises, including limited investment capital and minimal collateral Additionally, these businesses often lack transparent accounting practices, exhibit ineffective and outdated production processes, and have employees with low qualifications and business owners with limited management capabilities.

Commercial banks offer a diverse range of SME loan terms, including short-term, medium-term, and long-term options Short-term loans, typically lasting less than one year, are primarily used to address working capital shortages in SMEs Due to their brief duration, these loans can be quickly repaid, which reduces repayment risk; consequently, their interest rates are generally lower than those of medium and long-term loans.

SMEs have diverse borrowing needs, with commercial banks often providing short-term loans for seasonal financing and working capital, while medium and long-term loans are utilized for business expansion and technological investments Banks assess the feasibility and effectiveness of SME projects to determine their ability to repay debts.

When seeking bank loans, SMEs must provide collateral, as it is a critical requirement for loan eligibility Collateral serves as a risk mitigation tool for banks, protecting them in cases of business inefficiency or bankruptcy Consequently, the appraisal of collateral is essential for effectively managing the risks associated with lending to SMEs.

Loan interest rates for SMEs are typically fixed due to their lower trust levels with commercial banks, which affects their borrowing conditions.

Fifthly, the potential for repayment is a critical factor for SMEs, as their operations are significantly influenced by fluctuations in financial and monetary markets, including economic crises, inflation, and natural disasters This vulnerability represents a major risk that ultimately impacts the quality of loans extended to small and medium-sized enterprises.

2.2.3 Classification of forms of small and medium enterprises loan

Commercial banks must adopt a scientific approach to classifying loans to develop effective lending strategies and enhance credit risk management This classification can be based on various criteria, ensuring a systematic evaluation of loan types.

Based on the loan term

The loan term refers to the duration from when a borrower receives a loan until it is fully repaid, including interest, as outlined in the agreement with the lending institution Lending can be categorized into three distinct types based on this timeframe.

Short-term loans are defined as loans with a duration of 12 months or less, typically aimed at addressing immediate financial needs These loans are often utilized by businesses to cover shortfalls in working capital and by individuals to meet urgent spending requirements.

Medium-term loans, ranging from 12 to 60 months, are designed to assist customers in expanding their production and business operations These loans are primarily used for purchasing fixed assets, upgrading and renovating equipment and technology, and planning small-scale projects with quick recovery times.

Long-term loans, defined as loans with a term exceeding 60 months, are primarily utilized to meet long-term needs They are essential for financing significant investment projects, including the construction of civil works, new factories, and residential buildings Additionally, these loans facilitate the procurement of equipment and transportation means necessary for large-scale production and business operations.

Based on the method of loan

Banks provide loans to SMEs for investment in production and business development projects, including the acquisition of new fixed assets and the construction of workshops After a thorough feasibility assessment, the bank evaluates and approves loans for businesses to support their growth and operational needs.

The loan each time method is ideal for businesses with irregular or seasonal borrowing needs, as well as those with lengthy capital turnover cycles This approach allows credit capital to participate only at specific stages of the production and business cycle, with banks managing the appraisal, loan approval, and debt collection processes for each loan Small and medium-sized enterprises (SMEs) can make multiple withdrawals based on their capital usage schedule, provided the total does not exceed the agreed loan amount Each withdrawal requires a loan application, documentation of the loan's purpose, and a signed debt receipt submitted to the bank for credit officer appraisal Additionally, this method typically necessitates businesses to have collateral assets to mitigate risks.

Quality of small and medium enterprises loan at commercial banks

Quality refers to the degree of effectiveness and value of an object, serving as a benchmark for comparing various items This concept encompasses the usability of products, the experience of services, work performance, and personal attributes.

In production and business, quality is the criterion and measure of efficiency in the process of operation

The quality of SME lending is defined by the satisfaction of small and medium enterprises (SMEs) regarding the scale and timing of loans, which fosters customer satisfaction while ensuring safety and minimizing operational risks for banks This balance not only generates profits but also plays a vital role in economic development.

2.3.2 Criteria for assessing the quality of small and medium enterprises loan 2.3.2.1 Quantitative indicators a Growth in the number of borrowers

This indicator reflects the number of SME customers borrowing from banks over the years, thereby showing the bank's ability to attract customers

The variable S represents the change in the number of small and medium-sized enterprise (SME) customers borrowing from banks Specifically, CN(t) denotes the total number of SME customers borrowing in year t, while CN(t-1) refers to the number of SME customers borrowing in the previous year, t-1.

The growth in customer numbers signifies an increase in the bank's market share, highlighting the effectiveness of its products and services in meeting diverse customer needs A rise in borrowers is a key indicator of business success, particularly in the banking sector This increase demonstrates heightened trust in the bank's lending products, leading to a boost in outstanding loans and loan sales, ultimately enhancing the quality of SME lending.

Outstanding loans to SMEs represent the total amount borrowed from banks that businesses have yet to repay These loans are crucial for banks to assess the creditworthiness of their customers Failure to meet payment deadlines can result in late fees and negatively impact the enterprise's credit history, ultimately affecting the overall quality of the bank's loan portfolio.

Outstanding loans in this period = Outstanding loans in the previous period + Loan sales in the period - Debt collection sales in the period

A low total of outstanding loans indicates that a bank has struggled to expand its lending activities and attract a sufficient customer base, negatively impacting profitability and the quality of SME lending Conversely, a consistently high and growing total of outstanding loans reflects the bank's ability to build trust with businesses and attract corporate clients However, the growth of these loans must align with the bank's capital resources, risk management capabilities, and technological infrastructure, as high credit risks remain a concern Therefore, assessing SME loan performance should focus on the growth rate of outstanding loans.

Absolute growth in outstanding loans for SMEs = Outstanding loans in this period – Outstanding loans in the previous period

Growth rate of outstanding loans for SMEs (%) =𝑔𝑟𝑜𝑤𝑡ℎ (𝑡+1) −𝑔𝑟𝑜𝑤𝑡ℎ (𝑡)

Ratio of outstanding loans for SMEs =𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝑙𝑜𝑎𝑛𝑠 𝑓𝑜𝑟 𝑆𝑀𝐸𝑠 (𝑡)

The ratio of outstanding loans for SMEs is a key indicator that reflects the significance of SME loans within the total outstanding loans of a bank over a specific timeframe A higher ratio indicates a greater importance of SME lending in the bank's credit activities.

The SME loan balance structure refers to the composition and proportion of outstanding loans across various types of SME financing at a specific time This structure can be categorized based on the loan's intended purpose, the specific financial products, the business sector, or the individual business units involved Understanding this balance is crucial for effective loan sales strategies.

The indicator reflects the total lending credits disbursed by the bank over a specified period, typically summarized quarterly or annually It does not account for the recovery status of the loans A rising growth rate in SME loan sales signifies the bank's active engagement in lending and indicates strong interest from businesses in obtaining capital This growth rate can be assessed using specific criteria to gauge the bank's SME lending activities and overall market trends.

In which, S is the growth rate of SME loan sales (unit: %), LS (t) is SME loan sales in year t, and LS (t-1) is SME loan sales in year (t - 1)

The growth rate of SME loan sales indicates the scale and trend of SME lending activities A high sales volume, coupled with consistent annual growth, demonstrates that banks are prioritizing SME lending This focus not only attracts more customers seeking loan products but also enhances the quality of SME lending Additionally, increased debt collection revenue and credit turnover reflect the effectiveness of these lending practices.

This indicator reflects the amount of capital that has been loaned and repaid in a specific period It is determined by accruing the receivables over a period

The average outstanding loan cycle indicates that a larger rotation leads to increased lending capacity and higher interest earnings, reflecting more effective capital use However, this metric primarily assesses the relative quality of a bank's loans; for instance, if medium and long-term loans dominate the portfolio, the indicator may appear low compared to short-term loans Therefore, to accurately evaluate loan quality, it is essential to standardize the criteria for calculating totals and to assess capital turnover based on loan type, term, and subject, particularly in the context of overdue debt ratios in SME lending.

Overdue debts for SME loans refer to payments that are past due, indicating that SMEs have not fulfilled their repayment obligations as per the signed contract with the bank Analyzing the overdue debt ratio provides insight into the quality of the bank's SME loan portfolio As outlined in Article 10 of Circular 11/2021/TT – SBV, overdue debts are categorized into specific groups for better assessment and management.

Group 2 – Debt to note: is the debt overdue for 10 to 90 days These debts are assessed by the credit institution as having the prospect of fully recovering both principal and interest, but the enterprise shows signs of declining repayment capacity

Group 3 – Substandard debt: overdue debts from 91 to 180 days These debts are assessed by the credit institution as incapable of recovering principal and interest when due Credit institutions rate these debts as potentially loss-making Group 4 – Doubtful debts: overdue debts from 181 to 360 days Credit institutions rate this debt as having a high potential for loss

Group 5 – Debts with potential loss of capital: are overdue debts for more than

360 days Credit institutions assess this debt as no longer able to recover, lose capital

Overdue debt ratio of SME = 𝑂𝑣𝑒𝑟𝑑𝑢𝑒 𝑑𝑒𝑏𝑡 𝑜𝑓 𝑆𝑀𝐸

The SME overdue debt ratio measures the amount of overdue debt for every 100 dong lent by banks, with a higher ratio indicating increased credit risk and potential capital loss A declining ratio over time suggests improving SME lending quality, while the State Bank of Vietnam mandates that this ratio should not exceed 5% of total outstanding loans for a healthy lending environment Exceeding this threshold poses significant risks to banks, including reduced income and potential insolvency, reflecting low-quality and inefficient lending practices Various factors contribute to overdue debt, including inadequate management by credit officers and the financial instability of SMEs Therefore, it is crucial to assess the underlying causes of overdue debt to accurately evaluate the quality of SME loans at banks.

According to the SBV's regulations, bad debts are debts from group 3 to group

Bad debt ratio of SME = 𝐵𝑎𝑑 𝑑𝑒𝑏𝑡 𝑜𝑓 𝑆𝑀𝐸

Experience in improving the quality of small and medium loan at some commercial

2.4.1 Experience in some branches of commercial banks

2.4.1.1 Joint Stock Commercial Bank for Investment and Development of Vietnam – Hoan Kiem Branch

Lending is a fundamental and profitable activity for commercial banks, but it carries inherent risks that can impact operations BIDV – Hoan Kiem Branch, a leader in loan provision, has implemented strategies to support customers, strengthen market presence, expand services, and maintain high-quality SME loans.

Table 2.1: Number of SME customers borrowing from Vietnam Bank for Investment and Development – Hoan Kiem Branch

Source: Summary report of Joint Stock Commercial Bank for Investment and

Development of Vietnam – Hoan Kiem Branch

Figure 2.3: Number of SME customers borrowing from Vietnam Bank for Investment and Development – Hoan Kiem Branch

BIDV Hoan Kiem has established a strong reputation in the SME segment through its skilled management and dedicated customer service The branch's credit staff has successfully attracted numerous potential customers, boosting the credit balance By enhancing capital mobilization, the bank effectively provides credit to SME clients and ensures the successful implementation of BIDV's products and services This strategy not only promotes cross-selling but also increases the number of SME borrowers, while actively focusing on promotional efforts.

Number of customers Growth (%) of products and enhance customer care However, despite the absolute increase in the number of SME customers, the growth rate is not high

Table 2.2: Outstanding loans to SME customers at Vietnam Investment and Development Joint Stock Commercial Bank – Hoan Kiem Branch

Development of Vietnam – Hoan Kiem Branch

Figure 2.4: Outstanding loans to SME customers at Vietnam Investment and Development Joint Stock Commercial Bank – Hoan Kiem Branch

In 2019, the number of SME customers borrowing surged, leading to a 35% increase in outstanding loans, totaling VND 665 billion However, the following two years saw more modest growth rates of 19% and 16%, largely due to the impact of the Covid-19 pandemic Post-pandemic, BIDV Hoan Kiem has prioritized enhancing the quality of its loan offerings.

In 2022, outstanding loans to SME customers reached VND 1,134 billion, reflecting a 23% increase compared to the previous year This growth is attributed to the implementation of utility credit products and the expansion of investment loans for factory construction projects within industrial parks.

2.4.1.2 Joint Stock Commercial Bank for Investment and Development of Vietnam – Transaction Center 1

Table 2.3: Number of SME customers borrowing at BIDV - Transaction

Development of Vietnam – Transaction Center 1

Figure 2.5: Number of SME customers borrowing at BIDV - Transaction

BIDV – Transaction Center 1 is always active, actively looking for new SME customers The branch focuses on researching the needs of enterprises, thereby

Number of customers Growth (%) offering appropriate products and preferential policies closer to customers The number of SME borrowers has improved significantly in the period 2020 – 2022

By 2022, the number of SME customers is projected to reach 390 enterprises, reflecting a 9% increase from 2021 The branch prioritizes enhancing the professional qualifications of credit officers, emphasizing skills such as accurate information collection, effective appraisal, and strong customer dedication This focus enables the team to provide thoughtful advice and care for customers, fostering long-term retention and satisfaction.

Table 2.4: Outstanding loans to SME customers at the Joint Stock Commercial Bank for Investment and Development – Transaction Center 1

Outstanding loans to SME customers 436 505 650

Development of Vietnam – Transaction Center 1

Figure 2.6: Outstanding loans to SME customers at the Joint Stock Commercial Bank for Investment and Development – Transaction Center 1

BIDV - Transaction Center 1 has reported a positive trend in outstanding loans to SME customers, indicating good growth However, there was a minor decline in the growth rate in 2021, which dropped to 16% due to external impacts.

Outstanding loans to SME customers Growth (%)

By 2022, the Covid-19 pandemic prompted effective policies and dedicated efforts from the branch's staff and management, resulting in a loan balance increase to VND 650 billion, a 29% rise compared to the previous year The branch has facilitated SMEs in upgrading their equipment and machinery, enhancing the share of medium and long-term loans This support has enabled businesses to optimize their operations, improve product quality, generate profits, and maintain their debt repayment capabilities to the bank.

2.4.2 Lessons learned for Military Joint Stock Commercial Bank – Tay Son branch

Vietnamese commercial banks offer valuable insights for MB Tay Son to enhance its operations Primarily, it is essential to bolster capital mobilization to proactively extend credit to SME customers Additionally, promoting lending policies and products tailored for SMEs in the region will facilitate the sale of relevant financial products, ultimately increasing the number of SME clients seeking loans at the branch.

To enhance the effectiveness of credit officers at the branch, it is crucial to prioritize the development of their professional qualifications and ethics This focus will improve their capabilities in advising, appraising, and evaluating how customers utilize capital, ultimately reducing the risk associated with loans.

To effectively manage capital disbursement, MB Tay Son must prioritize the quality of loans by closely monitoring and addressing the challenges faced by businesses By understanding these difficulties, the bank can provide timely solutions and mitigate the risk of bad debts.

Fourthly, create conditions for SMEs to improve the production cycle, upgrade machinery and equipment used for production and business activities, and renovate the company's equipment

Chapter 2 of the thesis deals with the theoretical grounds for SME lending at commercial banks There are also standard criteria to assess the quality of SME lending and factors, both subjective and objective, that affect the quality of SME lending On this basis, we will analyze the current situation of SME lending activities at the Military Commercial Joint Stock Bank – Tay Son branch in Chapter 3

CHAPTER 3: THE REALITY OF SMALL AND MEDIUM LOANS AT MILITARY COMMERCIAL JOINT STOCK BANK – TAY SON

Overview of Military Commercial Joint Stock Bank – Tay Son branch

Military Commercial Joint Stock Bank (MB) was established on November 4,

Established in 1994 under Decision No 00374/GP-UB, the Military Commercial Joint Stock Bank (MB) has operated with License No 0054/NH-GP and has upheld the motto "Solid, Reliable." Over nearly 30 years, MB has demonstrated significant growth and development, earning a reputation as a trustworthy financial institution for both domestic and international customers Through persistent efforts, the bank has consistently achieved an A rating from the State Bank of Vietnam (SBV) and has received numerous certificates of merit for its outstanding accomplishments, along with prestigious awards from renowned international banks such as HSBC and Standard Chartered Bank.

Figure 3.1: Registered office of Military Joint Stock Commercial Bank –

Registered office address: Floor 1-3, Building 539 Vu Tong Phan Street, Khuong Dinh Ward, Thanh Xuan District, Hanoi

Established on June 18, 2004, the MB – Tay Son branch is located at 539 Vu Tong Phan, Khuong Dinh Ward, Thanh Xuan District, Hanoi City Catering to a diverse clientele, including individual and corporate customers, the branch has focused on safe and effective operations while prioritizing customer benefits alongside the bank's interests After nearly 20 years, MB Tay Son has strengthened its reputation and achieved sustainable development.

Military Commercial Joint Stock Bank – Tay Son branch has an organizational model operating under the operating model of Military Commercial Joint Stock Bank

Figure 3.2: Organizational model of Military Commercial Joint Stock Bank

Corporate customer Individual customer Credit support

Transaction accounting Internal accounting Customer service

Functions and duties of departments:

The branch director serves as the highest authority within the branch, overseeing all operations and ensuring efficient functionality This leader is responsible for assigning tasks to various departments and plays a crucial role in managing the overall activities of the branch, guaranteeing a seamless banking experience.

The Deputy Director of the Branch serves as the authorized representative of the Branch Director, overseeing operations in their absence This role involves directly managing specific tasks delegated by the Director, ensuring continuity and effective leadership within the branch.

The Corporate Customer Department focuses on researching and developing strategies tailored for corporate clients, including small and medium-sized enterprises (SMEs) and large corporations This department is responsible for marketing and promoting MB Tay Son's products and services to businesses Additionally, it manages credit operations by proposing short-term working capital loans and preparing comprehensive proposal reports and documentation for regulatory submission to secure loan approvals.

The Individual Customer Department at MB Tay Son is dedicated to serving individual clients by effectively marketing and promoting its products and services This department actively engages with customers to understand their specific needs and preferences related to MB Tay Son's personal services.

The Credit Support Department oversees credit activities to ensure the legality, validity, and completeness of credit dossiers It is responsible for monitoring outstanding debts and debt recovery, while also proposing effective solutions to enhance debt recovery efforts.

Transaction accounting involves managing customer interactions related to deposits, withdrawals, money transfers, and foreign currency exchanges It requires the timely, accurate, and complete handling of accounting documents and cash receipts, ensuring accountability for all transactions conducted.

- Internal accounting: manage and account for assigned expenditures, fixed assets, and costs awaiting allocation

The customer service department plays a crucial role in consulting and providing information to customers while addressing their questions and complaints By regularly analyzing statistics related to errors and malfunctions, the department aims to minimize inquiries and enhance overall customer satisfaction through effective resolution strategies.

3.1.3 Overview of business activities in the period of 2019 – 2022

From 2019 to 2022, the MB Tay Son branch effectively implemented the State Bank of Vietnam's action programs by developing flexible operational plans tailored to the local economic conditions, significantly contributing to the overall success of the banking system.

2022 are as follows: a Capital mobilization

Capital mobilization is the premise for other activities of commercial banks Therefore, one of the important objectives of MB Tay Son's activities is to promote capital mobilization

Table 3.1: Results of capital mobilization at Military Commercial Joint

Stock Bank – Tay Son Branch

Source: Summary report of Military Commercial Joint Stock Bank – Tay Son

The total mobilized capital has shown a consistent upward trend over the years, with a significant surge in 2022 In 2019, the capital reached 110 billion VND, and by 2022, it escalated to 185 billion VND, marking a 23% increase from 2021's total of 150 billion VND.

MB Tay Son prioritizes capital raising and balancing as a crucial task, emphasizing the importance of aligning capital growth with stable credit objectives The bank is committed to enhancing traditional mobilization strategies while innovating communication and transaction methods to attract new customers and retain existing ones.

From 2019 to 2022, the Branch has consistently aligned its operations with the guiding documents of the Military Commercial Joint Stock Bank, enabling the development of flexible and effective business plans tailored to the local economic conditions, which significantly enhanced the efficiency of its capital mobilization activities.

In 2022, MB Tay Son experienced a significant increase in deposits from corporate customers, highlighting the branch's strong mobilization of capital from organizations.

As of the end of 2022, deposits from organizations and corporate customers reached 125 billion VND, reflecting a 25% increase from the end of 2021 This growth can be attributed to the significant presence of large enterprises in Hanoi's industrial parks, alongside a steady rise in newly established businesses Furthermore, the branch has facilitated access to bank capital for small and medium-sized enterprises (SMEs), enabling them to resume production and business activities while recovering from the COVID-19 pandemic.

Loan situation for small and medium enterprises at Military Commercial Joint Stock

3.2.1 Legal regulations and lending process for small and medium enterprises at Military Commercial Joint Stock Bank – Tay Son branch

The SME lending process at MB Tay Son is complied with by the following decisions:

- Regulation No 39/2020/TT-NHNN of the State Bank issued on December

On October 11, 2021, the General Director of Military Commercial Joint Stock Bank issued Regulation No 8538/QD-MB, which outlines the lending policies for customers within the bank's system.

On October 11, 2021, the General Director of the Military Commercial Joint Stock Bank issued Decision No 2341/QD-MB, establishing regulations regarding collateral for customer loans within the bank's system.

3.2.1.2 Process of lending to small and medium enterprises at Military Commercial Joint Stock Bank – Tay Son Branch

MB Tay Son applies the SME lending process according to model 3.2:

Source: mb.bank.com.vn

Figure 3.3: Lending process for SME customers at MB Tay Son

The credit officer (RM) guides customers in completing loan documents and advises on loan conditions

RM prepares a report to propose documents, asset valuation and submits it to the management board

The RM transfers the customer profile from the internal BPM system to the case adjuster, who verifies the legality of the dossier and associated documents Following this, an income analysis is conducted, gathering information about the enterprise while assessing the loan's purpose, management experience, and production capacity The appraiser evaluates the feasibility of the business plan and the adequacy of loan security measures before grading the enterprise Finally, the appraiser reviews the appraisal report and submits the dossier for approval within the BPM internal system.

Based on the appraisal results of the above criteria, the approval level shall approve/reject the loan application

If a loan application is denied, the bank informs the customer with a clear explanation of the refusal Conversely, upon approval, the bank proceeds to sign contracts, finalize low mortgage procedures, register secured assets, and disburse the funds to the customer.

After completing the contract and carrying out the delivery of collateral documents, the bank will proceed to disburse funds to customers

After loan disbursement, credit officers play a crucial role in overseeing and managing the utilization of funds by businesses They monitor customer operations, implement timely interventions, and ensure that loans are used for their intended purposes as outlined in the contract This proactive approach helps prevent the emergence of bad debts and overdue payments.

Customers are advised by the credit officer to deposit funds into their accounts, issue a payment order to settle their bank debts, or ensure that the borrowed amount remains in the account This allows the system to automatically deduct the payment by the due date.

Step 9: End of credit contract

Once a business has successfully met all its debt repayment obligations, the bank will initiate the loan contract liquidation process, release any collateral assets, and update its internal records regarding the enterprise.

MB Tay Son prioritizes adherence to regulations in SME lending to ensure loan quality, focusing on identifying reputable enterprises with viable production projects, which enables precise approval decisions.

3.2.2 Loan products for small and medium enterprises at Military Commercial Joint Stock Bank – Tay Son branch

MB Tay Son offers two primary groups of SME lending products: the first focuses on providing working capital to support production and business plans, which constitutes the majority of their SME lending structure The second group is designed for capital investment in projects, including upgrading machinery and equipment, as well as financing the purchase of properties such as houses, land, offices, and factories to enhance production and business activities.

Table 3.4: SME loan products at Military Commercial Joint Stock Bank

1 Loan from working capital limit

- Meeting the demand for working capital loans to serve production and business -Loan limit: Maximum

200 billion VND -Loan Term: Up to 12 months

-Loan purpose: Using working capital

-Loan security: MB considers granting a limit with/ without collateral

-Meet the loan needs of each production plan Currency:VND,foreign currency

-Loan term: less than 12 months

-Interest and fees: according to the interest rate of MB from time to time

-For businesses that need to spend more than the amount in the account

-The business pays interest on the actual amount and number of days used

- Secured assets: mortgage, real estate, valuable papers, etc

According to MB's preferential programs from time to time

-Direct loans for the implementation and operation of investment projects

The current situation of quality of small and medium enterprises loan at Military

3.3.1 Quantitative indicators for credit quality assessment at Military Joint Stock Commercial Bank – Tay Son branch

Focusing on customer needs to achieve the strategic goal of "promoting digital transformation," Military Commercial Joint Stock Bank – Tay Son Branch has seen significant advancements in its business operations Recent statistics illustrate the increasing number of customers seeking capital loans at the branch, as detailed in Table 3.5 and Figure 3.4.

Table 3.5: Number of SME customers borrowing from Military Commercial

Joint Stock Bank – Tay Son Branch

Figure 3.4: Number of SME customers borrowing from Military

Commercial Joint Stock Bank – Tay Son Branch

By the end of 2022, nearly 370 SMEs had secured loans from the Branch to support their production and business plans, demonstrating the effectiveness of bank financing in helping businesses navigate the post-COVID-19 economic landscape In 2019, 355 customers borrowed capital, which surged to 380 in 2020, marking a 7% increase and the highest growth in SME borrowing during 2019-2022, largely due to the Branch's innovative approach and digital banking initiatives However, in 2021, the number of borrowing customers fell to 344, reflecting a 9% decline attributed to global economic challenges exacerbated by the ongoing pandemic Despite this setback, the number of SME customers borrowing capital rebounded to 366 in 2022, highlighting the Branch's effective management strategies to attract and support businesses.

The impressive results achieved by MB Tay Son can be attributed to innovative thinking, effective business strategies, and the dedicated efforts of the team The branch has actively promoted and organized the successful implementation of its products and services, enhancing cross-selling opportunities and increasing the number of SME customers seeking loans However, despite the growth in SME borrowers, with only 366 customers in 2022, the figure remains modest compared to other banks in the Hanoi region.

3.3.1.2 Outstanding loans to customers of small and medium enterprises

From the point of view of directing credit, in recent years, the Branch has made efforts to increase SME lending, so the outstanding loans to SME customers are increasing

Table 3.6: Outstanding loans to SME customers at Military Commercial

Figure 3.5: Outstanding loans to SME customers at Military Commercial Joint Stock Bank – Tay Son Branch

From 2019 to 2022, MB Tay Son experienced stable growth in outstanding loans to SMEs, starting with VND 250 billion in 2019 In 2020, this figure rose to VND 290 billion, reflecting a 16% increase in line with industry standards, positioning MB Tay Son as a leading branch in SME loan development The subsequent years saw further growth, with outstanding loans reaching VND 315 billion in 2021 and VND 405 billion in 2022, marking increases of 9% and 28%, respectively Throughout this period, MB Tay Son prioritized enhancing the quality of its SME loan offerings.

In 2022, outstanding loans for SMEs reached VND 405 billion, marking the highest level in four years, largely due to the implementation of MB Tay Son's credit products, including micro-business customer limit loans As the COVID-19 situation improved, SMEs began expanding production and business options, necessitating substantial capital from banks for various projects This surge in demand for investment loans, particularly for construction projects in industrial parks in Hanoi, contributed to the significant growth in SME outstanding loans by the end of the year.

Table 3.7: Loan structure for SMEs by term at Military Commercial

Table 3.7 reveals that short-term loans constitute a significant portion of the total outstanding loans for SME customers at MB Tay Son, ranging from 63% to 76% SMEs primarily utilize these short-term loans to secure working capital, purchase raw materials, and cover immediate expenses.

In 2019, short-term outstanding loans for SMEs reached 158 billion VND, representing 63% of total outstanding loans This percentage saw a modest increase to 65% by the end of 2020, further rising to 76% by the close of the following year.

By the end of 2022, the total amount of short-term loans reached an estimated 310 billion VND, primarily driven by substantial capital allocated to businesses offering accommodation services This trend reflects a consistent annual increase in funding for such enterprises, with accommodation-related loans accounting for 22% of total capital provided in 2022.

Table 3.8: Structure of SME loans by purpose of using capital at Military Commercial Joint Stock Bank – Tay Son Branch

2 Classify by purpose using capital

Figure 3.6: Ratio of loans to SMEs by purpose in 2022 at Military

Commercial Joint Stock Bank – Tay Son Branch

In 2022, the Branch significantly shifted its lending focus towards SME customers in the hospitality industry, as indicated in Table 3.8 In contrast, in 2019, a substantial 77.6% of total loans were directed towards other sectors, primarily toy manufacturing By 2022, this figure dropped to just 12%, while loans to accommodation service providers rose to 90 billion VND, representing 22% of the total loans.

The ratio of outstanding loans among SMEs, categorized by their purpose of use, shows a stable trend with minimal changes in customer groups, reflecting the consistent economic conditions in Hanoi city.

Construction Plastic manufacturing Real estate

Pharmaceutical Consumer goods distribution Accomodation service

3.3.1.3 Loan sales to small and medium enterprises

Loan sales represent the total value of loans disbursed by a bank branch over a specific timeframe This metric is crucial as it indicates the success of the bank's lending activities and its overall credit growth rate Increased loan sales signify effective expansion in the bank’s lending operations, showcasing its ability to meet customer needs and drive financial performance.

Table 3.9: Loan sales to SME customers at Military Commercial Joint

Loan sales to SME customers 290 345 350 450

Figure 3.7: Loan sales to SME customers at Military Commercial Joint

SME lending revenue at MB Tay Son has shown consistent growth over the years, rising from VND 290 billion in 2019 to VND 345 billion in 2020, marking a 19% increase By 2021, the lending revenue continued its upward trend, reaching VND 350 billion.

In 2022, loan sales experienced a remarkable growth of 28% compared to 2021, reaching VND 450 billion, marking the highest increase in four years This surge is attributed to the Branch's expanded lending activities and targeted loan development initiatives aimed at supporting SMEs in the aftermath of the COVID-19 pandemic Such positive trends in lending activities signify a promising recovery for the Branch.

3.3.1.4 Debt collection revenue of small and medium enterprises

Loan sales indicate both the volume and quantity of loans issued The effectiveness of these loans is demonstrated through the bank's ability to collect debts and the customers' timely repayment of their obligations.

Table 3.10: Debt collection revenue of SMEs at Military Commercial

Figure 3.8: Debt collection revenue of SMEs at Military Commercial

The SME debt collection revenue for the branch has shown significant fluctuations over the years In 2019, the revenue was VND 40 billion, which rose by 37.5% to VND 55 billion in 2020, attributed to effective credit limit strategies and recovery of long-term debts However, in 2021, the revenue dropped by 37% to VND 35 billion due to the economic challenges posed by the pandemic, making it difficult for businesses to repay their debts Fortunately, in 2022, the branch saw a recovery, with debt collection revenue increasing to VND 45 billion, reflecting a 29% growth from the previous year as the economy began to stabilize post-Covid.

19 period, businesses were able to resume normal production and business activities and were able to earn profits, thereby paying debts to the Branch

3.3.1.5 Revenue from small and medium enterprises loans

SURVEY ON QUALITY FOR SMALL AND MEDIUM

Survey description

The thesis evaluates the quality of SME loans at MB Tay Son by collecting primary data through customer surveys A total of 120 customers were surveyed, with feedback obtained from 100 participants The survey comprises 24 questions that assess five key factors influencing SME customer satisfaction, with responses measured on a five-point scale ranging from very dissatisfied to very satisfied.

In a survey conducted between April and May 2023, 100 customers were analyzed, revealing that 75% were small and medium-sized enterprises (SMEs) while 25% were microenterprises The majority of these businesses, 48% or 48 customers, had been established for 5 to 10 years Additionally, the survey highlighted that the customer base primarily operated in the fields of industry, trade, construction, and agriculture, with agriculture representing the largest sector.

Table 4.1: Survey description of borrowers at Military Commercial

2.Classify by number of years of establishment

Loan for the 2 nd time or more 66 66%

Source: Synthesis from the survey

Survey results

Most customers establish a loan relationship with the bank after their second interaction, indicating a strong sense of confidence and a desire for long-term engagement with the Branch This trend highlights the reliability of the Branch in fostering lasting credit relationships with borrowers.

Lending activities inherently carry risks, making it crucial for customers to obtain accurate information Therefore, the guidance provided by bank staff regarding all loan-related details is essential for establishing a solid credit relationship This ensures that both parties adhere to their commitments, such as the timely disbursement of the agreed loan amount and the customer's punctual debt repayment as stipulated in the contract Upholding these practices significantly enhances the quality of lending at the branch.

A recent customer evaluation survey reveals that 52% of SMEs commend MB Tay Son for its prompt and accurate disbursement processes Additionally, the Branch has effectively executed the lending process with a 44% satisfaction rate, highlighting its adherence to established protocols Furthermore, 40% of customers appreciate the Branch's commitment to transparency and its provision of reasonable solutions for complaints encountered during the lending process.

MB Tay Son prioritizes customer feedback and comprehension, which is crucial for addressing inquiries effectively This approach enables the bank to provide tailored solutions that fulfill customers' loan requirements and enhance the overall quality of their lending services.

Figure 4.2: Results of the response survey

From Figure 4.2, we can recognize the enthusiasm and thoughtfulness of the

The bank always does exactly what it has introduced

The bank executes the process correctly, without errors The bank makes accurate and fast disbursement

The bank always has satisfactory solutions when customers have questions or complaints during…

Very dissatisfied Dissatisfied Normal Satisfied Very satisfied

The bank resolves customer complaints quickly and on time

The bank has a hotline to serve customers 24/24

Bank staff are dedicated to providing on-site support and guidance to customers, leading to high levels of satisfaction A significant 44% of customers express contentment with the branch's 24-hour hotline, while nearly 30% appreciate the bank's prompt and efficient complaint resolution Overall, the bank demonstrates strong service capabilities that enhance customer experience.

MB Tay Son boasts a dynamic team of young professionals dedicated to providing exceptional service, ensuring a welcoming atmosphere for customers The Branch prioritizes the continuous development of its credit officers' knowledge, focusing on enhancing both their moral integrity and professional skills This commitment guarantees the high quality of services offered throughout the Branch.

Figure 4.3: Survey results on service capabilities

Figure 4.3 reveals that customer satisfaction is notably high regarding the support provided by credit officers in completing loan applications, with a satisfaction rate of 58% Additionally, 56% of customers value the professional ethics of bank staff, while 48% express satisfaction with their working attitude Furthermore, the interest rates offered by MB Tay Son are also a point of interest for customers.

The bank's loan products are diversified to suit the needs of customers

Bank staff have professional working attitude

Bank staff have professional ethics

Bank staff always assist customers in completing loan documents

The bank's interest rates are very competitive

Loan process, simple loan application procedure

Customer satisfaction at Tay Son MB in Hanoi reveals a stable interest rate that 48% of clients find suitable for their borrowing needs, although this stability presents both advantages and disadvantages in a competitive market The bank offers a diverse range of lending products, which has satisfied 52% of borrowers However, only 50% of customers appreciate the borrowing process, indicating that it lacks the speed required to meet the urgent needs of most clients.

Figure 4.4: Results of the survey on empathy

Survey results in Figure 4.4 indicate that nearly 40% of customers feel the bank demonstrates empathy to meet their needs Additionally, 52% of respondents express satisfaction with the attentive service provided by the bank, while 42% appreciate the preferential policies and gifts offered.

The bank regularly cares about and takes care of customers through preferential policies, gifts, etc

Product information, clear loan policy

Bank staff actively engage with customers to understand their challenges, revealing varying levels of satisfaction: 47% of surveyed customers find the branch's product and loan policy information clear and satisfactory However, some customers express dissatisfaction, indicating a need for the bank to enhance its focus on customer service to improve loan quality.

Figure 4.5: Survey results on external factors

Figure 4.5 highlights two key factors indicating that customers feel indifferent: employee uniforms and branch facilities While the Branch has provided uniforms to enhance professionalism and courtesy, this effort alone fails to impress customers Additionally, limited investment in annual facility upgrades and shared banking software, like CIC, hampers the quality of loan services However, the bank's operational processes received positive feedback, with 58% of surveyed customers expressing satisfaction.

Bank officers dress politely and neatly

The regulations and working processes of the bank are clearly public

Dissatisfied Satisfied Normal Satisfied Very satisfied

Conclusion of the survey

The survey results indicate a dichotomy in customer satisfaction at MB Tay Son, where for every satisfied customer, there is another who feels unimpressed or dissatisfied with the products, services, and customer care While the professional level and ethics of the staff are commendable, their relative inexperience necessitates ongoing development to enhance customer service Additionally, areas needing improvement include branch facilities, the efficiency of complaint resolution, and the dress code of bank staff To elevate customer care and enhance loan products and services for SMEs, MB Tay Son must focus on these improvements to boost overall service quality.

GENERAL ASSESSMENT, CONCLUSION AND

Results achieved

Lending is a fundamental and highly profitable activity for commercial banks, yet it carries inherent risks that can significantly impact their operations An analysis of SME lending at Military Commercial Joint Stock Bank – Tay Son Branch reveals several challenges; however, notable progress has been made in their SME lending initiatives.

The credit officers at MB Tay Son are consistently trained in professional ethics and qualifications, ensuring a high standard of service and management The Board of Directors and branch staff work diligently to attract new customers while maintaining strong relationships with existing clients, which enhances the bank's credit balance This commitment has solidified MB Tay Son's position, prestige, and market share within the SME customer segment in Hanoi.

The Branch has prioritized enhancing the quality of SME lending, leading to an increase in outstanding SME lending targets and boosting business activities, which aids in economic recovery post-COVID-19 This initiative benefits both SMEs and banks Furthermore, the Branch has implemented effective strategies to improve debt recovery, addressing a significant decrease in this area in 2021 As a result, the ratio of bad debts to overdue debts remains at a safe level compared to other banks in Hanoi, ensuring loan quality and enhancing the bank's reputation.

MB Tay Son understands the significance of prestige for customers and prioritizes quick loan approvals to support their production and business needs By streamlining the appraisal process, the branch ensures timely loan decisions, fostering trust and satisfaction among clients This commitment to efficiency enhances the quality of credit relationships, which, while difficult to quantify, is a crucial qualitative measure of loan quality.

Limitations and causes of limitations

In addition to the good results achieved in the credit relationship between MB Tay Son and SMEs, there are still some limitations to be noted, specifically as follows:

MB Tay Son has yet to fully tap into the market potential, as the number of SME borrowers remains relatively low compared to other banks in the Hanoi area This indicates that MB Tay Son has not prioritized expanding its SME customer base, and the management board's policies may not effectively address the diverse needs of these customers.

The branch has failed to develop timely strategies to effectively respond to the rapidly evolving economic and social landscape For instance, the COVID-19 pandemic in 2021 severely impacted the operations of SMEs, resulting in a significant decline in lending activities, including loan sales and debt recovery efforts This decline has negatively affected loan quality, leading to an increase in bad debts and overdue accounts.

Despite efforts by the Branch to expedite the appraisal process, the bank's loan judgment timeline remains sluggish, failing to meet the timely borrowing needs of enterprises This delay adversely impacts the Branch's reputation.

Credit officers face challenges due to limited and low-quality customer information, requiring them to invest significant time and effort in independent research Additionally, the Branch has not prioritized the evaluation of this information, further complicating the decision-making process.

Despite regulations allowing for unsecured lending to SMEs, the lending process at branches predominantly relies on secured assets, limiting the availability of unsecured loans This emphasis on collateral presents a significant challenge for SMEs, particularly for start-ups, which often lack sufficient assets to secure financing.

The subjective cause from the bank

Due to the lack of transparency regarding information on certain SMEs, particularly new businesses, MB Tay Son's lending policies remain rigid, focusing heavily on collateral to mitigate risks associated with lending to these customers.

The lending process at Tay Son MB adheres to the comprehensive procedures established by MB Head Office, involving multiple approval and appraisal steps to mitigate risks This meticulous approach, while essential for risk management, often results in lengthy loan decision timelines Many SMEs face challenges due to the extensive documentation required during the appraisal process, which can hinder their urgent financial needs Consequently, this leads to brief credit relationships with the bank, ultimately impacting the quality of lending and the Branch's future profitability.

The professional qualifications of credit officers specializing in SME lending remain inadequate, as many branch officers are young and lack extensive experience Additionally, some staff members exhibit a need for improvement in professional ethics and a limited understanding of the significance of fostering SME customer relationships, which adversely impacts the evaluation of SME loan applications.

Advertising and marketing efforts at the Branch have been insufficient, hindering the continuous lending activities essential for generating revenue The Branch lacks a dedicated marketing department, placing the responsibility of customer acquisition solely on credit officers While this allows officers to build stronger relationships with clients, it also burdens them with excessive responsibilities, potentially leading to errors in the lending process To enhance efficiency and customer service, a more structured marketing strategy is needed to attract sustainable borrowers.

The intense competition among banks has heightened pressure on branch staff to meet lending targets, resulting in the approval of loans that may not undergo thorough appraisal This practice can lead to an increase in bad debts and overdue payments.

Small and medium-sized enterprises (SMEs) often face significant challenges due to a lack of capital, particularly for new businesses This financial constraint forces them to seek loans from banks for production and profitability However, current high interest rates make borrowing difficult, limiting access to necessary funding While enterprises have called for reduced interest rates to alleviate their financial burden, such measures could conflict with anti-inflation strategies.

Small and medium-sized enterprises (SMEs) frequently struggle with the absence of specific strategies and development plans, hindering their ability to establish competitiveness and unique market differentiation Additionally, they often face challenges such as a lack of transparency in management and accounting, limited legal knowledge, outdated production machinery, and inadequate resilience to economic fluctuations These factors significantly influence banks' decisions regarding loan approvals, with branches typically favoring short-term loans and rarely supporting long-term investment projects.

Newly established small and medium-sized enterprises (SMEs) frequently struggle to meet banks' collateral requirements Their available security assets, primarily consisting of factories, land, and vehicles, are often insufficient or lack the necessary value, making it challenging for these businesses to secure loans This limitation creates significant obstacles in obtaining financing for growth and operations.

In the loan appraisal process, customer information is crucial for banks to determine lending decisions Currently, the Vietnam Credit Information Center (CIC) serves as the sole systematic and regularly updated information source; however, it falls short of meeting banks' approval needs The CIC primarily offers data on business owners, registration, and outstanding debts, while lacking timely updates on non-financial information and warnings about low credit quality This deficiency complicates credit officers' ability to accurately analyze and screen customers, ultimately impacting the lending process at MB Tay Son.

Orientation and development goals to improve the quality of small and medium

5.3.1 Orientation and common development goals to improve the quality of small and medium enterprise loans at Military Commercial Joint Stock Bank

The Enterprise Law 2020 introduces updated regulations for the establishment and management of enterprises, aligning with the current business landscape and emphasizing the significance of SME development for overall economic growth Recognizing this importance, the government enacted the SME Support Law (Law No 04/2017/QH14), which was crafted with input from researchers and SME managers, drawing on successful global practices This law aims to provide comprehensive solutions through established principles, policies, and programs that foster creative and independent growth for SMEs, define the responsibilities of central and local governments in their support, and contribute to the sustainable development of the national economy while enhancing the quality of life for citizens.

In alignment with government policies, Military-Mass Joint Stock Commercial Bank (MB) has established itself as a key player in fostering social economic development, consistently adhering to the directives of the state and the State Bank of Vietnam Over the next five years, MB aims to focus on strategic objectives that support sustainable growth and reinforce its leadership in the banking sector.

To ensure the future growth and safety of MB, it is essential to enhance and regulate the administrative and internal leadership structures This solid foundation will reinforce MB's pioneering position in the market.

- Continuously improve the quality of products and services to ensure the reliability and reputation of the bank and improve the customer experience through the bank's preferential policies

Enhancing the professional ethics and qualifications of credit officers is crucial for the success of the banking system, as they form a significant team that contributes to its overall effectiveness.

- Upgrade equipment and technology systems to improve the ability to analyze, screen customers accurately, find potential new customers, and store credit relationship histories with old customers

Effective asset management involves maintaining a balanced structure of debt and assets, ensuring a safe and reasonable approach Continuous assessment of the relationship between mobilized capital and customer capital usage is essential for achieving a healthy asset structure and promoting positive financial movement.

5.3.2 Orientation and development goals to improve the quality of small and medium enterprises loans at Military Commercial Joint Stock Bank – Tay Son Branch

The SME sector plays a crucial role in shaping a market economy, supported by government policies for sustainable development and healthy competition In Vietnam, the number of SMEs has surged, making them a significant part of the business landscape As such, MB Tay Son prioritizes SMEs as key clients, committing to expand its lending practices in alignment with societal economic development goals.

To foster long-term business relationships, it is essential to actively seek new potential customers and create favorable conditions for businesses to access bank capital Implementing preferential interest policies and packages for SMEs with strong credit histories can enhance these relationships Additionally, it is important to control the scale of credit by reducing funds allocated to non-manufacturing enterprises and prioritizing capital for production and business activities in agriculture, industry, and export sectors.

To enhance credit quality and minimize capital loss, it is essential to reduce overdue and bad debt ratios by increasing the proportion of secured loans and decreasing the issuance of high-risk loans Implementing timely debt recovery solutions will further support this goal The focus should remain on lending to businesses engaged in low-risk and effective sectors.

Training credit officers in professional ethics and qualifications is essential for enhancing their expertise Developing strong analytical and appraisal skills enables them to effectively advise customers during the creation of production and business plans This focus on professional mastery ensures that credit officers can provide valuable insights and support to clients, fostering successful business outcomes.

In the coming years, it is essential to sustain significant advancements in SME lending while maintaining the overdue debt ratio below 2% and the bad debt ratio under 2% It is crucial to focus on the effective implementation of the provisioning program as mandated by the State Bank and MB, which will help mitigate losses for the Branch when loans to enterprises are at risk or challenging to recover.

5.4 Solution for improving quality of small and medium enterprises loans at Military Commercial Joint Stock Bank – Tay Son Branch

5.4.1 Improving lending processes and policies for small and medium enterprises

To enhance customer satisfaction and ensure timely access to loans, MB Tay Son must streamline its loan procedures while adhering to SBV regulations Businesses seeking loans require prompt disbursement to seize critical production and business opportunities, as delays of 1-2 months can jeopardize their survival While strict compliance has improved loan management for credit officers, it has also led to a rigid application of processes that lack flexibility for individual customer circumstances This rigidity often results in businesses seeking loans from other banks, diminishing both revenue and credibility for MB Tay Son Therefore, it is essential to implement a plan that shortens the lending process, ensuring it remains legal, reasonable, and cost-effective to meet the urgent needs of enterprises.

To enhance its competitiveness among banks in Hanoi, MB Tay Son should implement a flexible and appealing interest rate policy tailored to the unique needs of different businesses This includes offering preferential interest packages to clients with a strong credit history with the bank, while applying higher interest rates for long-term loans to mitigate risks associated with extended loan durations.

To enhance communication and customer care, MB Tay Son must prioritize marketing and product promotion, similar to other service sectors, including banking Currently, the lack of a dedicated marketing department hampers the effectiveness of product promotion, as credit officers are primarily responsible for customer outreach To improve SME lending quality, MB Tay Son should establish a specialized marketing team focused on advertising and effectively delivering banking products to customers Additionally, in a highly competitive banking landscape, promoting the MB Tay Son brand is crucial for attracting customers and showcasing its competitive advantages over other banks.

To expedite loan decisions for SMEs, banks should streamline procedures and focus on efficient handling stages By transitioning to predominantly online document processing, businesses can submit their applications digitally The bank will conduct a preliminary appraisal, and if satisfactory, will prompt the business to prepare necessary documents for the credit officer's review Upon confirming all requirements are met, the bank can quickly disburse funds, significantly saving time and costs for both parties.

Enhancing the quality of credit appraisal for small and medium enterprises (SMEs) is crucial, as it significantly impacts lending decisions and fosters long-term relationships between banks and businesses A meticulous appraisal process is essential before loan approval to guarantee the loan's quality and viability.

Recommendations

5.5.1 Recommendations to the State Bank of Vietnam

The State Bank of Vietnam (SBV) regulates all professional activities of commercial banks, including SME lending, highlighting its crucial role in shaping the development of Vietnam's banking system.

The SBV should explore solutions like interest rate compensation, refinancing options, and effective mechanisms for identifying debt groups and managing risks to enhance the effectiveness of lending policies for priority beneficiaries Additionally, it is essential for the SBV to review lending regulations concerning loan documentation, particularly in cases where 100% security on deposits is dismantled, to streamline the lending process for SME customers.

To enhance the quality of credit information in the CIC software system, it is crucial to address its existing shortcomings, particularly the slow updating of debt information The CIC system serves as a vital resource for banks to access and collect customer credit histories Therefore, the State Bank of Vietnam (SBV) must implement effective solutions to improve the accuracy and timeliness of the information provided in the CIC.

To enhance the integrity of the banking sector, it is crucial to strengthen the inspection and supervision of commercial banks Recent violations have tarnished the industry's reputation, necessitating the State Bank of Vietnam (SBV) to implement scientific monitoring measures This proactive approach will help mitigate credit risks and encourage banks to prioritize the management and improvement of credit quality, especially in lending to small and medium-sized enterprises (SMEs) The SBV's oversight plays a vital role in ensuring the safety and stability of commercial banks in their operations.

The State Bank should implement a policy that collaborates with research institutions and universities to develop programs aimed at enhancing the professional, economic, and socio-political knowledge of its credit officers, ensuring they have opportunities to acquire and cultivate new insights.

5.5.2 Recommendations to Military Commercial Joint Stock Bank

Military Commercial Joint Stock Bank should implement policies that promote lending to small and medium-sized enterprises (SMEs) while also enhancing lending regulations This approach aims to mitigate risks associated with the lending processes of MB branches, especially at Tay Son MB.

To enhance operational efficiency, it is crucial to empower the Branch with greater authority in granting credit to customers This autonomy will streamline the lending process, eliminating cumbersome procedures that currently delay approvals Specifically, large loans from SMEs that exceed the Branch's authority must be submitted to the head office, resulting in slower processing times that can negatively impact both the business and the Branch's performance.

- Develop separate lending policies for each separate industry group and manage risks by portfolio This will help limit the risks, control customers more easily

- Strengthen the inspection and supervision of SME lending activities at MB's branches

- Organize seminars on credit to partly create conditions for credit officers to have more opportunities to discuss lending operations

Lending remains a crucial revenue-generating activity for banks, particularly as the number of small and medium-sized enterprises (SMEs) continues to rise in today's economy Consequently, commercial banks are placing increased emphasis on SME lending However, the relationship between banks and SMEs is often fraught with challenges, highlighting the need for improvement in this critical area.

After evaluating the quality of SME loans at Military Commercial Joint Stock Bank – Tay Son Branch, it is evident that MB Tay Son has actively and effectively enhanced the quality of its SME loan offerings during this period.

From 2019 to 2022, despite numerous challenges, the management board's leadership and the dedication of branch credit officers led to significant growth in the branch's lending network and quality This development effectively addressed the rising demands of SMEs, resulting in substantial revenue generation for the bank.

The thesis titled "Improving the Quality of Small and Medium Enterprises Loans at Military Commercial Joint Stock Bank – Tay Son Branch" aims to analyze the quality of SME loans at Tay Son MB during a specific period, acknowledging potential shortcomings in the research process.

Between 2019 and 2022, efforts were made to enhance the quality of SME loans at the Branch, despite challenges related to time, experience, and analytical capacity that led to some shortcomings in the process Constructive feedback from the teacher is sought to facilitate learning and improvement for future endeavors.

1 Enterprise Law No 59/2020/QH14 dated June 17, 2020

2 Decree No 39/2018/ND-CP dated 11/3/2018

3 Circular 39/2016/TT-SBV issued on December 30, 2016

4 Phan Thi Thu Ha (2017), Commercial Bank Course, National Economics University, Ha Noi

5 Bach Hong Viet (2020), “The impact of Covid-19 pandemic on economic growth and sustainable development in Vietnam”, Vassgov, retrieved on December 8 th 2020

6 Peter S Rose (2004), Commercial Bank Management, The McGraw – Hill Companies, New York

7 Mishkin, F.S (2001), The Economies of Money, Banking and Financial Markets, 6 th ed., Addison-Wesley, Reading, MA

8 Cronin and Taylor (1992), Measuring Service Quality: A Reexamination and Extension The Journal of Marketing, 56, 55-68

9 Archakova, A., (2013) Service Quality and Customer Satisfaction Case study: Company X Undergraduate Saimaa University of Applied

10 Brady, M.,Cronin, J and Brand, R (2002) Performance-only measurement of service quality: a replication and extension Journal of

11 Hansemark, O.C and Albinsson, M (2004) Customer satisfaction and retention: the experiences of individual employees Managing Service Quality: An Internaltional Journal, 14(1), pp 40-57

- https://www.mbbank.com.vn/

- https://www.mof.gov.vn/

SURVEY SURVEY ON QUALITY OF SMALL AND MEDIUM ENTERPRISES

LOANS AT MILITARY COMMERCIAL JOINT STOCK BANK – TAY SON

1 The enterprise scale: Small and Medium Super small

2 Number of years of establishment: 1 to 5 years 5 to 10 years Over

3 Business sectors: Agriculture Industrial zone

4 Relationship with bank: First-time loan Loan for the 2 nd time or more

Please rate your satisfaction with the bank's loan products by marking an (X) next to the appropriate level for each statement, ranging from Level 1: Very Dissatisfied to Level 5: Very Satisfied.

Satisfaction level Very dissatisfied Dissatisfied Normal Satisfied Very satisfied

1 The bank always does exactly what it has introduced

2 The bank executes the process correctly, without errors

3 The bank makes accurate and fast disbursement

4 The bank always has satisfactory solutions when customers have questions or complaints

1 The bank resolves customer complaints quickly and on time

2 The bank has a hotline to serve customers 24/24

3 Bank staffs are ready to go to the place to support and advise customers

1 The bank’s loan products are diversified to suit the needs of customers

2 Bank staff have professional working attitude

3 Bank staff have professional ethics

4 Bank staff always assist customers in completing loan documents

5 The bank’s interest rates are very competitive

6 Loan process, simple loan application procedure,

1 The bank regularly cares about and takes care of customers through preferential policies, gifts, etc

2 Product information, clear loan policy

3 Bank staff regularly contact, exchange and grasp customers’ difficulties

1 Bank officers dress politely and neatly

2 The regulations and working processes of the bank are clearly public

Thank you very much for your cooperation, wish you always success in your work!

Tiêu đề	Improving The Quality Of Small And Medium Enterprises Loans At Military Commercial Joint Stock Bank – Tay Son Branch
Tác giả	Nguyễn Đức Thắng
Người hướng dẫn	Dr. Vũ Mai Chi
Trường học	Banking Academy
Chuyên ngành	Banking
Thể loại	Graduation Thesis
Năm xuất bản	2023
Thành phố	Ha Noi

Định dạng
Số trang	96
Dung lượng	2,6 MB