Credit development for small and medium enterprises customers at military commercial joint stock bank – transaction office (branch 1)

BANKING ACADEMY ADVANCED PROGRAM ------ BACHELOR THESIS TOPIC CREDIT DEVELOPMENT FOR SMALL AND MEDIUM ENTERPRISES CUSTOMERS AT MILITARY COMMERCIAL JOINT STOCK BANK – TRANSACTION O

Research Rationale

The period 2019–2022 was a period when the global economy encounters a lot of negative fluctuations and overcome the consequences resulting from the COVID-

The COVID-19 pandemic led to significant disruptions in the global supply chain, resulting in reduced manufacturing output and diminished consumer demand as many struggled financially This crisis caused a dramatic rise in unemployment and inflation, severely impacting various sectors, particularly tourism and travel In response to challenges posed by social distancing, countries prioritized the development of specific industries, including telecommunications, technology, and pharmaceuticals, focusing on research and improvements in medical support equipment Consequently, this era marked a rapid digital transformation across all industries.

The global economic volatility significantly impacted Vietnam's financial market, leading to unprecedented stock market growth driven by a surge in F0 investors In 2021, nearly 1.5 million new securities accounts were opened, primarily by domestic consumers, marking a record in market liquidity Vietnam achieved the highest regional growth rate at 22.3 percent during this period In response to the pandemic and potential increases in non-performing loans, banks underwent transformations, implementing debt restructuring and interest rate reductions as directed by the Central Bank to support businesses Consequently, many banks raised their provisioning ratios to around 50 percent to mitigate risks associated with non-performing loans.

In recent years, as the outstanding loan market for large commercial enterprises has become saturated, banks are increasingly targeting small and medium-sized enterprises (SMEs) However, SMEs typically have weaker financial positions, making them more susceptible to market fluctuations This vulnerability leads to a higher likelihood of outstanding loans being switched among different groups, which poses significant credit and liquidity risks for banks.

In a challenging economic landscape, the banking sector faces significant risks intensified by competition from banks, credit institutions, and Fintech companies Military Commercial Joint Stock Bank (MB) is committed to achieving effective and sustainable growth by enhancing and diversifying its services MB BANK focuses on improving the credit granting process, adopting innovative technologies, and strengthening the credit management skills of its employees to better serve SME customers Transaction Office Branch 1, as a key player in the system, prioritizes credit expansion for SME clients, aiming to optimize sustainable lending practices and solidify its market position The emphasis on "Credit Development for Small and Medium Enterprises" reflects MB's strategic mission.

Enterprises Customers at Military Commercial Joint Stock Bank – Transaction Office (Branch 1) " as the subject of my graduation thesis.

Literature review

The COVID-19 pandemic has significantly affected various aspects of the economy, including politics, society, and the environment, highlighting the importance of credit research and development Researchers and specialists prioritize enhancing credit quality within the finance and banking sectors, while numerous Ph.D and master's students in economics conduct in-depth studies to analyze the effectiveness of credit development Their findings contribute valuable insights for credit institutions, aiding in the improvement of credit operations My thesis builds on acknowledged reports and dissertations to establish a theoretical foundation and update economic data relevant to the post-pandemic recovery This research aims to extract lessons for credit development tailored to SME business customers at MB Bank - Transaction Office 1, addressing distinct subjects, legal frameworks, and economic market conditions through a comprehensive analysis of positive and negative observations.

Nguyen Thuy Trang's 2018 master's thesis in Finance and Banking explores the lending practices of commercial banks within a market economy, focusing specifically on the lending mechanisms for SME business customers However, the thesis is limited in its long-term value, as it primarily relies on theoretical assessments and a short investigation period from 2014 to 2015.

In a recent essay featured in the Financial Market and Monetary Magazine (2023), Nguyen Duc Lenh assesses the challenges faced by small and medium-sized enterprises (SMEs) in Vietnam, urging the State Bank to eliminate trade barriers that hinder their access to bank credit Despite the insightful recommendations, the proposed solutions remain largely theoretical and lack practical applicability.

Pham My Linh, Ngo Thi Hang, and Dao Bich Ngoc (2022) conducted a study on nearly 6,000 ASEAN SMEs, identifying key barriers to bank capital access, including operating time, industry type, and credit history Their findings suggest that these factors significantly hinder financial support for SMEs The authors recommend that governments enhance the legal framework to promote SME growth However, they acknowledge that their research offers a broad overview rather than an in-depth analysis of each factor, emphasizing that lending is also influenced by the economic environment and the regulations, processes, and preferences of banks.

On the global market, economists continue to do applied research to improve small and medium-sized business credit Marcelo Godke Veiga and Joseph A

McCahery (2019) highlighted the gap between banks' financing capabilities and the capital needs of SMEs in Brazil, advocating for venture capital funds as viable alternative funding sources This research has expanded the author's understanding of capital provision for businesses within the economy.

The 2018 research project "Banks! It's time to change your game in SME lending: why and how" by Infosys highlights the inflexibility and limited diversity in bank support products for SMEs The study proposes several solutions to enhance these lending products, but notes that the banks' risk appetite presents significant challenges to their implementation.

Despite the practical significance of studies aimed at enhancing lending operations in commercial banks, current market conditions present various constraints that hinder their effectiveness Most existing research focuses primarily on internal factors or external elements like interest rates and policies, neglecting the bank's objectives and the essential capital sources for enterprises Notably, there is a lack of targeted research on improving lending services for small and medium-sized enterprises (SMEs) at the Military Commercial Joint Stock Bank (MBBank) during the economic recovery post-COVID-19 Consequently, specific strategies to address the challenges faced by SME customers at MBBank's Transaction Office 1 remain undeveloped This thesis builds on previous studies by summarizing critical topics related to this issue.

- Systematizing the theories on the credit for SME customers at banks and synthesizing the indicators reflecting the present development of credit for SME customers in terms of theoretical synthesis

Analyzing the real situation and identifying the influencing variables are crucial for understanding the impact of these factors on the loan operations of SME clients in commercial banks This study also addresses inherited issues, contributing to the broader thesis on credit.

The article discusses the development of credit activities for Small and Medium Enterprises (SMEs) at Military Commercial Joint Stock Bank - Transaction Office (Branch 1) It utilizes updated data to analyze the current state of SME credit operations The research assesses existing practices and proposes strategies to enhance the bank's SME credit activities, aiming to improve overall performance at MBBank - SDG1.

Based on comprehensive research and analysis of lending efficiency, SMEs recommend strategies to enhance credit operations at the Military Commercial Bank Branch Transaction Office 1.

- Systematize the theoretical basis for lending to SME customers at commercial banks

- Analyzing and assessing the current situation of the development of Credit activities to SME customers at Military Commercial Bank Transaction Office (Branch 1)

- Propose some solutions to develop SME customer credit activities of Transaction Office 1.

Research object and scope

Research subjects: The topic focuses on researching and evaluating credit activities for SME customers at Military Commercial Joint Stock Bank - Transaction Office branch 1

Space: Military Commercial Joint Stock Bank – Branch of Transaction

Time: The data for the period from 2019–2022 are collected, processed and carefully evaluated to serve the content of this thesis

This thesis analyzes the criteria for assessing credit efficiency among small and medium-sized enterprise customers at Military Commercial Joint Stock Bank - Transaction Office Branch 1 It evaluates various indicators, including growth rates, overdue debt, provisioning ratios, and performance metrics like Net Interest Margin (NIM) The study compares the credit performance of Branch 1 against the overall banking system and industry averages.

Research Methods

This study aggregates data from the business results report of Transaction Office Branch 1 for the years 2019-2022, focusing on theoretical and practical issues Additionally, it analyzes insights from experienced credit specialists at the SME customer department of Military Commercial Joint Stock Bank to provide a broader perspective on the credit process and the challenges faced by banks in extending credit to SME corporate clients.

Data analysis methods

In this essay, I use data analysis methods mainly including:

Descriptive statistics method: To clarify the credit efficiency of Military

Commercial Joint Stock Bank - Transaction Office Branch 1, the indexes are calculated based on the data provided by the bank

Comparative method: In order to clarify the credit efficiency of Military

The Commercial Joint Stock Bank - Transaction Office 1 analyzes year-over-year performance indicators to identify trends and changes This approach provides a solid foundation for objective evaluations, enabling the detection and explanation of the underlying causes of these fluctuations.

Thesis structure

CHAPTER 1: Theoretical Basis of Credit Performance of commercial banks for Small and Medium Enterprise Customers

CHAPTER 2: Analysis on the current situation of Credit Development for Sme customers of Military Commercial Joint - Stock Bank – Transactions Office 1

CHAPTER 3: Solutions to improve Credit Efficiency for Small and Medium Enterprises at Military Commercial Joint Stock Bank – Transaction Office Branch 1

THEORETICAL BASIS OF CREDIT PERFORMANCE OF

Commercial bank overview

The 2010 Law on Credit Institutions No 47/2010/QH12 defines a bank as a type of credit institution authorized to conduct various banking and related business activities, including commercial banks, investment banks, development banks, policy banks, and cooperative banks Banking activities encompass regular operations such as accepting deposits, extending credit using those funds, and offering payment services.

Commercial banks, also known as deposit or credit banks, are financial institutions authorized to engage in a variety of banking and related activities As the money market evolves, these banks are increasingly diversifying into general business sectors Legally, commercial banks can perform numerous operations, including accepting term and demand deposits, conducting discount operations, providing payment services, and raising capital through debt certificates Operating as business entities, commercial banks focus on profit generation, adhering to an economic accounting framework.

1.1.2 Types of commercial banks common in Vietnam

State commercial banks play a crucial role in our nation's credit system, operating as state-owned enterprises (SOEs) that are created, funded, managed, and appointed by the government These public entities are fully financed by the state through charter capital, characterized by having 100 percent state ownership The framework also allows for the potential development of an equitization mechanism, enabling banks with a single state shareholder to sell additional shares to the public, thereby enhancing their operational flexibility and capital base.

A Joint Stock Commercial Bank is a legal entity formed by shareholders who voluntarily contribute capital, collectively owning the bank This type of commercial bank operates under the law, with common stock representing the ownership structure.

A joint-venture bank is established through a partnership between a Vietnamese bank and a foreign bank, governed by Vietnamese law The charter capital consists of contributions from both banks, and such entities can only be created with a valid business license These banks are authorized to operate in both Vietnamese dong and foreign currencies, as stipulated by their licenses.

Foreign bank branches in Vietnam operate under Vietnamese law and require a business registration certificate to obtain legal status In addition to the main branch, foreign banks can establish sub-branches, which are divisions of the main branch When a foreign bank has multiple branches or a branch has several sub-branches in Vietnam, they collectively form a single legal entity.

Commercial banks have three fundamental characteristics: financial intermediaries, payment intermediates, and money-creation operations

Commercial banks serve as vital financial intermediaries, connecting surplus capital holders with those in need of capital, thereby enhancing capital efficiency and generating profits They achieve this by attracting deposits from the public at a specific interest rate and lending to individuals and organizations at a higher rate The income for banks is derived from the interest rate differential between loans and deposits, facilitating effective capital flow within the economy.

A payment intermediary, the bank acts as a cashier by accepting demand deposits and facilitating withdrawals for clients, thereby enhancing the national monetary system and managing both domestic and international cash flows through various financial services It offers clients a range of secure payment methods, helping them save time and money As the sole authorized credit institution for demand deposits, the bank also provides additional financial instruments, such as bank accounts, which serve as payment options Furthermore, the provision of payment services significantly contributes to the bank's revenue.

The creation of money is a fundamental function of commercial banks, as it enables the circulation of currency necessary for economic growth The State Bank introduces a specific amount of money into the economy to meet demand, but exceeding this amount can lead to detrimental inflation Initially, the commercial banking system increases the money supply through deposit and lending activities, which is a key responsibility of these banks This process allows the State Bank to implement effective national monetary policies, ensuring a stable and adequate money supply through mechanisms such as mandatory reserves and discount interest rates.

1.1.4 The role of commercial banks in the economy

Commercial banks play a significant role in the growth of the financial system and the economy as a whole on the present Vietnamese financial market

Banks offer economic capital through their lending operations, commercial banks mobilize temporarily inactive money from all organizations, people, and economic sectors in ability to fund economic activity

The bank's lending capital is crucial for companies as it improves the quality of production and business processes, meets market demand, and offers firms a stable foundation for competition.

Banks play a crucial role in macroeconomic regulation, with the state overseeing the banking system via the central bank and established regulations By implementing specific lending and interest rate policies, the central bank effectively influences economic activity and manages the dynamics of the foreign exchange market.

As a key intermediary in the financial landscape, this entity facilitates international payment operations, including letters of credit (LC) guarantees and foreign currency trading By establishing credit contacts with the State Bank of Vietnam (SBV), it plays a crucial role in aligning domestic financial practices with global finance trends.

Small and Medium Enterprises Overview

1.2.1 The concept of Small and Medium Enterprises

According to Clause 10, Article 4 of the Enterprise Law 2020, an enterprise is defined as an economic organization with its own name, transaction office, assets, and a registered establishment for business purposes, which may include limited companies, joint-stock companies, partnerships, or private enterprises Enterprises are categorized based on size, capital source, average annual workforce, and annual revenue, leading to classifications such as corporate, medium enterprises, and small and micro enterprises.

Small and medium enterprises (SMEs) encompass micro, small, and medium businesses evaluated by capital, labor resources, and product income Micro firms employ fewer than 10 workers, while small enterprises have 10 to 199 employees and a capital of up to 20 billion VND, as defined by the World Bank Group Medium-sized businesses employ between 200 and 300 people and possess capital exceeding 20 billion VND.

$20 billion to $100 billion In Vietnam, a medium-sized firm has between 200 and

300 workers, whilst a small business has between 10 and 20 employees and a micro enterprise employs fewer than 10 individuals

Small and medium enterprises (SMEs) are legally registered organizations classified into three categories—micro, small, and medium—based on their total capital and average number of employees.

Decree 39/2018/ND-CP establishes the size of a business according to its sphere of operation:

Table 1.1 Classification of enterprises according to Decree 39/2018/ND-CP

Field of activity Micro Enterprise Small Enterprise Medium Enterprise

The average number of employees participating in social insurance per year: 10-100 people

The average number of employees participating in social insurance per year: from >100 to 200 people

Total revenue of the year: 3 - 20 billion VND

Total revenue of the year: from > 50 - 200 billion VND or total capital: from > 20 -

The average number of employees participating in social insurance per year: 10 - 50 people

The average number of employees participating in social insurance per year: from >50-100 people

Total revenue of the year: < billion VND or total capital: 10-100 billion or total capital: from >3-50 billion

Total revenue of the year: from > 100 -

300 billion VND or total capital: from >

1.2.2 Characteristics of Small and Medium Enterprises

Small and medium-sized enterprises (SMEs) typically operate with limited average capital, which restricts their primary activities to trade and minimal production As a result, distribution and service provision become the dominant sectors for these businesses This limited capital is a significant barrier to expanding production and accessing bank credit, hindering the growth potential of SMEs.

The corporate leadership capacity of SMEs is often insufficient due to limited financial resources, which restricts their access to quality human resources and results in low employee cohesiveness This creates management challenges, as SMEs typically have simple organizational structures and minimal internal controls, leading to poor governance.

Small and medium-sized enterprises (SMEs) can easily adapt their production lines to align with the latest market trends due to their size Additionally, SMEs have the flexibility to modify their business operations as needed to ensure they meet their profit objectives.

The competitiveness of small and medium-sized enterprises (SMEs) remains low, as their smaller scale often leads to higher operational costs compared to larger corporations in the same industry This disparity makes it challenging for SMEs to enter the market and secure a stable position.

1.2.3 The economic significance of Small and Medium Enterprises

Small and medium-sized enterprises (SMEs) are vital to the macroeconomic and socioeconomic development of nations, particularly in Vietnam Their diversity across various sectors allows SMEs to leverage resources that larger corporations often struggle to access In the context of growing globalization, SMEs are essential in tackling social challenges and driving economic growth.

Reducing the unemployment rate is a vital function of small and medium-sized enterprises (SMEs) due to their widespread presence across the nation and their diverse operations in various sectors SMEs, characterized by modest capital and smaller production scales, often do not require highly skilled labor, which has resulted in significant employment opportunities, especially in mountainous regions Addressing unemployment is essential for enhancing social security and fostering economic stability.

Small and medium-sized enterprises (SMEs) play a vital role in driving economic growth by acting as subcontractors for larger companies Their small size and straightforward operational systems enable them to quickly adapt to economic fluctuations without significant disruptions As a result, SMEs make a substantial contribution to overall economic production, fostering a more dynamic and diversified economy through their inherent flexibility and essential characteristics.

Small and medium-sized enterprises (SMEs) play a crucial role in enhancing the state budget by establishing themselves in regions with abundant labor and low operational costs Their emergence not only boosts the local economy but also supports social welfare and fosters economic growth in the provinces.

Credit activities for small and medium enterprises

1.3.1 Credit concept for small and medium business customers

SME Credit refers to the lending services provided by commercial banks specifically for small and medium-sized enterprises (SMEs) In this process, banks extend a certain amount of credit to SMEs, which must be repaid with interest after an agreed-upon period SMEs are unconditionally obligated to repay the borrowed amount Common forms of credit available for SMEs today include loans, guarantees, factoring, and financial leasing.

1.3.2 Credit classification for small and medium business customers

Credit is a complex and potentially risky activity Bank credit is classified into many types and depends on different classification criteria:

When evaluating loans, banks primarily focus on loan terms, which refer to the duration from the disbursement of funds until full repayment This criterion categorizes credit into three distinct types.

Short-term credit refers to financing options with a duration of 12 months or less, commonly utilized by businesses to address temporary working capital shortages and by individuals to meet immediate spending needs This type of credit encompasses various forms, including discounts, advances on accounts, overdrafts, and loans under credit limitations.

Medium-term credit: a type of credit with a term of 12 months or more up to

36 months This form is often used to finance projects, invest in purchasing fixed assets, equipment and machinery, and renew production lines

Long-term credit refers to loans with terms exceeding 60 months, primarily utilized by investors to acquire new fixed assets that require an extended payback period This type of financing encompasses two key forms: project-based lending and financial leasing.

Based on the level of collateral:

Secured credit: This type of credit is made when a bank loan requires the customer to have collateral or a third person to guarantee the credit

Unsecured credit refers to loans or credit extended by banks based on the customer's creditworthiness rather than collateral Typically, this type of credit is granted to regular customers who demonstrate strong financial stability and a reliable track record of repaying debts.

Based on the refund method:

Installment credit refers to loans that are repaid over a set schedule, such as monthly, quarterly, or annually This structured repayment plan is established within the terms of the credit contract, making it easier for borrowers to manage their payments without feeling overwhelmed.

Non-Installment Credit: The customer's refund is made once at the contract maturity

Reimbursement credit on request: A type of credit that the borrower can repay at any time upon request when there is a source of money to repay the loan

Direct credit: A type of credit in which the bank provides credit to the borrower and the borrower directly repays the debt to the bank

Indirect credit refers to a financing method where banks extend credit to customers by acquiring deeds and debt documents from third parties This approach highlights that commercial credit is prioritized over bank credit in the lending process.

Based on the form of value level:

Cash credit: A form of credit in which banks directly lend money to customers to meet the needs of capital shortages in production and business activities of customers

Leasing in kind: A form of loan made through the purchase of assets by banks to provide customers Asset credits include operating leases and finance leases

1.3.3 The role of bank loans for SMEs

Bank credit serves as a crucial economic lever for the development of SMEs and economic restructuring These enterprises often struggle to secure capital, particularly at favorable interest rates, which hinders their ability to expand production and business despite their potential for growth By providing financial support, banks enable SMEs to leverage their resources and enhance their operations Additionally, the banking system allows the state to influence industry growth or restrictions through interest rate policies and credit limits, making it an effective tool for economic management.

Bank credit contributes to increasing capital sources and improving the competitiveness of SMEs: With cheap capital from joint-stock commercial banks,

Small and medium-sized enterprises (SMEs) can enhance their operations by investing in modern machinery, which not only reduces costs but also boosts both the quantity and quality of their products This strategic investment ultimately strengthens their competitiveness and increases their market share.

Bank credit plays a crucial role in enabling SMEs to access foreign capital sources Through financial intermediaries like commercial banks, small businesses can secure investment and financing from international credit institutions This influx of quality capital significantly enhances the production capacity of domestic SMEs, improving both the output and quality of national products Consequently, it empowers Vietnamese products to compete in the international market.

Bank credit plays a crucial role in establishing a market system for small and medium-sized enterprises (SMEs) by facilitating the effective use of "input" and "output" factors It enhances the production and operational efficiency of SMEs, as businesses must showcase robust financial health and present a solid business plan to secure loans from commercial banks This requirement not only strengthens their management capabilities but also enables SMEs to improve their processes, leading to significant revenue growth.

Small and medium-sized enterprises (SMEs) leverage loans to enhance their technological capabilities and product quality By investing in advanced technical systems, they elevate the scientific and technological proficiency of their workforce This investment not only leads to improved product designs but also increases overall production output, resulting in a more competitive market presence.

Improving management skills among business leaders and enhancing workers' competencies is essential for ensuring bank repayment sources while maintaining business profitability A workforce well-versed in finance and effective capital management is crucial for optimizing production and business processes The role of commercial banks in credit activities is vital for the development of SMEs and the overall economy, as they address the critical gap between capital surplus and enterprise capital shortages By facilitating capital movement and ensuring the flow of funds, banks prevent disruptions in business operations Moreover, bank credit fosters competition among businesses, creating a dynamic environment where companies are motivated to meet their capital and interest obligations to commercial banks.

Credit development for Small and Medium Enterprises

1.4.1 The concept of small and medium enterprise’s credit development

The growth of the bank's SME lending operations is evident through the expansion of its loan portfolio, both in scope and depth However, it is crucial for the bank to prioritize safety and profitability in light of the inherent risks associated with lending activities.

The quality and effectiveness of loans can be defined by several key factors: reducing the rate of non-performing loans, increasing revenue through the growth of SME lending, and improving the assessment and risk management of loan projects.

• Increase in breadth: An increase in the amount of the loan's collateral improves the income generated from lending operations as the outstanding balance rises

The evolution of loan types and structures reflects a positive trend, characterized by a balanced distribution of short-term, medium-term, and long-term loans Additionally, the proportion of outstanding SME loans in relation to other loan categories is aligned with various economic sectors, indicating a thoughtful approach to financing.

To ensure sufficient capital for expanding lending activities, commercial banks aim to increase their loan balance through various strategies, including broadening their lending subjects, targeting multiple industries and economic regions, and diversifying lending methods Effective capital mobilization is crucial to achieve these goals and support the bank's growth in lending.

To effectively expand lending operations, the primary goal is to address clients' diverse needs by offering a comprehensive range of credit volumes and various lending options, including leasing, discounting, and guarantees.

The progression of lending activities reflects an economy's ability to meet its capital requirements in alignment with its socio-economic development pace This evolution highlights not only the growth of the economy but also the advancement of the banking sector.

Lending is a critical profit-generating activity for banks, yet it also introduces various operational risks Thus, enhancing loan activities while ensuring operational efficiency is essential for the survival and growth of individual banks, as well as for the stability of the entire financial system and economy.

1.4.2 Indicators demonstrating the credit development for Small and Medium Enterprises Enterprises

1.4.2.1 Qualitative target group a) Adhere to the procedure and regulations of the credit process

The credit-granting procedure in banks follows a consistent framework, though each institution may have unique standards and implementation phases To effectively manage credit risk, bank officers must diligently adhere to this structured approach, which should be streamlined to enhance efficiency for both clients and staff Additionally, the reputation of commercial banks plays a crucial role in their credit-granting processes.

The bank's reputation is a vital intangible asset that fosters client trust and comfort, enhancing credit generation and customer satisfaction Key elements of this reputation include brand recognition, a commitment to fulfilling promises, effective management, and consulting expertise When a bank is perceived as trustworthy, businesses are more inclined to seek credit, thereby strengthening the bank's relationship with its clients Additionally, the professionalism and qualifications of bank personnel play a crucial role in building this trust and confidence.

Relationship Managers (RMs) are crucial in the credit-granting process, acting as a vital link between banks and borrowers They must demonstrate integrity, accuracy, and professionalism to deliver exceptional service while evaluating the reliability of customer information, the feasibility of business plans, and the likelihood of loan repayment This assessment is essential for bank managers to make informed decisions regarding credit issuance.

- Growth rate of customer credit for SME

Growth rate of customer credit SME

= SME credit balance year (𝑇+1) − SME credit balance year (𝑇)

The growth rate of outstanding loans is a crucial metric for evaluating both the size and quality of a bank's lending portfolio Over the years, this indicator reflects the success of credit policies in attracting customers and enhancing lending capabilities A higher growth rate signifies effective implementation of the bank's credit development strategy, showcasing its ability to expand its customer base while maintaining stable lending quality Furthermore, if a bank demonstrates a superior growth rate in SME loans compared to its competitors, it highlights the effectiveness of its business strategy and boosts its market competitiveness.

- Proportion of the loans for SMEs customers

Proportion of loans for SMEs = SME credit balance

This indicator reflects the lending scale of SMEs in the bank's credit activities

The indicator highlights the impact of SME lending on a bank's overall credit performance, with a larger value indicating a greater volume of SME loans However, an excessively high ratio may pose financial risks, particularly if borrowers within this segment fail to make timely repayments.

- Structure of loan portfolio: Proportion of credit by industry, by loan term

To ease administration, quality evaluation, and the development of superior client loans, banks separate their loan portfolios based on a variety of arrangements

To manage risks and enhance profitability, banks strategically organize their loan portfolios by industry and loan duration They assess the risks inherent in each sector, making informed credit decisions based on these evaluations For example, loans to the manufacturing sector, which typically experiences longer business cycles, usually have extended maturities compared to those in the retail industry Additionally, banks may categorize loans by term to meet consumer financial needs while maximizing earnings, as short-term loans generally offer higher interest rates than long-term ones, allowing banks to optimize their overall profitability.

- Ratio of overdue debt, non – performing loan

As prescribed in Article 10 Circular 11/2021/TT-NHNN Credit institutions classify debts into 5 groups as follows:

Qualified debt encompasses three distinct categories, with the most prevalent being due debt and overdue debt that is less than 10 days late, both of which are evaluated as having the potential for complete recovery of both principal and interest within the designated timeframe.

Group 2 focuses on debts that require attention, highlighting three distinct types Among these, the most prevalent are debts that are overdue between 10 to 90 days and those that have undergone their first adjustment.

ANALYSIS ON THE CURRENT SITUATION OF CREDIT

General introduction about Military Commercial Joint Stock Bank –

2.1.1 History of Formation and Development

Established on November 4, 1994, Military Commercial Joint Stock Bank (MB) began with nearly 20 billion VND in capital, 25 employees, and a single location in Hanoi Over four development phases from 1994 to 2021, MB has marked significant growth in Vietnam's finance and banking sector through a focused operational vision and effective business strategies aimed at national development and customer benefits By 2022, MB's charter capital reached over 45 trillion VND, with total assets of 728,532 billion VND, solidifying its status as a leading financial institution in Vietnam Currently, MB operates a network of 309 licensed transaction points, including 306 domestically and 3 internationally Committed to sustainable development, MB aligns with Vietnam's regulations and the United Nations' 17 Sustainable Development Goals, striving to meet the funding needs of diverse customers, from large corporations to individuals and SMEs, while prioritizing investments that positively impact community development.

MB has swiftly expanded into new market categories by diversifying its products and services Over the past six years, it has consistently achieved an A rating from the State Bank of Vietnam, the highest recognition available, and has received numerous domestic awards from leading agencies and organizations.

Transaction Office Branch 1 was established on March 28, 2005 with the original name of Hanoi Exchange

The Board of Management designated one branch to focus on developing business strategies aimed at mobilizing capital and outstanding loans from CIB, SME, and science and technology customers, thereby significantly enhancing profits for the Military Commercial Joint Stock Bank.

Since its establishment with just over 30 employees, TO 1 has evolved over 18 years into a top-performing branch within the Military Commercial Joint Stock Bank (MB) system, significantly contributing to the bank's overall success Beyond its core banking functions, TO 1 serves as an extension of the Head Office, managing key operations such as focal fund management in the North, overseeing the ATM and IPOS systems in Hanoi, and offering safe deposit box rentals The branch has effectively developed a strong customer base, focusing on leading industry units, enhancing training resources, and identifying business opportunities Additionally, TO 1 is trusted to manage prestigious military clients, including VAXUCO and the Finance Department of the Ministry of Defense As part of a broader strategy, MB aims to become a leading retail bank by rapidly developing services to meet customer needs while embracing the "Digital Bank" initiative from the State Bank, integrating technological advancements into its operations The dedicated efforts of both management and staff have led TO 1 to achieve commendable milestones and continue its trajectory of growth.

Picture 1 Organization chart of MB Transaction Office Branch 1

Source: Military Commercial Joint Stock Bank - Transaction Office Branch 1

According to Decision No 1294/CT HK-MB issued by the current director of Military Commercial Joint Stock Bank, the Transaction 1 branch of Military Commercial Joint Stock Bank comprises several key departments.

The Board of Directors is responsible for managing the branch by making decisions that adhere to the bank's rules, charters, and regulations Their duties include overseeing management, recruitment, costs, and administration, while also developing and implementing business strategies for the division They actively participate in executing and monitoring these plans, ensuring accountability for business objectives and sales to the Bank's Board of Directors.

The Corporate and Institutional Banking (CIB) operations department directly engages with large corporate clients, leveraging capital in both VND and foreign currencies It manages credit-related operations and oversees credit products in compliance with the regulations and guidelines set by the Military Commercial Joint Stock Bank Additionally, the department is responsible for promoting and selling banking products and services tailored for large enterprises.

The SME Customer Department actively engages with small and medium enterprises to facilitate capital utilization in both VND and foreign currencies, ensuring adherence to current regulations and directives This department is responsible for marketing and selling banking products and services tailored specifically for SMEs.

The Private Client Department engages directly with individual clients, managing capital in both VND and foreign currencies while conducting credit operations in accordance with the Bank's established policies and regulations The Military Commercial Joint Stock Company actively promotes and distributes a range of banking products and services directly to consumers.

- The Customer Service Department: is responsible for inspecting and regulating the branch's customer-related services, as well as ensuring that branch personnel adhere to the company's core values

- Centre Hub: Support, manage, and store credit data, guarantee sales departments, and aid in correcting issues associated with the issuance and use of customer cards

In 2020, Vietnam's economy experienced significant growth, rebounding from three years of decline, even as the global economy grappled with uncertainties due to the pandemic The inflation rate remained stable, contributing to the overall economic steadiness, with the average Consumer Price Index (CPI) rising between 3.5% and 3.8%, exceeding the targets set by the National Assembly.

In the first half of 2022, credit growth reached 9.4 percent, a notable decrease from the 17 percent growth seen during the same period in 2021, as reported by SSI This slowdown is attributed to recovering credit demand and rising commodity prices Amid increasing exchange rate pressures and inflation, the State Bank of Vietnam (SBV) aimed to maintain stable interest rates throughout the year The strategy of selling foreign currency from reserves could have a significant effect on interest rate levels.

In 2021, MB successfully maintained its leadership in the market through rapid digital transformation and convergence, introducing over 260 new features to the MBBank and BIZ MBBank Apps This initiative aims to enhance the digital banking experience for both individual and business clients.

2022 is the first year of the MB Group Strategy for the period 2022-2026, as well as the beginning of a new phase of development for Transaction Office Branch

1 Transaction 1 has been establishing a new business strategy, with the introduction of digital banking serving as a turning point With the Head Office's aims and vision in mind, TO 1 is always market-driven and law-compliant in its approach to increasing service quality and financial outcomes to increase the service quality and business results of the top branch of the system

In recent years, banks have increasingly competed to attract capital, with this trend intensifying Amid this rivalry, the TO 1 branch has consistently seen a rise in its capital sources, thanks to enhanced technology use by its employees, innovative product development, and a focus on civilized transaction practices The table below illustrates the growth of the branch's mobilized capital over the past several years.

Table 2.1 Situationraise capital MB Transaction Office Branch 1 (2019 – 2022)

Source: MB - Transaction Office Branch 1

Over the past three years, the domestic financial market has experienced significant instability in capital mobilization, particularly affecting traditional channels like banks and credit institutions As competition intensifies from alternative liquidity investment avenues such as securities, real estate, gold, and foreign currencies, banks are evolving to adapt In this competitive landscape, the branch of TO 1 has consistently showcased its leadership by implementing flexible interest rate policies and offering incentives for quality capital mobilization This strategic approach has resulted in a sustained growth rate in both the quantity and quality of capital movement at TO 1, significantly enhancing the loan-to-deposit ratio (LDR) for the branch and the overall financial system.

Figure 2.1 Total capital mobilization of MB Transaction Office Branch 1 (2019 – 2022)

Based on the summary results of chart 1, the total capital mobilization in the period of 2019-2022 of MB - TO 1 is still increasing year by year By the end of

Current situation of Credit Development for SME Enterprises in Joint Stock

2.2.1.1 Credit opinion of Transaction Office 1

The growth of our loan portfolio is driven by the high quality of our customers, resulting in a strong overall loan balance and excellent debt quality Our key clients are traditional borrowers who maintain significant debt levels while consistently repaying on time, leading to a remarkably low rate of non-performing loans.

Risk management in the micro-segment is stringent, demanding 100% collateral from customers, particularly those with a turnover below 100 billion These clients often negotiate for full collateral coverage, while guarantees also require substantial backing Industries with strong potential, such as telecommunications, medical equipment, and pharmaceuticals, are particularly emphasized for their reliability and service diversity.

Interest rates for capital purchases and sales are tailored to the specific loan term and adjusted to meet the needs of each customer, ensuring that the branch achieves its targeted minimum Net Interest Margin (NIM).

Credit features of Transaction Office Branch 1:

The majority of loans are short-term loans, the loan term is usually less than 6 months

- The ratio of collateral is relatively high, usually the loan is secured by independent collateral

- Strictly follow the risk prevention regulations of the head office

2.2.1.2 Conditions for granting credit to SME customers

When evaluating credit applications from SMEs, the Bank assesses the decision to lend based on specific criteria that must be met by the customer, similar to the requirements for other types of enterprises.

- Having civil act capacity, civil legal capacity and taking civil responsibility as prescribed by law

- Have the financial ability to pay the debt within the committed period

- There is a legitimate purpose of using the loan

- Having a feasible and effective investment, production, business and service project or a feasible life service project in accordance with the provisions of law

- Implement regulations on loan guarantee according to the regulations of the Government as well as the State Bank

❖ To pay the costs of performing transactions prohibited by law

❖ To pay tax directly to the State Budget, minus the amount of import and export tax that customers have to pay when doing import and export procedures

❖ To purchase assets and expenses that form assets that are prohibited by law from buying, selling, transferring or converting

To repay the loan principal and interest to banks or credit institutions, it's important to note that during the construction period, interest payments may be deferred until the fixed assets are completed and in use For medium and long-term loans aimed at investing in fixed assets, the interest incurred can be capitalized and included in the overall cost of the asset.

❖ To meet the financial needs of transactions prohibited by law

- Subjects restricted from lending or not allowed to lend:

The bank strictly prohibits lending without collateral and does not offer preferential interest rates or loan conditions to auditors and inspectors conducting their duties at the bank.

The Bank prohibits lending to specific individuals, including members of the Board of Directors, Supervisory Board, General Director, Deputy General Director, as well as their immediate family members, such as parents, spouses, and children.

❖ Other subjects are subject to the regulations of the State Bank of Vietnam to limit and not grant credit from time to time

2.2.1.3 Credit process for SME customers

Transaction office branch 1 always follows the steps in the credit granting process:

The customer profile includes legal and economic files and customer's loan application for credit and customer's capital use plan according to the bank's form

- Decision on appointment of chief accountant

- ID/ID/Passport of the Legal Representative

- ID/ID/Passport of Chief Accountant

- Audited financial statements for the last 2 years T-2, T-1

- The balance sheet has entries 131, 331, inventory, etc., which account for more than 15% of total assets or total capital

- Tax return or tax report

- Contracts with the largest input and output partners

- Loan plan and use of customer's loan according to the form of the bank

The loan application form serves as a crucial document that articulates the customer's financial needs to the bank, forming a key legal foundation for credit approval and providing a basis for resolving disputes in potential lawsuits.

Step 2 Credit Analysis and Proposal Reporting

Customer Relationship Managers (RMs) at MBBank perform a thorough analysis of clients based on their profiles, assessing legal status, business operations, and the viability of proposals They evaluate whether clients align with the bank's risk appetite and requirements Utilizing the customer's supply capabilities and professional qualifications, RMs craft tailored loan plans to meet individual client needs effectively.

A credit specialist plays a crucial role in the financial process by gathering essential information from customers, evaluating their documentation, and preparing comprehensive credit reports for review by higher authorities within the bank This position involves direct interaction with clients, assessing their honesty and intentions, and transforming raw data into actionable proposals Given the significance of their responsibilities, grassroots credit officers must possess high professional qualifications and strong ethical standards to effectively mitigate risks associated with credit approval.

Options are categorized into fast, normal, and special threads Fast-flow businesses with strong financial positions can secure loans, guarantees, or letters of credit backed 100% by highly liquid independent collateral, which branch management can approve with relatively quick processing times Typically, these options are processed through the branch before being sent to the head office's Appraisal Department, where credit decisions are made based on the Balanced Scorecard (BSC) and the customer's profile For more complex cases that fall under the special stream, after management approval and branch leadership endorsement, they are forwarded to the appraisal room If they exceed the appraisal department's authority, these cases are escalated to the credit appraisal board for final approval, again referencing the BSC and the documentation provided by the customer.

The bank processes credit based on the customer's provided plan, utilizing a BPM system to streamline document management and procedures Managers are responsible for approving credit accounts and establishing disbursement and collection plans to maintain liquidity and optimize credit availability.

Military Commercial Joint Stock Bank primarily disburses funds via transfer to the customer's payment account at MB, ensuring that disbursement occurs only after the customer submits adequate documentation and valid records This process enables the bank to effectively monitor cash flow in alignment with the customer's intended loan purpose Additionally, credit officers must submit a disbursement plan to the branch management board to maintain liquidity and guarantee the availability of disbursed funds.

Step 6 Track, monitor, and collect debt

Credit officers must regularly reassess the customer's business and production status after loan disbursement, ensuring that the capital is utilized for its intended purpose They should also periodically re-evaluate the collateral assets in line with MB's regulations and remind customers to make timely debt payments, as well as collect debts upon the maturity of credit contracts.

2.2.1.4 Main loan products for SME customers a) Credit by limit

+ Target customers: Corporate customers with regular working capital needs + Characteristic:

- The management and use of the limit: Made according to the customer's production and business cycle

- Average working capital needs: Determined based on annual business plan, depreciation plan, interest, tax and other payables;

- Collateral: According to MB's regulations from time to time b) Overdraft loan

+ Target audience: Small and medium business customers

- Various collateral assets: mortgage, real estate, valuable papers, etc

- Overdraft limit granting time: 12 months

- Interest rate: According to MB's preferential programs from time to time c) Installment business loan

+ Target customers: Micro-SME customers according to customer classification at MB

- Loan rate: Not exceeding 85% of customer's payment needs

- Loan amount: Up to 5 billion VND/customer by product

- Loan term: Maximum no more than 36 months

- Payment method: Original monthly/quarterly; monthly interest based on actual outstanding balance

- Collateral: Real estate, means of transport are cars, savings books/cards, deposit contracts d) Loans to buy cars for business production

+ Target customers: Corporate customers have the need to buy cars to transport goods of businesses or transport businesses

- Loan amount up to 75% of car value;

- Flexible collateral: Cars, real estate, valuable papers e) Product package to sponsor businesses with revenue below 100 billion VND

+ Customers: Enterprises with a turnover of less than VND 20 billion and from VND 20 billion to less than VND 100 billion

Segment The segment under 20 billion

Segment from 20 billion to 100 billion

Loan value Up to 7 billion VND, overdraft based on cash flow up to 1 billion VND

Maximum according to customer's business plan, overdraft loan based on cash flow up to 3 billion VND, flexible overdraft credit mechanism for new customers up to 1.5 billion VND

Collateral Savings card, deposit, real estate, means of transport

Savings card, deposit, real estate, means of transport, machinery and equipment, inventory, cash flow from the MB financing plan for reputable investors/output partners

Up to 100% of contract/invoice value and up to 90% of capital requirement

Source: Catalog of loan products for SME customers - MB Transaction Office

2.2.2 Current situation of Credit developing activities for SMEs in Military Bank – Transaction Office Branch 1

2.2.2.1 Qualitative target group a) Compliance with regulations, SME lending procedure

It is essential that all TO 1's Relationship Managers (RMs) fully understand and are proficient in the documentation of procedures, operations, and plan handling flow, aligning with MB's regulations, legal requirements, and customer expectations Strict adherence to credit regulations throughout the loan process, including decision authority and procedural management, must be maintained at all stages: before, during, and after the loan stream.

Evaluating the Credit Development of SME customers at Military Commercial

Commercial Joint Stock BANK – Transaction Office Branch 1

From 2022 to 2026, Credit for SME Customers is a key growth focus for MB - TO 1, with Transaction 1 significantly enhancing the system's overall business performance through consistent year-over-year credit expansion Achieving an average growth rate of approximately 19% during this period, MB Transaction 1 has successfully met its strategic goals for expanding SME clientele Notably, between 2019 and 2022, MB - TO 1's Board of Direction demonstrated exceptional leadership, navigating the challenges of the pandemic by prioritizing industries with growth potential, including medical equipment, pharmaceuticals, post, and telecommunications By 2022, as the economic landscape stabilized, the branch was well-positioned for continued success.

MB - TO 1 will have rapidly refocused its business operations to serve clients in the aviation and consumer sectors and will have achieved a substantial growth rate

The activities of the bank have expanded significantly, particularly in areas such as guarantees, L/C openings, and foreign currency trading, reflecting both an increase in quantity and quality This growth is attributed to the enhanced professional skills of the bank's Relationship Managers (RMs) By focusing on small and medium-sized enterprises that are recovering post-pandemic, MB - TO 1 has effectively addressed customer needs and psychology, leading to the introduction of tailored products This strategy not only boosts profits for the bank but also fosters greater trust and loyalty among customers towards the banking system.

Effective quality control of overdue debts and non-performing loans remains a top priority for the bank branch's Board of Directors Risk management policies are consistently implemented across departments in line with MB's regulations MB - TO 1 has successfully adhered to debt management requirements, particularly during challenging financial conditions for customers, leading to a low and decreasing non-performing loan ratio as the epidemic stabilized The branch actively manages its loan portfolio, ensuring timely monthly interest payments from customers and closely monitoring post-borrowing supervision Additionally, the risk provisioning situation has improved, with the proportion reduced to less than 0.3%, establishing the branch as a leader in non-performing loan portfolio management and effective risk management systems.

Credit access for small and medium enterprises (SMEs) remains insufficient, not reflecting their growth potential and the capabilities of banks Although the total outstanding loans for SMEs have gradually increased during the pandemic due to supportive policies, they still represent a minor fraction of the branch's overall loan portfolio This discrepancy highlights the untapped potential of SMEs, which are poised for profit growth Furthermore, while the diversity of products and services for SMEs has expanded, the slow increase in outstanding loans presents significant challenges for credit management and approval processes within this sector.

- Finding potential customers as well as businesses when accessing bank capital is still difficult, especially in the current fierce competition among banks

The MB Branch of TO 1 currently serves primarily long-standing customers, creating significant pressure on its outstanding balance to remain competitive within the banking system and against rival banks This situation hampers the branch's ability to retain existing clients and attract new ones, highlighting the need to diversify its customer base from individual clients to businesses Expanding its market share and spreading risks are crucial for the branch's growth and sustainability.

The share of interest income from credit activities involving SME customers has been declining over the years, despite a steady increase in overall figures This growth rate is lagging behind that of non-interest income, which has become the primary profit driver for the unit This trend indicates that the strategies aimed at expanding the customer base and enhancing SME credit quality have not been fully effective.

2.3.3 The cause of the limitations a) Subjective reasons

● The development policy of lending to SMEs still faces many limitations

The current SME lending development policy at MB lacks a specific and transparent process for loan support tailored to corporate customers in the SME sector Additionally, the limitations on loan amounts relative to collateral value present significant challenges for banks in lending to SMEs Typically, loan limits range from 70% to 90% of collateral value for safety reasons; however, post-appraisal, collateral often falls below market value, leading to insufficient credit limits for SMEs seeking larger loans This discrepancy adversely impacts SMEs' borrowing decisions, particularly for those with capital needs exceeding their collateral's value Furthermore, the lengthy and complex procedures involved in the lending process further hinder SMEs from accessing credit at MB.

● The reason comes from the branch's human resources

Bank relationship managers (RMs) must excel in credit operations while fostering strong customer relationships However, many less experienced employees struggle to build long-term partnerships and often fail to provide timely information on policies, interest rates, and incentives, hindering cooperation opportunities Despite having knowledgeable staff in small and medium-sized departments, high turnover rates and excessive workloads limit their ability to effectively cover the bank's products and develop professional customer relations As a result, labor productivity in small and medium enterprises remains below the overall growth rates of the branches.

● The reason comes from the quality of products and services for SMEs

To thrive amidst intense competition, MB Bank must develop distinctive, brand-focused products to draw in more customers The bank currently faces challenges due to insufficient and outdated customer and market data, resulting in lost business opportunities and potential clientele Additionally, the limited support packages for SMEs and inefficient lending practices may deter these businesses from selecting MB Bank Enhancing marketing and advertising efforts is essential to attract new customers effectively.

• The problem still exists in SMEs

In the operations of enterprises, potential risks often lead to economic losses that hinder their ability to repay bank loans Small and Medium Enterprises (SMEs) frequently struggle with capital management and may apply for bank loans for unprofitable projects, complicating their debt repayment Additionally, many SMEs have unprofessional financial-accounting systems, resulting in a lack of transparency and credibility with banks Current regulations do not clearly define the necessary financial and accounting documentation, contributing to inconsistencies in financial statements and business reports Furthermore, unclear loan utilization plans hinder SMEs' access to bank capital for their production and business activities.

● The reason is due to the legal corridor

The current lending regulations and procedures set by the government are overly complex, leading to lengthy collateral valuation processes that hinder SMEs' borrowing decisions Additionally, redundant steps in the application and appraisal phases compromise both the efficiency and quality of credit extension for customers.

• The reason comes from the socio-economic environment

The COVID-19 pandemic has significantly affected the financial health and management of SMEs and banks, leading to a decline in revenue for SMEs with credit relations with MB - TO 1 Key industries such as aviation, services, consumption, and hospitality have experienced severe supply chain disruptions over the past three years, resulting in increased management costs for loans and reduced profits for these businesses.

Unstable fluctuations of the market affecting interest rates, lending policies, etc to increase loan control and offset risks are also what makes SME businesses hesitate when accessing bank capital

The SME customer segment presents both significant opportunities and challenges for MB Bank, as it competes with numerous branches and transaction offices nationwide To build trust and foster lasting relationships with these customers, MB Bank must enhance its products, services, and management capabilities Additionally, the branch needs a strategic plan to boost brand recognition and showcase its commitment to quality and sustainable partnerships.

Based on the data collected, chapter 2 of the thesis provides an overview of the current state of lending activities to SME business customers of Branch 1 from

Between 2019 and 2022, an analysis of qualitative indicators, including the lending process, regulations for SME business customers, compliance periods for loan disbursement, and staff professional ethics, provided insights into managing the SME loan portfolio at the branch This management strategy focuses on industries with upward trends to optimize profits for the bank The author also evaluates credit efficiency indicators to pinpoint the advantages and disadvantages of the credit development scenario for SMEs during this period, identifying root causes for any shortcomings These evaluations will inform the third part of the thesis, which will propose measures to improve the quality and expand credit operations for small and medium-sized businesses at Military Commercial Joint Stock Bank - Branch 1 in the near future.

SOLUTIONS TO IMPROVE CREDIT EFFICIENCY FOR

Orientation of credit activities of Military Commercial Joint Stock Bank –

3.1.1 The overall goal of the whole system

MB's sustainable development strategy aligns with Vietnam's regulations and best practices, drawing inspiration from the United Nations' 17 Sustainable Development Goals In accordance with Document No 4141/VCL-NHNN from the State Bank, MB has established a strategic framework aimed at achieving a level 3 green bank within its green bank construction project, with plans to progressively advance to level 5.

In 2022, Vietnam's economy rebounded with effective state measures, overcoming challenges from the pandemic and international instability, leading to a GDP growth of approximately 8%, surpassing targets MB Bank has implemented a long-term strategy over the past five years, aiming to become the most customer-oriented bank and a leader in digital banking, aspiring to rank among the top three retail banks in Vietnam Despite the impacts of COVID-19, MB has demonstrated high determination and executed four key strategic shifts to transform challenges into opportunities As a result, the bank has exceeded expectations in its five-year strategy (2017-2021), successfully meeting the targets set by its shareholders, as evidenced by significant improvements in financial performance.

The COVID-19 pandemic has significantly transformed financial, trade, and investment markets, presenting both challenges and opportunities, particularly in Vietnam Between 2019 and 2022, the Vietnamese financial market experienced remarkable changes, including a surge in new stock market participants and significant growth among small banks, which have narrowed the gap with larger state-owned banks like Vietcombank, Vietinbank, BIDV, and Agribank This competitive landscape now includes not only traditional banks but also major technology players and Fintech companies, which are actively involved in payment services, insurance distribution, and lending A key trend is the rise of Mobile Money and Internet Banking, which offer advanced payment technologies that surpass traditional methods, marking a pivotal moment in digital transformation and advancing the non-cash payment system.

MB has partnered with McKinsey to implement strategic goals for 2017–2021 and to outline development plans for 2022–2026 Despite facing significant challenges in the financial market during 2017–2021, MB experienced remarkable growth With McKinsey's guidance, MB has embarked on an ambitious strategy for 2022–2026, aiming to rank among the "Top 3 markets in terms of market share" and striving for leadership in Asia The vision includes becoming a digital enterprise and a leading financial group, driven by the operating motto "Digital Acceleration - Customer Attraction - Corporation Synergy - Sustainable Safety," and underpinned by core values of solidarity, discipline, dedication, execution, trust, and efficiency.

The company aims for financial growth that exceeds the industry average, with projected revenue and profit in 2026 expected to increase by 2.5 to 3 times compared to 2021 Adapting to realistic scenarios, the group remains optimistic about an early economic recovery post-COVID-19, targeting an EBT of approximately 20,300 billion VND, representing a 22% growth over 2022.

Embracing a digital business model, organizations prioritize deep digital adoption and streamlined operations across all levels The Board of Directors plays a crucial role in researching and innovating governance structures, enhancing administrative practices, and improving the functionality of committees By integrating effective governance practices and leveraging technology, they ensure prompt and efficient handling of internal processes, particularly during periods of isolation and crisis management.

3.1.2 Credit operation focus of Transaction Office 1

MB - TO 1 is committed to achieving the growth objectives set by headquarters, focusing on digital transformation and the delivery of digital goods to all client segments from 2022 to 2026 The key goals for this period include reaching a credit balance growth rate of VND 43,626,573 billion, increasing service fee revenues, and enhancing digital transformation through the BIZ MBBank platform for businesses and the MB Bank app for individual clients, ultimately aiming to improve the CASA ratio.

For the SME client category, the outlook for 2022 to 2026 is as follows:

To enhance client growth and significantly increase loan balances, Branch 1 Trading Office aims to develop the BIZ app growth campaign for SME customers The goal is to raise the number of SME users of the BIZ MBBank app to 1,400, which will improve the CASA ratio and achieve a credit balance growth rate of 120 to 150 percent This initiative includes issuing guarantees and offering online credit limitations through the app, while also focusing on effective risk management and enhancing overall service activities.

- Maintaining a balance between short-term and long-term loans and a high collateral level in order to achieve the credit risk management objective Transferring loans to an internal UPAS form

- Establishing long-term connections with consumers before to and beyond loans Implementing UPSALE on current client files and cultivating prospective new consumers proactively

- Strictly adhering to the bank's lending procedure and monitoring loans properly and frequently

- Establishing solid connections with allied departments in order to create cooperative finance strategies and large-scale plans to give clients with the finest goods and services

- Expanding marketing, advertising, and product promotion to clients, as well as boosting cross-selling operations across divisions, in order to optimize the services the bank can give to customers

- Training and enhancing the abilities of credit officers to guarantee that one hundred percent of officers have superior knowledge and the ability to advise and assist consumers

Overall, MB - Branch 1 Trading Office's aims and development direction for the SME client sector are reasonable and achievable given the branch's real capabilities

3.2 Credit development solutions for SME customers at Military Commercial Joint Stock Bank – Branch of Transaction Office 1

3.2.1 Enhancing the level and quality of Bank’ RM

Investing in training courses and professional development programs is essential for enhancing the knowledge and skills of credit experts This investment enables students to better understand the bank's products and services, while also equipping them with the tools to assess clients and manage financial challenges effectively.

Enhancing communication and customer service training for credit experts is essential for banks This improvement will not only bolster their professionalism when addressing inquiries about their expertise but also elevate the overall quality of service, leading to increased customer satisfaction and a more positive experience at the branch.

Consulting sales for SMEs involves assisting clients in developing efficient business plans that align with bank criteria Additionally, it is essential for banks to conduct regular evaluations of their sales teams, reviewing the performance of each officer This process enables the bank to create targeted training and development plans for relationship managers who may lack necessary skills, as well as to make informed decisions about retaining or terminating staff who do not meet performance standards.

Branches should allocate experienced personnel to departments, enabling employees to learn from their predecessors Proper job assignments help prevent overload and errors, allowing sufficient time for task evaluation and management, which enhances work efficiency Regular skill assessments, ethics evaluations, and performance reviews for credit specialists are essential, along with sharing sessions focused on staff development aspirations, to create effective training and development policies.

3.2.2 Implementing technology and creating onboarding flow at each step

Integrating technology into the bank's credit operations enhances customer accuracy, convenience, and data security, leading to improved efficiency and reduced costs compared to traditional methods By utilizing a unified CRM system, banks can tailor their products and services to meet the unique needs of each customer The implementation of online transaction innovations (OTI) further streamlines processes, saving money and increasing competitiveness Additionally, a robust data analytics system enables banks to gather and analyze information, facilitating informed decision-making and strategic planning Focusing on mobile applications and online services can also provide customers with a superior and more comfortable experience when engaging with the bank's offerings.

3.2.3 Developing a lending policy that is acceptable regarding loan terms, interest rates, and credit limitations

For SME clients, key factors such as credit limits, loan durations, interest rates, and associated fees play a crucial role in their financial decisions Given their limited size and challenges in capital management, it is vital for banks to provide careful and expert guidance to these customers This approach not only enhances customer satisfaction but also ensures the bank's profitability and safety.

Interest rates should reflect the bank's headquarters' cost of capital, risk premium, and expected profits The headquarters' cost of capital is consistent across the system and fluctuates over time, leaving branches unable to alter it To ensure competitive lending rates and achieve targeted profitability, branches must effectively manage loan risks.

Recommendations

3.3.1 Recommendations to the Government and Ministries

To create a supportive legal environment for SMEs to reach their full potential, it is essential to enhance legal documents like decrees and circulars with clearer guidance papers The lack of precise instructions can lead to judicial errors and unresolved conflicts Consequently, the government needs to revise and improve its policies to ensure they are effectively implemented.

Due to the limited capital of SMEs, their auditing, accounting, and financial management practices often exhibit significant flaws, hindering banks from extending credit To address this issue, firms must provide annual financial reports that accurately reflect their production and commercial activities, while regulatory authorities should enforce stringent laws When a company's accounting records are thorough, transparent, and publicly accessible, it enhances the clarity of its financial status, thereby streamlining the loan approval process and bolstering banks' confidence in lending.

To foster economic growth and align with contemporary industrialization trends, the government must create an environment that enables SMEs to adopt new technologies and improve management practices This includes implementing capital support policies, offering management consultancy, and establishing a business guarantee fund to facilitate access to financing, thereby enhancing operational efficiency and productivity Additionally, the government should ensure a level playing field to promote the growth of all sectors within the economy.

3.3.2 Recommendations to Military Commercial Joint Stock Bank (MB Bank)

MB Bank aims to simplify the credit limit granting process to enhance service speed for corporate clients By streamlining each phase, the overall process can be expedited significantly This simplification is designed to create favorable conditions for SME clients, enabling them to seize growth opportunities, boost productivity, and expand their business while minimizing the risk of losing projects and investment chances However, it is crucial to ensure that this simplification safeguards the bank's capital security and complies with the standards necessary for effective credit development.

MB Bank should focus on attracting potential SME customers by offering preferential interest rates to foster long-term growth To mitigate moral hazard, it is essential to maintain ongoing communication with clients post-disbursement, ensuring timely support and effective risk management Building lasting relationships requires MB Bank to understand customer needs and provide accessible products based on mutual collaboration and growth Furthermore, the bank must prioritize expanding its market share by acquiring more customers within its operational area.

To enhance competitiveness in a crowded market, MB Bank should develop a compelling marketing strategy focused on policies, services, and regulations related to credit operations By prioritizing marketing activities that foster strong relationships with customers, particularly small and medium-sized enterprises (SMEs), the bank can effectively attract new clients It is essential for customers to clearly understand their rights and responsibilities within their credit relationships with the bank, ensuring a transparent and trustworthy banking experience.

Chapter 3 of the thesis presents strategies to improve the credit quality of loans for Small and Medium-sized Enterprises (SMEs) at MB Military Commercial Joint Stock Bank - Transaction Office Branch 1 To enhance credit operations for SMEs, banks must conduct in-depth research, adopt flexible strategies, and implement a combination of solutions While the proposed credit management improvements may have limitations due to knowledge constraints, they are grounded in the actual credit development of the branch's SME clients The thesis also offers recommendations for the Government, Ministries, Departments, and the bank itself to establish effective policies that support credit activities for SMEs, fostering continuous improvement.

In recent years, enhancing credit activities has been a primary focus for the banking sector, necessitating strict adherence to government economic development guidelines and policies Banks must align their strategies with leadership direction while continuously innovating to adapt to market trends Within this framework, MB Bank and Transaction Office 1 have made significant strides in improving their credit services, particularly targeting small and medium-sized enterprises (SMEs) Over the past four years, TO 1 has established itself as a trusted partner for businesses on the brink of expansion, achieving notable success within its target customer segment.

In the course of investigating and evaluating the thesis, the following concerns have become apparent:

The author has thoroughly analyzed the performance data from the SME department and compared it with the overall banking system to evaluate the credit performance of MB Bank - Transaction Office Branch 1's SME customer group This analysis highlights Transaction Office 1's leadership in establishing credit for SMEs, showcasing significant growth in the sector Despite this success, the management of non-performing loans and risk provisions remains a key focus.

The author explains the importance of various qualitative and quantitative indicators in assessing the effectiveness of credit development initiatives, highlighting their significance in measuring success.

The author presented ideas and solutions to enhance credit efficiency for SME client groups at Military Commercial Joint Stock Bank - Transaction Office Branch

In the future, the research and solutions presented in this thesis are expected to provide practical value, significantly improving business operations and the quality of lending for small and medium-sized enterprises.

During my internship at the Military Commercial Joint Stock Bank - Transaction Office (Branch 1), I faced challenges due to my limited practical experience and expertise As a result, I recognize certain inadequacies in my work I sincerely hope to receive constructive feedback and insights from the Board of Academics and Dr Bui Huy Trung to improve my graduation thesis.

P.Vasantha Lakshmi & M.Sakthivel Murugan, (2009) "A Market Study on

Bank Credit Facilities to Small and Medium Enterprises," The IUP Journal of Bank

Management, IUP Publications, vol 0(2), pages 64-73, May

Data and information from the official website of Military Commercial Joint Stock Bank (https://www.mbbank.com.vn/)

In response to the challenges posed by the COVID-19 pandemic, the bank has increased its provisioning to enhance its resilience against the crisis This strategic move aims to strengthen financial stability amid the ongoing acute respiratory infections caused by the coronavirus For more details, visit the Vietnam News Agency's coverage on this topic.

Pham, L M., Ngo, H T., & Dao, N B (2022) Credit barriers of small and medium enterprises: An empirical study in the ASEAN region Banking Academy

Bài viết đề cập đến những thách thức mà doanh nghiệp nhỏ và vừa (DNNVV) phải đối mặt trong việc tiếp cận tín dụng tại khu vực ASEAN Nghiên cứu chỉ ra rằng các DNNVV thường gặp khó khăn trong việc đáp ứng các yêu cầu tín dụng từ ngân hàng, dẫn đến hạn chế trong việc mở rộng hoạt động kinh doanh Ngoài ra, bài viết cũng nhấn mạnh tầm quan trọng của việc cải thiện hệ thống tài chính và tạo điều kiện thuận lợi hơn cho DNNVV để thúc đẩy sự phát triển kinh tế bền vững trong khu vực.

Thai, B D (2015) Credit guarantee system for SMEs in Vietnam and lessons learned from the success of Japan Tavaszi Szél – Spring Wind https://doi.org/10.17048/TSZ.2015.2

Increasing access to credit capital is essential for the growth of small and medium enterprises (SMEs), as it enables them to invest in resources, expand operations, and enhance competitiveness Improved credit access can empower SMEs to innovate and create jobs, contributing to overall economic development Policymakers and financial institutions must collaborate to develop tailored financial products and support systems that address the unique challenges faced by these businesses By fostering an inclusive financial environment, we can ensure that SMEs have the necessary capital to thrive and drive sustainable economic growth.

(2019 – 2022) Annual report MB Transaction Office - Branch 1

S.Rose, P (2008) Bank management and Financial Service

Law on Credit Institutions No 47/2010/QH12

Decree No 39/2018/ND-CP issued on March 11, 2018 detailing a number of articles of the Law on supporting SMEs

Thanh, H C (2020) "Development of small and medium enterprises in Vietnam today" - Wiktionary Retrieved April 17, 2023, from https://vass.gov.vn/nghien-cuu-khoa-hoc-xa-hoi-va-nhanvan/Phat-trien-doanh-