BANKING ACADEMY ADVANCED PROGRAM GRADUATION THESIS IMPROVING CORPORATE FINANCIAL ANALYSIS IN LENDING ACTIVITIES AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM, HANOI BRAN
The urgency of the subject
In the past three years, the Covid-19 pandemic significantly slowed the global economy and disrupted supply chains, leading to increased unemployment and challenges for many countries, including Vietnam Most industries experienced a decline in growth, forcing enterprises to confront severe difficulties, particularly a lack of capital Even as the world moves into a recovery phase post-pandemic, this financial burden remains unresolved Consequently, borrowing from commercial banks has emerged as a vital strategy for corporations to navigate their financial challenges and ensure survival and growth.
Lending activities are crucial for generating profit in commercial banks, primarily through loans to enterprises However, these activities carry significant risks, such as borrowers' inability to repay debts due to unclear financial situations A key factor contributing to this issue is the inadequate evaluation of borrowers' financial health and debt repayment capacity by commercial banks Consequently, corporate financial analysis is essential for effective lending practices, enabling banks to make informed lending decisions and implement timely solutions to mitigate credit risks.
Vietcombank, a prominent bank in Vietnam, has prioritized enhancing the quality of its corporate financial analysis in recent years Despite recent improvements, significant challenges remain, necessitating further solutions Consequently, the focus of this study is on "Improving corporate financial analysis in lending activities at the Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hanoi branch."
Thesis purposes
This thesis aims to solve the following problems:
- Synthesizing the theoretical basis for the analysis of corporate finance in lending activities at commercial banks
This article analyzes the current financial situation of lending activities at the Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hanoi Branch It highlights the advantages of the bank's lending operations, such as strong capital management and a diverse client base, while also addressing existing limitations, including potential risks in loan defaults and the need for improved risk assessment strategies By evaluating these factors, the article aims to provide insights into the bank's performance and areas for enhancement in its lending practices.
To enhance the efficiency and quality of corporate financial analysis in lending activities at the Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hanoi Branch, it is essential to implement targeted solutions Streamlining processes through advanced technology and data analytics can expedite decision-making while improving accuracy Additionally, training staff on best practices and financial modeling techniques will elevate the overall analysis quality Regular audits and feedback loops should be established to continuously refine the approach, ensuring that lending activities remain effective and responsive to market changes.
Object and scope of the thesis
Object: analyzing corporate financial in making lending decisions at Joint
Stock commercial bank for Foreign Trade of Vietnam, Hanoi Branch
Scope of content: quality of analyzing corporate financial at Joint Stock commercial bank for Foreign Trade of Vietnam, Hanoi Branch
Scope of space: Research at Joint Stock commercial bank for Foreign Trade of
Scope of time: Research data was collected in the period from 2020 to 2022.
Research methods
To achieve the purpose of the study, this thesis uses these following methods:
The thesis involves gathering and synthesizing information and data from financial reports and documents provided by the Branch, as well as incorporating data from various external sources, including previous studies, books, and websites.
Qualitative analysis, along with statistical, comparative, and enumeration methods, is essential for evaluating the current state of enterprises These techniques enable banks to develop effective strategies for enhancing corporate financial analysis in lending activities at the Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hanoi Branch.
Literature review
Corporate financial analysis is one of the most concerned topics all over the world, and there have been a lot of analysts publishing their scientific research about this field
The topic “Banks Lines of Credit in Corporate Finance: An Empirical Analysis”
In the 2007 study by Sufi, A., the factors influencing businesses' choices between bank lines of credit and cash for managing corporate liquidity are explored The research reveals that bank lines of credit serve as a viable liquidity option primarily for firms with robust cash flow Conversely, businesses experiencing low cash flow face challenges in securing lines of credit and tend to depend more on cash to sustain their liquidity needs.
In their 2010 research, "A Financial Ratio Analysis of Commercial Bank Performance in South Africa," Kumbirai M and Webb R utilized ratio analysis to assess the financial performance of commercial banks, identifying their strengths and weaknesses The study focused on three key aspects: profitability, liquidity, and credit quality, analyzing trends over time and offering explanations for observed changes.
Both international and local researchers are actively engaged in this topic, evidenced by the wealth of insightful scientific studies published in the past.
In her 2015 master's thesis, "Application of CAMELS Model in Financial Analysis at An Binh Joint Stock Commercial Bank - Hai Phong Branch," Dao Thu Lien utilized the CAMELS model, which comprises six components, alongside additional criteria such as asset quality, management capacity, and profitability to evaluate the financial strength of An Binh Bank The thesis also identified limitations in the financial analysis at the Hai Phong branch and proposed solutions to address these challenges.
The research conducted by Nguyen Thanh Ha in 2021 examines the impact of corporate financial analysis on lending performance at Vietnam Prosperity Commercial Joint Stock Bank (VPBank) Through surveys of VPBank employees, the study assesses the current state of corporate financial analysis in lending activities and proposes models that illustrate its influence on lending effectiveness Additionally, the author identifies key challenges and underlying issues, providing a foundation for developing solutions to enhance lending performance at the bank.
The article titled "Financial Analysis of Business Customers in Lending Activities at Sai Gon Thuong Tin Commercial Joint Stock Bank, Long Bien Branch – Situation and Solutions" (2021) systematically outlines the theoretical framework for financial analysis in commercial banks It provides a detailed assessment of the current state of Sai Gon Thuong Tin Commercial Joint Stock Bank, Long Bien Branch, through financial statement analysis, highlighting both its strengths and weaknesses Furthermore, the thesis offers practical solutions and recommendations aimed at enhancing the bank's performance in the future.
In the 2022 study by Nguyen Hong Quan titled "Solutions to Complete Financial Analysis of Corporate Customers in Credit Activities at Military Commercial Joint Stock Bank - Dong Da Branch," the author thoroughly investigates the current state of financial analysis for enterprises By employing various techniques, Quan identifies existing limitations and proposes targeted solutions to enhance the effectiveness of financial assessments in credit activities.
Most studies on corporate financial analysis provide theoretical frameworks and models, but often lack practical applicability Specifically, at the Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hanoi Branch, there is a notable absence of research focused on corporate financial analysis, despite its critical role in determining profitability Therefore, this article aims to build upon previous findings and develop more practical and effective solutions for this issue.
Structure
In addition to the introduction, appendices and references, this thesis is divided into three main parts:
Chapter 1: Theoretical basis of corporate financial analysis in lending activities at commercial banks
Chapter 2: Current status of corporate financial analysis in lending activities at
Joint Stock commercial bank for Foreign Trade of Vietnam, Hanoi branch
Chapter 3: Solutions to improve corporate financial analysis in lending activities at Joint Stock commercial bank for Foreign Trade of Vietnam, Hanoi branch.
THEORETICAL BASIS OF CORPORATE FINANCIAL
Lending activities of commercial banks
Commercial banks have evolved alongside the commodity economy for centuries, significantly influencing its growth As the market economy advanced, commercial banks became essential financial institutions, continuously improving their services By engaging in credit activities, these banks generate benefits for depositors and borrowers alike, capitalizing on the interest rate differential to secure profits.
Up to now, there are many definitions of commercial banks:
In the United States: A commercial bank is a currency trading company that specializes in providing financial services and operating in the financial industry
The French Banking Act of 1941 defines commercial banks as entities that primarily engage in accepting deposits from the public and utilizing those funds for their own discounting, crediting, and financing activities.
In Vietnam, commercial banks are authorized institutions that engage in a wide range of banking activities and profit-driven services, as stipulated by the Law on Credit Institutions and Decree No 59/2009/ND-CP, which outlines their organization and operation.
Commercial banks play a crucial role in the financial sector by offering a diverse range of services, primarily focused on accepting deposits, providing loans, and facilitating payment transactions Additionally, these banks cater to the broader needs of society by delivering various other financial products and services, ensuring they meet the maximum demand of their customers.
1.1.1.2 Activities of commercial banks a Fund raising activities:
- Commercial banks can accept demand deposits, time deposits, savings deposits and other types of deposits;
- Commercial banks can issue certificates of deposit, promissory notes, bills, and bonds to mobilize domestic and foreign capital
- Commercial banks may borrow capital from the State Bank in the form of refinancing according to the provisions of the Law on State Bank of Vietnam b Credit activities:
Commercial banks offer various forms of credit, including loans, discounting and rediscounting negotiable instruments, bank guarantees, and credit card issuance They also provide domestic and international factoring services for banks authorized to conduct international payments, along with other approved credit extension methods by the State Bank.
- Commercial banks must open a deposit account at the State Bank and maintain on this deposit account the average balance not lower than the required reserve level
- Commercial banks may open payment accounts at other credit institutions and may open deposit accounts and payment accounts abroad in accordance with the law on foreign exchange
Commercial banks offer payment accounts to customers and provide various means of payment They deliver essential payment services, which include domestic payment options such as checks, payment orders, collection requests, letters of credit, and bank cards.
Perform international payment services and other payment services after being approved by the State Bank
- Commercial banks are allowed to organize internal payments and participate in the national interbank payment system d Capital contribution and shares purchasing activities:
- Commercial banks may only use their charter capital and reserve funds to contribute capital and purchase shares in accordance with the following provisions:
Commercial banks are required to establish or acquire subsidiaries and associated companies to engage in various business activities, including securities underwriting, brokerage, management and distribution of securities investment fund certificates, securities portfolio management, stock trading, financial leasing, and insurance services.
Commercial banks establish and acquire subsidiaries and affiliated companies that specialize in various financial services, including asset management, overseas remittance, foreign exchange, gold trading, factoring, credit card issuance, consumer credit, payment intermediary services, and credit information management.
Commercial banks are allowed to invest capital and acquire shares in various sectors, including insurance, securities, remittances, foreign exchange, gold trading, factoring, credit card issuance, consumer credit, intermediary payment services, and credit information Any investment in enterprises outside these specified fields requires prior written approval from the State Bank.
- Trading, providing foreign exchange services and derivative products
- Participating in bidding for Treasury bills, buying and selling negotiable instruments, Government bonds, Treasury bills, State bank bills and other valuable papers on the market
- Performing cash management, banking and financial consulting services; services of management, preservation of assets, rental of cabinets, safes
Corporate finance consulting encompasses services related to buying, selling, consolidating, and merging businesses, as well as investment consulting It also includes the buying and selling of government and corporate bonds, along with other banking-related activities, all of which require prior written approval from the State Bank.
1.1.2 Lending activities at commercial banks
1.1.2.1 Purposes of lending activities at commercial banks
The Law on Credit Institutions No 02/1997/QH10 and its amendment under Law No 20/2004/QH11 define lending as a credit extension where a lender provides a specific amount of money to a borrower for a designated purpose, with an agreed repayment plan that includes both principal and interest within a specified timeframe.
Lending is the primary revenue-generating activity for commercial banks, enabling them to cover various expenses such as deposits, operating costs, and taxes A large share of a bank's profits stems from interest earned on loans By minimizing risks associated with lending, banks can boost both revenue and profitability as they increase their lending activities Higher loan quality and strong recovery rates, particularly for long-term loans, further enhance the potential for increased revenue and profit.
1.1.2.2 Roles of lending activities at commercial banks
By engaging in lending activities, the bank supports the government's socio-economic development goals using reserve budget capital The State empowers banks to issue bonds and promissory notes, facilitating capital mobilization for development investments Consequently, the bank enhances its visibility and reputation among the public, not only through lending but also by effectively mobilizing capital.
A strong relationship between the bank and its customers in lending activities paves the way for additional services, such as payment deposit accounts and guarantees This collaboration enhances the efficiency of customers' production and business operations, fostering further credit relationships with the bank As these connections deepen, they contribute to a more stable and durable partnership, ultimately expanding the credit market.
Lending process of commercial banks will follow these steps:
Before processing a loan application, the credit officer assesses the customer's loan purpose and preliminarily verifies their financial situation Once the purpose is established and eligibility confirmed, the officer will assist in preparing a complete set of loan documents tailored to the specific requirements and conditions of each bank, as these can vary significantly between institutions.
Step 2: Appraise personal loan conditions
Overview of corporate financial analysis in lending activities at
1.2.1 Definition of corporate financial analysis
Corporate financial analysis involves evaluating and reviewing an enterprise's current financial data to assess its financial position, risks, and future potential This process aids stakeholders in making informed financial decisions that align with their interests in the firm.
Corporate financial analysis primarily examines the information in a company's financial statements, supplemented by data from various sources to assess its historical financial position, identify significant future changes, evaluate the factors driving these adjustments, and uncover operational trends This comprehensive analysis aids in making informed current decisions and projecting future performance.
Corporate financial analysis is crucial for various stakeholders, including managers, investors, banks, suppliers, and agencies, each with distinct perspectives and objectives To effectively address these diverse needs, financial analysis must be conducted using a variety of methods.
1.2.2 Objectives of corporate financial analysis
Corporate financial analysis is crucial for stakeholders invested in a firm's financial activities, as they rely on accurate financial information to meet their varying objectives Different parties, each with unique perspectives and goals, are focused on the financial health of the business, highlighting the importance of comprehensive financial analysis.
- Investors (including current and future shareholders)
- Credit providers for businesses such as banks, financial institutions, bond buyers, etc
- Employees working in the business
Different objects using financial information will make decisions with different purposes Therefore, financial analysis for each party will meet different goals that fit most to their benefits Specifically:
The manager, as the individual responsible for overseeing business operations, possesses the most comprehensive understanding of the firm's financial situation, providing valuable insights for analysis Corporate financial analysis serves several key objectives for the manager, including informed decision-making and strategic planning.
- Creating regular cycles to evaluate the effectiveness of business management in the past period, the implementation of financial principles, profitability, risks and solvency in the activities of the firms
- Ensuring that the decisions of Board of Directors in investing, sponsoring, profit dítributing, etc are consistent with the actual situation of the enterprise
- Providing necessary information for financial projections
- Providing bases for inspection, movement and management in the firm
Corporate financial analysis underscores the significance of financial forecasting, serving as a cornerstone for management activities It not only guides financing policies but also establishes the fundamental principles governing the enterprise.
Investors, including stockholders, individuals, organizations, and businesses, allocate their capital to companies for management, profit, and risk-taking, all while having a vested interest in predicting the firm's future value Revenue sources for investors primarily come from dividends and capital surplus, both significantly influenced by the company's profit Key metrics that attract investor attention include the rate of return on company capital, return on equity, and the comparison of market price to par and book value Additionally, understanding the basis for long-term investment projects and the objectivity of publicly available financial statements is crucial For those lacking specialized knowledge to assess a company's financial performance, reliance on professional financial analysts becomes essential for informed decision-making.
In summary, investors can optimize their investment decisions by conducting a thorough corporate financial analysis, which includes assessing the company’s financial statements, estimating stock value, evaluating profitability and risk, staying informed on economic news, engaging directly with business management, and considering insights from financial analysts.
Credit suppliers provide loans to businesses for operational and production needs, requiring assurance of the borrower's ability to repay the debt They earn revenue through interest on these loans, making it essential for lenders to assess the financial health of borrowers to gauge repayment capacity Notably, the evaluation process differs between long-term and short-term loans.
Short-term credit providers focus on a business's immediate repayment capacity, assessing its ability to manage debt when it comes due In contrast, long-term credit providers conduct thorough financial appraisals of investment projects, overseeing the disbursement of capital to ensure that the business can repay through generated income and profitability, while also monitoring the cash flow of these investments.
Employees in an enterprise primarily earn income through salaries, but some also invest capital in the company, allowing them to share in profits Their total income is influenced by the enterprise's production, business operations, pay structure, and advancement opportunities Conducting financial analysis helps enterprises focus on optimizing output and business operations in line with their assigned responsibilities.
1.2.2.5 To the State management agencies
Agencies such as the Ministry of Finance, tax authorities, and market management play a crucial role in managing and monitoring the economy, ensuring the effective flow of financial resources between enterprises and the market To enhance the performance of these agencies, financial analysis is essential, as it provides valuable insights into the management and preservation of state capital in enterprises, oversees compliance with state obligations, and ensures adherence to legal regulations by firms.
Corporate financial analysis is a valuable tool for assessing economic value, evaluating a company's strengths and weaknesses, and identifying both objective and subjective factors This analysis equips stakeholders with essential information to make informed decisions aligned with their goals.
1.2.3 Information sources for corporate financial analysis
Financial statements are essential documents that summarize a company's financial performance and business activities These statements are frequently audited by government agencies, accountants, and firms to verify their accuracy, serving crucial roles in tax compliance, financing, and investment decisions.
Financial statements are essential tools that provide crucial economic and financial information for evaluating, analyzing, and forecasting an enterprise's financial position They serve as the primary data source for corporate finance analysis, revealing not only the current financial status of the company but also its performance results at the reporting time Through careful review and analysis of these statements, users can accurately assess the business's financial strength, profitability, and future prospects The three main financial statements include the balance sheet, income statement, and cash flow statement.
CURRENT STATUS OF CORPORATE FINANCIAL
Brief introduction about Joint Stock commercial bank for Foreign
Vietcombank Hanoi, officially known as the Joint Stock Commercial Bank for Foreign Trade of Vietnam, is situated at 11B Cat Linh, Quoc Tu Giam Ward, Dong Da District, Hanoi Established on March 1, 1985, the bank has played a significant role in the financial sector of Vietnam.
In accordance with No 177/NH.QD from the General Director of the State Bank of Vietnam, the aim was to bolster the external economic development of the capital by offering services to businesses in foreign trade, tourism, and international organizations in Hanoi During this period, Vietcombank employees diligently aligned with state directives, focusing on stability and growth while contributing to a robust banking sector that adapts to national innovations As a result of Vietcombank's commitment to innovation and expansion, Vietcombank Hanoi has achieved significant progress, enhancing its reputation and presence not only in the capital but also across various provinces nationwide.
Over 38 years of construction and development, Vietcombank Hanoi has grown stronger in all aspects of business activities In terms of capital mobilization, the Branch has implemented reasonable customer policies, developed more new types of services, focused on innovating service styles, improving service quality, and expanding its network of operations The products and services of Vietcombank in general and Vietcombank Hanoi in particular are highly trusted and chosen by many customers In terms of credit, the Branch has diversified its lending forms, reaching out to all economic sectors, promoting lending to potential industries such as oil and gas, electricity, chemicals, etc The number of customers having credit relationship with the branch has steadily expanded over the years If on the first day, the branch only had 20 customers, up to now, it has developed credit relations with nearly 5000 customers including economic organizations and individual clients The credit growth rate is always at the same rate or higher than the average growth rate of the industry The branch always actively looks for potential new customers for investment and lending, including several important local projects of the city, making significant contributions to the socio-economic development
In recent years, Vietcombank Hanoi has achieved significant revenue growth by expanding access to potential investment projects The branch's investment activities align with the country's social development and economic restructuring goals, focusing on key sectors such as services, education, healthcare, telecommunications, and high-tech industries Each officer at Vietcombank Hanoi is dedicated to continuous innovation, fostering collaboration for mutual development, and strengthening the bank's position as a leading enterprise and premier branch within the Vietcombank network.
Chart 2.1 Organizational structure of Vietcombank Hanoi
Source: Vietcombank Hanoi’s Administration Department
Vietcombank Hanoi is overseen by a board of directors that includes a director and three deputy directors responsible for managing various departments The bank is organized into eighteen distinct departments, categorized into two primary groups: the Business Department and the Supporting Department.
There are 13 offices included in the Business Department which are: 2
Corporate Relationship Departments, Retail Customer Department, Personal
Customer Service Department, Organized Customer Service Department, and 8
Accounting DepartmentTreasury DepartmentAdministration Department
The Corporate Relationship Departments play a crucial role in a bank's operations, focusing on foreign exchange services for large corporate clients They provide essential guidance in the preparation of loan documents and assess projects to determine lending decisions Additionally, these departments are responsible for monitoring capital utilization and facilitating debt collection efforts.
The Retail Customer Department at Vietcombank is dedicated to engaging with individual customers to facilitate capital raising and manage credit-related operations This department ensures the provision of suitable credit products in line with current policies while also advising and marketing tailored goods and services to meet the specific needs of clients.
The Personal Customer Service Department and Organized Customer Service Department are responsible for essential accounting operations, managing business capital, and facilitating the opening of savings accounts and credit cards They also handle non-cash payments and various other tasks With their courteous, polite, and attentive approach, many customers express satisfaction and continue to utilize the bank's services.
8 Transaction Offices: performing all departmental duties such as lending, opening saving accounts, raising capital, foreign exchange, playing an important role in contributing in Vietcombank Hanoi’s retail banking services
Supporting Department consists of 5 remaining offices: General Department, Debt Management Department, Accounting Department, Treasury Department and Administration Department
The General Department serves as the central authority for inspecting and controlling business activities across all departments, gathering data and financial reports, setting targets, and summarizing results Additionally, this branch houses the information technology hub, enhancing operational efficiency and data management.
Debt management involves key responsibilities such as collateral valuation, disbursement, and balance management for branch credit customers This office ensures compliance with credit disbursement regulations, conducts systematic operations, and securely manages loan documentation.
The Accounting Department performs accounting, internal revenue and expenditure, salary payment and expenditure activities of the Vietcombank Hanoi
Efficient accounting procedures guarantee prompt, secure, and convenient payment processing The accounting department collaborates with specialized management teams to meticulously oversee loan terms and ensure timely calculation and collection of interest.
Administration Department manages human resources, documents, and administrative tasks for the benefit of the branch
The Treasury Department ensures effective treasury management by adhering to regulations, managing fund allocation at the start of the day, and collecting funds at day's end for various departments, while prioritizing the security and safety of assets throughout the branch.
Table 2.1 Raising capital situation of Vietcombank Hanoi 2020 – 2022
(Source: Vietcombank Hanoi’s Financial Statements 2020 – 2022)
Vietcombank Hanoi experienced a notable capital raising growth, with a slight decrease from 27,145 in 2020 to 26,267 in 2021, followed by an increase to 28,027 in 2022 The years 2020 and 2021 were marked by the challenges posed by the Covid-19 pandemic.
The global spread of COVID-19 significantly impacted various sectors, particularly the economy, with Vietnam and Vietcombank Hanoi facing notable challenges However, the economic recovery in 2022 revitalized capital mobilization efforts, demonstrating resilience and potential for growth.
The business landscape consists of two primary forms: wholesaling and retailing Retailing has consistently been a stronghold in this sector, maintaining a stable proportion of over 60% across three years, despite a minor decline of 0.36% in 2021, followed by a significant rebound of 5.72% in 2022 Wholesaling mirrored this trend, experiencing a decrease of 816 billion dong in 2021 but recovering from 9,126 billion to 9,905 billion dong by the end of the period This fluctuation can be attributed to the adverse effects on people's livelihoods, prompting the State Bank to lower interest rates for support.
Current status of corporate financial analysis in lending activities at
2.2.1 Information sources used for corporate financial analysis
In the corporate financial analysis for lending activities at the Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hanoi Branch, key sources of information predominantly derive from customer-provided data.
Financial data, including the Balance Sheet, Income Statement, and Cash Flow Statement, allows banks to quantitatively assess an enterprise's financial health By analyzing these key financial statements, banks can make informed lending decisions.
- Non-financial data: is broken down into 2 key components that credit officers have collecte which is internal and external The information from inside can be described as:
+ Information related to customers: collateral, business ability, disbursement statement - debt collection
+ Customer transaction relationships with other departments in the bank + Information stored according to previous loan records (if any)
The information from outside includes:
+ Data from CIC, foreign credit information, secured transaction registration information, tax debt information, shareholder role, etc
+ Other financial institutions that the consumer does business with
+ Information from specialized publications, magazines and internet
Collecting customer information enables banks to understand the specific needs, terms, and purposes of business loans, allowing them to accurately identify their target customers This data also helps banks assess debt repayment capabilities, manage credit risks effectively, and offer timely solutions to minimize potential issues.
Comparitive analysis method and Ratio analysis method are two main ways which will be applied to analyze financial performance of enterprises in the most efficient and accurate way
To analyze financial statements effectively, investors commonly use horizontal and vertical comparison methods Horizontal analysis allows for the identification and evaluation of changes in financial items over time, while vertical analysis determines the percentage of each item within the financial statements Together, these approaches provide a comprehensive overview of how market factors, both objective and subjective, influence the existence and growth of businesses.
Ratio analysis, through the examination of financial metrics like Return on Assets (ROA), Return on Equity (ROE), and financial leverage, enables business owners to assess and measure the interplay between various financial factors This method facilitates a comprehensive evaluation of both the positive and negative aspects of their company's performance.
Corporate loans are managed by two departments: Corporate Relationship Department 1 and Department 2 Enterprises with revenues exceeding 100 billion and equity over 30 billion, as per their latest financial statements, are served by Department 1, while all other enterprises fall under Department 2 Customers begin the process by consulting with the department head, where they present their loan requirements, business plans, and existing debt situations with other institutions If they meet Vietcombank's regulatory criteria, a credit officer will further assess the business.
Step 2: Collecting and processing data
After the meeting, the credit officer will actively collect necessary and relevant information about the customer in order to support the analysis, including:
- Legal documents such as Certificate of Business Registration, Business License, Enterprise Charter, Decision on appointment in the company
Financial records encompass essential documents such as financial statements from the past three years, quarterly financial statements (not older than four months), VAT declarations, input and output contracts, and detailed reports on key items like revenue, inventory, and accounts payable.
- Documents of collateral such as proof of ownership, Certificate of Vehicle Registration, purchase and sale contract, customs declaration
- Plan on using loan capital, investment plan, business plan
- Credit history on CIC system
The credit officer will gather essential information about the enterprise, including its foundation history, business activities, existing credit relationships, charter capital contributions, and relevant financial reports to determine eligibility for loans at Vietcombank Hanoi Following this, the branch will assess the firm's financial health by analyzing its financial statements and key financial ratios.
Step 3: Analyzing corporate financial situation
Vietcombank Hanoi conducts a thorough analysis of enterprise business results by examining the Balance Sheet and Income Statement from the past three years Utilizing horizontal analysis, the branch identifies and evaluates changes in financial items over time, allowing credit officers to highlight fluctuations and their underlying reasons, as well as their impact on the business Furthermore, financial ratios are crucial in assessing a company's financial health, with Vietcombank Hanoi calculating key metrics to evaluate autonomy and business performance through four main categories: Activity ratios, Liquidity ratios, Solvency ratios, and Profitability ratios.
Step 4: Conclusion and recommendations of credit limit
The branch's lending decisions will be based on a thorough financial analysis of the business To qualify for a loan, a company must demonstrate a strong financial position and the capability to repay the debt within the specified timeline Additionally, the loan plan must be practical, efficient, and compliant with legal regulations as well as the guidelines set forth by Vietcombank Hanoi.
2.2.4 Illustrating financial analysis of corporate customers in lending activities at Joint Stock commercial bank for Foreign Trade of Vietnam, Hanoi branch
To gain insights into corporate financial analysis within lending activities at Vietcombank Hanoi, we can examine the case of ELCOM Technology Communications Corporation, a recipient of the bank's loans.
Name: ELCOM Technology Communications Corporation
Head Office: Elcom Building, No 15 Duy Tan, Dich Vong Hau
Ward, Cau Giay District, Hanoi, Vietnam
0101435127 registered for the first time on July 18 th
2003 by Hanoi Department of Planning and Investment, registered for the 28th time on December 1 st 2022
Business activities: Trading in high-tech products
Representatives: Mr Phan Chien Thang – Chairmsn of the Board
Mr Pham Minh Thang – CEO
Listed at: HOSE Code: ELC
Electronic Telecommunications Technology Development Investment Co., Ltd (Elcom Ltd) was founded on December 15, 1995, by Decision No 2200/GPUB from the Hanoi People's Committee Initially headquartered at 12A Ly Nam De, Ba Dinh, Hanoi, the company relocated to 15 Duy Tan, Cau Giay, Hanoi in 2012 In 2004, Elcom transformed into a joint stock company, rebranding as ELCOM Technology Communications Corporation and opening a branch in Ho Chi Minh City.
ELCOM CORP stands out as a premier technology company in Vietnam, specializing in software products, network services, and turnkey solutions for various sectors, including telecommunications, security, defense, and transportation The company serves as a vital link for global partners aiming to enter the Vietnamese market ELCOM's innovative products have earned a strong reputation in the tech industry, gaining the trust of customers, partners, and industry peers alike.
Elcom is at the forefront of technology development and product commercialization, leveraging cutting-edge advancements in AI, Big Data, IoT, and Cloud technologies The company has introduced new strategic product lines and is actively pursuing the commercialization and advanced development of innovative solutions Upcoming offerings include AI-driven products for the ETC system, automated cold sanctioning, security monitoring, AI cameras, and several service platform products, all of which are poised to meet the high market demand anticipated in the near future.
Comment from credit officer: The business has the potential for future expansion, so it is reasonable to maintain client credit and meet the requirements of Vietcombank Hanoi
Table 2.5 Equity structure of ELCOM CORP
Name of organization/individual contributing Contribution % of contribution
The firm, publicly traded on the HOSE stock exchange under the code ELC, has 21.02% of its shares owned by individuals holding more than 5%, significantly below the 65% threshold According to VCB standards, this indicates that the corporation is not classified as a private-family company, thereby granting it the legal status to secure capital loans from Vietcombank.
Development orientation of Joint Stock Commercial Bank for Foreign
From 2020 to 2022, Vietcombank, particularly its Hanoi Branch, successfully navigated the unprecedented challenges posed by the Covid-19 pandemic by achieving dual objectives: ensuring system safety and meeting established targets while providing essential support to individuals and businesses affected by the crisis Moving forward, Vietcombank will continue to pursue its strategic development goals for 2025, with a vision aimed at 2030, solidifying its position as a leading financial institution.
1 position in Vietnam and achieving the international level with the motto
"Transformation - Efficiency - Sustainability" and operating concept "Responsibility
Amidst global economic challenges and a forecasted slowdown in growth, high interest rates are being maintained to combat inflation, leading to a decline in global trade due to tightening supply constraints and reduced overall demand In response, Vietcombank has outlined essential guidelines to navigate these conditions and achieve its objectives.
To enhance business operations for efficiency and sustainability, it is essential to implement strategic innovations and reorganize company processes Focus on six key innovations while also prioritizing three critical areas of process improvement The primary objective is to prioritize customer needs, ultimately elevating the quality of the customer experience.
- Having a vision to 2030, push up and significantly implement the digital transformation action program with the aim of placing Vietcombank among the top ASEAN banks for digital transformation
Vietcombank is committed to actively and responsibly participating in the restructuring of underperforming credit institutions, guided by the Government and the State Bank This approach aims to ensure sustainable and efficient growth for the bank while successfully executing its strategic plans.
Solutions to improve corporate financial analysis in lending activities at
3.2.1 Improving the quality of information collected and processed
The primary source of information for corporate financial analysis is often derived from customers, which tends to be subjective and may not accurately represent the company's financial health To enhance the reliability of these reports, credit officers at Vietcombank Hanoi should request third-party verified data from sources such as state audit firms, tax offices, or major partners connected to the firm.
Analysts must ensure the accuracy and quality of financial statement information, comparing client data with reliable sources to confirm its validity This verification process is crucial for preventing exaggerated representations that could mislead banks during loan applications Establishing strong relationships with reputable organizations and maintaining a detailed plan for data comparison and verification are essential for effective analysis in the financial sector.
Credit officers play a crucial role in assessing the accuracy and reasonableness of a client's financial statements To evaluate the quality of a customer's assets effectively, they must engage directly with clients, visit their operational sites, and observe their work environments If any discrepancies are identified during this process, the credit officer can request immediate clarification and corrections from the enterprise While this approach may be time-consuming, it ensures the credibility of credit operations, enhances the quality of analytical information, and mitigates risks for banks.
3.2.2 Improving the content of financial analysis
To accurately assess a firm's business performance and debt repayment ability, banks must thoroughly analyze its financial reports While Vietcombank Hanoi primarily focuses on the Balance Sheet and Income Statement, it is essential to also analyze the Cash Flow Statement, as it is a critical indicator of the enterprise's financial effectiveness Consequently, a comprehensive evaluation should include a careful examination of the Cash Flow Statement alongside the Balance Sheet and Income Statement.
We should take a look at the example of ELCOM Technology Communications Corporation to analyze its Cash Flow Statement in the period of 2020-2022
Table 3.1 Cash Flow Statement of ELCOM CORP 2020-2022
Net cash from operating activities 264,693 -97,378 -103,992
Net cash from investing activities -2,714 15,312 26,717
Net cash from financing activities -18 -67,467 -4,524
Net increase/decrease in cash 261,961 -149,533 -81,799
In 2021 and 2022, ELCOM experienced negative net cash flow from operating activities, recording -97,378 and -103,992 respectively, a significant decline from the positive cash flow of 264,693 in 2020 The minimal change in net cash flow from operating activities between 2021 and 2020 signals concerning business performance, as cash outflows consistently surpassed inflows This trend was primarily driven by increased interest expenses and accounts payable, including 165 billion dong owed to Comverse Network for a collaborative project with N.D.C for Viettel, alongside 240 billion dong in advanced payments, which comprised 164 billion dong from the Ministry of Public Security and 76 billion dong from Thanh Hoa Provincial Police for a bidding package.
In 2022, the net cash flow from investing activities remained positive at 26.7 billion dong, primarily driven by loan interest income, dividends, and distributed profits totaling 43.33 billion dong, along with a capital recovery from other entities amounting to 10.37 billion dong However, the company also faced significant expenditures, including lending and purchasing debt instruments, which amounted to -15.56 billion dong, as well as a capital contribution to other entities totaling -13.4 billion dong.
In 2022, the net cash flow from financing activities was -4.5 billion dong, primarily driven by loan principal repayments of -52.76 billion dong, which surpassed the total loans received of 45.95 billion dong Notably, the cash outflow for dividends paid to shareholders saw a significant reduction, decreasing from -67.46 billion dong in 2021 to -4.52 billion dong in 2022.
3.2.2.2 Applying more financial analysis methods
Vietcombank Hanoi employs two primary methods for assessing the financial health of enterprises: the Comparative Analysis Method and the Ratio Analysis Method However, relying solely on these approaches may hinder the bank's ability to accurately gauge a business's profitability To enhance evaluation effectiveness, Vietcombank Hanoi should integrate traditional methods with innovative techniques, such as the increasingly popular DuPont Analysis Method.
The decomposition of ROE is accomplished through the use of the DuPont analysis technique In DuPont analysis, ROE can be broken down into:
-+"./0" 23,4#5 = Net Profit Margin x Asset Turnover x Financial Leverage
Table 3.2 DuPont analysis of ELCOM CORP
Revenue (million dong) 659,132 863,283 Average assets (million dong) 1,321,742 1,145,101
(Source: Calculation by the author)
In the case of ELCOM Technology Communications Corporation, a DuPont analysis reveals a decline in Return on Equity (ROE) for 2022, attributed to a decrease in net profit margin and financial leverage Specifically, the net profit margin fell from 0.08 to 0.04, indicating a decline in net income despite an increase in revenue, which suggests that the company generated less profit per revenue unit, reflecting reduced effectiveness in its business performance.
Financial leverage decreased by 0.25, indicating a reduction in average assets and an increase in average equity This shift suggests that the firm's assets are now financed more by equity than by debt, which can be seen as a positive development The company remains in a secure position, avoiding the financial risks associated with excessive debt in funding its operations.
Asset turnover is the only indicatior increasing from 0.50 in 2021 to 0.75 in
In 2022, the company experienced a rise in revenue alongside a reduction in average assets, demonstrating efficient asset utilization, as each unit of asset is capable of generating increased revenue for the firm.
In summary, while Return on Equity (ROE) measures a company's efficiency in utilizing shareholder capital, the DuPont analysis provides a more detailed examination of individual financial performance factors This method enables investors to identify strengths and weaknesses, allowing for a deeper assessment that considers unforeseen variables.
3.2.3 Improving the quality and qualifications of credit officers
At Vietcombank Hanoi, each business's financial analysis is managed by a single credit officer To enhance the effectiveness of financial analysis and overall credit activities within the bank, it is essential for each credit officer to possess extensive knowledge and high professional qualifications.
To enhance the skills of credit officers, banks should facilitate regular attendance in training classes, enabling them to improve their analytical and evaluative abilities regarding customers Additionally, organizing workshops that promote knowledge sharing and experience exchange between senior and junior staff can foster a collaborative learning environment, benefiting all employees.
To thrive in today's globalized environment, enhancing foreign language skills is essential This improvement not only facilitates access to professional documents in English but also expands the client base to include both domestic and international markets.
Recommendations
3.3.1 Recommendations to the State Bank
Commercial banks primarily assess businesses using the CIC system to review customers' credit histories across different banks The quality of this information directly impacts the lending risk for these banks To mitigate this risk, the State Bank needs to enhance and develop the CIC system, ensuring that data is delivered to commercial banks, especially Vietcombank, in a timely, complete, and accurate manner.
To enhance financial stability, the State Bank must prioritize regular inspections and effective supervision of commercial banks This will ensure that customer funds are utilized for their intended purposes, thereby minimizing potential risks during financial analyses of corporate clients Commercial banks should implement rigorous assessments and reviews of their product offerings, particularly credit products Additionally, it is crucial to take decisive action against organizations and individuals who intentionally violate regulations, as this will help mitigate risks to the banking sector.
The State Bank should release policy documents that align with the current economic landscape and revise credit mechanisms, including lending processes These documents must clearly define the responsibilities and powers of all parties involved, providing banks with a solid foundation for their internal controls.
The State Bank must collaborate with the State Audit and reputable auditing firms to conduct regular inspections of commercial banks, focusing on the scope and content of audits Implementing strict penalties for inaccuracies in financial statements and recommending strategies to address audit weaknesses will enhance the accuracy and transparency of customer data.
3.3.2 Recommendations to Joint Stock Commercial Bank for Foreign Trade of Vietnam
Vietcombank needs to develop a more precise evaluation system that goes beyond the existing guiding documents It is essential to consider actual circumstances and involve branches in the creation of regulatory documents related to credit appraisal Additionally, the analysis of cash flow, which currently lacks focus, should be prioritized as it plays a crucial role in assessing the financial performance of enterprises.
To enhance staff performance, the bank must prioritize high-quality training programs, including professional courses and seminars, to improve employee qualifications and capacity Additionally, it is essential to focus on attracting and developing top-tier talent while implementing policies that motivate employees to fully engage in their work.
3.3.3 Recommendations to the corporate customers
To enhance transparency in banking documents, businesses must ensure that their financial statements are verified by a credible third party This verification is crucial to prevent the dissemination of false information and to maintain clarity, as any lack of transparency can lead to inaccuracies in financial analysis Ultimately, these inaccuracies can adversely affect the lending decisions made by commercial banks.
Effective business planning requires clear goals regarding the use of loan capital, cost management, and project execution methods These strategies help banks assess whether a company is utilizing its financing appropriately and whether it has the potential for success.
In chapter 3, the thesis offered some suggestions to improve corporate fianncial analysis at Vietcombank Hanoi to overcome the shortcomings mentioned in Chapter
2 In order to increase the effectiveness of the corporate financial analysis in lending activities and provide the best outcomes, certain recommendations are also made to the State Bank, Joint Stock Commercial Bank for Foreign Trade of Vietnam, and corporate clients of commercial banks
In recent years, business owners have increasingly sought financial support services to enhance operations and boost profits Loans provide essential capital quickly, enabling firms to seize new opportunities and gain a competitive edge in the market As a reliable source of capital mobilization, commercial banks are often the preferred choice for businesses seeking to borrow This trend has led to increased lending to corporate clients, which is a highly profitable activity for banks, albeit fraught with risks primarily stemming from the quality of corporate financial analysis Consequently, enhancing the quality of financial analysis for corporate customers is crucial for commercial banks, particularly Vietcombank Hanoi This thesis focuses on analyzing these critical issues based on practical research conducted at Vietcombank Hanoi and insights from previous studies.
Firstly, the thesis has stated the theoretical basis of corporate financial analysis in lending activities at commercial banks
The thesis examines the current state of financial analysis for enterprises at Vietcombank Hanoi, highlighting both the accomplishments and limitations encountered It identifies the underlying reasons for these limitations, providing a foundation for practical solutions to enhance financial analysis processes.
Thirdly, the thesis has outlined the development orientation of Vietcombank
Hanoi Branch, proposed some solutions and suggest some recommendations to the
State Bank, Vietcombank and corporate customers to improve corporate financial analysis in lending activities
Given the constraints of limited research time and knowledge, it is natural for mistakes to occur during the thesis development process I eagerly anticipate receiving feedback from my lecturers to enhance the quality of my thesis.
1 Đào Thu Liên (2015), ‘Áp dụng mô hình Camels trong phân tích tài chính tại Ngân hàng thương mại cổ phần An Bình chi nhánh Hải Phòng’, Master thesis in economics, Banking Academy
2 Kiều Thị Ngọc Mai (2021), ‘Giải pháp nâng cao hiệu quả phân tích tài chính khách hàng doanh nghiệp trong hoạt động tín dụng tại Ngân hàng thương mại cổ phần Á Châu (ACB)’, Graduation thesis, Banking Academy
3 Lan Hương (2023), Vietcombank và cuộc chơi khẳng định vị trí nhà tạo lập thị trường, retrieved on May 3rd 2023, from https://laodong.vn/tien-te-dau- tu/vietcombank-va-cuoc-choi-khang-dinh-vi-tri-nha-tao-lap-thi-truong-1136121.ldo