theoretical background on lending activities to smes at commercial bank

AKNOWLEGDEMENT First of all, I am heartily thankful to my supervisor, Prof Dr Pham Quang Trung who guide and support me from the initial to the final of the thesis This thesis would not have been possible without helping of my colleagues in MB and other banks. Therefore, I would like to thank my colleagues who are open –mind in sharing experiences and points of view. In doing this thesis, it is an honor for me to receive many feedbacks from Military Bank customers about the subject. I would like to show my gratitude to representatives of Military Bank’s SMEs customers who support bring me many ideas. Lastly, I offer my regards and blessings to all of those who supported me in any respect during the completion of the project Nguyen Khac Kien 1 TABLE OF CONTENT 2 ABBREVIATITION Bil/Mil Billion/Million CAD Credit Appraisal Department CSD Credit Supporting Derpartment CRD Customer Relationship Department CRO Customer Relationship Officer CSO Credit Supporting Officer GDP Gross Domestic Product IFC International Finane company JSCBs Joint stock commercial Bank MB Military Bank OECD Organization for Economic Co-operation and Development RM Relationship Manager SMEs Small and Medium –sized Enterprises SOCBs State owned commercial Bank SWOT Strength – Weakness – Opportunity – Threats LIST OF TABLE 3 4 LIST OF FIGURES EXECUTIVE SUMMARY MB Tay Ha Noi branch is one of the youngest branches of MB, was upgraded by transforming Ha Tay office transition. In comparison with other branches, locating in urban area, Tay Ha Noi branch has many weaknesses. MB THN has continuously developed not only in term of profit and economic performance, but also in term of quality for credit product and other services related to customer. 5 Lending activities to SMEs play a crucial role for Commercial Bank. So that, many commercial Banks tend to target its customer toward this segmentation. Military Bank Tay Ha Noi branch is not in the trend. With the efforts of all officials and employees of branches, lending activities to SMEs of MB Tay Ha Noi in the recent years has achieved a number of accomplishments reflected in the following aspects: (i) MB Tay Hanoi has grown fast and strongly in the scale of lending to SMEs, (ii) Credit Procedure of MB has a lot of improvements to shorten the approval time of loan for customers to meet the capital needs of the business, (iii) MB package provides credit and interest rate policies of free competition for SMEs. However, SME lending activities of MB THN branch still include some difficulties. In line with title of this research, the author has analysed current situation of SMEs lending at Tay Ha Noi branch to find out its achievements and shortcomings. From the difficulties and shortcomings the author shall identify the solutions to enhancing lending to SMEs at MB Tay Ha Noi. In research process, the author has collected both primary data as well as secondary data. In order to find solution for the problem, this research used some methods to analyse including: Microsoft Excel software, using table, figure. After doing research lending activities to SMEs, the author has pointed out some main findings about lending activities to SMEs in general and lending activities to SMEs at MB Tay Ha Noi in particular. The author has shown components of lending activities. Those are: lending objective, lending conditions and lending procedure to obtain a loan. The thesis has mentioned factors that impact on lending activities as well: External factor such as: impacts of monetary tools such as capital re-issuance, compulsory reserve ratio, open market operation, credit interest, etc; factors from SMES, economics environment, In addition, thesis has shown internal factors, such as: lending policy of commercial bank, Capital scale of bank, diversity of banking product,… From the above background on lending activities to SMEs, the write has analyzed current situation of MB Tay Ha Noi and has point out some difficulties 6 and shortcoming of lending to SMEs at Tay Ha Noi branch as: (i) lack of standard process of selling, (ii) Lack of customer oriented business practices, (iii) Banks Staff, (iv) Credit procedure of MB, (v) high bad debt ratio. After that, the author has suggested some solutions and recommendation to enhancing lending SMEs as: (i) MB Tay Ha Noi should orientate targeted customers concretely, (ii) MB should issue a standard selling process as well as a sale kit pack for enterprises customers relationship staffs, (iii) Regulation on golden selling hours for customer relation staffs , (iv) Improving the credit procedure for SMEs, (v) Improving services providing process, (vi) Manage customers after lending. For SMEs, they should improve their bankable capacity by upgrading their infrastructure and paying more attention to employees in term of knowledge, professional and computer Skills. In addition, SMEs should participate in professional Associations to be updated information about market and industries. SMEs should invest accountancy system software and hire qualified accountant to complete financial statement better. Besides, SMEs should be more active to access to the banks by contacting RM frequently and enthusiastic to participating workshops or clients meeting arranged by the banks as they can get helpful information for financing sources. CHAPTER 1 INTRODUCTION 1. Rationale Small and medium sized Enterprises (SMEs) play a important role in the Vietnamese economy. According to the recent statistics, SME represent 7 approximately 97% of total of Vietnamese enterprises. SMEs not only contribute to economic growth but also create millions of jobs per year for the Vietnamese labours, to eliminate the poverty, strengthen social security. Annually, SME contribute to Government budget above 40% of GDP. Nevertheless, the development of the private sector in general and of SMEs in particular is still far from its potential. SMEs could not develop as expected because of a range wide of internal and external factors. . Because of its potential developing of SMEs, more and more Vietnamese commercial banking focus on much this market segment. And not to be in the trend, Military Bank also spends its resource to supply banking services to SMEs. However, many SMEs are now still reluctant to access to MB’s loan due to many reasons for not only from the SMEs but also from the bank. Whereas, in line with harsh competitive environment is increasing in the banking market, pressures on boosting outstanding loan, guarantee, and other banking services from Head Office to the branch is very high. So that enhancing lending to SMEs is the most important target for MB Tay Ha Noi branch. Working as manager of transaction office at Military Bank Tay Ha Noi branch I choose the topic: “Enhancing lending to SMEs in Military Bank – Tay Ha Noi Branch” with the hope that this research can be helpful to my branch in its business. The rationale of this paper is to review the achievements of MB Tay Ha Noi for the past 4 years as well as investigate and analyse shortcomings, limitation and obstacles that lending activities to SMEs in Tay Ha Noi branch is facing with then propose the solutions to improve SMEs lending capacity for MB’s staffs, to enhance lending activity to SMEs. 2. Research Objectives In line with title of this research, the report will aim at finding the solutions and measurement to address the difficulties and constrains that SMEs have been facing with to get a loan from Military Bank in general and MB Tay Ha Noi branch in 8 particular. In order to get these final objectives, the writer will do the research with 3 sub-objectives as listed as below: - To clarify component of lending activities to SMEs at commercial bank. - To analyse current situation of lending activities to SMEs at MB Tay Ha Noi branch to find out its achievements and shortcoming. - To propose solutions and recommendation to enhance the lending activities in MB Tay Ha Noi branch 3. Research question In order to meet the above research objectives, this research find answer for the following questions: -What is component of lending activities to SMEs? -How is current situation of lending activities to SMEs at MB Tay Ha Noi branch -How to improve lending activities to SMEs at MB Tay Ha Noi Branch? 4. Research Methodology 4.1. Research Process The following figure reflects the process that the writer does the research 9 Theoretical Background on lending activities of commercial bank Components of lending activities to SMEs at commercial banks Figure 1.1: Research Process 4.2Data collection Data used in the thesis is primary and secondary: - Secondary data within the scope of this research will be collected from different resources, such as: website, annual report, books and other researches about Military Bank, supplying banking services to SMEs. The secondary data will collected from 2010 - 2012 - The primary data will be collected in 2013 in-depth interview to gather opinion of managers, directors, relationship officers, Credit appraisal, and enterprises about banking services to SMEs. Of which, the number of interviewees are allocated as the table as bellows: 10 Characteristics of Small and Medium Size Enterprises Collecting primary data about lending activities to SME at MB Tay Ha Noi by in – depth interview and Survey Current situation of lending activities to SMEs at MB Tay Ha Noi Solutions and recommendations to improve lending activities to SMEs at MB Tay Ha Noi Collecting secondary data about lending activities to SMEs at MB Tay Ha Noi from website, annual reports, books and other researches about MB, lending activities. [...]... clients fail to pay, banks will implement measures to settle problematic debts 34 2.3 The factors that effect on lending activities to SMEs There are many factors that affect lending decisions yo SMEs of commercial banks Such factors can be categorized into two groups: 2.3.1 External factors  Policy of State Bank of Vietnam Operations of commercial banks are under strict control of the State Bank and... activities, loans to SMEs of commercial banks are based on some most general principles in order to ensure safety and profitability Under regulations of the State Bank of Vietnam, enterprises have to satisfy the following conditions in order to get loans from Banks According to Decision 1627/2001/QDNHNN dated 31 December 2001 of the State Bank on issuing regulations on lending by credit institutions to clients... activities to SMEs at Military Bank Tay Ha Noi branch Chapter 4: Solution and Recommendation to enhancing lending activities to SMEs in Military Bank Tay Ha Noi Branch 13 CHAPTER 2 THEORETICAL BACKGROUND ON LENDING ACTIVITIES TO SMEs AT COMMERCIAL BANK 2.1 Commercial Bank and Small and Medium - Sized Enterprises 2.1.1 Nature of Small and Medium - Sized Enterprises 2.1.1.1 Difinition of SMEs The term “small... only mentions issues of operational level Time: Secondary data will be collected from in the last three year (period 2010-2012) Primary data will be gathered in 2013 Research structure: The thesis will be structured as following chapters: Chapter 1: Introduction Chapter 2: Theoretical Background on lending activities to SMEs at commercial bank Chapter 3: Current situation of lending activities to SMEs. .. problems, causes and better solutions in enhancing lending to SME customers in Military Bank 12 5 Research scope Research object: The research focuses on lending activities to SMEs at Military joint stock commercial Bank Location: Military joint stock commercial bank – Tay Ha Noi branch The report analyzes and gives recommendation mainly in the lending to SMEs ad solution in aspect of the particular... investments will give banks no chances to extend their lending activities At present, when Vietnam is an official member of WTO, the integration into international and regional economies will provide more goods opportunities to banks Banks can extend their lending activities in home currency and foreign currency to both domestic and foreign companies  Factors of legal environment Legal environment in business... Vietnam is a country of stable politics, strong defense in the world It is valuated as a country of high safety that is the basic conditions for national economic growth 2.3.2 Internal factors  Lending policies of bank: This is the general guidance to credit staff of banks, contributing to improve specialization and consistence in lending activities of banks in order to limit risks and promote profitability... of contracts approved to clients or to Documents and conditions of Lending transferring bills for decision clients’ suppliers disbursement: VAT invoices, Economic contracts, Comparison of debts Monitoring, Internal Analyzing debts information collection and banks reports, credit Periodical financial inspecting liquidation reports and business facilities solutions Other information of clients Preparing... assets and income from lending activities counts from 50% to 60% total income of banks On the other hands, risks in lending activities mainly concentrate in lending items When a bank falls into seriously difficult financial situation, reasons often comes from its lending activities The bank may fail to collect capital, or loose management, issue unclear credit, apply poorly appropriate credit policies... qualification: SMEs are the new type of economic component; therefore their level of managers and qualification of staffs are not high In term of administration, many top administrators of SMEs were not educated in business and administration; they work mostly by their experiences • Lastly, SMEs sometimes are very much focused on the person of the owner The businesses’ success and market position depend on . SMEs at commercial bank. Chapter 3: Current situation of lending activities to SMEs at Military Bank Tay Ha Noi branch. Chapter 4: Solution and Recommendation to enhancing lending activities to SMEs. services related to customer. 5 Lending activities to SMEs play a crucial role for Commercial Bank. So that, many commercial Banks tend to target its customer toward this segmentation. Military Bank. data about lending activities to SME at MB Tay Ha Noi by in – depth interview and Survey Current situation of lending activities to SMEs at MB Tay Ha Noi Solutions and recommendations to