CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK

1 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY -0O0 - NGUYEN VAN THANH CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK Major: Finance - Banking Code: 62.34.02.01 SUMMARY OF DOCTORAL THESIS IN ECONOMICS HO CHI MINH CITY, 2015 The work was finished at BANKING UNIVERSITY HO CHI MINH CITY Scientific Supervisor: Assoc Prof Ph.D Nguyen Đac Hung Peer Reviewer 1: Peer Reviewer 2: Peer Reviewer 3: The thesis was defended at Council of thesis assessment of BANKING UNIVERSITY HCMC which was held at: … , on … , 2016 The thesis can be referred at National Library and the Library of Banking University HCMC LIST OF PUBLICATIONS RELATED TO THE AUTHOR’S THESIS Nguyen Van Thanh (2012), “In order to reduce the lending rate, it is necessary to well manage the liquidity risk”, Journal of Financial Markets and Money, 7(352), p 22-25 Nguyen Van Thanh ( 2012), “The picture of government debt of Vietnam in the present stage”, Journal of banking science and training, 116+117, p 31-33 Nguyen Van Thanh ( 2014), “Managing the liquidity risk at commercial banks”, Economy and Forecast Review, 6, p 31-33 Nguyen Van Thanh ( 2014), “ Agribank improving the credit quality to production households”, Economy and Forecast Review, 5/2014, p 6-8 Nguyen Van Thanh (2014), “Credit Policies for production households – Issues raised”, Journal of Finance, 6, p 37-39 Nguyen Van Thanh ( 2015): “Solutions to improving the credit quality to production households at Agribank”, Journal of Financial Markets and Money, 23/2015 (440), p 29-21 Nguyen Văn Thanh (2015) :”Enhance to role of Agribank to supplying captal for develop a high technical agriculture”, Sinemar repor, 18/12/2015, Hanoi PREFACE NECESSITY OF THE THESIS In the most recent years, although Agribank has achieved a high growth rate of credit for production households with basically safe credit quality, the reality also poses many urgent issues to this commercial bank The competitive environment in credit operations in general and credit for production households in particular is becoming more and more active The needs for capitals of production households are becoming larger Objects using loans for production households are more diverse, which is accompanied by larger levels of risks The integration of the economy in general and the agriculture in particular brings many opportunities but also poses greater challenges The proportion of bad loans of production households was reported to be low, but in fact, there were still a lot of risk potentials since the loans have been restructured or concealed under many different forms This requires Agribank of Vietnam to have suitable solutions, continuing to keep the main role in the credit operations for production household economy However, it also needs to continue to improve the credit quality in this customer segmentation Credit capitals for agricultural and rural development in general and for economic development of production households in particular continue to be a topical issue, a basis for customer sustainability, and a long-term strategy of Agribank of Vietnam Therefore, the selection of the thesis topic "Credit quality to production households at Agribank" to study was derived from the urgent requirements which were being raised in the reality of Vietnam RESEARCH OVERVIEW OF THE THESIS 2.1 Studies on credit quality to production households at Agribank 2.1.1 Doctoral theses in economics: The thesis presented the successes and drawbacks of three theses with directly related contents 2.1.2 Scientific articles: The thesis mentioned the overview of three journal publications with directly related contents 2.2 Credit policies and credit quality of Agribank: The thesis mentioned doctoral theses and scientific articles which were related 2.3 Research gap of previous studies No studies had clarified the theoretical framework of the credit quality to production households of commercial banks The studies had also not clearly analyzed and evaluated the reality of the credit quality to production households of Agribank of Vietnam This thesis aimed at clarifying the achievements and constraints, finding out the causes, and proposing the solutions and recommendations to improve the credit quality to production households at Agribank of Vietnam from this period until 2020 OBJECTIVES OF THE STUDY 3.1 Overall objective: Contributing to clarifying the role of improving the credit quality to production households of Agribank of Vietnam 3.2 Specific objectives: Answering and clarifying the questions: (1) What are the basis and theoretical framework of credit quality to production households of commercial banks? What is the international experience? What is the reality of credit quality to production households of Agribank of Vietnam? What are the practical and feasible solutions for the reality? OBJECT AND SCOPE OF THE STUDY - Object: the credit quality to production households at Agribank of Vietnam - Scope: + About the space: The production households studied in the thesis were generally households which were having credit relations to Agribank of Vietnam The focus of the thesis was agricultural-rural production households The credit studied in the thesis was the offering of credit or lending activity of Agribank of Vietnam for production households + About the time: The reality was within six recent years from 2009 to 2014 and the solutions were for the period until 2020 RESEARCH METHODLOGY - The thesis used mixed-methods in economic research - The thesis studied the typical credit quality to production households at some branches of Agribank - The thesis used the expert method NEW CONTRIBUTIONS OF THE STUDY Firstly, the thesis built a theoretical framework on credit quality to production households Secondly, it clarified the reality of credit quality to production households of Agribank of Vietnam Thirdly, it suggested a system of practical and feasible solutions and recommendations from continuing to expand the network and raising staff’s awareness to strengthening the risk management, diversifying lending methods, improving the quality of credit operations at branches, and so on THEORETICAL AND PRACTICAL SIGNIFICANCE OF THE STUDY 7.1 In terms of theory: The results of the thesis contributed to supplementing the rationale of credit operations of commercial banks for production households in general and for agricultural-rural development in particular 7.2 In terms of practice: The results of the thesis contributed to improving the credit quality to production households of the whole system of Agribank of Vietnam as well as its branches LIMILTATIONS OF THE STUDY In order to have a synthetic and logical research for commercial banks in the country and for production households operating in each sector with specific capital investment, it was necessary to have a broader and deeper study with longer time, larger study forces, and appropriate expenses At the same time, the research content of this thesis was based on a state-owned commercial bank whose credit operations were mainly in agriculture and rural areas Meanwhile, other commercial banks in Vietnam today were quite diverse and were mainly joint stock commercial banks; therefore, it was difficult to cover ORGANIZATION OF THE THESIS Chapter 1: Basic issues on credit quality to production households of commercial banks Chapter 2: Reality of credit quality to production households at Agribank Chapter 3: Solutions to improve the credit quality to production households at Agribank CHAPTER BASIC ISSUES ON CREDIT QUALITY TO PRODUCTION HOUSEHOLDS OF COMMERCIAL BANKS 1.1 OVERVIEW OF BANK CREDIT TO PRODUCTION HOUSEHOLDS 1.1.1 Concept of production households In the scope of the thesis, production households were understood as households which conducted one or more different activities of production, business, services, etc within the family scope Those activities of households were also conducted in specific scope of spaces or administrative units such as hamlets, villages, communes, wards, and so on 1.1.2 Characteristics of production households in credit relations with commercial banks 1.1.2.1 General characteristics The thesis clarified the contents: Trading relations of production household with commercial banks were not regular and the scale was not big; Production households’ bank loans were often used for many activities of production, business, service, and consumption; Production households normally appreciated prestige in credit relations with commercial banks; Levels of production, education, and legal awareness of production households were limited and unequal 1.1.2.2 Characteristics of agricultural - rural production households The thesis clarified the contents: Firstly, the agricultural - rural production households lived and worked in a community mainly including farmers Secondly, many farmer households were attracted by the urban appeal in different aspects; therefore, rural workers were tending to head to the cities to look for work Thirdly, the majority of rural production households had low incomes; the their living standards and levels of science and technology were lower than those in urban areas 1.1.3 Major capitals to develop production households’ economy The thesis clarified the contents: (1) Owned capitals, (2) Credit capitals based on traditional relations of residents in rural areas, (3) Capitals supported by the State, (4) Capitals from bank credit, (5) Capitals from political-socialprofessional organizations; (6) Other capitals 1.1.4 Credit operations of commercial banks for production households The thesis clarified two contents: (1) Features of lending activities to production households, (2), Lending methods to production households of commercial banks 1.1.5 The role of credit operations of commercial banks to the development of production household economy Firstly, the credit activities promoted the process of capital accumulation and concentration, thereby contributing positively to the process of continuous movement of capitals Secondly, the credit activities of commercial banks were a capital financing tool for less developed economic industries and priority fields Thirdly, the bank credit controlled with currency and promoted production, implemented economic accounting of production households in the orientation of goods production Fourthly, the bank credit capitals to production households contributed to promoting the formation and development of financial markets in rural areas Fifthly, the bank credit capitals from commercial banks to production households contributed to restructuring the agricultural-rural economy Sixthly, the bank credit promoted production households to access and expand goods production 1.1.6 Regulations and conditions for offering credit to production households 1.1.6.1 Regulations for offering credit to production households i) Loans must be used to the right purpose agreed in the credit agreement and plans for applying for loans ii) Loan principals and interests must be repaid on time as agreed in the credit agreement iii) Loans must be guaranteed 1.1.6.2 Conditions for offering credit to production households i) Having civil legal capacity, having civil behaviors, and taking civil responsibility as prescribed by law ii) For production households and individuals, registration for residence is a must; the usage purpose of loans must be legal iii) Having financial potentials ensuring the debt payment as the committed time 1.2 CREDIT QUALITY OF COMMERCIAL BANKS TO PRODUCTION HOUSEHOLDS 1.2.1 Concept of credit quality to production households 1.2.1.1 General concept of credit quality According to Vietnam's Encyclopedia: Quality is a philosophical category indicating the nature of a thing, specifying what it is, what its relative stability is, and distinguishing it from other things Quality is an objective characteristic of things, externally manifested through attributes Quality of things or phenomena indicates their level of development The higher the quality is, the higher the development levels of things are 1.2.1.2 Concept of credit quality to production households The thesis stated that the quality of bank credit to production households is the ability of commercial banks to meet the reasonable needs for loans of production households and satisfy the written agreements between the two parties 1.2.2 Credit risks and credit risk management of commercial banks for production households 1.2.2.1 Concept of credit risks The thesis presented a generalized concept as follows: Credit risks are the risks caused when credit granted customers, obligors, or counterparties fail to implement or be unable to implement part or all of their obligations as their commitments to the banks which offered the credit 1.2.2.2 Credit risk management The basic principle of credit risk management is that the extension of credit must ensure safety and must be associated with credit quality improvement Accordingly, the regulations on credit risk management of commercial banks must always be in conformity with international laws and practices 1.2.3 Factors affecting credit quality to production households 1.2.3.1 Factors from commercial banks 10 Policies of the bank; Credit information; Credit procedure; Bank staff; Organization of the bank; Equipment serving credit operations and levels of technological modernization of the bank 1.2.3.2 Factors from production households Levels of education; Legal awareness; Production level of production households; Fields of production, business, and services chosen by production households; Financial capacity of production households; Family traditions and prestige of borrowers 1.2.3.3 Factors from credit operation environment Socio-natural conditions; Economic environment; Legal environment; Management of monetary policies and fiscal policies; competitive environment of the banking operations; Levels of climate stability, politics; Infrastructure and consumption markets 1.2.3.4 Other macro objective factors 1.2.4 Assessment criteria of credit quality to production households of commercial banks 1.2.4.1 Qualitative criteria Firstly, fully and timely meeting the needs for capitals to develop production, business and serving the consumption demands of customers, in line with cycles of production and business, cycles of capital usage Secondly, customers’ application for loans for production and business creates turnovers which are higher in later years than in previous years For consumption loans, ensuring the improvement of customers’ life quality Thirdly, the application for bank loans helps customers get operation profits and the ratio of operation profit margins in equity in later years is higher than in previous years Fourthly, Customers always maintain the ability to repay due debts, especially the ability to repay the bank loans (principals and interests) Fifthly: Customers not violate the regulations on credit management of the bank and other relevant regulations of the law 1.2.4.2 Quantitative criteria 16 Unit: Billion dong 2012 2013 Names of regions 2010 2011 Loan Bad Loan Bad Loan balanc loans balance loans balance e Bad loans Bad Loan loan balance s 2014 Bad loan s Highland Northern Border Northern Midland 6.991 51 18.533 159 7,339 19.449 54 182 10,834 22,404 61 212 14,706 27,712 70 252 75 271 Hanoi 12.447 377 13.214 394 15,137 443 18,263 605 651 Northern Delta Old Region 04 Central Coast 25.439 204 21.659 113 13.891 148 28.923 22.774 13.992 228 122 161 34,377 26,303 16,480 265 138 205 42,039 33,567 20,462 382 145 193 458 162 214 Western highland 20.882 254 21.994 276 25,019 303 31,265 368 424 16.186 1.25 17,381 1,307 18,593 1,67 1.56 311 19,130 189 23,183 232 28,452 257 612 Southeast 1.18 15.448 18 22 162 South West 47.684 522 48.958 545 54,403 63,591 641 709 Whole country 201.20 3.17 211.96 3.40 298,65 245,481 3,778 4,58 4.84 Ho Chi Minh City In the years of 2009 – 2012, the scale of bad loans of production households of Agribank of Vietnam constantly increased but tended to decrease in the years of 2013-2014 By the end of 2014, the loan balance of production households reached 338,632 billion dong The bad loans were 4,840 billion dong, accounting for 1.43%, which were slightly lower than the rate of 1.51% in 2013 2.2.8 Analysis of the reality of credit bad loans of production households via loan groups of organizations The most recent time was in the end of 2014, the bad loans offered via organizations of Agribank of Vietnam were averagely 1.19% 2.2.9 Analysis of credit quality to production households at some branches in different economic areas 17 2.2.9.1 Agribank in Binh Phuoc In general, the bad loan ratio of production households at Agribank - Binh Phuoc branch in the years of 2009 - 2014 was less than 1% and was 0.1 to 0.2 % lower than the overall bad loan ratio of this branch The bank credit capitals were invested into intensive cultivation and expanding the area of rubber trees, coffee trees, pepper, cashew, fruit trees, developing breeding, etc., creating stable local jobs and improving incomes 2.2.9.2 Agribank in Dak Lak Bank credit capitals were invested in intensive cultivation and expanding the area of industrial trees such as rubber trees, coffee trees, pepper, cashew; fruit trees; developing breeding of pigs, cattle, fish, and poultry; developing business and services, etc., creating stable local jobs and increasing people’s incomes Of the production households which applied for loans, there were quite a lot of ethnic people The average ratio of bad loans of production households in the period of 2009- 2014 of Agribank in Dak Lak was only 1.29% 2.2.9.3 Agribank in Bac Lieu The agriculture and rural economy of Bac Lieu province mainly focused on rice planting, aquatic product breeding, fruit tree growing, raising, etc., which were mostly carried out by households Households were the main borrowers of Agribank - Bac Lieu branch The average ratio of bad loans of production households at this branch in the period of 2009-2014 was 1.81%, which was 0.3% to 1.1% lower as compared to the ratio of bad loans of enterprises 2.2.9.4 Analysis of the results of loan offering to production households at Agribank in Ha Tay 18 Table 2.3: Structure of bad loans of production households of Agribank in Ha Tay Unit: Billion dong 2011 Norm 2012 2013 2014 NX Proportion NX NX (%) Proportion Proportion NX (%) (%) Proportion (%) Production household customers 76 40 83 172 44,9 39,52 172 42.1 Enterprise customers 99 60 127 211 55,1 60,47 211 57,9 Total bad loans 165 100 210 383 100 100 383 100 Generally, in the period of 2009-2014, the average ratio of bad loans of enterprise customer group was 2.92%, but the proportion of bad loans of production households was only 1.74%, which was 1.0% lower 2.2.9.5 Analysis of the results of the study on credit quality to production households at Agribank in Giong Trom district, Ben Tre province under basic norms Table 2.4: Structure of profits from loans to production households in the period of 2010 - 2013 Unit: Million dong Norm Total revenue Total expenses Total profits Revenue from offering loans to production households Expenses for offering loans to production households Profits from offering loans to production household 2010 64.745 55.065 9.680 2011 96.133 77.612 18.521 Year 2012 97.468 77.392 20.076 42.732 67.293 67.253 74.651 37.444 58.209 57.270 63.570 5.288 9.084 9.983 11.081 2013 100.322 78.213 22.109 19 2.3 ASSESSMENT OF THE RELAITY OF CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK 2.3.1 Strengths Firstly, showing the key role in loan offering of Agribank of Vietnam, especially implementing credit policies by the Government for agricultural and rural development and new rural area construction Secondly, diversifying loan methods for production households; effectively exploiting the method of coordination with the Farmers' Association and the Women's Union at all levels, contributing to the renovation of activities of socio-political and professional organizations Thirdly, Agribank of Vietnam had a close attachment with numerous and traditional customers who were production households, and production households were those that guaranteed the highest credit quality of the bank Table 2.5: Comparison of proportion of bad loans of production households and general bad loans of Agribank in the period of 2009 - 2014 Norm 2009 2010 2011 2012 2013 2014 General bad loans 2.60% 3.80% 6.10% 5.80% 4.68% 4.55% Bad loans of production 1,49% 1,58% 1,61% 1,54% 1,51% 1,43% households Fourthly, Agribank of Vietnam was initiative in directing the expansion and improvement of credit quality to production households Fifthly, credit capitals of Agribank of Vietnam contributed to changing the structure of agricultural and rural economy; contributed to reducing hunger and poverty, creating local jobs, and improving incomes for farmers Sixthly, via the improvement of the credit quality to production households, Agribank of Vietnam effectively exploited and used foreign trust funds and amounts of state bank refinancing 2.3.2 Weaknesses Firstly, although the proportion of bad loans of production households was lower than that of business customers, the proportion of bad loans of production households in books had not reflected the reality Contingent liabilities in a number of branches were still large Secondly, the credit capitals of Agribank of Vietnam 20 had not covered and had not met promptly and fully the production households’ needs for loans Therefore, the usury was still popular in many rural areas Thirdly, the interest rates of loans to production households were not appropriate and were higher than those to other objects Fourthly, the results of offering loans via groups were not sustainable and the financial leasing activities were undeveloped Fifthly, the lending costs to production households remained high 2.3.3 Causes of the limitations 2.3.3.1 Subjective causes The thesis clearly analyzed the following contents: The quantity and quality of credit staff had not met the demands; The inspection, direction, and management had not been suitable for practice requirements; Banking technology was backward; Marketing activities were ineffective; The innovation of credit procedure was slowly changed 2.3.3.2 Objective causes Firstly, competitive environments in bank credit operations as well as the improvement of credit quality to production households had not been really active In many rural areas, credit activities were still mainly conducted by Agribank Secondly, because of market risks, crop risks, production risks due to the weather, the situation of “good crops-bad prices or good prices-bad crops" were still frequently happening Meanwhile, the agricultural insurance policy was underdeveloped Thirdly, the locals generally had not had stable and scientific plans They had not had specific measures to expand bank credit capitals to the economic sectors, including production households in rural areas Fourthly, the linkage between subjects had not been close Fifthly, the cooperation between the bank and socio-political organizations had not been close; the resolutions of internal affairs agencies still had many inadequacies, which affected the bank loan foreclosures; the loan judgment execution was still stagnated Sixthly, the credit offering including loan professionals, bank guarantee, financial leasing, discounts, and other operations was stipulated by the Governor of 21 the State Bank However, there were still operations which had not been regulated or were sketchily regulated Seventhly, the inadequacies in the lending implementation under Decree No 41/2010 / ND-CP Eighthly, the obstacles in offering loans to production households raising catfish Ninthly, the inadequacies in offering loans to households building steel ships for offshore fishing under Decision No 1787/QĐ-TTg dated 29/11/2012 of the Prime Minister Tenthly, some other causes 2.3.3.3 Other causes from production household customers Levels of education, legal awareness, production and management capabilities, ability to capture market information of production households were generally limited; People had not had the habits of banking transactions; Farm households did not have large property, or if any, they did not have enough legal bases to receive the security property 2.3.4 Assessment of the reality based on the synthesized results of expert interviews The doctoral candidate sent “Survey questionnaire on opinions of credit management staff and credit staff offering production household loans in the Headquarters of Agribank and some branches of Agribank" There were totally 284 sent questionnaires, in which 192 questionnaires were collected The results were summarized to support the objective assessments of the thesis CHAPTER SOLUTIONS TO IMPROVE THE CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK 3.1 OBJECTIVES AND ORIENTATIONS TO IMPROVE THE CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK 3.1.1 Orientations of the development strategies of Agribank until 2020 22 Improving the credit quality to production households and individuals; constantly improving financial autonomy; developing scales and achieving the requirements for a stable financial institution, opening objects, diversifying products and services in appropriate conditions allowed by the State Bank 3.1.2 Orientations of expanding and improving the credit quality to production households of Agribank in the coming time Meeting the capital needs to the economic growth and the development of agriculture, forestry, fishery, salt and the rural economy in general Agribank of Vietnam continued to keep the leading role in rural credit markets, sticking to production households 3.1.3 Viewpoints in the organization and direction of improving the credit quality to production households The thesis clarified the contents: The expansion and growth of credit to production households and individuals needed to ensure safety and efficiency; implementing lending programs and credit policies as directed by the Government and the State Bank; diversifying and expanding of investing objects; strictly complying with the regulations of credit policies serving the development of agriculture, rural areas, new rural area construction 3.1.4 Forecast of the challenges in improving the credit quality in general and improving the credit quality to production households in particular of Agribank 3.1.4.1 Credit activities will still be major operations providing the largest revenue but they also contain many risks 3.1.4.2 Deeper requirements of international economic integration require the management of credit quality in general and credit quality to production households in particular to be appropriate with international standards and practices 3.1.4.3 Competition in credit activities in general and production household credit in particular are increasing 3.1.4.4 Requirements for product diversification and convenient banking services meet the needs of customers in general and production households in 23 particular 3.1.4.5 The quality of human resources in general and for credit operations for production households in particular of Agribank of Vietnam remains an urgent issue to be addressed 3.1.4.6 Profitability of business operations of Agribank of Vietnam as well as the branches are still low and has a distance from the leading commercial banks in Vietnam 3.1.4.7 Credit risks of production households are still high whereas insurance has not developed 3.2 SOLUTIONS TO IMPROVE THE CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK 3.2.1 Expanding network in rural areas combining with implementing overdraft credit lines Basis of this solution: In Section 2.1.2.2 of Chapter 2, the thesis presented the reasons why joint stock commercial banks were competing to expand loans to production households in rural areas In Sections 2.3.2 and 2.3.3 of Chapter 2, the thesis clearly presented that the operations of Agribank of Vietnam had not timely and adequately met the capital requirements of production households; the transaction network had not been convenient, etc Therefore, the extension of the network combining with implementing overdraft credit lines of Agribank of Vietnam will help overcome the stated limitations Socio-economic and social characteristics of production households were mentioned in Chapter and the results achieved in offering loans to production households were mentioned in chapter Benefits and specific recommendations when conducting this solution: The implementation of this solution will enable Agribank of Vietnam to continue expanding the network and the lending scale and at the same time saving costs in credit operations and costs for the loan application of production households, but still contribute to improving the credit quality to production households 24 The foundation of transaction offices of Agribank of Vietnam in communes must solve a variety of issues in headquarters construction or transaction venue leasing such as investing in the renovation or construction of transaction offices, solving problems in the transfer of cash, staff, and so on 3.2.2 Raising awareness and closely guiding the implementation of the goal of expanding and improving the credit quality to production households Agribank of Vietnam need to guide the operations in the direction of capital concentration to develop the credit; prioritize agricultural and rural industries and fields, exporting, ensuring sufficient capitals timely for the agriculture restructuring scheme which has been approved by the Prime Minister The expansion and growth of credit to production households and individuals need to ensure safety and efficiency to support economic growth at a reasonable level, contributing to overcome difficulties and promote the development of production and business Agribank of Vietnam needs to raise awareness in the entire system, at the same time continue to actively implement lending programs and credit policies as directed by the Government and the State Bank 3.2.3 Strengthening the management of credit risks associated with completing and strictly implementing credit procedures 3.2.3.1 Strengthening the management of credit risks Strengthen credit risk management and consider it a strategic tool to maintain the stability, sustainability, and profitability in credit activities In the condition of fierce competition and the growth of the market economy, risks in operations in general and in credit activities in particular are becoming more and more; therefore, the risks in banking operations will not be anticipated if the management of risks and credit risks are not applied 3.2.3.2 Completing and strictly implementing credit process The thesis clarified the contents: : Doing well in investigating, examining, and establishing local economic profiles; Building loan limits and appropriate models; Credit limits of each customer must be established based on specific assessment of loan demands, ability to repay, loan security assets, prestige, customer marking and 25 rating, etc.; Regulating the quality and inspecting after offering loans at branches; Offering loans to customers under a closed and synchronous procedure; Doing well the construction and exploitation of credit information system; Raising the limits of loans without security assets to production households 3.2.3.3 Reducing administrative formalities and transaction costs to farm households To solve this problem, it is necessary to have specific regulations by the State, such as exempting farmers from all kinds of costs when they apply for loans Agribank of Vietnam also needs to reduce unnecessary papers and bureaucracies in the lending procedure 3.2.4 Improving professional qualifications, working skills and professional ethics of the staff Improving the working capacity and qualifications of the credit staff helps to meet the requirements for accessing and evaluating production projects, considering financial situation and customer repayment capacity correctly and quickly, supporting production households in the process of plan making and financial analysis Agribank of Vietnam has the encouragement policy for credit staff in terms of salaries and bonuses and raising the level of expenses for credit staff’s business trips 3.2.5 Improving the quality of credit operation management at the locals 26 The improvement of the quality of credit operation management should start from improving the qualifications of each credit management staff, effectively managing the credit operations so that they are close to practice, abiding by regulations, within authority and laws Carrying out debt classification seriously in order to reflect the true status of loans, provisions; avoiding chasing achievements, chasing salary funds, etc Directing credit staff frequently, classifying customers and firmly grasping the changes in market situation to take appropriate investment measures 3.2.6 Diversifying lending methods and objects Agribank of Vietnam should base on each production object to select appropriate lending methods In addition to the method of per time lending, Agribank of Vietnam should diversify the lending methods such as offering loans based on investment projects, offering installment loans, etc., especially offering limit loans and loans for crop season intervals 3.2.7 Promoting loans via loan offering groups Coordinating with Farmers’ Association in provinces to effectively implement Joint Resolution No 2308 and cooperating with Women's Union to effectively implement the Joint Circular No 02 Organizing periodical reviews or experience drawing sections in the process of directing coordination in order to replicate outstanding cases 3.2.8 Diversifying forms of capital mobilization for agricultural and rural development in general and for production household economy in particular 3.2.8.1 Basis of the solution The basis of the solution is to overcome the limitations and causes of limitations mentioned in Chapter These limitations included: Agribank of Vietnam in general and its local subsidiaries had a large proportion of loans to production households, but lacked capitals and must be regulated from the system; being not initiative in capitals; lending interest rates are high; forms capital mobilization are not diversified, etc 27 3.2.8.2 Advantages and specific recommendations of this solution The thesis clarified the contents: Applying forms of capital mobilization appropriate with socio-economic changes; flexibly adjusting interest rates suitable for the inflation rate; having policies to attract idle capitals from rural areas and households; mobilizing capitals from economic organizations, enterprises, individuals, and social organizations; expanding the network, strengthening facilities and technology; applying information technology 3.3 RECCOMENDATIONS 3.3.1 To the Government 3.3.1.1 About the Decree No 41/NĐ-CP The government amended Decree No 41/2010/ND-CP to remove difficulties for farm households which have agricultural land but reside in environs of cities and towns, offering them preferential policies in which they were granted loans without security assets like the households residing in communes 3.3.3.2 It is necessary to have appropriate policies to develop family household economy The thesis clarified the contents: Properly addressing the land issues, adjusting the limits of agricultural land, and accelerating the insurance and replacement of certificate of land use rights; Having policies to encourage people to properly get rich and facilitating the improvement of residents’ incomes; Boosting investments in infrastructure; Effectively supporting the household economy in the consumption of goods 3.3.2 To the State Bank 3.3.2.1 For loans in agriculture and rural areas - The State Bank should have a mechanism on loan classification and risk provisions for loans in agricultural – rural sector - Amending Circular No 09/2012/TT-NHNN since households of production and business in rural areas face many difficulties in the implementation, the purchases with invoices - Amending Decision No 1627/2001/QĐs-NHNN on promulgating lending regulations of credit institutions to clients 28 3.3.2.2 For loans for building steel ships for offshore fishing under Decision No 1787/TTr-CP of the Prime Minister The state bank specifies: "Agribank of Vietnam only use the ship built from loans as the collateral for the loans" instead of regulating "Agribank of Vietnam considers self-deciding whether adding or not adding other assets in addition to the assets formed from the loans" 3.3.2.3 Other recommendations The State Bank of Vietnam needs to study and flexibly consider some mechanisms to encourage commercial banks to competitively expand loans in agriculture and rural areas, especially in the Mekong Delta, such as compulsory reserve ratio, loan refinancing, using capitals mobilized on market II, etc In addition, the State Bank should continue to have more specific measures to encourage credit organizations to compete in expanding operation network in rural areas, especially in the Mekong Delta 3.3.3 Recommendations to local governments Firstly, levels of local governments should cooperate actively with the bank in lending activities, inspecting, and speeding up debt collection Secondly, relevant departments and levels of local governments need to coordinate and facilitate banks in the processing and the sale of the collaterals for unpaid loans Thirdly, the locals need to develop a sustainable processing agriculture in the orientation of product diversification 3.3.4 To related ministries and departments The ministries and departments need to have more solutions to enhance product quality, product processing ability, ability to introduce agricultural products to international markets; enhancing the stable reputation of Vietnamese agricultural exporting products in all markets around the world; ensuring that the benefits from preferential policies directly head to producers 3.3.5 To commercial banks Commercial banks should continue to open branches and transaction offices in the Mekong Delta, accepting losses in longer time than newly open ones in urban areas At the same time commercial banks should continue to 29 have mechanisms of transferring internal capitals, contracting business targets which are more suitable for the Mekong Delta in the orientation of reducing interest rates or capital regulating charges, increasing the proportion of capital regulating, etc improving the quality of loans offering to sproduction households CONCLUSION The thesis “Credit quality to production households at Agribank” was conducted based on the study of basic theoretical issues, surveys, evaluations, practice reviews By research methods, the author addressed the following basic contents: - Systemizing the theoretical issues on the characteristics and the role of production household economy in the market economy; affirming the important role of bank credit capitals to the economic development of production households; Clarifying the concept of credit quality to production households and assessment criteria of quality, analyzing the factors affecting the credit quality to production households; analyzing experience of several countries, and drawing the experience lessons to Vietnam - Analyzing, evaluating, and clarifying the reality of credit quality to production households at Agribank with survey data froms some locals representative for the regions; indicating the advantages, limitations, and causes of the limitations of the credit quality to production households at Agribank of Vietnam, in which, especially clarifying the issues of credit staff and procedure of credit management in recent time - On the basis of basic theoretical framework, practical assessments, development orientation of agricultural-rural economy of the entire country, objectives, and development strategies of Agribank, the author proposed some immediate as well as long-term solutions in order to improve the credit quality to production households at Agribank of Vietnam in the coming time The recommendations were proposed to the State, the State Bank of Vietnam, and local governments 30 - The system of proposed solutions were uniform and feasible in order to be able to enhance the credit quality to production households and promote the role of bank credit capitals in the development of production household economy at Agribank of Vietnam, namely: + Solutions in developing network, innovating lending methods, tightening credit procedure, improving the quality of the staff, especially credit staff + Recommendations to the government, the State bank, and local governments [...]... development of production households; Clarifying the concept of credit quality to production households and assessment criteria of quality, analyzing the factors affecting the credit quality to production households; analyzing experience of several countries, and drawing the experience lessons to Vietnam - Analyzing, evaluating, and clarifying the reality of credit quality to production households at Agribank. .. the total loan balance (including converted foreign currency) of Agribank of Vietnam reached 605,324 billion dong, increasing 48,903 14 billion dong (8.8%) compared to 2013, which was higher than the average growth rate of the whole banking sector 2.2 REALITY OF CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK 2.2.1 Management of credit quality to production households at Agribank 2.2.1.1 Regulations... strategies of Agribank, the author proposed some immediate as well as long-term solutions in order to improve the credit quality to production households at Agribank of Vietnam in the coming time The recommendations were proposed to the State, the State Bank of Vietnam, and local governments 30 - The system of proposed solutions were uniform and feasible in order to be able to enhance the credit quality. .. households 1.3.1.1 Credit to agricultural and rural production households in the Philippines In credit operations, in addition to directly offering loans to production households, The Land Bank also entrusted to some other credit organizations 1.3.1.2 Credit to agricultural and rural production households in Thailand Apart from offering preferential credits with low interest rates, the government of... customers; c) Identification of industries and business sectors; d) Set of marking criteria for production household and individual customers; e) Customer rating and loan classification 2.2.1.3 Credit marking and rating of production household and individual customers at Agribank of Vietnam The thesis clarified the contents: a) Customer classes; b) Procedures of credit marking; c) Revaluation of customer... of production households; Criterion 2: Proportion of loan interests; Criterion 3: Loan balance and the growth rate of loan balance from production household loans 1.3 EXPERIENCE OF SEVERAL BANKS IN THE WORLD IN IMPROVING CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AND LESSONS DRAWN TO AGRIBANK 1.3.1 Experience of several banks in the world in improving credit quality to production households 1.3.1.1 Credit. .. IMPROVE THE CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK 3.1.1 Orientations of the development strategies of Agribank until 2020 22 Improving the credit quality to production households and individuals; constantly improving financial autonomy; developing scales and achieving the requirements for a stable financial institution, opening objects, diversifying products and services in appropriate conditions... often associated with the encouragement of savings and promoting agricultural and fishery activities in rural areas CHAPTER 2 REALITY OF CREDIT QUALITY TO PRODUCTION HOUSEHOLDS AT AGRIBANK 2.1 CREDIT POLICIES FOR AGRICULTURE, RURAL AREAS, AND PRODUCTION HOUSEHOLDS IN VIETNAM 2.1.1 Production households in agricultural production and rural economy Developing households economy, agricultural production, ... requirements of international economic integration require the management of credit quality in general and credit quality to production households in particular to be appropriate with international standards and practices 3.1.4.3 Competition in credit activities in general and production household credit in particular are increasing 3.1.4.4 Requirements for product diversification and convenient banking... balance of production households and individuals Proportion of loans of households compared to total loan balance Every year, the loan balance of production households accounted for about 50% of the total loan balance of Agribank and tended to rise The peak points were nearly 56% in 2014 and over 56% in 2013 This indicated that offering loans to production households was an important aspect of Agribank