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INCREASE THE EFFICIENCY OF LENDING ACTIVITIES FOR INDIVIDUAL CUSTOMERS AT TECHCOMBANK KEANGNAM

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Inparticular , monetary operations is expressed in capital mobilization under different forms to provide credit to customers who demand for capital with the goal of looking for profit.Mo

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NATIONAL ECONOMICS UNIVERSITY CENTRE FOR ADVANCED EDUCATIONAL PROGRAMS

BACHELOR’S THESIS Major: Finance

TopicINCREASE THE EFFICIENCY OF LENDING ACTIVITIES FORINDIVIDUAL CUSTOMERS AT TECHCOMBANK KEANGNAM

DAO MINH NGOC

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NATIONAL ECONOMICS UNIVERSITYCENTRE FOR ADVANCED EDUCATIONAL PROGRAMS

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Futhermore, I am highly appreciated Mr Hoang Binh Minh and all staff at Techcombank Keangnam branch for their guidance as well as for providing necessary information regarding to the report.

Lastly, my thanks and appreciation go to all coordinators and lecturers of Center for Advanced Educational Programs in giving senior students an internship opportunity to acquire practical experience and utilize theoretical knowledge.

Thank you,

Dao Minh Ngoc

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CONTENTS

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STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted Barchelor’sThesis independently I did not use any outside support except for the quoted literature andother sources mentioned at the end of this paper

Hanoi, 19/05/2016

Signature

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RBO: Retail Banking Officer

ASO: After sale officier

TCB: Techcombank

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LIST OF TABLE

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LIST OF DIAGRAMS

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1 RATIONALE

Recently, from the reality that when society is growing, not only companies,businesses need capital to expand production and business markets but also individualshave the demand for loans and using even more capital Additionally, intergration andmoderniazaion have brought about higher living standards, which means that many otherdemands need to be met Moreover, nowadays individual customer have been used to thethinking about borrowing money to satisfy their demand for goods prior to solvency Inorder to meet this demand, Techcombank in general and the branch Keangnam inparticular have expanded to provide funds for individual customer needs, which also helpssociety solve capital shortage temporarily and make the production process continuous toadvance quality of life Besides, banks also have an interest-earning account thanks to thisactivity to enable the bank to survive and develop Loans to individual customers not onlybrings income to the bank, but also helps the bank diversify risks

After a period of internship at Techcombank Keangnam branch in position as a retailbanking officer (RBO) and studying the data on the situation of bank lending activity, it isindicated that lending to individual customers has become one of the basic creditoperations contributing to the bank's revenues However, the results are less worthy thanwhat it can be achieved Lending activities for individual customer loans at the branch stillhave some difficulties Although the amount of individual loan is going up, its growth rate

is not high Moreover, most of them were gained due to the product that is loan for housethanks to the cooporation with Vingroup on Gardenia project in 2015, which raises achallenge for the branch to not only maintain but also improve the result in the followingyear Addtionally, the amount of overdue debts accounted for more than 2%, which is still

 Overview of Techcombank and Keangnam branch

 Analysis of the current situation of lending operations in general and lending

to individual customers at Techcombank Keangnam

 Propose some solutions and recommendations contributing to expand theefficiency of lending activities for individual customers

3 SCOPE OF RESEARCH

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 Research subject: The problem of personal customer loans.

 Scope of the study : Focus on lending individual customers activities atTechcombank Keangnam from 2013 to 2015

4 RESEARCH METHOD

The thesis has used a combination of several different methods such as the method ofdialectical materialism, statistical methods, comparision, evaluation, analyze theinformation and data related to financial services serving individual customers at thebranch

5 RESEARCH STRUCTURE

The research consists of 4 main parts:

Chapter 1: THEORITICAL BACKGROUND

Chapter 2: RESULTS/ ANALYSYS OF DATA

Chapter 3: DISCUSSION AND FINDINGS

Chapter 4: RECOMMENDATIONS

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CHAPTER 2 THEORITICAL BACKGROUND

2.1 Overview of commercial banks

2.1.1 Definition and characteristics of commercial banks

as business organizations providing products and services to banks for profit

That is to say commercial banks are kind of financial institution offers a portfolio

of financial services and the most diverse - especially credit, savings and payment services

- and the performance of many financial functions/

2.1.1.2 Characteristics

First, commercial banking activities are said to mainly pursue for profit.Specifically, bank performs two activities that are currency trading and banking service Inparticular , monetary operations is expressed in capital mobilization under different forms

to provide credit to customers who demand for capital with the goal of looking for profit.Moreover, banking services are manifested through available professional knowledge oncurrency, payment, foreign exchange, securities in order to undertake to supportcustomers's requirements accurately to receive either commissions or fee

Second, it is complusory to comply with the law, which means that as long ascommercial bank fully satisfies the strict conditions, it is allowed to operate in the market.Third, it is supposed that commercial banking activities have higher risk than otherforms of business and also often has a profound affect on other sectors and the economy.The reason for this is that monetary operations are conducted by the bank's fundings thatare then used to extend credit to customers on the principle of repaying capitals andinterest for a certain period of time, which could be risky for commercial bankingactivities As a result, not only commercial banks but also customers and the economyhave to suffer from higher hazards To avoid risks regrettably occur , to control and tomitigate the damage caused insolvent banks , national governments set up its own laws toensure that operations are safe and effective in the market

2.1.2.

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2.1.4 Roles of commercial banks

In the market economy, the economy has reached a high level of commodityeconomy, banks play an important role that is the nervous system, the circulatory system

of the entire national economy The economy can only grow at high speed if there is astrong banking system Banking and the economy has organic relationship to each other.Therefore , the role of commercial banks is reflected in the following aspects:

 Providing capital to the economy

When comes to the role of commercial banks, it needs to mention the role of providingcapital to meet the needs of production and business entities in the economy To be able tocarry out production and business activities, the first thing business owners should careabout is capital Without capital, the enterprise will lose investment opportunities andprofits that could have been obtained

As a effective distribution channel of funds, banks have to create conditions for enterprises

to have the ability to expand production and improve bank process technology, therebyimproving labor productivity to be able to stand up to the edge increasingly fiercecompetition of the market With the ability to provide capital , banks have become one ofthe starting point for the economic development of each country

 A bridge between enterprises and markets

To have access to output markets and profit-seeking enterprises should pay attention totheir input markets which factors most important input is the capital, this is always a topconcern traders because it puts the first platform for all activities of the enterprise.Enterprises can not just rely on their own capital which must know how to exploit othersources of funding for its activities Credit funds of commercial banks will help businessessolve the difficulties Thus, banks are now bridged brought to the market to helpbusinesses search input, lube production and business activities make it effective in thebest way in the market, help business Industry and markets closer together in terms of bothspace and time

 A tool for the state to regulate the macro economy

If the Central Bank is responsible for formulation and implementation of monetary policythrough tools such as open market operations , reserve requirement , interest rates thebanks on the one hand directly affected by these tools on the other hand it also participatesindirectly regulating the macro economy through relations with economic organizationsand individuals in the financial and credit activities In other words , through the operation

of commercial banks with other entities in the economy , all information related to themonetary policy will be to respond to the central bank , the Bank can help policy makersmacroeconomic appropriate from time to time to ensure the economy to promote growthand sustainable development

 A bridge betweem national financial background with international financialbackground

The world, in this day and age, every country regularly conducts independent relationshipsand complex diversity in many fields: economic, political, social, diplomatic, cultural andscientific - engineering, in which economic relations are often occupied importantpositions Competitive pressures forced the economy of each country after the openintegration potential to grow and comprehensive in all aspects, but the most important is

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exchange trading, investment trusts, banks in the system countries have local financialregulator in line with the movement of the international financial system, given thedomestic financial system to keep pace with the international financial system.

2.1.4.1 Function of commercial banks

 Intermdeiary payment function

Bank as payment intermediary function when it made a payment at the request ofcustomers as deductions from their deposit accounts to pay for goods and services or entermoney into deposit accounts of customers sales proceeds and other revenues under theircommand The deposit receipt and tracking of revenues and expenses on account ofcustomer deposits as a prerequisite for the bank acting as an intermediary for payment Onthe other hand , the direct payment of cash between the entities in an economy that is morelimited risk to transport money, the cost of large payments , especially with customers increating widely separated should demand for payment through the bank

 Intermediary payment function has important implications for economic activity First of all non-cash payments via banks contributed to cost savings and cash flow toensure secure payments Commercial banks will provide customers various forms ofpayment, fast and convenient as checks, collection, payment order, payment cards,electronic payment, clearing, allows customers to choose payments which they say isthe most effective and safe This helps to increase the speed of circulation of goods, capitalrotation speed and efficiency of the process of social reproduction On the other hand, thisfunction also contribute to increase the income of the bank through the toll paymentincreases the bank's reputation and create conditions for bank deposits to attract funds.Current currency flows mainly through the commercial banking system so banks areconstantly innovating and improving technology to improve quality to meet the payment

of the customer better

 Function as an intermediary credit

Credit intermediation function is the basic concept of the commercial bank andthe most characteristic and important significance in promoting economic development Banks make credit intermediation function when it is " a bridge between capital surplusand capital shortage " In other words , after the bank raised the amount of temporarilyidle resources in the economy will form a bank loan funds and will use it to meet theborrowing requirements of the entities in the background economy which is mainly short-term loans With this functionality the bank serves both as the borrower , the lender has

In other words , the credit operations of banks borrowing banks are to lend

Credit intermediation function derives from the characteristics of capital circulatingcurrency during the social reproduction The reason is not any other organization

in the economy where banks are standing out perform this function because banks areoperating a business organization that monetary and credit, they are full of experience andthe understanding of the situation of demand and supply of credit in the economy so theycan overcome the shortcomings of the financial market that is the mismatch betweendemand and supply of credit span of time and the amount that is passed to attract depositswith a large number of banks can resolve the relationship between supply and demand ofcredit in both volume and duration of the loan lender

Through the intermediary function of credit, banks have contributed to createbenefits for all parties in the relationship is the depositor, the bank and the borrower andensure benefits for the economy

 Money creation function

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Meanwhile, commercial banks through the intermediary payment function andcredit intermediaries made money carrying on payment deposit accounts of clients incommercial banks In other words, by operating on commercial banking system hascreated pen replacement for cash currency.

Banks scalability term deposits from an initial deposit, or from funds receivedfrom the Central Bank through the granting of credit to customers are non-bankinstitutions Any bank will be allowed to mobilize deposits and offer term paymentservices to customers have the ability to create money The combination of intermediarypayment function and credit intermediaries to make the system capable of producingcommercial banks deposit payment From an initial deposit made via credit intermediationfunction of banks use to lend, lend the money out to get customers used to buy goods andservices payment while the balance on accounts payment of deposit customers are stillconsidered part of the transaction amount, which they used to purchase goods and pay

ie banks created money And vice versa if the bank raised the amount of capital that banksare not lending money never created The creation of money by banks only occurs whenall of the commercial bank operations carried out by bank transfer to the account debitedand credited this to the relevant account

Performing the function of money creation, with the loans without the appearance

of cash, banks have reduced the volume of cash in circulation, the cost savings, helping toregulate the money supply appropriate policies price stability, economic growth, reduceunemployment, increase the total means of payment in the economy to meet the needs ofsocial payments

The functions of commercial banks with close relationships, complement andsupport each other in which the credit intermediary function is the most basic function,provide the basis for the implementation of the following functions At the same time,when banks implement functions treasurer and payment intermediaries contribute toincreasing credit funds, expand the scope of activities of the bank

Current account deposits:

Such deposits are payable on demand and are, therefore, called demand deposits.These can be withdrawn by the depositors any number of times depending upon thebalance in the account The bank does not pay any interest on these deposits but providescheque facilities These accounts are generally maintained by businessmen and

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Fixed deposits (Time deposits)

Fixed deposits have a fixed period of maturity and are referred to as time deposits.These are deposits for fixed terms, period of time ranging from a few days to a fewyears There are neither payable on demand nor they enjoy cheque facilities

They can be withdrawn only after the maturity of the specifed fixed period Theycarry higher rate of interest They are not treated as a part of money supply Recurringdeposits in which a regular deposit of an agreed sum made is also a variant of fixeddeposits

Savings account deposits

There are deposits whose main objective is to save Savings account is the mostsuitable for individual households They combine the features of both current account andfixed deposits They are payable on demand and also withdrawable by cheque But bankgives this facility with some restrictions, a bank may allow four or five cheques in amonth Interest paid on saving account deposits is less than that of fixed deposit

b Equity??

2.1.5.2 Leasing and investment

a It gives loans and advances:

The second major activity of commercial banks is to give loans and advancesparticularly to businessmen and enterpreneurs and thereby earn interest This is, in fact, themain source of income of the bank A bank keeps a certain portfolio of the deposits withitself as reserve and lends the balance to the borrowers as loans and advances in the form

of cash credit, demand loans, short-run loans, overdraft

Cash credit

An eligible borrower is first sanctioned a credit limit and within that limit, he isallowed to withdraw a certain amount on a given security The withdrawing powerdepends upon the borrower's current assets, the stock statement of which is submitted bythe borrower to the bank as the basic of security Interest is charged by the bank on thedrawn or utilised portion of loan

Demand loans

A loan which can be recalled on demand is called demand loan There is no statedmaturity The entire loan amount is paid in lump sum by crediting it to the loan account ofthe borrower Those like security brokes whose credit needs fluctuate generally, take suchloans on personal security and financial assets

Short-term loans:

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Short-term loans are given against some security as either personal loans to financeworking capital or as priority sector advances The entire amount is repaid either in oneinstallment or in a number of installments over the period of loan.

Investment:

Commercial banks invest their surplus fund in 3 types of securities: governmentsecurities, other approved securities and other securities Banks earn interest on thesesecurities

b Discounting bills of exchange

Bill of exchange is a negotiable instrument, which is accepted by the debtor, drawnupon him/her by the creditor and agrees to pay the amount mentioned on maturity.Discounting bill of exchange is another function of modern commercial bank Under this,banks purchase bill of exchange from holder in discount after making some marginaldeduction in the form of commission The banks pay the deducted value to the holderswhen traders discount it into bank

c Overdraft facility

An overdraft is an advance given by allowing a customer keeping current account tooverdraw his current account up to an agreed limit It is a facility to a depositor foroverdrawing the amount than the balance amount in his account

2.1.5.3 Other services

a Cheque Payment

Banks provide cheque pads to the account holders Account holders can draw chequeupon bank to pay money Banks pay for cheques of customers after formal verification andofficial procedures

b Remittance

Remittance is a system, through which cash fund is transferred from one place toanother Banks provide the facilities of remittance to the customers and earn some servicecharge

c Collection And Payment Of Credit Instruments

In modern business, different types of credit instruments such as bill of exchange,promissory notes, cheques etc are used Banks deal with such instruments Modern bankscollect and pay different types of credit instruments as the representative of the customers

d Foreign Currency Exchange

Banks deal with foreign currencies As the requirement of customers, banksexchange foreign currencies with local currencies, which is essential to settle down the

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Modern commercial banks are large organizations They can expand their function toconsultancy business In this function, banks hire financial, legal and market experts, whoprovide advices to customers in regarding investment, industry, trade, income, tax etc.

f Bank Guarantee

Customers are provided the facility of bank guarantee by modern commercial banks.When customers have to deposit certain fund in governmental offices or courts for specificpurpose, bank can present itself as the guarantee for the customer, instead of depositingfund by customers

2.2. Lending activities in commercial banks

2.2.1 Definition of lending activities in general

With a history of long-standing and development, banks have played an importantrole in the economy It is a lever for economic development and is an effective tool for themanagement of the government Main activities of commercial bank are to be thefinancial intermediary, provide a mean of payment and also be the payment intermediarywhich is the most dominant and distinctive one When depositing money to the bank,customers can make payment on the account's deposit balances When bank lending , thebalance increases, customers can use to buy goods and services Thus lending by banks hascreated a means of payment

To understand the lending activity of bank, it is neccessary to differentiate betweenthe concept of investment and lending In broad terms, the loan is a credit operation and isone of the investment activity Specifically, it is a transaction between the people whohave money to lend and the one who need to borrow The money is obviously allocated for

a certain amount on condition that the principal and interest paid by the deadlines given.While, an investment is an asset or item that is purchased with the hope that it willgenerate income or appreciate in the future However, both lending and invesment ofcommercial banks have their own features Lending activity is operating directly withcustomers through negotiation while in investing activities, the banks themselves choose avariety of portfolio securities with fixed maturities Besides, the initiator is customers whohave demand for loans in lending activity while it is the bank that will actively initiate ininvesment activity

According to Article 3 of the decision 1627/2001 / QD - NHNN, " Loans are a form

of credit, under which credit institutions delivered to customers an amount of money usedfor certain purpose and given time under the agreement with the principle of repayment ofprincipal and interest." Lending activity of banks including loans , guarantees, financialleasing , commercial bills discounted Lending is a basic form of credit operations Bankprovides money directly or through assigned account to customers After completingprocess, it is compulsory for borrowers to use the loan for the certain purpose According

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to the signed contract the bank must provide enough money for customers and timelyregulation, and therefore customers should ensure payment of principal and interest to thebank on time.

Customers want to borrow money from any bank must also meet the conditionsprescribed by law First customer must have civil legal capacity , civil act capacity andresponsibility under civil law, which helps the bank to be able to select good customersand also be proteced by law in case customers do not follow the contract properly.Morever, the purpose of loans must also be legal, which means that the borrowers cannotlend money to run business that sells forbidden goods Therefore, there should beinvestment projects, business plans for production and services that are effective andaccurate with the provisions of law

2.2.2 Classification

Lending is a frequen activity in commercial bank Althought it contains many risks, itbrings most of profit for banks In banking activities an amount of capital are delivered tocustomers under the purpose of either consumers or business production After a certainperiod of time, customers have to pay principal and interest to the bank Lending activity isalso divided into several categories

- Based on the purpose

+ Loans for industrial and commercial business

+ Loans for individual consumers

+ Loans for selling real estate

+ Loans for agriculture

+ Loans for the real estate business

- Based on the loan term

+ Short-term loans: loans with term of up to 1 year The purpose of this type isusually to finance the investments in liquid assets

+ Medium-term loans: loans with term of 1 to 5 years The purpose is usually tofinance investments in fixed assets

+ Long-term loans: loans with term of more than 5 years The purpose is usually

to finance the investment in the project

- Based on the level of customers's confidence, credit activities can be divided intothe following categories:

+ Loans unsecured: the kind of loans without collateral, pledge or guarantee of

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+ Loans guaranteed: the types of loans based on the loan amount as security for themortgage, pledge or guarantee from a third party other.

- Based on the method of lending

+ Short-term loans for production and business is the type that when borrowing,customers and institution intermediaries have to follow requiring procedures and sign thecredit contract

+ Loans under the credit line: the type of lending that credit institutions and banksidentify and agree a credit line to maintain in a certain time period

+ Loans under overdraft limit: credit institutions have written agreement allowingcustomers to use the amount of money that exceeds more than what customers alreadyhave

- Based on the origin of the credit

+ Direct Loans: banks directly provide funding to people who have demand, and theborrowers also directly repay the loans to the bank

+ Indirect Loans: Loans are being made through the acquisition of the agreements

or documents and other debt incurred in the billing period as: trade discount

2.3. Lending activities for individual customers

2.3.1 Definition and characteristics of lending activities for individual customers.

2.3.1.1 Definition

Lending is the traditional activities of the commercial banks and also the mostimportant activity Loans accounted for the highest proportion of total assets, generated thelargest interest income but also the most risky activities Lending is a form of credit,which banks delivered to customers using an amount to be used for the specified purposeand time as agreed with the principle of repayment of principal and interest

Customers having demand for loans include businesses and economic organizations,individuals and households, which plays an increasingly important role in the operation oflending in commercial banks Individuals and households normally borrow money frombanks to cater to consumer demand or serving investment activities, its production andbusiness

Thus, personal customer lending at banks consists of the form of loans that banksprovide to individuals or households for the purpose of consumption, investment andproduction business

2.3.1.2 Characteristics

- Objects: individuals and households demand for loans used for consumer purposes

or activities serving production Apart from enterprises and economic organizations, individual customers often have a very large amount and loan demand is also very

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diverse However, their demands are not always frequent and affected by theeconomic environment, culture and society.

- Duration of the loan : Depending on the loan purpose and form of loans that theloans of private clients with a term : short, medium to long term

- The size and number of loans: the size of individual loans is usually smaller thanthat of corporate loans However, the number of loans providing to individuals areoften large Moreover, commercial banks's oriented activity is retail banking ,therefore the total size of the individual customer loans usually account for a hugepart of the total loan

- Borrowing costs : because individual loans usually have small-scale, the amount ofthese loans are usually very large, banks often have to spend a lot of costs (both interms of manpower and tools) in the development of client relatiomship , appraisal ,approval and management of loans Therefore , the fees charged on this type of loan

is often greater than enterprise loans

- Lending rates: The interest rate on these loans is usually higher than other loans ofcommercial banks The reason is that the cost of lending is large and loans have ahigh degree of risk As a result, its rates generally is from 1.2 to 1 5 times higherthan corporates's lending rate in Vietnam

- Credit Risk : Individual loans are usually the most risky for banks This happen due

to customers's financial situations depending on the job status and their health thatoften changes Additionally, In production and business activities, individuals andfamilies often have weak management skills, lack of experience, backwardtechnical and scientific level, and also limited competitiveness in the market Thus,banks will have to face many risks when the borrower is unemployed, goesbankrupt

2.3.2. Assessment of the efficiency of lending to individual customers 2.3.2.1 Definition

Efficiency of lending to individual clients is one of the manifestations of economicefficiency It reflects the quality of the lending activities of banks Moreover, it is lendingcapacity that is suitable with developing requirements of the economic and social'sobjectives and customer needs to ensure the principle of repayment to be on time,profitable for banks On that basis, ensuring the survival and sustainable development ofthe bank

2.3.2.2 Indicators assessing the efficiency of lending to individual customers

a Loan growth rate (%)

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(Credit loan at year t - Credit loan at year t-1)

Loan growth rate (%) = - x 100%

Credit loan at year t-1This index is used to compare the growth of credit outstanding through the year toevaluate the possibility of lending , finding customers and reviews the implementing plan

of the bank credit

The higher the index, the more stable and efficient level of activity of bank,whereas banks are struggling, especially in finding customers and demonstrate that theperformance of the credit plan has not been effective

b The growth rate of lending business (%)

(Loan sale at year t - Loan sale at year t-1)The growth rate (%) = -x100% Loan sale at year t-1

This indicator is used to compare credit growth through the year to assess the ability

to borrow, find customers and reviews the implement plan of the bank credit Moreover, itincludes the entire loan portfolio in the current year to date and the loan portfolio duringthe year has been recovered

The higher the index, the more stable and efficient level of activity of bank,whereas banks are struggling, especially in finding customers and demonstrate that theperformance of the credit plan has not been effective

c The growth in the proportion

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Individual loan amount

The growth in the proportion (%) =

-x100%

Total loan amount

This indicator reflects how much percentage individualloans account for in the lending activities of banks Higherindex demonstrates that individual lending activities plays anincreasingly important role in the business operations of thebank

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d The ratio of overdue debts (%)

Overdue debts

The ratio of overdue debts( % ) = - x 100

Total loan amount

This indicator shows the situation of overdue debts at the bank , while

reflecting the credit management of the bank lending rebounded , urging the banks

to recover debts for loans

These are indicators used to assess the credit quality and credit risk at banksThe higher percentage of delinquency represents that credit quality of banks

is falling , and vice versa

a The size of commercial banks.

The size of banks is assessed by indicators: Equity capital, total capital (totalassets) and transaction network

Owner's equity is one of the most important criteria when evaluating thecapacity of a commercial bank, the greater the equity capital demonstrates thepotential of the stronger banks, the more favorable conditions in developingbusiness activities, particularly development of credit business In addtion, largeequity capital will be easy to build the headquarters, procurement of modernequipment, capable of covering the broad market and create an advantage over thecompetitors Otherwise, small banks with little capital size will focus on thedevelopment of consumer loans for the meager amount of charter capital, whichmeans that they will not compete with the big banks to lend large loans

The own capital of the bank shall ensure Cook coefficient (the ratio ofminimum own capital adequacy over total risk assets was 8%) As a result, whenexpanding business activities and assets of the bank banks have increased, their owncapital will need to increase respectively Expansion and development of consumerloans need to take into account its own capital to ensure capital adequacy ratio

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minimum Therefore, if banks want to develop consumer lending, they have toalways focus on increasing their own capital.

Scale of total equity ( or total assets ) of banks expresses their calable oflending in general and lending to personal customers in particular With large -scale capital, banks will be able to lend large amounts to meet the many needs of thecustomer loans, the bank will generate a list of products and services for variousloans

Commercial banks having a wide network of branches and transaction willhave favorable conditions to access customers especially individuuals With itsextensive network, banks not only easily raise capital, implement lending productsbut also are reached without difficulty by customers when needed

b Lending organization for individual customers

Organizing lending activities of commercial banks has a huge impact onlending results and the capability of expanding loans Lending operations areusually implemented through many different stages: product design, promotion,marketing, guidance documents, evaluation and credit analysis, monitoring and debtcollection Besides, different bank has different way in arranging its activities.Some commercial banks do not consider lending organization as a seperated onebut just a part of lending activities in general In contrast, nowadays, manycommercial banks pay so much attention to loans for personal customers that theyare professionally held Specifically, each department is in charge of each stage,which has helped to improve and expand lending activities

c Marketing Activities

Marketing activities are to introduce, promote and build the image of the bank

as well as the products and services that the bank offers It is also importantactivities contributing to the expansion of lending activity Thanks to marketingactivities, customers can learn about banking products and banking servicesprovided If done well, they will bring more customers to the bank and lendingoperations

d Quality of staff

Lending operations is complex and consists of several stages In addition tothe help of the equipment and technology, the human factor is considered to be veryimportant, which decides the success or failure of lending activity If a bank wants

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to individual lending activities, it should have professional skilled staffs, withprofessional ethics in all stages including product research and development,marketing, evaluation and classification credit, management and debt collection.The focus on developing human resources in the stages of loans guarantees thatbanks can get the appropriate loan products and meet the diverse needs of thecustomer It also helps the process to be completed quickly, safely.

e The level of technology and management

In banking activities , technology and management skills play an importantrole, banks are always the organizations that get the most advanced technology andmodern management skills in the economy Specificlly, banking technology is thesoftware and hardware of the device information used in the bank Thanks tomodern technology such as computers, ATMs, systems management programenables banks to simplify procedures and shorten the time of transaction, and alsosecure information for our customers Additionlly, management level is shown inthe management, inspection and control the activities of the bank The bettermanagement capabilities will enable banks to operate efficiently and achieve profitgoals

When proposing development strategy for borrowing, it is neccessry toconsider its technology and management level, which will bring about eitherfavorable or difficult for the bank If banks have high level of technology andmanagement, it will be a factor in promoting the development of individual loan,which help shorten the time lending to each individual, prestige, trust to customers,thereby increasing loan sales and profits When proposing the strategy, banks need

to reassess the level of technology and its management compared with competingbanks and the level of development of banking technology in the world Banks mustdevelop technology and improve management capacity to be able to win in themarkets to bring more profits

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means that when economies develops, the lending activity is also extended Incontrast, when loans are reduced, the economy goes into recession or in difficulttimes.

As the economy grows, people's incomes rise stably, the living standards ofthe population improve so that consumer demand, expanding business productionincreases, which create favorable conditions for activities for expanding lending Asthe economy downturn, production and business activity are shrinking, consumerdemand of the population also decreases due to the concerns about decliningearnings outlook of people in the future This makes lending negatively affected.Inflation and interest rates in the lending market are also factors affecting theexpansion of lending by commercial banks When interest rates rise in the market,the cost of borrowing for the purpose of serving consumers or business increasedproduction is the cause of this limited loan demand Likewise, when the economy ishigh inflation, goods become more expensive Moreover, the higher cost ofconsumer activity, real income of population decrease lead to reduce consumerdemand, and operations business also shrunk, negatively impact the expansion oflending by commercial banks

In terms of commercial banks, while the economy recession risk in lendingactivity increasing, commercial banks implemented measures to limit risks:tightening of lending conditions, managing close loans, strengthening monitoring,collecting debt, which limits expansion of individual lending

b Cultural environment - society

Cultural and social environment has significantly affect on individualcustomers lending at commercial banks The impact of socio-cultural environmentcan be a positive effect - stimulating the growth or negative impact - reducing thedevelopment of personal lending operation A number of social and cultural factorshaving impact include: demographic factors, consumer habits, educational level,customary

Large size population, young population and high income is an idealenvironment for the development of loan in commercial banks However, factorsthat literacy levels and consumer habits are important factors affecting the

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expansion of lending For example, in urban, consumer demand is usually higherthan in rural areas so that demand for consumer loans is also larger Specifically, America is a country with a large consumer market, most of the US populationuses banks to finance loans for its consumer demand As a result, the market forpersonal loans is considered to be largest one in the world It alsao has high growthrates every year In Vietnam, Hanoi and Ho Chi Minh City are the two largestconsumer and the lending market However, the market size and growth in lendingactivity in Ho Chi Minh City is much larger than that in Hanoi, which is due tohabits and routines used in consumer loans of two different cities.

c Regulatory environment

Business operations of banks, especially lending operations are affected by alot of regulations and legislation relevant from the Credit Institutions Law, CivilLaw, Land Law, and also the provisions on implementation of secured transactions,mortgage registration, the provisions on asset disposal

In the strictly legal environment, it is possible to synchronize and protect thelegitimate interests of the parties involved, therefore, lending activity has manyopportunities to be developed, and the borrower will be willing to loan Moreimportantly, banks can boldly and easily expand their lending activities On theother hand, if the legal environment is unclearly tight and uniform, the rights ofborrowers and especially lenders are not protected legitimately, as a result, lendingactivities will be limited and difficult to develop

Lending activity of banks at all times have a big impact on the economy ofculture and society, and therefore the government, central bank always have strictmanagement activities Development of loans are one of individual lending policies

to improve the living standards of the population, promote production, businessdevelopment strategy in the overall economic development The policy can directly

or indirectly affect the lending activities of commercial banks

d Factors from borrowers

This is the decisive factor of lending activities in the commercial bank Theirdecision depends primarily on the characteristics of each borrower When theappraisal and approval, it is neccessary to consider the following elements fromeach client:

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Borrowing requirements of the customer: commercial banks can only

consider lending to those customers wishing to borrow fit their lending policies

Prestige: is a sense of responsibility for paying back the loans of borrowers.Since there is no precise quantitative methods to assess credibility, so the banks willdecide subjectively whether borrowers are able to repay the loan or not Banks willcheck the borrower's debts before, consider their credit report, and education level

as well as experience in the business Other issues related to individual borrowers,qualifications and experience of the loan will also be considered

Capacity: refers to the ability of borrowers to pay loans or not Since this is

the basic source for the borrower to pay the loan, banks want to know the exact plan

of the loan repayment in the future Banks will consider business cash flows, time topay, and affordability of successful loan

Capital: is the borrower's money invested which is also an indicatorexpressing how much customers may loose when businesses fail Normally,commercial banks want customers to put private property in pledge and beresponsible for financial risk when having demand for loans Besides, banks alsoconsider the borrower's debt metrics to understand the total debt over totalinvestment

Collateral: is considered as either the third party's guarantee or another formwhich borrower can assure with banks If the amount of the loan is not sufficient torepay, banks will be assured by other payment sources If the borrower can notrepay the debt, banks will revoke and liquidate machinery, equipment andinventory Moreover, the loan agreement should define carefully the itemsconsidered as collateral In some cases, banks may require the guarantor to signtheir petition committed to repaying the loan if the borrower ( the guaranteed ) cannot repay

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requirementwas "awakened" by the advertising and marketing of commercial banks.Howerver, it makes the market seperated, which leads to the difficulty of extendinglending market Besides, financial companies, credit card companies and all themajor providers of goods and services, such as supermarkets, business unitsappliances, manufacturers and car business, companies trading real estate, are alsothe competitors of commercial banks.

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CHAPTER 3 RESULTS/ ANALYSIS OF DATA

3.1 Introduction of Techcombank

3.1.1 Development milestone of Techcombank

Vietnam Technological and Commercial Joint Stock Bank, commonly known

as Techcombank, was founded on September 27th 1993 with the capital of VND 20billion Since then, Techcombank has evolved to be one of the top joint stockcommercial banks in Vietnam with Total Equity of VND 14,986 billion, TotalAssets of VND 175,902 billion

Up to 31/12/2014, Techcombank has developed a widespread distributionnetwork of 312 branches and 1,231 ATMs throughout 63 provinces across thecountry, using the latest banking technology, adopting international best practicesand being able to reach every targeted customer segments The human resourceshave been gradually enhanced in both quantitative and qualitative terms Totalworkforce in the year 2014 stood at 7,242 employees, who are trained professionalsand are striving to achieve each and every bank’s target

Techcombank is led by a seasonal and experienced management team which iscomparable to the best across international markets and a committed workforce ofover 7,000 professionally trained staff who are poised to realize the Bank’saspiration – Becoming the Best Bank and a Leading Enterprise in Vietnam

3.1.1.1 Historical milestone

2009:

July/2009: The registered capital was increased to VND 4.337 billions

September/2009: The registered capital was increased to VND 5.400 billionsSeptember/2009: Fund sponsoring contract for purchasing 16 A321 aircraftswith Vietnam Airlines was signed

September/2009: Online saving products were introduced

September/2009: Reception of the “top 500 largest enterprises in Vietnam2009” title, awarded by Vietnam report

September/2009: Reception of the “Global payment Excellence” Award, given

by Citi Bank, Wachovia Bank and The Bank of New York

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September/2009: Initiated the transformation strategy with the support fromthe world’s leading strategic consulting firm McKinsey & Co.

2010:

Deployed a number of transformation initiatives in general, announced thebank’s Mission, Vision and Core Values Simultaneously, the bank implemented itsbusiness and management model restructuring and transforming corporate culture.April/2010: Achieved the "International star for Leadership in Quality" award,given by Business Initiative Directions

May/2010: Received "The Vietnam values 2010" title

May/2010: Received "The most active GTFP Issuing Bank in East Asia2009&2010" Award, given by the IFC – International finance corporation

June/2010: Received the "Global payment Excellence" Award, given by CitiBank

June/2010: Increased The registered capital to VND 6932 Billions

July/2010: Received the "Best Bank in Vietnam 2010" award, given by EuroMoney magazine

August/2010: Received the "Vietnam Gold Star" award, given by the YoungEntrepreneur Association

May/2011: Received the "Inspirational Company" award from theConfederation of businesses

From June/2011 to August/2011: Received 8 prestigious awards from anumber of trusted international organizations, including:

"The Best Bank in Vietnam"; "The Best Cash Management Bank in Vietnam"and "The Best Trade Bank in Vietnam" awarded by Finance Asia magazine

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"The Best Bank in Vietnam"; "The Best Cash Management Bank in Vietnam"and "The Best Trade Bank in Vietnam" awarded by Alpha South East Asiamagazine.

"The Best FX provider in Vietnam" awarded by Asia money magazine

December/2011: received the "Best domestic bank in Vietnam" from TheAsset magazine

2012

Total registered capital reached 179.934 billions VND

Moved Headquarters to Vincom Building at the heart of Hanoi Capital Theinvestment represents strong commitments to reach new heights

Number of customers reach a record of 2.8 million

Honored with more than 20 awards internationally, notably the Best BankAward Vietnam awarded by The Asset, The Asian Banker

2013

Launched new head office at grade A building located at the center of HCMCity , no.1 Le Thanh Ton, reflecting the commitment to provide the best productsand services for customers in the South

Received 7 international awards, highlighted by best cash management andtrade finance bank in Vietnam awards, Vietnam Best Bank and Asia's BestEmployer 2013, and Vietnam Golden Star

Received the title of National Brand for the third time

3.1.1.2. Vision, mission and value

Based on the strength of market understanding, technology foundation,financial stability, and high quality human resources, together with more than 20

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years of experience and innovation, Techcombank aims at an ambitious target:becoming the Best Bank and the Leading Enterprise in Vietnam

VISION:

Techcombank aspires to be the best bank and a leading business in Vietnam

MISSIONS:

To be the preferred and most trusted financial partner of our

customers, providing them with a full range of financial products and services through a personalized/customer centric relationship

To provide our employees with a great working environment where they have multiple opportunities to develop, contribute and build a successful career

To offer our shareholders superior long term returns by executing a fast growth strategy while enforcing rigorous corporate governance and risk

management best practices

CORE VALUES:

1 Customer first: what we do is only valued if it is truly beneficial to our

custormers and colleagues

2 Innovation: Make improvements to lead the way.

3 Team work: At Techcombank, you will not have good performance without

cooperation

4 People development: People with proven capability will bring the

organization competitive advantages and remarkable successes

5 Accountability: Be committed to overcome difficulties and achieve great

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3.1.2.2 Organizational structure

Specifically, Business Block consists of two rooms: Individual CustomerRoom and Corporate Customer Room Each of which is organized and operated as avery small branch that plays an important role It also means that each room has itsown deposit operations department, customer service and credit departments toserve either private or enterprise clients

3.1.2.3 Personnel structure

Up to date 15/04/2016, total staff and employees of the branch is 36 people.Including 89% qualified staff graduting from college and university

Director, deputy director: 2 people

Head of Transaction: 2 people

14 credit officers

4 staff taking reponsibility for priority customers

8 staff in charge of accountant, treasurer, budget control

2 officers International Settlements

4 other professional staff

Priority department Transaction department

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Fund mobilization

Mobilization activities

Mobilization activities are said to be the basis for commercial banks to operatetheir business Saving deposits help to ensure adequate funds to perform credit andinvestment activities, as well as other operation activities of the banks Additionally,

as capital demand of the economy is enormous and constantly growing, maintaininggrowth of funding sources at high level is one of the most important thing that needs

to be done

Mobilization activity or saving deposits are contributing to the prestige andpower of the banks Banks with large capital generally smoothly run their activitiesbecause of gaining the reputation from the public Moreover, saving deposits help tostrengthen and expand the relationship with customers Thanks to this relationship,banks have the opportunity to learn about the needs of their clients and promotetheir image Therefore banks can determine the operational plans, make theproducts best suited to the requirements of the market and meet the customers’needs

Mobilization activities at Techcombank from 2013 to 2015 are indicated infigure 2 below:

Table 1 Capital Mobilization of Techcombank from 2013 to 2015 (VND

(source: Techcombank financial statements for the year 2013, 2013, 2015)

Size & structure of mobilized capital

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In general according to Figure 1, Techcombank Keangnam's source of fundsfrom deposits from customers has grown up over the period 2013-2015 Over 3years, deposits from customers rose by 6.344% and reached 3,909,716 million VNDuntil 31/12/2015 Specifically, Techcombank had to face difficulty due to theeconomic situation, its capital mobilization in 2013 was not as good as in 2012.However, Techcombank did try to make it better in 2014 and 2015 As a result, up

to 31/12/2014, total deposits reached 345,333 million VND, increased by 35.05%,compared to 2013, which is obvious that, also compared with the goal set at thebeginning of each year, the bank completed very well It continued to do better in2015

Additionally, change can also be noticed in the composition of deposit bytypes of customer which are divided mainly into two categories: enterprise customerand individual customer, as follows:

Figure 1 Source of funds classified by types of customer (VND million)

(source: Techcombank Keangnam financial statements for the year 2013, 2014,

2015)

As indicated in Figure 4, both funds raised from economic entities andindividuals has the upward trend over the 3 year period, which is quite stable.Deposit from the individuals accounted for the larger part, followed is theenterprises It can be seen that the proportion of deposit from economic entities isonly about 37.099% in 2013, 26.358 in 2014, 23% in 2015 of total source of funds,

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which is decreasing during the period Overall, personal clients are playing anextremely important role in banking activities.

Additionally, in order to mobilize sufficient fund for operation with highefficiency, Techcombank has been using a variety of instruments Deposit is themajor source, which is constituted by three main types: term deposits, deposit withterm less than 12 months and deposits with term more than 12 months

Figure 2 Source of funds classified in terms (VND million)

(source: Techcombank Keangnam’s financial statements for the year 2013, 2014, 2015)

The figure 2 has shown that most of deposit into Techcombank Keangnamwas deposit with term less than 12 months Howver, all have the same trend whichincreases lightly from 2013 to 2015 It is actually on the way to recover after havingdifficulty in 2012

Leasing and investment

Credit activities

In commercial banking, credit activities are so crucial that they bring the mainprofits to banks, thus loans to customers will show the situation of credit expandingactivity

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Table 2: Loans amount to customers from 2013 to 2015

(source: Techcombank Keangnam’s financial statements for the year 2013, 2014, 2015)

According to Table 2 above, there is the Figure ? showing the credit growth ofTechcombank Keangnam in the period 2013-2015

Figure 3 Credit growth of Techcombank Keangnam

(source: Techcombank Keangnam financial statements for the year 2013, 2014, 2015)

As mentioned above, from 2012 to 2013 not only Techcombank but othercommercial banks were affected considerably by the difficulty of the economy It’s

obviously indicated from the figure ? that credit growth of Techcombank

Keangnam in 2012 went down approximately 4% at the end of 2013 However, itwas a remarkable increase in 2015 when the credit growth went upward and was 5times bigger than the one in the previous year (26.61%) Although the result in

2013 was not good, Techcombank Keangnam decided to focus and improve its

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customer service in order to make its customers satisfied and safe, which is a rightstrategy and Techcombank’s achievement has already proved for it Specifically,Techcombank was the leading commercial bank that provided high quality cards tocustomers In 2013, Techcombank was awarded “Vietnam Believe & Use for Careservices to customers using card”, this was the 3rd times that Techcombank hadarchieved this reward To get this success, Techcombank had strongly focus ontechnology invested about 15 million USD per year According to Techcombank,the level of investment for aspect of technology was maintained regardless ofeconomic situation whether it was not good Many products and banking services ofTechcombank did express outstanding facilities, which were given very goodfeedbacks from customers As a result, Techcombank Keangnam can recover thecredit activity's result and get the confidence from customers.

Credit structure

Credit activity plays an important role in banking activity It is the main way

of the bank to use its fund and maximize profit As discussed above, the banktended to increase loans to individuals in its portfolio, which we can clearly seefrom the figure below

Figure 4: Loans categorized by types of customer (VND million)

(source: Techcombank Keangnam’s financial statements for the year 2013, 2014, 2015)

As shown in the Figure 4, loans for individual customer of TechcombankKeangnam increased following the same trend of total outstanding loan, which isdownward from 2012 to 2013 and then upward from 2013 to 2015 thanks to the

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right strategy that Techcombank had applied However, the speed of corporate loanwas different from that of individual customer loan, which increased lightly duringthe period Moreover, personal loans's proportion is also going up, it is 58.55% in

2015, which indicates how much Techcombank has paid attention to expand thisaspect of lending activities

In addition, to analyze the structure of loans, maturity is also a factor thatneeds to be considered

Figure 5 Loans categorized in terms (VND million)

(source: Techcombank Keangnam financial statements for the year 2013,

2014, 2015)

As we can see from Figure 5, medium-term loans and long-term loans tended

to upward trend while short-term loans went down during the period from 2013 to

an impressive growth when it peaked at 482,361 million VND, which was about74.9% increase after 2 years

More specifically, considering the portion of each type in each year as follow:

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