Economic dissertation abstract Credit administration in Laos’s commercial banks

Misnistry of Education and Training University of Economics Ho Chi Minh city KONGCHAMPA OUNKHAM CREDIT ADMINISTRATION IN LAOS’S COMMERCIAL BANKS Speciality: Banking and Finance Code: 62-34-02-01 ECONOMIC DISSERTATION ABSTRACT 2015 The dissertation was finished at : Instructor : Reviewer : Reviewer : Reviewer : The thesis wil be defend in the council at At hourø date month year Research at :…………….……………… ABSTRACT Chapter 1.1 INTRODUCTION Thesis reason Until now there were some topics and research on credit activity, but no research topic specificed and updated the calculation of credit administration operations and improving credit quality commercial banks in Laos From the fact that the thesis chosen the theme: "CREDIT ADMINISTRATION IN LAOS’S COMMERCIAL BANKS " to the study is derived from the urgent needs that are posed in practice in Laos now 1.2 Thesis purpose - Chemical system to clarify the basic theoretical issues of governance of commercial banks credit activity in the economy - Analysing the current situation credit management activity of commercial banks in Laos during the current period - Giving the achievements and limitations of the credit administration operations in Laos’s banks; on that basis, providing solutions for credit management of commercial banks in Laos in the process of international economic integration 1.3 Object and scope of study - Audience research : the dissertation research focused on credit management in general banks in the Republic of Lao People's Democratic - Research scope: + Administration credit activities of commercial banks and due to limited Laos time and scale up the thesis was mainly focused on the activities of credit administration perspective mobilized resources management, credit growth and governance of commercial banks NPL Laos + The situation was focused on the period 2008-2013 1.4 Data and methodology The thesis also uses general scientific methods of economic , inductive method , to investigate methods and typical survey , analyswas , mathematical methods , with the support of the calculation software and other relevant studies to highlight the depth and content of the research study Raw data are collected after being counted , selection , editing , encoding and analysing, evaluation , and use of tables , graphs to illustrate the content analyswas which specify conclusions to ensure reliability for the research results Chapter THE OVERVIEW COMMERCIAL BANK 2.1 OF CREDIT ADMINISTRATION Basic issues about commercial bank In part of the thesis presents basic issues as the concept of the commercial banks, functions, roles and activities of commercial bank credit Because banks are diverse activities, professional technical complexity, change over space and time, again bearing the stamp of the economic and social environment in particular, should be scientifically very difficult to give a brief definition of banks was widely accepted According to the Banking Law of the Republic of France, "Organization was considered the commercial banks are all publicly owned or private enterprises, where all branches or agencies of foreign banks, which was the main activity carried out operations treasury, credit operations, financial operations with deposits received by individuals, businesses or non-profit organizations " The Law of the People's Democratic Republic of Laos capital was built on the foundation of European law, particularly the Law of France due to the impact from the Indochina era days ago, was now also subject to the influence of the Republic Vietnam socialist neighbors Thus, banks as a currency trading firms have operations covering three areas: - Business debt (capital creation) - Operations have (loans, investments and trading) - Business Brokers, intermediaries (the payment service, agents, consultants, information, safekeeping ) These areas are closely related, closely interwoven in banking activities on the domestic market as well as internationally; We support and promote each other grow, create more reliable and form of the bank brand The media sponsor banks usually carry the following general characteristics: - Always a stock form of debt, was a deed confirming a financial sovereignty or sovereign tangible assets whether expressed in any shape or form - In relation to the two entities: the creditors (lenders, investors, housing subsidies) and debtors (borrowers, investment recipient, the recipient) - Provides three service groups: + Share between the two entities on the solvency of the financing instrument (capable shifting assets into cash and vice versa at a low cost) + Share Risk + Share information (opportunities for profit) Credit Bank activities are the credit relationships between the bank with a side of the other actors in the economy , in which the bank acts as both a borrower that the lender has , in other words , banks restaurant was a financial intermediary temporary movement of capital from capital surplus to the deficit Price (interest rate ) of bank loans to borrowers fixed income was that customers have to pay during the entire duration of the loan Actors in relation credit bank activities are banks, government , businesses and households Objects used in credit relationships was money , so it was not subject to limitation under the goods and multidimensional multimedia campaign Thesis was the outstanding advantages and distinctive features between credit bank activities with other types of credit Rules of Credit activity: - 2.2 First, loan repayments and interest after a certain time Second, the loan assets of equivalent value as ensuring Third, loan purpose, according to the agreement from the previous plan( under the dongda signed ) The overview of credit administration in commercial bank In the overview of the governance of commercial banks credit activity, the thesis was analyzed the basic contents of the administration activities of commercial banks include: Management of commercial bank capital lending, policy and sector borrowers credit investments of commercial banks, loan conditions, credit limits, network Administrator banks, interest rates and loan fees, loan duration and repayment periods and debt classification and risk provisioning credit, loan security, policy and debt management identify problems Besides, the thesis was also presents the factors affecting the governance of commercial banks' credit activities as the economic environment - society in which banks operate, Profitability and risk of the loan different fiscal policy, monetary and credit administration of the State, quality staff and organizational structure of the bank's network, banking technology And indicators to assess the effectiveness of credit administration activities of commercial banks Lending capital management of commercial bank When research administrator credit bank activities, researchers often not see the capital policy as a content of credit management However the reality shows that, when studies of the commercial bank credit management, policies need to see capital as a basic content of credit management Policy borrowers and investment sectors of the commercial bank credit Many research papers have not mentioned the borrowers as the content of the commercial bank credit management, but customers see as governance principles that guide commercial banks to credit, credit is a strategy of the bank: " Stand at strategically speaking, a credit administration to attract customers, maintain and develop the customer to expand the scope of activities of commercial banks " Loan condition Credit administration reflects the principles appropriate to the nature of credit, that is: to use loan funds for the purposes agreed in the credit agreement; Full repayment of principal and interest on time agreed in the credit agreement Credit limits Commercial banks can not fund the entire loan demand implementation of customer projects to minimize risks Administration of the commercial bank credit to build must not exceed the credit limit prescribed by law The rules are: (1) the maximum loan to a borrower; (2) the maximum loan against the value of collateral; (3) the maximum loan for limited group of customers of credit; (4) the maximum rate used short-term mobilized capital for long-term loans Commercial bank system administration Network operations often multiple levels of each commercial bank, central and branch level are often based in major urban centers, cities and provinces and towns, followed by the transaction Banking Technology develops, intermediate levels tended to decrease gradually Loan fees and interest rates The primary goal of commercial banks was profit, the content of the credit administration of commercial banks to determine based on thesis goal Lending rates have been formed according to the market mechanism based on demand and supply in the market and the principle to cover the cost of raising capital and management costs, wage costs, offset risk and reasonable profit Basel I and Basel II Pact Advantages of Basel I and Basel II : Basel I focus on a unique risk management solution is "the minimum capital requirements." While Basel II focuses more on internal methods of the banks, evaluation of inspection activities, supervision and discipline on market principles Therefore, the power of national regulators are increased because they need to assess the capital adequacy of banks, taking into account the specific characteristics of its risks Basic contents of the administrator of the commercial bank credit operations When research administrator credit bank activities , researchers often not see of content sources was a constituent of credit management However the reality shows that, when studies of the commercial bank credit management, policies need to see capital as a basic content of credit management, because: In terms of theory, the term Credit (Credit) was derived from the Latin word Credo, which means "trust and confidence" From that showed credit operations of banks in a broad sense was the use of reputable financial institutions to mobilize their own kinds of idle funds in the economy and using it to extend credit to those who have demand for loans was a bank trust In other words, raising capital activity was an array of active credit policy under which raising capital was a basic content of credit management Indicators to assess the effectiveness of Management of the commercial bank credit operations The size and growth of raising capital resourse - Scale of mobilization: the scale mobilization at a time that the entire balance of that type of capital mobilized by commercial banks have been at that time It includes savings deposits with and without term, payment deposit, loans of organizations and individuals in the province When evaluating thesis criterion, to assess its proportion compared to the plan, compared with the previous year Market share of the raising capital To accurately assess the competitiveness of the banks at different times, need to consider in relation to comparable mobilization of credit institutions in the province and at the same time and in relation to comparable the size and growth of capital and the growth of commercial banks' customers that over the years Entrepreneur credit and growth Entrepreneur credit - Entrepreneur credit : all amounts that are investment banking customers are households and individuals , enterprises and other economic sectors operating in the region Thesis index reflects the size of the investment credit to customers in the province When evaluated , to evaluate its proportion of total loans , compared with the industry and other economic areas , compared to the plan , compared with the previous year Entrepreneur credit market share - Entrepreneur credit market indicators of a commercial bank , a commercial bank branch was determined by the percentage of the bank 's regional Entrepreneur credit in total investment in the province Entrepreneur credit of all credit institutions Methods of evaluation criteria are the same criterion 2.3 Literature review In previous studies, the author presents the research related to credit administration activities at commercial banks in the world Due to limited in scope and duration, should dissertation research focuses on the aspects to be considered as a very important activity of credit administration in commercial banks that Lao administrator of mobilization, credit growth, and controlling bad debt in the banking system of Laos Non-performing loan management Most empirical studies examine the impact of the macroeconomic environment to bad debts, as well as administrator effectiveness bad debt and bank credit Rinaldi and Sanchis-Arellano (2006) analysed of bad debt of households in the European countries and provides empirical evidence that disposable income, unemployment and financial capabilities have strong impact on bad debt In research on the Nordic banking system in the period 1993-2005, Berge and Boye (2007) have found that the problem loans (NPLs) are very sensitive to real interest rate and unemployment rate Credit growth As Arellano (1990) points out three-phase method least squares (3SLS) is a convenient method for the estimation of the linear model using panel data with a relatively short time and includes the latency of the dependent variables The applied research methods commonly used to estimate 3SLS equations with lags of the dependent variable (for example, in the study of Hall, 1987; and Sab and Smith, 2002) Ability to repay Most previous studies on the evaluation of factors affecting the ability to repay the majority of customers rely on credit scoring model to design model studies and was published first announced by Manski and Lerman ( 1977), in which he proposed two probability of default model to assess the repayment capacity of the customer at the commercial banks in the US, and thesis model has shown high reliability during testing, as well as forecasts on the repayment capacity of the customer 2.4 Credit administration in some foreign commercial bank experiences and the lessons learned to Laos’s commercial bank 2.4.1 Experience from other nations The thesis also addressed management experience of some countries such CREDIT BANK ACTIVITIES : Federal Republic of Germany to ensure credit models; Citibank group; ING banking group on the bases of the content that draws significant key lessons are meaningful reference for commercial banks operating Laos in credit administration 2.4.2 The lessons learned to Laos First, create a legal framework for the introduction of the bank guarantee, debt trading organizations and business risks Second, building and perfecting the administration of credit operations Thirdly, the renovation has come to a comprehensive reform Fourth, build targeted markets, the risk of bank acceptance Fifth, regular training and refresher for staff Sixth, more attention to the acquisition and upgrading of information technology systems Chapter 3.1 RESEARCH METHODOLOGY Qualitative research method Methods and results of qualitative research Qualitative research system rooted in anthropology and sociology America (Kirk and Miller, 1986) It was only recent adjustment by educational researchers (Borg and Gall, 1989) The purpose of qualitative research was to understand a specific social situation, an event, a role, a group or an interaction (Locke, Spirduso and Silverman, 1987) Overall, it's a learning process, in which researchers gradually awareness of a social phenomenon through collation, comparison, reproduce, record and categorize the object of study (Miles and Huberman , 1984) Marshall and Rossman (1989) suggested that thesis led to her book research on selected scene; into the world of people providing information and interaction through the place, researchers searched 's views and provide information The thesis presents the research methodology and results of qualitative research include qualitative research, design phenomenological research, design phenomenological study, researchers Role, and Scope lamb The expert interview method, group interviews, loan officer survey, customer survey 3.1.1 Research scope Expert interview  Context Thesis study will be conducted at the office of the Governor of the State Bank of Laos and accounting department - central bank financing  Agents Who provided information for thesis study were experts, who have many years experience in the banking sector include: Dr Somphao Phaysith, Governor State Bank of Laos; Trick Bun Sitthi Dr Deth, Head Accountant - Finance Central Bank Syvixay Phut tha grind, Director of Department of Commercial Bank Management Central Bank; Som khid vo la vong, deputy secretary of the Treasury;  Events Using research methodology phenomenology, the focus of thesis study was the experience of experts in thesis field, the comments and opinions tied to reality in Laos The interview questions are in Appendix  Processes The thesis will pay special attention to the role of the expert in launching change, build relationships, make decisions, and provide the leadership and vision Group interview  Context Thesis study was conducted at the credit bureaus of the Lao Development Bank , the experts involved in the interview will be aggregated and will be interviewed at the same time  Agents Using research methodology phenomenology, the study will record the comments and awareness of thesis issue The team members were interviewed to express their views and experiences, which include understanding the different perceptions and thus giving an overview of the issues being studied The group interview questions in Appendix  Process The thesis will particularly pay attention to each person's perspective of governance current credit activity , summarizing the advantages and difficulties in governance 3.1.2 Credit-staff survey  Context Background Thesis study will be conducted at the credit bureaus by representatives of commercial banks group Laos: Laos Foreign Trade Bank, joint venture banks Laos - Vietnam, Ma Ru Han Bank of Japan and ANZ Laos  Agents agents Persons providing information in thesis study was the credit staff working at the bank Persons providing information covering all employees and managers of the bank credit  Events The event The focus of thesis study was the fact the banks' credit activity in Laos Credit staff who are in direct contact with customers and will give the real look of governance current credit activities The survey of credit staff in Appendix  Processes The process The survey will be distributed to all employees and will be summarized analyswas that provides a snapshot of the actual current management situation 3.1.3 Customer survey  Context Thesis study will be done at the transaction of all commercial banks in Laos  Agents Persons providing information in thesis survey was that customers who borrow from state banks Laos  Events The focus of thesis study was the fact the banks ' credit activity in Laos Customers who borrow from them will indicate the situation of bad debt management and bad debts of the banks Customer surveys in Appendix  Processes The survey will be carried out on the customer to bank loans, thesis will pay special attention to the selection of customer loans 3.2 Quantitative research method 3.2.1 Research model about factors affecting credit growth Data Thesis data gathering from macro data time series during the period from 2009 to 2012 analyzing the factors affecting credit growth Data sources used included author: IMF International Monetary Fund , World Bank World Bank and the financial statements of commercial banks in Laos 3.2.2 Research model about factors affecting credit growth Based on the research by Natalia O Deniz Igan and Tamirisa T (2007) about the growth of the European banking system , the thesis uses the following model to assess the impact of these factors on loan growth Laos’s commercial banks Because of data limitations the author only used important variables in the model  BankCreditGrowthit f (BankCreditGrowthi ,t1 , GDPgrowthi ,t1 ,DistanceToDefaulti ,t1 ,CostToIncomei ,t1,InterestMargini ,t1 , ,Sizei ,t 1 ,); DistanceToDefaultit  f (BankCreditGrowthi ,t1 , GDPgrowthi ,t1 ,DistanceToDefaulti ,t 1 ,CostToIncomei ,t 1,InterestMargini ,t 1 , ,Sizei ,t 1 ,); Thesis model researched the factors that affects non-performing loans 3.2.2.1.1 Data Because of the limitations, thesis use the statistic from 2009 to 2013 to assess the factors affecting to bad debt The data resource the author used including: International Monetary Fund, World Bank and financial statements of commercial banks in Laos 3.2.2.1.2 Model By adopting the research of Dimitrios P.Louzis, Angelos T Vouldis, Vasilios L Metaxas (2012) Ahlem Selma Messai (2013) , thesis uses thesis following model: LnNPLi,t= f(LnNPLi,t-1 + GDPt + UNt + RERt + INFt + M2t + Xi,t) 3.3 Research model of the ability-to-repay of customer propability 3.3.1 Logistic model background Logistic model have unreal variables called independent variables There are many phenomenon, processes when being described by econometrics model, independent variables are unreal variables (unreal variables are the unconnected variables that receive the value and 1) 3.3.2 Data The statistic in the model were collected by a survey in 12/2014 The objects of the survey are the households that borrows capital in the period of 2014 and 31/12/2014 still have the remainder The author want to guarantee that all the household have the fix-term loans, therefore we can assess their ability-to-repay The total number of suitable household which was investigated was 100 household in Vientiane capital 3.3.3 Research model To define the factors that affects the ability-to-repay of the individual the author used thesis logistic model: Y  0  1 X   X  3 X   X  5 X  6 X  u With Y: the ability-to-repay of customer Y=1 if the customer replayed the loans and Y=0 in the reversal case X1, X , X , X , X , X : The independence variables based on the previous research The independence variables are defined and paraphrased in the table Chapter CREDIT ADMINISTRATION REAL SITUATION IN LAOS’S COMMERCIAL BANKS 4.1 The overview of Laos’s commercial bank In thesis part, thesis present the forming process, organizing map and structure of Laos’s commercial banks 03/1988, according to the decree 11 about banking reformation, separate the commercial bank and central bank function The Vientiane branch of The old central bank ( Banque d'État de la République Démocratique Populaire du Laos) became the central monetary authority 06/1990, The central bank law was made, the central bank of Laos was established replacing for the former central bank The central bank have been responsibility for the monitoring the commercial bank activities, remain the foreign-exchange reserves, monitor the money issue, set a rule system to examine the financial services and credit management in the country Now, the central bank has 90 brand; the government was considering to separate the branch into three bank areas, Northern, Southern and Central 4.2 The reality of credit administration in Laos’s commercial banks In reality, the thesis presented the status of capital management and capital resources , lending administration, loan sales, debt collection sales of commercial banks in Laos , loan balances, delinquency, interest rates administration The thesis also assess the effective credit administration in Laos’s banks and the results achieved in the credit administrative operations in Laos Capital administration and capital resources Charter capital One of the important things in banking activities especially in the energy integration was the capital Recognizing that, Laos’s commercial banks has made great efforts in implementing the direction of strengthening the central bank was raising its capital and has achieved certain results ( see the table 2.1 ) The legal capital to established a commercial bank was 300 billion kip and a joint-venture bank was 100 billion kip Mobilize capital administration Target : Raising Capital growth rate and size Raising Capital was the main factor deciding the business size and the expansion or narrowing of credit activity of commercial banks It also decides the survival of the bank Target : The share of the raising capital The raising capital primarily focused on Laos’s state banks, joint venture banks, private banks and foreign bank branches Laos’s state-owned banks always accounting for the highest proportion Deposit interest rate administration In the period 2008 - 2013, deposit interest rates were stable , only fluctuated within a narrow range, proved that the macro control policy of the Government as well as stable monetary policy to have a good effect on economy Lending activities administration Along with the development of the economy, the loan demand of customer increased, too Laos’s commercial banks play a great role as financial intermediaries to provide capital for organizations and individuals wishing to borrow for the purpose of legal legitimacy Credit was the principal activity of Laos’s commercial banks which bring 80% of bank income Loan sales are a direct indicator of the size of bank credit; in the period 2008 - 2013 , loan sales significant rose Discount interest administration For the money, in 2008, short-term lending interest rate were 17.82 % / year , only 13.87 % in 2013 / year , fell 395 points; 2008 USD lending rate was 10:14 % / year , 2013 8:34 % / year , fell 180 points Lending rates Baht, 2008 from 11.67 % / year in 2013 to 9:12 % / year, decreased 255 points Overall, short-term lending rates fluctuated in Laos in the past 05 years were not high, thanks to the macro-control policy effectiveness and stability Credit administration in laos’s commercial banks assessment Results In recent years, Laos’s commercial banks have special emphases the limiting credit risk ,so that thesis stage has achieved some positive results Laos’s commercial banks had built commercial banks more restrictive measures of credit risk and solved its negative consequences Limitations Over the past years, the credit risk administration in commercial banks are more interested Laos’s commercial banks issued some policies for credit risk management to provide detailed guidance and more complete management of credit risk in the bank However, thesis new policy was in the experimental stage, so it meet a certain number of difficulties The policy of credit risk management has not really promoting the role of orientation for credit risk management Chapter RESULT OF THE EMPIRICAL RESEARCH CREDIT ADMINISTRATION IN LAOS’S COMMERCIAL BANKS 5.1 ABOUT Qualitative research result 5.1.1 Expert interview Result of the first question (appendix 1) shows that the loan structures of Laos’s commercial bank system are not equal, in spite of the expanding of market shares on the whole country, the commercial banking service does not strongly expand the investment in the agricultural and industrial houses or entrepreneurs So that “ In the next time, Laos’s commercial bank system need to make a lending expansion with thesis economic elements to extent the market size and achieve the credit growth target”- said Syvixay Phut Tha Xay- Director of managing commercial banks and Central Bank However the credit-invested expansion must base on the credit insurance principles According to the experience and opinion of Som Khid Vo La Vong- Joint Secretary Ministry of Finance, choosing the potential fields and careers was the most essential work However it was not easy to choose the correct object; furthermore, commercial banks can’t forecast the legal and economic environment because they continually change, so it was difficult to assess exactly the majors trendy in the future In sum, Laos’s commercial banks must be seriously careful in making decision in lending projects and majors choices to minimize the overdue loans 5.1.2 Group interview Result of the first question depicts that in many opinions, Laos’s commercial banks not focus on the credit quality enough The invested projects appraisal have many limitations, the targets that analyses the financial status of the entrepreneurs all not calculate the changes, so that the commercial banks can’t predict the fluctuation in the market when confirming those projects Furthermore, the loan appraisal mainly based on the qualities factors not quantity factors A number of opinions shows that the lending processes and procedures are not tight enough and the commercial banks haven’t had an effective credit risk administration process, still haven’t focused on analyzing and assessing the customer and haven’t used the credit risk ratings to work out the ability-to-repay of customers according to the international rules, the bank’s lending decisions mostly relied on the experiences without adopting credit scoring service And The lack of discipline in the before, inside and after loans monitoring process make commercial banks uncover the wrong purpose-used capital PhD Sompadith Volachit- Deputy manager of commercial bank said that: “The commercial banks not have enough information about the statistics to analyze and assess the customers and so that make a wrong confirmation of the borrowing project result or the lending and repaying deadlines are not correct.” 5.1.3 Credit-staff survey The lending sale structure: The majority of bank staff know the medium-term loans and long-terms loans account for a higher proportion, thesis statement totally agreed with a young and developing step by step economy of Laos The medium-term loans and long-terms invested projects need a huge and stable capital resources in a long time 5.1.4 Customer survey Raising capital was one of the crucial contents in credit administration The role of the administrator was to determine the factors that affects the raising capital by the satisfaction about the raising capital process of commercial banks, from that points publish the suitable administrative solutions 5.2 Quantitative research result 5.2.1 Result from model of factors affecting credit growth At the equation 2, we can see that only previous-period default probability variable affects this-period default probability at the significant level of 1% , thesis point indicates the ineffective credit administration of commercial bank system bring a large consequence not only in the present period but in also the next periods Because of the limitations of data, the relationship between the affecting factors and default probability system still have not investigated 5.2.2 Result from model of factors affecting non-performing loan rate The bank’s non-performing loan ( NPL) of thesis period are affected by the nonperforming loan of the last period Solid liquid ratio (SOLR), return on equity ( ROE) with a 90% confidence Opposite with Das & Ghosh (2007) study, thesis found that there was a negative correlation between the non-performing loan of thesis period and previous period Laos’s central bank needs NPL administrative methods for the commercial banks system can more effectively operate and limit the NLP risk in the operation Besides, the SOLR have an opposite direction with the NPL rate and show the essential capital resource each banks own to solve any problem arising Finally, thanks to the logistic results we see that ROE affects NLP of Laos’s commercial banks, despite being opposite with the previous research of Louzis ( 2010) but the result still show that profit always goes with risk, so that commercial banks need to be cautious with their credit giving and investment 5.2.3 Result from model of factors affecting the ability-to-repay of customer After borrowing, the more the income increases, the more the customer repays on time and reverse Besides, borrowers often care about the interest (X2), beyond the expectation, the interest and the ability-to-repay of customer have negative correlative, the more the interest increases, the less the customer repays on time and reverse After all, the customer that have the increasing in income rising the whole income of famer and decreasing the financial burden of householder So that the amount of member in the family (X6) have a positive correlation with the ability-to-repay of householder Chapter SOLUTIONS FOR CREDIT ADMINISTRATION ENHANCEMENT IN LAOS’S COMMERCIAL BANKS For enhancing the efficiency of credit activity of commercial banks based on implementing laws strictly, carrying out Laos’s central bank policies and rules correctly, Laos’s commercial banks need the sensible policies and solutions and take advantages of these factors: 6.1 Internal environment Strength - - Laos’s commercial bank system was quickly developing, lies in a propitious-business area and the central of cities and providence, helps customers easily to negotiate a deal and concurrently the advertising Laos’s commercial bank system has a long-term tradition, prestige and trust of many domestic and foreign customers Laos’s commercial bank system has an enthusiastic staff, a more and more mature management system, which gives constructive contributions in credit quality organizing and advancing plan Weak point From the empirical analyses of chapter 3, the results of expert interview, group interview, Customer and Credit-staff survey in chapter indicates the weak points that Laos’s commercial banks have to solve like: - - - Professional abilities and professional ethics of some credit employers still not reach the requirement The bank staff management and treatment policies are not satisfying so that the bank cannot keep the talented employers working The loan monitoring and examining are inefficient, the internal monitoring and examining not meet the requirement of credit risk management Not having a moderate focusing on the credit quality: bank’s goal was expanding the credit size, the target was the total credit loan each year rise 17% To achieve thesis goal, the bank sometimes ignores the standards of giving credit, accepts the higher risk and disburses the loans which are not reach the safe standards Thesis statement suits the quantity research result in chapter The commercial banks need to expand the credit size and the monitoring much more effectively in the credit giving activity The non-performing loans or bad debts are climbing which have a bad effect on the credit growth and the development of the commercial banks According to the quantity research result in chapter 5, the non-performing loan rate of thesis year still affects the result of the next year, so commercial bank need to have some solutions to fix thesis problem: - - - - - - 6.2 The information technology and facilities are not enough: the information system was out-of-date and was not high efficient, the commercial banks are quite passive in catching the information timely, sufficiently and exactly Thesis leads to the problem that the commercial banks can make a wrong decisions in lending such as: customer borrows by the mortgage assets that were mortgaged in other banks, customer borrows money and change the loans, repays for other banks The invested projects appraisal have many limitations, the targets that analyses the financial status of the entrepreneurs all not calculate the changes, so that the commercial banks can’t predict the fluctuation in the market when confirming those projects Furthermore, the loan appraisal mainly based on the qualities factors not quantity factors The lending processes and procedures are not tight and haven’t had an effective credit risk administration process, still haven’t focused on analyzing and assessing the customer, haven’t used the credit risk ratings to work out the ability-to-repay of customers When giving the loans for medium and small-entrepreneurs or individual, the bank’s lending decisions mostly relied on the experiences without adopting credit scoring service In addition, from the research result in chapter 5, Laos’s commercial banks can adopt the quantity model to consider the ability-to-repay of customers and then effectively enhancing the credit giving activity The lack of discipline in the before, inside and after loans monitoring process make commercial banks uncover the wrong purpose-used capital The commercial banks not have enough information about the statistics to analyze and assess the customers and so that make a wrong confirmation of the borrowing project result or the lending and repaying deadlines are not correct On the whole, credit structure was unreasonable: the commercial and servicing lending activities account for a large proportion in total loan sales, especially short-term loans, but it was difficult for the commercial banks to examine whether the customer use the loans in a right or wrong purpose that was signed in the credit contract External environment 6.2.1 Opportunities - Thanks to the support of Government in solving the difficulties in credit investment, the commercial banks can carry out the lending activity easily - Laos’s commercial bank system now was having a wide range of opportunities for its lending activity because Laos was performing the economic structure transformation, carrying out the country industrialization and modernization, encourage economic areas diversifying planting and domestic animals 6.2.2 Challenges From the results of expert interview, group interview, Customer and Creditstaff survey in chapter 4, commercial banks have to face the followed challenges: - - The fierce competition appears among the domestic and foreign commercial banks, between commercial private and state banks Thesis competitions even happen in bad ways Commercial banks are the slaves of size and target, they ignore the lending conditions and standards, and lack the loan quality care The insufficiency of the legal environment and local legal authorities In recent years, the Congress, The Standing Committee of the National Assembly, the Government and the Central bank of Laos and other relative office made many laws and legal documents guiding the implementation of laws related to credit activities in banking Despite the laws and legal documents guiding the implementation of laws, the implement in the bank activities was still extremely slow and meets some problems like the liability-coercion documents and other rules make outstanding debts and assets remain unsolved Apart from that problems, the land law in Laos causes difficulties for commercial banks in considering and assessing the value of mortgage assets, which causes a negative effect on credit activity and seriously increasing the bad debt proportion for the bank 6.3 Solutions for credit administration enhancement in Laos’s commercial banks The thesis proposed many solutions focusing on the collateral in credit administration, credit quality administration for reducing the risks, personnel management in banking, finishing the bank information system, doing the screening customer before lending and building a sustainable relationship with customers CHAPTER CONCLUSION On the background of basic theory and practical assessment, the thesis proposed a system including solution for the completion and enhancement of credit administration in Laos’s commercial banks The author gave the content and specific method for each solution The dissertation’s solutions are completely new ideas and from the expert experiences, judgments being scientifically established, basing on the credit administration real situation in Laos’s commercial banks CONCLUSION Thesis was based on the theoretical issues and practical experiences of credit administration activities in the commercial banks of Laos, there follows some conclusions: Commercial state bank’s non-performing loan accounted for the highest proportion The loans for state entrepreneurs, medium-term loans and long-terms loans had the largest risks, which shows the inefficiency in credit risk administration of commercial banks Lao’s commercial banks need to learn the management experience and acquire the good points and technologies from the foreign commercial banks and comply with the international rules, adopt strict regulations into the lending activities for decreasing the risk to the lowest rate The follow-up model result about the factors having an effect on credit growth indicates that economic growth and credit growth have a positive correlation; credit growth rate of the previous period, income from discount interest and capital-used fee considerably affect the credit growth of thesis period Besides, there was no proof of the relationship between credit growth and total possession and capital-used efficiency The follow-up model result about the factors affecting non-performing loan depicts the negative correlation between the non-performing loan rate of two consecutive period and debt-service coverage ratio While ROE have a good effect on non-performing loan Regarding logistic model, the more income the borrowers get, the more creditworthiness on time they can have However, the interest and the ability to afford the loan on time have the negative correlation And by the qualitative research result, we can see that in the recent time, credit administration in Laos’s commercial banks meet a number of inadequacies such as incomplete-lending process especially at loan appraisal stage; professional abilities and professional ethics of credit staff are not enough; the out-of-date technology;… Research results provide the valuable practical experience for commercial banks having a suitable initiative in order to minimize the credit risk and enhancing the capital-approachment ability for customer ( especially for farmer) Through that results, it was easy for Laos’s commercial banks to improve their customers income as well as continue play a effective role in regulating the capital for the economy In term of result from quantitative research, there are some conclusions: The follow-up model result about the factors having an effect on credit growth indicates that economic growth and credit growth have a positive correlation; credit growth rate of the previous period, income from discount interest and capitalused fee considerably affect the credit growth of thesis period Besides, there was no proof of the relationship between credit growth and total possession and capital-used efficiency The follow-up model result about the factors affecting non-performing loan depicts the negative correlation between the non-performing loan rate of two consecutive period and solid liquid ratio (SOLR) While ROE have a good effect on non-performing loan Regarding logistic model, the more income the borrowers get, the more creditworthiness on time they can have However, the interest and the ability to afford the loan on time have the negative correlation From the practical results, the dissertation have also showed the petitions and solution for decreasing the credit risk for Laos’s commercial banks and enhancing the capital-approachment ability for customer