Situation, solutions to improve the efficiency of credit operation to SMEs in the sai gon joint stock commercial bank (SCB)

This thesis is aimed at studying situation and solutions to improve theefficiency of credit operation to SMEs in Sai Gon Joint Stock CommercialBank SCB, Hong Bang branch, Hai Phong city

Signed hereby, certify hereby that this is my own research The content andthe figures presented in the thesis reflected a fair and true situation of theinternship organization

Ha Noi, May 9th, 2016 Student

Pham Thi Thuy Hang

This thesis is aimed at studying situation and solutions to improve theefficiency of credit operation to SMEs in Sai Gon Joint Stock CommercialBank (SCB), Hong Bang branch, Hai Phong city from 2012 to 2014 This thesiswas clearly analyzed through using the following methodology: comparing,statistics, analysis, synthesis, description, etc All data were collected fromthe financial statement, income statement, annual reports of SCB – HongBang branch from 2012 to 2014 It can be said that the branch has gainedsome achievements in improving the efficiency of credit operation throughfacilitating loans to SMEs in the period of economic crisis, success incontrolling bad debts and overdue loans and implementing someappropriate strategies about the structure of banks' loans and loan security.However, there are still shortcomings including low loan sales to SMEs, lowoutstanding loans to SMEs, unprofessional in lending procedures, onlyfocusing on loans to SMEs in the short term From the results, someproposals were given to the Government, the State Bank of Viet Nam, SMEsand SCB's headquarter Hopefully, this thesis will provide general support forSCB–Hong Bang branch, Hai Phong city to have a better result in creditoperation to SMEs in the near future

To fulfill this thesis, I would like to give my special thanks to many people fortheir significant helps, contributions, recommendations and encouragement

during my writing process

Firstly and foremost, I would like to give my heartfelt thanks to Ms PhamPhuong Oanh, my supervisor who has provided me the valuable support,practical insights and helpful feedback from the beginning of forming thesis’stopic until the completion

Secondly, I also express profound gratitude to all staffs of SCB – Hong Bangbranch, Hai Phong city, credit department and especially Mr Do Thanh Trung,

my instructor for his enthusiastic instructions and useful data that he gave to

me

In addition, I highly appreciated indirect support from Finance - AccountingDepartment staffs, who gave me a straightway instruction, reminded me ofthe internship schedule, supported reference documents, and were alwaysavailable anytime for help

Finally, I owe my sincere thanks to my family and friends Their continuousassistance and encouragement helped me a lot during time of internship andattempt to finish this study

1.2.4 Standards of SMEs in the world and Viet Nam 13

1.4 The necessity of credit efficiency improvement 22

CHAPTER 2 : CURRENT SITUATION OF CREDIT OPERATION TO SMEs IN SAI GON JOINT STOCK COMMERCIAL BANK, HONG

2.1 Overview about Sai Gon Joint Stock Commercial Bank, Hong Bang

2.1.1 The formation and development of Sai Gon Joint Stock Commercial

2.1.2 Structure of SCB, Hong Bang branch, Hai Phong city 24

2.2 Current situation of business operation in SCB, Hong Bang branch,

2.2.3 Business result of SCB, Hong Bang branch, Hai Phong city 30

2.3 Current situation of credit operation efficiency to SMEs in SCB, Hong

2.3.1 Credit products and services to SMEs in SCB, Hong Bang branch,

2.3.2 The process of granting credit terms to SMEs in SCB, Hong Bang

2.3.3 Scales and the situation of credit operation efficiency to SMEs in

2.4 Evaluation of credit operation efficiency to SMEs in SCB, Hong Bang

2.4.1 Achievements in credit operation efficiency to SMEs in SCB, Hong

2.4.2 Limitations of credit operation efficiency in SCB, Hong Bang

2.4.3 Reasons for limitations of credit operation efficiency in SCB, Hong

CHAPTER 3: SOLUTIONS TO IMPROVE THE EFFICIENCY OF CREDIT OPERATION TO SMEs IN SCB, HONG BANG BRANCH, HAI

3.1 Development orientation of SCB, Hong Bang branch, Hai Phong city

523.1.1 General orientation of SCB, Hong Bang branch, Hai Phong city 523.1.2 Orientation towards the improvement of credit operation efficiency

3.2 The experience of some countries in Asia about credit operation to

3.2.1 The experience of some countries in Asia about credit operation to

3.3 Solutions to improve the efficiency of credit operation to SMEs in SCB,

3.3.1 Focusing on the quality of capital mobilization activity 553.3.2 Building a flexible lending rate mechanism to SMEs 563.3.3 Improving the efficiency of appraisal to SMEs 563.3.4 Simplifying loan procedures, loan profile to SMEs 57

3.4 Recommendations to the government, State Bank of Vietnam, SMEs

3.4.2 Recommendations to the State Bank of Viet Nam 59

LIST OF ABBREVIATIONS

ESAF Enhanced Structural Adjustment Facility

GSO General Statistic Office

ODA Official Development Assistant

SCB Sai Gon Joint Stock Commercial Bank

SISME Science Institution of Small and Medium - sized

EnterpriseSMEs Small and Medium - sized Enterprises

LIST OF FIGURES AND TABLES

Figure 1: Organizational structure of SCB, Hong Bang branch, Hai Phong

Table 4: Total mobilized capital of SCB, Hong Bang branch, Hai Phong city

Table 8: The outstanding loans to SMEs in SCB, Hong Bang branch, Hai

Table 9: The outstanding loans situation to SMEs was classified by term inSCB, Hong Bang branch, Hai Phong city from 2012 to 2014 39Table 10: The situation of outstanding loans to SMEs was classified bycollateral in SCB, Hong Bang branch, Hai Phong city from 2012 to 2014 41Table 11: The situation of the outstanding loans to SMEs was classified byeconomic sectors in SCB, Hong Bang branch, Hai Phong city in 2012-2014 42Table 12: The rate of SMEs' overdue loans in SCB, Hong Bang branh, Hai

Table 13: The rate of bad debts of SMEs in SCB, Hong Bang branch, Hai

Table 14: Income ratio of SCB, Hong Bang branch, Hai Phong city from 2012

a funding channel of national and global economy They are very importantposition in financial intermediation system In commercial banks, lendingactivity is one of the most basic and practical activity However, commercialbanks are cautious when deciding to make loans to SMEs because this type

of enterprises has potential risks affecting the continuity of businessoperation of the banks and leads to the loss of banks' solvency now As aresult, SMEs are difficult to access to capital of commercial banks and notmany chances to innovate technology It causes that the credit operation toSMEs of commercial banks is limited Commercial banks in general and SaiGon Joint Stock Commercial Bank (SCB), Hong Bang branch, Hai Phong city inparticular also make efforts to enhance the quality of credit to SMEs, but infact, these banks only focus on loans to SMEs in the short term with highinterest rates to limit risks, give complex loan procedures and resolutely say

no to customers who do not meet the lending conditions As a result, itsignificantly affects commercial banks' profits and SMEs miss investment

opportunities Clearly, improving the efficiency of credit operation to SMEs isvery important Based on this viewpoint and current situation of creditoperation to SMEs in SCB, Hong Bang branch, Hai Phong city, I chose the

topic: "Situation, solutions to improve the efficiency of credit operation to SMEs in the Sai Gon Joint Stock Commercial Bank (SCB), Hong Bang branch, Hai Phong city" to study.

2, Aims of the study

The study focused on the efficiency of credit operation to SMEs and solutions

to improve the efficiency of credit operation to SMEs in SCB, Hong Bangbranch, Hai Phong city The research aimed at three main purposes Firstly,the thesis gave theoretical background about credit operation efficiency toSMEs in commercial banks Secondly, the thesis analyzed and evaluatedcurrent situation of credit operation to SMEs in SCB, Hong Bang, Hai Phongcity Finally, the thesis gave solutions and recommendations to improve theefficiency of credit operation to SMEs in SCB, Hong Bang branch, Hai Phongcity

3, Scope of study

Studying the issues that clearly reflect the efficiency of credit operation toSMEs including the process of granting credit to SMEs, credit products andservices to SMEs, the current situation of lending activity to SMEs, debtcollection to SMEs, bad debts and overdue loans to SMEs of SCB, Hong Bangbranch, Hai Phong city in the period of 2012-2014 From that, givingsolutions to improve the efficiency of credit operation to SMEs in the branch

4, Methodology

To achieve the purpose of research, the thesis used some instruments asfollow:

The first is data analysis method Specially, the thesis analyzed the situation

of credit operation to SMEs in the branch through comparing data in theperiod of 2012-2014 to show the growth of credit operation to SMEs.Besides, the thesis also used financial ratios to evaluate the efficiency ofcredit operation to SMEs in the branch

The second is comparing method The thesis compared standards of SMEsbetween some countries and Viet Nam, SMEs situation between Hai Phongand Viet Nam and the credit operation between theory and practice in order

to improve the persuasiveness of thesis and gave reasonable solutions

The third is statistical and descriptive method The purpose of thesemethods is to measure, describe, present data, and then give conclusionsfrom the data With these methods, current credit situation to SMEs in thebranch clearly pointed

The fourth is synthetic method through analyzing rationale of study inchapter 1 and data in chapter 2

5, Organization of the study

Besides introduction and conclusion, the thesis is divided into three mainchapters as following:

Chapter 1: Rationale of credit operation efficiency to small and medium –sized enterprises in commercial banks

Chapter 2: Current situation of credit operation for small and medium – sizedenterprises in Sai Gon Joint Stock Commercial Bank, Hong Bang branch, Hai

Phong city.

Chapter 3: Solutions and recommendations to improve credit operationefficiency for small and medium – sized enterprises in Sai Gon Joint StockCommercial Bank, Hong Bang branch, Hai Phong city

CHAPTER 1 LITERATURE REVIEW 1.1 Commercial banks

1.1.1 Definition

Commercial banks have considered as circulation system of capital to thenational and global economies Their main activity is to mobilize thetemporarily idle funds in the economy and provide for the people who needmoney in order to ensure continuous business process and make profit.Discussing the concept of commercial banks, each country has its owndefinition For example, according to the Danish banking law in 1930,

commercial banks are essential banks including deposit operations, trading

in gold and silver, practicing commercial or real estate fields, credit facilities and the draft to transfer funds and insure According to US's assertion, commercial banks are companies specializing in providing financial services and operating in financial service industry.

In Vietnam, according to Decree No 59/2009/ND - CP dated on July 16, 2009

by Government about the organization and operation of commercial banks,

a commercial bank is a bank performing all bank activities and other

business activities so as to make profit under the provisions of the Credit Institutions Law and other provisions of law.

From above three definitions, it is confirmed that all commercial banks havethree main features Firstly, commercial banks accept deposits with theresponsibility to repay Secondly, commercial banks use deposits to makeloans, invest and discount Finally, these banks implement payments andprovide services to their clients

1.1.2 Basic activities of commercial banks.

In consonance with Article 4, Section 12 of Credit Institutions Law dated on

June 16, 2010 by the XII National Assembly, banking operation is the

business and the regular supply of one or more transactions as follow:

a) Acceptance of deposits;

b) Granting credit,

c) Providing payment services through accounts.

Nowadays, bank activity makes significant progress; however, it still containsthree main activities According to Mr Pham Ngoc Dung and Dinh Xuan Hang,

2011 in Finance and currency, commercial banks' activities includes:

1.1.2.1 Capital mobilization activity of commercial banks

It is a basic operation and affects the quality of the banking operation.Commercial banks raise capital from the following sources:

The first source is bank owners Capital consists of authorized capital,

reserved funds and other debt assets under the regulations of central bank

It is a decisive factor and life preserver for banks' business scale, especially asbanks faced the loss of solvency and bankruptcy

The second source is economic entities This is the most important capital

source reflecting the banks' nature "borrow money to lend money" Thecapital was mainly formed through payment deposits and known as currentaccount, termed deposits, savings deposits

The third source is borrowing Commercial banks can borrow from the

central bank or other credit institutions in domestic and foreign

The last is other sources Commercial banks can raise capital from other

sources such as support capital, investment and development capital,investment trust funds to lend under the program or construction project,deposits of other banks, etc

1.1.2.2 Asset specialization - using funds

Asset specialization- using funds involves using the capital raised from debtasset specialization It includes three main activities They are lendingactivity, investment, joint venture capital contribution and budgetaryoperation

The first activity is lending Lending operation is the most important activity

of commercial banks This activity provides variety of loan types tocustomers:

● Short - term loan is the type of loan with less - than- one - year terms andhigh lending turnover This type is necessary for the business to offset theshortage of working capital of businesses as well as capital demand ofindividuals in short term

● Medium - term loan is the type of loan with one - year to five - yearterms These loans are useful to investing and purchasing fixed assets,improving or renovating equipment and expanding production

● Long - term loan is the type of loan with a term of more than five years or

a maximum term of 20-30 years, even 40 years It is used to finance capitalfor construction, transportation, programs and projects of socio-economicdevelopment with large scales

In table 1, the nature of each type of loan is indicated:

Table 1: Types of loans in commercial banks

Term ≤ 1 year 1 year < loans ≤

production

finance capital for construction, transportation, programs and projects

of socio-economic development with the large-scale

The second activity is securities investment Commercial banks play the role

as investors and sponsors to help businesses invest securities Commercialbanks make profits through yield securities and stock market pricedifferences on the market

The third activity is joint venture capital contribution Commercial banks

invest an amount of capital to associate with other commercial banks, creditinstitutions and enterprises in the field of production, trade and serviceswith determination to increase equity participation and create competitiveposition on the market

The last activity is budgetary operation This activity contains cash reserve

demand so as to pay for clients, deposits in other banks and deposits in the

important role in the process of payment for clients, liquidity risk reduction

1.1.2.3 Service operation of commercial banks

Apart from credit activities, commercial banks also constantly improveservices such as payment services, guarantee, foreign currency, trust fundactivities, information activities, consultancy to earn additional income

1.1.3 Bank credit

1.1.3.1 Definition

There are many definitions of bank credit

For example, credit is a property transaction between borrowers and lenders

on the basis of borrowers' repayment promise in the future.

Another definition is that credit is a contractual agreement in which a

borrower receives something of value now and agrees to repay the lender at some date in the future, generally with interest

However, we will have a full and brief definition in finance and currencytextbook of AOF Press According to Mr Pham Ngoc Dung and Dinh Xuan

Hang, 2011 in Finance and currency, credit is the credit relationship between

lenders and borrowers based on the principle of repayment.

From the above definition, bank credit defined as the credit relationship

between banks and economic entities (businesses, individuals, organizations)

in the national economy based on the principle of repayment.

1.1.3.2 The nature of bank credit

Bank credit has four principal characteristics:

The first nature is that bank credit is a transaction between banks and

borrowers based on equity and mutual benefit

The second nature is that the form of loans is currency which is temporarily

transferred from banks to borrowers Nevertheless, banks only exchange theright to use loans rather than ownership.

The third nature is that borrowers must be responsible for paying both

principal and interest for banks after exploiting the value of loans at aprescribed time This characteristic reflects the nature of credit movement to

be distinguished from other economic categories

The last nature is belief Credit is belief that is reflected through its name.

The confidence is built from both commercial banks and borrowers

1.1.3.3 Characteristics of bank credit

Bank credit has following characteristics:

First, capital mobilization activity and lending of commercial banks mainly

conduct in the form of currency

Next, commercial banks are intermediary credit institutions When

borrowing from the public, commercial banks implement different methods.After that, demands for capital of borrowers are satisfied by means ofgranting credit with loan account or combination of accounts for loans anddeposits, etc

Besides, the process of movement and development of bank credit is in

relative independence with the process of social reproduction movementand development

Finally, bank credit accelerates the process of concentration and

harmonization of capital among entities in the economy because commercialbanks can solve supply and demand relations in term of loan volume as well

as loan credit term

1.1.3.4 Functions of bank credit

Bank credit contains two key functions:

Firstly, bank credit focuses and redistributes capital basing on repayment

principle Bank credit operation is essential Bank credit helps regulate theamount of capital from the surplus place to the deficit place and satisfiesboth the lenders and the borrowers

Secondly, bank credit controls economic activity in cash Commercial banks

must ensure loans paid on time Controlling of economic activity ismeaningful to enhance solvency, timely recover capital and raise awareness

in using of capital of borrowing units

1.1.3.5 Roles of bank credit

In the first place, bank credit boosts the production and circulation of

commodities All the business cycle starts with cash and ends with a largervolume of currency In this cycle, businesses and households have toconcentrate on increasing the capital rotation As a result, entities are able

to re-expand production, improve and innovate technology equipment

Moreover, bank credit is the economic lever pushing the circulation of

national commodities To develop both the width and depth of an economy,

a country needs to expand economic relations with other countries Manydeveloping countries like Viet Nam have chances to access high-techmanufacturing while the more developed countries have spent hundreds ofyears to establish The form of unit investment trust, guaranteeing importand export of goods, ODA and ESAF credit support, etc are typicaldemonstration

Furthermore, bank credit encourages the process of cash flow, regulate the

money in the circulation and curb inflation Commercial banks give interest

rate and credit limit to balance the amount of money in the circulation It isvital for price and currency stability

Finally, bank credit reduces the cost of production and circulation In

general, capital rotation is fast through credit operation For this reason,money in the circulation declines and capital timely provided for subjects

1.2 Small and medium - sized enterprises (SMEs)

1.2.1 Definition

To understand what SMEs are, an outstanding of business in general isnecessary According to Business Law No 60/2005/QH11 dated on

November 29, 2005, enterprise is an organization with its own name, assets

and stable transaction-based registered as prescribed by law with the aim of doing business.

Pursuant to the Government's Decree No 56/2009 / ND - CP about

supporting the development of SMEs, SMEs are enterprises registered as

prescribed by law and divided into three levels: micro enterprises, small and medium enterprises The division depends on the scale of total capital (total equity is equal to the total assets defined in the balance sheet of the business) or the number of employees per year (total capital is the prior criterion).

1.2.2 Characteristics of SMEs

SMEs have five characteristics as following:

Firstly, the capital scale of SMEs is small, particularly in the developing

countries As a result, the application of scientific and technological advancesinto commercial operation is constrained SMEs mainly focus on productswith high purchasing power

Secondly, the organizational structure mode of SMEs is simple and compact.

Business operations of SMEs are independent and autonomous In addition,administrative expense is low; decisions is quick and reasonable; monitoring

is close without intermediaries

Thirdly, SMEs cannot reach the international market to establish branches or

subsidiaries in advantageous countries as large corporations because of

outdated, weak production management capacity and experience

Fourthly, SMEs are strongly affected by external environment Compared to

large enterprises, the ability of "awakening" and "leading" market of SMEsare not high Additionally, SMEs' life expectancy is so low that they are easy

to fall into bankruptcy

Lastly, SMEs are easy to adapt to the changes of market The reason is that

SMEs are flexible in business process with small structures and scales incombination with inherent dynamics

1.2.3 Roles of SMEs

They play an important role for the implementation of socio-economicdevelopment goals They are:

First, SMEs creates many jobs As reported by General Statistics Office (GSO),

in 2000, the number of employees in the private sector was 463,844.Compared to 1999, it rose by 778,681 (20.14%) During the period of time

1996 to 2000, the average of employment growth was 2.01% per year andthe employees increased by 48,745 people (137.57%), in which 2,712,228people worked in industries (account for 45.67%), 786,792 workers in miningsector (account for 16.94%) and the rest in other sectors

Second, SMEs train good managers The fluctuation of market keeps SMEs

under pressure Managers must really be proactive, intelligent, creative and

"dare to dream, dare to do" to run and solve situations that may affect theirbusiness It is good condition for them to collect experience and exercisetheir bravery

Third, SMEs exploit the local resources stimulating economic system

transformation Indeed, SMEs usually take advantage of each region'sstrength

Last, economic growth is the driving force behind SMEs The increase and

distribution of SMEs adds to the total national income, state budget andreduces poverty

1.2.4 Standards of SMEs in the world and Viet Nam

* Standards of SMEs in some countries:

The most common criteria to determine SMEs used by many countries arethe average of employees, total capital and total annual revenues

Table 2: Standards of SMEs in some countries

* Standards of SMEs in Viet Nam

Standards of SMEs in Viet Nam depend on total capital and the number ofemployees stated clearly in Decree No 56/2009/ND-CP:

Table 3: Standards of SMEs in Viet Nam Business

fields

enterprises

enterprises

The number of employees

Total capital

The number of employees

Total capital

The number of employee s

200 people

From over 20billion

to 100 billion

from over

200 people to

300 peopleII

200 people

From over 20billion

to 100 billion

from over

200 people to

300 peopleIII

50 people

From over 10billion

to 50 billion

from over

50 people

to 100 people

(Source: Decree No 56/2009/ND-CP by Government)

1.2.5 SMEs in Viet Nam and Hai Phong

1.2.5.1 SMEs in Viet Nam

2011 The business establishment registration of SMEs in November of 2012was 62,794, (decreased by 10 % of total businesses and 8.4% of registered

capital)

* Reasons for SMEs' situations

Accessing to banks' capital is main difficulties to SMEs As announced by theSciences Institute of SMEs (SISME), only about 30% of businesses are able toaccess capital from banks, 70% of them have to use their own capital orborrow from other sources in 2012 What's more, 55%, 50% and 80% ofenterprises are prevented by lending procedures, obstacle collateralrequirements respectively

1.2.5.2 SMEs in Hai Phong

In Haiphong, SMEs are difficult to penetrate external market because of theweak capital mobilization capacity According to Department of Planning andInvestment of Hai Phong, the whole city had 1,912 registered enterpriseswith registered capital of 5,767.69 billion (declined by 7.26% of the quantityand 7.23% of the capital compared to that of 2012); 153 enterprisesdissolved; 1,824 enterprises stopped business and 644 enterprises wererevoked business registration certificate in 2013, especially the number ofenterprises stopping business and temporarily closing the tax codeaccounted for 51.4% of established enterprises in 2014 (increased by 6.5%compared to that of the same period of 2013) In this sense, improving creditactivity efficiency in commercial banks is necessary for SMEs in the country

1.3 Credit operations to SMEs

1.3.1 Definition of lending

As stated by Decision No 1627/2001 / QD - NHNN dated on December 31,

2001 by the Governor of the State Bank about promulgating regulations on

lending of credit institutions to clients, loans are a form of credit which credit

institutions deliverer to clients for the specific purpose under the previous agreement at the prescribed time limit on the basis of both principal and interest repayment.

With significant contribution to change the face of economy, SMEs become

potential borrowers for commercial banks From the definition above, SMEs

lending is defined as a form of credit, which banks allocate to SMEs in form

of money for the specific purpose under the previous agreement at the prescribed time limit and base on both principal and interest repayment.

1.3.2 Features of credit operation

Credit operation have four features as follow:

First, the scale and growth rate of credit are higher and higher Currently,

SMEs strongly grow in both quantity and quality So, demands for credit ofSMEs also become greater

Next, short-term debts of SMEs account for a large proportion So, SMEs

have enough working capital to maintain business Commercial banks alsoensure the safety of loans and limit risk

Then, profitability of credit to SMEs is high Because of high interest rates

together with the accompanying services such as underwriting, billing,remittance, etc., commercial banks can make more profit

Finally, appraisal cost is high Without regarding to the volume of loan, SMEs

must fully follow the process of grant credit including customer character,capacity, capital, collateral, conditions (5C model in credit appraisal) Ofcourse, costs of credit appraisal is not low

1.3.3 Goals of credit operation

The first goal is that commercial banks' purpose is to make profit and expand

scale of operations like other businesses.

The second goal is that SMEs can improve productivity and ensure their

existence and development

The last goal is that credit operation improve competitiveness to not only

banks but also SMEs To be more precise, banks can grow market share andconfirm their position in the race with other banks SMEs are strong enoughdevelop design and quality products and build a reputation in the market

1.3.4 The efficiency of bank credit

1.3.4.1 Definition

Nowadays, there is no formal document providing the definition of credit

efficiency; however, many economic experts showed that the efficiency of

credit means meeting the reasonable needs of customers on the basis of both principal and interest repayment in line with socio-economic development; making profit for banks and achieving economic growth goals 1.3.4.2 Credit efficiency rate

* Qualitative rate

Each bank will determine qualitative criteria depending on specificcircumstances Some criteria that can be selected are:

- The level of clients' satisfaction

- The compliance with the laws and rules on credit operations of banks

- The contribution of credit activity to the economy development

* Quantitative rate

● Outstanding growth rate (%)

This ratio is used to compare the growth of outstanding loans over the years,evaluate the possibility of lending, seek customers and implement plan of

the bank credit The formula is:

Outstanding growthrate=(Outstanding current year−Outstanding previous year)

Outstanding loans previous year ×100 %

The higher the ratio is, the more efficient operation of commercial banks isand vice versa

● The growth rate of loan sales (%)

The growth rate of loan sales is similar to outstanding growth rate This rateincludes entirely outstanding loans in the current year and recovered year.The increase or decrease of loan sales depends on factors such as themacroeconomic and microeconomic situation, loan demands by enterprises,lending policies of the banks

Loan sales growth(%)=(Loan sales current year−loansales previous year)

The higher the rate is, the more effective the operation of commercial banksis

● Overdue loans (%)

Overdue loans is the money the bank have not yet collected from economicentities after a specific time since loans meet maturity The rate reflectscredit management capacity of commercial banks from preparation process

to loans collection process This is the most important rate to evaluate creditefficiency and effectiveness In order to make it easy for comparing,commercial banks often use relative indicator as below:

Proportion of overdue loans= Overdueloans

Total loans ×100 %

The smaller the proportion is, the more effective credit operation is and viceversa

● Non-performing rate (%)

According to the decision No 493/2005 / QD - NHNN dated on April 22, 2005

by the State of bank about debt classification, provision funds and usingprovision funds to solve credit risk in commercial banks and the decision

18/2007 / QD - NHNN amended some articles of the decision 493, bad debts

are the debts of the group 3 (substandard debts, 20%), group 4 (doubtful debts, 50%) and group 5 (irrecoverable debts, 100%)

Proportion of bad debts= Total non− performingloans

Total outstandingloans × 100 %

This proportion should be kept at low level to ensure safety for commercialbanks and prevent itself from capital lost

● Profit rate of lending activity

To calculate this rate, we compare the ratio of SMEs lending profit to totalprofit

Income ratio= SMEslending profit

total profit ×100 %

1.3.4.3 Factors affect credit efficiency to SMEs

* Objective factors

Some objective factors affect credit efficiency includes:

The first is natural environment Natural environment directly affects the

business process of SMEs, especially in the field of agriculture, fishery Therepayment capacity of enterprises depends on the natural environment

The second is economic environment With the stable economy and

moderate inflation rate, the quality of credits is high In a recession, creditoperation will be difficult in all aspects

The third is legal environment If the legal system is synchronous operation,

the credit operations are safe Conversely, if it is not strict, it will lead that

production and business activities

* Factors from SMEs

Some factors from affecting credit efficiency includes:

The first reason is that SMEs lack necessary and sufficient conditions to meet

the standards of bank credit Before making lending decisions, banks must

carefully consider consumer information, lending conditions, the collateral,etc So, not many enterprises meet the requirements of commercial banks.Consequently, banks cannot expand lending model

The second reason is business ethics Many SMEs are not responsible for

loans on maturity because of private purposes As a result, these SMEs areunable to repay In worse situation, some customers escape It leads to thedecrease of commercial banks' reliance

* Factors from commercial banks

Some factors from commercial banks affecting credit efficiency includes:

The first is credit policy of commercial banks This policy must be consistent

with the guidelines of the Party and State If the credit policy is scientific andtight ensuring the interests of society - banks - customers, the quality ofcredit will be high and vice versa

The second is personnel quality The combination of talent and heart in all

fields are the key to success in the society It is true in banking field Bankcredit operation is complex so that the role of people is respected

The third is credit information Credit information plays an important role in

term of the clients and projects appraisal and supervision of the bank Themore accurate the information is, the more favorable the bank is in lendingdecisions, debt management, debt recovery and the formation of flexible

credit policy.

The fourth is organizational structure of the commercial banks Organization

of banks should be concretize and scientific on the basis of respecting for thestated principles If it happens, the collaboration between departments andthe entire system as well as other relevant agencies will be closer

The fifth is technology of Bank Technology has great influence on the

modernization of the bank The higher technology is, the simpler loanprocedures is

The last is lending process If the process is more reasonable and strict, the

quality of loans and bank revenues will significantly improve

1.4 The necessity of credit efficiency improvement

Credit efficiency is very important for SMEs and commercial banks Itcontributes to economic system transformations and affects thedevelopment of the financial and currency system

* With commercial banks

In reality, SMEs are target clients for most commercial banks because it isthe type of common enterprises drawing attention to the Government It isconfirmed that enhancing the efficiency of credit operation brings hugebenefits for banks such as the dispersion of risk due to the diversification ofthe portfolio, effective management, income structure improvement, highreputation in both domestic and foreign, etc

* With SMEs

SMEs can take advantage of high credit efficiency to access easily capitalthrough interest rates, reasonable maturities and simple borrowingprocedures Through advantages, the SMEs have powerful enough to

compete with large corporations However, the process of granting credit isstrict, SMEs need to raise awareness of using funds with the best method.

CHAPTER 2 CURRENT SITUATION OF CREDIT OPERATION TO SMEs IN SAI GON JOINT STOCK COMMERCIAL BANK, HONG BANG BRANCH, HAI PHONG CITY 2.1 Overview about Sai Gon Joint Stock Commercial Bank, Hong Bang branch, Hai Phong city

2.1.1 The formation and development of Sai Gon Joint Stock Commercial Bank, Hong Bang branch, Hai Phong city

* General information about Sai Gon Joint Stock Commercial Bank

Sai Gon Joint Stock Commercial Bank, formerly named Que Do Joint StockCommercial Bank, was established on June 6th, 1992 The Bank was officiallyrenamed into Saigon Joint Stock Commercial Bank (SCB) on April 8th, 2003

On December 26th, 2011, the Governor of the State Bank of Viet Namofficially issued the license No 238/GP-NHNN for establishment andoperation of SCB on the basis of consolidating of the three banks: SaigonJoint Stock Commercial Bank (SCB), First Joint Stock Commercial Bank

(Ficombank), and Viet Nam Tin Nghia Joint Stock Commercial Bank(TinNghiaBank) SCB (the consolidated bank) officially operated since onJanuary 1st, 2012 This was a turning point in the development history of thethree banks, marked the change on the total asset value, the outstandingdevelopment in technology, the nation-wide network and the professionalknowledge of the employees SCB also became a reliable companion with itscustomers, subject to motto "Perfection for customers" From that,consolidated bank has all inherent strengths and is in the top five of leadingjoint stock commercial banks in Viet Nam now

* Overview about SCB, Hong Bang branch, Hai Phong city.

SCB, Hong Bang, Hai Phong city is located in 5A Hoang Van Thu, Minh Khaiward, Hong Bang district, Hai Phong city Before consolidation, SCB, HongBang branch, Hai Phong city was SCB - Hai Phong branch (established onNovember 19th, 2007 at 97 Dien Bien Phu, Minh Khai ward, Hong Bangdistrict, Hai Phong city) under SCB In the process of formation anddevelopment, SCB, Hong Bang branch, Hai Phong city always focuses onvision, mission, core values and sustainable commitment to our values in allour business operations

2.1.2 Structure of SCB, Hong Bang branch, Hai Phong city

2.1.2.1 Organizational structure of SCB, Hong Bang branch, Hai Phong city

Figure 1: Organizational structure of SCB, Hong Bang branch, Hai

Phong

2.1.2.2 Functions of the departments

* Branch Director is legal representative of the Bank All activities of SCB,Hong Bang branch, Hai Phong city have to be under management or control

of Branch Director

* Sales Department is advisory department to assist Director in term ofselling bank's products and services, research and development of products

as well as the construction and development of client relationships

* Administration Department is in charge of inspection and internal control

Branch Director

Sales Department

Credit

Department Trade Finance Division

Accounting Department

Internal Accounting Department

Transaction Accouting Department

Treasury Department

Administration Department Transaction

Offices

Lach Tray Transaction Office

Tran Nguyen Han Transaction Office

Dong Bac Transaction Office

activities, training staffs and ensuring the statement of internal controlresults in accordance with law and SCB's policies.

* Accounting Department is responsible for managing risks, balancingcapital, analyzing business and financial situation by quarter and year andmaking financial statement to ensure business process of the branch

* Transaction Office is responsible for implementing capital mobilizationactivity from residents and businesses and then making loans to individualsand organizations

2.2 Current situation of business operation in SCB, Hong Bang branch, Hai Phong city in 2012-2014

2.2.1 Capital mobilization activity

In the period of 2012 - 2014, SCB, Hong Bang branch, Hai Phong city made aneffort to improve capital mobilization activity and achieved a lot of success Table 4 gives us overview about capital mobilization activity of the branchfrom 2012 to 2014:

Table 4: Total mobilized capital of SCB, Hong Bang branch, Hai Phong

Growth rate 2014/2013

Deposit from

individuals 275,387 373,228 467,087 97,841 35.53 93,859 25.15Deposit from

capital (only 20 million VND in 2013, 25 million dong in 2014) and the total ofmobilized capital of the branch increased steadily over time Specifically, thetotal mobilized capital was 339, 951 million VND in 2012, achieved 465,271million VND in 2013 (increased by 36.86% compared to that of 2012) and to

in 2014 was 595,240 million VND (raised by 27.93% compared to that of2013) In fact, although the market economy was difficult in the period of2012-2014, the performance of SCB, Hong Bang branch, Hai Phong city wasstill good

Deposit from individuals was mainly mobilized capital In 2012, the depositfrom individuals was 275,387 million VND, while in 2013, deposit fromindividuals went up to 97, 841 million VND (increased by 35.53% compared

to that of 2012) In 2014, deposit from individuals was 467,087 million VND(increased by 25.15% compared to that of 2013)

In terms of deposit from economic organizations, the growth rate was188.49% in 2013 This was a significant growth which showed theoutstanding development in the capital mobilization activity of the branch.However, in 2014, deposit from economic organizations remarkably declined

by 28, 886 million VND (about 59.70% compared to that of 2013)

Deposit from State Treasury slightly decreased by 3,598 million VND in 2013compared to that of 2012 (about 7.62% compared to that of 2012).However, deposit from State Treasury dramatically went up by 64,991million VND in 2014 (about 148.95% compared to that of 2013)

In addition, deposit from credit institutions accounted for the smallestproportion in the period of 2012-2014 So, it didn't seriously affect theexpansion of investment and financial capacity of the branch

In short, analyzing capital mobilization situation shows positive signs of thebranch's capital growth in the period of 2012-2014 This result came fromthe strength of the branch in capital mobilization activity with its network,the high quality of products and services and regular promotion programs.The branch also implemented proper policies to attract customers throughvarious deposit structures that was appropriate for many types ofcustomers Accordingly, the branch successfully carried out 13 depositprograms, 5 customer care policies and multiple deposit products for eachcustomer In addition, the branch enhanced cross - selling in order toincrease customers' utilities and competitiveness Specially, in 2014, SCBbought shares in a non-life insurance company and strongly deployed

"bancassurance" - linked products to improve the quality and the quantity ofcapital mobilization activity, customers' belief and the branch's reputation Itwas considered as a new feature in retail services of the branch Clearly, thebranch made great progress in mobilizing activity