LV Thạc sỹ_Solution to improve lending services for SMEs at Military bank

ACKNOWLEDGEMENT First of all, I would like to express my sincere to Prof … for his supervision and guidance Also I would like to thank the staffs at Military Bank, … transaction office in assisting me broadening my view and knowledge of banking and finance Especially, my deepest appreciation to Mr …, the office director, and Ms …, the business customer relationship manager at Military Bank, … transaction office in helping me collecting necessary information for my thesis Lastly, I offer my heartiest gratitude to my parents and all of those who supported me in any respect during the completion of this thesis … Instructor: Prof.Dr … Student: … TABLE OF CONTENT ACKNOWLEDGEMENT TABLE OF CONTENTS ABBREVIATION LIST OF TABLES LIST OF DIAGRAMS EXECUTIVE SUMMARY INTRODUCTION Instructor: Prof.Dr … Student: … ABBREVIATION MB Military Bank NPL Non-performance loans SBV State Bank of Vietnam SMEs Small and medium enterprises Instructor: Prof.Dr … Student: … LIST OF TABLES Instructor: Prof.Dr … Student: … LIST OF DIAGRAMS Instructor: Prof.Dr … Student: … EXECUTIVE SUMMARY Small and medium enterprises are now recognized world-wide to be a key source of dynamism, innovation and flexibility in advanced industrialized countries, as well as in emerging and developing economies They are responsible for most net job creation in many countries and make important contribution to innovation, productivity and economic growth If the SME sector does not have access to external funds for investment, the capacity to raise investment per worker, and thereby improve productivity and wages, is seriously impaired The development of banking services and SMEs are now considered to be leading objectives of MB In recent years, banking operations for SMEs has significantly expanded the scale, quality, product improvement but still some drawbacks Starting from this reality, the project “Solution to improve the lending services for small and medium enterprises at Military Bank” was selected The thesis researches on the features and current situation of lending services for SMEs at MB to offer solution to enhance the quality of the services In order to have real and comprehensive solutions, the author has researched all the issues in the whole banking system After having a broad view of the problem, the author has concentrated on the Military Bank in particular and find out some limitations about lending policy, human resources, and marketing… Along with studying the reasons of the limitation, the author brings out some recommendation to enhance the lending services for SMEs at MB They include: improving capital mobilization, reducing information asymmetry of SMEs and improving risk management, improving products and services, human resources management, and marketing management In addition, the author has made some comments for SMEs and the legislation, administration tools of central bank Instructor: Prof.Dr … Student: … INTRODUCTION Rationale Small & medium enterprises play an important role in the economies of most countries in the Asia-Pacific region not only because of their sheer number but also the variety of their activities In part, SMEs contribute to countryside development, as well as support large industries and serve as a breeding ground for innovation and adaptation SMEs thus can be looked upon as a source of constant renewal in commerce and industry and as a wellspring of competition and dynamism In Asia, SMEs have made significant contributions over the years: number of enterprises accounts for 80-90%, employment provide over 60% of the private sector jobs, production and value added generate 50-80% of total employment, GDP contribute about 50% of sales or value added, enterprises set up by women entrepreneurs share about 30% of direct total exports, and regional dispersal of industry, among them Vietnam has the growth rate more than 7% per year This growth has trend to be maintained, especially in industry and service sector In which, SMEs sector accounts for 95%, therefore they contribute remarkable to total output and create job and reduce poverty… However, SMEs have to face with many difficulties and challenges to look for a better development due to lack of fund How does MB to promote advantage, achieve more market share in competition with other banks? This is a big question of MB Because of above reasons, the author would like to present the thesis with topic “Solution to improve lending services for SMEs at Military Bank” Research questions and objectives Research question: In Vietnam, the SME market is the target market for almost joint stock commercial bank Competition is heavy and is likely to increase So how Instructor: Prof.Dr … Student: … commercial banks can compete with each other, how they can serve their customers better and better is really a hard question Research objectives: •Theoretically studying on concepts of commercial banks, SMEs and lending services for SMEs in commercial banks •Analyzing the current situation of lending services for SMEs at MB to find out limitations and reasons •Find solution and recommendation to improve lending service for SMEs at MB Research methodology Based on collected data, mainly the second data from annual reports, financial reports, articles, websites, financial books and other previous researches… this thesis would coordinate some mainly methods like comparison, analysis, statistic, synthesis, mathematic model…to finalize achievements and limitations and then the best solutions for improving lending services for SMEs Research scope and limitation Research scope: The scope here has focused only on lending activities for SMEs at MB in period 2007-2009 Limitation: Due to the limitation of the author’s knowledge, and the data base on SME banking, the thesis just gives brief overview of lending services at MB Research structure: Executive summary Introduction Chapter 1: Lending services for SMEs in commercial banks Chapter 2: Current situation of lending services for SMEs at MB Chapter 3: Solutions and recommendations to improve the lending services for SMEs at MB Instructor: Prof.Dr … Student: … CHAPTER 1: BANKING SERVICES FOR SMES IN COMMERCIAL BANK 1.1 Banking services in commercial banks 1.1.1 Definition of commercial bank Until now, there are many concepts of commercial bank In US, A commercial bank is defined as a type of financial intermediary and a type of bank Commercial banking is also known as business banking It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits After the implementation of the Glass-Steagall Act, the U.S Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities As the two no longer have to be under separate ownership under U.S law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses In some other jurisdictions, the strict separation of investment and commercial banking never applied Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers Many banks offer both commercial and retail banking services In Vietnam, according to banking legislation on 23/05/1990 of Vietnam State bank council, commercial bank is defined as money-dealing organization whose main and routine operation is receiving deposit from customer either responsibility of repaying and using it to perform lending activities or carrying out discount, making as a payment mean During these recent years, the banking system has contributed actively to the development of the economy such as: improving macro-economic, controlling inflation stabilizing currency values, promoting business development, and contributing to national economic growth 1.1.2 Role of commercial banks The credit intermediation role Instructor: Prof.Dr … Student: … Transforming savings received primarily from households into credit (loans) for business firms and others in order to make investments in new building, equipment, and other goods is considered the most important function of commercial banks In performing this role, commercial banks act as both borrowers and lenders banks or a bridge between surplus capital and those in need of capital That is to say, they source funds or deposits from members of the public and then they onlend those funds or make those available to various individuals and organization for financing productive activities, as well as for financing consumption Profit is the difference between interests received from loans and interests paid for depositors The payment intermediation role Carrying out payments for goods and services on behalf of customers (such as by issuing and clearing checks and providing a conduit for electronic payments) is payment intermediation role Depending on needs, customers can choose their own methods of payment such as checks, debit cards, credit cards This kind of payment is very convenient for customers because it saves time, money and ensures privacy and security Therefore, commercial banks have promoted the circulation of goods, payment speed, speed flow of capital, thereby contributing to economic development Money creation role Creating money is a key function which reflects the nature of commercial banks The very first and primary target for the existence and development of any financial institution is seeking for profit Due to this peculiar nature, banks also contribute to creating money for the whole economy Money creation role is executed based the basis of two other functions as mentioned above When a commercial bank loan is extended, new commercial bank money is created As a loan is paid back, the commercial bank money disappears from existence Since loans are continually being issued in a normally functioning economy, the amount of broad money in the Instructor: Prof.Dr … Student: … ... recommendations to improve the lending services for SMEs at MB Instructor: Prof.Dr … Student: … CHAPTER 1: BANKING SERVICES FOR SMES IN COMMERCIAL BANK 1.1 Banking services in commercial banks 1.1.1... •Analyzing the current situation of lending services for SMEs at MB to find out limitations and reasons •Find solution and recommendation to improve lending service for SMEs at MB Research methodology... “Solution to improve the lending services for small and medium enterprises at Military Bank? ?? was selected The thesis researches on the features and current situation of lending services for SMEs at