LV Thạc sỹ_Lending actvities and lending quality for SMES in ACB Bank thang long

1 ACKNOWLEDGEMENTS From 27/02/2011 to 06/05/2011, it was my great experience to have the opportunity taking internship period at Credit Department under ACB … transaction office This 10 week-period provides me a precious time to research as well as learn more about banking activities In the process of writing, I wish to give special thank to PhD … Hue for giving me numerous great and valuable advices Moreover, thanks to considerable enthusiasm and generous support which I received from staff at ACB Trung Van transaction office which assists me a lot to this thesis Lastly, I offer my regards and blessings to all of those who supported me in any respect during the completion of the project TABLE OF CONTENTS ACKNOWLEDGEMENTS TABLE OF CONTENTS ABBREVIATION LIST OF TABLES LIST OF FIGURES I CHAPTER 1: LITERATURE REVIEW II CHAPTER 2: RESEARCH METHODOLOGY 12 III CHAPTER 3: THEORETICAL FRAMEWORK ABOUT LENDING ACTIVITIES AND LENDING QUALITY FOR SMES IN COMMERCIAL BANKS 14 Commercial banks and SMEs .14 1.1 Commercial bank .14 1.2 SMEs and its characteristics 15 1.2.1 SMEs definition 15 1.2.2 SMEs’ characteristics 17 Lending activities and lending quality for SMEs 18 2.1 Lending definition and lending to SMEs’ Classification .18 2.1.1 Lending definitions 18 2.1.2 Loan for SMEs’ Classification 19 2.2 Lending quality 21 2.2.1 Lending quality definition 21 2.2.2 Criteria for evaluating lending quality 22 2.2.3 Factors affecting lending quality 25 IV CHAPTER 4: EVALUATION ON LENDING QUALITY FOR SMES AT ACB THANG LONG BRANCH 26 ACB Thang Long Branch’s overview 26 1.1 History and development 26 1.2 Current business performance 28 1.2.1 Capital mobilization 28 1.2.2 Lending activities 30 1.2.3 General business result .32 Evaluating lending quality for SMEs at ACB Thang Long branch 33 2.1 The importance of lending for SMEs .33 2.2 Structure of outstanding loan for SMEs 33 2.3 Lending quality for SMEs .35 2.3.1 Situation .35 2.3.2 Achievement 37 2.3.3 Limitations 39 2.3.4 Causes 40 V CHAPTER 5: RECOMMENDATIONS AND SUGGESTIONS TO ENHANCE LENDING QUALITY FOR SMES AT ACB THANG LONG BRANCH 44 Suggestions to ACB Thang Long branch 44 Suggestions to SMEs .47 Recommendation to Authority 50 COMMENTS ABBREVIATIONS ACB: Asia Commercial Joint- Stock Bank ACCA: Association of Chartered Certificated Accountants in Vietnam CIC: Credit Information Center M&A: Mergers and Acquisitions SBV: State Bank of Vietnam SMEs: Small and Medium enterprises TOs: Transaction offices VCCI: Vietnam Chamber of Commerce and Industry LIST OF TABLES Table 3.1: Scales of enterprises ACB’s regulation 16 Table 3.2: SMEs’ characteristics 17 Table 3.3: Loan for SMEs’ Classification 19 Table 3.4: Debt classification 23 Table 3.5: Qualitative criteria for evaluating lending quality 24 Table 3.6: Factors affecting lending quality 25 Table 4.1: ACB’s main competitors 26 Table 4.2: ABC Thang Long branch’s total outstanding loan structure .30 Table 4.3: Pretax profit at ACB Thang Long branch 32 Table 4.4: The importance of lending for SMEs at ACB Thang Long branch 33 Table 4.5: ACB Thang Long branch's Debt classification 36 LIST OF CHARTS Chart 2.1: Methodology process 12 Chart 4.1: ACB Thang Long branch’s total mobilized capital 28 Chart 4.2: Structure of total mobilized capital based on term of loan 29 Chart 4.3: Structure of outstanding loan for SMEs based on term of loan 33 Chart 4.4: Total outstanding loan for SMEs from 2009 to 2011 35 Chart 4.5: Debts for SMEs’ classification 37 Chart 4.6: Bad debt ratio comparison 38 I CHAPTER 1: LITERATURE REVIEW At the present time, there are nearly 500,000 SMEs, accounted for 90% of total enterprises in Vietnam Thus it is the important part that generates almost 50% GDP for economy as a whole However, until now, almost those SMEs found very hard in accessing to bank capital or loan According to Vu Tien Loc, President of Vietnam Chamber of Commerce and Industry (VCCI), conditions to make loan was one of the hard barriers for SMEs’ development Almost SMEs who has enough conditions to borrow from banks are big and reputational ones The other, however, are denied to access Besides, high interest rate results in moderated operation of SMEs (Nguyen Ba An, Vice director of the Institution of Strategic Development, Ministry of Planning and Investment) The fact remains that lending quality is one of the most important factor that determines whether banks should continue lend out to SMEs or not To have deeper understanding in this field, this thesis is aim to address the topic: “Enhancing lending quality for SMEs in ACB Thang Long branch” Based on practical situation in ACB Thang Long branch, it would thus convey more realistic and specific figure and factors First and foremost, theoretical framework will show some distinctions between the SBV regulation and definition in some aspects and that of ACB For instance, according to Article 3, Decree No 56/2009/NĐ-CP of Government, SMEs is classified based on total capital and number of staff By comparison, ACB provides much concise and suitable work which is based on industry and net revenue of enterprises There is mounting evidence that such classification will be used much efficiently and correctly to evaluate scale of enterprises, hence support ACB to provide most suitable credit policy to customers It is believed that SMEs have particular characteristics that are significantly different compared to other types of enterprises Dagmar Recklies (October 2011) suggested that they typically displays range of features, such as: be dynamic and flexible, having simple and effective organizational structure and low initial capital investment but fast payback capacity, close relationship with customers and dependence on a number of limited number of people Meanwhile, it appears to impose some limitations, for instance: low completion capacity because of low position in market and small financial resource, difficult to adapt corporate culture to new situations and challenges… So what are the criteria for evaluating lending quality? According to Nguyen Tung Linh (2001), there were two types of indicators for evaluating lending quality, namely: qualitative indicators and quantitative indicators For the former categories, the amount of total outstanding loan to SMEs, diversification of loan and procedure to make loan were mentioned For the latter one, it is overdue debt ratio, bad debt ratio, and provision for loan loss Moreover, Le Thi Hai Giang (2011) has added several other indicators to be more suitable For example, lending quality must be compliance with regulations, principles and process for credit, providing customers’ satisfaction and partially supporting to the growth of society and economy as the qualitative pointers Last but not least, profitability is obvious critical factor that should be concern when talking about lending quality since the good business must make profits Furthermore, there is a wide range of aspects effecting to lending quality, too Nguyen Tung Linh (2001) divided those factors into three categories, namely: factors from SMEs enterprises, from commercial bank and other objective factors In each category, a wide range of issue was mentioned, including financial capacity of the business from SMEs, credit policy and internal control from commercial bank, natural disaster from other objective factors and so on This thesis, however, has taken different approach by classify into two classes, that is objective factors and subjective factors, thus, to some extent, for the sake of clarity Going into the most significant part of this thesis, ACB Thang Long branch’ lending quality for SMEs would be carefully analyzed, comparing and contrasting with other researches in order to find both similarities and differences In 31/08/2010, Fitch downgraded ACB Vietnam’s crediting rating from D to D/E and it was due to the strong credit growth that placing high pressure into liquidity of bank It is said that during the first half of 2010, credit growth in ACB was at 42% while the annual target was 54% Thus, this rate was too high for ACB, which was considerably higher than other Vietnamese commercial banks In addition, CAR ratio decreased from 12.4% at the middle of 2008 to only 9% at the middle of 2010 Despite bad debt ratio in ACB in 2010 was mere 0.37% but it no longer reflected the true story because of loosen Vietnamese accounting system To sum up, this event seemed to be alarming to ACB in general and its credit rating or lending quality in particular in 2010 According to Investor newspaper, by the end of 2011, in spite of strictly controlling, ACB leadership had to concede that credit quality of ACB is lower than that at the beginning of the year Bad debt continued to be the major threat to both ACB and banking system in Vietnam at the moment To deal with this situation, ACB said that it would concentrate all source to supply for retail sectors, individual customers and especially to SMEs Thus, somehow, SMEs is one of the target customers who might bring better image and profits for ACB’ business More than that, another study in “Enhancing credit quality at ACB Tien Giang Branch3” has provided the writer numerous useful information about other branches of ACB It reveals that ACB Tien Giang achieved some good result in lending quality during 2010 and 2011 The most obvious achievement was diversification which satisfies the need of different types of customers Furthermore, total loan outstanding gradually increased over this period of time Other attainments also were mentioned, such as: revenue from credit activities were always higher over time, process of debt collection was focused thus bad debt ratio decline from years to years, professional staff effectively worked and create good relationship with customers On the other hand, the thesis also admitted some drawbacks in ACB Tien Giang branch, including: http://vietstock.vn/ChannelID/757/Tin-tuc/164978-vcbnbspvanbspacb-bi-ha-muc-tin-nhiem-xuong-de.aspx http://taichinh.vnexpress.net/tin-tuc/song-tai-chinh/2012/03/nha-bang-lon-cung-ngan-no-xau-7209/ http://tailieu.vn/xem-tai-lieu/tieu-luan-giai-phap-nang-cao-chat-luong-tin-dung-tai-ngan-hang-acb-chi-nhanhtien-giang.1182832.html 10 loans to customers almost were small and concentrate too much on state own companies but not non-state companies, information for evaluating customers were underprovided thus resulted in slow procedure in credit rating Admittedly, comparing to that of ACB Thang Long branch, there are both similarities and differences However, there are still some limitations under previous thesis More specifically, some critical ratios such as classification of debt or bad debt ratios were not mentioned Sometimes, it went out of topic when talking about L/C and accounting Learning from thesis about ACB Tien Giang, this thesis is going to be the first one addressing the lending quality’s situation in ACB Thang Long branch More than that, SMEs, one main sector of customers, is going to be focused to give the best view about the influence of this segment into ACB Thang Long’s lending performance, finding its own achievement as well as drawbacks in order to give the cause of the situation All in all, some recommendations and suggestions will be given for ACB Thang Long branch lending management The prior number of measures has been mentions in a lot of meeting and researches to address these concerns And whenever possible, solutions should come from all involved dimensions including ACB Thang Long branch, SMEs, and the Government or SBV From the vision of commercial bank, customized product is what SMEs expect Mr.Amit Arora, Retail sales department director of Vietnam Standard Chartered Bank, said “Formerly, banks usually supply the same products to all SMEs However, SMEs demand more customized products or services Banks could support by cooperating with professionals to give best advices to SMEs’ need” Hence, it would be for long term benefits rather than short term ones Regarding SMEs, Nguyen Ngoc Ly, director of International Knowledge Development Company, has commented on the regime of family or friend control in those companies It means that almost SMEs established by family members or group of friends, individual so it effected a great deal to SMEs activities Coherent strategy and mission to grow is hence, inevitable necessary to survivals of SMEs Similarly, 39 support ACB to have the most suitable interest rate or supplement to customers, differentiating their products and services from other aggressive banks Besides, it is undoubted true that internal control over credit is done well Lending procedure and loan supervision regulation are generally concise and detail in order to create clear understanding among employees Most specially, frequent internal test for all staff under credit departments allows them to always up to date with latest policies and supply competitive services to customers Following this, the separation in sensitive functions in loan procedures leads to the transparent and precision in credit assessment at ACB Thang Long branch 2.3.3 Limitations Theoretically, the low rate of bad debt and overdue debt ratio seems to be good to ACB Thang Long branch, but the upward trend in those indicators represents a different story The growth rate in bad debt ratio is considerable Thus, expansion in lending for SMEs is good but lending quality obviously should continuously be paid attention otherwise it will meet a lot of troubles Another worrying trend at ACB Thang Long branch lies in the proportion of short term loan for SMEs Accounting for 15% in total outstanding loan for SMEs, long term loan rate was fairly low On one hand, high percentage of short term loan in loan structure could be seen as good when it means the high liquidity in bank On the other hand, at the end of the day, it could results in the loss of profit Long term loan contains higher risk but they also provides better bottom out for banks With careful management, long term but potential profit loan should be utilized In addition, with SMEs’ perspective, long term loan brings about more opportunity to invest, buy long term asset and expand business Thus, both ACB Thang Long branch and its customers could gain benefits when long term loan proportion is modified to increase slightly State owned enterprises also need to carry a good part of the blame to lending quality problem under ACB Thang Long branch Ranging from 55% to 60% of total 40 enterprise loan from 2009 to 2011, it made up for the largest proportion of total customers The fact remains is that those enterprises contains potentially significant high credit risk due to low equity and financial capacity They are too easy to fall into troubles when the market fluctuates Meanwhile, this special category of customers frequently is short of collateral or mortgaged property to ensure for loan Recent research evidence by CIC has suggested that stated owned enterprises are the least efficient type of enterprises, leading to high credit risk Thus, seeking to other types of customers not only help to diversifies risk but also prevents banks from big potential dilemma in the future 2.3.4 Causes 2.3.4.1 Internal causes Lending quality could be attributes to a number of internal causes It is true that ACB Thang Long branch achieved a remarkable growth rate in lending for SMEs from 2009 to 2011 The outstanding loan expands rapidly meanwhile the ability to manage and control is limited at this time This too fast growing in outstanding loan accompanied by loosen credit policy over the long period consequently affects to lending quality of banks Too high proportion in short term loan as against too low percentage of long term one was really one of drawbacks for ACB Thang Long branch There are two possible causes of this trend Firstly, it is the fact that bank at this present time has been very careful in managing credit risk, especially when economy as a whole meet a lot of difficulties Short term loan definitely results in not only protect banks better from credit risk than long term loan but also increase liquidity, which is apparently very necessary at this moment The second reason was due to the structure of deposit It is the fact that majority of total mobilized capital was from short term deposit Under unstable economy, the better choice for customers is to deposit money in short term to lower the risk of interest fluctuation Thus, mobilizing capital from almost short term 41 source induces banks to make loan in short term, which is also compliant with regulation of SBV High percentage of State owned enterprises can be attributed to the policy of ACB Thang Long, which for supporting State owned enterprises sectors It was believed that in developing countries such as Vietnam, State Owned enterprises were one of best solution to develop economy It acted as a tool to directly repair market’s shortcoming and supply necessary goods to society Thus, their roles in the past was so obvious that it became the most important and competitive customers to all banks There was time when 70%-80% of total outstanding loan in commercial banks was for State Owned enterprises Banks, without doubt, has set many policies to attract this type of customers ACB is also one of that and the proportion of SOE in ACB Thang Long branch always made up at higher than 50% However, recent years has seen a lot of changes to economy and state enterprises have brought increasing weaknesses They includes ineffectively operation which was unable to generate profits, slow inventory sales, unrealistic regulation and management…More than that, collateral used in loan for SOE is not adequate that is really risky to bankers Realizing those negative aspects from SOE, ACB Thang Long branch has also reduced the percentage of SOE in total loan but the decline rate was still marginal In 2011, lots of scandal related to SOE was displayed in media shows the downward trend in this type of borrowers As a consequently, SOE should be partly responsible for the decline in lending quality at ACB Thang Long branch It should be mentioned that quality of personnel is another cause to concern It is said that ACB was the young bank It is one of advantages for creative though or initiative However, every coin has two sides Young staff, up to a point, means lack of experience In ACB Thang Long branch, almost staff was under 30 It sometimes appears to be short of ones who have considerable experience in working and professional knowledge In fact, in credit procedure, it does not always right when looking at all information and data, it requires much more than that to decide which 42 loan should be approve Long time experience is necessary element in this case On other problems under human resource is about the connection between departments Because of opposing interest among departments, sometimes procedure to make loan is slow down and meets a lot of difficulty The fact remains that time to process loan appeasement at ACB Thang Long branch is fairly slow that affect directly to the efficient operation of other departments and then the satisfaction of customers For instant, it could be take several days to wait for loan appraisement from appraisal center of Hanoi which then immediately influents to the next steps such as answering result to customers and loan disbursement With technology advance in modern day society, time is valuable resource that it needs spending precisely and efficiently, avoiding to waste much time of customers is what bank could use to differentiate their services and enhance images in customer’ mind Regrettably, ACB Thang Long branch has lost number of customers simply because of their slow process in lending which negatively impacts to SMEs’ business result 2.3.4.2 External causes A number of reasons have been put forward for lending limitation at ACB Thang Long branch However, external reasons are probably responsible for this lending situation too  Macro- economic environment High inflation rate, exchange rate adjustment, raw materials increasing price certainly causes a lot of difficulties for SMEs Despite of numerous solutions to restrain inflation, it was still very high at 18.58% in 2011, much greater than expected Tightening credit policies those resulted in high interest rate in both mobilization and lending activities has generated even more troubles Recession in economy then became one of culprit for the fault of SMEs when they were unable to business and pay debt as normal Furthermore, real estate market was frozen that collaterals for loan also devalued in very short time 43  Changes in regulations It is the fact that any financial institution must obey law or regulations Regarding banking field, this boundary is set up by SBV A numerous of Decrees, Circular, and Decisions were established and revised from years to years in order to suit with economic situation as well as to be closer with international standard Frankly, those regulations are quite good but in some cases, they are fiercely criticized It would seem that SBV’ regulation adjustment is slow responding to the fast changing situation, hence it is unable to fully support banking activities Additionally, the system of legal documents regulating lending activities, to some extent, is deficient so create legal controversy among enterprises and banks  The inaccuracy of financial statements in SMEs Due to the fact that there is very limited number of SMEs having audited financial statement, it is really hard and wasting time for banks to ensure the accuracy in SMEs’ financial statement 44 V CHAPTER 5: RECOMMENDATIONS AND SUGGESTIONS TO ENHANCE LENDING QUALITY FOR SMES AT ACB THANG LONG BRANCH Suggestions to ACB Thang Long branch According to recent Ministry of Planning and Investment’s research, at the present time, there was merely 30% of SMEs which had enough capacity to access the capital from bank loans On the other words, 70% SMEs who want to borrow from the bank could not access to that source of capital High interest rate in bank results in the moderated operation of enterprises because SMEs’ return or profit at the end of the day could not exceed the interest rate expense Up to a point, only big and reputable enterprises could meet bank’s requirements Majority of experts believed that mobilized interest rate in many banks was too high that it was very difficult for SMEs to borrow money Furthermore, complex and long procedure in lending leads SMEs feel overloaded to be lent According to the SBV’s requirement, credit growth in 2011 could not exceed 15% instead of 45% in the previous year Consequently, SMEs, without doubt, is in the situation of lacking capital from loan Although some fortunately meet the requirement of banks, they still find hard to pay back principle and interest due to extremely high interest rate In fact, a huge number of SMEs have good historical business but in 2011, they still got trouble in repayment, thus lower rate of lending quality at banks Understanding those enormous difficulties, it is the bank who should take some actions that can be done to address problems constructively and then raise the quality of lending to SMEs Some suggestions will be represented in the following parts  Raising the percentage of long term loan in total outstanding loan for SMEs: As analyzed in the previous part, there was an inverse relationship between short term loan proportion and long term loan proportion in total outstanding loan for SMEs with rises in the former being mirrored by falls in latter Admittedly, high proportion in 45 short term loan (about 60%) means high liquidity and less risk for bank But too low rate in long term loan (nearly 16% in 2011) could affect significantly to profit of bank and also business performance of SMEs With short term loan, SMEs could not invest more or expand business Abundant potential projects have to cancel due to lack of long term capital Consequently, economic recovery seems impossible when no enterprise can business as normal All things considered, the most obvious approach which could benefit both ACB Thang Long branch and SMEs is to increase the proportion of long term debt for SMEs to about 20-25% compared to only 16% at the present time Enlarging long term loan does not necessarily means the number It must compliance with high quality which is ensured by looking carefully to business planning or capacity of SMEs  Diversifying customers, reducing state-owned enterprises involvement: The percentage of state-owned enterprises in total loan at ACB Thang Long branch declined marginally from 48% in 2009 to 42% in 2011 However, this decrease level appears to be not strong enough The weaknesses of State-owned enterprises are clearly showed in recent years, including: weak capacity to generate profit, unfair management system, ineffective operation… Almost state owned enterprises not have collateral which means a lot of potential risk for banks It is becoming worse when a number of these enterprises use capital to invest in unprofitable field, which is unacceptable The belief in those enterprises was reduced so sharply that bank should be careful in lending to them To tackle this problem, lowering the proportion of stateowned enterprises is necessary step It is not discriminatory but wise practice for bank when producing more opportunity for other type of businesses to access lending capital, especially SMEs sectors with much more suitable lending purposes Diversifying customers is another name for this recommendation  Supporting policy for SMEs: Debt restructuring, reschedule loan, preferential credit to SMEs is some of supporting policy that bank is encouraged to As long as SMEs prove that they have 46 enough income to pay for debt, they are still good customers Moreover, developing financial leasing is the further step for ACB Thang Long branch By this, SMEs can have more opportunity to gain technology innovation, transferring business to be success All in turn help SMEs to pay all debt and reduce bad debt ratio in bank Customized products and package of products are two other good possibilities for banks  Customized products for SMEs: At the present time, banks provide fairly wide range of services to customers However, services and services that actually serve the need of customers are still deficient Customers of SMEs want to have more specific products from banks such as assisting payment management and cash flow management, maximizing return from idle capital and protecting customers from risks Those are some that traditional bank has yet to supply It is the fact that almost banks offer the same products and services to SMEs However, each SME certainly have different and more specified needs Bank can greatly support those customers by giving them advices and find out the best solution or product that suit with their demand Let take Standard Chartered bank as an example In here, each customer was taken care by one professional relationship management advisor They are well trained to be able to offer comprehensive advices and solutions to all problems of enterprise It is obvious that Standard Chartered is one of bank doing this part really well, thus was praiseworthy when receiving the award “Best bank for SMEs” Moreover, a package of products to customers would be a more feasible approach to both SMEs and banks First and foremost, SMEs will be given better when they receive more fully covered products which then facilitate their operations It appears to be much easier when customers could go to the bank, asking for all required services which are from collection, payment account, paying wages through account to global banking services, foreign exchange, investment… SMEs thus could benefit by lower 47 fee of service or lower interest rate in borrowing and become VIP customers since they use whole services of bank Naturally, this cooperation generates overwhelming advantages No doubt, bank itself could gain ton of benefits in the long term rather than in short-term In economy where SMEs accounted for more than 90% of total enterprises, their importance is growing considerably and undeniably Nowadays, with right business model and the combination of products, bank absolutely can expand profits from cooperation with SMEs Also, when SMEs better business, it also means that lending quality for SMEs in bank is highly likely to improve  Enhancing human resource quality: It is undoubtedly true that human is the center of everything Lending operations require people who not only have good technical knowledge but also involve in other related issues, such as real estate, laws, security, financial analysis… Limitation in ACB Thang Long is partly related to the young staff that is lack of experience Training courses thus should be opened regularly to sharpen knowledge among the youth In addition, improving quality of recruitment process is also a good idea to gain talented people before training them In ACB, it is very well done in operating exams monthly or quarterly for employees, which is aim to check the quality as well as a way to force them to learn continuously all new policies and regulation That is what should be kept doing in order to have continuously improved quality employees Last but not least, professional ethics, up to a point, is another obvious option Bank certainly has need of appropriate reward policies, promotions and correct measures to encourage staff to work effectively Suggestions to SMEs According to official statistics in this field, more than 50,000 enterprises were closed in 2011 This is extremely large number that displays the severe economic 48 difficulty The Government recently has launched various supporting program in order to assist SMEs to recover However, only the authority has not enough strength to tackle this pervasive impact It is SMEs, who should take it own responsibility, finding its own way to overcome trouble Actually, not few but so many Vietnamese enterprises are still passive to close their business rather than trying to find other development opportunity  Restructuring or M&A: This is one of the potential measures for SMEs SMEs must identify their strengths and weaknesses, thus finding what the market requires in order to catch up with maker’s demand Moreover, M&A, to some extent, is a good choice to narrow SMEs’ business scope but more effectively operate It, then, needs lower loan requirement that has been very expensive recently  Coherent strategy and mission to grow: It is inevitable necessary to survivals of SMEs Obviously, planning strategy should continuously undertake in order to evaluate, control enterprises as well as its rivals Also, it may contain competitive strategy to defeat with both current and potential rivals Recent surveys suggest that almost SMEs established by family enterprise or group of friends, individual There are two distinctive characteristics under this point The first one is that emotional factors could affect greatly to operation of business The other one is using high authority to deal with works Employees have no right to make decisions but the leaders As a result, management is considered as knotty problems need to be dealt How to appropriately behave in the enterprises, how to use discipline correctly and avoid the waste of human resource is another concerns that mission and vision are supposed to focus  Transparent financial health of SMEs: 49 At the seminar “The role of accounting in increasing opportunity for accessing capital” by the Association of Chartered Certificated Accountants in Vietnam (ACCA) in collaboration with Business Forum newspaper held in 9th Sep 2011, bankers and auditors agreed that SMEs’ capacity to access loan is not difficult In fact, understanding requirement of banks, they are completely able to borrow, calling for investment and business development and having entirely transparent or clear financial statement In practice, when evaluating SMEs, banks usually care about some critical factors such as business planning, investment projects of enterprises, financial situation and business result based on financial statement…Therefore, enterprise needs to improve financial capacity by creating sufficient amount of capital and assets More importantly, financial health of business must be transparent which ensures that all funds and assets are well managed and used properly Internal control, procedures, rules and audits from outsides thus become to be very critical part In addition, going to bank for lending, SMEs will be better when they choose branches or TOs instead of the heads of banks The reason is that smaller branches and TOs could counsel customers much more carefully On the other word, they tend to be more suitable to approve small amount of required capital for SMEs There is much that can be done to enhance lending quality for SMEs For example, they should be courage to leave expensive projects, applying creative ideas to cut down expense in short term, shorten payment cycle and finding raw materials and services from domestic sources… As Doc Le Dang Doanh said that “A change in economic condition will require the change in business management Don’t consider difficulty in current business as unfortunate thing but the great opportunity to develop for enterprises Let’s innovate and beyond yourself” 50 Recommendation to Authority  Keep improving the legal system The Government should keep improving the legal system in order to support SMEs business As was mentioned before about the Article 3, Decree No 56/2009/NDCP on assisting SMEs of Government, it classifies SMEs based on size of capital and number of labor in company Nevertheless, those categories are in fact no longer significant in implementation because of supporting policy are not based on classification of SMEs As a result, it has very little effect to SMEs’ recovery after recession Realizing the paradox in this article, ACB has its own regulations to short SMEs It is based on enterprise revenue and industry which it belongs to There is little doubt that this method is considerably more appropriate than that of decree  SBV: stop wildly erratic interest rate for mobilized capital to save economy This idea is dedicated to Doc Nguyen Thi Son (2012) who suggests very weird but also valuable one to SBV According to the deposit rate in other countries, it was only 3.25% in China, 2% in Thailand and 1% in Japan; he said that SBV should set Vietnam’s ceiling interest rate for mobilizing capital at only 5% rather than 13% So, interest rate for lending will fluctuate from 6% to 8% depends on term of loans Applying strict punishment for wrong acts of rising interest rate in mobilizing and lending in commercial banks is necessary as well It is explained that high inflation rate does not mean high interest rate The main reason of inflation is depreciation of domestic money compared to other international currency However, USD/VND exchange rate in current several months experienced fairly stable period It even declined sometimes On the other hand, high interest rate, in some extent, causes difficulty in doing domestic business, creating more chance for importing more exotic goods due to high price of local products Higher demand in foreign products results in an increase in foreign currency value and certainly, it gradually generate unexpected inflation 51 This recommendation thus could result in some positive effects Firstly, reasonable interest rate in lending certainly not only helps SMEs to have better source of capital to doing business but also enhances lending quality at banks For those who dislike low interest rate in bank can withdraw their money without any loss But in the long term, they will be better of great opportunities in jobs, lower prize of goods thus improved living standard at the end of the day According to economic expert Mrs…, the State should have some measures to help enterprises to overcome difficulties such as: Improving business environment, reforming administrations, reducing administrative costs; checking and controlling cost of publics services, reducing personal and corporate income taxes; opening more chances for SMEs to participate in publics investment projects, supporting businesses to improve technology and creating job retention 52 CONCLUSION The preceding 50 pages were trying covering lending quality topic, especially lending quality for SMEs at ACB Thang Long branch The paper began with some theoretical background information that triggers the concerns related to lending, lending quality and SMEs After going through those theoretical concepts, the thesis leads the readers to a much more practical section of the subject bank – ACB Thang Long branch in chapter Over the years, with the continuous efforts of the Board of Directors, Supervisory Committee, and all the members, ACB Thang Long has been gradually overcome difficulties and gain confidence from customers, enhancing reputation on lending market and constantly achieved significant achievements However, the thesis also figured out that the branch still face plenty of lending drawbacks, especially for SMEs sector By giving some suggestions to address shortcomings and improve the lending quality, the thesis would like to contribute some efforts in the development process of the branch Due to the limitation of time, knowledge and experience, some mistakes of my thesis are inevitable Therefore, for further development, I look forward to all comments and supplements from lecturers and those who are interested in this thesis Thank you! 53 REFERENCES Vietnamese:  Hồ Diệu, Lê Thẩm Dương, Lê Thị Hiệp Thương, Phạm Phú Quốc, Hồ Trung Bửu, Bùi Diệu Anh (2001) Giáo trình Tín dụng Ngân hàng.Hanoi: Nhà xuất Thống Kê  Phan Thị Thu Hà (2007) Ngân hàng thương mại Hanoi: Nhà xuất Đại học Kinh Tế Quốc Dân  Tô Ngọc Hưng (1993) Tiền tệ, Ngân hàng Thị trường Tài Nhà xuất Khoa học kỹ thuật English:  Dagmar Recklies (2001) Small and Medium- Sized Enterprises and Globalization  Perter S.Rose & Sylvia C Hudgins (2008) Bank Management & Financial Services New York:The McGraw-Hill  Sauders & Cornett (2007) Financial markets and Insitutions New York:The McGraw-Hill  Le Thi Hai Giang (2011) Solutions for quality improvement in consumption lending: Thesis EAD- NEU  Nguyen Tung Linh (2011) Improving SMEs lending quality of commercial bank: Thesis Educational Advanced Program- NEU Website:  http://en.wikipedia.org/  http://diendannganhang.com/forums  http://vneconomy.vn  http://www.sbv.gov.vn  http://taichinh.vnexpress.net ... Evaluating lending quality for SMEs at ACB Thang Long branch 33 2.1 The importance of lending for SMEs .33 2.2 Structure of outstanding loan for SMEs 33 2.3 Lending quality for SMEs. .. general and Vietnam’ economy in particular Evaluating lending quality for SMEs at ACB Thang Long branch 2.1 The importance of lending for SMEs Table 4.4: The importance of lending for SMEs at ACB Thang. .. Medium- Sized Enterprises and Globalization) Lending activities and lending quality for SMEs 2.1 Lending definition and lending to SMEs? ?? Classification 2.1.1 Lending definitions “Credit activities