LV Thạc sỹ_Enhance the financial analysis of business borrowers in Sacombank dong da branch

TABLE OF CONTENTS ACKNOWLEDGEMENT INTRODUCTION ABBREVIATION LIST OF TABLES LIST OF FIGURES 10 CHAPTER 1: BASIC THEORIES ABOUT FINANCIAL BUSINESS ANALYSIS IN THE COMMERCIAL BANKS 11 1.1 Credit service of the commercial bank 11 1.1.1 Definition, characteristics and roles of the commercial bank 11 1.1.2 The risk in the credit service of commercial banks 13 1.2 The financial business analysis of commercial bank 1.2.1 Definition and roles 16 16 1.2.2 Information used in the financial business analysis 18 1.2.3 Methods used in the financial business analysis 1.3 Factor influencing financial business analysis 24 36 1.3.1 Subjective factor37 1.3.2 Objective factor 38 CHAPTER 2: CURRENT SITUATION OF FINANCIAL BUSINESS ANALYSIS IN THE CREDIT SERVICE OF SACOMBANK’S DONG DA BRANCH 41 2.1 Sacombank’s Dong Da branch 41 2.1.1 Establishment and development 2.1.2 Organizational Structure 2.1.3 Functions and roles 41 41 42 2.2 Current situation of financial business analysis in the credit service of Sacombank Dong Da branch 48 2.2.1 Content of the financial business analysis 48 2.2.2 Financial business analysis process 51 2.2.3 Illustrating the financial business analysis of Toan Thang joint-stock company 52 2.3 Results, Limitation and Reasons 2.3.1 Results 58 59 2.3.2 Limitations 59 2.3.3 Reasons for limitations 61 CHAPTER 3: RECOMMENDATIONS FOR THE QUALITY IMPROVEMENT OF FINANCIAL BUSINESS ANALYSIS IN SACOMBANK’S DONG DA BRANCH 64 3.1 Sacombank orientation in 2012 64 3.2 Recommendations for the quality improvement of financial business analysis 66 3.2.1 Encompass the guidance of the financial business analysis with accuracy, detailed and obvious information 66 3.2.2 Organize the way to explore the effective and qualitative information to meet the financial business analysis demand 68 3.2.3 Enhance the competencies of credit staffs 69 3.2.4 Assign the revaluation of the financial business analysis task 71 3.2.5 Construct the industrial benchmarking 72 3.2.6 Debt classification and management 72 3.2.7 Strengthen the financial business analysis through cash flow assessment 73 3.2.8 Establish a storage, management and information processing parts 3.2.9 Expand the relationship with other agencies in Hanoi 3.3 Recommendations 73 74 74 3.3.1 Recommendations for government 74 3.3.2 Recommendation to the State Bank of Vietnam and relevant ministries 3.3.3 Recommendations to Sacombank 75 76 3.3.4 Recommendations to the business borrowers77 CONCLUSION 79 REFERENCES 81 APPENDIX 82 Appendix A: General information about Sacombank 82 Appendix B: Sacombank organizational Structure 84 Appendix C: Sacombank Total Assets in the period 2006-2011 85 Appendix D: Sacombank Total Equity in the period 2006-2011 85 Appendix E: Sacombank Profit after Tax in the period 2006-2011 86 Appendix F: Sacombank Total Deposits and Total Loans in the period 2006-2011 86 ACKNOWLEDGEMENT Firstly, I want to give a special thank to Asso.Prof Dr… who is a dedicated supervisor has brought a lot of suggestions and advice to me when I am in a quandary situation Secondly, I sincerely thank to staff members who are working at the Sacombank’s Dong Da branch, especially Mrs …_ manager of Hao Nam Transaction Department enthusiastically instructed and supported me in completing given tasks over 10 weeks I would like to thank my friends for their time, interest and helpful comment My time at Advance Class was made enjoyable, grateful in large part due to the many friends and groups of becoming part of my life Last but not least, I would like to thank my family: my parents for giving birth to me at the first place and supporting me spiritually throughout my life INTRODUCTION Background and motivation History and development of commercial banks have been bound up with the development of production and circulation of products After satisfying the capital demands of individual and group of people who want to enhance the operational and trade services in the early days, the commercial banks have become the most significant financial intermediaries which cope with and get the bottom of almost of economic issue nowadays Credit service has played the most important role among the bank services Loans are the assets which account for the largest proportion make the top of income accompanied by the highest risk Therefore, it’s necessary that ensuring and improving the quality of credit activities serve as not only an objective but also the potential factor for competition and development of each commercial bank Before giving a loan, banks have to always consider carefully, estimate the potential risks and profitability based on the analysis of the financial and nonfinancial aspect through a rigorous process in which financial analysis is involved There is an appearance of mutual credit relationship between commercial banks and borrowers, especially entrepreneurs If businesses don’t have the ability to pay the debt on the due date, the revenue of commercial banks will reduce, which leads to the existence of banks and other borrowers Therefore, commercial banks should enhance the quality of business financial analysis with a view to making a good decision whether they give the loans to the businesses For each commercial bank in Vietnam, lending activities usually make up around 90 percent of revenue Thus, the financial analysis of borrowers which can be done through before, during and after giving the loans can enable the creditors evaluate and analyze the financial abilities of customer at the different time From this, creditors may classify, assess the current situation of loans and make the adjustment method in time Through the internship time in Sacombank’s Dong Da branch, I realize that the financial business analysis activity which has still existed lots of restrictions resulting in low effective of lending activities Thus, with a view to contributing to enhance the quality of this service, I choose the bachelor topic” Current situation and recommendations to enhance the financial analysis of business borrowers in the Sacombank’s Dong Da branch” as a graduated thesis Research objectives: Firstly, the research aims to introduce some basic theories about financial business analysis in the commercial banks Secondly, based on the basis theories and using a typical example, the research will reflect and assess the current situation of financial business analysis in the lending activities in the Sacombank’s Dong Da branch Finally, the research will contribute some recommendation to Sacombank, government and other relevant parties with a view to enhancing the quality of financial business analysis in lending activities Research scope: As a result of the limited time and human, I only focus on the assessment of the current situation of financial business analysis in the Sacombank’s Dong Da branch Research questions: The research aims to deal with the following questions:  What is the current situation of financial business analysis in Sacombank’s Dong Da branch?  What are some solutions to improve the quality of financial business analysis in Sacombank’s Dong Da branch in particular and in Vietnam banking system, in general? Research methodology: First, I observe the lending process which happens every day in the Sacombank’s Dong Da branch Second, I enquiry the banking staffs to gain more understanding and awareness of current situation of financial business analysis in Sacombank’s Dong Da branch Third, I gather information from Sacombank website along with asking the internal information from the banking staffs in the Sacombank’s Dong Da branch to achieve both external and internal data and to calculate the financial ratio Fourth, I combine some analysis methods to assess the current situation of financial business analysis in credit activities in Sacombank’s Dong Da branch Research structure: My thesis’ structure includes three chapters: Chapter 1: Basic theories about financial business analysis in the commercial banks Chapter 2: Current situation of financial business analysis in the credit service of Sacombank Dong Da branch Chapter 3: Recommendations for the quality improvement of financial business analysis in Sacombank’s Dong Da branch ABBREVIATION SBV: State bank of Vietnam CIC: Credit Information Center LIST OF TABLES Table 1: Loan analysis by industry in Sacombank’s Dong Da branch in the period 2009-2011 46 Table 2: Loans analysis by quality in the Sacombank’s Dong Da branch in 20092011 47 Table 3: Cursory Balance Sheet of Toan Thang JSC in the 2010 and first half of 2011 54 Table 4: Cursory Income Statement ( In VND million) of Toan Thang JSC in the 2010 and first half of 2011 54 LIST OF FIGURES Figure 1: Sacombank’s Dong Da Branch Organizational Structure 42 Figure 2: Loan analysis by currency in the Sacombank’s Dong Da branch in 20092011 47 Figure 3: Loan analysis by maturity in the Sacombank’s Dong Da branch in 20092011 48 Figure 4: Current ratio and quick ratio of the Toan Thang Company in 2010 and 06/2011 55 Figure 5: Asset turnover ratio of Toan Thang Company in 2010 and 06/2011 56 Figure 6: Financial leverage ratio of the Toan Thang Company in the 2010 and 06/2011 57 Figure 7: Gross profit margin ratio and Net profit margin ratio of Toan Thang Company in 2010 and 06/2011 .58 responsible for the type of state owned enterprises, some for the type of non-state enterprise, etc 3.2.7 Strengthen the financial business analysis through cash flow assessment At the present time, most banks often ignore the analysis of cash flows whereas the statement of cash flows reflects very clearly the amount of cash and cash equivalents at end of period that businesses can use to pay the debt on due date Thus, to ensure the reliable information and make the good decision in the lending activities, Sacombank in general and Sacombank’s Dong Da branch in specific should implement further analysis through using the information in the cash flow statement 3.2.8 Establish a storage, management and information processing parts When analyzing the financial position, credit staffs are not only interested in current data, plans in the future but also cared about the past data for assessing the financial situation of a business through a particular process Currently, due to the requirements of the regular rotation, credit staffs sometimes have to hand over their current customer records to other credit staffs or themselves receive the new borrowers from the old credit staffs In these cases, if the previous credit staffs not store information scientifically and orderly, it will be easy to miss the information records, which leads to difficulties of financial business analysis in the future time Thus, in the credit service department, Sacombank’s Dong Da branch should set up a storing, management and information processing parts which include one or two staff regularly take responsibilities of reporting consolidating data for the all department This can be considered as a banking data including all the detailed information about any customers who have credit relationships with branch It’s convenient for the later reference To achieve it, each credit staff has to provide information which is belonged to their current customers to storing, management and information processing parts as detailed as possible In addition, they have to ensure their information reliable and Establishing storing, management and information processing parts with many control points will filter and bring the most accurate information, improve the quality of data sources for analysis and evaluation the customer in the long term 3.2.9 Expand the relationship with other agencies in Hanoi It’s a good way that after Sacombank’s Dong Da branch build a good relationship with other agencies in Hanoi such as tax bureaus, the department of general statistics; the bank can generate the significant information related with the financial business analysis task from these sources By dint of the information collected, credit staffs can check, compare and verify the borrower’s integrity Besides, based on the information of tax bureaus, credit staffs can evaluate the obligation of borrower with government budget Moreover, credit staffs also identify the error existed in the accounting system of borrower Thus, borrower will not only aware and adjust its behavior in the accounting record suitably but also provide the sufficient and appropriate financial data to credit staffs of Sacombank’s Dong Da branch 3.3 Recommendations 3.3.1 Recommendations for government Government has a very important role in regulating the activity of the economy especially in the banking-sector which is very sensitive sector The proper orientation and appropriate policies of the government in time will contribute the favorable condition for banking operation, especially Sacombank In order to enhance the quality of the financial business analysis to supporting the lending activities in Sacombank, government should implement some actions in the future as follows Firstly, the experience of debt management in the foreign commercial banks has confirmed that they have more advantages than domestic banks due to effective assistance of professional organizations to collect information and independent consultants That diversified, highly accuracy and independent sources of information are supplied by the professional organizations provide the meaningful quality decision in the process of financial business analysis, which result in the high quality of the debt Thus, the government should establish or designate the organizations and enterprises that are specialized in collecting and evaluating the information, rating the business rank, advising the investment opportunities Besides, government should promulgate the legal regulations on the information sale and purchase, advisory services and responsibilities of the relevant parties Secondly, to ensure the information provided by customers honest and highly reliable, which helps commercial banks properly evaluate the financial situation and future prospects of the borrower, government should promulgate the specific regulations From these specific regulations, the enterprise has to strictly implement the accounting standards and reporting information Moreover, government should issue the requirements that bind the business responsibilities, the sanctions applied to the businesses that not comply The enforcement agencies strictly handle following the law when they identify the violation of the business in the bookkeeping accounting 3.3.2 Recommendation to the State Bank of Vietnam and relevant ministries Firstly, State Bank of Vietnam needs to strengthen the organization structure and operation of CIC to integrate the information in the all country This action will give the good condition in providing and achieving the information for all commercial banks, especially Sacombank On the other hand, State Bank of Vietnam should actively promote the information exchange in the domestic scope among the relevant organizations such as General Statistics Office, Ministry of Industry and Trade, Ministry of Planning and Investment, Finance Ministry to generate the diversified information resources including not only the credit information but also the information about economic market, development planning, policy orientation and socio-economic development in each period Secondly, Vietnam General Department of Taxation should conduct the tax inspections in enterprises regularly and continuously Vietnam General Department of Taxation ought to apply the drastic sanctions for violations of accounting principles, deliberately made up the financial data in order to avoid obligations to pay taxes to the government budget 3.3.3 Recommendations to Sacombank To improve the quality of financial analysis of borrowers, Sacombank should implement recommendations as follows: Firstly, Sacombank should positively revise guidance book in the content of the financial business analysis Content should standardize the terms and concepts, the formula calculation for each financial ratio and indicator, full complement of the necessary financial ratios and indicators, paying more attention to the effect of cash flow in the cash flow statement report, and giving as much as possible the suggestion around the increasing or decreasing of each indicator Besides, Sacombank should have the written instructions detailing the steps of the financial business analysis process and ensure that implementation is feasible for the credit officers when they the financial business analysis Secondly, at the present time, the comparison between the list of indicators and the average financial sector is still limited because the credit staffs not have specific and consistent figures about the average financial industry which is appropriate with each stage of general economic development in Vietnam Thirdly, Sacombank should organize the advanced training courses on the financial business analysis activities periodically These courses will be held by financial expert or lecturer with high prestige in the famous economic universities Credit staffs in all Sacombank will have the opportunities to complement the knowledge and raise the level o the financial business analysis opportunities for loan officers are the industry added knowledge, raise the level of corporate financial analysis Fourthly, Sacombank should set up a storing, management and information processing parts which include one or two staff regularly take responsibilities of reporting consolidating data for the all department This can be considered as a banking data including all the detailed information about any customers who have credit relationships with branch Fifthly, Sacombank should have the policies to encourage, motivate the credit staffs in both of physical and mental aspects so that they feel satisfied with the efforts they give to complete their tasks Sacombank should change the payment system in the direction prescribed the gap in wages among the departments depending on the workload and the level of potential occupational hazards, which enable the credit staffs to get the higher salary than current time 3.3.4 Recommendations to the business borrowers Firstly, the business borrowers have to strictly follow the regulations of the government agencies In reality, for some purpose, most businesses have more than two systems of the financial reporting data For example, in the case that borrowers have to provide the information to tax authorities, they often contribute the financial data with low profits, even losses However it’s still in the same accounting period, when they have to provide the financial data for the bank to require the loans, the accounting data is always healthy and profitable growth over the years Thus, whatever purposes the borrower pursuit, if borrowers change their performance results; they commit the violation of the information reporting standards These behaviors make such a large effect on the contents of financial business analysis, leading to the incorrect evaluation of the actual financial capacity of the business and erroneous lending decisions As the result of the deteriorated quality of debts, the bad debt ratio can go up Thus, business borrowers must be honest and reflect fully and timely economic transactions incurred in order that credit staffs of bank can evaluate in an objective way, true nature transaction, so the relationship between the borrower and bank can be sustainable Secondly, business borrowers must take care of the improving quality of the accountant to ensure accurate data that reflects the honest level of the financial health of the business In the recruitment step, business borrowers should choose the accounting staff with high qualifications and competencies After that, these new staffs will take part in the special training courses which held regularly by the tax authorities and statistics departments At the same time, every year if business borrowers have the suitable conditions, they should hire the auditing companies to review all the accounting system to ensure the data updated, standardized, which raise the reliability of the partners when they make the transactions with the business borrowers Thirdly, business borrowers should coordinate and communicate well with Sacombank’s branch in the evaluation process before loans are granted and loan management after loans are granted Business borrowers should understand that it’s suitable for Sacombank’s branches whereas they monitor the debts strictly with a view to ensure the business borrowers using the capital effectively and efficiently In conclusion, Chapter majority proposed the methods in hope of improving the quality of the financial business analysis loans at in the credit service in the Sacombank branch on the basis of the Sacombank orientation in 2012 Thereby, authors make recommendations to the relevant agencies to implement the general solutions to improve the quality of financial business analysis in Sacombank branches CONCLUSION As a result of the highest proportion of commercial bank income accompanied by credit risk, loan giving of the commercial banks must be compliance with the strict process included the careful analysis step of borrowers’ financial situation Thus, when the pace of economic development is faster and faster, financial business analysis will play more important role with a purpose to minimizing the credit risk, which can trigger to the high bad debt rate Although Sacombank did have the guidance book to give the instruction for credit staff who can know how to implement the financial business analysis, this guidance book is still cursory and lack of detail Moreover, by dint of not enough credit staffs, Sacombank’s Dong Da branch didn’t assign a special staff with a responsibility of revaluation of financial business analysis, even in many cases, credit staffs didn’t implement full step of financial business analysis By combination of the theoretical study and practical experience in the Sacombank’s Dong Da branch, I did analyze and assess the results and limitation of the financial business analysis in the lending activities of the bank Then I proposed some special solutions to Sacombank, government, SBV and other relevant ministries and business borrower with a hope of distributing my efforts to improve the effectiveness of the credit service and ensure the safety of Sacombank’s Dong Da branch and Vietnam banking system in general My thesis certainly achieved three objectives Chapter introduced basic theories about financial business analysis in the commercial banks Chapter described the current situation of financial business analysis in the credit service of Sacombank Dong Da branch Chapter proposed the recommendations for the quality improvement of financial business analysis in Sacombank’s Dong Da branch I hope that my recommendations can become effective tools to enhance the quality of financial business analysis in the Sacombank’s Dong Da branch with a purpose of minimizing the risk, distributing to the sustainable growth and development of credit activities in the Sacombank’s Dong Da branch in the future REFERENCES REFERENCE SOURCES Decrees, Decisions and Legal Document Decree 493/2005/ QĐ-NHNN dated 25/4/2005 on debt classification and provision for bad debts Decree 18/2007/QĐ-NHNN dated 25/4/2007 complemented for Decree 493/2005/QĐ-NHNN on debt classification and provision for bad debts Circular 49/2004/TT-BTC dated 3/6/2004 on financial ratio using to assess the credit institution performance Books Eugene F Brigham, Joel F Houston, Fundamental of financial management (Sixth Edition), South-Western Zvi Bodie, Alex Kane, Alan J Marcus, Essentials of Investments (Fifth Edition),McGraw-Hill Irwin Sacombank, Sacombank Guidance Book (2006) Financial Statements: Sacombank, Annual Financial Statement (2006-2011) Toan Thang JSC, Financial statement for 2010 and first half of 2011 Websites: http://accountlearning.blogspot.com http://bizfinance.about.com cafef.vn http://www.investopedia.com http://www.sacombank.com.vn http://www.stocks-for-beginners.com http://wikipedia.org APPENDIX Appendix A: General information about Sacombank Establishment and development 1991: Formed from the merger of community credit institutions Sacombank was among the first joint stock banks incorporated in Ho Chi Minh City 1993: Opened its branch office in Hanoi It was the first bank to provide express remittance service between Hanoi and HCM The service has greatly reduced physical cash transactions in Vietnam’s two largest cities 1995: Held the unusual general shareholder meeting to restructure the Bank and drew up its first 5-year Strategic Plan Mr Dang Van Thanh was appointed as the Chairman This event marked a significant milestone for Sacombank 1997: Issued shares at par value of VND 200,000 per share, and became the first bank to make public offering The Bank’s shares attracted almost 9,000 shareholders, and increased its chartered capital to around VND 71 billion 1999: Inaugurated its Head Office at 278 Nam Ky Khoi Nghia, District 3, HCMC 2001: Dragon Financial Holdings (UK) took a 10% equity stake of the bank This paved the way for subsequent capital contributions, from the International Finance Corporation (IFC) of World Bank in 2002, and ANZ Bank in 2005 The bank was able to leverage from the management experience, banking technology, risk management, staff training and development through its cooperation with these strategic shareholders 2002: Set up its first subsidiary, namely Sacombank Asset Management (SacombankSBA), initiating the first cross-selling of package banking services 2003: It is the first company to receive permission to establish a Join Venture Securities Investment Fund (VietFund Management – VFM) It is a join venture between Sacombank (51% ownership) and Dragon Capital (49% ownership) 2004: Signed a contract with Swiss-based Temenos Company to use the T-24 core banking system in all its branches to improve the Bank’s operation, management, and ebanking service provision 2005: Opened Eighth of March Branch, Vietnam’s first bank for women entrepreneurs 2006:  First Vietnamese bank to be listed on the HOSE with a chartered capital of VND 1,900 billion  More subsidiaries were set up, namely Sacombank Remittance Express (Sacombank-SBR), Sacombank Leasing (Sacombank-SBL), and Sacombank Securities (Sacombank-SBS) 2007:  Set up the Hoa Viet Branch to serve the Vietnam’s Chinese speaking community  Expanded its operation network in the Southwest, Southeast, and Southern Central Region & Western Highlands 2008:  In March, the Bank built the region’s most advanced data centre to store computerized records and files  In November, Sacombank Jewelry (Sacombank-SBJ) was set up  In December, a branch was opened in Laos Sacombank was the first Vietnamese bank to have an overseas office 2009: In May, Sacombank was rated a “gold” stock by the financial market It has been a bluechip since listing on the HOSE and has attracted many local and foreign investors  In June, a branch was opened in Phnom Penh The bank achieved its aim of expanding into Indochina to support cross border enterprises of Vietnam, Laos, and Cambodia  In September, the bank upgraded the core banking system from Smartbank to T24 R8 in all its transaction offices 2010: It has successfully completed all 2001-2010 targets, with a growth rate of 64% per year Building a firm foundation while making necessary changes in the restructuring process, the Bank is now taking actions to achieve the 2011 - 2020 targets Appendix B: Sacombank organizational Structure *Source: Sacombank website Appendix C: Sacombank Total Assets in the period 2006-2011 * Source: Annual Financial statement from 2006-2011 on Sacombank website Appendix D: Sacombank Total Equity in the period 2006-2011 * Source: Annual Financial statement from 2006-2011 on Sacombank website Appendix E: Sacombank Profit after Tax in the period 2006-2011 * Source: Annual Financial statement from 2006-2011 on Sacombank website Appendix F: Sacombank Total Deposits and Total Loans in the period 20062011 * Source: Annual Financial statement from 2006-2011 on Sacombank website ... financial business analysis in the credit service of Sacombank Dong Da branch 2.2.1 Content of the financial business analysis The content of financial business analysis in the current guidance book of. .. of financial business analysis in the credit service of Sacombank Dong Da branch Chapter 3: Recommendations for the quality improvement of financial business analysis in Sacombank? ??s Dong Da branch. .. which is the foundational to assess the financial position of business 1.2.3 Methods used in the financial business analysis 1.2.3.1 Financial Business Analysis Methods Financial business analysis