Improving credit quality at vietnam joint stock commercial bank for industry and trade thu duc branch

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIET NAM BANKING UNIVERSITY OF HO CHI MINH CITY CU NGO HAI YEN IMPROVING CREDIT QUALITY AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE –THU DUC BRANCH GRADUATION THESIS MAJOR FINANCE AND BANKING ID: 7340201 HO CHI MINH CITY, 2018 MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIET NAM BANKING UNIVERSITY OF HO CHI MINH CITY CU NGO HAI YEN IMPROVING CREDIT QUALITY AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE –THU DUC BRANCH GRADUATION THESIS MAJOR FINANCE AND BANKING ID: 7340201 SUPERVISOR PHD LE DINH HAC HO CHI MINH CITY, 2018 ABSTRACT The graduation thesis with the topic "Improving credit quality at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch" presented the general theories on bank credit and raised the characteristics and roles credit quality, credit quality, and indicators to measure credit quality From these basis, the author collects data related to the assessment criteria, comments on credit activities and quality of credit products of the Branch Then, draw the results and limitations of credit quality at the Branch According to the research results, VietinBank Thu Duc has a high growth rate of credit outstanding balance, overdue debt ratio and bad debt ratio are always at low levels In addition, according to the survey from customers, the problem that customers are not satisfied in the business is the cumbersome precedures, the transaction processing time is not fast, the time to solve loans are still slow, credit products are not very diversified, marketing policies are not focused The above mentioned issues are formed partly from banks and partly from policy, economic situation and customers' activities Based on the analytical reasons, the author proposed solutions to overcome, and made recommendations to the Government, State Bank of Viet Nam and Vietinbank COMMITMENT This is the author's own research, the results in the reaserch are true, without prior publication of content or other content that is performed by others except for the references which are cited full source in the thesis Author CÙ NGÔ HẢI YẾN ACKNOWLEDGEMENT After four years studying at the Banking University of Ho Chi Minh City, I have gained a wealth of knowledge and experience from talented, dedicated and enthusiastic teachers, especially excellent care for students from the Faculty of Finance - Banking Hereby, I would like to send my sincere thanks to all the teachers of Banking University in Ho Chi Minh City in general and the Faculty of Finance and Banking in particular,who have created a good environment for me In particular, I would like to thank PhD Le Dinh Hac for giving useful tips, knowledge to help me complete the graduation thesis During the course of the graduation thesis, this can not avoide restriction due to the shortcomings of experience and limited knowledge I am looking forward to receive comments from the teachers, so I can complete the thesis with better quality and accumulate more knowledge and experience for later work TABLE OF CONTENTS TABLE OF CONTENTS LIST OF ABBREVIATIONS LIST OF TABLES INTRODUCTION CHAPTER1: THEORY OF CREDIT AND BANK CREDIT QUALITY CHAPTER INTRODUCTION .1 1.1 Overview of credit 1.1.1 Credit definition and credit characteristics 1.1.2 Roles of bank credit 1.1.3 Credit classification 1.2 Credit quality of commercial banks 1.2.1 Definition of credit quality of commercial banks .8 1.2.2 Criteria for evaluating credit quality 1.2.2.1 For customers 1.2.2.2 For banks 12 1.3 Factors affecting the credit quality of commercial banks 14 1.3.1 Factors belong to the bank .15 1.3.2 Factors belong to the business, customers .18 CHAPTER CONCLUSION 23 CHAPTER 2: QUALITY OF CREDIT IN VIETNAM BANK FOR INDUSTRY AND TRADE - THU DUC BRANCH .24 CHAPTER INTRODUCTION 24 2.1 An overview of VietinBank 24 2.1.1 Overview of VietinBank 24 2.1.2 Development process 25 2.1.3 Organizational chart of VietinBank 25 2.1.4 Mission of VietinBank 26 2.1.5 Achievements of VietinBank 27 2.2 General introduction of VietinBank Thu Duc 27 2.2.1 Formation process 27 2.2.2 Functions of VietinBank Thu Duc 28 2.2.3 Organizational structure of VietinBank Thu Duc 28 2.2.3.1 Organizational structure 29 2.2.3.2 Duty of the departments .29 2.2.3.3 Fields of activity of VietinBank Thu Duc 32 2.2.4 Business results of VietinBank Thu Duc .33 2.3 Current scenario of credit activities at VietinBank Thu Duc 37 2.3.1 Credit products at VietinBank Thu Duc 37 2.3.2 Credit performance at VietinBank Thu Duc 43 2.4 Valuation of credit quality at VietinBank Thu Duc 54 2.4.1 From customer perspective .54 2.4.2 From bank perspective .58 2.4.3 Limitations 58 2.4.4 The cause of the limitations 59 2.4.4.1 Causes from banks 59 2.4.4.2 Causes from the customers 60 2.4.4.3 Objective reasons 61 CHAPTER CONCLUSION 62 CHAPTER 3: SOLUTIONS TO IMPROVE CREDIT QUALITY AT VIETINBANK THU DUC 63 CHAPTER INTRODUCTION 63 3.1 Business orientation of Vietinbank Thu Duc 63 3.2 Solutions to improve quality of credit in VietinBank Thu Duc .64 3.2.1 Simplify procedures of corporate loans 64 3.2.2 Improve the efficiency of coordination between departments 64 3.2.3 Diversify credit products 64 3.2.4 Apply advanced science and technology 64 3.2.5 Advance the marketing policy 65 3.3 Recommendation .66 3.3.1 Recommendation to the State 66 3.3.2 Recommendation to the State Bank 66 3.3.3 Recommendations to VietinBank 67 CHAPTER CONCLUSION 69 CONCLUSION 70 REFERENCES 71 APPENDIX 74 LIST OF ABBREVIATIONS Table Abbreviations Meaning Agribank Vietnam Bank for Agriculture and Rural Development ASEAN Association of South East Asia Nations ATM Automatic Teller Machine BIDV Joint Stock Commercial Bank for Investment and Development of Vietnam FDI Foreign Direct Investment GDP Gross domestic product ISO International Organization for Standardization L/C Letter of credit SBV State Bank of Vietnam SME Small and Medium sized enterprises SWIFT Society for Worldwide Interbank Financial Telecommunication UPAS L/C Unsance payale at sight Letter of credit VAMC Vietnam Asset Management Company VBI Vietinbank Insurance Company Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade Thu Duc - Thu Duc Branch VND Dongs – Viet Nam Dong LIST OF TABLES Table 2.1 Results of some key indicators of business activities .33 Table 2.2 Short-term loan products at VietinBank Thu Duc 37 Table 2.3 Medium-term and long-term loans at VietinBank Thu Duc .38 Table 2.4 Specialized loan products at VietinBank Thu Duc 39 Table 2.5 Consumer products for individual customers 40 Table 2.6 Credit products for individual customers to borrow for 41 Table 2.7 Loan structured by type of currency from 2015 to 2017 43 Table 2.8 Credit outstanding balance structured by types of customer 44 Table 2.9 Credit outstanding balance structured by credit term 46 Table 2.10 Credit outstanding balance structured by economic sector in VietinBank Thu Duc from 2015-2017 47 Table 2.11 The number of customer using credit product in VietinBank Thu Duc from 2015-2017 49 Table 2.12 Overdue debt scenario at VietinBank Thu Duc from 2015-2017 50 Table 2.13 Bad debt scenario from 2015-2017 .51 Table 2.14 Income from credit activities at VietinBank Thu Duc 53 Table 2.15 Results of customer survey on credit quality at VietinBank Thu Duc 54 LIST OF FIGURES Figure 1.1 Theoretical model of customer satisfaction evaluation SERVQUAL (Parasuraman, 1988) 10 Figure 2.1 Organizational chart of VietinBank 25 Figure 2.2 Organizational chart of VietinBank Thu Duc .29 Figure 2.3 Credit outstanding balance structured by loan term from 2015 to 2017 46 Figure 2.4 Credit outstanding balance structured by economic sector in VietinBank Thu Duc from 2015-2017 48 Figure 2.5 Overdue debt scenario from 2015 to 2017 .50 Figure 2.6 Bad debt scenario at VietinBank Thu Duc from 2015 to 2017 52 Figure 2.7 Income from credit activities at VietinBank Thu Duc 53 62 CHAPTER CONCLUSION Based on the analysis of current credit situation in VietinBank Thu Duc, it can be seen that the Branch has achieved some results as follows:  Credit is an important activity that brings the main source of income for the industry;  Rapid credit growth, the quality of credit has been improved, the ratio of overdue debt and bad debt has been reduced and kept at low level In addition to the results achieved, VietinBank Thu Duc still outstanding limitations such as:  Corporate loan procedures are cumbersome and rigid in terms of paperwork;  The department has not coordinated with each other;  Credit products are not diversified;  Limit in applying modern technology to credit operations;  Marketing policy has not been effective Based on the analysis of the results and limitations in Chapter 2, the thesis will propose some solutions to improve the credit quality of the Branch in Chapter 63 CHAPTER 3: SOLUTIONS TO IMPROVE CREDIT QUALITY AT VIETINBANK THU DUC CHAPTER INTRODUCTION This chapter containts the orientation of Thu Duc Branch, based on the analysis of results and limitations in Chapter 2, to propose some solutions to improve credit quality Besides, the author also recommended to the Government, the State Bank of Vietnam and VietinBank 3.1 Business orientation of Vietinbank Thu Duc VietinBank Thu Duc continues to operate and develop to become a multi- ownership bank, diversified field of business, operating with international practices, quality as the advanced bank in ASEAN and become one of the top quality bank in Vietnam Planning a clearly strategy and performing striclty according to the planned rout Special attetion to the working environment of consumer affairs departments (characteristics of population, enterprises, traffic infrastructure, security, development trend of the area, status and ability development of competitors) Accompanying with the network development is the training and improvement of the professional level for the employees To ensure the benefits of employees and employees, encourage in time to improve the efficiency of work Ensuring the quality of the technology program so that the branch can serve customers quickly and quickly Focusing on diversifying the products, especially those based on modern technology and strongly competitive with other banks Moreover, these products have to be open characteristic, for example, the Branch can be flexible to apply and change some small details of the product to suit the requirements of each type of customer in each area However, it remains consistent with a common framework In the future, give priority to the growth of outstanding, specially concern about analysing and evaluating customer quality, focus on control, not to arising debt of 64 group and bad debt, pushing short-term credit up, diversified clients portfolio as well as taking care of marketing and improving customer sevices 3.2 Solutions to improve quality of credit in VietinBank Thu Duc 3.2.1 Simplify procedures of corporate loans Procedures documents are a required step in loan application, so that simplify this to shorten time spends on loan application will help keep current and attract new customers VietinBank Thu Duc should consider simplifying the procedures As in the products and services, the Branch should provides documents containing instructions, specific regulations on procedures and documents to prepare before using the service Beside, the Branch should also prepare forms for each type of services 3.2.2 Improve the efficiency of coordination between departments At present, the organization between divisions in the credit process is not really comprehend together The good combination will boost the speed of process and reach productivity in work Therefore, the coordination between departments need to be focused, it will reduce time constrains and transaction processing time 3.2.3 Diversify credit products In a competitive environment among commercial banks, it is nescessary to create unique and superior products that represent the bank Clearly research the martket, find out the demand of customers,etc To bring out the appropriate products, Bank needs to divide customer into groups based on age, business lines, ownership,… to understand the characteristics of each group and evolve products 3.2.4 Apply advanced science and technology Modern technology not only makes banking activities faster and more convenient, but also helps to manage the services and staff of the bank In particular, the upgrading of modern transactional software with high data processing speed will help the transaction more smoothly, reducing the time customers have to wait, the banker can also handle more tasks 65 Making full advantage of the technology to optimize the benefits of credit products Enhance the utility of debt collection for customers in the process of using Ipay, Mobile Banking, E-Banking as more specific information about the outstanding balance, interest payable in the period, create a calendar to notice the bank repayment period Applying information technology to the management of customer profiles such as customer information, asset security information, customer cash flow, etc will reduce the amount of raw work that employees need to perform Synchronizing documents onto the system by group of customer will help to store more, seek faster, manage more effectively, and reduce the scanning of the documents to save 3.2.5 Advance the marketing policy Marketing activities need to be performed in a scientific way in each period of process, from market research, market selection, customer research to the suitable marketing Therefore, some specific solutions such as: Firstly, to promote the bank and its new products, bracnh should be more active to contact as many customers as possible Beside the traditional advertising channels, the Branch should use the internet and social networks Currently, the promotion of service products is very popular and highly effective, especially the bank can completely filter the customer suitable for each type of product that the bank want to advertise Secondly, marketing supports the limitation of procedures and time in credit activities For example, for customers who need loans, there are very few customers using "Register Loans online" of the bank service to provide basic information to the bank This service is intended to reduce the time and documentation required However, there are not many customers know about this so the promotion of marketing activities will make many customers know about this services and partly solve the problem of time and procedures in credit activity Thirdly, due to the flexibility of the Internet and social networking, branch should also deploy Fanpage on social networks to be able to answer questions about 66 the products even after working time Moreover, the Brach will have more opportunities to approach and advise existing customers thereby attracting more potential customers 3.3 Recommendation 3.3.1 Recommendation to the State Along with the development of a market economy with the macro management of the State, according to socialist orientation, the role of macro management of the State is increasingly confirmed Therefore, it is necessary to have the right hand of the State to put the country in the right direction Firstly, the State needs to clearly define the strategy of economic development, investment and stable development policies A stable, political, economic and social life will help improve the lives of the people so that people will have more demand for goods and businesses will have more opportunities to sell their products and services Therefore the operation of the enterprises will develop as well Secondly, the State should build more complete legal regulations to facilitate the activities of banks and businesses At present, the legal system has not been finalized, stable and continuously revised, making it difficult for banks to have a solid basis for working 3.3.2 Recommendation to the State Bank Firstly, the State Bank of Vietnam should modernize the bank with modern technologies to meet the needs of customers in a convenient and flexible way, step by step bringing the Vietnamese banking industry into international integration and create opportunities to compete with foreign banks in Vietnam Secondly, in the recent years, there have been a number of incidents that have led to a decline in the belief of the people Therefore, the State Bank should strengthen inspection and control over commercial banks, build a strong inspection apparatus in terms of quantity and quality Ensure the effective inspection and control of banks, promptly detect and handle errors, minimize the risks that may 67 occur, and from that point also see the unreasonable points in the legal documents of the State Bank to make reasonable adjustments 3.3.3 Recommendations to VietinBank Today, in competitive environment, VietinBank must strengthen its capacity to maintain its position in the banking system operating in Vietnam and to reach out to the world, remain traditional values and develop modern values Firstly, VietinBank needs to diversify its portfolio of products and services so that it can serve the needs of many customers and increase its competitiveness with other banks Ensure the products are deployed at the Branches in accordance with the characteristics of the area and suit the needs of local people Secondly, it is necessary to upgrade E-banking applications to serve the diverse needs of customers in each product category, creating maximum convenience for customers Currently, banks are stepping up technology development, bringing technology into the product It can be seen that in the past few years, many banks have been constantly introducing products using advanced technology to attract customers, providing them with maximum convenience VietinBank needs to consider this issue to improve their competitiveness in the market Thirdly, the procedures of VietinBank for credit activities have been developed in accordance with ISO 9001:2015 and are strictly adhered to in the implementation process This compliance helps the bank manage its records more efficiently, business processes are respected, and standardized management practices However, according to the opinion of the customers, startup businesses and agricultural loans still have difficulties in accessing to capital Fourthly, the professional skill of bank employees, especially the coordination among departments in the system, must always be improved to meet the increasing demands of customers, to serve customer on time, using time effectively, thereby improving the quality of service, quality of operations at the bank 68 Fifthly, VietinBank needs to promote marketing activities so that customers could know the new products of the Bank Varifying types of advertising media, aggressively deploy advertising on social networks to reach more customers In addition, social media advertising, fanpage will help to save costs, with the right way to achieve higher efficiency 69 CHAPTER CONCLUSION Based on the theoretical study on bank credit and credit status at VietinBank Thu Duc, the author has proposed solutions in Chapter including: Firstly, the author has set the goals and orientation of VietinBank Thu Duc in the coming years Secondly, based on the limitations and causes analyzed by the author in Chapter 2, the author has proposed some measures to improve the quality of credit in the Branch such as improving the quality of human resources, perfecting lending policies; simplifying lending procedures; applying advanced science and technology; promoting marketing Thirdly, the author also made recommendations to the Government, the State Bank of Vietnam and VietinBank 70 CONCLUSION Vietnam is entering the open era, the participation in the World Trade Organization has brought many opportunities and challenges Enterprises are increasingly established and demand for loans is also increasing The banking sector needs to continue to grow in order to increase its strength in the future as the economy enters the stage of real integration with the world economy The graduation thesis entitled "Improving credit quality at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch" outlines theories of credit, the role of credit in the economy and society Besides, the article also outlines the current scenario of credit activities at VietinBank Thu Duc from 2015 to 2017, therefore providing comments, solutions to improve the quality of credit at the Branch However, improving credit quality is a systematic major problem, requiring uniformity in the solutions In order to improve the quality of credit, the coordination of the State and the State Bank, as well as the coordination of all levels, branches and customers, needs to be taken With the realities and solutions mentioned in this lecture, I hope to help on the development of credit activities of Vietinbank Thu Duc 71 REFERENCES In Vietnamese Bui Dieu Anh, Le Thi Phuong Hiep, Vo Thi Thanh Nga, Nguyen Thi My Hanh 2013, Tin dung ngan hang, Phuong Dong Publisher Bui Dieu Anh 2016, Tin dung ngan hang, Statistical Publisher Institute of Manpower, Banking and Finance, http://btc.edu.vn/ [21/3/2018] The Law Library, Circular No 39/2016 / TT-NHNN on lending activities of credit institutions and foreign bank branches to customers, Available from [15/4/2018] The Law Library, Resolution No 42/2017/QH14 on piloting bad debts of credit institutions, Available from [15/4/2018] The Law Library, Circular No 24/2015 / TT-NHNN on the Regulation on the lending in foreign currencies by credit institutions and foreign bank branches for borrowers being residents, Available from < https://thuvienphapluat.vn/vanban/Tien-te-Ngan-hang/Thong-tu-24-2015-TT-NHNN-cho-vay-ngoai-te-to-chuctin-dung-chi-nhanh-ngan-hang-nuoc-ngoai-nguoi-cu-tru-287345.aspx> [27/4/2018] The Law Library, Law No 47/2010 / QH12 on The regulations of Credit Institutions, Available from [14/4/2018] The Law library, Decision No 2589/QĐ-NHNN About the maximum interest rate for money laundering by organizations and individuals at credit institutions and branches of foreign bank, Available from [23/4/2018] 72 Thesis Club, SERVQUAL model, Parasuraman & ctg (1988), Available from [26/3/2018] 10 Vietnam Joint Stock Commercial Bank For Industry and Trade Thu Duc Branch, Report of business result in 2015 11 Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch, Report of business result 2016 12 Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch, Report of business results 2017 13 Vietnam Joint Stock Commercial Bank for Industry and Trade, Products and services for individuals, accessed at [accessing date: March 24 th, 2018] 14 Vietnam Joint Stock Commercial Bank for Industry and Trade, Products and services for corporations, please visit [24/3/2018] 15 VietinBank, General information about VietinBank, Available from [26/3/2018] 16 Research on "Solutions to improve credit quality at Vietcombank, Hue branch" by Mai Quang Minh (2007) 17 Research on "Solutions to improve credit quality at the Bank for Agriculture and Rural Development of Saigon West Branch" by Lam Thi Phuong Minh (2012) 18 Research on "Retail credit quality at Vietnam Development Bank - Hung Yen Branch" by Nguyen Thi Anh Nhung (2014) In English Linh Nguyen, Credit risk control for loan products in commercial banks, 2016 International journal of management and marketing research, “Service quality in the public service”, P Ramseook-Munhurrun, S.D Lukea-Bhiwajee, P Naidoo, (2010) 73 Investopedia, Five Characteristics Of Credit, Available from [ 3/4/2018] Type of Consumer Credit & Loans, Available from [3/4/2018] Service Performance, The Service Dimensions All Customers Care About, < http://www.serviceperformance.com/the-5-service-dimensions-all-customers-careabout/> [29/3/2018] 74 APPENDIX APPENDIX 1: QUESTIONAIR Dear customer My name is Cu Ngo Hai Yen At present, I am researching on satisfaction of credit quality at VietinBank Thu Duc in order to synthesize, analyze and propose suitable solutions and recommendations to increase the effectiveness of strategy and credit quality I’d be very appreciated it if you could spare a few minutes to fill in this form Your reviews will greatly contribute to the fulfilment of my thesis I ensure that all of the information you provide is only used for the purpose of researching Thank you very much for your cooperation! Please select one of the following ratings Very bad Bad Average Good Very good No Questions Rating VietinBank Thu Duc provides the right service committed      Bank employees are always on time with customers      Customer account information is confidential                               Reliability Product information is presented reliably by Bank employees Bank employees satisfactorily resolve customer complaints Responsiveness Diversity in credit products and services Procedures for conducting transactions at banks are simple and convenient Fast transaction processing time 75 Loans are timely disbursed      10 Loan limit is appropriate to the needs of customers      11 Convenient collection of debt for customers      12 The repayment schedule is consistent with the customer's cash flow Assurance           VietinBank Thu Duc staff have the expertise to answer 13 questions and advise customers 14 Bank employees create peace of mind for customers      15 The process transaction does not cause error                                                        Empathy VietinBank Thu Duc employees are polite, friendly with 16 customers VietinBank Thu Duc employees serve fairly with all their 17 customers VietinBank Thu Duc employees concern customer's 18 demand VietinBank Thu Duc staff showed their willingness to 19 help customers Tangibles The arrangement of the transaction counters is reasonable, 20 easy to identify Clean, fresh air, comfortable atmosphere (For example: 21 equipment, toilets, newspapers, water, ) 22 Papers, forms used in the transaction are designed simple and clear to read 23 24 Convenient parking The ATM system always works well 25 Convenient transaction time 76 Do you have any satifactions/ dissatisfactions about service quality at VietinBank Thu Duc? ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ……………………………………………………………………………………… ... Joint Stock Commercial Bank for Foreign Trade of Vietnam VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade. .. credit activities at VietinBank Joint Stock Commercial Bank for Industry and Trade (Thu Duc Branch) Chapter 3: Solutions to improve credit quality at Vietnam Joint Stock Commercial Bank for Industry. .. Bank for Industry and Trade - Thu Duc Branch  Specific purpose:  Research on credit current scenario  Evaluating the quality of credit at Vietnam Joint Stock Commercial Bank for Industry and