Determinants of loan repayment performance of household and micro borrowers in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY - PHAM THANH DUNG DETERMINANTS OF LOAN REPAYMENT PERFORMANCE OF MICROBUSINESS BORROWERS IN VIETNAM MAJOR: MASTER OF BUSINESS ADMINISTRATION CODE: 8340101.01 RESEARCH SUPERVISORS: Prof Dr HIROSHI MORITA Assoc Prof Dr VU ANH DUNG Hanoi, 2020 THESIS ACKNOWLEDGMENT Foremost, I would like to express my sincere gratitude to my advisors Dr Vu Anh Dung and Dr Hiroshi Morita for the support of my Thesis study and research, for their motivation, and immense knowledge, as well their experience in the field Their guidance has helped me much in the time of research and writing of this thesis Besides my advisors, I would like to sincerely thank the rest of my thesis committee: Prof and Dr Matsui, Dr Tran Thi Lien, Dr Kodo, Dr Tran Thi Bich Hanh, and especially Dr Yoshifumi Hino, for their encouragement, insightful comments, and hard questions My thanks also go to Ms Nguyen Thi Huong, MBA program assistant who has enthusiastically supported me in the process of completing the procedure, as well as connecting for smooth communication between students and advisors in the time of my doing research i TABLE OF THE CONTENTS ABSTRACT LIST OF TABLES LIST OF FIGURES LIST OF DEFINITIONS AND ABBREVIATIONS CHAPTER ONE: INTRODUCTION 1.1 Background of the Problem 1.2 Statement of the Problems 1.3 Objectives of the Study 1.4 Research Questions 1.5 Scope of the Study 1.6 Structure of the research CHAPTER TWO: LITERATURE REVIEW 2.1 Concept and Definition 2.2 Related Literature Reviews to the Variables Used in the Study 15 2.3 Cox Regression Model 24 Table 2.1 Comparison of models on the random sample 25 2.4 Research Gap 26 CHAPTER THREE: DATA AND METHODOLOGY 3.1 Description of the Study Area 3.2 Data Description 3.2.1 Sampling procedure and technique 3.3 Variables in the Research 3.3.1 Dependent Variables 3.4 Method for Data Analysis 3.5 Research Model 3.6 Summary of Cox Model factors in this research ii CHAPTER 4: RESULTS AND DISCUSSIONS 39 4.1 Introduction 39 4.2 Summary Statistics 39 4.3 Results of the Cox Proportional Hazard Model 41 4.4 Discussions 51 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS 61 5.1 Conclusions 61 5.2 Recommendations 63 5.3 Recommendations for Further Research 68 5.4 Limitations of the Study 68 REFERENCES 70 APPENDIX 73 iii ABSTRACT Introduction: Vietnam is a developing economy where the service industry and light industry account for a big percentage of businesses in the economy Businesses in these sectors are almost small and micro enterprises and household/family businesses (MSEs) They are always in need of capital for their activities However, it’s very difficult for them to get access to loans from banks and credit organizations Because they almost don’t have collateral to secure for their loan and are not able to provide an eligible financial statement which is usually required by banks Consequently, banks or creditors are not interested in offering loan to such clients because they usually don’t have collaterals and have difficulties in providing documents as required by banks, which is very risky to a bank if they accept such types of customers, whereas, there are not enough tools to define and mitigate relevant risk It’s very difficult for them to determine which are key factors affecting on loan repayment performance of micro-businesses in Vietnam, especially when using cash in payment is still popular, which makes banks find it more difficult and not interested in loans for micro business So, detailed research on the determinants of loan repayment performance of micro-businesses in Vietnam is essential Objectives: The objectives of this research is to analyze the determinants of credit risk of loan repayment performance of micro-businesses in Vietnam Methodology: A study was conducted on 200 enterprises and household businesses who have taken loans from Banks and P2P lending companies in Vietnam in 24 months starting from Jan 2018 to the end of 2019 (Regarding the average term of a loan is 12 months) The data used in this study was the secondary data from a joint-stock commercial bank and a P2P Lending company in Vietnam The Cox regression model is used with twelve explanatory variables Loan repayment status/Default rate is the dependent variable, while twelve characteristics of borrower and the enterprise owned by the borrower’s characteristics are considered as explanatory variables In this case, the value of the dependent variable (loan repayment status) is and 1, if borrowers defaulted it takes and otherwise Results: Ten out of eleven significant factors identified through the relevant model are: Gender, Age, Housing, Educational level, Business sector, Years in business, Percentage of share, Digital sales channel, Number of Clients, and Turnover stability in latest months, are the key factors that affect the loan repayment performance Among them, new factors which are analyzed regarding Vietnam iv economy’s characteristics and as a result of this Research are: Percentage of share owning, Digital sales channel, Number of clients, Turnover stability in latest months and Years in Business Conclusion: Hence, regarding the Research’s result, Banks and financial companies can use it to build their credit scoring models or system Accordingly, increase their ability in risk management as well as enhance their desire in helping MSEs get the loan that suitable and necessary for them, which is very important to improve economic growth Policymakers should pay attention to issue more proper policy to further support for MSEs who have been given with not enough financial as well as non-financial aids Furthermore, enterprise’s stakeholders can use this research’s result to increase performance rating for themselves and improve its rating to banks and creditors Keywords: Credit risk; Loan repayment performance; Microcredit; Micro business; Cox Regression model v LIST OF TABLES Table 2.1 Comparison of models on the random sample 25 Table 3.1 Sample Distribution 32 Table 3.2: Description of independent variables 33 Table 4.1: Status of repayment 39 Table 4.3: Summary statistics for continuous variables 41 Table 4.4: Univariate analysis result for each covariate 42 Table 4.5: Multivariate Cox Proportional Hazards Regression results 45 Table 4.6: Final model of Cox PH 46 Table 4.7: Cox Model with Time-Dependent Covariates 47 Table 4.8 Analysis of The variable of “Business sector” as categorical variable 48 vi LIST OF FIGURES Figure 1.1 Enterprise size categorizes by capital scale and labor scale vii LIST OF DEFINITIONS AND ABBREVIATIONS Asymmetric information Adverse selection Banks Creditors Credit Scoring Credit risk Debtor F&B Financial company HHs MSEs MSMEs Microcredit Microfinance NPL Loan repayment P2P Lending company Working capital Secured loan SMEs Unsecured loan ix APPENDIX Table 2.1 Comparison of models on the random sample Summary Logistic regression Gini Cox model Gini Logistic regression lift 10% Cox model lift 10% Table 3.1 Sample Distribution Group of MSEs Traders Small Manufacturers Construction Service Total Table 3.2: Description of independent variables No Variables X1 X2 X3 X4 73 X5 X6 X7 X8 X9 10 X10 11 X11 12 X12 Non Default Valid Default Total 74 Table 4.2: Summary statistics for categorical variables Gender Valid Male Female Total Valid Single Married Total High school Degree or Valid Higher Total Valid No digital Digital Total Valid Rent Owned Total Over 50% Less than Valid 50% Total 75 YIB Less than Valid Valid years Over years Total Construction Trade Service Small production Total Less than Valid 50 Over 50 Total Difference over Valid 30% Different less 30% Total Table 4.3: Summary Age Amount Valid N (listwise) 76 Age -2 Log Gender -2 Log Likelihood 862.608 77 Marital 089 -2 Log Likelihood 862.655 Edu -2 Log Likelihood 862.832 Dig -2 Log Likelihood 862.599 Housing -2 Log Likelihood -.275 78 Omnibus Tests of Model Coefficients a -2 Log Likelihood 847.645 B Clients -2 Log Likelihood 860.109 Turnover -2 Log Likelihood 862.829 -2 Log Likelihood 860.856 79 Table 4.5: Multivariate Cox Proportional Hazards Regression results Variables in the Equation Share -2 Log Likelihood 844.314 a Beginning Block Number Method = Enter Age Gender Edu Dig Housing Share YIB Sector Clients Turnover Marital Age Gender Edu Dig Housing Share YIB Sector Clients Turnover Marital 80 Table 4.6: Final model of Cox PH Omnibus Tests of Model Coefficients -2 Log a Overal Likelihood 844.353 Age Gender Edu Dig Housing Share YIB Sector Clients Turnover Covariate Means Age Gender Edu Dig Housing Share YIB Sector Clients Turnover 81 Table 4.7: Cox Model with Time-Dependent Covariates Omnibus Tests of Model Coefficients a -2 Log Overal Likelihood 848.897 a Beginning Block Number Method = Enter Variables in the Equation Age*T_COV_ Gender*T_COV_ Edu*T_COV_ Dig*T_COV_ Housing*T_COV_ Share*T_COV_ T_COV_*YIB Sector*T_COV_ Clients*T_COV_ T_COV_*Turnover 82 Covariate Means Age Gender Edu Dig Housing Share YIB Sector Clients Turnover T_COV_ Age*T_COV_ Gender*T_COV_ Edu*T_COV_ Dig*T_COV_ Housing*T_COV_ Share*T_COV_ T_COV_*YIB Sector*T_COV_ Clients*T_COV_ T_COV_*Turnover Table 4.8 Analysis of The variable of “Business sector” as categorical variable Variables in the Equation Age Gender Marital Edu Dig Housing Share YIB Amount Sector Sector(1) Sector(2) Sector(3) Clients Turnover 83 ... and not interested in loans for micro business So, detailed research on the determinants of loan repayment performance of micro- businesses in Vietnam is essential Objectives: The objectives of. .. Objectives of the Research is: To identify determinants affect loan repayment performance of micro businesses in Vietnam Micro business includes micro enterprises and household business To identify... credit risk of loan repayment performance of micro business in Vietnam Due to this reason, this Research is necessary to analysis a credit risk of loan repayment of micro business in Vietnam So