1.3 DEVELOPMENT OF ENTERPRISE CREDIT SYSTEM AT BANK
1.3.2 Criteria for Evaluating Level of Development of Enterprise Credit System at Bank
The development of enterprise credit system at bank must be based on improving the quality of the system. To assess the level of development of the enterprise credit system, banks can use a combination of qualitative and quantitative criteria.
1.3.2.1. Qualitative Criteria
- Enterprise customer satisfaction with credit services provided by bank. In a market economy, banks are always looking for ways to maximize their assets, through market expansion, market share, quality and performance. Therefore, in order to expand credit, banks must continuously improve their competitive capacity, adopt appropriate credit policies, diversify their credit products with high degree of flexibility with various utilities to meet the needs of customers.
- Satisfaction of customers on technology and qualifications of bank officers. In the globally integrated trend, high-tech science is one of the most essential and important elements to all areas, especially to the banking sector. Banks must constantly innovate their modern equipment and technology so that they can make transactions quickly, conveniently, safely and accurately. In order to acquire new science and technology, bank officers must improve their knowledge and professional skills. The professional level of bank officers along with modern technology will increasingly satisfy the needs of customers.
1.3.2.2. Quantitative Criteria
* Criterion for expanding enterprise credit scale
- Outstanding loan growth = x100%
Where: E1: enterprise outstanding credit balance this year.
E0: enterprise outstanding credit balance last year.
Outstanding loan growth is a important criterion to evaluate the development level of credit activates. For outstanding loan growth to occur, it is necessary to increase loan amount higher than debt collection. In order to achieve sustainable outstanding loan growth, the growth of outstanding loan must be stable over the years.
At the same time, in order to increase the outstanding credit balance, it is necessary to increase the investment level suitable for each project and increase the number of customers.
- Customer growth = = C1 - C0
x100%
C0
Where: C1: the number of enterprises who borrow money this year C0: the number of enterprises who borrow money this year
Turnover from enterprise loan is mostly interest after subtracting capital expense and other expenses used in enterprise lending. Turnover growth in enterprise credit lending is that the turnover of a year is higher than that of the last.
* Criterion for expanding enterprise credit forms E1-E0
E0
Credit forms mean short, medium or long term credits, loans, bank guarantees, overdrafts, and financial leases. It also mean the modes of credit extension such as each time, limit, overdraft, investment project.
Expanding enterprise credit forms means banks must increase new forms and methods of credit granting.
* Criterion for expanding debtors
Credit expansion is also shown in expansion of debtors. Banks can expend the number of customers via choosing different debtors, any type of debtor except for those that are prohibited by the law in trading, trading, and transferring.
* Criterion for increasing loan resources
One of bank's most important functions is its credit intermediary function in economy. With this function, a bank will mobilize capital and use it for lending, so in order to expand bank lending, it must expanding capital mobilization. The mobilized capital of each bank determines its operation scale and credit investment structure.
Through its multi-purpose operations as well as various forms of mobilization, banks will mobilize all the idle capital in society to invest in developing the economy. Thus, credit expansion will be reflected through the expansion of capital.
Wider credit scale and more diversified credit form means greater credit performance. Expansion of credit scale and credit form will help banks exploit the potential of all economic sectors, all industries as well as all territories, enhancing economic development.
In addition to that, looking at the entity and loan source, we can assess whether credit expansion and credit form will help banks exploit the potential of all industries and regions, enhancing economic development.
* Criterion on improving credit quality (reducing bad debt ratio in total credit balance)
Bad debt is substandard debt and is likely to lose capital Bad debt ratio = = Bad debt last year – Bad debt this year
x100%
Bad debt last year
Decrease in bad debt = Bad debt this year – Bad debt last year < 0
When extending credit scale and form of credit and debtors to develop credit activities, it is necessary to take into account the efficiency from high credit. Bank must limit the scope of credit extension. Expansion beyond the allowable limits will result in lower credit quality.
For customers, they want their borrowing needs to be met. If the need is accepted with a great attitude and simple procedures, it will attract a lot of good customers and
make credit easier and credit quality will be guaranteed. In addition, bank must have clear, appropriate credit policy, scientific organization, high quality staff, credit procedures, etc. that meet the needs of customers. Only then can the bank improve credit quality and reduce bad debt ratio in total outstanding loans.
The factors above will help expand bank credit yet still guarantee good quality of credit investment.