MINISTRY OF EDUACTION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY OF HCMC GRADUATION THESIS Major Banking finance Topic IMPROVING THE EFFICIENCY OF LENDING ACTIVITIES FOR INDIVIDUAL CUSTOMER.
Loan concept of commercial banks
According to the Law on Credit Institutions (2010) Article 4, Clause 16, lending is a form of credit extension whereby the lender assigns or commits to hand over a sum of money to the customer to use for a specified purpose in a specified period in accordance with the principle of repayment of both principal and interest It can be understood briefly: "Lending activity is a bank giving money to a customer with a commitment that the customer must repay both principal and interest within a specified time" The bank! grants the right to use capital to customers, customers use this capital to invest in production and business to earn profits, buy houses, buy cars,…but still ensure repayment of principal and interest to the bank
Borrowers only use money or goods for a certain period, at the end of the commitment period, the borrower must return the above amount of value to the lender Usually, the value of the payment is greater than the loan It is the portion of the interest that the lender receives
Currently, lending activities are classified according to many different criteria Depending on customer requirements! and management goals of the bank With the development trend of the economy, credit operations are increasingly diversified, complete and rich, investing in all fields of business.
Loan classification of commercial banks
Based on the purpose of using the loan
These loans are often used to purchase machinery and equipment, finance working capital Customers of this type of loan are mainly businesses, investment projects, production and business plans, services! of individuals and organizations such as industrial loans, commercial loans, and loans agriculture,…
A type of credit granted to individuals to meet their spending needs, to help consumers use goods and services before they can afford to pay, enabling borrowers to enjoy a high standard of living than In Vietnam today, there is a very high rate of implicit income, so the interest rate on consumer loans is often high The size of these loans is small and high risk because! it depends largely on the borrower's income and sense of repayment Objects are usually individuals and households to buy houses, buy cars, study abroad, etc However, this is a profitable form for banks.
Based on loan term
The loan term is closely related to the safety and profitability of the bank, as well as the customer's ability to repay Helping the bank ensure the appropriateness of the term between the! mobilized capital and the loan amount The longer the loan period, the greater the risk, so the higher the interest rate
Short-term credit is a credit with a term of less than 1 year and is usually used to supplement a temporary shortfall in the working capital of businesses or to serve the short-term spending needs of individuals
Term from 1-5 years Used to invest in the purchase of fixed assets, improve or renew technological equipment, build small-scale projects with fast payback time or expand production and business
Loan terms are from 5 years and can be up to a maximum of 20-30 years The purpose of the loan is to meet long-term needs such as building new factories, roads, and bridges, large-scale means of transport, investment support in investment projects, etc.
Secured nature of the loan
A secured loan is a loan based on security such as a mortgage, pledge or guarantee from a third party
Unexpected events can cause large losses for the bank For example, customers may be insolvent due to business risks or job losses Therefore, banks must require customers to have collateral when receiving credit, except for customers with high reputation The source of! security is the legal basis for the bank to have a second source of debt collection, supplementing the first debt collection if a risk occurs Today, most loans are secured by collateral
This is a loan based only on the customer's reputation without collateral, pledge, or no third-party guarantee Normally, this type of loan is for customers with a high reputation, healthy financial situation, etc However, this is a high-risk loan, the bank needs to carefully appraise the customer before deciding to give the loan get a loan.
Loan method
One-time lending is a method where each time a customer lends a loan, they will have to sign a separate credit contract Banks all go through the necessary procedures such as making documents, signing loan contracts, disbursement deadlines, repayment terms, interest rates and security requirements if necessary The application of loans each time will help! banks easily supervise, check as well as manage loans closely If there are signs of contract violation, the bank will transfer the overdue debt or collect the debt before the due date Interest rates can be fixed or floating according to the time of interest calculation
Borrowers for this method are mainly small and medium enterprises, which do not have frequent borrowing needs and trade-in few items Some customers have seasonal needs or special production expansion to borrow from banks, means that capital from banks only participates in a certain period of production and business
A credit limit is the maximum loan limit that a bank can grant to a customer That is the maximum amount a customer can pay with a credit card without penalty
If you pay more than the maximum amount, you will be charged an additional fee set by the bank
The credit limit is granted based on monthly income, collateral, loan demand, and customer's reputation at the time of approval
Loan within the limit: balance ≤ limit Loans can be repaid many times during the period, but the outstanding balance must not exceed the limit
Loans outside the limit: balance > limit The! bank stipulates the credit limit at the end of the period The outstanding balance in the period may be greater than the limit, but the customer must repay the outstanding balance at the end of the period so that the balance at the end of the period does not exceed the limit
Today, the use of credit cards is more and more popular Customers will not need to carry too much cash, because most transactions can be done through cards
It is very beneficial when shopping, eating, etc., the payment process is also faster
A form of loan where the bank allows customers to pay the principal and interest in monthly installments instead of paying it off all at once The one-time payment amount is calculated to match the ability to repay the debt
Customers can split the amount to be paid without paying at one time, pay little in advance and receive products right away, with simple and fast procedures, and a flexible loan period
However, this is a high-risk form because customers often mortgage goods to buy in installments The repayment! capacity depends on the borrower's income If the borrower is insolvent, the bank is also affected Therefore, the installment risk is usually the highest in the lending interest rate bracket of the bank
A loan that the bank offers to customers whose spending needs exceed the amount on their accounts opened at ACB The bank will advance to the customer a maximum overdraft limit! depending on the creditworthiness of the customer and charge interest on the amount spent over that limit If you are a customer of ACB, the overdraft limit can be up to 100 million VND
This is a form of short-term credit, flexible, simple procedures, mostly unsecured, used for customers with high reliability and regular income This overdraft loan is for businesses and individuals
To be overdrafted, customers must register for an overdraft limit During the operation, customers can sign checks, make payment orders, etc When customers have money in their bank accounts, they will collect principal and interest ACB will collect interest on the 15th of every month, the! interest rate depends on the loan, customer, and market interest rate The late payment fee is 150% of the loan interest / late payment amount If customers spend more than the overdraft limit, they will be fined and suspended from using this form of lending.
Credit characteristics of commercial banks
The bank only provides credit when there is confidence in the customer's use of the loan for the! right purpose, efficiency, and ability to repay the loan on time Banks are financial intermediaries, if the bank has stable long-term capital, it can provide a lot of long-term credit, conversely, if the capital is unstable and short- term, it can provide a lot of long-term credit liquidity risk On the other hand, the loan term must be consistent with the borrower's capital transfer cycle for the borrower to be able to repay the loan on time
The value of interest repayment must be greater than the value at the time of lending, that is, in addition to repaying! the principal, the customer must pay interest to the bank, this is the price of the right to use the loan Only in this way can we cover operating costs and generate profits for the bank's business
Small loan size, a large number of loans Loans granted to individual customers are relatively small compared to those granted to businesses Most customers come to banks when they have a relative amount of capital However, borrowers are individuals in society with very diverse borrowing needs Therefore, the total size of personal loans is quite large
Personal credit often leads to high risks for banks The quality of information that customers provide is often not high Therefore, personal credit often carries a higher risk than lending to businesses The customer's repayment source is mainly from the customer's income and health status, which can have large fluctuations Customer status is an important! factor that determines the repayment of a loan, but it is a qualitative factor that is difficult to determine Therefore, personal credits are always strictly and flexibly managed, ensuring the safety of banks and often secured loans
Cost a lot of money For personal loans, banks often spend a lot of money on loan appraisal and approval Therefore, interest rates on loans to individuals are often higher than loans to businesses However, customers! are often more interested in the amount of money they have to pay than the interest they have to bear The number of loans is very large, but the size of each loan is small.
The role of personal credit in the economy
For economy
Contributing to the circulation of capital from individuals, families, and companies with surplus capital to those! in short supply, increasing circulation of goods, stimulating demand, thereby creating conditions to promote economic growth, and improve living standards, residential livelihoods, contributing to poverty reduction, etc This cycle has important implications for the economy because savers are often not the ones who have the opportunity to recover their investment capital Without banks, the ability to transfer capital between economic entities is congested, so the channel of capital circulation through banks is to promote the efficiency of the economy
Bank credit contributes to the movement of money and goods, regulates the market, controls the value of money, and promotes the expansion of economic exchanges between countries Through income tax and trust interest, the government's capital investment brings a large source of revenue to the state budget
Bank lending is not limited to the traditional function of transporting capital where it is needed but also! helps to effectively allocate financial resources in the economy Through bank credit, capital from those who lack effective investment projects is transferred to those who have effective investment projects but lack capital As a result, the economy grows and creates many jobs.
For the bank
Through credit activities, the! bank can expand other service activities such as deposit mobilization, consulting, payment services, etc This is an effective marketing channel for the bank, increasing competitiveness in the financial market
Lending is a traditional business activity, accounting for the largest proportion of total assets and the main source of income for banks Although the proportion of credit business is decreasing, bank credit is still the most important use of capital for each bank.
For customers
Timely response to the capital needs of customers, so that customers can use utilities before accumulating the necessary amount, satisfying the diverse needs of customers, contributing to improving the quality of services quantity of life
In cases where customers need! an urgent amount of money, the bank's lending interest rates are also much more reasonable than those outside the market The loan method, loan term, flexible repayment method, conditions, and procedures are not too complicated
Guaranteed credit quality means that the bank develops so that the bank has conditions to provide credit capital to meet the production and business needs of customers.
Process of personal credit operations
Step 1: Make a credit application file
Credit officers contact customers with loan needs to disseminate and guide the preparation of documents for customers, learn basic information about customers such as the legal identity! of the customer, and the purpose of using the loan credit, capacity to use and repay credit from customers After receiving the information, the staff guides the customer to make a dossier including:
+Documents proving the legal capacity of the client, such as operation license, and identity card
+Documents proving the ability to absorb credit capital and repay capital such as business plans, and investment projects
+Documents related to credit guarantee or specific credit-granting conditions such as a pink book, and vehicle ownership
+ Credit application form, according to the bank's form; which clearly states the basic contents including customer introduction, loan amount proposed loan purpose, loan repayment source, and debt security assets
After receiving sufficient documents to apply for credit from the customer, the credit appraisal is divided into two steps, conducted in two parts: individual customer relations and collateral appraisal
+ For the individual customer relations department
The credit officer transfers the dossier to the collateral to the Secured Asset Appraisal department for handling
Conduct customer identity verification, collect information from the Credit Information Center (CIC), verify income sources used to repay loans, etc Receive asset valuation minutes from the! department Property appraisal, combined with information on coal personnel, debt repayment sources, information from CIC, and other information to prepare a credit appraisal report to make a decision to accept or refuse credit
+ For the collateral appraisal department:
Reviewing documents related to collateral, checking legality and validity, coordinating with credit officers in charge of processing documents to physically inspect assets and determine asset value
Make a property valuation record if the legal contents are clear, detailed description of the property and the value of the assessed property are transferred to the credit officer for further processing of the customer's loan application
The credit officer presents a proposal on the customer's situation in the credit assessment report to the director or the credit committee to make lending decisions depending on the loan value under the judgment of the Director or the Board of Directors
How to make a credit decision - to accept or not to accept is extremely important work It does not affect the customer's progress, but also affects the bank's reputation
Step 4: Sign the credit contract
After a loan approval decision is made, the credit officer drafts a contract and signs it between the bank and! the customer The employee transfers the contract, legal documents, and security documents to the Appraisal department so that the property appraisal department drafts a contract to mortgage, pledge or guarantee the security property and carry out the following actions: Notarization procedures, registration of asset security transactions
Collateral appraisal department receives documents from the transferred credit officer Conduct! notarization procedures and register asset security transactions Carry out procedures for warehousing at the Treasury Department and follow up procedures for off-balance-sheet security at the accounting department Transfer all complete records to individual customer relations staff
Credit officers receive documents from the Asset Appraisal department for transfer, and checks all documents: credit contract, mortgage/mortgage contract/guarantee of secured assets authenticated at a state notary agency, documents on registration of asset security transactions Make a written request for capital withdrawal cum a loan receipt agreement according to the bank's form and sign it with the customer
The branch's board of directors signs and approves the customer's loan agreement The staff will then transfer the entire contract and escrow to the accounting department to disburse the loan
Step 6: Credit monitoring and liquidation
Considered a later control step of the credit granting bank The objective of monitoring is to monitor and evaluate the level of compliance with credit contracts of customers, update customer information and identify warning signs of credit risk, thereby taking appropriate measures timely handling (i) Monitoring/monitoring of credits made; (ii) Debt collection according to the agreed term; (iii) Credit review and rating; (ix) Handling bad debts! and problem debts that appeared during the monitoring process The methods of supervision are used such as Supervision at the bank; Analyzing financial statements regularly; Visiting and controlling the location of business activities and residence of customers; Based on other sources of information
Credit liquidation is the final step in a credit-granting process Credit can be terminated in two ways: Implied liquidation: terminating the contract in case the customer fulfills its commitment and Compulsory liquidation: Performed when there is a breach of contract on the part of the customer Forced liquidation is one of two measures to deal with problem debt of banks
Meaning of setting up credit process:
As a basis for building an appropriate organizational model at the bank Establish administrative procedures in accordance with the provisions of the Law and ensure the goal of safety in business Is a mandatory! document implemented within a bank to guide the uniform implementation of credit operations at the bank The credit process is also the basis for controlling the credit granting process and adjusting credit policies to suit reality.
Loan quality assessment criteria
Growth rate of outstanding loans
This indicator is to compare the growth of credit balance over the years to assess the implementation of the bank's credit plan, lending capacity, and finding customers The higher the target, the more difficult the bank's activity level, customer search, and implementation plan are.
Ratio of outstanding loans to mobilized capital (%)
Ratio of outstanding debt to mobilized capital =
Reflects how much the bank can lend compared to the mobilized capital, showing whether the bank has been proactive in actively generating profits from the mobilized capital or not If this indicator is less than or equal to 1, the bank will not only be sufficiently balanced but also support capital for the whole system If this indicator is greater than 1, the bank has not effectively used all mobilized capital, causing waste.
Debt collection coefficient (%)
This indicator evaluates the bank's use of loan capital, expressing the bank's debt collection ability or the customer's debt repayment ability The higher this number, the better.
Rate of overdue debt (%)
This ratio evaluates credit quality, debt settlement, the efficiency of the bank's credit implementation, and lending plan The lower this index, the better, on the contrary, a high index reflects low credit quality, debt collection affecting the bank's business.
Credit turnover (cycle)
A number of turnovers of credit capital in a year If this indicator is high, the bank is effective in lending and debt recovery.
Factors affecting credit performance
Group of factors belonging to the bank
Credit policy: Credit policy must be established based on customers' needs, potential risks, profitability, capital size of the bank, etc It is a system of guidelines and dominant orientations, credit activities to effectively use capital resources Create a common consensus in the bank's credit activities to limit risks and improve profitability Normally, credit policy includes: credit limit, types of loans, provisions on the collateral, term, debt payments met,…
Financial capacity and management capacity of banks: Banks with strong financial capacity have better conditions to improve lending efficiency than banks with weak financial capacity This! is one of the factors that bank leaders consider when setting a development strategy for their bank It is expressed through indicators such as ROA, ROE, equity size, the proportion of overdue debt, income growth rate, and number of liquid assets In addition, a bank with good management ability will reduce the risks that arise for loans from the bank Banks with strong financial capacity will not have to ignore good investment projects with high capital scale due to lack of capital All will directly affect the bank's lending performance
Qualifications and professional ethics of credit officers: Credit officers must have high professional qualifications, broad understanding and sensitivity to accurately assess customers, loan! plans and advise customers correctly and correctly In addition to professional expertise, credit officers must also have good communication skills, foreign language skills, good office computers, and enthusiasm in their work In addition, ethics must also be upheld Not for personal gain, taking advantage of the laxity and lack of rigor in the appraisal process to damage the bank When these two things are achieved, customers will be satisfied with the professional way of working and come to the bank.
Group of factors belonging to customers
When a bank lends to a customer, the customer is the person who directly uses that capital The effectiveness of that capital use depends on the customer's ability to use it If the customer is unable to repay the loan, it will cause difficulties for the bank Banks can consider this possibility through business situation, loan history and collateral Collateral is the second collection of debt! if the customer has difficulty in repaying the loan Help banks improve lending efficiency through debt recovery when bad situations occur, because when the security is recovered, the most affected person is still the customer This encourages borrowers to use capital for the right purposes, more effectively.
Group of factors belonging to the economic environment
The economic environment directly affects both banks and borrowers When the economy is in a prosperous period, the growth rate is high and stable, people are assured of their income, and their consumption demand will increase, so banks will have the opportunity! to develop personal credit core In the context of the economic recession, business activities are difficult, people save spending instead of thinking about borrowing to satisfy high demand, making lending activities of banks could not achieve the desired effect Another important factor is inflation, high inflation will cause banks to have to mobilize! capital at great costs, so increasing lending interest rates will also reduce borrowers Therefore, any fluctuations in the economy also cause fluctuations in all areas, including banking activities.
ACTUAL SITUATION OF PERSONAL CREDIT
Introducing personal loan products at Asia Commercial Joint Stock
+ Home loan to buy and repair
Loan limit: up to 85% of home construction/repair costs but must not exceed the loan-to-security ratio prescribed by ACB
Loan term: Up to 20 years
Debt payment method: Interest is paid monthly, the principal is paid monthly
Loan limit: Up to 95% of the vehicle value but must not exceed the loan-to-security ratio prescribed by ACB
Loan period: Up to 60 months
Debt payment method: Interest is paid monthly, the principal is paid monthly or at the end of the period
+ Loan to supplement working capital
Loan limit: Up to 80% for working capital loans and 90% for fixed asset investment loans
Loan period: Up to 12 months for working capital loans and up to 60 months for fixed asset investment loans
Debt payment method: Interest paid monthly, principal paid at the end of the period
Business performance at Asia Commercial Joint Stock Bank Lac Long
In recent years from the period 2019-2021, the economic instability caused by the Covid-19 pandemic has significantly impacted the 2020 and 2021 results of domestic and international banks Capital mobilization of the commercial banking system in Ho Chi Minh City was significantly affected in the context of prolonged covid-19 which made business activities! of enterprises, demand for loans decreased and cash flow decrease The population's idleness flowing into the banking system is also affected However, in the past three years from 2019 to 2021, the Lac Long Quan branch still achieved quite positive growth in its capital mobilization activities, which is shown in detail in the following table
Table 2.1: Capital mobilization situation of ACB Lac Long Quan branch
From the table above, it can be seen that the mobilized capital of the Lac Long Quan branch has continuously grown over the past three years In 2019 and 2020,
Foreign currency 93,250 10,53 89,131 8,78 90,375 8,28 mobilized capital reached VND 885,429 million and VND 1,014,930 million, respectively An increase of 129,501 million VND (up 14.63%) compared to 2019
In 2021 Lac Long Quan branch has mobilized 1,091,760 million VND, an increase of about 76,830 million VND (7.57%) compared to 2020
Although our country's financial market has experienced complicated developments in recent years due to the impact of the covid epidemic, the capital mobilization of the Lac Long Quan branch has faced many difficulties but still achieved a good growth rate The reason is that ACB has taken advantage of retail banking, focusing on! individual customers, and small and medium enterprises Expand the network of branches and transaction offices with modern equipment space At the same time, maintaining a customer care policy as well as focusing on communication, advertising, and promotion Lac Long Quan branch continuously offers many attractive promotions to mobilize maximum capital such as: the "Luck wheel" Having built a variety of deposit products in the market, promotions on deposit products were also organized quite successfully As a result, the branch always achieved stable growth in capital mobilization activities
The bank's main source of mobilized capital is in VND, accounting for over 70% of mobilized capital In recent times, the difference in interest rates on deposits in VND and foreign currencies has always remained high, making savings in the local currency more profitable for customers
Regarding the capital structure, we see that the capital mobilized from the branch's residents is slightly higher than the capital mobilized from economic organizations This is explained by the fact that the! geographical area of the branch is quite densely populated, and people also like to deposit money in the bank as a safe profitable saving and to avoid risks in the face of difficult economic circumstances due to the difficult economic situation Covid-19 pandemic Especially in this context, investing in deposits is still a very effective investment channel compared to other investment channels such as gold, securities, real estate, with many potential risks and complicated fluctuations At the same time, covid-19 has had a great impact on Vietnamese businesses Many businesses had to close or cut labor costs
2.2.2 Loan balance by product at Asia Commercial Joint Stock Bank, Lac Long Quan branch in the period of 2019-2021
Table 2.2: Loan balance by product at ACB Lac Long Quan branch in the period of 2019-2021
Looking at the data table, we can see that the personal loan balance by products of ACB Lac Long Quan branch, mainly focuses on loans to buy, repair houses, loans for business households, loans to buy cars, loans consumer overdraft and credit card
People still invest in real estate, still buy houses, and tend to increase gradually Specifically, 2019 accounted for 44.78%, 46.17% in 2020, and 522.71% in 2021 of the total outstanding balance in the branch Compared to previous economic crises, the covid pandemic has a different impact on the economy and the real estate sector
In the past, when there was a problem, the! demand immediately dropped But in this pandemic, the demand for some areas such as real estate, logistics, and housing is still developing well Real estate transactions during the months of social distancing fell sharply but property prices did not decrease, reflecting still high market demand
Impacted by the Covid-19 epidemic, car buyers will have to wait longer to receive their cars The reason is that manufacturers have been forced to cut car output due to a global chip shortage and the pandemic raging in Southeast Asia Therefore, the proportion tends to decrease sharply from 2019 to 2021 at 6.17%, 2.87%, and 1.34%, respectively
The epidemic makes many businesses difficult and bankrupt Therefore, since the outbreak of the epidemic, the bank has promptly issued and implemented drastic policies to support people and businesses to overcome difficulties such as lowering interest rates, reducing payment fees, restructuring, etc …to serve production and economic recovery Therefore, the proportion of loans to business households did not increase much Specifically, 2020 is 34.41%, an increase of 1.37% compared to
2019 And increase by 0.21% in 2021 compared to 2020
In the context of the Covid-19 pandemic, with the requirement of maximum contact restriction in all activities, the demand for credit cards has increased in recent years, promoting the strong development of this type of card Therefore, the proportion of consumer loans and credit cards increased significantly from 2019 the proportion of 3.4% to 10.97% in 2021 (up 6.67%)
Chart 2.2a: Chart showing loan balance by product at ACB - Lac Long Quan branch in 2019
Chart 2.2b: Chart showing loan balance by product at ACB - Lac Long Quan branch in 2020
Buy and repair house Buy car
Chart 2.2c: Chart showing loan balance by product at ACB - Lac Long Quan branch in 2021
2.2.3 Status of loans to individual customers by term
Buy and repair house Buy car
Buy and repair house Buy car
Table 2.3: Loan balance structure for medium and long-term individual customers in the period of 2019-2021 at ACB Lac Long Quan branch
Medium and long- term debt balance
As a bank implementing policies to develop the economy on a large scale, the ACB Bank Lac Long Quan branch is facing fierce competition from other commercial banks Therefore, ACB has made great efforts in its currency business
In addition to capital mobilization to take the initiative in working capital, short, medium, and long-term credit activities are still a key issue in the bank's operations and provide a source of income for the bank The need for capital for development today is very large, especially since Tan Binh district is a growing district, with many places to buy and sell, and the demand for loans from investors is more Therefore, banks need to create a lot of prestige for the bank and attract many traditional customers as well as potential customers to deposit and borrow capital, thereby improving the quality of the bank's operations To do so, the Bank needs to have reasonable policies to expand its operation scale to increase competitiveness and ensure income for the bank
Chart 2.3: Structure of individual customers by term 2019-2021
Look at the chart we see Credit outstanding growth continuously achieved high growth rates in recent years Specifically, the total loan balance in 2020 increased by 12,833 billion VND, accounting for 15.92% compared to 2019 And in 2021, it increased to 15,130 billion VND, equivalent to 16.19% compared to 2020 The reason for the increase is that the bank's lending and interest collection have
Medium and long-term loan balance Short-term loan balance Total achieved many good results, through which we also see that short-term loans account for a high proportion of medium and long-term loans
The short-term debt balance in 2020 will increase at a rate of 15.87% compared to 2019 And in 2021, it will increase at the rate of 22.53% The nature of the increase in short-term debt balance is because the branch's main source of capital is short-term, so the branch has to invest in lending in a short term in order to improve credit efficiency However, medium and long-term loans also tend to increase from VND 36,260 billion in 2019 to VND 45,603 billion in 2021.
Bad debt in credit of joint stock commercial bank ACB Lac Long Quan
Like any other business, banking credit is a specific business that always has the most potential for risk factors Because the Bank's credit activities are always associated with close relationships with all types of customers If banks consider carefully the lending process and customers do business effectively, use the capital for the right purposes, and repay loans on time, bad debts will be less Therefore, finding reliable customers to lend is very important Bad debt is debt from group 3 or more But if you are too cautious, you will lose attractive lending opportunities that can bring high returns This is an indicator used to assess the credit quality of a bank
2.3.1 Bad debt situation over time
Table 2.4: Bad debt situation over time
Bad debt cannot be absent from any bank because most of the risks occur after the credit contract is signed Because banks cannot predict in advance which debts will be recovered and which debts cannot be recovered, the business performance of households depends on many factors, including objective reasons such as: As a result of the Covid-19 epidemic, many businesses suffered losses, affecting bank loans that were difficult to recover This makes bad debt in the bank still unresolved At the same time, the increase in inflation caused commodity prices to fluctuate abnormally, supply and demand factors changed continuously and complicatedly before the development of the Covid-19 epidemic, limited customer management ability, business losses, and failure to pay debts to banks, led to bad debts
Looking at the data table, we can see that the bad debt situation of ACB at Lac Long Quan branch in 2019 is 3,869 billion VND and will decrease slightly to 3,644 billion VND in 2020 This billion will increase sharply to 6,948 billion VND in
2021 The cause is the aftermath of Covid-19 For some customers, after taking out a loan, they only want to pay interest, and the principal is to rotate, making the capital stagnate, difficult to recover, and inefficient credit operations Some customers borrow papers from relatives to borrow money Therefore, there is a situation of borrowing but transferring capital to others to use The user of the capital is unable to repay the debt, and the borrower is with the mentality that the responsibility for debt repayment belongs to the user of the capital, not himself
Chart 2.4: Bad debt situation over time
From the chart, we can see that the bad debt situation has a slight decrease in
2020 and increases sharply in 2021, most of the bad debt ratio is mainly for medium and long-term loans, specifically in 2019 the proportion of medium and long-term loans term is 62.19% by 2021, increasing to 55.35% Short-term bad debt also increased from 37.81% in 2019 to 44.65% in 2021 The reason that medium and long-term debts account for a higher proportion than short-term debts is that banks prefer short-term loans, the ability to turn capital quickly, and avoid many risks
2.3.2 Bad debt situation by product structure
Table 2.5: Bad debt table by product
Short-term Medium and long term cturing business
Looking at the data table, we can see that bad debt in 2019 is 3,869 billion dong, by 2020 it will decrease slightly to 3,644 billion dong and by 2021 it will increase sharply to 6,948 billion dong The highest bad debt is in 2021, increasing by VND 3,304 billion compared to the previous year
Chart 2.5: Bad debt situation by product at ACB – Lac Long Quan branch from 2019 to 2021
Through the line chart, we see that the bad debt situation by product mainly focuses on home loans for purchase and repair, accounting for about 27.48% of bad
2019 2020 2021 debts for personal loans However, there is a slight downward trend, specifically in
2019 from 31.82% to 31.50% in 2020 and 27.48% in 2021 The reason for the decrease is that the bank monitors the customer's financial situation to take reasonable risk treatment measures to ensure a more reasonable debt collection
In addition, loans for production and business also had strong fluctuations, specifically in 2019, VND 1,405 billion, a slight decrease of VND 1,298 billion, and increased sharply to VND 2,381 billion This shows that in 2021, the economy will face many difficulties, trading activities will also face many difficulties, and goods have a lot of inventory since then, customers will not be able to repay their debts Secondly, the branch is still subjective in debt collection monitoring activities Therefore, banks need to focus on making many policies and plans for debt collection and monitoring the repayment ability of customers more often
Although the Bank has a team of qualified and experienced staff, there are still many difficulties in debt collection The settlement of due debts has not been prompt, giving rise to overdue debts or bad debts, which leads to the existence of bad debts in the report This point shows that the credit and appraisal work of credit officers is still not high In addition, environmental factors affect customers' ability to repay debts, causing bad debts to arise more and more
Bad debt is an indicator reflecting the quality of credit operations at a bank If at a certain time The higher a bank has bad debts, the higher the proportion of total outstanding loans, and the worse the credit service quality at that bank and vice versa Although bad debt has increased over the past three years, this does not mean that the bank's credit quality has decreased, but because bank loan sales have increased continuously, this proves that the credit quality of the bank not only does not decrease but tends to develop better The problem of bad debt is inevitable in business The reason is that on the one hand, due to an increase in outstanding loans, it is obvious that bad debts will also increase, due to the competitive market, on the other hand, some customers have good reputations and relationships with banks, but suddenly the business situation is not good Business failure should cause the debt process to be delayed or not paid, resulting in an increase in bad debt.
Credit performance at ACB Commercial Joint Stock Bank Lac Long
Evaluating a bank's business performance is to consider whether the criteria on capital use, capital turnover, profit, and cost are effective or not, and are consistent with economic development policies of the area or not? Thereby promoting the strengths and proposing solutions to overcome the weaknesses to improve the efficiency of the bank's credit operations
2.4.1 Evaluation of the bank's credit performance
Table 2.6: Assess personal credit performance
2.4.1.1 Outstanding balance on mobilized capital
This is an indicator that reflects the level of investment of mobilized capital in lending activities It helps us analyze and compare the lending capacity of banks with mobilized capital If this indicator is too large or too small, it is not good Because if it is too large, the bank's ability to mobilize capital will be low, if it is too small, the bank will use its capital inefficiently
In general, over the past 3 years, the bank's capital mobilization has been quite good, which is reflected in the ratio of mobilized capital to outstanding loans In
2019, there was an average of 0.91 VND of outstanding loans in 1 VND of mobilized capital In 2020, this index is equal to 0.92, which means that in 1 VND of mobilized capital, the outstanding loan balance is 0.92 VND in it By 2021, this indicator will increase by 0.99 compared to 2019 and 2020 by 0.99 Thus, this indicator has increased over the years from 2019-2021
2.4.1.2 Debt collection on loan sales
This ratio is called the debt collection ratio It reflects the effectiveness of credit in the debt collection of the bank The larger this coefficient, the better In general, over the past 3 years, the debt collection ratio fluctuates complexly Specifically, in
2019, the debt collection ratio is 26.91%, in 2020 it will increase to 50.40% and decrease slightly in 2021 to 45.41% The reason for the sharp increase in 2020 is that the bank has well implemented the policies, targets, and plans set out and applied many handling measures to recover debts, especially bad debts, leading to an increase in loan capital
This indicator measures the speed of credit capital turnover, reflecting how fast or slow the loan recovery time is The larger this index, the better, which means good debt recovery
Through analysis of loan sales, we find that short-term loans always account for a higher proportion than medium and long-term loans The table shows that the credit turnover of the branch fluctuates in an increasing direction In 2019 1.04 rounds to 2020 increased by 1.38 rounds and in 2021 it decreased slightly to 1.34 rounds The reason for the increase was the increase in loan sales and therefore the increase in debt collection, leading to the possibility of a good capital turnover for the bank
2.4.1.4 Bad debt on outstanding balance
This index reflects the credit quality of the Bank, showing how effective or risky the bank is in lending? The bank's total outstanding loans have increased over the past 3 years, while bad debts will increase slightly in 2020 and increase sharply in
2021 The bank needs to take measures to limit bad debts.
Achievements and limitations
Outstanding loans and revenue from personal credit activities have good growth
For the ACB Lac Long Quan branch, individual customers are always considered the main target customer group Currently, when the market is taking place, there is fierce competition among banks Outstanding personal loans have continuously increased over the years, contributing positively to the branch's loan structure The number of customers coming to the branch to transact is increasing day by day This is good news for the branch This helps to improve the image and enhance the competitiveness of the bank Customers who come to borrow money often tend to use banking services such as card services, deposit services, payment services, etc The image through the branch is promoted more widely, contributing to the expansion of other activities, and increasing service revenue for the bank
Revenue from personal credit activities also contributes a significant part to total revenue from credit activities
Overdue debt for personal loans at the branch is low This activity is assessed as having a high level of safety among lenders because the loans are small, mainly with mortgaged assets For the need to purchase and repair houses, the main collateral is the land use right and assets attached to the land, followed by the mortgage with the land use right Bad debts are recoverable Risk management and credit quality improved significantly The ratios are all within the safe threshold This is also a success of the branch This proves that credit risk management of the branch is always focused Debt handling and recovery are concerned in order to ensure the safety of the branch
The bank has gradually simplified lending procedures Thereby creating favorable conditions for customers when they need to grant credit, improving the bank's competitiveness, attracting many new customers, and maintaining prestige and trust with old customers
ACB's staff regularly attend many training classes to improve professional skills, communication skills, and marketing skills to meet customer needs The bank's credit staff is very active and enthusiastic in finding and advising customers The leadership of ACB Bank Lac Long Quan branch has an interest in the bank's employees, giving them their enthusiasm for work That also contributes significantly to achieving good results in banking activities because people are the most important factor
Personal loan products are not diversified Personal lending activities at the branch, although there have been many changes and obvious developments, are still not significant compared to the needs of customers Personal loan products at the branch are still not diversified, mainly focusing on loans for land purchases and home repairs
The branch's customers are still not diversified, mainly traditional customers with long-term relationships with the branch, and the attraction of new customers is not high and effective The target audience is households, those with low and middle income who do not have products or policies to encourage them to participate in this personal loan market Banks are also passive in finding new customers
Banks sometimes also focus on loan collateral but leave good customers with a stable income to be able to repay the loan but are rejected because the collateral does not satisfy the bank's regulations
The content of articles about ACB has just stopped reporting on activities such as increasing charter capital and opening branches and transaction offices Information about new products, services, and promotions has not been promoted much, and relationships with agencies and schools are still limited In addition, ACB has not linked with electronics stores, car manufacturers, etc to introduce installment loan products to customers This is probably a big shortcoming in the ACB brand promotion
The branch has not really paid attention to the regular inspection and supervision of the loan use process The majority of bad debts arise from customers using them for the wrong purposes The branch still does not have a dedicated department to monitor and supervise the implementation of regulations and procedures of transaction offices to promptly correct mistakes and limit risks for the entire system
In addition, the branch still lacks drastic measures in dealing with overdue debts, causing overdue debts during the year to increase.
SOME RECOMMENDATIONS AND SOLUTIONS TO
Oriented development
With the goal of affirming ACB's position in the domestic and regional markets ACB has clearly defined its strategy ACB's medium and long-term development orientation is to become a leading, modern and versatile retail bank in Vietnam Striving to build the Lac Long Quan branch as one of the key joint-stock commercial banks in the Saigon area, continuing to strongly develop business activities with the goal of safety, efficiency, create a foundation for sustainable and long-term development At the same time, we carry out the responsibility of sharing difficulties with the community through social security policies
Implement the strategy of customer diversification, increase the number of individual customers by promoting areas of activity, especially retail banking, securities channels, and maintain business efficiency growth
Building a solid and professional workforce to meet the increasing needs of customers and the development trend of the industry
Maintain market share in the area; grow the scale and maintain credit quality, exploit the maximum efficiency of foreign currency sources from individual customers, strive for the income and expenditure gap per capita not to be lower than the average of the whole industry, limit operational risks, maintain effectiveness, and executive management skills
Increase the proportion of loan sales of individual customers in total assets, profit, deposit, and lending balance in the direction of commercial banks focusing on retail
Continue to maintain and promote well the state of debt collection to increase and achieve higher efficiency
Ensure the bad debt ratio is below 1.5%; reduce the cost of provision for credit risks
Building and perfecting the process of automating all activities related to individual customers, focusing on credit activities first.
Solutions to improve personal credit activities at Asia Commercial Joint
Reasonable and attractive interest rates Depending on the needs and repayment capacity of the customer, the branch sets a loan balance for each customer Branches should be flexible about lending levels for each type of customer
Diversified and suitable loan terms: Diversify loan terms to ensure credit principles such as repayment ability, ensure the purpose of capital use and conditions to ensure debt capacity as well as facilitate inspection and monitoring
3.2.2 Improving the quality of credit officers
The training of human resources should be conducted in a focused and intensive manner according to each type of service
In addition to good qualities, professional qualifications and a sense of compliance are also essential factors to avoid loopholes in the appraisal, inspection, and supervision stages, thereby can bring higher efficiency
In addition, employees need to be constantly updated with the bank's and state's policies on credit, ensuring that the correct process is followed as well as the law when making loans With the credit segment, the bank can also arrange and assign staff in charge of personal loans to each customer segment to create more harmony and specialization in operations
Branch employees need to improve their skills and ability to communicate with customers It is necessary to have a staff with civilized, polite, gentle, and friendly manners with customers, creating a good image in the customers' hearts With a dedicated, thoughtful, and dedicated attitude toward customers, it is certain to maintain a good relationship between the bank and its customers
3.2.3 Promote the Bank's marketing activities
The purpose of marketing activities is to attract customers to access and use the bank's products and services, on the other hand, to make an impression on customers about the bank, improve its face, and increase its reputation and prestige The bank through this activity must provide its customers with knowledge of the procedures, conditions, and other regulations when having a credit relationship with the bank, its outstanding advantages compared to other banks, and benefits received by the customer These messages must be designed to be simple, easy to understand, and suitable for the perception of many different customer groups
To attract the attention of consumers All events that attract social attention should be used to make the bank's brand more familiar However, it is also necessary to have a choice when sponsoring, avoiding sponsoring events that are not suitable for the bank's activities
The bank can organize events to promote new products, guide and advise customers in choosing the right products and services for them through newspapers, television stations, links with schools, commercial centers, industrial zones,… Once the promotional and marketing campaigns have been carried out, bank staff can contact the agencies, the unit is eligible for a loan to arrange a meeting between the bank's staff and the staff at the unit to introduce the bank's consumer lending business
3.2.4 Improve the quality of appraisal work and the ability to recover capital, limit credit risks
Appraisal is an important step in the credit process, it determines whether to lend to customers or not and at the same time determines the quality of loans In this stage, collecting information about customers is extremely important For individual customers, the appraisal is mainly based on the information provided by the customer Usually, this information is not very accurate First of all, it is necessary to see the creditworthiness of the borrowers and resolutely implement all covenants in the credit contract Income level and stability in customers' income are important information to assess loan repayment ability Directly meet and get to know customers about where they live and work Because if a person lives in one place for a long time, it can be believed that his life is stable If a person often changes residence, it will be a disadvantage for the bank when deciding to lend
Banks must regularly evaluate and monitor customers This is very necessary because it shows that the customer has used the loan for the right purpose and is willing to repay the loan or not The use of loan capital should be inspected periodically or irregularly, to ensure that loans are closely monitored, and there are measures to handle and recover debts in a timely manner
3.2.5 Expand product and service development, exploit differentiated products with advantages
The branch needs to implement the following activities to meet the needs of customers such as arranging a teller department to serve customers outside of working hours Currently, customers who want to withdraw money at the branch must arrive before 5pm Therefore, customers who work during office hours cannot withdraw money Banks should arrange overtime for customers to be more convenient
The second is to develop card services and install a number of ATMs in public places, where there are many employees and students This brings convenience and saves time for customers Besides the above services, the branch should open consulting services such as consulting on financial investment activities These activities not only generate income for the bank but also find new customers
For customers with deposit accounts in foreign currencies Branches need to have preferential policies with them in the process of using the account such as: when customers withdraw foreign currency from the account, if they want to convert to VND, the bank will buy foreign currency at a higher price than the price the bank buys from outside customers or buy at the selling price, but the customer has to pay a fee (low fee)
With the current Covid situation, banks should have products to protect the health of their customers For customers, it is both to save money and protect themselves As for the bank, this is a product that brings a great investment.
Some recommendations
Flexible management of open market operations, interest rates, other tools to continue to support commercial banks with the ability to ensure high liquidity, and regulate deposit and lending rates of commercial banks at a stable and reasonable level
Creating favorable conditions for the development of debt trading and credit insurance markets to minimize and analyze risks
Having appropriate policies for the stock market and real estate market to develop stably and firmly in order to reduce risks caused by such markets such as liquidity, legality,…
Ensure safety and efficiency of business operations of credit institutions In particular, directing credit institutions to monitor, forecast and proactively take measures to prevent possible risks, strictly observe regulations on safety ratios, strictly control credit quality, focus on analyzing, evaluating, and forecasting closely fluctuations in foreign currency supply and demand in the market Take timely intervention measures to stabilize the supply and demand of foreign currency and stabilize the exchange rate in the market
Due to the rapidly developing socio-economic situation, many new social relations arising in the market economy really need a healthy legal adjustment for economic development Therefore, it is very necessary to require a synchronous legal system as legal support for banks and businesses Moreover, our country's legal system is not stable The frequency of amending, supplementing, and canceling legal documents is still very high, especially the Enterprise Law, Foreign Investment Law, Land Law, making relevant documents such as business licenses, land ownership documents, etc unclear, making it difficult for the Bank in the process of reviewing projects for loans
The government must stabilize the macro environment, determine the economic development strategy, stabilize prices, maintain the inflation rate at a reasonable level, and businesses to have the opportunity to expand and develop production activities business, as well as meet the diverse needs of consumer goods and services for the population Raise income and living standards of the population, thereby stimulating consumption demand in the population Thus, the Bank's lending activities were expanded and loan quality improved
The Government also needs to direct the People's Committees at all levels and competent agencies to speed up the granting of certificates of house ownership and land use rights to households, individuals, and businesses, to facilitate benefits for the bank in the appraisal, lending, debt collection, and collateral handling
In the past 3 years, Asia Commercial Joint Stock Bank - Lac Long Quan branch has achieved remarkable achievements The bank has quickly built a reputation with customers and has made certain contributions to the city's development This is evidenced by the increasing number of visitors coming to the transaction as a source of mobilized capital, and sales are also constantly growing Lending activities of Asia Commercial Joint Stock Bank ACB - Lac Long Quan branch have contributed to promoting business activities and investment activities of all economic sectors, while realizing business goals, while fulfilling the economic development goal of the region, thereby creating a better life for the people Although it was during the Covid-19 pandemic, the bank's credit activities were relatively stable
In the coming time, personal credit activities are forecasted to be more active Banks must direct credit to production, business, priority areas according to the policy of the Government, loans to serve life needs, consumer credit with reasonable interest rates Focusing credit on a number of production areas, with priority given to agriculture, rural areas, exports, supporting industries, small and medium-sized enterprises, high-tech applications, and valuable trade and service industries high growth rates such as exports, services, logistics
In summary, in personal credit activities, ACB - Lac Long Quan branch has obtained many remarkable! achievements, although there are still some limitations With the goal of becoming the most effective joint-stock commercial bank in Vietnam, it is hoped that in the near future the bank will continue to maintain the achieved results and develop further, contributing to the common goals of the whole bank
1.Tran, A K., & Thai, T T (2013) Factors affecting consumer credit access in commercial banks of households in Can Tho City, Viet Nam Can Tho University Journal of Science, 28, 26-32
2.Tran T T (2020) The Impact of Balanced Scorecard on Performance: The case of Vietnamese Commercial Banks Journal of Asian Finance, Economics and Business, 7(1), 71-79.