Function of commercial banks In terms of commodity economy, commercial banks perform the following functions: Credit intervention: Credit intermediation is one among the foremost vit
Overview of commercial banks
Under Vietnam’s Law No 02/1997/QH10 on Credit Institutions, a bank is defined as a type of credit institution empowered to perform all banking activities and related business activities, as stated in Article 10 of the law.
Banking activities encompass monetary operations and a broad range of banking services, including capital mobilization in all forms, short-, medium-, and long-term loans, discounting of valuable documents, factoring, financial leasing, overdrafts, installment loans, and consumer loans, as well as all other standard banking services.
The Banking Act of many countries around the world states that:
“Commercial bank is a company dealing in money, specializing in the provision of financial services and operating in the financial services industry”
Within the scope of the thesis, the author uses the concept of commercial banks by Law No.02/1997/QH10 and this idea are used throughout the complete thesis
In terms of commodity economy, commercial banks perform the following functions:
Credit intermediation is a core function of the global banking system, and Vietnamese banks exemplify its pivotal role By mobilizing deposits and allocating funds through loans, banks earn profits from the net interest margin—the difference between deposit costs and loan yields Receiving deposits from customers and providing loans are two fundamental, time-tested activities of commercial banks today, and they largely determine a bank’s survival and growth potential in a competitive financial landscape.
Industrial banks act as the cashiers of the enterprise system, serving businesses of all sizes, organizations, and individuals who rely on bank payment services They process payments for goods, utilities, general services, and various charges, tailoring their solutions to meet each customer's specific needs.
All industrial banks give helpful and convenient suggests that of payment comparable to through payment order, check, money card, mastercard and every payment technique can suit each needs of customer Therefore, the demand for cash by customers is decreasing, rather than victimization credit and payment cards to extend security and convenience victimization this payment operate will facilitate boost the economy towards modernization compared to other developed countries within the region
Business banking the largest purpose is to create a profit Therefore, the function of creating money is a crucial function to market the event of banks
The function of making money is performed on 2 basis: payment function and credit function Through the credit function, the bank uses the money deposited by customers to lend to different organizations and individuals, besides that money is formed to procure the services requested by customers This makes the bank' income invariably rotate (PGS.TS Vu Thi Thanh Tam, 2009)
Commercial banks operate in 2 main activities: capital mobilization and use of funds
Banks aiming to survive and grow require substantial cash reserves to fund their day-to-day operations To build and maintain a stable funding base, commercial banks mobilize capital through channels such as client deposits, savings deposits, and bond issuances When deposits alone are insufficient to support lending and other activities, banks borrow from other banks or tap interbank funding facilities to cover liquidity gaps, ensuring they can continue serving customers even during tighter funding conditions.
Capital utilization in banks centers on investment, credit, and intermediary activities Credit remains the core activity of a bank, reflecting its scale of operations and overall development Banks invest in securities to enhance liquidity and diversify their asset mix, and they may sell securities to boost earnings and grow funds In addition, banks can deploy capital with firms of all sizes, creating conditions to increase profits They also act as financial intermediaries, facilitating transactions for customers without cash through services such as bank transfers and payments.
Credit operations at commercial banks
1.2.1 Definition of commercial bank credit operations
According to Assoc Prof Dr Vu Thi Thanh Tam, credit is a borrowing relationship rooted in trust and confidence between the lender and the borrower In this arrangement, the lender provides a sum of monetary capital (or assets) for the borrower's use for a limited period, with the expectation that the funds will be repaid.
At maturity, the borrower is obligated to repay the original capital (asset) and interest (PGS TS Vu Thi Thanh Tam, 2009)
1.2.2 The nature and principles of credit
Regarding the nature of credit, this activity bears the following typical signs:
Credit relationship established on the basis of trust and confidence
Subjects involved in this relationship include at least two parties: the lender and the borrower
Credit is a transfer relationship to use for a limited time
Borrowing between parties is legally formalized through a loan agreement, usually expressed as a fixed sum of money The object of the credit relationship is monetary capital, though in some cases it can be an asset, such as lease-purchase credit.
In principle, credit must ensure the following basic principles:
Principles of using loan capital for the right purposes
Principles of risk reduction and loss recovery
Principle of return of capital and interest
Principles of lending must be secured
1.2.3 Classification of commercial bank credit operations
Based on the nature of the borrowing relationship, credit activities are distinguished into: bank credit, state credit, international credit, and commercial credit (commodity credit)
It is a credit relationship between credit institutions and customers (organizations, businesses and individuals, etc.), in which, lenders are credit institutions, borrowers are individuals and organizations
The legal form of a bank credit relationship can be expressed as:
• Discount agreements between banks and customers,
• Guarantee commitments between the bank and the customer
State credit is a credit relationship arising during the temporary use of capital of other subjects in society by the state
Under this arrangement, the state acts as the borrower while individuals and organizations are the lenders The aim of this credit is to offset the state budget deficit and to provide additional capital for development investment Today, the government restricts financing the deficit by issuing money, limiting the use of monetary financing as a tool.
Through state credit activities, the government borrows from the public by issuing bills and state treasury bonds to mobilize capital from individuals and organizations When private investment capital is insufficient, the government raises funds by issuing government bonds and public bonds to finance its projects and meet fiscal needs.
Temporary capital lending on the basis of return is an international finance relationship formed between the government or economic entities of one country and the government, corporations, or financial institutions of another country, or with international financial institutions These arrangements are designed to address state budget shortfalls or to provide the needed business capital, enabling cross-border financial support and development financing.
Trade credit is a financial arrangement where one trader purchases goods or services from another on credit, with payment deferred and often backed by drafts Also called commodity credit, this form centers on the sale of goods and services and creates a credit relationship between traders based on deferred payment.
This is a type of direct credit between buyers and sellers without intermediaries being banks and without service charges and low interest rates
The subject matter of trade credit is goods The basis of trade credit is the bill of exchange
Based on credit term, credit is distinguished into short-term, medium-term and long-term credit
A credit term is the period from when the borrower receives the loan for the stated purpose until the time when both principal and interest are repaid under the terms of the credit contract During this term, the borrower uses the funds for the loan purpose, and the obligation to repay the principal and interest remains in effect until full repayment is achieved.
According to current law, the credit term includes:
Short term up to 12 months
Medium term 12 months to 5 years
Long term: more than 5 years
1.2.4 Role of commercial bank credit operations
The role of credit for businesses
Credit provides essential funding that enables businesses to scale production and expand into new markets Growth requires increasing production capacity to extend one's operating footprint and reach more customers Since expansion is a long-term endeavor that demands substantial capital, access to reliable financing is crucial for sustained growth.
Enterprises can raise capital by issuing stocks, issuing bonds, or borrowing from commercial banks Among these options, borrowing from commercial banks is often advantageous because it provides funds without diluting ownership and can be tailored to production and business needs with flexible terms, helping to address financing gaps Bond issuance, while useful, comes with issuance and servicing costs and may constrain financial flexibility, whereas equity financing—issuing shares—dilutes ownership and control among shareholders In short, debt financing preserves autonomy but adds fixed obligations, while equity financing expands capitalization at the expense of governance control, so companies should weigh cost, control, and strategic goals when selecting a capital mobilization method.
Credit creates favorable conditions for enterprises to innovate technology, change production structure, facilitate adaptation to market conditions as well as enterprise's own characteristics in conditions for more efficient operation
Banks promote the effective use of loan capital by monitoring how funds are deployed during the loan term, acting as owners of the capital on behalf of the borrowing businesses Guided by credit principles, banks steer businesses toward responsible and productive use of funds and require timely payment of principal and interest in accordance with the terms of the credit contract.
Bank credit also helps businesses to satisfy and seize business opportunities
When opportunities arise, companies can quickly obtain capital from banks to expand production and increase output, strengthening their market position A bank loan provides flexible funding to scale operations, accelerate growth, and seize competitive advantages Borrowers can tailor the debt term to their cash flow, allowing repayment before the due date or, if needed, requesting an extension of the loan Properly managed bank financing helps accelerate market dominance while maintaining liquidity during challenging times.
The role of credit within the operation of business banks
Credit drives bank profitability while enhancing their competitive advantage In particular, medium- and long-term lending—evaluated by both its volume and quality—can be a strategic activity for commercial banks.
Providing credit is a primary profit driver for banks, with interest income and loan fees fueling earnings; by extending financing and building lasting relationships, banks attract and retain customers, enabling them to expand their range of services and scale their operations, gradually strengthening their role and influence in the economy.
Credit is a viable mechanism for banks to manage excess mobilized capital and, at the same time, a primary channel for directing capital from the economy to meet the financing needs of businesses Accordingly, investing in high-quality credit—especially medium-term loans—is essential to address the challenge of mobilizing and deploying capital efficiently, earning profits, and expanding the bank’s operations while enhancing its competitiveness By prioritizing sound credit quality and appropriate tenors, banks can improve capital utilization, boost profitability, and strengthen their ability to compete with other banks.
The role of credit within the economy
Bank credit plays a key role in economic restructuring by directing capital toward spearhead industries and expanding the share of priority manufacturing sectors that drive the country’s development It finances strategic projects, supports current needs, and builds long-term growth by boosting production capacity, upgrading technology, and fostering innovation in key industries This financial backbone strengthens competitiveness, accelerates industrial upgrading, and enhances economic resilience to achieve sustainable development.
Bank credit reduces the constant of idle cash in circulation, meeting capital needs for enlarged reproduction
Effectiveness of credit operation at commercial bank
1.3.1 Definition of effectiveness of credit operation at commercial bank
Credit operations are the core activity of banks, generating profit and sustaining day-to-day operations The effectiveness of lending activities directly shapes the bank’s financial performance and signals its prospects for future development Lending results should keep pace with evolving customer demand and the broader needs of society, reflecting current market trends and socio-economic priorities.
According to Ms Le Thi Hong Tam (2015) in the accounting and auditing magazine from the Department of Economic Science at Nam Dinh University of Technology and Education, a bank's lending capacity determines its development, and thus lending efficiency hinges on enhancing economic potential and operational capability to mobilize savings and expand business activities.
Among the scope of the thesis, the author uses the second concept and this idea is employed throughout the complete thesis
1.3.2 Set of criteria for evaluating the bank's credit operations
Within this thesis, the author proposes a dual-criteria framework that uses qualitative and quantitative indicators to evaluate the effectiveness of lending activities by financial institutions This hard, well-defined set of criteria translates lending performance into measurable outcomes, and it draws on a standardized symbol set from the Finance–Banking textbook of Assoc to ensure consistency and enable meaningful comparisons across institutions.
Dr Vu Thi Thanh Tam, 2009
Qualitative indicators are not numerical measures; they are based on legal grounds, compliance with laws, and state assessments tied to codified legal provisions A bank’s loan performance evaluated through a qualitative cluster of indicators rests on these factors, and the qualitative assessment includes criteria such as regulatory compliance, governance and risk-management practices, and alignment with statutory provisions rather than relying on quantitative metrics.
Legal compliance is a fundamental obligation that ensures transparency at every stage of implementation The Bank adheres to all state laws and requirements to guarantee that disposal activities are carried out in full accordance with the provisions of the Law.
Target 2: Implement well regulations on lending and lending contracts When a loan is made, the bank still because the client should suits what the 2 parties have committed and signed by the bank representative Besides, the two sides must comply with the disposal laws of the Governor of the bank stipulated within the document No “39/2016 / TT-NHNN dated Dec 30, 2016”
Target 3: Diversifying lending ways and industries
Banks that diversify their lending methods and industry exposure attract a broader, more stable stream of capital, reducing funding risk and widening opportunities A varied mix of loan sizes and lender types strengthens loan potency and expands the customer base, making earnings more resilient as funding remains steady By embracing a diversified lending strategy across industries and product types, banks can access multiple capital sources and achieve more predictable revenue through a stronger, more robust loan portfolio.
Quantitative indicators are expressed as precise numbers calculated and synthesized from the bank’s separate monetary statements and its internal financial statements, and the bank’s loan performance is evaluated through clusters of quantitative criteria that encapsulate the relevant metrics used for assessment.
- Criteria for evaluating loan outstanding rate:
This indicator helps analysts gauge bank credit growth and assess the bank's overall size, showing that lending volumes have risen over the years and reflecting expanding lending activity, while also indicating potential limitations and inefficiencies in the lending process that can leave customers facing ongoing difficulties in obtaining loans.
Bank profitability hinges on the balance between deposit-taking and lending, with profits largely derived from credit activities By analyzing profit ratios, we can determine whether current profitability is driven primarily by lending, and we can then evaluate the quality of the bank’s credit operations Generally, higher lending activity increases profits, but if the credit-to-deposit ratio becomes too high, it signals elevated credit risk for industrial banks.
- Criteria for assessing overdue debt ratios:
Overdue debt refers to payments made by a borrower that are late or incomplete relative to the loan contract, resulting in unpaid principal and interest Per Governor's Decision No 493/2005/QD-NHNN (April 2005), overdue debts are categorized from clusters 2 to 5, representing high credit risk By applying standardized quantitative standards to assess the relationship of overdue debt, banks can evaluate credit quality The smaller the share of overdue debt, the higher the lending standards, resulting in healthier bank operations and reduced risk; conversely, a larger share signals increased risk and looser lending.
- Criteria for assessing bad debt ratio:
Bad debts are classified by the banking system into loan groups three to five under Decision 493/2005/QD-NHNN dated April 22, 2005, issued by the Governor of the State Bank These debt categories are challenging to recover due to several factors, including weak business performance of borrowers and deteriorating financial conditions that limit their ability to repay Non-performing loans have a significant impact on banks’ operations, underscoring the need for effective measures to mitigate credit risk and reduce troubled debt to the maximum extent possible.
- Criteria for assessing the quantitative relation of loans with special assets:
As the share of guaranteed loans among lenders rises, banks adopt more cautious lending practices to prevent risks during the loan process Borrowers typically provide collateral—such as a home, a car, or other valuable assets—to qualify for a loan A higher proportion of guaranteed loans reduces the bank’s lending risk and enhances its ability to limit potential capital losses, while a lower share of guaranteed loans increases risk and constrains loss-mitigation flexibility.
- Criteria for assessing the expansion rate of loan interest financial gain:
Income from lending activities serves as a key indicator of a bank's performance A strong positive relationship between lending activity and profitability demonstrates that the bank operates efficiently, since interest income from loans is a primary source of earnings when credit activity is prudent.
- Criteria for evaluating the ratio of benefit from lending activities to the full profit of the bank:
This index measures the profit-to-lending relationship, showing that the vast majority of a bank’s total profits come from lending activities The findings indicate that most of the bank’s earnings are generated by lending, confirming lending as the bank’s primary revenue driver The observed ratio reinforces that profitability is closely tied to lending operations, and conversely, that lending accounts for the main share of the bank’s overall profitability.
Table 1: Criteria for evaluating the bank's credit operations
5 Assessing the ratio of loans with special assets
6 Assessing the growth rate of loan interest income
7 Evaluating the ratio of profit from lending activities to the total profit of the bank
1.3.3 Factors influence effectiveness of bank’s credit operations
1.3.3.1 Factors on the customer’s side
Overview of VPbank
2.1.1 The process of formation and development
Joint Stock Commercial Bank for Non-State Enterprises of Vietnam (VPBANK) was established under the Operation License No 0042/NH-
GP issued by the Governor of the State Bank of Vietnam on August 12,
1993 with a period of operating for 99 years
On 06/06/2010, VPBank changed its name to Joint Stock Commercial Bank of Vietnam Prosperity
July 19, 2017: VPBank was confirmed as a public company according to Official Letter No 5043/UBCK-GSĐC of the State Securities
August 7, 2017 : VPBank was granted a Securities Registration Certificate by the Vietnam Securities Depository Center No
155/2017/GCNCP-VSD, with a total number of registered shares of 1,405,908,635 shares
VPBank has a total of 131 branches and transaction offices nationwide:
In Hanoi: 1 Headquarters, 44 branches and transaction offices
In the northern region, the company operates 26 branches and offices across major provinces and cities, including Bac Ninh, Bac Giang, Vinh Phuc, Thai Nguyen, Phu Tho, Hai Duong, Hai Phong, Quang Ninh, Nam Dinh, Hoa Binh, and Thai Binh.
Central region (Thanh Hoa, Nghe An, Ha Tinh, Quang Binh, Quang Tri, Hue, Da Nang, Binh Dinh, Binh Thuan): 26 branches and transaction offices
Southern region (Ho Chi Minh City, Dong Nai, Long An, Can Tho, Dong Thap, Vinh Long, An Giang, Kien Giang): 35 branches and transaction offices
550 payment agents of VPBank Western Union Express Money Transfer Center
Raising capital (receiving deposits from customers) in VND, foreign currencies and gold
Use of capital (credit, partnership, joint venture) in VND and foreign currencies
Intermediary services (implementing domestic and foreign payments, performing treasury services, remittances and quick money transfers via banks
Issuance and payment of credit and debit cards
Chart 1: Organizational chart of VPbank from 2018 to 2020
Business results of the VPbank from 2018 to 2020
2.2.1 VPbank's capital mobilization results for the period of 2018-2020
In 2019, VPBank’s capital mobilization from customers and the issuance of securities reached VND 271,549 billion, up 23.7% from 2018 Deposit growth focused on the bank’s strategic segments, with capital mobilization from customer deposits accounting for 76% of the total (up from 74% in 2018), underscoring the bank’s quality mobilization This performance reflects VPBank’s ongoing diversification of products and delivery of high-quality solutions tailored to each customer segment To diversify funding sources and reduce reliance on domestic deposits, VPBank actively taps medium- and long-term funding from reputable institutions, including the International Finance Corporation (IFC) and DEG (Deutsche Investitions- und Entwicklungsgesellschaft).
In 2019, VPBank successfully issued $300 million in international bonds under its $1 billion Euro Medium Term Note (EMTN) program, marking the largest international bond issuance by a private Vietnamese enterprise in the global market and the first time such an issuance had been completed.
In 2020, capital mobilization from customer deposits and bond issuance reached VND 296,273 billion, up 9.1% year over year from 2019 Deposits from customers continued to be the key driver of the bank's mobilization quality, accounting for 75% of total deposits.
Chart 2: Mobilizing by type of Vpbank from 2018-2020
(Source: Consolidated Audited Financial Statements 2019,2020)
2.2.2 Bank lending performance at VPbank from 2018 to 2020
Table 2- Loan performance of VPbank from 2018 to 2020
(Source: Balance sheet and business results of VPbank from 2018 to 2020)
In general, the volume of short-term, medium-term and long-term loans tend to increase over the years The highest proportion is medium-term loans
Short-term loans accounted for 33% in 2018; the share rose by 1.6 percentage points in the following year and is expected to increase by a further 0.4 percentage points in 2020 The ratio of medium- and long-term loans shows a substantial divergence across years, indicating notable shifts in the loan-term structure.
The ratio of medium-term loans is always at 44% while long-term loans are always around 22%
In 2020, VPBank's bad debt ratio improved from the previous year, but the bank still sat at the top of the table with a bad debt ratio of 3.41% This indicates that despite the improvement, VPBank continued to have the highest level of bad debt among peers.
• Group 1 debt increased gradually over the years, about 16.6% from 202,527 billion (2018) to 236.147 billion (2029) By 2020, this figure will be 265,902 billion VND
• Group 2 debt increased by 26% from VND 4,217 billion to VND 5,311 billion in 2019
• Group 3 debt increased by 9.7% from 1,857 billion dong to 2,038 billion dong
Loans to customers rose 15.8% from the start of the year, but this growth lagged the average among several large commercial banks The bad debt ratio of total outstanding loans is expected to decline from 3.49% in 2018 to 3.41% in the coming period.
2020 (the State Bank stipulates that the bad debt ratio of banks must be below 3%)
In recent years, FECredit has been considered a "golden egg" for VPBank's profits FE Credit contributed 43.4% of VPBank's total profit in 2019
FE Credit's bad debt ratio stood at 6% at the end of 2019, unchanged from 2018 However, the June 2019 financial report showed a prior drop to 5.35%, after which the ratio rose sharply in the second half of the year.
VPBank's consumer credit lending model heightens its vulnerability to economic downturns, potentially amplifying loan losses and earnings volatility as the cycle turns negative Meanwhile, the consumer credit sector is entering a phase of intensified competition driven by attractive profits, which could pressure pricing, credit standards, and margins for VPBank.
2.2.3 Financial results of VPbank from 2018 to 2020
Table 3- Financial results of VPbank from 2018 to 2020
Interest revenue from deposits at State Bank
Profit from trading and investing in securities
Provision expense for credit risk 11,253,231 13,687,626 14,621,638
(Source: Income Statement of VPbank for the period 2018-2020)
VPBank posted a record total revenue of VND 36,356 billion in 2019, rising 20.3% on the strength of its core business and maintaining its leadership among private joint-stock commercial banks The bank's interest income remained the primary revenue driver, underpinning stable and sustainable growth for VPBank.
In 2019, VPBank posted an increase of nearly VND 6 trillion, or 24.2% year-over-year, driven by stable credit growth and higher lending rates Alongside robust interest income, non-interest income—led by fee income—has made a notable contribution to VPBank’s business activities in recent years Net fee income continued to be a meaningful component of the bank’s revenue, underscoring its diversified earnings model.
In 2019, revenue reached nearly VND 2,800 billion, up 73% from 2018, driven by active expansion in credit card, insurance, and payment services Income from insurance services accounted for the largest share of total fee income at 53%, while income from credit cards grew by 49% year over year.
This outcome reflects the effectiveness of the strategic approach to promoting the product and optimizing costs By the end of 2019, VPBank had issued more than 3.2 million credit cards, an increase of over 70% compared with the previous year The bank also maintained market leadership in active card spending, with total value reaching VND 59 trillion, up 63% from 2018.
At the end of 2019, VPBank reported pre-tax profit of VND 10,324 billion, beating 9% of the year’s target and rising 12.2% year-on-year, with core earnings up 23.8% The rise was driven by breakthroughs across consumer finance, individual customers, and small and medium-sized enterprises, which together contributed more than 66% of pre-tax profit FE Credit remained the market leader in consumer lending, thanks to a focus on digitization, technology adoption, and effective risk management, while leveraging the existing individual customer base and expanding the ecosystem with diversified financial products via a broad distribution network The individual customer segment surged about 125% from 2018, the strongest growth ever in this segment, reflecting years of investment in platform systems toward a modern retail bank Corporate client activity also made a strong breakthrough, with profits from the small and medium-sized business segment increasing.
95% and the large corporate customer segment also improved significantly compared to 2018
Experiencing a turbulent year in 2020, VPBank's total revenue in 2020 reached over VND 39 trillion, up 7.4% over the previous year, of which the parent bank alone reached nearly 21 trillion , growing 18.6% These impressive business results have helped VPBank stay firmly in the leading position of the Private Commercial Joint Stock Bank in terms of revenue for many consecutive years To achieve this result, the Bank has actively diversified non-interest revenue sources to minimize the effects of the epidemic and stabilize revenue
Net interest income is still the main source of operating income, accounting for 83% of total revenue Non-interest income reached over VND 6,600 billion, up 17.6% y/y, accounting for 17.1% of the total revenue component
Orientation of VPbank in the future
According to forecasts of world organizations, the global economy in 2020 will still face many difficulties when the prolonged trade war between the two economies of the US - China along with the instability in the adjustment of the economy The strategies and policies of the world powers continue to contain many potential risks, especially in the context of the acute respiratory infection Covid-19 spreading globally Growth in the East Asia Pacific region is forecast to slow to 5.7% as China's growth continues to decelerate In early 2020, Vietnam's economy is forecasted to grow at 6.7% to 6.9%, inflation is controlled at 3% All indexes have optimistic prospects, as domestic consumption demand continues to be the driving force of economic growth, which is expected to increase strongly due to rising incomes and the Government's policy to support consumption However, under the impact of the epidemic with negative developments and comprehensive global effects, scenarios with lower growth rates are being proposed in order to closely follow the economic situation with other factors Adverse factors are constantly changing The banking industry will also be directly affected by these factors Appropriate policies will be introduced by the Government and the State Bank to support the economy in the coming time It is forecasted that the credit growth ceiling will be regulated by the State Bank at 14% along with the introduction of a prudent monetary policy while ensuring economic growth The operating safety ratios of the banking system will tend to tighten according to the roadmap to ensure long-term growth 2020 is the third year VPBank has drastically implemented the 5-year strategy for the period of 2018-2022 Sticking with the set strategic goals, in 2020, the bank will continue to grasp the motto of quality-centered development , focus on selectively leading and pervasive initiatives to realize the set business and strategic goals
Specifically, in 2020, VPBank determines the following two basic goals:
1- Growth goes hand in hand with efficiency: Continuing efforts to maintain growth in all business segments, especially in strategic segments Growth in scale (lending, mobilizing, revenue ) must go hand in hand with improving efficiency (sales productivity, operational efficiency, risk management ) During the complicated development of the Covid-19 epidemic, it is necessary to maintain core business activities and ensure support for customers, while closely following the developments of society in general and the market in general separately to come up with appropriate response scenarios
2- Strengthening the foundation: Focusing on consolidating and upgrading key foundation systems in technology, operation and risk management in order to create momentum for future development Successfully building a Digital Banking platform and complete ecosystem to implement the Open banking strategy, thereby bringing existing values to the Bank while ensuring the search and selection of business opportunities new business
2.4 General provisions on credit operations at VPbank from 2018 to 2020
The lending principles for commercial banks are defined in Article 4 of Circular 39/2016/TT-NHNN, which regulates the lending activities of credit institutions and foreign bank branches to customers authorized by the State Bank of Vietnam Lending to customers is conducted under the agreement between the borrower and the lender, in line with this Circular and other applicable regulations, including the environmental protection law Borrowers must use loan funds for legitimate purposes and repay the loan principal and interest on time as agreed with the credit institution.
- Principle of borrowing for the right purpose: After being approved for a loan, the lender must use the capital in accordance with the loan purpose shown in the loan application
Loan repayment involves the borrower paying both the principal and the interest to the bank The principal is the original borrowed amount, while the interest is the cost of borrowing; these payments can be made in installments according to the repayment schedule outlined in the loan agreement between the borrower and the bank.
Principle of on-time payment: Lenders are required to pay both interest and principal on time as agreed in the loan terms If a payment is overdue and the lender does not remit the due amounts, penalties will be enforced according to the pre-signed terms of the agreement.
Conditions for obtaining loans from commercial banks are specified in Article
7 of Circular 39/2016/TT-NHNN Credit institutions consider and decide on loans when customers fully meet the following conditions:
1 Customer is a legal entity with civil legal capacity as prescribed by law
Customers are individuals aged 18 years or older who have full civil act capacity as prescribed by law, or individuals aged from 15 years to under 18 years who have not lost or had their civil act capacity limited by law.
2 Demand for loans to use for lawful purposes
3 Having a feasible plan to use capital
4 Have the financial ability to repay the debt
5 In case a customer borrows a loan from a credit institution at the lending interest rate specified in Clause 2, Article 13 of this Circular, the customer is assessed by the credit institution as having a transparent and healthy financial situation
Currently, the loaning amount of VPbank is obliging with the Regulation: No
225 / QD-HDTV-TD April 9, 2019 of the banking concern of Vietnam
- Short-term loan could be a loan with a term of 1 year
- Medium-term loan is a loan with a term of over 1 year and a most of five years
- Long-term loan is a loan with a term of more than 5 years
VPBank will provide mortgage loans with the lowest interest rate of 6.9%/year for car mortgage products, and the highest is 8.6%/year for study abroad loan
Table 4- Interest rate of VPbank
Study abroad loan 8,6%/year Flexible Maximum study abroad period +
12 months Car loan 7,49%/year 80% of the car's value
Personal home loan 6,9%/year 100% demand 25 years
Borrow to build – repair house
2.4.4 Lending process at VPbank from 2018 to 2020
Flowchart of credit granting process
Step 1: Approach customers/make a credit application
Customer relationship specialists receive credit requests directly from customers and guide customers to make and provide necessary credit application documents
For customers entering a credit relationship with Vpbank for the first time, our customer relations specialists and support staff guide and advise them on preparing and submitting the required information and credit documents in line with the specified records checklist.
Approaching customers to make credit applications
Credit Appraisal Credit approval decision
Credit monitoring and debt collection
Management and handling of problem debt and credit liquidation
For Vpbank customers with an existing credit relationship, our customer relationship specialists review the bank’s credit records and guide clients to complete and update their information They help add newly arising records and revise documents to reflect any changes, ensuring all updates comply with applicable regulations.
Per Decision No 533/QD-TGD.16, dated November 15, 2016, a specified list of documents must be provided and collected The bank issues guidance on the list of credit records and amendment documents, which is supplemented from time to time Credit application documents and forms are prescribed for specific products and follow VPBank's current instructions, updated periodically.
Customer relationship specialist is the focal point to receive credit applications from customers and is responsible for checking the completeness, validity and legality of the application
- After approaching the customer and collecting the necessary information, the customer relations specialist conducts the appraisal of the following main contents:
The authenticity of the profile provided by the customer;
Legal status, reputation, transaction history of customers, guarantors and related persons of customers;
Capacity and experience of main capital contributors and business executives (for corporate customers)
Capacity in the main business area/in the field of credit application, financial capacity of the customer;
Purpose of applying for credit;
Cash flow, capital structure of customers:
Credit decisions hinge on the business plan or investment project and the borrower's ability to implement it and repay debt For loans used to construct works or projects, an actual appraisal is required, and construction progress must be accurately reflected, including a dated photograph attached to the appraisal report, a requirement applicable to granting credit to customers' businesses.
Own capital sources, other loans to participate in the client's project/plan;
Collateral-based credit extensions start when the customer relations specialist submits the collateral property dossier and the valuation request to the Property Appraisal Department - Credit Management Division, in line with VPBank's asset appraisal regulations and guidelines If other products or internal documents specify different regulations, those provisions apply.
An exchange rate risk insurance plan provides protection for customers whose business activities are affected by foreign exchange rate volatility and helps manage the risk of devaluation of sold goods for specific trading commodities By hedging against FX movements, the plan stabilizes revenue and margins, supports budgeting, and protects pricing in international trade, while offering customized coverage tailored to the trading goods involved to enhance competitiveness in volatile markets.
+ Possible risk issues and management measures
- Details of credit appraisal contents shall comply with the guidance in documents on credit products, programs or appraisal guidelines of Vpbank from time to time
- The credit appraisal of the customer relationship specialist must be shown in the appraisal report/report according to the prescribed form and honestly reflect the customer's situation
Once the property appraisal report is received and the customer appraisal report is completed, the customer relations specialist forwards the appraisal report along with all credit application documents to the head of the department or the deputy head for review and processing.
Science and Technology/SME/KHDN controls the credit appraisal content
Credit operations at VPbank from 2018 to 2020
2.5.1 Analysis of the credit operations by customer type at VPbank from
2018 to 2020 Table 5: Credit operations by customer type at Vpbank from 2018-2020
Government company 2,149,158 0.97 1,922,461 0.75 1,684,444 0.58 One member limited liability company with 100% charter capital owned by the State
Limited liability companies with 2 or more members with more than 50% of charter capital contributed by the State or the State holding the controlling right
The State holds the controlling power over the company in the company's charter
Cooperatives and unions of cooperatives
Administrative and non- business units, Party, mass organizations and associations
(Source: Balance sheets and business results of VPbank for the period 2018-2020)
VPBank primarily lends to individuals and households, resulting in a noticeable gap between credit extended to businesses—namely enterprises and joint-stock companies—and lending to retail clients Since most enterprises and joint-stock companies are small and medium-sized and founded by individuals contributing capital, the demand for loans to fund production and business activities remains limited.
Specifically, it is shown through the numbers of 3 years 2018, 2019 and 2020 as follows:
Loans to joint stock companies reached VND 51,966.135 million, accounting for 23.41% of total outstanding loans
Loans to households and individuals reached VND 128,503,645 million, accounting for 57.89% of total outstanding loans
Loans to joint stock companies reached VND 61,696,189 million, an increase of VND 9,730,054 million compared to December 31, 2018, accounting for 24%
Loans to households and individuals reached VND 150,954,341 million, an increase of VND 22,450.696 million compared to December
31, 2018, accounting for 58.90% of total outstanding loans
Loans to joint stock companies reached VND 71,371,808 million, an increase of VND 9,675,619 million compared to December 31, 2019, accounting for 24.54% of total outstanding loans
Loans to households and individuals reached VND 162,599,837 million, an increase of VND 11,645,496 million compared to December
31, 2019, accounting for 55.91% of total outstanding loans
Lending to individuals and households carries a higher risk of bad and risky debts because the loan portfolio is primarily driven by consumer borrowers By contrast, enterprise lending at VPBank is currently very small, at less than 1% The lending targets are therefore different, and as a result the size and scope of lending remain constrained, a constraint that will need to be addressed in the coming years to drive growth.
2.5.2 Analysis of the credit operations by business lines at VPbank from
2018 to 2020 Table 6: Credit operations by business lines at VPbank from 2018 to 2020
Production and distribution of electricity, gas, hot water, steam and air conditioning
Water supply; waste management and treatment activities
Architecture 19,234,916 8.67 21,607,181 8.40 24,703,820 8.49 Wholesale and retail; repair cars, paint, motorcycles and vehicles with other engines
Warehousing transportation 7,945,263 3.58 7,286,253 2.83 5,899,292 2.03 Accommodation and catering services
Financial, banking and insurance activities
Real estate business 23,502,217 10.56 24,361,962 9.48 36,924,235 12.70 Professional, scientific and technological activities
Administrative activities and support services
Activities of the Communist Party, socio-political organizations, state management, security and defense; compulsory social security
Education and training 327,506 0.15 237,645 0.09 141,609 0.05 Health and social assistance activities
Art, play and entertainment 214,758 0.10 293,082 0.11 106,138 0.04 Other service activities 333,180 0.15 423,702 0.16 535,206 0.18 Employment activities in households, production of material products and services for self- consumption of the household
Personal loans to buy houses, 19,839,780 8.96 27,319,010 10.63 36,334,720 12.49 receive the right to use Land to build houses Activities of international organizations and agencies
(Source: Balance sheets and business results of Vpbank for the period 2018-2020)
Loan sales increased continuously over time When considering by business lines, Vpbank mainly lends for household business, namely:
By the end of December 2020, VPBank reported total outstanding loans of more than VND 290,816 billion This figure represents the amount customers owe the bank at a given point in time, including both principal and interest The data illustrate the scale of VPBank's lending activity as of year-end 2020.
Employment activities in households, production of physical products and services for self-consumption of households accounted for the largest proportion, with 113,042 billion VND, equivalent to 38.88%
This bank also disbursed more than VND 36,924 billion, equivalent to 12.70%
Within the loan balance by industry, the real estate sector accounts for the second-highest share, driven by personal loans to buy houses and to obtain land-use rights to build homes, totaling VND 36,334 billion and representing 12.49% of the total loan balance.
Between 2018 and 2019, VPBank's real estate loan portfolio accounted for about 9–10% of total lending, while personal housing loans—covering purchases of homes and loans to obtain land-use rights for construction—also stood in the 9–10% range.
2.5.3 Analyze the situation of lending by guarantee type VPbank from
Table 7: Loan situation by guarantee form at Vpbank from 2018 to 2020
(Source: Balance sheets and business results of VPbank for the period 2018-2020)
VPBank branches mainly offer guarantee-based loans that are unsecured in most cases To ensure transparency and certainty in the lending process, collateral such as red books (land-use certificates), large houses, or cars is an integral part of the bank’s lending standards for these loans.
VPBank’s lending today is concentrated on households, with loan packages ranging from 200 million to 300 million VND that generally do not require collateral under state regulations The rise in loan sales over the past three years indicates increasingly active lending, though the absence of collateral introduces notable risk In 2018, loan sales totaled 189,795,127 million VND, rising to 213,863,725 million VND in 2019, an increase of 24,068,598 million VND from 2018.
2020, an increase of VND 31,841,944 million
Along with that, debt collection over the years also increased steadily
Specifically, debt collection revenue in 2018 was VND 179,494,882 million, VND 208,601,879 million in 2019, an increase of VND 249,106,997 million compared to 2019 and VND 232,702,669 million in 2020
From 2018 to 2020, the average outstanding balance of unsecured loans consistently exceeded that of secured loans, indicating greater risk in unsecured credit This disparity suggests that VPBank's loan quality may be deteriorating and that credit risk is elevated, underscoring the need for effective risk management and targeted mitigation strategies to strengthen lending quality and curb potential losses.
Evaluate the current status of credit operations
The Bank's loan sales have consistently remained at a stable level, while the outstanding loan portfolio has grown steadily over the years Short-, medium-, and long-term credits quickly meet the capital needs of both businesses and individuals.
- The collection of overdue debts and bad debts is focused properly; overdue debt classification, debt checking and comparison are conducted regularly
Overdue debt ratio has always been focused on checking and adjusting at a safe level by the Bank
The bank has undertaken targeted business outreach, guiding enterprises to prepare loan documents properly and in accordance with regulations to facilitate faster, smoother loan applications This approach creates favorable conditions for efficient loan processing and helps firms complete applications quickly Over time, the bank has deepened its engagement with businesses by acting as a consultant, offering expert advice and ongoing support throughout the financing journey.
Throughout the bank’s lending process, customer checks are conducted before, during, and after lending, ensuring continuous risk assessment The bank also evaluates market conditions, available consumer products, and customers’ income within the permitted ranges to inform and strengthen lending decisions.
- The Bank has selected staff with full professional expertise, responsibility and enthusiasm, and the credit bureau has created favorable conditions to help businesses do business effectively
Credit activities are primarily limited to lending to customers and discounting commercial paper, with little development of other credit types; guarantees are scarce and financial leasing has not been implemented.
Credit programs focus on short- and medium-term loans to bolster working capital for small and medium-sized enterprises (SMEs) Borrowers are mainly individuals and SMEs, so loan sizes are typically small and often itemized to match specific needs and purposes.
- The rate of overdue debt tends to increase, which is a sign of increasing risks in credit activities
- The ability to forecast market fluctuations is still limited, credit activities are still heavily influenced by external market factors, so they are still passive
The economic recession has made wholesale banking more challenging, prompting many commercial banks to pivot toward retail banking and intensifying competition for VPBank’s market share Leaders in retail banking such as ACB, Sacombank, and Techcombank have clear development strategies and roadmaps, shaping the competitive landscape With more rivals entering the scene—especially foreign banks that excel in retail banking and personal lending—VPBank faces greater difficulty in competing and growing.
Personal credit development remains unsynchronized between the Head Office and the branches and transaction offices, with Head Office product development sticking to traditional methods, failing to meet market demand and lacking sales support tools for branches At VPBank, there is a reticence toward retail banking due to cumbersome, time-consuming, and labor-intensive procedures Branches are not proactive in seeking collaborations with local partners—such as real estate investors, real estate trading floors, and car showrooms—to promote personal credit products, while transaction offices stay passive in receiving and implementing directives from Head Office and branches, lacking the agility to adjust credit policies to evolving market trends and local conditions.
Commercial banks in Vietnam show a high degree of similarity in their personal credit development strategies, with aligned product lines, policy frameworks, and governance models This reflects the broader development trajectory of the Vietnamese banking sector However, this convergence also makes it challenging for banks to craft a distinctive personal credit strategy for public deployment, as institutions must balance standardized practices with the need to differentiate, comply with regulatory expectations, and clearly communicate value to customers.
VPBank’s longstanding image as a wholesale bank can serve as a springboard for its retail expansion, but the retail business must differentiate itself with a compelling value proposition to win market share In Vietnam, traditional loan products remain largely standalone solutions that meet individual needs, while the financial market still lags behind developed economies Building on its heritage and growth strategy, VPBank faces the challenge of researching and launching personal credit products that are integrated into a holistic personal financial services package, tailored to Vietnamese habits and practices.
This is a new direction to help VPbank to meet the market demand in Vietnam
Although employee training for management and customer relations has been implemented, it remains unsystematic and lacks a coherent methodology, failing to meet evolving development needs VPBank branch leadership often fails to recognize the importance and necessity of deploying personal credit initiatives, hindering the growth of core financial services.
Branch leaders only have accounting expertise, but have no expertise and lack of experience in credit work, so they are not brave enough to review credit records
VPBank's personal credit department remains understaffed, with no clear short- and long-term staffing plan to support personal credit development This results in sporadic recruitment and training, driving up costs and failing to meet the timely needs of sales development and expansion.
VPBank's personal credit is restricted from lending products that require future collateral and loan products at transaction offices exclude project home loans and car loans, leaving customers underserved and limiting credit officers' ability to market and source clients To address project home loans and car loans, the transaction office forwards loan documents to the branch, which wastes time and effort for customers and signals a lack of sales professionalism However, the bank has set a strategy to develop retail in parallel with wholesale to stay competitive during the integration period, and to improve competitiveness, VPBank needs to consider accepting a higher level of risk (a higher individual bad debt ratio) to achieve a larger share of personal credit profits.