Determinats Of Ability Getting Bank''''''''s Loan Case Of Enterprises Located In Ip & Epz In Hochiminh City.pdf

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE NETHERLANDS VIE1NAM NETHERLANDS PROJECT FOR M A ON DEVELOPMENT ECONOMICS DETERMINANTS OF ABILITY GETTING BANK''''S L[.]

VIE1NAM-NETHERLANDS PROJECT FOR M.A ON DEVELOPMENT ECONOMICS

DETERMINANTS OF ABILITY GETTING BANK'S LOAN

IN HOCHIMINH CITY

A thesis submitted in partial fulfillment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

BY LAM CANH DUONG

BQ GIAO Dl)C VA fJAO T/·C> • TRLIClNG E>H KINH TE TP HCM I

I would like to thank, particularly, Doctor Nguyen Trong Hoai, who has given me much valuable advices and necessary skills to orient and consolidate my point of view so far during my statement this thesis

I would like to thank to all Lecturers and Staff of Vietnam-Netherlands' Project for Master on Development Economics, thank to this helpful program, I have improved my knowledge as well as understanding a basic development economics and a method of science studying which meet international standard

In addition, it seems appropriate to acknowledge all of my colleagues whose have been so helpful during my studying course by their assistances, encouragements and cooperation as well as sharing their hands during my preparation ofthis composition

Finally, I would like to thank all of my family members who have helped and encouraged me much more since the beginning until achievement this thesis

ABSTRACT

Credit capital is one of main resources of financing for Enterprises in developing countries; Vietnam is going on the way of modernization and industrialization the economy; the developing of Industrial Parks and Export-processing Zones role important for the growth of the economy Enterprises doing business in Industrial Parks and Export-processing Zones have demand for banks' Loan, but there are many factors that effect Enterprises' ability to borrow from banks Base on practically of Vietnam and data survey, this thesis investigates determinants of ability getting banks' Loan case of Enterprise operating in Industrial Parks and Export-processing Zones in Hochiminh City It is figured out that besides collateral

as a decisive factor, two main factors distributing important role in the process of applying and getting Loan are character and capacity of Enterprises Thus, for enterprise wishing to borrow from bank, they should improve their character and capacity In other hand, Banks that want to speed up sustainable developing in this market, they should have attention on their credit policy that concentrate to explore these conditions mentioned

TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION 1

1.1 Background 1

1.2 Research question 2

1.3 Scope of study 3

1.4 Methodology 3

1.5 The structure of thesis 4

CHAPTER II: THE SITUATION OF CREDIT ACTIVITY IN INDUSTRIAL PARKS AND EXPORT PROCESSING ZONES IN HOCHIMINH CITY 5

2.1 The process offorming and the role ofiPs & EPZs in Vietnam 5

2.1.1 Type ofiPs in the world and in the region 5

2.1.2 Indispensable of development scheme IPs & EPZs in Vietnam 7

2.2 Development situation of IPs & EPZs in HCM city 8

2.2.1 Historical of developing of IPs & EPZs in HCM city 8

2.2.2 The situation of activity of enterprise in IPs & EPZs 9

2.3 The role of credit to development ofiPs & EPZs 10

2.4 The situation of lending activity of bank for enterprise in IPs 11

2.5 Summary of the chapter 15

CHAPTER III: LITERATURE REVIEW 17

3.1 Theory background 17

3.1.1 Concept of Credit 17

3.1.2 Nature and functions of banking credit 17

3.1.3 Corporate Demand on Capital 19

3.1.4 Cost of using Debt 20

3.1.5 Asymmetric Information (AI) 21

3.1.5.1 Lending with Adverse Selection 22

3.1.6 Credit Rationing 23

3.1.7 Credit Rating 24

3.1.8 Credit analysis and Loan decision 25

3.2 Empirical study 32

3.3 The Model 34

CHAPTER IV: METHODOLOGY 38

4.1 The econometric design 38

4.2 The Conceptual design 40

4.3 Data collection method 42

4.4 Sampling method 42

CHAPTER V: DATA PROCESSING AND EMPIRICAL RESULT 45

5.1 Factoring 45

5.1.1 Determine the number offactors 45

5.1.2 Factor Rotation 47

5.1.3 Putting name and interpreting factors 49

5.2 Regression 51

5.2.1 Evaluating level of appropriate of regression model 52

5.2.2 Testing reliability of multiple linear regression model 52

5.2.3 Hypothesis testing 53

5.3 Statistical results 54

5.3.1 Descriptive statistics 54

5.3.2 The reasons explaining enterprise's difficulty in obtaining Loans 56

5.4 Summary this chapter 57

CHAPTER VI: CONCLUSION AND POLICY IMPLICATION 59

6.1 Conclution 59

6.2 Policy implication 60

LIST OF TABLE

Table 2.1 The situation of lending and accumulated loan 11

Table 2.2 Loan accumulated and weigh ofloan in IPs, EPZs 12

Table 2.3 Market share and type ofbanks 13

Table 3.1 :Credit rating 24

Table 3.2 A Framework for finance statement analysis 27

Table 3.3 Types ofRatios 27

Table 3.4 Following explain the meaning ofvariales 36

Table 4.1 Distribution of population 43

Table 5.1 Total Variance Explained 46

Table 5.2 Component Matrix 47

Table 5.3 The map of hypothesis testing 51

Table 5.4 Model Summary 52

Table 5.5 ANOVA(c) , 53

Table 5.6 Coefficients( a) 53

Table 5.7 Coefficients(a) ofTwo models 54

Table 5.8 (a)Type of Enterprise in descriptive statistic 55

Table 5.8 (b) Scale ofbusiness 55

Table 5.8(c) Age ofbusiness 55

Table 5.8 (d) Main business line 56

Table 5.8 (e) Finacial gap (At present, gotten loan or not) 56

Table 5.9 Reasons explaining enterprise's difficulty in obtaining Loans 57

AI Asymmetric information

AS Adverse selection

BOD Board of Director

CEO Chief Executive Officer

CFO Chief Financial Officer

CIC Credit Information Center

EPZs Export - Processing Zones

HCMC Ho Chi Minh City

ABBREVIATION

HEPZA the HCMC Export Processing & Industrial Zone management unit

IPs Industrial Parks

CHAPTER 1: INTRODUCTION 1.1 Background

In the recent years, the accumulate of Credit's accelerate in the Industrial Parks and Export-Processing Zones in HCMC growth quickly; By the end of December 2005, The Total amount was reached 15,203 billion VN dong, Increase 6.7 times compare with year 2001 Growth rate of Credit simultaneously increasing of number of banks take in part on Credit activities field are 52 units included: 21 commercial banks, 12 joint-stock banks, 3 joint - venture banks, 14 branch of foreign banks, 1 leasing

company, 1 joint stock leasing company.(The State Bank of Vietnam, 2005)

The increasing of amount of Credit as well as the distribution of banks show that the potential and intendancy of investments gain effectiveness on growth of Enterprises

in industry Park and Processing Zone in HCMC, But , In order to approach the banking finance is still problem for the case of Enterprises located in Industry Parks and Export Processing Zones which caused by the conditions to apply for Loan: The Small and Medium-sized enterprises that have just moved and established the business in the Industry Parks usually got the obstacles on ability of finance, moreover, with the typical management followed the family tradition made the business successful is not high Therefore, it is really hard for Bank to valuate finance capacity of companies that want to make long term investment:

As the aspect of competition, being the lack of information in Credit market, The Domestic Banks have less advantage than the Foreign Bank in approach and supply capital for Enterprises which attribute the foreign equity capital; Moreover, With tax policy, and favorable tax (reducing tax for the new established business) affected to psychology of intendancy in declare lost carried out in finance statement of Enterprises, Those were distorted the project appraisal concerned with the bank loan; For Enterprises, the property rights of using land or certificate of construction site implemented slowly which impact on collateral, mortgage asset formed from the Loan

To solve the issues mentioned above, this study try to make clearly what factors effect to ability of enterprise getting loan from bank in the case of enterprises located

in Industrial Parks and Export-processing Zones in HCMC

Implementing the policy of Vietnam Gov, and the instructions of HCMC's People Committee in developing IPs & EPZs to mobilization Internal and External resource allocation, contributing for economic growth and social develop of HCM City partially , and general speaking for the Country; At begin of 200 1, 11 IPs & EPZs have been established including : 3 EPZs ( Tan Thuan, Linh Trung1, Ling Trung 2) and 8 IPs ( Binh Chieu, Le Minh Xuan, Tan Binh , Tan Tao, Tan Thoi Hiep, North-West Cu Chi, Vinh Loc, Hiep Phuoc) Total Enterprises that given business licenses are 492 , combine 257 Enterprises which have 1,121, millions US Foreign Capital invest and 253 domestic enterprises which have 3,528 billion VND capital invested;

Almost of the infrastructure Company have large demand for capital loan, approximately equal 860 billion VND, to complete infrastructure's category of constructions , and facilitates public, and to expand the scale of IP & EPZs to service Enterprise, Simultaneously, the HCMC's policy about moving the firms located in residents areas (Those firms caused pollution in the City itself) enter IP & EPZs , making urgent required capital for Enterprise in equipment the new system machines replacing the old system, upgrading management organization and scale of their business

The demands of Loan from Bank are very large , however, many of project meet difficulties in approach to Loan which caused by obligating regulations from Bank; with the history in business , the enterprise themselves can not using their trade mark or prestige for borrowing via Credit mechanisms, It is hardly to apply for procedures sufficiently to borrow or remittance as regulations; some of company are still hesitate to contact with commercial banks ; otherwise, It is hardly to approach other services of bank , because the services of bank in Vietnam have not developed efficiency and popularly;

With theory related the asymmetric information, Bank itself prudentially consider about risks management, to reducing risk, bank offer many conditions on contractual loan Intuition, there are many variables affect to ability of Enterprises borrowing capital from bank, such as collateral, internal funds, firm size, contractual clauses, and credit relationship between firms and banks etc , so, this paper is intend to

examine what determinants affected the probability of getting Loan by empirical method

-Industrial Park and Export Processing Zone; Probability to get Loan, determinant factors

1.2 Research question

Supplying loan for companies wishing borrow is a traditional credit task of Bank, however, in order to contact with company, determinant those applications that have sufficiency conditions to access loan, bank itself have make efforts; Since 2001, bank have improved in marketing , evaluation, innovated the process of credit operation quickly and efficiency For Enterprises, as the demand side, they got so many difficulties to borrow money from Bank In case of enterprises located in Industrial Parks and Export processing zones in HCMC, the emerge questions as following:

(l)What are the advantages and disadvantages for enterprise working in IPs and EPZs?

(2)What are the factors to affect to ability of enterprise in approach the finance from banks?

(3)How the asymmetric information make difficulties for credit activity of bank to company located in IPs and EPZs?

Enterprises need finance capital in operation and finance its growth, they can seek for different resources of finance, but in the scope of this study, I would like to concentrate in exploring Bank lending, because Bank lending is an importance source of funding for firm by theoretically;

1.3 Scope of study

Banking credit play an important role to the economy in generally and the development of Industry Park and Export Processing Zone partially; However, enterprises that are basic component of the economy in Vietnam mainly are Small and Medium enterprises, they are commonly constrained by finance and mainly

relied on bank source, especially for the case of enterprises in Industry Parks and Export Processing Zones in the way of industrialize and modernize the country

Study is only examine the limitation on credit problem in IPs & EPZs area in HCMC, and analyze the situation of banking lending activity to suggest the solutions for expanding the capacity of attraction capitals investment for the development of enterprises in IPs & EPZs area in HCMC

1.4 Methodology

The main purpose of this study is to identify what are determinants of ability of Enterprises in IP & EPZs getting Loan from bank; the data collected by survey which are used to run factor analysis and multi regressions analysis the determinants affect and econometric model is applied for testing main hypothesis;

The study plan to employ of qualitative and quantitative analysis, this study will try

to give more of a quantitative-based explanation, rather than a qualitative explanation

Qualitative analysis that will describe Enterprises characteristics of business, finance gap and analyze how factors such as collateral, relationship affect ability to borrow from bank Quantitative analysis will use finance data and SPSS software, thought factor analysis function to analyze how finance variables affect the capacity getting bank loan

1.5 The structure of thesis:

The thesis includes six chapters They are as follow:

Chapter 1 is the introduction of the problem statement, research questions, objectives, and the scope of study;

Chapter 2 mentions the process of developing Industrial Parks and processing Zones in HCMC, Credit activity in these areas, and demand for banks' Loan need to push up and develop the main point sectors ofthe economy;

Export-Chapter 3 provides conceptual, analytical frame work, and relevant theory back ground, it is comprise of theory and empirical study in Vietnam and other countries The model research is suggested;

\

Chapter 4 present the methodology, it is going to present the reasons of picking up the approach method suitable for Credit market in situation of Vietnam which face to asymmetric information phenomenon The econometric models is designed, data sampling method apply for descriptive and econometric analysis;

Chapter 5 presents the data processing and the result of factor and regression analysis;

Chapter 6 summaries the research result and suggests policy implication

CHAPTER II: THE SITUATION OF CREDIT ACTIVITY IN INDUSTRIAL PARKS AND EXPORT PROCESSING ZONES IN HOCHIMINH CITY

2.1 The process of forming and the role of IPs & EPZs in Vietnam

2.1.1 Type of IPs in the world and in the region

In the recent decades, many countries in the world, it is specially in the developing countries in East -Asia, and North-East Asia have policy of opening the economy, priority in attractive the investors both domestic and foreigner for producing the export goods, strengthen the potential for the economy One of many methods that carried out in nations is reserved trading and producing zones operation following specific statutes In those areas which have different scale and names, for instant: Industrial Parks, Export processing zones, the free economic zone or Special economic zone (One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s The most successful Special Economic Zone in China, Shenzhenin) The IPs is type of free economic that has the characteristics of Industry, including the type as following:

Export Processing zone: It is known that the areas concentrate producing, It is included the especial enterprises producing the export goods, and execute the services related to producing and export EPZ is closed areas, it have finite boundary and stand isolated EPZs have got the favors regulations in many aspects, for instant: import material, equipment, machinery, and export goods, especially in favor of corporate tax, income tax Besides, it is supplied infrastructure and advantages conditions in order to create highly profit

Industrial Park: It is the concentrate produce area, comprise of the company that producing the industrial goods and doing services which serving for industrial products, it also got the finite boundary and have no inhabitants The export enterprise can do their business in IPs Companies in IPs produce goods for both consuming of domestic market and for demand of export, Enterprise operation business in IPs have favor regulations of EPZs and have favor statute serving for the domestic company; The IP is more efficiency than EPZ in the aspects of (1) the enhance capacity provided the domestic material, (2) enhance ability expanding the

domestic consumer goods market, (3) capacity of using worker, and wages expenditure is lower than in EPZ

The high technology area: Is known that the area produce goods and services which have technology quality associated with practice producing and science study Compare to IP or EPZ, the high tech zone with the basic function of growing products, trading the science and technology products, the mental high-tech and sophisticated products The high tech zone can be set up completely new or built on the basic on IP, EPZ

The especial economic zone (open economic zone): It is the form of free trading economic with general characters By the goal similarity IP, especial zone have received the statute more freely and mobile, it is allowed for trading general economic: services, agricultural, industrial, travel, finance, banking, study and apply science, and can consume some domestic products following the principles oriented simultaneously internal, external

2.1.2 Indispensable of development scheme IPs & EPZs in Vietnam

Industrialization and Modernization for development, transformation from small scale production to large scale production is issued which have common rule in the developing countries In order to have achievement, it is depend on condition and situation of in each country which have its own method and solution to carry out the process industrialization and modernization

Establishing the IPs and EPZs is one of important solutions to push up rapidly the process of industrialization and modernization because of:

IPs are places that attract the company producing industrial products, apply the science achievements and modern industrial to operation and product activity, Providing for economy export products and substituting the import products by modern technology, means, method , to create large yield, labors capacity It is occupied an important position to develop and improve infrastructure system, technology equipment system, resources system It is known that is the foundation for the cause of industrialization and modernization

It make the new structure that is attractive for investors, especially for foreign investors, concurrently, constructing IPs ensure for organization, management easily, it save more time and capital in constructing the infrastructure Because

company is built at planning and IPs is equipped sufficiency infrastructure, the investors will save more external expenditure

Establishing and developing IPs is base role in the process of planning the new urban, distributing in carry out the planning and development social- economic, It

make more conditions for domestic labor forces to take in part reasonable allocation labor forces , applying the technology of production and modern management of international Therefore, IPs is the place that creates skill and specialize labor forces providing for the cause oflndustrialization and modernization the country

2.2 Development situation of IPs & EPZs in HCM city

2.2.1 Historical of developing ofiPs & EPZs in HCM city

After Law ofForeign Investment was issued and applied in 1987, the foreign capital investment increase rapidly, but almost are concentrated in some of sphere of services such as: hotel, building house for leases at Hanoi and HCMC, the foreign investment in industrial, first and foremost in industrial of producing export goods have two basic obstacles: the under developing infrastructure and the procedures applying for license of invest or deploy project, it take more time Base on international experiences, the Vietnam Government have a policy to establish export processing zone ( EPZ) for the new model economic with the aim of carrying out the innovation policy, open the market to industrialize and modernize the economy according to resolution of the assembly the sixth of Vietnam communist Party in

1986 taking the initiative

The first of Industry zone in HCMC and Vietnam is the Tan Thuan EPZ, with the begin scale 300 hectare according to license no245/GP of the State committee on cooperation and investment issued on 24th of September, 1991 In order making the favorable environment for attracting the foreign capital investment and operating the new clear mechanism to satisfy practice demand of invertors, the regulations of EPZ was issued including the Degree no 322/HDBT on 18th October, 1991, and the Tan Thuan EPZ, the first EPZ was settled up by the decision no 394/CT on 25th November, 1991 of Chairman of council of Ministry Base on this decision, the management unit of Tan Thuan EPZ was born; it was the first unit that called the transaction name ofHEPZA (the HCMC Export Processing & Industrial Zone)

In 1995, the State committee on cooperation and investment permitted to establish one more EPZ named Linh Trung EPZ, there are two EPZs in Ho Chi Minh City, the Two first EPZs are the joint-venture Companies that join venture with foreign doing their business on building infrastructure of EPZ In 1996-1997, the series of Industrial zones have been established in the districts ofHCMC: Tan Binh, Tan Tao, Vinh Loc, Binh Chieu, Tan Thoi Hiep, Le Minh Xuan, Hiep Phuoc, Linh Trung2, Cat Lai 4, Phong Phu, Cat Lai 2, and Tan Phu Trung

Since October in 1996, the management unit officially became the HCMC Export Processing & Industrial Zone, on 24th July 1997, Government promulgated decree 36/CP on regulation of IPs and EPZs substituting accompany a decree 192/CP on 28th December in 1994 and principle ofEPZs issued accompany a decree 322/HDBT

on 18th October 1991

By the end of December 2005, there are 3 EPZs and 12 IPs in the HCMC area, with the total areas licensed are 2,939.3 hectare and total areas pleased are 1,695.24 hectare

2.2.2 The situation of activity of enterprise in IPs & EPZs

The IPs and EPZs after ten years operation have deployed clearing away space, building infrastructures, changing over 1,000 hectare of total more than 2,000 hectare planned IPs and EPZs from agriculture lands which were less fertility became industry lands which have enough power supply, water, road, and basic services, project of environment protecting In 2005, there are more 106 companies

in operation, increase the total number of enterprises in operation are 802, including

449 domestic enterprises and 353 enterprises which have foreign capital investment

by the capital register 1.026 billions US dollars over the area of 666.86

hectare.(HEPZA, 2005)

At present, on investment of development the IPs and EPZs infrastructure , there are

13 companies take in part with the total invest capital that carrying out are around 285.2 million US dollars in among of 529.3 million oftotal registration

Total turnover of enterprises in IPs and EPZs reached to 2.27 billion US dollars in year 2005; in which enterprises with FDI capital reached 1.62 billion US dollars, increasing 31.57% compare with year 2004, domestic company contributed

According to HEPZA (2006),Enterprises in IPs and EPZs executed good lines and policcy, taxes regime and obligation of paying taxes Rate of companies submit declare paper and taxes report timely reached 95 to 98% The taxes revenue gradually increase annually.In year 2005, taxes revenue reached about 530 billion dong, increasing 78.74% compare with year 2004

2.3 The role of credit to development of IPs & EPZs

The models of IPs and EPZs are modern organization and management in doing business with the goal of enhance the effectives of economics on the aspect of saving infrastructure cost such as power supply, water, transportation, storage and enhance the government management efficiency, protecting environment, Therefore,

in the process of development IPs, EPZs, banking credit play an important role, it is explicit through:

The leverage role of credit: via credit bank can finance capital to producers in IPs, EPZs with task of stimulate investment in many form such as: make loan, or make finance contribution, buying stock or bill

The credit capitals are resources which supplement for investment in building infrastructure and are currency capital of enterprises in IPs, EPZs In the case of joint-venture Company that has foreign capital, banking credit is a guarantee, supporting the domestic investors rising up ratio distribution capital to have the right

of management and operation the activities

The banking credit also do some of guarantee services for company in IPs, EPZs borrow capital from aboard by contract guarantee, submitting a tender, paying taxes,

issuing letter of credit, payment ensure to meet the demand of buying material, consuming products at required of foreign market providing

Through banking credit, companies can approach the resources of finance from international organization to made more advantages for companies innovate the produce technology mean while the limitation of domestic resources, Thus, it should

to be attractive the foreign capital for investment and development, moreover, the role of banking credit is impact to the operation of enterprises in IPs and EPZs, pushing up the capital's accumulation to invest, attracting the foreign capital

2.4 The situation of lending activity of bank for enterprise in IPs

The activity of credit investment and developing services in IPs, EPZs are always problems which commercial banks interesting to meet more and better demands of both domestic and foreign companies In last five years, activity of lending of commercial bank in IPs, EPZs in HCMC have significant steps, total accumulate loan increase quickly By 31 December 2005, With 52 banks that join in this market, the total accumulate loan were 16,598 billion VN dong, increasing 17.77% compare

to year 2004, and by 8.4 times compare with year 2001

Table 2.1: The situation of lending and accumulated loan in IPs, EPZs, 2001 2005(by billion VN dong)

(Source: The State Bank of Vietnam, Branch in HCMC)

The activity of Credit in IPs, EPZs have the highly rate of growth both in the turnover and accumulated Loan The ways to make Loan are diversify, besides Loan

is made for investment and infrastructure companies, lending currency capital for operation in producing, banks also carry out financial leasing for enterprises in IPs,

EPZs which have the required setting new line machine or renting equipped

instruments At present, the total accumulate loan of financial leasing are 71 billions

VN dong, occupied 0.45% over the total of loan, weigh of accumulated loan of

companies in IPs, EPZs over total accumulated loan in HCMC are continually

increased, in 2001 the number are 3.5%, and increase to 9.75% in year 2005, the

peak of it is in year 2004 by the weigh at 10.32% It is justified that demand for loan

of enterprises in IPs, EPZs more and more increasing to serve developing and

expanding scale of business of enterprises, and that is also distributed to rate of

economics growth in HCMC

Table 2.2: Loan accumulated and weigh of loan in IPs, EPZs over total mount of

Total loan in IPs, Weigh of loan in IPs, Year Total loan in HCMC EPZs over total loan in

(Source : The State Bank of Vietnam, Branch in HCMC)

Along with development of enterprises in IPs, EPZs by more than 802 projects, with

total amount of register capital beyond 2,247.18 million US dollars, these are

advantage economic environment for banks to expand their business in credit

investment and services However, if we consider on market share of credit, the

joint-venture and branch of foreign banks are still get higher weigh in total loan

compare with domestic banks In amount of 52 banks taking part in IPs, EPZs

market, there are 17 joint-venture and branch of foreign banks which reach 32.69%

over total number of banks jointed in IPs, EPZs, but the their market share or their

total loan reached 55.23% over loan in IPs, EPZs market

Table 2.3: market share and type of banks operate in IPs, EPZs in HCMC (by billion VN dong)

Total amount of Rate of market Number of

Odd Type of bank

(Source: The State Bank of Vietnam, Branch in HCMC)

With the purpose using bank loan efficiency for develop infrastructure in IPs, EPZs, pay land rent, invest to innovate machine equipment and producing line, satisfy demand of services and expand companies business, however, the process of expanding and growing credit in this market are still meet limitations for domestic banks because there still are difficulty to approach and widen credit relation The branch of foreign banks have more conditions to get information on financial situation of the mother companies, thus they have more advantages in contact with companies which have f<Yreign invest capital, and easily offer loan and services Since activity area in IPs and EPZs are concentrate product sectors, far from downtown, and have less inhabitants, with the terms of interest of mobilization of banks in IPs, EPZs are not attractive compare with commercial banks in central city,

so, the mobilization come from idle money have low weight, not provide sufficiency demands of using capital of enterprises, it is not only effected to enterprises' operations themselves but also effected to commercial bank in IPs and EPZs

The problems of lending without guarantee asset, one of an important issue that considered by commercial banks firstly are capacity, financial ability of enterprises, projects, the feasibility and efficiency of project However, financial statement system of enterprises used to be not adequate and accurate or be not up dated, not available to analysis, valuate exactly the financial capacity of enterprises, thus, the commercial banks have not bravely to make loan in case of without guarantee asset There are still remain criminalized in the relation between banks ·and enterprises, many of banks do not dare to lend cause to be afraid of contrary to the law Authorizing commercial banks making loan by method that law does not prohibit, appropriate with conditions of operation of banks and characteristics of their customer, but, in practice situation, it is so difficulty for enterprises to approach the banking finances even if successful in operation of enterprises that have got high turnover and pay high tax revenue The commercial banks have not bravely to make loan in case of without guarantee asset especially after some larger economic case happened recently Executive bodies consider banks as cause of damage but in fact banks are victims in recently lay heavy psychology to credit officer of banks

For enterprises in IPs and EPZs, their asset mainly are constructions site, machine, instrument, and right of using land (leasing land with finite term), practically, when the enterprises can be able to repay debt then settling collateral asset got so difficulty and so complicated matter, since manufactory, equipped instrument or machine are hardly to sale and there is not regulations on transferring manufactory in IPs and EPZs Meanwhile, there is no specific regulation for loan by pledging the using land right and solution on asset guaranteed for loan which are land or assets attached on land concerning with foreign's factor For this reason, the commercial banks often meet difficulty in appraisal, consider on loan making which affect to process of expand and raise the credit growth in IPs and EPZs

Effectiveness and conveniences of banking service products are so favorable conditions that attract customers in contact with banks, it is a foundation to enlarge and grow credit The relation have been exploited and developed well by foreign or joint-venture banks meanwhile service operations of domestic banks are still constrain, that is demonstrated clearly by figure: There are only 17 foreign and joint venture banks of total of 52 credit organizations take in part in loan market in IPs

and EPZs but total amount of credit accumulated take possession of 55.23% over total amount of credit accumulated in this area

Collection, exploitation, analysis customers' information activities, especially in foreigner enterprises, of domestic banks are still constrained because of satellite networks of domestic banks in overseas are very little, which slow down the loan decision and lose opportunity of business of enterprises

2.5 Summary of the chapter:

In summary, by recent years, Banking credit finance enterprises in IPs and EPZs has numerous change actively, Credit relationship between enterprises and banks are more and more improved about scale of credit, density of long term loan increase that make more conditions for enterprises in IPs and EPZs invest in depth, buying machine, innovating technology, developing production operate more and more efficiency

Operations of IPs and EPZs have significant meaning to development of economy of the country in general speaking and economy of the city in particular By means of this, it is authorized to exploit and use efficiency the invest capital resource domestic

or foreign direct invest capital (FDI), Approaching to method of modern business management, innovating and handing over technology These are important factors

to develop the economy which still in innovation period and integration the economy

of region and global

With the function of finance intermediate, operation of commercial banks in HCMC area in recent years has satisfied the demand of finance, provided utility services for enterprises operating in IPs and EPZs, develop and enhance competition power of Vietnam's enterprises generally and enterprises in IPs and EPZs particularly since then enhance the competition power of the economy developing in the integration terms

However, beside the achievement that mentioned above, Credit for development of enterprises in IPs and EPZs has showed limitations remaining from aspect of commercial banks, enterprises in IPs and EPZs, and from state management institutions Thus, with the goal of exploring the difficulties and limitations in credit activities or using capital resources for economy development, the study try to find

down what factors affect to ability of enterprise getting bank loan In the next chapter, base on economic theories and empirical study, the models are suggested to exam for the case of enterprises located in IPs and EPZs in Hochiminh city of Vietnam

CHAPTER III: LITERATURE REVIEW 3.1 Theory background:

3.1.1 Concept of Credit

Credit is the economic relationship concerned to asset transaction between the lender and borrower, in which lender transfers asset to borrower using in the finite interval time following the agreements, the borrower have obligation to repay non-conditionally seed capital and interest at maturity payment Credit is also the relationship among the people in society base on the trust and repayment principles (Ho Dieu, 2000)

3.1.2 Nature and functions of banking credit

Banking credit's nature is economic relation system raised between lender and borrower, by this relation, capital is rotated, transferred from the owner to other, and

to be use to meet the different demands of the economy

Different from the normal trading relation, credit relation have just included one party transfers the value and the other received value, the repayment is only occurred following the finite time The nature is the economic relation that established base

on the believe and confident among the subject, simultaneously, It neglect the sales and buy behaviors the right of using capital, Thus, the movement of credit play an important role and is the motive of the economic agents

a Concentrate and redistribution capital function: banking credit directly take in part in mobilization the idle capital in the economy and allocate the capital via credit providing timely enterprise, individuals, economic organizations which have demand capital in productivity, consuming The allocation credit capital always attach the guarantee of credit and the repayment of seed capital and interest, Thus, the idle money will allocate

to agent of economy that have ability satisfy most the condition tie of credit Considering on scale of economy, banking credit is an indirect credit, in which, bank play the linking, intermediation finance between the supply side and demand side on capital , basically, It is distributed and promoted in using capital efficiency By credit activities, the idle resources are gathered, including money from inhabitants, enterprises, and other social organizations

b Saving cash and circulation expenditure for social : credit activities create more conditions for the appearance of credit circulation instrument such

as : commercial paper, bill of exchange, check, and the modern payment means( visa card, credit card, payment card ) these can replace the big cash mount in circulation, by this way, it is mitigated the expenditure concerning with printing money, transportation, maintaining , ability of reducing cost involved with cash will be expressed while bank make loan and issue capital thought borrower's account, these make money saving

to be multiplied Moreover, when non-cash payment become popular, the agent of economy concentrate money into banking account, the maintaining cost of company's fund or household will be reduce By this way, bank have more conditions to carry out the growing credit policy, distributing the idle capital to production areas and goods circulation, speeding up circle of capital, develop highly ability of explore the resource in society

c Liquidity satisfied function: The banking credit is made base on satisfy the demand of liquidity of client event if the client is other commercial bank In the other words, the borrower get loan from bank to aim of payment goods or services, if there were no banking credit, the demand

of liquidity would be satisfied on time and sufficiency

d Stabilization function: by canal of credit, with the appropriate money policy for each stage, government can adjust the money supply for economy to contribute to stabilize money and inflation

In addition, Banks as financial intermediate; Banks intermediaries standing between lenders and borrowers, a bank is a business and its owners on managers aim to maximize profits A bank make profits by lending and borrowing ( David Begg, 2002); A financial intermediary in an institution that specialize in bringing lenders and borrowers together; A commercial bank borrow money from the public, crediting them with a deposit , the deposit is a liability of the bank In turn, the bank lend money to firms, household, or governments wishing borrow But banks are not the only finance intermediaries

3.1.3 Corporate Demand on Capital:

David Begg (2002), wrote that: "Any business need some financial capital, money to start the business and finance its growth, paying for stock, machinery, or advertising before the corresponding revenue is earned" and "Firm usually borrow to finance their set up and expansion costs, buying capital goods, solicitor's fees for their paperwork in registering the company and so on there is interest to be paid on the money borrowed This interest is part of the cost of doing business and should be counted as part of the cost " (Chapter 7);

The capital demand on investment of enterprises include two basic elements: Inventory and money invest in fix asset; the component of investment are impacted

by other factors, so, changing in inventory has significant impacted to the money demand (Ho Dieu, 2000) Because of goods in stock are financed with short-term loan (usually by commercial banks and via commercial credit by the supplier offered

to company) Accordingly, changing on volume of inventory often cause strong evolves on the need of corporate about short-term fund, hence, making fluctuation of interest rate in short run

The finance markets are composed of money market and the capital market; Money markets are the market for debt securities that will pay off in short term (les than one year) Capital markets are the market for long term debt (more than one year) and for equity share A firm can choose any capital structure it desires, changing in the capital structure of firm, the firm change the way the firm pays out its cash flow Firm that borrow pay lower tax than firm that do not; the combined effects of tax and bankruptcy cost can induce firm optimal the capital structure, Firm always face with the short-term financial plan, Its financing options include: (1) unsecured bank borrowing, (2) secured borrowing, and (3) other sources Banks and other finance companies often require security for a loan Security for short-term loans usually consists of accounts receivable or inventories It is implied that an inventory loan used inventory as collateral According to Stephen A.Ross, Ran Dolph W Westerfield, Jeffrey Jaffein (2002);

Mainly demand of corporate on loan fund combine with the cost of building factory, buying equipment, those cost were determined following invest planning Therefore, the demand in long-term loan has a tendency less vary compare with short-term

loan Which make long-term financial market areas are more stability to the short one?

Demand on loan fund of company mainly initial come from buying real asset,

P11'''"'"'P.,t and inventory Thus, the moment of investment is the function that

extJectati on on mobilization Companies invest decision

(3.1) , Ct: Cash flow in year t; rt: Interest rate calculated

decisions which are profitable capacity expectation; it value by accepting money at today Therefore, , , ,, value in impacting to total investment volume book- Stephan A.Ross & Jeffey Jaffe, Sixth edition)

in form of borrowing from intermediate financial the repaying interest will discount on earning before tax, debt is the debt cost that is adjusted by tax (Nguyen Minh Kieu, 2006) In general, if interest rate of mobilization debt is Rd, rate of corporate tax is Tc, the cost of using debt will be: Rd*(l-Tc ); { (1-Tc) is also called tax shield}

If company issue bond, the interest rate of debt is rate of maturity printed in bond (YTM):

(3.2) Pnet: The money received from selling bond that equal to the price of bond subtract issuing expenditure, M: face value; 1: M* interest

According to Karel Jensen, 2005; If there are transaction cost such a procedure would be inefficiently, after the transaction , the money holding equal K, and run down to zero over period time when the next transaction take place; Average money holding are then equal K/2 ; the opportunity cost of holding money is r*K/2(where