NATIONAL ECONOMICS UNIVERSITY EXCELLENT EDUCATIONAL PROGRAM BACHELOR''''S THESIS Expanding Consumer Lending at Joint Stock Commercial Bank for Foreign Trade Of Vietnam Transaction Center Branch Chu Thi T[.]
THEORETICAL FRAMEWORK ON CONSUMER LOANS
Consumer lending of Commercial Banks
1.1.1 Commercial Bank and its basic activities
The researchers noted that commercial banks formed on the basis of production development and commodity exchange As production developed, the need to expand production across territories and between nations increased, which led to the difficulty due to difference between currencies of various regions To deal with this problem, merchants doing money exchange appeared Along with that development, there were relevant businesses emerging such as holding and paying money on behalf of the depositors on the basis of doing credit activities.
In the countries with liberalized financial background, they defines commercial bank as a special business conducting business activities in the field of money with the main target is on profit In some other countries, commercial bank is conceived as an organization that operates regularly and primarily receives deposits based on the principle of repayment, lending and discounting Literally, there are a lot of different definitions of commercial banks Here I would like to present the definition of commercial bank in Law on Credit Institutions of Vietnam: "Commercial bank is a type of bank that carries out all banking activities and other business activities in accordance with this Law for the purpose of profit"
In reality, commercial bank, which plays the role of a financier of the whole society, is one of the most important financial organizations of the economy.Millions of individuals, households, corporations and socio-economic organizations send money to banks; even the government borrows money from banks For the corporations, banks usually provide credits for goods purchase, stockpiling, plant construction, and equipment investment When businesses and consumers have to pay for purchases of goods and services, they usually use checks, payment orders,credit cards, electronic accounts and so on, which are the products provided by banks Therefore, they frequently go to banks for advice when it comes to financial planning At this moment, we can confirm that Commercial bank is one of the most important financial institutions of the economy
1.1.1.2 Primary activities of Commercial Banks
Banks play an important role in regulating and providing capital for the economy With the current economic and technological development, banking activities have been improving rapidly and more and more diversified However, now matter how developed the banking industry is, there are some basic activities always remained:
This is the most basic and important business, which have heavy effect on the quality of banking operations Capital are mobilized in various forms such as deposits, loans, issuing collateral security In order to carry out this business, bank will take deposits, issue debentures or bonds with a commitment to repay customers on time with an amount called interest The more capital is mobilized, the more favorable conditions will be created for bank to expand its business Consequently, banks always seek for capital sources with low and stable cost At the same time, interest rates on deposits and debentures should be diversified in order to mobilize more capital in the economy On the other hand, on the basis of mobilized capital, bank will provide loans for production development needs and local and national economic development objectives Bank's capital mobilization activities have been increasingly expanding, which led to improve the reputation of bank Hence, banks need to take initiative in business activities, expanding credit relations with economic sectors and population organization to make profit Commercial banks must base on the strategy and objectives to develop the economy of the country and the locality Thereupon, bank should carry out the most suitable capital mobilization methods, which are medium-term and long-term capital to meet the capital needs of the industrialization and modernization of the country.
Foreign exchange is the exchange of one currency for another or the conversion of one currency into another currency This activity helps bank make profit from the price difference and service charge At present, this activity has been expanded with many forms of varied services: trading; exchanging; borrowing foreign currencies with various operations such as spot, swap, options, future Commercial banks participate in foreign exchange transactions for two purposes The first one is to provide services to customers, which are mainly buying and selling for individual clients then charging a fee The second purpose is to deal in forex trading in order to make profit when there is a change in the exchange rate.
This is a directly profitable business Effectively using the capital will enhance the prestige and determine the competitiveness of the bank on the market Therefore, bank needs to study and make the best use of its capital strategy.
Loans are the most important activity of commercial banks According to statistics, in general, about 60% - 75% of the bank's income comes from lending activities. Bank will succeed or fail depending primarily on the implementation of the credit plan and the success of the credit derived from the bank's lending policy Types of loans can be categorized in various ways, such as: purpose, type of guarantees, maturity, origin, method of repayment, etc
Along with the development of the society is the emergence of variety of demands.
As a service provider, it is imperative that banks always capture the information and diversify its businesses to provide timely and adequate fund to the economy In addition to the loans, banks also use capital to invest There are two major forms that commercial banks can undertake:
- Invest in trading securities or capital contribution at other companies
- Invest in fixed assets serving the business of the bank
Third is the treasury business
Profit is always the ultimate goal when participating in production and business. However, behind that important goal is a series of factors needing to be considered. One of those factors is safety Banking is a risky business, and in banking safety cannot be ignored Therefore, besides lending and investment to make a profit, the bank has to use a part of the mobilized capital to ensure the solvency and enforce the regulations on compulsory reserves by the Central.
As a financial intermediary, banks have a lot of advantages One of the advantages is that banks pay for goods and services on behalf of customers To make quick, convenient and cost-saving payments, bank offers its customers a variety of payment options such as check, standing orders, collection, cards; or they also can provide fund and provide electronic payment network, connect funds, prepare cash when customers need it Likewise, commercial banks conduct brokerage, buying and selling securities for clients and acting as securities issuance agents for companies In addition, bank also carries out entrusted services such as entrusted lending, entrusted investment, entrusted delivery, mandated disbursement and collection, etc
Thus, banks should perform well the above operations because these operations are closely related and often interact with each other By that, bank will be able to survive and develop strongly in the increasingly competitive environment For example, capital mobilization affects the decision to use capital, whereas the demand for capital influences the size and structure of the capital source mobilized. Intermediary services generate more income for bank, but actually these services' main purpose is to attract customers, thereby facilitating the effective mobilization and utilization of capital.
1.1.2 Lending activities of Commercial Banks
1.1.2.1 The concept of bank lending
Lending is a traditional activity and a leading economic function of banks, which helps banks to convert savings into investments Commercial banks can lend to organizations and individuals in a short time in order for these customers to meet the capital demand for production, business and living; banks also can give medium and long-term borrowings to organizations and individuals for the purpose of implementing investment projects or businesses.
There is still misunderstanding between lending and credit activities of bank. Many people consider these two concepts as one Actually, scope of credit activities is larger than lending's one, credit activities evenly include lending and other activities such as discounting commercial bills, financial leases, etc It can be understood that: Lending is a transaction of assets (money or goods) between the lender (the Bank and other financial institutions) and the borrower (individuals,enterprises and other entities), in which the lender transfers the assets to the borrower to use for a certain period of time under the agreement, the borrower is obliged to repay unconditionally the principal and interest to the lender upon maturity
For most banks, loan portfolio accounts for more than half of total assets and generates from 1/2 to 1/3 of the bank's income However, risks in banking activities tend to focus on the list of loans.
1.1.2.2 Classification of lending activities of commercial banks
There are many ways to classify loans Commercial banks currently classify loans according to the following criteria:
Based on the loan term
Expanding consumer lending of commercial banks
1.2.1 The concept of expanding consumer lending of commercial banks
Expanding consumer lending means creating an increase in scale, volume, quantity, and especially the quality of consumer loans by commercial banks. Consequently, the expansion of consumer lending means the bank's ability to increase the scale, proportion and quality of consumer lending in the lending structure to best meet the legitimate needs of consumers.
Specifically, we can understand that:
- Expanding consumer lending reflects the ability of the bank to meet increasing capital in economy, following a rational structure that is consistent with the pace of social development in each period, thereby showing the growth and development of the bank.
- Expanding consumer lending is influenced by subjective factors such as: management capacity, capital resources, qualification of staff and objective factors such as: socio-economic development, State policy mechanism, political situation.
- Expanding consumer lending is always accompanied by a commitment to improving the quality of loans.
- Expanding consumer lending is determined on the base of the diversification of customers, banking products and services as well as the subject of lending The figuration of reasonable interest rates as well as determination of maturity in line with the income of customers also contributes to the expansion of consumer lending of banks
1.2.2 Indicators reflecting expanding consumer lending of Commercial Banks 1.2.2.1 Indicators on the number of customers dealing with banks
When the branch focuses on expanding consumer lending, the branch will take measures to attract customers to come and use its credit products The more successful the branch is in expanding consumer lending, the greater the number of consumers will come to make transactions
Number of customers we are mentioning here is the total number of customers performing transactions with the branch In consumer lending, the number of customers represents the number of consumer loans that the branch provided to customers
*Indicator reflects the absolute growth in the number of customers
Increase / decrease in number of customers year (t) Number of customers year (t) - Number of customers year (t-1)
This indicator allows the branch to evaluate customer scale expansion at the branch If this indicator is positive, the number of customers in year (t) increases over the year (t-1), there were more customers coming to the branch.
*Indicator reflects the relative growth in the number of customers
Value of relative growth in the number of customers year (t) = [Increase / decrease in number of customers year (t) / Number of consumer borrowers year (t-1)] x
This indicator allows the branch to evaluate relative number of consumers growth in consumer lending It points out the percentage change in the number of borrowers over the previous year.
*Indicator reflects the proportion of consumer lending borrowers
Proportion of consumer lending borrowers [Number of consumer lending borrowers / Total number of borrowers] x 100%
This indicator helps the branch calculate the proportion of borrowers in consumer lending by the total number of borrowers at the branch, thus indicating the size of consumer lending as either large or small in total loan structure of the branch.
1.2.2.2 Indicators on consumer loan sales
Consumer loan sales is the sum of money the branch lent to consumer borrowers during the period, which is the most general reflection of the branch's credit activity over a given period, usually calculated by financial year.
*Indicator reflects the absolute growth in the consumer loan sales
Value of absolute growth in the consumer loan sales year (t) Total consumer loan sale year (t) - Total consumer loan sales year (t-1)
This indicator shows how consumer loan sale in year (t) increases or decreases over the year (t-1) by absolute amount When this indicator increases, the amount of money that branch provides to customers for consumption also increases, better satisfying the needs of customers, thereby showing the expansion fo branch's consumer lending activities and vice versa.
*Indicator reflects the relative growth in the consumer loan sales
Value of relative growth in the consumer loan sales year (t) [Value of absolute growth in the consumer loan sales year (t) / Total consumer loan sale year (t-1)] x 100%
This indicator indicates the consumer loan sales growth rate in year (t) over that of year (t-1) When this indicator increases, the consumer lending sales over the years of the branch also increases
*Indicator reflects growth in proportion of consumer lending
Proportion of consumer lending [Total consumer loan sales / Total loan sales] x 100%
This indicator shows how much of the consumer loan sales account for the total loan sales of the branch As the proportion of consumer lending increased over the years, it became clear that consumer lending was expanding.
1.2.2.3 Indicators on consumer loan outstanding balance
Consumer loan outstanding balance refers to the amount of money that customers owe the branch at a moment Based on the level of loan outstanding balance, we can tell whether the branch have extended credit or not; because when the branch implements credit expansion policy, the loan outstanding balance will be high However, in order to accurately assess the branch's credit expansion, it is necessary to combine the loan outstanding balance with the branch's loan sales.Consumer loan outstanding balance year (t) = Consumer loan outstanding balance year (t-1) + Consumer loan sales year (t) - Debt collection sales year (t)
*Indicator reflects the absolute growth in the consumer loan outstanding balance
Value of absolute growth in the consumer loan outstanding balance year (t) Total consumer loan outstanding balance year (t) - Total consumer loan outstanding balance year (t-1)
This indicator helps the branch to reflect the change in the value of total consumer loan outstanding balance in year (t) over that of year (t-1).
*Indicator reflects the relative growth in the consumer loan outstanding balance
Value of relative growth in the consumer loan outstanding balance year (t) [Value of absolute growth in the consumer loan outstanding balance year (t) / Total consumer loan outstanding balance year (t-1)] x 100%
This indicator indicates the consumer loan outstanding balance increase (decrease) in year (t) over that of year (t-1) It also shows the level of development and expansion of consumer lending at the branch.
*Indicator reflects growth in proportion of consumer loan outstanding balance
Proportion of consumer loan outstanding balance = [Total consumer loan outstanding balance / Total consumer loan outstanding balance] x 100%
This indicator shows the proportion of consumer loan outstanding balance in total loan outstanding balance of branch in the same period.
1.2.2.4 Indicators reflecting the expanding types of consumer lending
Factors affecting the expanding consumer lending of Commercial Banks
Consumer lending is one of the forms of commercial bank lending, and its performance is influenced by a variety of factors Banks must carefully consider these factors in order to bring into play the factors that have a positive impact on consumer lending At the same time, negative impact factors should be minimized.
Consumer lending is largely influenced by internal factors that stem from the bank itself These factors can be seen as a determinant in consumer lending. Depending on the development orientation of each commercial bank, the proportion of consumer lending in total loan outstanding balance of each bank is different. There are banks that consider consumer lending to be an important activity, while there are banks that gather resources to develop other activities Therefore, the development orientation and internal strength of each bank is the decisive element for the development of consumer lending
The scale of capital mobilization plays a very important role in expanding banks' activities in general and lending activities in particular (mobilized capital at the branches is debt capital) Indeed, much the same with manufacturing enterprises, the mobilized capital of banks is the input material for the production process If there is no mobilized capital, bank cannot carry out its monetary business On the other hand, if bank has a large source of mobilized capital, it will be able to lend more, which leads to expand new lending activities.
In addition, the size of mobilized capital is related to attracting customers to the bank Large source of mobilized capital creates favorable conditions for the bank to improve its infrastructure, machinery, equipment, banking technology, etc; thus creating great potential for the bank
This is a factor that heavily affects the scale of consumer lending As a matter of fact, customers' psychology does not want to spend so much time in administrative procedures when using products and services of banks in general and consumer loans in particular It can be said that no customer desires to deal with a bank with complicated and cumbersome loan procedures Therefore, if the processes and procedures of consumer lending are quick and efficient, bank will be capable of attracting a lot of customers In contrast, complicated and troublesome lending procedures will limit the number of clients Banks are now seeking to shorten lending procedures to draw customers in Thus, when lending in general and providing consumer loans in particular, banks should have a system of procedures that are reasonable, quick and accurate
1.3.1.3 Application of Technology in Banking Sector
Another factor affecting the expanding of lending in general and consumer lending in particular is the need for modern technology in the banking sector.Nowadays, information has become essential, indispensable in every activity,including banking Banking technology plays a vital role for banks Modern technology is the basis for banks to expand their operations, which includes consumer lending Modern banking technology not only helps banks to improve managing the operation of the whole system but also quickly provides solutions, as well as offers new facilities and services at competitive fee for the customers.Information technology also helps banks to improve risk management capabilities for each customer and the whole system Conversely, if the technology of the bank is backward, the management of banking activities will be difficult, the processing and storage of information will not be done in the best way, thus reducing the competitiveness of the bank compared to other financial institutions.
1.3.1.4 The Diversification and Quality of Consumer Lending Forms
The diversification of consumer lending forms is a key factor in the expanding of consumer lending, as this diversity gives consumers more choices of products and services Hence, the probability of choosing the right product of customers will be higher Indeed, a bank that offers a variety of consumer lending forms will be undoubtedly much more attractive than a bank with few forms of consumer lending. The diversification of products and services is also the factor that every bank should focus on to increase its competitiveness, thus attracting customers in the exciting banking market nowadays.
In addition, the quality of products and services also plays an important role in expanding the scale of consumer lending If the services provided by the bank have good quality, bank will be able to appeal to a larger number of customers From the customers' point of view, they will definitely choose a bank that offers better quality products and services.
1.3.1.5 Preferencial treatment for Customers when borrowing
According to general psychology, customers who buy goods or any services are very interested in the preferencial treatment that they can benefit from businesses and organizations providing these goods and services Gradually, the introduction of attractive preferences has become a useful strategy in attracting customers That also applies to the banking industry, an individual who wishes to borrow consumer loans tends to find banks with the most preferential options, such as low interest rates, simple terms like no need for collateral, etc This will surely attract a large number of customers as it can be said that collateral is a big obstacle for a large number of customers demanding for consumer loans However, banks always need to carefully review customer information as well as monitor the repayment of customers strictly when providing these preferences to customers
This is one of the factors that build up the strength of commercial banks Bank staff is the direct conductor of business strategies of commercial banks Therefore,professional knowledge of bank staff contributes to the added value of banking products and services In addition, the expertise of bank staff is also important in assessing loans Consumer loans are a type of loan with a very high level of risk, the lending process needs to be done right from the very first stage and thoroughly till the end If there was just a single mistake, it could cause great damage to the bank.
In addition, the professional ethics of bank officers is also a very important factor in lending A bank employee without professional ethics can bring some certain risk to the bank In addition, the enthusiasm and responsibility of the bank staff is also significant in attracting customers due to strong competition among banks Moreover, dedicated service of staff is always appreciated by customers, which leads to increase bank's competiveness.
In addition to the internal factor group, consumer lending is also influenced by external factors, which come from outside the bank There may be external factors affecting consumer lending such as the socio-cultural environment, economic environment, regulatory environment, economic policy, development orientation of the State and objective factors from customers
The socio-cultural environment includes factors such as the level of education, consumption patterns and the needs of the residents These factors affect the consumer lending of banks If people only stop at buying essential goods, bank will not be able to develop consumer loans In another assumption, if most of the residents have the habit of saving which is expressed by the savings rate on high total income, banks also have no opportunity to expand consumer lending In addition, high educational level provides conveniences for banks to expand banking services including consumer lending For example, how far consumer lending in the form of credit card can develop depends largely on people's intellectual level
The development of consumer lending is closely linked to the volatility of the economic environment Indeed, in a country with a developed economy, people's incomes are constantly improving and stabilizing, their consumption demand will definitely increase Meanwhile, banks will have the opportunity to expand consumer lending However, in the case of an underdeveloped country whose economy is degenerated and unstable, people cannot afford to think of borrowing money to meet the demand for high value goods The most important thing in these people's mind is to sustain life with essential products Even if they have a need for consumer loans, banks may be reluctant to lend them Consumer lending is a very risky activity, banks cannot carelessly lend such an unsafe loan to people with unstable incomes, who are incapable of guaranteeing the obligation to repay the bank
Nowadays, every activity of banks in general and consumer lending in particular must comply with the laws of the State The regulatory environment consists of the legal documents of the State, which is a factor affecting the consumer lending of banks A society with a strict, synchronous regulatory environment will create opportunities to develop consumer lending However, if a society exists a system of unclear and incompetent legal documents, not only consumer lending but also other economic and social activities will be obstructed
1.3.2.4 Development Orientation of the State
EMPIRICAL DATA ANALYSIS IN CONSUMER LENDING
Overview of Joint Stock Commercial Bank for Foreign Trade of Vietnam -
2.1 Overview of Joint Stock Commercial Bank for Foreign Trade of Vietnam - Transaction Center Branch
2.1.1 Brief history of formation and development
On October 30th 2008, the Transaction Center of Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) officially opened its new office at 31-
33 Ngo Quyen Street, Hang Bai Ward, Hoan Kiem District, Hanoi City
The new branch is located in the heart of the capital, which is very convenient for transportation Thanks to the favorable geographical location, the branch has advantages of customers due to crowded population density and dense corporate systems Meanwhile, it also has to deal with the appearance of many banks around, which is synonymous with a strong competition for the branch Therefore, the Transaction Center Branch needs to promote operational efficiency and bring into full play its strength of capital and specialized operations of a foreign bank, as well as retail banking services and new products aimed at individual customers that Vietcombank is implementing.
The Chairman of Vietcombank's Board of Directors, Mr Nguyen Hoa Binh commented: "Despite the fact that it has been officially separated from the head office for only nearly 3 years, the Transaction Center has quickly affirmed its position as the "Eldest brother" in Vietcombank family Besides operating as a branch of Vietcombank with a large market share in many areas in Hanoi, theTransaction Center is also the pioneer in carrying out the policy guidelines ofVietcombank It has always been leading in testing and launching new products as well as some other special operations Transaction Center has always been a leader in the entire Vietcombank system in terms of scale of capital mobilization, even in difficult times for capital mobilization Transaction Center is also one of the two biggest contributors to Vietcombanks' profit.
With the new office, Transaction Center has step by step asserted independence and self-control in its activities The Board of Directors of Vietcombank believes that Transaction Center will promote its achievements to continue to develop in the context of difficult domestic and foreign economic situation as well as the complicated financial and monetary market nowadays Transaction Center will not only be new in terms of location but also new in perception and practice; not only renovating facilities for work but also constantly innovating, improving service quality, work style to manage to provide modern, professional, civil and courteous customer service as well as improving quality and efficiency These are the core factors contributing to the sustainable development of Vietcombank
As of September 30th 2008, the mobilized capital from the economy in VND of Transaction Center is equivalent to VND 40 trillion (accounting for 96.72% of total capital), which is an increase of VND 2 trillion compared to 31/12/2007 Balanced mobilization sources and term deposits accounted for 75.83% of total mobilized capital from the economy; mobilized capital in foreign currency accounted for 45.28% of total capital Loan outstanding reached VND 3.000 billion
Vietcombank's Transaction Center now has 19 transaction offices and about 150 ATMs are located at convenient transaction locations, which ensure to provide customers with modern and best-quality services With diversified activities, Vietcombank Transaction Center now provides all services relating to monetary, banking and other activities under the Law on Credit Institutions, including the following services / products: Credit; Card issuance and card payment; Foreign currency trading; Payment for import and export.
2.1.2 Overview of the operational situation
Table 2.1 Capital Mobilization Situation of Vietcombank -
Savings, negotiable notes and bonds
(Source: General Balance Sheet of Vietcombank - Transaction Center Branch period 2014 - 2016)
There is a difference in the change in total mobilized capital between 2015 and
2016 In 2015, while the figure indicates that the difference from the previous year only increased to 1,5%, from VND 55 trillion to nearly VND 57 trillion; in 2016, it reached a rate of more than 10 times: the difference is 17% compared to 2015 and reached the total mobilized capital of VND 66.5 trillion This difference is not a mystery, as 2015 is not only a year that not only the Vietnamese economy but also the global economic fluctuated For example, such as the Trans-Pacific Partnership Agreement (TPP) ended the negotiations after five years and Vietnam also entered into this agreement
There is no big gap between the proportion of funds mobilized from the economy and from savings - negotiable notes - bonds Changing trend of deposits from economic organizations is similar to the total mobilized capital's trend: there is not much difference between 2014 and 2015 but here is a big variation from 2015 to
2016 (14,9% difference, which increased from VND 30.5 trillion to more than VND
35 trillion) In savings - negotiable notes - bonds item, nearly 100% of mobilized capital came from savings, the propotion of issued bonds and negotiable notes accounted for approximately 0.02% of this item in 2014 and the numbers was gradually decreasing: 0.01% in 2015 and about 0.006% in 2016 It can be seen that the channel of mobilizing capital through bonds and negotiable notes is not effective, so the bank reduced investment resources on these activities
In general, over the 3-year period, the branch's mobilized capital has been increasing which proves the stable operation of capital mobilization of the Transaction Center Branch In order to achieve this growth, the branch had to take seriously strict guidelines from Vietcombank such as competitive mobilizing interest rate in VND and foreign currencies, allocating quotas to mobilize funds for each staff and each unit, launch emulation, etc.
Table 2.2 Capital Using Situation of Vietcombank -
(Source: General Balance Sheet of Vietcombank - Transaction Center Branch period 2014 - 2016)
Total loan outstanding balance of the branch had a strong increase from 2014 to
2015, the difference is 40%, up from more than VND 13 trillion to nearly VND 18.5 trillion In the following year, total loan outstanding balance continued to increase but the rate has slowed, the difference compared to previous year was 11%.
By the end of 2016, the outstanding balance of the branch reached nearly VND 20.5 trillion This proves that the lending capacity of Transaction Center Branch was rapidly developing.
Table 2.3 Summary of Income Statement of Vietcombank - Transaction
(Source: General Balance Sheet of Vietcombank - Transaction Center Branch period 2014 - 2016)
The total revenue of the branch in 2015 is 4% higher than the previous year, the figure increased from VND 3.7 trillion to VND 3.8 trillion By 2016, the difference in revenue has increased more than five times the previous year's rate, the total revenue of the branch reached nearly 4.8 billion.
In total revenue, interest income always accounts for up to 99% And 99% is also the proportion of interest paid in total cost It can be seen that traditional lending activities are always the strength of the Vietcombank system in general and the Transaction Center Branch in particular.
From 2014 to 2015, total cost was reduced by 17%, equivalent to an amount of VND 440 billion However, in 2016, the cost went up but it is not an abnormal increase And even after the increase, the cost of 2016 is still lower than that of year
2014 about 160 billion In general, over the years, the cost of the branch retains the balance of sales
Credit activities of Vietcombank's Transaction Center Branch are shown in the following table:
Table 2.4 Loan outstanding balance situation of Vietcombank -
(Source: Credit activity report of Vietcombank - Transaction Center Branch period
By 2015, credit growth increased sharply by 40.23% over 2014 and by 2016,credit growth only slightly increased by 10.97% compared to 2015 In the time of macroeconomic instability with increasing input costs and the large volume of inventory bringing adverse affect on the finance of businesses, even made many businesses go bankrupt, the credit activities have been severely limited However, the fact that Vietcombank system has exceeded the credit growth of the plan, these numbers of the Transaction Center Branch was also met as required
Continue to study the changes of loan outstanding balance of the Transaction Center Branch over the past time by looking at the structure of loan outstanding balance of the branch through the term criteria While short-term debt has increased at a steady rate over the years: 2015 increased 14.4% compared to 2014; 2016 increased by 1.3% compared to 2015; Medium and long-term debt increased sharply in 2015: up to 70% or VND 4.2 trillion This is the result of the fact that the Transaction Center Branch has actively sought out potential customers and large, healthy, feasible projects to finance.
Empirical data analysis in Consumer Lending at Joint Stock Commercial
2.2.1 Regulations relating to Consumer Lending at Joint Stock Commercial Bank for Foreign Trade of Vietnam - Transaction Center Branch
Like all banks and credit institutions providing consumer credit products, consumer lending activities of Vietcombank Branch are subject to legal documents of the law and the State Bank as followings:
- Document No 34 / CVTD dated 07/01/2000 of the Governor of the State Bank of Vietnam on providing loans without collateral to employees and collecting debts from salaries, allowances and other incomes.
- Decree 178/1999/ND - CP dated 19/12/1999 of the Government on loan security of credit institutions.
- Decision 1627/ QD - NHNN dated 31/12/2001 on the issuance of regulations on lending by credit institutions to customers.
- Decree No 85/2002/ND - CP dated 25/10/2002 of the Government on amending and supplementing Decree 178/1999/ND - CP
In addition, consumer loans of Transastion Center Branch are also subject to separate regulations of Vietcombank.
The credit process at Vietcombank is divided into two separate procedures: the corporate customer credit process and the individual customer credit process In this section, we investigate the individual customer credit process Because the operational characteristics of individual consumer credit are relatively simpler than corporate customer credit, the individual customer credit process has two seperate business management departments: customer officer (CO) and debt management officer (DMO) These officers perform separate stages of the process.
In principle, the credit process is generally divided into three stages to check before, during and after the loan For convenience of research, the process of consumer lending in Vietcombank can be divided into 6 steps as follows:
In this step, CO check if the purpose of the loan, the type of loan and the financial status of the customer are in accordance with the bank's credit policy.Usually in this stage, CO should collect the following information:
During this period, if the customer's demand for loans is not in line with the bank's lending rules, the CO will refuse the loan and will not accept the application.
If the CO finds it suitable with the bank's condition, the next stage will be executed Step 2: Verification (check before lending)
In the verification phase, the CO directs and receives the loan application, and then he has to verify the accuracy and completeness of the data and information provided by the client In order to verify the accuracy of the data and information of the client, the CO needs to perform the following steps:
• Interviewing, discussing directly with the borrower, the replacing debt payer (if any).
• Instructing customers to disclose information on the loan application form.
• Verifying the source of income for repayment of the customer: documents proving the source of income of the customer, such as: labor contract, payroll (or account statement, etc); business license (if any), tax receipt (of the most recent 3 months, etc), proof of ownership of the collateral, other relevant documents, etc.
• Exploiting credit information from the Credit Information Center (CIC), information from other banks, information about the client's financial ability and family relationships
After gathering and verifying the correctness of the data and customer information, the CO moves to analytical stage to make a report proposing credit line to submit to the Board who will consider whether to approve the loan or not.
From the information collected from customers and other supporting sources, the CO analyzes, reports and submits the report to the Board for approval During this period, CO needs to analyze the following points:
• Loan purpose: this factor shows whether the loan is in line with Vietcombank regulations.
• Loan amount: this factor shows whether the amount is suitable with customers' financial ability and loan-to-collateral ratio of Vietcombank.
• Debt repayment ability: this factor shows the stability property of customer's income, the timeliness of the repayment, thereby the CO can avoid overdue and bad debt To grasp this factor, CO needs to find out about the characteristics of the client's job: position, salary, working time, experience, prestige, etc and their relationships within the family and society The more information CO gathers from customers, the better it will be for analyzing the source of loan repayment, hence minimizing the risk of default.
• Collateral: in this factor, CO needs to check the legality and valuation of collateral (such as housing, residential land, valuable papers, vehicles, etc) to determine the credit line appropriating with loan ratio of Vietcombank.
• Loan risk analysis: CO needs to analyze the probable risk of a loan that may have caused Vietcombank losses, such as the risk of unstable income, the risk of collateral's merchantability, elderly customers, From there, OC, together with leaders in jurisdiction level, takes measures to reduce risks, such as reducing the loan amount or loan term; asking the customer to purchase fire insurance for collateral; in the case of elderly borrowers, asking them to buy insurance (the insurance value is paid when the insured person dies) with the beneficiary is Vietcombank, etc.
At the end of the analysis phase, The CO will submit the loan application to the Board for consideration and approval.
Once the credit proposal is approved, the CO informs the borrower of the approval results (Loan rejected; or loan accepted on how much credit and what credit terms).
If the client approves the loan amount and the approved loan conditions, the CO shall prepare the Credit Agreement, the Mortgage Agreement, and carry out the procedures for signing the contracts.
The purpose of this stage is to define rights and obligations between customers and banks, thus protecting the interests of the bank when the customer violates the Credit Agreement.
For consumer loans, due to the simplicity of this loan, Vietcombank applies the sample contracts of Credit Agreement and the Mortgage Agreement for each type of consumer loan products (Each type has its own sample contracts) In case the borrower requests to adjust some terms in the sample contract, the bank will negotiate with the client about the amendment If the modification is reasonable and does not affect the legal status, the rights and obligations of the parties, the bank will approve the amendment However, this care is very rare.
Step 5: Disbursement (check during lending)
The CO makes credit note, and bank-form documents such as withdrawal, standing order, etc to put the customer sign.
The CO requires the customer to present withdrawal documents such as purchase contract, claim money, etc The CO needs to check whether the documents are legally and in accordance with the approved loan conditions.
After that, the OC will fully assemble the above documents to clip on the Notice of eligibility for withdrawal to deliver to the DMO.
Evaluation of Consumer Lending Expansion at Joint Stock Commercial
Via the empirical data analysis of Consumer Lending at Joint Stock Commercial Bank for Foreign Trade of Vietnam - Transaction Center Branch period 2014 -
2016 It is possible to draw some assessments of the branch's achievements in the past period as follows:
Increasing scale and growth pace of consumer lending
Credit activity in general and consumer lending in particular of Transaction Center Branch is growing in both scale and growth pace In 2014, consumer loan sales reached VND 7.6 trillion - nearly 25% of total lending sales In 2015, consumer lending sales reached more than VND 12.5 trillion - 26% of total lending sale The number of customers coming to the branch has also increased over the years These are the numbers that demonstrate that consumer lending is increasingly expanding and improving Consumer lending has become one of the major types of credit lending for branch to diversify lending, attract customers, and expand its market share.
Good quality of consumer loans
Along with the increasing in scale and growth pace, the credit quality of consumer loans was also improved In fact, the debt collection situation of these loans is increasing and reaching a high level Thus, the quality of credit in general and the quality of consumer loans in particular of the branch has been quite good This is the result of a great effort by branch's staff to maintain and improve Transaction Center Branch's position in the market and throughout the system.
Low overdue debt and bad debt ratio
Thanks to the efforts to recover bad debts together with reasonable policies,Vietcombank has become the first bank to clean bad debts in the system of commercial banks in Vietnam With no longer bearing bad debt burden,Vietcombank in general and Transaction Center Branch in particular will have the opportunity to reduce interest rates to improve the competitiveness of their consumer loans compared to other commercial banks.
Expanded market and diversified customers
The continuous growth in both the scale and quality of the branch's credit has shown that branch is increasingly attracting more and more customers Thus, the market of the branch is expanded, especially the consumer market Therefore, expanding consumer lending is a completely rightful development At the same time, the opening up of a new market also means diversifying the customer base to help the branch avoid the risk of over-concentration and a group of traditional customers This creates dynamism and flexibility in branch lending This is an important goal in today's context when banks are competing extremely harsh and fierce.
Contributing to the benefit of consumers
As a unit financing for consumers to purchase for daily living and personal needs, consumer lending activities of the Transaction Center Branch have met many demands of customers in the area such as buying real estate, building or buying houses, buying transportation, doing business, stock investment and so on These needs are mostly medium and long-term needs Since then, the bank has contributed to improving the quality of life for the people.
Promoting the image of the branch
Consumer lending is an activity aimed at exploiting the customer market, expanding lending market share, diversifying the borrowers and distributing risks for the bank. Transaction Center Branch through consumer lending was able to strongly and extensively promote the image of the bank.
In addition to the results achieved, consumer lending activities of Vietcombank Transaction Center Branch still have limitations that need appropriate solutions in order to expand and further improve the efficiency of consumer lending. Limitations include:
- The growth rate of consumer lending over the years is fluctuating
Although the consumer lending activities of the branch has developed, the growth rate over the years is not regular and fluctuating With the restructure project,restricting corporate customer credit and focusing on developing personal customer credit, the numbers achieved in the past few years have not shown that the restructuring has brought the effect In addition, the quality of consumer loan products of Vietcombank is not as competitive as other bank products.
- The structure of consumer lending by purpose is not balanced
Overall, over the period from 2014 to 2016, consumer lending focused on real estate loans and personal loans (total propotion of these two products accounted for 61% in 2014 and 69% in 2016) Branch has been actively deploying consumer loans, but some products such as security overdraft accounted for just approximately 1%.
- The scale of consumer lending accounts for a small proportion of branch lending
Compared with loan outstanding balance of general credit activities, although increasing, consumer loan outstanding balance still accounted for a relatively small proportion Despite the growth in scale and pace, with the current proportion of consumer loan outstanding balance, the branch still needs to expand its consumer lending activities further It then affirms the position of consumer lending in the branch's lending activities and creates a balance in the structure of its lending.
- The impact of the fluctuating economic environment
China's introduction of the Hai Duong 981 drilling rig into the waters under Vietnamese sovereignty in early May 2014 was a "ripple" for the business environment International visitors were also "afraid" of coming to Vietnam because of instability Stock market shaked when VN-Index drops record Therefore, the economic growth rate was low, many businesses went bankrupt, the income of laborers diminished, leading to people do not dare to borrow money from bank to buy properties and satisfy other spending purposes.
- Many people do not have proof of income source
Currently, many laborers actually have different sources of income which are from salary, production, business, investment but no proof; while lending, banks always require customers to show financial proof Therefore, many customers actually have a need for a loan, but because there is no documentary evidence, loans are inaccessible Moreover, a typical obstacle for consumers in obtaining consumer loans is collateral Due to some of the more stringent regulations of the StateRegulators, many customers are unable to get a loan because the collateral documents are not legal and valid In addition, there are still a large number of people who are nervous about borrowing from banks because they think that the procedures are complicated or troublesome or they do not really know about the benefits of bank lending.
- Competition from banks in the same area
It can be said that, nowadays, the banking and finance sector is developing very well and among the banks, there are fierce competition in terms of scale, quality, the diversification of services, etc Particularly in the field of consumer lending which is an attractive field, many banks and small businesses are increasingly focused on developing consumer loans to exploit tts potential Market seizure among financial institutions has made it difficult for Vietcombank in general and Transaction Center branch in particular to attract customers In this competitive environment, Vietcombank's system needs to focus on promoting its strengths in order to expand its spread in the community.
The law on consumer lending is still unclear, regulations on mortgage assets, house valuation and ownership transfer are complicated and annoying For example, the regulations on registration procedures for cars, motorbikes: every Vietnamese citizen can only be registered one motorcycle or one car and have to buy car insurance This limits the potential of customers with high procurement demand, leading to a reduction in bank lending
Due to the habit of using cash of people, the process of post-lending supervision is still limited It is difficult to update the income of individuals borrowing to determine the repayment capacity of them Although the management of the branch is specific to each department, the implementation still cannot avoid many shortcomings, creating a big gap in the introduction of treatment measures and early prevention.