NATIONAL ECONOMICS UNIVERSITY ADVANCED EDUCATIONAL PROGRAM Internship Report JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM (VCB) Chuong Duong Branch Office Student’s name Nguyen Ngoc Quang[.]
Overview of VCB and VCB Chuong Duong branch
Foundation and historical development of VCB
In 48 years of development, VCB has contributed to the economic stability and growth of economy, upholding the role of major commercial trading bank, as well as exerting the influence all over the financial community In half century of development, VCB has affirm its position as lead banks, offer various financial service in both international and internal market Besides are the marking important points of time that VCB has gone through:
_ On 1/4/1963, VCB was established from the foreign exchange bureau (of the state bank of Vietnam).
_ On 2/6/2008, as the first state-owned commercial bank selected for pilot privatization by government, joint stock commercial bank for foreign trade of Vietnam (Vietcombank) officially came into operation.
_ On 30/6/2009, VCB officially listed (stock code: VCB) on the Ho Chi Minh stock exchange (HOSE).
_ On 30/9/2011, VCB successful concluded an agreement on strategic partnership with Mizuho corporate bank (MHCB) - a member of Mizuho financial corporation(Japan) by selling Mizuho 15% of its equity capital.
Foundation and historical development of VCB Chuong Duong Branch
VCB Chuong Duong branch was level two branch established on 6 th October,
In 2003, Vietcombank opened its 49th branch and third Level 2 branch in Hanoi, located at 564 Nguyen Van Cu, Gia Lam This branch aims to provide the most advanced banking services to the residential and business communities in the area As part of Hanoi’s urban development plan up to 2020, Gia Lam is set to become a dynamic economic hub with new projects and industrial parks driven by advanced technology and modern services The establishment of this Vietcombank branch in Gia Lam plays a strategic role in supporting the area's emerging economic growth.
Award and achievement
_ The best domestic trade finance bank, Vietnam in 2011 awarded by The Asian Banker.
_ The Asian banker talent and leadership development award in 201 awarded by The Asian Banker
In 2011, Mr Pham Quang Dung, Deputy General Director of VCB, was honored with the Asian Banker Promising Young Banker Award in the Pacific Asia region, recognizing his emerging leadership in banking Additionally, VCB was recognized as the most famous banking brand in Vietnam based on a joint survey conducted by FTA Market Research Vietnam—official Vietnamese representative of ESOMAR—and the Vietnam Chamber of Commerce and Industry (VCCI), highlighting its strong brand reputation in the Vietnamese banking sector.
_ VCB was ranked among the world’s top 1000 banks by The Banker
_ The best trade finance bank in Vietnam awarded by global trade review (UK) _ Leading bank by national brand power index from the results of a survey conducted by Nielsen.
_ Vietnam strong brand name of 2011 voted and awarded by the Ministry of Trade and Industry and Vietnam Economics Times.
_ The biggest income tax payment bank in Vietnam among the 10 biggest corporate income tax payers ranked by Vietnam Report, VNR500 Advisory Board andVietnam General Department of Taxation
Organizational structure of VCB Chuong Duong Branch
VCB Chuong Duong branch structure is designed as the centralized model which is the modern model of banking system.
Here is the diagram illustrating the structure of organization
Diagram 1.1: Organization chart of VCB
Department duties
General Director has the following functions
_ Preparation for planning strategy for branch development _ Develop and manage the branch's business plan and the units related _ Ensure reaching business goals of the branch
_ Co-operate with other departments and relating units to implement development of the branch network
_ Manage, supervise, monitor activities of all department and employees
Vice Director of the branch: Support for directors, represent Director to direct some works, sign related document on behalf of director and responsible for all the tasks assigned
Customer department in branch includes both personal credit department and enterprise credit department: holds all the transactions with individual customers as well as enterprises In particular:
Business and service departme nt
Business and service departme nt
Debt managem ent departme nt
Business and service departme nt
Internatio nal payment departme nt
_ Defining the target customer groups
_ Planning clients, directly involving in implementing and evaluating the plan _ Managing and developing customers
_ Performing the credit tasks and processing the credit transaction in order to ensure compliance with current regulations
_ Conducting appraisal with clients, projects, business plans and making recommendations to accept or reject the request for credit
_ Selling and running retailed baking services
_ Establishing sale plan to individual and enterprise customers
International payment department performs the following tasks
_ Executing international payment, financing import and export trade such as L/C, money transferring, discounting, factoring according to the Vietnam and international laws
_ Implementing the underwriting activities for customers.
Business and service department has function of developing new deposit, loan and merchant business for a specific target market of small to medium business and business professionals
_ Performing payment orders, money withdraw from debit accounts
_ Performing payment through orders by Swift, Telex, cheque, etc.
_ Implementing professional services relating to foreign exchange, deposits with maturities…
Card payment department has many important functions relating to card payment
_ Issuing debit cards of VCB
_ Issuing, collecting debt from debit cards and paying others cards of VCB
The debt management department is responsible for monitoring credit activities to ensure compliance with bank policies and customer management regulations It guarantees the accuracy, security, and proper handling of data related to credit processes, maintaining reliable and secure credit records Additionally, the department oversees data management and reporting in accordance with prescribed standards to support effective credit oversight and ensure the integrity of all banking information.
Human resource & administration department has functions:
_ To advise to directors about the development and implementation of the recruitment plan and training, and manage the human resource on the entire system
_ Implementation of the administrative process for the Bank's operations
_ Organize and guide the implementation of the accounting in entire banking system
Accounting-Finance: Preparation of financial reports (monthly, quarterly, yearly).
_ Management Accounting: Supporting for requirements management, administration, decisions about economics and finance.
_ Inspection, monitoring financial expenditures, and give advice for the General Director solutions for management requirements, administration, decisions on economic and finance
_ Store, reports, and provide information in accordance with accounting standard rule
Supervisory department has the following functions: advising and assisting the board of directors in monitoring and supervising the implementation of laws and regulations of the SBV.
Analysis of investment and operation in VCB Chuong Duong branch office 12 2.1 Mobilizing capital activities
Investing and lending activities
1,893.49 Outstanding short-term loan Billion 518.31
1,429.81 Outstanding long-term loan Billion 364.04
Over the past three years, outstanding loans have shown a slight yearly increase In 2011, total outstanding loans reached 1,893.49 billion VND, marking a 28.25% rise compared to 2010 Short-term loans remained the primary source of capital mobilization, accounting for 75.48% of the total loan portfolio in 2011.
VCB is implementing measures to reduce interest, credit, and liquidity risks in its operations Despite these efforts, non-performing loans have increased in recent years, reaching 619.71 billion VND in 2011 To address this challenge, VCB's Chuong Duong branch is focusing on improving asset quality, enhancing risk management, and refining the credit process to ensure sustainable growth.
Diagram 2.4: Credit quality of loans
Outstanding long-term loan Outstanding short-term loan
Diagram 2.3: Structure of deposits by term of maturity
Forex trading activity
Table 2.3: Revenue from forex trading and commercial guarantee
Revenue from foreign exchange currency Million $
208.00 277.36 Outstanding balance of commercial guarantee Billion vnd
421.81 418.54 Gain (loss) from Forex trading business Million vnd
The revenue from Forex trading has increased hugely from 193 million dollar in
From 2009 to 2011, the forex trading volume increased significantly from 200 million VND to 277.36 million VND, reflecting a 43.7% growth However, despite the rising trading activity, the profit from forex trading in 2011 was only 25.07 million VND, with losses reaching up to 6,238.41 million VND, highlighting the high risk and low effectiveness of this business Given these challenges, VCB Chuong Duong branch should consider re-evaluating its forex trading operations and reallocating capital towards more profitable investment areas.
Diagram 2.5: Revenue from Forex trading
Diagram 2.6: Profit gain from forex trading
Gain (loss) from Forex trading business
Analysis of Credit Guarantee in VCB
The general term
_ Credit guarantee: the credit officers use technique and measures to prevent risks,and use it as legal way to recover debts for the borrowers.
An asset-backed loan is a short-term financing option secured by a company's assets, providing lenders with collateral for risk mitigation Common assets used to back these loans include real estate, accounts receivable (A/R), inventory, and equipment, offering flexibility in collateral options These loans can be secured by a single asset category or a combination of multiple assets, enhancing borrowing opportunities for businesses Properly leveraging asset-backed loans can improve cash flow and facilitate business growth while ensuring lender security.
A mortgage loan is a type of financing secured by real property, where a mortgage note serves as legal proof of the loan This note evidences the loan amount and the borrower's obligation, while the mortgage itself acts as a financial encumbrance on the property Securing the loan through this collateral provides lenders with security and enables borrowers to finance their real estate purchases effectively.
_ Collaterals formed from loan: the assets used as collaterals that is bought partially or completely from debt of bank
Guarantee by collaterals formed from the loan involves securing the loan with properties created using the loan capital, ensuring the borrower’s repayment obligation to the bank is protected Additionally, guarantee by third-party assets, or a guarantor, involves a third party committed to using their owned property or land-use rights to fulfill the repayment obligation if the borrower fails to do so.
The purpose of Credit Guarantee
_ To enhance the responsibility to implement the borrower's repayment commitments
_ In order to prevent the risk of the failed borrower's repayment plan, or the occurrence of unforeseen risks.
_ In order to prevent the faults
The application of Credit Guarantee
Based on the borrower’s financial capacity, the feasibility and effectiveness of the loan, and the current situation, the bank may implement one or multiple measures to ensure loan prepayment These measures are designed to mitigate risks and ensure successful repayment.
_ Loans guaranteed by the property of borrower:
_ Pledge, mortgage the property of the borrower which formed from debt capital of bank;
_ Bank actively seeks for customers qualified for loans not secured by property.
_ Loans unsecured by collaterals have to follow direction of State Bank and government of Vietnam
Credit Guarantee principles
_ The Bank has the option to decide the loan guaranteed by the property or not and are responsible for their decisions.
_ If the loans are not secured by the property as direction from the Government, Government will be responsible for the causes of losses on loans.
If a loan is unsecured by property and the bank detects borrower violations of the credit agreement during the loan term, it has the right to demand collateral pledges or require early repayment of the debt.
_ In case the borrower or the guarantor fails to perform the obligation to repay the debt commitment, banks may handle collaterals to loans guarantee for debt recovery.
If the borrower or guarantor fails to meet repayment obligations even after collateral management, the bank may enforce continued compliance with debt repayment commitments Ensuring ongoing adherence to repayment terms is essential for debt recovery and financial stability Proper collateral handling is crucial, but persistent default requires the bank to insist on continued repayment obligations to secure its interests.
The nature of credit guarantees
_ Banks can apply one or more way of credit guarantee for a loan.
The value of pledged property is assessed at the time of contract signing, and it must exceed the amount of the debt obligation Typically, collateral should be worth more than the loan amount to secure the loan adequately However, if both the bank and the borrower agree, collateral can be used as an additional method for securing loans that are not solely guaranteed by property.
_ An asset that can be used as collaterals for multiple loans in a bank
_ An asset that can be used to guarantee different loans at different banks but must meet the conditions specified in document1;2;3ofDecreeNo.85/2002/ND-CPof theGovernment.
_ A loan can be guaranteed by various assets.
Value Loan compared to the value to collateral
The bank assesses and determines the loan amount based on the value of the collateral guarantees This calculation ensures that, in the event of risk, the bank can recover the principal, interest, and associated expenses through the disposal of the collateral.
To ensure effective debt prepayment, the General Director determines the maximum allowable loan amount for each period based on the value of collateral Currently, this maximum loan-to-collateral ratio is established to maintain financial stability and mitigate risk, ensuring loans do not exceed a predetermined percentage of the collateral’s value This approach helps safeguard the company's assets while supporting responsible lending practices.
When offering high-liquidity collaterals such as cash, certificates of deposit, savings, bonds, debentures, treasury bonds, metals, or gems, lending institutions must carefully assess and set appropriate lending limits These limits should ensure the repayment of both principal and interest while minimizing the cost of the loan, thereby maintaining financial safety and risk management.
Loan amounts secured by collateral are limited to 70% of the collateral's value, ensuring sufficient security for lenders When loans are guaranteed by assets generated from the loan capital itself, the maximum borrowing is capped at 85% of the total project or business plan's capital value, applicable for production, business, and service activities These lending limits help mitigate risks and promote responsible borrowing in financial transactions.
The type of collaterals
_ Machinery, equipment, transport vehicles, raw materials, fuel, precious metals, precious stones and other valuables;
_ Foreign currency, the deposit balance at financial institutions providing payment services in Vietnam VND or foreign currency
_ Bonds, stocks, debentures, certificates of deposit, savings account, T-bills and other valuable papers the stock issued by other financial institution;
The rights of property owners include ownership rights, copyright, and industrial invention rights Additionally, they encompass claims for debt recovery, the right to receive insurance payouts, and property rights derived from various contracts or legal documents.
_ Rights to invest in enterprises, including foreign enterprises;
_ The asset formed from future contract will belong to borrower and profit, interest, asset formed from debt capital or other real estate that borrower can receive.
_ Other asset can be used as collateral in provision of state law;
_ There must be agreement between bank and borrower that the right and profit arising from asset can be pledged as collaterals if the law has no provision;
_ Similarly, if the collateral is insured, the money insurance also belongs to the pledged asset.
_ In case the borrower doesn’t have owner’s certificate of property, branch officer should receive only the popular properties, or other valuable stone, cash equivalent
_ Branch officer should only receive the working capital in business cycle if being able to control that working capital
_ In case the borrower has owner’s certificate, branch officer should only receive the popular asset such as transportation and so on…
_ In case the pledged asset are saving account, bond or stock at other financial institution, the branch officer should block and use the guarantee measures to control that collaterals
_ In case the pledged asset relating to owner’s right of property, branches should hire a consulting organization, professional organization evaluate the value of collaterals.
The types of pledged asset
_ Houses and buildings attached to land, including assets in the construction down to other assets attached to land;
_ The value of land owner’s rights that legislation of mortgage allows;
In case the collaterals has the other attached asset, this objects also belong to a mortgage if there is an agreement with borrower.
Marine transportation is governed by the Code of Marine Law of Vietnam, ensuring legal compliance in maritime activities Similarly, air transportation is regulated by the Law of Air Civil of Vietnam, particularly when aircraft are used as pledged assets These laws establish the legal framework for the use and security of transportation assets in accordance with Vietnamese legislation.
Pledged assets, as specified by law, include yields, profits, and rights arising from the pledged asset If an agreement is reached between the branch and the borrower, or if national laws provide otherwise, these rights and profits also become part of the pledged property Additionally, when the mortgage is insured, the insurance proceeds are considered part of the pledged asset, ensuring comprehensive protection of the collateral.
Temporary assets cannot always be used as collateral to secure debt repayment To ensure safe debt recovery, lenders should exercise caution or require agreements before accepting temporary assets as collateral.
_ The pledged assets isn’t to registered the ownership and banks can’t hold or control
_ Property rights arising from copyrights and industrial property rights, the rights arising from the contract;
_ Rights to invest in the enterprise;
_ Pledge the right to use land and buildings on the land separately.
Conditions for collaterals: The assets used to guarantee the loan must meet the
Ownership and management rights must belong to the borrower or guarantor, who must provide certificates of land ownership, management, and lawful use If the pledged asset is land use rights, a certificate of land use rights and lawful mortgage must be presented For assets managed or used by national enterprises with government approval, the enterprise must demonstrate proper entitlement to pledge, mortgage, or guarantee the asset to meet legal requirements.
An asset available for trading is defined by its legal status, indicating whether it is permitted or prohibited by law for activities such as trading, selling, donation, exchange, transfer, pledge, mortgage, or providing guarantees Ensuring an asset's legality is essential before engaging in any transaction or transfer Trading assets that are legally sanctioned helps prevent legal issues and promotes secure, compliant transactions.
At the time of signing the contract, it is essential that all parties agree on clear ownership rights and the legal authority to use and manage the assets involved This ensures there are no disputes regarding ownership or rights to operate, and all parties are legally responsible for fulfilling their commitments.
When assets are used as collateral and the law mandates insurance, the branch requires borrowers and guarantors to present the insurance contract at the time of the loan For long-term loans, borrowers and guarantors can submit insurance contracts with shorter terms but must provide a written commitment to maintain insurance coverage throughout the remaining loan period until maturity.
To ensure effective debt collection, the bank must reach an agreement with the borrower and guarantor regarding changes to recipient names in the insurance contract, with VCB acting as the insurer in cases of risk If no agreement is achieved, the branch should require customers to provide a written commitment to transfer the entire insurance compensation to the bank, covering the principal, interest, and associated expenses.
_ Note: Exceptions with above conditions, the branch should consider adding the following conditions for my security property:
To ensure quick recovery of principal funds, branches should select highly liquid assets that are easy to transfer and sell in the market as collateral Assets such as small houses, specialized machinery, and unique goods require careful consideration before being used as mortgage or pledge assets, due to their lower liquidity and potential challenges in liquidation.
Branches should avoid acquiring assets that depreciate rapidly or lose value quickly over time When dealing with loans secured by working capital, it is advisable for branches to opt for assets with high liquidity and ease of resale, enabling effective management and quick liquidation in case of risks Monitoring shipments and selecting assets that can be easily sold on the market helps mitigate potential losses and ensures better asset management.
Risks in lending secured loan by real estate and how to prevent them in VCB
The advantages of lending loans secured by real estate
_ VCB easily implement the process of identification, evaluation, managing during and after the loan and it does not cost additional costs related to the management assets.
_ Real estate can be liquidated and handled easily due to the development of real estate market
Real estate uniquely lacks depreciation, unlike other assets such as vehicles, machinery, and equipment, which can experience rapid value and utility decreases—sometimes by 10% to 20% immediately after a mortgage Over the long term, real estate prices tend to rise due to scarcity, making it a valuable investment However, short-term fluctuations can occur, influenced by factors like housing crises, economic cycles, government regulations, and regional market conditions, potentially leading to declines in certain market segments.
_ The ownership of real estate is easily recognized Any changes in ownership of real estate must be registers which is stipulated in law.
Risks of loans secured by real estate in VCB
Secured real estate loans are primarily medium- and long-term loans with interest rate adjustment periods typically ranging from 6 months to 1 year In contrast, most bank mobilized funds are short-term capital, offering more flexible interest rates in the market Managing the interest rate disparity between deposits and lending loans presents a significant challenge for banks, requiring careful evaluation and balancing to ensure financial stability.
During the recent real estate boom (2007-2008), risk levels rose as banks offered short-term (12-month) loans primarily secured by the sale of property assets This period saw vibrant real estate transactions, prompting many banks to aggressively implement real estate lending However, the State Bank of Vietnam's tight monetary policy and restrictions on real estate loans caused market freezes, leading to increased overdue loans across numerous banks.
4.2.2 Risk in credit analysis procedure
Real estate projects typically require large capital investments, demanding highly professional evaluations that encompass legal provisions, administrative and construction standards, material costs, and cash flow analysis However, loan officers often lack the capacity, experience, and supervision skills necessary for such comprehensive assessments, yet they play a decisive role in securing bank loans Most VCB branches focus on achieving credit growth targets, personal ratings, rankings, and bonus incentives, which can incentivize loan officers to prioritize short-term benefits over long-term risk management Consequently, some lending decision-makers tend to underestimate risks, disregarding potential long-term consequences and increasing the likelihood of risky loans.
4.2.3 Risk in control of lending process
Lending regulations typically require borrowers to have around 30% equity in their investment amount However, this rule can be circumvented when customers inflate cost estimates, making it challenging to accurately assess the true value of investment projects This difficulty in precise evaluation often results in VCB providing excess capital beyond the project's needs, which borrowers may misuse for purposes outside the original scope, posing risks to financial oversight.
4.2.4 Risk in poor credit information system
Asymmetric information in credit operations poses significant challenges, especially when extending loans to new customers with limited reliable data While relationships with partners can provide valuable insights, loan officers often rely solely on information from the borrower, due to the isolated lifestyles of residents and the lack of comprehensive external data This information gap can impact the bank's decision-making process, highlighting the importance of enhancing data collection and analysis methods to improve credit assessments.
VCB relies solely on the Credit Information Center of SBV (CIC) to access current credit data, including financial status, credit relationships, and credit ratings However, the quality of information provided by CIC does not fully meet the necessary standards for effective banking decision-making.
4.3 Solutions to prevent risks in credit guarantee in VCB
Mobilizing long-term sources has proven to be an effective strategy for banks to prevent liquidity gaps between mortgage loans and funding sources, reducing reliance on the interbank market There are two types of mortgage loans: speculation and investment; banks should minimize speculative lending due to its higher instability and associated risks Stable revenue streams are primarily generated from property sales or transfers, ensuring reliable repayment sources without operational dependencies.
Regular and strict review of security property values is essential, with evaluations conducted at least every three months to account for fluctuations in real estate prices that could impact loan guarantees To mitigate risks, VCB should consider requesting additional collateral or repayment of principal when collateral values decline This proactive approach helps ensure the security of the loan is maintained despite market volatility.
Personnel quality remains the most critical factor for effective banking operations, especially in credit activities To enhance performance, VCB should focus on attracting high-caliber human resources through competitive compensation and development opportunities Additionally, establishing clear regulations outlining responsibilities related to credit operations is essential to ensure compliance, accountability, and risk management within the bank.
The decision-making authority of each unit should vary based on their ability and experience, even if they operate at the same hierarchical level within the organization This allocation should be determined by top management's expertise and track record of successful operational performance.
The committee of credit council and internal credit rating should be implemented apparently with criteria of preventing risk, improving step by step the credit process
Diversifying loan types is an effective strategy to meet business financing demands and enhance financial service offerings It is important to balance credit growth targets between fund mobilization and adequate compensation to ensure sustainable development Effective asset management, increasing asset utilization efficiency, and stabilizing VCB's financial position are key functions to support this growth.