INTRODUCTION
Introduction
In today's advanced society, the quality of life is on the rise, driven by remarkable advancements in manufacturing sectors like science, technology, transportation, and home appliances This progress has led to a heightened demand for capital utilization among individuals and businesses, pushing resources to their limits.
The expansion of commodity production is driving the growth of the commercial banking system, which plays a crucial role in the economy and finance Notably, credit activity serves as the cornerstone of the banking industry, representing a significant portion of banks' total assets and profitability.
After experiencing many periods of hardship from world economic crises such as the 1997 Asian financial crisis, 2008 world financial crisis; Now, the banking markets of many countries, include Vietnam's banking system, have been dramatically reformed and arranged in a new order By multi-sector restructuring activities, they have succeeded in improving their quality and diversifying product items In specific, the credit products for the individual customer segment evaluate as one of the high potential products which have a vibrant market, with the participation of most commercial banks
According to McKinsey's 2020 forecasts, Asia's retail banking revenue is projected to exceed $900 billion, with an average annual growth rate of 14% by the end of 2020 Vietnam's retail banking sector is expected to align with this global trend, showcasing significant potential for personal lending A report by Le Thi Anh Quyen (2020) highlights that personal loans constitute 60-70% of total loan sales at banks like VIB and Agribank, with a consistent upward trajectory However, the growth rate of customer loans within the banking system varies significantly, with some banks experiencing negative growth while others achieve over 10% growth, as illustrated in diagram 1.1 This disparity has resulted in a situation where many bankers are experiencing an influx of cash.
Diagram 1.1: The proportion of personal credit growth of banks in 2020
Source: Collected data from ketnoithanhcong.com
This thesis offers a comprehensive analysis of credit operations within individual customer segments and assesses business efficiency It examines the lending practices of VIB in comparison to retail model banks to identify existing weaknesses Ultimately, the study proposes solutions aimed at enhancing customer attraction in a competitive market.
Background of the study
The year 2020 marked a significant crisis for the global economy, including Vietnam, largely due to the COVID-19 pandemic that began in Wuhan, China, at the end of 2019 This pandemic has inflicted severe damage worldwide, leading to an economic and medical crisis that has pushed many nations into deliberate recession Consequently, there has been a sharp decline in commerce, social security, and overall economic activity, with tourism, festivals, production, and business investments coming to a standstill.
In 2020, the global economy was projected to contract, with the IMF and World Bank estimating a decline from -5.2% to -4.4% UNCTAD anticipated a 40% drop in global FDI compared to 2019, while the WTO predicted a 9.2% decrease in world trade Global inflation was expected to remain low at 1.8-2% due to weak demand and falling oil prices The COVID-19 pandemic significantly impacted global employment, with the WTO reporting a 14% reduction in total working hours, equivalent to 400 million full-time jobs In Vietnam, the economic repercussions were severe, with the General Statistics Office noting a 0.8% decline in total retail sales of consumer goods and services in the first half of 2020 compared to 2019, which would worsen to 5.3% when excluding price factors The accommodation and food services sector saw an 18.1% decrease, while travel and tourism revenue plummeted by 53.2%, highlighting the sectors most affected by the pandemic and social distancing measures.
What should the bank do when facing those difficulties?
The significant damage caused by the SARS-CoV-1 pandemic has created numerous challenges for society, particularly impacting the banking industry and borrowers In response, commercial banks are implementing various recovery strategies, including lowering prime interest rates and offering preferential rates to businesses severely affected by the crisis They are also extending monthly interest payments to boost credit demand and promoting personal credit activities aligned with retail banking Notably, personal loan interest rates saw a dramatic decline in December 2020, with OCB bank reducing its lending rates to an unprecedented 4.99% Popular consumer loans now include real estate, car loans, home repair loans, and personal guarantees, resulting in a wider and more diverse range of individual customer services than ever before.
Diagram 1.2: Lowest Personal Loans IR in 12/2020
Source: Collected data from vietnamnet.vn
The current strategy of central banks is fraught with risks and has proven inadequate due to insufficient turnover, often failing to meet the key performance indicators set by senior leadership As a result, non-performing loans (NPLs) and debt recovery rates remain below average This raises critical questions about the necessary solutions to improve the strategy and the outstanding shortcomings that need to be addressed This study will closely examine these issues.
Objective
This study aims to assess the quality of credit operations in commercial banks, with a particular focus on personal credit It seeks to provide practical evaluations based on the underlying rationale of these credit operations.
The next objective is to assess the status of individual customer loans at VIB Hai Ba Trung Branch, identifying the outcomes, strengths, and weaknesses, as well as the factors that hinder the growth of lending to individual customers.
Finally, proposing and offering solutions and tools to support the improvement of the personal loans quality at Vietnam International Joint-Stock Commercial Banks.
Significance of the study
Vietnam's population has reached around 97.58 million and continues to grow, leading to an increasing demand for bank loans to support daily living This trend presents a lucrative opportunity for banks in the lending market.
VIB Hai Ba Trung Branch has consistently focused on enhancing the quality of its credit services and overall offerings to ensure an exceptional customer experience Their mission is to become the leading retail bank in Vietnam As an intern, the author aims to explore this topic by systematically analyzing relevant content and theoretical foundations The thesis will evaluate the effectiveness of personal credit activities at the branch and suggest improvements to further enhance service quality.
In summary, both banks and researchers benefit from the thesis, as the author aims to utilize her work as a valuable source of secondary data By offering precise and detailed information, the goal is to enhance the banking system and improve personal loan services.
Scope and limitation of the study
The banking and financial system encompasses a wide range of topics, but this thesis focuses specifically on the credit sector, particularly personal credit, to provide readers with a comprehensive overview of the credit industry.
Personal customer credit activities at Vietnam International Joint-Stock Commercial Banks – Hai Ba Trung Branch period of 2018-2020.
Definition of terms
There are plenty of key words related to the topic which will exist within the study Below are some definitions of them moreover as relevant theoretical content
Bank credit is the total amount of money that an individual or business can borrow from a banking institution, encompassing various types of loans The availability of bank credit is influenced by the borrower's repayment capacity and the lending limits set by the bank Common forms of bank credit include car loans, personal loans, and mortgages.
A commercial bank is a financial institution that provides essential services such as accepting deposits, offering bank accounts, and granting loans It also provides basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses Most people conduct their banking activities at commercial banks (Anderson, 2021).
Personal loans are funds that individuals and households can borrow for various purposes, such as consolidating debt, funding home renovations, or planning a dream wedding These loans are available from banks, credit unions, and online lenders, and must be repaid over time, usually with interest Additionally, some lenders may impose fees on personal loans (Lake, 2021).
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
Literature review
Improving credit quality has emerged as a critical topic in recent years, particularly due to its associated challenges, alongside issues like valuing corporate shares and enhancing risk management to meet Basel II standards This growing interest has captivated the author, as well as numerous students and researchers in the banking and finance sectors Consequently, the author selected this subject for her research, drawing on insights from various previous master's theses and graduation projects.
Graduation thesis: "Solution to improve the quality of personal credit activities at National Citizen Joint Stock Commercial Bank - Hanoi Branch" by Phung Huong
In his 2014 essay, Ly identified key backlog issues in the selection of credit recipients and proposed several recommendations for the Government, State, and Head Office of the National Citizen Commercial Joint Stock Bank (NCB) to enhance the quality of personal credit operations at its Hanoi branch The author also discussed the future development direction of consumer lending activities within the banking industry by analyzing and assessing the quality of personal loans at NCB - Hanoi The thesis utilized various research methods, including data collection, comparison, analysis, and synthesis, to approach the topic from multiple perspectives.
The master thesis titled "Development of Lending to Individual Customers at Vietnam Technological and Commercial Joint Stock Bank" by Nguyen Anh Duc (2015) focuses on systematizing the theoretical foundations of credit activities in commercial banks It analyzes both subjective and objective factors influencing the growth of the lending sector and proposes solutions to address development challenges The author employed a variety of research methods, including statistical analysis, comparison, synthesis, and expert consultations, enhancing the thesis's credibility through interviews with banking professionals.
Research by Tran Thi Hong Nhung (2017) emphasizes the importance of improving credit quality for individual customers by analyzing the link between credit risk and credit quality The study reviews experiences from various Vietnamese retail banks in enhancing credit quality, highlighting both the strengths and weaknesses of Asian banks and the broader banking sector Additionally, it suggests tools to support the development of loan quality The thesis also identifies specific unresolved issues at ACB, such as overly lenient product regulations and insufficient evaluation during the bank's appraisal process, which hinder the achievement of credit growth targets.
The thesis titled "Solution to Expand Retail Credit Activities at the Joint Stock Commercial Bank for Investment and Development of Vietnam Hong Ha Branch" by Nguyen Thi Le Thu (2018) outlines strategies for enhancing retail credit operations It emphasizes improving the retail credit process to increase efficiency, reduce processing time, and simplify the credit extension procedure Additionally, the thesis advocates for investment in technology to align with the advancements of the 4.0 era The author employs various research methods, including investigation, synthesis, statistics, and comparison, to support her findings.
The master's thesis by Pham Thi Hai Yen (2019) focuses on enhancing the efficiency of lending to individual customers at the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Hoan Kiem branch It emphasizes the importance of stable growth in lending activities to achieve high efficiency The research identifies practical solutions tailored to the current market conditions, including the need for updated customer and collateral appraisals and improved internal inspection and control within the branches.
Numerous studies have explored the topic of credit, including notable research conducted by Vo Hoang Yen in 2015, Nguyen Thi Van Anh in 2013, and Nguyen The Dung in 2013.
Due to variations in time, banking environments, and subjective factors, previous studies have not fully and accurately assessed each bank's current status and indicators Consequently, the most effective solutions remain undiscovered Ongoing research into individual customer credit activities is essential for alignment with real-world conditions Building on existing values, this thesis aims to explore the issue further and propose advanced, systematic, and cohesive solutions.
Theoretical framework
2.2.1 Theoretical Background of Personal Loans at Commercial Bank
A commercial bank is a financial institution that accepts deposits from the public and provides loans to individuals and businesses for profit It operates in the finance trade and commerce sectors, offering short, medium, and long-term loans Typically, banks charge borrowers a higher interest rate than what they pay to depositors, with the difference being their main source of profit As intermediary financial institutions, commercial banks offer a range of services, including deposit acceptance, lending, and payment processing.
In Vietnam, the 2010 law on credit institutions defines a credit institution as an enterprise engaged in one or more banking activities, encompassing banks, non-bank credit institutions, microfinance institutions, and people's credit funds A commercial bank, specifically, is a type of bank authorized to perform all banking activities and additional business operations for profit, as stipulated by this law.
A bank is a financial institution that provides a wide array of services, including credit, savings, and payment options, and plays a unique role in the economy by performing specific financial functions that distinguish it from other business organizations (Peter S Rose, 2004).
In summary, commercial banks play a crucial role in the financial sector by offering a wide range of services, including capital mobilization, credit granting, and foreign exchange transactions Credit extension is particularly profitable for banks, making it a key focus of their operations Additionally, these institutions provide various monetary and credit services to meet the diverse needs of society.
Personal credit refers to the borrowing of funds between parties, where the borrower agrees to repay the principal amount along with interest after a predetermined period This relationship typically involves credit issuers such as commercial banks and financial institutions, while the borrowers consist of individual customers and business households.
The Law on Vietnam Credit Institutions 2010 defines personal credit as a form of credit where commercial banks transfer the right to use their capital to individual customers or households This capital is intended for personal use, production, and business activities, particularly for individual business households It is essential that both the principal and interest are repaid within a specified timeframe.
Personal credit refers to the temporary transfer of value from creditors (owners) to borrowers (users), which is expected to be returned after a specified period with an additional amount beyond the original value.
Loan activity, particularly personal loans, is essential for banks and is increasingly popular This process involves a mutual agreement between the bank and the borrower, outlining loan terms, interest rates, purposes, collateral, and repayment proof Customers can choose between cash disbursement or account disbursement, requiring a credit account with the bank for the latter After receiving the funds, borrowers must utilize the money for the agreed-upon purposes, such as purchasing or renovating a home, buying a new car, starting a business, or transferring property.
Personal loans can be categorized as secured or unsecured Secured personal loans require collateral, such as cash assets or physical items like vehicles, which the lender can claim if the borrower defaults In contrast, unsecured personal loans do not require collateral, making them riskier for lenders, often resulting in higher interest rates Both types of loans are available from banks, credit unions, and online lenders to qualified borrowers.
In this study, loans are categorized into two main groups: outstanding loans and overdue loans An outstanding loan refers to the amount borrowed by clients from a commercial bank that remains unpaid, indicating that the customer is still within the repayment period It is essential for customers to fulfill their repayment obligations, including both interest and principal payments, as per the signed agreement Additionally, this classification aids financial experts in assessing the efficiency of mobilized capital investments.
An overdue loan is the loan amount that customers fail to repay on time due to some unforeseen circumstances that customers face some financial crunch
Overdue debt refers to any portion of the principal or interest that remains unpaid after the due date When a payment is missed, the entire outstanding principal is classified as overdue debt Essentially, the overdue amount consists of the unpaid balance that persists beyond the scheduled payment date.
2.2.1.4 Characteristics of Personal Loans a, Broad scope of activities
Most borrowers of consumer loans are individuals and households seeking funds for personal needs, home construction or repairs, and small business ventures These loans typically have lower values compared to the capital available at banks However, the volume of individual loans is significant due to the varied needs of consumers, especially as bank loans become increasingly accessible While the scale of credit provision may be modest, its effectiveness is notably impressive, offering a range of diverse and highly efficient products.
The development of personal credit products is driven by the goal of meeting diverse customer needs In response to the increasing demand for tailored financial solutions, commercial banks have swiftly introduced a range of offerings This proactive approach has led to enhanced loan efficiency and significant profitability for these institutions, all while maintaining stable interest rates.
Personal loan interest rates tend to be more stable than corporate rates, as they are less influenced by market fluctuations Typically, the interest rate is agreed upon at the outset and remains fixed until the loan matures for short-term loans In the case of medium and long-term loans, banks often offer a preferential interest rate for the initial six months, after which adjustments may occur within a specified range, introducing a higher level of risk.
While retail activities can yield significant profits, they also carry potential risks due to the often inaccurate information provided by customers Details regarding careers, social insurance, and income sources are typically subjective, as they are reported unilaterally by customers without thorough auditing Additionally, the stability of customers' debt repayment sources is influenced by various factors, further complicating the situation.
PROCEDURE OF SECONDARY DATA COLLECTION AND ANALYSIS/ RESEARCH METHODOLOGY
Locale of the study
Vietnam International Commercial Joint Stock Bank, commonly known as International Bank (VIB), is a prominent joint-stock commercial bank in Vietnam, established on September 18, 1996 Initially starting with a charter capital of 50 billion VND and a team of 23 employees, VIB's first office was located at No 5 Le Thanh Tong, Hanoi Over the past 24 years, VIB has experienced significant success and growth, with its charter capital exceeding 11,000 billion VND as of December 31, 2020.
VIB's financial statements reveal an impressive equity of 17,972 billion VND and total assets of 244 trillion VND With a workforce of over 9,400 young and innovative employees, VIB is committed to meeting customer needs by offering extended transaction hours, including lunch and after-office services The bank's strategic transformation journey from 2017 to 2026 has established a strong business foundation, enabling it to compete effectively with major players like BIDV, VietinBank, and VietcomBank Additionally, VIB has emerged as a leader in the cash-free payment trend and digital banking, driven by significant investments in modern technologies such as Big Data, artificial intelligence (AI), and cloud computing.
In 2020, VIB celebrated its fourth year of successful strategic transformation amidst the global Covid-19 pandemic, thanks to the dedicated efforts of the Hai Ba Trung branch's officers and employees Established on January 12, 2004, the VIB Hai Ba Trung branch has emerged as the leading branch in the entire system, consistently adhering to its charter, achieving effective business operations, and generating high profits Located at 59 Quang Trung Street, Hai Ba Trung, this branch exemplifies VIB's commitment to excellence.
Since its inception, the HBT branch in Ba Trung District, Hanoi City, has consistently drawn a significant number of customers due to its exceptional marketing skills and the professionalism of its staff This location also serves as the author's chosen site for practical training and research.
Research design/ methodology
The research utilized various methods to evaluate the lending situation of the VIB HBT Branch, including an analysis of the annual report and income statement, surveys, interviews, and data observation from the official website These approaches facilitated comprehensive information gathering about the branch's operations.
The author engaged the manager and staff from the Individual Department and Transaction Office to partake in the research using three specified instruments The participants willingly participated in the interviews Additionally, 50 customers who have utilized services at VIB HBT were invited to contribute to the survey.
An annual report is a crucial financial document that commercial banks (CBs) or credit institutions (CIs) must publish regularly—annually, biannually, quarterly, or monthly—for their shareholders These reports provide a detailed overview of the bank's operations and financial status at a specific point in time Typically, the front section features a compelling mix of graphics, photos, tables, and figures, along with a narrative that highlights the company's activities over the past year Financial planners or accountants often include forecasts regarding the company's future, aiding in business expansion and product development Additionally, these financial statements help customers decide whether to invest, deposit funds, or utilize the bank's services.
Following the 1929 stock market crash, annual reports were mandated for public companies to ensure standardized corporate financial reporting These reports serve to publicly disclose a company's operational and financial activities from the previous year.
An annual report typically includes various sections such as corporate information, narrative text, graphics, photos, and financial statements, which encompass balance sheets, income statements, and cash flow statements Leveraging the advantages of financial report analysis, the author focused on the accurate report from VIB HBT Branch for the years 2018-2020, featuring two tables and ten bar charts The analysis highlights tables on capital mobilization, lending activities, bad debt ratios, and profit rates, along with bar charts illustrating outstanding loans, particularly in the personal loan category.
Qualitative interviewing is a valuable research method that enables researchers to uncover and document unique experiences or perspectives related to a specific topic Often referred to as in-depth or semi-structured interviews, this approach allows for open-ended questions, giving respondents the freedom to express their thoughts in their own words The primary goal of qualitative interviews is to gain a detailed, first-person perspective on a particular subject, event, or situation, providing insights that are often unattainable through traditional survey methods This flexibility and depth make qualitative interviewing an appropriate choice for researchers seeking to understand complex topics.
The interview conducted with Mr Nguyen Dinh Thuy aimed to identify the factors that restrict lending development to individual customers at the Vietnam International Joint-Stock Commercial Banks - Hai Ba Trung Branch Additionally, the discussion sought to propose solutions and tools to improve this aspect of banking services.
The survey involved key personnel from VIB, including Mr Nguyen Xuan Hung, Head of the Sales Department, and Mrs Nguyen Thi Mien, Senior Customer Management, each with 3 to 5 years of banking experience Participants voluntarily provided honest information, ensuring no distortion of facts or legal issues Each meeting lasted approximately fifteen minutes, focusing on two key questions, while also facilitating discussions on service characteristics and the business situation of VIB Hai Ba Trung Branch from 2018 to 2020.
The author collects secondary data from various sources, including previous theses, reports, and databases from newspapers, TV news, and official websites like VIB and the Central Bank, as well as publications from different banks This data is utilized to gain a comprehensive understanding and deeper insights into the field.
In today's digital age, researchers can easily gather information and data in the credit sector due to the growth of information technology networks However, not all collected data is relevant or valuable, particularly when focusing on individual customer segments This thesis aims to not only assist the author in their research but also guide other researchers in effectively gathering pertinent information, helping them avoid time-consuming misdirections For instance, specific topics require targeted data; topic A necessitates data A, while segment B relies on data B.
The author analyzed annual reports, highlighting key sections, and subsequently organized the data into various categories These categories were then compared to assess the performance of the branch in personal loan development from 2018 to 2020.
The author conducted a survey to gather customer reviews on the service quality of personal loans at the VIB Hai Ba Trung branch This survey aimed to assess the current situation and identify areas for improvement Data was collected through paper questionnaires distributed directly at the branch, with 50 customers aged 25 to 55 participating, predominantly women The valid responses will be aggregated and statistically analyzed to evaluate the quality of personal credit services based on the criteria outlined in section 2.2.2.3.
Sources of Secondary Data
The author conducted a study by directly collecting data and documents from the annual reports and financial statements of the VIB Hai Ba Trung branch for the years 2018-2020 to assess the branch's business performance Utilizing knowledge gained from banking and finance education, as well as insights from books and articles on credit operations, the author also consulted reliable sources, including reputable websites such as vib.com.vn, vietnamnet.vn, and cafe.vn, along with official information from the Agency of Political Theory of the Central Committee of the Communist Party of Vietnam, like vass.gov.vn.
Validity and Reliability of data analysis
The data analysis process was conducted meticulously to ensure the authenticity and reliability of the results This involved verifying the origin of the collected secondary data and assessing the quality of personal credit operations at VIB The primary data for this thesis was sourced from the annual reports of the VIB Hai Ba Trung branch covering the period from 2018 to 2020, along with information from previous studies conducted by institutions such as the Banking Academy, Thang Long University, and Foreign Trade University Additional insights were gathered from official websites and publications of various agencies and organizations in Vietnam, including the Central Committee of the Communist Party of Vietnam and the Vietnam Academy of Social Sciences.
The websites mentioned are strictly censored and recognized by the Laws and Government of Vietnam, ensuring the publication of verifiable information free from personal bias The author guarantees the authenticity of the secondary data used in the thesis, with VIB's 2020 financial statements obtained directly from the Hai Ba Trung branch through Mr Nguyen Dinh Thuy, Head of Sales Department These statements underwent a rigorous audit by KPMG Vietnam, accurately reflecting the financial status of the Joint Stock Commercial Bank of Vietnam and its subsidiary as of December 31, 2020 The consolidated results, including individual credit activities and cash flows for the year, comply with Vietnamese Accounting Standards The State Bank of Vietnam has established an appropriate Vietnamese Accounting System for credit institutions, ensuring adherence to statutory requirements for financial statement preparation and presentation Additionally, the bank's 2018-2019 Consolidated Financial Statements were audited by another firm, which fully accepted the financial statements.
In conclusion, all of the data in the thesis are valid and highly reliable.
Self Reflection on Secondary Data Collection Analysis
In this part, the author will mention some advantages and disadvantages of method Secondary Data Collection Analysis
Rich variety of data sources and topics
The data is analyzed in multidimensional
Saving costs and effort in searching
Data quality is not guaranteed
Easy to get entangled in copyright issues
FINDINGS AND DISCUSSION
Findings and Discussion of the business operations at VIB Hai Ba Trung
The ongoing Covid-19 pandemic continues to create complex challenges for the global economy, leading to a difficult period marked by declining credit ratings in several countries and significant investor losses Additionally, developed economies like China, the US, and Singapore are experiencing slow growth, increasing unemployment, and substantial fiscal deficits.
Since the onset of the Covid epidemic, the Vietnamese government has implemented flexible policies to mitigate the pandemic's impact and stabilize the economy As a result of these efforts and the collaboration of mass organizations, Vietnam was one of the few economies to experience positive growth in 2020 However, this growth was insufficient to offset the extensive damage caused by the pandemic, with rice production declining by 1.6%, garment manufacturing by 4.8%, motorcycle production by 10%, and car production by 10.8% Additionally, weak purchasing power among the population, driven by high unemployment rates, has hindered recovery, and the stock investment market has yet to show any signs of improvement.
The challenging business environment has notably impacted the banking sector, including VIB Despite these challenges, VIB has actively implemented Circular 01 and Instruction 02 from the State Bank of Vietnam to enhance operational governance and support customers during the Covid-19 pandemic As one of the first banks to introduce a support package with preferential loan interest rates of up to 2.0%, VIB has also reduced or waived various fees for its customers While these adverse conditions could have severely affected the bank, the Hai Ba Trung branch, benefiting from its status as a tier-one business branch and effective leadership from the Board of Directors, has successfully navigated these difficulties and achieved impressive results.
4.1.1 Business Results of VIB Hai Ba Trung Branch from 2018 to 2020
Diagram 4.1: Total Operating Income of VIB Hai Ba Trung (2018-2020)
Source: Collected Data from VIB’s Income Statement over the years
In 2018, VIB's total operating income (TOI) exceeded 6 trillion VND, marking a 49% increase from 2017 and achieving a compound annual growth rate (CAGR) of 34% from 2016 to 2018 Notably, net interest income and external income rose by 40% and 99%, respectively, with external income now representing 21% of total revenue due to enhanced service activities and diversified income sources By the end of 2018, net interest income reached 4,825 billion VND, driven by an 48% increase in interest income from customer loans, totaling 8,060 billion VND Additionally, interest income from investment activities remained stable at an 8% efficiency level, reflecting VIB's commitment to sustaining impressive customer loan growth and maintaining its leadership in key market segments.
In 2018, VIB continued to improve its organizational structure to streamlining efficiency and automating business processes VIB spent a large amount of budget
The investment in sales human resources and effective sales channels led to a remarkable 49% increase in revenue, while costs only rose by 15% This minimal rise in costs, compared to the significant sales growth, resulted in a decrease in the ratio of operating expenses to total operating income (CIR), which fell to 44.2% in 2018 from 62%.
In 2018, VIB experienced significant growth in pre-tax profit, reaching VND 2,743 billion, which represents a remarkable 95% increase compared to 2017 This profit also marked an increase of nearly four times from previous years, attributed to improved revenue and efficient cost management.
2016 through 2018 As a result, the average yield on equity (ROE) touched 22.5% in 2018, ensuring attractive benefits for investors
In 2018, VIB celebrated its second consecutive year of outstanding business performance, marked by a significant increase in total income This success was driven by the implementation of the VIB 2.0 transformation strategy, initiated at the end of 2016 The transformation was comprehensive and well-coordinated across all business areas, establishing an effective operating model for VIB to utilize in the years to come.
Despite the challenges posed by the COVID-19 pandemic, VIB demonstrated resilience with a robust balance sheet, achieving over 8 trillion VND in total operating income for 2019, a 34% increase from 2018, and a compound annual growth rate (CAGR) of 29% Net interest income rose by 29%, while external income surged by 54%, contributing to 24% of total revenue By the end of 2019, net interest income reached 6,213 billion VND, driven by a 37% increase in interest income from customer loans, totaling 13,861 billion VND Additionally, net income from service activities grew significantly to 1,797 billion VND, nearly 2.5 times higher than the previous year, largely due to VIB's successful integrated model in insurance distribution, which propelled its bancassurance market share to the forefront Premium revenue from insurance quadrupled compared to the previous year.
In 2019, VIB focused on enhancing its organizational structure to streamline and automate business processes, resulting in a 34% revenue increase while costs rose by only 28% Despite a decrease in total operating income (CIR) from 44.2% in 2018 to 42.2%, VIB prioritized investing in its workforce to foster a leading working environment and boost employee engagement Amid industry fluctuations, the bank achieved a remarkable profit before tax of VND 4,082 billion, reflecting a 49% increase.
2018 The average yield on equity (ROE) was 27.1%, which was among the top banking industry
In 2019, VIB experienced its strongest growth in five years, with all business sectors surpassing revenue and profit targets The total operating income of VIB HBT has shown a consistent upward trend since 2018 and is expected to continue this strong growth This success is attributed to VIB HBT's strategic focus on enhancing service activities, diversifying its lending portfolio, and expanding its insurance operations, alongside significant investments in human resources.
In 2020, VIB HBT successfully navigated numerous economic challenges, resulting in a total operating income (TOI) of VND 11,216 billion, a 38% increase with a double annual growth rate of 35% Despite the adverse effects of the Covid-19 pandemic on the economy and bank income, particularly interest income, VIB HBT maintained robust growth in retail credit and implemented strict risk management Consequently, net interest income reached VND 8,496 billion, reflecting a 37% increase from the previous year, with interest income growing by 26% while interest expenses rose only 17%.
In 2020, external income was a standout achievement, totaling VND 2,719 billion, with net income from service activities accounting for 88% of this figure at VND 2,389 billion, reflecting a 33% increase from 2019 This success was driven by the Board of Directors' timely policies to advance new product services, particularly in Digital Banking, enabling VIB HBT to maintain its leadership in the Bancassurance market and influence customer spending in the card market.
In 2020, VIB's budget focused on enhancing customer experiences, both at counters and through digital platforms, while also expanding its sales personnel to support the business plan Consequently, operating expenses reached 4,465 billion VND, reflecting a 30% increase from 2019, whereas operating income grew by only 38% This resulted in a cost-to-income ratio (CIR) of 39.8% for 2020, which was 2.4% lower than the previous year.
VIB is thriving, achieving a growth scale of 30% with credit at 29.4% and mobilization at 33% The bank maintains a strong asset quality, with bad debts managed below 1.5% The retail segment accounts for 84% of outstanding debt, significantly reducing central risk, as over 95% of retail balances are secured by collateral Additionally, the capital security ratio and liquidity indicators are effectively managed.
In 2020, VIB experienced significant growth in total income compared to the previous year, despite the challenges posed by the Covid-19 pandemic This impressive achievement can be attributed to VIB's strategic transformation journey that began in 2017.
Findings and Discussion of general assessment on Personal Credit Activities at
Despite challenging economic conditions, VIB HBT has successfully maintained growth and mobilized a stable capital base, with retail customer contributions making up the majority of its capital ratio This strategy underscores VIB's effective business approach, particularly in the individual customer segment, which enhances its competitiveness in the banking sector By the end of fiscal year 2020, VIB had raised VND 22,395 billion, with VND 17,908 billion sourced from retail customers The bank also adheres to strict safety ratios in compliance with SBV regulations, achieving a loan-to-mobilization ratio (LDR) of 76.6%, nearing the SBV's maximum limit of 80%.
4.2.1.2 About Outstanding Loans and Personal Credit Sales
Thanks to desirable remuneration policies to attract new customers and
Over the past three years, VIB HBT has successfully retained old customers, resulting in a steady increase in the number of borrowers In 2020, the total outstanding balance reached VND 14,520 billion, with over VND 10 trillion originating from individual customers The growth of loan products, particularly through credit card issuance, has been supported by investments in AI, Big Data, and modern technologies like e-KYC and e-Signature Retail credit products, including home loans, car loans, and consumer loans, have gained popularity due to rising consumer demand, contributing to a consistent increase in lending sales and the total assets of banks.
4.2.1.3 On the handling of overdue debts and bad debts
The banking industry faces significant challenges in managing bad debts and collateral To address this, VIB HBT's Board of Directors has developed a comprehensive credit risk management framework that clearly delineates the roles and responsibilities of various departments The bank has restructured its credit department into specialized units, including customer relations for marketing and credit creation, a credit risk management team for independent assessments and monitoring, and an operations department for managing loan applications This strategic approach has led to a consistent decrease in the ratio of bad debts and overdue loans, reflecting an improvement in the quality of personal lending and highlighting the dedicated efforts of the branch's staff and management.
In 2019, VIB's retail credit income reached 11,572 billion VND, marking an increase of over 3.5 trillion VND from 2018 By the end of 2020, this amount grew to 14,971 billion VND, consistently representing more than 80% of the bank's total revenue This trend highlights the effectiveness of personal credit as a lucrative business product, demonstrating significant revenue growth over the years and underscoring VIB's competitive edge in the retail credit sector of the financial market.
The loan procedure at VIB HBT is complicated and inflexible, resulting in slow disbursement times of approximately three days for car loans and up to 14 days or more for housing loans This cumbersome process creates challenges for both customers and banks, ultimately diminishing customer satisfaction and reducing the competitiveness of retail credit products in the market.
The current retail credit structure is uneven, with medium and long-term credit balances at branches representing over 64% of total outstanding debt This high proportion can result in capital imbalances and heightened risk ratios.
The stability of retail credit officers is declining, as the total outstanding balance of branches continues to rise while the number of credit officers decreases This imbalance forces individual credit officers to manage an excessive number of both old and new loans, negatively impacting lending control and customer service quality Additionally, the inexperience and lack of intensive training among younger staff complicate market expansion efforts.
VIB's loan interest rates are notably higher than those of its competitors, with car loans at 8.6% and real estate loans at 8.4% In contrast, other banks like BIDV, Vietcombank, Vietinbank, and Techcombank offer mortgage and auto loan rates ranging from 7.3% to 8.29%, as reported by TheBank in March 2021 This disparity in interest rates may diminish VIB's competitiveness in the market, as customers generally favor lenders with lower rates.
The lack of diversity in retail credit products at the bank has hindered the quality of its retail activities, primarily offering traditional services like real estate, car, and consumer loans In contrast, larger banks such as BIDV have introduced innovative personal services, including personal guarantee and collection services Without significant advancements in service offerings, VIB risks losing its competitive edge against central banks both regionally and globally.
4.2.3 Main causes limiting personal loans quality
The author conducted brief interviews with three officers at VIB Hai Ba Trung to enhance the thesis's credibility The quality of personal credit activities at the Hai Ba Trung Branch faces several limitations due to both subjective factors within the bank and objective external environmental influences, as confirmed by the officers.
The credit extension process at banks is often complicated and strict, instilling fear in borrowers Mrs Nguyen Thi Mien, Senior Customer Management, noted that appraisers frequently require additional land parcel extracts, even when a mortgage red book is already provided, complicating the experience for customers and damaging the reputation of credit officers This arduous requirement not only frustrates customers but also prolongs loan approval times, increasing the risk of losing clients to competitors Consequently, borrowers prefer institutions with simpler procedures Additionally, some credit officers lack professionalism and experience, leading to inefficiencies in handling complex cases and further delaying loan applications.
Secondly, the passive way in working of employees at the branch
VIB Hai Ba Trung, established as a retail bank, has cultivated a loyal customer base, leading to a subjective and irresponsible approach among bankers This reliance on familiar customers' financial information has resulted in asymmetric information, hindering effective loan feasibility assessments The lack of reliable information poses a significant barrier to personal lending at commercial banks Additionally, the overwhelming number of existing customers has diverted credit officers' attention from marketing to new clients, limiting opportunities for collaboration with potential customers This negligence among some credit officers may lead to challenges in identifying problems in the future.
The retail branch faces unique challenges, as its revenue sources are typically small and profits do not align with operational efforts To safeguard shareholder interests and the branch's overall health, management must effectively balance costs while diversifying profit streams Consequently, loan interest rates remain elevated compared to industry standards However, the branch is actively working on strategies to lower loan interest rates while still achieving desired profit levels.
The quality of personal loans is hindered by the incompetence of the staff, preventing VIB from effectively developing innovative products that align with current technology and the bank's unique characteristics.
The branch's lending policy is restrictive and inconsistent, leading to the exclusion of many creditworthy customers who lack proper legal documentation for collateral Additionally, despite high demand for short-term personal credit, the branch remains hesitant to offer these loans, which negatively impacts the bank's profitability.
Conclusion
In conclusion, the VIB Hai Ba Trung Branch has diligently worked towards achieving significant results in retail credit, aligning with the overarching goal of becoming Vietnam's leading retail bank However, challenges remain, including inadequate credit management and staff performance issues To reach their desired outcomes, all employees at the HBT Branch must enhance their business acumen and adopt strategies that align with current trends, laying a solid foundation for future success.