Enhancing efficiency of credit operation at vietnam bank for industry and trade ( vietinbank) badinh branch,

4 2.2 Forms of Bank Credit 8 2.3 The quality of bank credit 10 2.4 The evaluating indicators of credit quality 13 CHAPTER 3: BANK CREDIT OPERATION AT VIETNAM BANK FOR INDUSTRY AND TRADE

STATE BANK OF VIETNAM BANKING ACADEMY Foreign Language Faculty

: : Tran Thi Xuan Anh (M.A) : ATCA – K14

: 14A7510289

DECLARATION

I declare that this thesis is the product of my own work and has not been previously submitted for my degree or examination in any other university All the sources I have used have been indicated and acknowledged by means of complete references

Signature :

Date :

DEDICATION

This thesis is dedicated to my beloved family

and my precious friends

for their tremendous spiritual support and encouragement

ACKNOWLEDGEMENTS

I would like to convey my heartfelt thanks to my beloved instructor as well as

my mentor, Ms Tran Thi Xuan Anh, M.A, for her great inspiration, constant guidance and valuable support

In spite of her busy schedules, she always found time to guide me through the thesis I also owe my deepest gratitude to all of my teachers at Banking Academy of Vietnam, especially those of the Faculty of Foreign Languages

Last but not least, I offer my regards and blessings to all of those who supported me in any respect during the completion of the thesis Because of time constraints and limited capacity of the writer, this thesis will certainly not be free from defect Therefore, it is my hope that lecturers and readers of the thesis will sympathize and offer further contribution to it

Hanoi, May, 2015

NGUYỄN DUY QUANG

TABLE OF CONTENTS Content Page

TABLE OF CONTENTS 5 LIST OF TABLES & FIGURES 7 LIST OF ABBREVIATIONS 8

CHAPTER ONE: INTRODUCTION 1 1.1 Rationale of the study 1 1.2 Status Of Research 2 1.3 Aims Of The Study 2 1.4 Research questions 2 1.5 Research methodology 2 1.6 Thesis Structure 3

CHAPTER TWO: LITERATURE REVIEW 4 2.1 Credit activities of commercial banks 4 2.2 Forms of Bank Credit 8 2.3 The quality of bank credit 10 2.4 The evaluating indicators of credit quality 13 CHAPTER 3: BANK CREDIT OPERATION AT VIETNAM

BANK FOR INDUSTRY AND TRADE (VietinBank) – BA DINH

BRANCH – HA NOI

18

3.1 Introduction to Bank Credit Operation at Vietnam Bank For

Industry & Trade (VietinBank) – Ba Dinh Branch – Hanoi

18

3.2 Factors affecting the credit quality and business activities of

Vietnam Bank For Industry & Trade

22

3.3 Results from operating activities at Ba Dinh Branch – Vietnam

Bank For Industry and Trade

33

3.4 Situations of credit quality at Vietnam Bank For Industry & 38

Trade – Ba Dinh Branch

3.5 Assessment in the credit quality in Ba Dinh Branch 44 CHAPTER 4: SOLUTIONS AND RECOMMENDATIONS TO

IMPROVE THE QUALITY AND EFFIENCY OF BANK

CREDIT OPERATON IN VIETNAM BANK FOR INDUSTRY &

TRADE – BA DINH BRANCH

49

4.1 Orientation of Business Activities of Ba Dinh Branch In The

Future

49

4.2 Solutions to improve operational efficiency at the Vietnam

Bank for Industry and Trade – Ba Dinh Branch

50

4.3 Recommendations 53

LISTS OF TABLES AND FIGURES FIGURE 3.1: GDP’S GROWTH RATE

FIGURE 3.2: EXPORTS – IMPORTS – TRADE BALANCE OF

VIETNAMESE GOODS

FIGURE 3.3: THE MOBILIZATION OF CAPITALS IN BA DINH BRANCH

FIGURE 3.4: ANALYSIS OF MOBILIZATION BY MATURITY

FIGURE 3.5: DEBIT BALANCE IN BA DINH BRANCH

FIGURE 3.6: THE RESULTS OF OPERATING ACTIVITIES IN BA DINH

BRANCH

FIGURE 3.7: STRUCTURE OF THE GROUP DEBT

FIGURE 3.8: PROPORTION OF OVERDUE DEBTS AND BAD DEBTS

FIGURE 3.9: BAD DEBTS RATIOS

FIGURE 3.10: TOTAL LOANS/TOTAL DEPOSITS

Note: All figures have been used from Ba Dinh Branh – Annual Report Also, the figures have also been extracted mostly from the year 2010 – 2013 to demonstrate problems and come up with solutions

LIST OF ABBREVIATIONS SBV State Bank Of Vietnam

CBs Commercial Banks

VietinBank Vietnam Bank for Industry & Trade

CHAPTER ONE: INTRODUCTION 1.1 Rationale of the study

Since 90s of the 20th century, the economy of Vietnam has changed vigorously and marked obvious steps forward Our country has been in the process of integration into the international economy, with a huge number of opportunities, accompanied by challenges The government has been enacting numerous policies and measures with the aim of stabilizing the economy, as well as developmental growths Among those policies, Commercial Banks (CBs), known as a financial instrument, plays an indispensible role in those stabilizations

Indeed, one of the most essential tasks of commercial banks is appropriately contributing to the capital regulatory in the economy, which is conducted by the process of capital mobilization and lending Therefore, should they operate effectively; commercial Banks will eventually promote their role towards the market economy under socialist orientation of our country

However, Commercial Banks have been recently facing many difficulties: the increase of Bad Debts, the competition from foreign banks, liquidity… Especially,

during my internship at Ba Dinh Branch - Vietnam Bank For Industry And

Trade (Vietinbank), I myself have noticed not only those difficulties, but also

realized some limitations in credit activities With a view to improving credit

quality for banks, I have chosen the topic: “Enhancing efficiency of Credit

Operation at Vietnam Bank For Industry And Trade – Ba Dinh Branch” 1.2 Status Of Research

 Based on the quality of data and operational efficiency of Bank Credit to analyze, calculate, compare important targets, from then on, demonstrate the

quality and operational efficiency of credit at the bank



 Seeking out causes leading to defects in credit operations at the bank, hence working out proposals and measures to improve the quality and credit

performance

1.3 Aims Of The Study

The study aims at providing a new picture of credit management at Vietnam

Bank for Industry and Trade – Ba Dinh Branch, hence suggesting solutions

and recommendations for better efficiency of Bank Credit Operation at this Bank

1.4 Research questions

This thesis aspires to provide answers to two questions of concerns to practitioners, Bank managers or those who are interested in studying this banking activity in academia:

 What are the major challenges of bank credit operation that Vietnam Bank for

Industry and Trade has to confront now?

 What are the feasible solutions to better the efficiency of this activity in the

Vietnam Bank for Industry and Trade in particular and also might be

employed in the bank credit operation in general?

1.5 Research methodology

Based on the reasoning discussed above, I believed it was pertinent to take a qualitative approach along with an exploratory research design to inductively address our research question

A case study strategy accessing qualitative data through observations and interviews best served this research approach Besides, information and data are also collected from wide range of sources such as meeting notes and documented reports

of existing contracts and database of reliable market data providers in order to triangle the evidences and discussions, and increase validity and reliability of information, data and findings

Collected information and data have been categorized in accordance with discussions within the areas of knowledge Upon analysis and discussion, I try to figure out the weakness of the current process and try to make recommendations and propose a framework that is beneficially applicable to the case study and will be usefully adaptable to other banking corporations in Vietnam

1.6 Thesis Structure

The thesis consists of four main chapters: (1) Introduction, (2) Literature review,

(3) Bank credit operation at Vietnam Bank for Industry and Trade (4) Solutions and recommendations to enhance the efficiency of credit operation at Vietnam Bank

for Industry and Trade – Ba Dinh Branch

 In the first chapter, the author explains how the main topic is chosen,

especially in the context of recession in Vietnam currently The introduction part also states aims of the study, research questions, methodology and the organization of the thesis

 In the second chapter, the literature review of the Bank Credit Operation

activity has been illustrated with the definitions of Bank, Bank Credit, the characteristics of Bank Credit, the process of lending & borrowing in Commercial Banks and the measures of efficiency of Bank Credit Operation in the commercial banks

 In the third chapter, the author gives the readers an insight into the Vietnam

Bank for Industry and Trade (Vietinbank) and its bank credit operation in

practice Vietnam Bank for Industry and Trade has a solid foundation of the

bank credit activity; however, there are still some issues need to be tackled to better the results of this sector

 In the last chapter, some solutions and recommendation will be suggested to

improve the quality and efficiency of Bank Credit Operation in Vietnam Bank

for Industry and Trade (Vietinbank)

CHAPTER TWO: LITERATURE REVIEW 2.1 Credit activities of commercial banks

2.1.1 Definition of Credit and Bank Credit

When somebody borrows resources from somebody else, credit is the trust that they

will later pay it back The term often is used when somebody borrows money from

a bank.Credit is demonstrated by this following graphics:

Providing loans Lender -> Borrower

 -

Repaying principals and interests

The relationship demonstrated in this graphics represents the following contents:

 Lenders use their right to transfer to the borrower the amount of certain values, which do not change their ownership These values can be expressed in terms

of monetary, goods, machinery or real estate…

 The borrower temporarily uses this capital for a certain period After the expired date agreed by both parties, the borrower has the responsibility to repay the lender

 The value repaid is usually higher the value of loans at the time of borrowing

2.1.1.2 Definition of Bank Credit

Bank Credit is the credit relationship between banks and factories, or

industrial, economic institutions, organizations and individuals, which are conducted

in the way that Bank raised capital in the form of cash and provide for these institutions in the form of loans

In other words, Bank Credit is the amount of credit available to a company or individual from banking system It is the aggregate of the amount of funds that financial institutions are willing to provide to an individual or organization

Bank Credit is the form of credit which occupies a special position in the development of the whole economy Bank Credit appeared and developed with the advancement and development of Banking System Rather than trade credit, Bank Credit is a form of professional credit, whose activities are diverse and plentiful

2.1.1.3 The role of Bank Credit to the economy

Through credit, Banks can mobilize and focus the available temporary

monetary fund of enterprises, funds which have not been used by the state budget,

organizations and all walks of life From then on, Banks have possessed an abundant

credit fund, which will further be used for investment needs of the whole society As

a matter of fact, the appearance of banks, along with the emergence of bank credits, is indispensably important, and plays essential role in the economic and social development

 Credit helps ensure that business production process can frequently and

repeatedly take place

Due to the diversity of capital circulation from enterprises in economy, there

are now “capital surplus” due to the successful sale of goods That amount of money

is no need to be used immediately, which then raises the demand loans to avoid stagnation of capital and profits Meanwhile, there is now a temporary lack of funds due to unsold merchandises, along with the need to pay for operating expenses of businesses, which then raises the demands of having borrowing funds to maintain production and business profits

Bank Credit, with its own capability of supplying temporary funds through the form of loans, has promptly created an ability to ensure the continuity of credit in business and production processes, enabling businesses to satisfy capital needs which are frequently changing cannot be outstood during rotation

 Credit helps contribute to the capital accumulation and concentration,

from then on increase businesses and production

Capital concentration must be on the basis of capital accumulation In fact, there is a great amount of accumulated holdings among different holders in the economy However, those who have accumulated large amount of capitals are reluctant to lend or invest due to different reasons Meanwhile, the operation of credit system has enough credibility because of high specialization in credit operations, as well as personal risk reduction for those who accumulate

For all of these reasons, credit leads the process of capital concentration to be processed quickly and efficiently, hence makes it possible to supply capital to the whole economy, especially long – term funds Through credit funds, Businesses, investors can rapidly expand production, as well as implement investment projects, further creating a “long jump” in production capacity due to access to modern equipment All of these contribute to promoting production and development

 Credit helps contribute to adjustment, stabilization and economic growth

In a market economy, investors mainly focused on investments which offer high – margin rates, whereas economic growth requires trade balance and coordination between sectors and regions, key elements for the economy to develop rapidly Credit, which involves providing capitals, especially medium and long – term capital with full and prompt interests, accompanied by preferential loan conditions, have an important role in contributing to ensure capitals for infrastructure From then, key industries are formed, contributing to the formation of structural economic optimization

Credit also becomes a means for the Government to implement properly monetary policy, hence stabilize the economy in signs of instability Furthermore, the involvement of Credit services, through non – cash payments; have reduced costs and circulation safety in payment

 Credit helps contribute to the rise of living standards, as well as carry out

different social policies of the government

In other forms of credit, with appropriate mechanisms and interest rate, credit has contributed to improve people's lives though income is low Through benefits of capitals, interest rates, conditions and time limitations in lending to the poor and other beneficiaries, credit has played an important role in the implementation of employment policy, the population and the alleviation of poverty programs, hence ensured the social justice

 Credit expansion helps contribute to the international cooperation

Credit activities are not only confined to the economy of each country, but also expanded on an international scale On the conditions of open economy, domestic debts outside have currently become the objective needs for all countries all over the world They proved even more urgent for developing countries Thanks to credit, different countries can purchase goods and import machinery and equipment, from

then have access to the newly scientific techniques, as well as levels of advanced management all over the world

Credit granted by countries not only expand and develop foreign trade relations, but also create conditions that promote economic growth in importing countries Credit also creates a favorable environment for directly international investment – a form of economic cooperation

2.2 Forms of Bank Credit

Loans are divided into various categories, based on different classifying criteria

2.2.1 Based on purposes

Based on this criterion, lending is usually divided into the following categories:

- Loans for real estate business: Consisting of loans related to the procurement

and constructions of residential real estate, land, real estate in the fields of industry, trade and services

- Loans for industries and commerce: Consisting of a short – term loan which

refers to the supplement of working capitals for enterprises in the field of industries, commerce and services

- Loans for agriculture: Consisting of a type of loan which helps famers to

cover production costs, such as fertilizers, pesticides, seeds, fodder livestock, labor and fuel

- Loans for financial institutions: Consisting of credit to banks, financial

companies, financial leasing companies, insurance companies, credit funds and other financial companies

- Loans for individuals: Consisting of a type of loan which helps customers

meet their demands for expensive items or loans to cover the costs of ordinary life, which were issued through credit card

- Loans for Rentals: Renting financial institutions include two categories,

chatterer operating and financial leasing Leased assets include real estate and real products, which are mainly machinery

2.2.2 Based on loan term

Based on this criterion, lending is usually divided into three following categories:

- Short – term lending: This type of loan is for less than 12 months, and is

used to offset the shortage of working capitals for the businesses, as well as short – term spending needs of individuals For commercial banks, short – term credit accounts for the highest proportion

- Medium – term lending: According to the current regulations of State Bank

Of Vietnam (SBV), Medium – term loans are loans with a term of 12 months to 60 months Medium – term credit is used mainly for procurement of fixed assets, improvement of equipment, innovations, technologies, expansion of production and business, buildings New projects are small and offer rapid payback period In the field of Agriculture, medium – term loans are usually applied to the following tools: tractors, water pumps, electric pumps, constructions of industrial plants such as coffee, cashew…

- Long – term lending: Long – terms loans are loans which have loan term

over 12 months Credit lending provides long – term needs, such as housing construction, facilities, vehicles with large – scale constructions form new enterprises

2.2.3 Based on the level of trust for customers

- Loans without guarantee: A type of loan is based without collateral, pledge

or the guarantee of a third person but on the credibility of customer itself For the customers who possess honesty in business, strong financial capability, efficient administration, Banks may provide credit based on the reputation of the client itself, rather than the second supplement of debt

- Loan guarantee: A type of loan is supplied based on the appearance of

assets, mortgage or pledge, or guaranteed by a third party For the customers who do not have a high reputation for the bank, the loan must be guaranteed The guarantee is the legal basis for banks to have the second supplement of debt instead of the first uncertain creditors

2.2.4 Based on the mode of refund

- Definite Loan: A type of loan in which both parties agree aforementioned

agreement in specific deadline

- Indefinite Loan: A type of loan which banks may require the borrowing

repayment at any time, but herald a reasonable time agreed in the credit agreement

2.2.5 Based on the credit origin

- Direct Loans: Banks directly provide funds for people who are in needs, and

borrowers also repay loans to banks directly

- Indirect Loans: The loans were made through the acquisition of agreements

or documents and other debts incurred in the billing (or paying) period Commercial Banks indirectly lend under the following categories: discount, dealer paper, or installment and purchase of corporate debt

2.3 The quality of bank credit

2.3.1 The concept of credit quality

Credit quality is the concept of meeting the requirements of clients

(depositors and borrowers) in line with socio – economic development and ensuring the survival, development of the bank Credit quality is formed and guaranteed from two sides: Banks and Customers Therefore, the quality of banking activities not only depends on the bank itself, but also depends on the quality of visitors

In order to better understand credit quality, we can consider the quality of credit in the following aspects:

For customers: Credit quality is well evident in the amount of money that

bank – lenders must have reasonable terms and interest rates, smooth and simple procedures to attract more customers, while ensuring credit principles

For commercial banks: Credit quality is well reflected not only in the

appropriateness of the scope, extent, credit limits suiting Bank’s own strength, also the competiveness in principle repaid on time and with interest

For the Government: Credit quality is reflected in the credit for production

and circulation of goods, contributing to addressing employment and exploitation of potential of the economy, promoting the accumulation and concentration of production, solving relationships between credit growth and economic growth

Credit quality is both a specific concept (shown by such criteria as earnings, delinquency…) and an abstract concept (the ability to attract customers, the impact

on the economy…) Credit quality is influenced by subjective factors (ability to manage, qualified personnel…), as well as objective factors (the change of external environment) Developmental trends of the economy, changes in the market prices as well as regulatory environment all affect credit quality

2.3.2 Factors affecting the credit quality

2.3.2.1 The objective factors

Objective factors involve impacts outside the will of banks and customers, such as natural disasters, changes in the economic management policies, regional adjustment, inappropriate legal framework, market movements in and out, adjustment

in the zoning industry, etc… All of these factors cause state enterprises to face financial difficulties that cannot be overcome Since then, despite good businesses, they cannot repay the debts

2.3.2.2 The Subjective factors

2.3.2.2.1 Factor from customers

Subjective factors involve factors from customers which are originated from

the causes of borrower:

- Business Production lacks stability

- The financial situation is not good

- The management of the business is limited

- Unfriendly attitude and uncooperative borrower

- The phenomenon of deliberate, intentional deception

- Self – financing capacity, low operating capacity, inefficient business management system

The majority of business when borrowing loans from banks always possesses specific and feasible production and business plans However, should those plans not be checked, analyzed, scrutinized, they may be at risk, though the number of firms using their capital for wrong purposes, intentionally causing bank fraud for appropriating property, is not many However, those cases always result

in extremely heavy loss, which may be related to the reputation of officials and adversely affect other businesses

2.3.2.2.2 Factors from the banks

- Policies and procedures of loans are not strictly implemented, without any credit processes and effective management of risk, less attention to customer analysis and classification of credit risk to calculate the loan conditions and the

ability to pay debt For small businesses, lending and individual lending decisions

of banks are often based on experiences, without applying credit scoring tools

- Lack of information about customers or lack of credit information reliability and accuracy for review and analysis before granting credit

- Forecasting capacity, analysis and credit assessment, detection and treatment of loan problems from loan officers remain very weak (especially in sectors which require highly specialized knowledge), from then on, lead to wrong lending decisions Unusually, lending decisions might be correct, but lacks of tests, controls after lending may result in improper use of capital from customers, which banks cannot prevent in time

- Bankers do not strictly observe the regime of credit and loan conditions

- The capacity and quality of some loan officers are not qualified enough, which might result in the problems of management, uses and remunerations of banking officials, causing unsatisfactory effects in the credit quality at the banks

It should be noted that whether the causes stem from customers or from the bank, subjective or objective factors consequently result in the situation that customers not paying debts However, the analysis and clear delineation will cause banks to produced appropriate remedial measures in specific situations

2.4 The evaluating indicators of credit quality

The indicators that are commonly used to assess credit quality are:

2.4.1 The ratio of overdue debt

Delinquency (Overdue debt)

Overdue debt is the whole or part of the original debt that was overdue

regardless of reasons According to the regulation 493: Overdue loans are loans

that a portion or the entire principal and/or interest is overdue

Another definition, overdue debts are debts which are not repaid loans on time, then are not allowed and are not eligible for an extension To ensure strict management, overdue debts in Vietnam banking system is classified by time and divided into 4 groups according to period (from group 2 to group 5)

 Group 2 – Noted debts: the overdue loans less than 90 days

 Group 3 - Substandard debts: loans overdue 90 to 180 days

 Group 4 – Doubtful loans: the overdue loans from 181 to less than 360 days

 Group 5 - Irrecoverable debts: the overdue loans over 360 days

Overdue debt ratio

Overdue debt ratio = 𝑶𝒗𝒆𝒓𝒅𝒖𝒆 𝑳𝒐𝒂𝒏𝒔𝑻𝒐𝒕𝒂𝒍 𝑳𝒐𝒂𝒏𝒔 𝒙 𝟏𝟎𝟎%

The current regulations of the State Bank of Vietnam allows that delinquency rate of commercial banks not exceed 5%

 The percentage of overdue debt below <5% is considered normal

 Overdue debt ratio from 5% to 10% is considered abnormal

 Overdue debt ratio of 10% to 15% is considered high

 Overdue debt ratio of 15% to 20% is considered to be too high, at red alert, resulting in the risk of huge crisis

2.4.2 NPL ratio (Non – performing loans ratio)

Bad debts

Bad debts are loans which are overdue to the period of 91 days and hard to

be repaid or restructured In Vietnam, the NPL include overdue loans which cannot

be recovered, liabilities which are related to pending lawsuits, and government debts which are not risk handling

NPL (or their different names such as debt problems, unhealthy debts, bad debts, creditors cannot claim ) is characterized by these following qualities:

 The customer did not fulfill the obligation to repay the bank when the commitment has expired

 The financial situation of the customers is experiencing negative trends, leading to the possibility that bank cannot recover both capital and interest

 Collaterals (mortgage, pledge or guarantee) are evaluated that sale value is not enough to cover principal and interest

NPL ratio

Under current regulations, this ration must be less than or equal to 3%

According to the decision 493 / QD - NHNN and 18/2007 / QD - NHNN, bad debts of credit institutions include the debt groups from Group 3 to Group 5 as follows:

Group 3: Under standard debt

- Debts which are overdue from 90 days to 180 days

- Debts with restructured repayment period less than 90 days past due restructured period

- Other liabilities are classified into 3 groups according to regulations

Group 4: Doubtful

- Debts which are overdue from 181 days to 360 days

- Debts with restructured repayment term, which are overdue from 90 days

to 180 days within the restructured term

- Other liabilities are classified into 4 groups according to regulations

- Debts which are overdue for more than 360 days

- Debts which the government is reprocessing

- Debts with restructured repayment term than 180 days, overdue from deadline, have been restructured

- Other liabilities are classified into 5 groups according to regulations

2.4.3 Total loans / Total deposits

This indicator shows how many deposits are used to lend to the economy It also represents the efficiency of bank deposits, whether the bank has shown its initiation in creating positive returns from funds mobilized or not

If this index is greater than 1 (> 1), the bank has not done well in raising

capital, less mobilized capital engaged in lending, ineffective ability to raise capital

of banks If this index is less than 1, the bank has not effectively used the entire

mobilization, causing waste

2.4.4 Debt Collection Ratio

This indicator is used to assess the effectiveness of credit in the bank's debt collection High debt recovery represents that debt collection work is progressing well, low credit risk In addition, it also reflects in a certain period, with certain loan sales, how much bank’s capital will be earned

Debt Collection Ratio = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑪𝒐𝒍𝒍𝒆𝒄𝒕𝒊𝒐𝒏𝒔𝑳𝒐𝒂𝒏 𝑺𝒂𝒍𝒆𝒔 𝒙𝟏𝟎𝟎%

2.4.5 Credit Cycle Ratio

Credit cycles are used to measure the rotational speed of bank credit, and it shows the time to recover debts fast or slow If the credit cycle is faster, putting capital into production, the bank's business works out effectively

Credit Cycle Rotation = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑪𝒐𝒍𝒍𝒆𝒄𝒕𝒊𝒐𝒏𝒔

𝟐

CHAPTER 3: BANK CREDIT OPERATION AT VIETNAM BANK FOR INDUSTRY AND TRADE (VietinBank) – BA DINH BRANCH – HA NOI 3.1 Introduction to Bank Credit Operation at Vietnam Bank For Industry & Trade (VietinBank) – Ba Dinh Branch – Hanoi

3.1.1 Overview of the establishment and development of Vietnam Bank For Industry & Trade (VietinBank),

Vietnam Bank For Industry & Trade (VietinBank) was established in 1988

after being separated from State Bank Of Vietnam Being one of the four largest state – owned commercial banks of Vietnam, VietinBank’s total assets account for over 20 percent of the market share of the whole Vietnamese Banking System VietinBank’s Capital resources continue to increasing over the years and have been substantially rising since 1996 with the annual average growth of 20 percent, especially up 35 percent a year against that of last year

VietinBank has developed an operations network comprising of 01 transaction centers, 150 branches, over 1000 transaction offices/saving offices, has established correspondent relationship with 900 banks, financial institutions of 90 countries and territories all over the world VietinBank has been well – renowned by being diversified with 07 independent accounting subsidiaries: VietinBank Leasing Company, VietinBank Securities Company, VietinBank Asset Management Company, VietinBank Insurance Company, VietinBank Fund Management Company, VietinBank Gold and Jewellery Company, VietinBank Global Money Transfer Company and 03 non-profit making units: VietinBank Information Technology Center, VietinBank Card Center and VietinBank Training Center

VietinBank has also become the founder of the following Financial Credit Institutions: Saigon Bank For Commerce & Industry, Indovina Bank (the first joint – venture bank in Vietnam) Vietnam International Leasing Company – VILC (the first financial leasing company in Vietnam), and VietinBank Insurance Company Ltd

With a view to supporting and stabilizing the development of VietinBank Hanoi, VietinBank has decided to establish Ba Dinh Branch – located at the address:

34 Cua Nam Road – Hoan Kiem District – Hanoi

After 16 years since its foundation, the branch has established its own market, with the most income – generating activities of the branch is lending to serve production & consumption of Hanoi enterprises in particular and other entrepreneurs

in general The branch has now operated with a total number of 500 employees, and over 15 transactional offices By operating in a region with so much potential in the capital of the country, Ba Dinh branch owns its promises to open more transactional offices, focus to better customer service, maximize its market, as well as bring out better benefits for the development of VietinBank in particular, and Hanoi in general

3.1.2 Organizational Structure

According to the regulations on organization and operation of Vietnam Bank For Industry & Trade, the Executive Director is directly taking control of Ba Dinh Branch, accompanied by assistance of 02 deputy directors The board of director is fully assisted by over 07 directors of branch departments and trading rooms

The organizational structure of the branch is shown by the following diagram:

3.1.3 Offering products

Compared with the first days of establishment, the main areas of activity from VietinBank are: capital mobilization, credit extension, as well as simple & complicated banking operations

At Ba Dinh Branch in particular, the branch has improved itself to offer a variety of products and utilizing services, as well as meet the increasing needs of customers and operating areas The main products are:

Raising Capital

- Saving deposits with a term, demand deposits (VND, USD,…)

- Deposits with terms of payment, demand deposits (VND, USD )

- Bonus Saving, accumulated savings

Credits

- Short – term loans to meet the needs of production, importing and exporting businesses

- Medium and long – term development projects

- Guaranteeing activities inside the country

- Factoring inside the country

- Loans for home purchase, home repair

- Issuance of Credit cards inside the country

3.2.1 The objective reasons

Since our country became the 150th member of the World Trade Organization (WTO), the world economic situation from late 2007 has happened in a complex and unstable dimension By 2008, the financial crisis around the Globe has made the world economy chaotic, with most developed countries falling into crisis Our

the global economic crisis had an impact on all aspects of social and economic life of the whole country

Firstly, it has been greatly making influences on the growth of total gross

domestic product (GDP – Gross Domestic Product) Prior to the global financial crisis, our country maintained a high – speed growth with stability Since 2008, the GPD growth had been slowed down: specifically in 2008: 6.31%, in 2009: down to 5.32% After the slowdown in 2009, the country’s economy has shown signs of recovery in 2010, with a ratio of 6.78% In the period of 2011 – 2013, with the most significant goal is macroeconomic stability, inflation control, GDP growth has increased to 5.89% in 2011, and by 2012, it has been shrinking down to 5.03% 2012 saw the lowest rate in the growth of economic

Figure 3.1: GDP’s Growth Rate

Source: Statistics Office

The main cause of this decline is due to the steady growth of important fields

in the economy, such as industry, construction and services In particular, the constructing industry has witnessed the highest decline, with main reasons coming from the icing of powerful real estate, the narrow – down of investments due to high costs of using capitals

Secondly, the trade balance and deficit problem both become reasons causing

the decline Vietnamese consumers tend to show interests in using foreign products However, domestic products always need materials coming from abroad, exported goods are mainly raw products, imported products are processed, therefore, a big gap

in the differences of prices has been created, leading the competitiveness of our country in the international market Low competitiveness in the world market has made lower our export growth, hence could not offset the need for admission, though the state have been taking a number of measures The consequences resulted in our country’s deficit in two consecutive years (from 1993 – 2012) Besides, there came a good signal that trade deficit is declining and by 2012, the country has a trade surplus

of 780 millions

Figure 3.2: Exports – Imports – Trade Balance of Vietnamese Goods

Though the trade deficit is declining, demand for foreign currency of our country still remains large In 2010, the ratio was 17.4% of total exports, equivalent

to the trade deficit of 12.6 billion dollars In 2011, trade deficit has fallen down to 10.2%, corresponding to the trade deficit of 9.8 billion dollars From those figures,

we can see the demand of currency still remains large, in which the USD rate is still high and stable

Thirdly, there come the issues of investment and investment efficiency In our

country, though demands of investment funds still remain large, they do not effectively operate In the periods of 2006 – 2007, the proportion of social capital has always occupied a high portion in GDP, with the percentage of GDP accounting for 46.52% However, in recent years, this percentage tends to decline By 2013, this proportion was only 35.5% According the analysis of proportion of GDP invested in the period of 2010 – 2014:

- The public sector has declined by 11%, caused by the policy of cutting public investment funds in recent years

- The operation of non – state enterprises mainly relied on borrowing capital

to expand production and business However, difficulties in economic situation, along with the constant rising of interest rates have caused lots of difficulties, such as the declination of the percentage of GDP invested in external sectors: 3.96%

- Attracting foreign investment is increasingly under – developed, science and technology is not promoted efficiency, labor skills are limited All of these factors contribute to the declination of percentage of GDP invested in the area of foreign investment (FDI), down to 18.54%

 Enterprises operating inefficiently mean a reduction of these sectors contributing to the growth of the country

Fourthly, Inflation still remains a huge problem in our country We can

conclude that Vietnam is a typical case of high inflation, as well as certain

achievements in the fight against inflation Our country’s inflation rate in 2011 was 11.75%, 2012: 18.13%, but in 2013: only 6.81% lower in the past year The main reason behind those figure is that our government has rapidly launched stimulus packages to prevent the decline of the economy, to ensure stability and maintain social security system after the damage and loss caused by the global economic crisis The harmful effects of inflation is a vicious cycle, in which consumer price index will

be rising, demands will be reduced, manufacturers cannot sell their products, high inventories, operating results losses, inability to pay wages to workers and employees

Finally, our country’s stock market contributed as a factor of this declination

In the period 2006 – 2007, stock market developed strongly in our country, many investors earn a huge amount of money after a transaction However, due to the impact of world economic crisis and instability of macro economy, the stock market goes down strongly In 2009, stock market saw signs of recovery, as well as the volume of some indicators; however, stock market always fluctuated with downward trends from 2010 – 2014

Facing a number of events relating to the economic situation, the government has suggested numerous solutions: inflation was curbed, reflecting in the increase of consumer price index in the downward trend Many exporting products increased in volume, especially agricultural products A lot of construction projects are speeding

up, people’s life is paid full concern However, productions and businesses of enterprises still face many difficulties, especially processing industries In the conditions of competitiveness both in and out of the country, many businesses, especially medium – sized enterprises and small ones were in danger of going bankruptcy Consumer’s demand for exporting goods and domestic consumption reduced, which resulted in the high levels of merchandise inventories Prices of many crops has been facing downward trend, which has affected production and people’s incomes