Efficiency of consumer lending at joint stock bank for investment and development of vietnam (bidv) dong do branch situation and suggestions,graduation thesis

EFFICIENCY OF CONSUMER LENDING AT JOINT STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIET NAM BIDV – DONG DO BRANCH - SITUATION AND SUGGESTIONS Student: Tran Thi Hoang Anh Class: AT

EFFICIENCY OF CONSUMER LENDING AT JOINT

STOCK BANK FOR INVESTMENT AND DEVELOPMENT OF VIET NAM (BIDV) – DONG DO BRANCH - SITUATION AND SUGGESTIONS

Student: Tran Thi Hoang Anh

Class: ATCA – K12 Supervisor: Nguyen Thi Hien Hanh (M.A)

BANKING ACADEMY OF VIET NAM

FACULTY OF FOREIGN LANGUAGES

GRADUATION THESIS

ACKNOWLEDGEMENTS

I would like to express my profound gratitude to all those who gave me the possibility

to complete this thesis First of all, I want to give special thank to my supervisor, Mrs Nguyen Thi Hien Hanh (M.A), whose help, stimulating suggestions and encouragement helped me in all the time of research for and writing of this thesis Furthermore, my grateful thanks go to the Individual Customer Relationship Department of BIDV Dong Do Branch in general and Mrs Pham Thi Huong, my instructor, in particular, who supported and provided me with major materials and data collection for the study

I would also like to acknowledge with much appreciation the role of my senior, Mr Nguyen Thanh Tung, who gave me some academic comments to make my thesis more logical and effective

Last but not least, I am very grateful for my family and my friends, who encouraged and motivated me throughout the entire process

EXECUTIVE SUMMARY

Traditionally, most banks in Viet Nam only focus on loans to corporate clients while tend to ignore those to individual customers However, in recent years, thanks to globalization with the participation of many foreign banks in Viet Nam banking industry, consumer lending has become a more important part in the banking operations

This operation would bring a lot of benefits to not only the banks, but also the customers and the whole economy Some experts have claimed that consumer lending will be a potential source of profit if banks pay much attention to this lending activity Therefore, it is necessary for banks in general and Joint Stock Bank for Investment and Development of Viet Nam in particular to assess their current consumer lending in some aspects like: revenue, profit and overdue debt By thorough assessment, some suggestions could be applied to enhance the efficiency of profitable consumer lending

TABLE OF CONTENTS

ACKNOWLEDGEMENT i

EXECUTIVE SUMMARY ii

LIST OF TABLES AND FIGURES v

LIST OF ABBREVIATIONS vi

CHAPTER 1: INTRODUCTION 1

1.1 RATIONALE OF THE STUDY 1

1.2 AIMS OF THE STUDY 2

1.3 RESEARCH QUESTIONS 2

1.4 SCOPE OF THE STUDY 3

1.5 METHODS OF THE STUDY 3

1.6 ORGANIZATION OF THE STUDY 4

CHAPTER 2: LITERATURE REVIEW 5

2.1 LITERATURE REVIEW OF CONSUMER LOAN 5

2.1.1 Definitions of consumer loan 5

2.1.2 Characteristics of consumer loan 5

2.1.3 Classification of consumer loan 7

2.1.4 Roles of consumer loan 9

2.2 LITERATURE REVIEW OF EFFICIENCY OF CONSUMER LENDING 11

2.2.1 Definition of efficiency of consumer lending 11

2.2.2 Indicators measuring the efficiency of consumer lending 11

2.2.3 Factors affecting the efficiency of consumer lending 12

CHAPTER 3: EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO BRANCH 17

3.1 OVERVIEW OF BIDV DONG DO BRANCH 17

3.1.1 Introduction to BIDV Dong Do branch 17

3.1.2 Business performance at BIDV Dong Do branch from 2010 - 2012 18

3.2 CONSUMER LENDING AT BIDV DONG DO BRANCH 21

3.2.1 Types of Consumer Loans at BIDV Dong Do Branch 21

3.2.2 Consumer Lending Performance at BIDV Dong Do from 2010-2012 24

3.3 ASSESSMENT OF EFFICIENCY OF CONSUMER LENDING AT BIDV

DONG DO BRANCH 30

3.3.1 Achievements 30

3.3.2 Limitations 31

3.3.3 Reasons for limitations 32

CHAPTER 4: SUGGESTED SOLUTIONS TO ENHANCE EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO AND CONCLUSIONS 35

4.1 SOLUTIONS 35

4.1.1 Applying flexibly the customer policy of BIDV and building customer policies in accordance with the conditions of BIDV Dong Do 35

4.1.2 Promoting marketing activities 36

4.1.3 Developing transaction office network 37

4.1.4 Complying with processes and regulations governing consumer lending as a measure of risk management 37

4.1.5 Improving quality of the staff 38

4.1.6 Developing consumer lending to individual customers based on business customer relationships with BIDV Dong Do 39

4.2 RECOMMENDATIONS 40

4.2.1 To the State management agencies 40

4.2.2 To the State Bank of Viet Nam 40

4.2.3 To Joint Stock Bank for Investment and Development of Viet Nam 41

4.3 CONCLUSION 41

REFERENCES 43

LIST OF TABLES AND FIGURES

LIST OF TABLES

Table 3.1: Fund Mobilization at BIDV Dong Do Branch (2010-2012) 19

Table 3.2: Funding structure at BIDV Dong Do Branch (2010-2012) 19

Table 3.3: Credit outstanding balance structure at BIDV Dong Do Branch 20

Table 3.4: Non-performing loan ratio at BIDV Dong Do Branch (2010-2012) 20

Table 3.5: Profit before tax at BIDV Dong Do Branch (2010-2012) 21

Table 3.6: Consumer outstanding balance at BIDV Dong Do Branch (2010-2012) 24

Table 3.7: Consumer loans classified by loan maturity at BIDV Dong Do 25

Table 3.8: Classification of consumer loans by products and service at BIDV 25

Table 3.9: Revenue from consumer lending at BIDV Dong Do Branch (2010-2012) 27 Table 3.10: Debt classification at BIDV Dong Do Branch (2010-2012) 28

Table 3.11: Profitability ratio from consumer lending at BIDV Dong Do Branch (2010-2012) 29

Table 3.12: Provision from consumer loan losses at BIDV Dong Do (2010 – 2012) 30

LIST OF FIGURES Figure 3.1: Funding structure at BIDV Dong Do Branch (2010 – 2012) 19

Figure 3.2: Consumer outstanding Balance at BIDV Dong Do (2010-2012) 24

Figure 3.3: Classification of consumer loans by products and service at BIDV Dong Do (2010-2012) 25

Figure 3.4: Revenue from consumer lending at BIDV Dong Do (2010-2012) 26

Figure 3.5: Debt classification at BIDV Dong Do (2010-2012) 27

LIST OF ABBREVIATIONS

BIDV Joint Stock Bank for Investment and Development of Viet

Nam

BIDV Dong Do Joint Stock Bank for Investment and Development of Viet

Nam – Dong Do Branch SBV The State Bank of Viet Nam

NPL Non-performing loan

IT Information Technology

Techcombank Vietnam Technological and Commercial Joint Stock Bank SeABank Southeast Asia Commercial Joint Stock Bank

CIC Credit Information Center

GDP Gross Domestic Product

CPI Consumer Price Index

ANZ Australia and New Zealand Banking Group Limited

HSBC Hongkong and Shanghai Banking Corporation

CHAPTER 1

INTRODUCTION

1.1 RATIONALE OF THE STUDY

Consumer loans had been introduced a long time ago in European countries as a tool

to satisfy people’s expectations However, until the early twentieth century, most consumers had limited access to credit, or found it quite expensive Only the richer or more politically powerful were able to obtain personal loans from commercial banks because banks did not grant consumer loans to the general public

Access to credit was a privilege reserved for the elite and getting a personal loan meant more than just filling out an application It required signing countless documents, often including co-signors, collateral, waiting for approval and, if approved, the applicant would have to endure a repayment lecture from the bank officer before receiving the loan

Today, sophisticated processes allow consumers to get credit or a personal loan in a variety of manners In addition, as a result of the whole society’s development, people’s incomes have been increasing over time People now expect more things than ever before They do not want to wait 20 years to accumulate enough money for a nice house, or 5 years to afford a car That might lead to the prosperity of consumer loans

in the world in general and in Viet Nam in particular

In recent years, Vietnamese’s average income has been going up and their consumption demand, in turn, has been rising However, sometimes, their finance abilities are not sufficient to these demands Therefore, commercial banks have launched and developed consumer loans to help customers meet their needs sooner This operation has been noticed and flourished in recent times The participation of many commercial banks creates a fiercely competitive environment Moreover, the involvement of some worldwide famous retail banks like: HSBC, ANZ… forces banks introducing more new products services The activeness of this field is also added by a global payments technology company, Visa and other organizations Bank for Investment and Development of Viet Nam (BIDV) is not an exception in this sector

With 50-year experience and professional labor force, its target is to become one of the commercial banks holding the leading position in the retail sector

However, since 2009, Vietnam’s economy has suffered detrimental effects of global economic crisis like: decreasing GDP and tightened consumption in the public Therefore, the government and the State Bank of Viet Nam have passed some regulations to stimulate production and consumption As a result, Viet Nam’s economy has gradually recovered The economic recovery leads to the increase in consumption demand, which is the condition for the development of consumer lending Moreover, in comparison with wholesale credit, consumer loans are gradually considered as a type of retail credit with many advantages such as: spreading risk, developing many services This is proved by its larger proportion in debt balance of many commercial banks as well as BIDV With the hope of providing a deeper view about consumer loans at BIDV Dong Do branch, the researcher attempted to

investigate into the topic “Enhance efficiency of consumer lending at BIDV Dong

Do Branch – Situation and Suggestions”

1.2 AIMS OF THE STUDY

An attempt was made to study deeply efficiency of consumer lending operation in a branch of a particular bank The aims are:

 To provide theoretical background of consumer lending operation, its types and benefits to equities in the economy

 To analyze and evaluate efficiency of consumer lending in BIDV - Dong Do Branch

 To suggest some solutions and recommendations to improve consumer lending

at BIDV – Dong Do Branch

1.3 RESEARCH QUESTIONS

The study was done to answer the two following questions:

(1) How efficient is consumer lending at BIDV Dong Do Branch?

(2) How to improve the efficiency of consumer lending at BIDV Dong Do Branch?

1.4 SCOPE OF THE STUDY

The study only focuses on consumer lending at BIDV Dong Do branch from 2010 to

2012 and suggested solutions to enhance this operation in the coming years

The data of the study is achieved only at BIDV Dong Do Branch Hence, the evaluation is only practical to this branch, not to the whole BIDV system

1.5 METHODS OF THE STUDY

1.5.1 Research Methods

The study uses some main research methods as follows:

Quantitative research method

Quantitative method is a research method, which is focused on the collection and analysis of numerical data and statistics

The thesis takes BIDV Dong Do branch as a case study to analyze growth as well as efficiency of consumer lending over the last 3 years, from that making some suggestions on how the branch can improve its operation

Comparison method

The study compares statistics in the period of 2010 – 2012, then indicating the increase

or decrease of criteria over the years

1.5.3 Subjects of the study

The main subject of the thesis is consumer lending at BIDV Dong Do Branch The author clarifies the real situation and suggests some solutions to this operation

1.6 ORGANIZATION OF THE STUDY

The study includes four main chapters

Chapter 1: Introduction – This chapter introduces some main characteristics of the

thesis including the rationale, aims, scope and methods of the study as well as research questions

Chapter 2: Literature review – This chapter provides a general knowledge about

consumer loans, efficiency of consumer lending as well as the role and affecting factors to this operation

Chapter 3: Efficiency of consumer lending at BIDV Dong Do branch - It is the most

important part of the study in which consumer lending of BIDV Dong Do branch is analyzed and evaluated

Chapter 4: Suggested solutions and conclusion - In this chapter, some strategies and

recommendations are suggested in order to improve the efficiency of consumer lending at BIDV Dong Do branch

CHAPTER 2 LITERATURE REVIEW 2.1 LITERATURE REVIEW OF CONSUMER LOAN

2.1.1 Definitions of consumer loan

There are several different definitions about consumer loan, such as:

- Consumer loan is a type of loan financing consumption demand of individual and household customers (Banking Academy (2001) Credit, p 231)

- Consumer loan means a secured or unsecured loan given to customers for personal, family, or household purposes, or for consumable items such as cars, boats, manufactured home, home equity loan and recreational vehicle

(http://definitions.uslegal.com/c/consumer-loan)

From the above definition, in general, it can be summarized that: “Consumer loan

means a credit relation between a bank and an individual or household customer, in which the bank transfers a certain amount of money to the borrower for consumable purposes such as cars, boats, home loan, recreational vehicles… under terms and conditions in the signed contract” It is usually given on the basis of borrower's

integrity and ability to repay

Thus, the definition of consumer lending is: “Consumer lending is one of the banks’

operation involving transferring consumer loans to borrowers”

2.1.2 Characteristics of consumer loan

2.1.2.1 Scale of consumer loan

The most striking characteristic of consumer loans is that the number of borrowers is

so large while the loan value is often small Consumer loans take banks a large amount

of time, cost and labor force; meanwhile, the amount of loans is so small Thus, the average cost for each contract tends to be high

Moreover, consumer loans also tend to be cyclically sensitive They rise in periods of

economic expansion when consumers are generally more optimistic about the future

On the other hand, when the economy goes down, many individual and families become more pessimistic about the future and reduce their borrowings accordingly

2.1.2.2 Interest rates of consumer loan

Consumer loans’ interest rates are often higher and “stickier” than those in commercial and industrial fields That is, they are typically priced well above the cost of funding them, but their contract interest rates often do not change readily with market conditions as do interest rates on most business loans, though flexible-rate consumer credit appears to be growing This means that many consumer loans are exposed to significant interest rate risk However, consumer loans are usually priced so high (i.e., with a large risk premium built into the loan rate) that market interest rates on borrowed funds and default rates on the loans themselves would have to rise substantially before most consumer credits would become unprofitable

Household borrowings appear to be relatively interest inelastic: Consumers are often more concerned about the size of monthly payments required by a loan agreement than the interest rate charged (though, obviously, the contract rate on a loan influences the size of its required payments)

2.1.2.3 Applicants of consumer loan

Obviously, applicants of consumer loans are individuals and families They must have suitable legal capacity They can be state or private employees, freelancers…

While the level of the interest rate is often not a significant conscious factor among household borrowers, both education and income levels do materially influence consumers’ use of credit Individuals with higher incomes tend to borrow more in total and relative to the size of their annual incomes Those households in which the principal breadwinner has more years of formal education also tend to borrow more heavily relative to their level of income For these individuals and families, borrowing

is often viewed as a tool to achieve a desired standard of living rather than as a safety net to be used only in emergencies

2.1.2.4 Risks of consumer loan

Lending operation of commercial banks always has potential risks and consumer lending is not an exception The interest rates on consumer loans usually are several times higher than that for many types of business loans Just consider in two angles:

+ Interest rate risk: As mentioned above, since consumer loans’ interest rates often are fixed and inflexible, it is priced with a profit margin and compensation for risk added However, when market interest rates increase, banks have to offset fund raising’s interest rates while can not change consumer loans’ interest rates To tackle with this situation, many commercial banks apply the policy of adjustable floating rate every 3 months

+ Credit Risk: The source for consumer loans’ payments stems from the future income of customers, not profits gained from the loans Therefore, banks have to suffer both objective and subjective risks For example, economic situation, diseases,

or disasters, etc…affect badly creditworthiness of debtors Furthermore, an individual can not adjust to risks like: injury, ill health or financial setbacks as easily as a business firm As a consequence, banks might not collect their loans

2.1.3 Classification of consumer loan

2.1.3.1 Classification by purpose

- Residential Consumer Loans: Are credit to finance the purchase or construction

of a home or to fund improvements on a private residence The purchase of residential property in the form of houses and multifamily dwellings (including duplexes and apartment buildings) usually gives rise to a long-term loan and often secured by the property itself

- Nonresidential Consumer Loans: Are credit to finance the demand of

improving living condition like: the purchase of home appliances, auto, home repairs, tourism, study abroad or entertainment, etc Nonresidential consumer loans are often made for a short period and smaller in volume than that of residential loans

2.1.3.2 Classification by repayment method

- Installment Consumer Loans: Are loans repayable in two or more consecutive

payments (usually monthly or quarterly) in the term of loans Such loans are frequently employed to buy big-ticket items (e.g.: automobiles, recreational vehicles, furniture, and home appliances) or consolidate existing household debts This type of loans is riskier because customers often use their own installment goods as collaterals

- Non-installment Consumer Loans: Are loans in which individuals and families

draw upon for immediate cash needs that are repayable in a lump sum Such loans may

be for relatively small amount and short period Non-installment credit is frequently used to cover the cost of vacations, medical care, the purchase of home appliances, auto and home repairs

- Revolving Consumer Loans: Are one of the most popular forms of consumer

credit which is accessed via credit cards or issuing overdraft cheque based on current accounts More specifically, after banks assess spending demand and monthly income

of customers, they will lend them and allow them to pay off gradually Since revolving credit is unsecured and the cost of managing it is so high (e.g.: reserve funds, processing credit card including check fraud…), its interest rates are often higher than other kinds of consumer loans

2.1.3.3 Classification by loans’ origin

- Direct Consumer Loans: Are the form of consumer loans in which banks and

customers meet in person to make loans and collect debts This type has some advantages Firstly, banks can take advantages of its human resources, who have both academic knowledge and experience in credit field Bank clerks’ decisions are often more qualified than that of retail companies Secondly, when clients have a direct relationship with banks, there will be many other benefits for both of them, such as: clients can deposit or use some other banks’ services…However, it also has some drawbacks like: difficulty in enhancing and rising lending revenues, high lending cost

- Indirect Consumer Loans: Are the form of consumer loans in which banks

purchase the loans retail dealers grant customers By this method, banks provide loans through retail dealers or companies, not contact directly with customers Contrary to direct loans, indirect loans enable banks to enhance and increase lending sales, save and reduce lending expenses, improve their relationship with clients, and lower risks if banks have a good and solid relationship with retail businesses Nevertheless, this form also has some disadvantages Banks do not talk to debtors, so it is difficult to evaluate accurately status of credit applicants because businesses are not qualified enough to analyze and appraise customers Banks lack control when retail businesses sell on

credit to their clients Moreover, technical and operation process of this form of consumer loans is very complicated due to the participation of many parties

2.1.3.4 Classification by guarantee method

- Consumer loans secured by properties formed from credit granting: If clients

want to ask for a loan but they do not have any collateral or their collateral not relevant

to the banks’ conditions, banks can request them to use properties formed from credit granting as a pledge Take a customer borrows money to buy a car for example The bank can request to use that car as collateral and sell that car if the customer can not pay the debt To ensure that customers will not sell or degrade the value of guarantees, banks often require them to commit to preserve properties as well as transfer all ownership documents to the banks

- Collateral Loans: Is a form of consumer loans in which a bank lends a customer

if the customer transfers the control right of collaterals to the bank in the period of time committed Collaterals are often assets which banks can control and preserve firmly and banks’ holding does not affect the operation of customers, such as: valuable papers, hard currencies, precious metals…

- Mortgage Loans: Is a form of consumer loans in which a bank lends a customer

if the customer transfers the ownership documents of the guarantee to the bank in the period of time committed In this case, guarantees are usually immovable properties like: houses, land usage rights…Borrowers still use the properties in the loan term However, the use might deform the assets while control ability of banks is limited In addition, the valuation of pledges also requires a thorough appraisal to avoid overvaluation (causing risks to banks) or undervaluation (affecting the value of the loan for customers)

2.1.4 Roles of consumer loan

Consumer loans were launched for a long time and today, they are still one of the most important sources of income in the performance of banking industry Obviously, this form of loan brings many benefits to not only commercial banks but also other equities

in the society

2.1.4.1 To banks

First of all, consumer loans contribute to enhance competitiveness of banks against other organizations, attract new clients and thereby expand the relationship with customers By expanding the network, diversifying products and improving service quality, there will be more and more customers applying for the banks’ services and in turn, the reputation of the banks will be stronger

Second, consumer loans are also a very effective marketing tool for banks to promote their images Therefore, banks will also mobilize more deposits from residential sources

Third, consumer loans are a way for banks to expand and diversify their operation Hence, this type of loans helps increase income and reduces risks for banks

2.1.4.2 To clients

Firstly, customers can meet their needs before having enough money to afford More importantly, these loans are very essential in urgent circumstances like: expenses for education and health

Secondly, customers can create a good relationship with banks By consumer loans, customers have contacted with banks All their behaviors and credit history are saved

in the banking system In the future, if they want to apply for a new loan, the appraisal time will be shortened and their application will be approved more quickly

2.1.4.3 To the economy

Firstly, thanks to consumer loans, citizens’ living condition is improved, their spirits are raised Hence, their working efficiency and productivity are greater, contributing to the development of the economy

Secondly, consumer loans stimulate consumption significantly As a consequence, the economic development will be stimulated This will help to reduce the unemployment, increase the average income, limit social evils and promote the economic growth

In conclusion, consumer loan is the loan to individual and household customers to serve their consumption demand This type of loan’s volume is not large but its roles

to our economy as well as to banks and customers are not deniable

2.2 LITERATURE REVIEW OF EFFICIENCY OF CONSUMER LENDING

2.2.1 Definition of efficiency of consumer lending

Credit efficiency is constituted by three factors: Safety, profitability from lending and stability of capital demand

Credit efficiency is a prerequisite for the existence and development of the bank It is because lending activity is the main source of banks’ profit, but has many potential risks threatening banks’ operations Thus, improvement in credit efficiency is a vital issue to banks

Consumer loan is the form of loans classified by financing purposes Therefore, efficiency of consumer lending also bases on the concept of credit efficiency

2.2.2 Indicators measuring the efficiency of consumer lending

- Indicator shows potential risks of consumer lending

Formula:

This indicator reflects the percentage of potential losses in the total amount owed to clients in consumer credit activity The higher the ratio is, the greater potential losses are, reducing the efficiency of consumer loans

- Indicator shows profitability from consumer loans

Formula:

Income from consumer lending is the difference between revenue and expenses of consumer lending This indicator reflects profitability of one unit of consumer loans in the business cycle The higher this indicator, the greater the profitability is

- Indicator shows quality of consumer lending

consumer loan ratio

This indicator reflects bad debt rooted from consumer loans at banks This is also the non-performing consumer loan ratio The higher this indicator is, the greater the risk will be Hence, it is more possible for banks to suffer losses

In addition, it is necessary to compare the indicators of consumer loans with those of other loans before coming to a decision about efficiency

2.2.3 Factors affecting the efficiency of consumer lending

Some following factors are partly referred to the textbook Bank Credit and some

online sources and also based on the real situation of Viet Nam’s banking system at present

2.2.3.1 Objective factors

Customers

+ Morality: It is very critical because it represents repayment willingness to

banks of borrowers Borrowers who have high salaries or high-quality collaterals but

do not have good morals might not have repayment goodwill in the future Therefore, customers’ ethics are the absolute prerequisite for banks’ loans

+ Financial ability: Come next to ethics is financial ability because this ability

determines creditworthiness For high-salary customers, repayment do not affect significantly other consumption demands (especially essential demands) Thus, lending these customers is less risky Banks need to control current financial situation

of each customer as well as its trend in the future To forecast trends in the future, banks can analyze some factors like: working place, job, labor contract…

+ Collaterals: Loans backed by collaterals are safer than other ones If a

customer can not make repayment, the bank can sell collaterals to recover all or a part

of the loan

Law

All individuals and organizations in each country are governed by the legal system Commercial banks are not exception Moreover, banks’ business is a very sensitive area, whose main activity is currency trading Therefore, the supervision of the State

Bank is very important Banks always have to comply with regulations of the State Bank, credit institution law, civil law and other regulations

If legal regulations are not clear, asynchronous, lax and unstable, it is very hard for banking business in general and credit activities in particular to run smoothly Furthermore, enterprises also do not operate well in such an environment They will cut off investment, which results in slower development of the economy and a decrease in people’s income This will reduce consumption demand and in turn, consumer loans

On the other hand, stable and strict legal environment will encourage investors, promote economic development and rise people’s consumption

Economy

Indicators like: GDP, growth speed, inflation rate, CPI and unemployment rate reflect truely economic situation of a country Obviously, economic prosperity will drive to personal prosperity In a country with a low unemployment rate and high GDP, citizens might give people more opportunities to earn more money People also desire more valuable things like houses, cars or boats Accordingly, consumer loans would have more chance to develop

Political situation has strong effects on the economy, so it also influences consumer loans

Cuture and Society

Elements of culture and society including : social customs, consumption habits, education level, tastes of people, social security also have a significant impact on

consumer loans In a community with a habit of enjoyment, people want to meet their needs quickly and desire to improve and enhance their own lives, thus consumer loans will have more opportunity to develop On the contrary, for a community in which individuals mostly do not like shopping or do not want to consume exceeding their current income, people prefer saving money to borrowing money for consumption Therefore, it is difficult for banks to develop consumer credit in such an environment

In addition, security situation also contributes significantly to the promotion of consumer loans In a safe society, people have greater demand for spending and enjoyment Thus, more and more individuals are applying for banks’ finance to satisfy their demand

Competitors

Competitors are the direct factor affecting quality of banking business The main competitors in the market may be direct competitors or potential one The direct competitors often fiercely compete by diversifying products and service, launch new services with a consistent pricing policy Meanwhile, potential competitors with the ample financial resources can learn from the failure of other banks and cause pressure

on the current banks This increasingly requires banks to improve and enhance the quality of products, services including consumer credit if they do not want to lose market share Moreover, banks should not only research their own business strategy but also business strategies of competitors to have prompt measures

2.2.3.2 Subjective factors

Banks’ human resources

When evaluating applications for consumer loans, credit officers will interview the applicants Hence, they have to have not only good expertise but also knowledge of psychology, habits, preferences of each customer group, an understanding of goods and service market The success or failure of a business organization, in addition to infrastructure, the human factor plays a very important role To promote its activities, the bank should have a long-term and updated training strategy, along with appropriate remuneration to attract and retain the best people This is the foundation for the development of any equity, not only banking system

Banks’ appraisal

Appraisal process takes customers a lot of time and that loses customers’ interests in consumer loans Therefore, if banks carry out appraisal quickly and accurately, they will make an impression on clients However, the efficiency of appraisal process depends on policies, guidelines, procedures and banks’ staff capacity Hence, to improve efficiency of appraisal, banks had better pay much attention to the recruitment, training, development of appropriate and strict process and guidelines

Banks’ technology

Information technology plays an important role in the expansion of consumer credit It has an impact on customer information management, disbursement transactions, debt monitoring, credit portfolio management, development of different products and services (e.g.: Visa products, ATM, ) Technology contributes to create reputation for banks and trust for customers when dealing Banks now has applied advances in information technology into their activities in order to support business development Therefore, banks with modern information technology system will have more chance

to expand their business in general and consumer lending in particular

Credit policy

Credit policy is the general orientation to credit officers and the bank staff, enhances specialization in credit analysis, creates consistency to reduce credit risk and improve competitiveness Credit policy is considered in some angles: credit growth orientation, policies on borrowers, collaterals, equity rates, financial indicators,

If a bank launches an expansionary credit policy, the bank's activities focus on loan growth Otherwise, if a bank implements a key credit policy, it will focus on a group

challenge because it does depend on not only the bank on its own but also many other harsh factors The very next chapter will specify the consumer lending performance at BIDV Dong Do branch from 2010 to 2012

CHAPTER 3 EFFICIENCY OF CONSUMER LENDING AT BIDV DONG DO BRANCH

3.1 OVERVIEW OF BIDV DONG DO BRANCH

3.1.1 Introduction to BIDV Dong Do branch

3.1.1.1 The formation and development

BIDV was founded on 26th April 1957 under the name Bank for Construction of Vietnam And from 27/04/2012 to present, it operates under the name Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) Over the past

55 years, BIDV has always held a leading role in banking system

BIDV Dong Do Branch was established on the basis of upgrading transaction office

No 2 and came into operation from July 31st 2004 under the Decision No HDQT dated July 5th 2004 of the BIDV’s Board Management BIDV Dong Do Branch

191/QD-is one of the pioneer branches focusing on retail bank, operate with modern business processes and banking technologies

3.1.1.2 Organization structure

Manager

Vice Manager

Planning Department

Risk Management Department

Administrative Department

Vice Manager

Accounting Department

Saving Funds

Treasury Department

IT Department

Vice Manager

Corporate and Individual Banking Department

SVS Team

Vice Manager

Transaction Offices

Credit Management Department

BIDV Dong Do Branch is organized in 5 sections, including operation section,

customer relationship section, risk management section, internal section and

subordinate section

Operation section includes:

 Credit administration department

 Corporate transaction department (including international payment team)

 Individual transaction department

 Treasury department

Customer relationship section includes:

 Customer relationship department No 1 and 2

 Individual customer relationship department

Risk management section includes risk management department

Internal section includes:

Subordinate sections includes: Transaction offices at Grand Plaza, Trung Hoa, Vinh

Ho, Hang Bong; Savings funds at Xa Dan, Trung Yen, Doan Thi Diem, Kim Lien, Pham Ngoc Thach, Thai Ha

3.1.2 Business performance at BIDV Dong Do branch from 2010 - 2012

3.1.2.1 Fund mobilization

The total amount of funds raised at BIDV Dong Do Branch has been increasing over the time By 31/12/2012, liabilities and equity at this branch reached 6,436 billion VND, which was 22.6% higher than that in 2010