G1_00195 STRATEGY ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISES AT VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT - NORTH HANOI BRANCH IN 2011-2015 PERIOD

G1_00195 STRATEGY ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISES AT VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT - NORTH HANOI BRANCH IN 2011-2015 PERIOD

G

Global Advanced

GRIGGS

INIVERSITY

2APSTONE PROJECT REPORT

STRATEGY ON EXPANDING AND

CEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM - SIZED

ENTERPRISES AT VIETNAM BANK FOR

AGRICULTURE AND RURAL

DEVELOPMENT - NORTH HANOI! BRANCH

IN 2011 - 2015 PERIOD

Nguyen Thi Thu Hang

Cao Xuan Dong

Nguyen Duy Toai Hoang Van Ngoc

Class: GaMBA01.X0210

Ha Noi, 2011

CHUONG TRÌNH ĐÀO TẠO GRIGGS THAC SI QUAN TR| KINH DOANH QUOC TE

UNIVERSITY Global Advanced Master of Business Administration

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1.3.ROLE OF BUSINESS STRATEGY FORMULATION TO ENTERPRISES 16 CHAPTER II: REAL SITUATION OF CREDIT SERVICE FOR SMALL AND

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SEF CHUONG TRINH BAO TẠO

C rRIGGS THAC SI QUAN TR| KINH DOANH QUOC TE

UNIVERSITY _ Global Advanced Master of Business Administration

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DEVELOPMENT - NORTH HANOI BRANCH IN 2011 - 2015 PERIOD 45 3.1 ORIENTATION ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISES OF VIETNAM BANK’ FOR AGRICULTURE AND RURAL DEVELOPMENT — NORTH HANOI BRANCH IN

2011 ~2015 PERIOD) 00: cistsnsinnscstscasstnsceecdaa snseain sawn nnnwnaAENS RAN con MRR i73 VRB)293/13015 8ã KỆ 45

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3.3 SOLUTIONS TO IMPLEMENT THE STRATEGY ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISE OF AGRIBANK — NORTH HANOI BRANCH IN 2011 - 2015 PERIOD ics cncsnenanenanns nano tha ngnng nhi t00n8DE100101000010D0DĐTSGHDVĐS00DG/1408G039A0015 SS0/02/000/701000013H0/983/00P 53

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“xe CHƯƠNG TRÌNH ĐÀO TẠO

CSR IGG THAC Si QUAN TR| KINH DOANH QUOC TE

Global Advanced Master of Business Administration UNIVERSITY

LIST OF FIGURE Figure |.1: Process of strategy formulation by SWOT ects 12 Pigs 1.21 SPM NAGS sescemmaccmnsr come remcscreremramcmecmraeremrmnersn remem wansennnin in den geienmim 16 Figure 1.3 -Organizational structure of the Head Office - -:+++++c+cses: 18 Figure 2.1 Intemal-Extermal, Matrix «cscccreccseueoesneranmecernserererseiesamennenmannanin ous ceeeanannaeat 44 Figure 3.1: Strategies on SPACE Matrix S2 + 50

LIST OF TABLE

Table 1-1: Five Forces Model by Michael E Porter- ¿55+ Scssreeresereee 10 Table 1-2: SWOT ÌMatrlX 5 19v ng TT TH HH TH HH 15 Table 2.1 Results of capital mobilization at AgriBank - North Hanoi Branch in 2008-

2010 Period, ssscssssssca ance men amanncen cm nENN oR eENeNS cELOND RECUR 870398379089 9E HE GPENDSI 20

Table 2.2 Results of credit activity at AgriBank — North Hanoi Branch in 2008 — 2010 period 21 Table 2.3 Financial results of AgriBank — North Hanoi Branch in 2008 — 2010 period 22 Table 2.4 The number of small and medium-sized enterprises having credit relation with AgriBank —- Hanoi North Branch -¿- 5 «1k vn HH TH ng HH rệt 22 Table 2.5 Results of credit service with small and medium-sized enterprises in 2008 —

2010 period .c.ccccccccccscsssesesesesecsccseseecescsesesescsssneseseseseseseaeseseeeeecsesescacseseneneaeaeaeieaeeserenseseees 23

Table 2.6 Branch’s turnover from lending, loan collection and outstanding loans from enterprises in 2008- 20 1Ú per1Od - ó5 1 19111123111 111v HH ng nh kg 24

Table 2.7 Credit capital turnover of SMEs in 2008-2010 period . - 25

Table 2.8 Non-performing loans of enterprises and SMEs . +cs< c2 25 Table 2.9 Competitive profit matrix oŸ competIfOFS .- - - net 26 Table 2.10: External Factor Evaluation (EFE)Matrix of Agribank — North Hanoi Branch 34 Table 2.11 Competitive profile matrix ccccecceseeseeceneeesecseeeseeseeeeneeneeseeeseeeeaeens 37 Table2.12: Human resources by qualification in 2008 — 2010 period 40

Table 2.13 — Internal Factor Evaluation (IFE) Matrix 2c 2222 csvvsesrrees 43

Weebl đui D0 C11: NLS cs cxcxccosioere meri ses ome ne.o0s ame ass cms anata RUS Te a 46

Table 3.2 Strategic Position & Action Evaluation matrix (SPACE) .‹- 48

CHƯƠNG TRÌNH ĐÀO TẠO

GRIGGS THAC Si QUAN TR| KINH DOANH QUOC TE

UNIVERSITY Global Advanced Master of Business Administration

LIST OF ABBREVIATIONS

Agribank Vietnam Bank for Agriculture and Rural Development

SMEs Small and Medium Enterprises

ATM Automated teller machine

IFE Internal Factor Evaluation Matrix

IE Internal External Matrix

QSPM Quantitative Strategic Planning Matrix

SWOT Strengths, Weaknesses, Opportunities, Threats

eS CHƯƠNG TRÌNH ĐÀO TAO

( rRIGG THAC SĨ QUAN TRI KINH DOANH QUOC TE

_ Global Advanced Master of Business Administration

My sincere thanks also go to the Board of Directors and the heads of departments in the

Banks for Agriculture and Rural Development, the Branch of Northern Hanoi for

offering me valuable insights and documents in the relevance of the study to fulfill this research

Because of some mistakes caused by the time limit, we would like to receive the teachers’ invaluable helps and opinions to perfect our research as well as develop further research which serves business efficiency in the recent integration situation We all commit that this paper is the result of our group’s efforts in studying; also, all data and information used in this capstone project report are authentic and clearly cited

AUTHORS

SR A TESST PE SS SS, TOS a

UNIVERSITY

CHUONG TRINH BAO TAO

GRIGGS THAC SI QUAN TRI KINH DOANH QUOC TE

Global Advanced Master of Business Administration

Although Agribank is one of the leading banks in implementing the State’s monetary policies, constraining and reducing inflation, stabilizing monetary market and enhancing economic development, it is required that the bank, under the pressure of competition and capitalization, should obtain the right opportunities to develop sources of competitive advantages

In order to develop a competitive advantage, as well as increase competitiveness in the banking system, Agribank — North Hanoi Branch should well create formulate

2 Objectives of the study

- Organizing and reviewing literature and theories of strategic management;

- Analyzing and evaluating business performance of Agribank — North Hanoi Branch;

- Proposing strategic solutions for Agribank — North Hanoi Branch in 2010- 2015 period

3 Object and scope of the study

- Scope: within the Vietnamese market during the period of 2010- 2015

- Objects: Strategies for expanding and developing credit service for small and medium

—sized enterprises in Agribank — North Hanoi Branch

4 Methodology of the study

+ Data collection method

- Data offered by Agribank — North Hanoi Branch including annual reports, performance reports, equity and liability reports and other related data;

- Data collected from financial reports, internet, newspapers and magazines, etc relating

to the banking markets and other commercial banks

ES DTS ESET ET ST a

UNIVERSITY

CHƯƠNG TRÌNH ĐÀO TẠO THẠC SĨ QUẢN TRỊ KINH DOANH QUÓC TÉ Global Advanced Master of Business Administration CSRIGGS

+ Data analysis method

- Research methods of secondary data reviewing the market’s scale, structure and trends:

- Comparative method: a popular method This method provides an explanation about the extent of relationship between different variables including absolute or relative ones

in term of times (one period over another period) or place (one bank over another bank),

Chapter 1: Theoretical background of business strategy formulation

Chapter 2: Real situation of credit service for small and medium-sized enterprises at Agribank — North Hanoi Branch

Chapter 3: Strategy on expanding and developing credit service for small and medium- sized enterprises at Vietnam Bank for Agriculture and Rural Development — North Hanoi Branch in 2011 - 2015 period

UNIVERSITY

GRIGGS THAC Si QUAN TRI KINH DOANH QUOC TE

Global Advanced Master of Business Administration

CHAPTER I THEORETICAL BACKGROUND OF BUSINESS STRATEGY

FORMULATION 1.1, OVERVIEW OF BUSINESS STRAEGY

1.1.1 Concept

1.1.1.1 Concept of business strategy

According to Michael Porter, business strategy is the creation of unique and valuable position including differentiation, selection with exchange characteristics to focus all resources to create advantage for the enterprise

In doing business, enterprises must have strategies, deploy strategy, make reasonable decisions, control their activities, taking advantages of opportunities and weaknesses, overcome threats and enhance competitive strength

1.1.1.2 Basic characteristics of business strategy

- Business strategy is to clearly define basic objectives and business orientations of an enterprise in each period

- The orientativeness of strategy aims at ensuring continuous and stable development in the volatile business environment

- Business strategy helps ensure maximum mobilization and optimal combination of resource use of enterprises at present and in the future, promote strengths and grasp opportunities to gain competitive advantage

- Business strategy is reflected in a continuous process

- Business strategy always has aggressive spirit and gaining victory in the business market

- Business strategy is often built in a long period (3,5,10 years)

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UNIVERSITY Global Advanced Master of Business Administration

- Business level strategy: determines business environment of the Company, market segment and products for each type of market

- Functional level strategy: Determines solutions and plans for each business fields

1.1.3 Affecting factors to strategies of an enterprise

1.1.3.1, External environment

A Macro-environment

(1) Macro-economic environment: Macro-economic environment always has influence

on enterprises and the industry, and strong influence on banking sector Macro-economic environment concentrates on some influential variables such as GDP, inflation rate, base interest rate, the availability of credit system, income and consumption capacity

(2) Technological environment: Technological environment has a strong influence on business activities of banking system because technology can support bank by quickly, favorably and accurately supplying services

(3) Socio-cultural environment: includes socio-cultural factors having influence on the life and behavior of the people, via that affecting the structure of demand, consumer

behaviors and consumption trend of customers

(4) Demographic environment: Population, gender, age, geographical distribution, community of ethnic groups and income distribution

(5) Political — legal environment: includes a system of viewports, policies of the state, legal system, especially the laws related to business, political movement within the country and in the world

(6) Global environment: includes important international political events, characteristics of institutions and basic culture in the global markets, related global markets, current changing markets, regionalization trend, economic relation among countries, regions are factors having direct influence on strategic management

B Micro-environment/industry environment:

Applying five forces model by Michael E Porter: Michael E Porter is a theorist and practician of strategy at Harvard Business School, he set out a framework to help managers to recognize opportunities and threats facing enterprises in an industry

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CSE ` CHƯƠNG TRÌNH ĐÀO TẠO

CSRIGGS THAC Si QUAN TR] KINH DOANH QUOC TE

UNIVERSITY Global Advanced Master of Business Administration

(Michael E Porter, Competitive Strategy, New York: Freepress, 1980) The framework

of Michael E Porter is called five forces model represented via following diagram:

Table 1-1: Five Forces Model by Michael E Porter

Bargaining Competitive Bargaining power

(1) Threat of new entrants: new entrants with a number of potentials: advantages in

terms of scale, capital, product differentiation, cost advantage, access to distribution system always appear and gain market share and the market

(2) Bargaining power of suppliers: Bargaining power of suppliers includes scale, monopoly and bargaining power in the market and capacity of supplying products and prices

(3) Bargaining power of buyers: Business activity of an enterprise depends on the number of buyers and the influence of some individual buyers to the enterprise and their bargaining power over products and services

(4) The appearance of substitute products and services: The strengths of an enterprise will be influenced when customers find out different methods to implement the work that should have been done by the enterprise

(5) Industry competitors: The core of this factor is the number and competitive capacity of competitors in the same market The strong or weak levels of competition concern following criteria: scale of the industry, structure of the industry, competitors, etc

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(3) Human resource analysis: Quality of human resources is represented by the degree of professional qualification, work process, soft skills such as foreign language competence, computing skill, communication skill, presentation, decision-making, etc (4) Organizational level analysis: Organizational structure; organization of internal communication system; control system; internal inspecting and auditing; strategy planning system; capacity, interest and conscience of managers and administrators: strategic management capacity; reasonable distribution and arrangement of resources, etc

(5) Infrastructure: Transaction center, points-of-sales; customer serving equipments; internal facilities; payment system, computer system, etc

(6) Technological and scientific capacity: Technology includes machine, equipment, information management system, payment system, etc help reduce the time for Operation and raise accuracy

(7) Diversification of products and services serving customers: The diversification of

products and services both creates opportunities to use products of customers and satisfy their demand

1.2 PROCESS OF STRATEGY FORMULATION

1.2.1 Strategy formulation by SWOT analysis

According to SWOT analysis, strategy formulation consists four steps, namely:

Step 1: Formulating objective/vision of the enterprise

Determining and establishing vision and mission of the enterprise, its current scale of Operation and business opportunities in the future The major objective of strategy 1s determining plans in the medium-term and long-term

Step 2: Environment analysis

a

CHƯƠNG TRÌNH ĐÀO TẠO THẠC SĨ QUẢN TRỊ KINH DOANH QUÓC TÉ Global Advanced Master of Business Administration

Collecting information about external and internal environment, evaluating and analyzing information to determine opportunities, threats, strengths and weaknesses Determining the possible combination among external and internal environment tactors Step 3: Evaluating the best combination between opportunities and resources

This is the recognition of suitable and corresponding strategies between resources and capacity of an enterprise with its operating environment

Step 4: Selecting strategy

Determining corresponding strategic alternatives in correspondence with strengths, weaknesses, opportunities and threats determined by the company and analyzed in SWOT Matrix is recognizing strategy oriented by the company, creating suitability and correspondence of resources and capacities of the company

Figure 1.1: Process of strategy formulation by SWOT

———— - Macro-environment combination - Resources |

Step 3 > Consideration on all combination

X

Step 4 > Strategy selection

Source: Adapted

1.2.2 Tools for strategy formulation

1.2.2.1 External Factor Evaluation (EFE) Matrix

There are five steps to establish EFE Matrix:

Step 1: Listing key opportunities and threats that may have influence on the success of the enterprise in the industry or its fields of operation

Step 2: Assigning weight by a rating scale from 0.0 to 1.0 (from not important to very important) for each factor The importance of each factor depends on the influence of

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GSRIGGS THAC SI QUAN TR| KINH DOANH QUOC TE

UNIVERSITY Global Advanced Master of Business Administration

Step 4: Multiplying each factor weight with its rating This will calculate the weighted score for each factor

Step 5: Adding all weighted scores for each factor to calculate the total weighted score for the company

Evaluation: The total weighted score of the matrix does not depends on the number of factors in the matrix The highest weighted score is 4 and the lowest is 1 If the total weighted score is 4, the company is responding well to opportunities and threats If the total weighted score is 2.5, the company is responding averagely to opportunities and threats If total weighted score is 1, the company is responding weakly to opportunities and threats

1.2.2.2 Competitive Profile Matrix

Competitive Profile Matrix must be carried out via 05 steps:

Step 1: Listing about 10 key factors having influence on the competitiveness of enterprises in the industry

Step 2: Assigning weight from 0.0 (Not important) to 1.0 (Very important) for each factor Total weighted score of all factors must be equal to 1.0

Step 3: Assigning rating from | to 4 for each factor, the rating of each factor depends on the capacity of the enterprise to each factor, in which 4 is good, 3 is quite good, 2 is average and | is weak

Step 4: Multiplying each factor weight with its rating to calculate the weighted score for each factor

Step 5: Adding all weighted scores for each factor to calculate the total weighted score for the company

Evaluation: Comparing total weighted score of the enterprise with its major competitors

in the industry to evaluate the enterprise’s competitive capacity

CSOs CHƯƠNG TRÌNH ĐÀO TẠO

( rRỊGC}š THẠC SĨ QUẢN TRỊ KINH DOANH QUOC TE

_ UNIVERSITY Global Advanced Master of Business Administration

1.2.2.3 Internal Factor Evaluation (IFE) Matrix

The establishment of a IFE matrix follows 5 steps:

Step |: Listing key internal factors

Step 2: Assigning weight by a rating scale from 0.0 to 1.0 (from not important to very important) for each factor with the total weighted score of factor equal to | The importance depends on the objective of the enterprise without identifying these factors

as strengths or weaknesses of the enterprise

Step 3: Assigning a | to 4 rating to each factor | = a major weakness; 2 = a minor weakness; 3 = a minor strength; 4 = a major strength

Step 4: Multiplying each factor weight with its rating to calculate the weighted score for

1.2.2.4 Internal-External (IE) Matrix

IE is a tool of strategic management to analyze operating environment and strategic position of an enterprise This matrix bases on the analysis of internal and external factors of the enterprise

1.2.2.5 SWOT Matrix

Internal factors of an enterprise can be classified into Strengths (S), Weaknesses (W) ;

external factors can be classified into Opportunities (O) and Threats (T) This analysis to strategic environment is called SWOT analysis This is a very important tool helping use

to understand the issue or make decisions in organizing and management as well as doing business

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Global Advanced Master of Business Administration

(List opportunities) (List threats) Strengths (S) S-O strategies: S-T strategies :

List strengths of the Use strengths to maximize | Use strengths to minimize enterprise opportunities threats

Weaknesses (W) S-T strategies: W-T strategies:

List weaknesses of the Minimize weaknesses by | Minimize weaknesses and enterprise taking advantage of avoid threats

opportunities

1.2.2.6 Quantitative Strategic Planning (QSPM) Matrix

QSPM Matrix uses input data from analyses in EFE, IFE, SWOT matrices to objectively decides which strategy among a number of alternative strategies is the most attractive and deserved for the enterprise to follow in order to successfully realize objectives

Steps of forming QSPM are as follows:

- List external opportunities/threats and internal strengths and weaknesses into the matrix These factors are directly taken from EFE and IFE matrices

- Filling the corresponding figure with each factor into the rating column of EFE and IFE matrices

- Studying SWOT Matrix, BCG Matrix, etc and determining alternative strategies that the enterprise should consider implementing and recording all these strategies on the same QSPM Matrix These strategies are arranged in different groups (if any)

- Determining attractiveness score : 1 = not attractive, 2 = somewhat attractive, 3 = reasonably attractive and 4 = highly attractive These values show the relative attractiveness of each strategy compared to other alternative strategies in the same group

- Calculate sum total attractiveness score of each strategy for each critical success factor

by multiplying rating with attractiveness core in each row

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THẠC SĨ QUẢN TRỊ KINH DOANH QUÓC TÉ Global Advanced Master of Business Administration

1.3.ROLE OF BUSINESS STRATEGY FORMULATION TO ENTERPRISES

- Business strategy helps enterprises to recognize its objective and orientation to set the

base and guideline for its business and production activities

- Business strategy helps enterprises grasp and take advantages of business opportunities, at the same time have measures to proactively overcome threats in the market Via the process of external environment analysis, companies will have strategic decisions to help the company respond appropriately to environmental changes

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CHƯƠNG TRÌNH ĐÀO TẠO GRIGGS THAC SI QUAN TR] KINH DOANH QUOC TE

UNIVERSITY Global Advanced Master of Business Administration

- Business strategy makes contribution to raising efficiency of resources enhancing competitive position of enterprises and ensuring its sustainable development

- Business strategy creates a firm bases for the formulation of appropriate policies and business environment in accordance with changes of the market

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GRIGGS

UNivER® 1

SIZED ENTERPRISES AT AGRIBANK — NORTH HANOI BRANCH

CHƯƠNG TRÌNH ĐÀO TẠO THẠC SĨ QUẢN TRỊ KINH DOANH QUÓC TÉ

Global Advanced Master of Business Administration

CHAPTER II REAL SITUATION OF CREDIT SERVICE FOR SMALL AND MEDIUM-

2.1 INTRODUCTION OF AGRIBANK — NORTH HANOI BRANCH

2.1.1 Process of establishment and development

342/QD/HDQT-TTCB of AGRIBANK’s Management Board on September 5, 2001

The Head office of AGRIBANK is situated at No 266, Doi Can Str., Ba Dinh Dist.,

Hanoi AGRIBANK — North Hanoi Branch is a first-class branch in the network of

AGRIBANK’s branches The Branch is responsible for mobilizing capital and giving

loans to customers living and working in Hanoi

After nearly 10 years of establishment and development, the Branch has more and more

completed its organizational structure and activities of its boards and departments At

present, the Branch has 8 functional departments and 8 transaction offices with nearly

180 staffs

2.1.2 Organizational structure of the Branch

Figure 1.3 -Organizational structure of the Head Office

BOARD OF DIRECTORS

CAPITAL CARDS &

COU COMPUTI | |INTERNAL| |GENERAL| |SOURCE &| | FOREIGN | |PRODUCT| |TRANSACTI ING || CREDIT || NG DEPT | |AUDITING & GENERAL] |CURRENCY| | DEVELOP] |ON OFFICES DGE DEPT DEPT ||ADMINIST| | PLANNIN || TRADING || MENT | |( 8 OFFICES)

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THẠC SĨ QUẢN TRỊ KINH DOANH QUÓC TÉ Global Advanced Master of Business Administration

2.1.3 Products and services

2.1.3.1- Capital mobilization:

-Demand deposits in VND and foreign currencies of organizations and individuals

-Savings: Demand savings; fixed term savings with interest paid at maturity; fixed term savings with interest prepaid; ladder term savings with interest rates higher over the term; monthly accumulative savings; Term savings with flexible principal withdrawal, etc

2.1.3.2- Credit services

(a)- Short-term loans include following services:

Loans against valuable papers; short-term loans for production, business operation of organizations, individuals and households; loans for crop season intervals, loan for issuing credit card; commercial overdraft, etc

(b)- Medium-term and long-term loans include following services:

Consumer loans; loans for new construction, repair, renovation, upgrading, buying residential houses; loans for individuals working abroad; loans for purchasing vehicles; loans for overseas studying; short term loans for production, business operation; etc (€)- Guarantee: Bid guarantee; performance guarantee; payment Guarantee; pre-payment return guarantee; counter guarantee; product quality guarantee and other forms of guiarantce

2.1.3.3- Foreign currency trading

Foreign currency trading consists of following products: overseas remittance; cross- border payment; foreign currency trading; L/c opening and payment, etc

2.1.3.4- Other products and services

Domestic payment; money transfer; check service; card services, SMS banking: Wnmtopup, etc

2.1.4 Business results

2.1.4.1- Capital mobilization

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Table 2.2 Results of credit activity at AgriBank — North Hanoi Branch in 2008 — 2010

(Source: Annual Reports of Agribank- North Hanoi Branch in 2008-2010 period)

2.1.4.3- Other products and services

Other products and services such as cards, mobile banking and internet banking have been paid attention and developed well At present, up to above 35,000 cards have been issued and used and nearly 10,000 customers use mobile banking and internet banking

services

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2008 2009 2010 2009/2008 2010/2009

' Total income 412,32 403,21 528,59 9,11] -2,.21) 125,38} 31,09

! Total expense 332,60 326,33 379,73 -6,27| -1,89| 5340| 16.36 Difference 79,72 106,88 148,86 | 2716| 3408| 41,98} 39,27

2.2 REAL SITUATION OF CREDIT SERVICE FOR SMALL AND MEDIUM- SIZED ENTERPRISES AT AGRIBANK — HANOI NORTH BRANCH

2.2.1 Scale of credit service for small and medium-sized enterprises

Table 2.4 The number of small and medium-sized enterprises having credit relation with AgriBank — Hanoi North Branch

[tem Amo | Propor | Amo | Propor | Amo | Propor 6 5

unt |tion % | unt |tion %|[ unt | tion % Pane | c6) | Attra) unt unt (0)

(Annual Reports of Agribank- North Hanoi Branch in 2008-2010 period)

Via the table of data, we can see that total number of enterprises having credit relation with the Branch increases year by year The total number of small and medium-sized enterprises (SMEs) accounts for a large number of enterprises having credit relation with the Branch (from 73.64% - 87.99)

The number of big enterprises in 2010 decreased by 11 enterprises compared to 2009

because:

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At Decree No 90/2001/ND-CP, small and medium-sized enterprises are defined as enterprises having maximum registered capital of VND 10 billion and the maximum average number of laborers of 300 people

At Decree No 56/2009/ND — CP, small and medium-sized enterprises are defined as enterprises having maximum registered capital of VND 100 billion or the maximum average number of laborers of 300 people

Therefore, enterprises with registered capital higher than VND 10 billion and lower than VND 100 billion were previously ranked as big enterprises; however, after 2009, they were ranked as small and medium-sized enterprises Therefore, it 1s just a shift caused

by classification rather than the speculation that they no longer have credit relation with Agribank — North Hanoi Branch

Table 2.5 Results of credit service with small and medium-sized enterprises in 2008 —

; 526 390 307 -136 |-25,8} -83 21,3 outstanding loans

Total loans of SMEs

- Outstanding loans 589 786 903 197 133,5 117 14.8

99 131 104 32 33,1 -27_ |-20.9 outstanding loans

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In 2008-2010 period outstanding loans of SMEs increased in absolute figure and the proportion of total outstanding loans of enterprises increased from 31.19% to 37.99% The rise in outstanding loans only indicated that the Branch was expanding loans to SMEs

Table 2.6 Branch’s turnover from lending, loan collection and outstanding loans from enterprises in 2008- 2010 period

Unit: VND billion

(Source: Report on credit activity to SMEs at AgriBank — North Hanoi Branch)

Look at the table of data, we can see that lending turnover from SMEs tends to increase:

it was VND 775 billion in 2009, up VND 181 billion (equivalent to 30.4%) compared

2008, and up VND 160 billion in 2010 (equivalent to 20.62%) compared to 2009

Loan collection turnover in 2009 increased VND 145 billion (up 33.7% ) compared to

volume of loan and risk

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2.2.2 Capital turnover

Capital turnover shows the capacity for organizing, managing and exploiting credit capital, at the same time shows the quality of credit of bank in effectively using credit capital and meeting capital demand of customers The higher capital turnover, the better

Table 2.7 Credit capital turnover of SMEs in 2008-2010 period

Unit: VND billion

(Source: Report on credit activity to SMEs at AgriBank — North Hanoi Branch)

The data on the table shows the capital turnover of the Branch in 2008, 2009 and 2010 was higher than 1, showing that capital turnover capacity meets the demand for borrowing to SMEs and quite stable Quality of loan is ensured

2.2.3 Non-performing loans of SMEs

The ratio of non-performing loans (NPLs) to total loans is used to evaluate the quality of credit of a credit institution

Table 2.8 Non-performing loans of enterprises and SMEs

Unit: VND billion

| Non-performing loans/total loans (%) 2,49 2,81 2,39

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According to the table of data the ratio of non-performing loans to total loans of SMEs tended to decrease; however, the figure remained quite high (5.55% in 2009 and dropped

to 4.61% in 2010) This situation may result from following reasons:

- Financial crisis and global economic recession started from 2008, affecting Vietnam's economy, especially SMEs

- The macro-management of the State Bank of Vietnam is concerning banking activity and the un-thoroughly control leading to the situation that joint-stock commercial banks race to break the ceiling interest rate of fund mobilization, driving up lending interest rate and affecting enterprises, especially small and medium-sized ones

- High non-performing loan ratio also results from the appraisal qualification of credit staff in the general context

2.2.4 Potential of banks in the region

Table 2.9 Competitive profit matrix of competitors

AgriBank Vietcombank | Viettinbank

No Items of 2010 North Hanoi Ba Dinh Xuan Mai

Branch Branch Branch ] Total fund resources 7.103 2.626 660

2 Total outstanding loans 2.708 979 380

3 Non-performing loans (%) 2,39 2,62 1,0

4 Financial result (profit) 148.8 27,0 10

5 | The number of transaction offices § 4 2

7 Customers 42.250 40.497 12.366

8 Enterprises opening current accounts 1.120 1.095 250

9 Enterprises having credit relation 123 a9 20

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2.3 ANALYSIS OF ENVIRONMENT FACTORS AFFECTING CREDIT SERVICE FOR SMES AT AGRIBANK —- NORTH HANOI BRANCH

2.3.1 External environment analysis

2.3.1.1 Macro-environment analysis

(1) Political — legal environment

- Vietnam’s political environment is rated as quite stable The Government has made a lot of efforts in managing economic-politic-social, internal affair and external affair

policies

- Vietnamese government promulgated Decree No.56/2009/ND-CP on supporting SMEs with production premise, technological capacity enhancement, human _ resources, financial, market promotion, etc

- Hanoi, the center of politics, economics, culture, commercial, tourism and service, is

honored and rewarded the title “the City for Peace” by UNESCO

(2) Economic environment

- Vietnam’s economy over the past years (since 2008) has been affected by the world economic recession; however, it has returned to recovery stage Economic growth in the first 6 months of the years has showed more optimistic signals with GDP growth rate sustained at 6.78% in 2010 and estimated 5.6% for the first 6 months of 2011

- The economic sector with direct foreign-invested capital has overcome difficulties, challenges and achieved good results in terms of registered investment capital, realized capital and working capital of enterprises and continued to make important contribution into the general outcome of Vietnam’s economy in 2010

- Hanoi has a high economic growth rate and GDP growth rate in 2010 reached 11%, over 1.5 times higher compared to 6.7 % of 2009, and approximate to 10.9% in 2008 and 11.2% in 2007

- GDP per capita of Hanoi reached VND 37 million per capital The State economic sector created about 45% of GDP, down compared to 52.1% in 2005, non-state sector generated about 38% GDP, up compared to 31.8% in 2005 and the foreign-invested sector created about 17% GDP, up slightly compared to 16.1% in 2005 For the whole

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year, the State sector grew 9.3%, non-state sector grew by 14.9%, and foreign-invested capital climbed 16.8% The recovery and improvement in growth rate of industry production are clearly shown via the growth rates of 12.4%, 13.9% and 13.7% in three quarters and above 14% in the IV quarter

The target and mission of country development in five years (2011 — 2015) in the Eleventh Vietnam Communist Party Congress documents in striving to achieve some major targets:

The average economic growth rate in five years (2011 — 2015): 7.0 — 7.5%/year Average industrial — construction output growth in five years increases 7.8 - 8%; average industrial output growth in five years reaches 2.6 - 3%/year Structure of GDP: agriculture: 17 - 18%, industry and construction: 41 - 42%, service: 41 - 42%; high-tech products and high-tech applied products account for 35% of GDP; the proportion of trained laborers reaches 55% Export value increases by 12%/year on average, trade deficit decreases and strives to balance import export by 2020 The average social investment capital in five years reaches 40% of GDP The proportion of capital mobilized to the State Budget reaches 23 - 24% of GDP; reduces the State Budget overspending to 4.5% GDP by 2015 The State targets to generate employment for 8 million people The proportion of laborers working in the field of agriculture — aquaculture — fishery by 2015 accounts for 40 - 41% total laborers of the society Income of people in rural area increases by about 1.8 - 2 times compared to 2010 Population growth by 2015 reaches about 1% In 2015, GDP per capita will be about USD 2,000 Average life expectancy in 2015 reaches 74 years old The proportion of households below the new poor standard decreases by 2%/year on average The proportion of forest coverage by 2015 reaches 42 - 43%

(Quoted from Eleventh Vietnam Communist Party Congress documents)

The major economic targets of Hanoi:

Striving to achieve an average GDP growth rate in five years (2011-2015) up 8-9%/year The proportion of households below the new poor standard decreases by 1-1.2%/year on average Improving investment environment and business environment, ensuring

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fairness, transparency and creating favorable conditions for business and production of

enterprises belonging to all economic sectors

(Qucted from Directive No.23/CT-UBND dated July 17, 2009 on formulating five-year economic development plan (2011-2015)

(3) Vechnological environment

- Commercial banks have used core banking system quite prevalently, helping significantly improve banks’ internal activities such as accounting, risk management, customer crediting rating, etc

- Agribank always focuses on investing on renovation and banking technology apphcation effectively serving business administration and develops an advanced banking service system Agribank is completing the second stage of the project on modernizing Interbank Payment and Customer Accounting System (IPCAS) sponsored

by Work Bank To date, Agribank is completely competent of supplying modern, advaiced and convenient banking products and services to both domestic and foreign customers

(4) Socio-cultural environment

Hanci Authority made decision on expanding administrative boundary in August After merging, the area of Hanoi would increase to about 3,324.92km? with the population of

up to6 million people Hanoi became one of 17 biggest cities in the world

Hanci includes 10 urban districts; 1 town: Son Tay and 18 districts

Ethnic groups include Kinh, Hoa, Muong, Tay, Dao, etc

(5) Demographic environment

It is 2stimated that the population of the whole city by June 2011 was 6,758 thousand peope, up 2.1% year on year; the number of children born as of May 31 was 49,833 child-en, the rate of having third children is 7.3% with 3,660 children

Acccrding to the latest statistics, Hanoi has over 100,000 SMEs with the chartered capital of above VND 976,855 billion