Internship Report - some solutions for the enhancement of household production lending activities at agribank – son dong branch

In our economy today, household production economy accounts for a very important position, and its potential growth is also very large. To expand the scale of production and innovate the equipment as well as engage in economic relations, the producers definitely need capital. However, their own sources of capital are very limited, while accessing to the banks’ capital still meets many barriers. These facts has reduced the effectiveness of exploiting the potential of household production economy.

In our economy today, household production economy accounts for a very important position, and its potential growth is also very large To expand the scale of production and innovate the equipment as well as engage in economic relations, the producers definitely need capital However, their own sources of capital are very limited, while accessing to the banks’ capital still meets many barriers These facts has reduced the effectiveness of exploiting the potential of household production economy.

From the actual situation at the local and the overall development strategy of banking sector, the Vietnam Bank for Agriculture and Rural Development – Son Dong Branch has determined its long-term goals in the rural agricultural markets, and economic sectors mainly are household production units However, in reality the expansion of lending to households is increasingly difficult due to small loans and high cost operations Therefore, extending households lending must be accompanied by improving quality and security in the operation of bank credit If so, the business of banking would actually become a leverage to promote economic development.

Starting from the arguments and actual examination of loans to producers at the

AGRIBANK - Son Dong Branch, the writer have decided to choose the topic " SOME SOLUTIONS FOR THE ENHANCEMENT OF HOUSEHOLD PRODUCTION LENDING ACTIVITIES AT AGRIBANK – SON DONG BRANCH" as the subject for

this internship report.

The structure of this report is designed in three parts:

Part 1: Introduction of Agribank and Son Dong Branch

Part 2: Evaluating the effectiveness of household production lending at the branch

Part 3: Recommendations and Conclusion

In this paper, the writer would like to send great thanks to MA Dinh Hoang Minh who has given useful guidance and valuable suggestions for the writer; to Ms Thuy, Mr.

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Lanh, Ms Ha and Ms Hien who directly instructed the writer for their gracious help of creating opportunities and good conditions for the writer to take part in practical activities during internship period.

However, owing to the writer’s lack of experience and knowledge as well as the limited scope of the research, some shortcomings and mistakes are unavoidable Please kindly take into account.

LIST OF ABBREVIATION

Abbreviation Meaning

Agribank Vietnam Bank for Agriculture and Rural Development

ABIC Agriculture Bank Insurance Joint Stock Corporation

LIST OF TABLES AND DIAGRAM

Table 1.1 Fundamental information of Vietnam Bank for Agriculture and Rural

Development……… p.08

Table 1.2 Agribank’s business volume as of October 2013……… p.10 Diagram 1.1 Organizational structure of Agribank’s Son Dong Branch……… p.12 Diagram 2.1 Loans structure at Agribank’s Son Dong Branch according to economic

sectors in 2011, 2012 and 2013……… p.14

Table 2.1 Debts structure by groups at Agribank’s Son Dong Branch from 2011 to

2013……… p.15

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INTERNSHIP DIARY

Date Tasks

Week 1 (July, 1 st – July, 4 th ) Appraisal Process

1 - Learnt about Son Dong Branch’s organizational structure

and working environment

- Learnt how to scan B/W or color, use photocopy machine

2 - Learnt about the process of appraisal and approving a loan

at the branch

- Observed Mr Lanh guided customers’ how to prepare a full set of loan documentations and made a minute of hand-over documents for customers

3 - Read legal regulations of government which are related to

credit activities

- Presented 1 documents to be signed by the Head of

Business Development and Planning Department

4 - Wrote several application form in loans documents for

customers

- Read the Decision No 666/QĐ-HĐQT-TDHO of the Agribank Board of Director about lending provisions for customers in the banking system of Agribank

Week 2 ( July, 7 th – July, 11 th ) Loans Documents

7 - Double – checked to see whether all important information

in credit agreement and certificate of land use are exactly matched

- Arranged credit documents (application for loans, credit insurance application and other important administrative papers)

- Photocopy documents

8 - Double - checked documents upon 2 criteria: accuracy

(including red stamp and authentic signature) and adequacy

- Observed Mr Lanh checked customer’s account balance

- Presented credit documents to be signed initially by the Head of Business Development and Planning Department and then by General Director of the branch

9 - Scanned black and white payment orders for storage in

database

- Arranged documents

- Double – checked to see whether all important information

1 - INTRODUCTION OF AGRIBANK – SON DONG BRANCH

Bank’s name in English Vietnam Bank for Agriculture and Rural Development

Name abbreviation AGRIBANK

Logo

Chartered capital VND 29,605 billion (as of October 2013)

Headquarters No 18 Tran Huu Duc street, My Dinh, Tu Liem, Hanoi

1.1.2 Agribank's milestones in development

1988: Established under the name of Agricultural development Bank of Viet Nam

by decree No 53/HDBT dated 26 March, 1988 of the Council of Ministers (now theGovernment)

1990: Changed name to Vietnam Bank for Agriculture (VBA)

1991: Established the representative office of Vietnam bank for Agricultural in Ho

Chi Minh City

1992: established VBA provincial branches.

1994: Approved new innovative management system model of the Agribank and

began to be organized into a State-owned Corporation

1996: Changed name to Vietnam Bank for Agriculture and Rural Development

(AGRIBANK)

2001-2010: Implemented the plan of bank restructuring.

2001: Became the leading commercial bank in Vietnam, with the most extensivenetwork of branches in rural areas

2002: Became a member of APRACA and the Confederation International du Credit

Agricole (CICA)

2009: Utilized modern information technology to develop and introduce modern

banking products and services, payment connectivity with the State Treasury, incoordination with Taxation and Customs Offices for the collection of state budget;

2010: Be in Top 10 of 500 largest enterprises in Vietnam and continuously to be the

largest Financial Institution in Vietnam

2011: Completely changed into Ltd company with 100% capital of state and became

the leading credit institution for pilot lending for the new rural construction

2012: Won the title such as: Top 10 biggest enterprises in Vietnam – VNR500; Top

ASEAN Enterprise, Top brand name of ASEAN; Top Bank for Payment; Top Banks ofVietnam

2013: Held the 25 year universal (March 26, 1988 – March 26, 2013)

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1.2 Overview of Son Dong Branch

Vietnam Bank for Agriculture and Rural Development – Son Dong Branch wasestablished in 26th March, 1988 to perform two main functions including statemanagement and trading currency

Agribank’s Son Dong Branch is a class III branch under the control of the Bank forAgriculture and Rural Development in Bacgiang Right from the beginning of itsoperation, though was difficult due to the lack of manpower and facilities, but theleadership and staff of the branch has made great efforts to achieve good results andsignificant contributions to the development of Agribank Getting through the crucible ofthe market economy, ASDB has stood firm and always played a major role in thefinancial market of rural credit in Son Dong

1.2.1 Main products and services

 Accounts and deposits: accepting deposits and mobilizing savings with thediver, attractive interest rates such as promissory notes, bonds, certificates ofdeposit

 Loans: lending in short, medium or long term, daily life consumption,investment trusts; mortgage lending by valuable papers, co-sponsored loans,lending by issuing credit cards

 Guarantee: implementing businesses; payment guarantees; bid guarantee;contract performance guarantee, contract of guarantee, guarantee confirmation

 Domestic payment services: domestic money transfer services, service ofcollection and payments; state budget collection services, bill payment services,automatic collection services…

 Foreign Exchange Services: cash transfer; foreign currency trading; remittancepayment; currency exchange…

 Border payment with Laos: including bank drafts, cross-border money transfersdocuments, trading transaction payment, deed of trust and e-transfers, letters ofcredit and letters of trade border payment guarantee letter

 Card Services: issuing domestic debit card (success); international debit card(master/visa debit); International credit cards (Master/Visa credit); business cardset

 Electronic banking (e-banking): mobile banking services (VnTopup - phonerecharging services via SMS, SMS banking; Atransfer – SMS money transferservice); VnMart services, internet banking; Apaybill

 Insurance: Security credit insurance; Insurance for international cardholders,cargo insurance, fire insurance; insurance of automobiles, motorcycle, human;other kinds of insurance

 Other services: provide account information; automatic salaries paying andreceiving service; safe leasing services; consulting services and other services

1.2.2 Organizational structure

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By the end of July 2014, the total number of employees in ASDB has reached 35 Itsorganizational structure includes 2 departments and 2 transaction offices, which isdepicted as the following chart:

Diagram 1.1 Organizational structure of Agribank’s Son Dong Branch

(Source: Agribank’s Son Dong Branch)

2 - EVALUATING THE EFFECTIVENESS OF HOUSEHOLD PRODUCTION LENDING AT THE BRANCH

2.1 Current situation

2.1.1 Qualitative criteria

 Market share and develop the market:

Developing the market at the branch currently faces several difficulties since the market share of ASDB decreases slightly According to the income statement of ASDB

for the year 2013, the market share of fund resources in 2013 was 73,0%, which

decreased by 2,4% in comparing with 2012’s figure It can be due to the fact that interest rates of other credit unions are more attractive to customers However, the market share inhouseholds lending market is stable and even increase lightly In 2013, loans for

production households of ASDB accounts for 45,4% of total market, which increased by 3,2% in comparing with the previous year

In order to hold firm and develop the market share of the branch, ASDB has

applied several solutions as: investing in modern technology equipment which is used to serve the loan business and other banking operations; expanding the products and servicesprovided; educating and disseminating the professional ethics, working behavior, which follow strictly the Agribank Culture, to all personnel in the office in order to serve the customers the best

 The implementation of the lending process:

In general lending activities and loan production households in particular, ASDB complies all the processes and procedures of the Vietnam Bank for Agriculture and Rural Development Besides, ASDB continually improves the quality of loans and keeps close control of these loans ASDB also pay more attention to new projects which help

restructure crop plants, domestic animal in accordance with the direction of commodities

in agriculture – rural field Loans for timber planting for paper production;

cattle-breeding… for example

 The level of accuracy in evaluating the production households lending:

Debt group 2 with potential risks is relatively high, then the evaluation of loans for production households of ASDB has not been highly appreciated The appraisal and inspection before, during and after the lending are not being able to detect customers’ errors

 The ability to increase the prestige of the bank:

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Meanwhile the demand for loans by households is in an increasing trend, the reputation of ASDB has been also reinforced significantly helping raise the number of borrowers who are production households

2.1.2 Quantitative criteria

 Proportion of loans for households in total loans

Diagram 2.1 Loans structure at Agribank’s Son Dong Branch according to economic

sectors in 2011, 2012 and 2013

2011

0.77

% 32.46

Non-state EnterprisesHouseholds

30.9 5%

From the above charts, it is clearly seen that loan sales for households always account for a large part in total loan sales of ASDB Proportion of households lending in

2013 was 68.28%, which indicated a growth rate of 2.43% in comparing with the

previous year These figures reflect an improvement in quality of loans for production household Therefore, not only the number of households lending but also total loan saleshas increased remarkably

 Bad debts:

Table 2.1 Debts structure by groups at Agribank’s Son Dong Branch

(Source: Telegraphy from Administrative Department of Agribank’s Bac Giang Province)

Bad debts include debts which belong to group 3, 4 and 5 Therefore, the figures for bad debts in 2011, 2012 and 2013 at ASDB were 3.338 million VND, 2.605 million VND and 1.436 VND respectively Obviously, bad debts at ASDB has decreased

significantly in recent years In order to achieve this good result, general director of

ASDB has directed the staffs to keep close control of loans for households and make sure that lending work is conducted effectively

Effectiveness of households lending activities is also evaluated by the ratio of bad debts to total outstanding balance This ratio was 1.44% in 2011, then has decreased gradually in the following years to 0.99% in 2012 and 0.47% in 2013 With this level of bad debts, ASDB is assessed to be relatively effective in operation in general and in

households lending in particular

 Credit Efficiency target (H):

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This indicator is calculated as the ratio of the interests earned from households lending to total outstanding balance of households production In 2011, H = 0.16; in 2012,

H = 0.17 and H= 0.19 in 2013 It can be seen clearly that loans for production households

at ASDB has improved in a positive direction To be more specific, in 2011 with each VND the bank lends out, it will be able to collect 0.16 VND for the interest However, in

2012 this figure has been enhanced to 0.17 VND and till 2013 the bank can earn 0.19 VND by lending out 1 VND

2.2 Evaluating the effectiveness of loans for households

2.2.1 Achievements

As illustrated by the data and tables in the previous section, the growth rate ofoutstanding balance and bad debts ratio are less than 3% and decrease continuously overrecent years The ratio of bad debts to total outstanding balance was even less than 1% in

2013 These figures reveal a significant enhancement in the quality of household lendings

at ASDB, which indicates that ASDB’s business & investment strategies has gone in theright direction Households lending will be a potential market for ASDB to invest in andexploit in near future

Thanks to satisfactory results in business operations, ASDB has contributedactively to the economic development of agriculture and rural areas Many householdshave become rich by making use of bank loans and bank capital since nowadays not onlytheir basic needs such as plants, seeds, fertilizers… but also the scientific and technicalmeans such as machinery and equipment… are met in full and on time Therefore, theface of the rural area has been getting more renovated

2.2.2 The existing limitations

 Though bad debts has decreased over the years and been maintained at a quitelow level, volume of debts which belong to group 2 and have potential risks stillquite high In 2013, potential credit risk loans has reached 22 billion VND