Improving credit quality for small and medium sized enterprises at joint stock commercial bank for investment and development of vietnam transaction office 1

--- LÊ VĂN ĐỨC IMPROVING CREDIT QUALITY FOR SMALL AND SIZED ENTERPRISES AT JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM - MEDIUM-TRANSACTION OFFICE 1 NÂNG CAO

-

LÊ VĂN ĐỨC

IMPROVING CREDIT QUALITY FOR SMALL AND SIZED ENTERPRISES AT JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM -

MEDIUM-TRANSACTION OFFICE 1

NÂNG CAO CHẤT LƯỢNG TÍN DỤNG ĐỐI VỚI DOANH NGHIỆP NHỎ VÀ VỪA TẠI NGÂN HÀNG TMCP ĐẦU TƯ VÀ PHÁT TRIỂN

VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI - 2018

-

LÊ VĂN ĐỨC

IMPROVING CREDIT QUALITY FOR SMALL AND SIZED ENTERPRISES AT JOINT STOCK COMMERCIAL BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM -

MEDIUM-TRANSACTION OFFICE 1

NÂNG CAO CHẤT LƯỢNG TÍN DỤNG ĐỐI VỚI DOANH NGHIỆP NHỎ VÀ VỪA TẠI NGÂN HÀNG TMCP ĐẦU TƯ VÀ PHÁT TRIỂN

VIỆT NAM – CHI NHÁNH SỞ GIAO DỊCH 1

Chuyên ngành: Quản trị kinh doanh

Mã số: 60 34 01 02

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS PHẠM VĂN HỒNG

Hà Nội - 2018

Ha Noi, 16/01/2018

ACKNOWLEDGEMENT

“This thesis is completed with many valuable help First of all, I would like to send my sincere thanks to Pham Van Hong, facilitator, facilitated, enthusiastic, responsible with me during the thesis, I also appreciate the teachers in the Faculty of Management Business - National University of Hanoi; The scientists, authors of scientific papers, articles I consulted helped me complete this thesis

Honor to thank!

TABLE OF CONTENTS

ABBREVIATIONS i

FIGURE ii

TABLE iii

INTRODUCTION 1

Chapter 1: THEORETICAL FRAMEWORK ON CREDIT QUALITY FOR SMEs AT COMMERCIAL BANKS 6

1.1 Small and medium-sized enterprises 6

1.1.1 Concept 6

1.1.2 Characteristics of SMEs 7

1.1.3 Role of SMEs in the economy 8

1.2 Bank credit for SMEs 10

1.2.1 Concept of bank credit 10

1.2.2 Characteristics and role of bank credit for SMEs 11

1.2.3 Bank credit products for SMEs 11

1.3 Quality of credit for SMEs 13

1.3.1 Concept 13

1.3.2 Necessity of improving credit quality for SMEs 14

1.3.3 Indicators for assessing credit quality for SMEs 15

1.3.4 Factors affecting the improvement of credit quality for SMEs at commercial banks 19

1.3.5 Experience in improving credit quality for SMEs at some commercial banks 22

Chapter 2: REALITY OF CREDIT QUALITY FOR SMEs AT BIDV – TRANSACTION OFFICE 1 27

2.1 Overview of BIDV- Transaction Office 1 27

2.1.1 History of foundation and development of BIDV- Transaction Office 1 27 2.1.2 General functions and duties of BIDV – Transaction Office 1 29

2.1.3 Organizational structure 29

2.1.4 Business operations of BIDV – Transaction Office 1 in recent years 33

2.2 Reality of credit quality for SMEs at BIDV – Transaction Office 1 39

2.2.1 Overview of SME customers at BIDV – Transaction Office 1 39

2.2.2 Indicators of credit quality for SMEs at BIDV – Transaction Office 1 40

2.3 Evaluation of reality of credit quality for SMEs at BIDV – Transaction Office 1 58

2.3.1 Achievements 58

2.3.2 Limitations and causes of the limitations 58

Chapter 3: SOLUTIONS TO IMPROVE CREDIR QUALITY FOR SMEs AT BIDV – TRANSACTION OFFICE 1 71

3.1 Some orientations for developing credit activities for SMEs at BIDV – Transaction Office 1 71

3.2 Solutions to improve credit quality for SMEs at BIDV – Transaction Office 1 72

3.2.1 Develop a suitable credit policy 72

3.2.2 Complete the collection and processing of information 73

3.2.3 Enhance the quality of credit staff 76

3.2.4 Increase the inspection and control activities 78

3.2.5 Strengthen advisory service 80

3.3 Recommendations 80

3.3.1 For the Government 80

3.3.2 For the State bank 81

3.3.2 For Head Office BIDV 81

CONCLUSION 83

REFERENCES 84

ABBREVIATIONS

NO ABBREVIATIONS FULL FORMS

1 BIDV Joint Stock Commercial Bank for Investment and

Development of Vietnam

FIGURE

Figure 2.1: Organizational structure of BIDV – Transaction Office 1 32 Figure 2.2: Procedure of granting credit at BIDV – Transaction Office 1 67 Figure 3.1: Sources of information in credit appraisal and approval 75

TABLE

Table 1.1: Criteria for categorizing SMEs in accordance with Decree No

56/2009/NĐCP 7

Table 2.1: Scale of credit growth at BIDV – Transaction Office 1 over the years 33

Table 2.2: Scale of capital mobilization at BIDV – Transaction Office 1 over the years 35

Table 2.3: Indicators of general operations of BIDV – Transaction Office 1 over the years 37

Table 2.4: Income structure from operation segments at BIDB – Transaction Office 1 37

Table 2.5: Revenue from services of BIDV – Transaction Office 1 39

Table 2.6: Development of new SME customers at BIDV – Transaction Office 1 41

Table 2.7: Scale of developing SME customers in Hanoi area of BIDV – Transaction Office 1 41

Table 2.8: Credit growth at BIDV - Transaction Office 1 42

Table 2.9: Credit structure by sector for SMEs at BIDV – Transaction Office 1 44

Table 2.10: Credit structure by products and services provided by the bank 45

Table 2.11: Situation of using preferential credit packages to develop credit for SMEs at BIDV – Transaction Office 1 48

Table 2.12: Overdue loans and bad loans over total outstanding loans for SMEs 50

Table 2.13: Situation of off-balance-sheet debt recovery for SMEs banks at BIDV – Transaction Office 1 52

Table 2.14: Overdue loans and bad loans by groups of sectors 53

Table 2.15: Credit turnover for SMEs at the branch 55

Table 2.16: Profits from credit activities 56

Table 2.17: Cases of credit limitation and credit refusal at the branch 57

Table 2.18: Some documents to reduce credit risks at BIDV Transaction Office 1 59 Table 2.19: Survey on the credit policy of the branch 60

Table 2.20: Lending interest rates for SMEs at BIDV – Transaction Office 1 61 Table 2.21: Information about human resources in a typical credit department 62 Table 2.22: Survey on human resources of the branch 63 Table 2.23: Survey on the ability to collect and process information of the branch 64 Table 2.24: Survey on the control process of the branch 65 Table 2.25: Survey on the credit procedures of the branch 68

INTRODUCTION

1 Rationale of the study

In the process of economic development, small and medium-sized enterprises (SMEs) play a very important role in the economy of a country, especially a developing country like Vietnam where SMEs account for over 90% of the total number of enterprises Every year, these enterprises contribute 50% of GDP and generate 62% of employment Therefore, the Government of Vietnam has a lot of preferential policies for SMEs to promote this economic component to develop, improve business efficiency and competitiveness in the domestic as well as international market and encourage commercial banks to take different measures to finance credit for SMEs

In operations of banks, credit activities are one of the main sources of profit (accounting for 70-80% of the bank's profit) Therefore, developing credit activities has always been one of the current development trends of Vietnamese commercial banks

Based on this fact, commercial banks in Vietnam in general and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) in particular are very interested in credit activities for SMEs Over many years of innovation, the credit activities for SMEs of commercial banks in Vietnam have generally achieved encouraging results in terms of both scale and quality of services Being the largest branch operating in BIDV system - one of the credit institutions assessed as having strong credit activities for SMEs in Vietnam in recent years - BIDV - Transaction Office 1, in addition to its successes, still has certain limitations in credit activities for SMEs such as low credit quality and large potential risks

This situation requires the bank to take reasonable and sound management measures in credit activities for SMEs since these activities bring a great profit to the bank and help diversify the target customer groups, but are potentially risky Over the years, BIDV – Transaction Office 1 has implemented a number of measures to increase credit for small and medium-sized enterprise customers and reduce possible

risks through screening customers, accelerating appraisal before and after lending, etc However, the ratios of bad loans and overdue loans of the bank are still high, which has bad impact on the credit quality of the branch Starting from the reasons above, the study of solutions to improve the quality of credit for SMEs at commercial banks in the country is practical and urgent

Therefore, the topic "Improving credit quality for small and medium-sized enterprises at Joint Stock Commercial Bank for Investment and Development of Vietnam - Transaction Office 1" was chosen as the research topic for this thesis

2 Research overview

In our country, although there have been quite a lot of studies on credit quality improvement to expand the scale of commercial banks, each author conducted research in a context suitable for each commercial bank Due to the different characteristics and specialization of the banks, their results could not be stereotyped to the model of the commercial bank system

There have been many studies on credit and credit quality for SMEs at different levels in Vietnam, namely:

The study by Le Hai Nhung (2014) on "Credit quality for small and sized enterprises at Asia Commercial Bank - Hanoi Branch": The author carried out the research with the aim to clarify the shortcomings in the issue of credit quality for SMEs at Asia Commercial Bank - Hanoi Branch to propose solutions to improve the quality of the credit activities With this purpose, the author presented basic issues of credit quality in general and credit quality for SMEs in particular Based on that, the author evaluated the credit quality at Asia Commercial Bank - Hanoi Branch and showed the advantages and limitations as well as the causes in the credit activities Thereby, the measures to improve credit quality for SMEs at Asia Commercial Bank - Hanoi Branch were proposed However, in this study, the author had not analyzed the factors affecting the credit quality for SMEs at Asia Commercial Bank as the basis for proposing appropriate solutions

medium-The study by G Vairava Subramanian and S Nehru (2012) on Implementation

of credit rating for SMEs (Small & Medium Enterprises) – How is beneficial to Indian

SMEs: According to the author, SMEs are contributing more than 16-18% to India's GDP If they received more support, SMEs would contribute more than 30% to the GDP The biggest challenge for SMEs in India was the efficient management of finance both for the operation of the organization and for the business expansion The author conducted the research with the aim to help enterprises in India easily access to credit and set up the credit rating plan and process In the study, the author presented the following topics: concept of credit rating, mechanism for credit rating, planning of credit rating, process of credit rating and benefits of credit rating for small and medium enterprises However, since the author only used qualitative methods and secondary data without using expert method to collect primary data, the results of the research did not ensure the objectiveness

In the study "Expanding and improving access to credit for small and sized enterprises" by the Central Institute for Economic Management (2009), the authors pointed out that the shortage in capital and the difficulty in accessing capital are one of the biggest obstacles in the development of small and medium-sized enterprises in Vietnam nowadays According to this study, the lack of capital and the difficulty in accessing capital of SMEs come from both sides: the enterprises themselves and the commercial banking system However, this study only focused on the barriers for SMEs in accessing credit without referring to the assessment of credit quality at commercial banks, as a basis for enterprises to access to credit

medium-The research by Vo Duc Toan (2012) on "Credit for SMEs of Joint Stock Commercial Banks in HCM City": The study focused on the reality of credit quality for SMEs and proposed solutions to expand and improve credit quality of Joint Stock Commercial Banks for SMEs in Ho Chi Minh City The study surveyed SMEs and Joint Stock Commercial Banks which are related to bank credit for SMEs However, the research mainly focused on the analysis and assessment of SMEs but had not focused on analyzing and evaluating the banks’ activities for SMEs and evaluating the credit quality of SMEs As a result, the research did not provide specific solutions to solve the problems of bank credit quality

The study of Truong Quang Thong (2010) entitled "Bank credit financing for SMEs - An empirical study in Ho Chi Minh City": This study surveyed and assessed the reality of operations of SMEs in Ho Chi Minh City, and suggested policies to support the development of this enterprise system in Ho Chi Minh City through the policy of credit financing access from commercial banks However, the author only focused on the credit financing policies of commercial banks without studying the factors affecting the quality of credit as a precondition for proposing policies

So far, the author has not found a comprehensive study on the quality of credit for SMEs in the system of commercial banks in Vietnam, especially at BIDV – Transaction Office 1 Therefore, this topic will have different points from previous studies and promise to fill the gap of the previous researches

3 Research objectives

3.1 General objective

This study aims at researching and assessing the quality of credit for SMEs at BIDV - Transaction Office 1 to find out limitations and propose solutions and recommendations to improve the quality of credit for SMEs at the bank

3.2 Specific objectives

- Systematize the theoretical framework on SMEs and credit quality for SMEs at commercial banks; determine the need to improve the credit quality as well as factors affecting credit activities at commercial banks

- Analyze and assess of the credit quality for SMEs at BIDV – Transaction Office 1 through the results of lending activities to SMEs at the bank and criteria for assessing credit quality BIDV - Transaction Office 1 in the period of 2013 - 2016

- Proposed a group of solutions to improve the credit quality for SMEs at BIDV – Transaction Office 1

4 Research object

The study concentrated on studying the quality of credit for small and sized enterprises at BIDV – Transaction Office 1

medium-5 Research scope

Due to the time constraints, the data (including internal documents of the bank and other related materials) used in the thesis were collected from 2013 to 2016

6 Research methods

6.1 Data collection method

To accomplish the research goal, the author collected both secondary data and primary data

Secondary data consisted of information related to the bank's credit operations, information on credit assessment and factors affecting the bank's credit quality

Primary information was collected by measuring staff’s assessment towards the bank's lending activities to SMEs in the form of a survey

6.2 Data analysis method

After being collected, the data were synthesized by Excel software and analyzed in the form of tables and charts The analysis results were used to assess the credit quality at the bank

6.3 Expert interview method

The author conducted interviews with managers of corporate credit at BIDV - Transaction Office 1 to synthesize the factors affecting the credit quality at the branch

7 Organization of the thesis

The thesis consists of three chapters:

Chapter 1: Theoretical background of credit quality for SMEs at commercial banks

Chapter 2: Reality of credit quality for SMEs at BIDV - Transaction Office 1 Chapter 3: Solutions to improve credit quality for SMEs at BIDV - Transaction Office 1

Chapter 1: THEORETICAL FRAMEWORK ON CREDIT QUALITY FOR

SMEs AT COMMERCIAL BANKS 1.1 Small and medium-sized enterprises

1.1.1 Concept

According to the Law on Enterprises of 2005, an enterprise is an economic organization which has its own name, own property and a stable office registered for business in accordance with the law for the purpose of conducting business activities The types of enterprises in the market economy are diversified and abundant, in which enterprises categorized based on the scale can be divided into large enterprises and SMEs

In Vietnam, according to Decree No 56/2009/NĐ-CP replacing Decree No 90/2001/NĐ-CP, Article 3 of the decree defines SME as "a business establishment which has registered for business in accordance with the law, divided into three levels: micro, small and medium based on the total capital (the total capital equivalent to the total assets determined in the balance sheet of the enterprise) or the annual average number of employees, in which total capital is a priority criterion" The classification

of SMEs can be based on quantifiable criteria (sales, employees, capital) as well as special characteristics related to the enterprises, such as ownership, strategy, operator's objectives, organizational structure, market relation The details are presented as follows:

Table 1.1: Criteria for categorizing SMEs in accordance with Decree No

56/2009/NĐCP

Size

Area

sized enterprises

Micro-Small-sized enterprises

Medium-sized enterprises

Number of employees capital Total Number of

employees

Total capital Number of

Under 20 billion dong

Over 10 -

200 people

Over 20 billion dong -

100 billion dong

Under 20 billion dong

Over 10 -

200 people

Over 20 billion dong -

100 billion dong

Under 10 billion dong

Over 10 -

50 people

Over 10 billion dong - 50 billion dong

Over 50 -

100 people

Source: Decree No 56/2009/NĐ-CP dated 30 June, 2009 of the State

1.1.2 Characteristics of SMEs

Operational characteristics of SMEs are the concern of commercial banks since they are important customers in the operation of the banks The characteristics of SMEs in our country can be summarized as follows:

- Existing and developing in most fields and economic components: SMEs operate in all fields of the economy such as trade, services, industry, construction and agriculture and under all forms such as state-owned enterprises, private enterprises, joint stock companies, limited liability companies, foreign invested enterprises and individual economic establishments

- High dynamism: SMEs are very dynamic to the market changes since they are able to switch their business and products quickly On the other hand, although SMEs

goods is not large As a result, if the products can not adapt to the demand of the market, it will be easy for the enterprises to switch to other types to suit the market

- Short production and business cycle: SMEs have little initial capital so their production and business is short, resulting in the ability to recover capital quickly to create conditions for effective operations

- Limited business capacity: Due to the little operating capital and the low capacity of accessing financial resources, SMEs often have difficulties in expanding their scale of operations, deploying major projects and investing in new production In addition, due to the small capital scale, SMEs are not able to invest too much in upgrading, renovating machinery and purchasing advanced and modern technology equipment SMEs also face many difficulties in searching, penetrating markets and distributing products due to lack of market information and poor marketing That makes the goods of SMEs difficult sell well on the market These difficulties limit the ability to occupy the market as well as the development of enterprises, leading to the low competitiveness of SMEs

- Low level of employees and management competence: The level and skills of staff and management team at SMEs are also one of the urgent matters nowadays This situation is due to the limited capital, which makes SMEs difficult to employ excellent and skilled workforce and management The labor force is mainly unskilled workers who are less trained and lack skills At the same time, these workers are less concerned

by business owners in training and retraining to improve their skills while the quality

of labor is very important for the existence and development of enterprises Besides, the skills of the enterprise leaders are still limited The number of SMEs’ owners and managers with high professional qualifications and management capacity is not much

1.1.3 Role of SMEs in the economy

The existence of SMEs in the economy is an inevitable objective for developing countries like Vietnam Accounting for 98% of individual enterprises, SMEs play a very important role for the development of the country as follows:

- Promote economic growth and increase national income

Due to the small and medium sizes, SMEs can set up offices and workshops all over the country, in places where infrastructure is not developed to exploit the potentials and strengths of each region and develop the local economy The scale of operation as well as technological level of these enterprises is very suitable for industries that need more manual laborers such as aquatic product-seafood processing, garment and footwear These are industries that bring many export turnovers for the whole country, especially for the traditional handicraft industry, in which the use of modern technologies and mass production is very difficult In addition to scatter all over the countryside, SMEs plays a very important role in collecting and consuming products not only for domestic market but also for export

In addition, because of their advantages, SMEs are very suitable for the retail business and services Meanwhile, it is difficult for large enterprises to organize their retail network to consume their goods, but they have to consume their goods through the retail network of SMEs Therefore, SMEs are able to quickly and conveniently meet the needs of consumers even in remote areas, or areas with inferior infrastructure This shortens the economic gap between regions, contributing to the development of the economy equally throughout the territory By attracting a large amount of idle capital in the people, exploiting the potential advantages of each region, and making satellite for large enterprises, SMEs have contributed a considerable part and the economic growth and development

- Provide jobs and income for employees

SMEs often operate in the fields of trade, services, consumer goods production, agricultural product processing, construction and transportation They often use backward, semi-mechanical and semi-manual technology, so the ability to attract laborers of these enterprises is very large At present, SMEs provide jobs to 50% of the social workers In Vietnam, SMEs now play an important role in attracting agricultural workers in rural areas in traditional craft villages, thereby reducing the amount of laborers moving to cities during their leisure time and preserving the cultural identity

of the Vietnamese nation over the generations

- Stabilize the economy

In most economies, SMEs are subcontractors for large companies SMEs make

up important supporting industry and services as they usually specialize in producing certain components which are used to assemble a complete product These types of enterprises contribute to make the economy more dynamic

- Contribute to the urbanization and transfer of economic structure towards industrialization

The development of SMEs in rural areas will attract unemployed laborers and a large numbers of seasonal workers into production and business, gradually transferring agricultural laborers to work in industry or service areas but still live in the locality Parallel with this is the formation of concentrated industrial and service businesses right in the countryside, formation of small towns between villages and carrying out the process of decentralized urbanization

- Sow the talents of business management

SMEs are places where entrepreneurs are trained These places are where they get used to the business environment Starting from small scale business and through the management of small and medium business, some entrepreneurs will develop and become talents in the area of business management

1.2 Bank credit for SMEs

1.2.1 Concept of bank credit

According to the Law on Credit Institutions No 47/2010/QH12 issued by the National Assembly in 2010, credit granting in general and credit granting for small and medium-sized enterprises in particular is an agreement for organizations or individuals

to use a sum of money on the principle of repayment by ways of lending, discounting, financial leasing, factoring, bank guarantee and other credit granting operations Bank credit consists of the following three parts:

- There is a transfer of the right of capital use from the owners to the users

- This transfer is only temporary, for a certain period specified in the credit agreement

- This transfer is included with costs presented in the interest paid by the borrowers and other fees (if any)

1.2.2 Characteristics and role of bank credit for SMEs

- Characteristics

Common characteristics of SMEs include the lack of transparency in finance, low capital, limited access to information and markets, lack of collaterals and low ability to resist risks Therefore, banks are often more cautious when offering loans to SMEs because the credit risks are much higher than when offering loans to large enterprises

SMBs often have the need for bank loans to supplement their working capital and invest in small-scale projects since their financial and managerial capacity is not strong enough to undertake large-scale projects

- The role of credit for SMEs

The bank credit for SMEs not only promotes the development of these economic entities but also promotes the banking system The extension of loans for SMEs helps the banks switch their reasonable investment structure, develop credit, diversify portfolio of loans, disperse risks and improve competitive position

The expansion of loans for SMEs also helps the economy run more smoothly since SMEs can timely supplement capital to continue investing in machinery and equipment and seize the opportunity to take competitive advantages

The provision of bank credit to SMEs helps to improve the efficiency of capital use of enterprises In the process of granting credit, the banks perform prior control During and after the disbursement, enterprises are forced to use the capital for proper purposes and profitable business activities to ensure the repayment of principal and interest for the bank on time

The loans from banks are considered a financial lever to help SMEs optimize their capital structure, achieve the lowest capital costs and save costs SMEs often have limited capital Therefore, the reasonable use of their own capital together with the loans at will help maximize their profits with the lowest average cost of capital

1.2.3 Bank credit products for SMEs

From the characteristics of SMEs, the actual bank credit products for this group

of customers are as follows:

- Loans to finance production and business

This type of loan aims to meet capital needs of production and business of SMEs through the mode of each loan, and loan under credit limit

- Installment loans

This type of loan is applicable to medium and long-term loans for the purchase of fixed assets for production and business activities, new construction works and improvement and expansion of production scale When borrowing capital, credit institutions and customers must determine and agree on the amount of interest payable plus the amount of principal to be repaid in accordance with the divergent term of the loan

- Guarantee

According to the Law on Credit Institutions of 2010, bank guarantee is a form of credit granting, in which the credit institution commits to the guarantee party that the credit institution will perform its financial obligations on behalf of the customer when the customer fails to perform or fails to fulfill his/ her obligations; The customer must acknowledge the debt and return it to the credit institution as agreed In Vietnam nowadays, in the context of supporting SMEs in bank loans, banks can issue loan guarantee for SMEs

- Foreign trade finance

By accessing foreign trade finance, SMEs with import-export business relationships can borrow capital for their business needs Foreign trade finance includes financing activities of the bank, which typically include pre-export financing, bills discounting, L/C opening line

- Discounted vouchers

According to the Law on Credit Institutions of 2010, discounts are purchases with terms or purchases with reservation of the right to demand negotiable instruments, other valuable papers of payees before maturity This is a type of credit in which a bank receives valuable documents and gives a customer a certain amount of money equal to the face value of the documents minus commissions and discounted

interest The types of vouchers that banks usually accept the discount are trade papers, bonds and bills of exchange

- Financial leasing

Financial leasing is medium and long-term credit activity through the lease of machinery, equipment, means of transport and other movables under the lease contract between the lessor and the lessee The bank commits to purchase machinery, equipment, means of transport and other movables at the lessee's request and holds ownership of the leased assets The lessee uses the leased assets and pays rent during the lease term At the end of the lease term, the lessee may choose to buy back the leased property or continue to lease it under the conditions agreed in the financial leasing contract The total amount of rent under the financial leasing contract must be

at least equivalent to the value of the assets at the time of signing contract Theoretically, financial leasing is a medium and long-term approach that is convenient for enterprises with small capital scale, few collaterals or newly-established enterprises

1.3 Quality of credit for SMEs

1.3.1 Concept

Credit quality for SMEs is a good response to the capital requirements for production and business activities of SMEs, which is in line with the socio-economic development and ensures the existence and development of the bank (Nguyen Hoang Long, 2011) Thus, the quality of credit is reflected in the following aspects:

+ For SMEs

The granted credit must be suitable for the purpose of capital use and meet the demand of customers with reasonable interest rates, simple and convenient procedures and attract many customers but still ensure the credit principles This credit should enable SMEs to generate enough profit to pay interests on the loans and increase the value of their assets

+ For commercial banks

The scope, extent and limits of credit must be consistent with the capacity of the bank itself and ensure not only the security of the loans but also its competitiveness in the market on the principle of full, timely and profitable repayment when the credit contract is terminated

+ For socio-economic development

Credit serves the production and circulation of goods, contributes to creating jobs for laborers, exploits the potentials in the economy, promotes the accumulation and concentration of production, and meets the overall objectives of the State on socio-economic development

1.3.2 Necessity of improving credit quality for SMEs

By integrating into the regional and the world economy, our economy is developing to a new level Entrepreneurs of the economy must face new challenges That is how to survive and develop in the harsh competition In such a context, banking credit as a key link Bank credit plays an extremely important role, as a financial intermediary of the economy, through social resources which are allocated and used appropriately and effectively However, in the present time, credit is showing abnormal signs In addition to the fact that banks are facing difficulties in granting credit due to high interest rates, overdue debts and bad credit debts Moreover, credit failure, bankrupt companies, fleeing debtors and the deliberate appropriation of state and people’s property tend to increase Therefore, improving the quality of credit (especially credit for SMEs) is imperative since it is not only a matter of concern of the State but also a common concern of the society Healthy bank credit will help promote the production and business of all economic components and ensure the stability of the economy

1.3.3 Indicators for assessing credit quality for SMEs

1.3.3.1 Qualitative indicators

Based on the specific situation of each bank in relation to the banking system of each economy, each bank will determine the criteria for different qualitative indicators Qualitative indicators can be assessed based on the following aspects:

- The implementation of the law, current documents and regimes of the industry

on credit activities

- Appropriate management policies, development strategies in line with the requirements for competition and business development of the bank in each specific period

- The contribution of bank credit activities to socio-economic development

- The reputation of the bank, the level of satisfaction, and the ability to meet the needs for credit of customers

The level of customer satisfaction is a manifestation of the credit quality Credit quality is considered good when the enterprises which have credit relations with the bank are well met their needs Customers in general and SMEs in particular always expect simple, light, scientific, convenient and objective credit procedures Enterprises provided with capital quickly and in time will be able to stabilize their business operations, capture business opportunities and reduce the loan costs Along with the increasingly strong development of the domestic economy as well as the world economy, the competition is more and more fierce This competition forces enterprises

to be more flexible and creative in their investment Banks also have to change their thinking and working style to meet the increasing demand of enterprises Commercial banks are not only the evaluators of the loan projects and business plans of enterprises but also act as consultants For instance, commercial banks offer advice to enterprises

in adjusting unreasonable aspects in projects, credit records; provide enterprises with information about advances in science and technology, information on market situation, investment trend; help and stick to enterprises when they fall into financial difficulties, ineffective business, and so on Then, the capital of the banks not only

brings profits to enterprises but also reduces the credit risks and ensures effective business of the banks

1.3.3.2 Quantitative indicators

These indicators are very important in assessing credit quality Through these indicators, banks can accurately determine the quality of credit through specific figures The indicators are presented as follows:

(1) Indicator of credit growth

Presented in the formula:

Credit growth rate = Closing debts - Opening debts

Opening debts

(Source: Researches on Credit quality for small and medium-sized enterprises)

This indicator reflects the bank's ability to extend credit to SMEs as well as the bank's reputation for this group of customers The higher the indicator is, the higher the capacity of the bank in expanding its credit operations to SMEs is At the same time, the higher the credit growth rate is, the better the quality of credit to match the credit growth is

However, this indicator does not totally reflect the credit quality, but it can only reflect the scale, proportion and growth speed of credit as there are many potential risks behind the loans Therefore, when evaluating credit quality, we should focus not only on growth rate, but also on some other indicators for a more comprehensive assessment

(2) Indicator of bad loans

Includes the following criteria:

Overdue loan rate: is calculated as the percentage of overdue loan on total

outstanding loans of a commercial bank at a specific time

Total outstanding loans

(Source: Researches on Credit quality for small and medium-sized enterprises)

Overdue loan is a loan that can not be repaid by customers on the due date of the contract This is the loan whose part or all of the principal and/ or interest is overdue

This indicator reflects the bank's ability to lose capital The higher the debt-to-account rate is, the higher the probability of capital loss is and the lower the credit quality is According to the international practice, if the overdue loan rate is less than 5%, the credit quality is considered good and vise versa.

The State Bank has had many adjustments for overdue debts Most recently, the introduction of Circular No 39/2016/TT-NHNN has created new points in the calculation of overdue loans Accordingly, with the loan regulation in Decision No

1627, overdue loans which are assessed by credit institutions or commercial banks as being unable to repay on time and customers refuse to restructure their loan repayment time, the entire original loan balance of such credit contract is the overdue loan However, Circular No 39/2016/TT-NHNN stipulates that credit institutions or commercial banks only transfer overdue loans for the original loan balance which can not be repaid in due time as agreed and is not approved by the credit institutions to restructure repayment time This new regulation of the State Bank has considerably changed the overdue loan rate calculated earlier by commercial banks

Bad loan rate (loans classified into groups 3, 4 and 5): is the percentage of

irrecoverable loans on total outstanding loans of commercial banks at a certain time Irrecoverable loans are overdue loans which exceed 3 periods This indicator reflects more accurately the bank's ability to lose capital The higher this rate is, the lower the bank’s credit quality is

Total outstanding loans

(Source: Researches on Credit quality for small and medium-sized enterprises)

In Vietnam, according to the Decision No 06/2008/QĐ-NHNN, commercial banks have the highest score on credit quality when the bad loan rate is less than or equal to 2%

These indicators are closely related and reflect different levels of credit risks For banks, the fact that customers do not pay on time will affect liquidity and liquidity risk Bad debts are a warning to the bank When assessing overdue loans, it is also necessary to pay attention to some credit operations such as calculating loan terms,

transferring and extending loan terms based on suitable evaluations, restructuring loans so that they are not included in overdue loans However, the restructuring of loans also somewhat reflects the bank's ability to lose capital If the banks restructure their loans only to reduce their overdue loans without taking into account the customer's repayment capacity, it is a risk to the banks

(3) Indicator of credit turnover

This indicator is determined by the average revenue from loan collection over the average outstanding loan of a commercial bank in a certain period of time, which is calculated by following formula:

Credit turnover =

Average revenue from loan

collection Average outstanding loan

(Source: Researches on Credit quality for small and medium-sized enterprises)

This indicator reflects the number of loan rounds in which the higher this indicator is, the better the organization is managing its credit and the better the credit quality is guaranteed However, in order to accurately assess the credit turnover, it is necessary to consider each type of loan since different business sectors will have different credit turnovers

(4) Indicator of profit from credit activities

Profit from credit activities is the annual profit from lending activities of commercial banks This indicator reflects the efficiency of credit operations and credit quality of banks and vice versa Apart from the safety objective, any bank must aim for profit, especially in a competitive market economy This indicator is illustrated by the following formula:

Rate of profit on total

outstanding loans =

Profit from credit activities

x 100% Total outstanding loans

(Source: Researches on Credit quality for small and medium-sized enterprises)

However, the assessment of this indicator is just relative because it depends on many factors such as interest rates, customers, credit products and credit policies Therefore, in banking activities, if the credit quality of a bank is good, the bank with

the lowest level of bad loans when having the same outstanding loans and the same lending interest rates as other banks will profit have higher from credit activities (5) Indicator of loan refusal

Banks refuse to lend when individual customers fail to meet the financial requirements and legal capacity of loan applications

The high rate of loan refusal shows that bank officers pay much attention to the credit evaluation for individual customers, thus limiting credit risks and bad loans However, this will reduce profit from lending activities

However, the low rate of credit refusal shows that although banks have high lending volume, there are higher credit risks and the credit quality is not ensured Thus, the bank's refusal rate must be at appropriate levels and ensure the loan amount and the credit quality of the bank

1.3.4 Factors affecting the improvement of credit quality for SMEs at commercial banks

1.3.4.1 Internal Factors of the banks

* Credit policy

Credit policy of a commercial bank is a series of measures related to loan promotion or restriction to achieve the planned goals of that commercial bank, reduce risks and ensure safety in credit activities of the bank, which is determined on the basis

of the bank’s development strategy in conjunction with the management regulations of the sector of the State’s management agencies It becomes a credit guideline of a bank, and is the bank's credit staff’s orientations The objective of the credit policy is profit

A reasonable credit policy helps a bank determine the direction of using its existing funds, create a high quality, low risk asset, and achieve a common business goal

* Human resources of the bank

Human resources are always an important factor determining the success of any organizations, including banks In credit activities, credit officers are directly involved

in all stages of the lending procedures The quality of credit services will be highly evaluated if the bank employees have good attitude and manners, instruct and assist customers during the implementation of credit procedures The quality of credit

services is reflected in the level of staff and the staff’s attitude and manners towards the bank’s customers

* Ability to collect and process bank information

Information is a very important factor in production and business In current market economy with a competitive environment, who knows the information first is the person who is likely to win the competition With banks, credit information is very essential and is a basis for reviewing, deciding whether to lend or not to lend and to monitor and manage loans for the purpose of ensuring the safety and effectiveness of the loans

Whether the credit quality is good or bad depends on this factor If a bank can collect different sources of information, the bank's information on the borrowers becomes more precise and the bank can make the right decisions This enhances the efficiency of credit operations and increases the quality of credit services

* Control procedure of the bank

The bank's control procedure is the lending policies and proceedings, based on which the bank leaders will have appropriate instructions to resolve difficulties in lending activities If the control procedure is simple and creates favorable conditions for the borrowers, it will contribute to improve the quality of the bank’s credit services However, to prevent the risks for the bank, it is necessary to have a reasonable control procedure

1.3.4.2 Factors from SME customers

When a bank provides a credit to a customer, the security and profitability of that capital depends very much on the customer since he or she is the holder of the credit Therefore, customers are one of the most important factors affecting the quality of credit

If there are only efforts from the bank, the granted credit is not considered as quality In order to ensure the safety and efficiency of the bank's credits, customers must have the capacity (in terms of finance, management, labor skills, etc.), feasible business projects and professional ethics Only with those criteria can the credit quality be improved

The financial capacity of SME customers is expressed in profitability, own capital, security assets, etc The higher the financial capacity is, the higher the

repayment capacity of enterprises is Management capacity and labor skills in enterprises are also very important These are decisive factors in the profitability of the credit Working ability, level as well as management capacity of enterprises will make the capital used for the right and effective purposes which generate enough profits for enterprises to pay interests to the bank fully, on time and increase the equity as planned

Customer honesty: The current business situation has shown that the integrity and affordability of the borrowers may be changed after the loans are offered Customers can be fraudulent in data, papers, and property rights or use loans for wrong purposes or business objects, and not follow proposed business plans, and so on The fraud of customers will inevitably lead to the risks for bank credit Therefore, customer honesty is one of the factors that need to be highlighted in individual credit

1.3.4.3 External Factors

* Credit procedure: Includes a set of principles and regulations of a bank in the

credit granting, which build specific steps in a certain sequence from setting up a credit file to ending a credit operation It is a multi-stage process that is uninterrupted,

in a certain order, and closely interconnected Theoretically, a credit procedure consists of six stages: setting up files, analysis, decision making, disbursement, debt monitoring and collecting, and liquidation of contracts The procedures are interrelated and mutually supportive; the results of the previous stage are the basis for the later stage and impact on the quality of the later stage Based on the credit process, the bank will conduct credit proceedings in accordance with the law and business safety By controlling the credit procedure, bank managers can quickly identify necessary adjustments as well as assignments and training in the future, thereby controlling the risks of the loans It can be said that if the credit procedure is reasonable, the banks will have effective and safe credit operations

* Economic environment

Economic environment is the premise for all business activities in an economy

A stable economy will make economic activities operate smoothly In that economy, credit activities will not be affected by inflation, crisis or unusual fluctuations in

interest rates, so the quality of credit is better guaranteed In this case, the quality of credit depends mainly on the subjective factors, i.e the factors that belong to commercial banks

Therefore, in order to improve the credit quality, the work of forecast, the ability

to capture market information and the ability to respond promptly to unusual fluctuations of the economy is extremely important for each commercial bank

* Social environment

Social environment has been, and will continue to be an important factor in business, especially in banking business The socio-political stability of the country will be one of the favorable factors for enterprises to operate smoothly and efficiently

If there are unstable events such as war, partisan conflicts, riots, embargoes and demonstrations, these events will not only cause damages to enterprises but also to the whole economy (crippling production, stagnating goods circulation, etc.)

As a result, the loans that enterprises borrow from banks will be difficult to be paid in full and timely manner and will negatively affect the quality of bank credit

1.3.5 Experience in improving credit quality for SMEs at some commercial banks

Banks in the world, especially the leading banks in the wholesale banking sector such as Citibank, Bank of New York and DBS Group Holdings, still develop retail services and grant credits to SMEs For domestic banks, Techcombank and Agribank are considered as banks with fairly good and successful retail strategies

Firstly, CitiBank is one of the oldest banks in the world which develops a range of retail banking services including services related to SME customers As a

bank operating in many countries around the world, CitiBank builds a team of employees who are knowledgeable of the localities as well as able to develop new products in the strong fields of the bank This is a strategy that the bank has done very well in countries with potential markets such as China or Indonesia, where SMEs are able to develop in a stable or growing market environment Therefore, it has expanded the number of SME customers - at the same time expand other activities such as guarantee and factoring.The quality of these credits is very stable, which is shown in the low bad debt rate, large number of customers This is because Citibank always complies with regulations in Basel 1, Basel 2 and Basel 3 These regulations ensure that the bank will not face too many risks when granting credit to customers since there is always sources to meet the payment needs In addition, in order to concretize these activities, CitiBank also has a strict credit procedure and the authority to sign with customers of branch directors must be decided by the board of directors Besides, with a large market that CitiBank occupies like Europe, the bank also implements a variety of export incentives for developing countries by offering guarantee or factoring functions to exporters of goods to the European market through the use of its local branches

The second bank is the Bank of New York This is one of the oldest and most prestigious banks in the US, which is strong in both wholesale and retail services If Citibank focuses on the European market, this bank concentrates its business on the SME segment with a low interest rate strategy and offers some free online payment options (such as overdraft) Besides, Bank of New York also performs additional services of credit operations to SMEs such as advisory services to help customers choose loans suitable for their needs and has suitable customer policies for each type

of customer In order to provide better services to customers, addition to developing virtual banking, the bank also focuses on developing traditional distribution channels such as opening branches in the US and representative offices in many parts of the world, and advertising on media, newspapers or entertainment programs

The third bank is DBS Group Holdings It is the most prominent bank in Singapore and the top bank in Hong Kong for both wholesale and retail services Since it is behind Citibank and Bank of New York in the card segment, the bank has learned a lot of experience: still developing traditional banking services, but classifying customers based on each domain, and in particular, developing preferred customers according to the bank's classification In parallel with the development and offering of priority services, like Citibank and Bank of New York, This bank also offers a range of complex financial services such as insurance, financial consultation, invoicing, etc with a cost-effective philosophy to meet customers’ needs as well as create loyalty and cooperation in the repayment

of loans Next, the bank sets up and promotes a team of experienced investment advisors who could meet the investment needs and credit requirements of both individual and SME customers In addition, with the use of its traditional branch network and well-trained human resources, the bank has expanded its treasury services and its ability to provide foreign exchange products, derivative products, currency and security trading, fund management, and entrustment to both small and large customers

For domestic banks, BIDV has also learned the experience from a number of banks such as Techcombank and Agribank

With the aim to become the best retail bank in Vietnam, Techcombank has aggressively developed the retail market for SMEs in the field of e-banking: online filing, providing relevant services In addition, to access to the world standards, Techcombank has implemented the principles in Basel 2 and a part of Basel 3 to meet safety standards Besides, for the development policy in the coming time, the bank has sold part of its shares to foreign partners to gain the management capacity

of the strong banks in the world At the same time, Techcombank itself has developed a set of credit procedures for SMEs and developed services not only for loans, but also for other activities such as guarantee, factoring or entrusted services

in order to maximize the interests of the owners as well as dispersing the risks of the bank

Vietnam Bank for Agriculture and Rural Development (Agribank) is one of the two banks with the largest total assets in Vietnam, investing in the specific field

of agriculture and rural areas Thus, this bank receives government incentives in entrusted funds to provide credit to SMEs Although these entrusted funds have been tendered, the bank still has many advantages from the government In addition, Agribank also has a good point for banks to learn, which is the ability to handle bad debts through a variety of measures, including the following measures: (1) let the credit staff deal with overdue debts; and (2) establish a bad debt settlement company under the bank for purchasing and selling these debts with the State Bank and debt management companies of other commercial banks One reason why this bank carries out debt recovery is that the excessive credit with a loose policy makes the bad debts of this bank grow to a high level

From the experience of other commercial banks in the country and in the world, the lessons can be drawn for BIDV in general BIDV - Transaction Office 1

in particular in the credit activities for SMEs as follows:

Firstly, train a team of human resources who understand the market to expand customers, thereby combining the provision of supporting services in credit activities to customers such as loan counseling, services with competitive prices, fees and other supporting products to get more fees from customers and increase the revenue for the bank

Secondly, apply the risk management procedure under international standard (Basel 3 - Basel 3, effective January 1, 2015 for G20 countries and implemented by many countries in the world) to reduce credit risks stemming from credits granted

to SMEs; classify customers right from the appraisal of documents; record documents of customers who are refused to provide credit in order to classify debts with customers with similar characteristics in the future

Finally, standardize working process and place responsibility on credit officers who cause risks of bad debts This not only saves costs when dealing with problematic debts but also increases the responsibility of the employees; establish a debt management company of the bank to handle the debt professionally when necessary

Chapter 2: REALITY OF CREDIT QUALITY FOR SMEs AT BIDV –

TRANSACTION OFFICE 1

2.1 Overview of BIDV- Transaction Office 1

2.1.1 History of foundation and development of BIDV- Transaction Office 1

BIDV was founded and went into operation on April 26, 1957 under the name of Bank for Construction of Vietnam From 1981 to 1989, the bank was renamed as Bank for Investment and Construction of Vietnam From 1990 to 27 April 2012, the bank was renamed again as Bank for Investment and Development of Vietnam (BIDV) Since 27 April 2012, the bank was equitized and renamed as Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) The main duty of the bank

in the early time of establishment was to concentrate and manage the capital allocated

by the State for the purpose of implementing socio-economic development plans and supporting the construction and protection of the country

On March 28, 1991, BIDV – Transaction Office 1 was established under Decision No 76 QĐ/TCCB of the General Director of BIDV with the initial name of BIDV – Transaction Office As a special branch in the BIDV system, BIDV – Transaction Office 1 is the direct business unit of the Head Office, executing strategic tasks of BIDV Over 26 years of operation and development, the branch has achieved many significant advances, namely:

In the first four years (1991-1994), although there were many difficulties, BIDV – Transaction Office 1 successfully completed the tasks of allocating budget capital for investment projects of ministries and sectors with the amount of hundreds of billions dong Accordingly, BIDV - Transaction Office 1 has promoted the role of inspecting and supervising the use of budget capital of investors, allocating to the right places, right objects according to the design and construction volume, contributing to preventing waste in capital construction

The next period of 1996-2000: With 167 employees, Transaction Office 1 has 12 operational departments, 1 regional branch, 2 transaction offices and 7 savings banks which fully implement the duties of commercial banks, serving a large number of

customers of all classes of economy and population BIDV - Transaction Office 1 has strongly shifted to business activities, self-accounting and self-covering As a result, the branch has achieved important results, established its position and become a familiar and reliable address for customers to deposit their money In addition, BIDV – Transaction Office 1 has successfully tested BIDV's long-term capital mobilization products through the issuance of bonds and promissory notes In this period, the branch was also known as a unit which specializes in financing capital for large and key projects of the State and providing quality banking services such as domestic payment and international payment

From 2001 to 2005: BIDV – Transaction Office 1 split and upgraded 4 branches

in Hanoi including Bac Ha Noi Branch in 2002; Ha Thanh Branch in 2003; Dong Do Branch in 2004; and Quang Trung Branch in 2005

At the branch, the development of human resources and a strong collective is one of the top priorities and a solid foundation for the successes of the branch as well as the entire BIDV system over the years The first step is to build a team of skillful staff With

16 employees from the first days of establishment, up to now, the branch has more than

300 employees with average age of 27.5 with basic training and regular re-training to improve professional skills With the strength and enthusiasm of youth and the loyalty to the bank, the employees have increased the trust of customers in the bank

The second step is to train key staff in accordance with the development of organizational models and business tasks Over the past 25 years, there have been 6 directors, 3 of who became BIDV’s Deputy General Directors, 20 deputy directors and hundreds of heads and deputy heads who are currently holding positions at the branch and its member units in BIDV system In addition, strong Party activities, union activities, youth union activities and sports movements also contribute to building a strong team at Transaction Office 1

From October 1, 2009, the branch was renamed as BIDV - Transaction Office 1 During 25 years of establishment and development, Transaction Office 1 has always been the leader in the whole system Up to now, the branch has 16 professional departments and 5 transaction offices with more than 300 staff members By the end of

2016, Transaction Office 1 has reached the total assets of 33,723 billion dong, accounting for 5.37% of the total assets of BIDV The average mobilized capital reached 27,179 billion dong, accounting for 6, 51% of the total mobilized capital of the whole system and outstanding loans was 19,076 billion dong, accounting for 2.91% of the total outstanding loans of the whole system The total service revenue reached 139 billion dong On average, in the period of 2010 - 2016, mobilized capital of Transaction Office 1 accounted for an average of 7-10% of the total capital of BIDV; outstanding loans accounted for 3-4% of the total outstanding loans of BIDV; and the total service revenue accounted for approximately 5% of the total revenue of BIDV

2.1.2 General functions and duties of BIDV – Transaction Office 1

During its operation, Transaction Office 1 was assigned by BIDV Head Office to

be a key and leading unit in the system of BIDV Transaction Office 1 focused on three main tasks: mobilizing capital to meet the needs of on-the-spot business and increase capital for the whole sector; serving large customers, groups, corporations, etc.; developing banking services

Up to now, in order to expand and develop into a multi-functional bank, like other state-owned commercial banks, Transaction Office 1 has expanded its business activities, done multi-sector and multi-area business such as finance, currency, credit, banking and non-banking services in accordance with the law, constantly improved the bank's profits and contributed to the implementation of national monetary policy and the development of the country’s economy At the same time, the branch has been assigned new tasks by BIDV Head Office, not only to develop the wholesale business and focus on relations with groups, corporations and large enterprises but also to expand the business subjects and sectors and develop more retail banking services

2.1.3 Organizational structure

The operational system of Transaction Office 1 is divided into specific departments which are then divided into professional divisions The specific tasks of the divisions are presented as follows:

- Corporate customer divisions: have the task marketing, selling products and services to corporate customers; directly propose credit limits, credit proposal; monitor

and manage customers’ situation; receive and examine interest remission documents, interest remission proposals, etc Currently, the branch has 5 corporate customer divisions, in which Corporate Customer Divisions 1, 2, 4, 5 are corporate customer divisions; Corporate Customer Division 6 performs additional duties on international payment

- Individual customer divisions: have the function of marketing, selling products and services to individual customers; directly propose the credit limits, credit proposals; monitor and manage customer situation; receive and examine interest remission documents, interest remission proposals, etc

- Corporate customer transaction office: directly manages accounts and transactions with corporate customers; prevent money laundering; timely handle transactions with suspicious signs; make international payment, etc

- Individual customer transaction office: manages accounts and transactions with individual customers; examines the accuracy and adequacy of transaction documents; manages and store profile records

- Risk Management Department 1: proposes policies, measures to raise the credit quality; Reviews, analyzes and evaluates potential risks to the branch's credit portfolio; Supervises the classification of debts, sets up risk provisions; Advises and recommends on the building of credit risk management measures and submits them to competent credit authorities; acts as a guarantee for customers; handles problematic loans, and so on

- Risk management division 2: Implements operational risk management; guides and coordinates with professional department in evaluating and detecting operational risks

- Credit management division: Performs lending operations and management; calculates and sets up risk provisions according to debt classification results of the corporate customer divisions and individual customer divisions

- Budget management division: Performs operations of warehouse management and budget receiving and spending; advise the branch director on measures to ensure safety of warehouse, etc