STATUS OF LOAN AND CREDIT GRANTING ACTIVITIES IN OPERATION CENTER – THE MILITARY COMMERCIAL JOINT- STOCK BANK

FOREIGN TRADE UNIVERSITY Finance and Banking Faculty -------- MID-TERM INTERNSHIP REPORT Topic: STATUS OF LOAN AND CREDIT GRANTING ACTIVITIES IN OPERATION CENTER – THE MILITARY COMM

FOREIGN TRADE UNIVERSITY Finance and Banking Faculty --- -

MID-TERM INTERNSHIP REPORT

Topic: STATUS OF LOAN AND CREDIT GRANTING ACTIVITIES IN OPERATION

CENTER – THE MILITARY COMMERCIAL JOINT- STOCK BANK

Student: Nguyen Tuan Anh ID: 1113340071

Intake: 50 – A21 – High quality class Instructor: Nguyen Thu Trang, MSc

Hanoi, July 2014

ACKNOWLEDGEMENT

At first, I am deeply indebted to my instructor - Mrs Nguyen Thu Trang, Msc., Lecturer of Foreign Trade University for her guidance during the whole of the internship and research period I wish to express my great appreciation to her huge support and responsiveness throughout the research period Her suggestion and comments were really

a great source of spirit to make the report improved significantly

Furthermore, I am also grateful with Mr Director Nguyen Cao Cuong , Mr Vice Director Nguyen Tuan Anh and Mr Do Huy Liem – officer Corporate Institutional Banking - customer department of Operation center, The Military Commercial Joint- Stock Bank and all staff who has been helpful with general advising and supporting from beginning to end of my internship period

Finally, I wish to thank all staffs and successors of Operation Center - The Military Commercial Joint- Stock Bank for their support during the time I worked and research in the center

PREFACE

The more growing the economy is, the more demand for capitals increases sharply, it also means that loans and credit activities will grow along with the growth of the economy Currently, investment projects are holding an important position and participate in most of the economic activities, especially a credit relationship with commercial banks Granting Credits is one of the most important business activities and main sources of profit of any commercial bank

Starting from this situation, combined with the process of 5-week internship in CIB Department – Operation Center – The Military Commercial Joint- Stock Bank and the knowledge acquired during studying in Finance and Banking Faculty – Foreign Trade

University, I have chosen the research "Status of loan and credit granting activities in operation center – military commercial joint stock bank”

The research divided into 3 main chapters, apart from the preface and conclusion They are:

 Chapter 1: An overview of Operation center of Military Join Stock Commercial Bank and

 Chapter 2: Status of loans and credits activities– Operation Center

 Chapter 3: Solutions to improve the efficiency of loans and credits activities Operation Center

LIST OF ABBREVIATIONS

1 MB Bank The Military Commercial Joint- Stock Bank

3 CIB Department Corporate and Institutional Banking Department

Department Small and Medium Enterprises Department

LISTS OF TABLES AND CHARTS

Table 1 Main share holders of MB Bank updated in June 2014

Table 2 Affiliates of MB Banks updated in December, 2013

Table 3 MB Bank Income Statement summary 2010 to 2013 Unit Billion VND

Table 4 Total credit surplus of Operation Center from 2010 to 2013 – Unit Billion

VND

Table 5 The Credit based on the customers at Operation Center- MB Bank

Table 6 The percentage of credit based on type of customers

Table 7 Credit basing on the maturity of Operation Center – MB Bank

Table 8 The structure of credit basing on the maturity of Operation Center – MB Bank

in percentage

Table 9 The quality of debt in Operation Center – MB Bank

Table 10 The structure of debt based on the quality of debt in Operation Center – MB

Bank

Chart 1 Changes in total credit surplus in Operation Center- MB Bank

TABLE OF CONTENTS

PREFACE

LIST OF ABBREVIATIONS

LISTS OF TABLES AND CHARTS

CHAPTER 1: INTRODUCTION 1

1 The Military Commercial Joint- Stock Bank (MB Bank) 1

1.1 The formation and development 1

1.2 Performance of MB Bank 3

2 The MB Bank Operation Center 4

2.1 Establishment and development 4

2.2 Main activities at MB Bank Operation Center 5

3 Main tasks in internship period 6

CHAPTER 2: LOANS AND CREDITS GRANTING ACTIVITIES IN HANOI OPERATION CENTER 7

1 Type of credits offered in Operation Center 7

1.1 Classification based on maturity 7

1.2 Classification based on purpose of using fund 7

2 Procedure of granting credits 8

2.1 Giving guidance, receiving and examining the dossiers of customer credit 8

2.2 Appraising the condition of granting credit limit/credit, preparing the Appraisal report, control and submit appraisal report 8

2.3 Independent evaluation of credit risk (in case requested) 9

2.4 Approve the credit limit/credit 10

2.5 Inform customers of credit limit and update customer data into the system; Drafting, controlling, completing Credit Contract / The contract of Guarantee 10

2.6 Track and manage credit limit (in case of granting credit limit); Signed addendums, contract amendments (if any) and adjust credit account information in INCAS (for with credit) 11

2.7 Controlling, monitoring credit 12

2.8 Debt collection / clearance guarantees / L/C payment and handling arising 15

2.9 Closing the credit documents 17

2.10 Transferring, controlling, recordkeeping 17

3 Analysis of loan and credit activities 17

3.1 Credit balance 17

3.2 Credit structure 19

CHAPTER 3: RECOMMENDATIONS 26

1 Evaluation the performance 26

1.1 Achievements 26

1.2 Drawbacks 26

2 Solutions 27

REFERENCES 30

CHAPTER 1: INTRODUCTION

1 The Military Commercial Joint- Stock Bank (MB Bank)

1.1 The formation and development

MB bank was founded on 4/11/1994 as the license number 0054/NH-GP issued on 14/09/1994 and the business certificate number 060297, issued by Plan and Investment Ministry on 30/09/1994 (amended on 27/12/2012) This bank was initially formed by 11 different companies which had strong financial health and operated in military field

MB has a great financial health and competitiveness, always complies with capital adequacy requirement of State Bank Total assets of MB is constantly increasing, in terms

of total assets and capital rules, MB is one of the largest commercial banks in the country

With a wide range of products, MB Bank is developing with increasing pace and expanding its operation to many different segments Within 6 years, MB Bank is ranked

at level A – the highest standard regulated by State Bank of Vietnam and achieved several prizes in the banking field

On 1/ 11/2011, that MB Bank stock was listed in HOSE (Ho Chi Minh Stock Exchange) is a great event, which marked a new stage of development and the determination of shareholders and Board of management, leaders of MB Bank towards a long-term vision and strategy As a listed corporation, MB Bank is enhancing their transparency efficiency in business and internationally standardizing the regulations in operation and management

MB Bank is operating in a large scope of business as followed: Bank services under the provisions of the State Bank of Vietnam; Supply of derivatives; Insurance agents and other related services as provided by law; Trading in bonds and other valuable papers as provided by law; Buying, selling and processing and gold But we also need to

notice that MB Bank is a joint stock bank operating in money business, credits and other banking services with the initial purpose of serving the needs of military enterprises

The following table indicates the shareholders of MB Bank The statistics were collected in June, 2014

Vietnam Maritime Commercial Joint Stock Bank (Maritimebank) 9.95% Joint Stock Commercial Bank for foreign trade of Vietnam (Vietcombank) 9.59%

Table 1: Main share holders of MB Bank updated in June 2014

During the operation, MB Bank has expanded their scope of business and established as well as invested in several companies as listed in the following table:

capital

Contributed capital Rates

Asset management company (MB AMC) 882.69 882.69 100% Investment and controlling Investment 100 164.5 82.26%

Unit: Billion VND Table 2: Affiliates of MB Banks updated in December, 2013

1.2 Performance of MB Bank

(Audited)

2011 (Audited)

2012 (Audited)

2013 (Audited)

Unit: Billion VND Table 3: MB Bank Income statement summary from 2010 to 2013

(*):Included revenue from products and services, revenue from finance and others

(**): Deduct profit after taxes of shareholders (if any)

Source- cafef.vn

The above table summarize the performance MB Bank over the four recent years

It can be clearly seen that:

The total cost of MB Bank in 2012 underwent a fall from 11,027 to 9,170 billion VND, which is the result of a comprehensive re-structure MB bank recruited less and they recruited sale collaborator rather than official sale man who are paid with low fixed salary and an amount of commission based on the sale revenue they brought As many other banks, MB Bank also cut down the cost of products from 5 to 10 per cent.1

Another outstanding feature from the table we should notice is the decrease in the profit of MB Bank in 2013.2 This could be explained by some main reasons:

The first reason came from the fall in revenue causing by the fall in the investment, (profit from stock investment and capital contribution was just over 11

billion VND which was equal to 10 percent of this figure in 2012) The total profit from business activity decreased marginally by 2.5 per cent to 7,614 Billion VND

The increase in bad debts also contributed to the fall in the profit in 2013 The bad debts valued 2,146 billion VND, increased by 56.4 per cent and occupied 2.45 per cent in total loan outstanding (this figure in 2012 is 1.84 percent) This fact leaded to the requirement of nearly two – fold increasing in the bad debt provisions which deteriorate the profit after tax of MB Bank.3 In particular, the lending provision of MB Bank increased from from 1,312,741,172,118 VND to 1,770,148,094,019 VND in 2012 and

2013, respectively (annual report of MB Bank, 2013 )

2 The MB Bank Operation Center

2.1 Establishment and development

The operation center of MB Bank was established in March, 2005 Over the period

of 10 years and after many divisions and merges (with many other branches and transaction department such as Ba Dinh, Doi Can branches, Lang Thuong, Tay Ho transaction department) the operation center is developing as a independent and multi-roles without any branches and transaction departments Operation center is categorized

as the only first level branches of all branches in system

MB Bank Operation center office is located at MB Bank tower at 21 Cat Linh street, Dong Da district, Hanoi

Over the period of establishment and development, MB Bank Operation center is recognized as the best performance braches of all branches in MB Bank system with over VND 35,000 billion in total asset (Accounting for 19 per cent of total asset of MB Bank)

top 5 and top 3 of all branches which have the highest surplus in credit and fund

mobilization

http://www.baomoi.com/Ngan-hang-nao-dang-no-xau-nhieu-nhat/126/13185897.epi

2.2 Main activities at MB Bank Operation Center

The operation center of MB Bank is operating with some following

Fund mobilization: Operation center mobilize the capital from population and

enterprises through a variety of products such as deposit accounts offered to companies and organizations (the company will have a deposit contract with the bank); term deposit offered to individual customers with a diversified maturities and interest rates (the customer will open a saving book in bank); and many other products such as debit card Fund mobilization value in Operation center often ranked at top 3 of all branches of MB Bank

Credits and loans granting: This is the main profited business activity of

operation center Operation center is now providing a wide range of loan products varying

in terms, purposes and objectives.4 The credit balance of Operation center often occupied about 5 per cent of total credit balance in MB Bank

Domestic Payment: This is a diversified service provided by MB Bank by which the customer can transfer their payment with traditional and modern methods And MB Bank will charge a fee on this service Currently, MB bank in general and in Operation center, there are some types of domestic payment provided: Transfer Cash payment , Payment in cheque, or certified cheque, Payment with payment order or Telebank

International Payment: This service provides a flexible means of sending funds overseas and has been designed to meet the needs in terms of cost and speed Payments are sent using an electronic bank-to-bank transfer, which is suitable for both urgent and less time-critical payments Payments from VND or currency accounts or against forward contracts The customer in Operation center can perform their payments by 3 ways: Online – available for Online Banking customers; By phone – available for Telephone Banking customers with their Telephone Banking passcode; or directly in branch

4 This is explained specifically in the next chapter

MB Bank is a Bank established by army companies, as stated before, so operation center also prioritize and concentrate on “special” customers, which are usually corporations and enterprises of defensive ministry, military or state-owned companies

3 Main tasks in internship period

During the internship, with the assignment of the Corporate Institutional Banking

department (CIB) , I did some following tasks:

I learned about the Operation center – MB Bank which included some basic information

on history the development and the structure organization as well

After discussing with the instructor on the topic of my research, I choose the topic

"Status of loan and credit granting activities in operation center – military commercial joint stock bank”

The instructor provided me with some information on the types of credit products which are available in Operation center

In the next step, I was instructed about the procedure of granting credit and the instructor also gave me an example of 10/10 Garment company to illustrate the procedure

In the remaining time, I was provided some statistics on the credit activities of Operation Center and was instructed to check some documents from the customers

CHAPTER 2: LOANS AND CREDITS GRANTING ACTIVITIES IN HANOI

OPERATION CENTER

1 Type of credits offered in Operation Center

1.1 Classification based on maturity

Long-term loan

Long-term loan has maturity of over 5 years, is used to fund construction of huge structures, major expansion of production

1.2 Classification based on purpose of using fund

Real estate loans are secured by real property – land, buildings and other structures Real

estate loans include short-term loans for construction and land development and term loans to finance the purchase of farmland, homes, apartments, commercial structures and foreign properties

long-Financial institution loans include credit to banks, insurance companies, finance

companies, and other institutions

Commercial and industrial loans are granted to business to cover such expenses as

purchasing inventories, paying taxes, paying taxes, and meeting payrolls

Individual loans include credit to finance the purchase of automobiles, mobile home,

appliances, and other retail goods to repair and modernize home, cover the cost of medical care and other personal expense, either extended directly to individuals or indirectly through retail dealers

Miscellaneous loans include all those loans not classified here, including securities’

loans

Lease financing receivables where the bank buys equipment or vehicles and lease

them to its customers

2 Procedure of granting credits

2.1 Giving guidance, receiving and examining the dossiers of customer credit

In this step, the credit officers of the operation center will perform some tasks, as follow:

 Guide customers prepare documents about credit limit / granting credit

 Check out the completeness, rationality and legality of documents (consulting clients if necessary)

 Understanding and identifying type of customers, the demand for capital (whether customers satisfy MB Bank’s credit provision standard / conditional grant lines of credit )

 Check whether the customer are in the group of related customers

 Determine that the request for granting credit of customers belongs to credit product portfolio or the current credit program of MB Bank

2.2 Appraising the condition of granting credit limit/credit, preparing the Appraisal report, control and submit appraisal report

Conductors in this step include credit officers, appraiser, staff at a particular department depending on type of customers (SMEs, large enterprises or individual)

 Base of the evaluation / re-evaluation: Documents provided by Customer ,

information collected (which ranges from the macro analysis, industry analysis to finance health and the performance of customer) information from other sources such as credit information center (CIC) and information from consulting

 Evaluation contents

 Appraising customer, client assessment, prepare Appraisal reports and identify credit limit of customers

 Assessing the response of credit conditions, which is included :

- Macro analysis, industry analysis ,finance health and the performance of customers and some other historical records

- Evaluating business plans, investment projects

- For guarantees, L/C: Evaluating the contents related to trade finance, considering the possibility of exchange balance for payment L/C

 Evaluating measures of guaranteeing the loan (if any), according to:

 Assessing the level of risk in case of credit approval

 Determining credit amount, method of granting credit, interest rates, fees, margin (for L/C), duration of credit and term loans (for loans)

 Identifying whether the customer are in the Strategic Clients Group of the center

 Control and submit the result of assessment/re-assessment of granting credit

limit/credit The Head of particular customer department controls the documents,

appraisal reports and gives proposals, submits the competent authorities to decide

2.3 Independent evaluation of credit risk (in case requested)

Conductors are staffs, the leader of Risk Management Department They will:

 Check documents provided by the Customers Department and collect information and coordinate with Customer Department in contact with customers (if necessary);

 Officers at Risk Management Department evaluate credit risk, detect signs of risk, risk assessment, proposed risk mitigation measures; prepare independent appraisal reports on credit risk

 The leader of risk management group controls and submits to the competent authority to consider

2.4 Approve the credit limit/credit

Conductors: Competent authorities (Credit council)

Responsibilities:

 Review and approve granting credit limit / credit in the jurisdiction

 Comply with Regulation Credit Council

2.5 Inform customers of credit limit and update customer data into the system; Drafting, controlling, completing Credit Contract / The contract of Guarantee

Conductors: Customers Department; Competent authorities to approve

 In case of granting credit limit

 Copy and send the reports to related departments to perform; Send the announcement of granting credit limit to customers – If required by customers

 Update and check the updating data into INCAS system

 In case of granting credit

 Drafting the contract on the basis of:

- Reference form of MB Bank

- In special case of form not found suitably, reaching agreement with the the legal division and Risk management Department

- Complex cases, credit account is of great value, competent authorities may hire a law firm to draft the contract, to ensure the legitimate rights of MB Bank

 Control the contract and related documents (if any):

- Head of Customer Department: Check the content of Draft of Credit Contract/ The Contract of Guarantee

- Risk Management Department and related Departments: contribute comments about the content of contract under Customer Department

or competent authorities’ request

- Customer Department: adjust the draft of contracts

 Competent authorities: Signing contracts, ensuring compliance with the provisions of the law, and in accordance with MB Bank content approved

 Put, control, approve and monitor data into the INCAS program

2.6 Track and manage credit limit (in case of granting credit limit); Signed addendums, contract amendments (if any) and adjust credit account information in INCAS (for with credit)

Conductors: Customers Department

 In case of granting credit limit

 Adjust to raise credit limit – at customer’s request , in accordance with regulations: conduct from Step 1 to Step 5, to clarify the reasons to adjust accordingly

 Adjust to lower credit limit according to: