Summary of Doctoral dissertation in Economics: Bank credit for pangasius value chain in Vietnam

To clarify the theoretical framework for the relationship between ownership structure and performance of the banking system; analyze the current status of ownership in relation to the level of effectiveness of the commercial banking system in Vietnam. To measure the impact of ownership ratios and the quality of corporate governance on the performance of the bank using econometric models; make recommendations on ownership structure to improve the performance of Vietnameses commercial banks.

-oOo -

DANG HOAI LINH

BANK CREDIT FOR PANGASIUS VALUE CHAIN

Academic Supervisors:

1 Assoc Prof., Dr LE VAN LUYEN

2 Dr NGUYEN TIEN DONG

Referee 1:

Referee 2:

Referee 3:

The dissertation is defended against University-level Examination Board

at Banking Academy of Vietnam

Time: ………… date …… month …… year 2019

The dissertation could be found at:

- Library of Banking Academy of Vietnam

- National Library of Vietnam

INTRODUCTION

1 Significance of the research

In the context of complicated climate change, increasingly scarce resources for growth and great competitive pressure from international integration, to achieve the set objectives, the construction of the closed agricultural value chain from the stages of input, production and processing to distribution and consumption is necessary Several policies of the Communist Party and the Government have been issued to support the operation of the agricultural value chain, including many policies related to capital support

After more than 3 years of implementing agricultural value chain financing, compared to rural and agricultural finance, the volume of loan disbursement for the agricultural value chain is still limited, accounting for a small proportion, ranging from 0.18% to 0.78% in the period from 2014 to 8/2018 Obviously, the above rate is low, the loan capital has not been effective in agricultural value chain investment Due to the broad research scope of agricultural value chain bank loans, pangasius, a key agricultural product in Vietnam shall be chosen to study

From the aforementioned reasons, doctoral dissertation entitled "Bank credit for

pangasius value chain in Vietnam" has been chosen

of these studies is to systematize the theoretical ideas related to the agricultural value chain financing, with a detailed analysis of the model structure of the agricultural value chain, characteristics of value chain finance, implementation process, risks and measures

to reduce them This group of authors also emphasized the role of management and made some recommendations

The research trend focuses on clarifying the role and efficiency of bank loans

as a source of capital in the agricultural value chain associated with specific contexts

In general, most research results have confirmed the importance of bank capital in the agricultural production value chain and the need to develop this lending activity

2.2 Researches in the country

Scientific researches on this matter in Vietnam still fall behind in comparison to the worldwide trend, including the research of Nguyen Van Phan, Nguyen Khac Minh and Le Phan Thanh Hoa (2017) about the role of bank finance in developing agricultural value

chains in Vietnam; the author group of Pham Xuan Hoe and Nguyen Thi Minh Hang (2014)

on a guide to providing value chain loans; the scientific article by Nguyen Tien Dong (2015)

on solutions for value chain development and high-tech application in agricultural production and several other studies by authors Quang Canh (2014), Ha Quang Trung (2014), To Ngoc Hung (2015), Le Van Luyen and Dang Hoai Linh (2015), to name but a few The success of these studies is to analyze the situation of implementation and propose solutions that are appropriate to the Vietnamese agricultural value chain from 2014 to the present However, the assessment of factors affecting the bank finance in the agricultural value chain in Vietnam is relatively small although this issue plays an important role in the sustainable development of Vietnamese agricultural value chain

3 Objectives of the research

- To clarify the theoretical framework for the relationship between ownership structure and performance of the banking system

- To analyze the current status of ownership in relation to the level of effectiveness

of the commercial banking system in Vietnam

- To measure the impact of ownership ratios and the quality of corporate governance on the performance of the bank using econometric models

- To make recommendations on ownership structure to improve the performance

of Vietnnamese commercial banks

4 Subjects and scope of the research

The subject of research: Theoretical issues, practical deployment, and factors affecting the development of pangasius value chain finance at commercial banks

- Scope of research in terms of space: Financing the pangasius value chain in An Giang, Dong Thap and Can Tho

- Scope of research in terms of time: from 2014 to 2018

5 Chapter Layout of Dissertation

In addition to the introduction, conclusions, references, and appendices, the thesis has 4 chapters:

Chapter 1: Literature review for bank financing for the agricultural value chain Chapter 2: Research methods of the thesis

Chapter 3: The current situation of bank credit activities for Vietnam pangasius

- Based on the evaluation results, the thesis provides an overview of the implementation of the Vietnamese pangasius value chain finance for the period of 2014 -

2018 which is not effective and commensurate with the scale of the Vietnamese pangasius industry

- The thesis is an applied research project to carry out surveys, collect data and verify via SEM model and evaluate factors affecting the deployment of banking finance

in the value chain of Vietnamese pangasius industry

- Proposing a set of solutions for commercial banks and a set of proposals for Ministries, Departments, Industries and SBV to aim at the sustainable development of pangasius value chain finance

6.2 In terms of practicality

The thesis is a research project that helps scientists, managers, and commercial banks have an overview of the Vietnamese pangasius value chain finance using measurement and evaluation methods based on the inspection process At the same time, it identifies influential factors when implementing pangasius value chain finance This is a condition to deploy applied research and appropriate solutions to enhance the pangasius value chain finance in the coming time This is an important and practical contribution of the thesis

CHAPTER 1 LITERATURE REVIEW ON BANK CREDIT FOR AGRICULTURAL VALUE

CHAIN

1.1 LITERATURE REVIEW ON BANK CREDIT FOR AGRICULTURAL VALUE CHAIN

1.1.1 The definition of the agricultural value chain

Currently, there is no consistent definition of the agricultural value chain Agricultural value chain studies use the term "value chain" or "supply chain" to describe agricultural value chains FAO (2010) defines: “The agricultural value chain consists of

a set of agents and activities that take an agricultural product from production to the end consumer, whereby the value of the product is increased in each intermediate stage A value chain can be a vertical link or a network of independent agents on the stages of processing, packaging, storage, transport, and distribution

Most subjects in the agricultural value chain are small producers The relationship between buyers and sellers in agriculture includes: Instantaneous - sellers directly provide their products to buyers at unstable selling prices; Seasonal sales contracts - This is a contract of agricultural products signed in each period; Long-term buying and selling - This is a long-term non-contractual trading relationship, based on mutual trust and belief; The buyer contributes capital in the production activities of the seller; The company operates all stages

in the value chain vertically without purchasing goods from any buyer

1.1.2 Subjects participating in the agricultural value chain

Key actors in the agricultural value chain include Input suppliers; Farming unit; Collection unit; Processing/processing unit; Distribution unit; Value chain support and promotion unit

1.1.3 Characteristics of the agricultural value chain

The value chain has five basic characteristics: The value chain is affected by the characteristics of agricultural products; Seed production and farming play a key role in the chain with the participation of farmer households, cooperatives and companies; The price of agricultural products is more stable in the value chain; Based on the target customers, the value chain is distributed according to four channels; Food safety is a decisive factor for the operation and survival of the agricultural value chain

1.1.4 The purpose of the agricultural value chain

- Limit the complexity of the exchange process;

- Stabilize product quality and establish the status;

- Improving professional, technological and competitive qualifications

1.2 BANK FINANCING FOR THE AGRICULTURAL VALUE CHAIN

1.2.1 The definition of bank financing and bank financing for the agricultural value chain

1.2.1.1 Bank financing

Financing is a mutual loan relationship based on trust and that capital will be returned

on a certain day in the future It can be said that credit is the transfer of a value amount from one person to another to own it and after a certain time is recovered with a value greater than the original value

1.2.1.2 Bank financing for the agricultural value chain

Agricultural value chain credit is a form of transferring the right to use a value amount from the lender which is the bank to one or more entities using capital who are members of the agricultural value chain for the purposes in line with the borrowers’ production and business activities in the value chain in a certain time

A value chain of agricultural products includes the following five basic stages: raw

material supply, farming, purchasing, processing/production and distribution

To meet diverse financial needs, there are two forms of credit financing:

- Credit financing from within the value chain: This is a form of financing between an entity in the value chain together

.- Credit financing outside the value chain: This is a form of financial support for actors in the value chain from units outside the value chain, including government, credit funds, banks

In this thesis, the credit source that the author mentioned is the credit source from the

bank Bank credit in the value chain for the agricultural sector is understood as a credit

in the agricultural value chain

1.2.1.3 Conditions for credit deployment in the agricultural value chain

- Oriented development;

- Understanding the value chain;

- Subjects represented in the value chain

1.2.2 Characteristics of BANK CREDIT FOR THE AGRICULTURAL VALUE CHAIN

1.2.2.1 The rotation of credit capital

Debt collection source of the previous stage is the disbursement source of the following stage The bank only actually collects its investment capital when it acquires customer loans at the final stage of the value chain of the agricultural sector invested Therefore, the credit source of the bank is circulated faster in the agricultural value chain

1.2.2.2 The allocation of credit capital

The natural allocation area of agricultural products is often concentrated in some areas with natural conditions and climate suitable for farming Therefore, credit capital

in the agricultural value chain is often concentrated in some areas

1.2.2.3 Appraisal work

Credit in the agricultural value chain focuses on the entire chain Lending and lending decisions are based on criteria such as the flow of assets, execution capacity, risk management, chain competitiveness and the quality of interactions and interdependencies between cities chain members, not just based on the ability and financial ability of an independent customer

1.2.2.4 Loan products

In this thesis, credit products according to the agricultural value chain include loan provision, credit limit, and installment loan

1.2.2.5 1.2.2.5 Disbursement and debt collection are seasonal

The disbursement and determination of debt repayment schedule of customers in credit activities according to the agricultural value chain based on the completion and circulation timeline of each stage in the chain

1.2.2.6 Credit risk

Credit risk by value chain is a potential loss when a bank grants credit to a customer

in the value chain

In credit activities according to the agricultural value chain, the causes of credit risk include Risks outside the agricultural value chain; Risks within the agricultural value chain; Risks from agricultural value chain support units

Criteria for reflecting credit risk in the agricultural value chain and solutions include Production activities of the value chain; Liquidity of sales contracts; Financial situation

of entities in the value chain; The volatility of agricultural product prices; Climate change; Policies and guidelines of the Government

1.2.3 Subjects participating in agricultural value chain credit

Two subjects involved in credit in the agricultural value chain include borrowers and lenders

1.2.4 Credit deployment process according to the agricultural value chain of the bank

Credit deployment steps in the agricultural value chain include value chain analysis; financial assessment; value chain evaluation Applying the above research results, the author performs the analysis of the credit organization process according to the agricultural value chain as follows:

a Before lending: Analyzing the value chain’s characteristics; Evaluating the development potential of the value chain; Determining the role of credit capital for the value chain; Identifying the risks while lending

b While lending: Receiving loan documents; Appraising; Lending

c After lending: Monitoring loans, supporting customers; Monitoring and urging the collection of loan debt

1.2.5 Factors affecting the implementation of bank credit in the agricultural value chain

Inheriting the Belassi and Tukel research model (1996), the author analyzes the factors affecting credit deployment in the agricultural value chain as follows: Development capacity; Profitability

1.2.5.1 Group of internal factors within the bank

- Benefits of agricultural value chain credit for banks;

- The tangibility of the bank

1.2.5.2 Group of factors outside the bank

- Liquidity of receivables in the value chain;

- Operational risks of the value chain;

- Operational advantages of the value chain ;

- The capacity for joining the global value chain of the agricultural industry;

- Macroeconomic environment;

-The operation of non-credit support units

1.2.6 The set of criteria to evaluate the results of bank credit deployment according

to the agricultural value chain

The results of credit deployment in the agricultural value chain are reflected in the following criteria: Customer growth rate; The ratio of agricultural value chain credit disbursement turnover compared to the agricultural and rural credit disbursement turnover; the Growth rate of outstanding loans; Rate of interest collection; Overdue debt

ratio; Bad debt ratio

1.2.7 The basic difference between bank credit model for value chain and traditional bank credit model

Based on the characteristics of agricultural value chain credit, the author compares the difference between this lending model and the traditional credit model, specified in table 1.1

Table 1.1: Table 1.1: Differences between agricultural value chain credit and

traditional credit in the agricultural sector Criteria Bank credit for the

agricultural value chain

Customers can be far away

Character - The credit of value chain

+ The credit history of independent units in the value chain

+ How long has this value chain existed?

+ How stable is this value chain? How long have the parties worked together?

+ How strong is the relationship between the parties?

+ How many parties are the risks related to and how to deal with risks related to several parties?

+ Are the parties in this value chain customers of the bank?

-The customer's credit is reflected in the timely performance of obligations to the bank

+ Individual approach + How long does it take for each individual to work with the bank?

+ How well does the account work?

+ Have all previous obligations been performed?

+ Are there commercial and business reference information available?

+ Is there a report of the credit management agency?

Capacity Cash flow in the value chain Ability to repay the loan

Capital Capitalization of the value chain Own capital of customers

Criteria Bank credit for the

agricultural value chain

Traditional credit

Collateral Cash flow and goods can be

estimated from the operation history or the previous contracts can replace or strengthen collaterals

Assets provided to lender to ensure the loans or other credit flows, to reduce the risks for the bank

Conditions The strategic relationship among

the parties inside the value chain supports decision-making and secures better principles

Reviewing and making a reasonable and favorable decision after determining credit information Credit information

is provided with the expectation that credit terms will be met

Technical

knowledge

Having firm technical knowledge, ensuring support for customers during the production process

Limited technical knowledge

Loan

repayment

The loan is complete when customers in the value chain pay fully master debt and interest of it

The loan is complete when customers pay fully the master debt and interest of it

Source: Author synthesizes (2017)(2017)

CHAPTER 2: RESEARCH METHODS OF THE THESIS

2.1 METHODOLOGY OF RESEARCH

Research methodology is the process, principle, and approach to solving problems (Saunders et al., 2009) Some of the research methodology used by the fellows are as follows:

2.1.1 Research philosophy

The research philosophy includes research assumptions about how the researcher sees the world In this thesis, the research philosophy of the fellows is the philosophy of balancing the interpretation and positivism, in particular: the theoretical model is built based on the

overview of research and research hypothesis; Based on the actual investigation, the fellow performs hypothesis testing Since then, the fellows have developed new conclusions based on research results

2.1.2 Research approach

Based on the above theory, this thesis uses the method of interpretation The identification of research models and hypotheses stems from the study of credit theory according to the pangasius catfish value chain By the survey method, the researcher verifies the hypotheses stated and draws conclusions

To gain an understanding of the research topic, the researcher has studied domestic and foreign documents related to credit in the agricultural value chain The materials that the fellows have read focus on the following four groups: Marxist-Lenin Political Economic Curriculum; Relevant documents and policies of the Party, Government and all levels in the banking and agricultural industry; Basic theoretical documents related to the thesis; the studies on issues directly related to the thesis (monographs, essays, articles, magazines etc)

2.1.3 Research strategy

In this thesis, the research strategy of the fellows is as follows: Inheriting research methods from scientific research projects related to the thesis; Specific case studies; Quantitative methods, methods of collecting secondary data

2.2.THE RESEARCH DESIGN

2.2.1 Develop questionnaires

The study was conducted through a questionnaire by Likert rank scale with 5 points because this is a scale using a positive number sequence The questionnaire is based on the following factors:

- Research purpose: assess the factors affecting credit deployment in the value chain

of pangasius catfish industry

- The survey objects are credit officers and leaders of bank branches in the area with large pangasius catfish farming areas Due to time constraints, in this thesis, the researcher only focuses on the local survey of large pangasius catfish farming area in the period from 2015 to 2017

- The survey is recorded through two methods: direct survey and indirect survey (sent

by mail / email)

2.2.2 Research models

With the purpose of research is to analyze the factors affecting the credit deployment in the value chain of pangasius catfish industry, the thesis using SEM linear structure model

SEM model has 3 advantages as follows:

- SEM allows modeling and verification of multi-dimensional phenomena simultaneously Therefore, SEM becomes a testing method used by many researchers

- The techniques in SEM have taken into account tolerance when analyzing statistical data

- SEM model has been studied and completed in a long time, especially the ability to analyze and verify

So far, there are many different software used to conduct SEM analysis such as AMOS (Arbuckle & Wothke, 1999), LISREL (Joreskog & Sorbom, 1993), Mplus (Muthen, 2004), SEPATH (Statsoft, 1998) In this study, the researcher used the software

2.2.2.3 Estimating the model

The researcher performs data entry on Excel tables Each line is for 1 survey questionnaire Each column is a data field corresponding to a question The data entry is done in order of questions and loyal to the value in the questionnaire, not adjusted to the data To ensure accuracy, the researcher makes data entry twice independently and reconciles after completing data entry

Issues to be addressed include: Determining sample size for research with different levels of complexity of the model; Sample size ratio to number of parameters; The type

of inspection used for estimating parameters to consider; The estimation technique is consistent with sample data; Data input is raw / shortened; Check the reliability of the scale; Estimating regression coefficients and t-value; Identify suitable models

2.2.2.4 Review model

Evaluation of the model is to determine whether the data is suitable for the model through general testing of the relevance of the whole model and survey the suitability of each parameter in the model or not

The evaluation methods include: Determined factor analysis (CFA); Chi-Square test (χ2); Chi-Square ratio / degrees of freedom; Other related indicators: GFI, AGFI, CFI; Use bootstrapping method

2.2.2.5 Adjust the model

The model adjustment index is an index that estimates the change of χ2 for each case in addition to a possible relationship (corresponding to a reduction in degrees of freedom)

2.2.2.6 Report results

The final model as well as other suitable models need to have independent data sets,

or quite large initial sample sizes The value results of the model ensure the following factors: Simulation of the model using other data sets (multi-sample data analysis); Report the effect of sample size and trust interval associated with statistical significance test; Evaluate the results in relation to the original theoretical framework

TC = β0 + β1 PT + β2 SL

The scale of assessing the success of credit implementation in the pangasius catfish value chain is assessed based on the research of WOCCU (2009) and revised to fit the value chain of Vietnam pangasius catfish industry, specifically :

- To assess the level of "Meeting customers' demand for loans", the researcher uses the following criteria: credit scale, product structure, loan outstanding balance These are the 3 criteria to show customers' demand for loans for banking products

- To assess the level of "reducing credit risk through monitoring the cash flow and value chain activities", the researcher uses the criteria of bad debt This is the result of

credit risk Bad debt is the money that the bank lends to the customer but cannot recover because the customer is unable to pay the debt

The scale of evaluating the success of credit implementation according to the pangasius catfish value chain is shown in Table 2.1, specifically:

Table 2.1: Scale measuring credit success according to the pangasius catfish value chain Group No Code Description

1 TC1 The bank grows credit outstanding balance by pangasius

catfish value chain

2 TC2 The bank increases the market share of customers taking

credit according to the pangasius catfish value chain

3 TC3 Credit bad debt in the pangasius catfish sector decreases

compared to before implementing the value chain credit for pangasius catfish industry

4 TC4 The bank sells many other products and services to borrowers

according to the pangasius catfish value chain

Source: Author's description (2018)

Table 2.2: Scale to assess growth and profitability Group No Code Description Author Ability

to

develop

1 PT1 Readiness to expand lending market by

credit according to Pangasius catfish value chain

Reardon and Timmer,

2012

2 PT2 The willingness to expand the lending

object by credit according to the pangasius catfish value chain

3 PT3 Readiness to increase loan outstanding

balance by credit according to the pangasius catfish value chain

Group No Code Description Author

profita

bility

1 SL 1 Credit by value chain of pangasius catfish

industry increases the number of potential customers for banks

Nieuwenhuizen et al., 2004

2 SL2 Credit in the value chain of pangasius

catfish industry increases profits for banks

3 SL3 Credit in the value chain of the pangasius

catfish industry helps the bank control loans better

Source: Author's description (2018)

Model of evaluating credit deployment in the value chain of Pangasius industry with

30 propositions measures 30 factors in 8 aspects: liquidity, risk management, operational advantages, capacity to participate in value chain of global pangasius catfish industry, macroeconomic environment, bank benefits and existence, non-credit support operations These 30 variables are coded specifically in Table 2.3

Table 2.3: Scale of variables in potential independent variables

Group No Code Description Author

Liquidity 1 TK1 Operation of the pangasius catfish

value chain based on the purchase and sale contract

Singh, 2011;

Christen and Anderson,

2013

2 TK2 Units in the pangasius catfish value

chain comply with sales contracts

3 TK3 In case of non-compliance with the

purchase contract, the violating party will accept a fine

Risk

Management

4 RR1 Many agricultural insurance products

are offered for sale

Jessop et al., 2012;

Mattern andTarazi,

2015

5 RR2 Units in the pangasius catfish value

chain buy agricultural insurance

Group No Code Description Author

6 RR3 The legality of collateral in credit is

clear in the pangasius catfish value chain

7 RR4 Liquidity of collateral in credit

according to the high value chain of pangasius catfish industry

8 RR5 Units in the value chain of pangasius

catfish have collateral when borrowing

Operational

advantages

9 LT1 Vietnam's natural conditions and

geographical location are favorable for pangasius catfish farming and production

Winn et al., 2009; Konig et al., 2013

10 LT2 There are many policies to support

credit in the pangasius catfish value chain

11 LT3 Pangasius catfish prices are stable

12 LT4 Simple preservation of post-harvest

13 NL1 The facilities of the units in the chain

ensure the pangasius catfish farming / production

Dinh Van Thanh,

2009

14 NL2 Ability to comply with regulations

on process of creating, nursing, cultivating, registering aquatic product labeling, ensuring good food hygiene and safety

15 NL3 The workforce involved in farming,

processing and producing pangasius catfish have technical and experience

16 NL4 Vietnamese Pangasius catfish is a

favorite agricultural product by

Group No Code Description Author

domestic and foreign consumers

Macroeconomic

environment

17 VM1 The macroeconomic environment

affects the value chain of pangasius catfish industry

Winn et al., 2009; Konig at al., 2013

18 VM2 Stable exchange rate helps stabilize

the value chain of pangasius catfish industry

19 VM3 Competition in the field of

manufacturing and exporting pangasius industry is a healthy competition

Benefits 20 LI1 Diversification of banking products Madu,

2012; Collier,

2014

21 LI2 Cash flow management

22 LI3 Managing production activities of

2010

25 HH2 Bank officers have a good

knowledge of the pangasius value chain

26 HH3 The bank is responsible for

monitoring production activities of factors in the value chain

27 HH4 The bank has many transaction

locations

Hoạt động của

đơn vị hỗ trợ

phi tí n dụng

28 HT1 There are many studies on science

and production method technologies

in the pangasius catfish industry

Coon et al., 2010; ; Miller and