ENHANCING THE EFFECTIVENESS OF SHORTTERM LENDING AT VIETINBANK THANG LONG BRANCH

ENHANCING THE EFFECTIVENESS OF SHORTTERM LENDING AT VIETINBANK THANG LONG BRANCH The purpose of thesis aims at analyzing and evaluating the status of shortterm lending activities at Vietinbank Thang Long branch. The thesis has analyzed about the quality of shortterm lending in Vietnam’s commercial banks, which led to factors affecting this lending activity. The study has been conducted by the quantitative method through data collection methods at Vietinbank Thang Long branch. Methods of qualitative, comparatives, and descriptive statistics have used in the study. With the results of the study, the research has provided information on factors affecting shortterm lending at the branch. Besides, the author has given achievements and limitations in this lending activity of the branch. Finally, through this research, the author has presented solutions based on direct analysis of factors affecting shortterm lending activities and given development directions to the branch, from there helping the branchs board of directors have solutions to improve shortterm lending activities in the future.

STATE BANK OF VIETNAM BANKING ACADEMY FACULTY OF FOREIGN LANGUAGES

Secondly, I would also like to express my great attitude toward Ms.

Le Thi Thien Ly, the director of VietinBank – Thang Long Branch andall staff in Corporate Banking Department, who enthusiasticallyoffered me with the very first ideas on research methods, dedicatedguidance and encouraged me during my internship process I havelearned a lot of professional knowledge and credit experience of myinternship assistance Thanks to his great assistance, I have finished

my thesis Additionally, I also owe my deepest gratitude toward allteachers at Banking Academy, especially those of the Faculty ofForeign Languages for helping me to cultivate backgroundknowledge of subjects related to my thesis

Finally, I would like to give the last grateful sentence to my belovedfamily and precious friends who always stand by me and constantlyencourage me during four years at Banking Academy They are reallythe tremendous spiritual motivation for me to make my best efforts

to overcome the most difficult time as a student at my university.Because of time constraints and limited experience, the thesis mighthave many shortcomings Therefore, it is my hope that lecturers andreaders of the thesis will sympathize and give valuable comment tomake it better

I hereby declare that this thesis is the product of my own worktowards the Bachelor in English at Banking Academy and that to thebest of my knowledge, it contains no material previously published

by another person All the sources I have used have been indicatedand acknowledged by means of complete references

Hanoi,

20th May, 2019

Signature

Tran Duc

Huong

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

DECLARATION ii

ABSTRACT iv

LIST OF ABBREVIATIONS v

LIST OF FIGURES vi

LIST OF TABLES vii

CHAPTER 1: INTRODUCTION 1

1.1 Rationale to the research 1

1.2 Objectives of the study 1

1.3 Research questions 2

1.4 Scope of the study 2

1.5 Methodology of the study 2

1.6 Structural organization of the thesis 2

CHAPTER 2: REVIEW OF RELATED LITERATURE 4

2.1 Theoretical and conceptual framework 4

2.1.1 Overview of short-term lending operations of commercial banks 4

2.1.2 Quality of short-term lending activities at CBs 7

2.1.3 Factors affecting short-term lending operations at commercial banks 12

2.2 Overview of VietinBank Thang Long branch 16

2.2.1 Brief history of establishment and development 16

2.2.2 Organization structure 17

2.2.3 Operation fields 17

2.3 Some general provisions in short-term loans at VietinBank Thang Long branch19 2.3.1 Short-term loan process at VietinBank Thang Long branch .19

2.3.2 Short-term loan products at VietinBank Thang Long branch .22

2.4 Research projects related to the topic 24

2.5 New points in the thesis 27

2.6 Sub-conclusion 28

CHAPTER 3 RESEARCH METHODOLODY 29

3.1 Locale of the study 29

3.2 Research design/ research instruments 29

3.3 Data gathering procedures 30

3.4 Statistical treatment 30

3.5 Sub-conclusion 31

CHAPTER 4: RESULTS AND DISCUSSION 32

4.1 Results 32

4.1.1 Current status of short-term lending operations at VietinBank Thang Long branch 32

4.1.2 Business performance of VietinBank Thang Long branch from 2016 to 2018 39

4.2 Discussions 45

4.2.1 Evaluating the status of short-term loan performance at VietinBank Thang Long branch from 2016 to 2018 45

4.2.2 General assessment of short-term lending performance at VietinBank Thang Long branch 54

4.3 Sub-conclusion 59

CHAPTER 5: SUMMARY, FINDINGS, CONCLUSION AND RECOMMENDATION 60

5.1 Summary 60

5.2 Findings 60

5.3 Conclusion 61

5.4 Recommendations 62

5.4.1 Development orientations of VietinBank Thang Long branch .62

5.4.2 Strategies for enhancing short-term operations at VietinBank Thang Long branch 62

5.4.3 General recommendations 65

REFERENCES 68

ABSTRACT

Title: Enhancing the effectiveness of short-term lending at

Vietinbank Thang Long branch

Author: Tran Duc Huong, last-year student of Foreign Languages

Faculty, Banking Academy

Key Words: Short-term lending, Vietinbank Thang Long branch,

Vietnam’s commercial banks, the effectiveness

Advisor: Mr Ngo Tung Anh (MA, MBA) the Vice-Dean of Foreign

Languages Faculty, Banking Academy

Abstract:

The purpose of thesis aims at analyzing and evaluating the status of short-term lending activities at Vietinbank Thang Long branch The thesis has analyzed about the quality of short-term lending in Vietnam’s commercial banks, which led to factors affecting this

lending activity The study has been conducted by the quantitativemethod through data collection methods at Vietinbank Thang Longbranch Methods of qualitative, comparatives, and descriptivestatistics have used in the study With the results of the study, theresearch has provided information on factors affecting short-termlending at the branch Besides, the author has given achievementsand limitations in this lending activity of the branch Finally, throughthis research, the author has presented solutions based on directanalysis of factors affecting short-term lending activities and givendevelopment directions to the branch, from there helping thebranch's board of directors have solutions to improve short-termlending activities in the future.

LIST OF ABBREVIATIONS

VietinBank Vietnam Joint Stock Commercial Bank for

Industry and TradeAgribank Vietnam Bank for Agriculture and Rural

DevelopmentBIDV Bank for Investment and Development of

Vietnam

SMEs Small and Medium Enterprises

D/A Documents Against Acceptance

LIST OF TABLES

Table 4.1 Total loan sales by term at VietinBank Thang Long branchfrom 2016 to 2018 33Table 4.2 The classification of short-term loan sales by economicsectors from 2016 to 2018 34

Table 4.3 Total debt collection revenue at VietinBank Thang Longbranch from 2016 to 2018 36Table 4.4 The classification of short-term debt collection byeconomic sectors from 2016 to 2018 37Table 4.5 Total mobilized capital in the period 2016-2018 40Table 4.6 Capital utilization in the period 2016-2018 43Table 4.7 Business results of VietinBank Thang Long branch duringthe period between 2016 and 2018 45Table 4.8 Total short-term outstanding loan on total mobilized capital

in the period of 2016-2018 49Table 4.9 Total short-term outstanding loan on total short-termmobilized capital in the period of 2016-2018 50Table 4.10 The structure of debt groups at VietinBank Thang Longbranch from 2016 to 2018 51Table 4 11 The situation of overdue debt from 2016 to 2018 53Table 4.12 The ratio of short-term debt collection from 2016 to 2018 54

CHAPTER 1: INTRODUCTION 1.1 Rationale to the research

Currently, the economic development is the spearhead of manycountries in the world, including Vietnam The economicorganizations of Vietnam are also growing constantly, especially thechanges in both the quality and quantity of the banking system.Along with other economic sectors, the bank is tasked withparticipating in stabilizing the monetary market price, seeking andrepelling inflation, creating jobs for workers, helping investors anddevelopers, supporting capital market and foreign exchange market,participating and supporting payment

Short-term lending is one of the most important business activity inthe credit operations of all commercial banks The number ofbusinesses, consumer demand, and procurement services ofindividual or organizations in the city are always high, so thedemand for a short-term loan is very large Many banks are trying toprovide the best service to meet this need of society

As a commercial bank with capital potential, Vietinbank Thang Longbranch has paid great attention to short-term lending activities inrecent years However, due to the difficult economic situation andfierce competition among banks in short-term lending, the branchstill faces some limitations Therefore, it is necessary to promote theeffectiveness of short-term lending

Through the research and study of lending activities with theguidance of Master Ngo Tung Anh, the author has decided to choose

the title: "Enhancing the effectiveness of short-term lending

operation at VietinBank - Thang Long Branch" as my thesis topic.

Based on the results of the research and analysis of collected data,the thesis proposes a number of suggestions to promote the

effectiveness of short-term lending at Vietnam Joint StockCommercial Bank for Industry and Trade - Thang Long Branch.

1.2 Objectives of the study

- Studying basic theoretical issues about short-term lendingactivities, determining the necessity of promoting lendingactivities of commercial banks in Vietnam

- Researching the status of short-term loan performance atVietnam Joint Stock Commercial Bank for Industry and Trade -Thang Long branch from 2016 to 2018 from which the authorgives the strengths, limitations and causes of such restrictions

- Proposing some solutions to boost the effectiveness of term lending activities at Vietnam Joint Stock Commercial Bankfor Industry and Trade - Thang Long Branch

short-1.3 Research questions

The thesis has been designed to analyze the reality of short-termlending at Vietinbank Thang Long branch To be extra specific, thestudy seeks answers to these following questions:

a) Which criteria should be chosen to assess the quality of theshort-term lending activities?

b) Which factors have influence on the quality of the short-termlending activities?

c) How efficiently did Vietinbank Thang Long branch perform itsshort-term lending operations during the period between 2016and 2018?

d) What can be the solutions for Vietinbank Thang Long branch toperfect itself?

1.4 Scope of the study

- Object of the thesis study: Lending activities performance atVietinBank Thang Long branch from 2016 to 2018

- Scope of the thesis research: The reality of short-term loanperformance at Vietnam Joint Stock Commercial Bank forIndustry and Trade - Thang Long Branch from 2016 to 2018.

1.5 Methodology of the study

Graduation thesis has used some scientific research methods toanalyze practical theory: data comparison method, dialecticalmaterialism method, historical materialism method, method ofanalyzing economic activities, statistical synthesis method

1.6 Structural organization of the thesis

Graduation thesis is divided into five chapters as follows:

CHAPTER 1: INTRODUCTION

CHAPTER 2: REVIEW OF RELATED LITERATURE

CHAPTER 3: RESEARCH METHODOLODY

CHAPTER 4: RESULTS AND DISCUSSION

CHAPTER 5: SUMMARY, FINDINGS, CONCLUSION AND

RECOMMENDATION

CHAPTER 2: REVIEW OF RELATED LITERATURE

2.1 Theoretical and conceptual framework

2.1.1 Overview of short-term lending operations of commercial banks

a) Definition of short-term lending operations of commercial

banks

According to Law on Credit Institutions, 2010: “Short-term credit is aloan with a term of less than one year Commercial banks aresuppliers of most short-term loans to businesses These loans have alow risk of solvency as well as interest rate compared to medium andlong-term loans Short-term loans are often widely used in thefinancing of working capital and production costs”

b) Features of short-term lending operations of commercial banksShort-term loan is mainly to meet the temporary shortage demandfor working capital in the production and business process ofenterprises Banks often lend when customers need capital to buysupplies, materials, or cover production costs When goods areconsumed, customers have income It is the time when the bankrecovers debts Stemming from this characteristic, banks often set a

lending period based on the borrower's production cycle Therefore,the payback period in short-term loans is faster than medium andlong-term loans.

The payback period is quick so the risk of short-term loans is lowerthan medium and long-term loans and leading to lower the interestrate of short-term lending than that of a medium and long-term loan.Therefore, short-term loan is less affected by the unpredictablefluctuations of the economy such as medium and long-term loan Inaddition, short-term loan is provided to production and businessunits in the form of discounted valuable papers, based on collateral,guarantee and trade finance The bank will surely have a futurecompensation, so the risk of bringing it is often low

Short-term lending is the main activity of the bank Thecharacteristic of the bank is business in the monetary field, in whichreceiving deposits and making loans Therefore, with the interestrate and timing, banks mainly offer short-term loans to customers.Because the risk of the loan is often not high, the interest rate forborrowers is often low Short-term credit that banks provide tocustomers is often used by customers to buy materials, pay salaries,and supplement working capital so the capital loan is often small.Banks give increasingly diversified types of short-term loans such asline credit loans, credit limit loans, overdraft loans, and capitaltransfer loans to meet the diverse needs of customers, riskdistribution and to enhance competitiveness in the credit market.That has made various forms of short-term loan which is very richsuch as advance, overdraft and discounting operations

c) Classification of short-term lending operations of commercial

banks

The bank provides short-term loans to meet the demand for capitalfor production and business services for customers Hence, short-term loans are divided into many different types of loans, but interms of loan usage purposes, short-term loans include businesscustomer loan and individual customer loan

 Lending to corporate customers

Lending to corporate customers are a form of the bank financingeconomic capital for businesses Lending forms are consideredaccording to the nature of funding, including two main types:additional working capital loan and secured assets loan

- Additional working capital loan to finance a working capital forproduction and business activities of customers Whenborrowing money, borrowers use their own income from usingloans to repay debt for the bank, so the important factors thatthe bank focuses on are the business ability, financial situation,and effectively using customer loans

- Lending on collateral is primarily a form of lending on exportdocuments based on the value of receivables from customers

In the form of a letter of credit or collection, this type of grantallows exporters to receive most of the money collected fromthe paying bank or foreign importer after sending thedocuments for collection

 Lending to individual customers

Individual customer lending is a form of loan whereby the bankassigns the customer an amount of money to use for a certainpurpose and time as agreed with the principle of repayment bothprincipal and interest

Personal loans to discuss major needs include: serving life andconsumption, supplementing capital for trading and production ofindividual households This form is divided into two categories:

- Consumer loan: this is a form of financing for personal andhousehold expenditure Consumer loan is an important source

of financing capital for customers to cover their life needs such

as housing, transportation, and construction

- Industrial and commercial loan: this is a form of financing forthe purpose of supplementing capital and purchasingtransportation or construction facilities of individuals inbusiness and trading

d) Purpose of short-term lending operations of commercial banks

- Short-term loan helps supplement working capital and createsconditions for businesses to expand production and businessactivities

The bank as a financial intermediary performs one of its mainfunctions, is to mobilize temporarily idle capital sources and then usethat capital to supply the economy Through its lending activities, thebank has ensured that domestic enterprises not only keep upproduction and business but also expand their production

- Short-term credit helps businesses enhance management anduse of working capital effectively

The nature of short-term credit is not only a form of capital supplybut also a return of both principal and interest after a specifiedperiod Therefore, enterprises after using loan capital in productionand business not only need to recover capital to be enough but alsohave to find many measures to use capital effectively, economically,quickly to increase the capital turnover To make sure that the profit

margin is higher than the bank interest rate, so enterprises can paytheir debts and interest.

- Short-term credit positively affects development pace andpromotes competition

In the context of the market economy, the activities of enterprisesare strongly influenced by objective economic laws such as the rule

of value, the law of supply and demand, and the rules ofcompetition Besides, production and business must be based onmeeting the market demand and satisfied in all aspects Theoperations of enterprises must achieve certain economic efficiencyaccording to the general regulations of the market and make sure tostand firm in the competitive market In order to meet therequirements of the market, businesses need not only to improve thequality of labor, consolidate and improve the economic managementmechanism and accounting regime but also constantly improveadvancing machinery and technology lines, explore new materials,and expand production scale appropriately These activities need alarge amount of investment capital while the equity of the enterprise

is not able to meet these requirements To be able to solve thesedifficulties, enterprises can apply the bank loans to meet theirinvestment needs Through credit and banking activities as a bridge

to connect businesses to the market, short-term credit has played animportant role in improving the manufacturing process, helpedbusinesses meet market demand, and kept up with the generaldevelopment pace, thereby creating a firm foothold in thecompetitive environment

2.1.2 Quality of short-term lending activities at CBs

a) The need to boost the efficiency of short-term lending atcommercial banks

 To the economy

Any country that wants to develop the economy needs to have alarge investment capital to innovate technology, increase laborproductivity, reduce production costs, and increase competitiveness.But to have such a large amount of investment, only credit relationscan meet that requirement The bank in this case as a financialintermediary is the channel that transfers capital from the capitalsurplus to the capital shortage and increases the efficiency ofbusiness activities in the economy The bank's lending activities haveincreased the income of savers while reducing the cost of creditcapital for investors, thereby encouraging investment to increaseproductivity labor for the economy

 To the commercial bank

Short-term lending is one of the important activities of commercialbanks, which is a major source of income for banks and has asignificant impact on the other activities of banks Promoting short-term lending not only helps the bank make profits, reduceoperational and management costs but also especially reduce hugelosses due to the failure to recover long-term loans Thus, thisactivity will increase the profitability from products and services thatbanks give to customers and increase large profits for thecommercial banking system

In addition, through the promotion of short-term lending activities ofbanks, this helps banks develop sustainably, strengthen relationshipswith traditional customers, expand and attract more customers It isalso a way for commercial banks to expand market share andimprove profits

 To the customer

Bank customers include 2 types: Depositors and borrowers

The depositors are interested in the bank's solvency while the bank'sability to make payments has a close relationship with loaneffectiveness Therefore, boosting lending is a necessary issuebecause it directly affects customer deposits in the bank

The borrower is the person who directly uses the loan from the bank

In order to ensure the effectiveness of the loan, the bank needs toconduct checking and controlling the loan usage and coordinatingwith customers to timely adjust the shortcomings in financial andbusiness activities, thus generating revenue for customers to covercosts and interest Borrowers must consider the effectiveness of theloan as a necessary issue for themselves

b) Criteria in measuring short-term lending quality

 Qualitative criteria

This is a group of indicators to assess the effectiveness of loans on alegal basis in compliance with regulations and professional processesand implementation in accordance with commitments on loancontracts

- On the legal basis: The effective lending activities must abide

by the highest laws of the State, including the Constitutionallaw and the Law on Credit Institutions, lending regulations, keydocuments of the Government and the SBV

- Loan policies: The effective lending activities must be alwayscomplied with the rules and procedures for its operations Fromits own characteristics, most banks research and provide themost suitable lending regulations In particular, banks set up aCredit Handbook that outlines specific concepts, regulations,

provides a credit to good customers and restrictively gives acredit to customers in potentially risky areas Therefore,compliance with processes is the premise of loan efficiency.

- On the basis of loan contracts: In the loan contract, details ofimportant factors such as loan term, purpose of use, loan limit,debt repayment method, interest payment, etc., are expressed

in the form of commitments A loan is considerably effectivewhen it is properly implemented with the commitments thatsigned in the credit contract If customers do not comply withthe terms of the contract, the loan will be considered to have arisk Moreover, a loan that is not repaid on time, customershave overdue repayments many times, the loan is notconsidered to be effective

- Internal control: Lending activities in banks are very sensitiveand face many risks Therefore, internal control is establishedwith specific mechanisms, policies, processes and regulations

to help identify, evaluate regularly and prevent risk in lendingactivities, thereby proposing appropriate risk managementmeasures and improving the lending quality In order to do thiswell, the bank needs to have the professional, objective andhonest officials to provide strict penalties Since then, lendingactivities have been able to ensure proper implementation ofthe required process to improve the effectiveness of the loan

- Credit risk management strategies: Credit risk management isthe process of accessing risks in a scientific, comprehensiveand systematic way to identify, control, prevent, minimizelosses, and adverse effects of risk Credit risk managementactivities are often focused on customers' compliance with theloan purpose, business performance of the business, collateral,

and repayment process Risk management activities includemonitoring, reviewing, studying the operating environment ofthe bank in order to list all risks, customer ratings, loansecurity, and risk provision This administration not only coversthe types of risks that have been occurring but also predictsnew types of risks that may occur to the bank, from whichmeasures to control each type of risks accordingly.

The groups of qualitative criteria above may reflect a part of the loanquality In order to consider specifically, carefully andcomprehensively, it is necessary to consider criteria such as creditpolicy, bad debt handling, moral hazard, and management level

- The indicator of term outstanding loans on total term mobilized capital

short-The ratio of short-term debt balance on total short-term capital = This indicator is very important to assess the efficiency of the bank'scapital use, whether the bank has used all its capabilities in short-term lending or not? This indicator determines the investmentsituation of short-term mobilized capital, which helps banks comparethe short-term lending ability with short-term mobilized capital Ifthis ratio is too large or too small, it is not good; or if the rate is

large, the bank's ability to mobilize capital is low In addition, thisrate is low, it is indicating that the bank uses inefficient capital.

- The indicator of short-term loan turnover

Short-term loan cycle = The index reflects the number of short-term capital cycles of thebank The high short-term loan turnover shows that banks mainlyfocus on capital turnovers and the effective loan usage of customers

In contrast, this index is low, it is indicating that there may beuncertainties in the capital recovery process Through that, the bankhas measures to remind, urge customers and timely limit possiblerisks This is also the basis for the bank to make a decision whether

to lend in the next time or not

- The indicator of overdue debt

The ratio of overdue debt = x 100%

This indicator shows the situation of overdue debt at the bank,reflects the bank's ability to manage credit in lending and urge thebank's debt recovery Overdue debt is the debt that an enterprisefails to pay a principal and interest on time as agreed in the creditcontract For banks, the fact that customers do not pay on time canaffect the liquidity and business operations of the bank The bankshould have some effective measures to minimize losses in timesuch as strengthening the urging of enterprises to pay debts whenthey become due, actively demanding overdue debt collection aswell as closely monitoring business activities of enterprises Theeffectiveness of short-term loans is also partly expressed through theratio of overdue debt The higher the ratio indicates that the bankdoes not effectively manage credit risks and potentially lose capital

- The indicator of bad debt ratio

Bad debt ratio = x 100%

According to Decision 493/2005/QD-NHNN: “Debts from group 3 to 5are bad debt and the ratio is only ranged from 2% to 5% Bad debtsare debts that the ability to recover is very low” These are debtsthat banks do not want The higher the target is, the greater the risk

of the capital loss is At the same time, it demonstrates the poorability to evaluate projects and the weak debt collection Therefore,banks try to pull this ratio to the lowest level There are manymeasures to resolve bad debts and depending on the actual situation

of the customer’s business For example, banks may offer differentmeasures from debt extension to guarantee asset trading

- The indicator of risk provision

The ratio of risk provision for short-term loans = x 100%

This ratio indicates that provision for short-term loans is deductedfrom short-term loans If the ratio is higher, it shows that theeffectiveness of short-term loans must be set up to ensure safecredit activities

- The indicator of short-term debt collection

The ratio of short-term debt collection = x 100%

This indicator reflects the ability to collect short-term debt orgoodwill to repay debt from customers, indicating the amount ofinterest that the bank earned in a period on the loan amount

- The indicator of income from short-term loans

The ratio of income from short-term loans = x 100%

This indicator reflects the profitability of bank loans, which indicateshow much interest is generated from lending per unit of income

With the same level of income, the more banks can reduce the cost

of inputs, the greater the income ratio is This is indicated that thebank works well, which contributes to good loan performance

2.1.3 Factors affecting short-term lending operations at

commercial banks

a) Objective factors

- Economic environment

All activities of both businesses and banks are affected by changes

in the economy Any changes in macroeconomic factors can have animpact on the performance of banks and businesses A stableeconomy will create favorable conditions for businesses to expandproduction and business, increase labor productivity, recover capitalquickly and achieve high profits thereby ensuring full and timelyrepayment for banks However, an unfavorable economicenvironment such as high inflation or fluctuations in exchange rates

or in the economic market makes investors be surprised and lead tounrecoverable profits which reduce the ability to pay the debt to thebank Thus, the short-term lending performance of banks isinfluenced by the economic environment in which it operates, so theproblem for banks is to do well the forecasting of the market and theability to quick adaptation when there are economic fluctuations toensure lending activities are effective

- Competitive pressure among banks

Economic development is growing with the strong development ofbanks leading to competition between banks in finding newcustomer sources Besides, the fierce competition increases whenthere has the appearance of 100% foreign-owned banks Foreignbanks often have a separate customer segment that is foreign

businesses Foreign banks also do not face the current barriers asmany domestic banks are suffering, typically secure lending limitsand bad debts in real estate loans In addition, foreign banks havemany advantages such as service infrastructure, professionalcustomer service and better technology (Internet banking system).

- Government policies

State policies greatly affect the effectiveness of short-term loans.When these policies are stable and appropriate, it will stimulateproduction enterprises effectively However, when policies areunstable and changed constantly, it will affect the operation andbusiness results of enterprises, thus causing difficulties for banks torecover debts

- Regulatory environment

A complete and synchronous legal corridor system will facilitatebanks and businesses to operate easily, thereby ensuring theeffectiveness of short-term credit On the contrary, the lack ofuniform legal framework will cause difficulties for both businessesand banks, thereby affecting the effectiveness of loans

b) Subjective factors

- Credit policy of the bank

Credit policy is the basic orientation for short-term lending and plays

a decisive role in the success or failure of the bank Credit policy wasdesigned to provide general guidance to credit officers, to increasespecialization in short-term credit analysis, to create a commonagreement in credit operations, to limit risks and to improveprofitability Therefore, it has a very important role in bankingoperations Any bank that wants to have a good and high-quality

short-term loan must have a clear credit policy suitable for theirbanks and the economic situation.

- The appraisal ability

In the bank's short-term lending process, loan appraisal is veryimportant Valuation is an evaluation, examination, and prediction ofthe accuracy, safety, and effectiveness of a credit contract Loanappraisal helps the bank review the aspects of the business plan todetermine the feasibility of this plan on which they will determinewhether the customer is eligible for credit For short-term loans, due

to the specificity is frequent and timely, the appraisal process alsorequires fast to meet the capital needs of customers while ensuringthe accuracy and safety of the loan

- The process of monitoring loans and handling bank situationsMonitoring activities often focus on whether customers comply withthe purpose of borrowing loan, the business situation of theenterprise, the situation of assets and the process of repaying thebank If the bank performs this task well, it will help timely detect themistakes of the customers so that it can take timely measures tohelp the production activities of the enterprise achieve the highestefficiency and contribute to improving the efficiency of short-termloans

- The qualification of bank officers

The level of credit officers have directly affected on the effectiveness

of short-term lending as the decision of the bank to provide credit is

a subjective decision A good credit team will help the bank get thehighest quality loans On the other hand, the bank’s customers areincreasingly diversified and operating in many different fields

Therefore, credit officers must also have a broad knowledge to beable to assess their customers and business plans.

- Customer factors

When a short-term loan contract is signed, the client has borrowedthe bank's capital, who will decide the effectiveness of the loanthereby affecting the repayment for the bank Customer's repaymentcapacity is determined by the following factors:

+ The financial situation of the enterprise

When considering customer records, customers with a good financialsituation are allowed to lend by the bank The bank uses its financialstatements as an important information channel to assess thefinancial situation of its customers in the past and anticipate futuresituations If the financial potential of the customer is good andmeets the conditions of the bank, the loan will be less risky

+ Loan use plan

Good business plan will bring high profits to customers, therebyensuring full and timely repayment of banks Then, the loan hasbrought income for both customers and banks, which means it hasbeen used effectively

+ Operating capacity and management of business owners

When business owners have high professional qualifications andgood leadership capacity, the stage of making business plans hasalso shown the ability to effectively use the bank's loan capital.Conversely, if the business owner does not have the necessarymanagement and experience, it will lead to the ineffective businessoperations and fail to meet the set objectives, thus affecting theability to repay and make banks lose capital

+ Customer ethics

In addition to considering the professional level of the customer, thecredit officers must also evaluate the customer in terms of theirethics The honesty in providing information and the level ofcompliance with commitments in credit contracts of customer is animportant condition to ensure the loan which is safe and effective

2.2 Overview of VietinBank Thang Long branch

2.2.1 Brief history of establishment and development

VietinBank Thang Long branch (formerly Nguyen Trai branch) was asecond-level branch directly under VietinBank Ha Tay, which wasestablished on the basis of upgrading from 5 transaction officesunder VietinBank Ha Tay branch in December 1993 Since 1stJanuary, 2006 VietinBank Nguyen Trai was upgraded to a level-Ibranch under VietinBank with the address at 39 Tran Phu Street - HaDong District - Hanoi The branch office area must be rented; oldfacilities were cramped; human resources were limited to only 28people and business situation was difficult After 2 years sinceupgrading to a level-I branch, the year 2008 was the period whenthe economy was heavily affected by the world economic crisis andthe domestic economic recession greatly affected business activities

of all economic sectors including Nguyen Trai branch; the financialand monetary market had many instabilities and high inflation.Facing such a difficult situation, the state focused on implementingthe goal of curbing inflation, stabilizing the macro economy, ensuringthe social security which had a strong impact on the bank'soperations

With preferential policies of the government and VietinBank, thebranch has made great efforts to help the province overcomedifficulties, bring into full play the potential advantages, mobilize

capital and effectively use resources to promote economicallygrowth on the district

On October 2010, Nguyen Trai Branch moved from 39 Tran PhuStreet- Ha Dong District to Vinaconex9 Building- Pham Hung Street -

Me Tri Ha Ward - Cau Giay District - Hanoi The branch has beenlocated on an area of 1200m2 with 6 floors with spacious andsuperficial facilities On April 2012, the branch changed its namefrom Nguyen Trai to Thang Long The branch office is located in thecenter between the districts of Nam Tu Liem, Cau Giay, Dong Da and

Ha Dong where administrative offices and businesses operate mainly

in construction, electricity, trade activities, production and trade incraft villages in Ha Tay province (old) Transaction offices of branchesare located in Ha Dong district, Cau Giay district, and Cat Linh andThanh Tri areas By the end of 2018, the total number of staff at thebranch was up to 91 people In particular, the age of branch officialsfrom 25-40 years old accounts for over 60%

2.2.2 Organization structure

The organizational model of Vietnam Joint Stock Commercial Bankfor Industry and Trade - Thang Long Branch is shown in the followingdiagram:

Figure 2.1 Organizational structure of VietinBank Thang Long

branch

(Source: General Department)

2.2.3 Operation fields

- Mobilizing capital

+ Receiving demand deposits and term deposits in VND andforeign currencies of economic organizations and residents.+ Receiving savings deposits with various and attractive forms:Non-term savings and term savings in VND and foreigncurrencies

+ Issuing bills, bonds

- Lending, investment

+ Short-term loans in VND and foreign currencies

+ Medium and long-term loans in VND and foreign currencies

+ Trade finance; discount of export documents

+ Co-financing and syndicated loans for large projects, longpayback period

+ Program-sponsored loans and entrustments: Taiwan (SMEDF);Viet – Germany (DEG, KFW) and frame credit agreements

+ Overdraft, consumer lending

+ Contributing joint venture capital, cooperating with creditinstitutions and domestic and international financialinstitutions

Trade Finance Team

Organization and Administration Department

05 banking transaction offices

+ Investing in domestic and international capital markets, moneymarkets.

- Guarantee

+ Guarantee and re-guarantee (domestic and international):Bidding guarantee; Contract performance guarantee; Paymentguarantee, Warranty guarantee, Advance guarantee

- Payment and trade finance

+ Issuance, notification, confirmation and payment of letters ofcredit

+ Export and import collection (Collection); A draft (D/A), (D/P)and (Forward D/P)

+ Domestic and international money transfer

+ Western Union fast money transfer

+ Collection Order, Payment Order, checks

+ Payment of wages to workers through accounts

+ Payment of remittances

- Funds

+ Buying and selling foreign currencies (Spot, Forward, Swap ).+ Buying and selling valuable vouchers (government bonds,treasury bills, negotiable instruments )

+ Collecting and spending cash in VND and foreign currencies+ Renting safe box; storage and preservation of gold, silver,precious stones, valuable papers and patents

- Electronic Card and Internet Banking

+ Issuing domestic and international credit cards (VISA, MASTERCARD, JCB CARD, etc)

+ ATM card services

+ Internet Banking, Mobile Banking, SMS Banking

- Other activities

+ Life insurance, non-life insurance

+ Investment and financial consultancy

+ Financial leasing

+ Brokerage, self-trading, underwriting, portfolio management,securities consulting and depository

2.3 Some general provisions in short-term loans at VietinBank Thang Long branch

2.3.1 Short-term loan process at VietinBank Thang Long branch

Currently, VietinBank Thang Long is conducting a short-term loanprocess with 7 steps as follows:

Figure 2.2 Short-term credit granting procedures of VietinBank

Thang Long branch

(

Source: Corporate Banking Department of VietinBank)

• Step 1: Interview and guide customers to set up loanapplication documents

After exchanging information with the customer, if the customerapproves, the credit officers instruct the customer to set up and sendthe loan application form They are responsible for guiding, fully andclearly explaining to customers about credit conditions, procedures,and loan applications for customers

The set of loan application documents includes the followinginformation from customers:

- Loan request application form

- Papers proving the legal status of the customer.

- Business and production plans and debt repayment plans

- Financial statements of enterprises in the latest period

- Papers related to mortgage assets, pledge or guarantee

- Other documents

 Step 2: Credit appraisal

This is the most important step and determines the effectiveness ofthe loan In order to decide to accept or reject a loan, credit officersassess the extent to which the client's loan conditions are met on thebasis of aggregating and analyzing customer’s information sources.The issues focused on the assessment as follows:

- Appraising civil legal capacity, customer behavior capacity

- Appraising the personality and reputation of customers and theability of customers to manage

- Evaluating the purpose of the loan request

- Evaluating the financial capacity and feasibility of the loan anddebt payment plan

- Appraising of security assets

 Step 3: Approving the grant of credit terms

Determining the amount of loan, credit official assess the customer’sdemand, the ability to repay, the value of the collateral, the ability ofthe bank's capital sources and regulations on the loan level

Determining the lending method, credit officer agree with customers

on the lending methods A number of major lending methods areapplied when lending: the method of line credit, credit limitation,installment loans, and loans under investment projects

 Step 4: Drafting a Credit contract, guaranteed contracts,submitting a loan approval and signing contracts

Credit officials prepare a loan appraisal report, assess the level of

Vietinbank regulations and write down a proposal After that, theydraft credit contracts in accordance with VietinBank's currentregulations, appraisal results, loan proposals or revise according tothe approval of the authorized person and instruct customers to sign.Then, they also submit loan documents to the leader’s branch tocontrol and import data on Vietinbank's credit system Finally, creditofficials will inform the customer about approval results

 Step 5: Disbursement, collection of principal and interest,checking and supervision of the loan

The requirement when disbursing is to manage so that customersuse loan capital for the right purpose, effectively and minimize therisks that occur in the process of using loans from customers

Credit officers monitor the actual repayment schedule, informcustomers about due debts and evaluate customers through criteria:repayment of principal and interest according to terms agreed oncredit contracts, overdue debts and extended debts

Checking and monitoring the use of loans is done simultaneouslywith the process of disbursement, debt collection and restructuringthe repayment period Loan supervision is required to check thereality of the repayment plan, the ability to perform and detect theforecast of possible risks

 Step 6: Liquidation of loan contracts

When the loan is paid out of principal and interest or the customerbreaches the contract, VietinBank Thang Long will liquidate the loancontract Loans that guarantee fully and timely repayment are thesafe and effective credit If the customer is unable to pay the debt indue time, the bank may consider extending the debt or switching tooverdue debt to take appropriate measures to fully recover the debt

 Step 7: Storing loan records

Credit officers prepare and keep the loan documents according toVietinBank's regulations; promptly supplement the records andpapers provided by customers during the loan process from the time

of receiving the loan application dossier to the customer paying allprincipal and interest

2.3.2 Short-term loan products at VietinBank Thang Long branch

Short-term lending activities include the following forms:

- Line credit loan

Line credit loan is applied to customers who need to borrow moneyeach time Each time of borrowing, customers and VietinBank ThangLong establish procedures for borrowing according to regulations andsign credit contracts

- Credit limit loan

This lending method is applied to short-term borrowers who needregular loans and stable business VietinBank Thang Long branchafter receiving all documents of customers to determine credit limit.The branch strictly controls the credit limit and ensures that the debtbalance does not exceed the credit limit signed

In the process of borrowing and repayment if the production andbusiness changes, customers need to adjust the credit limit, so theymust make a request to redefine the credit limit Then, VietinBankThang Long branch considers their demand; if it is reasonable, theyagree with the customer on the credit limit and supplement thecredit contract

- Loans under investment projects

VietinBank Thang Long branch lends to customers to implementinvestment projects to develop productions, businesses, services andinvestment projects to serve their life VietinBank Thang Long branchand customers sign a credit contract on the maintenance investmentcapital for the investment period of the project and delineate therepayment periods The branch performs disbursement according tothe project implementation schedule Each time the loan iswithdrawn, the customer sets up a loan debt receipt within theagreed investment level together with the loan applicationdocuments in accordance with the purpose of using capital in thecredit contract.

In case, the customer has used other temporary mobilized capital topay for the project's approval during the time when the customerhas not been able to borrow capital from the bank, VietinBank ThangLong branch may consider lending to offset that capital

- Syndicated loan

Syndicated loan is implemented in accordance with the co-financingregulations of credit institutions issued by the SBV, the guideline ofthe General Director of VietinBank and the agreement between theco-financing organizations

- Lending through the issue and use of credit cards

VietinBank Thang Long branch allows customers to use the loanamount within the credit limit to pay for the purchase of goods andservices and to withdraw cash at ATM as agents of VietinBank Whenlending and using credit cards, VietinBank Thang Long andcustomers must comply with the regulations of the Government, theSBV and VietinBank's instructions on issuing and using credit cards

- Overdraft loan

Lending by overdraft limit is the loan that VietinBank Thang Longagrees with customers to spend more than the amount on currentaccount of customers in accordance with the regulations of theGovernment and the SBV on payment activities through paymentservice suppliers.

2.4 Research projects related to the topic

2.4.1 The thesis of Phung Van Vuong (2009) “Nâng cao chất lượng cho vay ngắn hạn tại Ngân hàng Nông nghiệp và phát triển nông thôn – Chi nhánh Láng Hạ” in 2009.

 With this thesis, the author has contributed the followingresults:

The author provides a general theoretical framework such asdefinitions, concepts, and forms of lending operation of commercialbanks He has an analysis of the short-term lending operations, itsforms and processes at commercial banks Moreover, the author alsoprovides evaluation criteria for short-term lending activities at banks.The author analyzes the business results of Agribank Lang Ha branchfor 3 consecutive years from 2006 to 2008 Besides, he has alsoassessed the status of short-term lending activities and the creditperformance at the branch

The author has given orientations and solutions to improve term credit operations at Agribank Lang Ha

short- However, the thesis has also had a few limitations:

The theory does not focus much on short-term lending and theeffectiveness of this activity, but only focuses on the macroarguments about commercial banks and commercial activities in amarket economy

The analysis of the current situation and effectiveness of short-termlending activities has not been rigorous, sketchy and non-detailedassessment of this lending activities of Agribank Lang Ha branch.The data are very few and there is no quantitative method todetermine the effectiveness and correlation between the twooperations.

The solutions are still very general and not really solving thedifficulties in short-term lending activities at the branch Thepetitions are also very sketchy and unrealistic that can be applied inthe near future

2.4.2 The thesis of Nguyen Thi Kim Vui (2010) “Thực trạng hoạt động cho vay ngắn hạn tại ngân hàng thương mại cổ phần kỹ thương Việt Nam chi nhánh Chợ Lớn” in 2010.

 With this thesis, the author has contributed the followingresults:

In the theoretical basis, the author presents in details about theconcept, characteristics and role of short-term lending in businessactivities of commercial banks On the basis of the theory of short-term lending activities of the bank, the author mentions the types ofshort-term loan to customers, general provisions of basic short-termcredit and criteria assessment of short-term lending activities

Through the analysis of short-term lending activities Techcombank,the author has proposed solutions to improve the efficiency of short-term loans at the bank such as: implementing exploitation andappraising customers' credit needs must be more tight, expandingborrowers; thorough verification of customers' repayment sources;checking, controlling after borrowing and giving early a warningwhen customers have to solve overdue debt payment

 However, the thesis has also had a few limitations:

The theoretical part is still quite sketchy and not generalizing thetheory of short-term lending activities of commercial banks butfocusing on the forms of commercial banks' lending and the role ofshort-term lending activities of commercial banks in the economy.However, many parts of the theory do not focus on short-termlending activities of Techcombank

The efficiency analysis of short-term loans has not been tight andmentioned the business results of the branch Moreover, the authorhas not made readers who have an overview of the link betweenshort-term lending and business results based on the branch'slending activities The data are very few and there is no quantitativeand qualitative method to determine the effectiveness of short-termlending

Many solutions are still very general and have not really solved theproblem of short-term lending in Vietnamese commercial banks Thepetitions are very sketchy and unrealistic that can be applied in thenear future

2.4.3 The thesis of Bui Thi Ngan (2014) “Nâng cao chất lượng hoạt động cho vay tại Ngân hàng TMCP Đầu tư & Phát triển Việt Nam – Chi nhánh Thái Nguyên” in 2014.

 With this thesis, the author has contributed the followingresults:

In the theory section, the author states the concepts, loan forms,processes and roles of lending activities at commercial banks Hehas an analysis of the quality of lending activities of commercialbanks, from which the evaluation of this lending activity has beenmade

The author has analyzed the reality of lending in general and giventhe business results of BIDV Thai Nguyen branch Besides, the authoralso gives details about the lending process of BIDV and thelimitations, causes, and achievements of short-term lending at BIDVThai Nguyen branch

The author has presented orientations and suggestions to improvecredit quality at BIDV - Thai Nguyen branch He makesrecommendations to improve the branch's business operations in thecoming years and renews the lending process in line with the currentbusiness situation

 However, the thesis has also had a few limitations:

The theoretical part has not generalized the theory of boostinglending activities at commercial banks but only focused on the formsand roles of lending activities of commercial banks The author hasnot generalized the specific type of loan that has brought a greatprofit to BIDV Thai Nguyen branch but only the general overview oflending makes it difficult for the reader to understand the specificissues of the author

The analysis of the current situation of lending activities in BIDV hasnot gone into the evaluation of indicators affecting lending activitiesbut only basically basing on the objective criteria affecting thatcredit activity Besides, the author has not given quantitative andqualitative assessments on the status of lending activities

The solutions are still quite separate for each business, there is nosolution that is uniform and applicable in banking operations