Luận văn thạc sỹ - Enhancing lending quality to individuals at Agribank Dong Da branch

Along with the growth of the economy, people''''s life have been improved, leading to consumer demand increasing. In addition to usual necessities such as food, houses, jobs; people are more interested in the quality of life such as the quality of their house, modern vehicles, facilities, traveling and even studying abroad. However, with the current income level, most consumers could not afford at the same time all their needs, especially for properties which have great values. That''''s the reason why needs forconsumption borrowing have been increased nowadays. Banking activity plays an important role on human and social life, especially the establishment and development of commercial banks in terms of quantity and quality of services. One of banking activities is lending activity. Lending activity is the most important activities which accounts for the largest portion of total assets but one of the riskiest activity of the bank. Therefore, enhancing lending quality is the target job of commercial banks. Lending activity is particularly crucial in assessing financial strength of customers in the business and customer repayment capacity. Enhancing the lendingquality means that financial status of commercial banks is also enhanced, creating strengths in the competition between each bank, helping banks avoid and limit the great risks and losses that may occur. It contributes to the health of lending relations and facilitates the expansion of lending relations. Lending quality determines the existence and development of each Commercial Bank in particular and the whole banking system in general. To make a lending decision, every banks must carefully consider risk and profitability based on the lending analysis process. Improving lending quality will contribute to the bank''''s business performance. During my internship at the Bank for Agriculture and Rural development Dong Da branch, I could access data on bank lending situation and understand about lending to individuals which is also one of the basic lending activity of the Bank. In my opinion, lending to individuals has brought a part of the income for the bank but the results achieve have been less than its capacity due to some difficulties. To resolve these issues as well as developlendingto individuals, Agribank Dong Da branch still have to research more and find the solutions to overcome the difficulties. After a time of internship in Agribank Dong Da branch at Small and Medium Enterprises department and also my time studying at National Economics University, I would like to choose the topic: "Enhancing lending quality to individuals at Agribank Dong Da branch"

NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAM

NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAM

I would like to acknowledge the following people for their support andassistance with this internship First I am very grateful to the support from theBoard of Directors, my seniors and colleagues in Accounting Department ofAgribank Dong Da branch during my project work

Another faithfully thanks word I would send to my instructor – PhD TruongThi Hoai Linh for helping me with my report in not only structure but also contentthoroughly

TABLE OF CONTENT

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submittedBarchelor Thesis independently I did not use any outside support except for thequoted literature and other sources mentioned at the end of this paper

I clearly marked and seperately listed all the literature and all other sorceswhich I employed producing this academic work, either literally or in content

Hanoi, 20/05/2019

Trương Thị Anh Thư

Rationale

Along with the growth of the economy, people's life have been improved,leading to consumer demand increasing In addition to usual necessities such asfood, houses, jobs; people are more interested in the quality of life such as thequality of their house, modern vehicles, facilities, traveling and even studyingabroad However, with the current income level, most consumers could not afford atthe same time all their needs, especially for properties which have great values.That's the reason why needs for consumption borrowing have been increasednowadays

Banking activity plays an important role on human and social life, especiallythe establishment and development of commercial banks in terms of quantity andquality of services One of banking activities is lending activity Lending activity isthe most important activities which accounts for the largest portion of total assetsbut one of the riskiest activity of the bank Therefore, enhancing lending quality isthe target job of commercial banks Lending activity is particularly crucial inassessing financial strength of customers in the business and customer repaymentcapacity Enhancing the lending quality means that financial status of commercialbanks is also enhanced, creating strengths in the competition between each bank,helping banks avoid and limit the great risks and losses that may occur Itcontributes to the health of lending relations and facilitates the expansion of lendingrelations Lending quality determines the existence and development of eachCommercial Bank in particular and the whole banking system in general To make alending decision, every banks must carefully consider risk and profitability based onthe lending analysis process Improving lending quality will contribute to the bank'sbusiness performance

During my internship at the Bank for Agriculture and Rural developmentDong Da branch, I could access data on bank lending situation and understandabout lending to individuals which is also one of the basic lending activity of theBank In my opinion, lending to individuals has brought a part of the income for thebank but the results achieve have been less than its capacity due to some difficulties

To resolve these issues as well as develop lending to individuals, Agribank Dong Dabranch still have to research more and find the solutions to overcome the

difficulties After a time of internship in Agribank Dong Da branch at Small andMedium Enterprises department and also my time studying at National EconomicsUniversity, I would like to choose the topic: "Enhancing lending quality toindividuals at Agribank Dong Da branch"

- Proposing orientations, solutions and recommendations to improve credit qualityfor households and individuals at Agribank Dong Da branch

Methodology

Analysis method: the author uses the method of general analysis, comparisonmethods, comparisons, interpretive methods, inductive and economic statisticalmethods to study the thesis topic

Scope

Research object is credit quality for individuals at Agribank Dong Da branch

Scope of research: Lending activities to individuals at Agribank Dong Da branchinthe period from 2014-2018

Research structure

In addition to the introduction, conclusion, references, list of tables andabbreviations, and dissertations are structured into 03 chapters:

Chapter 1: Overview of lending quality to individuals at commercial banks

Chapter 2: Current situation of lending quality to individual customers at AgribankDong Da branch

Chapter 3: Solutions and recommendations to enhance lending quality to individualcustomers at Agribank Dong Da branch from 2019 to 2025

CHAPTER 1: OVERVIEW OF LENDING QUALITY

TO INDIVIDUALS AT COMMERCIAL BANKS

1.1 Overview of lending to individuals at commercial banks

1.1.1 Definition of lending to individuals

According to the Law on Credit Institutions, to section 14/4 in 2010: “Thecredit granting is an agreement for an organization or individual to use a sum ofmoney or to commit to use a sum of money on the principle of having repayment bylending, discounting, financing leasing, payment, bank guarantee and other creditgranting operations.”

According to section 14/16 of the Law on Credit Institutions in 2010: “Lending is a form of credit whereby the lender assigns or undertakes to give thecustomer a sum of money to use for the purpose of determining for a certain period

of time in accordance with the principle of refund pay both principal and interest.”

Thus, lending is understood as the act of letting people use equity with theterms and conditions and borrowers must fulfill the obligation to pay the principaland interest on time for lenders

Lending to individuals is a lending relationship that commercial bankscapital transfer in a given time from commercial banking to individuals,households, cooperations in order to serve the purpose of consumer or investment,manufacturing and trading

Lending to individuals is a credit operation of the Bank for the individualhouseholds The Bank funds for individuals and serves the production business,personal consumption in a certain period of time based on the principle of timelyrepayment of both principal and interest

- Lending to individuals clients usually be small loans but a big number ofquantity

- Basically the loans to individuals, especially lending, have relatively goodquality, yet the lending is good only when the client has no problem And besidesthe lending usually contains very high risk so commercial banks normally applyhigher interest rates with this kind of lending

- About lending term: Personal loans are usually short-term loans andmedium-term loans Long-term loans are very little because the loans are primarilyserve the needs of individuals.

1.1.2 Classification of lending to individuals

Managing lending to individuals well needs for lending to individualsclassification There are many goals to classify a loan, here I'm referring to theclassification of private lending according to certain criteria

• Based on the purpose of the loan

Based on the purpose of the loan may be classified into three types:

- Lending to individuals serves the purpose of residence

The loan is aimed to serve the needs of construction, stores or renovatehouses of individuals Characteristics of this loan is in the long time and the loanscale is large

- Lending to individuals serves the purpose of consumer

It is the loans service of the demand to improve the life such as shopping,media, travel, entertainment, education,… The characteristics of this loan is smallscale and short duration, the lower risk loans serves the purpose of residence

- Lending to individuals serves business purposes

It is the loans to make the small business projects in each household, traders,shops, rental… characteristics of the loan is usually long-term, depending on thecustomer's business approach, the risks of this loan is very high, and there ispossibility of ethical risks

• Based on the method

- Lending to individuals charged once when maturity

It is the short-term loans of individuals and households to meet cash needsimmediately and this loans are paid when maturity Scale of borrowing is relativelysmall, one-time loans short term and often are used to pay for the trip, buy the toolsfor families or repair of automobiles, houses… The risk of this loan is not greatdishes

- Installment loan

It is short-term or the medium-term loans are paid in two or more times in arow (usually by month or quarter) Loans are charged to do many times under the

agreement between Bank and customers This method is used to fund to purchaseexpensive items such as homes, cars, …or to invest in business projects Overall,this installment loans carry a fixed interest rate, but the type carried floating interestrates also are becoming popular Often in the total volume of consumer loansaccording to the commercial banks offers, more than 80% are made on theinstallment basis This comes from the financial capability of the client, which is notenough to pay a one-time loan plus the periodic repayments each month or to theperiod of salary is more advantageous This loan is broken down into: lenders payprincipal and interest every month equally (fixed annuities), the original equalmonthly pay, the interest rate charged by the original balance (annuities are notfixed), or pay interest period the original last pay period left.

- Lending card loan

Bank lending cards as well as other payment cards has quickly been acceptedusing lending cards, offer a regular line of lending and revolving which customerscan use whenever they are in need People who use lending cards can pay loansgradually or pay once because they can charge purchases on his lending cardaccount Lending card in the future will be developed by advanced technologies,which helps to make the lending card holders have access to many financialservices, including savings accounts and payment account and the limits lending

• Based on the loan form:

- Indirect lending:

Form of loans in which the Bank bought the debts incurred by the business,has sold the goods or services for private customers in the form of Bank lendingthrough sales or business services that is not directly exposed to customers

This loan has the following advantages:

+ The commercial banks are easy to extend and increase lending

+ The commercial banks will save and reduce the cost of loans

+ This loan is the basis for expanded relations with customers and makefavorable conditions for other activities of the Bank

+ If the commercial banks have relations with the retail business, the lending

to individuals of indirect lending form has a lower level of risk in lending toindividuals directly

However, this loan also has these limitations:

+ The commercial bank when the loan is not in direct contact with clientsthrough the business has sold the subject goods, the service, the customer selection,selection criteria of enterprises and banks are not the same

+ Lack of control of the Bank both before, during and after the loans, whenbusinesses make retail goods and services

- Direct lending:

It is a form of lending where the bank and its customers directly meet forlending or debt collection

This has three advantages:

+ Loans are made between bank and customers directly so that the bank canuse the qualifications, knowledge, experience and skills of credit officersthoroughly, so these loans have the amount is higher than indirect lending throughretail businesses

+ Lending officer when the loan pays special attention to the quality of loans,but the retail business of goods and services often matter more to the increase insales over the quality of loans, furthermore businesses often make lending decisionquickly, it leads to a situation with non-legitimate lending, otherwise may denygood customers So this kind of loan already solve the indirect loans' problems

+ Direct loan forms are more flexible forms of indirect lending, becausewhen the direct relationship of Bank and the client handle better, there is morelikely to satisfy the interests of both the Bank and the customer

+ Direct lenders with customers are very wide so the introduction of the newutility, service is very convenient, which is the way to promote and enhance theimage of the Bank to the customer

This loan has drawbacks:

+ The expansion and increase adverse loan in the form of private loansindirectly

+ By the bank officers work directly with the client the Bank should spendlots of time and costs compared to the indirect lending form, especially when theamount of customers at the same time will make it difficult for the Bank

• Based on the measures to secure loans:

- Loans with security assets

It is loans with secured property which is real estate, estate… formed fromloans or assets owned by customers before the Bank loans Security assets toincrease the safety of loans by the Bank may create pressure to force the customer

to pay the debt or in the worst case the customer does not pay the debt, the sale ofthe security property also reduce losses to the Bank Loan with security assets isdivided into two types:

+ Type 1 includes assets owned or long-term use of the customer We candivide the form of guarantee of this type into two main areas:

Lenders pledge form for bank customers to borrow money on the conditionthat the customer must transfer control of the collateral to the Bank in time havecommitted Category and condition of the property pledge are Bank specific rulesbased on rule of law and the lending policy of each bank The property often pledgethe assets that banks can control and preserve relative certainty, at the same time theBank hold, which does not affect the operation of customers such as: the valuablepapers currency, precious metals,

Mortgage lending is the form that the borrower must transfer the entirecertification papers owned or used the collateral to the Bank holds in timecommitment For the mortgage by the property then the property carrying amortgage often is the property such as buildings, land use rights, or is the propertythat the borrower still needs to use as automotive, motorcycles, The mortgage byproperty allows the recipient to continue financing the assets used during the loan.However, the process used may deform the assets, more likely to take control of theassets of the bank guarantee is limited The valuation of collateral is also a majordifficulty requires the thorough due diligence to avoid pricing too high causingdamage to the Bank or the price is too low to influence the ability of customerloans

+ Type 2 loans secured by assets formed from the loan When customersneed a loan but no collateral or assets that do not meet conditions of the Bank, itmay require customers to use the assets are formed from funding bank as security Ifcustomers cannot afford to pay the debt, it will sell the assets to recover debts Toensure that customers do not sell assets or use to reduce the value of assets, banksusually require customers to commit to preserve assets, insure beneficiary of thebanks, and time transfer all ownership documents to the bank

- Loans without security assets

Lending is based on credibility (trust) or a third-party guarantee, no securityassets Bank customers have the choice of prestige and good repayment ability tolend Bank customers borrow money to meet the demands of customers based onunsecured wages, especially customers having a stable income to cover, recurrentexpenditures is also a part of accruing to repay loans (public servants andemployees in state payroll, employee labor contracts, long-term), in addition toincome created from the production business could also be considered to use as asource of repayment This form is suitable for large value loans, short loan term.

1.2 Lending quality to individuals at commercial banks

1.2.1 Definition of lending quality to individuals at commercial banks

According to ISO 9000, the quality of products and services is understood to

be all features of services and products in accordance with the best conditions tomeet the social demands Improving the quality of services and products is one ofthe most essential tasks of businesses, especially in an competitive economy

Lending quality is understood to meet the demands of parties (borrowers andlenders) which is suitable for development of social-economic and make sure thesurvival and development of enterprises that provide credit products

• First of all, from a social point of view:

Lending quality must be judged from socioeconomic status efficiency, whichmeans that it must be considered to serve the economic development policy of thegovernment and the loyalty It should consider the impact of credit policy on thegrowth and development of economy, and strength of facilities and techniques

• One of the most important aspect worth mentioned is from a bankperspective:

Commercial banks are a profit-driven business organization, thus all bankingactivities are geared towards profitability In particular, lending activities are mainlyconcerned with the level of lending safety and profitability of the bank

Level of lending safety:

Before making any loan decision, the bank must consider carefully whetherthe loan is repayable in full and on time or not, and the most importance is the level

of lending risk When a loan is made to be risky or high risk, it is said that the loan

is of poor quality Lending risk includes unsecured loans are unable to repay on timebecause borrowers are experiencing temporary difficulties

Lending based on trust in future repayment at a specific time This beliefcomes form the two entities of the lending relationship that are the borrower and thelender The financial ability and credibility of each subject is the foundation of theirtrust.

Lending to individuals is lending granting to individuals who need to borrowmoney They usually use loans for consumption activities to meet the demand fordaily life, business households, producing and manufactoring

1.2.2 Criteria of lending quality to individuals at commercial banks

Estimating correctly lending quality to individuals at commercial banksneeds criteria based on the principle Here are some criteria:

• Criteria representing safety

- Bad debts ratio to individuals:

Bad debts are essentially concepts used to refer to loans facing risks in therecovery of principal and interest This is the most important indicators inestimating lending quality at commercial banks In order to accurately assess thiscriterion, the first thing is to classify loans

According to the 03 Circular of National Bank dated February, 2013

"Regulations on debt classification, appropriation and use of provisions to handleloan risks in the operation of small-sized financial institutions”

+ Group 1: Standard or normal debt is the term debt which is assessed asbeing able to recover principal and interest on time, debts overdue for less than 10days

+ Group 2: Special mentioned debts, including: Debts which are overduefrom 10 days to less than 30 days and rescheduled debts for the first time

+ Group 3: Sub-standard debts, including: Debts which are overdue from 30days to less than 90 days; first-time rescheduled debts which are overdue for lessthan 30 days within the rescheduled payment term; Debts of which interest iswaived or reduced because customers are unable to pay the interest in full according

to the lending contract

+ Group 4: Doubtful debts, including: Debts which are overdue from 90 days

to less than 180 days; first-time rescheduled debts which are overdue from 30 days

to less than 90 days within the rescheduled payment term; Second-time rescheduleddebts

+ Group 5: Liabilities with loss of capital, including: Debts which areoverdue from 180 days or more; First-time rescheduled debts which are overdue formore than 90 days within the rescheduled payment term; Second-time rescheduleddebts which are overdue under the second restructured repayment term; Debts withrescheduled terms of repayments for the third time or more, including those thathave not been overdue or overdue.

The 03 Circular of National Bank dated February, 2013 of the State Bank ofVietnam also stipulates that debts from Group 3 to Group 5 are bad debts and theratio of bad debts in total outstanding loans is about 2% to 5% is an acceptable rate.Overdue debts from 6 to 12 months are problematic debts Debts which are overduefor more than 12 months are called bad debts

Bad debt ratio of individuals (%) = Bad debts of individuals / Totaloutstanding loans of individuals * 100%

This indicator clearly assesses the quality of loans for individuals The lowratio means that lending quality is good for individuals On the contrary, high ratioindicates that the quality of lending of producing individuals of the bank decreases

- Provisions for credit losses ratio:

According to the the Circular of National Bank dated February, 2013 of theState Bank of Vietnam, "Provisions for credit loseses is an amount of money to beset aside for possible losses caused by customers of credit institutions failing tofulfill their committed obligations Provisions for credit loseses is calculated based

on the outstanding principal and accounted for operating expenses of the creditinstitution Risk provisions include: Specific provisions and general provisions ".Specifically:

+ "Specific provisions" are amounts set up based on specific classification ofdebts prescribed Circular dated February, 2013 to prevent possible losses

+ "General provision" is the amount set up for the loss of unspecified losses

in the process of debt classification and specific provisioning and in the financiallydifficult cases of organizations credit when the quality of debts deteriorates

Debts are classified from Group 1 to 5 with specific provisions from 0% to100% of deductible debts (-) deductible value of collateral

General provisions is the amount set aside for the loss of unspecfied losses inthe process of debt classification and specific provisioning and in the case of

financial difficulties when the quality of debts is reduced, is calculated at 0.75% ofthe total value of debts from Group 1 to 4

+ Group 2 (Special mention): 5%

+ Group 3 (Sub-standard debt): 20%

+ Group 4 (Doubtful debt): 50%

+ Group 5 (Debts that cannot afford to lose capital): 100%

Since 2010, banks have to extract all of these general provisions

Provisions for lending risk ratio to individuals = Provision for lending losses

to individuals / Total outstanding loans to individuals

This index indicates how much of the outstanding balance is set aside Thehigher index shows that the quality of bank lending is negative and debt recoverycapacity is low If this index is low, it may indicates improved quality of debts, or itmay be due to provisions that have not been appropriately set up

Outstanding loans for production individuals: Outstanding debts in general,outstanding loans for production individuals in particular are the balances oncustomers' loan accounts This target is calculated by banks at a certain time usually

at the end of the month, the end of the quarter and the end of the year with theformula:

Outstanding loans of production individuals at the end of the period =Outstanding loans of individuals at the beginning of the year + Sales of individuals

in the period - Debt collection revenue of individuals in the period

• Criteria representing profit

- Rate of interest revenue for individuals

Rate of return from lending activities to individuals = Interest revenue forindividuals/ Outstanding loans of individuals

This indicator evaluates the effectiveness of bank lending The high rate ofreturn from lending activities to individuals proves that the loan is effective, highquality, which demonstrates debt collection and settlement of overdue debts arewell The high rate partly reflects the bank’s good business results, which is veryimportant because the revenue from lending activities is the main sources ofimcome of the bank The low rate will prove that the bank is not performing welland is not effective It requires the bank take measures to improve situation in the

- Profit before tax from lending to individuals

This indicator reflects the profit before tax from lending that individualsbring to the bank compared to other loans This also assesses the attractiveness oflending to customers being individuals compared to other customers

1.3 Factors affecting lending quality to individuals

1.3.1 Macro factor

- Macroeconomic status: Macroeconomic stability will create opportunities

to expand effectively lending to the economy in general and individuals inparticular Macroeconomic stability, especially monetary stability with price,interest rate, exchange rate and inflation indicators will reassure the financialinstitutions lending capital, borrowers have more jobs, increase income, help themfeel secure about the stability in income as well as the stability in borrowing costs,the cost of purchasing and repairing houses, and other goods and services, therebyincreasing their loans and at the same time facilitate the sustainable developmentand development of bilateral relations of borrowing and repayment

- The policy of developing the private economy of the Party and theGovernment: In the past years, the Party and the Government have had manyspecific guidelines and policies to eliminate discrimination and ensure equalcompetition between economic components; Complete the land law to ensure equalaccess to private economic resources for land and natural resources; There are manyincentives to create a favorable business and investment environment for privateeconomic development and support private economic innovation, modernization oftechnology and human resource development, improving labor productivitycapacity All of which has created favorable conditions for the private economy ingeneral and individuals in particular to develop and stand firm in competition,improve capital efficiency and increase productivity

- Political - legal environment: Stable political environment, no conflict,main island or civil war will create a healthy, safe business environment, create trustfor the people, thereby creating things favorable conditions for banks to expandbusiness operations, including investment in lending capital for productionindividuals

A complete and comprehensive legal system is the basis to protect thedevelopment of a safe, stable financial market, and promote financial institutions to

improve the capacity of providing high quality of financial services, protect thesustainable development of cooperative relations between banks and customers,including customers who are individuals, for the benefit of both sides.

- Socio-cultural environment: The elements of culture, society, customs,practices or behavior also affect the quality of lending to individuals

1.3.2 Micro factors

Includes objective factors from customers and subjective factors from thebank, specifically:

The objective factors:

- Regarding legal capacity: The prestige of customers plays an importantrole, because it can determine the willingness of customers to pay debts, which isthe basis to create trust for banks For customers who are individuals, prestige isexpressed in honesty, trust and especially the responsibility to repay the bank.Although this is an impressive element, it is always concerned by banks andthoroughly studied

- Financial ability: important influence on bank lending decision A customerwith healthy financial ability will ensure an effective loan, good debt recoveryability

- Regarding lending guarantee: It is considered as the second source of debtrepayment when the first source (from business results) cannot be recovered.Lending guarantee is effective: on the one hand, reducing the loss to the bank whenthe customer for some reason fails to repay the debt, on the other hand is the drivingforce for the customer to fulfill the debt repayment obligation Thus, the purpose oflending guarantee is to limit the risks in the business operations of the bank ratherthan the basis for deciding to grant lending However, for customers who areindividuals, the lending guarantee is only applied to large loans, mainly applied forloans without collateral or in other words, lending do guarantee mortgage loans

The subjective factor:

- Bank's development orientation: This is a prerequisite for developingindividual lending Agribank always persevere with customer strategy, especiallyindividuals; to attach importance to expand the operation network to districts andcommunes in order to create conditions for customers in all regions of the country

to easily and safely access bank capital sources

- Financial capacity of the bank: The bank's financial capacity depends verymuch on the credibility of the depositors because it will stabilize and grow thebank's capital.

- Developing appropriate lending policies: Lending policies, reasonablelending procedures, appropriate and consistent, smooth coordination in theimplementation process are factors that determine the success or failure of Bank

A suitable lending policy means that the lending policy must be consistentwith the bank's goals and capabilities Determining lending Individuals' production

is a potential land, so for many years and in the coming years, expanding individualloans is the business strategy of BOM

- Regarding professional skills and ethics of lending officers: In all areas,especially in monetary activities, people are very important factors

A suitable lending policy is not enough, but the bank itself needs toimplement regulations in the system such as implementing measures to limit risks,implementing lending guarantee and regulating lending extension and informationcollection In addition, the bank should pay attention to minimize cumbersomeprocedures, technical complexity and appraisal procedures, in order to createconditions to improve the efficiency and quality of the lending process in the bank

The organization, training and education of staff must be respected in order

to improve morality, professional qualifications and skills in order to understandand implement the lending process as well as handle other relationships, at the sametime limit to the lowest level of abuse, corruption which may occur

- Information: Lending information plays an important role in lending qualitymanagement Thanks to lending information, managers can make appropriatedecisions related to lending activities

For lending, especially lending to individuals, trust is considered to establishlending relationships Therefore, it is necessary to find out information related tocustomers The management of tracking and capturing information is gathered frommany sources: information available in the bank (loan documents, information fromCIC of the state bank, between commercial banks, groups lending institutions),from customers, from domestic and foreign information agencies The morecomplete, timely, accurate and comprehensive information, the greater the riskprevention capacity in lending activities, lending quality is enhanced Internal auditinspection is a source of information on the use of bank loans very effectively

Timely detection of errors, violations in the process of implementing lending andproposing remedial measures will help banks limit risks and improve lendingquality in lending.

For customers, providing information to customers also contributes toexpand and enhance lending quality Information on banking activities, markets,prices, weather, science and technology will help customers access bank capital

in a timely manner and use capital more effectively, avoiding unreasonable risks

CONCLUSION OF CHAPTER 1

The content of chapter 1 is the basic arguments about lending activities and lending quality in general, individuals in particular From generalized issues to specific issues such as concepts, objects, characteristics and roles of lending to individuals, especially the need to improve lending to individuals are also

mentioned in a specific, practical way

Chapter 1 also outlines the factors affecting lending quality to individuals as well as the important role of individual lending, and also analyzes and assesses the ability to expand lending markets in the future

The above problems are analyzed on dialectical relationships between banks and customers and economy

From the arguments, situation and issues mentioned in Chapter 1, it is the basis for evaluating and analyzing lending and lending quality to individuals in Agribank Dong Da branch in the next chapter

CHAPTER 2: CURRENT SITUATION OF LENDING QUALITY TO INDIVIDUAL CUSTOMERS

AT AGRIBANK DONG DA BRANCH

2.1 Overview of Agribank Dong Da branch

2.1.1 History and key milestones

Vietnam Bank for Agriculture and Rural Development ( abbreviated asAgribank) is the largest commercial bank in Vietnam by total assets It is a state-owned corporation under a special status According to a report by UNDP in 2008,Agribank is also the largest corporation in Vietnam

In 1988, the banking system transformed from one level to two Since then,together with the new management mechanism of the banking system and newdemands on the market mechanism such as increased savings and investment, thebanking system has been increasingly expanded and developed Agribank in Dong

Da district is the second level branch of Agribank Hanoi branch It was established

in 2000 in order to meet the needs of economic development in Dong Da districtand contribute to expand the scope of operations of Agribank Hanoi branch Itshead office is located at 154 Ton Duc Thang - Dong Da District - Hanoi

In 2007, Agribank in Dong Da district branch transferred its office from 154Ton Duc Thang, Dong Da District, Hanoi to 37 De La Thanh, Dong Da District,Hanoi, contributing to improving position of Agribank in Dong Da district tocustomers At the same time, the branch maintains the operation of the transactionoffice at 154 Ton Duc Thang, Dong Da District, Hanoi to facilitate depositors whohave previously traded in order to maintain and develop the capital source

From April 1, 2008, Agribank in Dong Da district has been upgraded to alevel 1 bank branch under the Vietnam Bank for Agriculture and RuralDevelopment and renamed to Agribank Dong Da branch The bank has expanded itsnetwork of transaction offices in urban districts By 12/2017, the operation network

of Agribank Dong Da branch has one main office at 211 Xa Dan, Dong Da District,Hanoi and 5 subordinate transaction offices

In recent years, Agribank Dong Da branch has constantly adjusted itstechnical facilities, as well as strengthened and promoted the expansion of its

Transaction offices

network, expanded its market share, which make the branch initially affirmed itsposition in the area Many new mechanisms, processes and business operations of amodern commercial bank branch have been applied and operated with good results

to the needs of business operations and the integration trend of the banking in newstage

2.1.2 Organizational Structures

Agribank Dong Da branch has a specific organizational model; theorganizational structure is relatively reasonable with departments assigning tasksclearly, under the management of 3 Deputy Directors under Director of the branch

to created conditions for bank officials to maximize their professional capacity,authority as well as responsibility and ability to reach customers In 31/12/2017,Agribank Dong Da branch had 82 officials, 100% of the staff had university degrees

or higher, of which 18.3% of staff had PhD degrees and 81.7% of officials hadMaster degree

The organizational model of Agribank Dong Da branch:

Figure 2.1: Organization chart of Agribank Dong Da branch

The 6 professional divisions is in charge of 6 separate areas to help staffbetter serve customers more professionally However, for lending operations, there

is currently no document reception department, appraisal department, separate

lending department, but one official must do all the above steps.

2.1.3 Business performance of Agribank Dong Da branch

With the location operating in Hanoi city, the branch's business activities facestrong competition from other banks, especially the banks which have created asustainable relationship with potential national businesses Despite thedisadvantages of objective conditions, with the flexible leadership of the Board ofDirectors, the efforts of the staff and employees, the bank has taken measures andsolutions to achieve the duty with the best efforts Business performance ofAgribank Dong Da branch in the following years is as follows:

Table 2.1: Business performance resullts of Agribank Dong Da branch in

2.1.3.1 Overview of business performance

Capital mobilization activities

In business activities of commercial banks, capital mobilization is consideredone of the key stages Determining the importance of capital mobilization, AgribankDong Da branch has many policies to mobilize capital from all idle sources ofeconomic organizations and residents in VND and USD Depending on the demand

of customers' deposit of money, term, interest rate, flexible withdrawal conditions aswell as the bank's capital needs in each period, Agribank Dong Da branch providesother types of deposits with special promotions to attract customers The results ofcapital mobilization at Agribank Dong Da branch in recent years are as follows:

Table 2.2: Capital mobilization situation at Agribank Dong Da branch

Unit : VND billion

Year 2014 2015 2016 2017 2018 1.

months 714 33% 1,034 43% 1,095 52% 1,234 50% 1,376 43%Term 12-24

months 123 6% 504 21% 712 34% 845 34% 1,072 33%Term > 24

organization 559 26% 515 21% 261 12% 967 39% 1,487 46%Financial

capital 225 10% 237 10% 179 8% 126 5% 693 21%

TOTAL

CAPITAL 2,192 2,425 2,125 2,462 3,230

( Source: Business performnace report of Agribank Dong Da branch )

- Structure of mobilized capital by term:

( Source: Business performnace report of Agribank Dong Da branch )

Figure 2.2: Structure of mobilized capital by term

Through the above data table, we see that the mobilized capital of less than

12 months, from 12 months to 24 months always accounts for a higher proportion

of the total capital and increases steadily over the years In 2018, the source ofcapital under 12 months increased by VND 142 billion (equivalent to 11.5%)compared to 2017; the capital from 12 months to 24 tenors increased by VND 227billion (equivalent to 26.8%) compared to 2017

However, 2018 showed a remarkable growth of demand deposits, an increase

of VND 446 billion (equivalent to 135.2%) compared to 2017 In addition, thecapital with maturity of more than 24 months tends to decrease from VND 53billion in 2017 to VND 36 billion in 2018, around VND 17 billion (equivalent to32%) The reason is that in 2018, the branch reviewed and implemented thesettlement for ladder savings accounts, long-term deposits and very high interestrates, which helped the branch reduce a lot of interest payment costs

- Structure of mobilized capital by economic sectors:

( Source: Business performance report of Agribank Dong Da branch )

Figure 2.3: Structure of mobilized capital by economic sector

In the period of 2014 - 2018, the mobilized capital from residential of thebranch is always fluctuating but the residential deposits always account for thehighest proportion From 2014 to 2016, the capital mobilized from the populationincreased steadily from VND 1,589 billion (in 2014) to VND 1,864 billion (in2016), however, in 2017, the capital mobilized from the population fell sharply to1,495 VND billion, down VND 369 billion (equivalent to 19.8%) compared to

2016 But by 2018, the population capital has been recovered, increasing VND 248billion (equivalent to 16.6%) compared to 2017 This proves that the mobilization

of deposits from residents has been focused and initially has positive results

Capital mobilized from the organization has also been focused anddeveloped by the branch, attracting a large amount of capital mobilized from theorganization thanks to the introduction of attractive interest rates, cross-sellingproducts with organizations having lending relations at the branch The year 2017and 2018 showed the outstanding growth of capital, if in 2017, the capital ofeconomic organizations increased by VND 706 billion (equivalent to 270.5%)compared to 2016; 2018 increased by VND 520 billion (53.8%) compared to 2017

- Structure of mobilized capital by type of money:

( Source: Business performance report of Agribank Dong Da branch )

Figure 2.4: Structure of mobilized capital by type of money

Domestic capital always accounts for a high proportion of the total capital ofthe bank, is a key source of capital to meet the demand for growth of domesticinvestment capital for individuals and small and medium enterprises, state-ownedenterprises and expanded into lending to non-state enterprises However, 2018 isalso the year that foreign currency capital has a strong growth, from VND 126billion (2017) to VND 693 billion (2018), an increase of VND 567 billion(equivalent to 350%) compared to 2017

Lending activities of Agribank Dong Da branch

With the advantage of being a branch operating in Hanoi which is one of thecities having the most vibrant economic activities in the country, therefore, thecapital demand of enterprises is constantly increasing With the direction of theBoard of Management and the efforts on seeking new customers of the businessstaff, in the past years, outstanding loans increased significantly The bankimplements customer classification, selective lending and improves the quality ofappraisal, post-lending control Focusing on lending to small and mediumenterprises, effective production and business households, individuals who haveability to repay debt is also one of the lending activities

Table 2.3: Lending performance results at Agribank Dong Da branch

Unit: VND billion

Year 2014 2015 2016 2017 2018 Total

term debt 214 16% 231 19% 114 11% 120 7% 174 7%Long-term

debt 228 17% 293 23% 311 31% 451 25% 637 25%

( Source: Business performance report of Agribank Dong Da branch )

Looking at the table of figures, we can see that the outstanding debt in 2015

decreased slightly compared to 2014 (VND 83 billion) Outstanding loans in 2016

decreased by VND 231 billion compared to 2015, due to the reduction of VND 288

billion of outstanding debts of Agribank Thanh Xuan branch, in 2016, the

outstanding loans of the branch increased by VND 57 billion compared to 2015 In

2017 and 2018, outstanding loans of branch increased strongly, in 2017 increased

VND 758 billion (74.5%) compared to 2016, in 2018 increased VND 807 billion

(45.4%) compared to 2017

Short-term debt always accounts for a large proportion of total outstanding

loans at Agribank Dong Da branch, if from 2014 to 2016, the short-term debt of the

branch dropped sharply, from VND 889 billion (2014) to VND 724 billion (year

2015) and VND 592 billion (2016) In 2017 and 2018, short-term outstanding loans

have improved markedly In 2017, short-term debt increased by VND 612 billion

(equivalent to 103.4%) compared to 2016 In 2018, VND 506 billion (equivalent to

47%) was increased compared to 2017 Similar to short-term loans, medium and

long-term outstanding loans also increased sharply in 2017 and 2018 In 2018,

medium-term outstanding loans increased VND 54 billion (equivalent to 45%)

compared to 2017; Long-term debt increased by VND 186 billion (equivalent to

41.2%) compared to 2017

Table 2.4: Loan classification from 2014-2018