LV thạc sỹ_Improving lending effectiveness at North Asia Commercial Joint Stock Bank

Besides, it is not meet the capitaldemands for the economy.As the result, a study on principles and practices of lending activity incommercial banks, and NASB-Thai Ha branch in specific,

TABLE OF CONTENT

LIST OF TABLE

LIST OF DIAGRAM

ACKNOWLEDMENT 1

CHAPTER I: INTRODUCTION 2

1.1 Rationale 2

1.2 Research objective 3

1.3 Research methodology 3

1.4 Scope of research 4

1.5 Structural topic 4

CHAPTER II: THEORETICAL FUNĐAMENTALS OF LENDING EFFECTIVENESS OF COMMERCIAL BANKS 5

2.1 Literature review 5

2.2 Lending activity of commercial banks 6

2.2.1 Definition 6

2.2.2 Importance of lending activity 6

2.2.3 Categories of lending 8

2.3 Lending effectiveness of commercial banks 11

2.3.1 Definition 11

2.3.2 Indicators reflecting lending effectiveness of commercial banks 11

2.3.3 Conditions ensuring lending effectiveness of commercial banks 15

2.3.3.1 Inside condition 15

2.3.3.2 Outside condition 17

CHAPTER III: CURRENT SITUATION OF LENDING EFFECTIVENESS AT NASB- THAI HA BRANCH 20

3.1 Overview of NASB 20

3.1.1 History of North Asia Commercial Joint-Stock Bank – Thai Ha Branch.20 3.1.2 Organization structure, function and task of each department 21

3.1.2.1 Organization structure 21

3.1.2.2 Function and task of each department 22

3.2 Current situation of activities at NASB-Thai HA Branch 25

3.2.1 Fund mobilization 25

3.2.2 Credit performance 28

3.2.3 Other activities 29

3.2.3.1 Foreign exchange trading 29

3.2.3.2 Internal payment operation 30

3.2.3.3 Payment service 30

3.3 Current situation of lending activity at NASB-Thai Ha branch 30

3.3.1 Indicators reflecting lending volume scale 30

3.3.1.1 Outstanding loans 30

3.3.2 Indicators reflecting safety group 36

3.3.2.1 Overdue debt 36

3.3.2.2 Mortgage loans 39

3.3.2.3 Capital turnover 40

3.3.3 Indicators reflecting the level of profitability group 42

3.4 Evaluations of lending effectiveness at NASB-Thai Ha branch 44

3.4.1 Advantages 44

3.4.2 Disadvantages and cause 45

3.4.2.1 Disadvantages 45

3.4.2.3 Cause 46

CHAPTER IV: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE LENDING EFFECTIVE AT NASB – THAI HA BRANCH 49

4.1 Development orientation of NASB lending activity 49

4.1.1 NASB General Development Orientation in 2011 49

4.1.2 NASB-Thai Ha branch General Development Orientation in 2011 51

4.2 Solutions for lending effectiveness improvement at NASB- Thai Ha branch.52 4.2.1 Boosting capital mobilization in order to meet the needs of customers .52

4.2.2 Appraising quality 53

4.2.2.1 Improving quality in collecting information 53

4.2.2.2 Improving quality in processing information 53

4.2.2.3 Solution to operating organizations 54

4.2.3 Improving lending process 54

4.2.3 Enhancing risk management activities 55

4.2.4 Improving Network, organization restructuring and human resource 56

4.2.5 Strengthening management and supervision 57

4.3 Recommendations 58

4.3.1 To North Asian Commercial Joint Stock Bank 58

4.3.2 To The State Bank of Vietnam 59

4.3.3 To Government of Vietnam 60

CHAPTER V: CONCLUSION 61

REFERENCES 63

LIST OF TABLE

Table 3.1: Structure of fund mobilization according to term of deposit 27

Table 3.2: Other activities of NASB-Thai Ha branch 29

Table 3.3: Annual report from 2008 to 2010 30

Table 3.4: Lending activity report from 2008 to 2010 31

Table 3.5: Overdue debt from 2008 to 2010 36

Table 3.6 Mortgage loan of NASB - Thai Ha branch from 2008 to 2010 39

Table 3.7: Capital turnover at NASB-Thai Ha branch 41

Table 3.8: Profits from bank credit operation from 2008 to 2010 42

Table 4.1 Business strategy of NASB in 2011 50

Table 4.2 Business strategy of NASB-Thai Ha branch in 2011 52

LIST OF DIAGRAM

Diagram 3.1: Organization structure of NASB-Thai Ha branch 22

Diagram 3.2: Situation of fund mobilization in NASB – Thai Ha branch 25

Diagram 3.3: Structure of deposits by each type of customer in each stage 26

Diagram 3.4: Status of credit balance of NASB-Thai HA branch (2008-2010) 28

Diagram3.5: Outstanding loans in terms of maturity from 2008 to 2010 32

Diagram 3.6: Outstanding loans by industry sector 33

Diagram 3.7: Credit balance by types of customers (2008-2010) 34

Diagram 3.8: Overdue debt by industry sector from 2008 to 2010 37

Diagram 3.9: Overdue debt by customer from 2008 to 2010 38

Diagram 3.10: Outstanding loans of mortgage loans from 2008 to 2010 40

Diagram 3.11: Income from lending activity from 2008 to 2010 43

In the industrialization and modernization of the country, now our economy is experiencing difficulties of inflation, rising prices, natural disasters All these factors influence Small and medium enterprises and banks One of the conditions leading to business survival and development capital is especially bank loans In this relationship, both bank and customer not only benefit each others But also bring benefits to the economy Enterprise and individual capital need for production and business investment, purchase of machinery and equipment but the banks need to borrow money to customers profitable for banks So development lending activity is essential for North Asia Commercial Joint-Stock Bank-Thai Ha Branch

I would like to thank my school National Economics University, for having given me this opportunity to put my theories I learnt into practice Also, I want to thank all my teachers who taught and trained me, helping me improve my abilities and skills which will support me in the real world.

I give thanks to my supervisor, Mrs … , Director, for having trained me and constantly guided and supported me during the internship period.

CHAPTER I

INTRODUCTION

1.1 Rationale

In funding sources for business and social-economic activities, bank credit

is one of the most important sources which cause a direct impact on the growth anddevelopment of the economy as well as other social activities On the ground ofincreasingly deep and wide economic integration of Vietnam into the region and theworld, especially after becoming an official member of World Trade OrganizationWTO, the operation of the banking system in general and the role of bank credit inparticular will further constitute strong influence, create a driving force for theentire economy in achieving growth and greater development

Moving in the same direction with the whole banking system, credit quality

at North Asia Commercial joint-stock banks has been improved consistently Inparticular, the scales as well as the overdue debt and bad debt ratio experienced anextensive drop from a trough of crisis at the end of 2008 However, the quality oflending operation which is the main target of many commercial banks in generaland NASB in specific was improved negligible It is the fact that the bad debtaccount for the most proportion of overdue debt while this value are not fell a lot incomparison with the previous year

In the banking system for NASB, NASB-Thai Ha branch is one of the mosttypical branch attracted a large amount of deposit of and execution of many lendingoperations with small balances The branch provides significant capital for largebusiness customers of the economy In particular, lending activities of affiliatesaccount for a large proportion of the total assets of branches in particular and theNASB system in general

In recent years, lending activities of the branches has gained manyachievements, but still remain some limitations Therefore, lending effectiveness islow and not suitable with the scale of the branch Besides, it is not meet the capitaldemands for the economy.

As the result, a study on principles and practices of lending activity incommercial banks, and NASB-Thai Ha branch in specific, the target of research isevaluating lending effectiveness specially, exactly for give solutions to improvelending situation of Thai Ha branch In addition, along with suggested solution forimprovement appears to be extremely significant to banks as well as to the customer

and the economy as the whole That is reason I choose the topic: “Improving lending effectiveness at NASB-Thai Ha branch”

Primary data: Using this method to collect information of lending operation

and has overall view of the branch, operation structure, working process of staff inthe branch I use following methods:

- Interviewing the staff of credit department and customer of the branch

- Proving directly questions for interviewers to explain in problem.

- Observing departments, the working process of employee in the branch

Secondary data: The secondary data of this method was acquired through

reading many book, legal document for lending, annual report of NASB-Thai Ha.Then, accessing the issues in theory and practice, this subject uses the concepts ofBank Credit, and then combines with statistics, analysis, synthesis, and comparisonmethods at NASB in order to clarify matters

1.4 Scope of research

- Time: The data collected was limited, focused research in the period from 2008 to2010

- Space: NASB-Thai Ha branch

- Content: Theory and practice of lending operation of bank

CHAPTER II

THEORETICAL FUNĐAMENTALS OF LENDING

EFFECTIVENESS OF COMMERCIAL BANKS

2.1 Literature review

A commercial bank is a financial intermediary which collects credit fromlenders in the form of deposits and lends in the form of loans or investments Acommercial bank holds deposit for individuals and businesses in form of checking

The lending effectiveness issue in Commercial bank is a practical problemand As a result, it has been chosen as thesis by economic students Some topic wasreached:

Student Nguyen Thi Hoa: “Some solutions improve credit effectiveness ofVietnam Joint Stock Commercial Bank For Industry And Trade – Ba Dinh Branch -2007”

Student Do Van Viet: “Some solutions improve consumer lendingeffectiveness of NASA – Thai Ha in 2009”

Student Nguyen Thi Hoa: “Improving effectiveness lending for small andmedium enterprises at NASB-Thai Ha branch in 2009”

Three reports show disadvantages of lending operation of banks, the detailproblem are as follows:

- The bank has not built credit limitation for each group of customer.Therefore, size monitoring operation and credit limitation of bank has manydisadvantages and ineffectiveness

- Lending appraising process is not fully, closely Not fully concerningabout the effectiveness of projects, legal characters of documents, financial statusand financial ability of customers.

- The lending process has not strictly, so bad debt ratio has increased.Documents have been unsystematic; thus, when have overdue debts and bad debts,credit officers have faced with many difficulties in handling the issue

2.2 Lending activity of commercial banks

2.2.1 Definition

Lending: means a form of credit extension under which the lender gives or

commits to give the borrower a sum of money for use for a specific purpose in acertain period as agreed upon on the principle of payment of both principal andinterest

2.2.2 Importance of lending activity

Lending activity is very important because

Firstly, commercial bank has functions below, which promote economy

activity

- The intermediate payment function: This commercial bank acting as

treasurer for businesses and individuals, makes payments follow to the requirement

of customer as deductions from their deposit accounts for payment goods, services

or enter into a deposit account customer of the sales proceeds and other revenuesunder their command Commercial banks offer for customers more convenient ofpayment means such as cheques, standing order, charge card, cash card, creditcard… Depending on demand, customers can choose appropriate payment methodsfor themselves Whereby the subject of Economics do not keep money in yourpocket, carrying the money to meet creditors, meet who have to pay whether near or

far Instead, they can use a method with which to make payments Therefore, thesubject of economy will save a lot of cost, time and ensuring a secure payment Thisfunction is generally invisible prompted the circulation of goods, payment speed,speed of movement of capital, thereby contributing to develop economic.

- Credit intermediary function: Credit intermediaries, commercial banks the

most basic business activities can reflect the characteristics of its functions Thefunctions of the essence of business through the bank's liabilities, the societyfocused on a variety of idle money in the bank to further business through the assetsand put it toward economic sectors; commercial banks as lenders of capital andcurrency The borrower or on behalf of intermediaries, to achieve capital inter-mediation, and attract capital from the cost and payment of loan interest income, thedifference in investment income, for interest income, the formation of their profits.Commercial banks become the sale of "capital goods" and "big businessmen”.Commercial banks through the credit intermediary function between the capitalsurplus and shortage of Fusion, does not change the ownership of monetary capital

to change only the right to use monetary capital

- Credit creation function: Creating credit is an important function, which

reflects the nature of the commercial banks With the target is to seek profit as aprimary requirement for its survival and development, the commercial bank with itsbusinesses has been generally invisible performing the credit creation for theeconomy Money making function is executed on the basis of two other functionsthat are credit function and payment function Through the intermediary creditfunction, banks use the mobilizing capital for loaning, the loan amount that thecustomers borrow is used to purchase goods and pay services With this function,the commercial banks system has increased liquidity in the economy Thecommercial bank is a credit institution which its activities are mainly currencytrading

Secondly, lending is a typical credit activity of commercial bank, it has an

important role in the activities of commercial banks in particular, consumers and theeconomy in general It has important role for living of population and economy

- To banks: lending activity ensures to banks implemented the intermediate

payment function for the economy On the other hand, lending activities areaccounted for high density in the structure asset of banks and items will bring hugeprofits for banks Therefore, lending activities of banks play an important role in thesurvival and development of commercial banks

- To customer: to ensure to continuity of business activity, the enterprises

require large enough amount of capital Besides the own capital (equity) and creditscommercial, loans from banks has long become a regular source of capital and animportant business decision for the existence and development of many business

- To economy: Banks with financial intermediaries and create money,

moved from the capital, there is no need to have a need to use Through lending,banks have provided a large amount of capital for the economy to turn savings intoinvestment

2.2.3 Categories of lending

Lending activity for enterprises is diversified and can be classifiedaccording to the different criteria such as: time, the kind of money, interest,audience, purpose, scope

A common classification is the lending classification in the form of loans.Accordingly, the lending is divided into several types as follows:

 Based on time

Short-term credits: Business loan with term under 12 months (1 year)

aimed principally at funding purchases of business inventories, meeting payrolls,paying taxes, and covering other temporary expenses

Medium-term credit: Business loan with term usually over 1 year to 3, 5

and 7 years depending on each country norm (our country is up to 3 years) aimedprincipally at funding permanent additions to working capital; repairing, restoring,replacing fixed asset or technical improvement and rationalization of productionprocess, technology innovation and building of small constructions which haverapid capital recovery capability

Long-term credit: Business loan with term over 3, 5 and 7 years

depending on each country norm with purpose similar to mid-term credit but withlarge-scale projects which have longer capital recovery period

 Base on form of credit

An overdraft: occurs when money is withdrawn from a bank account and

the available balance goes below zero In this situation the account is said to be

"overdrawn" If there is a prior agreement with the account provider for anoverdraft, and the amount overdrawn is within the authorized overdraft limit, theninterest is normally charged at the agreed rate If the negative balance exceeds theagreed terms, then additional fees may be charged and higher interest rates mayapply An overdraft is applied when customers need borrow short-term loan.Moreover, it only applies with confidence customer, regular income But, customermust pay very high interest, is 1.5time nominal interest

One-time lending: One of the most common loan forms for the bank's

customers having no need for regular loans or not to be granted for overdraft loan.For each time in demand of capital, customers must submit credit application andsupporting papers to bank Bank will analysis customers and their funded schemesand signed for loans if they meet the requirement, determine the size of loans, the

disbursement period, repayment period, interest rates and guarantee requirements ifnecessary Loans are separated into different records The advantage of this method

is clear procedures, the bank active in lending But, the disadvantage of is prolixprocedure and the enterprise is not flexible in using capital, only suitable forbusinesses has recurring supply capital

Lending on credit line: The business which the bank agreed to provide

customers a credit limit For this limit, customers to borrow many times during thatperiod on condition: the demand reasonable and not exceed the limit It appliesshort-term lending to has a reserve of goods and material, which is not temporary

Lending rotation: Lending is based on the movement of industrial goods.

When purchasing goods, enterprises can have a lack of capital, therefore banks willlend to buyers and take repayment when goods are sold Bank and customer willnegotiate with each other about the loan terms and conditions, credit limit, thesupply and demand of goods Line of credit can be agreed upon in one or a fewyears

Installment loan: that is repaid over time with a set number of scheduled

payments It is the form that banks allow customers to pay several times the originalcredit terms This form is often applied for consumer lending in medium and longterm loans, loans for the purchase of fixed assets or long-term

Indirect loans: Indirect lending is lending by the ultimate lender to a

financial intermediary who pools the funds of many lenders in order to re-lend at amarkup over the cost of the funds The ultimate borrowers are normally unknown

to the ultimate lenders A lender faces less risk in indirect lending because, as aspecialist in the field, the intermediary normally has a well-established creditstanding Of course, lower risk usually means less gain for the lender Indirectlending generally offers lower cost to the ultimate borrower for small or short-termloans Most bank loans are direct loans In addition; banks are developing other

forms of indirect lending which is a form of lending through intermediaryorganizations such as supplier, producer group

2.3 Lending effectiveness of commercial banks

2.3.1 Definition

Lending: means a form of credit extension under which the lender gives or

commits to give the borrower a sum of money for use for a specific purpose in a certain period as agreed upon on the principle of payment of both principal and interest

Lending effectiveness refers the mutual relationships among profit, income

and total outstanding loan from lending activities Consequently, to evaluate lendingeffectiveness, we should compare the income obtained with the expenses, andcompare the profit obtained with the outstanding loan

2.3.2 Indicators reflecting lending effectiveness of commercial banks

A: Group indicator reflecting the scale of bank credit

 Total lending revenue is an indicator reflecting the scale of bank

credit activities during a period of time The higher the total loan amount, the closerthe relationship between bank and their customer, consequently, the more thebanks’ ability to generate huge profits However, high total loan amount does notalways reflect good credit quality which also depends on other factors

The lending revenue reflects the scale of bank lending to each particularcustomer and with the economy in a period of time

The lending revenue depends on the size, lending policies of banks,economic cycles, regulatory environment

 Total outstanding loans are the aggregate principal amount of

customers outstanding at a certain point of time It is the capital of the bank hold bytheir customers This indicator reflects the bank's future earnings prospect, therefore

it is closely monitored by bank to control the amount of bank capital as well asverify whether funds are used properly by customer or not

The outstanding loans reflect the liquidity status, ability to meet thedemand for bank loans

The outstanding loans are the basis for determining the quality of the loan

B: Group of indicators reflecting safety

 Overdue debt:

This indicator assesses the credit quality in general and the safety inparticular Most overdue debts are in problems The higher the ratio, the higher thelevel of risk in credit operations and the lower the credit quality of banks in mostcases

In banking activity, the higher this ratio reflects the quality of the loan lowerand the safety of the Bank lower

However, the “overdue debt ratio” of bank carrying temporary characteristic.Therefore, it has reflects exactly the safety of the loans

Overdue debt is classified as follow:

•Category 2 (special-mention): debts that are overdue less than 90 days andrescheduled debts that are not due;

•Category 3 (sub-standard): debts that are overdue from 90 to 180 days andrescheduled debts that are overdue less than 90 days;

•Category 4 (doubtful): debts that are overdue from 181 to 360 days andrescheduled debts that are overdue from 90 to 180 days; and

•Category 5 (loss): debts that are overdue more than 360 days, rescheduleddebts that are overdue more than 180 days and debts that are subject to reschedulingarrangements as directed by the Government

 Capital turnover

Mortgage loans

Collateral is one of cushion safety for the lending activities of banks,ensure debt repayment obligations of customers and preserve capital for banks.Therefore, the mortgage loans affect safety of the loan

Structure of loan catalog

The diversity of the catalog: this diversity is the variety of occupations,economic composition, types of lending…

Depending on the size, characteristics, potential market, that each bank builds

a catalog of loans for themselves with different variability

In general, a portfolio diverse more, will reduce more the risk of banking system

non-C Group indicators reflecting profitability

Profitability of lending activity is related closely to the safety of lendingactivities, banks can only profit on the basis of ensuring the safety of their loans.Any losses that banks face also affect the income or profits of the bank

 The Profit from lending:

This indicator reflects result of lending activities It evaluates income andexpense from lending

- In addition, this indicator is also to evaluate whether or not theeffectiveness of lending operation

 The Profit from lending/ Total outstanding

- This indicator shows the amount of interest earned from eachVietnamdong lent out

- This indicator reflects the monitoring of lending costs of the bank andthe level of profitable from lending activities

- This ratio is high means the level of profitable from the lending activities

is high because of good costs saving As a result, it will increase profit

 The Profits from lending/Total income: is the ultimate target of any

enterprises in general and bank in specific Profit from lending activities over totalprofit in general express how much is earned from one unit of investment compare

to other objects, therefore it is also the indicator showing the quality of the loans

- Indicate the proportion of profit from lending in the bank's total income

- The bank's revenue sources include income from interest, income fromdeposits in credit institutions, revenue from services, income from investments, andother revenues

2.3.3 Conditions ensuring lending effectiveness of commercial banks

2.3.3.1 Inside condition

 Capital availability

The branch needs large capital to meet the borrowing demand of customers

It is reason to the branch should diversify forms of capital mobilization, expandcapital mobilization from a capital source In addition, interest rates rate importantfactor that customer often takes to decide to deposit Because, the interest ratepolicies of branch need to become flexibility to attract customers, but it still ensuresprofit for bank

 Credit policy and procedures

- Credit policy is established in order to embody the bank strategy goal andpromote credit activity in the same direction with strategy A rational, flexible,customer satisfaction-oriented credit policy will facilitate the credit activity andlending policy in particular Credit policy is designed for specific goals in eachperiod which directly affect to the size, nature and quality of the credits as well asthe bank's activities Credit policy is designed to ensure the profitability of creditoperations in harmonizing with the interests of depositors, borrowers and the banksthemselves Accordingly, a reasonable credit policy will help banks operate moreefficiently and improve the quality of bank credit

- Bank credit procedure: It is factor, which influence directly to lendingactivity Bank credit procedure is a combination of rules and regulations of the

banks in granting credit It includes different phases, starting from the stage of filingrecords, credit appraisals, approved credit, disbursement, monitoring debt collectionand liquidation of credit contract Each phase is important to the granting of credit,

so it directly affects the quality of the loan Establishing a reasonable credit process

is the foundation for developing appropriate credit model, administrative proceduresaccordance with the provisions of law, and become the control criteria of activities.Besides, a convenient credit procedure also encourages customers to bank loanswhich help the bank extend their bank credit service Furthermore, if bank has aprolix procedure and many processes the customers will find other bank That affect

to lending activity of the banks

 Technology

During the huge explosion of information technology, the technology is anindispensable part and has great influence to the performance of the bankingbusiness in general as well as credit quality in particular The influence oftechnology banking to credit quality reflected in the credit risk management system

as well as process standardization Each kind of credit has its specific nature andcredit risks, so it is necessary to have different risk management measures to bereasonably consistent with the complexity of each type The banks have beeninnovative technology to suit development of the market If not, the banks willbecome obsolete compared to other banks This will cause tend to banks loseadvantage competition

 Human resource

The labor force impacts directly productivity of labor, to the use of technicalequipment, the use of capital so it impact directly business performance ofenterprises Human resource quality is reflected by the qualifications,communication ability, and ethics The human factor determines the success orfailure in performance of banks The quality of labor decisions effectiveness of

improving quality in operations of the Bank The officers of the branch alwaystrained professionally and qualified

2.3.3.2 Outside condition

 Economic environment

The economic environment has strong influences on the bank activities ingeneral, and the credit operation in particular A stable economy will createfavorable conditions for the banking operation in general banking and creditoperations in particular Because in these conditions, enterprises do business moreeffectively, expand their lending business more easily So, it will increase demandfor loans from which banks can expand credit activities

The change in economic environment, such as economic cycle, inflation,exchange rates cause a big effect on expansion and quality of credit For instance,high inflation affects the price of product in market, which makes population andcorporations have to carefully consider the borrowing interest rates in comparingwith the efficiency of capital utilization and finally make decisions to borrow or not

As a result, the credit quality of banks in general and efficiency of bankingoperations in particular bear a large influence from the economic environment inwhich it operates It is the problem that banks have to do a better research andforecasting of fluctuations in the market to adapt quickly to such changes

 Regulation

This factor is related to the legal environment in which firms operate Thislegislation can positively and negatively affect the businesses To do well in abusiness with a special product likes money, banks need a full, consistent andsuitable status with requirement of economy If the legal system isn’t strict,production and business activities cannot be implemented smoothly The legal

system has to create a legal environment that is favorable for production andbusiness activities to be conducted effectively Additionally, it should providedbases for settling complaints and disputes arising in economic environment andsocial relations Both the bank and their clients will have mutual benefits and creditquality will ensured only if the latter obey the law.

In addition, the commercial banks have to conform to the law such as creditlaws, competition laws, employment laws… Especially, the banks conform to thecontrol of SBV in order ensure the safety and efficiency of bank operation As theresult, any change in law can affect the bank operation Therefore, the banks need tonot only deeply investigate law provisions and effectively apply to credit operationbut also seize the changes to best adjust with them

 Social

Stable society is a favorable and attractive environment for investors andenterprises to grow, which creates a solid basis for expanding and enhancing creditquality Political risks such as military coup, new elected government discontinuingcertain policies and programs, terrorism, international isolation, war, can severelyimpact the quality of credit asset and may lead to losses This factor affect strongly

to customers, as a result it affects directly to loan decision of customer

Together with the development of the economy, the competition in bankingservice is becoming more and tenser Lending activity of any bank is not onlyfacing with the competition from other banks but also from other financialinstitution such as finance company, insurance company…Consequently, banksshould understand and learn from other competitors to continuously innovate theirproducts and services and improve their competitive advantages as well.

 Customer factor

This factor reflects quality of banks If the bank provides good services,customers will feel satisfy and will use their products If customers have a steadyincome or a good business situation, and have ability to pay for bank loans, the bankwill be easier for lending Especially, if customers have a high educational level,prestige, morality, the bank will be easier to introduce and promote products, reducerisk and bad debt This factor is one of the most important factors when the bankdetermines to lending

CHAPTER III

CURRENT SITUATION OF LENDING EFFECTIVENESS

AT NASB- THAI HA BRANCH

NASB offers diversified services of financial bank such as: account domesticcurrency and foreign currency, deposit, loan and investment guarantees, paymentsand foreign trade, finance, remittance, Forex trading, distribution and paymentcards, traveler's cheque, homebanking, internet banking… In addition to theservices of a commercial bank, NASB is participating in the business of travel andhotels, to contribute capital to the companies During the period from inception untilnow, NASB has received flags of the Prime Minister, the Governor's award of theSBV operations and flags of Nghe An province NASB is one of 10 banks chosen toparticipate in the payment system automatic inter-bank

After 18 year of operation, NASB has expanded and upgraded network ofbranches and transaction offices, including:

1 Operations Center, 16 branches and 44 transaction offices nationwideOriginally established as a specialized bank serving external economicactivities, NASB today has grown into a universal bank with presence in all majorcities and provinces of throughout the country A wide range of diversified productswere offered so as to maximize customers’ satisfaction

NASB – Thai Ha branch was established 1996 NASB-Thai Ha branch is one

of the branches-level 2 of the NASB Hanoi Being located in the critical area of Hanoi, NASB-Thai Ha branch has moved a large amount of profit to itsheadquarters in Hanoi On 9th January 2006, the SBV and Board of Directors ofNASB signed the decision No 0113014556to upgrade the branch-level 1 under thebusiness Process from its inception and is constantly evolving, now NASB -Thai

Ha branch is one of the branches of a significant level 1 of NASB system NASB Thai Ha branch executes main functions in fund mobilization, lending, andguarantee

-3.1.2 Organization structure, function and task of each department

3.1.2.1 Organization structure

Diagram 3.1: Organization structure of NASB-Thai Ha branch

Now, NASB – Thai Ha branch has three transaction offices nationwide

 Thai Ha Transaction offices nationwide - 61 Thai Ha street, Dong DaDistrict, Ha Noi

 Kham Thien Transaction offices nationwide - 203 Kham Thien street,Dong Da District, Ha Noi

 Tran Dien Transaction offices nationwide - 30A Tran Đien street,Hoang Mai District, Ha Noi

3.1.2.2 Function and task of each department

Board of Director: Including one president and two vice presidents:

- Focusing on further stabilizing the bank’s business activities, deploying thegovernment and the state bank’s various policies for maintaining stability andliquidity

- Controlling the general activities of the branch and guiding plan for eachdepartment

- Giving advices and providing suitable policies, strategies for each certainperiod for the operation of branch

Human resources department

- Advising the broad about the way to planning business development,strategic human resource development workers and others organizations inOperation center

 Credit department

- Building strategic customer, customer classification, purpose policies andincentive mechanism to attract customers for relationship loans Expandingcustomer, market share and credit markets

- Analyzing and building customer strategy, classifying customer and puttingforward incentive policies for each kind of customer

- Receiving syndicated loan Deploying investment projects under projectsfunded, commissioned by Government, by financial institution, individual

- Implementing direct advertising, marketing and selling of banking productand services to organizational customers

- Acting as key seller to supply banking services to customers

- Monitoring during and after the credits are grand In addition, managingand preventing credit risk.

 International payment department

- Responsible for international transactions, coordinating with relateddepartments to contract and expand customers, and responsible for externalactivities of the branch

 Financial and accounting department

- Implementing accounting professions of the Hanoi branch, includinginternal accounting operations, accounting transaction (contact and accountcustomers), both activities international payment and mortgage loan operationssavings

- Giving suggestions to Broad of Directors to analyze current operation,make to financial plan

 Transaction offices nationwide

- Implementing the profession mainly reception guests, guests check depositingsavings or implementing promotions, rewards of NASB

- Receiving deposit of organizations, institutions and retailed customers

- Raising capital from population, performing certain types of credit andbanking services as assigned by the board of directors

- Taking deposits from inhabitants in both foreign currency and VND underthe form of savings, promissory notes, bonds and so on

- Granting credit for economic institutions and individuals within themandate of the Branch Director

- Performing other duties that regulated by State Bank, NASB, authorized bythe General Director of Branch.

3.2 Current situation of activities at NASB-Thai HA Branch

3.2.1 Fund mobilization

Capital mobilization is one of the most important tools that help the NASB –Thai Ha branch manage and use capital resource in a reasonable way With ítextensive development orientation; the branch has provided a variety of productsand services that meet customers’ demands, or other economic organizations in bothVND and foreign currencies (USD) In the year 2010, amid the complex context inthe financial market and service competition among commercial banks, the Director

of NASB – Thai Ha branch defined fund raising as a key target for the year TheDirector also drastically guided the whole network to focus on fundraising andcapital trading The detail results are as follows:

Unit: Billion VND

Diagram 3.2: Situation of fund mobilization in NASB – Thai Ha branch

(Source: Annual report of NASB – Thai Ha branch 2008-2010)

Despite of liquidity constrain in the last quarter of 2010, NASB – Thai HaBranch not only maintained the most stable liquidity status in the market, but alsoplayed a key role in providing funds to other banks contributing to stabilize thecountry’s banking system and increasing its profitability from money marketactivities Total funds mobilized by NASB – Thai Ha Branch for the year 2009decreased by 23.06% against 2008 On the other hand, total fund mobilization ofNASB – Thai Ha Branch for year 2010 increased by 22.19% against 2009

Unit: Billion VND

Diagram 3.3: Structure of deposits by each type of customer in each stage

(Source: Annual report of NASB – Thai Ha Branch 2008-2010)

On the whole, the proportions of corporate deposit are more and moredecreased and the percentage of retail deposit is increased In 2010, deposit fromretail deposit was 207.26 billion VND, increased by 36.7% compared 2009(55.61billion VND), 78.09% compared to 2008(90.88 billion VND) Although, theproportion of corporate is far outstripped compare to individual deposit

Table 3.1: Structure of fund mobilization according to term of deposit

(Source: Annual report on business activities of NASB – Thai Ha Branch)From the table 3.2, it can be seen that primary mobilizing source is non-deposit The non-deposit of NASB – Thai Ha Branch falls gradually in the period2008-2010 On the contrary, term deposit more than 12month is significantincreased Moreover, the proportions of three occupy approximate 50% Forexample, the term deposit is 218.92billion VND (48.4%) in 2008, 313.57billionVND ( 56.34% ) in 2009 and 395.42 billion VND ( 55.29%) in 2010 Although, in

2009 the Vietnam economy was remarkably affected by the worldwide crisis, thedevelopment of term deposit more than12month still rise Feature of term deposit ishigh interest, but fluctuant and unstable On the whole, the number of non-depositand term deposit less than 12 month are much smaller term deposit more than 12month The portion of non-term is more and more decreasing Especially, in 2010the portion account for 18.2%, it is one-third of term deposit more than12month.Therefore, in the future, the branch should increase the proportion of non-deposit

3.2.2 Credit performance

In 2009 and 2010, Vietnam's banking system was facing liquidity problemsand lending interest rates were pushed to a record, making capital and creditactivities become scarce, making most of branches of Vietnam banks had to stop thegranting of credit for the economy In that difficult situation likes that, NASB-Thai

Ha branch still retains liquidity, and maintains to customers, helps traditionalcustomers overcome their constraints and credit growth in 2009 up to 38.81%compared to 2008 and in 2010 increased 38.49% compared to 2009

This is shown in Diagram 3.4 flow:

Unit: Billion VND

Diagram 3.4: Status of credit balance of NASB-Thai HA branch (2008-2010)

(Source: Annual report on business activities of NASB Thai Ha branch 2008-2010)

Table 3.2: Other activities of NASB-Thai Ha branch

3.2.3.1 Foreign exchange trading

The economic transactions dominated in foreign currencies, mainly in U.S.dollars are translated into VND at the daily exchange rate determined by the bank inconsistent with exchange rate regulations by the SBV Foreign exchange trading haschanged positively and achieved good results In 2010, the difference of exchangerate contributed over 101.02 billion to income for the bank, increase by 25% ascompared to 2009, and 50% compared to 2008 Moreover, meeting the customer’sneed, foreign exchange trading brings largely profit for the bank and customers

3.2.3.2 Internal payment operation

Growth speed of internal payment operation is high This amount rises 19%from 2008 to 2009, and 36% from 2009 to 2010 Many high value L/C opened andpaid at NASB-Thai Ha branch With a high quality and automatic swift system andcorrespondent relationship with more than 150 banks at 35 countries in the world, incombination with a wide network of NASB and branches at province and cities ofthe country, NASB can assure you that we will provide for you with precise andtimely domestic and oversea money transfers at an attractive fee level by variousorders Moreover, on you request, we are able to help you prepare messages, correctthem toward standards in order to ensure their high efficiency

3.2.3.3 Payment service

Payment time has been abridged and payment quality is increased, becausethe bank applies new technology Hence, the income of payment activities in 2010rose up 25% compare to 2009, and in 2009 increased by 23% than 2008

3.3 Current situation of lending activity at NASB-Thai Ha branch