LV thạc sỹ_Strategy on expanding and developing credit service for small and medium sized enterprises at agribank

Affecting factors to strategies of an enterprise...9 1.2 PROCESS OF STRATEGY FORMULATION...11 1.2.1 Strategy formulation by SWOT analysis...11 1.2.2 Tools for strategy formulation...12 1

TABLE OF CONTENT INTRODUCTION 6

1 Theoretical background 6

2 Objectives of the study 6

3 Object and scope of the study 6

4 Methodology of the study 6

CHAPTER: THEORETICAL BACK GROUND OF BUSINESS STRATEGY FORMULATION 8

1.1 OVERVIEW OF BUSINESS STRAEGY 8

1.1.1 Concept 8

1.1.2 Strategy classification 8

1.1.3 Affecting factors to strategies of an enterprise 9

1.2 PROCESS OF STRATEGY FORMULATION 11

1.2.1 Strategy formulation by SWOT analysis 11

1.2.2 Tools for strategy formulation 12

1.3.ROLE OF BUSINESS STRATEGY FORMULATION TO ENTERPRISES 16

CHAPTER II: REAL SITUATION OF CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISES AT AGRIBANK – NORTH HANOI BRANCH 18

2.1 INTRODUCTION OF AGRIBANK – NORTH HANOI BRANCH 18

2.1.1 Process of establishment and development 18

2.1.2 Organizational structure of the Branch 18

2.1.3 Products and services 19

2.1.4 BUSINESS RESULTS 19

2.2 REAL SITUATION OF CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISES AT AGRIBANK – HANOI NORTH BRANCH 22

2.2.1 Scale of credit service for small and medium-sized enterprises 22

2.2.2 Capital turnover 25

2.2.3 Non-performing loans of SMEs 25

2.2.4 Potential of banks in the region 26

2.3 ANALYSIS OF ENVIRONMENT FACTORS AFFECTING CREDIT SERVICE FOR SMES AT AGRIBANK – NORTH HANOI BRANCH 27

2.3.1 External environment analysis 27

2.3.2 External Factor Evaluation (EFE) Matrix 34

2.3.3 Competitive profile matrix 37

2.3.4 Internal factor analysis 38

2.3.5 Internal Factor Evaluation (IFE) Matrix 43

2.3.6 Internal-External (IE) Matrix 44

CHATER III: STRATEGY ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMEs AT VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT – NORTH HANOI BRANCH IN 2011 – 2015 PERIOD 45

3.1 ORIENTATION ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISES OF VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT – NORTH HANOI BRANCH IN 2011 – 2015 PERIOD 45

3.1.1 Motto of AgriBank – North Hanoi Branch 45

3.1.2 Objective of business strategy by 2015 45

3.2 SELECTING STRATEGY ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ETNERPRISES AT VIETNAM BANK FOR AGRICULTURE AND RURAL DEVELOPMENT IN 2011 – 2015 PERIOD 46

3.2.1 SWOT Matrix 46

3.2.2 SPACE Matrix 48

3.2.3 QSPM Matrix 50

3.2.4 Determination on strategy of AgriBank – North Hanoi Branch in 2011 – 2015 period .52

3.3 SOLUTIONS TO IMPLEMENT THE STRATEGY ON EXPANDING AND DEVELOPING CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISE OF AGRIBANK – NORTH HANOI BRANCH IN 2011 – 2015 PERIOD 53

3.3.1 Diversifying the investment portfolios 53

3.3.2 Improving appraisal 53

3.3.3 Expanding the network and attracting customers 54

3.3.4 Improving organizational model and boosting quality of human resources 54

3.3.5 Marketing solutions 55

3.4 ROAD MAP FOR IMPLEMENTING STRATEGIC SOLUTIONS 56

3.5 SOME RECOMMENDATIONS 57

3.5.1 Recommendations to the State and the Government 57

3.5.2 Recommendations to the State Bank of Vietnam (SBV) 57

3.5.3 Recommendations to Vietnam Bank for Agriculture and Rural Development 58

CONCLUSION 59

LIST OF FIGURE Figure 1.1: Process of strategy formulation by SWOT 12

Figure 1.2: QSPM Matrix 16

Figure 1.3 -Organizational structure of the Head Office 18

Figure 2.1 Internal-External Matrix 44

Figure 3.1: Strategies on SPACE Matrix 50

LIST OF TABLE Table 1-1: Five Forces Model by Michael E Porter 10

Table 1-2: SWOT Matrix 15

Table 2.1 Results of capital mobilization at AgriBank - North Hanoi Branch in 2008-2010 period 20

Table 2.2 Results of credit activity at AgriBank – North Hanoi Branch in 2008 – 2010 period .21

Table 2.3 Financial results of AgriBank – North Hanoi Branch in 2008 – 2010 period 22

Table 2.4 The number of small and medium-sized enterprises having credit relation with AgriBank – Hanoi North Branch 22

Table 2.5 Results of credit service with small and medium-sized enterprises in 2008 – 2010 period 23

Table 2.6 Branch’s turnover from lending, loan collection and outstanding loans from enterprises in 2008- 2010 period 24

Table 2.7 Credit capital turnover of SMEs in 2008-2010 period 25

Table 2.8 Non-performing loans of enterprises and SMEs 25

Table 2.9 Competitive profit matrix of competitors 26

Table 2.10: External Factor Evaluation (EFE)Matrix of Agribank – North Hanoi Branch 34

Table 2.11 Competitive profile matrix 37

Table2.12: Human resources by qualification in 2008 – 2010 period 40

Table 2.13 – Internal Factor Evaluation (IFE) Matrix 43

Table 3.1 SWOT Matrix 46

Table 3.2 Strategic Position & Action Evaluation matrix (SPACE) 48

Table 3.3 QSPM Matrix 51

Table 3.4 Selected strategy and supporting strategy 53

LIST OF ABBREVIATIONS

Agribank Vietnam Bank for Agriculture and Rural Development

SMEs Small and Medium Enterprises

ATM Automated teller machine

IFE Internal Factor Evaluation Matrix

IE Internal External Matrix

QSPM Quantitative Strategic Planning Matrix

SWOT Strengths, Weaknesses, Opportunities,Threats

ACKNOWLEDGEMENT

With the assigned task of formulating business strategy for a unit in the scope ofcapstone project report, besides our great efforts in studying, this capstone project reportwould not have been possible without the guidance and the help of several individualswho in one way or another contributed and extended their valuable assistance in thepreparation and completion of this study …

Because of some mistakes caused by the time limit, we would like to receive theteachers’ invaluable helps and opinions to perfect our research as well as develop furtherresearch which serves business efficiency in the recent integration situation We allcommit that this paper is the result of our group’s efforts in studying; also, all data andinformation used in this capstone project report are authentic and clearly cited

AUTHORS

Although Agribank is one of the leading banks in implementing the State’s monetarypolicies, constraining and reducing inflation, stabilizing monetary market and enhancingeconomic development, it is required that the bank, under the pressure of competitionand capitalization, should obtain the right opportunities to develop sources ofcompetitive advantages

In order to develop a competitive advantage, as well as increase competitiveness in thebanking system, Agribank – North Hanoi Branch should well create formulate

2 Objectives of the study

- Organizing and reviewing literature and theories of strategic management;

- Analyzing and evaluating business performance of Agribank – North Hanoi Branch;

- Proposing strategic solutions for Agribank – North Hanoi Branch in 2010- 2015period

3 Object and scope of the study

- Scope: within the Vietnamese market during the period of 2010- 2015

- Objects: Strategies for expanding and developing credit service for small and medium–sized enterprises in Agribank – North Hanoi Branch

4 Methodology of the study

+ Data collection method

- Data offered by Agribank – North Hanoi Branch including annual reports, performancereports, equity and liability reports and other related data;

- Data collected from financial reports, internet, newspapers and magazines, etc relating

+ Data analysis method

- Research methods of secondary data reviewing the market’s scale, structure and trends;

- Comparative method: a popular method This method provides an explanation aboutthe extent of relationship between different variables including absolute or relative ones

in term of times (one period over another period) or place (one bank over another bank),etc

- Individual evaluation method: analysis of each issue, indicator, and phenomenon; and acomprehensive analysis assessing all the Bank’s activities

5 Structure of the capstone project report

TOPIC

“Strategy on expanding and developing credit service for small and medium - sized enterprises at Vietnam Bank for Agriculture and Rural Development – North Hanoi Branch in 2011 - 2015 period”

Chapter 1: Theoretical background of business strategy formulation

Chapter 2: Real situation of credit service for small and medium-sized enterprises atAgribank – North Hanoi Branch

Chapter 3: Strategy on expanding and developing credit service for small and sized enterprises at Vietnam Bank for Agriculture and Rural Development – North HanoiBranch in 2011 - 2015 period

CHAPTER I THEORETICAL BACKGROUND OF BUSINESS STRATEGY FORMULATION 1.1 OVERVIEW OF BUSINESS STRAEGY

1.1.1 Concept

1.1.1.1 Concept of business strategy

According to Michael Porter, business strategy is the creation of unique and valuableposition including differentiation, selection with exchange characteristics to focus allresources to create advantage for the enterprise

In doing business, enterprises must have strategies, deploy strategy, make reasonabledecisions, control their activities, taking advantages of opportunities and weaknesses,overcome threats and enhance competitive strength

1.1.1.2 Basic characteristics of business strategy

- Business strategy is to clearly define basic objectives and business orientations of anenterprise in each period

- The orientativeness of strategy aims at ensuring continuous and stable development inthe volatile business environment

- Business strategy helps ensure maximum mobilization and optimal combination ofresource use of enterprises at present and in the future, promote strengths and graspopportunities to gain competitive advantage

- Business strategy is reflected in a continuous process

- Business strategy always has aggressive spirit and gaining victory in the businessmarket

- Business strategy is often built in a long period (3,5,10 years)

- Business level strategy: determines business environment of the Company, marketsegment and products for each type of market

- Functional level strategy: Determines solutions and plans for each business fields

1.1.3 Affecting factors to strategies of an enterprise

1.1.3.1 External environment

A Macro-environment

(1) Macro-economic environment: Macro-economic environment always has influence

on enterprises and the industry, and strong influence on banking sector Macro-economicenvironment concentrates on some influential variables such as GDP, inflation rate, baseinterest rate, the availability of credit system, income and consumption capacity

(2) Technological environment: Technological environment has a strong influence onbusiness activities of banking system because technology can support bank by quickly,favorably and accurately supplying services

(3) Socio-cultural environment: includes socio-cultural factors having influence on thelife and behavior of the people, via that affecting the structure of demand, consumerbehaviors and consumption trend of customers

(4) Demographic environment: Population, gender, age, geographical distribution,community of ethnic groups and income distribution

(5) Political – legal environment: includes a system of viewports, policies of the state,legal system, especially the laws related to business, political movement within thecountry and in the world

(6) Global environment: includes important international political events,characteristics of institutions and basic culture in the global markets, related globalmarkets, current changing markets, regionalization trend, economic relation amongcountries, regions are factors having direct influence on strategic management

B Micro-environment/industry environment:

Applying five forces model by Michael E Porter: Michael E Porter is a theorist andpractician of strategy at Harvard Business School, he set out a framework to helpmanagers to recognize opportunities and threats facing enterprises in an industry

(Michael E Porter, Competitive Strategy, New York: Freepress, 1980) The framework

of Michael E Porter is called five forces model represented via following diagram:

Table 1-1: Five Forces Model by Michael E Porter

M.Porter indicates that the stronger these forces are, the more they will constrain thecapacity of existing enterprises in raising price and gaining higher profit The strength offive forces may be changed over time when industry conditions change

(1) Threat of new entrants: new entrants with a number of potentials: advantages interms of scale, capital, product differentiation, cost advantage, access to distributionsystem always appear and gain market share and the market

(2) Bargaining power of suppliers: Bargaining power of suppliers includes scale,monopoly and bargaining power in the market and capacity of supplying products andprices

(3) Bargaining power of buyers: Business activity of an enterprise depends on thenumber of buyers and the influence of some individual buyers to the enterprise and theirbargaining power over products and services

(4) The appearance of substitute products and services: The strengths of an enterprisewill be influenced when customers find out different methods to implement the workthat should have been done by the enterprise

(5) Industry competitors: The core of this factor is the number and competitivecapacity of competitors in the same market The strong or weak levels of competitionconcern following criteria: scale of the industry, structure of the industry, competitors,

Threat of new entrants

Bargaining power of suppliers

Competitive rivalry among existing firms

Bargaining power

of buyers

Threat of substitute products

(3) Human resource analysis: Quality of human resources is represented by the degree ofprofessional qualification, work process, soft skills such as foreign languagecompetence, computing skill, communication skill, presentation, decision-making, etc (4) Organizational level analysis: Organizational structure; organization of internalcommunication system; control system; internal inspecting and auditing; strategyplanning system; capacity, interest and conscience of managers and administrators;strategic management capacity; reasonable distribution and arrangement of resources,etc.

(5) Infrastructure: Transaction center, points-of-sales; customer serving equipments;internal facilities; payment system, computer system, etc

(6) Technological and scientific capacity: Technology includes machine, equipment,information management system, payment system, etc help reduce the time foroperation and raise accuracy

(7) Diversification of products and services serving customers: The diversification ofproducts and services both creates opportunities to use products of customers and satisfytheir demand

1.2 PROCESS OF STRATEGY FORMULATION

1.2.1 Strategy formulation by SWOT analysis

According to SWOT analysis, strategy formulation consists four steps, namely:

Step 1: Formulating objective/vision of the enterprise

Determining and establishing vision and mission of the enterprise, its current scale ofoperation and business opportunities in the future The major objective of strategy isdetermining plans in the medium-term and long-term

Step 2: Environment analysis

Collecting information about external and internal environment, evaluating andanalyzing information to determine opportunities, threats, strengths and weaknesses.Determining the possible combination among external and internal environment factors.Step 3: Evaluating the best combination between opportunities and resources

This is the recognition of suitable and corresponding strategies between resources andcapacity of an enterprise with its operating environment

Step 4: Selecting strategy

Determining corresponding strategic alternatives in correspondence with strengths,weaknesses, opportunities and threats determined by the company and analyzed inSWOT Matrix is recognizing strategy oriented by the company, creating suitability andcorrespondence of resources and capacities of the company

Figure 1.1: Process of strategy formulation by SWOT

Source: Adapted

1.2.2 Tools for strategy formulation

1.2.2.1 External Factor Evaluation (EFE) Matrix

There are five steps to establish EFE Matrix:

Step 1: Listing key opportunities and threats that may have influence on the success ofthe enterprise in the industry or its fields of operation

Step 2: Assigning weight by a rating scale from 0.0 to 1.0 (from not important to veryimportant) for each factor The importance of each factor depends on the influence ofthose factor on business fields of the enterprise Total weighted score of all factors must

be equal to 1.0

Step 3: Assigning a rating to each factor Rating should be between 1 and 4 Ratingindicates how effective the firm’s current strategies respond to the factor 1 = theresponse is poor 2 = the response is below average 3 = above average 4 = superior.Step 4: Multiplying each factor weight with its rating This will calculate the weightedscore for each factor

Step 5: Adding all weighted scores for each factor to calculate the total weighted scorefor the company

Evaluation: The total weighted score of the matrix does not depends on the number offactors in the matrix The highest weighted score is 4 and the lowest is 1 If the totalweighted score is 4, the company is responding well to opportunities and threats If thetotal weighted score is 2.5, the company is responding averagely to opportunities andthreats If total weighted score is 1, the company is responding weakly to opportunitiesand threats

1.2.2.2 Competitive Profile Matrix

Competitive Profile Matrix must be carried out via 05 steps:

Step 1: Listing about 10 key factors having influence on the competitiveness ofenterprises in the industry

Step 2: Assigning weight from 0.0 (Not important) to 1.0 (Very important) for eachfactor Total weighted score of all factors must be equal to 1.0

Step 3: Assigning rating from 1 to 4 for each factor, the rating of each factor depends onthe capacity of the enterprise to each factor, in which 4 is good, 3 is quite good, 2 isaverage and 1 is weak

Step 4: Multiplying each factor weight with its rating to calculate the weighted score foreach factor

Step 5: Adding all weighted scores for each factor to calculate the total weighted scorefor the company

Evaluation: Comparing total weighted score of the enterprise with its major competitors

in the industry to evaluate the enterprise’s competitive capacity

1.2.2.3 Internal Factor Evaluation (IFE) Matrix

The establishment of a IFE matrix follows 5 steps:

Step 1: Listing key internal factors

Step 2: Assigning weight by a rating scale from 0.0 to 1.0 (from not important to veryimportant) for each factor with the total weighted score of factor equal to 1 Theimportance depends on the objective of the enterprise without identifying these factors

as strengths or weaknesses of the enterprise

Step 3: Assigning a 1 to 4 rating to each factor 1 = a major weakness; 2 = a minorweakness; 3 = a minor strength; 4 = a major strength

Step 4: Multiplying each factor weight with its rating to calculate the weighted score foreach factor

Step 5: Adding all weighted scores for each factor to calculate the total weighted scorefor the company

Evaluation: Total weighted score of the matrix ranging from 1 to 4 will not depend onthe number of key factors in the matrix If the total weighted score is below 2.5, thecompany is weak in internal factors If the total weighted score is above 2.5, theCompany is strong in internal factors

1.2.2.4 Internal-External (IE) Matrix

IE is a tool of strategic management to analyze operating environment and strategicposition of an enterprise This matrix bases on the analysis of internal and externalfactors of the enterprise

1.2.2.5 SWOT Matrix

Internal factors of an enterprise can be classified into Strengths (S), Weaknesses (W) ;external factors can be classified into Opportunities (O) and Threats (T) This analysis tostrategic environment is called SWOT analysis This is a very important tool helping use

to understand the issue or make decisions in organizing and management as well asdoing business

Table 1-2: SWOT Matrix

Opportunities (O)(List opportunities)

Threats (T)(List threats)Strengths (S)

List strengths of the

W-T strategies:

Minimize weaknesses andavoid threats

1.2.2.6 Quantitative Strategic Planning (QSPM) Matrix

QSPM Matrix uses input data from analyses in EFE, IFE, SWOT matrices to objectivelydecides which strategy among a number of alternative strategies is the most attractiveand deserved for the enterprise to follow in order to successfully realize objectives.Steps of forming QSPM are as follows:

- List external opportunities/threats and internal strengths and weaknesses into thematrix These factors are directly taken from EFE and IFE matrices

- Filling the corresponding figure with each factor into the rating column of EFE andIFE matrices

- Studying SWOT Matrix, BCG Matrix, etc and determining alternative strategies thatthe enterprise should consider implementing and recording all these strategies on thesame QSPM Matrix These strategies are arranged in different groups (if any)

- Determining attractiveness score : 1 = not attractive, 2 = somewhat attractive, 3 =reasonably attractive, and 4 = highly attractive These values show the relativeattractiveness of each strategy compared to other alternative strategies in the samegroup

- Calculate sum total attractiveness score of each strategy for each critical success factor

by multiplying rating with attractiveness core in each row

Attractiveness score

Total attractiveness score

Attractiveness score

Total attractiveness score

Attractiveness score

Total attractiveness score Internal

CHAPTER II REAL SITUATION OF CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED

ENTERPRISES AT AGRIBANK – NORTH HANOI BRANCH

2.1 INTRODUCTION OF AGRIBANK – NORTH HANOI BRANCH

2.1.1 Process of establishment and development

AGRIBANK – North Hanoi Branch was established under the Decision No.342/QD/HDQT-TTCB of AGRIBANK’s Management Board on September 5, 2001 TheHead office of AGRIBANK is situated at No 266, Doi Can Str., Ba Dinh Dist., Hanoi.AGRIBANK – North Hanoi Branch is a first-class branch in the network ofAGRIBANK’s branches The Branch is responsible for mobilizing capital and givingloans to customers living and working in Hanoi

After nearly 10 years of establishment and development, the Branch has more and morecompleted its organizational structure and activities of its boards and departments Atpresent, the Branch has 8 functional departments and 8 transaction offices with nearly

180 staffs

2.1.2 Organizational structure of the Branch

Figure 1.3 -Organizational structure of the Head Office

GENERAL

&

ADMINIST RATION DEPT

CAPITAL SOURCE &

GENERAL PLANNING DEPT

FOREIGN CURRENCY TRADING DEPT

CARDS &

PRODUCT DEVELOP MENT DEPT

TRANSACTI

ON OFFICES ( 8 OFFICES)

2.1.3.2- Credit services

(a)- Short-term loans include following services:

Loans against valuable papers; short-term loans for production, business operation oforganizations, individuals and households; loans for crop season intervals; loan forissuing credit card; commercial overdraft, etc

(b)- Medium-term and long-term loans include following services:

Consumer loans; loans for new construction, repair, renovation, upgrading, buyingresidential houses; loans for individuals working abroad; loans for purchasing vehicles;loans for overseas studying; short term loans for production, business operation; etc.(c)- Guarantee: Bid guarantee; performance guarantee; payment Guarantee; pre-paymentreturn guarantee; counter guarantee; product quality guarantee and other forms ofguarantee

2.1.3.3- Foreign currency trading

Foreign currency trading consists of following products: overseas remittance; border payment; foreign currency trading; L/c opening and payment, etc

cross-2.1.3.4- Other products and services

Domestic payment; money transfer; check service; card services, SMS banking;Vntopup, etc

2.1.4 Business results

2.1.4.1- Capital mobilization

months 740 13,12 1.097 18,09 48,24 1.833 25,81 67.093-Term >12

(converted) 1.102 19,53 1.236 20,38 12,16 1.223 17,22 (1,05)(Source: Annual Reports of Agribank- North Hanoi Branch in 2008-2010 period)

2.1.4.2- Credit

Table 2.2 Results of credit activity at AgriBank – North Hanoi Branch in 2008 – 2010

period

Unit: VND billion

Item

Amount Amount 2009 / 2008 Amount 2010 / 2008

(Source: Annual Reports of Agribank- North Hanoi Branch in 2008-2010 period)

2.1.4.3- Other products and services

Other products and services such as cards, mobile banking and internet banking havebeen paid attention and developed well At present, up to above 35,000 cards have beenissued and used and nearly 10,000 customers use mobile banking and internet bankingservices

2.2 REAL SITUATION OF CREDIT SERVICE FOR SMALL AND MEDIUM-SIZED ENTERPRISES AT AGRIBANK – HANOI NORTH BRANCH

2.2.1 Scale of credit service for small and medium-sized enterprises

Table 2.4 The number of small and medium-sized enterprises having credit relation with AgriBank

– Hanoi North Branch

Item

2008 2009 2010 2009/2008 2010/2009Amo

unt

Proportion %

Amount

Proportion %

Amount

Proportion %

±Amount

enterprises 29 26,4 27 22,9 16 13,0 -2 -6,9 -11 40,7Small

enterprises 81 73,6 91 77,1 107 87,0 10 12,4 16 17,6

(Annual Reports of Agribank- North Hanoi Branch in 2008-2010 period)

Via the table of data, we can see that total number of enterprises having credit relationwith the Branch increases year by year The total number of small and medium-sizedenterprises (SMEs) accounts for a large number of enterprises having credit relation withthe Branch (from 73.64% - 87.99)

The number of big enterprises in 2010 decreased by 11 enterprises compared to 2009because:

At Decree No 90/2001/ND-CP, small and medium-sized enterprises are defined asenterprises having maximum registered capital of VND 10 billion and the maximumaverage number of laborers of 300 people

At Decree No 56/2009/ND – CP, small and medium-sized enterprises are defined asenterprises having maximum registered capital of VND 100 billion or the maximumaverage number of laborers of 300 people

Therefore, enterprises with registered capital higher than VND 10 billion and lower thanVND 100 billion were previously ranked as big enterprises; however, after 2009, theywere ranked as small and medium-sized enterprises Therefore, it is just a shift caused byclassification rather than the speculation that they no longer have credit relation withAgribank – North Hanoi Branch

Table 2.5 Results of credit service with small and medium-sized enterprises in 2008 –

2010 period

Unit: VND billionPeriod December

enterprises

- Outstanding loans 1.884 2.124 2.350 236 12,5 226 10,6

- Guarantee

outstanding loans 526 390 307 -136 -25,8 -83 21,3Total loans of SMEs

- Outstanding loans 589 786 903 197 33,5 117 14,8

- Guarantee

outstanding loans 99 131 104 32 33,1 -27 -20,9Proportion of

In 2008-2010 period, outstanding loans of SMEs increased in absolute figure and theproportion of total outstanding loans of enterprises increased from 31.19% to 37.99% Therise in outstanding loans only indicated that the Branch was expanding loans to SMEs

Table 2.6 Branch’s turnover from lending, loan collection and outstanding loans from

enterprises in 2008- 2010 period

Unit: VND billionItem 2008 2009 2010 2009/2008 2010/2009

Amount % Amount %Lending turnover 1.344 1.886 2.563 542 40,0 677 35,86Lending turnover

(Source: Report on credit activity to SMEs at AgriBank – North Hanoi Branch)

Look at the table of data, we can see that lending turnover from SMEs tends to increase:

it was VND 775 billion in 2009, up VND 181 billion (equivalent to 30.4%) compared

2008, and up VND 160 billion in 2010 (equivalent to 20.62%) compared to 2009

Loan collection turnover in 2009 increased VND 145 billion (up 33.7% ) compared to

2.2.2 Capital turnover

Capital turnover shows the capacity for organizing, managing and exploiting creditcapital, at the same time shows the quality of credit of bank in effectively using creditcapital and meeting capital demand of customers The higher capital turnover, the better

Table 2.7 Credit capital turnover of SMEs in 2008-2010 period

Unit: VND billion

Average outstanding loans of SMEs 508 687 844Loan collection turnover of SMEs 432 578 818

(Source: Report on credit activity to SMEs at AgriBank – North Hanoi Branch)

The data on the table shows the capital turnover of the Branch in 2008, 2009 and 2010was higher than 1, showing that capital turnover capacity meets the demand forborrowing to SMEs and quite stable Quality of loan is ensured

2.2.3 Non-performing loans of SMEs

The ratio of non-performing loans (NPLs) to total loans is used to evaluate the quality ofcredit of a credit institution

Table 2.8 Non-performing loans of enterprises and SMEs

Unit: VND billion

Non-performing loans/total loans (%) 2,49 2,81 2,39Non-performing loans/total loans of SMEs (%) 5,11 5,55 4,61

(Source: Report on credit activity to SMEs at AgriBank – North Hanoi Branch)

According to the table of data the ratio of non-performing loans to total loans of SMEstended to decrease; however, the figure remained quite high (5.55% in 2009 and dropped

to 4.61% in 2010) This situation may result from following reasons:

- High non-performing loan ratio also results from the appraisal qualification of creditstaff in the general context.

2.2.4 Potential of banks in the region

Table 2.9 Competitive profit matrix of competitors

Unit: VND billion

No Items of 2010

AgriBankNorth HanoiBranch

Vietcombank

Ba DinhBranch

ViettinbankXuan MaiBranch

4 Financial result (profit) 148,8 27,0 10

2.3 ANALYSIS OF ENVIRONMENT FACTORS AFFECTING CREDIT SERVICE FOR SMES AT AGRIBANK – NORTH HANOI BRANCH 2.3.1 External environment analysis

2.3.1.1 Macro-environment analysis

(1) Political – legal environment

- Vietnam’s political environment is rated as quite stable The Government has made alot of efforts in managing economic-politic-social, internal affair and external affairpolicies

- Vietnamese government promulgated Decree No.56/2009/ND-CP on supporting SMEswith production premise, technological capacity enhancement, human resources,financial, market promotion, etc

- Hanoi, the center of politics, economics, culture, commercial, tourism and service, ishonored and rewarded the title “the City for Peace” by UNESCO

(2) Economic environment

- Vietnam’s economy over the past years (since 2008) has been affected by the worldeconomic recession; however, it has returned to recovery stage Economic growth in thefirst 6 months of the years has showed more optimistic signals with GDP growth ratesustained at 6.78% in 2010 and estimated 5.6% for the first 6 months of 2011

- The economic sector with direct foreign-invested capital has overcome difficulties,challenges and achieved good results in terms of registered investment capital, realizedcapital and working capital of enterprises and continued to make important contributioninto the general outcome of Vietnam’s economy in 2010

- Hanoi has a high economic growth rate and GDP growth rate in 2010 reached 11%,over 1.5 times higher compared to 6.7 % of 2009, and approximate to 10.9% in 2008and 11.2% in 2007

- GDP per capita of Hanoi reached VND 37 million per capital The State economicsector created about 45% of GDP, down compared to 52.1% in 2005, non-state sectorgenerated about 38% GDP, up compared to 31.8% in 2005 and the foreign-investedsector created about 17% GDP, up slightly compared to 16.1% in 2005 For the wholeyear, the State sector grew 9.3%, non-state sector grew by 14.9%, and foreign-investedcapital climbed 16.8% The recovery and improvement in growth rate of industryproduction are clearly shown via the growth rates of 12.4%, 13.9% and 13.7% in threequarters and above 14% in the IV quarter

The target and mission of country development in five years (2011 – 2015) in theEleventh Vietnam Communist Party Congress documents in striving to achieve somemajor targets:

The average economic growth rate in five years (2011 – 2015): 7.0 – 7.5%/year Average

industrial output growth in five years reaches 2.6 - 3%/year Structure of GDP:agriculture: 17 - 18%, industry and construction: 41 - 42%, service: 41 - 42%; high-techproducts and high-tech applied products account for 35% of GDP; the proportion oftrained laborers reaches 55% Export value increases by 12%/year on average, tradedeficit decreases and strives to balance import export by 2020 The average socialinvestment capital in five years reaches 40% of GDP The proportion of capitalmobilized to the State Budget reaches 23 - 24% of GDP; reduces the State Budgetoverspending to 4.5% GDP by 2015 The State targets to generate employment for 8million people The proportion of laborers working in the field of agriculture –aquaculture – fishery by 2015 accounts for 40 - 41% total laborers of the society Income

of people in rural area increases by about 1.8 - 2 times compared to 2010 Populationgrowth by 2015 reaches about 1% In 2015, GDP per capita will be about USD 2,000.Average life expectancy in 2015 reaches 74 years old The proportion of householdsbelow the new poor standard decreases by 2%/year on average The proportion of forestcoverage by 2015 reaches 42 - 43%

(Quoted from Eleventh Vietnam Communist Party Congress documents)

The major economic targets of Hanoi:

Striving to achieve an average GDP growth rate in five years (2011-2015) up 8-9%/year.The proportion of households below the new poor standard decreases by 1-1.2%/year onaverage Improving investment environment and business environment, ensuringfairness, transparency and creating favorable conditions for business and production ofenterprises belonging to all economic sectors

(Quoted from Directive No.23/CT-UBND dated July 17, 2009 on formulating five-yeareconomic development plan (2011-2015)

(3) Technological environment

- Commercial banks have used core banking system quite prevalently, helpingsignificantly improve banks’ internal activities such as accounting, risk management,customer crediting rating, etc

- Agribank always focuses on investing on renovation and banking technology

(4) Socio-cultural environment

Hanoi Authority made decision on expanding administrative boundary in August Aftermerging, the area of Hanoi would increase to about 3,324.92km² with the population of

up to 6 million people Hanoi became one of 17 biggest cities in the world

Hanoi includes 10 urban districts; 1 town: Son Tay and 18 districts

Ethnic groups include Kinh, Hoa, Muong, Tay, Dao, etc

(5) Demographic environment

It is estimated that the population of the whole city by June 2011 was 6,758 thousandpeople, up 2.1% year on year; the number of children born as of May 31 was 49,833children, the rate of having third children is 7.3% with 3,660 children

According to the latest statistics, Hanoi has over 100,000 SMEs with the charteredcapital of above VND 976,855 billion

(6) Global environment

Vietnam has officially joined ASEAN, APEC and WTO, creating a lot of opportunitiesfor Vietnam’s enterprises to invest, access advanced technology, enjoy non-discrimination in international trade, but also creating many methods in internationalcompetition

2.3.1.2 Micro-environment/industrial environment analysis

(1) Threat of new entrants

Competitive situation in the banking system is increasingly tougher, relative advantagesamong commercial banks, non-state and foreign banks have been reduced Since 2006,the State Bank has received 25 applications to establish joint stock commercial banksand 33 applications to launch branches of foreign banks and banks with 100% foreigncapital By the end of May 2008, the State Bank had granted a license to establish and