LV thạc sỹ_Improve the efficiency of short term credit at VPBank dong do branch

The characteristics of short-term credit operations: - Short-term Debt rotation cycle with production and business customers.Short-term credit is to meet temporary shortages of working c

ADVANCED EDUCATIONAL PROGRAM

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BACHELOR’S THESIS IN FINANCE

IMPROVING THE EFFICIENCY OF SHORT

– TERM CREDIT AT VP BANK – DONG DO BRANCH

ADVANCED EDUCATIONAL PROGRAM

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BACHELOR’S THESIS IN FINANCE

IMPROVING THE EFFICIENCY OF SHORT

– TERM CREDIT AT VP BANK – DONG DO BRANCH

HANOI 09 –

First of all, I would like to thank Professor …

Finally, I offer my regards to all of those who supported me in anyrespect during the completion of the thesis

CHAPTER I: INTRODUCTION 1

1.RATIONALE 1

2 RESEARCH OBJECTIVE 1

3 SCOPE OF STUDY 1

4 RESEARH METHODOLOGY 2

5.STRUCTURE OF THE RESEARCH 2

CHAPTER 1: THE EFFECT OF CREDIT AND SHORT – TERM CREDITS OF COMMERCIAL BANK 1

1.1 Overview of credit activity of commercial banks 1

1.1.1 Definition of credit activity 1

1.1.2 Classification of credit activities of commercial banks 2

1.2 SHORT-TERM CREDIT ACTIVITIES OF COMMERCIAL BANKS 4

1.2.1 THE CONCEPT AND CHARACTERISTICS OF SHORT-TERM CREDIT OPERATIONS 4

1.2.2 The role of short-term credit 5

1.2.2.1 For economy 5

1.2.2.2 For businesses 5

1.2.2.3 For the existence and development of commercial bank 6

1.2.3 The case of short-term bank loans 6

1.2.3.1 Commercial Bank for short-term loans to finance current assets 6

1.2.3.2 Commercial Bank for short-term loans to finance fixed assets 7

1.3 The method is mainly short-term loan 8

1.3.1 Loans and overdrafts 8

1.3.2 Each directly loans 8

1.3.3 Lending limits 9

1.4 THE EFFECT OF SHORT-TERM CREDIT 10

COMMERCIAL BANKS 10

1.4.2 THE BASIC CRITERIA EVALUATE THE EFFECTIVENESS OF CREDIT 11

1.4.2.1 THE QUALITATIVE INDICATORS 11

1.4.2.2 THE QUANTITATIVE INDICATORS 12

1.4.3 THE NEED TO IMPROVE THE EFFICIENCY OF SHORT-TERM CREDIT ACTIVITIES OF COMMERCIAL BANKS 13

1.4.4 FACTORS AFFECTING THE EFFECTIVENESS OF SHORT-TERM LOANS OF COMMERCIAL BANKS 14

1.4.4.1 TO THE BANK THE ABILITY TO ASSESS LOAN 14

1.4.4.2 ON THE CLIENT SIDE 16

1.4.4.3 ON THE ECONOMY 17

CHAPTER II: THE CURRENT SITUATION EFFICIENCY OF SHORT – TERM CREDIT IN VPBANK – DONG DO BRANCH 19

2.1 OVERVIEW OF THE BUSINESS SITUATION OF THE VP BANK – DONG DO BRANCH 19

2.1.1 Introduction about VPBank 19

2.1.2 VPBank – Dong Do Branch 21

2.1.2.1 The process of formation and development 21

2.1.2.2 Organizational Structure 22

2.1.3 RESULTS OF OPERATIONS OF THE VPB DONG DO BRANCH .26 2.1.3.1 MOBILIZING CAPITAL ACTIVITY 26

2.1.3.2 Credit activities 27

2.1.3.3 ABOUT BUSINESS SERVICES: 28

2.2 Current situation operational efficiency for short-term loans at VP Bank - Dong Do branch 29

2.2.1 The situation for short-term loans at VP Bank - Dong Do branch 29

2.2.1.2 STRUCTURE OF SHORT-TERM LOAN BY COLLATERAL 31

2.2.3 ASSESS THE EFFECTIVENESS OF VP BANK'S SHORT-TERM

LOANS - DONG DO BRANCH 33

2.2.3.1 THE RESULTS 33

2.2.3.2 LIMITATIONS AND CAUSES 34

CHAPTER III: SOLUTIONS FOR IMPROVING THE EFFICIENCY OF SHORT – TERM CREDIT IN VPBANK – DONG DO BRANCH 40

3.1.THE DIRECTION OF THE VP BANK BRANCH BRANCH DONG DO .40

3.2 SOLUTIONS IMPROVE THE EFFICIENCY OF VP BANK'S LENDING BRANCH BY BRANCH DONG 40

3.2.1 COMPLETE AND IMPLEMENT THE LENDING PROCESS 40

3.2.2 TO RAISE THE MORAL AND CREDIT OFFICERS 41

3.2.3 IMPROVING THE PREDICTABILITY OF MARKET VOLATILITY IN THE SHORT TERM AND LONG TERM 42

3.2.5 IMPLEMENT INSPECTION, MONITORING, CUSTOMER SUPPORT AFTER THE LOAN 43

3.3 RECOMMENDATIONS 44

3.3.1 FOR VPBANK 44

3.3.3 FOR THE STATE 45

CHAPTER4: CONCLUSION 46

ATM Automatic Teller Machine

CIC Credit Information Center

GDP Gross Domestic Product

SBV State Bank of Vietnam

SMES Small and Medium Enterprises

VPB Vietnam Prosperity Joint-stock Commercial Bank

In open market economy, the banks have to cope with strongcompetition from foreign banks in term of human capital, quality of service orthe added value from banking services Especially in this time, adoptingmeasures to ensure the quality of credit activity of banks cannot really beplaced on top, making the banks do not have high competitiveness, marketshare of their increasingly shrinking to dominate the market today

To better manage the lending process in terms of social economybecomes a important mission to have adequate information about socio-economic activities, capture customer needs and tastes to improve creditquality Improving the quality of lending is becoming increasingly necessaryand requires banks to implement measures to ensure the quality of credit Inmarket economies, there is always the positive aspect and limitation, posechallenges to banks that want to survive and develop, there must be a businessplan with economic efficiency, to ensure that costs and profits But theprerequisite set out with the banks now operating credit quality has to meet theneeds and tastes of consumers do not have appropriate development strategyand create trust with customers to survive, sustainable development Andduring time practicing at VPBANK – Dong Do Branch , with the help of thestaff of the company and the help of MA Nguyen Thu Thuy, I decided on thetheme: "Enhancing the efficiency of short – term credit at VPBank-Dong Dobranch "

2 Research O bjective

The thesis focuses on the following main issues at VP Bank:

Analysis of theoretical basis of effective credit and short-term credits

This thesis focuses on the result of consumer credit activities in VPBDong Do in 2007-2010 period.

4 Researh Methodology

The type of instrumentation and data collection procedures used is theanalyses of secondary sources such as:

• Statistical records: the bank’s annual reports, financial statements, etc

• Textbooks: Commercial bank management, Bank credit…

• Other documents

5.Structure of the research

The thesis includes three chapters:

- Chapter 1: The effect of credit and short-term credits of commercialbanks

- Chapter 2: The effect of short-term credit in VPBank - Dong Dobranch

- Chapter 3: Solutions for improving the efficiency of short - termcredit in VPBank - Dong Do Branch

CHAPTER 1: THE EFFECT OF CREDIT AND SHORT – TERM

CREDITS OF COMMERCIAL BANK.

1.1 Overview of credit activity of commercial banks

1.1.1 Definition of credit activity

Credit is the most profitable activities, but the most risky for commercialbanks This risk can cause damages, reduce the income of the bank There aremany grants that losses could account for the majority of the capital, forcing banks

to bankruptcy Therefore, banks must require close management to considercarefully, estimate risks and profitability when deciding to give loan

According to common sense, credit is the relationship of credit loans,including lending and borrowing Otherwise, credit is a temporary assignment of avalue in the form of objects or money from the owner to the user, after a certaintime to return with a larger

The expression is reflected in three basic characteristics:

- Have the right to use a transfer of value from one person to another

- The transfer is temporary in nature

- When the return value of the property transferred must be accompanied

by an excess of value added is called profit

* Principles of Bank Credit:

Credit activities of commercial banks based on a certain number ofprinciples to ensure the safety and profitability These principles are embodied inthe provisions of state banks and commercial banks

1 Customers must commit to repayment (principal) and interest for thespecified time: the bank's credit mainly derived mainly from customer depositsand bank loans Banks should be responsible for repayment of both principal andinterest as promised So always ask the bank credits to comply with thiscommitment These conditions exist for banking and development

2 Customers must commit to use for the purposes of credit agreement withbanks, not contrary to the provisions of law and other regulations of the banklevel The law prescribes the scope of work for the bank Besides, each bank canhave purpose and scope of individual operations Funding purposes stated in thecredit agreement to ensure banks do not finance illegal activities and the fundingthat is consistent with the bank's platform.

3 Bank financing is based on the plan (or project) to be effective.Implementing this principle as a condition to make the first rule Operational planeffectively demonstrates the borrower's ability to recover investment capital andprofits to repay the bank The bank's funding must be associated with theformation of a borrower's assets In the case of unsafe banks require borrowers tohave collateral to borrow

1.1.2 Classification of credit activities of commercial banks

Our classify credit activities depends on customer requirements andobjectives of bank management However, bank credit is mainly classified asfollows:

* Based on credit terms:

-Short-term Credit: A type of credit for less than a year and be used to

offset the shortage of working capital and other corporate short-term spendingneeds of the individual

- Medium Term Credit: A type of credit with a term of one year to five

years Type of credit are primarily used for investment purchases of fixed assets,improvement or renewal of equipment, technology, business expansion, newconstruction projects are small and time rapid capital recovery

- Providing long-term credit is a term of over five years Long-term credit

mainly for long-term needs such as housing, equipment, vehicles and large-scale,building new factories

* Based on purpose of credit capital:

- Credit production and circulation of goods: the type of credit for

economic actors to carry out production and circulation of goods

- Consumer Credit: Credit is granted for individuals to meet consumer needs such

as buying a house, car, speakers of other consumer goods

* Based on the guaranteed loan:

- Unsecured credit (mortgage) is a type of credit without collateral, pledge

or guarantee by a third person, which the loan based on the prestige of theindividual customer

- Credit security properties: the type of credit that the lender requires the

borrower to have collateral, pledge or guarantee from the third person

* Based on form credit value:

- Credit money is those loans that form the value of credit granted in cash

- Bank assets are those that form the credit value of credit granted by property-forbanks, credit forms mainly in the form of hire purchase

* Based on loan method:

- Direct Credit: A form of credit which bank financing directly to

customers demand for loans, and borrowers repay the loan directly to banks

- Credit indirect form of credit is made through the acquisition of documentswhich have arisen and also in the billing period

* Based on the method of repayment:

- Credit payment: A type of credit that the customer must repay principal

and interest periodically Type of credit is applied to the loan value and length oftime

- Non-installment Credit: A type of credit that borrowers can pay a regular

basis as agreed Type of credit is applicable to the loans of small value and theshort term

- Credit refund request: A type of credit that borrowers can repay at any

time when income, the bank does not set a time limit, this method usually applied

to loans, overdraft, for credit card loans

1.2 Short-term credit activities of commercial banks

1.2.1 The concept and characteristics of short-term credit operations

Short-term credit is a credit period of less than 12 month loans, often used

to supplement temporary shortage of working capital for businesses andconsumers daily needs of individuals

The characteristics of short-term credit operations:

- Short-term Debt rotation cycle with production and business customers.Short-term credit is to meet temporary shortages of working capital in productionand business processes of enterprises The lending and debt collection always tookplace at the beginning and end of production and business cycles Bank loans oftenarise when customer demand for capital to purchase supplies, materials, or coverthe cost of production, or purchase of goods (for trading enterprises) When goodsare sold, customer got sales, as well as debt recovery at the bank Starting fromthese characteristics, the banks lending period specified on the basis of theproduction cycle - the borrower's business Therefore, the payback in the short-term loan is fast

- The deadline for withdrawal of funds quickly, the risk of short-term loansless loans and long-term interest rates lower than short-term lending rates formedium and long term

- This type of loan abundant Bank provides increasingly diverse methodsfor short-term loans, including loans each, lending limits, overdraft loans, loantransfer This has to meet the diverse needs of customers, and help banks reducerisks, avoid the risk of non-system

- Short-term credit operations of major banks This stems from the reasons:Activities are receiving short-term funding activities of the major commercialbanks, in addition to the provisions of the Central Bank of the maximum

percentage of capital resources short-term capital is used for medium and longterm So, with the appropriate interest rate, term and provisions of the CentralBank, short-term lending activity is one of the major activities of commercialbanks.

Thus the need for term credit operations comes from two reasons: the term capital needs of businesses and business characteristics of commercial banks

short-1.2.2 The role of short-term credit

Short-term lending by commercial banks is of paramount importance forthe development of the economy Short-term loans have contributed to stability,maintain and expand manufacturing business - for business, improving the lives ofindividuals and households When it comes to short-term loan, it is important that

we pay attention is the effect of the loan The effect of loans reflects theinvestment performance of the manufacturing business and show business stabilityand profitability of the bank

1.2.2.1 For economy

Banks in the economy work as a business enterprise on the monetary field

As a financial intermediary, it is channeling funds from capital surplus to areaswhere lack of capital and operating effectively in the economy The transmissionchannels which can over financial markets that the credit operation and long-term,but it was strong competition of the non-bank financial institutions participating inthis market such as: insurance companies, investment funds, financial companies

or a money market channels and mobilization of funds and other short-termvaluable papers These market operations are flexible and provide a large capitalfor the economy Thus, short-term credit is growing strongly

1.2.2.2 For businesses

-Short-term credit is timely additional resources for short-term capital needs

of the business This fund helps businesses continue to produce business process,

or helping enterprises solve temporary difficulties financially In many cases, bankloans are also cost-effective solutions for the enterprise, enabling businesses to

catch business opportunities, take advantage of opportunities to developproduction.

 Short-term credit and motivation: factors that stimulate the production andbusiness enterprises The lending requirements in short-term gives pressure tobusinesses to become effective When businesses borrow from banks, thepressures they are subject to the principal and interest will be paid when due,precisely because of this, businesses will have to try and fast turnaround of capitalseeking opportunities for business best

Thus, short-term credit not only help businesses obtain additional sources

of working capital but also the motivation to help businesses do businesseffectively, before it was to pay the loan then is to develop business industry

1.2.2.3 For the existence and development of commercial bank

Credit activities in general and in particular short-term credit is the basicoperation, major commercial bank, it is profitable primarily for commercial banks

It is a tool to make profit and risk prevention for the bank During the operation ofbanks, bank executives pay attention to such issues is to create revenue to coverthe costs On the other hand, it helps to ensure the liquidity of banks Short-termcredit can help administrators solve this problem

1.2.3 The case of short-term bank loans

1.2.3.1 Commercial Bank for short-term loans to finance current assets

Commercial Bank lending to enterprises Short-term capital to financecurrent assets, which ensure both safety and profitability for the operation ofcommercial banks, while ensuring a reasonable level of capital expenditures forbusinesses The specific case:

- Commercial Bank loan to finance additional capital requirements forproduction and business under this form, the capital of the banks involved onlyone stage in the production process - the business of business Business loans tobuy raw materials, tools equipment, increase reserves and will pay when sellinggoods

- Commercial Bank Lending to serve the buying and selling goods, theoperation export and import of commercial enterprises.

Business purchases can be lack of funds Banks can lend to and willpurchase the debt while selling businesses Banks can lend to businesses in theform of loans made each time, lending the L / C, bill discount, factoring

This is a lending operation is of paramount importance, it helps to keep theproduction process - the business of the enterprise took place seamlessly.COMMERCIAL BANK possible business risks when the goods are not sold

1.2.3.2 Commercial Bank for short-term loans to finance fixed assets

Typically, the commercial banks give short-term borrowings to financecurrent assets But in some special cases, the object of financing short-termlending activities of commercial banks is fixed assets In this case, can not speak

to the compatibility between the duration of the mobilization of resources andassets, but only consider the business reasons why the use of short term loans tofinance fixed assets The reason that borrowers are temporary lack of funds,maintain a reasonable capital structure, financial leverage From the reasons onwhich customers can choose from short-term loans to finance fixed assets, notnecessarily the medium and long term loans

Specifically, in case a temporary lack of business investment in machineryand equipment as fixed assets, but business is still able to return in the short term,the short-term solution is more effective than with medium and long term loans.Short-term loans to help businesses take advantage of the benefits of the use ofdebt quickly get the funds needed to pay the cost of capital lower than the mediumand long term loans

Short-term loans also have a major advantage is that nature in time withreasonable cost, while businesses not yet ready for collection but are in need oflong-term use of money Short-term borrowings procedures simpler medium andlong term, saving businesses time to review the loan application stage, the stage ofcontracting and disbursement process

Thus it can be said for short-term loans are not only the method offinancing major assets, but also an effective solution in some cases.

1.3 The method is mainly short-term loan

1.3.1 Loans and overdrafts

Overdraft lending is the bank that allows the borrower to be more dominant(over) on deposit to pay her a certain limit and for a period of time This limit iscalled the overdraft limit

To be overdrawn, the customers to apply for a bank overdraft facility andthe overdraft limit (which may have to pay a commitment fee to the bank) Duringthe operation, customers can sign checks, an authorized spending, purchasingcards exceeds the deposit balance to pay (the overdraft limit) When customersenter the amount on deposit accounts, banks will collect the principal and interest

Overdraft lending generally occurs when customers do not have theappropriate size and duration of income and expenses Therefore, these types ofloans make it easier for customers in the checkout process

The amount of interest that customers pay will be based on interest, timeand amount of overdraft Specifically:

Amount of interest paid = interest rate on overdraft x overdraft Time

x Amount of money.

Overdraft is a form of short-term credit, flexible and simple procedures.largely unsecured, may be issued for both commercial and personal days in themonth a few months of the year for salaries, expenses and accounts payable,purchasing This form is generally used only for customers with reliable, regularincome and short-period income, long-term relationship with the bank

1.3.2 Each directly loans

Direct lending is a form for each loan is relatively common for the bank'scustomers have no need to borrow frequently, without access to the overdraft limitgranted These customers use the equity and trade credit is essential, just as

seasonal demand, or to expand production a special new bank loans, bank capital

is only involved in a certain stage of production and business cycles

Each customer must make a loan and the bank plans to use debt Bank willanalyze the customer and signed for loans, determine the size of loans,disbursement period, repayment period, interest rates and conditions to ensure, ifnecessary Each loan is separated into different records

Number of loans = capital demand loan production business - equityparticipation - Other sources involved

As each debt maturities in the contract, the bank will collect the principaland interest In the process customers use the loan, the bank will aim to controland effective use, if signs of breach of contract, the bank can recover the debtbefore maturity, or overdue Interest rates can be fixed or floating interest fromtime to time

Lending each relatively simple Bank can control each separate loan Loansbased on the value of collateral

1.3.3 Lending limits

This is a business whereby the bank credit agreement for credit customers.Credit limit can be calculated for the whole period or late period That balance iscalculated at the time of calculation

Credit limit granted on the basis of production and business plans, capitalrequirements and borrowing requirements of customers Bank estimates of thecredit line for enterprises based on production, business plans and borrowingrequirements of customers, the maximum lending rate on the total value ofcollateral, the ability to source bank's capital

During the period, customers can take loans to pay many times, but debtdoes not exceed credit limit In some cases banking regulations limit the lastperiod Outstanding in the period may exceed the limit But by the end of period,customers pay outstanding debts to reduce the last period should not exceed thelimit

Each loan customers need only to present plans for use of the loan, submitdocuments proving the purchase of goods or services and if requested borrowing.After checking the legality and validity of documents, the bank will disburse to theclient.

This is a convenient form of loans to customers who borrow regularly,participating in regular loans to business and production process In the bankingbusiness is no fixed repayment date When income comes to customers, the bankwill collect the debt, thus actively managed funds for clients But by the time theloan is not separated into specific maturities to bank debt difficult to control theeffect of each loan Banks can only detect the problem when customers submitfinancial statements, or long outstanding unabated

1.4 The effect of short-term credit

1.4.1 The concept of effective short-term credits of commercial banks

Like other companies in the business, banks are focused on improvingperformance in general, including raising the efficiency of credit On the corner ofCommercial Bank, the credit effectively only be considered under the criteria ofsafety and profitability for banks Profitability is operating income due to providecredit and this income must be greater than the costs On the other hand effectivecredit must also ensure the safe On the point of economic efficiency andeffectiveness of credit that bring profits from credit operations because the bankcan benefit from the credit means the credit to be effective, also means thatcustomers of banks operating in business efficiency, profit to repay the bank Forsociety, the credit performance will contribute to the implementation of policies orgoals of economic development of the state, creating a favorable environment forall members of the development

Thus, the credit effectively means the ability to respond appropriately tomost of the capital needs of customers on the basis of safety and profitability forbanks

The effect of credit is a specific concept has just abstract Can use an indexnumber formula and to specify the efficiency of credit, but for those unable toquantify is the use of indicators.

Due to limitations of the research focused on the banking concept ofefficiency should be understood from a credit perspective of the bank and bespecific with the indicators of qualitative and quantitative

1.4.2 The basic criteria evaluate the effectiveness of credit

1.4.2.1 The qualitative indicators

This is a group of criteria for assessing the effectiveness of credit on a legalbasis; to comply with regulations and business processes of commercial banks; tocomply with contractual commitments for loans (credit contract use)

- Base on legal grounds, lending activity effective if compliance with state

laws, regulations for the loan, the guiding documents of the Government and theState Bank and its legal other relevant laws

- Base on the basis of regulations of individual lending commercial bank,

lending activities is effectively complying with regulations and business processesfor loan Since these have their own characteristics, most banks are offeringresearch and provided the most appropriate lending institutions Specifically, thebank created credit manuals, which provide the concepts, regulations, proceduresand specific guidance for bank staff The provisions in the lending process isapplied to each specific case the borrowing in each commercial bank is to makethe loan effective Therefore, compliance processes is a critical condition, thepremise of a loan to be effective

- Base on the basis of loan contracts, while conducting lending activities,

banks and customers will establish a credit agreement The credit agreement willstipulate details of the important factors such as the loan term, loan purpose, loanamount and mode of repayment of principal, interest and is expressed in theform of commitment A loan is considered effective when it is done properlysigned commitments in the credit agreement

The group of indicators mentioned above may reflect a portion of loaneffectiveness These are almost mandatory criteria must be met for a loan isconsidered to be effective However, to consider specific, carefully planned andcomprehensive, we need to consider the quantitative targets.

1.4.2.2 The quantitative indicators

Group’s quantitative indicators reflect the face amount of the loan, throughthe analysis of indicators, calculation and comparison The team of quantitativeindicators includes:

a Group of indicators reflecting the scope for short-term loans:

-The first indicator:

The proportion of loans short-term credit = Outstanding short-term loans/Total outstanding credit

This indicator reflects the scale of short-term credit banks

-The second indicator:

The growth short – term credit = (Outstanding short-term credit nextyear / Short-term credit outstanding year previous)*100%-100%

This indicator reflects the growth of outstanding loans over the years Thiscriterion is considered in terms of expansion of short-term credit banks

b Group targets reflect safety:

-The first indicator:

The rate of overdue debts = * 100%

The rate of overdue debt is an important indicator to assess the safety ofshort-term credit as well as evaluate the effectiveness of the credit banks Once thebanks have too many overdue debts, which banks are at risk not refund amountsalready lent, causing congestion and affect the payment of capital raised and causeloss of confidence in population would affect the bank's activities to businessperformance, efficiency low credit, declining competitiveness Therefore this rate

as low as possible

-The second indicator:

The rate of short-term bad debt = * 100%

The customer's debt in credit institutions are classified by groups and debtfrom a group → group 5 with increasing degree of risk Accordingly, the debts ofGroup 3 → 5 group called the potential bad debt risk of capital loss to the bank Sobad debt of banks showed lower banks lower credit quality

-The third indicator:

Indicator outstanding Short-term loans with collateral = (Outstanding term credit with collateral / Outstanding short-term)*100%

short-The effect of credit must include the safety factor, outstanding short-termcredit guarantee asset contributing to the safety of such credits Most bank loansmust be secured assets as collateral to limit the loss of bank capital In the case ofbank customers do not repay the loan, then, the bank will sell the collateral tooffset that loss So, it helps to increase the efficiency of bank credit to the lendinglimit for loans without collateral

a Group indicators reflecting the level of profitability:

The proportion of income from short-term lending activity = (Income fromshort-term lending activity / Income from credit operations)*100%

The analysis of the proportion of income from short-term lending activities

to help us assess the profitability of short-term lending activity in the total incomefrom credit activities of banks, which shows the importance its important to takemeasures which improve the efficiency of this operation

1.4.3 The need to improve the efficiency of short-term credit activities

of commercial banks.

Short-term credits Short-term loans is one of the most important activities

of commercial banks, the profitable operation of the bank, it also has a smallimpact to all aspects other activities of the bank

In addition, short-term lending activities of commercial banks not onlyaffect the bank itself, but it also affects many other subjects of the economy Helpyour business and production processes, consumption of individuals, businesses

place seamless, uninterrupted So, short-term lending activities of commercialbanks have great influence on the whole economy Improving the effectiveness ofshort-term loans not only help banks profitable, safe but also meet the capitalneeds for the economy, helping economic development advantages.

Also by raising the efficiency of short-term lending bank, will help bankssurvive in a sustainable way, strengthening relationships with partners andincrease competitiveness For the economy, improving the effectiveness of short-term lending bank will help improve the efficiency of capital use in the economy,encourage savings and investment, promote economic development

Thus, improving the efficiency of short-term loans is necessary objective,firstly because of the existence and development of commercial banks, and for thedevelopment of the economy

1.4.4 Factors affecting the effectiveness of short-term loans of commercial banks

Short-term lending activities take place between two entities as commercialbanks and their customers In addition, lending activity are in an environment that

is regulated by law, the macro-economic policies are the conditions of theeconomy So to get a loan with a high efficiency are necessary conditions from theparties concerned

1.4.4.1 To the Bank The ability to assess loan

-In the process of bank credit, loan appraisal is the first step and important.Evaluation is the assessment, verification, prediction of accuracy, safety andefficacy of a credit contract The results of the evaluation process will be used todecide whether to make loans or not Although it is impossible to avoid all errors,but do well this process will set the stage for the full recovery of principal andinterest fully and on time Evaluation process not only requires compliance withstrict safety records and information but also require professional level andpredictability of flexible staff For short-term lending, characterized by "frequent"

and timely appraisal should also require rapid response to customer demand forcapital, and to ensure the accuracy and safety.

Credit policy

Credit policies of commercial banks is a system that reflects the text of aplatform of bank financing, to provide general guidance for credit officers andbank employees, increasing specialization in the analysis credit, creating aconsensus in credit operations to minimize risk and improve profitability

An appropriate credit policies will enable lending activities of banks reduce risk,improve quality and thus the effectiveness of improved food loans; reverse ashortage of credit policy identified and can reasonably step into the state bank or aheavy loss rather than bankruptcy

A credit policy is considered complete if it is built in accordance with theoverall objective of the bank in each period, perform the role of orientation for thecredit activity of banks, meeting capital needs for the economy

- The level of bank officials

The business activities of commercial banks in particular and all othersectors of the economy, people are always the most important role Therefore, forhigh short-term loan effectiveness, need to take the human element is central Inthe context of developing economies, these sectors will therefore increasinglycomplex and factors increasing the gray matter In addition, the banking industry

is particularly the economy, where the most modern technology is used along withthe complexity and sophistication in dealing with the professional staff is alwaysrequired Banks must have sufficient professional qualifications, professionalethics Credit qualifications of staff directly affected the efficiency of lendingoperations, especially in the appraisal, credit analysis, credit management On theother hand, the bank's customers increasingly diverse activities in many differentfields Therefore, loan officers must also have knowledge, understanding manyareas to assess the client and their business plans

- Credit Information

Information problem is a sensitive issue and is crucial to success or failure

of your business It is increasingly demonstrated in developed economies.Commercial Bank operating in an area very sensitive to changes in the economyand bring high risks Therefore, information on banks is very important In thecourse of their activities, banks can not obtain all the necessary information: thecustomer's credit relationship with customers and other credit institutions,collateral, relationships by customers, production and business situation ofcustomers All information affecting the decision of credit officers in loanappraisal process The lack of information creates significant risks to the bank,creating adverse selection risk Hence, as banks hold a lot more accurateinformation would have an advantage in competition

- The organization and management

Organization and management is an important step in all activities ingeneral With the bank's operations, organization and management have a decisiverole to the professionalism and efficiency of lending operations

The organization and management if it is done in close coordination willhelp minimize risk and improve the effectiveness of particular activities andlending operations of commercial banks in general

1.4.4.2 On the client side

When the loan has not occurred, the role of the conditions of the bank isimportant But when the loan agreement was signed, the customer has a bank loan,the capital of the new customers who decide to loan effectiveness.Repayment ability of customers is determined by the following factors:

The financial situation of businesses: When considering customer records,

only customers with good financial situation will be considered for loans Banksuse the financial statements of the enterprise as an important channel ofinformation to evaluate the financial situation of customers Through the balancesheet and report business results, statements of cash flows Bank team building

indexes on the ability to pay debts of the customer, performance, index balance ofcapital, reflecting the group profitability And hence, solvency assessment, riskanalysis, quality and performance of customer business is managed If thefinancial potential of the customer, meet the conditions of bank loans will be lessrisky.

The plan for the use of loans: Plan production will bring good business to

loan effectiveness A good plan will make good use of loans, will bring profits tocustomers, cash flow and good business results will ensure timely payment ofprincipal and interest to the bank

Operating capacity, management and business ethics of business owners

One of the most important requirements when considering lending tocustomers is the credit staff to meet and negotiate directly with business owners.Through this swap meet and the credit staff to learn more about borrowers, aboutthe experience, knowledge, awareness and determination to business This though

is non-financial factors very important, but the business and affects credit quality.When business owners have high professional qualifications, good leadership,immediately at the first stage is the establishment of investment projects has alsoshown potential for success of the project, the ability to use loans from a bankeffectively Otherwise, if business owners do not have enough management skillsand experience necessary loans to promote the work, does not guarantee thequality of lending and the worst results as banks lose capital Besides consideringthe qualifications of our customers, loan officers must also assess clients on ethicalaspects Truthfulness and seriousness of the commitments made in the creditagreement is a prerequisite to ensure effective loans

1.4.4.3 On the economy

All the activities of both businesses and banks can not separate the generalvolatility of the market Any changes in any of the macro economy can have animpact on the performance of banks and enterprises The change in the inflationrate and economic growth will directly impact the level of total outstanding loans

of commercial banks through the tool of national monetary policy and the adverseimpact or facilitate favorable conditions for production and business activities ofenterprises So when the economy is good growth along with a reasonableinflation rate, outstanding credit banking system is often much higher than thetime when the economy is unfavorable fluctuations The economy is growingsteadily favorable conditions for banks to expand lending and other businesses toexpand production and business, higher profits and ensure the effectiveness of theloan.