LV Thạc sỹ_Quality improvement in business credit risk management at Vietinbank

CHAPTER II: THE CURRENT SITUATION OF CREDIT RISK MANAGEMENT OF BUSINESS LOANS AT VIETINBANK – HANOI BRANCH...25 2.1 Overview of VietinBank – Hanoi branch...25 2.1.1 Overview of VietinBa

me opportunity to study overall the actual operations of bank.

I am heartily thankful to my supervisor, Ph.D…, who encourages, guides and supports me from the initial to the final level, as well as helps me to develop an

understanding of the subject

Also I would like to sincerely thank to whole staffs in Hanoi branch who

provides me real knowledge and data to complete this thesis To complete this thesis, I have spent a lot of time and effort to collect information and to accumulate practical knowledge.

However, because of lacking experience and limited understanding, this report should have many mistakes I really expect suggestions and comments from the supervisor to make this report better.

Table of Contents

ABBREVIATION 4

LIST OF TABLES 5

LIST OF FIGURES 6

INTRODUCTION 7

1 Rationale 7

2 Research objective 8

3 Research methodology 8

4 Object and Scope of research 8

5 Research question 9

6 Research structure 9

CHAPTER I: OVERVIEW OF BUSINESS LENDING ACTIVITY AND CREDIT RISK MANAGEMENT IN COMMERCIAL BANK 10

1.1 Business lending activity in commercial banks 10

1.1.1 Definition of business lending 10

1.1.2 Characteristics of business loans 11

1.1.3 Role of business loans 12

1.1.4 Classification of business loans 13

1.2 Credit risk management in commercial bank 14

1.2.1 Credit risk 14

1.2.1.1 The defintion 14

1.2.1.2 Reasons for potential credit risk 14

1.2.1.3 Measurement of credit risk 16

1.2.2 Credit risk management 19

1.2.2.1 The definition 19

1.2.2.2 The process of credit risk management 19

1.2.2.3 Features of credit risk management in commercial banks 23

CHAPTER II: THE CURRENT SITUATION OF CREDIT RISK

MANAGEMENT OF BUSINESS LOANS AT VIETINBANK – HANOI

BRANCH 25

2.1 Overview of VietinBank – Hanoi branch 25

2.1.1 Overview of VietinBank 25

2.1.2 Formation and development process of VietinBank – Hanoi branch.27 2.1.3 Organization structure of Hanoi branch 27

2.1.4 Situation of business operation at VietinBank – Hanoi branch in recent years 29

2.1.4.1 Capital mobilization 29

2.1.4.2 Credit activity 31

2.1.4.3 Performance results 32

2.2 Current situation of credit risk management of business loans at VietinBank – Hanoi branch 33

2.2.1 The process of business credit risk analysis and assessment 33

2.2.2 Analysis of bad debt and provision situation 36

2.3 Evaluation of credit risk management of business loans at VietinBank – Hanoi branch 40

2.3.1 Achievement 40

2.3.2 Limitation 41

2.3.3 Reasons 43

CHAPTER III: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE THE QUALITY OF CREDIT RISK MANAGEMENT FOR BUSINESS LOANS AT VIETINBANK – HANOI BRANCH 46

3.1 Orientation to complete credit risk management activity for business loans 46

3.2 Solutions to improve the quality of credit risk management for business loans .48 3.2.1 Improve the process of assessment based on qualitative and

3.2.2 Improve technical capacity and ethics quality of credit officiers 53

3.2.3 Improve the ability of collecting and analyzing data 54

3.2.4 Transfering risk through other tools 55

3.2.5 Improve the quality of assessment and collateral management 56

3.2.6 Self-insure thourgh credit insurance and provision 56

3.2.7 Improve the efficiency of internal supervision 57

3.3 Recommendations 57

3.3.1 Recommendations to the Government 57

3.3.2 Recommendation to VietinBank 58

CONCLUSION 60

REFERENCE 62

INTERNSHIP ASSESSMENT 63

ABBREVIATION

VietinBank Vietnam Joint Stock Commercial Bank for Industry and

Trade

SBV State Bank of Vietnam

IFRS International Financial Reporting Standard

CIC Credit Information Centre

Table 4: Credit quality of Hanoi Branch in recent 3 years

Table 5: Provision level for credit risk in Hanoi Branch in recent 3 years

Table 6: Provision change of credit risks of Hanoi branch in recent 3 years

LIST OF FIGURES

Figure 1: Hanoi Branch operating structure

Figure 2: The process of credit risk management

Figure 3: The process of business credit risk analysis and assessment

Figure 4: Overdue debts by customer types

1 Rationale

VietinBank is a pioneer in applying information technology and e-commerceand the first commercial bank in Vietnam getting ISO 9001:2000 certificate in creditactivities and payment, which ensure its position as one of “big 4” among Vietnambanks By year-end 2010, total asset of Vietinbank reached 367,712 million VND,shareholders’ equity increased by 46%, profit before tax is 4,598 billion VND Untilnow, VietinBank has developed an operations network comprising of 01 TransactionCenters, 149 branches, 527 transaction offices, 166 savings offices, 02 Representativeoffices, 04 Subsidiaries, 03 administrative units and 1042 Automatic Telling Machines(ATMs); has established correspondent relationship with 850 banks,financial institutions of 90 countries and territories all over the world From the startingpoint of a State-owned bank, VietinBank did make many significant changes to get intosuccess

The process of transformation has been surely requiring many innovativeideas, especially in operating structure and risk management, which inspired me tohave an internship period in this bank Through this, it can be realized that creditactivities for enterprises is still growing up year by year and bad debt ratio is low.However, there are many exiting factors of potential credit risks, especially in thissensitive time period when many firms are encountering with the consequence of world

financial depression Therefore, I hope my thesis “Solutions for quality improvement

in business credit risk management at Vietinbank – Hanoi branch” can benefit for

the sustainable development of the bank

2 Research objective

The objectives of the research are:

- Detailed analysis of the efficiency of operation at Vietinbank – Hanoi branch

- The current situation of credit risk management at Vietinbank – Hanoi branch

- Solutions for improvement in managing credit risk of business loans

3 Research methodology

The thesis used the method of dialectical materialism science combining with logical thinking and the method of analyzing economic activities, as well as the method

of statistic to analyze and solve problems

4 Object and Scope of research

- Object: the quality of credit risk management in commercial bank.

- Scope: credit risk management activities at VietinBank – Hanoi branch.

5 Research question

The thesis will answer three questions:

- What is the quality of credit risk management?

- What are the problems of the quality of credit risk management at VietinBank – Hanoi branch?

- What are solutions to improve credit risk management at VietinBank – Hanoi branch?

6 Research structure

The thesis includes three chapters:

Chapter I: Overview of business lending activities and credit risk management in commercial bank

Chapter II: The current situation of credit risk management of business loans at VietinBank – Hanoi branch.

Chapter III: Solutions and recommendations to improve the quality of credit risk management for business loans at VietinBank – Hanoi branch.

CHAPTER I: OVERVIEW OF BUSINESS LENDING

ACTIVITY AND CREDIT RISK MANAGEMENT IN

COMMERCIAL BANK 1.1 Business lending activity in commercial banks

1.1.1 Definition of business lending

Business lending is one of credit activities of banks There are many differentway to define the phrase “business loans” but it is possible to understand it in a generalgiven concept

A business loan is a loan granted by a financial institution to a nonindividualentity usually to be repaid by a certain date with a certain amount of interest Businessloans can be given to sole proprietors, corporations, limited liability companies,partnerships and nonprofits

The amount of a loan, the amount of interest, the repayment date, thequalification of the loan recipient to merit the loan, the credit analysis, and the number

of lenders used to achieve the desired loan amount are all variable

1.1.2 Characteristics of business loans

Borrowers: The borrowers of business loans can be a firm or an organization or

an institution, in short a non-individual entity For them, the loan is considered as

a tool to achieve the desired business performance.

Borrowing objectives: The purpose of business loans is to serve spending needs

of business, such as working capital, self-liquidating inventory, equipment and asset Business loans are important financial source to help enterprise develop

Sources of repayment: The repayment comes from the profit of the business Size of each loan and quantity of loans: Typically the business loans are big

and various depending on the business scale Therefore, the potential risk here is very high, the bank always implements careful and comprehensive assessment before lending To make final decision, there are many factors such as the profit- making ability of the business, the time period to repayment, economy situation, and so on

Interest rate on loans: The interest rate of business loan depends on types of

business It can be fixed for short term loans, and variable for long term loans

Cost of business loans: Business loan is one of the greatest opportunity cost

items The business lending includes many various loans composing most of deposits of the bank Therefore, it is very careful to assess the business, which requires a lot of time.

The level of risk of business loans: A business loan is very risky area in lending

activity The risk is various depending on many factors such as natural disaster, diseases, macro changes, or business performance

1.1.3 Role of business loans

Business loan is usually the main income for commercial banks It can be saidthat business loan does not only play an important role for the bank but also contribute

to develop the whole economy

To enterprises

A business can not develop without a loan Business loans are very necessary

need a huge capital However, business loans contain much potential risks, which canput firms into dangerous cases in any time

1.1.4 Classification of business loans

Based on loan term

Short term loan is a type of credit in a term of less than 1 year Short termloans are used to fulfill the temporary shortage of working capital of businesses

Medium term loan has a term of more than 1 year to 5 years for projects whichhas short payback period It is used for the purpose of new equipment purchase,technology improvement, or operation scale expansion.

Long term loan has a loan term of more than 5 years Such loans are used forconstruction, investment or large scale operation expansion

Based on repayment method

Instalment repayment method is the method that customers repay the principaland interest periodically

Non-instalment repayment mehod is the method that customers repay allprincipal and interest at mature date

Customed repayment method is the method that customers can repay according

to their ability in term the contract requires

Based on loans’ security

Secured loan is the loan which has collateral or has guarantee from the thirdparty

Non-secured loan is the loan which has no collateral or has no guarantee fromthe third party

1.2 Credit risk management in commercial bank

1.2.1 Credit risk

1.2.1.1 The defintion

Credit risk is the risk arising from the uncertainty of an obligation’s ability to

balance sheet transactions An institution is also exposed to credit risk from diversefinancial instruments such as trade finance products and acceptances, foreignexchange, financial futures, swaps, bonds, options, commitments and guarantees.

Credit risk often does not occur in isolation A risk event may engender bothmarket and credit risks For example, a rise in interest rates could impair thecreditworthiness of the bond issuer thereby increasing the credit risk to an institutionholding those bonds At the same time, the fall in the value of the bond raises themarket risk for the institution Similarly, if an institution holds a large number of anobligor’s shares as collateral for loans granted, a deterioration in the obligor’s creditstanding could result in lower share prices, causing an increase in both market andcredit risks

1.2.1.2 Reasons for potential credit risk

Credit risk is always cemented with credit activity – the most important andhighest scale ones of commercial bank When making decision of lending for a specificproject, the bank tries to analyze all the factors for risk minimization Generally, thebank only makes final decision when they feel safe However, the ability of repayment

of customers can be affected by many reasons Moreover, the bank officials may giveirrelevant credit analysis and assessment Therefore, credit risk is unpreventable andobjective We can prevent and limit it but not eliminate it

Unpreventable reasons

There are many unpreventable reasons affecting on borrowers, make them out

of the ability of repayment, such as war, catastrophe, macro factors (governmentchanges, policy changes, tax) and so on, which is over the control of both lender andborrower Those changes usually happen, keep impacting on borrowers in both positiveand negative way

Reasons from the bank

The low quality of human resource is one of the reasons of credit risks,including the weak ability of analysis and assessment or low business ethics Theyneed to understand clearly and fully about customers, the industry of customers’business, the environment customers live Therefore, it is necessary that there should

be many continuous, careful and comprehensive training courses

Subjective reasons from the borrowers

The weak ability of predicting and controlling potential problems of businessperformance, weak organizational management, and the intentional purpose of cheatingare the reasons creating credit risks Many borrowers are ready to put themselves intoprofit-chasing adventure In order to reaching their goals, it can be seen that manytricks such as provide wrong information, give corruption, and so on are applied

1.2.1.3 Measurement of credit risk

 Qualitative indicators

Compliance with regulations, principles, and processes for business loans

The process of business lending must be implemented complying with legalregulations of government including the Credit Institutions Law, decrees, decisions,and other documents of the State Bank Business lending of commercial banks alsorely on a number of certain principles in order to ensure the safety and profitability.These principles are specified in the regulations of the State Bank and commercialbanks Therefore, when conducting lending activity, the bank must ensure compliancewith these principles as well as procedures and guidelines of lending to prevent risks

The level of satisfaction of customers

The credit risk can be reduced as the business loan timely and fully meets theborrowing needs with reasonable costs To ensure the above requirements, banks need

to build an accurate assessing, estimating and analyzing system about customer needs,thereby prevent credit risks

 Quantitative indicators

Overdue debt and bad debt indicator

The ratio of overdue debts and bad debts in total outstanding loans of a bankreflect basically the quality of lending in general and business lending in particular atthe bank

Overdue debt: includes debts whose due principal and interest is not paid fully,

or not be approved by the bank to restructure debt (including adjusting maturity andgetting an extension of the debt)

Overdue debt ratio is the ratio of overdue debts to the bank’s total outstandingloans in a specified time Overdue rate is calculated as follow:

Overdue debt ratio =

Overdue debt ratio is the most common criteria when assessing the lendingquality of banks because it expresses the potential risks in the ability of recoveringprincipal and interest that banks face Overdue debt ratio under 3% is consideredacceptable

Besides, the Bank also uses bad debt ratio to assess the lending quality

Bad debt: includes the debts belonging three categories of risky debts: standard debt, doubtful debt and loss Bad debt ratio is the rate between bad debt andtotal outstanding loans of commercial banks at a given moment that is usually the end

sub-of month, quarter or year This indicator is calculated as follows:

Bad debt ratio =

The lower the rate is, the higher the lending quality of the bank is, and viceversa When these indicators are high, credit portfolio is riskier that can threaten theexistence of the bank

In addition, loan portfolio quality can be considered by secured debt ratio:

Secured debt ratio =

Provision for loan loss indicator

Provision for loan loss ratio ratio =

Bank lending is always accompanied with risks such as coverage ratio.Provision for loan loss can be used to offset the loss occurred Typically, the provisionfor loan loss deducted is calculated as the identified percentage given on the basis ofthe debts In proportion to each debt group, the bank establishes a rate of provisions.The more risky debt ratio is, the higher rate of provisions is

Classification of provision for loan loss is based on dividing debts into groups.High provision reflects greater potential loss to be offset and riskier loan portfolio.

Profitability indicator

Profit is a necessary condition to ensure the survival and development of thebank Therefore, this is an important indicator to assess the quality of lending activity

of the bank The quality of lending in a commercial bank can not be evaluated as good

is profit from these activities is low

In summary, when considering credit risk, we not only base on a specificindicator but also use synthetically a system of indicators to provide accurateconclusions

1.2.2 Credit risk management

1.2.2.1 The definition

From the view of bank managers, credit risk managerment is forming the creditrisk management policies, then building management machine and reasonableassessment process in order to prevent risks that enterprises can not repay the loans

If business credit risk is out of management and control, severe consequencescan be caused In the bank, it decreases revenue and cause liquidity pressure while thebank still has to repay principal and interest of mobilized funds Therefore, the bankwill lose its reputation and public confidence for all customers and even all staffs Inbanking system, the consequences that a bank gets many credit shocks to potentialbankruptcy can put similar effects on the other banks Then, most deposits arewithdrawn rapidly; a crisis for all economy is unpreventable That is, the task for thebanks is heighten the role of credit risk management, in general, and business creditrisk management, in particular when business loans usually compose large proportion

of all the loans

1.2.2.2 The process of credit risk management

Figure 2: The process of credit risk management

Realizing

Credit risk realizing is a process that the bank directly collects data frominterviewing, loan application assessment, or indirectly from business’s parteners andgovernment offices in order to implicit risk of the business itself and the businessenvironment

There are following signals to realize credit risk:

Signals related the bank’s relationship include abnormal transactions inbusiness’s account, long term sponsors with low liquidity, increasing quantity of loanswhile repayment of previous loans is late and so on

Signals related to customer’s management method include regular conflicts inBOD or BOM of the business, increasing irreasonable expense, family and relativesrelationship affecting on working effectiveness and so on

Signals related business’s operation include tendency of perfection of businessoperation, impractical and seasonal products, and so on

Signals related financial and accounting information analysis include irrelevantfinancial information, increasing revenue but decreasing profit, increasing bad debtratio, higher inventory and so on

Quantitative model – Z score model is based on financial ratio and importance

of such ratio to give points to business borrowers, estimating the probability ofrepayment

Z = 1,2 X1 + 1,4 X2 + 3,3 X3 + 0,6 X4 + 1,0 X5Including:

X1 = Working Capital / Total asset

X2 = Profit after tax / Total asset

X3 = Profit before tax and interest / Total asset

X4 = Market value of equity / Total liabilities

X5 = Revenue / Total asset

The advantage of the model is simple calculation, but it can only classify

Synthesis model – credit pointing and rating model is a combination of bothequantitative and qualitative methods, based on financial and non financial information

of customers The rating is AAA, AA, A, BBB, BB, B, CCC, CC, C, D in higher riskorder This model can give a complete evaluation of repayment ability of customer, but

it requires much information affected subjectively by credit officiers

Risk transferring: In order to reducing risk, the bank will approve the loan ifthere is another party guaranteeing or underwriting for the business That meansdecreasing profit the bank can receive

Risk deduction: is methods minimizing risk including using provision orselling collarerals

Risk acceptance: the bank can approve the loan in case, risk is low or theinterest the bank can get is high enough to compensate the risk

Supervising and adjusting

When the bank approves the loans, then disburse the loans, this step is mostimportant ones in process of credit risk management This step makes sure that thestrategies can be implemented completely to minimize the risk

1.2.2.3 Features of credit risk management in commercial banks

Credit risk management activity must be regular and continuous Credit riskmanagement is an activity to manage and control financial risk in the bank, includingminimizing lost in bank operation One of the most important features of financialactivities is the fluctuation of cash flows, then if the banks have untightened control ofusing mobilized funds or have not much confidential information of business’s income,risks can come true easily In the other hand, because business borrowing demand isbig, and loan team is long, bank’s management needs involvement of many expertisedepartments in different steps of credit assessment process

Credit risk management in the bank should accompany with internal riskmanagement in the borrowing business Because credit risk is indirect, if internal riskmanagement of the business is uneffective itself, including weak managementmachine, unclear risk management policies, non-synchronic controlling process and so

on, then it is difficult to get the expectation in credit risk management activity of thebank

Being different from customer loans which purpose is mainly for consumption,firms makes borrowing for working capital and then repay by revenue However,businesses suffer much legal constraints and revenue depends much onmacroeconomies, so business credit risk management also get into impacts of manysubjective and objective factors Therefore, beside financial statement analysis, thebank should pay attention on non financial factors such as business environment andoperation experience

1.2.2.4 Factors affecting credit risk management in commercial

banks

Subjective factors

Credit risk management activity has been under influence from 2 parties incredit relationship: the lender (the bank) and the borrower (the business) If thebusiness has reputation, good operation, and high profit, then the ability of repayment

to the bank will reduce the bank’s burden If the bank has tightened credit riskmanagement policies, synchronic controlling process, high quality human resources,that is all requirements for the effectiveness of its management

Objective factors

Loosening monetary policies is considered to be effective and short termprofitable for commercial banks However, over-loosening can push the risk high in thefuture High inflation rate and fluctuating price impacted negatively on credit riskmanagement of the bank Sudden tax system changes, more tightened and higher, gavededuction to the bank’s ability of debt collection, increasing bad debts Importing andexporting activities, foreign exchange business, and lucrative ability are directlyaffected by exchange rate policy The strong fluctuation of exchange rate can impact

on financial situation of customers, then limit ability of overdue debt collection Incondition that there is no reasonable regulation about foreign exchange management inthe bank, risk level of the debt and all financial situation is higher and higher The fact

of gold-ization, dollarization, and unstable macroeconomies at this time caused creditrisk accelerating because domestic currency losing its price reduced repayment abilityfor foreign currency debt Protectionism is still available when commercial banksystem is always main source to provide capital for state-owned enterprises withpreferential interest Meanwhile, government budget deficit uncovering the lost timelymade negative influence on banks’ capital and increased bad debt level

CHAPTER II: THE CURRENT SITUATION OF CREDIT RISK MANAGEMENT OF BUSINESS LOANS AT VIETINBANK –

- March27 1993 Establishment of the State-owned Enterprise named Bank forIndustry and Commerce of Vietnam under the Decision No 67/QĐ-NH5 issued

by the Governor of the State Bank of Vietnam

- September 21 1996 Re-establishment of Industrial and Commercial Bank ofVietnam under the Decision No 285/QĐ-NH5 of the State Bank of Vietnam.Being one of the four largest State-owned commercial banks of Vietnam,VietinBank’s total assets account for over 20 percent of the market share of the wholeVietnamese banking system VietinBank’s capital resources keep on increasing overthe years and have been substantially rising since 1996 with the annual average growth

of 20 percent, especially up 35 percent a year against that of last year

Being diversified with 04 independent accounting subsidiaries: VietinBankLeasing Company, VietinBank Securities Company, Ltd., VietinBank AssetManagement Company, VietinBank Insurance Company and 03 non-profit makingunits: VietinBank Information Technology Center, VietinBank Card Center andVietinBank Training Center

- Being the founder of the following Financial Credit Institutions: Saigon Bank for Commerce and Industry

- Indovina Bank (the first joint-venture bank in Vietnam)

- Vietnam International Leasing Company – VILC (the first financial leasingcompany in Vietnam)

- Vietinbank Insurance Company Ltd

Being the official member of :

- Vietnam’s Banker Association

- Asian Banker’s Association

- Society for Worldwide Interbank Financial Telecommunications (SWIFT)

- Visa International Services Association

Being the first bank in Vietnam to apply modern technology and e-commerce

in its banking operations

2.1.2 Formation and development process of VietinBank – Hanoi branch

Hanoi Branch – VietinBank is the biggest branch of VietinBank with more than 15 transaction offices in Hanoi

2.1.3 Organization structure of Hanoi branch

In VietinBank – Hanoi branch, there are 1 director, 4 deputy director, and

12 department implementing tasks and functions assigned by General Director of VietinBank At this time, the Branch has 22 transaction offices and 4 saving funds with the aim of mobilizing capitals from individuals and enterprises.

Figure 1: Hanoi Branch operating structure

Technical departments

Transaction offices

Saving funds

Business customer 1 & 2 office has a role of direct transaction with huge customers,

including credit assessment, credit limit management in the whole branch, creditproduct management, customer services

Individual customer office has a role of direct transaction with individuals to mobilize

funds in VND or foreign currency, including credit assessment, credit limitmanagement, credit card product management and customer service

Risk management office supports the Director of the Branch in risk and bad debt

management, lending portfolio management, loans application assessment, governmentpolicies research in order to have proposals and recommendation of business strategyand risk management policies to the Branch

Transaction office is doing direct transaction with customer, managing internal

expense of the Branch, storing documents, managing cash funds, and give consultant tocustomer in product choices

Accounting office is in charge of financial management, salary management, tax and

insurance measurement, equipment and asset purchasing plan

Card office has a role of developing and operating card service of the Branch,

transferring money domestically and internationally; expand card market, andintroduce products to customers

Budget office is in charge of managing funds, cash funds, collecting and lending cash

to transaction offices, disbursement of huge capital

Information technology office has a role of operating and manageing information

system of the Branch, maintaining and keep fluence of all the system

Internal auditing office is the department which supervises applications, credit

documents, international payment, deposit in order to ensure the accurancy, andlegality, support BOD to prevent and recover mistakes of other departments, and workwith internal and external auditors

General co-ordination office is in charge of preparing business plans, doing research

of market, collecting data, and give analysis reports to the Director of the Branch

Personnel office has a role of recruiting, arrangeing training courses, researching about

the Branch structure, building regulations for the Branch

2.1.4 Situation of business operation at VietinBank – Hanoi branch in

recent years

2.1.4.1 Capital mobilization

Hanoi Branch is always the leader of amount of mobilized funds in VietinBanksystem It does not only satisfy investment, lending and payment requirement but alsoprovide a huge amount of available funds into reconciling funds of the bank

Unit: in Billion VND

5,37013,478

1,4001,505

- No term

3-167

806

17-789

4 Other deposit

Table 1: Result of mobilizing funds in Hanoi Branch – VietinBank in recent 3 years

According to table 3, total mobilized funds in 2010 increase double compared

to 2009, in 2011 increases 21% compared to in 2010 The main source of funds inHanoi Branch comes from enterprises, financial institutions, and others (comprising of80%), which increased strongly in 2010 after previous decrease in 2009 due tomacroeconomic depression and keep rising in 2011 in a very positive rate This reflectsoperating effectiveness and reputation of Hanoi Branch Target customers ofVietinBank are institutions and enterprises Personal deposits and valuable documentshold a small part in fund source The source to issue certificate of deposit in 2010 ofHanoi Branch reduced 4 times compared to 2009, but also increases 4 times in 2011

If taking consideration into mobilized funds based on currency, mobilized byVND in years is 4-5 times more than by foreign currency Total mobilized funds byVND in this branch in 2011 got 32,345 billion VND, containing 83.65% totalmobilized funds The small amount of foreign currency mobilized is caused by thescope of VietinBank that focuses on domestic-manufacturing and trading enterprises

The fund Hanoi Branch mobilized is stable, focusing on fixed term deposits.Fixed term deposits took a large proportion (87.32% in 2010; 86.05% in 2011), helpingHanoi Branch easily involve in investment and lending projects as well as preventliquidity risks No term deposit containing not a large proportion, increased gradually

in recent 3 years (2,367 billion VND in 2009, 4,025 billion VND in 2010 and 5,370

billion VND in 2011) It shows that demand of payment in Hanoi has a tendency ofincrease.

2.1.4.2 Credit activity

Credit activities in Hanoi Branch – VietinBank have significant increase inrecent years, mainly concentrating in short term loans and investment to state economiccomponents Loans activities is much more than investment activities, but there is aopposite trend reflecting through the loans – investment proportion (loans/total loansand investment is 83.74%; 66.76% and 68.01%), so VietinBank has begun to expandinvestment activities

As table showed above, Hanoi Branch had priority on credit activities byVND, which ensure to implement regulation from State Bank of Vietnam of limitingcredit by foreign currency, and prevent foreign exchange risks The loans of mediumand long term in 2010 and 2011 increased much to 60% The tightened term of credithelped Hanoi Branch reduce interest and credit risks This is shown clearly throughcredit quality and effective target Overdue loans comprise a very little amount of totalloans in 2009, 2010 but increase much in 2011 as a very significant signal Total loanscollection of the Branch is quite high (28,230 billion VND in 2011) Total loans inrecent 3 years increased in an average rate of 1.6 times, proved the ability of goodoperation in spite of world financial system crisis and trading and manufacturingreduction