LV Thạc sỹ_Developing bank overdraft for individual customer in BIDV

Therefore, the author carried out the researchproject to grasp understanding about the situation of personal overdraft in BIDV and the demand of customers in order to find out how todeve

MBA FINAL PROJECT

I would like to extend special thanks to Dr… for her invaluable guidance duringresearch implementation and her enthusiasm, supportive goodwill as well I havebenefited greatly from her crossover between theory and practical experiences I

am also grateful to Prof … and Prof … for their valuable lectures and workingattitude

I also want to express sincere gratitude to all members of management boardsand back-office staffs of Vietnam-Belgium Program for their efforts to facilitateMBA students completing the course successfully In particular, Mbis… hasalways been important supporter for all students in MBA10 Class

EXECUTIVE SUMMARY

Bank overdraft for individual customers also know as personaloverdraft has been commonly used over the world for a long time.However, Vietnameses have only known it for 5-7 years Personaloverdraft is consumption loan which allows customers to spend morethan what they have in their current accounts Commercial Joint StockBank for Investment and Development of Vietnam (BIDV) was apioneer in providing overdraft service This is a very useful andconvenient service; however the number of people awaring and usingthis service is still minor Therefore, the author carried out the researchproject to grasp understanding about the situation of personal overdraft

in BIDV and the demand of customers in order to find out how todevelop this service

In this research, the author used theory on personal overdraft fromBanking course to explain the nature of the service, its features andfactors affecting the development of the service In the next part, theoverview of personal overdraft in Vietnam and the situation of personaloverdraft in BIDV were described in detail Through the analysis,readers will draw out the problems BIDV facing in developing thisservice

To solve those problems, the author has done the survey on demand onpersonal overdraft and depth interviews with BIDV’s employees Theseprimary data will give insight of what causes the problems and whatcustomers want in this service Based on that, the author suggestedrecommendations to improve the service policy, promote the serviceand fix BIDV’s weaknesses in order to develop personal overdraftservice

TABLE OF CONTENT

LIST OF TABLES AND FIGURES

INTRODUCTION Rationale of the research

In recent years, with the growth of Vietnam economy, the averageincome of Vietnameses has increased According to World Bank’sreport, GDP per capita of Vietnam was USD 1.130 in year 2009, USD1.224 in year 2010, USD 1.411 in year 2011 In addition, more andmore services have appeared to make life better and help people toenjoy life Those factors lead to the increase in people’s spending As aresult, consumption loans have become common as a mean to financepersonal expenses, especially for urban residents

The fact that many banks focusing too much in wholesale banking andcorporate lending has posed as a threat to the bank’s sustainabledevelopment Accordingly, many banks choose to make retail bankingtheir major aim in order to diversify customer portfolio and minimizethe risks BIDV is no exception to this trend; the bank has set a goal tobecome the leading retail bank of Vietnam in the next five years Thescale of retail credit has increased remarkably, the average growth ofoutstanding balance in retail credit in the period 2009-2011 is over37% With the increasing number of people receiving salary throughbank accounts, other banking services are more and more popular, such

as personal overdraft

Personal overdraft service has been commonly used over the world for

a long time However, Vietnameses have only known it for 5-7 years.Nowadays, many banks provide this service, such as BIDV,Vietcombank, ACB, Techcombank, Sacombank… Yet, the customersusing this service are limited, mostly urban citizens with relatively highincome BIDV started providing individual bank overdraft from 2008,the outstanding balance increases continuously in recent years Theoutstanding balance at the end of 2011 was VND 1.190 billion,increased by 82.5% compared to the balance at the end of 2010 But allthe same, the customers are mainly bank employees and otherindividuals receiving salary through bank account at BIDV

Personal overdraft service is useful and convenient but the number ofpeople awaring and using this service is minor Therefore, the potentialdevelopment of this service is quite huge In order to develop personaloverdraft in BIDV, the author carries out this research project tocomplete and perfect the overdraft policy, to recommend solutions toattract more customers, increase the credit outstanding balance and tocontrol the risks.

Research Problem and Specific research objectives

To address successfully the mentioned target, it is necessary tounderstand the nature of personal overdraft service, the current situation

of personal overdraft service in BIDV and the customer’s demand onpersonal overdraft service In more details, the research should aim atfulfilling following specific research objectives:

Firstly, to figure out what is personal overdraft service and its features Secondly, to understand the situation of personal overdraft service in

BIDV

Thirdly, to identify the demand of customers on personal overdraft service Last, to suggest solutions to develop personal overdraft service.

Research questions

1 What is personal overdraft service?

2 How is BIDV’s personal over draft?

3 For customers who have already used personal overdraft service,how do they response to this service and what changes do theywant? For potential customers, what do they want from this service?

4 What should BIDV do to develop personal overdraft service?

Research Methodology

The research is based on theory of Banking, specifically personaloverdraft theory As other research projects, this research uses bothSecondary data and Primary data

Secondary data was collected from the following documents: annual

banking report, banking magazines, annual report and other internalreports of BIDV, information posted on website of other banks, articlesrelating to personal overdraft on the internet,…

Primary data was collected through interview and survey The details

will be described in Chapter III

Research scope

The research analyzes data of period between 2009 and June 2012 towork out solutions as suggestion for BIDV to develop personaloverdraft in upcoming years

Structure of the Final project

The content of this Final project document is organized in four mainchapters

Chapter I: Theoretical Framework

This chapter mentions the theory and concepts which are used asbackgrounds for this research

Chapter II: Personal overdraft in BIDV

This chapter describes the overview of personal overdraft in Vietnamand the current situation of personal overdraft in BIDV

Chapter III: Research Findings

This chapter uses result from the survey and interview to explain whypersonal overdraft in BIDV has not developed strongly

Chapter IV: Recommendations

This chapter recommends some solutions to develop personal overdraft

in BIDV

Chapter I THEORETICAL FRAMEWORK

This chapter summarizes all key principles involving personal overdraftservice to give general idea on what the service is Also, in this chapter,

we will know which indicators indicate the development of personaloverdraft service Last, it points out main factors affecting thedevelopment of personal overdraft service

I.1. Personal Overdraft service

I.1.1. Definition of overdraft

Overdraft is an extension of credit from a lending institution when an

account reaches zero An overdraft occurs when money is withdrawn from

a bank account and the available balance goes below zero It means thatthe individual is allowed to continue withdrawing money even if hisaccount has no funds in it In this situation the account is said to be

"overdrawn" Basically the bank allows people to borrow a set amount ofmoney

The bank often provides overdraft services to both individualcustomers, corporate and other banks Yet, in this study, only personaloverdraft services provided to individual customers are mentioned andanalyzed

An overdraft often takes form on the current account It can be drawn,repaid and the redrawn from the current account by the borrower at anytime throughout its life Therefore, with the inflow and outflow ofmoney from the current account, the balance used to calculate interestalways changes

I.1.2. Features of overdraft

Limit

Bank will set upper limit on overdraft to one’s current account Thus,with bank overdrafts one will be able to withdraw more money than in hiscurrent account The total drawn amount does not exceed the limit.However the effectively drawn amount can vary from day to day, it

depends on the agreement between the bank and the customer There may

be a pre-agreed reduction schedule of maximum amount available to bedrawn For example, in case the account balance is in negative continually

in a number of days without inflow money then the customer can notoverdraw more money even if he hasn’t reached the overdraft limit

The limit will depend on the bank and the customer himself For the bank,the limit changes with the bank’s policy at a given time For the customer,the amount he qualifies for depends on his affordability and credit risk.Basically, if the customer has stable, high income and good credit history,the chance of getting a high overdraft limit is very big

Maturity

The term of an overdraft is generally between 1 month and 12 months.When the term is due, the customer can make an extension for the samelength of time or longer, but often not longer than 12 months However,the renewal will take some acceleration clauses in case of creditdeteriorations

Cost

Cost of overdraft facility often includes two components: “per annum”and “flat upfront”

“Flat upfront” or opening fee is payable on total amount of the loan

“Per annum” is the component including costs that are calculatedduring overdraft’s life and often annually base “Per annum” costincludes interest payment, commitment fee and overspending fee

Interest payment: The interest is determined by the drawn amount and

the duration It is calculated on the negative current account balance atthe end of each day and paid monthly/quarterly/yearly depending on thebank’s policy

Commitment fee: It is payable on the undrawn amount of facility, the

purpose is to compensate the bank for the commitment of funds

Overspending fee (in case overspending allowed): when the amount

overdrawn is within the authorized overdraft limit, interest is normallycharged at the agreed rate If the negative balance exceeds the agreedlimit, then additional fees may be charged and higher interest rates mayapply

Most of overdraft facility is unsecured loans The security collateralwill be needed only when the bank can not keep in check thecustomer’s cash flow The security for overdraft can take the form ofdeposits, bonds, stocks, real estates and other assets

Following is the demonstration of the fluctuation of balance on thecurrent account in overdraft state:

Figure 1.1: Balance of the current account with overdraft

Unit: VND million

Source: The author’s demonstration

According to the theory, from day 10 to day 24, the account is inoverdraft state From day 10 to day 21, customer has to pay the interestcalculated on the balance at the end of each day From day 22 to day 25,apart from interest, customer has to pay overspending fee for theamount exceeding VND 20 million From day 1 to day 9 and from day

26 to day 30, customer has to pay commitment fee

I.1.3. Advantage and Disadvantage of personal overdraft

Advantage

An overdraft is flexible and quick It brings customers many benefits:

 An overdraft provides money for unplanned expenses Even ifthe account has no money, the bank will not decline one’s card orbounce the check This helps to avoid embarrassment from adeclined credit card; imagine, for example, being at the grocerystore with a cart full of groceries and no way to pay because yourcard has been declined

 An overdraft will provide the comfort of instant access to extracash for emergencies It will be helpful if one has a payment thatreally can't be late, such as a mortgage payment; instead ofhaving the check returned and experiencing hefty late fees fromthe lender, one simply pays overdraft fee to the financialinstitution.

 The total limit is always available for use One can use as much

of his agreed overdraft limit as one needs whenever one needs it

 Customers only pay interest on the portion of their overdraft used

in any given month

Disadvantage

For customers, in general, an overdraft is rather expensive with higher

interest rate and fees than other personal loans In addition, overdraftscan not be used for large borrowing or long term borrowing Thatmeans overdrafts are not for big assets like car or house

For banks, despite its high profitability, overdrafts give banks much

“worry” As customers are allowed much liberty with overdraft, thebank has no control on use of funds On the other hand, banks havedifficulty in mobilizing funds due to customer’s unpredictable needswhile commitment is ensued

I.2. Indicators to assess the development of

personal overdraft service

To evaluate the development of a bank service, specifically personaloverdraft service, we should base on the following criteria:

The outstanding: the outstanding of personal overdraft service shows

the scale of the service If the outstanding at a time is higher than theoutstanding at the previous times, it means the service develops morethan before The growth rate of the outstanding also points out thedevelopment of the service The higher the growth rate is, the moredeveloped the service is

The number of customers: if the number of customers using personal

overdraft service increases, it means the service develops

NPL: personal overdraft service is a type of credit so the quality of this

service also shows in NPL ratio Personal overdraft service gives

customers a lot of freedom so there is some potential risk Therefore,the bank needs applying some precautions to secure the risk Adeveloped personal overdraft service companies with a complete policy

to control the risk As a result, the NPL of personal overdraft service islow, it means the possibility of collecting all debt is high

I.3. Factors influencing the development of

personal overdraft overdraft

I.3.1. External factors

People’s awareness

In the past, when you need money, people rarely think of the bank.Because deep down they always thought that the bank credit was difficultand complex So they often went to pawnshops to mortgage their assetsfor money or went for usury However, with the development of people’sawareness, bank credit becomes familiar

Spending habit

Spending habit plays an important role in the development of personaloverdraft If people only spend on necessary demand, it is very difficultfor personal overdraft to develop If people only spend what they have, thepersonal overdraft will not be developed In contrary, people tend to spendmore than their budget to improve the standard of life, then that is goodcondition for personal overdraft to develop

Economic condition

When the economy grows at high rate, people will love to shop more It istime for bank to expand consumption loans, including personal overdraftservice In contrast, as the economy is in depression, it will result in loss

of consumer confidence in the prospects of their income thereby reducingtheir consumption needs In that case, personal overdraft will be difficult

to expand and need a lot of promotion to develop

I.3.2. Internal factors

Bank’s policy on personal overdraft service

The bank's policy is understood simply as a statement on standards for thatkind of loan A comprehensible policy will bring many advantages andbenefits to the bank It guides staff through credit procedures, step by step

to comply with and specify the scope of their responsibilities It helps to

achieve many objectives, such as increasing profitability, mitigate risksand meet the demands of the legal authorities Also a policy must beflexible to suit the changes in the economy and in the regulations.Therefore, a good policy is clear, flexible and complying with the law.

Reputation of bank

The reputation of the bank is an important factor influencing customer’schoice of bank The more well-known the bank is, the more customerscome using the bank’s service The scale of the bank is also one of thedeterminants of customer confidence in the bank Especially equity scalewill determine the maximum loan for a client In short, a big bank withgood reputation has more advantage in developing personal overdraftservice

Employees’ qualifications

Personal overdraft is of service nature so human plays a very importantrole in the development of it The bank's success depends greatly on theworking ability of employees Credit staffs communicate directly withcustomers, guide and help them to understand thoroughly the service, thenprocess customers’ requests In current competitive condition betweenbanks, customers are easy to choose another bank Thus, a friendly withcomprehensive knowledge of the service is a deciding factor to keepcustomers’ loyalty

Technology

The application of technology in the banking sector is essential Thanks toinformation technology, the workload in the bank decreases significantly,the information is processed quickly and accurately In particular, itprovides a competitive advantage for the bank Today with the rapiddevelopment of information technology, customers can sit at home oranywhere to apply for loans in a bank, as well as easy access to otherservices of the bank Customers always prefer bank with high technology

to give them simple and fast services

Marketing the service

Marketing has become more and more vital in developing a bank service

It only takes a short time to make services widely known Moreover, italso introduces and highlights features and benefits of the service tocustomers A good marketing campaign will help to increase sales volume

of the service

Chapter II PERSONAL OVERDRAFT SERVICE IN BIDV

This chapter describes generally the situation of personal overdraftservice in Vietnam, then explains comprehensively the situation ofpersonal overdraft service in BIDV

II.1. Overview of Personal overdraft service in Vietnam

II.1.1. The demand on personal overdraft service

Personal overdraft is a “new” service It appeared in Vietnam in the lastfive years This is a service full of potential development

Vietnam is viewed as one of the most politically stable countries inAsia This provides a suitable environment for economic developmentthat leads to prosperous enterprises As a result, the per capita incomehas increased in recent years and the life quality of people has beenimproved In the last ten years, GDP per capita of Vietnam hascontinually increased with the average growth rate of 14% In 2011,Vietnam’s GDP per capita reaches USD 1,411 Due to that,Vietnameses’ expenditure has also increased

Vietnam is the world’s 13th most populous country Vietnam’spopulation has surpassed 88 million in 2012 and now Vietnam isentering the “golden” population period with around 70% of thepopulation in the working age That implies the country has both anenergetic labor force for economic prosperity and a large market forgoods consumption

Vietnam also enjoys a young population Vietnam is full of youngpeople who are always eager for new things, ready to receive a modernlife together with all its conveniences Vietnameses are famous forpreferring foreign goods to domestic goods, quickly adopting modernitems and favoring luxury brand name Consumer behavior changed fromdaily shopping in traditional markets to bulk procurement for the entireweek in supermarkets and via the Internet People use more health careservices, including beauty treatments for both women and men; travelservices, insurance, education, etc Young consumers as well as high-

income consumers increase, promoting high-end retail It is easy to seeHummer, Mini Cooper, Bentley and many other expensive brand cars onthe road in Hanoi and Hochiminh city People are ready to pay forexpensive items such as Iphone, sometimes more than their monthlyincome, only to stand out in the crowd.

Nowadays, Vietnameses are familiar with bank’s services, such assavings deposit, card services, payroll service… The trend of usingbank account increases fast, accompanied by the development of payingwithout cash system Many people receive salary via banks and payingthrough bank account using POS, Visa, online banking…

The concept of funding their needs by loans from banks has becomepopular with Vietnamese In the past, they only used their own money

or borrowed their relatives for their spending or investing Now, theyconsidered banks a reliable source when they are in need of money.They go to banks to borrow money to buy houses, to buy cars, to invest

in stocks, to do business, to travel, etc For individual customers, banksgive many options of loan to satisfy various demands of customers.However, there is no loan that allows customers such flexibilities aswithdrawing money whenever they want without advance notice to bank,interest calculated daily on the negative outstanding and no need forbank’s acceptance on using funds Therefore, personal overdraft is quitethe most convenient service for consumption expenditure This gives anopportunity for developing personal overdraft service

II.1.2. Suppliers of personal overdraft service

According to SBV, Vietnam has 39 commercial joint-stock banks(including three banks which the State still holds majority share:Vietcombank 77%1, Vietinbank 80%2, BIDV 95.7%3), 50 branches offoreign bank including 5 wholly foreign-owned banks, 5 joint-venturebanks With the increasing number of banks, the competition in bankingindustry becomes more and more intense

At the moment, there are many banks providing personal overdrafts, abouthalf the number of commercial banks participates in this market However,each bank has different overdraft policy on the limit, interest, fees,

1 http://vietcombank.com.vn/Investors/Information.aspx

2 http://investor.vietinbank.vn/Shareholdingstructure.aspx

3 http://www.bidv.com.vn/Tin-tuc-su-kien/Thong-tin-bao-chi.aspx

collateral and other conditions Following is the comparison of personaloverdraft policy between some big banks in retail credit.

Table 2.1 Policy on personal overdraft service

Unsecured Salaries paid

through BIDV

Military Bank Up to VND 150 million 12

months Unsecured Salaries paid through MB

12 months

Unsecured/

Secured

Minimum monthly income 5 million

Techcombank Secured loan: up to

VND 500 million.Unsecured loan: 5 times monthly income and up

to VND 100 million

3-12 months Unsecured/Secured Minimum monthly income 5 million

Maritime Bank Secured loan: 90%

savings depositUnsecured loan: 2-3 monthly income, up to VND 300 million

6-12 months

Unsecured/

Secured

.Secured with savings deposit.Salaries paid through Maritime bank

deposit

12 months

Secured Secured with

savings deposit at HSBC

Source: Author’s summary from website of above banks

From the chart, there are three groups: (i) banks with only unsecuredoverdraft, (ii) banks with only secured overdraft, (iii) banks with bothsecured and unsecured overdraft Each kind of overdraft has differentcharacteristics: unsecured overdraft often has higher interest rate; securedoverdraft has many fees (such as asset evaluating fee, notary fee,registration fee, asset management fee…) Banks have to build their

service to meet customers’ demand regarding other banks’ product but theservice also has to guarantee security for banks.

In conclusion, it is clear that there are many opportunities fordeveloping personal overdraft in Vietnam at the present Therefore,BIDV needs to grab this opportunity to expand scale of this service

II.2. Personal overdraft service in BIDV

II.2.1. Overview of BIDV

History

BIDV is one of the four biggest banks in Vietnam with the history of 55years with difficulties but full of proud achievements The constructionand development of BIDV associates with the historic period againstinvaders and country construction of Vietnameses

BIDV was founded on 26th April 1957 as a state-owned commercialbank under the name Bank for Construction of Vietnam From 1981 to

1989, the bank was renamed as Bank for Investment and Construction

of Vietnam, and was under the control of the State Bank of Vietnam.From 1990 to 27/04/2012, the bank operated under the name Bank forInvestment and Development of Vietnam After the equalization, from27/04/2012 to now, the bank has been renamed as Joint StockCommercial Bank for Investment and Development ofVietnam (BIDV)

BIDV has been known and recognized as one of the largest banking brand

in Vietnam and certified as a trademark in the U.S In 2011, BIDV washonorably granted “The 2011 International Star Award for Quality byBusiness Initiative Directors Group”, “Top 20 Vietnam Strong BrandName”, “Top 20 Best-known brands of Vietnam”, “Sao Khue Award2011” The long history of goodwill and companionship helps BIDV togain trust of both individual and corporate customers

As a long-established bank, BIDV has funded many investment projectsand key economic areas of the country BIDV has also built the largestenterprise customers, while confirming the implementation ofprestigious items, objectives, economic programs and social security ofthe country In recent years, BIDV has focused on retail banking andaimed to become one of the best retail banks in Vietnam

Organization structure

BIDV has developed a wide traditional and modern network, covering

63 provinces and cities nationwide, raising the total number of thebank’s network points as at 30 June 2012 to 118 branches andtransactions centers, 379 transactions offices, 157 saving counters withmore than 16,700 employees BIDV is one of the top three commercialbanks with the most extensive network in Vietnam In addition, BIDVhas 05 subsidiaries operating in leasing, security, holdings, insurance,asset management; and 03 representative offices in Cambodia, Lao andMyanmar

Scale

Over the long development, BIDV continually spreads the scale withthe average growth of 40-50 thousand billion VND each year At 30June 2012, total asset is VND 444,636 billion4 (approximately USD21.3 billion), total deposit is VND 315,770 billion (approximately USD15.2 billion), total credit to customers is VND 318,127 billion(approximately USD 15.3 billion), chartered capital is VND 23,018billion (approximately USD 1.1 billion) In 2012, BIDV take the thirdplace in the deposit and credit market share of Vietnam5

Retail credit

Due to the history of serving country’s construction, development andmodernization, BIDV’s customers mainly were big State enterpriseswith long term loans However, in recent years, BIDV has positivelyadjusted the customer structure to reduce the proportion of outstandingcredit in the State enterprises and to orient to individuals and privateenterprises In addition, BIDV has actively adjusted the credit structure,reduced the proportion of medium and long term loans, and focused onshort-term credits As the result, BIDV’s retail credit has been paidmore and more attention recently

The retail credit scale has increased strongly, the outstanding of retailcredit at the end of year 2009 was VND 19,710 billion and at the end ofyear 2011 is VND 38,393 billion The average growth rate of the period2009-2011 is 37% The proportion of retail credit in the whole bank’scredit has also increased from 10% in 2009 to 14% in 2012 BIDV hasdeveloped a list of retail credit products which are basically to thedemand of customers with competitive interest and fees As the

4 BIDV’s Interim Consolidated Financial Statements as at 30 June 2012

5 http://www.vcbs.com.vn/Uploads/Reports/IndustryReports/2012/BankingSector/Baocaodanhgia19TCTD.pdf

consequences, BIDV ranks the fifth biggest banks in retail credit inVietnam (after Agribank, Vietinbank, ACB and Sacombank).

However, the economic crisis in 2010-2011 has strong impact on thewhole economy, thus the retail credit also takes effect The NPLproportion has increased sharply, from 1.8% in 2010 to 2.1% in 2011,and continually increased to 2.3% at 30/6/2012

By products, BIDV’s retail credit has 7 groups: home loan, loan secured

by estate, car loan, loan secured by valuable papers, unsecuredconsumption loan, T-day securities loan, and loan for personal business

Of which, loan for personal business, home loan and loan secured byvaluable papers are the most popular products and take the biggest part

of retail credit outstanding, about more than 80% That proportion hasnot changed much since 2009 Unsecured consumption loans only takes8%-9% in total retail credit, however with the growth of retail credit,unsecured consumption credit has continually increased

Unsecured consumption loans include salary loan, overdraft and visa.Among which, salary loan was launched firstly, then overdraft in 2008and visa in 2009 Although overdraft came later than salary loan, due toits conveniences, overdraft has outnumbered salary loan

Table 2.2 Portion of consumption loans, 2011-2012

Total unsecured consumption loans 1,727 2,376 2,958 3,320

Source: BIDV’s internal report

Despite many difficulties in fierce competitive market, BIDV continuesimproving products, developing customer service and finding newclients in order to expand retail credit in both quantity and quality.BIDV’s target is to become the top bank in retail credit with about 10%market share in 2015 That is quite a challenging goal but with its ownstrength, BIDV will make it in the near future

II.2.2. Situation of Personal overdraft service in BIDV

In the retail credit portfolio, personal overdraft is a “relatively” newproduct BIDV is one of a few pioneers in providing personal overdraft

service Personal overdraft was launched by BIDV in the year end of

2008

II.2.2.1 Current policy

In the four years of implementation, the policy on personal overdraft hasnot changed much

Term

The loan term depends on the remaining time of the customer’s laborcontract but not longer than 12 months When the term is due, thecustomer can apply to reissue overdraft if he still fulfills all requirements

Interest

The interest rate changes according to BIDV’s policy in each period.Interest is calculated on the actual overdraft balance There is no interest ifthe customers do not advance the money

However, the customers will be charged interest penalty (150% theinterest rate) in these situations:

- When the payment of interest is due, there is no money in the currentaccount because the customer withdrawn up to the overdraft limit

- When the overdraft term is due and the customer does not put money inthe current account to cover the negative balance

Fees

There is issuance fee and re-issuance fee At the present, the charging fee

is about VND 100,000 for both kinds

BIDV shall automatically collect principal and interest:

- Principal is collected instantly when the client’s current account iscredited

- Interest is collected on a determined day of every month

When the term is due, if the customer does not reissue overdraft, he has topay off all principal and interest arisen till that moment

Required documents:

Customers have to present following documents at one of BIDV’s branch:

- Overdraft application form;

- Valid Identification card/Passport

- Employee contract or equivalent documents

- Household registration book/Temporary residence book of borrower

- Proof of income

Customer ranking

In order to evaluate customers, BIDV has built a rating system Customerrating will be applied to the implementation of BIDV’s retail bankingpolicy in each period The rating system has four groups of criteria:

- Information on personal and professional

- Information of financial status

- Information on relationship with BIDV and other banks

- Information on credit history with BIDV.

Each criterion is given point, then the total point will indicate customer’sranking BIDV categorizes customers into 10 ranks corresponding withdifferent policies of loan amount, interest rate, collateral, fees…

II.2.2.2 Analysis on BIDV’s past performance

Since coming out in the end of year 2008, personal overdraft has quicklyproved its preeminence over other personal loans The overdraftoutstanding has increased rapidly, at the end of year 2009, 2010, 2011 inturn is VND 288 billion, VND 652 billion, VND 1,190 billion Theoutstanding at 30/6/2012 reached VND 1,693 billion In the period of fouryears, the average growth rate of personal overdraft is around 120% peryear However, the growth has slowed down, partly because the economy

is in crisis and partly because this product is done with the hot growingphase

Figure 2.1 Growth of personal overdraft in 2009-2012

Unit: VND billion

Source: BIDV’s internal report

As the nature of overdraft is to fund temporary financing shortage, theloan is often low, compared to other personal loans At the start, BIDVprovided the maximum overdraft limit of VND 50 million From late ofyear 2010, BIDV increased the overdraft limit to VND 100 million This ispartly the reason for the rapid rising in overdraft balance Another reason

is the competitive interest rate The overdraft interest rate of BIDV is often2%-2.5% higher than the deposit interest rate, a rather attracting rate incomparison to other banks’ As BIDV has strong customer base and

always complies with the interest rate policy of SBV, BIDV has plenty oflow-interest fund Thus, BIDV always provides loans with good interestrate.

Table 2.3 Outstanding and NPL of personal overdraft

service in 2009-2012

Unit: VND billion

End balance of Personal Overdraft 153 652 1,190 1,693

- Proportion in total retail credit 0.8% 2.2% 3.1% 4.1%

- Proportion in unsecured consumption credit 8.9% 27.4% 40.2% 51.0%

NPL of Personal Overdraft 0 0 4.4 3.9

- Proportion in total retail credit 0.0% 0.0% 0.6% 0.4%

- Proportion in unsecured consumption credit 0.0% 0.0% 22.9% 21.7%

Source: Author’s calculation from BIDV’s internal report

The table above shows the rise of overdraft in BIDV’s retail productportfolio In 2009, the overdraft balance took 8.9% of unsecuredconsumption credit balance and 0.8% of total retail credit balance At30/6/2012, the overdraft balance made 51% of unsecured consumptioncredit balance and 4.1% of total retail credit balance Also, it can be seenfrom the table that personal overdraft is quite safe and secure loan In 2009and 2010, there was no NPL from overdraft But in 2011, as theconsequence of economy crisis, there were many customers havingdifficulties in repayment, that leads to NPL in overdraft In 2011, NPL wasVND 4.4 billion, but that number did decrease to VND 3.9 billion at30/6/2012 On the other hand, NPL of overdraft is much lower than otherproducts’ and only takes a very small part in total retail credit NPL

II.2.2.3 Current customers

According to BIDV’s policy, customers using personal overdraft have toreceive salary via a current account at BIDV Consequently, the users ofoverdraft are mainly staffs of BIDV itself and of some enterprises whichpay salary through BIDV For its own employees, BIDV grants themaximum overdraft limit of VND 100 million per person For othercustomers, the overdraft limit is offered based on their income, the highest

is five times their income and up to VND 100 million

At the end of year 2009, the number of overdraft clients was 5,060 andmost of this number is BIDV’s employees Over the years, the number of