Improving credit quality at vietnam joint stock commercial bank for industry and trade thu duc branch

CU NGO HAI YEN IMPROVING CREDIT QUALITY AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE –THU DUC BRANCH... MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIET NAM B

CU NGO HAI YEN

IMPROVING CREDIT QUALITY AT VIETNAM

JOINT STOCK COMMERCIAL BANK FOR

INDUSTRY AND TRADE –THU DUC BRANCH

MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIET NAM

BANKING UNIVERSITY OF HO CHI MINH CITY

-

CU NGO HAI YEN

IMPROVING CREDIT QUALITY AT VIETNAM

JOINT STOCK COMMERCIAL BANK FOR

INDUSTRY AND TRADE –THU DUC BRANCH

GRADUATION THESIS

MAJOR FINANCE AND BANKING

ID: 7340201

SUPERVISOR PHD LE DINH HAC

HO CHI MINH CITY, 2018

is the cumbersome precedures, the transaction processing time is not fast, the time

to solve loans are still slow, credit products are not very diversified, marketing policies are not focused The above mentioned issues are formed partly from banks and partly from policy, economic situation and customers' activities Based on the analytical reasons, the author proposed solutions to overcome, and made recommendations to the Government, State Bank of Viet Nam and Vietinbank

COMMITMENT

This is the author's own research, the results in the reaserch are true, without prior publication of content or other content that is performed by others except for the references which are cited full source in the thesis

Author

CÙ NGÔ HẢI YẾN

ACKNOWLEDGEMENT

After four years studying at the Banking University of Ho Chi Minh City, I have gained a wealth of knowledge and experience from talented, dedicated and enthusiastic teachers, especially excellent care for students from the Faculty of Finance - Banking

Hereby, I would like to send my sincere thanks to all the teachers of Banking University in Ho Chi Minh City in general and the Faculty of Finance and Banking

in particular,who have created a good environment for me In particular, I would like to thank PhD Le Dinh Hac for giving useful tips, knowledge to help me complete the graduation thesis

During the course of the graduation thesis, this can not avoide restriction due

to the shortcomings of experience and limited knowledge I am looking forward to receive comments from the teachers, so I can complete the thesis with better quality and accumulate more knowledge and experience for later work

TABLE OF CONTENTS

TABLE OF CONTENTS

LIST OF ABBREVIATIONS

LIST OF TABLES

INTRODUCTION

CHAPTER1: THEORY OF CREDIT AND BANK CREDIT QUALITY 1

CHAPTER 1 INTRODUCTION 1

1.1 Overview of credit 1

1.1.1 Credit definition and credit characteristics 1

1.1.2 Roles of bank credit 2

1.1.3 Credit classification 3

1.2 Credit quality of commercial banks 8

1.2.1 Definition of credit quality of commercial banks 8

1.2.2 Criteria for evaluating credit quality 9

1.2.2.1 For customers 9

1.2.2.2 For banks 12

1.3 Factors affecting the credit quality of commercial banks 14

1.3.1 Factors belong to the bank 15

1.3.2 Factors belong to the business, customers 18

CHAPTER 1 CONCLUSION 23

CHAPTER 2: QUALITY OF CREDIT IN VIETNAM BANK FOR INDUSTRY AND TRADE - THU DUC BRANCH 24

CHAPTER 2 INTRODUCTION 24

2.1 An overview of VietinBank 24

2.1.1 Overview of VietinBank 24

2.1.2 Development process 25

2.1.3 Organizational chart of VietinBank 25

2.1.4 Mission of VietinBank 26

2.1.5 Achievements of VietinBank 27

2.2 General introduction of VietinBank Thu Duc 27

2.2.1 Formation process 27

2.2.2 Functions of VietinBank Thu Duc 28

2.2.3 Organizational structure of VietinBank Thu Duc 28

2.2.3.1 Organizational structure 29

2.2.3.2 Duty of the departments 29

2.2.3.3 Fields of activity of VietinBank Thu Duc 32

2.2.4 Business results of VietinBank Thu Duc 33

2.3 Current scenario of credit activities at VietinBank Thu Duc 37

2.3.1 Credit products at VietinBank Thu Duc 37

2.3.2 Credit performance at VietinBank Thu Duc 43

2.4 Valuation of credit quality at VietinBank Thu Duc 54

2.4.1 From customer perspective 54

2.4.2 From bank perspective 58

2.4.3 Limitations 58

2.4.4 The cause of the limitations 59

2.4.4.1 Causes from banks 59

2.4.4.2 Causes from the customers 60

2.4.4.3 Objective reasons 61

CHAPTER 2 CONCLUSION 62

CHAPTER 3: SOLUTIONS TO IMPROVE CREDIT QUALITY AT VIETINBANK THU DUC 63

CHAPTER 3 INTRODUCTION 63

3.1 Business orientation of Vietinbank Thu Duc 63

3.2 Solutions to improve quality of credit in VietinBank Thu Duc 64

3.2.1 Simplify procedures of corporate loans 64

3.2.2 Improve the efficiency of coordination between departments 64

3.2.3 Diversify credit products 64

3.2.4 Apply advanced science and technology 64

3.2.5 Advance the marketing policy 65

3.3 Recommendation 66

3.3.1 Recommendation to the State 66

3.3.2 Recommendation to the State Bank 66

3.3.3 Recommendations to VietinBank 67

CHAPTER 3 CONCLUSION 69

CONCLUSION 70

REFERENCES 71

APPENDIX 74

LIST OF ABBREVIATIONS

Table 1

Agribank Vietnam Bank for Agriculture and Rural Development

ASEAN Association of South East Asia Nations

BIDV Joint Stock Commercial Bank for Investment and

Development of Vietnam FDI Foreign Direct Investment

ISO International Organization for Standardization

SME Small and Medium sized enterprises

SWIFT Society for Worldwide Interbank Financial

Telecommunication UPAS L/C Unsance payale at sight Letter of credit

VAMC Vietnam Asset Management Company

VBI Vietinbank Insurance Company

Vietcombank Joint Stock Commercial Bank for Foreign Trade of Vietnam VietinBank Vietnam Joint Stock Commercial Bank for Industry and Trade VietinBank

Thu Duc

Vietnam Joint Stock Commercial Bank for Industry and Trade

- Thu Duc Branch

LIST OF TABLES

Table 2.1 Results of some key indicators of business activities 33

Table 2.2 Short-term loan products at VietinBank Thu Duc 37

Table 2.3 Medium-term and long-term loans at VietinBank Thu Duc 38

Table 2.4 Specialized loan products at VietinBank Thu Duc 39

Table 2.5 Consumer products for individual customers 40

Table 2.6 Credit products for individual customers to borrow for 41

Table 2.7 Loan structured by type of currency from 2015 to 2017 43

Table 2.8 Credit outstanding balance structured by types of customer 44

Table 2.9 Credit outstanding balance structured by credit term 46

Table 2.10 Credit outstanding balance structured by economic sector in VietinBank Thu Duc from 2015-2017 47

Table 2.11 The number of customer using credit product in VietinBank Thu Duc from 2015-2017 49

Table 2.12 Overdue debt scenario at VietinBank Thu Duc from 2015-2017 50

Table 2.13 Bad debt scenario from 2015-2017 51

Table 2.14 Income from credit activities at VietinBank Thu Duc 53

Table 2.15 Results of customer survey on credit quality at VietinBank Thu Duc 54

LIST OF FIGURES

Figure 1.1 Theoretical model of customer satisfaction evaluation SERVQUAL

(Parasuraman, 1988) 10

Figure 2.1 Organizational chart of VietinBank 25

Figure 2.2 Organizational chart of VietinBank Thu Duc 29

Figure 2.3 Credit outstanding balance structured by loan term from 2015 to 2017 46 Figure 2.4 Credit outstanding balance structured by economic sector in VietinBank Thu Duc from 2015-2017 48

Figure 2.5 Overdue debt scenario from 2015 to 2017 50

Figure 2.6 Bad debt scenario at VietinBank Thu Duc from 2015 to 2017 52

Figure 2.7 Income from credit activities at VietinBank Thu Duc 53

INTRODUCTION

1 Necessity of the thesis

Over the past few years, the banking system has contributed significantly to the national economy According to preliminary statistics, in 2017, the entire banking sector provides about 6.6 trillion VND of credit, helping to boost our business and production activities, making an important contribution to growth gross domestic product (GDP) 6.81% Under the banking ordinance in 1990, Vietnam's banking system consists of two levels: the Central Bank and the Commercial Bank, which meet the needs of all sectors of the economy Thanks to the credit activities banks can play their important role

Credit activity is the movement of capital from the source of excess capital to the place of shortage of capital, which is also the most important and fundamental activity in banking activities, bringing the main profit to banks However, credit activities are also risky, potentially placing the bank into a state of insolvency In the context of a large number of active banks and foreign banks entering Vietnam, this has created an increasingly competitive environment Banks are trying to improve their competitiveness to survive and develop as well as to improve business efficiency To achieve that goal, the mission is to improve credit quality Therefore, improving credit quality is always an urgent issue for banks in Vietnam Recognizing the importance of this issue as well as in combination with the author’s intership at Vietnam Joint Stock Commercial Bank for Industry and Trade

- Vietin Bank Thu Duc Branch, the author selected the topic "Improving Credit Quality at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch "

2 Purpose of the study

 General purpose: To propose a recommendation to improve credit quality at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch

 Specific purpose:

 Research on credit current scenario

 Evaluating the quality of credit at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch

3 Object and scope of the study

 Object: Credit quality at Vietnam Joint Stock Commercial Bank for

Industry and Trade Thu Duc Branch

 Scope of researching:

 Space: Vietnam Joint Stock Commercial Bank for Industry and Trade

- Thu Duc Branch

 Time: The thesis using secondary data mainly from 2015 to 2017

4 Research methodology

 Method of data collection: Collect data through Statistical Report on Loan Status, Business Performance Report, Annual Report 2015, 2016, 2017 and related documents which relate to credit activities in the system of VietinBank Thu Duc branch

 Method of comparison and analysis of data based on the reports and documents mentioned above

 Observation and questioning methods: observing credit officers working and asking questions related to the research

 Survey method to get customers’s comments

5 Structure of the thesis

This thesis includes three chapters:

Chapter 1: Theory of credit and bank credit quality

In this chapter, the author outlines the concept of credit and bank credit, the characteristics and role of credit, the definition of credit quality, indicators of credit quality and the factors that influence it

Chapter 2: Current scenario of credit quality at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch

Chapter 2 outlines the process of formation, development, organizational structure, operational network as well as the actual development of credit activities

at Vietnam Joint Stock Commercial Bank for Trade and Industry - Thu Duc Branch Based on these facts, the author points out the achievements as well as the remaining limitations in credit activities at VietinBank Joint Stock Commercial Bank for Industry and Trade (Thu Duc Branch)

Chapter 3: Solutions to improve credit quality at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch

Chapter 3 presents the development orientation of VietinBank Thu Duc From the limitations in Chapter 2, the author finds solutions to improve credit quality, as well as recommendations to the Government, State Bank of Viet Nam and Vietinbank

CHAPTER1: THEORY OF CREDIT AND BANK CREDIT QUALITY

CHAPTER 1 INTRODUCTION

In Chapter 1, the author presents the definition of credit , bank credit, the characteristics and important role of credit Besides, Chaper 1 also includes the definition of credit quality and points out indicators that affect the credit quality

1.1 Overview of credit

1.1.1 Credit definition and credit characteristics

 The definition of credit

According to the Vietnamese encyclopedia, "Credit is an activity that the lender provides financial sources to the borrower in which the borrower repays the financial loans within a negotiable period and usually accompanied by interest Credit reflects the relationship between two parties - one side is the lender, and the other is the borrower The relationship between the two parties is constrained by credit mechanisms, credit terms, interest rates, etc "

There are many definitions of credit, but in general, according to Clause 20, Article 4 of the Law on Credit Institutions, 2010, "Credit is a borrowing relationship based on trust between the borrowing party and the lending party Accordingly, the lender transfers a quantity of currency (or assets) to the borrower for a definite term

On maturity, the borrower is obliged to repay the initial capital (assets) and interest"

 The definition of bank credit

According to the Institute of Manpower, Banking & Finace (btc.edu.vn):

"Banking credit is an asset transaction between a bank (a credit institution) and a borrower (which is an economic organization or individual in the economy) The asset is transferred to the borrower for a specified period of time as agreed upon, and the borrower is obliged to repay unconditionally both the principal and interest

to the bank upon maturity pay"

 Characteristics of bank credit

Bank credit has the following characteristics:

 There is a transfer of the right to use capital and assets from the owner

 Payables to the bank include principal, interest and credit charges

1.1.2 Roles of bank credit

Credit activity is the primary and principal activity which brings main profit for commercial banks Due to the development of the economy, more and more activities in the bank, however, credit activities still account for the largest proportion and profit from credit activities also makes up a high proportion Thus, credit activity for the bank itself is indispensable for the existence of commercial banks

The roles of bank credit is as follows:

First, for the economy, bank credit is considered as a bridge between capital surplus and capital shortage

Society always has people with capital surplus who need to invest in something and some lack of capital who need to borrow But people with supply and demand can not meet each other in time and efficiency As a result, the bank's credit activities were created to be a bridge to meet the needs of the demand side and the supply side, then benefiting both sides In other words, commercial banks in general and bank credit in particular are the intermediaries for the capital surplus and the capital shortage to meet each other

Second, bank credit is a powerful tool to accelerate the process of regulating capital in the economy

Along with diversified forms of mobilizing and attracting customers, commercial banks have attracted capital from enterprises and individuals then bring

it to he places where capital is lacking due to the inreasing demand Thanks to

commercial banks and credit activities, capital flows have become more smoothly, thereby promoting the production continuously and cyclically, accelerating the transfer of monetary capital in society, creating favorable conditions for the economy to develop sustainably

Third, bank credit is also instrumental in regulating the flow of money and controlling inflation

Through credit activities, the amount of money in the circulation will increase as the lending proceeds and vice versa will decrease when collecting debts, thereby contributing to regulating the amount of money in the economy Banks use interest rates, credit limits to change the amount of loans so as to regulate the amount of money and control inflation

Fourth, bank credit increases economic efficiency

Businesses operating based on equity and loans To have the ability to get loans from banks, businesses need to raise their credit rating to meet the requirements from the bank This makes the company have to choose projects with high profitability, explore the market, exploit information in order to improve the efficiency of evaluation, thereby increasing the economic efficiency of the project

In general, bank credit can play a very important role in the economic development of a country In order to effectively promote the role of bank credit, the State needs to involve in the issuance of effective legal documents and regulations as well as compliance of lenders and borrowers

 Credit for production and business: Including credits to finance

production and business Borrowers may be businesses, economic

organizations, etc for the purpose of using such as working capital loans for seasonal purposes, loans for renovation and construction of factory, purchasing of machinery and equipment, etc

 Consumer credit: These are loans that meet the needs of home

shopping, transportation, spending, etc

 Credit to other financial institutions: These are loans that large

banks finance small credit institutions to meet a part of their capital needs

 Based on the credit term

Based on the credit term, commercial bank credit can be divided into three types:

Short-term credit is a type of loan with a term of less than 12 months, it is

used to provide additional temporary short-term working capital and to serve the needs of the individual This type of loan usually accounts for the highest proportion of commercial banks The risk of short-term credit is very low as the bank can anticipate fluctuations and take measures to prevent them This type includes: discount credit, overdraft credit, working capital credit, etc

Medium-term credit is a type of loan with a term of from 12 months to 60

months (from 1 to 5 years), provided for the purchase of fixed assets, improvement

or renewal of technological equipment, expansion business development, small scale projects and quick recovery time

Long-term credit is a type of loan with a term of over 60 months (5 years),

the purpose of these loans are to finance investment projects such as construction of housing, equipment, construction of new enterprises, construction of infrastructure works such as roads, bridges, airports, etc Because of the long loan period, the process of long-term capital borrowing is quite risky, because the bank can hardly anticipate all of the risky matters

 Based on the level of credibility for customers

Based on credibility, commercial bank credit is divided into two categories:

 Unsecured Credit: This is a type of loan without collateral, pledged

or guaranteed by a third party, it based solely on the reputation of the customer (including the client's status, size business operations, prestige in the business sector and a good history of dealing with CIs, etc.) and meet all criteria for lending without collateral of each bank

 Secured Credit: This is a type of loan based on loan guarantees such

as mortgages, pledges or guarantees by a third party Collateral is a measure

to reduce the risk of loss of capital when lending Forms of collateral include mortgages, pledges, guarantees with property of a third party, guarantees with assets formed from loans

 Based on lending methods

According to Decision No.1627/2001/QD-NHNN dated December 31,

2001 of the Governor of the State Bank of Vietnam on the promulgation of the Regulation on lending by credit institutions to customers This regulation on the

mode of method of lending includes:

 One-shot loans: Each time the customer and the credit institution

borrow money to carry out necessary loan procedures and sign a credit contract The one-time loans method is applied to customers who are individual clients; customers who do not have regular loan needs, have low turnover, need additional loans for working capital needs in production

 Credit line loans: Credit institutions and customers identify and

negotiate a credit line that is maintained for a certain period of time This method is usually applied to enterprises which having regularly have demand for loans during their businesses, having high speed of credit flow

 Loans for investment projects: Credit institutions provide loans to

customers for conduct the investment projects in fields of production, business, service and investment projects in purpose of serving people’s lives

 Syndicated loans: A group of credit institutions jointly lend

borrowers who have loan projects; in particular, there is a credit institution

play a role as a focal point in arranging and coordinating with other credit institutions The syndication loans have to comply with the provisions of this Regulation and the Regulation on co-financing by credit institutions issued

by the Governor of the State Bank

 Installment loan: When customers have a loan, credit institutions and

customers will determine and discuss the amount of loan interest plus the principal amount to be paid for debt repayment in various periods during the term of the loan

 Reserve credit line loans: The credit institution is committed to

ensuring that customers are available to borrow within a certain credit line Credit institutions and customers will discuss and come to agree with the validity period of the reserve credit line and the level of charge for the reserve credit line

 Lending due to the issuance and use of credit cards: Credit

institutions will allow customers to use the loan within the credit limit to pay for the purchase of goods or services and withdraw cash at an ATM Credit institutions and customers must comply with regulations of the Government and the State Bank of Vietnam on the issuance and use of credit cards

 Lending based on overdraft limit of credit: This is a kind of loan

which the credit institution agrees in documents to allow the customer to pay more than the money they have on their payment account This must be in accordance with the regulations of the Government and the State Bank of Vietnam about payment activities through payment service suppliers

 Other lending methods which are not prohibited by law, in accordance with the provisions of this Regulation and the business conditions of the credit institution and the characteristics of the borrowers

 Based on the method of credit supplication

Credit supplication can be divided into loans, discount, guarantee, finance lease and factoring

 Loans

This is an action that banks give money to customers with the commitment of customers to repay both principal and interest within the specified time Loans are the largest asset in the credit portfolio The credit term is the period of time from the time the customers receive the credit document until the time of paying off principal and interest as agreed in the credit contract between the credit institution and the customers

 Discount

It means that the bank advances money to the customers corresponding to the commercial paper value minus the bank's income to own a part of this paper (or a debt note)

 Finance lease

This is an action that the bank spend money to buy assets and lease customers with certain agreements, after a certain period of time, customers must pay both principal and interest to the bank Financial leasing activities are usually medium-term and long-term After the leasing term, customers can by those assets Commercial banks are allowed to conduct finance leasing activities but must establish their own financial leasing companies The establishment, organization and operation of a finance leasing company are governed by a government decree on the organization and operation of financial leasing companies

 Guarantee

It is the banks's commitment to fulfill its customers's financial obligations Although not issuing money, banks have allowed their customers to use their prestige to profit Commercial banks shall be provided with loan guarantee, payment guarantee, contract performance guarantee, bidding guarantee and other forms of bank guarantee with their prestige and financial capability to the guarantee accepting party… According to general

regulations, the guarantee level for a customer and the total guarantee level

of a commercial bank will not exceed the equity ratio of a commercial bank

 Factoring

It is a form of credit granting to the seller or the buyer through the buy back the retention of recourse to collect receivables or payables arising from the purchase and sale of goods, service provision according to sale contracts, service provision contracts

1.2 Credit quality of commercial banks

1.2.1 Definition of credit quality of commercial banks

Banks are like enterprises in the monetary field, which is a high risk field If

an enterprise wants to survive and develop in today's competitive economy, it has to improve service quality as a top priority Improving the quality of services in enterprises is also improving the quality of credit for commercial banks because credit activities are the main and most profitable business for the bank

Credit quality is the fulfillment of the customer's requirements (depositors and borrowers) in line with the socio-economic development and the survival of the bank Credit quality is formed and guaranteed from both sides, banks and customers

So the measures of the banks's operations depend not only on each bank but also on the quality of the customers

Credit quality is expressed in many aspects, as follows:

 For customers

Credit quality is the quality of products provided by the bank Credit services are considered as good when the credit services are diversified, suitable for many purposes of customers with reasonable interest rates, simple loan formality, convenience, fast speed of loan approval, the level of loans suitable with the needs

of customers, the method of repayment in accordance with the cash flow of customers, attitudes of service staff dedicated, thoughtful, professional level of staff,…

 For banks

The quality of credit expressed in terms of scope, level, credit limit that must

be in line with capacity and strength in the positive way of the bank itself and ensure competitiveness in the market, as well as the principle of repayment on time and profitable Referring to credit quality also refers to secured credit, used for the right purpose, consistent with policy and credit guidelines, repayment of principal and interest on time, profitability It also helps banks to increase the competitiveness in the market

 For the economy

Credit quality is shown in a service that meets the needs of production and circulation of goods, contributes to the employment of workers, improves people's lives, promotes relations between countries and closes, contribute to the industrialization and modernization of the country In other words, credit is considered quality when maximizing the amount of idle money in the economy and using them most effectively

Thus, credit quality is the satisfaction degree of the needs of the economy, it

is not naturally, it is the result of a process that combines people in the organization for a common purpose Therefore, understanding the nature of credit will help banks improve the quality of credit, thereby helping banks survive and develop well

in a competitive environment of the market economy

1.2.2 Criteria for evaluating credit quality

1.2.2.1 For customers

The credit quality evaluation is based partly on the customer's evaluation of the credit services they use at the bank

 Literature review of service quality and satisfaction

According to Parasuraman & ctg (1988), service quality can be defined as an overall judgment similar to attitude towards the service and generally accepted as an antecedent of overall customer satisfaction (Zeithaml and Bitner, 1996) Parasuraman & ctg (1988) have defined service quality as the ability of the

organization to meet or exceed customer expectations It is the difference between

customer expectations of service and perceived service (Zeithaml ,1990) Perceived

service quality results from comparisons by customers of expectations with their

perceptions of service delivered by the suppliers (Zeithaml, 1990

 Research models

In order to evaluate customer satisfaction with credit products, the reserch

uses the theoretical framework of Parasuraman (1988) Based on service quality

definitions, Parasuraman has developed a SERVQUAL scale to measure the quality

of service, including five criteria for measuring the expectation of quality and

perception of service, it includes: Reliability, Responsiveness, Assurance,

Emphathy, and Tangibles

The criteria in the model are interpreted as the follows:

 Reliability: The ability to provide accurate service punctualitly and

prestigously, respect commitments, keep promise to customers, including:

 Providing qualitied service as committed

 Bank employees are always on time with customers

Satisfaction Reliability

Formatted: Font: (Default) Times New Roman,

13 pt, Pattern: Clear (White)

 Resolving complaints of customers in a satisfatory way

 Customer information is confidential

 Information about the product is advised by Bank employees credibly

 Responsiveness: A measure of the ability to solve problems quickly and

effectively; be ready to meet customers’s demand, including:

 Simplicity, convenience of loan formality

 Quick transaction processing time

 Timely disbursements

 The loan limit meets the customers’s needs

 Collecting debts in convevient ways

 Assurance: As a factor to create trust and creditbility for customers

through professionalism, professional knowledge, attitude and service style, including:

 Bank employees have the expertises to answer questions and give advice to customers

 Bank employees have attitude to create peace of mind for customers

 Bank employees do not let error happen during transaction process

 Empathy: Being caring, attentive, fair, including:

 Serving customers enthusiastically

 Serving fairly to all customers

 Be interested in the demand of customers

 Tangibles: An image of the outside, visible things of the bank such as

fercilities, machines, manuals, information systems, applications, including:

 Clean, airy, comfortable space

 The arrangement of the transaction counters are very reasonable

 Simple forms, easy to fill information

 ATM system works well

 Convenient parking

 Research methods and data processing

 Research methodology:

From the SERVQUAL scale model of service quality of Parasuraman, the author builds the question lists according to five criteria to analyze the customer satisfaction on the quality of credit services at the bank and ask for other suggestions related to the quality of credit services of customers

 Data processing way

The medium score of the criteria is calculated by the average of the number

of customers selected at each rating with the score at each rating level

Equation 1.1 Medium score

Medium score =

1.2.2.2 For banks

Credit quality can be evaluated based on the indicators below

 Overdue debt ratio

Equation 1.2 Overdue debt ratio

Overdue debt ratio =

*100

The rate of overdue debt is the percentage of overdue debt and total credit outstanding balance of commercial banks at a certain time, usually at the end of the month, at the end of the quarter, at the end of the year This is an important indicator in evaluating the credit quality of a commercial bank The rate of overdue debt tells us in one debit balance dongs how many dongs are overdue debt Overdue loans show that credit relations are not perfect when the borrowing enterprises fail

to meet its repayment obligations on time and the bank does not renewal the loan anymore These are highly risky loans and banks are likely to lose capital Interest rates on these loans are higher than for normal interest rates This high rate demonstrates low credit quality and shows that commercial banks are having

difficulties In contrast, low overdue debt rates denote the quality of credit at commercial banks with high levels of security and low risk

For a more accurate evalution of overdue debt rate, the bank divides this ratio into two categories: overdue debt can be recoverable and overdue debt can not

be recoverable Currently, when the level of risk in credit activities is considered obvious, the bank has overdue debt is not a strange matter However, to ensure the safety of banki credit as well as the profitability and liquidity of banks, the banks need to minimize the rate of overdue debt

 Bad debt ratio

Equation 1.3 Bad debt ratio

Bad debt ratio =

* 100

Resolution No 42/2017/QH14 about Piloting the handling of bad debts, handling collateral assets of bad debts of credit institutions, branches of foreign banks and organizations with 100% charter capital set up by the Government to deal with bad debts of credit institutions The Resolution specifies how to determine a debt belongs to the group 3,4,5:

 Group 3 (Sub- standard debt group)

In quantitative terms, debt group 3 is debt which is overdue from 91 to 180 days; the debt is extended for the first time; being classified as Group 3 by SBV and

is subject to recover within the time limit set by the inspector In addition, corporate bonds with overdue payment from 10 to 90 days are also classified in to group 3 debt

In qualitative term, debt group 3 is debts that is evaluated by the credit institution as unable to recover principal and interest when the term comes More specifically, this is an unpaid debt group that is less than 30 days from the date of the debt recovery decision

 Group 4 (Doubtful debt)

On quantitive term, debts group 4 is overdue debts from 181 to 360 days; it is restructured debt which is overdue for less than 90 days; being classified as debt group 4 by SBV and being overdue 60 days the time limit set by the inspector In addition, corporate bonds with overdue payment from 91 to 180 days are also classified as debt group 4

In qualitative term, debt group 4 is considered as debt which is potentially high losses Specifically, this is the group of debt has not been recovered from 30 to 60 days from the date of recovery decision

 Group 5 debt (Bad debt)

In quantitive term, the debt is classified in this group when there is an overdue period of over 360 days; being first-time restructed debts which are overdue for 90 days or more under the restructured repayment term; being second-time repayment debts which are overdue within the second repayment term; third-time restructed debts; being classified into Group 5 by the SBV and 60 days late by the SBV inspector In addition, corporate bonds with overdue payment over 180 days are also classified as group 5 debt

In qualitive term, debt group 5 is considered by the credit institutions as irrecoverable debt, completely lost capital Specifically, this group of debt has not been recovered 60 days or more from the date of recovery decision

 Proportion of income from credit activities

Equation 1.4: Proportion of income from credit activities

Proportion of income from credit activities =

Credit is considered as high quality credit when it brings income to a bank The income shows that the loans are not only recovered but that they are alsso profitable, ensuring the safety of bank loans Besides, apart from minimizing bad debt ratio, banks also need to improving their credit income to improve credit quality

1.3 Factors affecting the credit quality of commercial banks

Credit activity is the primary activity that brings the main source of income for the bank Therefore, consideration of factors affecting credit quality is essential There are many factors that affect the quality of credit, however, they can be divided into two groups:

1.3.1 Factors belong to the bank

These factors represent the bank in all aspects of its credit activites, such as strategy development, credit policies, banking structure and credit management, the inspection, the management and establishment of information systems

 Credit policy of the bank

Credit policy is a system of measures to strengthen or restrict credit, ensuring business objectives of commercial banks In other words, credit policy is the basis for the success or failure of a bank A proper credit policy will attract many customers, ensure profitability from credit activities, spread the risk, comply with regulations, guidelines and policies of the State In addition, the development of a good credit policy also makes it easier for credit officers to make loan decisions and

to make an effective loan portfolio that can achieve multiple goals while avoiding costly mistakes Therefore, it can be said that the credit quality of a bank is good or not depends on the correct credit policy of the bank

 The ability to raise capital

To improve the quality of loans, commercial banks need to meet the demand and term of customers Because when the demand for loans is satisfied, it is a prerequisite for enterprises to carry out their production and business activities continuously, to invest in expanding production, increasing profits, to assure payback both capital interest for the banks On the other hand, long term capital will better meet the demand for customers who need loans

 Organization of the bank

If one bank is organized in a scientific way, ensuring close coordination between departments , the whole banking system as well as between banks and other agencies such as finance, legal , the bank will be able to meet the

requirements of customers, management of paid-up capital as well as loans This is the basis for positive credit activities and effective management of credit Therefore,

in the course of operation, banks should pay attention to this aspect in order to improve credit quality

 Quality of banking personnel

People are the key factors contributing to improving credit quality as well as the operation of the bank A bank with a well trained staff will help the management and implementation of banking operations in general and credit operations in particular become systematic; therefore, achieve high results Moreover, it also helps the bank avoid risks that may occur due to the qualification of staff, so that the quality of credit is always guaranteed

 Credit procedure

Credit procedures include provisions to be made in the process of lending and debt collection to ensure the safety of credit It starts with the preparation of the loan, disburement , examination of the loan process until the debt is recovered Guaranteed credit quality depends on good implementation of regulations in each step and tight coordination between steps in the credit process Moreover, all stages must be coordinated control closely operation of the department leaders, bank leaders and credit officers

 Credit information

Lending is not a simple matter In fact, not all customers use the loan for the right purpose and effectively, in addition to the client intentionally trick the bank to appropriate assets (such as using a collateral for loans at many banks with larger loan amounts than asset values, established "ghost" companies, etc.), thus causing risks and losses to the bank Therefore, to ensure capital safety, there must be an effective information system in service of this work Accurate, timely information

on customers is a condition for review and analysis in order to find good opportunities in the business as well as to prevent risks that may occur in the operation of each bank

Credit information plays an important role in credit quality management With credit information, managers can make the necessary decisions related to lending, monitoring and managing a loan account Credit information can be obtained from sources available from the bank (loan applications, information between credit institutions, credit card analysts, etc.), from customer sources (according to the regime of periodical reports, production and business projects), from domestic and foreign credit information agencies, ministry departments, etc Number and quality of information are related to lending, monitoring and management of loan accounts Therefore, the more accurate, quick and comprehensive the information, the more risk prevention in business operation, the higher credit quality

 Internal control

This is a measure to help the bank's management obtain information on business status in order to maintain effective business activities in accordance with the policies to meet the set objectives

In the area of credit, control activities include:

 Control of credit policies and procedures related to loans (executive authority, management, supervision of loans, records, procedures for lending, etc.)

 Periodic inspections are conducted by internal controllers, reporting exceptions, policy violations, accounting procedures, and accounting controls

 Science and technology

Nowadays, with the rapid development of science and technology, demand for services and quality is increasing as well; therefore, requiring banks to apply new science and technology into their business and products

Modern technology will enable the bank to create new products to meet the diversified needs of customers, process data more quickly, manage business more efficiently and applying the more convenient debt collection for customers

 Distribution channel

The wide distribution channel network and arranged in reasonable locations will create favorable conditions for customers to trade In addition, the network not only acts as a distribution channel, but also serves as an information supplier for customers and the bank Customers will know the bank through the distribution channel images and the bank will have more favorable conditions in the market research and customer needs research

 Marketing Policy

Marketing policy is one of the key steps to develop the strategy, orient banking services, create brand image for the bank Any industry should have its own marketing policy, especially the service sector, banks are no exception

1.3.2 Factors belong to the business, customers

Any business or customer who wants to borrow capital from the bank must meet the credit conditions and standards that the bank has set out to ensure the safety, prevention risks to the bank when lending Therefore, the ability to meet the requirements of customers and businesses directly affect the credit quality of the bank

 Own capital of the business

Self-contained capital shows the financial autonomy of enterprises, solvency and risk-taking ability of enterprises If the capital itself is too small while the loan capital is too large, the ability of financial autonomy and solvency of enterprises is low, enterprises are more passive in production and business payment capacity

 Management capacity

Management capacity demonstrates the adaptability of business management

in the changes in the business environment If the management capacity of the business is weak, it will lead to wasteful use of resources, low business efficiency and loss of capital The consequence is the inability to repay bank loans

 Production capacity of enterprises, customers

Repayment source of customers mainly from the results of the operation, production, profits brought by the projects This capacity is reflected in the market share, the quality of products that customers are offering in the market, the brand, the future of the product, the higher this capacity, the greater the customer's capital needs This is also one of the bases for banks to consider before lending to customers

 The purpose of using capital of enterprises, customers

One of the bank's lending principles is that the borrower must commit to using the funds for the right purpose However, there are many cases in which an enterprise, after receiving a loan, deliberately uses the loan for the wrong purposes, thus causing a loss of capital, thus not repaying the loan to the bank

 Collaterals

Business activities associated with the possession of a certain amount of property, property rights expressed in the legal capacity of the customer From the beginning, most bank loans need collateral However, not all assets are accepted by the bank as collateral for the loan but only the qualifying assets are accepted by the bank

 Feasibility of the project

Customers need loans to carry out their projects When customers build a business project, they will also know their work orientation and it will help for customers when the bank review and evaluate the loan Feasible production projects are projects that are marketable, not violate the law,having economic effect Effective production projects will ensure a stable source of repayment of principal and interest for banks

 Ethical conduct and goodwill repayment

In credit relationships with customers, ethical behavior influences goodwill repayment and affects customer repayment Currently, there are many cases that customers deal with banks by providing inaccurate numbers It is also a very difficult target to assess and evaluate, but banks can only make partial estimates of

the willingness to repay of customers Customers with bad credit history will not be appreciated by the bank for future loans

 Economic environment

As a general rule, a stable economy will facilitate the circulation of goods and money flows smoothly and make credit activities become effective A stable economy is an economy that creates all conditions for businesses to do business without being influenced by inflation factors The crisis makes the process of credit performance of commercial banks Trade and short-term debt repayment plans of disturbed businesses In this case, the quality of credit remains largely dependent on the management capacity of the commercial banks themselves

The economic cycle also has a great impact on credit activity In the period

of economic stagnation, production and business shrinking, credit activities will face many difficulties in all aspects Demand for credit capital will decrease during this period, if credit has been made it is difficult to effectively use or repay the bank However, during the flourishing period of the economy, the demand for credit capital increased, the credit risk decreased, credit activities of commercial banks will be more favorable But it is not ruled out by race in business, speculative hoarding, excessive credit demand There are many credits which are less likely to

be repaid

 The political and social environment

The stability of political and social is the precondition for people to believe

in the leadership of the Party and the State This will create favorable conditions for attracting domestic and foreign investment for economic development Therefore, the demand for loans from enterprises has been improved On the side of the bank, there are many opportunities to expand and improve the quality of lending to enterprises The bank is also willing to release capital for the economy, not worry about possible moral risks Conversely, when the social and political environment is unstable, they will reduce the grestige of investors for business management As a

result, the scale of investment has narrowed, resulting in a decline in demand for loans and the quality of lending by commercial banks

In a more specific way, credit quality depends on three factors: customer, bank lending ability and mutual trust between them In particular, trust is considered to the bridge for banks and customers Customers in the credit relationship are both capital providers and capital demanders Customers want the bank to provide a reasonable interest rate, simple procedures, and fastness in transaction

 Regulatory environment

Law is the foundation for banking operations in general and credit activities

in particular Thanks to the law, banking operations are carried out safely and sustainably For enterprises, a stable and stable legal environment will be a prerequisite to promote business activities of enterprises, creating more favorable conditions for enterprises to borrow capital from banks Conversely, when the legal environment is not complete and synchronous, continuous changes can negatively affect the quality of bank lending to enterprises The legal system in Vietnam is still inadequate This is a problem that greatly affects the development of banks and businesses

 Natural environment

Although the relationship between banks and commercial banks is based on trust, preferential treatment and strict adherence of the parties, the quality of lending

by commercial banks to enterprises can also be reduced due to force majeure This

is a risk that occurs due to natural phenomena such as droughts, floods, earthquakes, fires or macro-level changes such as economic policy, tariff barriers, etc These changes often occur , continuous impact on the borrower The unfavorable natural environment is one of the reasons, that causes the decrease in the quality and efficiency of investment of enterprises, affects the repayment capacity of the borrowes, thus reducing the quality of the bank's loans

 The international environment

In the comparison with commercial banks in Vietnam and foreign banks, foreign banks have better differences in financial capacity, management level, technological progress as well as services provided In addition, in today's competitive environment, when more and more foreign banks enter Vietnamese market, Vietnamese commercial banks must assert their position The most effective way is to improve the quality of credit to keep existing customers and to attract more potential customers, thereby creating a large and loyal customer base

CHAPTER 1 CONCLUSION

In Chapter 1, the author has reviewed the literature of credit and bank credit including definition of credit and bank credit, the role and characteristics of credit and bank credit The factors affecting credit quality have been generally listed With the theories mentioned, chapter 1 is the basis for analyzing and evaluating credit activities of banks and providing solutions to develop credit quality at banks

In Chapter 2, the author will present the current scenario of services and activities and give some comments about VietinBank Thu Duc

CHAPTER 2: QUALITY OF CREDIT IN VIETNAM BANK FOR INDUSTRY AND TRADE - THU DUC BRANCH

CHAPTER 2 INTRODUCTION

In Chapter 2, the author will introduce VietinBank and go to learn about VietinBank Thu Duc and presents the products and services are provided to customers In addition, Chapter 2 will also analyse the credit performance of VietinBank Thu Duc and give comments on the results achieved, remaining constraints and solutions to address these constraints

2.1 An overview of VietinBank

2.1.1 Overview of VietinBank

Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank)

is known as one of the four major banks currently playing a pivotal role in the banking and finance system in Vietnam Vietinbank (formerly Viet Nam Bank for Industry and Trade) was established on March 26, 1988, after its separation from the State Bank of Vietnam, pursuant to Decree No 53/1988 / HDBT of the Council

of Ministers and officially entered into operation on July 08, 1988

 Registered name: VIETNAM JOINT STOCK COMMERCIAL JOINT STOCK BANK

 VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE

 Name of international transaction: VietinBank

 Securities code: CTG

 Logo:

 Phase III: 2009 to present

Successfully equitized and conducted a complete system innovation towards modernization and standardization in all aspects of banking activities Converted organization model and corporate governance in accordance with international standards and practices

2.1.3 Organizational chart of VietinBank

Figure 2.1 Organizational chart of VietinBank

(Source: www.vietinbank.vn)

2.1.4 Mission of VietinBank

VietinBank is one of the four pillars, bearing the pioneering position in the field of finance and banking of the country Thus, the bank has built up the core of its mission, with the integration and development of the economy as well as its mission of delivering core values and business philosophy as follows:

Becoming a leading bank in Vietnam, multi-purpose operation, providing products and services in accordance with international standards, improving the value of life, meet the optimal and satisfy all the financial needs of customers

To become a modern and effective banking and financial group in the country and in the world, professionally, creatively, dynamically, conscientiously and transparently

To consolidate and develop a contingent of dynamic, professional and loyal cadres; to create a favorable working environment, to encourage laborers to strive

for their full dedication to the Bank, to pay tribute to excellent individuals and laborers

Developing an operational network, establishing close relationships with strategic partners both inside and outside, to attract more internal resources and reduce external competitive pressures

Strategic orientation for long-term and sustainable development, building a roadmap with specific objectives and establishing a clear and transparent legal corridor

2.1.5 Achievements of VietinBank

With nearly 30 years of establishment and development, Vietinbank has expanded its operation network, building its own brand name not only domestically but also abroad Currently, the domestic network consists of two representative offices in Ho Chi Minh City and Da Nang City, 155 branches, over 1,000 transaction offices and savings funds, nearly 2,000 ATMs In the international market, VietinBank has two branches in Germany, one wholly-owned subsidiary in Laos and one representative office in Myanmar

VietinBank has established correspondent banking relationships with more than 900 banks and financial institutions around the world VietinBank is also the first bank in Vietnam to receive ISO 9001/2000 certification It is a member of the Vietnam Bankers Association, Asian Bankers Association, SWIFT Global Financial Telecommunication Association ), Issuing and payment card VISA, MASTER international

2.2 General introduction of VietinBank Thu Duc

2.2.1 Formation process

Vietnam Joint Stock Commercial Bank for Industry and Trade - Thu Duc Branch (VietinBank Thu Duc) officially separated from Branch 14 - East Sai Gon Branch in 2006 and become one of 23 branches of VietinBank in HCM City VietinBank Thu Duc has great contributions to the development of VietinBank Ho Chi Minh City and the economy of the Thu Duc area