Lending to large corporate clients at saigon hanoi commercial joint stock bank

Master‟s Thesis: LENDING TO LARGE CORPORATE CLIENTS AT SAIGON- HANOI COMMERCIAL JOINT STOCK BANK... ACKNOWLEDGEMENT With the approval of the VNU - International School, the University o

Master‟s Thesis:

LENDING TO LARGE CORPORATE CLIENTS AT

SAIGON- HANOI COMMERCIAL JOINT STOCK BANK

ACKNOWLEDGEMENT

With the approval of the VNU - International School, the University of Nantes and my Advisor, Ph.D.Assoc.Prof Nguyen Van Dinh, I have chosen the subject of the research

"Lending to large corporate clients at Saigon – Hanoi Commercial Joint Stock Bank (SHB)”

To complete this thesis, I would like to express my deep gratitude to all the teachers were enthusiastic teaching and guidance during my study, research and training at the department

I would like to deeply thank our teacher - Ph.D.Assoc.Prof Nguyen Van Dinh who guided me access to research topics and find out the best solution for this study He has given

us a very sincere affection, warmth, an attitude to work very carefully, exemplary I could not have imagined having a better mentor than him to my graduation topic

Although my work is very busy, I always try my best to complete the thesis However, the first time doing an academic research brings me from this challenge to another one So it

is impossible to avoid all difficulties in doing the research So I would like to receive valuable feedback from the teachers and colleagues to my study in order to get my thesis completed Last but not least, I also would like to express my special thanks to my family for their support during my two years studying in this program as well as during the last highly intensive time for this thesis

Sincerely thank with my best regards,

Hanoi, 2018

Author: Nguyen Thi Quyen - FBA8

TABLE OF CONTENT

ACKNOWLEDGEMENT 1

TABLE OF CONTENT 2

TABLE OF NOTATIONS AND ABBREVIATIONS 4

LIST OF FIGURES 5

LIST OF TABLES 6

CHAPTER 1: INTRODUCTION 1

1.1 Purpose and aims of the study 1

1.2 Objectives and research tasks 2

1.3 Research scope 2

1.4 Research Methodology 3

CHAPTER 2: LITERATURE REVIEW AND THEORETICAL FRAMEWORK 4

2.1 Literature review 4

2.2 Theoritical framework 5

2.2.1 Commercial banks and their main activities 5

2.2.2 Lending to large corporate clients 11

CHAPTER 3: LENDING TO LARGE CORPORATE CLIENTS AT SAIGON – HANOI COMMERCIAL JOINT STOCK BANK (SHB) 25

3.1 Brief overview on Saigon – Hanoi Commercial Joint Stock Bank 25

3.1.1 General information 25

3.1.2 The establishment and development of Saigon – Hanoi Commercial Joint Stock Bank 25 3.1.3 Main business activities 27

3.1.4 Organization structure and management mechanism of Saigon – Hanoi Commercial Joint Stock banks 28

3.1.5 Major business indicators 29

3.2 Curent situation of lending to Large Corporate clients at Saigon Hanoi Commercial Joint Stock Bank 36

3.2.1 The policy of lending to Large Corporate clients at Saigon Hanoi Commercial Joint Stock Bank 36

3.2.2 The Lending procedures of banks 38

3.2.3 Results of lending to Large Corporate clients at Saigon Hanoi Commercial Joint Stock

Bank 40

3.3 Evaluation of lending to large corporate clients at Saigon Hanoi Commercial Joint Stock Bank 49

3.3.1 Achieved resultsments 49

3.3.2 Limitations 50

3.3.3 Reasons for limitations 50

CHAPTER 4: PROPOSED SOLUTIONS TO IMPROVE LENDING TO LARRGE CORPORATE CLIENTS AT SAIGON HANOI COMERCIAL JOIN STOCK BANK (SHB) 57

4.1 Development direction of Saigon Hanoi Commercial Joint Stock Commercial Bank 57

4.2 Development orientation regards to Large Corporate clients at Saigon - Hanoi Commercial Joint Stock Bank 58

4.3 Solutions to improve lending to large corporate clients at Saigon - Hanoi Commercial Joint Stock Bank 59

4.3.1 Improving lending policy for Large Corporate clients 59

4.3.2 Enhancing quality of staff who are in charge of Large Corporate clients 63

4.3.3 Modernizing bank‟s technology, enhancing credit information quality 64

4.3.4 Develop marketing activities for Large Corporate clients 65

CONCLUSION 68

REFERENCES 70

TABLE OF NOTATIONS AND ABBREVIATIONS Abbreviation Meaning

SHB Saigon – Hanoi Commercial Joint Stock Bank

WTO World Trade Organization

VCCI Vietnam‟s chamber of commerce and industry CIC Credit information center of State bank

USA The United Stated of America USD United Stated dollar

SMEFP Small and Medium Enterprises Financing Products

LIST OF FIGURES

1 Figure 3- 1 SHB‟s Ownership structure

2 Figure 3-2 SHB‟s Total Assets

3 Figure 3-3 SHB‟s capital mobilization

4 Figure 3-4 SHB‟s Outstanding loan balance

5 Figure 3-5 SHB‟s Outstanding loan balance classification in terms of subjects

6 Figure 3-6 SHB‟s Outstanding loan balance structure in loan terms

7 Figure 3-7 SHB‟s Bad Bebt Ratio

8 Figure 3-8 Outstanding loan balance of Large Corporate clients during

2013-2016

9 Figure 3-9 Scale of lending to Large Corporate clients at SHB during 2013-2016

10 Figure 3-10 Large Corporate clients‟ bad debt/SHB‟s total bad debt during

2013-2016

LIST OF TABLES

1 Table 2-1 Classification of Small and Medium Enterprise in Vietnam

2 Table 2-2 Corporate clients segmentation criteria

3 Table 3-1 SHB‟s organization structure

4 Table 3-2 Business operation results of SHB

5 Table 3-3 Results of Capital Mobilization from clients

6 Table 3-4 Number of SHB‟s Large Corporate Clients during 2013-2016

7 Table 3-5 Large Corporate client‟s proportion in total outstanding loan balance

of corporate clients at Saigon Hanoi Commercial Joint Stock Bank

8 Table 3-6 Structure of SHB‟s outstanding loan balance of Large Corporate

clients in loan terms

9 Table 3-7 Structure of outstanding loan balance for Large Corporate clients in

terms of economic sectors

10 Table 3-8 SHB‟s bad debt during 2013-2016

11 Table 3-9 Large Corporate clients‟s capital turnover

12 Table 3-10 Large Corporate clients‟s incremental capital-output ratio

CHAPTER 1: INTRODUCTION 1.1 Purpose and aims of the study

In today‟s era of open and free trade, especially after joining the World Trade Organization (WTO), there are an increasing number of mergers in Vietnam, in which enterprises incorporate with or acquire other enterprises, in order to become corporations This is the only path for domestic business to survive and compete with large conglomerates coming from oversea as aultimate effect of joining WTO

Large-scale enterprises are able to withstand and function well in unfavorable economic environment The operations of enterprises are vastly experienced; hence they are fairly stable and highly secure Moreover, they have established good reputation and maintained steady growth in the market Despite accounting for a small proportion of the total number of business entities operating in the economy, large firms engage in extremely important industries, make substantial contributions to the national budget and generate much higher GDP than both small and medium business combined Therefore, enterprises are always considered as an indispensable part of national economy, leading the development of country through different economic cycles

In the near future, it is believed that the number of large businesses will tend to increase rapidly Therefore, commercial banks are better off to prepare to meet the excessive

demand from this potential line of client The benefits that big enterprises bring to banks do not only come from giant loans, which provide banks with the highest revenue stream amongst other group of clients Large firms also play as sources of important information and relationship networks, which can exponentially increase client base and revenue for banks The sustainable development of enterprises, especially large enterprises, is crucial for the advancement of Vietnamese macro economy toward a secure and more attractive business environment

In the banking industry, enterprises play a special role The continuous growth of a bank has always been accomplished by the contribution of corporations, since these are the major stream of revenue for the bank On the other hand, with strong financial positions and enormous demand in capital, large enterprises often account for the mass of outstanding loans generated from commercial banks, which substantially increase banks‟ assets Therefore, the quality of banks‟ credit operation also depends heavily on their large corporate clients

Under recognition of this matter, Saigon – Hanoi Commercial Joint Stock Bank (SHB) has made significant efforts to develop credit schemes to accommodate the demand of enterprises and to stimulate expansion of the bank However, the influence of these efforts has

not been commensurate with the bank‟s potential as well as corporations‟ potential The continuous development of credit schemes for large enterprises is of extreme significance for

SHB to uninterruptedly expand and develop Therefore, the topic of “Lending to large

corporate clients at Saigon – Hanoi Commercial Joint Stock Bank (SHB)” has been

selected for further research, bases on its practical applications

This study aims to firstly generate a definition of large enterprises, in which the criteria for selection, features, and the role of enterprises in the economy are specified Secondly, the research also establishes an overview of credits, and the influence of credits to business client The suitable credit schemes applied to those clients are also taken into consideration Moreover, the importance of credit scheme development in commercial banks will be taken into account, specifying relevant factor of influence Finally, the research will study credit schemes applied for enterprise in Saigon – Hanoi Commercial Joint Stock Bank during period 2013-2016, the achievement and limitation of which will be discussed In addition some suggestions for the development of credit activities for enterprises in SHB in the future are given for consideration

1.2 Objectives and research tasks

The thesis is aimed to establish result both theoretically and empirically First, the research intents to systematize the theoretical basis for the development of credit activities for corporate clients of commercial banks, by establishing and overview of commercial banks‟s credit activities, the characteristic of credit applied for corporate clients, concepts, indicators and analysis of factors that influence the development of credit activities for corporate clients

of commercial banks Secondly, the research aims to describe and assess the case study of SHB empirically, demonstrating the reasons for limitation in the development of credit activities for clients On the basis of which, the thesis will propose solutions to develop credit activities for enterprises clients at SHB in the future

1.3 Research scope

1.3.1 Content

This thesis is carried out from the view of commercial banks It focuses primarily on the development of credit schemes applied for corporate clients at commercial bank This includes definitions, factors of influence, limitations and suggestion for improvement

1.3.2 Space

This thesis is involved in the case study of SHB The credit schemes applied to corporate client at SHB will be discussed

1.3.3 Time

The case study section of the thesis explore the time period 2013 - 2016, with suggestions for solution of problems can be applied until 2020

1.4 Research Methodology

This thesis employs empirical research with in-depth analysis and comparison to establish a thorough understanding and assessment of the quality of financial analysis procedure at SHB Data uses in the study are mainly secondary data, which are extracted from SHB‟s internal data from 2013 to 2016, including year-end reports, financial reports and reports on business results In addition, the thesis also exploits data from external source such

as articles from newspaper, reports, academic curriculum, books, other researches and relevant websites

CHAPTER 2: LITERATURE REVIEW AND THEORETICAL FRAMEWORK 2.1 Literature review

Regarding the banking and finance sector, there have been a lot of scientific works,

research articles and various topics have been published such as:

- "Extending lending activities at SHB Hai Phong branch", Graduation lecture by Nguyen Mai Lan writing in 2012 The author had analyzed and assessed the current situation of expanding lending activities at SHB Hai Phong Branch in the period 2010-2012, thereby proposed solutions to expand lending in the coming time: Develop appropriate lending policy; Developing marketing strategy; Improve the quality of credit staff; Expanding the scope and scope of lending; Network expansion; Promote loans under existing products

- "Expanding Consumer Loans at Saigon - Hanoi Commercial Joint Stock Bank (SHB)", Master thesis of author Bui Cong Nam writes for 2012 The author had analyzed and assessed the current status of open Expanding consumer lending activities at SHB in the period 2010-

2012, thereby proposing orientations, solutions and recommendations in the coming time: Strengthening credit loans; Diversification of credit loan products; Improve the level of staff; Improve credit lending policy; Expand Marketing and Networking

- "Developing non-credit banking services for individual clients at Saigon- Hanoi Branch Chuong Duong", master thesis of author Nguyen Hoang Ha wrote in 2011 Author has given Specific solutions include: Penetrating the market and attracting clients strongly; Pay close attention to client development and management; Technological innovation; Develop the financial capacity of the bank; Improve the quality and management of human resources; Enhancing client care

- "Expanding lending to small and medium enterprises at Saigon - Hanoi Commercial Joint Stock Bank - Dong Do branch", Master thesis of author Nguyen Minh Tuan in 2012 The author has made some Solutions to expand lending to small and medium enterprises are: Diversification of lending; Develop flexible interest rate mechanism; Investment in marketing strategy; Strengthening consultancy activities for clients; Improve the quality of credit assessment; To well organize capital mobilization; Strengthening cadre work

- "Improving credit quality for small and medium enterprises in Saigon - Hanoi Commercial Joint Stock Bank - Hai Phong Branch", Master thesis of author Le Van Hai writes and pointing out the current status of credit activities for small and medium enterprises, which has identified the causes and proposed some solutions to improve credit quality: Focus on clients small and medium enterprises; Good implementation of capital mobilization; Development

and application of new lending products; Improving credit procedures, improving procedures and records; Flexibility in credit appraisal; Enhance client consultation

In summary, these studies have made important contributions to improving the basic theory of credit development, analyzing the situation of developing credit activities for different subjects, and provide some solutions and recommendations to competent authorities to develop credit activities at SHB However, the above works have not gone into analysis for a group of potential clients that are big business clients Therefore, in 2012, SHB established the Wholesale Banking Division (NHBB) to better meet the complex and specialized banking requirements for large corporate clients For SHB, big business clients are the challenges that need to be conquered and a milestone to prove their ability as well as prestige in the market This is a logical step and a great initiative in the transformation program towards becoming the leading commercial joint stock bank in Vietnam In order to implement this development strategy, it is necessary to provide an analysis and assessment of the development of lending for large corporate clients at SHB The solution is more suitable for the development of credit activities for corporate clients in the coming time

With the idea of finding solutions to improve the quality of lending to large enterprises at SHB, the author inherits and selects the related research achievements to serve the implementation of the topic

as financial investment, providing services to different groups of business sectors Meanwhile

in some other countries, commercial banks are considered as banks that are allowed to generally operate all banking services

In Vietnam, commercial bank are clearly defined in banking and credit institutions laws

no 47/2010/QH12 published on 16/06/2010 “A banks is a form of credit institutions which are able to perform all banking activities in accordance to this Law Regarding the characteristics and objectives of activity, the forms of bank include commercial banks, policy banks, and cooperative banks”

In fact, commercial banks in our country in addition to carrying out activities as stated in

the aforementioned law, also have to implement other activities which are suitable to economic and social development requirement following socialist orientation That is, lending

to promote some sectors of the economy, special treatment for some particular projects and subjects Therefore, in Vietnam commercial banks are often considered as banks which perform general service on monetary business such as receiving deposits from client to lend and provide investment, etc and are placed under strict monitor of government

2.2.1.2 Main business activities of commercial banks

Commercial banks play a vital part in providing and harmonizing capital for the economy With current development state of economy and technology, banking activities has experience rapid and diverse improvement, however banks still maintain the following basic business:

a Capital mobilization:

Definition: Capital mobilization is the act of receiving temporary and free capital from

organizations and individuals via many different methods, in order to form bank‟s source of

capital for operation (Source: According to Commercial bank curriculum – National Economic University Author: Assoc Prof, Dr Phan Thi Thu Ha, published in 2013)

The role of capital mobilization:

- To the economy: is the channel for capital movement, provide commodities for financial and monetary market

- To commercial banks: Create major source of capital for business activities of commercial banks, attract client, enhancing brand‟s reputation

- To client: Provide clients a secure channel for capital investment and capital accumulation Assist client in access to bank‟s utility services

Forms of capital mobilization:

- Mobilize capital by receiving deposits: Terms deposits, demand deposits, saving accounts, etc

- Mobilize capital by issuing valuable papers

- Mobilize capital via loans from other credit institutions and Central Bank

Capital mobilization is the most basic and important business of commercial banks, which largely influence bank‟s operation quality The capital are mobilized under different form such as deposits, loans, issuance of valuable papers On the other hand, based on the amount

of capital mobilized, banks carry out lending activities to regional and local targets for economic development, in order to serve their purpose of production development Capital mobilization activities are increasingly expanded, enhancing banks‟ reputation, banks take initiative in their business, expanding credit relationship with residential organizations and

economic sectors, enhancing bank‟s profit stream Therefore, commercial banks must rely on strategy, economic development target of both regions and the country itself From then on carrying out the most appropriate capital mobilization methods, which are medium and long term source of capital, in order to fully meet capital requirement of country‟s industrialization and modernization

b Lending and investing activities:

This is the business which directly brings profit for commercial banks, efficient capital utilization will strengthen banks‟ reputation, and also determine bank‟s competitive ability in the market Hence, bank must carry out analysis and apply the most suitable capital utilization strategy

Firstly, banks carry out lending activities:

- Definition :Lending is a form of credit extension, in which credit institution provide or

commit to provide client an amount of money to use on specified purposes within a specified amount of time under an agreement with principal of repayment of initials and interest

(According to Decree 39/2016/TT-NHNN dated 30/12/2016 on the provision of lending activities of credit institutions, foreign bank branches to clients)

- Different forms of lending in banks:

+ Based on the purpose of lending that it is classified into two types of lending, which is consumer lending and business lending

Consumer lending:

The purpose of this type of lending is that borrower must use the acquired credit on consuming and purchasing fixed assets for personal purposes When carrying out this type of lending, credit staff must consider the source of repayment to banks being borrower‟s individual income This form of lending only just appeared in the beginning of the 20thcentury, when commodity economy development leads to global economics recessions, which made commodity capitalist to discards various goods, since consumers‟ needs did not reflect actual needs The most popular form of this credit type is instalment financing, which had been successfully applied in developed countries Banks can issue instalment financing to worker for the purchase of automobile vehicles and loan mortgage

Business lending:

The purpose of this type of lending is that Banks lend to businesses for their own activities, so

as to expand business and production or to meet a particular demand of capital Base of the characteristics of each industries that bank established conditions for loans, loan method, and

repayment method base on business‟s income on sales revenue This lending type can be classified according to industry: Industrial lending, Agriculture lending, Service industry lending

+ Base on the lending term that lending can also be divided into short term lending, and medium-long term lending

Short term lending:

This form of lending is for the purpose of financing liquid assets or for short term capital requirement of the government, business and production household Short term lending can be carried out under these circumstances:

Banks lend to government to cover government expenses A popular form nowadays is bank buy bonds issued by the State treasury The government‟s ability to repay is high, however there are cases in which government fail to deliver repayment on schedule

Banks lend to financial institutions such as other banks, financial company, credit funds so as

to meet liquidity requirement Some securities companies apply for bank‟s short term loans in the process of underwriting and distributing shares of issuing business The majority of these loans rely on borrower‟s reputation

Banks lend to businesses in order to finance the additional capital requirement for business and production Businesses is the major clients of banks in terms of quantity, the majority of these loans are accompanied with collaterals or pledged assets

Retail, food processing, seasonal production business are the main clients of banks

Businesses also need credit from banks for construction, expansion, development and repair

of fixed assets These loans have terms under 1 year

Bank provide finance for export and import businesses

Banks lends for estate development of urban construction and development projects

Banks lends to consumers

Medium and long term loan:

Business required medium and long term loan for the purchase of equipment, construction, technical development, technological purchase with the rapid improvement of scientific technology, in order to sustain and develop, demand for medium and long term loans has been increasing

Banks purchase businesses‟ medium and long term bond so as to finance the establishment of fixed assets Maturity, bond‟s ability to convert, bond‟s interest rate, business‟ financial information, future plans and projects are all taken in to consideration by banks when purchasing bonds

When client establishing for the acquisition or construction of fixed assets, in order to carry out a particular project, can apply for bank loans One of banks‟ requirements is that borrowers must be able to provide a specific profile, demonstrating investment plan and purpose, as well as the process of carrying out the project (production and business) Project evaluation is the condition for bank to decide on granting the amount of loan and determining business‟ ability for repayment

+ Base of the form of security, loans can be divided into 2 types: secured loan and unsecured loans

Secured lending:

These are the loans that besides lending to clients, Banks also hold borrower‟s assets so that when borrowers breach credit agreements, assets are capitalized in order to repay the loan The process of capital grant of commercial banks, no matter which forms, increase capital input in the economy, raising the amount of goods on the market On the other hand, when lending Banks do not directly manage the capital, there are many risks involved, the possibility that bank cannot fully recover the loans is high, hence, Banks when lending usually ask for assets for the security of loans

In business lending the first benefits is revenue on mobilized capital loan, or depreciation, profit of medium and long term loans In consumer lending, Bank‟s first source of recovery capital is individual income such as salary, financial incomes and other incomes When evaluating clients‟ activities, if Banks recognize that the first source of income is not stable, then Banks must require the establishment of additional legal policy, so as to capture second

source for capital repayment, which is the assets that used to secure the loans Unsecured loans:

These are the loans that banks do not required secured assets from borrowers to recover debt, instead, banks generate binding conditions when signing credit agreement These conditions are: borrowers are prohibited from any business with other banks, borrowers‟ business activities must be monitored and managed by bank Therefore, Banks are able to manage financial situation of borrowers

Regularly, only clients that have long term relationship with banks, or reputable clients, or client with whom Bank participates in capital contribution are granted unsecured loans

+Base on the method of lending, loans are classified in to direct lending and indirect lending Direct lending:

The majority of lending in banks are direct lending These are the loans that granted to client that directly approach bank for loan application Banks directly provide capital to borrower on the basis of agreed condition When client have secured assets and good reputation, intermediaries are not required, they often directly apply for loans from banks

Indirect lending:

This is lending via intermediary institution Banks grant loans via different units, co-op, groups such as farmer production group, veteran group, women group, etc These organizations often gather member for different purpose, however they all support and protect members‟ benefit Hence, economic development and poverty elimination are under special interests

Banks also provide loans via retailers of material inputs for production process These lending method will limit borrowers in using loan capital for wrong purposes

Indirect lending is usually applied for market in which there are small amount of loans, borrowers are disperse and far form bank‟s monitor In these case indirect lending can help save lending expenses (evaluation, monitoring, debt collection, etc.)

Indirect lending also reduces risk for banks However there are several limitations Many intermediaries have taken advantages of their positions and if banks do not monitor well, they will increase lending interest rate, or keeping loan capital of other members for their own purposes Retailers also can exploit indirect lending to sell low quality products or sell with high price to borrowers

Lending is the most fundamental activity of commercial banks It is statistically reported that about 60% - 75% of bank‟s revenue come from lending activities The success or failure of a commercial bank mainly rely on the successful application of credit plan, which is established from bank‟s lending policy Different forms of credit can be classified in many ways, including: purposes, methods of collateral, lending terms, sources and repayment methods, etc

Secondly, carrying out investment activities:

Accompanying with social development is the establishment of a variety of different needs Being an entity that operates in service sector, Banks must be able to be regularly update with information, diversify its business so as to efficiently provide capital for the economy Beside the most common method that is lending, banks also utilize capital for investment purposes There are two main investment method which banks have been implementing:

Investment on the sales and purchases of financial securities or investment on capital contribution to different businesses and organizations

Investment on facilities and equipment which serve the purpose of bank‟s operation

Thirdly, other banking services

Being financial intermediaries, commercial banks possess many advantages One of those is that bank represent client to carry out payment for goods and services In order to make fast, convenient payment without excessive expenses, banks have introduced various form of payment such as: cheque payment, payment order, collectibles, different type of cards, etc.; providing electronic payment network, connecting funds and providing cash when clients require Besides, commercial banks also carry out brokerage activities, in which they sell or purchase financial securities and acting as underwriters for business‟s equity issuance Moreover, banks also carry out entrust services such as entrusted lending, entrusted investment, entrusted capital, entrusted disbursement and collection, etc

Therefore, efficient operation of the above activities will ensure bank‟s existence and sustainable development in nowadays fierce competition Because those activities are strongly connected with each other, the source of mobilized capital influence capital utilization decision, which capital needs in turn influence the scale and structure of mobilized capital Intermediary business operation although creates additional stream of revenue for banks, however, its primary purpose is to attract clients, generating condition for the efficient mobilization and utilization of capital

2.2.2 Lending to large corporate clients

2.2.2.1 Overview on large business enterprise clients

a Definition

Business Enterprise is defined as an organization which possesses its own name, assets,

business office and is registered in accordance with law for business purposes “According to Item 7, Article 1, Chapter 1 of Enterprise Law No 68/2014/QH13 of the National Assembly

of the Socialist Republic of Vietnam

b Business classification scheme

Business classification: in Vietnam, business enterprises are classified into 3 main categories,

which are Large Enterprise, Small and Medium Enterprise, and Micro Enterprise The classification of business categories are based upon the scale of total capital or the average number of employees “According to Decree No 56/2009/NĐ/CP issued by the Government

on supporting the development of Small and Medium Enterprises

Large enterprises are classified based on business size-related criteria, according to the specific regulations of each countries A business can be Large enterprise in one country but also can be distinguished as Small Enterprise in another country In addition, in this time period business is rated as Large Enterprise, but in other time period, it can be recognized as Small enterprise in order to be appropriate with economic state The determination whether a business is a Large enterprise or not is usually considered in accordance with the stage of development, social economics features, country‟s employment status

In developed economies, rating and classifying activities is always under special interest

of businesses and consumer public, for example Fortune 500 is the rank of 500 largest United States‟ public companies based on total revenue which is published by Fortune magazine Meanwhile, Forbes 500 is the rank of top 500 United States‟ businesses selected by Forbes magazine based on five key criteria: total revenue, total profit, total assets, capitalization and number of employees

On the practical assessment and ranking of large business enterprises of Vietnam, which started in 2007, Vietnam Report & Assessment Company (VietnamReport) on the ground database as well as the current condition of Vietnamese business enterprises, has established VNR500 lists including: the first list, top 500 largest business enterprises in Vietnam (disregard on ownerships: State-owned, Private or International ownership); the second list, top 500 largest private companies based on total revenue This is a fairly simple and yet quite effective method which is adopted from Fortune 500 in order to generate a brief overview that reflects the strength of Vietnamese business enterprises based on the scale of operation revenue

In fact, there is no exact concept, definition on Large enterprise but only on Small and Medium enterprise Therefore, people usually use method of exclusion to define Large enterprise

In Vietnam Small and Medium enterprise are specifically determined in Decree No

56/2009/NĐ-CP dated 30/6/2009 of the government:“Small and Medium enterprises are businesses which are registered according to regulations, are classified into three levels: micro, small, medium regarding to the scale of total capital (total capital is equivalent to total

assets which is interpreted on business’s balance sheet) or annual average number of employees (total capital is priority criteria), in specific:

Table 2-1: Classification of Small and Medium Enterprise in Vietnam

Scale

Section

Micro Enterprise Small Enterprise Medium Enterprise

Number of Employee

Total capital

Number

of Employee

Total capital Number of

Below 20 billion VND

From 10

to 200 people

From 20 billion VND

to 100 billion VND

From 200 people to

300 people

Manufacture and

Construction

Below 10 people

Below 20 billion VND

From 10

to 200 people

From 20 billion VND

to 100 billion VND

From 50 people to

300 people

Commerce and

Service

Below 10 people

Below 10 billion VND

From 10

to 50 people

From 10 billion VND

to 50 billion VND

From 50 people to

100 people

(Source: Article 3, Decree 56/2009/NĐ-CP dated 30/6/2009)

Therefore, According to Decree No 56/2009/NĐ-CP dated 30/6/2009 of the Government, business with total capital above 100 billion VND and/or number of employees exceeds 300 people ( for Commercial and Service business, total capital above 50 billion VND and/or number of employee more than 100 people ) would be considered as Large enterprise This method of determining large enterprise is reasonable in terms of laws and regulations, however inadequate in terms of practical application For example, Large enterprises may have smaller total revenue than Small and Medium enterprise, but larger number of employees than Small and Medium enterprise On the other hand, number of employees varies from time to time hence, it is difficult for local authorities as well as banks

in managing business enterprises Thus, it is necessary to establish a consolidating view on the question: “How is a Large enterprise client defined?"

In Saigon – Hanoi Commercial Joint Stock Bank, according to Decision No 2444/2016/QĐ-TGĐ dated 15/11/2016 on determining the segmentation of corporate clients

at SHB Large business clients are classified according to the following criterias:

- Average net total revenue

- Or expected revenue on plan/Project financed and equitized by SHB

- Or businesses on which SHB does not have financial information then the determining classification criteria is average current account balance

Table 2-2: Corporate clients segmentation criteria

A Base on average net total revenue criteria (with credit relationship or without credit relationship)

1 Large enterprise Clients - Net total revenue > 1.000 billion VND

2 Enterprise Clients - Net total revenue < = 1.000 billion VND

B Base on expected revenue on plan/project financed and equitized by SHB

- Total capital <= 400 billion VND

C Base on average current account balance for corporate clients whose net revenue are unable to determine

1 Large enterprise Clients - Average current account balance > 50 billion VND

2 Enterprise Clients - Average current account balance < = 50 billion

VND

( Source: Decision No 2444/2016/QĐ-TGĐ dated 15/11/2016 of Saigon – Hanoi Commercial

Joint Stock Bank)

c Features of Vietnamese Large enterprise clients

 Advantages of Large enterprises

Large enterprises have four outstanding advantages, in specific:

Firstly, Large enterprises possess large scale in terms of capital, labor, revenue, with

ability to compete due to their financial and technical potential, good market position, diverse forms of ownership hence able to utilize and promote domestic potential through various schemes of economic cooperation

Secondly, Large enterprises are able to easily mobilize large amount of capital for the

purpose of production/business as well as investment on technological innovation, investment

on expanding and developing production, investment on effective projects Large enterprises are highly experienced in their market, have obtained certain financial strength and prestigious reputation amongst suppliers as well as banks, their plans/projects are often thoroughly investigated and analyzed, ensuring the ability to perform well in order to repay debt owed to banks, hence these are businesses in which bank actively approach to invest capital Large enterprises are also business where research and application of science and technology to production/business are dynamically promoted Large enterprises are capable of increasing economic strengths and competitive ability of business as well as economy

Thirdly, Large enterprises are considered to have good environment for training

newcomers, teams of staff and worker, together with investing in research for technological and product innovation Due to the achievement of economics of scale in operation and usually being prepared with technological equipment, in order to master technology businesses must possess high quality source of labor, regularly organize training classes to enhance skills and constantly approach new technology during daily operations

Fourthly, with fairly broad field of activity, possibly specialization or

multidisciplinary, Large enterprises can dominate other businesses, especially Small and Medium enterprises, turn those enterprises into satellite businesses in their economic cycle

 Limitations of Large enterprises

Base on the characteristics of Large enterprise, they also have certain limitations

First limitation of large enterprises is difficulty in establishment Large enterprise

when being established usually require large investment in factories, machine and equipment, manufacture technology, etc

Secondly, large scale in operation accompanies with massive management system,

which is hard and extremely costly to manage When changes happen in the market, Large enterprise are not as flexible as Small enterprises, therefore adapt slowly to movements in market condition Large enterprise when encounter problems in operations can easily create

substantial pressure on the economy

Thirdly, Large enterprises are equipped with advance machine and technology hence

they have strict requirement on high quality source of labor Meanwhile the available training system is still unable to catch up, the education process is heavily theoretical, there is a shortage of skillful technicians

d The influence of Large enterprises on economy

Large enterprises always play the center role in the deployment of industrialization

development policy, and also lead the advancement of scientific technology in various industries The production/business of Large enterprises always generate demand for Small and Medium enterprise to take part in manufacturing, supplying intermediary products, support services

In a market economy, businesses are the first entity to participate in the process of economic integration, which acts as a bridge, connecting domestic economy with regional and global economy A more profound meaning is that they contribute to the effective handling of country‟s resources and also are the driving force behind economic growth The role of large enterprises are justified, demonstrated in the following points:

Firstly, Large enterprises usually hold a massive amount of national resources,

including capital, labor and technology For instance, only10 State-owned companies and economic groups account for over 80% of business capital of all state-owned companies in Vietnam Thus, Large enterprises play an important role in mobilizing and utilizing national resources

Secondly, Large enterprises hold vital position in many industries and sectors of the

economy In Vietnam, economic corporations, state-owned companies dominate in many industries such as electricity, mining and extraction, oil, airline, banking These large enterprises have strong impact on the development of social economy

Thirdly, Large enterprises are pioneering businesses, leaders in the research and

application of technology in production, encourage the advancement in technology of the economy

Fourthly, Large enterprises contribute greatly to the improvement of social economy

of the country According to data of General Statistics Office of Vietnam, the proportion of Large enterprises in Vietnamese economy currently account for only 4% of total number of businesses, however these enterprises represent more than 40% GDP annually, average

growth rate of Large enterprises stays above 20%

Fifth is leading and creating business conditions for Small and Medium enterprises,

the production/business of Large enterprise always generate demand for Small and Medium enterprises to take part in producing, supplying intermediary products and support services

Besides, Large enterprises hold important role in providing a large amount of goods, service for society; generating jobs and stable, regular income for large part of the population Because the distribution of Large enterprise is spread amongst many regions, they are able to utilize well every local resources, contributing in the regional economic restructure, establishing equal development amongst regions in the country, improving the relationship

between different sectors of the economy The activity of Large enterprises also constructs a competitive environment, encourage production/business to develop, which in turn make the economy more dynamic and effective, contributing in the establishment and development of senior class of business men for the economy Likewise, the development of Large enterprises required the administrative management scheme of the government to renovate to meet requirements

2.2.2.2 Roles, characteristics and Classification of loans for Large enterprise clients

a Roles and characterristics

The activity of lending to Large enterprise clients plays an important role in both Commercial banks and Large enterprises alike in expanding production/business

For businesses in general and large enterprise in particular, the roll of bank credit is reflected in the following points:

Firstly, banking credit supplement on businesses shortage in capital, creating favouralbe

condition to maintain, develop and help to expand business/production activities of Large enterprises With the help of credit from banks, Large enterprises not only possess the condition to sustain production/business activities while being lack of capital temporarily, but they can also acquire enough capital for investment and expansion of business/production, equipment and machinery, manufacture improvement, renovating existing production technology, contribute in increasing labor efficiency, reducing cost, increasing competitive ability to other Large enterprises in the market, enhancing business effectiveness

Secondly, bank credit contributes to stimulate better accounting system and transparency

in financial management Capital demand of Large enterprise is substantial, when businesses apply for loans, they have to anticipate efficient use of fund in order to make sure of the ability to repay initial and interest This require business to enhance management scheme, review consumption rate, reasonability of expenses to minimize costs, reduce product price to guarantee profitability On the other hand, while lending, one of the requirement that bank ask for is transparent, accurate and highly reliable financial reports with healthy financial position Thus, Large enterprise before, during and after the loan must always care for accounting activity and system, on one hand is the attempt to satisfy condition for loans given

by banks, on the other hand is the tool for Large enterprise to improve effectiveness of management and operation

Thirdly, bank credit is the bridge that link Large enterprises and market Market

economic conditions require business activities to reach a particular level of economic efficiency according to general market regulations to survive and develop In order to best

meet market demands, Large enterprise not only needs to improve labor quality, strengthen and complete management and accounting mechanism, but also have to continuously renovate equipment and machinery, production technology, search for and apply new materials, research and expanding apporpriate production scale These activities demand massive amount of capital, usually out of business‟s capital capability Hence banks are the source that timely provide fund helping business to meet market‟s demand Moreover credit activity is the connection between production and smooth circulation of good on the market

Fourthly, bank credit generates favorable condition for Large enterprises to integrate to

international economy, expand their business to overseas markets This is reflected on the fact that credit provides capital for Large enterprise to redefine and improve quality of goods and services as well as management method On the other hand, banks‟ operations, especial in term of international remittance, has greatly contribute to Large enterprises‟ export and import

of goods, expansion of foreign trade relationship, stimulation of the process of international cooperation and labor division

b Classification

Depending on clients‟ business/investment purpose of the loan, institution considers the decision to lend to clients the following types of loan:

- Short term loans are loans that has maturity up to 01 year, which is often used for the

purpose of financing liquid assets, meeting business‟s requirement for working capital

- Medium term loans are loans with maturity range from 01 year up to 05 years maximum,

with the main purpose is for investment/purchases of fixed assets, innovation or renovation of equipment, technology, production/business expansion, investment on new projects with small scale and fast return on investment

- Long term loans are loans in which maturity is more than 05 years, for the purpose of

financing big constructions/projects (housing, airports, transportation infrastructure, high value equipment/machinery, etc.), having long term usage

(In accordance with Circular 39/2016/TT-NHNN dated 30/12/2016 on the provision of lending activities of credit institutions, foreign bank branches to borrowers)

2.2.2.3 Credit policy

In accordance with Financial Institution Law 2010: Credit is an agreement for individuals and organization to utilize an amount of money, under repayment principles, by one of the following forms: Loan, Discount, Financial leasing, factoring, bank guarantee and other forms

of credit

Credit policy is the combination of banks‟ regulation on credit activities, in order to provide direction and guidance for the operation of bank‟s staff in granting credit to clients

Role of credit policy: Credit policy help banks achieve efficient lending portfolio, meanwhile guiding credit staff on necessary procedure, step by step carrying out lending activities within the constraints of their responsibility

The content of bank‟s credit policy: Clearly define major credit market (target clients) Credit portfolio Interest rate Collaterals Credit management

2.2.2.4 Procedures of Large enterprise clients

Credit institutions reach agreement with clients on application of the lending methods as follow:

- One shot loan: for every loan, credit institution and client carry out lending procedure,

signing loan agreements

- Syndicated loan: loans that in which there are more than two credit institutions jointly

participate in lending to client to carry out one loan plan/project

- Loan for crop season interval: credit institutions issue loan to borrowers for the purpose of

cultivating and raising seasonal plants and live stocks that follow continuous production cycle within a given year, or plants which roots are retained, industrial crops that are harvest annually Then, credit institution and borrowers agree on the outstanding amount of debt existing in the previous production cycle which can be used for the following production cycle, but shall not be allowed to exceed the time length of 02 consecutive production cycles

- Line of credit loan: Credit institution determines and agree with client on a maximum

outstanding balance available for loan which is maintained in a specified period of time Within the credit line, credit institution issues one shot loan At least once a year, credit institution carry out revision to re-determine the maximum outstanding amount of debt and duration of the maintenance of outstanding debt

- Provisional line of credit loan: Credit institution guarantees to readily provide loan to

client with amount restricted to the agreed amount of provisional credit Credit institutions and client agree on the effective period of provisional line of credit which is not allowed to exceed 01 (one) year

- Current account overdraft facility: Credit institution allows clients to spend an amount

that exceed client‟s current account balance, in which the overspending amount does not exceed a limit overdraft The limit overdraft is maintained within a period of time, maximum

to 01 (one) year

- Revolving loan: Credit institution and client agree to extend loan for capital purpose of

which business cycle does not exceed 01 (one) month, client is allowed to use the outstanding amount of principal of the previous business cycle for the following business cycle provided that the duration of loan does not exceed 03 (three) month

- Rollover loan: Credit institution and client agree to extend short term loan to client under

these conditions:

+ On the payment due date, client is entitled to repay debt or extend the period of repayment

of part or whole of the outstanding amount of loan principle for another specified period of time

+ Total period of time does not exceed 12 months starting from the first disbursement date and does not exceed one business cycle;

+ At the point of loan consideration, client does not incur any bad debt at any credit institutions;

+ During rollover loan period, if client incurs any bad debt at any credit institution, they are not allowed to extend time period of repayment as agreement

(In accordance with Decree 39/2016/TT-NHNN dated 30/12/2016 on provision of credit activities of credit institution, foreign bank branches to clients)

2.2.2.5 Criterias to measure for lending to large corporate clients

As a business operating in financial industry, banks have to bear risks just like other businesses Therefore banks must minimize risk in business The development of credit expansion to Large enterprise clients not only serve the purpose of improving total revenue but also need to account for safety and efficiency

Developing credit to Large enterprise clients is to increase in loan balance and scale of clients Some criteria that are commonly used are, the growth rate of client base, capital, ratio

of Large enterprise clients‟ loan balance and total loan balance In term of efficiency, common criteria are related to cost incurred and profit generated, ratio of overdue debt and bad debt In specific:

a Growth of client base

The increase in number of businesses is compared to previous years to calculate the growth rate of client base according to formula:

Growth rate

=

(No of Large enterprise year n - No of Large enterpriseyear n 1 )*100

No of Large enterprise year n-1This criteria reflects the bank‟s number of clients throughout periods of time, which illustrates bank‟s ability to attract new clients during given time period

b Outstanding balance ratio

Outstanding balance refers to the amount of loans that bank provides to Large enterprise clients in the given time period over total outstanding loan balance of bank The following formula is usually used for assessment:

Outstanding balance ratio = Outstanding loan balance of Large Enterprise client *100

Total outstanding loan balance This ratio shows the percentage of outstanding loan balance of Large Enterprise clients in total outstanding loan balance to all businesses and individuals If this figure is high then it can be referred that amount of loan provided to Large enterprises client accounts for large part of bank lending, which means bank has attempted to expand in lending large loan balance

c Growth rate of outstanding loan balance:

This figure is used to compare the growth of credit during different years in order to evaluate the ability to lend, search for client and assess bank‟s performance on carrying out credit plans to Large Enterprise client (LEC)

Growth rate of

outstanding loan balance =

LEC‟s loan balance year n –LEC‟s loan balance year n-1

The larger the growth rate, the higher level of stability and effectiveness in bank‟s operation On the opposite, bank encounters trouble, especially in the search for client and inefficient performance of credit plan

d Interest reclaimed ratio (%)

This criteria is used to evaluate the performance of bank‟s carrying out its financial plans, assess the ability to reclaim interest and the performance of bank‟s ability to generate revenue from carrying out lending plan

Interest reclaimed ratio = Total interest claimed in year

Total interest must be claimed in year *100

If this indicator is of high value, bank performed its financial plan well, also its financial position is healthy Likewise, bank has trouble reclaiming interest, which seriously influences bank‟s revenue, it is possible that bad debt (black list credit) in the banking industry increases, which influences bank‟s ability to reclaim interest, and also can influence future ability to reclaim interest (It is commonly understand that this ratio must be above 95% to be considered healthy)

e Recovery rate of due debt (%)

This indicator estimates credit efficiency in recovering bank‟s loan to Large enterprise client

Recovery of due debt = Amount of due debt recovered from LECs

This data shows bank‟s credit quality, evaluating the ability to recover outstanding balance of lending credit, also assess the performance of bank‟s credit plan, lending plan, debt recovery activities

f Large enterprise’s overdue debt ratio (%)

This indicator reflects the state of overdue debt amongst Large enterprise clients in comparison with bank‟s total outstanding loan balance

Overdue debt ratio = Overdue debt

This criteria demonstrates the status of overdue debt at bank, also reflect bank‟s credit management ability in the lending process and the urge to recover debt of bank with respect to loans

It is the criteria to be used for evaluating credit quality as well as credit risk at bank The higher the overdue debt ratio shows that banks has lower credit quality and vice versa

g Large enterprise’s bad debt ratio (%)

Large enterprise‟s bad debt ratio reflects the quality of credit operation within the segmentation of Large enterprise clients in the process of debt recovery

Bad debt ratio = Total bad debt

Besides overdue debt ratio indicator, bad debt ratio is also employed to analyze the actual quality of credit at banks Total bad debts of bank includes overdue debt, charge-off debt, overdue debt converted to in due debt, therefore this indicator illustrates credit quality of bank, while also reflects bank‟s capability of credit management in lending process and the urge to recover debt of banks with respect to loans

The higher the bad debt ratio reflects that banks has lower credit quality and vice versa

2.2.3 Factors to gecting lendings to Large Enterprise clients

The ability to develop credit activities for Large Enterprise clients is under great influence of many factors both external and internal factors of banks and businesses in different time periods

2.2.3.1 External factors

Economic environment: bank credit has already been considered as the most sensitive

sector in banking business Every movement of the domestic as well as international economy directly influences credit activities When the economy is in expansion phase, number of businesses is stable and capital demand growth respectively The optimistic expectation of the development ability encourages business to boldly invest in manufacturing, expanding production scale, therefore the demand of capital in this period is substantial On the contradictory, when the economy is in recession, investment demand is reduced, Large enterprise has to balance financial resources before making investment decision on business plans/fixed assets

Social environment: public intellectual standard, investment habit, local norms and

customs, social security etc are factors that strongly affect the scale of banking credit It directly influences subjects which participate in credit relationship, form of credit provision, etc In fact, an organized and secure society is considered to be safe for investment activities, and business will expand production Thus the demand to obtain loans from bank credit will rise It is opposite for anywhere that is not safe enough for investment

Legal environment: in business, legal environment is the combination of every legal

factors that affect business activities In market economy, legal factors are the necessary condition for business activities Although commercial banks are autonomous in business, they are obligated to abide all State bank regulations, credit institutions law, civil law and other regulations However when legal environment is incomplete and without synchronization, it will dampen the development businesses generally and commercial banks particularly In opposite, the synchronization of regulations and legal documents will create a steady legal boundary, contributes to healthy competition amongst commercial banks in credit activities And that is the legal foundation base on which banks can handle complaints, denounces when disputes arise during credit operations This will encourage credit activities

to expand efficiently

Besides, it is necessary to mention factors regarding to politics, culture, internationality, etc also have impact on the development capability of credit expansion for Large enterprise clients in commercial banks Stable politic environment, international integration will generate conditions which are favorable for the credit expansion of commercial banks On the contrary, when political environment is unstable, conditions regard to culture and internationality is unfavorable and difficult, Large enterprise clients cannot expand production, which results in the contraction of credit activities

2.2.3.2 Internal factors

These are factors that generate direct impact on the ability of developing credit activities

of commercial banks Internal factors include those that emerge from banks and Large enterprises themselves

From bank’s position: consists of factors which are influenced by banks such as: credit

policy, credit procedure and credit information

Credit policy: These are pathways and guild lines that bank establishes for credit

business activities in a certain period of time It is a combination of factors: loan limits applied to client, loan term, loan interest, etc Under the current condition of fierce competition amongst commercial banks on monetary market, a flexible credit policy is extremely important It will assist bank in meeting a variety of demands on capital of different types of business From then on bank successfully reach the target of expanding and enhancing credit efficiency

Credit procedure: Client relationship officers when practice lending to Large enterprise

clients must accurately carry out the steps of credit procedure However, this does not mean that they have to be rigid, it is necessary to be flexibly and rhythmically incorporative case by case for specific business This not only contributes to ensure the security of credit but also help save time and expense for both clients and banks Thus results in client‟s desirable awareness and experience, improving the relationship between bank and businesses

Credit information: information play an extremely substantial part in bank‟s credit

activities With accurate and complete information, the quality of credit will be strengthened due to being able to timely detect and handle any problem arises Moreover, bank can also discover and forecast client‟s demand for capital loan, in order to develop appropriate credit

policy and capital mobilization

Besides, other factors such as: the current state of capital mobilization, network of branches, facility infrastructure, structure of banking mechanism, etc also have impact on the target of expanding credit at commercial banks

CHAPTER 3: LENDING TO LARGE CORPORATE CLIENTS AT SAIGON –

HANOI COMMERCIAL JOINT STOCK BANK (SHB) 3.1 Brief overview on Saigon – Hanoi Commercial Joint Stock Bank

3.1.1 General information

Transaction name: Saigon – Hanoi Commercial Joint Stock Bank (SHB)

Business registration certificate No 1800278630 issued by Hanoi Department of Planning and Investment, registered for the 24th adjustment on 03/06/2016

at No 41 - Nhon Loc 2 Hamlet, Phong Dien Town, Chau Thanh District Can Tho Province (previously), now is Phong Dien district, Can Tho city, with operation remained within several wards of Chau Thanh District Primary subjects for loans are farmers with the purpose

of agriculture production and total number of employees at the beginning is only 8, in which there was only 1 graduated from university

On 20/01/2006, Governor of State bank of Vietnam signed Decision No 93/QD-NHNN

on allowing the transformation of bank‟s organizational features from Agriculture Joint Stock Commercial Bank to Urban Joint Stock Commercial Bank and official renamed as Saigon – Hanoi Joint Stock Commercial Bank, marking a vital revolution in the development process

of SHB

In 2009 with more than 90 transaction offices nationwide, SHB had been able to meet the diverse demand of clients in different regions of the country and within many sectors of the economy, contributed to the economic development of the country SHB has been modernizing, innovating technology, developing product diversification, professionalizing

and standardizing human resource, ensuring transparency and security in banking operation Until recently, SHB has gradually been recognized for its prestige and standpoint in the commercial banks system of the country SHB for the past few years has always determined clear strategy, which is relevant with each stages of development, has long term orientation based on competitive strategy, always make a difference With the support of strategic shareholders being large corporation of Vietnamese economy, SHB always has substantial advantage in capital (VND, USD), enormous client base and market share

In 2011, SHB has generated a vigorous development in every aspects, affirming the standing position of being one of top 15 joint stock commercial banks in Vietnam At the end

of 2011, SHB‟s total assets has reached over 70,992 billion VND, profit before tax reached 1,001 billion VND (after provision for capital reserve which is required by the State Bank of Vietnam), and the network of operation has expanded to over 200 offices

On 28/08/2012, SHB has accomplished its achievement to become one of the pioneering bank to expand its business overseas, by opening several braches in Cambodia in February

2012, with initial chartered capital of 37 million USD The bank also pioneered in carrying out the initiative of financial institutions system restructure, initiated by the Government, via the successful merge with Hanoi Building Commercial Joint Stock Bank (Habubank), in accordance with decision no 1559/QD-NHNN dated 07/08/2012 of the Governor of State Bank of Vietnam, officially increased SHB‟s capital to over 8,800 billion VND, with total assets over 120,000 billion VND and total employees approximate 5,000 people

By 2013, SHB has expanded its network of transaction offices to nearly 400 offices, in which there were 45 branches in different provinces of the country and 2 international offices

in Cambodia and Laos

In 2014, SHB has accomplished outstanding growth in every aspects, it has become one

of the 5 largest Joint Stock Commercial banks in Vietnam (in negligence for State-dominant Joint stock commercial banks) SHB‟s total assets was 169.04 trillion VND (17.7% growth rate), client loan reached 104.1 billion VND (36.1% growth rate), capital mobilization was estimated at 127.35 billion VND (17.8% growth rate), and profit exceeded 1,012 billion VND Especially, SHB had increasingly attempted to control bad debt By the end of 2014, bad debt ratio decrease to only 2.02%

In 2015, SHB was allowed to increase its chartered capital to 9,500 billion VND by State Bank of Vietnam, its transaction network has risen to nearly 450 transaction offices both domestic and international

In 2016, State Bank of Vietnam continuously approved SHB‟s capital increase to

11,197,000 million dongs and transaction network grew approximately to 500 transaction offices both domestic and international

In 15/01/2016 SHB established it subsidiary bank with 100% ownership in Laos and subsidiary bank with 100% ownership in Cambodia This demonstrated SHB‟s outstanding effort after several year of business in these 2 markets at sub-branch level

Over 25 years of establishment and development, SHB has proudly become one of the commercial banks which has the highest annual growth rate, has achieved outstanding success thanks to the comprehensive development strategy together with the primary developing objective being social benefits With the mission “Reliable partner, Relevant solution” and continuously enhanced business strategy in order to generate benefit for clients and wealth for shareholders – investors, SHB has always satisfied its clients and partners with synchronized, beneficial, high quality and competitive banking products and services, with professionalism

in service style SHB currently is in Top 5 largest private Commercial Joint Stock Banks in Vietnam, simultaneously carrying out 2 big operation objectives, developing business operation securely, efficiently towards international standard, while becoming pioneer and leader of the initiatives given by the Party, the Government and the State

Until the end of 30/09/2017, SHB has chartered capital of 11,197 billion VND, total asset of over 265,300 billion VND Just recently, SHB was approved by SBV to increase capital to over 12,036 billion VND With nearly 7,000 employees and a network of nearly 500 transaction offices in Vietnam, Laos and Cambodia, SHB has been serving approximately 4 million individuals and corporate clients

With these achievements, SHB was honored to receive Labor medal of the second degree, presented by the President, and other prestigious prizes given by the Party, the State and reputable domestic and international organizations such as: Top 10 most reputable banks

in Vietnam, Top 50 most valued brands in Vietnam in 2016 – in which SHB is the bank with the highest ratio of brand value/asset value amongst 10 assessed banks, Bank with best project finance in Vietnam, Representative foreign bank in Cambodia, Bank with the best deposit product in Vietnam and Best branding innovation, Bank with the best Internet Banking service, etc

3.1.3 Main business activities

Being a business in financial industry, the main characteristics of SHB are mobilizing and receiving short term, medium term and long term deposits from individuals and organizations; carrying out transaction in foreign currencies, international trade finance, discount on commercial papers, bond and other valuable papers; Gold bullion trade in

accordance with Law; Factoring; asset maintenance and safe for rent service (including the maintenance and storage of gold bullion);Insurance agency; offer and acceptance of trusteeship; Providing credit under the form of discount activities of negotiable instruments and other valuable papers

3.1.4 Organization structure and management mechanism of Saigon – Hanoi Commercial Joint Stock banks

Table 3-1: SHB‟s organization structure

SHB has organized it structure and mechanisms in modern style of organization structure, which is minimized, closely linked and optimal, which is relevant to commercial bank oriented development strategy

The current organization structure has distinguished the difference between management and control features, and direct business features Departments and groups are divided according to products: credit, accounting, international payment, etc., and also applied advance banking technology and information technology professionally, efficiently and in depth in the entire system

Figure 3-1: SHB‟s Ownership structure

3.1.5 Major business indicators:

In period 2013-2016 with the recovery of the economy and increasingly fierce competition in the banking industry, however SHB still managed to achieve important success due to the capabilities and determination of the whole system both domestic and international alike, cooperation and support of clients and partners and also faith of shareholders

In the past time, SHB has focused on improving quality of service operation, better

serve the needs of client with mission “Development, security, efficiency, modernization”,

contribute to accomplish the mission of Vietnamese banking system overall SHB‟s annual growth rate always meet and exceed targets (average growth of 14%-23%), capital mobilization scale and credit activities continuously expanded, providing service that generates the most favorable conditions for clients, take part in affirming the position of SHB

on monetary and financial market both domestically and internationally

Some results in business operation criteria of SHB in the period 2013-2016 are demonstrated

Vietnam National Coal-Mineral Industries Holding Corporation Limited

Vietnam Rubber Group

Market Vectors Vietnam ETF

Deutsche Bank Aktiengesellschaf

Ha Long Manufacturing, Development and Investment Company Limited

Do Quang Hien

Đo Thi Thu Ha Saigon Hanoi Securities Joint Stock Company

Table 3-2: Business operation results of SHB

(Source: SHB’s annual report 2013-2016)

3.1.5.1 Scale of total assets

SHB‟s total assets has continuously and substantially increased during the period

2013-2016, with average annual growth rate of approx 19% Until 2013-2016, total assets of SHB has reached 233,948 billion VND, continue to bring SHB to the top largest private commercial joint stock banks of Vietnam

Figure 3-2: SHB‟s Total Assets

SHB‟s total assets has quickly increased during given years with average annual growth rate of approx 19% Until 30/09/2017 SHB‟s total assets reached 265.300 billion VND and ranked No 9 amongst the commercial bank system

In the recent years, SHB has continuously been approved to increase charted capital by State Bank of Vietnam In details, in 2015 increased from 8,865 billion VND to 9,486 billion VND, in 2016 from 9,486 billion VND to 10,197 billion VND and in 2017 SHB was raised from 10,197 billion VND to 12,036 billion VND The continuous increases in chartered capital has partially supported SHB to expand its business and enhance business operation efficiency during the following years

3.1.5.2 Capital Mobilization Activities

It is considered that this is an advantage of SHB in comparison with other commercial banks With the network of branches spreading on all over the country, also increasingly diverse deposit products that has delivered many benefits for clients who come to make deposits, are the reasons why SHB‟s total annual capital mobilization always achieves large growth The result of capital mobilization of SHB is demonstrated in the table below:

Table 3-3: Results of Capital Mobilization from clients

Units: Billion VND

1 Mobilized capital from Market 1 108,147 127,353 157,503 181,153