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Analysis of the performance of Vietnam Development Bank - 1


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Analysis of the performance of Vietnam Development Bank - 1

Truong Thi Hoai Linh


INDEX

COMMITMENT i

LIST OF ABBREVIATIONS iv

LIST OF DIAGRAMS, TABLES, GRAPHS v

INTRODUCTION 1

CHAPTER 1: THEORETICAL BASIS OF THE PERFORMANCE OF DEVELOPMENT BANKS 13

1.1. Overview of the Development Bank 13

1.1.1 . Development history and operational purpose of the Development Bank ... 13​​​​

1.1.2. Reason for establishment and concept of Development Bank 15

1.1.3. Characteristics of Development Bank 19

1.1.4. Basic activities of the Development Bank 22

1.2. Operational efficiency of Development Bank 31

1.2.1. Concept of operational efficiency of Development Bank 31

1.2.2. Indicators for evaluating the performance of Development Bank 35

1.2.3. Factors affecting the performance of Development Bank 43

1.3. Experience in improving the operational efficiency of some Development Banks in the world and lessons for Vietnam 61

1.3.1. Experience in improving the operational efficiency of some Development Banks in the world 61

1.3.2. Lessons for Vietnam 63

CHAPTER 2: CURRENT STATE OF PERFORMANCE OF VIETNAM DEVELOPMENT BANK 67

2.1. Overview of Vietnam Development Bank 67

2.1.1. Formation process and organizational model of Vietnam Development Bank 67

2.1.2. State credit policy in Vietnam in recent times 71

2.1.3. Basic activities of Vietnam Development Bank 75

2.2. Analysis and evaluation of the performance of the Vietnam Development Bank from 2006 to 2010 87

2.2.1. Analysis of bank performance 87

2.2.2. Evaluation of bank performance 95

CHAPTER 3: SOLUTIONS TO IMPROVE THE OPERATIONAL EFFICIENCY OF VIETNAM DEVELOPMENT BANK 135

3.1. Orientation on State development investment credit in the coming time 135

3.2. Operational orientation of Vietnam Development Bank to 2020 .136

3.3. Viewpoints on the operations of the Vietnam Development Bank 138

3.4. Solutions to improve the operational efficiency of the Vietnam Development Bank 142

3.4.1. Improving the capital mobilization capacity of banks 142

3.4.2. Improving project appraisal capacity at banks 151

3.4.3. Improving risk management capacity at banks 166

3.4.4. Add some activities to meet customer needs 178

3.4.5. Improve the quality of banking staff, focusing on appraisal staff and credit management staff 181

3.5. Recommendations to improve the operational efficiency of the Vietnam Development Bank 185

CONCLUSION 194

LIST OF PUBLISHED WORKS OF THE AUTHOR 196

LIST OF REFERENCES 197

LIST OF ABBREVIATIONS

DAPT VDB NHPT TCTD NHTM QHTPT BKHĐT BTC NSNN ODA SBV Central Bank Investment and Development Management Board TDXK Government bonds HQTC HQKTXH GTCG TSDB LSCK TĐDA TDNN


Development project

Vietnam Development Bank Development Bank

Credit institution

Commercial Bank Development Support Fund Ministry of Planning and Investment Ministry of Finance

State budget

Official Development Assistance Fund State Bank

Central Bank Board of Governors

Investment credit Export credit

Government Bonds Financial Efficiency

Socio-economic efficiency of valuable papers

Collateral Discount rate Project appraisal

State investment and development credit policy


LIST OF DIAGRAMS, TABLES, GRAPHS


I. DIAGRAM

Diagram 2.1: Organizational chart of Vietnam Development Bank 71

Diagram 3.1: Risk management apparatus at VDB 167

Figure 3.2: Objectives of the Internal Credit Rating System 171

II. TABLE

Table 1.1: Socio-economic and financial efficiency indicators for project evaluation59 Table 2.1: Results of domestic capital mobilization 87

Table 2.2: Investment credit lending results 89

Table 2.3. Debt structure by economic sector 89

Table 2.4: Results of ODA capital re-lending 91

Table 2.5. Export credit lending results 91

Table 2.6. Post-investment support results 93

Table 2.7: Annual overdue debt situation 94

Table 2.8: Annual Profit 95

Table 2.9: Results of capital disbursement over the years compared to the plan 96

Table 2.10: Proportion of disbursed capital of VDB compared to total investment capital of the economy.. 98 Table 2.11: Contribution of VDB to the country's export turnover 104

Table 2.12: Asset and capital structure 110

Table 3.1. Expected loan balance and capital needs of banks in the coming time 138

II. GRAPH

Chart 2.1: Proportion of fixed assets increased from VDB's funding compared to total fixed assets of the whole country 90

Chart 2.2: Proportion of disbursed capital of VDB compared to total investment capital of the economy .. 99 Chart 2.3: Some indicators to consider credit risk 107

Chart 2.4: Some indicators to consider the financial sustainability of banks 112


INTRODUCTION


1. RESEARCH INTRODUCTION AND RESEARCH OBJECTIVES

1.1. Necessity of research

The Development Bank (DB) is a financial intermediary that plays an important role in the economic and social development of developed and developing countries. Through the medium and long-term financing of the WB for development projects - projects that create strategic products, promote economic restructuring of industries, regions, territories and income structure of some segments of the population, the importance of the WB has been demonstrated in many domestic and foreign research projects.

Like other financial intermediaries, the credit activities of the Development Bank are activities to maintain the sustainable existence and development of the Development Bank. Accordingly, the capital sponsored by the Bank must be recovered, preserved and circulated to be able to finance many other development projects. However, the goals and methods of implementing the capital use activities of the Development Bank and other financial intermediaries, especially Commercial Banks (CBs), are not entirely the same. This difference comes from the establishment goals of the Development Bank and the Commercial Bank. The Commercial Bank was established with the goal that one dong of loan capital must bring in more than one dong and that difference - interest - is the cost that the borrower must pay for the use of the capital of the Commercial Bank. Meanwhile, the Development Bank is a tool of the government to implement the socio-economic goals expressed in the State's Development Investment Credit Policy in each period. In both developed and developing countries, there are always underdeveloped industries, remote and difficult areas and poor people. These sectors find it difficult to attract investment from ordinary investors who invest for profit purposes, so intervention in various forms of government is needed. The Development Bank mobilizes resources in the economy, then provides targeted and preferential funding to the above subjects with two goals: social efficiency and economic efficiency.


and financial efficiency. In general, countries establish public financial institutions because they want to achieve the following objectives:

(1) create more jobs for people;

(2) improve living environment;

(3) improve the fairness in income distribution among population groups in the economy;

(4) modernization of agriculture and rural areas;

(5) business development of small and medium enterprises;

(6) encourage investment activities in new products with high technology content

(7) financial market development…

So have the above objectives been met by the NHPT? The answer depends on each country. In many countries, the NHPT has successfully completed its tasks and shifted to other business activities when the economy of that country has achieved sustainable growth (USA, Japan or Singapore). However, besides that, the activities of the NHPT also face numerous limitations and barriers, specifically political and policy dependence, financial unsustainability, high bad debt ratio, poor financial management, poor domestic capital mobilization ability... All of the above limitations make the NHPT not only fail to achieve the set objectives but also lead to a "parasitic" existence of the NHPT on subsidies from the government and foreign donors.

Vietnam Development Bank (VDB) officially came into operation in July 2006, formerly known as the Vietnam Development Assistance Fund. The change from the Fund to the Bank was due to many reasons, both in terms of the general development requirements of the economy and the Fund's operational status. After five years of operating as a bank, VDB has made many efforts in concentrating medium and long-term capital mobilized domestically and internationally to finance DAPTs and special subjects in the economy. The bank's capital contributes to promoting the process of industrialization, modernization of the country and hunger eradication.


Poverty reduction. Although five years is not a long time compared to the life cycle of VDB-funded projects with an average payback period of 10 to 20 years, it can be said that this is the period when the bank completes its organizational model and business operations to suit its role as a tool of the Government in development financing. Therefore, assessing the contributions and limitations of VDB in banking operations in the past is necessary to improve the efficiency of the bank's operations in the coming time. This is even more important when by 2010, Vietnam becomes a country in the group of lower middle-income countries, when capital incentives from governments and foreign donors will decrease and will be replaced by funding sources based on market conditions. While funding from sources originating from the State budget is increasingly limited, VDB is required to be autonomous in both capital mobilization and credit granting activities. With the result of annual disbursed capital at 4.2% compared to the total capital demand of the economy, the bad debt ratio (according to VDB regulations) at 15% of total outstanding debt (if calculated according to international standards, this level is 3 times higher), the difference between interest revenue and interest payment expenses always reaching a negative value of about 2,000 billion VND per year... shows that if there are no timely adjustments from policy mechanisms to business operations, VDB will be completely dependent on the State budget.

Based on the above operational efficiency of VDB, the author chose the issue "Improving the operational efficiency of Vietnam Development Bank" as the research topic for the thesis.

1.2. Purpose of the study

The purpose of the thesis is to study the best and most suitable experiences of countries in the world in the operation of the Development Support Fund to apply to the Vietnam Development Bank. At the same time, to build a system of indicators to evaluate the performance including two important aspects: socio-economic efficiency and financial efficiency - this will be considered the most important goal that the thesis achieves. This system of indicators is used to evaluate the current performance of the Development Support Fund in the past and the Vietnam Development Bank at present, this is an issue that has not been researched yet.

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