Commercial Bank's Perspective on Expanding Enterprise Loans

Bank loans often account for a large proportion and have lower costs than other debt costs, so they play an important role in forming a reasonable capital structure for businesses.

- Create conditions for businesses to expand production or invest in depth

Banks are financial intermediaries that contribute to bringing temporarily idle capital mobilized from the population to those in need of loans. For any business, capital is always an indispensable factor in all production and business activities. Capital is a condition for innovating technological equipment, expanding production, improving product quality, etc., thereby creating conditions for businesses to increase their competitiveness in the market and improve production and business efficiency. In a market economy, it is rare for a business to only use its own capital to operate effectively. This not only limits the ability of businesses to expand production and business but also increases the cost of capital of the business. For some newly established enterprises or small and medium enterprises, the initial investment capital is often small, combined with the use of accumulated profits that are often not enough to meet investment capital needs, so these enterprises need to mobilize external funding sources such as: issuing bonds, borrowing from banks and other credit institutions... Bank loans are an important capital mobilization channel for enterprises. Bank loans contribute to increasing the financial strength of enterprises, applying advanced science and technology to expand production and business activities, improving designs, improving product quality, dominating the market, and increasing competitiveness.

- Contribute to improving production and business efficiency and promoting businesses to use capital economically and effectively:

To borrow capital from banks, businesses must have good business results, effective business plans and transparent, healthy financial status to meet the requirements of the bank, ensuring the ability to repay the bank. In addition, businesses are also subject to strict control by the bank when using. These factors make businesses

Enterprises are more cautious when investing borrowed capital in production and business to save costs and bring high efficiency.

1.1.4. Loan process for corporate customers

The lending process for corporate customers commonly used at Vietnamese commercial banks today is shown in the following figure:

Diagram 1.1: Business loan process diagram

1.2. Expanding lending to corporate customers

1.2.1. Viewpoints on expanding lending to corporate customers of commercial banks

The concept of expansion is to make the scope and scale larger than before. There have been many different views on lending expansion:

There is a view that expanding lending can be understood as increasing the proportion of loans in a bank's assets to meet customers' increasing demand for loan size.

Meanwhile, there is a view that, in the banking sector, expanding lending means that banks increase the scale of lending through increasing market share, increasing outstanding loans, and controlling credit risks to ensure capital safety for banks.

Based on understanding and awareness, the author's point of view: Expanding corporate lending can be understood as increasing the volume of loans both in breadth and depth, but must ensure the safety and profitability of the bank due to lending activities. Specifically, it can be understood that: expanding in breadth is an increase in the scale of loans such as the number of customers, outstanding loans increase, and the lending market share increase; expanding in depth is a change in the nature and structure in a reasonable direction of loans such as: reasonable structure of short-term, medium- and long-term loans, the proportion of outstanding loans of corporate customers compared to other customer groups; expanding ensures the safety and profitability through the quality and efficiency of corporate lending such as: reducing bad debt ratio, increasing income from expanding corporate lending, improving appraisal and risk management of loans.

In general, for any bank, lending is always considered the main activity that brings high profits but at the same time also has many potential risks that threaten the bank's business operations. Therefore, expanding lending to corporate customers while still ensuring efficiency in business operations at

Commercial banks are always a necessary requirement, a prerequisite for the existence and development not only of each bank but also of the entire banking system and the economy.

1.2.2. Criteria for evaluating the expansion of lending to business customers

a. Quantitative indicators

* Group of indicators to assess the expansion of the scale of lending to corporate customers

- Growth scale of number of corporate customers : reflects the increase or decrease in the number of corporate customers borrowing capital this year compared to last year. This indicator is high and increases annually, proving that lending activities for corporate customers have the potential to expand and vice versa.

increase/decrease

Number of business loans

Number of customers

loan year (n)

Number of customers

loan year (n-1)

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- Business loan scale :

+ Increase/decrease in outstanding loans to corporate customers: This indicator reflects the increase/decrease in outstanding loans to corporate customers in year (n) compared to year (n-1).

corporate lending

Increase/decrease in outstanding balance

Outstanding Loans

KHDN year (n)

Outstanding Loans

KHDN year (n-1)

+ Growth rate of outstanding loans to corporate customers: Reflects the growth rate of outstanding loans to corporate customers at the end of the period compared to the loan balance of the previous fiscal year. If this indicator increases compared to the previous year, it shows that the bank is expanding its lending to corporate customers and vice versa.

KHDN year (t)

Loan balance growth rate

Increase/decrease in outstanding loans to corporate customers in the year (t)
=	×	100%
Total outstanding loans to business customers year (t-1)

- Growth rate of market share of corporate loans : is assessed by the increase in market share of the bank over time compared to other credit institutions in the same operating area in a fiscal year. This indicator assesses the capacity

The bank's ability to dominate and expand its market share in lending to corporate customers can be expressed through the number of corporate customers, outstanding loans, and quality of corporate customer loans.

* Group of indicators to assess the level of quality assurance for corporate loans

- Income indicators from lending to corporate customers: The quality of the bank's lending expansion to corporate customers is improved when this activity actually contributes to improving the bank's profitability.

+ Income from lending to corporate customers is net interest income from lending to corporate customers plus other fees. The higher the value of this indicator, the greater the efficiency of lending to corporate customers and vice versa.

KHDN lending activity

Income from operations

Net income from

KHDN lending activities

Other fees

+ The proportion of corporate lending profit in the total lending profit of the bank. This proportion reflects how much corporate lending profit accounts for in the total lending results of the entire bank.

KHDN

Loan profit ratio

	Profit from lending to business customers
=	Total lending profit of the bank	×	100%

- Bad debt index : is debt in group 3,4,5, according to regulations. This index reflects debts with high risk level and low recovery ability.

Expanding lending to corporate customers must go hand in hand with increasing the quality of corporate lending.

KHDN

Bad debt ratio

	Bad debt balance for corporate loans
=	Total outstanding loans to corporate customers

The lower the bad debt ratio of a bank's corporate loans, the higher the level of

The risk of losing capital is reduced. In fact, risks in business are inevitable, so banks often accept a certain bad debt ratio as a safe limit.

- Level of provisioning and use of credit risk reserves (CRR):

In Vietnam, according to Circular No. 02/2013/TT-NHNN dated January 21, 2013 on debt classification and risk provisions, risk provisions are the amount set aside and accounted for in operating expenses to provide for possible losses on debts of credit institutions and foreign bank branches.

Business loan

DPRR ratio for

=	DPRR for corporate loans	×	100%
	Total outstanding loans to corporate customers

The risk provision ratio for corporate loans reflects the level of risk provisioning to cover possible losses on corporate loans. The higher the level of risk provisioning and risk provisioning in corporate loans, the greater the potential losses that can be covered by the bank during the lending process and vice versa.

b. Qualitative indicators

- Customer trust and satisfaction when using the bank's services: the bank has orientations to build strategies and policies to expand lending activities for corporate customers, also with the main purpose of meeting the maximum needs of customers, specifically corporate customers. Therefore, to evaluate whether the expansion of lending to corporate customers is effective or not, it is possible through the attitude, satisfaction, and evaluation of customers towards this service of the bank.

- The level of popularity of the brand and image in the bank's lending activities to corporate customers: expanding lending to corporate customers is how to make this activity known and trusted by many businesses. Whenever there is a need for capital, businesses immediately think of the bank they trust, this is what any bank wants. Therefore,

The popularity of the bank's brand, image, and corporate lending services is also a criterion for evaluating the expansion of this activity at the bank.

1.3. Factors affecting the expansion of commercial banks' lending to corporate customers

1.3.1. Factors related to the bank

a. Policy and procedures for lending to corporate customers

A commercial bank's lending policy and procedures for corporate customers are a system of policies, orientations, and measures to expand or limit lending to achieve planned goals, and are considered the guiding principles in the lending activities of that bank. Typically, lending policies include: credit limits, types of loans, regulations on collateral, loan terms, directions for handling loans exceeding the approved limit, debt repayment methods, etc. A bank's lending policy and procedures outline a clear development direction and reference framework as a basis for considering loan needs.

Lending policies and procedures play a role in regulating activities such as capital mobilization, lending, interest rates, lending products, lending risk management and customer attraction... to achieve the goals, orientations and strategies set out in business. When there is a correct, synchronous, scientific, reasonable and unified lending policy and procedure, it will help the bank have the right direction when lending, thereby improving the economic and social efficiency of lending activities. However, when lending policies and procedures are inadequate, rigid and inflexible, it will create a distorted orientation for lending activities, leading to the provision of loans to the wrong subjects, for the wrong purposes or creating loopholes for capital users and thereby not bringing economic efficiency and even leading to risks for the loan.

b. Bank reputation

When corporate customers have a need for loans, they will first choose banks with close relationships, reputation, and brand names, possibly through friends, relatives, mass media, etc. Because they believe that these are banks with large financial resources, helping them quickly access loans. At the same time, with reputable banks, the policies will often be more favorable than other banks in terms of interest rates, loan terms, etc. Therefore, the reputation and brand name of the bank also affect the expansion of lending to corporate customers.

c. Quality of KHDN loan officers

The quality of human resources and lending officers is a very important factor that directly affects the success of a bank's business operations because lending officers are the ones who directly perform lending operations and are the bridge between the bank and the customer. The needs of customers, especially the group of corporate customers, are often very diverse, requiring lending officers to have qualifications, a firm grasp of the profession, an understanding of the law and the market, the ability to advise and support customers, and to be competent and dedicated to the profession. The high quality and professionalism of lending officers will be the premise for creating a brand and trust of corporate customers when they need to borrow capital, which affects the effectiveness of expanding lending to corporate customers of the bank. If loan officers work too principledly, rigidly, and are not professional, they will not attract customers to the bank. The problem is that loan officers must know how to flexibly apply loan policies and procedures in the most effective way to attract more customers and increase the bank's competitiveness.

d. Technical infrastructure and information technology applications of the bank

Commercial banks today are very interested in applying modern information technology, equipping high-quality technical means because this will facilitate the simplification of procedures, shortening transaction time.

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