Compare Profit Ratio And Bad Debt Credit Xk

- The number of export credit turnover cycles also increased continuously over time from 1.98 times in 2008 to 2.19 times in 2009; to 2.67 times in 2010 and 2.98 times in 2011 and decreased slightly to 2.71 times in 2012; 2.18 times in 2013, and 1.47 times in 2014.

Table 3.11: Comparison of profit ratio and bad debt of export credit

Unit: %

Target

2008	2009	2010	2011	2012	2013	2014
Credit Profit Ratio	2.15	2.23	2.32	2.25	2.58	2.50	2.43
Total system profit ratio	1.35	0.79	0.09	0.13	0.08	0.01	0.15
Export credit bad debt	0.11	0.10	0.09	0.13	0.08	0.10	0.07
Bad debt system-wide	2.68	2.60	3.75	6.10	5.80	7.56	4.55

Maybe you are interested!

Source: Annual report of Agribank Vietnam and author's calculation [164]

- The bad debt ratio calculated specifically for the export credit sector of Agribank Vietnam is low compared to the general level of the entire Agribank Vietnam system and the entire banking industry; in 2008, bad debt in the export credit sector was 0.11%; in 2009, it was 0.10%; in 2010, it was 0.09%; in 2011, it was 0.13%; and in 2012, it was 0.08%; 0.1% in 2013, and 0.07% in 2014.

3.2.2.5. Current status of credit quality for some key agricultural export products

a. Export credit quality for rice products

During the period from 2008 to 2014, rice export trading played a major role in Agribank Vietnam's export trading activities and brought high efficiency to Agribank Vietnam in terms of profit, social contribution, and active response to the country's export promotion programs.

Although in the whole system, the ratio of capital use for rice export trade only accounts for a small proportion of the total outstanding credit of Agribank Vietnam, the ratio of capital use for rice export trade still tends to increase gradually from 0.28% in 2008 to 0.48% in 2011; 0.51% in 2012, and the outstanding credit for this item also shows signs of increasing steadily from 0.36% to 0.56% of the total outstanding credit of the whole system in 2011 and 0.57% in 2012; 0.51% in 2013, and 0.54% in 2014.

Table 3.12: Indicators for evaluating the quality of rice exports

Unit: %

Target

2008	2009	2010	2011	2012	2013	2014
Capital utilization coefficient of rice export products	0.28	0.29	0.40	0.48	0.51	0.51	0.54
Outstanding debt ratio of rice export products	0.36	0.36	0.45	0.56	0.57	0.62	0.65
Structure of outstanding export debt of rice in total export debt	57.27	45.72	36.93	39.37	33.90	35.64	35.98
TDXK profit coefficient	1.29	1.09	0.95	0.98	0.97	0.99	0.97
Profit structure of rice export products in total export profit	60.13	48.92	41.00	43.70	37.63	39.56	39.94
TDXK capital turnover ratio (times)	2.10	2.33	2.84	3.19	3.37	2.58	1.72
Bad debt ratio	0.10	0.09	0.10	0.11	0.07	0.08	0.07

Source: Agribank Vietnam's business performance and calculations

by author [ 113 ][ 117 ]

- Looking at the total outstanding debt of export credit, we can see that rice accounts for a high proportion of the total outstanding debt of export credit, from 57.27% in 2008 and then decreased to 39.37% in 2011; 33.90% in 2012; 35.64% in 2013, and 35.98% in 2014. The proportion in the total outstanding debt of export credit has decreased because Agribank Vietnam has implemented additional credit programs for other products such as seafood, coffee, etc.

- TDXK for rice products has achieved extremely positive results, the capital turnover ratio is high from 2.1 times in 2008 to 3.19 times in 2011 and 3.37 times in 2012; however, the trend is decreasing to 2.58 times in 2013, and 1.72 times in 2014, the contribution to total TDXK profit is always high, always maintaining over 40% of total profit from export credit in the years 2008 - 2011; 39.56% in 2013, and 39.94% in 2014. Bad debt is always maintained at a low level of 0.1%; in 2014 it was 0.07%.

- The credit profit coefficient of rice products and the profit structure of rice products tended to decrease in the period of 2008 - 2014, because in the total export credit of Agribank Vietnam, new product lines were deployed and also brought positive results, causing the contribution ratio of rice products to tend to decrease. However, this is a good signal in diversifying the growth in value and quality of export credit of Agribank Vietnam.

b. Export credit quality for seafood products

Export of aquatic products ranks second after export of rice in contributing to the value and quality of export of Agribank Vietnam.

Table 3.13: Indicators for evaluating the quality of seafood exports

Unit: %

Target

2008	2009	2010	2011	2012	2013	2014
TDXK capital utilization coefficient	0.11	0.16	0.36	0.41	0.44	0.42	0.43
TDXK debt ratio	0.14	0.20	0.42	0.48	0.50	0.51	0.52
Structure of outstanding export debt of aquatic products in total export debt	21.33	25.57	33.85	33.38	29.58	29.24	28.75
TDXK profit coefficient	0.47	0.60	0.82	0.79	0.80	0.77	0.73
Profit structure of seafood export products in total export profit	21.97	26.85	35.54	35.05	31.06	30.70	30.19
TDXK capital turnover ratio (times)	2.05	2.27	2.78	3.13	3.22	2.62	1.79
Bad debt ratio	0.10	0.09	0.11	0.12	0.11	0.10	0.09

Source: Agribank Vietnam's business performance and calculations

by author [ 113 ][ 117 ]

Table 3.13 shows that the quality of export credit of aquatic products has been maintained at a high level compared to the entire Agribank Vietnam system. The credit growth rate has increased steadily over the years, the contribution structure in total export credit has gradually increased, the credit turnover of aquatic products has gradually increased; Export credit profits of aquatic products have gradually increased while bad debt has remained at a low level.

Table 3.14 compares the CLTD assessment indicators of rice and seafood products, giving us the following results:

- The export credit utilization ratio of both products has gradually increased, however the growth rate of seafood products is greater and tends to exceed that of rice products in the coming years.

- The export credit balance coefficient of both products tends to increase gradually at the same growth rate. In recent years, credit for seafood has grown more strongly.

Table 3.14: Comparison of indicators for evaluating quality of rice and seafood products

Unit: %

Target

2008	2009	2010	2011	2012	2013	2014
TDXK capital utilization coefficient for seafood products	0.11	0.16	0.36	0.41	0.44	0.42	0.43
TDXK capital utilization coefficient for rice products	0.28	0.29	0.40	0.48	0.51	0.51	0.54
Export debt ratio for seafood products	0.14	0.20	0.42	0.48	0.50	0.51	0.52
Export debt ratio for rice products	0.36	0.36	0.45	0.56	0.57	0.62	0.65
Profit coefficient of seafood export products	0.47	0.60	0.82	0.79	0.80	0.77	0.73
Profit coefficient of rice export products	1.29	1.09	0.95	0.98	0.97	0.99	0.97

Source: Agribank Vietnam's business performance and calculations

by author [ 113 ][ 117 ]

- Although the credit profit ratio of both products is maintained at a high level, there is a contrast. While the credit profit ratio of seafood products is on a strong upward trend, the rice product shows signs of slowing down and has a slight downward trend.

c. Export credit quality for coffee products

Coffee export turnover ranks third after rice and seafood export turnover in contributing to the value and quality of Agribank Vietnam's export turnover, specifically as follows:

Table 3.15: Indicators for evaluating export quality of coffee products

Unit: %

Target

2008	2009	2010	2011	2012	2013	2014
Credit utilization ratio	0.11	0.18	0.27	0.40	0.43	0.39	0.42
Credit balance ratio	0.14	0.22	0.31	0.46	0.48	0.48	0.50
Structure of outstanding coffee debt in total outstanding export debt	21.40	28.71	25.29	32.65	28.71	27.25	27.79
Credit Profit Ratio	0.42	0.61	0.55	0.59	0.50	0.46	0.46
Profit structure of coffee products in total export credit profit	15.96	23.04	19.93	22.11	19.44	18.45	18.82
Capital turnover ratio (times)	1.38	1.61	2.01	2.17	2.25	1.91	1.26
Bad debt ratio	0.15	0.15	0.17	0.19	0.13	0.16	0.14

Source: Agribank Vietnam's business performance and calculations

by author [ 113 ][ 117 ]

- The credit utilization ratio for coffee products tends to increase gradually over the years from 0.11% in 2008 to 0.43% in 2012; 0.39% in 2013 and 0.42% in 2014; However, compared with rice and seafood products, the credit utilization ratio for coffee is lower during the research period.

- The credit balance ratio for coffee products tends to increase gradually over the years from 0.14% in 2008 to 0.48% in 2012 and 2013; 0.5% in 2014 and is also lower than that of rice and seafood products.

- Similar to seafood products, the outstanding debt structure of coffee products in total outstanding export credit gradually increased from 21.40% in 2008 to 32.65% in 2011 and slightly decreased to 28.715% in 2012; 27.25% in 2013, and 27.79% in 2014.

- The credit profit ratio of coffee products has gradually improved over time from 0.42% in 2008 to 0.59% in 2011 and decreased slightly to 0.5% in 2012; 0.46% in 2013 and 2014, but much lower than that of rice and seafood products; The reason is that the unusual fluctuations of the coffee industry in the world in the recent period have affected coffee exporting enterprises and thereby strongly affected the credit profit ratio of coffee products. As evidence for this issue, we can see that bad debt of coffee products is much higher than that of rice and seafood products and the capital turnover of coffee products is much slower than that of rice and seafood products.

3.3. ASSESSMENT OF THE CURRENT STATUS OF EXPORT CREDIT QUALITY AT THE BANK FOR AGRICULTURE AND RURAL DEVELOPMENT OF VIETNAM

3.3.1. Achievements

Firstly, the export credit growth rate of Agribank Vietnam has grown strongly in recent times.

The above growth contributes to the Bank's high efficiency with good export credit quality and contributes to supporting export enterprises in implementing production and business activities. Specifically, in the research period from 2008 to 2014, the average export credit growth rate was 41.34% (higher than the average credit growth rate of the whole system of 14.88%) and at the same time, the average export credit bad debt rate was 0.1%, much lower than the whole system of 4.55% at the end of 2014. Thus, high growth and low bad debt

This is indeed a good signal reflecting the effectiveness of export credit quality; in contrast to the general context of high growth and high bad debt of Agribank Vietnam and the entire commercial banking system.

Second, the effectiveness of export credit quality is also reflected in the profit coefficient of export credit on total outstanding export credit, which is often stable and tends to increase slightly.

The above results were achieved in the context of economic difficulties and high export credit growth. This coefficient was at an average of 2.64% during the research period, higher than the general level of the entire Agribank Vietnam system of 0.734%.

Third, Agribank Vietnam's export credit sectors support Vietnam's key industries.

Agricultural products that Agribank Vietnam has strengths in financing activities such as: Rice, Seafood, Coffee have also been effective, shown in the growth rate of outstanding loans and the profit coefficient on total outstanding export credit has tended to increase; while bad debt is at a low level. 4

Fourth, Agribank Vietnam has made effective contributions to implementing solutions to prevent economic downturn.

The contribution of Agribank Vietnam demonstrates its key role in investing capital in the “Tam Nong” sector. Since the implementation of the renovation, credit for farming households producing agriculture, forestry, fishery and salt has been restored and developed very strongly and quite firmly thanks to the attention of the Government, appropriate solutions of Agribank Vietnam and commercial banks, in which Agribank Vietnam always plays a core role.

Outstanding loans for farmers account for nearly 30% of the total outstanding loans of the entire economy, of which Agribank Vietnam alone has met 70%. Most of the farmers have access to bank loans. Credit for farmers is truly a lever to promote Vietnam's agriculture to develop comprehensively and strongly and is increasingly becoming a commodity agricultural sector, not only meeting domestic demand but also increasing export turnover of many industries with raw materials and labor from agriculture and rural areas. Vietnam is an agricultural, forestry, tourism, seaport and water country.

4 Specifically, the results have been presented in section 3.2.2.5

Seafood. As one of the key export industries to the world... Most of Vietnam's export strengths are in the above-mentioned fields and are located in rural areas and households. Therefore, processing industrial enterprises and a large part of the manufacturing, training, construction industries... also need to be governed by the above-mentioned characteristics and potentials.

In recent times, Agribank Vietnam has applied convenient export lending methods for borrowers such as export credit limits (within the prescribed loan amount, no application procedures are required each time), crop rotation (rice growing areas with 2 consecutive crops can maintain loans, no need to pay principal each time)….

Fifth, Agribank Vietnam is a State Commercial Bank - the largest financial institution in the credit institution system of Vietnam.

Operating in a difficult business context and conditions, in 2012, Agribank Vietnam's total assets and outstanding credit increased by about 11.21%; Credit for agriculture and rural areas increased by about 14%, accounting for nearly 70%; Business safety ratios were ensured, bad debt ratio was gradually controlled and reduced; The network had 2,400 branches and transaction offices; Modern and convenient banking technology and services continued to develop; Transactions on the interbank market with credit institutions continued to expand; Profits and incomes of employees were guaranteed... Agribank Vietnam continued to be in the top 10 Vietnamese enterprises in the VNR500 Ranking.

3.3.2. Some existing

Firstly, although the bad debt ratio in export loans of Agribank Vietnam by the end of 2014 was still below 2%, this is a safe level but it contains many risks and increases bad debt in the coming time.

The bad debt ratio for export loans of Agribank Vietnam on the report and announcement is still at a low rate, partly due to the implementation of Decision No. 780/QD-NHNN dated April 23, 2012 of the State Bank of Vietnam on debt classification for debts with adjusted repayment terms and debt extension, so the branches have restructured debts for customers, on the other hand, some branches also have different forms of concealing bad debts. Another reason is that many medium and long-term loans have not yet matured but currently the enterprises are facing difficulties and cannot recover, so it affects the repayment of principal and interest in the coming time.

Second, the traditional export credit market share, which is the strength of Agribank Vietnam, is agricultural and aquatic products, but is shrinking.

Agribank Vietnam has the advantage of a wide network in rural areas, with strengths in lending to production households in the agricultural - rural sector, production of key agricultural and aquatic products for export, thus having strengths in export credit in this sector. However, recently this market share has been narrowing. This situation is due to strong, dynamic, flexible competition and many other advantages of foreign bank branches, joint stock commercial banks, Vietcombank with better service quality, more preferential interest rates, etc.

Third, Agribank Vietnam's export credit has not yet diversified its capital financing areas.

In the past, the main capital financing areas of Agribank Vietnam were still rice, coffee, rubber, seafood, etc. In fact, they still focused on lending to rice growers for export, coffee growers, rubber growers, pepper growers, shrimp farmers, catfish farmers, basa fish farmers, etc. They did not have a competitive advantage in financing businesses that purchase, process and export those products.

Fourth, the proportion of income from export credit activities in total credit income as well as general income of Agribank Vietnam is still at a modest rate.

This situation arises from many reasons, the main one is that in order to compete with other commercial banks in export financing, the lending interest rate for export enterprises of Agribank Vietnam must also be preferential, while the cost of capital mobilization is higher than other commercial banks. In addition, Agribank Vietnam only lends capital for production, while other commercial banks compete with other commercial banks for export trading. Therefore, Agribank Vietnam finds it difficult to provide a full package of other products and services to increase revenue such as: Buying foreign currency, international payment, discounting... so it cannot increase revenue.

Fifth, bad debt handling activities in export lending still have many shortcomings.

This existence is shown in the following contents:

- Bad debt handling activities are not effective. Looking at the table reflecting the bad debt ratio and debt handling and collection measures of Agribank Vietnam, it can be seen that currently the main method used is still using credit risk reserves to compensate for losses in export credit activities. Other methods such as debt collection

Direct debt from customers still accounts for a very limited proportion. This shows that Agribank Vietnam's debt settlement activities are not really effective. Regularly using the risk reserve fund to settle bad debts will affect Agribank Vietnam's future profits, thereby leading to negative consequences in business operations and reducing Agribank Vietnam's competitive advantage in the market.

-High bad debt balance in group 2 in export lending always implies the possibility of transferring bad debt group.

As mentioned above, bad debt in export lending is still large. Specifically, group 2 debt in 2013 accounted for 10.11% of total outstanding debt. Although it has decreased compared to 2012, it is still at a very high level, always potentially transferring to the bad debt group. This puts great pressure on the bad debt management situation of Agribank Vietnam. Therefore, Agribank Vietnam needs to have a strategy to manage group 2 bad debt to achieve the initially set goal of a bad debt ratio below 3.0%.

-The debt group structure in bad debt for export loans is mainly concentrated in group 5.

Bad debt in group 5 is the debt group with the highest risk of losing capital and causing great damage to Agribank Vietnam. If bad debt in group 5 is too high, it will make debt collection for Agribank Vietnam more difficult and reduce the bank's profits. Therefore, for bad debt in group 5, Agribank Vietnam needs to have measures to handle bad debt resolutely and effectively.

-The results of bad debt recovery that were previously handled by credit risk provisions have been decreasing over the years.

The bad debt recovery results of Agribank Vietnam have been decreasing over the years. This is partly due to the objective reason that the economy is increasingly difficult, and partly due to the indecisive bad debt recovery of Agribank Vietnam.

3.3.3. Causes

3.3.3.1. Objective causes from the macro environment

Agribank Vietnam has encountered numerous difficulties in implementing export credit and Tam Nong credit to support exports , not only in terms of how to organize and conduct business in a very large area, but also due to concerns such as farmers not being able to repay their debts, the Bank not being able to manage loans because of remote areas, small and fragmented loans... These problems will affect the ability to build and develop

Raw material areas such as coffee, rice, pepper, tra fish, basa fish... to serve export processing and thus indirectly affect export turnover.

The business environment is not favorable for the development of export credit, and there is a lack of necessary supporting institutions: Currently, there is no professional agency providing information on the financial situation of enterprises. The coordination between the Bank and the auditor is not close. There are enterprises that have been audited by the State Audit but when the Bank requests the audit results, they are not satisfied. Therefore, the main source of information for the Bank is the reports provided by the enterprise. Enterprise financial reports are one of the important bases for the Bank to establish and ensure the quality of credit relations with the enterprise. When the enterprise does not provide or does not provide complete and timely financial reports and capital usage to the Bank, it will lead to incorrect assessments of the enterprise and wrong investment decisions causing damage to both the Enterprise and the Bank. This is one of the reasons why capital for export loans is not controlled and closely monitored, leading to overdue debt.

The legal environment has revealed many weaknesses in terms of effectiveness and consistency between legal documents and related security agencies , especially documents related to lending mechanisms, including export credit lending. When it was first issued, Decree No. 83/2010/ND-CP dated July 23, 2010 of the Government on registration of secured transactions replacing Decree No. 08/2000/ND-CP dated March 10, 2000 of the Government on registration of secured transactions was welcomed by banks with the hope that it would be a clear legal basis for implementing export credit investment. However, in reality, the documents contain many shortcomings that cause difficulties for banks. Banking business is a field that is very sensitive to fluctuations from the market, changes in the socio-economic situation and is subject to close supervision by economic management agencies. Therefore, the Bank constantly innovates its business policies and implementation measures in accordance with reality, towards perfecting its service provision and meeting customer needs. However, in the process of innovation and self-improvement, the Bank often gets bogged down in difficulties that cause it to get stuck and its development process is interrupted. The existing problems inherent in the Bank's operations are always a direct threat to the Bank's survival and are also a key issue that needs to be resolved promptly.

3.3.3.2. Causes from the Export Enterprise

In the process of formation and development, Vietnamese enterprises are facing some basic difficulties and problems such as: Low competitiveness; Newly formed and developed enterprises are at a low level, the staff has a high level of education but lacks business experience, lacks professionalism in business. The level of technology is still backward, slow to improve. Besides some enterprises operating in the high-tech field or have invested in new technology, most enterprises have not innovated much in technology... The marketing and sales level of enterprises is still limited. This is really a fundamental weakness of Vietnamese enterprises. Actively searching for markets, proactively launching marketing programs for their products and goods is not a habit of enterprises. Besides, other business skills such as negotiation skills, presentation skills and persuasion skills of enterprise staff are very weak, not demonstrating professionalism in business.

Most of the enterprises have very small capital, working capital mainly depends on bank credit. Infrastructure, working methods, equipment are still very weak, outdated, the market is not stable, the capacity to operate business activities is limited, lack of experience in building investment projects, not really proactive in the production and business process.

Enterprises are very weak in designing and preparing projects for bank loans; Arguments about the necessity of projects as well as calculations of financial indicators are often cursory and lack feasibility and persuasiveness; Lack of collateral; Accounting systems and financial reports of enterprises are not clear and transparent, making it impossible for banks to grasp the business situation of enterprises; Credit history of enterprises is absent or unclear...

Outstanding credit for export enterprises is quite good but unstable, not solid, still too modest compared to the potential of mobilized capital. The number of project loans is still low, especially projects of 5 years or more are rare. On the other hand, the old problems in the financial situation cause great inertia, many enterprises are large in scale but the internal quality is not strong. And the final result is that enterprises do not fully repay the capital to the Bank when due. In many cases, the Bank has to

Applying for debt extension... thus causing difficulties and obstacles in the process of continuing to lend later.

In addition, there are also reasons from the State, such as the credit guarantee policy for import-export enterprises has not been implemented; the credit guarantee fund for import-export enterprises in localities has not been established due to inadequacies in the Government's regulations. Meanwhile, most enterprises lack assets to mortgage to banks when borrowing capital.

3.3.3.3. Subjective causes of the Bank for Agriculture and Rural Development of Vietnam

In terms of development orientation: In the general development orientation, Agribank Vietnam will provide about 80% of credit for Tam Nong and account for 70% of the market share of this credit market. However, there is almost no specific and clear orientation for the development of TDXK... TDXK is currently linked to agricultural credit activities (Tam Nong), without reasonable distinction and separation to create momentum for specialization and promote stronger development of this field. Lending subjects in agriculture, farmers, rural areas (accounting for over 74% of total outstanding loans of Agribank Vietnam) are the subjects that enjoy preferential policies on interest rates, asset mortgages... according to State regulations, but Agribank Vietnam does not enjoy any compensation from interest rates, mechanisms for calculating minimum capital safety ratios, foreign currency loans, opening branches... while still having to compete fairly and equally according to market mechanisms with all other commercial banks. In fact, when conducting customer surveys, few people think that Agribank Vietnam is a Bank supporting export loans, they think that this is a policy-based Bank serving agriculture, farmers, rural areas and is the Bank with the most bad debt scandals. Business activities of economic sectors are still in a difficult situation, purchasing power in the market is still low, and capital absorption capacity is not high. The process of restructuring the economy and the financial and credit system is still slow, the capital surplus in commercial banks is prolonged, credit growth is low, the bad debt situation has not been fundamentally resolved. The recent tension in the East Sea and incidents in the banking and financial sector.

The scale of operations of Agribank Vietnam increased rapidly to meet the requirements of the economy, however, the provision of charter capital encountered many difficulties, so some ratios were guaranteed.

Comment