Credit risk management in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch

In order to develop a good relationship between banks and SMEs, SMEs need to take measures to enhance the effectiveness of coordination with banks and limit possible credit risks.

SMEs leaders must improve their management and administration capacity, actively train human resources, and be proactive in applying scientific and technological solutions to management and production and business activities.

SMEs need to improve the qualifications of their management staff and actively use consulting services, especially banking consulting, in researching and developing projects and production and business plans.

Improve the quality of financial information of SMEs. SMEs need to pay due attention to the financial accounting system, organize honest, objective and transparent financial information. In addition to applying the information on the financial statements, SMEs can proactively build a system to quickly report on the operating situation through indicators to assess the ability to pay, profitability, value of due debts, etc. so that SMEs owners can regularly update the operating situation of SMEs and make safe and effective investment decisions.

SMEs need to develop in the direction of improving financial capacity, increasing equity capital through capital contributions, annual profit deductions... to be able to reasonably balance borrowed capital and equity capital, effectively use financial leverage but still ensure initiative in production and business activities, limit the risk of insolvency. In addition, it is necessary to build a production and business development strategy in line with the economic development orientation. SMEs can carry out linkages on the basis of industry associations, creating strength to overcome market fluctuations and creating a competitive environment for mutual development.

In addition, businesses need to cooperate with banks in providing information, documents and post-loan checks. The bank's detection of signs of risk is not only beneficial to the bank but also to the business in cases where the business has not yet detected it. Moreover, for customers with goodwill, banks can coordinate, advise, support capital, and introduce business partners to overcome difficulties.

CONCLUSION OF CHAPTER 3

The content presented the orientations of credit risk management in lending to small and medium enterprises at the branch. From the limitations and achievements along with the development orientation, the author proposed solutions to enhance credit risk management in lending to small and medium enterprises at Vietinbank - Dong Hai Duong Branch. In addition to the proposed solutions, the author also made recommendations to the State Bank; Vietinbank and Enterprises.

CONCLUDE

In the context of the economy experiencing many fluctuations and difficulties as present, commercial banks are facing great risks in their operations, especially credit risks. SMEs are an important component of the economy, the target customers of banks, but they are most affected by negative fluctuations in the economy, business environment, etc. Therefore, commercial banks are at risk of increasing bad debt, increasing the possibility of not being able to recover debt, and declining credit quality. Therefore, improving the quality of credit risk management in lending to SMEs is an important task in the management of commercial banks.

Based on the application of research methods, closely following the objectives and scope of the research, the thesis has completed the following tasks:

- Analyze the theoretical basis of credit risk and credit risk management in lending to SMEs of commercial banks, learn from the credit risk management experience of some commercial bank branches and draw lessons from it.

- Analyze credit risk and evaluate the current status of credit risk management in lending to SMEs at the bank, present the achieved results, main limitations and causes leading to limitations in credit risk management in lending to SMEs of Vietinbank Dong Hai Duong Branch.

- Based on that theory and practice, the author has given basic orientations and proposed some solutions to improve the quality of credit risk management for Vietinbank Dong Hai Duong Branch.

- Make some recommendations to the State Bank, Vietinbank and Enterprises to facilitate the implementation of proposed solutions to improve the quality of credit risk management.

The author hopes that the topic will contribute a small part in strengthening credit risk management in lending to SMEs at Vietinbank Dong Hai Duong Branch, creating a safe and effective credit environment for the branch to achieve the highest business goals.

REFERENCES

1. Nguyen Thi Hong Anh (2019), Credit risk management in lending to corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - Hai Duong Industrial Park Branch, Master's thesis, University of Commerce.

2. Nguyen Thi Huyen Dieu (2018), Credit risk management in lending to corporate customers at BIDV - Hai Duong branch, Master's thesis, University of Commerce.

3. Frederic S. Mishkin (2001), Money, banking and financial markets, Science and Technology Publishing House

4. Banking Academy (2009), Finance - Banking and Monetary Textbook, Statistical Publishing House.

5. Academy of Finance (2008), Textbook of monetary finance theory, Finance Publishing House.

6. Academy of Finance (2016), Commercial bank management textbook, Finance Publishing House

7. Nguyen Ngoc Khoa (2020), Credit risk management in lending to corporate customers at Ocean Commercial Joint Stock Bank - Hai Duong Branch, Master's thesis, University of Commerce.

8. Nguyen Minh Kieu (2007), Credit and bank credit appraisal, Finance Publishing House.

9. Le Thuy Linh (2017), Credit management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Hanoi Branch, Master's thesis, University of Economics, Vietnam National University, Hanoi.

10. Vietnam Joint Stock Commercial Bank for Industry and Trade, internal documents related to credit risk management in lending to SMEs customers

11. Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch, Internal Report 2017-2020

12. State Bank of Vietnam (2016), Circular No. 39/2016/TT-NHNN regulating lending activities of credit institutions and foreign bank branches to customers.

13. State Bank of Vietnam (2014), Document No. 22/VBHN-NHNN dated June 4, 2014 regulating debt classification, provisioning and use of reserves to handle credit risks in banking activities of credit institutions.

14. Dinh Thi Thuy Ngoc (2018), Credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Luu Xa Branch, Master's thesis, University of Commerce.

15. Nguyen Van Tien (2005), Risk management in banking business, Statistical Publishing House.

16. Nguyen Duc Tu (2012), Credit risk management of Vietnam Joint Stock Commercial Bank for Industry and Trade, PhD thesis in Economics, Academy of Finance.

17. Nguyen Thi My Tam (2015), credit management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Thang Long branch, Master's thesis in economics, University of Economics and Business Administration - Thai Nguyen University.

18. Nguyen Duc Tu (2016), Credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade, PhD thesis in economics, National Economics University, Hanoi.

APPENDIX

APPENDIX 1: SURVEY QUESTIONNAIRE

Dear ladies and gentlemen!

I am a Master student at the University of Commerce. I am currently working on my thesis: “ Credit risk management in lending to small and medium enterprises at the Vietnam Joint Stock Commercial Bank for Industry and Trade – Dong Hai Duong Branch”

Below are the survey questions to find out the current status of credit risk management in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch. By answering the questions below, you have contributed to strengthening the author's topic as well as evaluating credit risk management activities in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch. All your answers will only be used for the research purpose of the thesis and will not be used for any other purpose.

Please answer the following questions by marking an X in the box 

that you choose.

Part 1: General information

1. Please indicate your age:

 <25

 25-35

 36-45

 46-55

 >55

2. Please indicate your educational background:

 Undergraduate

 University

 Above university

3. Please indicate your position:

 Staff/specialist

 Management staff

4. Time you have worked at the bank:

 <1 year

 1-5 years

 5-10 years

 >10 years

Part 2: Personal opinion

Please indicate the level of compliance of credit risk management activities in lending to SMEs at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong branch:

CONTENT

Non-compliance 1 point (vote)	Partial compliance 2 points (vote)	Follow 3 points (votes)
1. Risk identification
Does the State Bank have identification criteria in case of lending to SMEs that is too concentrated in one industry/sector and/or in a small number of SMEs/a SME customer group
NHCT has established an identification system to help identify Problem loans in SME lending
Risk warning information when there is an adverse change In the business environment, credit activities for SMEs customers are collected promptly.
Vietinbank - Dong Hai Duong Branch has built a team Knowledgeable experts with a lot of practical experience to forecast credit risks in lending to SMEs
2. Risk measurement
2.1 Internal risk assessment system
The credit rating system is the basis for determining Establish credit policies with specific conditions when lending to SMEs customers
The assessment of SME customer ratings is carried out at the time of loan approval and periodically and/or when there are major changes in the SME customer's financial situation. Regarding the credit rating criteria, re-scoring will be carried out immediately.
The credit rating of SMEs customers is carried out objectively presented by an independent body
2.2 Credit risk measurement model
Does the Bank use a quantitative model of credit risk? related to lending to SMEs customers
NHCT has information systems and analytical techniques. enables the management and measurement of credit risk in lending

Maybe you are interested!

SME customer loans


3. Risk control
3.1 Credit policy
Credit policy covers all lending activities and credit risk management in lending to SMEs.
Credit policy is clearly communicated across whole organization
Credit policy for SMEs is reviewed and evaluated periodically.
The NHCT clearly establishes the approval process for new loans to SMEs as well as for adding, extending or refinancing existing loans to SME customers.
NHCT has a document with specific instructions on security work. SME credit
3.2 Interest rate framework
Interest rates for loans to SME customers are flexibly regulated based on the classification of SME customers when considering loan
The lending interest rate for SMEs customers takes into account the expected rate of return, fee benefits and other income that SMEs will bring to Vietinbank – Dong Hai Duong Branch and clearly demonstrates the traditional long-term relationship. between banks and SMEs customers
3.3 Organizational structure
The credit risk management organization in lending to SMEs is organized according to the principle of separating the risk creation department from the risk approval and monitoring department.
3.4 Risk management report
NHCT builds credit risk management reporting system Apply in lending to SMEs customers promptly, scientifically, and appropriately to customer groups.
Credit risk management reporting system in lending to SMEs customers ensures quality and usefulness for Operational work
3.5 Credit risk control
Vietinbank – Dong Hai Duong Branch maintains a system to monitor all conditions of each loan to SME customers, including determining the level of adequate provisions.

Credit risk management in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch - 14

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