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

LIST OF DRAWINGS, DIAGRAM

Diagram 1.1. Loan process for Science and Technology 12

Figure 2.1. Organizational structure model at Vietinbank – Dong Hai Duong Branch 31

Figure 2.2: Structure of SMEs having credit relationships with branches by business lines in 2020 35

Figure 2.2. Loan process for SMEs customers 37

Figure 2.3. Loan sales structure by collateral at Vietinbank - Dong Hai Duong Branch in the period 2017-2020 40

Figure 2.4: Loan sales structure by economic sector at Vietinbank - Dong Hai Duong Branch in the period 2017-2020 41

Figure 2.5. Structure of outstanding loans according to collateral at Vietinbank - Dong Hai Duong Branch in the period 2017-2020 42

Figure 2.6: Loan structure by economic sector at Vietinbank - Dong Hai Duong Branch in the period 2017-2020 43

LIST OF ABBREVIATIONS

STT

Acronym	Original meaning
1	BIDV	Joint Stock Commercial Bank for Investment and Development of Vietnam
2	CN	Branch
3	Board of Directors	Board of Directors
4	KHDN	Corporate Clients
5	SMEs	Small and Medium Enterprises
6	NHCT	Industrial and Commercial Bank
7	State Bank of Vietnam	State Bank
8	Commercial Bank	Commercial Bank
9	Joint Stock Commercial Bank	Joint Stock Commercial Bank for Industry and Trade
10	QTRR	Risk Management
11	QTRRTD	Credit risk management
12	RRTD	Credit risk
13	Ltd.	Limited liability
14	TMCP	Joint stock trading
15	Vietinbank – Dong Hai Branch Positive	Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch

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INTRODUCTION

1. Urgency of the research topic

Credit is one of the business activities that plays an important role and brings a large source of income to commercial banks. In credit activities, lending accounts for the largest proportion. However, it is always associated with risks, so it requires attention to credit risk management to control losses caused by credit risks. Faced with the opportunities and challenges of the international economic integration process, the issue of improving the competitiveness of domestic commercial banks with foreign commercial banks, specifically improving credit quality and minimizing risks, has become urgent.

Credit activities of banks are also undergoing strong changes. With the development of the small and medium-sized enterprise customer market in bank credit, banks are targeting small and medium-sized enterprise customers as a potential loyal customer. Credit activities serving small and medium-sized enterprise customers have been bringing high profits to banks. However, profits and risks are two sides of the same coin, high profits also mean that banks have to face potential risks from small and medium-sized enterprise customers, as well as the subjective side of the bank. With the characteristic of large-value loans, identification, evaluation, inspection and monitoring are extremely important. This makes each bank have to build a separate credit risk management strategy for lending to small and medium-sized enterprises.

Kinh Mon District - The operating area of Vietinbank Dong Hai Duong is where many SMEs operate, the potential for developing SMEs loans in the area is very large. Therefore, lending to SMEs is the development orientation of Vietinbank Dong Hai Duong in the coming time, so the growth rate of SMEs loans at the branch tends to increase rapidly over the years. However, the competition for SMEs loans in the area is very large, many commercial banks have loosened credit standards to expand the scale of lending, which will cause risks. Especially in the context of the Covid-19 epidemic causing difficulties for SMEs, many SMEs have stopped operating, even went bankrupt. In addition, credit risk management in lending

SMEs at the branch are not really effective, there are many limitations from risk identification to risk measurement, monitoring and handling. Therefore, the requirement to strengthen credit risk management in lending to SMEs is an urgent requirement today.

Based on that fact, the study of solutions to enhance credit risk management in lending to small and medium enterprises is extremely necessary . Therefore, the author decided to carry out the topic "Credit risk management in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch".

2. Overview of research works related to the topic

2.1. Research on credit risk management of branches of Vietnam Joint Stock Commercial Bank for Industry and Trade

Risk management is one of the most complex but urgent issues for all banks and always receives special attention. Therefore, there have been many research projects related to this issue, specifically some of the following typical projects:

Nguyen Thi My Tam (2015), " Credit risk 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. The author believes that managing SMEs credit portfolio according to customer risk level is a way to ensure that banks maintain the quality of credit operations. To do this job well, banks need to focus on building a customer rating and scoring system and estimating credit losses. At the same time, building a portfolio according to plan is also a method to help banks manage their credit portfolio. For banks whose main service objects are SMEs, this issue becomes even more urgent because the business characteristics of this object will greatly affect the bank's credit granting decisions. The limitation of this topic is that the topic has not separated the proportion of bad debt by group and industry, thereby showing that some industries often have industry-specific risks to build appropriate risk mitigation solutions.

Nguyen Duc Tu (2016), “ Credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade” , PhD thesis in economics, Hanoi National Economics University. The thesis has systematized and presented the full theory of credit risk and credit risk management in the context of international economic integration and increasing competitive pressure in business activities.

of commercial banks. Based on the analysis of the current situation, the thesis has pointed out the shortcomings and needs to be amended in credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade. In particular, the thesis has proposed models that can be applied to credit risk management of commercial banks according to the standards of Basel II - general principles and banking laws of the Basel Committee on Banking Supervision... However, the scope of this thesis is the entire system of Vietinbank and the research period of the thesis is in the years before 2016.

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. The topic has systematized the basic theoretical issues on credit risk management of commercial banks. On that basis, the analysis and assessment of the current status of credit risk management at Vietnam Joint Stock Commercial Bank for Industry and Trade - Hanoi Branch in the period 2010-2014. Based on the limitations and causes, the topic proposes 5 solutions and 2 recommendations for the State Bank and 2 recommendations for Vietinbank to strengthen credit activities for small and medium-sized enterprise customers of Vietinbank - Hanoi Branch.

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. The thesis systematizes basic theoretical issues on credit risk and credit risk management of commercial banks. Analyzes and evaluates the current status of credit risk at Vietinbank Luu Xa branch. Based on the analysis of the causes of limitations in credit risk management, the topic proposes a number of solutions to strengthen credit risk management at Vietinbank Luu Xa branch in the coming period.

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. The thesis has selectively systematized some basic theories on credit risk and credit risk management in lending to corporate customers of commercial banks. Analyze the current status of credit risk and credit risk management in lending to corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - Hai Duong Industrial Park Branch from 2015-2018. Propose some solutions and recommendations to strengthen management

Credit risk in lending to corporate customers at Vietnam Joint Stock Commercial Bank for Industry and Trade - Hai Duong Industrial Park Branch until 2025.

2.2. Research on credit risk management of commercial bank branches in Hai Duong province

Nguyen Ngoc Khoa (2020), " Credit risk management in lending to corporate customers at Dai Duong Commercial Bank - Hai Duong Branch" , Master's thesis, University of Commerce. Based on the theoretical foundations related to credit risk management for corporate customers at the bank, the thesis also analyzed the current status of credit risk management for corporate customers at Dai Duong Commercial Bank - Hai Duong Branch. From there, find the causes to adjust and amend those issues. Based on the actual situation, the expansion and development goals in the coming time, the author has proposed specific measures for the branch and made recommendations to the Government, the State Bank and Dai Duong Commercial Bank to promote and strengthen credit risk management at the branch in the future.

Nguyen Thi Huyen Dieu (2018), " Credit risk management in lending to corporate customers at BIDV - Hai Duong branch" , Master's thesis, University of Commerce. The thesis studies the issues related to credit risk management in lending to corporate customers, the experiences of domestic commercial bank branches and draws lessons that can be referenced and applied to BIDV Hai Duong. Analyze the current situation and characteristics of credit risk management activities in lending to corporate customers at BIDV Hai Duong, thereby evaluating the successes, limitations and causes. Propose solutions and recommendations to strengthen and improve the effectiveness of credit risk management in lending to corporate customers at BIDV - Hai Duong branch.

Through the process of evaluating the overview of studies and documents related to credit risk management of commercial banks, the system of studies has contributed to forming a fairly complete and clear theoretical basis on the concept of credit risk, credit risk management of commercial banks to clarify the nature, factors affecting credit risk and credit risk management; Assess the current status of credit risk, credit risk management of each bank, thereby generalizing and identifying types of credit risk.

applied in commercial banks and assess the limitations of this work to propose solutions to strengthen credit risk management at each bank.

Each study in a different aspect has basically reflected the industry, field and specific unit that it has studied. The thesis on Credit risk management in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch was researched at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch, the thesis studies the current status of credit risk management activities in lending to small and medium enterprises in the period 2017-2020 and also gives recommendations that can be applied to the practice of Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch. Therefore, the topic is practical and does not overlap with previous research works.

3. Objectives and research tasks of the topic

3.1. Research objectives

The research objective of the topic is to propose scientifically based solutions to enhance 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 the coming time.

3.2. Research tasks

To accomplish the above objectives, the thesis needs to perform the following specific tasks:

- Systematize basic theoretical issues on credit risk management in lending to small and medium enterprises at commercial banks.

- Analyze and evaluate 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.

- Propose some solutions to strengthen credit risk management in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch.

4. Research object and scope

4.1 Research subjects

The main research object of the topic is credit risk management activities in lending to small and medium enterprises at commercial banks.

4.2 Scope of research

+ Research content: credit risk management in lending to small and medium enterprises.

+ Regarding research space: analyzing credit risk management in lending to small and medium enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Dong Hai Duong Branch.

+ Research period: from 2017 to 2020.

5. Research methods

5.1. Data collection method

In the thesis, secondary data is used, collected from the business performance reports of Vietinbank - Dong Hai Duong Branch in the period of 2017-2020; Annual reports from 2017 to 2020 and documents related to credit risk management in lending to SMEs in the Vietinbank system. Theoretical and practical documents from textbooks, similar studies on the topic, legal documents, articles posted on websites... are also used in the thesis.

5.2. Data analysis method

After collecting all the information related to the research topic, it is necessary to use the comparison method and the form method to analyze and evaluate the data. Based on the theory from textbooks, books, newspapers, ... combined with referring to data sources from actual surveys at the unit, the research process uses a combination of the following methods: Statistical method; Analysis and comparison method; Synthesis and evaluation method to draw conclusions and recommendations to achieve the research objectives.

In addition, the thesis also uses the survey method to clarify the content of credit risk management in lending to SMEs at Vietinbank Dong Hai Duong (in the Appendix).

Survey subjects: Directors, deputy directors in charge of credit, department heads/deputy department heads, employees of departments directly related to the credit granting process and credit risk control.

Survey form: 150 survey forms sent via direct mail and email