Current Status of Loan Quality for Small and Medium Enterprises at Joint Stock Commercial Bank for Foreign Trade of Vietnam, Hanoi Branch (Vietcombank Hanoi)

CHAPTER 2: CURRENT STATUS OF LOAN QUALITY FOR SMALL AND MEDIUM ENTERPRISES AT JOINT STOCK COMMERCIAL BANK FOR FOREIGN TRADE, HANOI BRANCH (VIETCOMBANK HN)

2.1. Overview of NT Commercial Joint Stock Bank, Hanoi Branch (Vetcombank Hanoi)

Vietcombank Hanoi was established on March 1, 1985, is a member of the Bank for Foreign Trade of Vietnam system, and has been recognized by the State as a Class I enterprise. In 2004, Vietcombank Hanoi was honored to receive the Third Class Labor Medal from the President of the Socialist Republic of Vietnam.

Vietcombank Hanoi was established to serve foreign exchange trading, international payment, financial services and international banking in Hanoi. In addition to the head office located at 344 Ba Trieu, Hai Ba Trung, Hanoi, Vietcombank Hanoi is currently playing the role of managing:

- 4 branches in Hanoi including: Thanh Cong Branch, Thang Long Branch, Chuong Duong Branch, Ba Dinh Branch.

- 8 transaction offices and one transaction counter located at Noi Bai Airport. Vietcombank Hanoi is always proud to be one of the leading branches of

Vietcombank, with its modern technology system, provides products and services with high automation: interbank electronic payment, VCB ONLINE, ATM Connect 24, Money Gram... Vietcombank is also one of the first banks to join the global SWIFT payment system with a network of over 1,400 banks in 85 countries and territories around the world, thereby ensuring good service to customer requirements.

Especially with a long-term development orientation, Vietcombank Hanoi always focuses on training and attracting talents with the goal of building a team of dynamic, enthusiastic and professionally proficient staff.

2.1.1. Personnel organization structure of Vietcombank HN

Along with the innovation of credit procedures for institutional customers is a change in the organizational structure of the entire Vietcombank system.

The risk management center is located at the Head Office and Ho Chi Minh City Branch to manage the entire system. The personnel of the risk management departments at the branches are transferred to the Debt Management or Customer Relations Department. Up to this point, the structure of Vietcombank Hanoi is arranged as follows:

- General room

- Banking service department

- Import-export payment department

- Card payment department

- Financial accounting department

- Treasury Department

- Computer room

- Human resources administration department

- Customer Relations Department (credit department): The Customer Relations Department is the focal point representing VCB Hanoi in contacting customers, thereby establishing credit relationships with customers. The Customer Relations Department at the branch is currently divided into a corporate customer group and an individual credit group to help classify, evaluate and specialize better to meet the credit needs of economic sectors.

- Debt management department: The debt management department performs the function of storing all documents and papers related to credit contracts and customer information.

2.1.2. Main business results

*About capital mobilization activities :

Capital mobilization activities at Vietcombank Hanoi branch always achieved quite good results. Specifically, in 2007, it reached 4,325 billion VND, an increase of 28.8% compared to 2006, while this rate for the entire Vietcombank system was only 15.8%. In Hanoi, the growth rate of total mobilized capital of credit institutions in 2007 increased by 19.2% compared to 2006. As of 2007, the capital mobilization market share of Vietcombank Hanoi accounted for 3.65% of the total mobilized capital in the entire area.

Residential areas and economic organizations account for 80% of total capital mobilized by Vietcombank Hanoi, the rest comes from foreign credit organizations and from the interbank market. Specific data for 2007 are as follows:

- USD mobilization: 182 million USD, up 17.2% compared to 2006

- VND mobilization: 7,267 billion VND, increased 43.3% compared to 2006

Although capital mobilization was more or less affected by major fluctuations in the interest rate market, payment deposits still grew quite steadily, reaching VND987 billion by the end of 2007.

Table 2.1.2.1. Data table on capital mobilization in 2007

(Unit: Million VND, thousand USD)

Target

VND	USD	VND
Capital Source	4,325,192	182,585	7,267,367
I. Capital mobilized from Interbank Market	433,321	1,986	465,323
A. Deposit	433,321	1,986	465,323
3. Domestic credit institutions' TG	3,321	18	3,611
4. TG of foreign credit institutions	430,000	-	430,000
II. Capital mobilized from customers	3,433,539	176,030	6,270,086
1. Non-term deposits	1,365,084	26,170	1,786,787
- Payment time	987,610	23,398	1,364,645
- Savings period	366,093	2,619	408,296
- Dedicated TG	11,381	153	13,846
2. Term deposit	1,760,183	136,922	3,966,544
a. Term deposits under 12 months	1,027,160	45,273	1,756,689
- Term deposits of customers with terms of less than 12 months	137,907	1,027	154,456
- Savings period under 12 months	889,253	44,246	1,602,233
b. Term deposits over 12 months	733,023	91,649	2,209,855
- Term loan of over 12 months of customer	121,660	308	126,623
- TG has savings for over 12 months	611,363	91,341	2,083,232
3. VCB issues promissory notes and bonds	42,762	1,024	59,263
4. TG deposit to ensure payment	7,925	4,618	82,339
III. Foreign exchange trading	410	2	442
IV. Other capital	276,673	1,142	295,075
V. VCB's equity	130,933	-	130,933
VI. Relationships within the system	50,316	3,424	105,490
3. Borrow from Central Bank	-	3,424	55,174

Maybe you are interested!

(Source: VCB Hanoi Customer Relations Department)

* Regarding capital use activities :

Capital management and use activities at Vietcombank Hanoi comply with the principles of safety and efficiency.

- The figure of 90.6% of the total capital mobilized by the branch in 2007 has generated profit, showing the effective capital use of Vietcombank.

The total capital generated in 2007 accounted for 98.6% of the total mobilized capital of the branch, of which credit capital accounted for about 70%, the rest was transferred internally, increasing the efficiency of capital use for the entire NTHN Commercial Joint Stock Bank system. The effective use of capital has indirectly contributed to promoting the growth rate of enterprises as well as the capital.

Table 2.1.2.2: Data on capital use in 2007 (unit: million VND, thousand USD)

Target

VND	USD	VND
Use of capital	4,325,192	182,585	7,267,367
1. Cash and valuable papers	75,204	1,373	97,329
2. Interbank market relations	13,169	-	13,169
- Deposits at the State Bank	13,169	-	13,169
3.Credit relationship with customers	1,329,778	75,888	2,552,637
4. Other uses of capital	92,032	1,563	117,218
5. Fixed assets	28,352	-	28,352
6.Relationships in the system	2,786,657	103,761	4,458,662
- TG of CN at TW	2,649,724	103,761	4,321,729
In which: - Term deposit	2,599,500	75,217	3,811,547

(Source: Customer Relations Department, VCB Hanoi) Capital usage activities are focused on a number of specific operations:

Credit:

In 2007, the branch's credit activities were oriented towards quality improvement combined with tightening credit risk control. At the end of 2007, total outstanding loans in VND reached 2,553 billion VND, nearly 80% compared to 2006. This is also consistent with the

suitable to the current market situation of the banking industry. Because the goal of curbing escalating inflation by tightening credit is the policy of the Party and Government.

Regarding the structure of credit, VND loans still account for a higher proportion than USD loans. Specifically:

+ Outstanding loans in VND in 2007 reached 1,330 billion VND, accounting for 52.01% of total

outstanding debt outstanding debt

+ Outstanding loans in foreign currency in 2007 reached 1,233 billion VND, accounting for 47.90% of total. Credit work of Hanoi branch achieved proud achievements.

is thanks to the team of dynamic and creative credit officers, always proactively looking for customers. Currently, VCB Hanoi has both individual credit and corporate customer credit departments.

- In 2007, the rate of profitable capital use always reached nearly 90% of total capital. Of which, credit investment accounted for 70%. Vietcombank HN's credit activities in 2007 followed the right direction of credit quality management, while still excellently completing the assigned plan:

+ Outstanding credit balance reached 2,553 billion VND, of which loans to individual customers reached 200 billion VND, up 40% compared to 2006.

Overdue debt:

- The overdue debt ratio in 2007 was only 0.8%, equivalent to an overdue debt balance of 20 billion VND. The development orientation focusing on credit quality combined with reasonable and timely credit policies has helped VCB Hanoi achieve very good results in controlling the overdue debt ratio. Thanks to the above efforts, VCB Hanoi has been ranked by the Ministry of Finance as having AAA performance rating according to the provisions of Circular No. 49/2004/TT-BTC of the Ministry of Finance.

Table 2.1.2.3: Credit activity data in 2007 (unit: million VND, thousand USD)

Target

VND	USD	VND
Customer Loans	1,329,770	68,715	2,437,044

1,478	2,695	44,905
- Debt overdue up to 180 days	163	1,543	25,027
- Overdue debt from 180 to 360 days	870	19	1,176
- Bad debt	439	1,133	18,696
a. Short-term loans	1,071,702	55,073	1,959,148
- Overdue debt	877	1,673	27,836
b. Medium-term lending	112,108	9,879	271,298
- Overdue debt	602	1,023	17,087
c. Long-term loans	145,959	3,763	206,596
Other loans	-	604	9,733

+ Overdue debt

(Source: VCB Hanoi Customer Relations Department)

Thus, it can be seen that short-term lending is still the main revenue generating activity for VCB Hanoi. Although accounting for a large proportion (over 80%), the overdue debt ratio of short-term loans is not high, only reaching over 20 billion VND.

Import and export payment:

- The branch's import-export payment turnover in 2007 reached about 480 million USD, an increase of 10% compared to 2006, of which:

- Import payment turnover: reached 330 million USD, increased by 8% compared to 2006 with L/C payment of 253.37 million USD, increased by 14.7% compared to 2006, collection and remittance of 74.53 million USD, decreased by 5.9%.

- Export payment turnover: reached 160.87 million USD, increased by 33.53% compared to 2006, with L/C payment of 46.37 million USD, increased by 55.7%, collection and remittance of 117.6 million USD, increased by 25.7% compared to 2006.

- Guarantee and issuance: reached about 40 billion VND, of which guarantee release reached 52 billion VND, outstanding guarantee debt was 165 billion VND

- With the reputation of being a leading brand in supporting import and export activities, VCB Hanoi has truly become a trusted address in international payment services in Hanoi.

Foreign exchange trading :

VCB Hanoi's foreign currency trading turnover in 2007 reached 831 million USD, an increase of 14.09% compared to 2006, and foreign currency trading profit in 2007 was 4 times higher than in 2006. Thanks to the good progress of foreign currency trading activities at the branch, the dependence on VCB Central has been reduced, helping the business activities to be profitable, bringing revenue to VCB Hanoi.

Table 2.1.2.4: Foreign exchange business activity data in 2007

(Unit: thousand USD)

Target

2007	% Compared to 2006
- Purchase turnover	435,963	113.19
+ Buy from economic organizations	274,541	122.45
+ Buy from VCB TW	62,194	119.62
+ Buy from TCTD	76,480	73.45
- Sales:	429,853	114.43
+ Sell to economic organizations	285,672	132.68
+ Sell to VCB TW	66,940	215.94
+ Sell to credit institutions	76,328	73.96

(Source: Foreign Exchange Trading Department, VCB Hanoi)

Accounting work:

- With the advantage of modern banking technology, the payment work of VCB Hanoi in 2007 has ensured accuracy and timeliness for customer transactions. Inter-bank electronic payment activities and IBT ONLINE achieved high results in quantity and quality. Specifically as follows:

+ IBPS revenue reached 25,561 billion VND, up 46% compared to 2006.

+ IBT online sales reached 22,335 billion VND, increased 35% compared to 2006

+ Clearing and payment turnover reached 6,361 billion VND, up 6.6% compared to 2006.

* Treasury work:

- Foreign currency and VND turnover of VCB Hanoi branch, including base branches and transaction offices in 2007 increased by about 28% compared to 2006. Particularly

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