Developing credit services for small and medium enterprises at Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch

LIST OF TABLES

Table 2.1: Number of SME customers 54

Table 2.2: Outstanding loans 55

Table 2.3: Loan sales and debt collection sales 57

Table 2.4: Overdue debt situation of SMEs 59

Table 2.5: Debt structure by SME debt group 60

Table 2.6: Interest income from lending activities to SMEs 61

Table 2.7: Characteristics of surveyed customers 64

Table 2.8: Reliability assessment results 65

Table 2.9: Results of the Responsibility Assessment 66

Table 2.10: Assessment results Assurance 67

Table 2.11: Reliability assessment results 67

Table 2.12: Tangibility Assessment Results 68

LIST OF FIGURES

Chart: 2.1. Organizational structure of Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch and affiliated Transaction Offices: 36

Chart 2.2: Average credit market share of commercial banks in Quang Binh province in 2014-2016. 37

Chart 2.3: Proportion of outstanding debt of SMEs compared to total outstanding debt 56

Chart 2.4: Proportion of SME Loan Sales in Total Loan Sales ...57

PREFACE

1. Urgency of the topic

For any country, small and medium enterprises (SMEs) always account for a high proportion of the total number of enterprises. Therefore, SMEs are always identified as playing an important role in the economy. However, in the process of international economic integration, SMEs are facing many difficulties and challenges. To improve their competitiveness in both domestic and international markets, in addition to mobilizing all internal resources, SMEs need to receive capital support from commercial banks (CBs). Therefore, SMEs become a particularly important and potential lending target for CBs, especially in developing economies like Vietnam.

The current reality shows that the source of bank credit for investment in SMEs is still very limited because these enterprises find it difficult to meet the conditions for bank loans and when accessing credit capital, enterprises do not use capital reasonably and effectively. In addition, most commercial banks are currently only interested in expanding credit for small and medium enterprises and pay little attention to improving credit quality for this customer segment. In particular, the credit quality of commercial banks has seriously declined in the recent period, small and medium enterprises have encountered many difficulties when the State Bank of Vietnam (SBV) implemented a tight monetary and credit policy. Therefore, the problem is how to improve credit quality for small and medium enterprises is an urgent requirement, an orientation in the operations of commercial banks today.

Realizing the importance of credit for SMEs, in recent times, Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch has made many efforts to expand the scale of lending to SMEs in both quantity and quality. However, there are still many limitations. Finding solutions to resolve existing problems to help develop credit services for SMEs most effectively is the top concern of Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch.

Quang Binh. Based on that reality, I chose the topic: "Developing credit services for small and medium enterprises at the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch" as my master's thesis.

2. Overview of related research works

Regarding the topic “Developing credit services for small and medium enterprises at the Joint Stock Commercial Bank for Foreign Trade of Vietnam – Quang Binh Branch”, there have been a number of scientific research works published in the form of master’s theses and doctoral dissertations. Some recent research works related to the topic can be mentioned as follows:

Pham Van Hong (2007), Development of small and medium enterprises in Vietnam in the process of international integration, Doctoral thesis in economics, National Economics University, Hanoi. This topic has researched and systematized theoretical issues related to the development of small and medium enterprises. Summarized the experience of developing small and medium enterprises in the process of international economic integration of some countries in the world. Analyzed and evaluated the current situation of small and medium enterprises and the institutional environment for developing small and medium enterprises in the process of international economic integration.

Nguyen Minh Tuan (2008), Development of banking services to support small and medium enterprises in Vietnam, PhD thesis in economics, National Economics University, Hanoi. This topic has researched and systematized the issues of risk management, transaction costs and administrative costs, the need for a specific financial accounting system for small and medium enterprises... considering small and medium enterprises as individual consumers, classifying small and medium enterprises into mass groups and profitable groups.

Le Huu Tho - Master's thesis (2013) Banking Academy. Solutions to improve credit quality for SMEs at the Bank for Agriculture and Rural Development of Vietnam, Dong Anh branch.

Luu Dong Thuy - Master's thesis (2014) National Economics University. Award

Solutions to improve the effectiveness of supporting the development of small and medium enterprises in Vietnam.

However, there has not been any master's thesis or research project on evaluating the credit service situation for small and medium enterprises at Vietnamese banks in general and at Vietcombank Quang Binh branch in particular, thereby providing solutions to develop credit services for small and medium enterprises effectively in both scale and quality.

3. Research purpose of the topic

- Systematize the theoretical basis of bank credit for SMEs

commerce.

- Assessing the credit situation for SMEs at Joint Stock Commercial Bank for Foreign Trade of Vietnam

Vietnam Trade - Quang Binh Branch.

- Analyze factors affecting SME customers' assessment of credit service quality.

- Propose a system of solutions and recommendations to develop credit for SMEs at the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch in both scale and quality.

4. Subject and scope of the research topic

- Research object : Research on theory and current status of SME credit development of Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch.

- Research scope:

+ Location: In Quang Binh province

+ Time: Research time from 2014 - 2016, orientation to 2016

2020.

5. Scientific and practical significance of the topic

On the basis of inheriting and developing previous research works, the topic continues to study the current status of credit development for SMEs at the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch with the following main contributions:

- In terms of theory: The topic raises basic theoretical issues about credit activities in general and credit for SMEs in particular of commercial banks, credit development trends for SMEs at commercial banks as well as influencing factors and solutions.

Risks when commercial banks expand lending to SMEs

- In terms of practice: The topic refers to the current status of credit activities for SMEs at the Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch in the past time. On that basis, propose solutions and recommendations to expand the scale of lending to SMEs. The solutions can be applied to the Branch's operations and can be used for reference by other banks.

6. Research methods

- Dialectical materialism and historical materialism methodology.

- Statistics, synthesis, sampling, comparison, analysis, evaluation

7. Thesis structure

Topic name: “Developing credit services for small and medium enterprises at Vietnam Joint Stock Commercial Bank for Foreign Trade – Quang Binh Branch. Current situation and solutions”

Besides the introduction and conclusion, the thesis is structured in 3 chapters:

Chapter 1: ~~Basic theory~~ Scientific basis of ~~credit services and~~ credit development for small and medium enterprises ~~of commercial banks~~ .

Chapter 2: Current status of credit service development for small and medium enterprises at Joint Stock Commercial Bank for Foreign Trade of Vietnam - Quang Binh Branch.

Chapter 3: Some solutions to develop credit services for small and medium enterprises at Vietnam Joint Stock Commercial Bank for Foreign Trade - Quang Binh Branch.

CHAPTER 1 ~~BASIC THEORIES ON CREDIT SERVICES FOR~~ ~~SMALL AND MEDIUM ENTERPRISES OF COMMERCIAL BANKS SCIENTIFIC~~ BASIS ON CREDIT DEVELOPMENT FOR SMALL AND MEDIUM ENTERPRISES

Chapter 1: Scientific basis for credit development for small and medium enterprises

Formatted: Font: (Default) Times New Roman, 1 pt, Bold, Dutch (Netherlands)

1.1. SMALL AND MEDIUM ENTERPRISES AND THE ROLE OF SMALL AND MEDIUM ENTERPRISES IN ECONOMIC DEVELOPMENT

1.1.1. Concept and characteristics of small and medium enterprises

1.1.1.1 Concept and classification

There are many different concepts of small and medium enterprises (SMEs) in the world, depending on the level of economic development of a country; the nature of the production industry; and historical characteristics. However, in general, countries often use the two most common criteria: the average number of employees and the total capital of the enterprise to define SMEs as well as classify SMEs.

In the most general way, small and medium enterprise (SME) can be understood as a production and business establishment that has registered for business and operates according to the provisions of law with capital and labor scale determined according to enterprise classification criteria.

Thus, the concept of SMEs shows:

1. SMEs must be production and business establishments that carry out business activities including production, distribution, circulation and services in the market; participate in the market as an independent business entity.

2. SMEs must be registered to do business and carry out business activities.

business according to the law.

3. SMEs are identified according to enterprise classification criteria including capital

and labor is regulated by national law depending on each country and depending on each country's stage of development.

In Vietnam, small and medium enterprises are mainly defined by two criteria: regular labor and capital involved in production because they are easy to define and have high accuracy. They can be easily defined at all levels of enterprises in all economic sectors and at all times.

To specify these criteria and to facilitate the classification of small and medium enterprises, on June 20, 1998, the Prime Minister issued Official Dispatch No. 681/CP-KTN stipulating temporary criteria for determining small and medium enterprises, according to which small and medium enterprises are enterprises with a maximum legal capital of VND 5 billion and an average annual number of employees of less than 200 people. On November 23, 2001, the Government issued Decree No. 90/2001/ND-CP on supporting the development of small and medium enterprises, defining: "Small and medium enterprises are independent production and business establishments, registered for business in accordance with current laws, with a registered capital of no more than VND 10 billion and an average annual number of employees of no more than 300 people".

However, in the process of enterprise development, the criteria given are not really reasonable and not suitable; therefore, on June 30, 2009, the Government issued Decree No. 56/2009/ND-CP on supporting the development of small and medium enterprises, introducing the concept: “Small and medium enterprises are business establishments that have registered for business in accordance with the provisions of the Law, divided into three levels; micro , small, medium according to the scale of total capital (total capital is equivalent to total assets determined in the balance sheet of the enterprise) or the average number of employees per year (total capital is the priority criterion), specifically as follows:

Area

Super business

small

Small Business

Medium Enterprise

Number of employees

Total source

capital

Number of employees

Total capital

Number of employees

I. Agriculture and forestry