Factors Affecting Export Credit Development of Commercial Banks

implemented through credit policy systems, credit procedures and internal control and audit systems.

- Pre-lending controls include: Establishing a written credit policy and procedure; Pre-lending appraisal; Loan approval.

- Control during lending: Establishing credit contracts; Monitoring disbursement process; Credit monitoring.

- Post-lending control: Monitoring and urging debt collection; Credit review and credit classification; Independent internal credit control; Credit policy re-evaluation.

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Commercial banks must fully comply with international commitments and practices. Currently, the Basel Committee has issued basic principles for banks to enhance their capabilities, maximize profit potential and limit risks. Commercial banks all control credit activities in accordance with the basic principles set forth by Basel.

c. Management of export credit structure and sector

Commercial banks all have certain priority areas for investment and export credit. The export credit policy of a commercial bank is outlined by the board of directors or the management board of the commercial bank. It is a system related to expanding or restricting credit for certain areas and subjects to achieve planned goals, limit risks, and ensure safety in the bank's credit business. The content of the export credit policy is to consider the scientific basis for the formation of credit policy, strategic goals, and tactics of credit activities, the specific contents of the credit policy to achieve the set goals as well as measures to organize and operate credit activities. In addition, the credit structure

Over time, credit types are also managed by commercial banks to ensure profit targets and limit risks.

d. Debt classification and risk provisioning

The policy of debt classification and provisioning for credit risks is an integral part of the credit management of commercial banks. According to the regulations of the State Bank of Vietnam, credit institutions operating in Vietnam (except for the Social Policy Bank and foreign bank branches approved by the State Bank to implement separate provisioning policies) must classify debts, set up provisions (specific provisions and general provisions) and use provisions to handle credit risks in the banking activities of the credit institution. Depending on the risk level of the customer, specific provisions can be set up at different rates.

According to Circular 02/2013/TT-NHNN and Circular 09/2014/TT-NHNN amending a number of articles of Circular 02 on asset classification, provisioning levels, accumulation methods and the use of risk provisions in the operations of credit institutions, customer loans are classified according to the following risk levels: Standard debt (group 1 debt), Debt requiring attention (group 2 debt), Substandard debt (group 3 debt), Doubtful debt (group 4 debt), and Debt with the possibility of losing capital based on overdue status (group 5 debt)

The specific provisioning ratio for each debt group is as follows: Group 1: 0%; Group 2: 5%; Group 3: 20%; Group 4: 50%; Group 5: 100%.

Regarding general provisions, Circular 02 stipulates that general provisions are set aside to cover losses that have not been determined during the process of debt classification and specific provisioning and in cases of financial difficulties of credit institutions when the quality of debts declines. Accordingly, banks must set aside and maintain general provisions equal to 0.75% of the total value of debts classified into groups 1 to 10.

Group 4 except for the following: Interbank deposits, loans, term purchases of valuable papers from other credit institutions, off-balance sheet commitments. The Bank shall establish a Risk Management Council to handle debts if they are classified into the group of Potentially Loss Debts, or if the borrower is a legal entity that is dissolved, bankrupt, or an individual who is dead or missing.

2.3. FACTORS AFFECTING THE DEVELOPMENT OF EXPORT CREDIT OF COMMERCIAL BANKS

2.3.1. External factors

2.3.1.1 International rules in export lending activities

Export credit plays an important role in international trade and is a basic tool in national trade policy.

The international legal framework applicable to export credits consists mainly of the WTO Regulations, which emphasize the subsidy aspect, and the OECD Regulations, which emphasize the objective of ensuring fair competition. The two sets of regulations of these two organizations are compatible with each other. In addition to the purely legal regulations mentioned above, there are also other regulations of lesser legal value established within the framework of the Berne Union. This Union has the status of an association without the authority to issue regulations, mainly as a place for members to meet regularly, exchange experiences and commit to comply with common operating principles.

2.3.1.2. Group of factors belonging to the legal environment

Law is an indispensable factor in a market economy regulated by the State. If the State can create a complete and effective legal environment, suitable for development.

Currently, the system of legal documents is not yet synchronized, causing difficulties for commercial banks and customers when signing and participating in export credit activities.

At the same time, it also causes many difficulties in managing and using export credits, handling mortgaged assets, foreclosures...

Economic activities in general and exports in particular are greatly affected by the State's economic development policies and guidelines.

Changes in the State's policies and guidelines also affect export credits. Especially in terms of economic structure, import-export policies... because if there is a sudden change, it will cause disruption in production and business, product consumption of enterprises, or business plans will no longer be suitable... If not converted in time, enterprises will not be able to produce and trade and will not be able to pay debts, leading to an increase in overdue debts and bad debts of commercial banks.

The State's macroeconomic policy can create conditions for banks' export loans to expand and develop. If the Government, through the State Bank, implements an expansionary monetary policy, commercial banks can increase their available capital and their lending capacity will increase. From there, banks can have a more liberal lending policy. In addition, flexible interest rate policies and positive real interest rates are always a lever to promote banks' credit activities.

On the contrary, the State's macroeconomic policy can cause many risks to the bank's export financing lending activities. In addition, small changes in interest rate and exchange rate policies also have a significant impact on the bank's export financing lending activities. The unstable legal environment and frequently changing policy mechanisms affect the business strategies of enterprises and disrupt the credit policies of each bank. This is the cause of credit risks for commercial banks.

2.3.1.3. Group of factors from the customer side

Customers play a very important role in improving credit quality in general and export credit in particular because they are the ones directly involved.

continue to use credits to put into production and business and make payments to the bank. A credit is only called quality when it is used by customers for the right purpose and effectively. To achieve that, customers themselves also need to pay attention to many different aspects such as: qualifications, ethics of the leadership team, business strategy of the enterprise, financial capacity...

- Qualifications and ethics of the business leadership team

Business leaders (Board of Directors) are those who play an important role in building strategies, operating and managing all business activities. The success or failure of a business depends on their decisions. When evaluating the leadership team, banks often pay attention to criteria such as leadership experience, business management level, business qualities and relationships and furthermore, the ability to build a united, strong team, motivating everyone to devote themselves to work. This will increase the strength, competitiveness and business efficiency of the business, it also means using loans effectively and improving the business's debt repayment ability, thereby affecting the quality of the bank's credit. For businesses operating in export activities, it requires staff to be knowledgeable about the market and international practices, and knowledgeable about foreign trade operations.

- Business strategy of the enterprise

Based on the assessment and accurate evaluation of the potential strengths of the enterprise such as: technological level, competitiveness of products and services, development trends of import and export goods of the enterprise along with current and future difficulties and advantages. The enterprise will decide on the strategy of expanding, narrowing or maintaining a stable business scale, thereby building specific plans for production and consumption. Building a strategy

The right business strategy is crucial to the success or failure of a business. It affects the ability to raise and repay funding sources.

- Financial capacity of the business

This is a factor that affects the choice of funding sources of enterprises, because enterprises usually only borrow when their financial capacity does not meet the capital needs for their operations. On the other hand, the financial capacity of the enterprise is also the basis for the bank to decide whether to lend or not, how much to lend and the enterprise's ability to repay the debt. This has implications for improving credit quality from both the bank and the enterprise.

2.3.1.4. Other factors

- Domestic and foreign economic, political and social environment

Unstable political and social situations as well as natural disasters and war are some of the reasons that reduce a country's ability to export goods. This in turn reduces the export lending market of commercial banks.

Countries located in regions that are often in crisis or are always in turmoil, strong economic fluctuations will increase credit risks, and bank credit activities will be narrowed. On the contrary, if the economy is stable, it will be more favorable for banks to mobilize capital and lending policies will be more liberal and open.

- Exchange rate

In addition to the above factors, the export credit activities of commercial banks are also affected by changes in interest rates or exchange rates. If the exchange rate is reasonable, it will encourage exports, creating conditions for the development of export credit of banks. On the contrary, if the exchange rate is unreasonable, there will be no

If export activities of enterprises develop, export credit will also be restrained.

Export credit activities of banks are affected by many different factors. There are positive factors that encourage the expansion of lending activities. However, there are also many factors that hinder and pose risks to this activity of banks. When granting credit to export enterprises, banks must anticipate all possible risks in foreign trade activities in order to make correct and timely decisions, achieving the highest economic efficiency.

2.3.2. Group of factors from the Export Credit Bank

Factors from the bank are considered subjective factors, because they are internal factors within the bank and have a direct impact on the quality of banking operations in general and the quality of export credit operations in particular. These factors include: credit policy, capital mobilization, bank organization, qualifications and capacity of staff, credit business processes, internal inspection and control activities and coordination between related departments...

2.3.2.1. Bank credit policy

Including policies and guidelines to ensure that credit activities are in line with the bank's goals and at the same time comply with the regulations of the Government and the State Bank. It is related to the expansion or contraction of credit, changes in credit structure in each period and has a decisive meaning for the success or failure of a bank. A correct credit policy will attract many customers, ensure the profitability of credit activities on the basis of expanding and improving credit quality. Any bank that wants to have high credit quality must have a credit policy suitable to the bank's conditions, based on market demands.

2.3.2.2. Credit process

These are the sequences, stages, steps, and tasks that must be performed according to a certain procedure in lending, starting from reviewing the customer's loan application to debt collection to ensure the safety of credit capital. The quality of export credit depends on the establishment of an export credit process that is scientific, fast, convenient, and ensures full and serious implementation of the steps of the process.

2.3.2.3. Qualifications of export credit staff

This can be considered an important factor that determines the success or failure of not only credit activities but also the existence and development of the bank. The more complex the foreign economic activities, the more modern the banking technology, the higher the level and capacity of bank staff in the export sector must be. With a team of staff with good skills, ethics and capacity in innovation - management, understanding of export business activities and international practices will help the bank limit risks, grasp good opportunities for lending and will inevitably lead to improving the quality of the bank's export credit.

2.3.2.4. Credit information

Credit information is extremely necessary, it is the basis for considering lending decisions and monitoring and managing loans. Export credit information can be obtained from many different sources such as: customer loan records, statistical data from the General Statistics Office, data from the Ministry of Trade on the export situation of units, from businesses or direct investigation at establishments, information on international markets, information on overseas export customers... Credit quality can only be improved when banks have adequate, accurate, and timely information sources to predict and propose measures to prevent risks.

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