Factors Affecting the Efficiency of Lending to SMEs

outstanding balance owed to the bank at a particular point in time) is determined by the ending balance on the bank's balance sheet.

Proportion of outstanding loans to SMEs = * 100%

This indicator shows what percentage of total outstanding loans to SMEs is outstanding. The higher this ratio is, the more the bank invests in SMEs.

Bad debt ratio

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Bad debt is debt in groups 3, 4, 5 according to the 5 debt group classification.

Bad debt ratio = * 100%

Bad debts are debts with very low recovery potential. These are debts that banks do not want. The bad debt ratio shows us how many dongs of bad debt are in 100 dong of asset balance. The bad debt ratio is an important indicator used to evaluate the effectiveness of a commercial bank's loans.

Net Interest Margin (NIM)

NIM* 100%

In which: Net interest income from lending = (Interest income + Similar income) – (Interest expense + Similar expense)

Total interest-earning assets = Deposits at SBV + Deposits at other financial institutions + Investment securities + Loans to customers

This ratio shows how much interest rate difference banks are actually enjoying between their deposit and credit investment activities. Any commercial bank needs to calculate this ratio to evaluate its business performance.

Ratio of income from SME lending activities to outstanding SME loans

SME lending income ratio vs. =SME loan balance

This indicator reflects the profitability of SME lending activities. That is, how much profit is earned from one dong of outstanding SME loans. The higher this indicator, the more effective the bank's SME lending activities are.

Ratio of income from SME lending activities to total income from corporate lending activities

SME lending income ratio vs. =income from lending to corporate customers

This indicator shows the proportion of income from lending to SMEs in percentage of total income from corporate customers in general. From this indicator, it is possible to assess whether income from lending to SMEs is effective or not, as well as to assess the lending appetite of that commercial bank.

Ratio of income from SME lending activities to total income from lending activities

Ratio of income from SME lending to =total income from lending activities

This indicator shows the proportion of income from lending to SMEs as a percentage of the total income from lending activities of the Bank. This indicator evaluates both the proportion of income from lending to SMEs and income from other lending activities of the Bank such as: lending to large corporate customers, individual customers, .....

Ratio of income from SME lending activities to total income of the Bank

Ratio of income from SME lending to =total income of the Bank

This indicator shows what percentage of the Bank's total income is from SME lending. The Bank's total income includes

including revenue from: Interest income, service revenue, revenue from foreign exchange trading, revenue from buying and selling investment securities, ....

1.2.4. Factors affecting the effectiveness of SME lending

1.2.4.1 Subjective factors

 Factors related to the bank:

- Credit policy:

The bank's lending policy will determine whether to expand or contract lending because it reflects the bank's financing platform. All issues related to lending such as scale, interest rate, term, loan security, lending method, etc. are regulated in the credit policy. Therefore, credit policy directly affects the development of lending activities. A correct and appropriate credit policy will attract customers and increase profits while limiting risks for the bank, helping the bank take advantage of business opportunities, take advantage of available advantages and promote its potential.

- Capital size of the Bank

The size of a bank's capital determines its lending capacity. To meet the economy's ever-increasing demand for loans, banks are constantly striving to increase their own capital and diversify their forms of mobilization. Therefore, the larger the capital size, the more banks want to lend to increase their income and prestige.

- Professional qualifications and ethics of Bank staff

For a credit contract to be signed, it must go through many stages, requiring the participation of many bank employees, in which the role of credit officers is especially important. Credit officers are the ones who directly contact customers, so their communication style and intelligence are the first things that customers feel, which directly affects customer attraction. Credit officers make credit decisions based on the analysis of financial and non-financial indicators combined with feelings and professional experience. Therefore, in the end, their decisions cannot avoid subjective factors. Credit officers have deep and broad knowledge,

Professional sustainability will analyze the customer's financial situation well, evaluate the project's effectiveness, and thereby make accurate credit decisions.

In addition to credit officers who directly participate in lending activities, staff from other departments will actively support the development of lending activities and the bank's leadership team plays an important role in providing appropriate directions and policies to develop this activity.

In addition, credit officers are the ones who directly lend and determine the outstanding debt, so they need to have the right awareness and professional ethics. There are many cases where credit officers collude with businesses and there are also many cases where businesses bribe bank officers to get loans. Therefore, banks need to have reasonable compensation policies and regularly train and remind their employees about their sense of responsibility and professional ethics.

- Banking technology

Banking technology affects all banking activities, including credit activities. Banks with good technical facilities and attract many customers. With high and modern technology, operations will be performed quickly, accurately, saving time for customers and creating conditions for simplifying administrative procedures, information is processed better, credit is managed more easily.

- Marketing Policy

In the trend of increasing competitiveness, marketing activities of banks are increasingly focused on. Marketing activities really become a bridge between banks and customers, giving customers understanding and trust in banks, providing customers with quality banking products, satisfying customers' needs, thereby attracting more and more customers to banks.

 Factors on the side of SMEs

- Financial capacity of SMEs

The financial capacity of SMEs is the ability to secure capital and assets to ensure regular operations and fulfill payment obligations. Enterprises must have a healthy financial situation that meets the bank's requirements on collateral, capital ratio for participating in projects, etc. to be accepted by the bank for loans. The financial capacity of SMEs reflects the scale of equity and the ability to self-finance capital of the enterprise.

When considering loan applications, banks always require a certain percentage of the enterprise’s own capital to participate in the project to ensure safety and enhance the enterprise’s sense of responsibility in using the loan capital. Enterprises with good financial capacity and a regular, stable source of income will have more advantages in accessing bank capital.

- SME loan needs

To develop lending activities for SMEs, it is impossible not to consider their capital needs because if these businesses do not have capital needs, banks cannot develop this activity. However, the current reality shows that capital is an urgent need and is a great pressure on these businesses. Therefore, developing lending activities for SMEs is a trend that many banks are focusing on.

- Management level

The management level of SMEs is reflected in the ability to manage labor, costs, raw materials... in the way of organizing business, accounting methods... If SMEs are not well managed, they will cause waste in production and business, increase costs, increase product prices, leading to products that are difficult to sell. On the contrary, a business with good management capacity will build appropriate business strategies, manage loans well, use loans effectively, and ensure the ability to pay banks.

- Loan usage plan

A business with a healthy financial situation, meeting the requirements on collateral and other regulations of the bank but has a plan to use capital

Ineffective loans are not necessarily granted by banks because providing capital for an ineffective project will make it difficult for a bank to recover capital, and on the other hand, violating the bank's business ethics will indirectly lead to bankruptcy. When it comes to credit development, we should not only consider the increase in loan size but also pay attention to the quality of the loan, that is, the ability to recover principal and interest and best meet the borrowing needs of the enterprise, ensuring the effectiveness of the production and business plan.

1.2.4.2. Objective factors

- Government policies

The existence of SMEs in the Vietnamese economy is an objective necessity. These enterprises have, are and will continue to contribute significantly to the development of the country in the face of challenges for Vietnamese enterprises in general and SMEs in particular, as well as determining the importance of SMEs to the country's economic development in the trend of international economic integration. In the past five years, the government has had many major policies and solutions to maximize the operational efficiency, competitiveness and potential of this type of economy.

- Economic, political and social environment

The socio-economic environment affects the operations of all businesses, especially banks, because banks operate in an extremely sensitive field, any economic event can affect the operations of banks.

On the business side, a stable and growing socio-economic environment will create favorable conditions for SMEs to consume products, gain high profits to ensure debt repayment to banks, thereby having many plans to expand production, leading to increased demand for bank loans.

A stable political environment will attract investment from foreign businesses, as well as create peace of mind for domestic businesses, create conditions for economic development, and create conditions for banks to expand credit.

In addition to the above issues, social customs, consumer habits, cultural level of the people... also affect the operations of SMEs, thereby indirectly affecting the development of SME lending by banks.

- Legal environment

The operations of all types of enterprises must comply with the provisions of the law. For banks, it is even more necessary to comply with a strict legal framework because the risks in banking operations are very high. Banks are the financial center of the economy, having relationships with all industries and other businesses, so if a bank collapses, it can cause a chain reaction for a series of other banks and possibly the collapse of the entire economy. Therefore, banks must operate within a unified, stable, and strict legal corridor, all operations must follow a unified process from the central bank.

A synchronous, strict, complete and stable legal environment will help businesses operate in a unified manner, easily develop business plans, and create conditions for banks to analyze, inspect and evaluate customers. A clear and specific legal system will help transactions between banks and customers to be conducted quickly and smoothly.

In short, SME lending is mainly affected by both subjective and objective factors from three sides: banks, SMEs and the economy. This is a combined impact that banks need to carefully consider and forecast in order to develop their operations.

1.3. Effective experience in lending to small and medium enterprises at some commercial banks and lessons for Maritimebank - Bac Ninh Branch

1.3.1. Effective lending experience of some commercial banks

Experience in improving the efficiency of SME lending at BIDV

For BIDV, the strengths in human resource quality, liquidity and abundant, stable capital with reasonable and attractive interest rates in the market, having the best product strategy to provide to the market, especially e-banking products and services, providing a strategic vision to 2025 are among the strengths.

BIDV is a large bank in Vietnam, from which all orientations and solutions of BIDV in recent times have been aimed at retail.

In parallel with providing banking products and services, BIDV also deploys financial consulting service packages as well as provides information on potential and opportunities for industry development. The Bank builds a set of tools to support the preparation of financial reports in accordance with accounting standards, and develops business plans and investment projects. In addition, it also builds a supporting information system including basic legal systems related to business operations, regulations related to project investment, and market information systems.

Experience in improving the efficiency of SME lending at ACB

With the aim of developing the SME customer segment, ACB has deployed 07 loan packages for all businesses, with priority given to small and medium enterprises.

New businesses or startups in the small and medium segment are always applied preferential policies by ACB (Only from 7% for short-term loans and 8% for medium and long-term loans). In addition, the policy of accepting collateral also satisfies many customers, typically if there is a need to buy a car, the business can borrow up to 90% of the car's value, the collateral is the purchased car.

Recently, ACB has also implemented preferential lending policies according to industry sectors. Some priority industries will be applied better interest rates.

1.3.2. Lessons for Maritimebank - Bac Ninh Branch

Experience in improving the efficiency of SME lending at Maritimebank

Firstly, it is necessary to focus on the appraisal and assessment of customers when receiving loan requests: because this is the first step in the lending process. The appraisal of customers must comply with the regulations and lending procedures of the State Bank as well as Maritimebank to ensure that the loan is for the right purpose and that customers have enough money to repay the loan in the future. To do this, the appraisal officer must also have appraisal experience, good capacity and good ethics.

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