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General Assessment of Loan Quality for Small and Medium Enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Bac Ninh Branch


The branch's bad debt in 2019 increased dramatically because the branch had an overdue SME customer, which affected the bad debt ratio of the entire branch.

Overdue debt of the SME customer segment in 2017 was 4.4 billion VND, accounting for 0.6% of the total outstanding debt of SME customers. In 2018, it was 0 VND, in 2019, it was 5.2 billion VND, accounting for 0.45% of the total outstanding debt of SME customers.

Thus, it can be assessed that the overdue debt ratio of the Branch is relatively low, but has tended to increase in recent years. This shows that it is necessary to strengthen credit risk management and adjust some management policies to improve the quality of SME lending.

d) Efficiency of capital use of small and medium enterprises

The higher the Bank's capital utilization efficiency for SME customers, the more the loan quality is improved.

Table 2.12: Capital utilization efficiency at Vietinbank Bac Ninh 2017-2019

(Unit: Billion VND)


Target

2017

2018

2019

Outstanding loans to SMEs

741

1,082

1,156

Total mobilized capital

375.18

383,015

427.74

Capital efficiency (%)

197%

283%

270%

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General Assessment of Loan Quality for Small and Medium Enterprises at Vietnam Joint Stock Commercial Bank for Industry and Trade - Bac Ninh Branch

(Source: Summary report of Vietinbank Bac Ninh for the period 2017-2019)

It can be seen that the capital utilization efficiency for SMEs at the Branch is very high, always greater than 100%. The Branch regularly uses capital mobilized from individuals and other organizations to meet the lending needs of SMEs.

e) Profitability index

Profits from SME lending activities at Vietinbank Bac Ninh are specifically assessed as follows:


Table 2.13: Profitability ratio from SME lending at Vietinbank Bac Ninh 2017-2019

(Unit: Billion VND)


Target

2017

2018

2019

Outstanding loans to SMEs

741

1,082

1,156

Profit from SME lending

98

125

162

Rate of return

13%

12%

14%

(Source: Summary report of Vietinbank Bac Ninh for the period 2017-2019)

For Vietinbank Bac Ninh, lending is the main activity that brings profit to the bank, including lending to SMEs. In 2018, the profit rate from lending to SMEs accounted for 12% of total outstanding loans to SMEs, down about 1% compared to 2017. However, in 2019, this rate reached 14%, up 2% compared to 2018 and up 1% compared to 2017. It can be seen that lending to SME customers at Vietinbank Bac Ninh brings increasing profits, making an important contribution to the total profit of the entire branch.

2.3. GENERAL ASSESSMENT OF THE QUALITY OF SME LOANS AT VIETNAM JOINT STOCK COMMERCIAL BANK FOR INDUSTRY AND TRADE - BAC NINH BRANCH

2.3.1. Results achieved

Basically, in recent years, Vietinbank Bac Ninh's SME lending activities have developed in terms of scale, scope and quality, contributing to promoting the development of this large and potential customer group in particular and developing lending activities for businesses in general. This achievement is demonstrated in the following aspects:

Rapid loan growth returns:

With the right strategy and policy of Vietnam Joint Stock Commercial Bank for Industry and Trade for SMEs, Vietinbank Bac Ninh has identified this as a strategic and key customer group, the bank's lending investment field is increasingly diverse.


more diverse. Bac Ninh Branch is considered a key branch in lending to SMEs, so there are many mechanisms and policies to support SMEs in the area to attract customers to borrow capital at Bac Ninh Branch. Outstanding loans to SMEs of Vietinbank Bac Ninh have increased sharply, showing that the scale of lending activities to SMEs has been expanded. Outstanding loans to the group of SME customers have grown in both quantity and proportion in total outstanding loans to the economy. Bac Ninh Vietinbank has become a reliable address for investors and SMEs.

Loan structure by economic sector and business sector has positive changes:

The structure of outstanding loans for SMEs by economic sector has changed quite positively. Loans to non-state enterprises account for an increasingly large proportion of total outstanding loans to SMEs. If in previous years, loans to SMEs at Vietinbank Bac Ninh mainly focused on industries such as: paper processing and production, wood production and trading and wood products... then currently, outstanding loans to SMEs are also developed in other areas such as: packaging production, electronic technology...

Income from SME lending activities is stable and growing steadily:

In the current economic integration, the competition between banks is increasingly strong, the business activities of Vietinbank Bac Ninh are always developing steadily, with high profits and lending activities in general and lending to SMEs in particular are the business activities that bring the highest income proportion to Vietinbank Bac Ninh in recent times. The income proportion for SMEs tends to increase over the years, showing the increasing efficiency of lending to these enterprises.

Thus, with the achieved results, it shows the branch's efforts in expanding and improving the quality of bank loans. These changes create conditions for SMEs to access more easily important capital channels, partly meeting the capital needs of SMEs.


2.3.2. Existing problems and limitations

Besides the achievements, Vietinbank Bac Ninh's SME lending activities still have many limitations, causing the lending quality to be low.

Loan size is not commensurate with potential

With the potential and strengths of Bac Ninh province and its geographical location, management mechanism, local labor force, .... currently the number of SMEs operating in the province is very large with nearly 17,000 enterprises, the capital flow into the production and business activities of SMEs is constantly increasing. The scale of outstanding loans for SMEs at VietinBank Bac Ninh has maintained its growth momentum in recent years, growing both in terms of time figures and average annual outstanding loans. However, the lending market share is not commensurate with the potential (accounting for 16% of outstanding loans for SMEs in the whole province). This result is still not commensurate with the expectations of the board of directors when building a strong shift in the lending structure, in which SME credit growth plays a major role.

The loan structure is not really reasonable.

The structure of outstanding loans for SMEs by industry has not been focused on. Currently, Vietinbank Bac Ninh does not have a clear direction on the structure of outstanding loans for SMEs by industry, but only depends on SMEs coming to borrow capital. The decision to lend to these enterprises is mainly based on the financial situation and the forecast of the effectiveness of a single project without comparison with the development planning of industries and regions.

SME loans at Vietinbank Bac Ninh are mainly loans in VND, foreign currency loans account for a very small proportion of total outstanding loans, especially short-term loans to supplement working capital for production and business.

Regarding the loan structure by term, the branch currently only focuses on reaching the majority of SMEs that need short-term loans. Meanwhile, the demand for medium and long-term loans to invest in fixed assets of SMEs is very large. Because most SMEs are newly established and operating for a short time, they need long-term loans to invest and renew equipment, but due to the capital structure


Branches' lending to the SME system is not flexible, so businesses can only borrow small amounts for short periods. Partly because the branch does not really trust the business's ability to repay. This will cause difficulties for businesses because businesses do not always need short-term capital to finance temporary shortages.

Lending regulations, processes and procedures still have limitations.

In addition to the positive results achieved, reflected through specific figures in the customer opinion survey on the quality of credit products and services at Vietinbank Bac Ninh Branch in 2019, there are still customer reviews that are not satisfied with the surveyed criteria, mainly focusing on transaction time and transaction documents of the bank.

2.3.3. Causes of problems and limitations

2.3.3.1. Objective causes

* Causes from small and medium enterprises

The biggest problem for SMEs when accessing bank loans is that most SMEs are young businesses, they do not have enough time to build trust with banks. In addition, SMEs are in the process of completion, so they are often weak in organizing business activities, in management and in marketing capabilities; they often do not have enough qualified accountants and do not apply accounting standards correctly and fully, making their records lack transparency, so it is difficult for banks to get accurate information from the accounting statements of SMEs. SMEs often do not have the ability to prepare detailed projects to convince banks, which is sometimes considered by businesses to be complicated by bank procedures. This is the fundamental reason why SMEs still face difficulties in borrowing capital.

The business plans of enterprises are often commercial or short-term, without long-term development orientation. On the other hand, those plans are quite sketchy, difficult to implement and lack persuasiveness, not to mention the low proportion of valid equity capital participating in the business plan.


Management level of SMEs is still limited.

In a market economy, there are many business opportunities as well as many risks, the business environment is always full of competition. This requires enterprises to have good management capacity, but this is a major limitation of SMEs. This seriously affects the business capacity of enterprises and greatly affects the ability to use loans and repay bank debts.

The financial scale of SMEs is limited and cannot meet the bank's collateral requirements.

Banks often require high-value collateral, often real estate such as land and houses, to secure loans. Many businesses need to borrow capital but do not have enough collateral, or have collateral but do not have enough necessary documents to prove legal ownership of the property. In many cases, SMEs cannot meet the necessary conditions for collateral for loans from banks.

Production capacity of SMEs is still low

Due to low capital and small scale operations, most SMEs have facilities that do not meet the requirements, such as headquarters, office equipment, etc. The level of technology and engineering is mostly backward and the level of automation is low, so the production capacity and product quality are not high. The backwardness of technology and engineering will create low and unstable product quality, making it difficult for businesses to choose business items, limiting their competitiveness...

Market research activities of SMEs are still very weak, business strategies, marketing strategies, brand building and promotion have not received adequate attention and investment.

* Other causes

Socio-economic environment:

Vietnam has gone through financial crisis processes, affected by the global financial crisis, the State Bank has required an increase in the required reserve ratio to reduce inflation. Therefore, the Bank is short of money.


face, falling into a difficult state of liquidity, causing lending interest rates to increase at an unprecedented rate in history, up to 21% and even higher if there is no control of the ceiling interest rate by the State Bank. Many customers cannot survive with the extremely high lending interest rates, many businesses have gone bankrupt... significantly affecting the quality of Vietinbank's loans in recent times.

Legal environment:

The government regularly issues policies on taxes, import and export, or regulations on land and housing. Sudden changes in policies will affect production and business activities, affecting the planning as well as the ability to forecast and consumption in the market of enterprises. Inappropriate and inaccurate orientation of production and business strategies will lead to oversupply, difficult-to-sell goods, low selling prices, losses, customers will not be able to guarantee their debt repayment sources to the Bank, leading to poor quality.

- Natural environment: Natural disasters, floods, and epidemics caused by natural factors have a great impact on the lending activities of the Bank. The situation of farmers having good harvests and low prices, and bad harvests and high prices often has a great impact on the lives of farmers and the quality of loans provided by the Bank.

2.3.3.2. Subjective causes

Bank lending policies for SMEs still have many shortcomings.

Banks still give many incentives to large enterprises in the borrowing process. The psychology of bank staff when lending to SMEs is often not secure, especially non-state-owned SMEs, leading to the phenomenon of "hesitation" to lend to SMEs because the loan is not much but still costs and procedures are as expensive as lending to large enterprises, and the requirements for documents such as audited financial statements or indicators that need to meet the standards of each bank are difficulties and obstacles in the lending process.

Lending conditions are still quite strict.


The most difficult problem when SMEs borrow from banks is the assets to secure the loan. SMEs are small in scale, with limited operating capital, while the assets required by banks to secure loans are often of very high value, causing difficulties for SMEs. The valuation of these assets is often lower than their actual value because banks apply quite "principles" of the state's land price regulations, which is disadvantageous for SMEs. In addition, the loan application and procedures are still complicated, especially for businesses establishing a loan relationship with a bank for the first time.

Bank lending procedures are still complicated but not really strict and effective.

In the lending process, there are very clear regulations on inspection work before, during and after disbursement. In reality, many stages in the lending process have not been paid attention to, relying mainly on the subjective experience of loan officers, leading to low appraisal quality. Regarding the inspection work of loan officers, it is not strict, sometimes it is formal and irregular, so it is difficult to promptly detect and prevent cases of misuse of capital as well as make decisions to collect debts before the due date.

The information that the Bank needs to collect for each loan includes information from the customer and information that the Bank collects. Information from customers is subjective, the State Bank has established a credit information center to provide information about customers borrowing capital from banks. The information provided by the credit information center is sometimes not fully updated at the time of inquiry, leading to inaccurate information. Other sources of information such as the Internet, from competitors, from partners... are also for reference only and are not completely reliable.

The work of collecting overdue debts and handling bad debts of customers is still only in charge of loan officers without an independent department to handle, so the efficiency of collecting overdue debts is not high.

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