FOREIGN TRADE UNIVERSITY
FACULTY OF FINANCE AND BANKING
MASTER OF INTERNATIONAL FINANCE
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GRADUATION THESIS
Topic:
Safety in lending activities of the Bank for Investment and Development of Vietnam
Student : Le Thao Huyen
Grade : English 3
Course 45
Instructor : Dr. Nguyen Dinh Tho
Hanoi, May 2010
INDEX
ABBREVIATION
LIST OF TABLES
INTRODUCTION 3
CHAPTER I: OVERVIEW OF SAFETY IN COMMERCIAL BANK LENDING ACTIVITIES 7
1.1. Bank lending activities 7
1.1.1. Concept of bank lending activities 7
1.1.2. The role of bank lending activities 9
1.2. Basic issues on safety in lending activities of commercial banks 11
1.2.1. Concept of safety and security in lending activities 11
1.2.2. The need to ensure safety for commercial bank loans 13
1.2.3. Safety assessment criteria in lending activities of commercial banks 15
1.3. Factors affecting the safety of lending activities 17
1.3.1. Factors on the bank side 17
1.3.2. Customer factors 19
1.3.3. Objective causes related to the external environment20
1.4. Models for quantifying risks in lending activities 21
1.4.1. Qualitative model 6C 21
1.4.2. Quantitative model 23
1.4.2.1. Edward I.Altman's Z-score model 23
1.4.2.2. Rating models of Fitch, Moody's and Standard & Poor's 24
1.5. Basel principles to limit risks in lending activities
................................................................................................................... 26
1.6. Experience of some countries in the world to ensure safety for loans and lessons for Vietnamese commercial banks 27
1.6.1. Experience of some countries in ensuring loan safety
................................................................................................................... 27
1.6.1.1. Thailand's experience 27
1.6.1.2. China's experience 28
1.6.1.3. Singapore's experience 29
1.6.2. Lessons learned for Vietnamese commercial banks 30
CHAPTER 2: SAFETY STATUS IN LENDING ACTIVITIES AT THE BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM
.......................................................................................................................... 32
2.1. General introduction to Vietnam Development and Investment Bank 32
2.1.1. The birth and development of the Bank for Investment and Development of Vietnam (BIDV) 32
2.1.2. Organizational model of the Bank for Investment and Development of Vietnam... 33
2.1.3. Business performance of the Bank for Investment and Development of Vietnam in the 4 years 2005 - 2009 36
2.1.3.1. Size of Total Assets and Equity 36
2.1.3.2. Market share of capital mobilization and lending 37
2.1.3.3. Interest income and non-interest income 38
2.2. Current status of ensuring safety in BIDV's lending activities 40
2.2.1. Safety in lending activities 40
2.2.1.1. Lending activities situation 40
2.2.1.2. Current status of ensuring safety of Bank loans through indicators 47
2.2.2. Risk management methods in lending activities at BIDV 53
2.2.2.1. Credit scoring and rating methods for corporate customers 53
2.2.2.2. Bank's policy to limit risks for loans 55
2.2.2.3 Debt classification and risk provisioning methods 57
2.3. Assessment of the current situation of ensuring safety in lending activities at the Bank for Investment and Development of Vietnam 59
2.3.1. Results achieved 59
2.3.2. Remaining difficulties 61
2.2.3. Cause 62
CHAPTER 3: SOLUTIONS TO ENSURE SAFETY IN LENDING ACTIVITIES AT THE BANK FOR INVESTMENT AND DEVELOPMENT OF VIETNAM 65
3.1. Orientation of lending activities and viewpoints on ensuring safety in lending activities at the Bank for Investment and Development of Vietnam 65
3.1.1. BIDV's lending activities orientation to 2015 65
3.1.2. Views on loan safety 67
3.2. Solutions to ensure safety in lending activities at the Bank for Investment and Development of Vietnam 69
3.2.1. Group of risk management solutions in lending activities 69
3.2.1.1. Improving the quality of appraisal and evaluation of business plans 69
3.2.1.2. Using risk management tools in BIDV's lending activities 73
3.2.1.3. Strengthening solutions to handle overdue debt 76
3.2.2. Supportive solutions group 78
3.2.2.1. Accelerating the process of perfecting and innovating banking technology 78
3.2.2.2. Enhancing the role of internal control in banks 79
3.2.2.3. Identify and resolve issues according to BASEL II 80
3.3. Proposal and recommendation 81
3.3.1. Recommendations to the Government 81
3.3.1.1. Perfecting and stabilizing socio-economic development policies
.......................................................................................................... 81
3.3.1.2. Creating a legal environment to ensure safety in lending activities 81
3.3.2. Recommendations for the State Bank 82
3.3.2.1. Proposed model of State Bank supervision in Vietnam and measures to strengthen supervision 82
3.3.2.2. Improving the quality of the Credit Information Center (CIC) 86
CONCLUSION 88
REFERENCES 91
APPENDIX
ABBREVIATION
State commercial bank
State-owned commercial banks | |
Joint Stock Commercial Bank | Joint Stock Commercial Bank |
Credit institutions | TCTD |
State-owned enterprise | State-owned enterprises |
Joint Stock Commercial Bank for Foreign Trade of Vietnam | VCB |
Vietnam Bank for Agriculture and Rural Development | AGB |
Vietnam Joint Stock Commercial Bank for Industry and Trade | CTB |
Bank for Investment and Development of Vietnam | BIDV |
Mekong Delta Housing Development Bank | MHB |
Saigon Thuong Tin Commercial Joint Stock Bank | STB |
Military Commercial Joint Stock Bank | MB |
Saigon Commercial Joint Stock Bank | SHB |
Asia Commercial Joint Stock Bank | ACB |
Joint Stock Commercial Bank for Foreign Trade of Vietnam | EIB |
Debt management and asset exploitation company | AMC |
Debt and Asset Trading Company | DATC |
Credit Information System Center | CIC |
Bao Viet Securities Company | BVSC |
Dong Nai Bank Securities Company by Mekong River | MHBS |
Maybe you are interested!
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Solutions to improve the quality of consumer lending activities at Vietnam Prosperity Joint Stock Commercial Bank - 2 -
Law on handling overdue debt in lending activities of commercial banks in Vietnam - 1 -
Results of Lending Activities for Employment at the Vietnam Bank for Social Policies, Hanoi Branch in the Period 2018-2021 -
Developing personal lending activities at Vietnam Technological and Commercial Joint Stock Bank - 1 -
Solutions to improve the efficiency of personal lending activities at Vietnam Prosperity Joint Stock Commercial Bank, Dong Do Branch - 6
LIST OF TABLES
Table 1.1. Ratings according to Moody's 25 model
Table 2.1: Growth scale of total assets and equity of BIDV 36
Table 2.2. BIDV's income structure 39
Table 2.3. Outstanding loans by economic sector 41
Table 2.4. Loan balance structure over time 44
Table 2.5. Loan balance structure by type 45
Table 2.6. Some indicators to evaluate loan safety at BIDV 48
Table 2.7. Current status of BIDV's debts 51
Chart 2.1. Deposit market share of Vietnamese commercial banks in 2009 37
Chart 2.2. Lending market share of Vietnamese commercial banks in 2009 38
Chart 2.3. BIDV's loans and advances to customers (net) in the period 2005 - 2009 40
Chart 2.4. Credit structure by industry (%) 46
Chart 2.5. Bad debt situation of some Vietnamese commercial banks 52
INTRODUCTION
1. Urgency of the topic
In 2008, we witnessed the financial crisis in the US and its effects quickly spread around the world. According to economic experts, the cause of the collapse of banks in the US in particular, which led to major impacts on the instability of the entire world financial system, originated from the fact that banks in this country were too arbitrary when lending money to customers to buy real estate through substandard loan contracts. And during this time, people always mentioned the problems in risk management of banks, financial institutions... and more importantly, the credit risks that caused banks to lose the safety of their operations, which contributed to the collapse of large financial empires and caused a global economic recession.
Vietnam is no exception when it comes to being directly and indirectly affected by this crisis. Due to the low level of development and the limited scale of banks and financial institutions, the direct impacts are not large. However, the financial crisis in the US and its negative impacts on the economy have been lessons for financial managers in Vietnam in particular and countries around the world in general in managing the operations of organizations.
According to Peter Rose, up to 2/3 of the income generating activities for banks come from loans. This is one of the main activities and requires effective management measures of each bank. The banking system can only operate strongly and develop when the safety of loans is ensured. And the Bank for Investment and Development of Vietnam is one of the first two commercial banks in Vietnam.
Nam has implemented an internal customer rating system, gradually complying with the risk management rules in the BASEL international convention. With the customer credit rating policy, the Bank for Investment and Development of Vietnam has classified debts and set up risk provisions according to Article 7 of Decision 493/QD-NHNN while most commercial banks currently still follow Article 6 of this decision to ensure safety for the bank's lending activities.
For the reasons mentioned above, I decided to choose the topic " Safety in lending activities of the Bank for Investment and Development of Vietnam" as my research topic.
2. Research status
After the financial crisis in the US, there have been many articles and research projects on risk management to ensure the banking system operates safely and strongly. These include: 2008 PhD thesis in economics "The current situation of risk management in State-owned commercial banks in Vietnam" by Tran Dinh Manh; 2008 Master thesis in economics " Improving the effectiveness of credit risk management at the Joint Stock Commercial Bank for Foreign Trade of Vietnam" by Nguyen Tien Chuong; 2007 Master thesis in economics " Some solutions to improve the effectiveness of credit risk management according to international banking standards and practices" by Le Thanh Minh... However, no research has been conducted on the issue of ensuring safety in the lending activities of a Vietnamese commercial bank.
3. Research objectives
- Theory of commercial banks and lending activities of commercial banks with evaluation criteria to ensure safety of loans. From the experiences of some countries, draw lessons for Vietnamese commercial banks.
- The current situation of ensuring safety in lending activities of the Bank for Investment and Development of Vietnam when it has well implemented the internal credit rating policy for customers and classified debts, set up risk provisions according to Article 7 of Decision 493/QD-NHNN.
- From the existing difficulties and limitations, propose some solutions to ensure safety in bank lending activities: Securitize debts, enhance the role of AMC debt management companies, propose a model of inspection and supervision for the State Bank...
4. Research object and scope
The thesis delves into the work of ensuring safety in lending activities of the Bank for Investment and Development of Vietnam based on analysis and evaluation of data collected from 2005 to 2009.
5. Research methods
The author uses statistical and synthetic methods in collecting data from reports of the State Bank, calculating the ratio compared to other credit institutions; using the comparison method with other commercial banks, analyzing to find out the existing difficulties and limitations; besides, the author also uses the descriptive - evaluation method; historical materialism method...
6. Thesis structure
In addition to the introduction, conclusion, list of tables, list of references, appendix, the thesis includes 3 chapters:
Chapter 1: Overview of safety in commercial bank lending activities
Chapter 2: Safety status in lending activities of Vietnam Development and Investment Bank
Chapter 3: Solutions to ensure safety in lending activities at the Bank for Investment and Development of Vietnam
Hereby, I would like to sincerely thank the teacher - Associate Professor, Dr. Nguyen Dinh Tho for his dedicated help and guidance in completing this graduation thesis.
CHAPTER I: OVERVIEW OF SAFETY IN CAPITAL LENDING ACTIVITIES OF COMMERCIAL BANKS
1.1. Bank lending activities
1.1.1. Concept of bank lending activities
Pursuant to Clause 01, Article 03 of the Regulations on lending by Credit Institutions to customers (issued together with Decision No. 1627/2001/QD-NHNN dated December 31, 2001 of the Governor of the State Bank), “ Lending is a form of credit granting, whereby the Credit Institution gives the customer a sum of money to use for a certain purpose and period of time as agreed upon with the principle of repayment of both principal and interest.” Thus, the nature of lending is a transaction of assets on the basis of conditional repayment and has the following characteristics:
The transaction asset in lending activities is capital. In addition to cash, which is considered the main transaction method, a large number of loans are made through transfers.
The principle in lending is repayment. The borrower commits to unconditionally repay the lender when the payment is due. The repayment value must usually be greater than the loan value, or in other words, the borrower must pay additional interest in addition to the principal.
The bank's lending policy must be based on trust and conditional agreements. Therefore, when transferring assets to the borrower for use, the lender must have a basis for believing that the borrower will repay on time.
The subjects participating in lending activities include banks and customers. Customers can be individuals or legal entities.
but must have full legal conditions to be able to carry out the loan transaction.
The source of loans depends on the capital mobilized by the bank. The bank has policies and management practices to ensure the balance between liabilities and assets, making the system's operations stable and safe.
Banks can only operate safely when they can control their loans and minimize risks to the lowest level. Only on the basis of managing risks in lending activities can the banking system be healthy and develop sustainably. Therefore, the premise for establishing appropriate lending procedures and improving the effectiveness of risk management in general is to classify loans into groups on a scientific basis.
- Based on the purpose of the loan, it can be divided into the following types of loans : Loans for industrial and commercial production and business; personal consumer loans; loans for real estate purchase and sale; loans for agricultural production; loans for import-export business...
- Based on loan term : Short-term loan: is a type of loan with a term of up to 1 year. The purpose of this type of loan is usually to finance investment in current assets; Medium-term loan: is a type of loan with a term of over 1 to 5 years. The purpose of this type of loan is to finance investment in fixed assets; Long-term loan: is a type of loan with a term of over 5 years. The purpose of this type of loan is usually to finance investment in investment projects.
- Based on the customer's creditworthiness : Unsecured loans: are loans without collateral, pledge or guarantee from others, but only based on the borrower's own reputation to decide on the loan; Secured loans: are loans based on guarantees
Secure a loan by providing collateral, pledge, or guarantee from a third party.
- Based on lending method : Loan by loan: is a type of loan in which each time a loan is borrowed, the customer and the credit institution carry out the necessary loan procedures and sign a credit contract; Loan by credit limit: is a type of loan in which the credit institution and the customer determine and agree on a credit limit maintained for a certain period of time; Loan by overdraft limit: is a loan in which the credit institution agrees in writing to allow the customer to spend more than the amount in the customer's payment account.
- Based on credit origin: Direct lending: the bank provides capital directly to those in need, and at the same time the borrower directly repays the loan to the bank; Indirect lending: is a loan made through the purchase of debt contracts or documents that have arisen and are still within the payment period such as: trade discount, factoring.
1.1.2. The role of bank lending activities
The role of commercial banks in the country's economic development is not small when this is the main source of capital for production and business enterprises. In addition to capital mobilization through stock issuance, bank loans will bring many benefits to the enterprises themselves when loan interest will be considered a reasonable and valid expense to deduct from taxable income, thereby increasing retained earnings. In a market economy, bank credit is the most basic form of credit and occupies a leading position, and lending is the main business that generates profits for banks. The role of lending is shown in the following aspects:
* For customers :
- Is the main capital channel for business operations, meeting the temporary capital shortage needs of business entities in the economy.
- Through bank lending activities, businesses and economic entities can re-evaluate their business plans, review their financial situation, and improve the management and executive capacity of business leaders.
- Help businesses and business entities in the economy have conditions to expand international economic relations.
* For banks
- Lending is the most important and primary activity in all commercial bank activities, providing the main source of income and is the main source of profit in the commercial bank's profit structure.
- Through lending activities, it helps improve the ability to evaluate and appraise business plans of credit officers, helping bank managers perfect the bank's business strategy.
- Through lending activities, banks have the opportunity to access international financial institutions, expand relationships, acquire management experience and modern technology.
* For the national economy
- The capital provided by banks to business entities plays an extremely important role in the production and operation of enterprises and organizations. Contributing to the industrialization and modernization process, building a more and more developed country through meeting capital needs.
- Through policies supporting interest rates or prioritizing capital provision for a number of priority subjects, the state has been able to regulate the macro economy to meet the needs of stable and sustainable development.
- Contribute to expanding international economic relations because bank lending activities are not only limited to the economy of a country but also expand internationally. Bank capital provision contributes to expanding foreign trade relations, creating conditions for the development of a direct international investment environment.
1.2. Basic issues on safety in lending activities of commercial banks
1.2.1. Concept of safety and security in lending activities
In January 2007, Vietnam officially became the 149th member of the WTO, marking a major turning point with opportunities and challenges. Under the influence of globalization and financial liberalization, countries are facing increasing financial risks and financial crises have become a major threat to world economic security and Vietnam is no exception. In recent times, after the severe impacts of the global financial crisis that occurred at the end of 2008, the phrases "risk management in banks"; "ensuring the financial system operates safely, stably, and strongly" ... are increasingly mentioned.
And one of the main activities accounts for 70-80% of the profit.
The bank's revenue comes from lending. Therefore, for the bank to develop, it is important to ensure the safety of loans, avoid risks due to non-payment, and limit bad debts. Only then can the bank operate strongly in the context of many difficulties left by the financial crisis.
So what is the concept of safety and how important is the role of ensuring safety in bank lending activities is the question that needs to be asked.
1 Nguyen Xuan Minh (2007), The role of commercial banks in the economy, Saigon Economic Times