Solutions to improve credit quality at Bank for Investment and Development of Vietnam - Phu Tho Province Branch

Based on the above reality, the approach of the topic is from three perspectives: lender (bank), borrower (customer) and society in general . I chose the research topic: " Solutions to improve credit quality at the Bank for Investment and Development of Vietnam - Phu Tho Province Branch".

2. Research objectives of the topic

2.1. General objectives

Clarifying the current situation and credit quality to propose solutions to limit risks

risk, enhance competitiveness in the integration process of BIDV Phu Tho.

Maybe you are interested!

2.2. Specific objectives

- Systematize theoretical and practical issues related to credit quality.

use

- Assess the current credit quality of BIDV Phu Tho.

- Propose solutions to improve credit quality and limit risks

performance and competitiveness of BIDV Phu Tho.

3. Research object and scope

3.1. Research subjects

The thesis focuses on studying and evaluating the credit quality of commercial banks at BIDV Phu Tho. Bank credit in the framework of this thesis is understood as activities related to lending, issuing guarantees, collecting interest and fees by commercial banks through serving the needs of businesses, organizations and individuals, excluding banking services.

3.2. Scope of research

- Space: Research at BIDV Phu Tho (Including provincial branches and affiliated transaction offices).

- Time: With research data collected between 2010 and 2012.

4. Scientific and practical significance of the topic

4.1. Theoretical

Summary of theoretical research results on credit quality and credit quality management of commercial banks in recent times.

4.2. In practice

Analyze the current status of credit quality. Summarize and draw lessons for credit activities, thereby proposing solutions to improve credit quality of BIDV Phu Tho.

5. Structure of the thesis

In addition to the introduction, conclusion and list of references, the thesis includes the following main contents:

Chapter 1: General theory of credit quality at commercial banks

trade

Chapter 2: Characteristics and current status of credit quality at BIDV Phu Tho

Chapter 3: Solutions to improve credit quality at BIDV Phu Tho

Chapter 1

GENERAL THEORY ON CREDIT QUALITY AT COMMERCIAL BANKS

1.1. Overview of commercial bank credit

1.1.1. Credit concept

Credit is a concept that has existed for a long time in human society. Before Marx, many economists had done in-depth research in order to propose a standard concept of credit as well as explain the nature of credit. The views given are not completely the same, but they have a common consensus when they believe that credit is an economic relationship that arises between the borrower and the lender through a material form of goods or money. In other words, credit is the use of other people's capital (goods or money) on the basis of a commitment to repay both principal and interest.

According to Marx's point of view: Credit is the borrowing of an amount of value between the owner and the user so that after a period of time the owner (lender) will receive an amount of value greater than the original value.

Based on the inheritance of those research results, the following economists

Marx went into depth to discuss and perfect the concept of credit.

Credit concept : Credit is a transaction of assets (money or goods) between the lender (banks and other financial institutions) and the borrower. In which the lender transfers assets to the borrower for use within a certain period of time according to the agreement, the borrower is responsible for unconditionally repaying the principal and interest to the borrower when the payment is due.

According to the Law on Credit Institutions of the Socialist Republic of Vietnam passed by the National Assembly at the 7th session of the 12th National Assembly on June 16, 2010, " Credit granting is an agreement for an organization or individual to use a sum of money or a commitment to allow the use of a sum of money on the principle of repayment through lending, discounting, financial leasing, factoring, bank guarantees and other credit granting operations".

In a market economy, commercial banks are the largest lenders.

for economic organizations and residents. As an organization that mobilizes funds for lending,

Banks have contributed to meeting the capital needs of economic organizations and traders, helping them have more capital to supplement their production and business activities, taking advantage of business opportunities to increase profits for themselves.

1.1.2. The nature of bank credit

Bank credit has the general nature of credit, because bank credit is a form of credit. To see clearly the nature of credit, let us consider its movement and relationship in the reproduction process, expressed through the following stages:

- Credit distribution in the form of loans: in this stage, monetary capital from financial intermediaries such as banks is transferred to borrowers.

- Use of capital: after receiving the right to use that amount of value, the borrower will use it for different purposes such as consumption or production.

- Credit repayment: this is the final stage to complete a capital turnover cycle, credit capital returns to the original credit form with added value, the borrower must ensure to repay both principal and interest to the bank.

Thus, repayment is the nature of credit in general and of bank credit in particular. Credit repayment is the return of value. Repayment must always be preserved in terms of value and somewhat increased in the form of interest.

1.1.3. Characteristics of commercial bank credit

1.1.3.1. Credit is a relationship established on the basis of trust and reputation.

One of the important conditions for customers to be granted credit by banks is "credibility". Banks, based on their experience, skills and ability to evaluate customers, determine the creditworthiness of borrowers before considering other conditions.

In today's banking credit activities, "Reputation" is becoming more and more important. Loan security forms such as pledges, mortgages, and third-party guarantees are necessary, but "trust" between the parties is still the main factor to establish credit relations.

1.1.3.2. Credit is a multidimensional risk activity.

Risks in credit activities come from many aspects: from customers, from banks, from the economy, society, politics and many other factors.

Risks from the customer side can include: risks leading to customers' inability to pay (poor financial capacity, production capacity, business management of customers, risks caused by natural disasters, fires, etc.), moral risks (customers misuse the loan, do not fulfill their debt repayment commitments).

Risks from the bank: risks in credit management, poor bank supervision and inspection, risks due to poor bank credit management, risks due to staff ethics,...

Risks due to changes in the economy, society, changes in management policies, and political instability also affect credit activities.

Thereby, it can be seen that credit activities contain many risks, so the issue of credit quality management plays an extremely important role and significance for the existence and development of banks.

1.1.4. The role of bank credit

In the process of economic development, bank credit has promoted its role.

Its superiority is demonstrated through the following roles: The role of credit

Strong production development will promote the development of commodity economy in every country in the world. However, in order for the production process to be expanded and increasingly perfected, we must mention the great role of Bank credit.

Bank credit meets the capital needs of the economy and is an intermediary regulating the supply and demand relationship of capital in the economy. Credit activities have cleared the flow of capital from places with excess capital to places with capital shortage.

The emergence of banks is closely linked to the movement in the process of production and circulation of goods. The rapid development of commodity production has promoted the commodity - money to become more profound, complex and cover all socio-economic activities. On the other hand, the emergence and expansion of commodity production and circulation has led to the movement of capital and is the foundation for the creation of the first monetary business organizations with the characteristics of a bank.

Therefore, we see that as long as the monetary commodity relationship exists, credit activities cannot disappear but on the contrary, they will develop more and more strongly. Because in the economy, at a certain point in time, two types of needs will inevitably arise: people with excess capital lending to earn interest and people lacking capital borrowing to conduct production and business. These two types of needs are opposite but they also have the same object, which is money, they share the same temporary nature and both sides satisfy the need and both benefit. Banks were born with the role of being the place that best understands the balance between supply and demand of capital in the market. And with credit activities, banks have solved this phenomenon of excess capital and lack of capital by mobilizing all idle money sources to redistribute capital on the principle of timely repayment to serve production and business needs...

Bank credit creates a source of capital to support the production process to be carried out normally, continuously and developed, contributing to accelerating the process of expanded reproduction, investing in economic development, and expanding the scope and scale of production.

The emergence of bank credit activities has transformed temporarily idle monetary means in society into effective means of business activities, quickly mobilizing materials, labor and other available resources into production, serving and promoting the production and circulation of goods, accelerating the process of expanded reproduction. On the other hand, the timely supply of capital from bank credit to meet the needs of working capital and fixed capital of enterprises, creating conditions for the production process to be continuous, avoiding congestion, and at the same time creating conditions for enterprises to have capital to apply scientific and technical advances to accelerate the production process and expanded reproduction, thereby promoting rapid economic development.

Bank credit promotes efficient use of capital and strengthens the economic planning regime.

The basic characteristic of credit is that it is a loan with repayment and interest. Banks mobilize capital from enterprises when they have idle capital and lend when they need capital to supplement production and business. When using bank loans, enterprises must respect all conditions stated in the credit contract and repay the loan.

on time both principal and interest. Therefore, it is necessary for businesses to find every measure to increase capital efficiency, reduce costs, increase capital turnover... to create conditions to increase profits for businesses. To do so, businesses must improve themselves through their activities, one of the important activities is economic accounting.

The process of economic accounting is the process of managing capital effectively. To manage capital effectively, economic accounting must closely monitor the process of capital use so that it is used for the right purpose, creating profits for the business. This has encouraged businesses to increasingly improve their accounting process.

Bank Credit facilitates the expansion and development of economic relations.

foreign

Nowadays, the economic development of each country is always linked to economic relations.

With the development of the world market, the previously self-sufficient "closed" economy has now given way to a developing "open" economy, expanding economic relations with countries around the world.

A country is called developed, first of all, it must have a stable political economy, a position in the international market, a large amount of capital, of which foreign currency reserves are very important. Bank credit has become one of the means of connecting the economies of countries together through international credit activities such as credit forms between governments, between organizations and individuals with governments, between individuals with individuals... The increasing development in foreign trade activities and the increasing number of members participating in the activities make the need for financial activities more and more necessary. Therefore, creating favorable financial conditions is an effective competitive tool alongside other competitive factors such as price, product quality, service, trade... that has gone beyond the scope of a country to the scope of the world, promoting internationalized production, forming regional and world markets, creating a new step in the development of cooperation and competition between countries. Thus, payment methods

will also be more diverse such as payment via SWIFT network, L/C payment... each form of payment requires a suitable form of credit and ensures its safety and efficiency. The quality of foreign trade credit activities is the basis for creating trust for trading partners, creating conditions for the circulation of goods, winning in payment competition will lead to victory in all other competitions in foreign trade activities.

1.1.5. Forms of credit of commercial banks

When studying the forms of bank credit from the most general point of view, people divide them into the following forms of credit:

1.1.5.1. By form of credit

Lending: is when a bank gives a customer a specific amount of money with a commitment that the customer must repay both principal and interest within a specified period of time. Lending includes: one-time lending, lending by limit, revolving lending, installment lending, overdraft lending.

Discounting: is the Bank's advance payment to the customer corresponding to the value of the valuable paper minus the Bank's income. Legally, the Bank does not have to lend money to the owner of the valuable paper. This is just a form of exchange of rights. However, for the Bank, spending money now to receive a larger amount in the future with a predetermined interest rate is considered a credit activity.

Guarantee: is a commitment of the Bank to the entitled party to perform financial obligations on behalf of the customer when the customer fails to perform the committed obligations. The customer must accept the debt and repay the Bank the amount paid on behalf of the customer and the guarantee fee.

Leasing: is a medium and long-term credit activity based on a contract for leasing assets between the lessor, the Bank, and the lessee. The assets are still owned by the bank, so the bank can repossess them for sale or lease to others when the lessee cannot repay the debt.

1.1.5.2. According to loan term

Solutions to improve credit quality at Bank for Investment and Development of Vietnam - Phu Tho Province Branch - 2

Comment