Solutions to reduce overdue debt and bad debt at Vietnam Joint Stock Commercial Bank for Industry and Trade in Ho Chi Minh City - 2

2005-2008 period 46

Chart 2.7: Eximbank's overdue debt ratio and bad debt ratio in Ho Chi Minh City in the period 2005-2008 50

Chart 2.8: Eximbank's outstanding debt and mobilized capital situation in Ho Chi Minh City in the period 2005-2008 51

INTRODUCTION

1. The necessity of the topic

Commercial banks are considered as financial companies whose main functions are borrowing and lending. Lending is the credit activity of commercial banks. This activity brings in the most profit and affects the operations of commercial banks the most.

Currently, the global financial crisis is affecting the Vietnamese economy, causing difficulties for the operations of commercial banks, especially in the credit sector. In the current financial context, Eximbank in Ho Chi Minh City has revealed limitations in credit operations as follows:

- Specific provision for contingency funds increased from VND 22 billion (end of 2007) to VND 90 billion (quarter III 2008) and general provision for contingency funds increased from VND 75 billion (2007) to VND 165 billion (quarter III - 08).

- Overdue debt increased sharply in the period 2005-2008 from 1.43% in 2007 to 5.94% in 2008.

- Bad debt is nearly 4% of total outstanding debt, higher than the level prescribed by the State Bank.

- Mortgages using iron, steel and agricultural products have great value, but the prices of these products have dropped significantly. For example, the price of iron and steel is 50% compared to 2007.

- The real estate credit crisis in the US caused many banks in this country to close.

These figures show that the situation of overdue debt and bad debt of EIB's credit activities in Ho Chi Minh City increased rapidly in 2008.

In 2008, the State Bank held a meeting and directed branches to strictly control credit activities of commercial banks. With such a situation, EIB in the locality

Ho Chi Minh City needs to have appropriate measures to reduce overdue debt and bad debt in its credit activities in the coming time.

Therefore, the topic " SOLUTIONS TO REDUCE OVERDUE DEBT AND BAD DEBT AT BANKS"

"VIETNAM IMPORT-EXPORT COMMERCIAL JOINT STOCK COMPANY IN HO CHI MINH CITY" was chosen as the research thesis, aiming to evaluate the current status of credit activities at EIB with the achievements and the causes leading to the above situation to serve as a basis for proposing solutions to limit overdue debt and bad debt in credit activities at this commercial bank in the coming time.

2. Objectives of the topic

The research thesis has 03 objectives:

- Research on basic theories of Commercial Banking, Commercial Banking credit, some issues on overdue debt and bad debt in Commercial Banking credit activities.

- Analysis and evaluation of the current credit activities at Eximbank in Ho Chi Minh City in the period 2005-2008.

- Propose solutions to reduce overdue debt and bad debt at Eximbank in Ho Chi Minh City in the coming time.

Target

- Analyze and evaluate the current status of overdue debt and bad debt in operations.

credit

- Propose some solutions to reduce overdue debt and bad debt

Solutions to reduce overdue debt and bad debt at Eximbank in Ho Chi Minh City

3. Implementation process and method Implementation process

Maybe you are interested!

• Definition of Bad Debt and Overdue Debt
• Classification Table of Overdue Debt Ratio by Collateral of Seabank
• On Handling Bad Debt With Market Solutions:
• Law on handling overdue debt in lending activities of commercial banks in Vietnam - 1
• Classification and Handling of Overdue Debt

Method Data source from Eximbank internal information

Method of implementation

- Data used in the topic: Statistical data

- Use statistical, synthesis and comparison methods to analyze and clarify problems.

topic of the topic.

4. Research object and scope

- The subject of the topic is solutions to reduce overdue debt and bad debt in credit activities at Eximbank in Ho Chi Minh City.

- Research scope: Eximbank branches and transaction offices in Ho Chi Minh City

5. Topic content

- Foreword

- Chapter I : Some basic theories about Commercial Banks and credit activities of Commercial Banks

- Chapter II: Current status of credit activities at Eximbank in Ho Chi Minh City in the period 2005-2008.

- Chapter III: Some solutions to reduce overdue debt and bad debt at Vietnam Export Import Commercial Joint Stock Bank in Ho Chi Minh City

- Conclude

Chapter I

SOME BASIC THEORIES ON COMMERCIAL BANKS AND COMMERCIAL BANK CREDIT ACTIVITIES

Chapter I Contents

1.1 Definition of Commercial Bank

1.2 Commercial Bank Credit

1.3 Main credit products of Commercial Banks

1.4 Overdue debt and bad debt in credit activities

1.5 Factors affecting overdue debt and bad debt.

1.6 The relationship between credit growth, overdue debt, bad debt and commercial bank performance.

1.1 Definition of Commercial Bank.

Along with the development of the commodity economy, Commercial Banks are formed and developed. The development of Commercial Banks has a great and important impact on the development of the commodity economy and vice versa, the more the commodity economy develops, the more Commercial Banks gradually improve themselves and become an indispensable financial institution for the commodity economy.

Commercial banks are the type of commercial banks that directly transact with domestic and foreign organizations and individuals by receiving savings deposits, payment deposits, etc., lending and providing credit services to the above subjects.

Clause 2, Article 20 of the Law on Credit Institutions (No. 02/1997/QHX) clearly states that “A commercial bank is a type of credit institution that is allowed to carry out all commercial banking activities and other related business activities.”

The French Commercial Banking Act (1941) also states that “Commercial banks are enterprises or establishments whose regular business is to receive public money in the form of deposits, or in other forms, and to use those resources for themselves in discount, credit and financial operations.”

Thus, it can be seen that Commercial Banks are the most important intermediary financial institutions of the market economy. Thanks to this system of financial institutions, idle and scattered money sources among the people are mobilized, creating a huge source of credit capital to be able to lend for socio-economic development.

1.2 Commercial Bank Credit.

In real life, the term credit is understood in many different meanings, even in financial relations. Depending on the specific context, the term credit has its own content. In financial relations, credit can be understood in the following meanings:

- From the perspective of transferring loan funds from subjects with surplus savings to subjects with deficit savings, credit is considered a method of transferring funds from lenders to borrowers.

- In specific financial relations, credit is a transaction of assets on the basis of repayment between two entities. The most common is the transaction between commercial banks and other financial institutions with businesses and individuals in the form of loans, that is, commercial banks provide loans to borrowers and after a certain period of time the borrower must repay the principal and interest.

- Credit also means the amount of loan that financial institutions provide to customers.

In some contexts the term credit is synonymous with the term loan. For example, short-term credit is synonymous with short-term loan.

Credit is considered the basic function of commercial banks. Therefore, based on the functional approach of commercial banks, credit is understood in the following sense: Credit is an asset transaction (money or goods) between the lender (commercial banks and other financial institutions) and the borrower (individuals, businesses and other entities), 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 deadline comes.

Commercial Bank Credit Chart

Lender

Borrower

Capital (1)

Capital + interest (2)

(1): The lender provides a loan to the borrower.

(2): After a period of use, the borrower repays the lender the principal and interest.

1.3 Main credit products of Commercial Banks.

Commercial banks provide credit to organizations and individuals in many different forms. Each commercial bank will have its own products, but in general, the main products are: loans, discounting of commercial papers and other valuable papers, guarantees, financial leasing and other forms according to regulations of the State Bank.

From the technical perspective of credit granting, credit products and services include the following types:

 Lending discounting of commercial papers and valuable papers

 Overdraft loan

 Loans to finance production and business

 Installment loans

 Development investment loans

 Syndicated lending

 Commercial Bank Guarantee

 Factoring

 Financial leasing

1.4 Overdue debt and bad debt in credit activities of commercial banks.

Credit activities are the main and most important activities of commercial banks. Nowadays, profits from this activity contribute a significant part to the total profits of commercial banks. All banks have overdue debts and bad debts arising from credit activities.