Specific Quantitative Criteria for SMEs in Banks

- Pay debt on time.

- Number of times debt repayment period is restructured.

- Bad debt ratio in total outstanding loans of the enterprise.

- Overdue interest rate = Overdue interest not paid/Interest payable in the past 12 months.

- Number of times the commitment is insolvent (L/C, Guarantee, other commitments, etc.).

* Level of relationship with the Bank:

- Credit relationship level with the Bank = Outstanding loans at a credit institution needing financing/Outstanding loans at credit institutions.

- Revenue transferred via Bank/Total revenue in the last 12 months.

- Average deposit balance at the Bank in the past 12 months.

- Value of collateral at the Bank / Outstanding debt at the Bank.

- Provide complete and timely information as requested by the Goods.

1.3.6 Specific quantitative criteria for SMEs in the Bank

Ernst & Young Vietnam Co., Ltd. (E&Y) is an auditing organization that has built its own credit rating system to serve the evaluation and ranking of SME customers for commercial banks in evaluating financial and non-financial indicators of customers.

E&Y's XHTD scoring model includes two parts: financial and non-financial indicators. The indicators are designed as shown in the table above:

Type

Small and Medium Enterprises					Initial point	Weighted Score	Type of indicator
A	B	C	D	E
Point	Proportion	100	80	60				40	20
Payment ability maths	25%
1, Payment ability short term	15%	1.50	1.25	1.05	0.88	<0.88
2, Payment ability quick math	10%	1.03	0.75	0.55	0.33	<0.33
Performance indicators	25%
3, Inventory turnover inventory	6%	8.00	6.00	4.00	2.00	<2.00
4, The rotation of the receivable	6%	6.50	5.00	3.50	2.00	<2.00
5, Capital turnover mobile	6%	3.50	2.50	1.80	1.00	<1.00
6, Efficiency of use asset	7%	2.10	1.60	1.10	0.70	<0.70
Self-funding ability	25%
7, Self-funding coefficient (%)	15%	39.0	33.0	27.0	21.0	<21.0
8, Leverage ratio	10%	<1.8	1.8	2.3	2.8	3.3
Profitability	25%
9, Revenue growth rate (%)	7%	20.0	10.0	6.0	0	<0
10, Profit growth rate (%)	6%	22.0	12.0	6.0	0	<0
11, Profit margin return on assets (%)	6%	3.40	2.20	1.10	0.70	<0.70
12, Profit margin return on capital (%)	6%	18.0	12.0	9.0	3.0	<3.0
TOTAL	100%						-

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Table 1.2.5.1: Financial indicators assessment

Type

Point

Type of pepper

will

Status

Benchmark

Environment

business

Very good prospects

Good prospects

Medium outlook

jar

Bad outlook

The outlook is very bad.

Menstrual cycle

business

Develop

Near saturation

Saturation

recession

Negative

Industry growth prospects

Very good

Good

Medium

Bad

very bad

Edge pressure

painting

Very low

Short

Medium

High

Very high

Sources of supply

in the industry

Very convenient

Favorable

Medium

Adverse

Very unfair

profit

Total

Table 1.2.5.2: Non-financial indicators – Macro indicators

Status

Criteria	Benchmark					Give point
Criteria	20	16	12	8	4	Give point
1	Pay on time	Always paid on time for over 36 months via	Always pay on time within 12 to 36 months last month	Always paid on time for the past 12 months	No information (New Customer)	Not paid on time
2	Number of times debt repayment period is restructured	Do not have	1 time in Last 36 months	1 time in Last 12 months	2 times in Last 12 months	3 or more times in the past 12 months
3	Debt ratio bad (%)	No bad debt	≤ 10 %	≤ 30 %	≤ 50 %	> 50 %
4	Overdue interest rate (%)	No overdue interest	≤ 10 %	≤ 40 %	≤ 70 %	> 70 %
5	Number of default commitments	Never Have	No default for the past 36 months	No default in the last 24 months	No insolvency in the past 12 months	Have been insolvent in the past 12 months
Total

Table 1.2.5.3: Assessment of credit reputation of enterprises

Status

Criteria

Benchmark

Point

Level of credit relationship with Bank (%)

≥ 80 %

≥ 60 %

≥ 40 %

≥ 20 %

< 20 %

Value of collateral at Bank/Outstanding debt at Bank

≥ 2

≥ 1.5

≥ 1

≥ 0.7

<0.70

Bank Revenue/ Revenue (%)

≥ 90 %

≥ 70 %

≥ 50 %

≥ 30 %

< 30 %

Average deposit balance at Bank (million)

≥ 5000

≥ 3000

≥ 500

≥ 50

<50

Provide complete information on time as required by the Bank.

Yes, within the past 36 months

Yes, within the past 24 to 36 months

Yes, within 12 to

24 months

via

Yes, within 12 months

via

Are not

Total

Table 1.2.5.4: Assessment of the level of relationship with the bank

Where the financial information used for scoring has not been audited			Where the financial information used for scoring has been audited
Proportion	Points earned	Weighted Score	Proportion	Points earned	Weighted Score
Financial scoring	55%			65%
Non-financial scoring
- Macro indicators	15%			15%
- Micro indicators	15%			10%
- Reputation in TD relationship	15%			10%
Final score
Ranked businesses:

Table 1.2.5.5: Summary of SME ranking scores

The assessment of SME customer scores is conducted through 5 steps:

- Step 1: Determine the industry, field and revenue structure by industry and field.

- Step 2: Scale assessment.

- Step 3: Evaluate financial indicators.

- Step 4: Evaluate non-financial indicators.

- Step 5: Summarize scores and customer ratings.

The steps for classifying businesses are briefly described in the diagram below:

row

Figure 1.2.5: Illustration of steps to evaluate and rank SME customers.

Non-financial scoring

industry/sector

Financial scoring

Identifiable

DN belongs to

branch:

Agriculture, forestry, fishery; or

Commerce,

service; or

Construction; or

Industrial

Non-financial points

Financial Score

Total score

1.3.7 Specific criteria for assessing the quality of funding for SMEs

The composite score used to classify a business is the sum of its financial and non-financial scores, taking into account the type of business ownership and whether its financial statements are audited or not.

The purpose of the synthesis is to:

 Making credit decisions: is the basis for determining a customer's credit limit, loan amount, term, interest rate, and loan security measures.

 Customer monitoring and evaluation: applied to customers with outstanding debt at the bank, helping the bank detect early signs of bad loan quality to take timely countermeasures.

 Help banks build strategies to attract customers with less risk.

 Estimate the level of risk as a basis for setting up risk reserves.

The Bank's internal credit rating system uses a scoring method for financial and non-financial indicators of customers, combining expert methods and statistical methods to rate customers. The indicators, scoring scales and weights of each indicator will be different for each customer/type or economic sector, which have been systematized in the Bank's internal credit rating program.

Scoring principle: Normally, each financial or non-financial indicator will have 5 standard value ranges corresponding to 5 score levels 20, 40, 60, 80, 100 (initial score). Thus, for each indicator, the customer's initial score is one of the 5 above score levels depending on which standard value range the customer actually achieves in the 5 standard value ranges that have been determined.

Depending on the level of importance, there will be different weights between the indicators and groups of indicators. The weight is the level of importance of each evaluation criterion in terms of its impact on credit risk. The total customer rating score is calculated by the product of the initial score and the weight, while taking into account the factors.

The influences are: Type of business ownership, customer financial statements

audited or unaudited

Basis for synthesizing ranking scores: Synthesize scores and classify SME customers into the following categories:

a. AAA: (92 points or more): Highly efficient business, very good financial autonomy, long-term development prospects, strong financial potential, good debt repayment history, lowest risk.

b. Grade AA: (from 83 points to under 92 points): The enterprise operates effectively and stably, has good financial autonomy, good development prospects, good debt repayment history, and low risk.

c. Grade A: (from 74 points to below 83 points): Stable financial situation, operating

Effective business, good debt repayment history, relatively low risk.

d. BBB rating: (from 65 points to below 74 points): Relatively effective operations, stable financial situation, certain limitations in financial potential, average risk.

e. BB Grade: (from 56 points to under 65 points): The business is currently operating well but is easily affected by major fluctuations in business due to competitive pressure, average financial potential, and average risk.

f. Grade B: (from 47 points to under 56 points): Business operating without

efficiency, low financial autonomy, relatively high risk.

g. CCC rating: (from 38 points to under 47 points): Enterprises with low quality operations, poor management capacity, low debt repayment ability, weak financial autonomy, high risk.

h. CC Grade: (from 29 points to under 38 points): Poorly performing business

quality, weak financial autonomy, poor ability to repay bank loans, very high risk.

i. Grade C: (under 29 points): Poorly performing business, prolonged losses, lack of financial autonomy, poor management capacity, very high risk.

Thus, the quality of project financing for SMEs is the fact that Maritime Bank evaluates the cash flow of SMEs generated from the project during the borrowing period to offset the payables to the bank and bring a reasonable profit to the enterprise; It is also the assessment of the enterprise's ranking through the two main indicators of the enterprise: Those are the financial and non-financial indicators of the enterprise.

CONCLUSION OF CHAPTER 1:

SMEs play an extremely important role in economic development and social stability in Vietnam. This chapter focuses on providing criteria, classifying and evaluating the quality of operations of SMEs in Vietnam. Projects are extremely important for the operations of enterprises, helping SMEs carry out specific tasks of the strategies that the enterprises desire. Considering the aspect of project financing of SMEs through the project appraisal and lending process of the Bank. The effectiveness of project evaluation and the project appraisal process as well as collateral help the Bank select optimal projects for financing. Ensuring the quality of project financing of the bank, limiting bad debt groups, ensuring safe lending ratios in accordance with the regulations of the State Bank. That is also the key task in serving SME customers at Banks.

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