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Theoretical Basis for Developing Investment Credit Activities at Development Banks


growth between indicators. From there, find the causes and solutions to solve the problems raised in the study.

6. Structure of the thesis

In addition to the introduction, conclusion, table of contents and bibliography, the thesis is presented in 03 chapters, including:

Chapter 1: Theoretical basis for developing investment credit activities at the Development Bank

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Chapter 2: Current status of development of Investment Credit activities at Vietnam Development Bank - Bac Giang Branch.

Chapter 3: Some solutions to develop Investment Credit activities at Bac Giang Branch of NHPT.

Theoretical Basis for Developing Investment Credit Activities at Development Banks


CHAPTER 1: THEORETICAL BASIS FOR DEVELOPING INVESTMENT CREDIT ACTIVITIES AT DEVELOPMENT BANK


1.1. Overview of the Development Bank and investment credit of the Development Bank

1.1.1. Overview of Development Bank:

To enhance the development credit activities, countries around the world have focused on building and developing the implementation organization model so that this organization can better promote its role as a macro-regulatory tool of the Government in implementing the State development credit policy. These implementation organization models have brought high efficiency in development credit activities and are consistent with the actual situation. Vietnam, as a latecomer, will have many advantages in learning from international experience in building and developing the organization to implement the Government's development financing. Specifically, some features of the development bank in the world:

* German Development Bank (KFW ) :KFW is a public institution established in November 1948 underthe KFW Actonthe Promotion ofthe Economic Reconstruction of West Germany after the war .

The KFW is mainly self-funded through the issuance of bonds and loans on promissory notes, or loans from social funds. The main source of capital for investment financing is the KFW's own capital. For bank stabilization programs, low interest rates are maintained by coordinating funds from public funds. In addition, to provide the necessary capital, the KFW uses low-interest loans from the special fund for the European recovery program or issues bonds to raise capital directly from the capital market and also receives trust funds from the federal government.

KFW places great emphasis on credit risk management. To hedge against risks arising from changes in interest rates and exchange rates, KFW engages in a number of


KFW has taken a number of steps to improve its ability to improve its liability assets, and these steps have contributed to the bank's profitability and financial stability.

Regarding lending interest rates: Initially, KFW will provide credit at interest rates lower than market interest rates, but later the interest rates will be adjusted closer to market interest rates to reduce government subsidies. In addition to reducing preferential interest rates, the loan term, service quality, and borrowing conditions will be extended.

The KFW's accounting and auditing system is regulated by the KFW Law, which stipulates that the annual accounting report is prepared by the board of directors with the participation of the Government's auditing agency. The KFW's financial reports must be prepared in accordance with the provisions of bank accounting.

* China Development Bank (CDB) : CDB was established in March 1994. As an organization directly under the State Council, CDB must report its activities to the State Council according to regulations. The Board of Directors was established as an internal executive unit; it includes members representing: the State Planning Commission, the State Economic and Trade Commission, the Ministry of Foreign Trade and Economic Cooperation, and the Audit Department.

CDB is subject to a comprehensive review every year to determine whether its operating policies are consistent with national policies. There are no micro-inspections and the Board of Directors is not allowed to arbitrarily interfere in the day-to-day operations of CDB.

CDB's capital comes mainly from bond issuance. CDB's domestically issued bonds are guaranteed by the Government. Most of the 5-year bonds are purchased by commercial banks and the 8-year bonds are purchased by postal savings. The interest rate is decided by the People's Bank and takes into account the interest rate.


interest rates of other financial instruments of the same maturity. Since 1998, CDB has introduced a partial auction system by combining a group of commercial banks to decide the interest rates of bonds, thus raising capital at low interest rates.

CDB's support forms are increasingly diversified. In particular, the expansion of investment consulting for projects. This is a new form but brings high efficiency to investment projects. Currently, CDB has consulted on new State projects before they are submitted to the cabinet.

In addition, we also collected information on specific policies of Asian countries supporting the Industrialization process, most of which have policies on investment credit.

In Vietnam, according to Decision No. 108/2006/QD-TTg of the Prime Minister dated May 19, 2006, the NHPT was established on the basis of reorganizing the Development Support Fund system.

*Objectives and principles of operation: The Vietnam Development Bank operates not for profit purposes to carry out the State's credit policy tasks and other tasks as prescribed by the Government and the Prime Minister. The activities of the Vietnam Development Bank comply with the provisions of the State Budget Law, the Enterprise Law, the Law on Credit Institutions, and relevant legal documents.

*Role: is the unit that carries out the State's TDĐT tasks, encourages economic development in areas with difficult and especially difficult socio-economic conditions; Develops agricultural and rural areas; Focuses capital on implementing the socialization policy in the fields of health, education, housing, environmental protection... contributing to improving public services and ensuring social security according to resolutions and policies of the Party, State and economic programs of the Government.


*Basic activities of the Development Bank:

- Mobilize and receive capital from domestic and foreign organizations to implement TDĐT according to Government regulations;

- Implement the State's investment credit policy according to regulations;

- Receive entrustment to manage ODA capital re-lent by the Government; receive entrustment, allocate investment loans and collect debts from customers from domestic and foreign organizations through entrustment contracts between the Development Bank and entrusting organizations;

- Entrust financial and credit institutions to perform credit operations of the State Bank;

- Provide payment services to customers and participate in domestic and international payment systems serving the activities of the State Bank in accordance with the provisions of law;

- Carry out international cooperation tasks in the field of sports and physical training.

1.1.2. Concept and characteristics of investment credit activities of the Development Bank

1.1.2.1. Concept of investment credit of Development Bank

Credit is a mutual capital use relationship between the lender and the borrower based on the principle of repayment. "Based on the subject in the credit relationship, credit is divided into three forms: "commercial credit, bank credit and State credit" (Dinh Xuan Hang, 2011, p.57). In which, "State credit" is a form of credit that reflects the relationship between the State and enterprises, individuals, and social organizations. In this form, the State is the one who directly borrows capital domestically and internationally to solve the spending needs of the State budget, and at the same time the State is also the lender; The basic characteristic is that the mobilization and use of mobilized capital often has a combination of credit principles and financial policies; it also


is a tool for the state to support weak economic sectors, key sectors and underdeveloped economic regions, and is an important tool for the state to manage and operate the macro economy.

The existence and expansion of state credit is essential, in which lending activities are focused on and account for a large proportion, mainly invested in socio-economic development programs and projects and state policy subjects.

“Development projects are projects that directly create strategic products, promote economic development of industries and regions, promote the process of changing the economic structure or income structure of many segments of the population. Development projects are often not attractive to commercial banks because of their long term and the possibility of too much risk or too little profit” (Phan Thi Thu Ha, 2005, p.5)

Investment credit is a component of State credit. State investment credit is a “borrowing-repaying” relationship between the State and “entities” in society, associated with the process of creating and using credit funds to implement investment projects on the principle of direct repayment (Nguyen Canh Hiep, 2013, p.9).

The management of investment credit capital and the organization and implementation of State investment credit work are carried out through the NHPT system.

From the most general concept of credit, the concept of TDĐT of the Development Bank can be given as follows:

The Development Bank's investment credit is TDĐT, which is the State's support through credit forms for development projects in the fields encouraged by the State. Different from commercial credit, the Development Bank's investment credit is a capital support channel for legal entities (investors) to encourage them to invest in the fields and regions desired by the Government.

Formally, it is still based on loan-to-repay relationships.


principal and interest

In terms of content, it is a channel to support investors in mobilizing capital for investment, not a monetary business activity of the State. Governments of countries use State investment credit as a tool to encourage investment. Investment credit aims to shift from capital subsidies to support in the form of repayable loans. The advantage of this activity is that investment activities use State capital to create revenue sources capable of repaying the capital used. Thanks to that, investment credit not only contributes to concentrating the necessary capital sources for investment but also has the effect of improving the quality, efficiency of use, preservation and development of State capital.

1.1.2.2 Characteristics of Investment Credit activities of the Development Bank

As a type of credit activity in the credit system of the national economy, Investment Credit of the Development Bank also has the inherent characteristics of credit in general (a three-party relationship in which the credit institution acts as an intermediary between people with temporarily idle money and people in need of using money; financial relations based on trust; the relationship of transferring the right to use money for a certain period of time; interest is the price of the right to use money over time...). However, because it is organized and implemented by an agency authorized by the State to perform the functions, tasks and goals of the State, and at the same time aims at the service object of development investment activities, Investment Credit of the Development Bank is a policy credit activity with its own characteristics, reflecting the interweaving of the characteristics of credit and the characteristics of using the State budget.

-The state intervenes in credit decisions

Credit of financial intermediaries, commercial banks, credit institutions have full authority to decide where to mobilize capital, to whom to lend, and what interest rates.


How, in the investment credit of the Development Bank, the State intervenes in credit decisions in many aspects such as providing capital with preferential interest rates or organizing the issuance of government bonds to mobilize capital for investment loans, regulating who can borrow, and at what interest rates. The Development Bank implements credit according to the State's policy, aiming at the goals pursued by the State.

-Interwoven political and social effectiveness

Unlike the purpose of other types of credit in the market economy, which is to seek profit, the purpose of investment credit of the Development Bank is to support development investment projects that the State wants to encourage development. Therefore, the operation of this credit is not for profit, and does not prioritize the profit from the credit, but emphasizes economic - political - social efficiency. Therefore, the lending interest rate of the Development Bank is often lower than the market interest rate and is compensated by the State budget, making up for the deficit due to having to mobilize capital at higher interest rates.

-Planning - designation

The investment credit activities of the NHPT are planned and clearly specified. The annual investment credit plan of the NHPT is a part of the State's investment credit plan to implement the strategic goals of socio-economic development in each period and is announced annually by the State. Investment credit lending for projects is carried out according to the annual plan assigned by the State. Capital mobilization is carried out based on the disbursement needs for projects registered according to the plan. The capital mobilization interest rate and lending interest rate are also decided and announced by the State in each period. Due to the implementation of the economic development policy according to the Government's goals, the investment credit activities of the NHPT are supported by the Government in terms of capital through direct capital provision or support in capital mobilization. This is a unique feature.

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