Theoretical Basis of Lending to Corporate Customers at Commercial Banks

+ Collect data related to the research topic from other information channels: website of the State Bank of Vietnam (SBV); Ministry of Industry and Trade; Finance; electronic magazines...

5.2.Data processing method

From the collected data, the author uses the following data analysis methods:

Statistical method, synthesizing data over the years, creating tables to create a basis for analyzing and evaluating the current situation of lending and expanding lending to corporate customers at the Joint Stock Commercial Bank for Investment and Development of Vietnam - Son Tay Branch.

Maybe you are interested!

The method of comparing time between years aims to evaluate the lending process and expansion of corporate lending of the Joint Stock Commercial Bank for Investment and Development of Vietnam - Son Tay Branch.

Detailed analysis method: detailed analysis aims to find out and determine the causes and factors affecting the research object of the topic.

6. Thesis layout

In addition to the introduction, list of tables, list of references, appendix and conclusion, the content of the thesis includes three chapters as follows:

Chapter 1: Theoretical basis of lending to corporate customers at commercial banks

Chapter 2: Current status of expanding lending activities to corporate customers at Vietnam Joint Stock Commercial Bank for Investment and Development - Son Tay Branch

Chapter 3: Some solutions to expand lending to corporate customers at Vietnam Joint Stock Commercial Bank for Investment and Development - Son Tay Branch

CHAPTER 1: THEORETICAL BASIS OF LENDING TO BUSINESS CUSTOMERS AT COMMERCIAL BANKS

1.1. Loans to corporate customers

1.1.1. Concept and characteristics of lending to corporate customers

a. Business concept

According to Clause 1, Article 4 of the Enterprise Law No. 60/2005/QH11 dated November 29, 2005, an enterprise is understood as follows: "An enterprise is an economic organization with its own name, assets, and stable transaction office, registered for business in accordance with the provisions of law for the purpose of carrying out business activities".

From the above concept, we see that: first of all, an enterprise is an independent economic entity, with or without legal status, with its own name and operating under its own name, carrying out production and business activities in the market and being independently responsible for all its business activities. Second, depending on the purpose of establishing the enterprise, each enterprise has different purposes of operation, except for a few enterprises operating in the public interest sector, the purpose of enterprises is to maximize profits.

b. Concept of lending to corporate customers

Scientifically, there are many concepts of lending:

- In a narrow sense: Lending is a relationship of borrowing and using capital between a borrower and a lender for a certain period of time according to the principle of repaying principal and interest.

- In a broad sense: Lending is the movement of capital, regulating capital from places with surplus to places with shortage, meeting capital needs in the economy.

- According to the Law on Credit Institutions 2010: “ Lending is a form of credit granting, in which a credit institution delivers or commits to deliver to a customer

a sum of money to be used for a specified purpose over a specified period of time as agreed, with the principle of repayment of both principal and interest .”

- According to the terms prescribed by the Joint Stock Commercial Bank for Investment and Development of Vietnam: “ lending is BIDV's agreement to let a customer use a sum of money or commitment to allow the use of a sum of money on the principle of repayment through lending, discounting, factoring, purchasing, investing in corporate bonds, issuing credit cards, bank guarantees, committing to issue in the form of documentary letters of credit (L/C) and other credit granting operations as prescribed by the State Bank, including granting credit from the capital of other legal entities for which BIDV bears the risks as prescribed by law .”

With the understanding within the scope of the thesis, the concept of lending to corporate customers of commercial banks can be summarized as follows: " Lending to corporate customers is considered a form of credit granting by the bank to corporate customers, according to which the bank gives the enterprise a sum of money to use for a certain purpose and time according to the agreement with the principle of repayment of both principal and interest".

c. Characteristics of lending to corporate customers

Lending to business customers contributes greatly to the circulation of capital sources in society, transferring capital from places with surplus to places with shortage, from places with low efficiency to places with high efficiency to meet the capital needs of businesses. Some basic characteristics of lending to business customers can be listed as follows:

Firstly , lending to corporate customers contains more risks than lending to individual customers (Personal Customers): because the operations of enterprises are affected by many factors, especially the fluctuations of the market economy, at the same time, mortgaged assets are also a big problem for enterprises because most enterprises often use their own factories, machinery, and inventory.

their own assets as collateral, these assets are often complicated, difficult to value, control, and have low liquidity. Therefore, many banks are tending to develop towards the target customers of enterprises and households. Many banks have converted their model from wholesale banking to retail banking, at that time, lending to enterprises will be less focused on by banks.

Second , the number of corporate customers borrowing capital from banks accounts for a low proportion, but outstanding loans to businesses always account for a large proportion of the total outstanding loans of commercial banks. In the economy, the number of businesses is also much lower than the number of individuals and households. Therefore, the number of corporate customers borrowing capital from banks is also much lower than the number of individual customers. Meanwhile, loans to individual customers are often small in scale, while loans to businesses are quite large, so outstanding loans to corporate customers account for a large proportion of the total outstanding loans of banks.

Third , information from enterprises is more reliable than information from households: because enterprises need to publicize information, register information with the Department of Planning and Investment of localities, and on the other hand, are subject to the management of tax authorities. Enterprises must comply with regulations on reporting and auditing every year, etc. Therefore, information that enterprises have verified through tax authorities and auditing agencies should be more reliable.

Fourth , the bank's lending objects for corporate customers are very diverse: because businesses operate in many different fields such as construction, textiles, transportation, consumer goods, foreign-invested enterprises, etc. Businesses borrowing capital from banks can come from different locations, different business scales, and different business lines.

Fifth , the borrowing needs of enterprises are often very large while the ability to meet the debt security needs of enterprises is limited. Normally, to supplement the shortage of business capital, the borrowing needs of enterprises

There are many types of assets that a business holds. However, among the types of assets that a business holds, only certain types of assets can ensure the conditions for securing debt.

Sixth , the cost of lending to businesses is often higher than lending to individuals and households. Business loans are often large, so they pose more risks. Meanwhile, business loans are used for business purposes, so the source of debt repayment is often an uncertain estimate in the future. Therefore, the stages of customer appraisal, disbursement, and loan monitoring are often more complicated and costly.

1.1.2. Classification of corporate customer loans

There are many different ways to classify corporate loans:

- Based on loan term:

+ Short-term loans for business customers: is a lending method to meet regular capital needs or capital needs due to seasonal production and business characteristics of the enterprise. Most of these loans can be secured or pledged with assets.

+ Medium and long-term loans: are loans with a term of over one year, mainly used to invest in purchasing fixed assets, improving or innovating equipment and technology, building houses, purchasing means of transport, building factories, workshops, etc.

- Based on the bank's creditworthiness for corporate customers:

+ Unsecured loans: are loans without collateral, pledge or guarantee, but are based solely on the borrower's own reputation to decide on the loan.

+ Secured loans: are loans based on loan guarantees such as mortgages, pledges of borrowers' assets or guarantees by third party assets. This guarantee is the basis for banks to have a second source of income to supplement the first source of income which is uncertain.

- Based on the lending method for corporate customers:

+ Credit limit lending: is a lending method in which the bank agrees to grant a credit limit to the customer and maintain this limit for a certain period of time. The basis for granting a credit limit is the financial plan of the enterprise, which includes a detailed forecast of the assets and capital of the enterprise. Once the bank has set a credit limit, the customer is entitled to borrow capital with a balance within the scope of that credit limit. If the business customer borrows and repays in many installments during the period, the total loan amount can exceed the credit limit many times, which is even better because the credit capital turnover increases. Credit limit lending has the following characteristics:

Credit capital circulation participates entirely in the capital turnover of enterprises, from the reserve stage to the production and circulation stages.

Credit capital arises according to the needs of the capital circulation process without depending on the unit's inventory of materials and goods.

Because credit capital participates in the entire capital circulation process of the enterprise, loan procedures are gradually simplified, creating conditions for the unit to receive capital promptly.

However, banks are susceptible to capital stagnation. In addition, loans are not separated into specific debt terms, so it is difficult for banks to effectively control each use of loan capital.

+ One-time lending: is a popular form of bank lending for customers who do not have regular borrowing needs and do not have the conditions to be granted an overdraft limit. One-time lending is often applied to long-term loans or project loans. One-time lending has the following characteristics:

Credit capital only participates in a certain stage or process in the production and business cycle, the capital circulation cycle of the unit.

On the bank side, lending and debt collection are handled on a loan-by-loan basis. Each time a loan need arises, the borrower is required to carry out the following procedures:

Procedures for making loan application with invoices and documents for credit officers to check the borrower, if the borrower is suitable, the loan will be approved, so the bank will proactively use the capital, earning high interest because the loans are separated into different files.

+ Overdraft limit lending: is a lending service through which the bank allows customers to exceed their payment deposit balance up to a certain limit in accordance with the regulations of the Government and the State Bank of Vietnam on payment activities through payment service providers and within a specified period of time, this limit is called the overdraft limit.

+ Lending through the issuance and use of credit cards: The bank approves businesses to use the loan amount within the credit limit to pay for goods and services and withdraw cash at ATMs or cash advance points that are agents of the credit institution. When lending, issuing and using credit cards, banks and businesses must comply with the regulations of the Government and the State Bank of Vietnam on the issuance and use of credit cards.

+ Discounting valuable documents: The bank pays in advance bills of exchange or other valuable documents that have not yet matured at the request of the beneficiary by immediately deducting a certain amount called discount, the deducted amount is calculated based on the value of the document, discount period, interest rate and other discount rates, the remaining amount is paid to the beneficiary. If the beneficiary wants to receive this amount, they must complete the procedure of transferring the benefit to the discounting bank for the discounted documents. In the discounting business, the bank provides credit to the business that owns the documents. But when the documents mature, the bank sends the documents to claim money from the person who is obligated to pay.

+ Bank guarantee: Is a form of credit granted through a written commitment of the bank to the beneficiary of the guarantee to perform financial obligations on behalf of the enterprise, when the enterprise fails to perform or improperly performs the obligations committed to the beneficiary of the guarantee. The customer must acknowledge the debt and repay the bank the amount paid on behalf of the enterprise.

+ Factoring: Is an indirect credit service of a commercial bank, in which a commercial bank agrees to provide credit to a supplier if the supplier presents a set of payment documents, based on a commercial contract signed with the buyer. In other words, factoring is when a commercial bank pays the supplier immediately, according to the set of documents presented by the supplier. The bank will then claim money from the buyer according to the signed factoring contract.

1.1.3. The role of bank loans for businesses

With the current fierce competition in the market, when all types of businesses are promoting business efficiency at the highest level, making more efforts to meet new market requirements, products need to be better, more diverse, equipment needs to be more modern, machinery and technology needs to be more advanced. To do that, it is inevitable that businesses also need more capital and bank loans are extremely important for businesses. The role of bank loans for businesses is specifically shown as follows:

- Contribute to forming a reasonable capital structure for businesses:

The goal of every business is to maximize the value of the owner's assets at the optimal capital structure. To achieve the optimal capital structure, businesses need to maintain a reasonable ratio between equity and debt capital so that the weighted average cost of capital is the smallest while achieving a balance between the risk and profit of the business. In the business's debt capital

Comment