Research on the impact of loan portfolios on profitability of joint stock commercial banks - 11

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Thus, in Vietnam, the more concentrated the structure of the  , the higher the profit . However, the concentration of lending in a few industries also makes banks face a high risk of default if those industries have strong fluctuations.


In this chapter, the thesis has performed a regression of variables according to profitability to examine the relationship between variables and bank profitability. The results of chapter 4 show that there is a close and dependent relationship between bank profitability and total asset size of the bank. In addition, the relationship between profitability and concentration of loan portfolios of banks in Vietnam is also analyzed. Most banks in Vietnam have a concentration of loan portfolios in a number of areas and industries to increase profits. However, these loan portfolios are all market dependent, and market driven, so the lending risk in those areas is quite high.


5.1 Conclusion

According to previous studies, the relationship between loan portfolio and profitability is a non-linear relationship in bank risk. Diversification does not guarantee increased profitability and safety for a bank. The diversification of the loan portfolio has a positive effect on profitability, helps to increase profitability provided the bank's risk is acceptable, and has a negative impact on profitability for banks. high-risk banks.

In Vietnam, the loan portfolio at is considered to be diversified at a low level, with a number of industries accounting for a large proportion of the total loan portfolio. This leads to a potential risk for the bank. Since lending activities are the main activities in credit activities of banks, income from lending activities always accounts for 60% of total income of banks.

Therefore, the problem of the thesis is how concentrated or diversified the loan portfolio of Vietnamese banks today affects profitability, the relationship between concentration of loan portfolios and bank profitability.

In the thesis, the author proposes to evaluate the degree of concentration or diversification of the loan portfolio affecting profitability through analyzing the loan portfolio by industry of 28 Vietnamese joint stock commercial banks during the period. 11 years from 2004 to 2014. Since the data set is not complete for all years, the author used the unblance panel data model to consider this effect. The author has built an empirical model including the dependent variable ROA, the independent variables EQ (equity ratio/total assets), ASSET (size of the bank), HHI (the concentration measurement index). ).

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The research results of the thesis show that the independent variables EQ, ASSET, HHI have a strong impact on profit and have statistical significance of 1%. In which, EQ, HHI variables are positively correlated, positively affecting profitability, while ASSET variable has negative correlation, negatively affecting profitability. This means that, in Vietnam, the more concentrated the loan portfolio, the more profitable it is. However, if the loan portfolio is concentrated, if not well controlled, banks will face many high risks, especially for industries with strong fluctuations.

Although the thesis is limited in collecting data of banks, the results of the study also contribute to helping bank managers see the importance of establishing a loan portfolio. effectively and efficiently manage the bank's loan portfolio to achieve maximum profit.

Research on the impact of loan portfolios on profitability of joint stock commercial banks - 11

5.2 Operational orientation of the banking industry

5.2.1 Orientation of banking industry to 2020

In 2006, the Government issued Decision 112/2006/QD-TTg approving the project on development of the banking industry in Vietnam up to 2010 and orientation to 2020 In the project, the following basic contents are mentioned. this:

- Regarding the common goal:

Laying the foundation until after 2010 to build a system of modern credit institutions, reaching an advanced level in the Asian region, fully meeting international standards on banking activities, capable of competing with other banks. banks in the region and around the world.

- Regarding the strategic direction for the development of commercial banks:

In order to achieve the set objectives, the project outlines strategic directions for comprehensive restructuring of commercial banks in the following specific aspects:

Firstly: Strengthening institutional capacity (restructuring organization and operation) including rearranging and renovating the organization of the management and business apparatus in line with international practices. Scaling up operations goes hand in hand with enhancing self-inspection, risk management, safety assurance and business efficiency. Develop management systems of commercial banks in accordance with international standards, practices and practices of Vietnamese commercial banks.

Second: Strengthening financial capacity (financial restructuring) including continuing to increase the size of charter capital and assets in parallel with improving the quality and profitability of assets, reducing the proportion of risky assets in total assets.

In addition, increasing the bank's own capital by retained earnings, stock issuance, mergers, consolidation, and acquisitions to increase the competitiveness and scale of operations of commercial banks, ensuring the maintenance of the ratio. capital adequacy ratio of at least 8% in the medium term and 10% in the long term.

Thirdly: To fundamentally reform the management mechanism for credit institutions, whereby, credit institutions are truly autonomous in finance, operations, administration, organizational apparatus, personnel, and are fully responsible for Responsible for business results and operating within a transparent, public and equal legal framework. In particular, the State Bank plays a key role in creating a favorable environment for monetary and banking activities through the promulgation of regulations, policies, regulation of the money market and organization of implementation. safety supervision as well as the observance of legal regulations in monetary and banking activities.

5.2.2 Orientation to build loan portfolio until 2020 Target industry orientation

- The WTO accession and recently signed the Trans-Pacific Partnership (TPP) will be a real boost to Vietnam's exports. According to the calculations of businesses, if the import tax is reduced to 0%, Vietnam's textile and garment products and footwear will face great opportunities in expanding market share in the markets of TPP countries, including the domestic market. American school. Opportunities for other key export products such as seafood, wooden furniture and agricultural products are also great. Therefore, banks will focus on reallocating to these target industries.

- Industries of industrial production, specifically: production and transmission of electricity, production and assembly of computers, electrical-electronic equipment.

- Post and telecommunications industry, tourism-services, transportation. Target customer orientation

- Large enterprises belonging to corporations, enterprises with foreign direct investment (FDI) have good financial capacity and competitiveness.

- All types of enterprises with stable financial capacity and competitiveness, diversified services, and secured assets. Orientation to improve loan portfolio management activities at Vietnamese joint stock commercial banks

Vietnam's economy gradually joins and integrates into the international economy, which will have a strong impact on the operation of the Vietnamese banking system.

International investment flows into Vietnam will grow strongly in the coming time, creating favorable conditions for the banking system to enhance liquidity and increase business opportunities. In addition, the banking system has access to trust capital sources in the world at a lower cost. However, besides, with the increasingly extensive participation of foreign banks, the competitive pressure in the industry will increase. Foreign banks with financial strength and professional management ability will increase pressure on the domestic banking sector. The "retail" strategy of foreign banks with strengths in products and services, technology, and in-depth customer access skills may cause domestic banks to gradually lose important market segments. important, and is an issue that Vietnamese banks need to pay special attention to. The current,The operational efficiency of Vietnam's banking system is still low, especially in some banks with weak management capacity, not focusing on risk management activities. Therefore, in order to maintain market stability and increase profits, Vietnamese banks need to pay special attention to and pay attention to loan portfolio management.

Loan portfolio management is one of the methods of managing lending activities of commercial banks (along with lending transaction management). Accordingly, the object of loan portfolio management is not each loan but the structure and proportion of each type of loan in the overall portfolio. This helps the bank to control risk concentration, thereby minimizing losses on the loan portfolio, maximizing profits from the perspective of the whole portfolio.

Therefore, perfecting the loan portfolio management of commercial banks in general and joint stock commercial banks in particular is a necessary task in the current period in our country. Improving loan portfolio management activities at joint stock commercial banks should follow the following main orientations:

- One is to innovate views/perceptions about modern portfolio management.

This is the first factor that is decisive for the improvement of loan portfolio management in Vietnam. Because Vietnamese banks have long been used to managing each loan transaction and are passive in portfolio management, it is necessary to change the current viewpoint to move towards an active loan portfolio management method that is suitable for the management of the loan portfolio. suitable for the modern economy.

- The second is to complete the loan portfolio management activities, including specific contents that are planning, organizing, implementing, monitoring and adjusting the loan portfolio.

These are the contents/steps in the process of performing loan portfolio management activities. There is an organic relationship between the above steps, the previous step creates a premise for the next step and the next step works on the results of the previous step. All are likened to links in a chain. Therefore, in order to successfully implement loan portfolio management, banks must simultaneously complete all of the above-mentioned contents.

- Third is to complete the elements that are the basis for the implementation of the active portfolio management approach

Modern portfolio management is built on the foundation of many technical, legal and social factors, so in order for the completion process to be effective, it is necessary to meet the basic elements for it. For example, a forecasting information system, an internal credit rating system, technical software to build quantitative models, a data system stored for many years, an appropriate and effective organizational model. High efficiency, strict supervision system, as well as a dynamic financial market with diversified derivative instruments operating effectively.

- Fourthly, the improvement of loan portfolio management must be closely combined with the improvement of loan transaction management at the bank.

Loan transaction management and loan portfolio management are two methods used in the management of bank lending activities. They are likened to two legs on the same body, so they must be performed at the same time, linked together to support each other. If the loan transaction management is good, it will create favorable conditions in the management of the loan portfolio, and vice versa, if the transaction management is not good, it will hinder the completion of the bank's loan portfolio management.

- Fifth, the improvement of loan portfolio management must be concurrent with the improvement and development of human resources at the bank.

Any activity that wants to be successful must have a key human factor, and loan portfolio management is no exception. In order to successfully manage the loan portfolio, it is necessary to have a team of enthusiastic administrators, with good vision, a team of staff who are knowledgeable in modern and professional techniques, and capable of implementing the lender's intentions. It can be said that loan portfolio management must always be combined with the improvement and development of human resources at each bank to ensure success.

5.3 Solutions to improve loan portfolio

5.3.1 Solutions for commercial banks

An effective loan portfolio is the overall portfolio in which the bank's profit is maximized, but the risk must be kept at a controllable level.

Setting up a loan portfolio should be based on the following factors:

- Development trend of the economy.

- Characteristics of the market where the bank operates.

- Bank size.

- Operational objectives of the bank - Qualifications, skills and experience of the staff.

After establishing a target loan portfolio, in order for this portfolio to become an effective loan portfolio, banks need to perform well in loan portfolio management. Therefore, loan portfolio management is really a necessary activity that every bank needs to perform. Below are solutions to improve the management of each bank's loan portfolio. Increase the financial capacity and competitiveness of the bank

The research results show that the equity/total assets (EQ) ratio has a positive impact on the bank's performance. Therefore, in order to increase working capital for the bank, executives need to pay attention to satisfying the owner's profits and at the same time try to mobilize cheap capital from the population to increase profits. If the bank's capital is large, the risk tolerance of the bank's portfolio will be improved, even avoiding "shocks" in the economy, the bank can be more flexible and risky in profit search. For this reason, increasing the size of equity capital is considered a short-term measure to enhance the risk tolerance of the portfolio, and in the long term to increase the financial capacity and competitiveness of each bank. . On the other hand,Equity ratio is a buffer against bankruptcy risk, so operators need to maintain a reasonable level, ensuring the safety of banking operations. Fully aware of the need to change the loan portfolio management method to suit the upcoming development trend  

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