Enterprises cannot determine the cash flow, so if applying for a bank loan, it is difficult to determine the ability to repay the debt in the future.
1.3.3. The role of SMEs
Create many jobs at low cost.
SMEs are well-suited to the capital-saving approach and therefore they are recognized as the most effective method of addressing unemployment.
First: Due to the scattered distribution. These enterprises are often dispersed, so they can ensure job opportunities for many geographical areas with many laborers.
Second: Due to the flexibility, SME’s can easily adapt to changes in the market. In the event of a change, large enterprises will respond rather slowly. They will have difficulty in operating, then they will have to lay off workers to cut costs to a viable level. Meanwhile, due to their flexibility and ability to quickly adapt to market changes, SMEs can still survive without having to resort to labor reduction measures.
Provide society with a considerable amount of goods in terms of quantity, quality and variety.
Companies, SMEs attract a large amount of labor and resources of society to produce goods. In order to be more competitive with large corporations, their products tend to be diversified in quality and type, giving consumers many options to choose from. Besides, they also enter the small market that large enterprises ignore.
Increase savings and investment for local people.
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In general, in any locality where an SME opens, the workers and business owners are local. When such businesses are opened, the people working there will have jobs and sources of income. As a result, the savings-investment fund in that locality is replenished.
Make the economy more dynamic and efficient.
The law of physics states that the greater the mass of an object, the greater its inertia. Also, the larger the economic units, the less flexibility, lack of ability to react quickly. In contrast, an economy with an appropriate proportion of small and medium enterprises will become more “agile”, reacting more promptly. The efficiency of the economy will be enhanced.
Promoting local resources, contributing to economic growth.
An economy always has markets of small scale, underdeveloped or far from transport routes, lack of resources… Large companies often ignore those areas and assume that the profits are derived from that area. not as large as the profit from elsewhere with a single expense.
If an economy only has large enterprises, there will be uneven development across regions, underutilization of resources and reduced efficiency of the economy and causing potential damage to the economy. economic. However, for small and medium enterprises, the opportunity costs of these regions are acceptable and worthy of the return. Therefore, they are ready to operate if there is appropriate local support policy.
1.4. Quality of short-term loans for small and medium-sized enterprises
1.4.1. The concept of short-term loan quality
To approach the quality of short-term loans, we go from the basic concept of the quality of a product or service. The quality of a product or service is the ability of a product to fulfill its function. Or more simply, it can be understood as the use value of products, goods and services based on the level of satisfaction of consumer needs.
To achieve credit quality in general and short-term loans in particular, that path is continuous, dynamic, constantly improving and innovating, the milestone is infinity without end. The quality of short-term loans in a broad sense is understood as the satisfaction of customers’ requirements, ensuring the existence and development of the Bank, in line with the national socio-economic development goals.
1.4.2. System of indicators for assessing the quality of short-term loans to SMEs
22.214.171.124. Loan sales
Is an indicator reflecting all the credits that a bank lends to a customer within a certain period of time, including recovered or unrecovered capital.
Loan sales are usually determined by month, quarter, or year. This indicator is high or low over the years, reflecting the expansion or contraction of the scale and structure of credit activities. Depending on the time, the bank adjusts the credit scale in the most effective way.
Loan turnover in the period = Loan balance at the end of the period + Sales in debt collection during the period – Loan balance at the beginning of the period
126.96.36.199. Debt collection revenue
Is an indicator that reflects all the credits that a bank collects upon maturity within a certain period of time.
Debt collection turnover in the period = Loan balance at the beginning of the period + Loan turnover in the period + Loan balance at the end of the period
188.8.131.52. Odd debt
Is an indicator reflecting the amount of debt that a bank has lent and has not yet recovered at a certain time.
Loan balance at the end of the period = Loan balance at the beginning of the period + Loan turnover in the period – Debt collection in the period
Loan balance is an important indicator to assess whether a bank’s credit efficiency is high or low. If the low loan balance ratio shows that the credit performance of the bank is weak, the professional qualifications of the credit officers need to be further improved, not meeting the requirements in exploiting customers.
184.108.40.206. Overdue debt, bad debt; rate of overdue debt, bad debt
Overdue debt: is an indicator reflecting debts that are due when due but cannot be paid to the bank by the customer without any plausible reason, the Bank will transfer from the outstanding balance account to another debt management account called overdue. Overdue debt is a debt in groups 2, 3, 4.5 according to the regulations on debt classification in Decision No. 493 of the State Bank.
Bad debt: is a debt in groups 3, 4, 5 according to the regulations on debt classification in Decision No. 493 of the State Bank. Usually these debts are dealt with by making provisions for debt write-off. This provision is calculated based on past due balance and on the basis of secured or unsecured loans.
Overdue debt ratio: This ratio shows how much of a loan is overdue for 100 VND. If at a certain time the overdue debt ratio accounts for a large proportion of total outstanding loans, it reflects the poor lending efficiency of the Bank and vice versa.
Overdue Debts / Outstanding Debts = PASS DAILY / TOTAL BALANCE
Bad debt ratio: This ratio shows how much of a 100 dong loan is bad debt.
Bad Debts / Outstanding Debts = Bad Debts / Total Debts
Classification of debt groups according to Decision 493 of the State Bank:
- Debt group 1: qualified debt (under 10 days overdue), good debt, no doubt about solvency.
- Group 2: Debts needing attention (overdue from 10 to 90 days), showing signs of decline in ability to repay, the estimated final loss will not occur during this period but will occur if the benefits continue to exist.
- Debt group 3: subprime debt (overdue from 91 to 180 days). Inability to recover partial loss
- Group 4: doubtful debt (overdue from 181 to 360 days). The possibility of loss is high after taking into account the actual value of the fixed assets.
- Debts of group 5: debt that is likely to lose capital (overdue for more than 360 days), no longer recoverable after all efforts to recover debt such as sale of fixed assets, legal proceedings….
220.127.116.11. Total loan profit on average total outstanding balance
This indicator reflects the profitability of credits. It tells us how much profit a dollar of debt brings. The higher this ratio, the greater the credit profit, which is one of the factors that make up the Bank’s high credit efficiency.
Total Profit / Average outstanding balance = TOTAL PROFIT / AVERAGE TOTAL DELIVERY
18.104.22.168. Ratio of outstanding loans to total mobilized capital
This indicator determines the investment efficiency of a mobilized capital. It helps us analyze and compare the bank’s lending capacity with mobilized capital.
Loan balance / Total mobilized capital = TOTAL DELIVERY / TOTAL CAPITAL
22.214.171.124. Credit cycle
This indicator measures the bank’s credit turnover, reflecting how quickly or slowly the invested capital is rotated. If the number of credit turnover is higher, the bank’s capital will rotate faster, and the rotation will be more efficient.
Credit turnover = DEBT REVENUE / AVERAGE DEBALANCE
1.4.3. Factors affecting the quality of short-term loans
In order to provide the best quality lending, the Bank must first know what factors affect the quality of loans. There are three main groups of factors affecting the lending quality of commercial banks:
- Group of subjective factors from the Bank.
- Group of factors belonging to borrowers.
- Group of factors belonging to objective conditions.
126.96.36.199. Group of factors from the Bank
High quality lending depends mainly on the Bank’s own operational capacity. Loan quality closely depends on factors such as the Bank’s lending policy, credit process, financial capacity of the bank and the bank’s management ability, quality and qualifications of staff. , internal control, promotional activities of the Bank.
a. Loan policy
Each bank must develop its own policy suitable for each time and each specific situation. The lending policy becomes a general guide for credit officers, enhances specialization in lending activities, and creates a common consensus in the Bank’s credit activities in order to limit risks, improve creditworthiness, and improve credit performance. profitability.
The basic content of the lending policy is the policy on customers, the policy on the capital size and loan limit, the term, the repayment term, and the collateral.
Customer policy: The Bank’s borrowers are very diverse.. and the Bank also conducts classification of traditional customers, having a good loan relationship with the Bank to enjoy more incentives than customers. new, or the customer has a bad credit relationship with the bank.
Size and Limit Policy: The bank may consider the feasibility and solvency of the loan to finance the entire loan, or to a certain extent. If the loan size exceeds the customer’s ability to repay, it will cause damage to the Bank, and if the Bank lends too little compared to the demand, the customer will also face obstacles in business, thereby affecting the ability to repay.
Debt repayment term and loan term: Banks often specify the loan term in the loan contract depending on the business cycle after agreeing with the customer. The repayment term can be at the end of the term or in terms of the loan term. The repayment term is related to the liquidity, risk of the Bank as well as the business cycle of the borrower.
Collateral (Special Assets): Special assets will help the Bank to minimize losses when customers have difficulty in paying debts, or in case customers intentionally do not pay debts. The value of special assets is also an important factor for the Bank to decide the size of the loan.
A correct lending policy will attract many customers, ensure profitability from lending activities on the basis of risk reduction, compliance with the methods and policies of the State and ensure fairness. socialize. That also means that the lending policy of commercial banks is correct or not also affects the quality of loans. Any bank that wants to have good credit quality must first have a scientific credit policy in line with the reality of the Bank as well as the market.
b. Credit processes
Credit process is a collection of basic contents, operations and steps in the lending and debt collection process to ensure the safety of credit capital. It includes steps starting from loan preparation, loan disbursement, checking during the loan process to debt collection.
In the credit process, the loan preparation step is very important (the customer enters the loan application). Including 3 stages: exploit and find customers; guiding customers on credit conditions and establishing loan documents; Analysis and appraisal of customers and loan plans and projects. Credit quality depends heavily on the quality of appraisal and regulations on lending conditions and procedures of each bank.
Checking the loan use process helps the Bank understand the evolution of the credit provided to the customer to take corrective actions when necessary, early to prevent possible risks. and effective application of inspection forms will establish an effective prevention system, reduce credit risk, in other words, improve credit quality.
Debt recovery and settlement is a decisive step in loan quality. The Bank’s acumen in promptly detecting adverse manifestations occurring to customers as well as taking timely handling measures.
Concurrent with the steps in the credit process is information collection. Credit information can be collected from: credit centers of the State Bank, credit information departments of commercial banks, through the press, professional organizations, and credit officers directly collected at production facilities. customer’s business, customer’s financial report… The faster, more accurate and comprehensive the credit information, the better the ability to prevent credit risk.
c. Financial capacity of the Bank and management ability of the Bank
The Bank’s financial capacity is reflected in financial indicators such as ROA, ROE, size of equity, growth rate of income over the years, proportion of overdue debts in total outstanding loans. In addition, an indispensable source of capital for lending is the Bank’s mobilized capital. With large mobilized capital, the Bank can increase lending to improve profits. Since then, banks with strong financial capacity will not have to ignore good investment projects with high capital scale due to lack of capital. Or can share risks by diversifying loan items thanks to large capital sources… Banks with strong financial capacity have more conditions to improve lending efficiency than banks with strong financial capacity. main weakness.