Promoting SME lending by commercial banks contributes to promoting businesses to better produce and circulate goods, create conditions for job creation, and enhance social security. It also contributes to the effective exploitation of national resources, accelerates the process of accumulation and concentration of capital for production and business, well settles the relationship between economic growth and loan growth, contributes to stabilizing the economy. macroeconomic setting.
1.3.2. Evaluation criteria for promoting lending activities for small and medium enterprises at commercial banks
1.3.2.1. Group of qualitative indicators
Compliance with the legal basis, principles and lending process: SME lending activities must comply with the provisions of the State’s laws, especially the Constitution and the Law on Credit Institutions. loans, directing documents of the Government and the State bank and relevant legal documents.
Proper lending policy, suitable for each specific period: In order to promote lending activities to SMEs while still ensuring the safety of commercial banks’ capital, SME lending activities are required to comply with regulations and procedures for lending. From its own characteristics, the bank adjusts and offers the most appropriate regulations such as: Making credit manuals, priority policies for customers with good credit history, limiting credit granting to customers. customers with bad credit history or customers with high-risk business lines for each specific period. From there, the bank’s SME lending activities will be boosted.
Bank’s internal control activities: Banks’ lending activities to SMEs face a lot of risks, as this is a type of business that is easily affected by external influences. Therefore, internal control plays an important role in identifying, measuring and evaluating lending activities to promptly detect and prevent risks, thereby proposing risk management measures. appropriate ro. Thereby, the bank’s capital is guaranteed, the bank’s operations are maintained, contributing to promoting lending activities for SMEs.
Number of SMEs having credit relationship with banks: In the market, competition always exists and is an inevitable factor. In any business line, businesses also want to have the largest possible market share within the scope of their activities. The banking industry is no exception.
In recent years, joint-stock commercial banks have grown strongly with their network expanding throughout the country. There are many banks operating in the same area, so the number of businesses that have a loan relationship with each bank will decrease if each bank does not take measures to expand its market share.
In terms of the indicator of the number of SMEs that have a credit relationship with the bank, this is a relative indicator that reflects the bank’s lending activities to SMEs.
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Over the years, this figure will reflect the growth in the number of SMEs that have a credit relationship with the bank as well as whether the bank has conducted a loan promotion to this customer segment or not.
Reputation, image, brand of the bank
Reputation of the bank is an important criterion, it affects the business activities of the bank in general and lending activities for SMEs in particular.
Banks exist because of the trust of customers with the bank.
The reputation of each bank is built and formed in a long process. When customers come to make transactions at the bank, they expect to be provided with the best products and services and the most dedicated and attentive care and often choose reputable large banks for transactions. Therefore, a bank that has built a reputation for customers will attract more customers to that bank, thereby enhancing the bank’s image and brand. That is the premise for mobilizing a larger source of capital at a cheaper cost, through which the bank will have more resources to promote lending activities in general and SME lending activities in particular.
1.3.2.2. Quantitative target group
SME loan capital turnover
SME loan turnover = SME loan revenue / SME loan balance
The SME loan turnover ratio reflects the number of capital cycles of commercial banks to customers of SME lending activities, indicating whether the loan collection time is fast or slow. This ratio increases, showing good loan management and high lending efficiency. On the contrary, this index is low, indicating that there may be uncertainties in the capital recovery process. Through that, the bank will soon take measures to remind and urge customers, and promptly limit possible risks. This is also the basis for the bank to decide whether to lend in the next time or not. Besides, it is also necessary to consider another factor that is the average outstanding loan to SME. When the average loan balance is low, it makes the credit turnover large, but it does not reflect the high loan quality because it shows the poor lending ability of the bank.
Number of SME loans: The number of SME loans is an indicator that reflects the number of SME loans that a bank has disbursed during a certain period of time.
A large number of loans indicates that SME lending is increasingly focused on promoting, a small number of loans shows that SME lending has not been effective, customers are not looking to banks or customers SME customers do not have good business and production plans, so the bank does not provide capital or the bank’s SME loans have not really attracted customers.
Number of SMEs allowed to borrow capital
The number of SME loans is an indicator that shows the number of SMEs with which the bank has signed a credit contract in a given period of time. A large number of SMEs are allowed to borrow capital, proving that the bank’s lending policy is good, attracting more customers to the bank, and the reputation of the bank is enhanced. However, the more businesses get loans, the more risks the bank faces in credit activities, so the bank needs to improve the lending process, improve the quality of appraisal and supervise more closely. in order to ensure that loans can reach businesses that are really in need of capital and have development potential, but still ensure the safety of the bank’s operations.
Average value of an SME loan
This indicator is calculated by the formula:
Average value of an SME loan = SME loan volume / SME loan amount
The average loan amount reflects the average size of an SME loan. This large indicator shows that the bank is lending to SMEs with a large amount of disbursement, lending activities are promoted in both value and quantity.
However, usually, the value of loans of SMEs is usually small, because businesses mainly borrow to supplement working capital or to serve seasonal production and business needs such as purchasing raw materials, short-term investments….
NQH ratio in SME lending
NQH is the principal or interest debt that the customer cannot pay at the due date as agreed in the credit contract.
The NQH ratio in SME lending is the ratio between the NQH and the bank’s total SME loan balance at a given point in time, usually month-end, quarter-end, year-end. This ratio indicates at the time of determination how many VND for every 100 VND a bank has lent to SMEs is NQH.
NQH lending to SMEs = NQH lending to SMEs * 100% / Total outstanding loans to SMEs
For banks, the failure of customers to pay on time can affect the liquidity as well as business activities of the bank, the ability to collect loans is low. Banks need to take effective measures to minimize losses in a timely manner such as strengthening the work of urging customers to pay debts when they are due, actively collecting overdue debts as well as closely monitoring the financial situation of customers. in order to minimize the risks in lending may come. The promotion of lending activities was also partly affected through the NQH. The higher the NQH ratio, the more likely the bank is facing credit risk and is likely to lose capital.
NPL ratio in SME lending
Bad debts are debts with very low recoverability. According to Decision 493/2005/QD-NHNN, debt from group 3 to group 5 is bad debt and the ratio of bad debt to total outstanding loan is about 2% – 5% is acceptable.
NPL ratio in SME loans = NPLs for SME loans * 100% / Total outstanding loans to SMEs
The bad debt ratio in SME lending reflects the proportion of bad debt in a bank’s total outstanding loans to SME, indicating how many VND out of 100 VND of loans to SMEs is bad debt. The higher this ratio, the more it reflects the risks in SME lending by large banks. Bad debt reflects the bank’s difficult ability to recover capital at this time, which is no longer at the normal level of risk but is at risk of capital loss. There are many measures to solve bad debt, depending on the actual situation of the business, the bank can offer different measures from debt extension to sale of special assets.
Provision ratio (DPRR) for SME loans
According to Article 2 of Decision 493/2005/QD-NHNN, it stipulates: “Risk provision is an amount set aside to make provision for possible losses due to customers of a credit institution failing to comply in the commitment”. Therefore, banks use the risk reserve fund to offset overdue debts of customers when risks occur so as not to affect the bank’s profits. To assess the issue of setting up and using reserve capital in SME lending, banks use the following criteria:
SME loan DPRR = SME loan DPRR deducted * 100% / SME loan balance
The provisioning ratio for SME loans shows how much the provisioning structure on the total outstanding loans to SME is. According to current regulations, the larger the group of bad debt accounts for the total loan balance, the more DPRR banks have to deduct. The higher this ratio, the greater the potential credit risk that the bank is facing, the lower the efficiency of SME lending activities.
Ability to offset risk
In the market economy, businesses as well as commercial banks must operate in a fiercely competitive environment, subject to great control by the laws of supply – demand, competition laws, etc., so they must often face risks. ro from all sides. Sometimes prices change, due to outdated technology, poor management and administration, financial crisis, etc., causing a chain reaction that causes businesses to face difficulties, business losses, and even default. lead to bankruptcy. On the other hand, due to incomplete credit information, if a party does not fully grasp the financial situation, reputation of the partner’s solvency, does not understand, cannot check the technical parameters and efficiency of the project, projects that they finance, credit risk is unavoidable. Risk-offer coefficient
SME loans = SME loan DPRR deducted / Debts dealt with risk
Income from SME lending activities
Any business unit, when conducting investment activities, is expected to have a high income in the future and commercial banks are not an exception. Whether the promotion of lending activities for SMEs is really effective or not, it is necessary to consider this indicator.
When loan balance increases but revenue does not increase, it proves that lending activities are not efficient. In addition, we can consider the proportion of income contribution of SME lending in total revenue of commercial banks to get the results of promoting SME lending activities over the years.
Income from lending to SMEs = Interest from lending to SMEs x 100% / Income from lending activities
This indicator reflects the profitability of the bank’s loans, it shows the rate of interest arising from lending activities per unit of income. With the same income level, if a bank can reduce input costs as much as possible, the income ratio will be higher, showing that the bank is operating well, which contributes to promoting good lending activities.
1.4. Factors affecting the promotion of lending activities for small and medium enterprises at commercial banks
1.4.1. The objective factors
Objective factors such as political, legal, socio-economic environment… have a great influence on lending activities, especially lending to small and medium enterprises .
Specifically:
Political environment and government policy
Vietnam has a stable political environment, which is a very favorable condition, creating peace of mind for domestic and foreign investors, creating peace of mind for people to invest in production and business. It is also a favorable environment for commercial lending in general and lending to SMEs in particular.
At present, the government’s rapidly changing macroeconomic policies have had a great impact on the activities of enterprises. When these policies are stable and appropriate, it will stimulate enterprises to produce efficiently. But when policies change continuously such as changes in economic structure, import and export policies, etc. will affect the business operations and results of enterprises, so the promotion of bank lending activities is also promoted.
Regulatory environment
At present, our country has made significant reforms to create an equal and fair legal environment for all types of businesses to participate in business, step by step towards a synchronous legal system, regulating different types of businesses. business model according to a unified mechanism and policy on the view that the State respects and ensures the right to freedom of business according to the law of each citizen and each enterprise; Maximize capital mobilization in society, radically liberate and strongly develop production resources. A complete and synchronous legal corridor will create conditions for banks and businesses to easily operate, thereby promoting lending activities.
Socio-economic environment
The socio-economic environment greatly affects the credit activities of commercial banks for businesses in general and for SMEs in particular. Any fluctuations in macroeconomic factors can affect the promotion of bank lending activities. A stable economy will create conditions for businesses to develop and do business, thereby ensuring full and timely repayment of loans to the bank. But when the economy is unstable, fluctuations in exchange rates, inflation or the market will directly affect the operations of enterprises, thereby making them inefficient. Borrowing is also affected.
1.4.2. The subjective factor
1.4.2.1. From the customer side
Size of capital and financial capacity of SMEs
This is the top condition that banks need to consider and evaluate before lending to businesses. SMEs often have small capital size and small financial capacity, so they are not likely to increase the size of equity. Also due to limited capital, SMEs often do not have reasonable investment, tend to invest in fixed assets, so they lack working capital to conduct production and business. The assessment of financial viability for SMEs when lending is an inevitable process, however, it will make it more difficult for SMEs with weak financial capacity to access loans. Or if the bank provides capital, it will also face many risks. However, the fact that SMEs have small production scale often makes them easier to adapt to market fluctuations than large enterprises.SMEs are more favorable in transforming production in line with market needs. In general, the equity and financial capacity of SMEs are large enough to create more secure conditions to help SMEs avoid the risk of bankruptcy due to insolvency of the bank’s debts, limiting the low minimize losses to banks when enterprises are unable to repay loans, contributing to improving the efficiency of lending to SMEs.
Business production methods
Along with collateral, the project, production and business plan is one of the factors that help the bank make a decision whether to lend to SMEs and how much is the loan amount?