SOLUTIONS FOR IMPROVING CREDIT

QUALITY FOR SMALL AND MEDIUM

ENTERPRISES AT BIDV THANH XUAN BRANCH
CHAPTER 1: INTRODUCTION

1. Rationale:
Banks credit has always been the most vital source of money for every economic
entity. The efficiency of this capital will directly affect the strength of an economy.
Due to rapid growth of our country Vietnam, the number of small and medium
enterprises has surged to an incredible amount of 96% in a total of nearly 300000
enterprises nation-wide. These enterprises are contributing about 40% of national
GDP and are recognized as an important asset in the era of industrialization and
modernization. Consequently, small and medium enterprises (SMEs) have proven
to be holding an essential role among other entity.
Nevertheless, the development of these SMEs has encountered many problems. One
of which is the difficulty in getting the approval for capital from banks. On the other
hand, numbers suggested that there has been an increase in bankings idle capital
over the last few years, which in turn could greatly hinders the expansion of the
SME and broader, Vietnams economy. Additionally, lending capital to SMEs helps
banks manage credit risk, increase revenue from services, and at the same time
develop public relation. In short, banks must find a way to expand their lending to
more SME customers while maintain the quality of these loans.
Recognizing these facts, in recent years, commercial banks have been focusing on
SMEs. The role of SMEs is also becoming more essential in the intense competitive
environment among banks. BIDV Thanh Xuan has also grasped the guidelines and
the trend of the economy. The branch has been stepping up in promoting credits for
SMEs in recent years. These activities have reported encouraging results but have
also revealed many difficulties and limitations. Therefore, over the time spent at
BIDV Thanh Xuan, Ive chosen the thesis: Solution for improving credit activities
for small and medium enterprises in BIDV Thanh Xuan.

2. Research questions:
What is the situation of credit activities for SMEs in BIDV Thanh Xuan
from 2011 to 2013?
What are the current limitations of credit quality for SMEs in BIDV
Thanh Xuan?
What are the solutions to improve the credit quality for SMEs in BIDV
Thanh Xuan?

3. Research objectives:
Conclude a full analysis of BIDV Thanh Xuans SMEs credit activities
Suggest some solutions on how to improve the branchs SMEs credit
quality

4. Research subject and scope:
Subject: BIDV Thanh Xuan
Time: year 2011 to 2013
Scope: BIDV Thanh Xuans credit activities involving SMEs

5. Research methods:
6. Research structure:
My thesis will be consist of 3 main parts: introduction, body, and conclusion.
Furthermore, in part 2, the main body of the thesis, it is divided into 3 chapters:
Chapter 1: Overview of credit quality for SMEs in commercial banks
Chapter 2: Current situation of credit quality for SMEs in BIDV Thanh
Xuan branch
Chapter 3: Solution for improving the credit quality for SMEs at BIDV
Thanh Xuan branch


CHAPTER 2: LITERATURE REVIEW OF CREDIT
QUALITY FOR SMES IN COMMERCIAL BANKS


1. Credit activity at Commercial Banks:

a) General information about commercial banks:
i) Definition of commercial banks:
Commercial banks are the most important financial institution in the economy.
Banks are diversified in types depends on the development of the economy and
financial system; and commercial banks take the larger side of the scale in total
assets, market shares, and numbers.
A commercial bank provides services such as deposits, giving business loans
and auto loans, mortgage lending, and basic investment products like saving
account and certificates of deposit.
Commercial banks are considered the most essential financial institution for its
role as the financial intermediary, which includes monitoring the flow of money,
creating and completing payment methods, keeping the balance between other
economic entity.

ii) The role of commercial banks:
- Credit intermediaries:
As a credit intermediary, commercial banks act as a bridge between those with
excess money and those in need of capital. Consequently, banks become both a
money borrower and a lender, and enjoy the interest income. This service that
commercial banks offer brings mutual benefits to both depositors and customers.
- Payment intermediaries:
Commercial banks also have the role of a cashier making payments for their
customers various needs. The money used to make payments is extracted from
customers accounts to make purchase of goods, services, transferring between
accounts Customers can choose from many kinds of payment methods like credit
cards, checks, ATMs These services have greatly improved the way we use our
money as it makes payments much safer much more convenient, thus enable the
economy to develop at a much faster pace.
- Creating money:
Creating money is an essential role of commercial banks that truly reflects the
nature of their existence. With the money deposited in the banks, they only have to
keep a portion of it in the vault, called required reserves; the banks can then lend
out their excess reserves out to the economy. Each loan made will generate more
money, virtually creating it from thin air.

iii) The main activities of commercial banks:
- Capital mobilization: One of the two most basic activities of commercial
banks. The capital raised is the main capital used in commercial banks other
activities. Banks accept deposits from residents and economic entity to use in their
business; therefore, these capital are the banks liabilities.
- Credit activity: The second of the two most basic activities of commercial
banks. Credit activities are where commercial banks make the most of their profit,
and these activities always take up the most portions in banks assets.
- Other activities: These activities may include services, international
payments, credit card service or various type of agency.

b) Credit activity:
i) Definition of credit and credit activity:
Credit is understood differently depending on the research perspective. In a
financial perspective, it is a property transaction on the basis of reimbursement
between two entities. In the perspective of the research topic, credit is the economic
relationship between the lender (the bank) and the borrower (organizations or
individuals), in which the lender transfer the value of assets, money to the borrower
to use in a certain time. The borrower then has the responsibility to repay the
principal amount along with interest or any other financial charges. This act of
lending and repaying is often called credit activities.
Credit activity is one of the most important activities in commercial banks as it
is associated with the production and circulation of the economy.

ii) Types of credit in commercial banks:
- Based on term:
o Short-term credit: credits with term under 1 year (under 2 years in some
countries), is used to temporary generate additional working capital in organization
or for personal uses.
o Medium-term credit: credits with term from 1 to 5 years, is often used to
purchase fixed assets, renovation, expand operation, or invest in small and medium
construction projects
o Long-term credit: credits with term over 5 years, is used for major
investment, such as for basic constructions, new facilities, infrastructures, expand
operation in large scope.
- Based on object of credit:
o Working capital credit: used to form working capital of economic entity
o Fixed capital credit: used to form fixed assets, which is basically investment
in production line, facilities, or plants and equipment
- Based on use:
o Credit for production and circulation of goods: mostly for enterprises and
organizations that specialized in producing and distributing goods.
o Consumer credit: credit for individuals, mostly applies for personal purposes
- Based on level of security:
o Secured credit: loans which have collaterals
o Non-secured credit: loans which do not have collaterals
- Based on origin:
o Direct credit: credit activity from the money lender to the money borrower
without any intermediaries in between
o Indirect credit: credit activity with any sort of financial intermediaries like
commercial banks or other entity.

2. Small and medium enterprises in Vietnam:

i. Definition of Small and medium enterprise (SME)
Small and medium enterprise (SME) is an essential section of the economy
worldwide. In term of determining whether an organization is an SME, each
country has its own way of qualifying an SME; but overall, we usually look into
three aspects:
- Its amount of investment into plants, equipment and facilities.
- Its number of work force.
- Its size of production and revenue.
Alternatively, there are other qualitative determinants such as its structure,
number of managers, and field of business.
In Vietnam, in order to be qualified as an SME, an organization must have the
capital of less than 10 billion VND or has an annual workforce of less than 300
people. More specifically, there can be three types of enterprises that are
categorized as SMEs:
- Micro enterprises: the smallest type, which consists of only 10 or less
employees each year.
- Small enterprises: enterprises which have from 10 to 200 employees
each year
- Medium enterprises: the largest of 3 types, must have the annual
workforce of 200 to 300 employees per year.
The details were stated in Decree 56/2009/N-CP on 30/6/2009 and has been in
effect nation-wide up until now.
In conclusion, the term SME is used to refer to a group of economic entity with
small and medium scale of capital and workforce compare to the general level of
the economy in each distinct country.

ii. Characteristics of SMEs in Vietnam:

In Vietnam, the number of SMEs exceeds 96% of the total number of
organizations. SMEs in Vietnam currently have to deal with the disapproving and
harsh economic environment, and the most puzzling problem at the moment is
raising capital. Most SMEs struggle with the difficulty to gather capital to expand
their operation, upgrade their facilities and workforce
Despite the current situation, most experts agree that SMEs are still holding a
more important role than those of the larger organization. A research made by
WASME (World Association for Small and Medium Enterprises), 48 banks
worldwide suggests that 38% banks consider SMEs more important than large
enterprises; 47% of the banks said the two are equally important; and only 15%
accept the dominating role of large organizations. This concludes that even thought
they are having their disadvantages; SMEs still take up a crucial part of the
economy. Now lets take a deeper look at the features of SMEs in Vietnam:
- Types of business: Due to their size and production scale, there are a lot of areas
that SMEs cannot participate in. Their chosen field of business is usually light
industry, commercial, or business in the service area.
- Market and competition: Most SMEs businesses involve larger enterprises,
including material provision, distributing channels, or replicating markets with
smaller scale and less complexity. For the SMEs, these markets are extremely
competitive and volatile; their main competitors are not the bigger companies but
rather those of the same scale. Competition among SMEs are unbelievably
important because:
o These markets promote freedom in competition. Unlike the big markets,
which are required by large enterprises and sometimes even need
government protection, these smaller markets are swarmed with
competitors (due to the fact that 96% organizations are SMEs), and these
enterprises are flexible and adaptable to perfect competition. Therefore,
there are very rare cases of monopolies in these markets.
o The SMEs can exploit the local potential. The SMEs are very proficient at
utilizing the local resources and workforce to their needs due to their
smaller scale of business.
o The SMEs competition helps balancing the development between different
areas in a country. Because of their flexibility, SMEs can emerge from any
provinces or cities, creating a vast variety of goods and markets.
Additionally, their goods are mostly consumed domestically, therefore it
greatly contributes to the development of local economy and the whole
country.


iii. The role of SMEs in Vietnams economy:

It is undeniable that SMEs are the main drivers in the development of our economy
due to its increasing number and involvement:
- Creating jobs and income: The remarkable expanding speed of SMEs in
Vietnam has guaranteed a significant amount of jobs for local Vietnamese, and has
greatly reduced unemployment. Economic analysts have recorded that at least 1
million jobs are created each year solely by SMEs in Vietnam, mostly are for
untrained workforce.
- Attract idle capital from residents: SMEs are small and medium sized, and
focus on a small local area at a time. Therefore, theyre able to attract the scattered
capital among residents, creating a larger, more efficient sum of capital.
- Contribute in national GDP: Once again, because of the growth in number,
SMEs are contributing to at least 40% of national GDP. This amount is momentous,
and the competitions among SMEs also stimulate the economy, making it more
energetic.
- Helps changing the economic structure: Many SMEs are established in
countryside and rural area. Their involvement directly decreases agriculture
occupations and increases industrial and service occupations. This leads to the
shifting in Vietnamese economic structure toward industry and service.

However, we must not overlook the current limitations of SMEs in Vietnam:
- Firstly, SMEs in Vietnam is struggling in accessing capital from banks.
Despite the recent policies in supporting capital for SMEs, many SMEs still
encounter difficulty in various procedures. According to a survey conducted
by the government, 55% of SMEs have had difficulties in the lending
paperwork process, 50% had trouble with providing collaterals, 80% reported
that the interest rate was not appropriate. Moreover, only 30% of SMEs are
able to access the capital from commercial banks, which is a shocking number
for our economy, and further prove that banks must renovate their policies and
system in favor of SMEs quickly.
- Secondly, a major proportion of SMEs in Vietnam lack the proficiency and
technology to perform their business efficiently. The number of experts or
highly educated staffs is extremely scarce, only takes up 0.025% of total
employees. A poor quality of workforce has drastically reduced the quality of
their business.
- Thirdly, due to the recent economic recession, the production and turnover
ratios of SMEs are at a dangerously low level. In the several recent years, the
buying power of consumers has severely diminished, enterprises had to trim
down their scale and production, many eventually went bankrupt.
- Lastly, SMEs in Vietnam are slow in realizing governments documents and
declarations. They often show little effort in researching government and
international policies (which is also important due to the rising globalization
of Vietnam). This is a weakness that shows that SMEs in Vietnam are awfully
irresponsible and impractical.

3. Credit quality for SMEs in commercial banks:

a) Definition of credit quality for SMEs:
Credit activities quality for SMEs is the efficient response to the need of
capital for SMEs from the commercial banks, and the effectiveness of the loaned
capital in the process of business activities in order to generate the most revenue,
enough to repay the loan to the banks before its due and also generate profit.

b) How to evaluate credit quality for SMEs

- Qualitative evaluation:
o Customers satisfaction:
As mentioned above, credit quality is measured by the efficiency in
responding to SMEs capital need. This factor is shown by how timely are
the SMEs needs are met. Each type of SMEs has a different capital
demand as well as credit terms and credit method. Consequently, banks
need to diversify their credit activities and adapt to the SMEs need.
o Contribution in developing the economy:
Alongside with the previous factor, the capital received by the SMEs must
deliver a mean for the development of the economy. This can be broken
down to expansion of production, technological upgrade, and
unemployment reduction.

- Quantitative evaluation:
o Overdue debt:
This indicator reflects how risky are the loans of the bank.




This ratio measures the risk and, more broadly, the quality of the loan. Most
of the overdue debts are problematic. The higher the ratio, the lesser the
banks credit quality.
o Bad debt:
Bad debt is another indicator that sides with overdue debt. Both indicators
need to be evaluated in order to analyze a banks credit quality.




According to Decision 18/2007/QD-NHNN and Decision 493/2005/QD-
NHNN, a banks debts can be divided into 5 categories with the highest
rank is 1 Pass, 2- Special-mention, 3 sub-standard, 4 doubtful, and 5
loss. Bad debts are debts that are ranked in categories 3 to 5.
o Current debts/passed debt:
Debts that are not due and the borrower is able to pay the principal and
interest in full and in a timely manner.
o Special-mention debts:
Debts that are overdue less than 90 days and rescheduled debts that are not
due.
o Loan to deposit ratio:




o Credit turnover:




o Profit from credit activities:
Generating profit is the banks sole purpose, and profit from credit activities
will determine its credit quality:




c) Factors affect credit quality for SMEs:
- From the banks:
o Credit policy:
Every bank has its own credit policies in order to achieve its goals. These
policies serve as guidelines and directly determine the size, characteristic and
quality of the loans made by the bank. Therefore, this factor must be rational
and intelligent.
o Credit risk management:
The banks credit evaluation procedure is a crucial task in deciding its
customers. This process will settle the banks credit risk and more
importantly, its profit. Therefore, this process must be analyzed and
optimized to ensure the efficiency of the loans, as well as enable the more
competent enterprises access to the capital they need.
o Employees proficiency:
Human resources is a vital asset in any field of business, especially in
banking and finance. Credit activities require excellent skills, observation,
and business ethics.
o Banks technology:
Information technology is rising to become a major influence in any kind of
business. Theyre definitely going to affect the quality of the banks
activities and their quality.
- From the enterprises:
o Proficiency:
No matter how well a company is funded, it cannot thrive without an
expertise and a good system. These characteristics will impact on how the
raised capital is used, and how it is used will determine the efficiency of the
bank credit.
o Business project quality:
A feasible project with high profitability will ensure the credit quality of the
bank. Therefore, when granting a loan, the bank must consider a companies
future projects and direction.
o Quality of managers:
The managers are the ones who make the important decisions within a
company. They also help shape the characteristics of the organization as well
as its direction and strategies. A good management system is a must when
assessing a credit customer.
o Financial status:
A strong financial capacity is expressed in the volume of equity and the
proportion of total used capital, which will prevent SMEs from many
difficulty and risks of market fluctuation.
o Collaterals:
Business operations will always have to face the risk of the unexpected,
which will eventually make the loan insolvent. Therefore, sufficient
collaterals and other secured assets of the company must be evaluated before
granting a loan.
- Other objective factors:
o Economic environment:
Every kinds of business is affected by the economic environment. Banks and
SMEs prefer a stable economy for it allows enterprises to do business more
effectively, leading to more demand for capital, and consequently creating
more opportunities for credit activities from banks. However, an unstable
economy will greatly reduce credit expansion from banks; inflation will stale
operations, and reduce credit quality. Thus, commercial banks and SMEs
must be cautious and always analyze and predict the market fluctuation.
o Legal environment:
The laws are made to ensure the efficiency and transparency of the
operation. Banks and enterprise should be aware of and have a synchronized
legal framework, and high credit quality can only be achieved when both
entity obey the law.
o Political environment:
Similar to economic environment, a stable political environment will
promote a prosperous business environment, increasing credit supply and
demand. A risky political environment with potential of military coups,
newly elected government, war or terrorism will only severely decline the
credit quality of the bank.


CHAPTER 3: STATUS OF CREDIT ACTIVITIES
FOR SMALL AND MEDIUM ENTERPRISES IN BIDV
THANH XUAN

1. Introduction about BIDV Thanh Xuan branch
a. Foundation
BIDV Thanh Xuan is referred to as Joinstock Commercial Bank for investment and
Development of Vietnam Thanh Xuan Branch as its international transaction
name. It is one of BIDVs newest branches and went into operation in 2009. It is
located at no. 1 Nguyen Huy Tuong Street, Thanh Xuan District, Hanoi. BIDV
Thanh Xuan is one of BIDVs enormous networks of 118 branches scattered across
Vietnam. This branch is operated by human resources of over 300 staffs and
employees, who are graduates and post-graduates from many renowned universities
in Vietnam. BIDV Thanh Xuan Branch is often recognized as one the networks
largest, most modern, as well as a remarkably well-performed branch. Over the
recent years, BIDV Thanh Xuan Branch has gradually gained credence and reliance
from customers.

b. Organization structure

The branch is divided into five main departments, each with its own objectives:
Customer relationship
Identify and approach potential individual or companies and institutions
customers through marketing, public relation activities
Give suggestions and solutions for customers about credit limit issues,
policies and simultaneously advice them in using loans, collateral
Introduce and provide retail banking services
Collect and evaluate customers information to receive loan proposals
Classify debts, credit ranking and assess customers operation.
Risk management
Supply credit policy and support the working process.
Suggest credit adjustment and handle to bad debt
Manage potential risks related to credit portfolio and risks in the
operating system
Operation
Credit administration: manage operation and lending as well as guarantee
the unity and validity of lending profiles before accepting credit proposal
Customer Service: manage customers accounts, make direct transactions
and receive comments and suggestions from customers; also has the job
to prevent money laundering for additional transaction
Banknote and vault: administer the banks cash and other cash equivalent
such as gold, collateral documents, valuable notes
Internal Affairs
Administrative office: In charge of keeping the banks staff profiles
confidential, recruit and train new employees, do salary payments; also
make rules and regulations of the branch and set up internal activities
Accounting Finance: head of accounting and finance activities, check
and find errors in all business activities and submit quarterly, annual
reports
Planning: find and collect social, political, economic information related
to competitiveness and business progress of the branch; make short term
and long term business plan for each department.
Subsidiaries
Transaction office: Do all credit activities and banking services such as
lending and transferring money, disbursing loans, foreign exchange; also
mobilize fund from different channels like valuable notes, deposits and
foreign currencies.
c. Products and services:

Fund mobilization
Target customers are individuals, enterprises and financial institutions
Types of products: time deposits, demand deposits, valuable papers.
Additionally, the branch also accepts deposits for treasury, security
investment or deposits for special proposed capital.
Credit activities
Target customers are also individuals, enterprises and financial
institutions.
Types of products include business loans, individual credit, employee
credit, and mortgage credit.
Other products and services
Card services: supports international and domestic debit cards.
Guarantee services: accepts to write guarantee contracts to help
guarantee the financial obligation for its customers.
Consulting services: the branch supports verification services, advices on
investment, payment, financing, information about current markets,
partners,...etc.

d. Overall business result of BIDV Thanh Xuan from 2011 to
2013:

i. Capital mobilization
Total mobilized capital:
2011 2012 2013
Total deposit (billion VND) 4303 5500 6800


We can easily see an upward trend in total fund mobilized from 2011 to 2013
in the table above. From 2011 to 2013, the branch has approximately doubled
their deposits each year. In 2011, they raised 4303 billion VND, then the number
jumped impressively to 5500 billion in 2011, then exceeded 6800 billion in
2012. The numbers showed an amazing growth rate of 178% and 128% in 2012
and 2013 respectively. Although total fund mobilization is not rising as fast as
the previous years, it can be assured that the branch is doing extremely well on
raising its capital.





According to the chart above, it seems that BIDV Thanh Xuan Branch is having
a good balance of depositors, which are residents and economic entities.
Proportions are divided by 41% residents deposit and 59% economic entities
deposit. Toward 2013 the percentages have balanced out perfectly between these
two types of customers. It seems that BIDV Thanh Xuan was running good
customers policies to attract more deposits from the residential area; these types of
deposit are very valuable due to fact that many commercial banks were violating the
1807
2310
2560
1851
2365
3940
0
1000
2000
3000
4000
5000
6000
7000
2011 2012 2013
Total deposits based on
customers (Unit: billion VND)
deposit from economic
entity
deposits from residents
3658
4675
5970
645
825
830
0
2000
4000
6000
8000
2011 2012 2013
Total deposits based on term
(Unit: billion VND)
non-term deposit
term deposit
SBV regulation in interest rate policies to reduce the fair competitiveness in fund
raising in the particular time period.
On the other hand, the majority of deposits are term deposit, which accounted
for more than 80% of the deposits. This figure is reasonable because term deposits
are extremely safe and therefore appeal to every investor.

ii. Credit activity
General
2011 2012 2013
loan for individual 229 276 277
percentage 10.10% 9.60% 8.40%
loan for organizations 2023 2624 3023
percentage 89.90% 90.40% 91.60%
total outstanding loan 2252 2900 3300
Table: Total outstanding loans

Credit activities, along with raising captital, play a crucial role in the banking
business. Below is a diagram of BIDV Thanh Xuans total outstanding loans in
billion VND from 2011 to 2013.
The figures described a sharp rise from 2252 billion VND of loans to 2900
billions in 2012 (156% increase), and the number abruptly reached 3300 billion
VND of loans in 2013 (129% increase). This upward trend clearly shows the
branchs scale of business has expanded rapidly in just a three years period.



In term of loan structure, we can see a slight domination of short term loans over
the medium and long term loans, which is approximately 58%, 67% and 60% in
2011, 2012, and 2013 respectively. However, when we take a closer look, it seems
the branch has implemented its policies effectively to balance its loan structure. The
numbers are shown in the figure below.



229 276 277
2023
2624
3023
0
500
1000
1500
2000
2500
3000
3500
2011 2012 2013
Total outstanding loans based on
customers (Unit: billion VND)
loan for organizations
loan for individual
1494
1620
1974
758
1280
1326
0
500
1000
1500
2000
2500
3000
3500
2011 2012 2013
Total oustanding loans based on
term (Unit: billion VND)
medium and long term
loan
short-term loan
Loan to deposit ratio:
2011 2012 2013
Outstanding loans 2252 2900 3300
Mobilized fund 4303 5500 6800
LTD 59.6% 52.3% 52.7%
Table: Loan to deposit ratio (Unit: billion VND)

The Loan to Deposit ratio (LTD) shows how a bank utilizes its capital in its
loans. As perceived in the table above, the branchs LTD ratio is at the moderate
level and tends to stay at a very stable state. Different opinions would suggest that
this branch is handling its capital extremely well, loaning out money not too much,
and to the right customers, keeping risks at a controllable rate. This means the
branch is able to lend out money without having to worry about sudden withdrawals
from customers by having sufficient reserved cash. At the same time, BIDV Thanh
Xuan keeping its bad debts ratio (or non-performing loans) relatively low (this
might be due to the fact that the branch is still freshly opened and the majority of
loans are short-term loans) while expanding its business size. Yet, the bad debt
percentage is rising steadily from 0% to 0.015% in 2012 and 0.04% in 2013.
Overall, despite some minor flaws, the branchs efficiency in credit activities is
currently over the top.

iii. Profit

2011 2012 2013
Total asset 4581 5800 7262
Income before tax 94.38 150 135.3
Table: Income before tax (Unit: billion VND)

It is easily noticeable that BIDV Thanh Xuan Branchs total assets and
profit before tax are rising rapidly. The branchs total assets has increased from
4581 billion VND to 7262 billion VND, which is more than doubled, in just three
years from 2011 to 2013. Similarly, their profit before tax had a huge surge from
94.38 billion VND in 2011 to 150 billion VND in 2012, and to 135.3 billion VND
in 2013 subsequently. In term of growth rate, the branchs total assets had a growth
rate of 126% and 125% in 2012 and 2013 consecutively; their profit before tax, not
surprisingly, also had a very high growth rate in 2011 and 2012 with 159% and -
9.8% respectively. Overall, it is agreeable that BIDV Thanh Xuan is having
remarkable performances over the last three years; all statistical numbers are in their
favors and the branch was considered one of the best-performing divisions of the
networks. In my personal forecast, I tend to assume this branch will continue to
thrive in the next few years. However, they must be aware that by having such
sharp growth, the growth speed will definitely decrease in the near future due to
diminishing returns. Nevertheless, the upward trend will continue to accommodate
their performances and numbers.

2. Current situation of credit quality for SMEs:
a. Status of credit activities for SMEs:

Scale of credit for SMEs:

SMEs are no doubt important assets of the economy, and the most potential
customers for commercial banks. As mentioned above, the main obstacle that
hinders the expansion of these enterprises is the lack of capital. Therefore, it is
crucial that commercial banks focus on broaden their scale of credit for SMEs.
Below is a table describing the percentage of outstanding loan for SMEs in BIDV
Thanh Xuan from 2011 to 2013.



2011 2012 2013
total outstanding loan 2252 2900 3300
loan for SME 1767.82 2293.9 2706
percentage 78.5% 79.1% 82.0%
Table: outstanding loans for SMEs (Unit: billion VND)


1767.82 2293.9
2706
484.18 606.1
594
0%
20%
40%
60%
80%
100%
2011 2012 2013
Total outstanding loans for
SMEs (Unit: billion VND)
other
loan for SMEs

It is easily visible that most of the branchs outstanding loans are from SMEs,
always around 80% of the total outstanding loans. This is a positive sign for it
shows that BIDV Thanh Xuan is currently focusing on the right customers in its
credit activity. Evidently, we can perceive a slight increase in percentage of loans
for SMEs from 2011 to 2013, from 78.5% to 82%. In 2011, the overall economy of
Vietnam was in a recession, many companies struggled and many eventually went
bankrupt because commercial banks tightened their policies on credit activities. The
economy found itself recovering from 2013 and up until now, it is nearly fully
recovered. Perhaps it was the main reason for the increase in loan volume for SMEs
in recent years.
Another reason behind this movement in credit scale for SMEs is the
implementation of BIDVs numerous incentive programs for SMEs. These
programs began after the governments Decree 90/2011/ND-CP about promoting
the support for SMEs in Vietnam.
One of the most recent incentive programs for SMEs in BIDV is the interest rate
incentive program started earlier this year, on 21/1/2014. The program includes a
credit package of 3000 billion VND, and will reduce the annual interest rate for
SMEs to up to 8% when they borrow money from the BIDV network.

Credit for SMEs based on term


2011 2012 2013
total loan for SME 1768 2294 2706
short-term 87.40% 87.70% 86.90%
medium and long
term 12.60% 12.30% 13.10%
Table: credit for SMEs based on term (Unit: billion VND)



The chart above conveys the credit structure for SMEs in BIDV Thanh Xuan from
2011 to 2013 based on the term of the loan. Overall, the majority of the loans for
SMEs are short-term loan, and the proportion fluctuated from 2011 to 2013.
Throughout the years from 2011 to 2013, most of BIDV Thanh Xuans outstanding
loans for SMEs are short-term loans. In 2011, the total loan volume for SMEs was
1768 billion VND and among this capital 1545 billion VND was deemed short-term
(approximately 87.4% of total loan volume). The dominance of short-term loans for
SMEs still exist up until 2013 with about 86.9% (2351 billion of 2706 billion VND)
of the total volume. However, during these three years, we can see a slight increase
in the amount of medium and long term loans for SMEs, from about 12.6% to
roughly 13.1% in 2013, which is a positive sign and will be explained below.
In term of efficiency, the branch is taking the right steps toward a more beneficial
loan structure for SMEs. This can be justified based on the differences between
short-term and medium-and-long term loans for SMEs.
SMEs most preferred type of loans are medium and long term loans because they
need the capital to start medium and long term projects, purchase plants and
equipment, purchase fixed assets, upgrading manufacturing lines, and improve
technology. However, as observed from the chart above, SMEs are currently unable
1545 2011
2351
223 283
355
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
1 2 3
Loans for SMEs based on term
(Unit: billion VND)
medium and long term
short-term
to approach these types of capital. Instead, these types of capital are being pulled
toward bigger, more prestigious enterprises with huge amount of assets and
collaterals. More reasons behind this fact is because most SMEs cannot afford the
amount of transparency required by banks credit risk system, and also most SME
dont have sufficient collaterals to insure their medium and long term projects like
larger enterprises.
Nevertheless, in 2013, we can see a slight improvement in the credit structure with
medium and long term loans rose to 355 billion VND (roughly 13.1% of total loan
volume). This particular sign shows that BIDV Thanh Xuan is moving toward the
right path in improving their credit quality for SMEs, although more effort is
definitely needed.

Credit for SME based on customers type of business

2011 2012 2013
Construction and industry 169 200 273
Manufacturing 129 174 135
Commercial and service 1470 1920 2298
Total outstanding loans for
SMEs 1768 2294 2706
Table: credit for SMEs based on type of business (Unit: billion VND)


169 200 273
129 174 135
1470 1920 2298
0%
20%
40%
60%
80%
100%
2011 2012 2013
Loans for SMEs based on type of
business (Unite: billion VND)
commercial and service
manufactoring
construction and
industry

The graph describes the credit structure for SMEs in BIDV Thanh Xuan from 2011
to 2013 based on the companies type of business. The most outstanding feature of
this graph is that the majority of the outstanding loans in BIDV belong to the
commercial service area in all three observed years.
Overall, SMEs that borrow capital from BIDV Thanh Xuan is very diverse in types
of business. However, there are businesses that are dominating others in term of
loan volume. The outstanding loans for SMEs in the field of commercial and
service area are taking up the majority with 83.14% in 2011, 83.71% in 2012, and
84.9% in 2013; follow up are the loans for SMEs in the construction and industry
business which fluctuated from 8.7% to around 10.10% of the total loan volume.
Finally, the SMEs in the field of manufacturing and processing take up the
remaining proportion of the chart.
It is plausible that commercial and services are having the largest part in loan
volume because these businesses are on their growth peak and also possesses
extremely enormous markets, completely dominate the other two types.
Nevertheless, BIDV Thanh Xuan is choosing the right customers who are having
the most potential turnover rate, and the branch will certainly make profit in the
future.

Loan to deposit ratio for SMEs


2011 2012 2013
total outstanding loans for SMEs 1768 2294 2706
total mobilized capital 4303 5500 6800
loan to deposit ratio 41.1% 41.7% 39.8%
Table: SMEs loan to deposit ratio (Unit: billion VND)

Similar to the Loan to Deposit ratio (LTD) from the previous section, these LTD
ratios show how BIDV Thanh Xuan branch utilizes its capital in its loans for SMEs.
In general, we can see a downward trend in LTD ratio for SMEs from 2011 to 2013.
More specifically, in 2011 the LTD ratio was 41.1%, the number then rose steadily
to 41.7% in 2012 before finally dropped to 39.8% in 2013. If we look at these
numbers in an economic view, itd mean that BIDV Thanh Xuan is not performing
well. Although the percentage is quite high, the decreasing trend shows that the
branch is not using its mobilized capital efficiently for SMEs credit. In other
words, the credit activities for SMEs in BIDV Thanh Xuan is currently not
commensurate to the branchs mobilized capital, and the potential for these credit
could exceed much more than these numbers. The reason for this might be the
hesitation in making loans for SMEs due to the recent economic recession, or
perhaps the inability to efficiently evaluate the customers from the branchs inner
credit risk management team.
Overall, the percentage still shows that the branch is not too neglectful at utilizing
its capital for SMEs. However, it can certainly use some improvement in this area,
particularly prioritizing SMEs in lending medium and long term capital for
investment in large scale projects.

Credit turnover


2011 2012 2013
SMEs Debt recovery revenue 1414 1950 2598
Total outstanding loans for SMEs 1768 2294 2706
Credit turnover ratio for SMEs 0.8 0.85 0.96
Table: SMEs credit turnover ratio (Unit: billion VND)
The chart above shows the credit turnover ratio of the loans for SMEs in BIDV
Thanh Xuan branch from 2011 to 2013. Credit turnover ratio is an important
indicator to measure how effective is the banks ability to recover its loans. In
general, the credit turnover ratio in BIDV Thanh Xuan is growing rapidly from
2011 to 2013.
It is easily noticeable that BIDV Thanh Xuans credit turnover ratio is fairly high.
In 2011 it already started out with 80%, the figure continue to rise to 85% in 2012
when finally tops at 96% in 2013.
Due to the fact that the scale of credit for SMEs in BIDV Thanh Xuan has also been
increasing, the growth of this credit turnover ratio is truly an accomplishment for
the branch. In the last three years, BIDV Thanh Xuan has been working effectively
in its debt collecting process, successfully collect debts in a timely manner and
ultimately improve the branchs profitability.



2011 2012 2013
Income from SMEs
credit 71 128 121
Total income 94.38 150 135.3
% 75.50% 85.20% 89.30%
Table: Income from credit from SMEs (Unit: billion VND)

The above chart explains the profit percentage from loans for SMEs over total
income of the branch. Although the branchs income staled in 2013, the percentage
of profit earned from SMEs still showed an upward trend from 2011 to 2013.
It is reasonable for BIDV Thanh Xuans moderate income in 2011 because it was
the time of the economic recession in Vietnam. During that time, many enterprises
went bankrupt and commercial banks had to stricken their lending policies to
minimize loss. However, it seems that BIDV Thanh Xuans income proportion
from SMEs has been growing indefinitely throughout the observed years. Despite
the heat of competition from other commercial banks, BIDV Thanh Xuan still
managed to scored 123 billion VND and 121 billion VND as profit in 2012 and
2013 (approximately 85.2% and 89.3% respectively). The increase in this ratio has
clearly shown signs that the branchs credit quality for SMEs is increasing.

Overdue and bad debts for SMEs


2011 2012 2013
Overdue debt for SME 106 134 142
Total outstanding loans for SME 1768 2294 2706
Overdue debt/total outstanding
loan 5.98% 5.83% 5.24%
Table: Overdue debt for SMEs (Unit: billion VND)

Overdue debts are any debts that are not recovered within the agreed time from the
enterprises. One of the most essential tools to evaluate any banks credit quality is
the amount of overdue debts. The given chart depicts the overdue debts of SMEs
compare to total outstanding loans in BIDV Thanh Xuan from 2011 to 2013, and
the figure seems to be stable while having minor reduction throughout the years.
As mentioned from the previous sections, we can see that the branchs credit scale
for SMEs has been increasing since 2011. Therefore, it is reasonable that other
statistics, like the amount of overdue debts itself, would be on the rise. However,
from the figure above, we can see the total opposite.
In 2011, the branchs overdue debt was 106 billion VND, about 6% of total loans
for SMEs. In 2012 it decreases to 5.83% and in 2013 it was only 5.24% of the total
loans for SMEs. Despite the growing scale of credit for SMEs, the branch still
managed to reduce the amount of overdue debts for these customers, which clearly
showed that BIDV Thanh Xuan was functioning pretty well in that time in realizing
and implementing strategies to reduce bad debts. However, when we take a closer
look, the branchs overdue debts rate was always above 5%, which was still out of
the governments accepted number. The overdue loans were mainly focused in the
construction sector, and the main cause of this problem is that the overdue loans
came from many loans without collateral. This again raised the issue about the
proportion of secured credit in the branch. However, with the close guidance and
the effective leadership of the management team, the branch has managed to reduce
its overdue loans ratio over the years. In short, these number shows that BIDV
Thanh Xuans loan quality is still at an alarming rate, even after they have been
improving it.
It is agreed that credit activities for SMEs is important and profitable, but still
contains a lot of risk. BIDV Thanh Xuan need to upgrade its credit risk system in
order to better evaluate customers and their projects.

b. Evaluation of credit quality for SMEs
i) Achievements:

Through analyzing the situation of BIDV Thanh Xuan above, it is clear that the
branch has acquired certain important achievements in its overall business activity
and more specifically its credit activity for SMEs.

The branch has been performing exceptionally well in its capital mobilization
activity. The growth rates over the observed years were incredible, and the capital
structure has also improved. The capital raised enabled the branch to support its
rapidly growing credit activity. This achievement is the result of BIDV Thanh
Xuans effective measure of information broadcasting and regular advertisement for
local deposit customers.

One of the most noticeable achievements of BIDV Thanh Xuan branch is the
expansion of credit activity for SMEs. From 2011 to 2013, the size and scale of
credit for SMEs has increased remarkably and the branch has made its reputation
among local SMEs. The branch has gradually developed its market shares,
sustainably mobilize local capital efficiently to be able to provide a tremendous
amount of cash for SMEs businesses and investments.

The overall credit quality for SMEs has been improved. All the numbers suggest
that the branchs credit structure is improving, in both business types and loan
terms. The amount of overdue debts still needs close supervision but has shown
positive signs. Along with proper attention to quality and performance of each loan,
the branch also regularly reviews and analyzes them meticulously, accurately
execute loan classification in order to assess debts and set provision for loan loss
accordingly. In short, BIDV Thanh Xuan has shown that theyre paying adequate
attention to credit quality of SMEs.
Along with the adequate attention, BIDV Thanh Xuan has also made progress in its
credit policies and has gained considerable achievements. These achievements are
expressed through the proper objectives and guidelines at the right time. Thanks to
these guidelines, the branch has made adjustments of outstanding credit, credit
structures, and loan priorities for SMEs effectively.

In brief, during the time from 2011 to 2013, BIDV Thanh Xuan has proven to be
one of the fastest growing branches in the whole BIDV networks. Although the
branch was only established for a few years, its achievements are recognized among
other larger local commercial banks, and have done a great deal in expanding the
BIDV networks and reputation.

ii) Limitations:

On the other hands, we must not overlook the limitations that are still present in
BIDV Thanh Xuan at the moment.

Firstly, the branchs credit activity for SMEs is not currently matching its potential,
or in other words, the branch is not utilizing its capital for SMEs lending
effectively, its loan to deposit ratio suggested this fact. The branchs loan to deposit
ratio for SMEs, although not unusually low, has been in a downward trend over the
years, hitting 39.8% in 2013. This obviously shows that the branch still has some
hesitation for loans involving SMEs, and this decreasing numbers may directly
affect the branchs total profit.

Secondly, the ability to suffice the medium and long term loans for SMEs is still
limited. The majority of the loans are still short term while the medium and long
term rate is floating around 12% (although has shown some sign of increasing). The
medium and long term loans are more necessary for SMEs to expand their size and
production, to improve the economy as a whole, and invest in larger projects.
Therefore, the branch need to immediately find a way to fix this problem.

Thirdly, there is still risk in the loans for SMEs. The rate of overdue debts for SMEs
is not increasing, but is still hanging at a dangerous level (above 5%). Making loans
for SMEs are not only complicated and require a lot of effort in analyzing and
evaluating risk from customers, but is also extremely time-consuming. Therefore,
the branch need to improve its credit risk management to not only reduce loan risks,
but also to be able to support the more potential SMEs customers.

Causes:
- From the branch
There are several restrains in the branchs credit policies and the credit risk
management teams. The credit risk management process is always a
complicated and time-consuming task in the whole banking activities. BIDV
Thanh Xuan has not been performing well in this process, which eventually
led to the high overdue debts ratio. Having a sharp market observation and
economic prediction, along with meticulous customer analysis is a crucial
requirement for any commercial banks, especially in the current sporadic
economic situation. Another consequence of this hole is the disorganized
credit structure. The inability to thoroughly evaluate a borrower and their
projects will result in a huge rise in risk or even a miss of potential customer.
In addition, the process of supervising customers after loan agreement is still
in a halt, many cases this activity proved to be unenthusiastic and negligent,
which can lead to unexpected use of the borrowed capital.
The branch also showed the incompetence to focus on market accessibility
and understanding the needs of customers, which are the SMEs. The branch
did not make full use of its marketing, media promotion and other channels
to communicate with SMEs. Consequently, it led to confusion and the
inability to perceive the needs of their SMEs customers.

- From the SMEs
The most deadly error that SMEs make is the lack of transparency in
their business. Due to the harsh competition and the shortage of knowledge
and technology, many enterprises produced a dishonest financial statement,
or often inaccurate. These actions alone are prohibited in the legal
environment, but it also result in the failure to asset customers from
commercial banks, which eventually lead to their distrust and prejudice.
Many SMEs are currently lacking of collateral for loans. This
problem also contributes to the hesitation to approve loan from the banks.
SMEs in Vietnam are still at a moderate or low level of expertise and
quality, especially SMEs from rural regions. Over the recent years, due to the
economic recession, many SMEs in Vietnam have collapsed. Many SMEs
are failing to make profit, plummeting in production, and have a critically
low turnover ratio.
Also, a large proportion of the workforce are untrained or
inexperienced. The quantity of highly educated workers is limited, with only
37.82% employees graduated from university or higher education. In
addition, many SMEs havent had insurance policies for workers, thus
further reducing their working quality.

- Other macro factors
We also must not overlook other macro factors that affect every
components of the economy. For instance, in recent years, due to the
complicated economic situation both domestically and globally, enterprises
and commercial banks have faced many difficulties. Tight credit policies,
limitation of disbursement, and especially the fall of consumers buying
power have seriously affected the capital supply for banks and consequently
their revenue. On the other hand, enterprises are faced with increasing cost
and insolvency due to the rising interest rate. Furthermore, the continuous
fluctuation in the price of gold, dollars, real estate market and the stock
market has directly affected the credit operations and quality of the whole
banking network in Vietnam.
In addition, loopholes in the government system have led to several
business inefficiencies, and the inability to make loan repayment, which
further make commercial banks reluctant to approve loans for SMEs. In
particular, the government has no specific regulations on the financial
accounting regime, or any detailed guidelines for SMEs. These factors
subsequently create a negative impact on the development of SMEs and
commercial banks.


Chapter 4: Solution for improving

1. Orientation of development for BIDV Thanh Xuan

BIDV is planning its way to become one of twenty modern banks that have
extremely high quality, efficiency and reputation in South East Asia. The
prestigious bank is focusing on 3 main strategies in order to achieve this title by
2020:
1. Complete the professional and effective organizational structure. The business
processes, government regulations, and coordination between units have direction
to products and customers according to the best international standards.
2. Develop a high quality human resources based on the use and development of
experts domestic and international standards as the core reliance for stable and
sustainable development.
3. Enhance the capacity of operators, technology applications in banking activities
to generate breakthrough and release of labor, increase the spread of science and
technology to all business activities in the BIDV network.

In order to implement the above strategies, BIDV has announced the overall
objectives for the whole network:
- Develop and improve organizational and management structure, improve the
operating capacity at all level of BIDV; create a solid foundation for the
bank to grow into the leading financial corporation in Vietnam.
- Focus on a comprehensive restructuring of the business to improve the
efficiency and to maintain quality, and always be active in risk management
and sustainable growth.
- Maintains and develops the BIDVs position and influence in financial
markets, becomes the pioneers in implementing national monetary policies.
- Improve the capacity in risk management; apply and manage according to
the best practices in consistent with the business situation of Vietnam.
- Develop retail banking activities, hold a large share of outstanding loans,
raise capital and retail service.
- Strengthen the capacity of using applications and technology in business
activities.
- Develop a high quality human resources, professional force in order to
improve labor productivity.
- Protect, maintain, and promote the core values, building corporate culture
and further polish the BIDV brand.

Over the past 4 years, BIDV Thanh Xuan has archived significant results, which
became a pretty solid foundation for the next step. All officers and employees of the
branch upheld the spirit of responsibility, and always maintained the unity in order
to develop the branch. In the current socio-economic environment, combined with
the results of the year 2013, BIDV Thanh Xuan has announced certain orientations
of development as follow:

Category Target Growth compared to 2013
Total outstanding loans 1887 36.54%
Average outstanding loans 1350 28.33%
Total mobilized capital 750 17.37%
Average mobilized capital 450 12.78%
Bad debt ratio <2%

Rank II debts 15%

Income before tax 44.28 26.06%

Table: 2014 targets (Unit: billion VND)

- Continue to raise capital to strengthen internal resources and
competitiveness. Apply regularly new and attractive methods of mobilization
to attract more idle funds in the general population. Total mobilized capital is
expected to reach 750 billion VND, which is roughly 17.37% growth
compared to 2013.
- Pay attention to credit activities and credit quality, restrain the rate of bad
debts at less then 2% to total loans. On the other hand, total outstanding
loans is expected to reach 1887 billion VND.
- Save cost, invest and increase revenue. Net profit before tax in 2014 is
estimated to be 44.28 billion VND, approximately 26.06% increase from
2013.

2. Solutions for improvement
a. Improve the credit risk and bad debts management system of the
branch:
One of the most important aspects of credit activity is deciding whether or not the
customer is worth the loan from the bank. That is, whether or not the borrower is
able to fulfill its goals and repay the debt in full and also in a timely manner.
Usually, the quality of the loans is more favored over the revenue; most banks
nowadays have their policies lean more toward improving their credit risk
management. It is a reasonable strategy because by ensuring the safety of each loan,
the bank can also ensure its profit while also saving their time and efforts.
Consequently, banks must always be on their feet in renovating their credit risk
management system.
Throughout chapter 3 of the research, I have pointed out many limitations from the
branch that involves its inferior credit risk management systems: its credit structure,
unsupported medium and long term loan, the high rate of overdue loans. Taken into
account that credit risk management is a crucial task that almost always need
improvement due to the ever-changing economy, BIDV Thanh Xuan branch must
comes up with a long term strategy to strengthen this activity immediately.
One of the most convincing reasons for the flaws in BIDV Thanh Xuans risk
management system is the skill of the staffs, and should be put up as a priority
adjustment:
- Increase the awareness of the employees in accepting and following the rules
and policies of BIDV, because one of the primary reasons for the poor credit
quality for enterprises is due to the lack of prudency and attention in
following these rules from the staffs. The branch need to stricken its
regulation, give more comprehensive instruction, and most of all perform
more supervision over the staffs work. Moreover, the branch can perform a
cross-divisions check to immediately spot and fix errors in the procedure
quickly and efficiently.
- Improve the staffs proficiency in evaluating projects and managing
customers cash flow. Due to the unstable situation of the current economy,
companies are exposed to drastic changes in a very short time. BIDV Thanh
Xuans employees need to be meticulous and paying attention to every
details of a borrowers cash flow and business to recognize abnormalities
and unpromising projects, and eventually reduce a great deal of credit risk.
- Take more into account the current situation of loans with collaterals and
find a way to increase this number. Collaterals serve as great insurance for
banks, and are important in deciding whether to approve a loan or not. The
branchs current rate of loans with collateral as well as the collaterals
liquidity is plummeting, which will require more effort and attention from
the branchs staffs.
- Frequently update the customers CIC, spend more time with customers with
rank 2 debt and customers with bad debt. The frequent update of customers
CIC will enable the branch to closely follow their relationship with other
financial institutions; therefore we will get immediately updated with the
customers situation. If a customer gets into trouble, creating bad debts with
other banks or financial institutions, we can then have better predictions and
proper reactions to their cases.
- Tighten the credit activities involving customers with rank 2 or over debts.
The branch should even restrict the approving of any loans for these
customers because they have already poses too much risk and the amount of
time and capital from the branch is limited.
b. Diversify credit structure
Commercial banks nowadays often perform a variety of forms of credit such as
short-term loan, medium-term loan, long-term loan, underwriting,.. at an effective
proportion. In order to further increase the credit quality and to expand the credit
scale in an efficient way, aside from implementing proper credit policies, the branch
must continually diversify the forms of credit in accordance with customers
demand.
Currently, BIDV Thanh Xuans primary form of credit activity for SMEs is in
short-term loans. To operate an effective credit activity, the branch is required to
diversify the forms of loans. Specifically, the branch need to push up the amount of
medium and long term loans, as well as create new ones such as loans through the
discount commercial bills, vouchers under the L/C, overdraft for customers who use
payroll service through ATM cards, etc.
The branch should also do research and design new package products, combine the
traditional forms of loans with additional services, and with accordance with each
group of customers, for instance, a derivative in foreign exchange for customers
engaged in import and export, interest rate swap with long-term projects.
c. Apply proper credit policies for SMEs
In order to increase credit quality for SMEs, a bank must have proper credit policies
for SMEs.
Firstly, the branch must divide the market into segments. SMEs are extremely
diversified in types of business, therefore, the branch needs to capture each
segments characteristic and demand in order to develop an appropriate and flexible
credit policy. This task requires BIDV Thanh Xuans personnel to have a sufficient
marketing knowledge.
Secondly, one of the most important ingredients in a banks credit policy is the
interest rate. Applying an appropriate interest rate is an important task. The interest
rates must satisfy both the depositors and the borrowers. Moreover, the rates must
make sure the bank make profit in its lending activity. Currently, the branch is
following BIDVs policy by reducing the lending interest rate to up to 8% for
SMEs. This can be considered a good move from BIDV in term of expanding the
credit scale for SMEs while theyre in much need of capital. However, this low
interest rate shouldnt be around for too long as it might risk the branch from
achieving maximum profitability, as well as other unexpected risks.
d. Improve customer management system:
Further improve the branchs customer management system based on the
current system and the branchs potential.
- Continue to implement the current endorsement policies for VIP customers.
Also, the branch should stay up to date with the latest interest rate policies
by other banks and institutions to be able to adapt and make relevant
changes to ours. Subsequently, the branch will not lose any potential
customers while also be on the way to expand its market access and
influence.
- Continue to increase our relationship and business with VIP and the most
potential customers like the LICOGI group, Vicem, Lac Hong group,
Hapulico & Tudi,
- Stay up to date with BIDV headquarters latest services and products, and
their distribution. Also, the branch should pay more attention to other
branches in the network to quickly learn and adapt from their experiences,
while also strengthen the unity of the BIDV network.
- The branch needs to design its service package more efficiently. There
should be different packages with different purposes: Payment package,
credit package, commercial funding package, forex and derivative package.
Each packages will need further development and implementation, and
should always stick with the customers need.
Search for new sources of customers.
- The branch should follow closely with headquarters list of potential
customers, VIP customers, and potential projects to created the right
priorities.
- Expand the business with customers with stable performance while always
look for additional profitable customers. These customers are most likely
those in the manufacturing industry, sustained credit ranking of A or above,
high quality of managers and have collaterals.
Improve the management and operation quality of staffs in customer
management system.
- BIDV Thanh Xuan should invest more into the training of these staffs and
officers, provide them with crucial customer management skills such as
negotiation, marketing, and other soft skills.
- The branch should also have a proper rating system for outstanding
employees to helps encourage the staffs morale and dedication. Moreover,
a strict penalty system should be applied to strengthen the branchs
discipline.
3. Other recommendations:
a. To BIDV headquarter
- Continue to build a management system and policies that support SMEs in
providing capital, and build a solid base rules and regulation for SMEs and
their transparency in operation.
- Support BIDV Thanh Xuan branch in cost of training officers and system
upgrading.
- Strengthen the supervision activities, perform an oversee on the entire
internal system in order to stricken employees.
- Continue to upgrade the entire BIDV network with information technology
and modern facilities, apply more advanced management software with
international standard.
- Create training sessions for staffs that provide professional training in
various fields like marketing, information technology, internet banking
Moreover, BIDV should also hold seminars and strategy meeting across the
whole network regularly.
b. To SMEs in Vietnam
- SMEs should find a way to improve their management system. They need to
raise the quality of their workforce and more importantly, their leaders. They
should adapt to the new generation of technology, implement information
technology into their operation.
- SMEs should develop investment projects, business strategies in line with
management capacity, capital, technology and people, especially in the
environment of deep integration of economies worldwide.
- SMEs need to gradually develop their reputation for banks by showing their
business quality and efficient use of capital. They must also comply with
their reporting of financial statements and other statistics to deliver accurate
information for banks to evaluate. Finally, they should comply with the
banks rules and the law and try their best to gain banks trust.
c. To the government and the State Bank of Vietnam:
- The government needs to build a legal environment, and a consistent legal
framework for SMEs from all economic sectors in order to create a healthy,
fair and competitive market which will develop in the framework of the law.
In addition, the government must continue to improve the legal system to
create a uniform legal environment, which will ensure the safety for all
economic entities operating in the finance and banking sector in accordance
with international standard.
- Continue to modernize banking technology oriented integration and aim for
international standards, which subsequently create more benefits to
customer, improve service quality and competitiveness.
- The SBV needs to review, edit its policies and system to promptly remove
any obstacles and to create favorable conditions for both banks and
enterprises.
- Improve the efficiency of the supervision and control of the State Bank in
activities of commercial banks, especially credit activities, to ensure the
commercial bank system maintain a healthy, stable operations, eventually
protect the economy from shocks and unexpected risks.
- Further promote the role of credit information center (CIC), improve the
quality of credit information, especially in the competition and international
integration nowadays.

Chapter 5: conclusion