MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY NGUYEN THI THU UYEN DETERMINANTS OF CONSUMER LOAN REPAYMENT PERFORMANCE OF CUSTOMERS IN VIETNAM PROSPERITY BANK HUYNH TAN PHAT BRANCH MAJOR: FINANCING AND BANKING MAJOR NUMBER: 7340201 GRADUATION THESIS HO CHI MINH - 2018 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY NGUYEN THI THU UYEN DETERMINANTS OF CONSUMER LOAN REPAYMENT PERFORMANCE OF CUSTOMERS IN VIETNAM PROSPERITY BANK HUYNH TAN PHAT BRANCH MAJOR: FINANCING AND BANKING MAJOR NUMBER: 7340201 GRADUATION THESIS SUPERVISOR: Assoc. HA THI THIEU DAO HO CHI MINH - 2018 i DECLARATION OF AUTHENCITY Full name: Nguyen Thi Thu Uyen Student class: HQ02-GE01, faculty of Banking and Finance, Banking University of Ho Chi Minh city. Student code: 030630140790 I declare that this thesis has been composed solely by myself and that it has not been submitted, in whole or in part, in any previous application for a degree. Except where states otherwise by reference or acknowledgment, the work presented is entirely my own.
Ho Chi Minh City, May 29th 2018 Author Nguyen Thi Thu Uyen ii ACKNOWLEDGEMENTS First of all, I would like to thank all lecturers at Banking University of HCMC. Your enthusiastic and devoted instruction helped me to improve my logical thinking ability and knowledge. In addition, I would like to thank Ms.Ha Thi Thieu Dao who enthusiastically instructed and encouraged me to complete this graduation thesis. However, due to limited knowledge and practical experience and limited research time, the study cannot avoid certain shortcomings.
The author wishes to receive the comments of members in the committee to complete the thesis. Ho Chi Minh City, May 29th 2018 Author Nguyen Thi Thu Uyen iii ABSTRACT Author UYEN, Thu Thi NGUYEN Title Determinants of consumer loan repayment performance in VPBank Huynh Tan Phat Branch Language English Instructor DAO, Thieu Thi HA Banking credit plays a very important role in the economy of every country in the world and is especially important for countries with underdeveloped financial markets like Vietnam because it is a main source of funding for not only businesses but also personal customers. In the process of international integration, competition among commercial banks will make the banking system more efficient and effective. However, this also makes banks tend to loosen their credit policies, lowering lending conditions, resulting in evaluating incorrectly customers‟ repayment probability, particularly in the consumer loan segment.
Minimizing customers to incur an overdue debt or even loss of solvency is always a challenge which requires commercial banks need to pay attention and also find solutions to apply to the management. This thesis examines determinants of consumer loan repayment performance of customers in Vietnam Prosperity Bank Huynh Tan Phat Branch. Quantitative approaches are applied, in which Logit model is employed to investigate probability of consumer loan be repaid. The results express that the factors including career characteristics, income, ratio of collateral on loan size, the number of dependent people, credit history as well as purpose of taking loan will affect the probability of consumer customers‟ loan repayment in the bank.
A number of recommendations are introduced to promote the repayment performance of these borrowers. Key words: Consumer loans, Consumer customers, Logistics model, Probability of repayment, VPBank Huynh Tan Phat. iv TABLE OF CONTENTS LIST OF TABLE AND FIGURES.vii LIST OF ACRONYMS.viii CHAPTER 1: INTRODUCTION. The necessity of the topic.
Subject and Scope of research. Subject of study. Scope of study. Contributions of research.6 CHAPTER 2: LITERATURE REVIEW AND FACTORS AFFECTING THE REPAYMENT OF CONSUMER BORROWERS IN COMMERCIAL BANKS.
Literature review on consumer loans. Consumer loan definition. Consumer loan features. Factors affecting the repayment of consumer borrowers.
Definition of consumer loan repayment. Previous experimental studies on determinants of loan repayment performance. Aggregation of factors affecting customers‟ consumer loan repayment.15 CHAPTER 3: DATA AND METHODOLOGY. Models researching consumer loan repayment performance.
Binary Logistics Regression model. Testing the fiting of model. Testing the statistical significance of the coefficients. Research model at VPBank Huynh Tan Phat.
Logit regression model.28 CHAPTER 4: RESEARCH RESULT. Consumer loan in Vietnam Prosperity Bank Huynh Tan Phat Branch. Descriptive statistic results.39 CHAPTER 5: CONCLUSION, RECOMMENDATIONS AND LIMITATIONS 48 5. Conclusion and Recommendations.
Group of positive effects. Group of negative effects. Limitations and suggestions for further researches. 57 vi LIST OF TABLES AND FIGURES Name Page Table 2.1: Research models relating to the subject.2: Main determinants of consumer loan repayment performance.1: Analyze sample data according to consumer repayment.2: Variables in the research model.1: Consumer loans classified by purpose of borrowing.2: Classification of consumer loan groups.4: Correlation matrix of variables in model.6: Model Logistic with 8 variables.7: Model Logistic with 6 variables.8: Omnibus Tests of model coefficients.9: Testing the fiting of model.10: Testing accuracy level of model.11: Logistic regression result.12: Simulation of customer repayment probability.1: Average income of customers.40 vii LIST OF ACRONYMS Abbreviations Full meaning CIs Credit Institutions CIC Credit Information Center KPI Key Performance Indicator IMF International Monetary Fund NPL Non-performing loan SPSS Statistical package for Social Sciences VND Vietnam Dong VPBank Vietnam Prosperity Bank VIF Variance Inflation Factor 1 CHAPTER 1: INTRODUCTION 1.
Research background In many countries in the whole world, consumer price index is considered as a key signal of economic growth in the medium term. Consumption reflects people‟s expectations of future income. Even consumer demands such as cars, houses, appliances or cosmetics are closely related each other and cannot be separated from the expected income. This is also the driving force of production.
Thus, consumer lending has been deemed as an important business of retail banking for a long time. In 2015, World Bank‟s survey also showed that although consumer lending accounted for only 30% to 35% of total loans, it generated over 60% of the commercial bank‟s profit in Asia in general and Vietnam banks in particular. The total population in Vietnam was estimated at 92.7 million people along with a per capita income of about $3,000 by 2020 (World Bank, 2018). In addition, the market size has increased steadily with an annual average growth rate of over 6% in the last 30 years.
That is reason why Vietnam is considered as a very large consumer market. High and sustainable incomes along with macroeconomic stability are two essential factors for people to increase their consumer debt. The young population structure with 70% of the population aged 15-64 is also a favorable aspect for the development of consumer credit, as they are normally willing to borrow for spending. The consumer credit market in Vietnam began to flourish in the last five years, stemming from changes in consumer habits and high demand for property of middle- income class.
Instead of accumulating enough money to buy their desired products, people would like to satisfy their demand immediately by taking on loan and repay for lenders later. Nowadays, borrowing from relatives, friends or the informal financial market has gradually shifted to borrowing from financial institutions, such as banks. This is an area with great potential for development in Vietnam by factors such as the rapidly growing middle class, large consumer demand. With the development of 2 current technology, the type of institution serving the business development field is very diverse and utility.
Meanwhile, despite the rapid growth in recent years, the ratio of consumer lending to total credit in Vietnam in comparison with the average ASEAN countries is still only half (Vo Tri Thanh, 2018). However, in the context of integration, besides some domestic commercial banks, there have been many foreign banks (HSBC, SHINHAN BANK, ANZ, etc.) and finance companies (HD SAISON, Home Credit, Prudential Finance, etc.), creating fierce competitions. As the result, all banks are increasingly expanding their networks and branches, diversifying their services and more importantly accelerating consumer lending. Competition about consumer loans among finance companies and banks has been hotter than ever.
However, the outbreak of consumer credit, as a double-edged sword, contains a lot of risks to the banking system and the profitability of each bank as well. Even though banks are exposed to many types of risks, default risk is considered to have the most influence on financial performance by far. If the risk is to occur, the probability of capital loss is inevitable. Therefore, in order to limit the risk arising from bad debts, it is necessary to understand the main factors leading to the consumer loan repayment of customers.
The necessity of the topic Unlike corporate customers which banks can assess the probability to pay their debt through specific financial criteria on the financial statements, the assessment of consumer loan repayments much more difficult because it has not set up clear features to assess repayment probability of customers. Therefore, the appraisal result is largely dependent on capacity and subjective opinions of credit officers. The fact is that along with the growth in consumer lending, bad debts in Vietnam banks have also increased in recent years. In Vietnam, there are still many mistakes and restrictions that consumer lending in banks and financial institutions has not developed strongly (Le 3 Thi Kim Hue, 2013).
Vietnam Prosperity Bank (VPBank) always attempts to improve its products and services, and bring outstanding benefits to its customers. As a result, it became one of the top-three retail Joint-Stock Commercial banks in Vietnam in 2017. Although, consumer loan outstanding balance at VPBank in the period of 2014 to 2017 experienced an upward trend from 219,770 million VND to 341,180 million VND, irrecoverable debts of consumer borrowers also increased from 0,797 million VND to 0. This rate is quite low and safe compared to the rate prescribed by the State Bank but this is the sign that credit risk at VPBank tends to increase.
Particularly, when referring to changes in consumer credit activities at VPBank‟s Branches and Transaction Offices, Huynh Tan Phat Branch is considered one of the most remarkable places in the last two years. Especially, when researching consumer credit activities at VPBank Huynh Tan Phat Branch, it can be said that this is actually a “fertile land” bringing a relatively high profit for the bank. The branch is located in the center of District 7 and surrounded by many apartments, automobile showrooms as well as manufacturing areas. That is reason why the bank receives a large number of consumer borrowers every year, from different industries (white-collar worker, blue- collar worker, etc.) to different purposes in using capitals (apartment, car or household item purchase).
However, lending to these customers became unstable and not as safe as before in recent years. Due to since 2017, the real estate trading market in District 7 along with its neighboring areas such as Nha Be and Can Gio district have developed rapidly. As a result, there has been an emergence of economic bubble, especially in the high-end real estate segment (according to the leader of the State Bank of Ho Chi Minh City Branch). Therefore, the appraisal and disbursement for real estate loans at VPBank is more elaborate than ever.
In addition, for customers who are blue-collar workers, due to the unstable nature of work and income, their probability of repayment is lower. Some foreign and Vietnamese authors were interested in doing research on 4 elements influencing loan repayment probability, such as Kenneth Ogol Ochung (2013), Kohansal and Mansoori (2009), Nguyen Quang Nhat (2016), Le Thi Xuan Nguyen (2013), Nguyen Duc Tu (2012), etc. but these studies only analyzed the factors affecting the repayment of individual customers. Although in reality based on the purpose of using loans, individual loans can be categorized into different types such as consumer loans and business loans (Buzzell and Spasovski 2004).
Depending on distinct loan groups, the selection of research methods and factors affecting debt repayment are also different. For these reasons mentioned above, there is a need to examine the determinants of consumer loan repayment in Huynh Tan Phat Branch.