UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ DUONG PHUONG LINH SOLUTION TO REDUCE BAD DEBT AT VIETINBANK – GIA LAI BRANCH IN THE PERIOD 2017 - 2019 MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – Year 2020 TIEU LUAN MOI download : skknchat@gmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ DUONG PHUONG LINH SOLUTION TO REDUCE BAD DEBT AT VIETINBANK – GIA LAI BRANCH IN THE PERIOD 2017 - 2019 MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: DR. LE THI THANH XUAN Ho Chi Minh City – Year 2020 TIEU LUAN MOI download : skknchat@gmail.com TABLE OF CONTENT Cover page Table of content CHAPTER 1.1 Overview introduction about Vietinbank.1 Bad debt increased at Vietinbank - Gia Lai Branch from 2017 to 2019. Weak loan portfolio management. Employees lack of experiences and competences.
Loose process of loan management. Problems from customers’ side. Reducing profit of the bank. Affect the bank’s reputation.
Indirect affect to other banks. Lack of full awareness of loan portfolio management. Tendency to follow immediate but lack of durable profit. Inadequate information analysing and forecasting.
Unpredictable changes of macroeconomic environment. 25 TIEU LUAN MOI download : skknchat@gmail. The regulatory environment with the guidance and supervision of the Central bank has not actively supported commercial banks in loan portfolio management. The limited activity of the domestic financial market has limited banks' ability to use a variety of tools to adjust the loan portfolio.1 Changing current loan porfolio management method .1 Diversify the credit portfolio by economic sector .2 Diversifying the credit portfolio by type of business.2 Developing a human strategy in accordance with risk management requirements .3 Constantly renovating the training and professional development for staff at the bank.
39 List of tables List of figures List of diagrams Executive sumary Reference Appendix TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLES Table 1.1 Shareholer structure by ownership ratio which holding 5% or more of the charter capital Table 1.2 Level of Vietinbank Branch Table 2.1 Credit balance depend on customer category from 2017 to 2019 Table 2.2 Corporate customer classification principle Table 2.3 Credit balance classification depend on loan duration Table 2. Credit balance and bad debt of banks in Viet Nam in 2019 Table 3.1 Debt classification regulation Table 3. Debt classification in Vietinbank – Gia Lai Branch in period 2017 – 2019 LIST OF FIGURES Figure 1.1 Shareholer structure by ownership ratio Figure 1.2 Vietinbank Gorvernance model and structure Figure 1.3 Organisation chart Figure 1.4 The short – term loans procedure LIST OF DIAGRAMS Diagram 3.1 Initial Diagram of symptom and potential problems of Vietinbank – Gia Lai Diagram 3.2 Initial Diagram of symptom, potential problems and problem consequences of Vietinbank – Gia Lai Branch Diagram 4.1 Initial Cause and effect map Diagram 4.2 Final cause and effect tree map TIEU LUAN MOI download : skknchat@gmail.com EXECUTIVE SUMARY Risks are always present in the operation of commercial banks today, including Vietinbank. Banks always try to develop credit scale but at the same time ensure safety in operations.
The rapid increase in bad debt can lead to serious consequences, possibly even bankruptcy of the bank. As one of the credit-scale branches in the top of the big branches of the Vietinbank system, Vietinbank Gia Lai branch has always controlled the bad debt situation since its inception. However, in the past 3 years, the rapid increase of bad debt has affected many aspects of the Branch's business operations. Therefore, the urgent need is to find the underlying causes that lead to the rapid increase of bad debt problems in recent years to find suitable solutions for sustainable development.
Author conduct this research to study the business activities of Vietinbank – Gia Lai Branch, especially focus on the bad debt increasing in the period 2017 – 2019. The method of comparison, interviewing were used to find out the main problem the Branch is facing, the main cause leading to the problem and recommend some possible solutions to deal with the problem. Author hope that the research will contribute a small effort in helping the organisation develop and gain maximum profit in the future. TIEU LUAN MOI download : skknchat@gmail.1 Overview introduction about Vietinbank Vietinbank was established in July 8th in 1988 in accordance with Decree No.53/1988/NĐ-HĐBT by the Minister Council.
After more than 30 years development, from the beginning equity with just 22 billion Viet Nam dong, at present Vietinbank has archieved the equity beyond 67,455 billion Viet Nam dong (more than 3,000 times higher) while authorized capital is 37,324 billion Viet Nam dong. Beside that, total assets of Vietinbank also increased from 718 billion Viet Nam dong in 1988 to nearly 1,164,435 billion Viet Nam dong in 2018 which means encreased more than 1,600 times. At the beginning, all system of Vietinbank just had 11,380 employees with the structure including headquater in Hanoi (under 100 employees), 32 level I branches and 42 level II branches. Now all the system has nearly 23,000 employees who are working at headquater in Hanoi, 2 representative offices, 9 career units and 155 branches.
Vietinbank has not only operated in Viet Nam but also in other countries. Vietinbank has established a 100% capital bank in Laos, 2 branches in Germany and set a representative office in Myanmar. At this time, Vietinbank has cooperation with more than 1,000 banks of more than 90 countries all over the world. Moreover, Vietinbank also contributed capital in Indovina Bank which is known as the most efficient joint-venture bank in Viet Nam.
Its mission is “To be No.1 bank in Viet Nam baking system, providing modern financial and banking products and services with full utilities and meeting international standard”. The vision of the organisation is “To become a leading bank in Viet Nam and a regional player, being modern and multi-functional that conforms to international standards”. 5% State Bank of Viet Nam 10% 20% MUFG Bank, Ltd. 65% IFC Capitalization (Equity) Fund, L.
Other shareholders Figure 1.1 Shareholer structure by ownership ratio (Source: Vietinbank annual report 2018) 1 TIEU LUAN MOI download : skknchat@gmail.1 Shareholer structure by ownership ratio which holding 5% or more of the charter capital Shareholder structure Number of shares Ownership Percentage (%) Central bank of Viet Nam 2,400,204,956 64.46% MUFG Bank, Ltd.73% IFC Capitalization (Equity) Fund, L.2 Vietinbank Gorvernance model and structure (Source: Vietinbank annual report 2018) In the past few years, Vietinbank has always been one of banks have breakthrough growth, develop modern products and services, develop efficiently and sustainably. In 2017, Vietinbank made an impression in deploying the new CoreBanking successfully. This is the largest and the most complex project in Viet Nam Banking Industry until now and has met the technology requirements for longterm and sustainable 2 TIEU LUAN MOI download : skknchat@gmail. At the same time in 2017, Vietinbank also released to the public 4,200 billion Viet Nam dong secondary bonds.
This is the most enomous amout of secondary bonds among Viet Nam Commercial Banks which has confirmed the trademark and position of Vietinbank on the market. Beside that, Vietinbank has archieved many arwards and accolades in 2018 such as First-class Labour Medal (for the second time) and Government’s Emulation Flag, Top 400 Most Valuable Bank Brands Worldwide, Top 2000 Largest Enterprises Worldwide, Viet Nam Value, Viet Nam Excellent Brand, Best Trade Finance Service,… In 2018, total assets of Vietinbank was more than 1.16 million billion Viet Nam dong, increased 6.3% when compared with 2017 and increased 22.78% when compared with 2016. In this year, Vietinbank continued to be the commercial bank which had largest asset scale in the market. However, the competition in the banking system to win and retain customers is increasingly fierce.
Vietinbank is established in 1988. After 31 year of development, Vietinbank has affirmed its position as a leading commercial bank, holding a key role of Viet Nam's curency market. Vietinbank has a strong network of 148 branches in 63 provinces and cities nationwide. Vietinbank – Gia Lai Branch is known as a large branch in the system with 3 trillion dong of capital and outstanding loans of up to 13 trillion dong.
Vietinbank – Gia Lai Branch was established in 1999. The organisation structure is as the figure below: Figure 1.3 Organisation chart (Source: Vietinbank – Gia Lai Branch internal report) 3 TIEU LUAN MOI download : skknchat@gmail.com The main departments which bring profit to the bank is corporate department and retail department. Normally, it often takes two weeks for a new corporate customer and a week for old customer to finish a procedure to borrow the money from the bank. Firstly, the customer has to prepare all the documents meet the bank requirement.
Secondly, the bank officer, normally the corporate banking division, will verify the documents and prepare a report. This step is the one which need most of the time in the procedure and often take for a week. Afterthat, the report will be send to the upper level in the bank in order to be approval. After being approval, the supporting credit department will check again all the document to make sure that there is no mistake.
And finally, they will do the financing for customer. If there is any mistake in any step of the procedure, the total time will be longer. Short – term loans procedure of corporate customers when they first time borrow money at Vietinbank includes 5 steps, which are: Step 1: Credit officer collect documents from customers and check them. At this step, credit officer often present to customers about loan conditions and instructions for establishing the loan documents.
Also, credit officer will check the completeness and accuracy of legal documents, loan documents, collateral records and especially the legality of the loan purpose. After checking the documents, credit officers will depend on the policies and the orientation of Vietinbank in order to identify whether customers are subject to credit restriction or non-credit extension or not. Step 2: Credit officer review credit conditions, prepare and submit appraisal report. Depending on the documents collecting from customers and other sources, credit officer analysis and review the financial situation, business plan and ability to repay principal and interest of customers.
Credit officer will give comments and suggestions on the lending method, loan amount, loan duration, loan security measures, disbursement schedule and other conditions. Step 3: Appraisal report approval. Depending on the appraisal report of Corporate Customer Department, the Board of Directors will consider and decide the credit limit of customers. In case of exceeding the authority of the Branch’s Board of Directors, the report will be submitted to higher level, normally related to the Head Office, to get approval.
4 TIEU LUAN MOI download : skknchat@gmail.com Step 4: Completing collateral records, drafting and signing credit contracting and disbursing. Once the credit limit has been approved, collateral contract and credit contract will be prepared after reaching agreement with customers on clause of the it. Afterthat, disbursement can be made based on the customers’ needs and loan purposes. Step 5: Checking, supervising and recovering debt.
This is the process of steps after lending to ensure customers had used capital for the right purpose and effectively. This will help detect risks and errors to have actions promptly. Therefore, this step will help improving the quality of loans and ensuring the benefits of the bank. In short, the loan procedure is discribed as below: Figure 1.4 The short – term loans procedure (Source: Vietinbank Internal report) In Vietinbank system, every Branch has a different level depend on its point.
In order to calculate the points, there are a list of criterias including criterias measuring effectiveness, credit risk, management skills and operating risk rating. Each criteria is described in Apendix 1. Depend on the total points after grading depends on these criterias, every Branch of Vietinbank will have a level corresponding. There are five levels as the table below: Table 1.