UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LE HUNG CUONG Student ID: 22170008 Issues in Credit Granting Process in VP bank MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City – 2019 TIEU LUAN MOI download : skknchat@gmail.com UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LE HUNG CUONG Student ID: 22170008 Issues in Credit Granting Process in VP bank MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: Prof. TRAN HA MINH QUAN Ho Chi Minh City – 2019 TIEU LUAN MOI download : skknchat@gmail.com EXECUTIVE SUMMARY This research is developed with the objective of identifying the main problems that lead to the downturn of credit growth rate of VPBank during 2018. It was captured that VPBank has faced up with lower credit growth rate in 2018 and this symptom was explained by some problems, namely SBV’s credit growth cap, peer-to-peer lending, overlapped products, lower lending interest rates from bigger banks, higher document processing time, impolite collection activities, slow SMS and mobile internet banking, lack of live banking services, high lead time for customer complaints, incorrect information by sales teams, and less attractive advertising contents. However, only two problems are actually existed, namely higher document processing time and incorrect information by sales teams.
Other problems have not had high impact or have no impact in coming years. Based on that, the researcher proposes set of solutions to help VPBank to further decrease the time required for document processing and to reduce adverse impact from wrong information provided by sales officers. The set of solutions are translated to change plan with detail solutions, detail actions, people management, and communication. 1 TIEU LUAN MOI download : skknchat@gmail.com PART I - BACKGROUND 1.
History of establishment and development Vietnam Prosperity Joint Stock Commercial Bank (VPBank) was established in 1993. Over 25 years of doing business in Vietnamese financial and banking industry, the bank achieved outstanding result since its charter capital was reached US$681.49 million and total asset was more than US$12 billion in the financial year of 2018. VPBank has been listed in Ho Chi Minh Stock Exchange (HOSE) with 1.33 billion shares were issued to public investors. VPBank conducted the transformation in 2010, remarked by new logo and brand identify as well as the focus on modern retail banking business under the consultation from McKinsey & Company.
In 2011, the bank implemented different business initiatives consulted by McKinsey & Company and successfully raised charter capital to balance with new business capacity and development. In 2012, VPBank achieved national brand value and it established risk management division to monitor risk issues in bank wide level. In 2013, VPBank was rated at B3 by Moody and it conducted Information Technology and Risk Management Master Plan. In 2014 and 2015, VPBank focused on mass consumer market by establishing VPBank Finance Company Limited (FECredit) and the bank was among largest corporate income tax payers in Vietnam.
The year of 2016 remarked a big leap since VPBank moved to new head office and total asset was over US$8 billion. The bank also received a loan from International Finance Corporation (IFC) with cheap price. In 2017, VPBank conducted Initial Public Offering (IPO) and it successfully issued 1.33 billion shares and raised nearly US$300 million from public investors. Moody rated VPBank as B2 which was known as an upgrade from the last rating in 2013.
Digital banking services have been developed in order meet new business opportunities in the market. Market share An illustrative way to capture market share of VPBank is through its market capitalization in comparison with other banks and financial institutions listed in Vietnam stock exchanges. According to the data obtained from cophieu68.com, there are 26 listed banks and financial institutions with total market capitalization of US$39 billion. Currently, VPBank has been ranked at 6th position with US$2.1 billion, lower than VCB (US$10.8 billion), BIDV (US$5.2 billion), TCB (US$3.8 billion), CTG (US$3.5 billion) and BVH (US$2.
Based on this statistics, current market share of VPBank is 5% in term of total market capitalization value. 2 TIEU LUAN MOI download : skknchat@gmail. Vision, mission, core values The vision of VPBank is to become one of the 5 largest joint-stock commercial banks and one of the 3 leading retail joint-stock commercial banks in Vietnam. To support this business vision, the bank conducts two different missions.
The first mission is to conduct aggressive organic-growth with high attention to retail, small and medium enterprises (SMEs), consumer finance, and corporate segment. The second mission refers to strong investment and continuous development of foundation systems, including human resource, information technology, risk management, and operation. Moreover, there are 6 core values which are being maintained in VPBank, including make the difference, ambition, customer focus, trust, people development, and productivity. Toward the long-term and sustainable development, VPBank committed to deliver banking products and services to the customers with professionalism, simplicity, dedication, and difference.
Organization structure Currently, VPBank has been organized by high standardized organization structure. General Shareholder Meetings takes the higher position in the structure and it is being supported by Board of Directors. Chief Executive Officer (CEO) is managing advisory units (finance, risk management, human resource management, strategy and project management) and business units (retail banking, household banking, SME banking, commercial banking, corporate and investment banking, digital banking services, financial institution and transactional banking) and operating and supporting units (credit, operations, information technology, legal and compliance, business intelligence competency center, and marketing and communication). Moreover, current organization structure addresses the importance of different committees, including human resource committee, risk management committee, credit committee, operational risk committee, credit and collections committee.
Supervisory board and internal audit are established to support Board of Directors in entire banking management and monitoring. 3 TIEU LUAN MOI download : skknchat@gmail.com Figure 1: Organization structure of VPBank Source: VPBank’s annual reports (2017) 4 TIEU LUAN MOI download : skknchat@gmail. Symptom During the period of 2014-2018, business performance of VPBank is summarized below: Table 1: Business performance of VPBank Indicator Unit 2014 2015 2016 2017 2018 Total asset US$m 7,698 8,826 10,222 12,226 14,028 Equity US$m 423 609 768 1,307 1,508 Saving US$m 5,619 6,925 7,705 8,789 9,524 Lending US$m 3,696 5,317 6,464 8,041 9,476 Lending growth % 43.85% Total operating US$m 296 549 754 1,102 1,349 income Profit before tax US$m 76 141 220 358 399 ROA % 0.47% Source: VPBank’s annual reports (2019) VPBank’s total asset was nearly double from US$7,698 million in 2014 to US$14,028 million in 2018. Equity was raised from US$423 million to US$1,508 million during the period.
The bank attracted depositors with value in 2018 recorded at US$9,524 million while lending value was US$9,476 million. Total operating income in 2018 was stood at US$1,349 million and profit before tax was US$399 million. Although VPBank achieved many remarkable results, the bank faced a shortfall in returns on asset (ROA) and returns on equity (ROE) in 2018. In more detail, ROA of the bank increased from 0.93% in 2017 but it dropped to 2.
Similarly, ROE in 2018 was 26.47% lower than ROE in 2017. The comparison between the target and actual result for the financial year of 2018 provided more detail about the symptom of the bank. Table 2: 2018 target vs. actual performance of VPBank Target vs.
Indicator Unit Target Actual Actual Total asset US$m 15,598 14,028 -10.7% Profit before US$m -14.8% tax 469 399 Source: VPBank’s annual reports (2019) 5 TIEU LUAN MOI download : skknchat@gmail.com In March 2018, VPBank delivered a business plan for 2018 in which total asset was expected at US$15,598 million but actual result was captured at US$14,028 million or the actual result is 10.1% lower than the target. Similarly, saving size and loan size were lower than the target of 9. Profit before tax was not achieved the target since it was US$399 million and it was lower than the target by nearly 15%. Lending is key symptom since lending is important item of total asset and the lower lending size affects to total asset.
In addition, saving was decreased but it was not the issue since the bank has good funding resources from Internal Finance Corporation. When lending size is decreased, the profit from interest income is decreased. From 2014 to 2018, the structure of net interest income of VPBank is presented below: Table 3: Structure of net interest income of VPBank Indicator Unit 2014 2015 2016 2017 2018 Interest US$m 585 854 1,145 1,503 1,748 income Interest US$m 335 383 468 595 676 expenses Net interest US$m 249 471 678 907 1,072 income Net interest % growth - 88.11% income Source: VPBank’s annual reports (2019) It was observed that net interest income of VPBank was increased only 18.11% in 2018 compared to 2017 and it was a big drop compared to 33.88% as growth rate of net interest income in 2017. It was captured that the growth rate of net income has been decreasing and the trend has been continuously since 2016.
Moreover, lower net interest income is not by high interest expenses. Table above shows that interest expenses in 2018 increased 27.61% in 2017 but interest income increases 31. Therefore, it is concluded that the weaknesses in lending activities is the business symptom in the case study of VPBank. It is translated to the fact that when the bank has lower lending volume, its net interest income will be decreased and it reduces the bank’s profits since large of income source is from lending activities.
In the next section, the initial cause-effect map is prepared and it is developed to point out what the main reasons of lower growth rate in lending portfolio of the bank. A focus group of discussion was conducted between the researchers and some branch managers of VPBank and the findings are categorized into several causes or explanatory factors. 6 TIEU LUAN MOI download : skknchat@gmail. Initial cause-effect map As mentioned earlier, the interviews with focus group of branch managers helps to capture initial causes that leader to lower lending growth of VPBank during 2018.
5 branch managers were participated into the interviews. To protect the personal information of branch managers, the researcher codes the name of each branch manager as A, B, C, D, and E. For all interviewees, an interview question of what the causes of lower lending size during 2018 was asked and their answers are summarized below. Branch manager A said that one of the main reason for lower lending size in 2018 was the credit growth rate cap by State Bank of Vietnam (SBV).
He mentioned that SBV only allowed local commercial banks to grow their credit at maximum of 14%. However, VPBank was exceeding this level since the third quarter of 2018. He provided the credit growth rate of VPBank was more than 15% after quarter III of 2018 and therefore, the head office team asked him to postpone disbursement activities. Branch manager B indicated that his branch faced with the shortfall in unsecured lending due to the new peer-to-peer lending activities in the North of Vietnam.
He noted that Vietnam has a population of about 96 million, GDP per capita in 2018 is nearly US$2,590 so that Vietnam is considered a potential market for retail banking, and this trend is expected to continue. Moreover, a large number of Vietnamese people have not yet access to banking products and services, and will become a source of retail banking. In particular, in the era of information technology, retail banking activities will be strongly supported when there are millions of new customers from rural to urban areas and having quick access to financial products through the application of new technology. He confirmed that there are new players in Vietnamese financial market with high investment funded from foreign investors in order to provide super convenient unsecured loans to lower income customers.
Normally, the third and the last quarter of a year was good time for unsecure lending due to the customers wanted borrowing money to purchase some stuffs (i.