Mai Phương: What do you know about Regulations of consumer

lending activities at commercial banks in Viet Nam?

Nhi :
1.1. Regulations on principles of commercial banks' lending activities:

 First, the principle of using loans for the right purposes:

 Second, the principle of repaying the loan principal and interest on time as agreed
with the credit institution:
 Third, the lending activities of credit institutions to customers are carried out
according to agreements between the credit institutions and customers, on the
basis of conformity with the provisions of law.
1.2. Regulations on the form of lending activities of commercial banks.

 According to the loan grant/repayment method:

 Lending on demand
 Installment loan
 Non-Installment Loan: A form of one-time payment according to the term stated
in the contract.

 According to the loan method:

 Direct lending:
 Indirect lending:
 Direct loan in installments

 According to the loan term:

 Short-Term Loans: a maximum term of up to 12 months.

 Medium-term loans: a term of 12 months to 5 years.
 Long-term loan: a term of more than 5 years, the maximum term of long-term
credit can be up to 40 years depending on each loan.

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  According to the secured nature of the loan/credit level for customers:

 Loans with collateral: The secured assets are usually valuable papers. , goods in
stock, buildings, equipment….
 Unsecured loan: With this form, it is mainly based on its reputation and traditional
relationship with banks to get loans.
1.3. Regulations on lending process of Vietnamese commercial banks
Step 1: Guide customers to apply for a loan.
Step 2: Receive, analyze and verify the application.
Step 3: Decide and sign a credit contract.
Step 4: Disbursement
Step 5: Check and monitor the loan.
Step 6: Collect principal and interest, handle arising.
Step 7: Liquidate the credit contract.

2. Mai Phương:thank you Nhi. Next talk about Key figures for
performance in lending activities in Commercial banks in Viet Nam.
Anh Phương, please explain so that everyone can understand better.
Anh Phương:
Accompanying the Government to recover the economy after the pandemic, banks are
simultaneously deploying preferential interest rate loan packages aimed at small and
medium-sized enterprise customers.
Most recently, the Joint Stock Commercial Bank for Foreign Trade of Vietnam
(Vietcombank) has announced to continue to reduce loan interest rates from August 18,
2021, to the end of December 31, 2021 for all businesses and individuals. severely
affected by the COVID-19 epidemic in 19 southern provinces and cities that are currently
applying social distancing according to Directive 16. This is the 9th interest rate
reduction of Vietcombank to support businesses and people affected by the COVID-19
pandemic and natural disasters since the beginning of 2020.

The Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV)
has announced a budget allocation of up to VND 1,000 billion to reduce lending interest

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rates for existing outstanding loans, at the same time deploying new loan packages with
low-interest rates. Low-interest rate from now until December 31, 2021.
Specifically, BIDV reduced from 0.5-1.5%/year the lending interest rate in VND for
existing outstanding loans arising up to July 15, 2021 for enterprises whose production
and business activities have encountered difficulties. difficult, due to the impact of the
COVID-19 epidemic. The maximum reduction is for loans that are heavily affected in
areas such as traffic, transportation, healthcare, education, accommodation services,
restaurant services, hotels, resorts...

BIDV's budget provides support for existing outstanding loans, applicable to all terms, up
to 800 billion VND. In particular, customers who have been applied other preferential
loan interest rate policies will continue to be supported by BIDV in this program.

At the same time, BIDV also launched a new credit package with a scale of VND 30,000
billion, applied to short-term loans with a maximum loan period of 12 months, with an
interest rate reduction of up to 1.5%/year compared to the previous year. ordinary interest
rate. It is expected that the support resources for this credit package will be about VND
200 billion.

Meanwhile, at Vietnam Joint Stock Commercial Bank for Industry and Trade
(VietinBank), a preferential credit package with an interest rate of 4.0%/year with a scale
of VND20,000 billion has just been added, thereby increasing the total size of the
packages. support interest rates at VietinBank up to 150,000 billion VND.

The Bank for Agriculture and Rural Development of Vietnam (Agribank) has also further
reduced the lending interest rate by 10% for short-term loans with interest rates of 5% or
more per annum. balance of medium and long-term loans with interest rates of 7%/year
or more for loans as of July 15, 2021. The program runs until December 31, 2021. It is
estimated that with this interest rate reduction, Agribank spends about 5,500 billion VND
to support customers.

Many other banks have also announced a popular interest rate reduction of 1%/year for
customers with difficulties, applied from July 15, 2021.

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3.Mai Phương: thank you APhuong, now we continue to talk about
the Advantages of lending activities in VN commercial banks. Hồng
Nhung, please.
3.1.Nhung: Strong potential capital:
Currently, our country's banking system holds about 80% of the investment capital for the
whole economy, so when it comes to borrowing capital for production and business, most
businesses have to look to banks. Credit growth shows that banks and businesses have a
connection, supply and demand meet, businesses are facilitated to borrow capital.
In fact, in order to improve financial capacity, competitiveness and meet international
standards such as Basel II and Basel III, banks have increased capital through paying
dividends in shares, instead of cash as in the past time ago. This is also the method
recommended by the State Bank of VN to improve financial potential, including large-
scale banks.
3.2. Digital into bank lending activities.
Firstly, consumers are increasingly knowledgeable and proficient in technology, since
then, buying behavior has also completely changed. Consumers now want all financial
services and banking interactions to be done via mobile devices, rather than at branches
or headquarters.
Secondly, recent financial technology innovations such as eKYC(electronic know your
customer), Buy Now Pay Later and even digital lending.
Thirdly, the government and the State Bank of Vietnam continuously introduced new
policies to promote the digital banking revolution, most recently the decision 810/
Decision of the State Bank.
Finally, in the face of the current epidemic situation, the "brick-and-mortar" business
model with long lines of customers waiting for their turn to apply for a loan or to be
disbursed is no longer viable. Banks are forced to digitize services so as not to lose
customers to fintech startups, especially in the lending segment - the most profitable
business segment for the banking industry.

Mai Phương: Thank for your’s comment. Anyone want to add comments?
3.3.Thái Sơn:I think another advantage is Variety of loan forms and loan packages
In recent years, the demand for consumer loans has increased. To meet the needs of
customers, commercial banks have promoted communication, product promotion, and
diversified lending in two forms: with assets or without collateral.

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Many incentives in consumer loans:
Asia Commercial Joint Stock Bank (ACB) is the first bank in the country to deploy credit
card lending services (since 1996). Up to now, this type of consumer loan is attracting a
large number of customers because of the practical benefits that the service brings. In Ha
Nam, the ACB branch lends customers 30-40 cards/month. Compared to a cash loan, the
interest rate for a credit card loan is higher (ranging from 15-30%/year, depending on the
type of card and the type of customer). However, credit cards are more flexible for
customers to use and repay bank loans. With a credit card, customers can use it to
withdraw cash or pay when shopping. In particular, the borrower can repay the bank loan
at any time.
In order to attract customers, ACB does not collect interest if the customer pays the entire
loan amount within 60 days of receiving the card.
In addition to traditional loans, ACB also targets specialized customer groups such as
wedding loans, buying cars, motorbikes, studying abroad... ACB's consumer loan
packages are deployed in two forms: mortgages and mortgages, focusing on two main
product groups: real estate and other consumer equipment (building repair, medical
examination and treatment, shopping for household appliances...) with loans up to up to
100% of the demand value, no limit on the maximum amount. For debt repayment,
customers can choose to pay monthly, quarterly with a fixed monthly amount or pay in
increments and be paid before maturity. Currently, ACB also does not charge interest on
the initial loan balance like some other banks, but calculates the interest rate on the
decreasing balance of the loan.
Like ACB, most of the joint stock commercial banks are now promoting communication
forms of consumer lending. Although the lending purposes are different, the common
point of these types is that the lending interest rate and property valuation always comply
with legal standards, ensure the interests of the borrower, the payment time depends on
the purpose and customer's need. The loan term can be up to 15-20 years to help reduce
the pressure of repayment for borrowers.

4. Mai Phương: Thank you, Phạm Phương. Besides the advantages,

there are also Disadvantages. Can you speak, Phạm Phương?
4.1.Phạm Phương: A disadvantage is Capital risks:
The capital sources of many commercial banks unsustainable steady. According to
estimates by securities companies, the growth of deposits in commercial banks in the first
eight months of 2021 is at the lowest level in recent years. In particular, although the
liquidity of the system is still abundant, the deposit growth is slow due to low deposit

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interest rates, which resonates with the "race" to attract demand deposits, making the
capital sources of many commercial banks unsustainable steady.
In Ho Chi Minh City, the country's major economic engine, capital mobilization in the
first seven months of this year also increased by only 0.7%, while credit increased by
5.8%. In Hanoi, capital mobilization in eight months increased by 9.2% compared to the
beginning of the year, but mainly increased in the issuance of valuable papers and
payment deposits of enterprises, while deposits from residents continued to increase.
continued to increase slowly.
Recently, many banks have been racing to attract demand deposits and increase the ratio
of demand deposits to total mobilized capital. This helps the bank to mobilize cheap
capital, but makes the mobilized capital become precarious. Specifically, the bank
"feeds" more than 50% of the total loan balance as medium and long-term loans, while
mobilizing mainly short-term, even non-term, leading to uncertain capital safety.
4.2. Mai Phương: Oh, great. What about you, Nguyễn Sơn?

Nguyễn Sơn: I think the second disadvantage is Liquidity risk:

There are many irregularities in the asset structure
Firstly, the asset structure is not ready to meet the liquidity supply. State-owned
commercial banks, some joint-stock commercial banks with good governance, often
invest a significant proportion of their capital in valuable papers, which may readily
participate in the SBV's open market operations. , or another channel of the SBV, of the
money market to meet the liquidity needs in a timely manner. However, for many joint
stock commercial banks, the asset portfolio has almost none of this type.
Second, in the loan balance structure of the asset portfolio, there is an unreasonableness.
The ratio of outstanding loans to areas that often have large fluctuations of the market,
especially the real estate market in recent years as well as now, customers use loans to
invest in the financial market…The excessive use of short-term loans in the interbank
market to expand the loan balance in the asset portfolio. This ratio for some joint stock
commercial banks is 2-3 times higher than the amount of capital mobilized in market.
Third, there is an asymmetry between many medium and long-term loan balances and the
maturity of mobilized capital and borrowed capital. At the end of the year, near the Lunar
New Year, other unexpected payments..., if commercial banks are not ready for
resources, they will be passive, face liquidity risks, and have to borrow on the interbank
market with interest rates very high or raise capital in the market with interest rates
exceeding normal times.

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Fourth, because of high inflation, a part of people withdrawing or not depositing at
commercial banks, but using their savings to buy gold and foreign currencies for storage,
thus affecting the liquidity of commercial banks. The price of construction materials
increased sharply, businesses and people had to use more money for construction, house
repair, construction of works and projects; Therefore, on the one hand, deposits are
withdrawn, on the other hand, the amount of deposits decreases and the demand for loans
increases.
4.3.Nguyễn Sơn: And The last disadvantage is increase in bad debt
The impact of the Covid-19 pandemic since 2020 has caused many businesses to suffer
heavy damage, even fall into bankruptcy. Although in the first months of 2021, the bad
debt of the whole system is not too high, not to a worrying level, but potentially risky and
tends to increase.
The fourth outbreak of the Covid-19 epidemic is still complicated. If Vietnam's
vaccination rate is not accelerated, and the epidemic is not controlled, by 2022 the
economy will be slowed down, businesses cannot recover as in the pre-epidemic model,
and the ability to repay debts decreases. At that time, bad debts will overlap and
gradually increase, so businesses and many individual customers cannot access capital,
along with a decrease in credit demand. This is a huge challenge that banks need to
monitor closely and prepare for the worst possible scenarios.

5. Mai Phương: Thank you, now we come to the last part of

presentation, talk about Challenges. Nhật, please.
Nhật
Firstly, the pressure of bad debt is not only from structural debt with potential risks in the
future, but the handling of bad debt is facing difficulties due to epidemic barriers.
Controlling and handling bad debts is a huge challenge for banks.
Secondly, the compliance with international standards to a higher level. Following the
trend of development and integration, the banking group needs to implement higher
international standards such as Basel II, Basel III... to improve risk management capacity,
affirm its position, and at the same time increase competitiveness with banks in the
region and the world, as well as create trust for customers.
Thirdly, in the context of integration and technology development, the competitive
pressure of the banking industry is increasingly fierce. Not only is the competition
between banks, between banks and financial companies, but also between banks and
fintech and bigtech, especially in the field of payment services and retail lending.

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Lastly, the challenge of adjusting interest rates and lending standards
The banking industry and other companies are currently having to solve problems with
many variables such as: How to structure debt, how much is reasonable to lower interest
rates, adjust lending standards to improve credit access for customers. , setting up
provisions for risks according to regulations, ensuring the bad debt ratio within a safe
level... In addition, the COVID-19 epidemic has seriously affected production and
business activities of enterprises, causing the potential risk of bad debt to increase,
forcing banks to be cautious in lending capital. In fact, although banks have deployed
many preferential credit packages, but customer demand has decreased, many businesses
have not had an effective plan to convert production and business, so they are not
"satisfied" with borrowing capital. . On the other hand, many new businesses are
operating, there is no collateral, and the business plan is not effective, so it is not possible
to prove their capacity to the bank, so it is very difficult to disburse disbursements.