NAME

NATIONAL ECONOMICS UNIVERSITY

ADVANCED EDUCATIONAL PROGRAMS

BACHELOR THESIS
Major Finance

Topic: IMPROVING THE QUALITY OF LENDING ACTIVITIES TO

CORPORATE CUSTOMERS AT MILITARY JOINT STOCK
COMMERCIAL BANK
MAJOR

Dinh Viet Anh

HANOI, 2020
YEAR
 NATIONAL ECONOMICS UNIVERSITY
ADVANCED EDUCATIONAL PROGRAMS

BARCHELOR THESIS

Topic: IMPROVING THE QUALITY OF LENDING ACTIVITIES TO

CORPORATE CUSTOMERS AT MILITARY JOINT STOCK
COMMERCIAL BANK

Student: Dinh Viet Anh

Specialty: Finance
Class: Advance Finance 58C
Student’s ID: 11160093
Supervisor: PhD. Truong Thi Hoai Linh

HANOI, 2020
TABLE OF CONTENTS

LIST OF TABLES..............................................................................................................1
LIST OF FIGURES............................................................................................................2
ABBREVIATION..............................................................................................................4
ACKNOWLEDGEMENTS................................................................................................5
INTRODUCTION..............................................................................................................6
CHAPTER 1. LITERATURE REVIEW ON QUALITY OF LENDING TO
CORPORATE CUSTOMERS AT COMMERCIAL BANK........................................9
1.1 Lending to corporate customers at commercial bank..........................................9
1.1.1 Definition of lending to corporate customers at commercial bank..............9
1.1.2 Classification of lending to corporate customers at commercial bank. .9
1.1.2.1 Based on loan terms...................................................................................9
1.1.2.2 Based on the credibility of the customers..................................................10
1.1.2.3 Based on the purpose of capital use...........................................................10
1.1.2.4 Based on the loan method...........................................................................10
1.1.3 Process of lending to corporate customers at commercial bank.................11
1.2 Quality of lending to corporate customers at commercial bank.......................12
1.2.1 Understanding of lending quality to corporate customers at commercial
banks........................................................................................................................ 12
1.2.2 The indicators reflect the quality of lending to corporate customers at
commercial banks...................................................................................................14
1.2.3.1 Subjective factors........................................................................................19
1.2.3.2 Objective factors.........................................................................................21
CHAPTER 2. SITUATION OF QUALITY OF LENDING TO CORPORATE
CUSTOMERS AT MILITARY JOINT STOCK BANK – GIAI PHONG BRANCH
.......................................................................................................................................... 25
 2.1 Overview of Military Bank – Giai Phong branch...............................................25
2.1.1 Establishment and development...................................................................25
2.1.2 Giai Phong branch’s organization structure................................................25
2.1.3 Function of departments................................................................................25
2.1.5 The principal business activities of Military Bank – Giai Phong Branch. .26
2.1.6 The outcome of business performance of Military Bank – Giai Phong
branch...................................................................................................................... 27
2.1.6.1 Capital raising activity................................................................................27
2.1.6.2 Lending activity...........................................................................................30
2.1.6.3 Other activities............................................................................................31
2.2 Actual situation of lending activities to corporate customers of Military
Commercial Joint Stock Bank – Giai Phong branch...............................................33
2.2.1 Lending products to corporate customers at Military Commercial Joint
Stock Bank – Giai Phong branch...........................................................................33
2.2.2 Lending process to corporate customers of Military Commercial Joint
Stock Bank – Giai Phong branch...........................................................................34
2.3 Analysis and evaluation the lending quality to corporate customers at Military
Bank – Giai Phong branch over the period of 2017 – 2019......................................37
2.3.1 Analysis the lending quality to corporate customers at Military Bank –
Giai Phong branch over the period of 2017 – 2019...............................................37
2.3.2 Evaluation the lending quality to corporate customers at Military Bank –
Giai Phong branch over the period of 2017 – 2019...............................................57
2.3.2.1 Achievements and causes............................................................................57
2.3.2.2 Limitations and causes................................................................................59
CHAPTER 3 SOLUTION TO IMPROVE THE LENDING QUALITY TO
CORPORATE CUSTOMERS AT MILITARY COMMERCIAL JOINT STOCK
BANK – GIAI PHONG BRANCH................................................................................63
 3.1 Orientation to improve lending quality to corporate customers of Military
Commercial Joint Stock Bank – Giai Phong branch in the next periods (2020 -
2023)............................................................................................................................. 63
3.1.1 General orientation of the Branch................................................................63
3.1.2 The orientation for lending to corporate customers of Giai Phong branch
.................................................................................................................................. 64
3.2 Solution to improve the quality of lending to corporate customers of Military
Commercial Joint Stock Bank – Giai Phong branch...............................................65
3.3 Some recommendations to improve the quality of lending to corporate
customers at Military Commercial Joint Stock Bank..............................................68
3.3.1 Recommendations to Headquarter of Military Bank..................................68
CONCLUSION.................................................................................................................73
REFERENCES................................................................................................................... 1
APPENDIX........................................................................................................................1
 1

LIST OF TABLES
Table 2.1 Capital mobilization of Military Bank – Giai Phong branch........................28

Table 2.2 Lending situation of Military Bank – Giai Phong branch.............................30

Table 2.3 Lending situation to corporate customers of MB - Giai Phong Branch........38

Table 2.4 Outstanding loans to corporate customers by terms of Giai Phong Branch. .39

Table 2.5 Outstanding loans to corporate customers by industries of the branch.........40

Table 2.6 Outstanding loans to corporate customers according to the collaterals of Giai
Phong Branch.......................................................................................................41

Table 2.7 Loan classification of corporate customers of Giai Phong branch................42

Table 2.8 Situation of overdue debt and bad debt of corporate customers of MB - Giai
Phong Branch.......................................................................................................43

Table 2.9 Proportion of COSA at Military Bank - Giai Phong branch.........................45

Table 2.10 Debt collection ratio of corporate customers of Giai Phong Branch...........46

Table 2.11 Profitability ratio over outstanding loans of MB– Giai Phong Branch.......47

Table 2.12 Cost management effectiveness of Military Bank - Giai Phong Branch.....48

Table 2.13 Customers satisfaction scale.......................................................................49

Table 2.14 CSAT of tangibility of Giai Phong Branch.................................................51

Table 2.15 CSAT of Reliability of Giai Phong branch.................................................53

Table 2.16 CSAT of Responsiveness of Giai Phong branch.........................................54

Table 2.17 CSAT of empathy and assurance of Giai Phong branch.............................56

 2

LIST OF FIGURES
Figure 1.1 SERVQUAL model based on Parasuraman, Zeithaml & Berry theory of
customers satisfaction (1988) 18

Figure 2.1 Organization structure of Military Bank - Giai Phong branch 25

Figure 2.2 Revenue from other services activities of Giai Phong Branch 32

Figure 2.3 Lending process at Military Commercial Joint Stock Bank 36

Figure 2.4 Risk provision of Military Bank – Giai Phong Branch 44

Figure 2.5 Industry classification 50

Figure 2.6 Positions of the responders in their enterprises 50

Figure 2.7 Survey results from quote 1 to 3 51

Figure 2.8 Survey results of quote 4 to 7 52

Figure 2.9 Survey results of quote 8, 9, 10 and 11 54

Figure 2.10 Survey results of quote 11 to 17 55

Figure 2.11 Survey results of quote 15, 16 and 17 57

 3

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted Bachelor Thesis
independently. I did not use any outside support except for the quoted literature and
other sources mentioned at the end of this paper.

I clearly marked and separately listed all the literature and all other sources which I
employed producing this academic work, either literally or in content.

Hanoi, .... /.... /2020

Signature
 4

ABBREVIATION
- MB or MBank: Military commercial joint stock bank

- BOD: Board of Directors

- ATMs: Automated Teller Machines

- CIs: Credit Institutions

- SBV: State Bank of Vietnam

- POS: point of sale

- AGM: Annual Shareholders General Meeting

- FDI: Foreign Direct Investments

- CSAT: Customer satisfaction

- COSA: credit outstanding with secured assets

- VAT: value added tax

- CIC: Credit information center

- KPIs: Key performance indicators

 5

ACKNOWLEDGEMENTS
After completing my final year at National Economics University, I began my first
entry level position at Military Joint Stock Commercial Bank (MBank or MB) in
March 2020.

Firstly, I would like to have a special thanks to Ms. Truong Thi Hoai Linh for his
valuable supervising and supporting in the accomplishment of this report.

Secondly, I am appreciated and thankful for the support of Mr. Nguyen Hoang Xuan
Son, director of MB Giai Phong Branch, and all employees of Giai Phong branch for
guiding and supporting me without any hesitation, in my time at Military Bank – Giai
Phong Branch.

Finally, this report summarizes my knowledge and experience at MBank. Moreover,

this research was also performed at MB Giai Phong Branch – 360 Giai Phong street,
Phuong Liet, Thanh Xuan, Hanoi.

The shortcomings in capturing and gathering data and information during the research,
analysis and evaluation of company performance may still exist due to the limitation in
my knowledge and experience. Therefore, I please to receiving feedbacks from my
supervisor and all my co-workers at MBank.
 6

INTRODUCTION
1. The urgency of the report

Recently, economy of Vietnam has many bright peaks; although, there are still
signs of cyclical growth reduction. In 2018, Vietnam’s real GDP growth is peaking at
7.1%, a slightly reduction in 2019 at the point 7,08%, due to a declining external
demand and maintaining credit and fiscal policy tightening (The World Bank:Vietnam
overviews, 2019). Moreover, trade tension between the US and China and geopolitical
issues further increase the instability of the global trading system. Yet, in 2019,
Vietnam achieved great achievements in signing free trade agreements. Total import
and export turnover of goods was estimated at nearly 517 billion USD, up 7.6%
compared to 2018, with a trade surplus of 9.94 billion USD. In particular, the export
turnover of goods reached 263.45 billion USD, up 8.1%. The domestic economic
sector last year marked a remarkable development with an export growth of up to
17.7%, much higher than the growth rate of the FDI sector, 4.2%
(Tapchitaichinh:Vietnam's GDP growth in 10 years, 2020). The intension of Cov-19
spreading over 192 nations (Worldometer Coronavirus, 2020)cause the world economy
and trading system even more instability than before. Accessing the impact of the
disease on Vietnam socio-economic development, the Ministry of Planning and
Investment in the report at the Government’ Standing Committee (12.2) said in the first
quarter GDP growth is expected to reach 6.25% - 0.55% lower than the target. The
second scenario is less positive, GDP growth decrease to 5.96% - 0.84% lower even if
the epidemic ends. For a developing country like Vietnam, it is importance to
encourage the operation of entrepreneurs, in this time of epidemic, continuing
overcome difficulties and make a steady step to assert its position initially and
increasingly in the economy. According to statistic of enterprise development
department (Ministry of Planning and Investment), the number of newly established
enterprises of whole country in 2018 reached about 131,275 enterprises, an increase of
3.5% compared to 2017. By type of business, 558 state-owned enterprises were newly
established in 2018, an increase of 10.7% compared to 2017, about 2,726 foreign-
invested enterprises, up 3.1% and establishing new businesses were the most non-state
enterprises with the number of 127,991 enterprises, up 3.1% (Chi, 2020). This increase
in number attracts a considerable labor force, creates many jobs, and contribute to
 7

economic restructuring. In addition, exploit the potential among the people. However,
to overcome difficulties, especially in the current situation, enterprises will lack of
capital for operation, production, and business activities and /corporate financial needs.
Besides, lending to business increasingly, improvement of the quality of lending at
banks is essential and key importance. Recently, Military Bank, Giai Phong branch in
particular, has significant achievement with accumulated profit in 2019 increase 23%
compared with the previous year. Number of lending to corporate customers in Giai
Phong branch reach 74% of outstanding loans, 80% of those are belongs to loans of
small and medium-sized enterprises. However, the growth rate of total new customers
declined 5% compared at beginning of 2019. This declination brings problem for the
development and expansion of Giai Phong branch business in the long run.

Recognizing the significant and importance of lending activities to corporate

customers, during the internship, I decided to select the subject for my internship report
as: “Improving the quality of lending activities to corporate customers at Military
Commercial Joint Stock Bank – Giai Phong Branch”. The aim of the report is to
evaluate the quality of loans to corporate customers at Military Bank and offer some
solutions to improve the quality of this work at Giai Phong branch and the system of
MBank in general.

2. Research objectives

Though the research process, my goals is:

 Provide some solutions and recommendations to improve the quality of lending

to corporate customers in Military Bank – Giai Phong branch and MB in
general.

3. Subject and scope of the research

 Object of the study: Corporate customers’ lending activities at Military

Commercial Joint Stock Bank – Giai Phong branch
 Scope of the research: Corporate customers’ lending activities at Military
Commercial Joint Stock Bank – Giai Phong branch in 3 years: 2017, 2018
and 2019

4. Research Methodology
 8

The research is conducted through two main steps: preliminary research using
quantitative methods and formal research using qualitative method

Preliminary research is conducted by quantitative methods through branch

performance reports. The data collected will be analyzed and compared in a period to
show the performance of branch recently.

Formal research is conducted through survey to collect information from several

corporate customers who are already experience branch products and services as well
as having representative office in Hanoi city. The data collected will being evaluated
by CSAT indicator and multiple regression analysis to test the research model.

5. The thesis structure

Beside the introduction, conclusion, list of abbreviations, list of tables, list of figures,
list of references, the thesis consists of three main chapters:
Chapter 1: Literature review on quality of Loan activities to corporate customers of
commercial bank
Chapter 2: Situation of quality of lending to corporate customers of MB – Giai Phong
branch
Chapter 3: Solutions to improve the lending quality to corporate customers at Mbank
– Giai Phong branch
 9

CHAPTER 1. LITERATURE REVIEW ON QUALITY

OF LENDING TO CORPORATE CUSTOMERS AT
COMMERCIAL BANK
1.1 Lending to corporate customers at commercial bank
1.1.1 Definition of lending to corporate customers at commercial bank
Lending is a form of credit extension whereby the lender assigns or engages
conclude with customers amount of money to be used for a definite purpose within a
certain period as agreed with a repayment of principal (original cash lending) and
interest. (Chapter I, section 2, Circular no 39/2016/TT-NHNN)
Lending or loan offered a commercial banks is a form of credit use of the bank
to the business, which the bank assigns to the business which has to pay a certain
amount of money to use for a certain purpose and time as agreed with the repayment of
principal ( original cash lending) and interest. (Cuong, 2015, pp. 3-4)
1.1.2 Classification of lending to corporate customers at commercial bank
1.1.2.1 Based on loan terms
On loan terms, commercial bank divide into three categories: short-term loans,
medium-term loans, long-term loans.
 Short-term loans: the type of loan with a term of up to one year, is used to meet
short-term capital needs such as budget replenishment, ensure payment
requirements are due, supplement the working capital needs. This type of credit
is characterized by a low level of risk due to time. Quick payback reduces the
risks of interest rates, inflation as well as instability of the macroeconomics
environment. Therefore, short-term loan is often profitable interest rate are
lower than others type of credit.
 Medium-term and long-term loans: These type of loans with more terms than
one year, mainly used to purchase fixed assets, improvements or innovations
equipment, technology, expanding production and business equipment, project
construction trading, purchasing large-scale transport means, building new
enterprises. Because the long term and the return on investment is usually
expected, these types of loans often contain a high level of risk, including
 10

individual and systematic. Because of such a high level of risk, it has a higher
interest rate than the short-term loans.
1.1.2.2 Based on the credibility of the customers
Secured loan is the type of credit issued by loans all have property like the
mortgage, there are forms such as pledge, mortgage, discount and guarantee.
(Wikipedia, 2020)
Unsecured loan is the credit given by the donors. The loan is issued without
collateral, only on a mortgage. (Chen, 2020) This type is usually applied to traditional,
long-term customers and fairness with the bank, this customer must have well finance
and credibility to banks such as full and timely repayment both principal and interest,
feasible production and business projects, able to repay debts, etc.
1.1.2.3 Based on the purpose of capital use
Lending for production and business is a credit to meet loan needs for small
business entities or enterprises.
Consumer loan is a form of credit to finance consumption demand. There are
two types of residential use, one is direct consumer credit and the other is cash loans
directly to customers for consumption. The second type is consumer credit for
subjective purpose followed by the bank buying account receivable from the retailer of
goods; in examples, the form of financing to sell by installments of a commercial bank.
1.1.2.4 Based on the loan method
According to the lending regulations of credit institutions issued on December
31 , 2001, banks provide loans under the following methods:
st

 Item-based lending: each time a loan is made by a customer and the bank
carry out necessary loan procedures and sign credit contracts. This method
applies to customers who need to borrow money often, unstable production,
seasonal business, or seasonal trade.
 Lending by credit line: the highest loan balance that the bank commit to a
customer, effective for a certain time. Credit limit is determined based on
customer loan demand and bank responsibility. When was the bank fixing a
credit line, the customers are entitled to a loan with the credit in scope of that
credit line?
 11

 Lending under investment project: banks lend to real customers currently

investing in developing production, business, and services.
 Syndicated loan: a type of loan, in which a group of banks cooperates and
lends to a project. A bank will act as the focal point to arrange and
coordinate the remaining banks to lend. This type is applied in case the
project has a large and exceed the capital ability of a bank to finance or
exceed the limits sets by law. It is also used for the purpose spreading the risk
of the bank.
 Lending through issuance and usage of credit card: the credit institution gives
the customer permission to use the internal loan credit limit to pay for goods
and services and withdraw money at automatic teller machines or cash
advance at agents of credit institution. When lending to issue and use credit
cards, credit institution and customer must comply with Government and
State Bank of Vietnam on credit issuance and usage.
 Lending according to the credit limit backup: committed credit institutions
ensure availability for customers to borrow within a certain credit limit. The
credit institution and its customers agree upon the validity of credit limit
backup period, the fees for credit limit backup.
 Lending under overdraft limit: a loan that credit institutions written
agreement approving the customer for spending in exceed the amount on the
customer’s payment account according to Government regulations and the
State bank of Vietnam about the payment activities through organizations
providing payment services.
 Bank guarantee: a form of credit extension conducted by written commitment
of a bank to the beneficiary the performance of financial obligations on
behalf of its customers, when the client(s) fail to perform or perform
improperly to the obligations as committed to the party beneficiary guarantee.
Customer(s) must accept the debt and repay it to the bank the payment on
behalf of that customer(s).
1.1.3 Process of lending to corporate customers at commercial bank
Commercial loan processing is a complicated and exhaustive process, but it is
similar with applying for personal loan. At first, typically, lenders (in this case is
 12

banks) begin the process of pre-qualifying the borrowers. Banks (lenders) do this by
evaluating the company financial history and situation through financial statements.
Banks also take other factors into account, such as net income, existing debt,
credibility, and the purpose of the loan.
After the pre-qualifying stage is completed, the borrowers start filling out and
applying forms. This applying stage requires significant amount of paperwork and
documentation; for example, standard requirement for funding new project are include
personal tax returns dating back at least three years, financial background, liabilities,
income statement, and financial statement including all assets.
Once the application has been completed, the bank loan officer will review
and applying the company’ credit history, available collateral (such as real estate,
stocks, bonds, and other guaranteed items of high value) and income. After the
paperwork has been considers and completed, all the loan application is forwarded to
loan underwriters or loan committee to approve or deny the loan based on the
information provided. The decision usually takes about five days, during which the
applicant may be asked to provide additional documentation if the loan committee
requires.
The final stage is after the result from the loan committee, if the loan is
approved, there will be several paperwork, and signing final loan documents.
(Alexander, 2018)
1.2 Quality of lending to corporate customers at commercial bank
1.2.1 Understanding of lending quality to corporate customers at commercial
banks
1.2.1.1 The concepts of quality of lending to corporate customers at commercial
banks
Loans to corporate customers are loans that account the most in lending
activities at commercial banks. (Majaski, 2019). It is also sophisticated operation and
the riskiest.
The quality of a loan is understood as the timely and full satisfaction of the
funding needs of corporate customers and be included into the business operation
efficiently, which generate a large amount of money to cover all costs, benefits interest
and full repayment to the bank of both principal and interest on time. (Cuong, 2015)
 13

The lending quality is reflected in the quality of each loans. Every quality will
contribute to the overall quality of operation loans of each commercial bank. Lending
quality not only benefits commercial banks but also encompasses the interest of both
customers and the economy.
In terms of customers benefits, the quality of loans is responsive reasonable
requirements of customers with reasonable interest rate, loan terms, and simple
procedures. As for banks, the loan quality is expressed in the scope, extent, credit limit
use must be suitable with the capacity of each bank itself and still be guaranteed profit,
so that they could improve their competitiveness in the market. The economy and the
quality of lending must contribute to the creation of social effects such as service
production and business, creating jobs for workers, increasing products for society,
promote economic growth and exploit the potential of the economy. Therefore,
improving quality of lending to corporate customers makes beneficial for not only the
customers and the bank (customers gains best quality of products and services and the
bank has higher reputation, higher credibility, and long-term relationship), but also it
affect positively to the economy.
1.2.1.2 The need to improve the quality of lending to corporate customers.
For commercial banks, the corporate clients (especially small and medium
enterprises) need an initial amount of capital, large enough to carry out investment
activities. Corporate clients are a potential market for lending activities of banks.
Therefore, commercial banks, as an intermediate institution in the economy, must
actively seek loans with high profitability and low risks. In corporate financing
operations, loans are often large and difference between income and expenses is
getting smaller and smaller due to the fierce competition of banks. Therefore,
insufficient principals and interest will cause the income losses to banks and they will
face high chance of bankruptcy. Thanks to the improved of loan quality, banks still
preserves it capital source, ensures profitability, ensuring safety, improving bank’s
reputation, protecting the interest of customers. From there, it is possible for easier
mobilize capital creating a premise for better loan quality.
Corporate clients increasingly contribute greatly to the socio-economic
development. They always want to raise necessary capital quickly, low cost to carry
out its business and production plan. Improve the quality for borrowing is also
desirable for corporate clients. A loan that suitable for the purpose of customers, with
 14

reasonable interest rate create favorable conditions for corporate customers develop
efficient production and business. Therefore, improving loan quality is dynamic
business promotion forces to be more effective, improve the ability of accounting,
organize production, motivate finding output, profit, and improve effective use of the
loan. The bank also will make debts collection easy and timely.
Credit activities in general have contributed to creating jobs and exploiting
feasible potential of the economy, promoting the process of accumulation and
concentration of production and solution solving the relation of credit growth and
economic growth.
Improving the quality of lending to corporate customers benefits both
commercial banks and socio-economic development. However, to evaluate the quality
of loans to corporate customers, it requires to base on several criteria which is
presented in the following section
1.2.2 The indicators reflect the quality of lending to corporate customers at
commercial banks
a) Indicators reflect level of safety
 Overdue debt target
Overdue debts of corporate customers
Overdue debt target = corporate customers ¿
Oustanding loans¿

Overdue debt is a debt that the enterprise cannot pay when it is due – write on
the credit contract. (Saint Louis Recourvement, 2019)
If this ratio is high, then the quality of lending is low and vice versa.
According to SBV regulation, banks with overdue debt/ total outstanding loans greater
with 7% are considered is weak. If this index is less than 5% that bank is assessed as
have good credit operation, high quality loans.
 NPL ratio
NPL ratio =
Bad loans¿ corporate customers ¿ corporate customers ¿
Outstanding loans¿
 15

According to the circular No.14/2014/TT-NHNN, issued on May 05, 2014

(vanbanphapluat.co: Decision No.495/2005/QD-NHNN, 2005), on credit debts classify
debts into 5 different groups to facilitate credit analysis and manage.
 Group 1 debts (standard debts) include debts assessed by CIs able to
recover both principal and interest on time.
 Group 2 debts (debts that need special attention), including loans which
are overdue for a period of between 10 days and 90 days, assessed by
the CIs as capable of recovering both principal and interest but there
are signs of declining the capable of repayment.
 Group 3 debts ( substandard debts), including debts that are overdue for
period of 91 days to 180 days, rated by the CIs as being unable to
recover the whole principal and interest when due, the debt is likely to
suffer a partial loss of principal and interest.
 Group 4 debts (doubtful debts), including debts which are overdue for a
period of between 181 days and 360 days, CIs assess the possibility of
high loss
 Group 5 debts (potential irrecoverable debts) include overdue debts of
over 360 days, assessed by the CIs as being unable to recover or capital
loss.
By decision, bad debts define as debts that classified into group 3 (below
standard), group 4 (doubtful) and group 5 (potential capital losing).
Specifically, group 3 and below include overdue debts with interest and/or
principal repayments of more than 90 days: moreover, at provision no 7 on decision
above also regulates commercial banks based into the repayment ability of customers
to account loans into suitable groups.
Bad debt, in conclusion, is determined by 2 factors: over 90 days overdue and
uncertain debt repayment ability. Like overdue debt, if this ratio is high, the quality of
the loan is low and vice versa.
 Risk Provision level
The credit risk loss is calculated based on the principal outstanding and
accounted into operating expenses of CIs. The determination of the risk provision level
is based on the debt classification at the bank. CIs and banks base on qualitative and
 16

quantitative criteria to assess the risk level of loans and off-balance sheet
commitments, based on the classification of debts into appropriate debts groups –
which has been stated above. According to circular No. 02/2013/TT-NHNN of the
State Bank, general provision is determined by 0.75% of the total balance of debts
from group 1 to 4, except for inter-bank deposits and loans. Specific provision is made
to reserve for possible losses for each specific debt.
R = max {0, (A-C)} x r
In which, R: specific provision required to set up; A: value of the debt; C: value of the
collateral; r: specific provisioning rate. (Quynh & Tuan, 2019)
 Proportion of credit outstanding with secured assets
Secured assets value x LTV
Proportion of COSA = corporate customer ¿
Outstandingloan ¿

Loanamount
LTV =
Appraised value of theasset

In which, LTV stand for loan to value – a ratio in use for assessing the lender
risk by comparing the size of the loans to the appraised value of the asset before
approving a mortgage. The higher the LTV ratio, the higher the risk is will be.
Therefore, if the mortgage is approved with higher LTV, the borrower will cost more.
The LTV affects directly to the proportion of credit outstanding with mortgage. The
lower the COSA rate the lesser risk the bank has to face with. Thus, at the perspective
of a lenders, a safety loan has more prefer and more easily to predict the recovery
repayment. (Hayes, 2019)
b) Indicators reflect profitability
 Debt collection ratio
Debt collection ratio =
Debt collecitonturnover of corporate customers
corporate customers ¿
Lending ¿

This criterion assesses the credit efficiency in debt recovery of the bank. It
reflects in a certain period with a certain loan that how much capital the bank collects.
The higher ration the better result shows and vice versa.
 17

 Profitability ratio over outstanding loans

Profit over outstanding loans =

Profit ¿ lending ¿ corporate customers ¿ corporate customers on average ¿
Total oustanding loans ¿

This criterion reflects the profitability of loans. Profit is understood as the

difference between the cost of raising capital for corporate customer loans and the
interest income from lending to corporate customers. This indicator is especially
important with commercial banks because banks derives profit mainly from borrowing
activities. The higher the ratio proves that lending activities for corporate customers at
commercial banks are highly effective and vice versa.
 Efficient cost management
Efficient cost management =
Profit ¿ lending ¿ corporate customers ¿ corporate customersloans ¿
Interest income ¿

This criterion reflects the bank’s ability to manage expense in lending for
corporate customers. If this ratio is high, the bank’s ability to manage expenses is
good, lending quality is high and vice versa.
In general, loan quality is considered on many factors such as ability to attract
customers, safety level, revenue, cost, and profit, etc. To measure the efficiency of
lending activities, they based on a comparison between the outputs and the input, of
this period compared with of previous period, of this unit compared with other units,
compared to the period expect to set or compare with the common ground of the
industry or field of activity.
c) Customers satisfactions
 Satisfaction of customer group
Credit quality is expressed in the ability to meet the capital needs of corporate
customers, this is manifested by the fact that how corporate customers can meet their
capital needs timely, fast, or not? Different businesses have different capital needs,
loan terms, different loans methods. Therefore, the bank needs to come up with
diversify loan method and suitable for each type of business needs with advance and
logical lending process, detailed but fast, saving time and costly. The satisfaction of
 18

corporate customers will be evaluated based on SERVQUAL model by Parasuraman,

Zeithaml & Berry (1988) and CSAT indictor:

Figure 1.1 SERVQUAL model based on Parasuraman, Zeithaml & Berry theory
of customers satisfaction (1988)
(Source: Parasuraman, Zeithaml & Berry – 1988)

Tangible: Expressed by physical conditions, means of facilities used to provide

services to customers

Reliability: Reflecting whether the business provides the services as promised or not, in
time or not, whether the user receive equivalent service or not. Reliability can also be
expressed through the employees’ understanding of the product and services they sell.

Responsiveness: Reflecting the sense of responsibility of the branch to corporate

customers.

Assurance: Showing polite and profession manner, earning the trust of customers,
expressed through the available reputation and quality of the services provide.

Empathy: Demonstrating how branch’s officers understand customers or not,

regardless of small demand of the customers.
 19

Price: Reflecting the cost of the product and services are reasonable or suitable to the
demand, the value of customers expectation and satisfaction comparing to other similar
services of MB or others bank.
'
Customer s positive response
CSAT = x 100
Total customer s' response
CSAT is a term to measure the satisfaction of customers responding to a
specific product, service, and interaction of a company. In this report, CSAT is a
score to determine the level of satisfaction of corporate customers with lending
activities of commercial banks. (Gao, 2018)
1.2.3 Factors affecting the quality of lending to corporate customers at
commercial bank
1.2.3.1 Subjective factors
 Factors belong to the bank
Credit policy of the bank
The credit policy reflects the financial credo of a bank, it becomes a guide for
credit officers and bank staff, enhance calculation specialized in credit analysis,
creating a general unity in credit activities to limit risks and improve profitability.
Each different period, the bank will have different credit policies to achieve
the goals have set before. Credit policy has direct influence on the nature and size of
the credit. A sound credit policy, in accordance with the conditions of the bank and the
market, not only being attractive to customers, expanding credit scale but also creating
a consistent operation credit activity, ensure the profitability and repayment ability of
the credits. Thereby improving the credit quality, including the quality of loans.
Qualifications of credit officers
Human resources play an important role, making a big decision on the quality
of loans activities. The loan decision depends greatly on the qualification of the credit
officer because they are the one who directly collect, analyze and evaluate all
information related to customers, if highly qualified credit officers will offer the more
accurate loan decision. Conversely, if credit officers are disqualified or low qualified,
ability to update information and analyze market situation inaccurately. It leads to
underestimated assessments and insecure in loan decision making. For instance, the
bank may decide to lend with the value of the loan is greater than the value of
 20

collateral or beyond the ability to repay the debt of the customers goods, or lending to
high risk business. The decision making for inaccurate borrowing is a direct factor in
reducing loan quality because of its potential for customers to use loans improperly and
unable to repayment the debts, it leads to high risk to the bank. Therefore, banks need a
properly recruitment policy, high quality, suitable remuneration policy to encourage
credit officers.
Credit information
Credit information is about customers, customers’ business environment, risk
that customers may face, etc. The more complete the information, the faster sensitivity,
exactly how much the greater the ability to prevent risks of banks. Credit quality has
been improved, meaning loan quality has also increased. On the other hand, a bank
with wealth of information can give useful advice for customers.
Capital raising activities
The bank operates on the principle of “borrowing to lend”, which plays a role
of financial intermediation. Therefore, to expand lending, it must first mobilize capital.
The more the capital mobilized, the more diverse the loan size; furthermore, the quality
of mobilization also indirectly affects the quality of lending. This is reflected in the fact
that if the mobilized capital is highly stable, the bank will have stable capital to finance
business activities, including lending activities mainly. Great quality of capital
mobilizing will help the bank improve its capabilities quickly and promptly respond to
customers’ loan needs. With a stable capital, business will be more confident in their
business activities, especially in the medium and long term, so it can generate large
profits, ensuring the ability to repay debts.
Organization of the bank
The organization of the bank is scientifically arranged, ensuring strict and
rhythmic co-ordinance between departments. It will facilitate timely response at the
request of customers, help the bank strictly manage it loans. Here is the basis for
improving the quality of loans and conducting healthy credit operations.
Bank’s technology
Technology has an impact on the cost of the loan, the ability to expand the
residual scale. The higher the debt, the more technology the bank is able to save on
costs and put in competitive interest rates. Outdated and scattered technology systems
are not allowed to create new and modern products which are suitable with the
 21

diversify of corporate customers. The issue of selecting the appropriate technology

when appraising corporate customers’ project loans in Vietnam is one of the
difficulties faced by many banks.
Banks’ reputation
That is the image and belief of the bank in the mind of customers. The
reputation of each bank is built and formed throughout a long process. Reputable banks
always in the trust of them premise for they to mobilize larger capital with cheaper
costs and savings time.
1.2.3.2 Objective factors
Regulatory environment
A tight and stable regulatory environment will be an advantage prerequisite to
accelerate business activities, create a more favorable condition for corporate
customers can have easier access to bank credit. Otherwise, a small change of legal
documents can affect the bank’s lending effectiveness to businesses in general and to
corporate customers. A uniform, coherent and stable legal environment will help to
bank’s function and businesses are safer, more effective, through which quality of
lending activity will also be increased.
The impact of the legal environment can cause a decline in outstanding loans,
causing an increase sudden overdue debt, liming the profitability of the business,
leading to the loan quality of the bank may decline rapidly.
The fact is that currently in our country, with incomplete of legal systems, it is
difficult for corporate customers and banks. The consistency of legal document is not
high.
Business environment
Impact on the quality of lending at commercial banks through economic
variables such as billion price, inflation, compulsory reserve ratio, interest rate, etc.
These indicators directly affect lending capacity as well as bank expense.
The business areas of corporate customers are very diverse, so the changing of
business environment will affect the production and business activities. Corporate
customers borrow money from bank, so it will affect the bank’s quality of making
loans.
If the economic environment is stable and has many advantages, the market
share of business will be expanded, the demand for corporate customers expansion will
 22

lead to an increase demand for loans, business production is more effective that
meaning the quality of the loans will be higher. Otherwise, it will reduce the quality of
the loan.
Socio-political environment
A stable political-socio environment is also an important factor to attract FDI.
The investment of foreign investors will support businesses to overcome limitations,
improve competitiveness, open up opportunities for business to develop.
Thus, it can be seen that the quality of lending is affected not merely from the
side of the bank but also from the customers, the business environment as well as the
legal environment, socio-political environment. Therefore, to improve the lending
quality, there is needs for the effort and coordination from all parties involved.
 Factors belongs to corporate customers
Information of corporate customers
Information of enterprise customers is often not transparent due to limited
knowledge accounting, financial information… so making a financial plan and
financial statement often dishonest and inaccuracy. Corporate customers intend to
falsify their financial reports in order to increasing their credibility and borrowing
money from banks much easier. Despite having small scale of finance, production,
human resources…many small businesses when setting up projects rely on costly
equipment and machines. Instead, they have a less expensive alternatives of similar
technology, yet it still ensures the effectiveness of the project. Another reason is that
corporate customers often build financial statements that deal with tax authorities and
banks. These factors enable the bank to have these confusions in assessing the capacity
of the business. It leads to the decision for giving unreasonable loans and risks when
enterprises are not capable of repaying debts.
Collaterals to borrow money
Most of the corporate customers do not have any or lack of collaterals valid
papers. The transferring of ownerships’ capital contributed is unclear, untransparent
causing difficulties for the bank in the process of collaterals appraising. Also, it
increases causing losses to the bank when the credit quality is not guaranteed,
customers inability to pay debts, leading to the bank’s expenses being at high risk.
Executive management capacity of the corporate customer owner.
 23

In corporate customer, most directors still have the habits of families

administrating, lack of industrial manners, work is often based on emotion or on level
of closeness, acquaintance. Moreover, most of the professional competence of
managers in enterprises, there are still many shortcomings, so they often only take
chances in the short term. This makes the business planning, business plan lack of
professional calculation or ineffective. Lack knowledge of information collection and
processing, self-ability of adjustment is low in a volatile market. Poor governance
capacity is a major factor affecting the operation of an enterprise, if it does not do
business, the effect will seriously affect the bank’s loan recovery. It leads to the
reduction of lending quality to corporate customers of banks.
Technology access conditions
Corporate customers’ lack of access to technology partly because of their low
capital capacity. On the other hand, due to the lack of information and not keep up to
date with technological innovation in the country as well as in the world. Most of the
corporate customers have not yet applied new technology in production, so the
products brought to market are not competitive. The outdated technology leads to low
productivity and product quality is low. This is the factor that makes customers’ ability
to sell product at lower risk, reduce competitiveness, thereby reducing the effectiveness
of real plans and projects activities, affecting the financial capacity of business. The
inevitable consequences are possible for customer debt repayment capacity also
decreases, hence the bank’s lending quality inevitably affected and diminished.
Low possibility of cooperation between corporate customers.
The linkage between associations, business is not high yet. Lack of
cooperation, support between business to overcome each other’s weakness, reduce
costs, taking advantage of domestic resources, bringing higher efficiency in business…
Majority corporate customers still have a conservative mindset, overemphasizing their
business interests the linkage and creation of a block of underdeveloped businesses.
The fragmented relationship between Vietnamese corporate customers is the cause of
competitiveness. Not high of these enterprises in the market, especially not creating a
competitive advantage with foreign businesses. Accordingly, the ability to occupy
market share and consumption, the product is also greatly affected. This indirectly
affects the quality debt obligations, including debt obligations to the bank.
 24

Chapter conclusion
This chapter presented my understanding of the concepts of corporate
customers and the quality of lending activities to corporate customers at commercial
banks. The importance of quality in lending to corporate customers in commercial
banks. Also, considering factors affect corporate customers lending quality of
commercial banks. Next chapter will be closer look at one branch of a popular
commercial banks in Vietnam, the Military Joint Stock Commercial Bank – Giai
Phong Branch.
 25

CHAPTER 2. SITUATION OF QUALITY OF LENDING

TO CORPORATE CUSTOMERS AT MILITARY JOINT
STOCK BANK – GIAI PHONG BRANCH
2.1 Overview of Military Bank – Giai Phong branch
2.1.1 Establishment and development
Giai Phong branch of MB banking system was officially established and put
into operation in 24/05/2020 at the address: 96 Giai Phong street, Hoang Mai district,
Hanoi. At beginning, the branch encountered many difficulties with small amount of
assets and staffs. However, with the dedicated guidance, supported by the Board of
Directors, departments at the headquarters, and the determinations of all staffs, after 10
years of operation, Giai Phong branch has become one of the prestige and quality
branch in MB banking system.

2.1.2 Giai Phong branch’s organization structure

Board of Director

Customer Individual Corporate Support

service customer customer office
department department department department

Figure 2.1 Organization structure of Military Bank - Giai Phong branch

(Source: Military Commercial Joint Stock Bank – Giai Phong Branch)

2.1.3 Function of departments

 Board of Directors: authority in making decision in a branch, on issues
pertaining to MB’s missions
 26

 Customer service department: mission of introducing MB banking product

and services; receiving feedback; directly handling, accounting, and
performing transactions with clients.
 Individual customer department: directly with clients is individual with
credit – related services in accordance with Military Bank current regime and
regulations; directly consulting and selling banking products to individual
clients.
 Corporate customer department: directly with clients are corporates or
enterprises with credit – related services in accordance with Military Bank
current regime and regulations; directly consulting and selling banking
products; import and export payment service, guarantee, etc.
 Support office department assists the BOD in executing its functions and
responsibilities in compliance with legal regulations and MB’s Articles of
Association. Assists other department in banking services, disbursement
support, compensation and records manage, build, and organize training plan
for the branch, etc.

2.1.5 The principal business activities of Military Bank – Giai Phong Branch
In general, Military Commercial Joint Stock Bank – Giai Phong branch also
has basic business activities, similar to other commercial banks.
 Capital mobilization
Capital raising activities include receiving demand deposits and term deposits
in VND or foreign currencies of economic organizations and civilians, saving deposits
with variety of types, such as demand savings and term savings in VND or foreign
currencies, accumulate savings, etc. Besides, there are also valuable papers issued,
namely promissory notes and loans from other credit institutions.
 Lending and investing
Lending activities include short-term, medium and long-term loans in VND
and foreign currency; loans to buy shares of enterprises; consumer loans (buy car,
home, loan to study abroad, etc.); overdraft, financing, syndicated loans for large
projects with long payback period; import – export financing. Investment activities
include contributing capital to joint venture or contributing equity capital; investment
in domestic and international monetary/financial market.
 27

 Guarantee
Guarantee, re-guarantee (domestic and international) include biding guarantee,
contract performance guarantee, payment guarantee.
 Payment
Giai Phong Branch conducts domestic payment activities such as encashment
order, cheque standing order, domestic money transfer, quick money transfer, pay
wages for businesses through accounts, via ATM, pay remittances, etc.
About international payment, when customers need international payment
activities, branch only receive the service, indirectly, transfer it to the Headquarters of
Military Commercial Joint Stock Bank (in Hanoi) for implementation.
 Funds
Treasury services include the following activities: buying and selling foreign
currencies (Derivatives), buying and selling valuable documents (government bonds,
treasury bills, commercial bills), cash receipts and payment on behalf of VND and
foreign currencies.
 Card and Digital Banking
Issue and pay domestic credit cards, international credit cards (Visa,
Mastercard, etc.), ATM card service, Cash card, Internet Banking, SMS Banking,
Mobile Banking.
 Other activities
In addition to the main activities of Giai Phong Branch, there are also other
business activities such as life insurance, non-life insurance, investment and financial
consulting, financial leasing, brokerage, proprietary trading, underwriting and portfolio
management; receive, manage and exploit foreclosed assets through debt and asset
exploitation management companies; securities activities and services.
2.1.6 The outcome of business performance of Military Bank – Giai Phong branch
2.1.6.1 Capital raising activity
In the first 10 months of 2018, capital mobilizing growth slowed compare to
2017. Deposit rates have shown signs of increasing since May 9 th, 2018. According to
the General Statistical Office (September 20 th, 2018), capital mobilization of credit
institutions increased by 9.15% (the same period in 2017 increased by 10.08%).
Military Bank for particularly, in 2018, capital raising takes about VND 245 thousand
 28

billion. In 2019, this number continue to rise by 19%, nearly VND 300 thousand
billion.

Table 2.1 Capital mobilization of Military Bank – Giai Phong branch

Unit: VND billion

Targets 2017 2018 2019

Amount % Amount % Increased/ Amount % Increased/
Decreased Decreased
(%) (%)
Total capital mobilizes 358 100 646.4 100 +80.5 1.024 100 +58.4
Economic Personal 174 48.6 345 53.3 +98.2 681 66.5 +97.4
sectors deposit
organizations 167 46.7 285 44.1 +70.6 322 31.4 +13
deposit
Borrow from 17 4.7 16.4 2.5 -3.5 21 2.1 +4.6
CIs
Currency VND 338 94.4 613 94.8 +81.4 954 93.2 +55.6

Foreign 20 5.6 33.4 5.2 +67 70 6.8 +109.5

currency
Terms Medium and 18 5 26 4 +44.4 54 5.2 +107.7
long
Short 173 48.3 268 41.4 +55 403 39.3 +50.3
Demand 167 46.7 352.4 54.6 +111 567 55.5 +60.9
deposit
(Source: Business performance reports of 2017,2018 and 2019 – Giai Phong branch)
According to the table 1, we see the total capital mobilized of Giai Phong
branch increased sharply over the years, specifically, in 2018, increased by 80.5%
(equivalent to VND 288.4 billion) compared with 2017. In 2019, it increased 58.4%
(equivalent to VND 377.6 billion). The reason for the large increase is due to
reasonable interest rate policies, more attractive and diverse products, and services.
 29

From the table 1, it can be seen that the capital mobilized is mainly from
personal/individuals deposit and economic organization deposit. The two sources
always account for high proportion of total capital mobilized. If in 2017, personal
deposit shares only accounted for 48.6%, then the total mobilized capital in 2018
increased to 53.3% accounting for over half of the total capital mobilized. Regarding
the growth rate, the capital mobilized from personal deposit increased significantly,
VND 171 billion in 2018 and VND 336 billion in 2019. Although organization deposit
still accounts for a smaller proportion of total capital mobilized, it has also increased
significantly over the years. To be specific, in 2018, deposits of organizations
increased by VND 118 billion and in 2019, it increased about VND 37 billion
equivalent to 13% compared to 2018. However, the growth rate was uneven between
years, such as deposits growth rate. Organizations deposit in 2019 decreased sharply
compared to 2018 (in 2018 increased by 70.6%, whereas in 2019 increased by 13%).
The cause of the decrease in growth rate was due to deposit rates of MB is not high
compared with other commercial banks.
Loans from CIs accounts a relatively small proportion of the total capital
mobilized of the branch and tend to decrease over the year (2017 accounted for 4.7%,
2018 reduced to 2.5% and in 2019 accounted for only 2.1%). This is a good sign,
because it shows that the mobilization activities are quite good base on capital
requirement of branch’s business, at the same time it help the branch reduces spending
on interest expend. In 2018 and 2019, Fund mobilized from currencies (both VND and
Foreign currency) increased (in 2019, VND increased by 55.6% and foreign currency
increased by 109.5%). The growth rate of foreign currency was larger, it shows the
great efforts of branch recent years.
The table 2.1 also shows that the majority of branch capital mobilized on
terms is short-term and demand deposits. The proportion of demand deposits in 2017
was 46.7% and in 2018, it increased to 54.6%, and in 2019, it was 55.5%. This result
increased because branch has aimed to small and medium-sized corporate customers.
In 2018 and 2019, the mobilization of medium and long-term deposits also increased.
To achieve the above results, Giai Phong branch has flexible and diversified
forms of mobilization such as savings with bonuses, ladder savings, interest paid in
advance, monthly, quarterly, interest payment using multiple interest rate term for term
deposit, etc. With attractive and suitable interest rate, branch had a great performance
 30

in capital mobilized, maintaining good relationship with the customers, pushing

strongly advertising, marketing for propaganda in the city and surrounding areas,
customers services attentively, quickly, and enthusiastically. Therefore, reputation of
the branch improves.

2.1.6.2 Lending activity

On the basis of relatively stable and constantly increasing capital mobilization,
Giai Phong branch has actively expanded its credit activities. Lending activities of the
branch are specified in the following table:
Table 2.2 Lending situation of Military Bank – Giai Phong branch
Unit: VND billion

Targets 2017 2018 2019

Amount % Amount % Increased/ Amount % Increased/
Decreased Decreased
(%) (%)
Total outstanding loans 689 100 1.087 100 +57.8 1.145 100 +5.3
Economic State-owned 250 36.3 450 41.4 +80 319 27.9 -29.1
sectors Non-state 368 53.4 527 48.5 +43.2 637 55.6 +21
Individuals 71 10.3 110 10.1 +55 189 16.5 +72
Terms Medium and 181 26.3 287 26.4 +58.6 346 69.8 -0.1
long
Short 508 73.7 800 73.6 +57.5 799 30.2 +20.6
Collaterals Secured loans 270 39.2 470 43.2 +74.1 312 27.2 -33.6
Unsecured 419 60.8 617 56.8 +47.3 833 72.8 +35
loans
Overdue debt ratio 0.5% 1.1% 1.2%
Bad debt/Outstanding loans 0% 0.4% 0.5%
(Source: Business performance reports of 2017,2018 and 2019 – Giai Phong branch)
The table 2.2 shows that the total outstanding loans of the whole branch
increased steadily over the years. However, the growth rate in 2019 decreased
significantly compared to 2018. In 2019, the loan growth rate was only 5.3%, whereas,
 31

in 2018 was 57.8%. This can be explained by the development of corporate customers
in recent years and by the Government policy which including support interest rate, in
monetary policy and looser fiscal policy. It creates condition for businesses to have
access to the bank capital with more favorable and cheaper costs. In 2018, the growth
rate of outstanding loans to the state-owned compared to 2017 increased very high, to
80% but in 2019 decreased by 29.1% compared to 2018. The state-owned enterprises
are traditional customers who has a large debt balance and long-term credit relationship
with the branch. Proportion of outstanding loans to non-state enterprises of the branch
always accounts for the highest and this number have not seen stop increasing over the
years. In 2018, outstanding loans grew at a high rate of VN 189 billion (+43.2%)
compared to 2017. In 2019, an increase of VND 110 billion (+21%), the growth rate
decreased compared to 2018. The non-state loans mostly come from small and
medium-sized customers. This shows that branch has created credibility with the state-
owned enterprises, and at the same time exploiting the potential of non-state
enterprises, in line with the orientation of Military Commercial Join Stock Bank’s
system.
The outstanding loan of individuals continued to increase over the years 2018
and 2019. In 2018, its increased VND 39 billion (+55) compared with 2017 and in
2019 it increased sharply, up to VND 79 billion (+72%) compared to 2018.
From the table 2, it can be seen that the short-term loan of the branch is always
higher than the medium and long-term loan. The main reason is due to the higher
proportion of small and medium-sized enterprises customers. In 2018, short-term
outstanding loans increased about VND 292 billion (equivalent to an increase of
57.5%) compared to 2017, in 2019 this rate declined slightly about 0.1% compared to
2018. The increase in short-term lending helps branch having more profit, which lead
to quicker capital turnover.
One more thing to consider when mentioning the level of risk in credit
operation is unsecured loan increased gradually and accounted for a very high
proportion of the total outstanding loans. In 2017 the unsecured loan accounted for
60.8% and in 2019, it had a slightly decrease (56.8%) but still account for high
proportion. In 2019, it increased to 72.8%. This happened because a lot of special
credit guarantee business with long-term credit relationship with branch; thus, sources
of debt repayment in this case is from salary paid through accounts opened at MB.
 32

2.1.6.3 Other activities

Aiming to expand business, Giai Phong branch does not stop deploying and
promoting the development of banking services. Besides, traditional activities such as
payment services, guarantee services, card services, and other services at the branch
currently have very fast growth, show in the bar chart below:
Unit: VND billion

1.6
Revenue from other services 1
0.5

1.2
Income from guarentee 1.4
1

1.1
Revenue from domestic payment 0.8
1.2

3.9
Total services revennue 3.2
2.7

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

2019 2018 2017

Figure 2.2 Revenue from other services activities of Giai Phong Branch
(Source: Business performance reports of 2017,2018 and 2019 – Giai Phong branch)
The service activities of Giai Phong branch have progressed quite well. Total
services of the branch are very positive, in 2018 increased by 18.5% (VND 0.5 billion)
compared to 2017 and in 2019, growth rate is higher than in 2019, with 21.9%
equivalent to VND 0.7 billion. Moreover, revenue from other services always keep the
growth rate of 50%.
Along with the expansion of the network of domestic money transfer services,
MB in general is becoming more and more convenient and fast. Revenue from the
domestic payment of Giai Phong Branch in 2018 reached VND 0.8 billion, accounting
for 25% in total services revenue and down 33% compared to 2017. In 2019, the
proportion of domestic money transfer services increased to 28.2% of the total service
revenue and the growth rate increase of 37.5% compared to 2018.
Revenue from guarantee services always accounted for quite high, over 30%
of the total service revenue. Revenue from this service fluctuated unsteadily, in 2018,
 33

the growth rate is 40%, but in 2019 it decreased slightly by 14.3%. Although, branch
have been very focused on pushing this activity strongly but the number of customers
using guarantee service are still quite small to other MB branches and other
commercial bank branches.
Other activities of Giai Phong branch are also quite exciting with the
following results:
- Internet banking & apps: providing a wide range of services such as
information inquiry, balance inquiry and account services, transfer between account
inside and outside the MBank system, payment for goods and services. In 2019, the
number of corporate customers users increased by 40% compared to 2018. MB apps
for corporate customers officially applied and in use similar to internet banking from
November 25, 2019. The number of users using apps also increased by 68% in the first
period of 2020 compared to last period of 2019.
- Card services: The total number of cards issued by December 31, 2019
reached 11.230 cards, an increase of 122.3% compared to the begin of the same period.
The total number of units paying salary through via card accounts was 76 units, an
increase of 23 units compared to the start of 2019.
2.2 Actual situation of lending activities to corporate customers of Military
Commercial Joint Stock Bank – Giai Phong branch
2.2.1 Lending products to corporate customers at Military Commercial Joint
Stock Bank – Giai Phong branch
In recent years, Giai Phong branch has always strived to diversify its lending
products to corporate customers so that it can be suitable to the capital demands and
different capital usage of different business style. The main lending products are:
 Overdraft loans
The type of loan that banks allow customer spending in excess of the balance
on the account with maximum overdraft limit (Kagan, 2019). Military Bank set
overdraft limit of VND 500 million and lasting for up to 12 months.
 Lending for implementation of investment projects
The bank will lend to the business during the implementation of the
investment project in which the bank provides services including appraisal, consulting,
lending, and project management, etc. In this type of loan, customers can use assets
from the capital lending such as machinery, factories, means of transport… as
 34

collaterals or other properties. Bank loans and debt collection in line with the project
cashflow.
 Lending is based on inventories and receivables
This loan product is suitable for businesses that are in demand of additional
working capital to do business but in difficulty of collaterals. Inventories and account
receivables are both collaterals and loan payment sources. Lending rate might require
up to 80% of inventories and account receivables; it has flexible loan term but not over
12 months. However, inventories must meet the following conditions high liquidity
and not collaterals of other debts.
 Lending to business in the fields of construction, trade and service, rural
agriculture.
The bank has loan product packages suitable to the demands of each type of
business. For instance:
- Lending product package for construction enterprises: working capital
loans for construction; loans for investment in machinery and equipment;
Bid Security, contract performance guarantee; Advance payment
guarantee; payment guarantee.
- Lending product packages for commercial and service enterprises: working
capital loans; manufacturing, business loans; medium and long-term loans
for investment in center malls, warehouse systems, means of transport,
storage equipment, etc.
- Lending product package for rural agricultural enterprises: working capital
loans, medium and long-term loans to build facilities for operation and
business, producing fertilizer, seeding, breeding farm, etc.
2.2.2 Lending process to corporate customers of Military Commercial Joint Stock
Bank – Giai Phong branch
 Object for loan
The branch lends all the borrowing needs of the business that the law not
prohibited:
- Lending for execution of investment projects: Investment projects on
construction of clusters, routes, residential areas, construction of houses for
sale; projects of constructing industrial zones and areas of commercial,
tourism, services, rural markets; projects of investment in upgrading and
 35

renovating newly build construction, relocate workshops, production

facilities, service businesses or expand or exchange new machinery,
technology, production, sales and services.
- Providing loans for implementation of production and business plans:
supplement loans for raw materials purchase, fuels and costs for
production and business; loan to buy means of transportation for
management and transportation activities; financing loans for contract
performance of contractor construction.
- Financing loans for performing of import and export contracts
- Import finance: Lending (in foreign currency or in VND) to pay for the
import of goods and services serving the production and business
activities.
- Lending financial needs that are not prohibited by law.
 Lending condition:
Customers who are lent by the bank must meet the following conditions:
qualified civil law, lawful loan purposes, financial capacity to ensure debt repayment
within the committed term, own capital is involved in the project or business plan that
is minimum of 15%, with an effective and feasible production and business plan with
the provision of Vietnamese law, has legally collaterals or third parties guarantees and
no overdue debts with other credit institutions.
 Loan maturity date
Short-term, medium-term, and long-term depending on the production and
business cycle, capital recovery period, investment project and customer’s repayment
ability
- Short-term loans are loans with term of up to 12 months
- Medium-term loans are loans with term from over 12 months to 60 months
- Long-term loans are loans with term from over 60 months
 Lending rates
Lending rates is determined based on: Loan demand of the business, value of
the collaterals (the bank lends at a rate of 70%-80% of the property value), customer’s
ability to repay debts, the ability of the existing capital source of the branch.
 Interest rates
 36

Military Bank bases on lending product to negotiate with corporate customers

to apply flexible lending interest rates: fixed interest rate throughout the lending
period, floating interest rate (interest rate varies by terms during the loan terms),
foreign currency loan interest rate is LIBOR’s interest rate term corresponding to the
loan term plus a certain preferential fee.
For production and business enterprises that are efficient and have credit
relationship with the State Bank of 2 years or more: repaying the loan principal and
interest in full, on time, is considered by the decision of SBV to lend at a lower interest
rate than similar loans.
 About collaterals
Military Bank accepts the type of collaterals such as real estate, movable
property (transportation, equipment, machinery…), valuable papers, stock, bond,
guarantee of third party.
 Lending process

Step 1: Instruct
customers to perpare a Step 6: End of credit
loan application, check contract
the completeness,
legality, and legitimacy

Step 2: Evaluating Step 5: Debt

the effieciency and collection, interest
solvency collection, settlement
arising

Step 4:
Step 3: Loan Disbursement,
decision inspection and
supervision

Figure 2.3 Lending process at Military Commercial Joint Stock Bank

Step 1: Instruct customers to prepare a loan application, check the
completeness, legality, and legitimacy rules of the record
 37

Credit officers are responsible for guiding and instructing customers to

prepare and complete the loan application. Military Bank regulates loan documents
including loan proposal; legal records about customers; records of business,
production, and finance situation; loan project documents; loans security records.
Credit officers are responsible for checking the completeness of quantity and legality
of the loan application and receive it at the same time. The above papers are the basic
for the bank to check if a customer is using the loan for the right purpose or not, basic
for dealing with collaterals and related to debt recovery steps.
Step 2: Evaluating the efficiency and solvency
Credit officers and appraisers are responsible for conducting the due diligence
of prescribed content. This step requires credit officers and appraisers must have
general knowledge about technology, about the field of production and business of the
customers’ enterprise, markets, and socio-economic situation general.
At the same time, credit officers are responsible for receiving and transferring
files, collecting opinions of other functional departments to set limits, types of money
and reasonable interest rate, etc. This stage requires the coordination of many
departments.
Step 3: Loan decision
The Bank’s leader, after reviewing the report of the credit officer, will conduct
the review approval and decide the loan.
Step 4: Disbursement, inspection, and supervision
Credit officers are responsible for closely monitoring and supervising
disbursement conditions, supervise the use of capital for the clients’ purpose.
Step 5: Debt collection, interest collection, settlement arising
This is the period of monitoring the payment of principal and interest, and the
maturity of the loan as agree in the contract, the credit officer is responsible for sending
the debt repayment reminder slip to the borrower capital at least 5 days before the time
of receivable and customer is obliged to pay in full both principal and interest. There is
some situation may arise such as pay debt ahead of time, adjust loan term, extend debt,
transfer overdue debt, handle assets guarantee, etc. The bank will depend on the
specific situation to resolve as prescribed.
Step 6: End of credit contract
 38

At the end of the credit contract, the bank’s credit officer shall: settlement of
loans, mortgage of loan security properties, handling risk and liquidating credit
contract, record. For each customer, each loan is different credit submission can be
supplemented with some other content, but generally, the procedure for a loan includes
above steps.
2.3 Analysis and evaluation the lending quality to corporate customers at Military
Bank – Giai Phong branch over the period of 2017 – 2019
2.3.1 Analysis the lending quality to corporate customers at Military Bank – Giai
Phong branch over the period of 2017 – 2019
a) Outstanding lending situation
Outstanding loans to corporate customers account for large proportion of the
total outstanding loans of branch. In 3 years of 2017, 2018, and 2019, the proportion of
corporate customers loans always accounted for more than 60% of the total loan
balance.
Table 2.3 Lending situation to corporate customers of MB - Giai Phong Branch
Unit: VND billion

Targets 2017 2018 2019

Amount Amount Increased/ Amount Increased/
Decreased Decreased
(%) (%)
Outstanding loans to 412 685 +66.3 709 +3.5
corporate customers (2)
Total loans (3) 689 1.087 +58 1.145 +5.3
Proportion (2/3) 60 63 62
(Source: Summary report on credit activities in 2017, 2018 and 2019 – Giai Phong
branch)
The table 3 shows that the loan balance to corporate customers of Giai Phong
branch always account for a high proportion of total outstanding loans and increase
over the years. Especially, in 2018, the size of outstanding loans to corporate customers
of the branch increased 66.3% compared to 2017, accounting for 63% of the total debt
in that year. However, the loan sales in 2018 decreased significantly about 34%. Total
 39

outstanding loans in 2019 increased slightly due to the outstanding loans in the period
of decreasing and mainly in 2018, outstanding loans were transferred.
Through the above data, it can be seen that corporate customers, especially
small and medium-sized, are always the important customers and receiving special
attention from MB – Giai Phong branch. It is appropriate because the number of
corporate customers increases about 34% compared to 2018, 26% in this increase
belongs to small and medium sized and this is a potential market in the long run. Over
the time, Giai Phong branch has continuously implemented many positive measures to
support reasonable credit for corporate customers. This result also contributes
significantly to be the overall results of the strategy.

Table 2.4 Outstanding loans to corporate customers by terms of Giai Phong

Branch
Unit: VND billion

Targets 2017 2018 2019

Amount Amount Increased/ Amount Increased/

Decreased Decreased
(%) (%)

Outstanding loans 412 685 +66.3 709 +3.5

Short-term loans 321 490 +52.6 476 -3.0

Medium and long-term 91 195 +114.2 233 +19.5

loans

(Source: Summary report on credit activities in 2017, 2018 and 2019 – Giai Phong
Branch)

From the table 4, short-term loans account for a large proportion of the total
lending to corporate customers of the branch but tending to decrease (for short-term
loans in 2017 accounted for 78%, in 2018 accounted for 71.5% and in 2019 accounted
for 67%). Outstanding short-term loans in 2018 increased sharply 52.6% compared to
2017, but in 2019 decreased slightly 3.0% compared to 2018.
 40

In throughout 3 years, the proportion of medium and long-term loans tended to

increase (in 2017 accounted for 22%, in 2018 accounted for 28.5%, in 2019 accounted
for 33%). Outstanding debt for medium and long-term had strongest growth in 2018,
increasing by VND 104 billion.

This fluctuation shows that in the recent years, branch has focused more on
lending medium and long-term loans to corporate customers as for showing that bank
meeting the demand of corporate customers; however, this number is still a small
proportion compare to short-term loans. It proves that Giai Phong branch still provide
more short-term loans to corporate customers (short-term loans with lower risk and
higher payback period – much preferred for bank to manage business performance).
On the other hand, corporate customers mainly demand for medium and long-term
loans to expand business, upgrade facilities, change technology, medium and long-term
projects. Medium and long-term loans are mainly concentrated focus on large
businesses, reputable companies, companies with great financial capacity, capital, or
collateral value. The reason is that small and medium-sized enterprises are often small
and informative, transparent, insufficient collaterals, etc. The sign of increase in
medium and long-term lending to corporate customers is that Giai Phong branch has
greatly making efforts to meet the demand of this type of customers as well as highly
increase the quality of the product and services to corporate customers.

Table 2.5 Outstanding loans to corporate customers by industries of the branch

Unit: VND billion

Targets 2017 2018 2019

Amount Amount Increased/ Amount Increased/
Decreased Decreased
(%) (%)
Outstanding loans 412 685 +66.3 709 +3.5
Industry and Construction 107 208 +94 213 +2.4
Commerce and services 247 412 +64 390 -5.3
Manufacturing and 58 65 +12 106 +63.1
processing
(Source: Summary report on credit activities in 2017, 2018 and 2019)
 41

Outstanding loans to corporate customers of the branch focus heavily on

commerce and service industry (always accounted for over 55% from 2017 to 2019).
This is partly due to the characteristics of commerce and services: the payback period
is fast, the scale of capital is not too large, demand for capital is increasing and less
risky for bank compared to investing in other two industries. However, in 2019, the
growth rate of outstanding loans of commerce and services decreased slightly
compared to 2018, by 5.3%. This result due to an increase in loan balance to corporate
customers in the other two sectors. Proportion of outstanding loans to corporate
customers of industry and construction sector also take a decent amount of 30%
through 3 years. In 2018, the credit growth rate of this sector was higher than in 2017,
up to 94%.

Along with the growth of outstanding loans to corporate customers in the two
areas, the outstanding debt to corporate customers in manufacturing and processing
industry has also increased in recent years; especially, there was a significant
difference in 2019, by 63% compared to 2018. This is obviously happening when there
is diversification in credit activities; it is also appropriate with the branch’s
development currently. Closely look to the situation of the world economics upcoming
in early 2020, the industry of commerce and services are likely having some negative
impact by Covid19 disease, come along are the manufacturing and process industry.
The strategy of decreasing -5.3% on commerce and services will help bank prevent
some risk to the bank due to the situation in early 2020. However, a significant
increase in loans for manufacturing and processing (63.1%) will may cause some
potential loss for Giai Phong branch. The loans of manufacturing and processing is less
risky because most of the loans have collaterals (equipment, facilities, real estate,
technology, etc.) whereas, for commerce and services, they are insufficient of value of
collaterals to repayment the debt.

Table 2.6 Outstanding loans to corporate customers according to the collaterals of

Giai Phong Branch
Unit: VND billion

Targets 2017 2018 2019

Amount Amount Increased/ Amount Increased/
Decreased Decreased
 42

(%) (%)
Outstanding loans 412 685 +66.3 709 +3.5
Secured loans 178 288 +61.8 340 +18.1
Unsecured loans 234 397 +70 369 -7.0
(Source: Summary report on credit performance in 2017, 2018, 2019)

The collateral is not the only basis for making a loan decision, but it is a factor
to help the bank reducing losses if risks occur and attaching responsibilities of the
borrowers in repaying the bank’s loan. Collaterals which commercial banks mainly
require before making a lending decision, are real estate, inventory, account
receivables, cash saving or deposits, etc. However, collaterals are still a major
difficulty for most of small and medium-sized corporate customers at Giai Phong
branch.

From the data table 6, it can be seen that the proportion of unsecured loans
higher than the proportion of secured loans and always accounting for over 50% of
total loans to corporate customers in recent years. In 2019, outstanding unsecured loans
declined compared to 2018, but still accounting for 52.05% of the total outstanding
loans to corporate customers. Secured loans tended to increase, the growth rate was the
strongest in 2018, an increase of 61.8%. This shows that the branch has focused on
secured lending with lower risk in business. Increasing the proportion of outstanding
secured loans is still lower than the unsecured, just above 40% of total outstanding
loans. This may cause high risk to the branch if the debt cannot be recovered. It leads
to lack of concerning and caring to quality of services of unsecured loan demands
because banker prefer deals with secured loans than too many applications of
unsecured loans.

b) Indicators reflect level of safety

 Overdue debt target
Overdue debt and the ratio of overdue debt to outstanding debt to total
outstanding debt are considered an important indicator. Mostly importantly, in
assessing loan quality, it is the basis for making extended decisions lending activities to
corporate customers. Overdue debt is an unhealthy expression of loans, which contain
many risks in lending activities of the bank that customers cause. Overdue debts extend
the loan terms, causing photos adversely affecting the bank’s business plan.
 43

Table 2.7 Loan classification of corporate customers of Giai Phong branch

Unit: VND billion

Targets 2017 2018 2019

Group 1 debt 412 678.3 695.9
Group 2 debt 0 5.1 9.8
Group 3 debt 0 1.6 2.5
Group 4 debt 0 0 0.8
Group 5 debt 0 0 0
(Source: Summary report on credit activities from 2017 to 2019 of Giai Phong branch)
Through the table 9, it can be seen that the overdue debts of the branch are not
much, but there are signs of increasing.
In 2017, there was no overdue debt, but in 2018, group 2 debt began to appear
is VND 5.1 billion and group 3 debt is VND 1.6 billion, although this number is not
high but it shows in the lending process of corporate customers of the branch have
appeared risk. Not only that, in 2019, the overdue debt situation of the branch
continued increasing, group 2 debt was VND 9.8 billion (up 92%), group 3 was VND
2.5 billion (56.3%) and appeared group 4 debt with 0.8 billion. This shows quality of
lending to corporate customers of the branch are tending to decrease, the level of risk
in lending activities are increasing. The appearance of group 3 and group 4 debt is due
to the worldwide Covid19 pandemic in late of 2019. A lot of policies were instituted by
governments intend to prevent the spreading of the virus such as temporary shutdown
non-essential services and business activities, social quarantine in national scale,
closure of public places for gathering, travel bans, etc.
 NPL ratio

Table 2.8 Situation of overdue debt and bad debt of corporate customers of MB -
Giai Phong Branch
Unit: VND billion

Targets 2017 2018 2019

Overdue debts 0 5.1 9.8
Bad debts 0 1.6 3.3
Overdue debt ratio 0 0.74 1.38
 44

(%)
NPL (%) 0 0.23 0.47
(Source: Summary report on credit performance of 2017 to 2019 of Giai Phong
branch)
It can be seen that 2018, the loan turnover of corporate customers decreased
compare to 2017, the proportion of overdue debt increase to 0.74% and NPL were
0.23%. In 2019, the ratio of overdue debt increased at 1.38% and NPL also increased at
0.47%. The table 9 shows that bad debt (debt from group 3 to group 5) increased in
2018 and 2019. Group 3 debt increased by 56.3% which is still acceptable in business.
Group 4 appeared in the late of 2019, an increase of VND 0.8 billion; although this
increase is not significant, the bank must pay special attention to this group – the
boundary between doubtful debt and dept likely to lose capital, high risk. Realizing the
signs of increasing bad debts and overdue debts in 2019 and in the following years,
Giai Phong branch has took timely adjusting the appraiser but still keep improving the
quality of lending to corporate customers.
 Risk Provision level
Unit: %
6
5.1375 5.3175
5

4
3.09
3

0
Risk provision level
2017 2018 2019

Figure 2.4 Risk provision of Military Bank - Giai Phong Branch

(Source: Summary report on credit activities from 2017 to 2019 of Giai Phong branch)
From the figure 4, it can be seen that the credit loss or risk provision level
increased in 2018 about 2% compared to 2017 and in 2019, it increased slightly about
 45

0.2% compared with 2018. The growth rate of risk provision in 2019 declined by 9%
compared to 2018. These results are appropriate to the business strategy of Giai Phong
branch in 2019, increased in unsecured loans, increasing the outstanding loans of small
and medium-sized corporate customers who majorly have small amount or insufficient
amount of collaterals value. Unfortunately, branch needs to be cautious about this
situation because the increased of unsecured loans to corporate customers equivalent to
the increase of risk in lending activities.

 Proportion of credit outstanding with secured assets (COSA)

Table 2.9 Proportion of COSA at Military Bank - Giai Phong branch

Unit: VND billion

Targets 2017 2018 2019

Amount Amount Increased/ Amount Increased/
Decreased Decreased
(%) (%)
Outstanding 412 685 +66.3 709 +3.5
loans (1)
Secured loans 178 288 +61.8 340 +18.1
(2)
Proportion of 0.43 0.42 0.479
COSA
(2) / (1)
(Source: Summary report on credit activities from 2017 to 2019 – Giai Phong branch)
Table 9 shows the percentage of secured loans over the outstanding loans from
2017 to 2019. In 2018, the secured loans increased about 61.8% lower the increase of
the total outstanding loans in the same years, about 66.3%; therefore, proportion of
COSA in 2018 slightly decreased compared to 2017, about 1%. In 2019 the secured
 46

loans increased significantly compared to the percentage increase of outstanding loans

about 18.1%. It leads to the result of the increasing proportion of COSA in 2019 of
5.9%. It shows that in 2019, the branch focus on secured loans with lower risk and it
suitable with the situation of the world economics during the end of 2019 – Covid19
pandemic. A safer lending like secured loans will help the branch lower the potential
risk and increase the efficiency of loans activities.

c) Indicators reflect profitability

 Debt collection ratio
Table 2.10 Debt collection ratio of corporate customers of Giai Phong Branch
Unit: VND billion

Targets 2017 2018 2019

Amount Amount Increased/ Amount Increased/
Decreased Decreased
(%) (%)
Lending revenue/ 1.350 478 -53.8 819 +71.3
Loan sales (1)
Debt collection 738 205 -72 795 +287
turnover (2)
Debt collection 0.55 0.42 0.97
ratio (2)/ (1)
(Source: Summary report on credit activities from 2017 to 2019 – Giai Phong branch)
From the table 7, it can be seen that the debt recovery ratio of Giai Phong
branch is not stable, increase and decrease irregularly. Considering the total
outstanding loans to corporate customers of the branch, short-term loans accounted for
a large proportion (in 2017 accounted for 78%, in 2018 accounted for 71.5%).
 47

However, in 2017 and 2018, the debt collection ratio was an average level. In 2018, the
debt recovery ratio decreased about 23% compared to 2017. That reflect the debt
collection efficiency over the two years was not high.
2019 is the year that debt collection work of the branch is most effective. The
debt collection increased about 40%, reached 0.97 compared to 2018. It shows that the
bank almost fully recovered the loans; thus, banks should be cautions in managing and
recovering debts in the following years.

 Profitability ratio over outstanding loans

Table 2.11 Profitability ratio over outstanding loans of MB– Giai Phong Branch
Unit: VND billion

Targets 2017 2018 2019

Profit from lending to corporate 8.24 9.2 10.5
customers (1)

Total outstanding loans of corporate 206 342.5 354.5

customers on average (2)

Profitability ratio over outstanding 0.04 0.02686 0.02962

loans (2)/ (1)

(Source: Summary report on credit activities from 2017 to 2019 – Giai Phong branch)
In the table 7, it can be seen that profit from lending to corporate customers
increased sharply over the years. In 2018, profit growth rate increased by 1.65%
compared to 2017 and in 2019, this number reached by 4.1% equivalent to VND 1.3
billion. This prove that the business of the branch is quite effective, relatively profit
growth. However, the proportion of performance of loan usage declined in 2018 by
1.3% compared to 2017, yet in 2019, it bounced back slightly about 0.27% compared
to 2018. This result show that, the branch recently focuses on more lending to
 48

corporate customers, especially small and medium-sized enterprises, showing that the
growth rate of outstanding loans increased over the years faster than the growth of
profit from lending to corporate customers.
 Efficient cost management

Table 2.12 Cost management effectiveness of Military Bank - Giai Phong Branch
Unit: VND billion

Targets 2017 2018 2019

Amount Amount Increased/ Amount Increased/
Decreased Decreased
(%) (%)
Interest income from 78 83 +6.4 138 +66.4
corporate customer’s loans
(1)
Lending to corporate 49.4 82.2 +66.4 92.17 +12.1
customers cost
Interest income/ Lending 1.58 1.69 1.49
cost (1) / (2)
(Source: Summary report on credit activities from 2017 to 2019 – Giai Phong branch)
In general, in the period of 2017 – 2019, the interest income gaining from
corporate customers’ lending tend to increase along with the corporate customers loan
balance of the branch. The interest income gained from lending to corporate customers
in 2017 was only VND 78 billion, while in 2018, the growth rate was 6.4% compared
to 2018 with the profit at VND 83 billion. In 2019, the growth rate is the highest, up to
66.4% compared to 2018, at VND 138 billion. The cost of lending of the branch also
 49

increased over the years, but the increasing speed was instability. In 2018, it is the
highest growth rate reached 66.4%. In 2019, lending expenditure growth rate decreased
significantly compared to 2018 and higher the increasing speed of interest income.
Compared to 2 previous years, the proportion of corporate customer’s lending interest
of the branch still accounted less than the cost of lending in the total interest earned.
Through this, it can be seen that the ability to manage expenses of branch in lending to
corporate customers is not well, there is no reasonable adjustment between deposit and
lending rates.
d) Customer satisfaction
There are 2 types of scales used in the questionnaire: Nominal scale to collect
research object information and the Likert scale to assess the agreed level of criteria for
evaluating the quality of lending services to corporate customers. In particular use the
Likert scale from strongly agree to strongly disagree to measure and evaluate
customers satisfaction with the lending services of Military Bank – Giai Phong branch.
Information about expectations and perceived services according to
SERVQUAL, part 5 of the questionnaire contains 17 clauses that measure in 6 aspects:
Tangible, reliable, responsiveness, assurance, empathetic and price.
Table 2.13 Customers satisfaction scale

Criteria Clauses
Tangibility Q1: Giai Phong branch is invested with modern facilities and utilities
for customers
Q2: The branch staffs are dressed neat and polite costumes
Q3 Bank has different interest rate policies for each type of customers
Reliability Q4 Corporate customer staffs are always serving customers promptly
Q5 the branch staffs always available to help and solve customers’
request(s)
Q6 The branch staffs always listen and consult fully, consistent with
customer characteristics
Q7 the branch staffs always respect and protect the interests of
customers
Responsiveness Q8. Giai Phong branch staffs serve customers politely
Q9. Giai Phong branch staffs handle transactions quickly and
accurately
 50

Q10. staffs always provide necessary service information to customers

Empathy Q11. MBank - Giai Phong branch always shows interest in customers
Q12. Bank fully meets the customers' loan demands
Assurance Q13. Bank always fulfills its commitments to customers
Q14. Bank always keeps customers records information confidential
Price and Q15. Bank has reasonable service fees and interest rates
overall Q16. The lending quality are suitable and reasonable with the
satisfaction services fees
Q17. Customers are completely satisfied with the quality of
lending services
 Object information
The survey had been conducted with about 50 corporate customers, only 80%
of fully responses through phone interviews, online survey, face to face interviews.
Here are some data about the types of industry as well as the positions of the one who
had participated in the survey:

Figure 2.5 Industry classification

In 40 responses, 50% of corporate customers are commerce and services, 17.5%
are in industry and construction, 32.5% are in the manufacturing and process industry.
 51

Figure 2.6 Positions of the responders in their enterprises

Moreover, most of the contacts participated in the survey are directors (50%),
who is that have the highest connection with bank. 40% of responders are chief
accountant, they are the one who works and dealing with papers works with the banks.
In the case that, the chief accountant does not directly work with bank, these
enterprises will have accountants specialized in banking, and they participate in 10% of
the responses.
 Tangibility
The tangibility of Giai Phong branch will be expressed in quotes 1, 2 and 3.
18
16
16 15 15
14
14 13
12 11 11
10 9 9
8

4 3
2 2
2
0 0 0
0
Strongly agree Agree Normal Disagree Strongly disagree

Q8 Q9 Q10

Figure 2.7 Survey result from quote 1 to 3

The figure 8 shows the survey results from quotes number 1 to number 3. There
are total of 29 customers strongly agree and 46 agree with the quotes 1 to 3. 38
 52

responses are normal and only 7 disagree with the quotes from 1 to 3. Although the
number of agreeing with the 3 quotes takes about 62.5% of total responses, 31.67% is
normal and 5.83% is disagree. This indicate that in the tangibility level of the branch
still have some limitation causing dissatisfaction experienced to corporate customers.
In 12 disagree responses, quote 1 has the most disagree. It might come from the
facilities in the branch because of the recent transaction of the office from 96 Dinh
Cong to 360 Giai Phong. It just a temporary problem and will be improves in no time.

Table 2.14 CSAT of tangibility of Giai Phong Branch

Unit: %

Targets Q1: Giai Phong Q2 The branch Q3 Bank has Tangibility

branch is invested staffs are dressed different interest (Average of
with modern neat and polite rate policies for Q1,2 and 3)
facilities and costumes each type of
utilities for customers
customers
CSAT 67.5 60 60 62.5
indicator
Overviews of table 13, it shows that all 3 quotes have CSAT over 50% and the
tangibility satisfaction reach 60%. This result reflects that most of the corporate
customers are pleasure with the facility that Giai Phong branch can provide to improve
the experience of corporate customers in the time they at the bank, having lending
activity or using other services. Especially, all responders have highest satisfaction
with the modern facilities and utilities of the branch, yet the number disagree with the
quote also the highest according to figure 8 above. The second with the highest
responses is about the variety of interest rate policies for each type of customers, yet
the number disagree with the quote also at second. Moreover, about the costumes of
the staffs are also not affected too much about the customers’ satisfaction when the
CSAT indicator in quote 2 is 60%. The results show that what a corporate customer
care about the most when using a banking service (lending activity)? The CSAT in
tangibility have shown some factors affecting the customers satisfaction.
 Reliability
The reliability of Giai Phong branch will be expressed in quotes 4, 5, 6 and 7.
 53

18
16
16 15 15
14 13 13
12 11 11 11 11
10
10
8
8 7
6 6
6
4
4 3
2
0 0 0 0
0
Q4 Q5 Q6 Q7

Strongly agree Agree Normal Disagree Strongly disagree

Figure 2.8 Survey result of quote 4 to 7

Figure 9 shows the survey result from quote 4 to 7 represent the reliability of
the branch to its corporate customers. Responding to the quote, we have 40 strongly
agree, 49 stay as agree, 52 normal and 19 disagree. With more than 55.6% of agreeing
and 32.5% of responding normal, it shows that branch has the reliability of the most
customers. Disagree with the quote is the number of 19, takes about 11.9% of total
responses, it shows that in reliability branch still have some limitations, especially in
the quote 4 – serves customers promptly and quote 7 – respect and protect the interests
of customers, both have 6 disagrees.

Table 2.15 CSAT of Reliability of Giai Phong branch

Unit: %

Targets Q4 Corporate Q5 the branch Q6 The branch Q7 the Reliability

customer staffs always staffs always branch staffs (Average
staffs are available to listen and always of Q4, 5, 6
always serving help and solve consult fully, respect and and 7)
customers customers’ consistent with protect the
promptly request(s) customer interests of
characteristics customers
CSAT 47.5 50 65 60 55.625
indicator
Through table 14, the reliability of the branch is getting the satisfaction of the
corporate customers, with the CSAT of reliability at 55.6%. Q6 and Q7 have highest
 54

CSAT score that means customers have high satisfaction and reliable with the way
Giai Phong branch’s staffs doing the services (mainly loan services). However, the
quote 4 – serving customers promptly scores only about 47.5%, it shows that corporate
customers need the branch staffs finish the process of services faster and promptly.
This is a limitation to the bank because of the complex of the lending process or the
staffs are hesitating with the loan application. The CSAT reliability has shown that
what MB require to improve to raise the overall reliability of the corporate customers
towards the branch.

 Responsiveness

The responsiveness of Giai Phong branch will be expressed in quotes 8, 9, and

10.

18
16
16 15 15
14
14 13
12 11 11
10 9 9
8

4 3
2 2
2
0 0 0
0
Strongly agree Agree Normal Disagree Strongly disagree

Q8 Q9 Q10
Figure 2.9 Survey result of quote 8, 9, 10 and 11
The bar chart in figure 10 shows the overall survey result of quote 8 to 11 –
expressed the responsiveness factors of Giai Phong branch. In total results of
responsiveness, there are 29 responses that strongly agree, 46 agrees, 38 normal and
only 7 disagrees.

Table 2.16 CSAT of Responsiveness of Giai Phong branch

Unit: %
 55

Targets Q8. Giai Phong Q9. Giai Phong Q10. staffs always Responsiveness
branch staffs branch staffs provide necessary (Average of Q8, 9
serve customers handle service and 10)
politely transactions information to
quickly and customers
accurately
CSAT 67.5 60 60 62.5
indicator
Through table 15, it can be seen that the responsiveness of the branch has
about 62.5% of corporate customers’ satisfaction, a similar score with the tangibility of
the branch. The way branch staffs serving properly and politely has gaining positive
influence on the customers judgements about the quality of the services. It also the
factor that Military Bank has mainly focusing to adjust and training the staffs the
professional in the services serving. Transactions are been handle quickly and
accurately and also a factor that the corporate customers concerning. If the loans
cannot be disbursement intime, corporate customers’ projects will be delayed causing
potential losses and negatively service experiences. CSATs in staffs’ responsiveness
when handling the lending services, transactions quickly and accurately, also in
providing necessary information to corporate customers, are above average (60%). It
means that corporate customers are well satisfied with the responsiveness of Giai
Phong branch. Yet to increase the lending quality and improve the experienced of
corporate customers, the branch requires some improvements in the transaction and the
professional of the staffs.

 Assurance and empathy

The assurance of Giai Phong branch will be expressed in quotes 13, 14 and the
empathy will be expressed in quotes 11, 12.
 56

20
18 18
18
16 16
16
14
12 12
12
10
10 9 9 9
8
8 7
6 5
4 4
4 3
2
0 0 0 0
0
Q15 Q16 Q17 Q14

Strongly agree Agree Normal Disagree Strongly disagree

Figure 2.10 Survey results of quote 11 to 14

The figure 11 shows that most of the responses is agreeing with the quotes
(from 11t o 14), whereas the number responses of strongly agree, normal and disagree
are similar and lower than 10 responses. The result shows high agreement from the
corporate customers towards the assurance and empathy of Giai Phong branch

Table 2.17 CSAT of empathy and assurance of Giai Phong branch

Unit: %

Targets Empathy Assurance

Q11. MBank - Q12. Bank fully Q13. Bank Q14. Bank
Giai Phong meets the always fulfills its always keeps
branch always customers' loan commitments to customers records
shows interest in demands customers information
customers confidential
CSAT 70 67.5 65 67.5
indicator
Table 16 shows that Giai Phong branch has great performance in assurance
and empathy to the corporate customers. On average, 67.5% of satisfied customers
toward the assurances and empathy of Giai Phong branch. Although mostly of the
 57

customers stay at agreeing and strongly are less than 10 responses, the branch still
shows that the lending services its providing can meet the assurance and empathy of
the corporate customers. Giai Phong branch has a well customers relationship
interaction and efforts in understanding of corporate customers’ demands. Also, the
branch has gaining the trust of customers while using the lending services with 65%
satisfied in fulfilling its commitment and 67.5% satisfied in securing customers records
information.

 Price and the overall evaluation

The “price” and the overall evaluation of lending quality by customers will be
expressed in quotes 15 to 17.

20
18
18
16 16
16
14
12 12
12
10
10 9
8
8 7
6 5
4
4 3
2
0 0 0
0
Strongly agree Agree Normal Disagree Strongly disagree

Q15 Q16 Q17

Figure 2.11 Survey results of quotes 15, 16 and 17

The bar chart of figure 12 above shows the results for the pricing factors and
the final judgment of corporate customers towards the lending services of Military
Bank – Giai Phong branch. It can be seen that, mostly of the answers are agree and
normal; moreover, the CSAT of price is about 63.75% - a well score to judge that
Military Commercial Joint Stock Bank has a reasonable prices and the services is
worthy to the fees. 60% of customers are totally satisfied with the lending services in
general, this results overall shows that the branch has performed well in lending
services, yet there are things need to be improves so that the CSAT level is higher and
closer to 100%.
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2.3.2 Evaluation the lending quality to corporate customers at Military Bank –

Giai Phong branch over the period of 2017 – 2019
2.3.2.1 Achievements and causes
a) Achievements
Firstly, the strategy for serving small and medium-sized businesses has been
approved by the Giai Phong Branch management proposed and implemented quite
effectively. The size of lending activity with respect to corporate are increasingly
expanding, outstanding loans to these businesses have increased certainly, medium,
and long-term loans tend to increase. At the same time, Giai Phong Branch has been
actively exploring new projects so that credit scale can be expanded. As the results, the
bank has somewhat met the loan demands from businesses, contribute to expand and
improve production capacity, competitiveness of businesses in the market, creating
jobs, boosting the economy.
Secondly, Giai Phong branch carried out flexible loan guarantee method.
Besides, the bank also allows customers to apply multiple guarantees method at the
same time from different sources to secure the loans. Customers can mortgage partly
with land use rights, the rest can be used by third party guarantee, so corporate
customers come to Giai Phong Branch with legitimate aspirations is always created the
most favorable conditions to achieve its goals. Information collection works before and
during the loan process was focused.
Thirdly, the business performance through credit activities of Giai Phong
branch in the period of 2017 – 2019 is well consistency with the great efforts of
increasing the growth rate of profit. Branch also has done a great work in maintaining
the lending costs along with increasing in the revenue and interest income of corporate
customers’ loan.
Fourth, customer relationship management has been doing effectively as well
as the lending and other services. Increasing in customers satisfaction with about 60%
of positive customers feedbacks is another great achievement of Giai Phong branch.
b) Causes
Firstly, the outstanding loans of the branch increasing in period of 2017 to
2019 because of new updated product (credit guarantees, lower 20 billion revenue loan
package, etc.) and strategy for small and medium – sized enterprises attracted many
corporate customers’ loan demands. Moreover, the branch has implemented the
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strategy to target and actively capture the difficulties in assess bank loans product of
small and medium – sized enterprises when seeing the potential of this market
bringing.
Secondly, branch has seen before the potential damage because of the
Covid19 pandemic in the late of 2019, as the increasing of NPLs in credit, the
appearing of group 2, 3 and 4 debts recently. Great risk management controls Giai
Phong branch is thanks to the well manage by the BOD of the branch, and MB. All
credit officers who are subjects to evaluation must have at least visit (in period) to
facility whether it is a small or big loan. The information at the facility that credit
officers need to check is inventory, sales (calculated on VAT invoices), receivables,
payables, taxable payables, current status of the collateral account, qualification of
chief accountant, business style, etc. Giai Phong branch has seriously implemented
customers classification. Many small businesses, non-state enterprises are rated A, the
bank has facilitated for borrowers do not need a mortgage or only a partial mortgage. It
can be said that with respect to collaterals, Giai Phong branch always creates favorable
conditions for customers. Besides, the bank actively participated registration of
security transactions for assets mortgaged, customers take no cost. The appraisal and
valuation of property are always done properly and guarantee to the benefit of both the
bank and its customers.
Thirdly, revenue and profit increasing in credit activities came from the
business direction from the management of the branch – focusing on debt collecting
and tightening the appraisal loans potential in order to lower the risk and increase the
interest income. By far, BOD of the branch has implemented debts supervising strategy
and emphasize strictly the appraisal process to be tighten and accuracy when making a
loans.
Last, throughout the operation process from inception to the present, with
none stop innovation in quality management and customer service towards civilization
and modernity conveniently, Giai Phong branch has established and maintained credit
relationships with more customers, and increasingly moving towards focusing
primarily on the businesses have high reputation, effective production and business
activities. It could be said that this is one of the factors contributing significantly to
improving the credit quality for corporate customers of the whole Giai Phong branch
network in recent years.
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2.3.2.2 Limitations and causes

a) Limitations
The branch proposed a strategy to treat small and medium corporate customers
as important and potential as large corporate customers and making efforts to further
develop in this market. Through the analytical data above shows that Giai Phong
branch has also tried a lot and achieved encouraging results, but there are still many
limitations that needs to be overcome soon, because these restrictions have direct
effects, reducing the quality of lending.
Firstly, Giai Phong branch has limited ability to meet medium and long-
term loan needs of small and medium corporate customers.
Looking at the indicators of outstanding loans for small and medium corporate
customers, it can be seen that Giai Phong branch has mainly short-term loans for this
economic sector, whereas medium and long-terms loan take smaller proportions, the
growth rate of medium and long-term loan for small and medium business is not high.
In fact, small and medium corporate customers are in serious shortage of capital to
improve advanced technology; invest in production, large projects, etc. Whereas,
accessing medium and long-term loans is facing many difficulties. If there is demand
requirement that MBank does not meet, it will reduce potential profit as well as losing
customers. Therefore, a reasonable customer policy is required to satisfy customers’
diverse needs.
Secondly, corporate customers lending sales increased and decreased
irregularly and the ratio of overdue loans and NPLs increased.
In fact, there have been a number of conflicts in the lending work that need to
be resolved harmoniously to increase loan sales, increase outstanding loans but reduce
the overdue debt ratio and the interest rate. However, the corporate customers revenue
of Giai Phong branch increased and decreased unsteady. The decrease in loan sales
proves that MB is still uncertain about loan for this business sector.
Thirdly, the proportion of unsecured loans is higher than the proportion
of secured loans.
Collateral is not only one of the bank’s source of debt collection, it is also a
factor affecting debt repayment obligations, preventing the situation of customers
capital abuse calculation and at the same time prevent lost mitigation to the bank when
customers disable to repay. However, past analysis at the above section shows that the
 61

proportions of unsecured loans still higher than secured loans. This may cause risks for
the bank if the joint venture business is ineffective or deliberately does not repay the
bank.
Fourthly, there are still weaknesses in the assessment and supervision of
customer loan.
Activities of collecting and evaluating customer information of credit officers
through more attention has been paid in the past but there are still many limitations,
especially possibilities assessing the financial capacity of customers. Most information
is gathered from appraisal activities at the premises of the appraisers, information is
within the narrow scope and subjective. Credit officers have not been proactive in
seeking macro information to disseminate to credit officers such as inflation indicators,
on the growth rate of the economy, import-export trend, development trend of
industries where the bank has a high level of lending. Lending mechanism of Giai
Phong branch has been more flexible than before but still has not met all of customer
demands; lending procedures are still complicated, may shortcomings; lending rates as
well yet flexible for each customer.
b) Causes
 On the bank side
First of all, at Giai Phong branch, there is always a policy to focus on the
target corporate customers which are large enterprises. Not only at Giai Phong branch,
but also other commercial banks in general have a tendency prefer big projects, big
business. This is completely understandable because bank is a business unit so always
pay close attention to loan capital security, especially in the current situation when the
market of corporate customers increasing significantly as well as the loans demands
and the threats of Covid19 – pandemic in the late of 2019. Lending to business with
large capital is usually safer because they usually have the guarantee of the State, have
a steady financial background, the issue of collaterals is easily satisfied the loans
requirements. In addition, for large businesses, branch will easily capture information
about the activities of the business, so that it is easier to follow and inspect the progress
of capital using of the enterprise.
According to business characteristic, large enterprises tend to borrow more
often and large amount; thus, this is greatly increase loan sales and large profit. In
contrast, for medium and small – sized enterprises, they often have limited financial
 62

capacity, insufficient of collaterals, the demand of loans is small. Thus, promoting the
lending sales to this segment, the branch has to spend a lot of evaluation expense and
face potential profits reducing which are causing the branch to hesitate in lending to
medium and small sized corporate customers. Another reasons, corporate customers
usually only receive a maximum loan of 70% of collaterals value. In additional,
collaterals are problems for medium and small sized corporate customers which is
difficult for customers to access the bank’s capital. Another reason is from the bank’s
credit process. Medium and small – sized enterprises mainly access short-term loans in
urgently short time requirement, but still they must follow many complex steps in the
credit process. Another cause is the over- reliance on the support of the MB system in
the business operations, and the psychological achievement, doing to accomplish the
targets assigned, which is turn led to KPIs burden, causing depressive psychology for
the staffs at the bank. The inspection during and after the loan has not been properly
focused. When the loan is disbursed, credit officers are less interested in the corporate
customers’ operation; yet they only concerned with customers repayment. Therefore, it
is likely that the interest paid to the bank is possibly not from the operating activities,
but customers might intentionally cover the eyes by borrowing to pay interest.
On the corporate customers side
Information of corporate customers is often not transparent due to intend of
making financial planning and reports inaccuracy, dishonestly. Moreover, the
competitiveness of medium and small – sized enterprises is limited due to scale of
operation, owner capital is insufficient to expand, lack access to new technology,
market products are not very competitive, etc. Fully and accuracy information of
corporate customers is one of the most important and necessary factors for the bank to
make a good loan decision. Because of that reason, the reputation of these corporate
customers in the market if it is not high, it cannot be trust, or cannot have high credit of
bank, causing that bank will be afraid to lending to this type of customers.

Chapter conclusion
In chapter 2 of the thesis, I have mentioned the situation of lending to
corporate customers, also analyze some limitations and causes of these constraints. The
mechanism still exists in lending activities of Military Commercial Joint Stock Bank –
Giai Phong Branch. In chapter 3 of the thesis, I will give some solutions and
 63

recommendations for these limitations on lending as well as improve the lending

quality of corporate customers at the branch.
 64

CHAPTER 3 SOLUTION TO IMPROVE THE LENDING

QUALITY TO CORPORATE CUSTOMERS AT
MILITARY COMMERCIAL JOINT STOCK BANK –
GIAI PHONG BRANCH
3.1 Orientation to improve lending quality to corporate customers of Military
Commercial Joint Stock Bank – Giai Phong branch in the next periods (2020 -
2023)
3.1.1 General orientation of the Branch
Corporate customers, especially small and medium enterprises play a very
important role in a country, because they have helped solve millions of jobs, creating
essential consumer goods and supporting industries, making a significant contribution
including the GDP, etc. In the development of the economy, the development of
enterprises will encourage people who have money to invest in production and
business, making the economy become more diverse, wealthier and more dynamic,
also increasing competition and positive cooperation impact on the development of the
economy. Therefore, the development of enterprises is considered an important and
strategic part of socioeconomic development.
Recognizing that importance, in recent years, many commercial banks has
focus more on expanding lending more to corporate customers, especially small and
medium business. Small and medium enterprises have a high growth rate and large
scale in the markets, lots of them are very wealthy and sensitive to service of bank.
Moreover, banks are increasingly diversifying their loan products with terms and
flexible interest rates, to suit all type and financial demand of corporate customers.
To be able to standstill and thrive along, Giai Phong Branch also promptly
renovated, and found for itself a development orientation of its own in the guideline of
Military Bank in general. In near future, Giai Phong Branch will practice perform some
key tasks aimed at strengthening financial capacity, competitiveness, and market share
expansion, specially:
Firstly, focusing on promoting the image and the brand of Military Bank via
advertising and propaganda channel, yet the most attention is still on the service and
customers care.
 65

Second, expanding the network to increase market share will as well as the
influence of Military Commercial Joint Stock Bank for socio-economic activities in the
area. In 2020, the Branch advocates to move to new offices in 360 Giai Phong street.
Thirdly, the organization, consolidation, and completion of each branch level
one complete and set orientation goals for each development stage. Staff trains solid
expertise and profession.
Fourth, the work of direction and administration: building business plan,
determining directions and measures to complete the business plan, organizing the
implementation and service to serve customers the fastest, the most convenient,
enthusiastic, thoughtful and professional style of Military Bank. Choosing customers
from the beginning process, so that customers development must go hand in hand with
improving credit quality and secure assets quality, set credit quality as number one
priority. Focusing on customers who is large enterprises also a number of foreign and
medium and small sized businesses in the area.
Fifth, promoting the development of new products and services in addition to
the common products of commercial banks. Military Bank research products with
special and distinct feature to serve customers such as flexible deposit or withdrawals,
Mobile Banking, Internet Banking, etc. Advertising media products such as mobilize
with high interest rates, lend with low interest rates, these are the differences and bring
practical benefits to customers; also, professional service style gives customers feeling
truly served, truly be taken care of.
Sixth, after each development phase, there is a preliminary evaluation and
withdrawal experiences on what should be or not should be done to propose
implementation measures more effectively.
Seventh, promotion plan: advertising in local newspapers, Television stations
occasionally, New Year or periods of raising interest rates for mobilizing and
developing new products and services.
3.1.2 The orientation for lending to corporate customers of Giai Phong branch
Lending to corporate customers is considered one of the most important goal
of Military Commercial Joint Stock Bank – Giai Phong Branch. Along with the
common targets, MBank – Giai Phong branch also sets out some specific orientation
for corporate customers as follows:
 66

First, strive to mobilize to the utmost local capital, making full use of its
preferential capital from international financial institutions in order to meet the capital
demands of corporate customers.
Second, striving for continuous growth of outstanding loans to corporate
customers, the level average annual growth at least 35% from now to 2025 and reach
over 70% total loans.
Thirdly, promoting growth compound with control, improving loan quality.
Strive for the ratio of bad debt, overdue debt within the coming year will not exceed
2%.
Fourth, restructuring customer segmentations in the direction of reducing
proportion on state enterprises, increasing lending to non-state enterprises. Moreover,
in the small and medium sized enterprise segment, restructuring from gradually
reducing lending to construction install businesses and expanding loans of import-
export, trade and service enterprises.
Fifth, promoting medium and long-term lending to small and medium sized
enterprises. Strive to raise up to 50% of the outstanding loans to small and medium
sized enterprises next year.
Sixth, renewing the model of lending activities as well as thinking in credit
investment, applying proactive approach to seeking and supporting corporate
customers in investing projects, taking the feasibility of the project is the basis for
making a loan decision.
In general, the development orientation of corporate customers lending
activities of Giai Phong branch in in line with the practical capabilities and general
trends of the commercial banking system, as well as gradually meet the capital
demands of corporate customers in the area.
3.2 Solution to improve the quality of lending to corporate customers of Military
Commercial Joint Stock Bank – Giai Phong branch
On the basis of theoretical, practical, objective, and subjective reasons have
been analyze, the solutions to improve quality of corporate customers loans of Giai
Phong branch as follows:
3.2.1 Improve loan appraisal quality
Loan evaluation includes customers appraisal, feasibility assessment of the
project through industry, business field, product business market survey.
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Firstly, customer appraisal includes the following points:

Appraisal of legality, validity of customers records. This is the first element
and the most basic in the customer appraisal process. First of all, appraisers must
review legal status of businesses through related papers such as registration business
licenses, certificated by local authorities. At the same time, they must collect the rules
regulations of law on industries that businesses are allowed to participate in production
and related papers. Assessing customer records is a basis step in assessing the
enterprise health. Secondly, all loans have a specific purpose. The bank will consider
the purpose of using the loan legal appropriately, practical, or not and the proportion of
success. The bank will monitor and evaluate customers later base on this element.
Assessment of financial capacity of customers is mainly based on the accounting
system and quarterly financial reports. This work requires an appraiser must have
experience in accounting and auditing, regularly update new regulations on standard
accounting system. Thirdly, it is evaluating the management team of the enterprise.
This is one of the most important factors reflects the working style, working
environment and reputation of enterprises. However, some bankers often ignore or do
not have enough social relationship to evaluate. Thus, more attention should be paid to
understand the enterprise management team. Last but not least in customers appraisal
is determining the value of collaterals. This is a basis for bank to make decision on
lending and give loan limit and be the source of revenue for the bank if customer is
unable to repay the loan. The correct lending limit depends on the issue of asset
valuation. This process demands the appraiser must master regulations on loan security
of SBV, MB and related regulations. Moreover, the bank officers must ask for
direction and co-ordinance in making decision from higher levels to have more realistic
evaluation.
Second, appraise investment projects
This is considered to be the critical content to the approval process, especially
medium and long-term loans. Including:
 Assess market demands. Through the purpose of loan use, the bank necessary
to consider the market that the enterprise is aiming at, has potential or not. Under this
criterion, banker must learn about the businesses operation and targets industry trend.
Therefore, Giai Phong branch should pay attention to encourage and train the initiative
method of collecting and processing information about the market.
 68

 Evaluate strategy and market penetration of the product. When giving

production and business plans, enterprises must have a clear plan for each production
step, promote and distribute products. Through this, bank officers must consider the
reasonableness in term of time, method, and strategy.
 Evaluate technology and ability to supply materials during the production
period. One of the limitations of small and medium sized enterprises in Vietnam is lack
of experience in high technology, resulting in the purchase of expensive or
inappropriate technology with business potential. On the other hand, the factors of
input materials are also very important, ensuring the production process on schedule.
Third, project financial appraisal
It is the evaluation of the financial performance of the project. Through
specific calculation, the bank will consider the truthfulness of the data and evaluate its
customer. At the same time, bankers must pay attention to the plan for cash flow and
time point and scale of cash inflow and outflow of the project.
3.2.2 Strengthen inspection and control
Strengthening inspection and control is one of the effective measures
contributing prevent and limit credit risks. The inspection and control work needs to be
understood two sides:
- Check, control with loans to businesses
- Internal inspection, control of lending activities of whole system
Checking and controlling business loans is a very important step in the credit
process to ensure the credit quality of the bank. Therefore, the close supervision of the
inspectors will help loan quality increasingly advanced. Areas to be checked are:
- Unexpectedly checking the production and business establishments of
customers.
- Revaluation of mortgaged at current prices. If reduced compared with the
mortgage price, then the mortgaged need to be supplemented so that it is equal to the
value of the initial mortgage or reduce outstanding loans accordingly.
- Check the use of loan capital, prevent the use of loan capital for wrong
purposes.
In addition to strengthening inspection, loan control is carried out by the
department directly related to lending activities, the internal work – independent testing
 69

is also an important measure to improve loan quality. Internal evaluation should

achieve the following basis issues: compliance and acceptance to implement lending
process and policies, to review the total outstanding loans to determine accurately loan
quality, bad debt, problem debt. Determine amount of the debt that the payment source
has certainly; the amount of debt has no source of payment or the source of payment is
uncertainly; identify the causes and related issues; take timely and collected measures
recover and reduce risks, bad debts and problem debts.
3.3 Some recommendations to improve the quality of lending to corporate
customers at Military Commercial Joint Stock Bank.
3.3.1 Recommendations to Headquarter of Military Bank.
Military Bank – Giai Phong branch is always under direction of the Military
Bank in a whole, so the expansion of lending and the improvement in quality of
lending to corporate customers need great support from Military Commercial Joint
Stock Bank. Through the thesis, there are some recommendations:
First, to direct the effectiveness of lending to corporate customers, each
branch needs to set up a task force on corporate customers lending. This will perform
update, process information of lending activities to corporate customers in branch.
Second, Military Bank needs to strengthen inspections and operation control
of branches. The check must be conducted periodically to ensure branches comply with
regulations and schedule assigned. Besides, regulator inspections help detecting
violations in time and record difficulties between branches and customers’
requirements.
Third, Military Commercial Joint Stock Bank should grant each branches the
greater rights of self-determination to enhance the autonomy of branches.
Fourth, flexible and reasonable credit policy development:
Lending is one of the commercial banks activities, based on the compliant and
deriving from Bank’s general credit policy. Credit policy can be considered as a credo
platform of a commercial bank, including the views and owners’ policies, orientations,
and regulations for directing credit and investment activities of commercial banks. The
main credit policies for bank managers as well as credit officers is a guideline in
lending decision making and portfolio formulation for loans, creating a common unity
in credit activities of the bank. It is necessary to develop a consistent and reasonable
credit policy, adapt to the business environment, in accordance with the characteristics
 70

of MB, promoting the strengths and overcoming limitations and weaknesses to ensure
safety and profitability. Credit policy including customer policy, credit sale and credit
policy, interest rate policy, term and debt policy, collaterals policy.
Perfecting and implementing customers policy
Customer policy is one of the most important content in the main credit policy
of MBank, to identify the target customers segment and limited or prohibited false
funding. Customers policy in corporate customers lending are built on thorough
research of the realistic situation activities, clearly identifying the demands at present
and in the future as well as expectations on the bank to diversify its products, maximize
customers benefits. The customer policy is built with flexibility and rationally will help
Giai Phong branch enhance its accessibility to customers so as to promote the bank’s
image and expand its market share. Customer policy should pay attention to the
following:
Firstly, promote the bank’s image to customers in order to improve their
capacity compete. One of the most important factors in order to improve the
competitiveness of MBank is to build trust with customers, products and services that
make customers want to use. With the above objective, Giai Phong branch must take
care, preserve, and promote further relation with existing and future customers.
Particularly, Giai Phong branch need to improve the quality of services, often advise,
and disseminate to customers all the information they request, maximizing customers
satisfaction. It helps Giai Phong branch assert its reputation and position stabilize its
market share and act as a platform to attract new customers. Besides taking care of the
existing customers segment, Giai Phong branch must be active carrying out marketing
campaigns, marketing activities to customers by dissemination information, types of
products and services the bank is offering and promoting MB’s image through the
social activities.
Second, customer policy needs research, market research and product
development to offer reasonable and effective products. MB and Giai Phong branch, in
particular, must carry out market segmentation suit for each segment of customer by
criteria of size, economic sector, figure knowledge of ownership… to know what
difficulties business have, what advantages, and what they need at bank. Since then,
bank has just built forms of loans, services to meet the corporate customers demands
and bring revenue.
 71

Thirdly, proactive seek, expand, and diversify customers to reach reasonable

loan structure. In order for lending activities to be highly effective, Giai Phong branch
must always adjust the outstanding loan structure so that it is reasonable, suitable to the
customer objects, structuring by composition and industry profession. A reasonable
credit structure must be in line with the development trend of the background market
and create a balance between regions.
Fourth, improving the role of consulting, customer support to accelerate the
integration cooperate process with the customers. One of the current limitations of
corporate customers lending is inexperience in meeting procedures and requirements of
banks in the lending process. It requires bankers to improve the role of advising and
supporting corporate customers, especially small and medium sized enterprises. This is
way to help MBank, Giai Phong branch in particular, creating a great image in the eyes
and mind of customers, and save time and cost for the process of cooperation between
the two sides.
Develop a credit interest policy that is appropriate for each type of customers
The lending interest rate increased and fluctuated recently, greatly affecting
the production and business activities of enterprises. The interest rate rise will
contribute to increase the price of the products of businesses, making exports reduce
competitiveness. Under normal circumstances, the cost of capital increase, businesses
will suffer from many input expenses. If the interest rate continues to rise in beginning
of 2020 (suffer economic recession over the world because of Covid-19), it will put
additional burden on enterprises, especially small and medium sized enterprises. If in
large enterprises borrow from 20-30% of the total working capital, small and medium
sized businesses sometimes loans accounted for 60-70% of working capital. Moreover,
80% of Vietnamese enterprises operate in the situation of insufficient capital, leading
to small-scale production and business burden heavy a damage from recession, may be
drop out of the economy if this in long-term.
Therefore, banks need to develop a reasonable interest rate policy for each
different types of customers. Branches can apply preferential interest rates for regular
customers, reputable customers, transmitted customers, or customers with transparent
financial information. To do this, Giai Phong Branch must complete scoring and
ranking activities. For, customers’ reputation and long-term relationship, branch could
possibly lend with lower interest rates. In addition, banks can offer reasonable interest
 72

rates and flexibility with characteristics, terms, disbursement method of each loan.
Building reasonable interest rate policy helps customers have more options and
facilitate expansion lending for corporate customers.
Fifth, diversify lending methods and formulate reasonable debt term
policies.
Currently, the choice of which loan method, how to disburse is not hard
prompt and fixed, between banks and customers can negotiate with each other to apply
the fittest method. As we all know, Vietnamese corporate operate in many field
industries. Thus, getting the loan that fits business production cycle and working
capital turnover, the time of cash inflow and outflow…will help business be more
active in activities and stability to develop. The structure of terms in credit outstanding
is one of the factors reflecting the signal results of using capital and ability to meet
social investment needs. Basis for loan terms based on the evaluation for each
customer, each type business and from time to time. If the bank determines the term for
borrowing and repaying each loan appropriately, it will help the bank itself earning
interest and principal on time, to avoid overdue debt or capital loss. Currently, the main
criteria for approval of medium and long-term loans of Giai Phong branch is
collaterals. However, small, and medium-sized enterprises do not qualify this. On the
other hand, the source of repayment of medium and long-term loan capital is revenues
from investment projects. In order to facilitate businesses and assess the actual
repayment ability, Giai Phong branch needs loan approval based on the feasibility of
the investment project. It is the essential element aimed restructuring the debt term
structure in corporate customers lending more reasonable.
Sixth, simplify loan procedures
One of the reasons preventing corporate customers from coming to
commercial banks is due to complicated procedures . This situation is especially
common in state-owned commercial banks. Building clear and simple procedures will
help both banks and customers save time and costs, while still ensuring the quality of
the loans.
Seventh, complete the information system
Information systems, especially the credit information system, play an
important role affecting the quality of lending. Therefore, to improve quality of lending
to corporate customers, all collection, processing, aggregation, exploitation, and supply
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processes must be well organized, providing information to help prevent and limit
credit risk. Military Bank – Giai Phong branch should continue to improve the internal
information network system so that the bank’s department can share, use, and
exchange information together quickly and conveniently. Credit department and credit
management can provide each other valuable information in a whole banking system.
The State Bank of Vietnam has a credit information center (CIC) as a source
of information. It is relatively good for the operation of commercial banks, so it needs
strengthening the collection of credit information from the CIC to serve for
management requirements. However, due to the limitation of the CIC, the information
might not be updated practically and insufficient information requirements to evaluate
the customer. Therefore, bankers, Mbank officers in particular, need to exploit more
information channels, information from regulatory agencies, information centers such
as General Statistic Office, General Department of Taxation, Ministry of Planning, and
Investment, etc. These sources of information are very useful in assessing
creditworthiness with credit institutions, assessing business plan, situation of economic
volatility.
Promote the application of information technology in the organization helps
managing and exploiting serving credit reports data, credit analysis data, credit
appraisal. To do so, MB should focus on developing technology infrastructure,
avoiding the situation of lagging server. Specifically, bank need to complete the
modernization program in the whole and centralized customer management system.
Therefore, customer profile will be standardized, consistent with other applicants in
credit activities, payments…, always guaranteed that information can be updated in
period thorough the system.
3.3.2 Recommendation to the corporate customers
In order to have a quickly, accuracy loans transactions and good lending
quality, not only the bank itself need to improve but also it requires the help of
corporate customers. Enterprises with transparent, clean financial reports will help the
appraisal process and the loans application process taking shorter time for both the
banker and the customers themselves. Moreover, the documents preparing form the
cooperate between accountant department and bankers need to be done intime when
the bank requires for the loan appraisal process, that is also benefit for both the bank
and customers. It will help the accountant not have burden when preparing the
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document, also give the banker not in pressure in meeting the customers’ requirements.
Create good relationship with the bank will through cooperation will also bring
benefits in the future.

Chapter Conclusion
After researching on the lending process for corporate customers and the
status of the given quality of lending to corporate customers at Military Bank – Giai
Phong Branch, this chapter address some solutions and recommendations to improve
the quality of lending to corporate customers in Military Commercial Joint Stock Bank
– Giai Phong Branch.
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CONCLUSION
In the competitive environment of the integrated economy, Military Bank has
grasped the important of quality of lending to corporate customers, especially small
and medium – sized enterprises, created long – term values, long – term connection,
relationships with the corporate customers. In recent years, Military Commercial Joint
Stock Bank – Giai Phong branch has been identifying the right direction and achieving
many successes in lending activities. To improve efficiency and quality of lending to
corporate customers, all branch staffs and leaders must proactively overcome
difficulties, constantly improve their skills, and forge practice professional ethics,

Through the research, I had an overview of the lending quality to corporate

customers at MBank and Giai Phong branch, evaluate the achievement and the
limitation of corporate customers lending services to provide some solution and
recommendations for completion and further improvement to the loan services and the
quality of the lending at the branch and Military Bank. Due to limited knowledge, the
thesis may contain mistakes and evaluation limitations. I look forward to receiving
advices as well as criticism to make my thesis more complete.
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APPENDIX
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