CENTRAL INSTITUTE FOR ECONOMIC MANAGEMENT
HA VAN DUONG
STATE MANAMGEMENT IN DIVERSIFICATION OF CREDIT
ACTIVITIES OF COMMERCIAL BANKS IN HOCHIMINH CITY TO
THE YEAR OF 2020
Major : Economic Management
Code : 62 34 04 10
DOCTOR OF PHILOSOPHY THESIS
HANOI – 2013
THE THESIS IS COMPLETED AT THE CENTRAL INSTITUTE FOR
ECONOMIC MANAGEMENT
Supervisor:
1. Nguyen Manh Hai (PhD)
2. Le Xuan Sang (PhD)
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critic: ………………………………………………
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2
nd
critic ………………………………………………
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3
rd
critic: ………………………………………………
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(Name, science position)
The thesis will be defensed at the Evaluation Coucil at Central Institute
for Economic Management on … /dd/mm/yyyy
The thesis could be found at:
The library of Central Institute for Economic Management

The law is not uniform and synchronous; development orientation to diversify credit
activity not timely; regulatory activity are not appropriate to facilitate the
diversification of credit activity; inspection and supervision activity should be more
complete. These are the requirements for state management, which should be
completed soon and having state management solutions, creating a favorable
environment for commercial banks to diversify credit activity, contribute to limit
operational risks in credit activity of commercial banks and to better meet the needs
of capital for socio-economic development in the area.
3
On the basis of the above practices, there have been many international and
domestic studies related to state management in credit activity diversification.
However, the situation is incomplete research, unsystematic; none of the studies are
referring to the state management in diversification of credit activity of commercial
banks in HCMC. Starting from the essential requirements of having complete
solutions for the state management in credit activity diversification process of
commercial banks and related studies’s situation as stated above, the authors selected
the topic "State management in diversification of credit activities of commercial
banks in Ho Chi Minh City to the year of 2020" for the subject of the thesis research.
2. The situation of related studies
There are many valuable researches contributed to the development of credit
activity and state management of credit activity. However, studies have not specified
the content and evaluation criteria for state management in credit activity
diversification. In particular, due to the research focused on lending activity, there is
not any specific, comprehensive, deeper research of state management in
diversification of credit activity of commercial banks in the HCMC area, to be able to
apply scientific and effective in practice.
3. Objective of the Study
The main objectives of the studies are: (i) To systematize, deepening the
theoretical issues related to efficient state management of credit activity
diversification; (ii) To apprise the situation and the results of credit activity

management in credit activity diversification.
Second, applying international experience: Refer to the experience of Asian
countries with similar conditions to Vietnam and combines international experience
with the specific situation in Vietnam.
Third, assessing the result of credit diversification in the period of 2006-2012
based on the criteria of amount, growth rate and safety. In addition, assessing the
state management in diversification of credit activity in HCM City in the period
2006-2012 based on the criteria of the effectiveness, efficiency, relevance and
sustainability.
Fourth, based on the assessment of current situation, achievement,
shortcomings to propose solution to improve state management in diversification of
credit activity of commercial banks in HCM City to the year 2020, consists of the
solutions group about legal framework completion, the development orientation of
the State, the State's regulation, the inspection and supervision of the State.
Fifth, applying the results of research into practice: The groups of propose
solutions and recommendations can be successfully applied in practice, particularly
the legal framework related to each form of credit accordance with the Law on
Finance Institutions (2010). Therefore, implementation of the solution will positively
impact to the state management process of diversifying credit activity of banks in the
country in general and of the commercial banks in HCMC in particular.
7. Structure of the Study
Chapter 1: Literature overview of state management in diversification of
credit activity of commercial banks.
Chapter 2: The realitiy of state management in diversification of credit
activity of commercial banks in HCM City in the period of 2006-2012.
Chapter 3: Solutions to improve state management in diversification of credit
activity of commercial banks in HCM City to the year 2020.
CHAPTER 1
LITERATURE OVERVIEW OF STATE MANAGEMENT IN
DIVERSIFACTION OF CREDIT ACTIVITY OF COMMERCIAL BANKS

DISCOUNT
GUARANTEE
CREDIT CARD
Lending overdraft limit
Customer oriented lending
Sectoral, industrial lending
METHODS
OF LOAN
Lending for each loans
Syndicate lending
Installment lending
Lending under the limit provision
Purchasing with recource
Payment guarantee
METHODS
OF
DISCOUNT
Term purchasing
Loan guarantee
TYPES OF
GUARANTEE
Bidding guarantee
Contract implementation guarantee
Product quality guarantee
Advance repayment guarantee
Other guarantees
FORMS
OF
CREDIT
Term lending

All economic schools had given the role of the state in the market economy
and theoretical point of each school is different, and that the State can intervene in the
economy through the state management tools and create an enabling environment to
promote and ensure the market factor of stability, to maintain order and security in
society, aimed at stability and economic-social development.
1.2.1.2 The view of state management in the money market and credit activity
Based on the above views, the author take a position on the state management
in money market and credit activity as follows:
First, the State plays an important parte in promoting money market and
credit activity effectively, contributing to the economic and society development.
Second, the State facilitate an enabling environment for all aspects of the
money market and bank credit growth.
Third, the State intervene money market, bank credit in a required level in
accordance with the principles of the movement rule of the market economy.
1.2.2 Definition of state management in diversification of credit activity of
commercial banks
State management in diversification of credit activity of commercial banks
can be understood as the organizational, oriented and state powerful impact of the
state administration bodies by state management methods and tools to the
development process of credit forms, and the development of types and methods for
each form of commercial bank credit, to promote the diversification of credit activity
efficiently, create conditions conducive environment and ensure the diversification of
credit activity of commercial banks for sustainable development, supply credit to
various utilities, contributing to implement target of social-economic development.
1.2.3 State management goal of diversifying the credit activity of commercial banks
(i) To promote the diversification of credit activities grow fast, efficiency, safety
and sustainability; (ii) To develop at the right direction, prescribed by law for other
forms of credit, other types and method of credit; and (iii) To ensure fairness,
transparency and harmony of interests in the process of diversifying credit activity.
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of the State in diversifying credit activity; and (v) Compliance, observance of the law
of diversification of credit activity.
1.3 International experience in state management in diversification of credit
activity
All countries’ laws allow the commercial banks to implement various forms
of credit, CCCN and valuable papers discount, bank guarantees, credit card issuing
and factoring. The State orients, regulates, inspects, and monitors closely the process
of diversification of credit activity. At the same time, it provides diverse information,
support, orientation, and facilitates the process of diversification of credit activity of
commercial banks.
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Lessons learned about state management to diversify credit activity: to build,
to improve legal framework fully and synchronously, to issue regulations that guiding
inplement credit forms synchronously and timely and in accordance with applicable
laws, to build credit growth plans to ensure feasibility, testing, inspection, monitoring
credit activity according to international standards and practices, to implement the
State support activity to promote the diversification process of credit activity.
CHAPTER 2
THE REALITY OF STATE MANAGEMENT IN DIVERSIFICATION
OF CREDIT ACTIVITY OF COMMERCIAL BANKS IN HCM CITY IN THE
PERIOD OF 2006-2012
2.1 The commercial banks in HCM City overview
2.1.1 Overview of the social-economic situation in HCM City
Ho Chi Minh City a center of economic, finance, trade and services in the
country, that have high rate of economic growth, diversification of economic activity.
HCM City leads the nation in the number of banks and finance/credit sales. However,
HCM City still faces many difficulties such as outdated infrastructure, overload, high
consumer price index also make difficult for the economy.
2.1.2 The process of formation and development of the number of commercial
banks

205.290,44 335.213,1
1
461.587,6
6
514.510,75 574.591,46
Loans proprotion
92,91% 94,20% 96,93% 96,86% 96,69% 96,60% 96,46%
CCCN and other valuable papers discount proprotion
1,68% 3,50% 0,42% 0,37% 0,62% 0,31% 0,16%
Bank guarantees proprotion
5,14% 2,03% 2,28% 2,44% 2,41% 2,61% 2,66%
Credit cards proprotion
0,14% 0,10% 0,19% 0,17% 0,15% 0,35% 0,35%
Factoring proprotion
0,13% 0,16% 0,18% 0,16% 0,13% 0,12% 0,11%
Grand total
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100% 100% 100% 100% 100% 100% 100%
Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch,
annual reports, financial reports of commercial banks and the author's calculations.
Loans accounted for high proportion so lending growth correspond to the
credit growth in the period of 2006-2012 (see Table 2.1, Table 2.2).
Table 2.2. Growth in each form of credit and funding of commercial banks
in HCM City in the period of 2006-2012
Forms
2006 2007 2008 2009 2010 2011 2012
Loans
111,33
%
17,09% 63,17% 37,45% 11,36% 11,51%

activity for commercial banks (see Table 2.3). Loan growth in the recent years is
lower than the previous year, but the NPLs ratio rose sharply, increasing delinquency,
shows that loans’ quality is low, that increases risk in credit activity.
Table 2.3. NPLs of commercial banks in HCM City in the period of 2006-
2012
Debt ratio 2006 2007 2008 2009 2010 2011 2012
NPLs ratio 0,66% 0,49% 2,34% 1,39% 1,82% 1,98% 3,63%
Group 5 debt in total NPLs
ratio
39,64
%
44,41
%
21,70% 56,20% 33,74
%
30,50% 36,84%
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Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City Branch,
annual reports, financial reports of commercial banks and the author's calculations.
CCCN and other valuable papers discount activity: These activities have been
allowed by the SBV since 1991. However, the slow in implementation made discount
balances account for low proportion of total credit outstanding, as 1.68% in 2006,
3.50% in 2007, the years after remaining less than 1% (see Table 2.1) and the growth
rate of these activity fluctuated sharply in the period 2006-2012 (see Table 2.2).
Bank guarantee activity: The balance density has gradually increased from
2% to more than 2.6 % of total credit outstanding after falling in 2006 (see Table
2.1). However, the growth rate is more volatile (see Table 2.2), due to the impact of
the adjustment and additional of many rules for a long time, but still reveals many
disadvantages; it has not mentioned all the practical problems concerning the rights
and obligations of the parties involved in the guarantee contract that cause difficulties

2006-2012
Loans 2006 2007 2008 2009 2010 2011 2012
Trade - Service 64,72% 61,57% 59,63% 58,67% 59,95% 57,93% 59,17%
Industry - Construction 23,55% 22,54% 20,69% 23,76% 23,80% 24,97% 28,11%
Argiculture 2,81% 2,44% 5,73% 2,74% 3,95% 4,96% 4,84%
Other industries 8,92% 13,46% 13,94% 14,82% 12,31% 12,13% 7,87%
Grand total
100,00% 100,00% 100,00% 100,00% 100,00% 100,00% 100,00%
Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City
Branch, annual reports, financial reports of commercial banks and the author's
calculations
Diversification of loan by currencies: Due to SBV regulation, restrictions on
foreign currency lending objects, loans in Vietnam Dong (VND) in the period 2006-
2012 accounted for over 70% of loans outstanding (see Table 2.6)
Table 2.5. Loans by sectors of commercial banks in HCM City in the period of
2006-2012
indicator 2006 2007 2008 2009 2010 2011 2012
VND
69,53% 71,93% 71,12% 75,23% 72,75% 70,28% 74,90%
Foreign
currencies
30,47% 28,07% 28,88% 24,77% 27,25% 29,72% 25,10%
Total
100% 100% 100% 100% 100% 100% 100%
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Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City
Branch, annual reports, financial reports of commercial banks and the author's
calculations
Diversification of loans by currencies: Due to SBV regulation, restrictions on
foreign currency lending objects, loans in Vietnam Dong (VND) in the period 2006-

period of 2006-2012
Indicator 2006 2007 2008 2009 2010 2011 2012
Ratio 100% 100% 100% 100% 100% 100% 100%
By limitation and time 58,53% 54,51% 52,38% 57,17% 50,82% 52,17% 48,97%
By projects investment 30,89% 36,09% 40,76% 35,69% 41,03% 39,96% 42,39%
Syndicated loans 0,48% 0,23% 0,68% 0,56% 0,49% 0,53% 0,60%
Overdraft loans 0,05% 0,03% 0,03% 0,21% 0,17% 0,14% 0,25%
Instalment loans 10,05% 9,14% 6,15% 6,37% 7,49% 7,19% 7,80%
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Source: Annual Report of the State Bank of Vietnam-Ho Chi Minh City
Branch, annual reports, financial reports of commercial banks and the author's
calculations
Diversification of discount methods: Most of the local commercial banks
performed CCCN and other valuable papers discount ativity by the method that buyer
has recourse right. Growth has changed sharply, especially negative growth (see
Table 2.2), due to the impact of credit constraints for securities business investment,
high credit interest and influence by the difficulties of the business.
Diversification of bank guarantees: Payment guarantees accounted for over
42%, contracts performance guarantee accounted for over 10% of the guarantee
balance. This is common kinds of guarantee for business and construction investment
needs. Loan guarantees accounted for the lowest proportion, less than 4% during the
period of 2006-2011, and accounted for more than 11% in 2012 in structure of the
guarantee due to lack of collateral of the loans in other banks (see Table 2.8).
Table 2.7. The balance of a bank guarantee of commercial banks in HCM
City in the period of 2006-2012
Indicator 2006 2007 2008 2009 2010 2011 2012
Ratio 100% 100% 100% 100% 100% 100% 100%
Payment guarantee 70,83% 47,88% 49,89% 58,84% 47,22% 46,51% 42,56%
Contracts perfomance
guarantee

other valuable papers discount, guarantees, issuance of credit cards and factorings.
Scale: The proportion over 94% of the total credit forms outstanding (see
Table 2.1), showing that loan was the form that commercial banks in the area focused
on during deployment from 2006 to 2012 .
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Growth: The other forms of credit’s growth fluctuated sharply, even negative
growth, lack of stability in maintaining balance. Only the lending activity increased
every year, the lowest growth rate was 11%, showing that the local commercial banks
focused on lending activity.
2.2.3.2. Diversification of credit types and methods of commercial banks review
Quantity: According to the data compiled by the author from the financial
reports of commercial banks, 100% of commercial banks implemented 3 diversified
loan types, at the end of 2012 just over 7% implemented 5 types (each time, limit,
projects investment, syndication, overdraft). CCCN and other valuable papers
discount activity just implemented the methods which buyers had recourse right, not
implemented enough 2 method (see Table 2.9), more than 14% achieved 5 guarantee
types. Credit card issuances have been done in 2 types, but only 42% did; more than
28 % had factoring in 1 type and 1 method to the end of 2012.
Scale: With the proportion of over 58%, short-term loans predominated (see
Chart 2.2); limit and time loans accounted for over 50% of the lending methods (see
Table 2.7). Perform 1 CCCN and other valuable papers discount method. The
payment guarantee balance was the type that accounted for highest proportion, over
42% of the guarantee types. The proportion of domestic credit card balances
dominated at over 70 % of the credit cards (see Chart 2.4). Because only performing
one type and one method of factoring, the factoring activity in the local commercial
banks had not expanded the number of the types and methods.
Growth: With the growth rate of over 23% of loans, commercial banks
focused on short term loans (see Table 2.4) and limit loans and each time loans grew
annually and less volatile. CCCN and other valuable papers discounting activity just
perform 1t method and had the negative growth in 2011 and 2012 (see Table 2.2).

credit growth (25% -27% in 2007, 32% - 34% in 2008, 21% -23% in 2009, about
25% in 2010, less than 20% in 2011, 15% -17% in 2012)
2.3.2. Issuance of law of credit activity’ diversification
By early 2013, the law has regulated forms of credit including loans, CCCN
and other valuable papers discount, bank guarantees, credit card issuance, factoring.
Loan types included: short-term loans, medium-term loans, long-term loans; loan
methods included: each time loans, credit-limit loans, projects investmeng loans,
syndicated loans, instalment loans, credit-limit provision loans, credit card loans,
overdraft loans and other method loans in accordance with the law and other
regulations of the SBV. Discount methods included: CCCN and other valuable papers
repurchase agreement, activity which buyers had recourse right, CCCN and other
valuable papers discount syndication. The types of guarantees: payment guarantee,
bid guarantee, contract performance guarantee, loan guarantee, product quality
guarantee, refund guarantee, counter guarantee, guarantee certification, co-guarantee,
the other guarantee types. The types of credit cards included domestic and
international cards. The type of factoring included having recourse right or not. The
factoring method included each time, limit and co-factoring.
2.3.3. Regulate the diversification of credit activity
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The state’s regulation and support included the SBV’s regulation, and state
the State Bank Branch HCMC’s regulation, impact from HCMC government through
programs of economic and social development, SBV’s regulation through licensing
activity for other forms of credit support activity, enabling development of credit
activity by providing credit information of the SBV, facilitating for SMEs to access
credit capital of the commercial banks through credit guarantee for SMEs,
coordinating, facilitating to exchange information between customers, commercial
banks and state management agencies. This activity mainly focused on lending, the
SBV and State Bank HCMC Branch regulated lending activity to serve the
production needs, restricted extending loans to the business sector of investment
property estate, securities, consumer; and at the same time, directing commercial

inflation from credit channel through lending activities, so the state’s development
orientation activities of diversifying credit activity in the period of 2006-2012 mainly
focused on lending activity. The regulations promulgation had not kept up with fast
evolution of the economy, had not reviewed and evaluated the implementation of the
regular form of commercial banks’ credit to update the regulations issued uniform
and in accordance with the legal provisions that were effective. Because orientation
almost based on lending, it has made the regulatory activity to be primarily directed
at lending activities and focus on the diversification of lending. In many cases,
regulation and intervention by administrative methods were used to control for a
number of areas to reduce lending risks, but it often lacked of guidance and lacked of
credit information to facilitate diversity, support for the development of other credit
forms of commercial banks, exploite the advantages of each form, each type and each
method of credit to disperse and reduce risk.The inspection and supervision focused
on safety risks of each commercial bank, the legal basis for inspection, monitoring
macro safety risks have not been issued yet, that affected the law implementation
process of credit activity of some commercial banks have not strictly followed, in
violation of regulations through the diversification of credit activity.
2.3.6. Factors affecting the results of state management in diversification of credit
activity of commercial banks in HCM City
First, the development of social-economic development and the financial
markets development level: With high economic growth rates, per capita income
increase higher, multi-sector economic activity, diversified and frequently credit
demand created need for diversification of credit acitivity. However, finance markets
in Vietnam in general and in HCM City in particular has not developed yet, not create
more financial products to participate in the various credit transactions, especially the
CCCN and valuable papers to develop discount activity. Bank credit market mainly
focused on lending, not really diversified credit activity yet, making the law of
diversification credit activities can not fully implemented, reduce the impact and
effectiveness of state management in the process of diversifying credit activity.
Second, the economic and social development orientation: Deriving from the

regulations relating to credit form and lack of transparency in the crediting process,
that has impacted the effectiveness of state management and influence the outcome of
state management in diversification of commercial banks in HCM City.
2.3.7. Evaluation of State management in diversification of credit activity of
commercial banks in HCM City
First, the evaluation by validity criteria: Legislation of diversification of
credit activity lacked uniformity, consistency and compatibility between laws and
performance guidelines. In addition, some commercial banks have not followed,
violating rules during diversifying credit activity, not public, transparent, not
seriously implemented regulations on credit growth, conceal debt in many ways.
Therefore, the validity criteria, state management in diversification of credit activity
have not fully met the requirements.
Second, the evaluation by effectiveness criteria: legal framework have been
adjusted and added several times but it was still note consistent, uniform and timely.
Regulation and testing, inspection and compliance monitoring primarily on lending
acitivity, make the operation of state management in diversification of credit activity
in HCM City has not really effective.
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Third, the evaluation by appropriate criteria: The law has been improved
gradually, but the regulations on lending, bank guarantees, credit card issuance,
factoring is not synchronous, inappropriate with the 2010 Law on Finance
Institutions. The state used administrative method to intervent directly in lending
activity through administrative methods which was not fit, making state management
of diversification of credit activity not really met the appropriate criteria
requirements.
Fourth, the evaluation by equality criteria: the customers access to suitable
source of credit with suitable type and method of credit granting. Ensure principles of
credit refund, credit supply conditions. However, SMEs face many difficulties in
credit accession. There are many reasons for this situation. From the SME side: lack
of transparency, poor corporate governance, not ensuring loan conditions; from bank