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)
1ST critic: ………………………………………………
…………………………………………………………….
2nd critic ………………………………………………
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3rd critic: ………………………………………………
accordance with the specific situation in Vietnam. The international standard for risk
management for each form of credit, credit limits, inspection, monitoring, ...
institutionalized and implemented. However, credit activity in Vietnam and in HCM
City also contains many risks because of developing largescale credit. The
government and the State Bank of Vietnam (SBV) has a number of solutions
designed to manage stable credit activity and motivated to diversify credit activity in
the commercial banks in HCM City
However, the credit activity in Vietnam and Hochiminh city still containts
risks. Iin the process of implementing policies, some commercial banks still have not
made a compliance with regulations on credit and lending is the primary activity,
many commercial banks in the area have not yet diversify credit activity and risky.
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 socioeconomic development in the area.
2
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
experiences of countries with similar conditions to Vietnam, the current situation of
state regulatory on credit diversification in Vietnam and HCMC to to make
recommendations to improve the state management in diversification of credit
activity of commercial banks in HCMC.
3
Thesis uses qualitative methods and research tools. It uses statistical methods,
survey and interview methods, expert method, comparative method, and analysis and
synthesis method.
6. New contributions of the thesis
First, the contribution of literature: The thesis has supplemented, completed
the theory and scientific foundation on credit diversification and state regulatory on
credit diversification. In particular, Ansoff matrix applied to the direction selection
and credit activity diversification choice. It also selected criteria for evaluating the
results of state management and identified factors that affect the results of state
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 20062012
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
20062012 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
method in the form of credit, to better meet the needs of the customers, increase
income and minimize credit risk of commercial banks.
1.1.2 The need to diversify the credit activity of commercial banks
Diversification of credit activity contributes to mitigate credit risk. At the
same time, it contributes to profit growth in a sustainable way.
1.1.3 Contents of the diversification of credit activity of commercial
Orientation and types of credit diversification: Develop new forms of credit;
develop new types and methods on each form of credit (see Figure 1.1)
Figure 1.1. Credit diversification
TYPES OF
LOAN
Term lending
Currency lending
Customer oriented lending
Sectoral, industrial lending
LOAN
Lending for each loans
Lending as limits
METHODS
OF LOAN
Project lending
Syndicate lending
Installment lending
Lending under the limit provision
5
CREDIT CARD
TYPES OF
CREDIT
CARD
TYPES OF
FACTORING
Domestic credit card
International credit card
Factoring with recourse
Factoring without recourse
FACTORING
METHODS
OF
FACTORING
Factoring for each time
Factoring for each limit
Cofactoring
6
Source: Author collected from other articles and legislation documents
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 socialeconomic 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.
7
1.2.4 Contents of state management in diversification of credit activity of
commercial banks
State management in diversifying credit activity of commercial banks with
the functions: development planning, administration and control of the State on
various credit activity.
(i) The development strategy of the State in diversifying credit activity; (ii) To
promulgate legislation in diversification of credit activity; (iii) To regulate
diversification process of credit activity; and (iv) To inspect and supervise the
process of diversification of credit activity.
1.2.5 Relationship between State management on diversity and credit activity needs
to diversify credit activity of commercial banks
The relationship between state management in diversification of credit
activity and needs to diversify credit activity of commercial banks plays the decisive
role of state management to meet the needs of having an optimal structural
diversification of the credit activity of commercial banks.
1.2.6 Criteria for evaluating the results of state management in diversification of
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 20062012
2.1 The commercial banks in HCM City overview
2.1.1 Overview of the socialeconomic 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
The number of commercial banks based in the province by the end of 2011
was 16, in 2012 was 14, which was established through new establishment, credit
cooperatives fusion and commercial banks mergence. Credit activity of commercial
banks over the years met a certain number of difficulties, particularly credit risk as
increasing NPLs. Therefore, continuing activity restructure and NPLs treatment,
besides diversifying credit activity of commercial banks is an urgent requirement in
the current period.
2.2 The reality of diversification of credit activity of commercial banks
in HCM City in the period of 20062012
2.2.1 The reality of diversification of credit forms.
For lending: Lending is the first, primary and traditional activity in the
process of diversification of credit activity that have the proportion over 92% 96% of
total credit outstanding during the period of 20062012 (see Table 2.1, Table 2.2).
121,13
186,35
393,34
553,66
681,74
Factoring
115,14
295,77
365,08
548,62
607,85
Grand total
86.552,12 180.414,6 205.290,4 335.213,1 461.587,6
3
4
1
6
Loans proprotion
92,91%
94,20%
96,93%
96,86%
96,69%
CCCN and other valuable papers discount proprotion
1,68%
3,50%
0,42%
0,37%
0,62%
Bank guarantees proprotion
969,69
13.434,82
16.570,23
1.816,74
2.150,84
630,06
664,21
514.510,7
5
574.591,46
96,60%
96,46%
0,31%
0,16%
2,61%
2,66%
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 20062012 (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 20062012
12
Forms
Loans
CCCN and other
valuable papers
discount
Bank guarantees
Credit cards
Factoring
Credit growth
2006
2007
111,33
%
334,88
%
2008
17,09%
74,89%
40,76%
35,76%
23,13%
156,88
%
108,45
%
50,27%
11,23%
20,77%
166,49
%
3,25%
23,34%
18,39%
27,80%
111,08
%
23,43%
13,79%
11,31%
16,22%
14
Source: Annual Report of the State Bank of VietnamHo Chi Minh City Branch,
annual reports, financial reports of commercial banks and the author's calculations.
By the end of 2012, NPLs rose highly, especially, the proportion at risk of
losing capital debt accounted for over 30% of the bad debt is a high risk of the credit
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
15
Debt ratio
2006
NPLs ratio
0,66%
Group 5 debt in total NPLs 39,64
2007
0,49%
44,41
2008
3,63%
36,84%
Source: Annual Report of the State Bank of VietnamHo 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 20062012 (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
and problems for commercial banks during deployment.
Issuance of credit cards activity: the legal framework had been issued since
1999, but in 2007 a new regulation was enacted, allowing commercial banks issuing
credit cards. High credit growth, especially in 2011 (see Table 2.2), as the SBV limit
consumer lending, many commercial banks turn to credit by issuing credit cards.
However, the debt ratio was still low (see Table 2.1).
Factoring activity: the proportion of factoring is too low, less than 0.2 % of
total credit outstanding (see Table 2.1). Because this activity is new, the SBV has just
issued regulations in 2004 (added in 2008), but the lack of synchronization between
the laws of finance institutions and regulations to ensure the effective implementation
of commercial banks.
2.2.1 The reality of diversification of types and methods in each form of
credit
Diversification of loan types and methods
Trung hạn
30,00%
20,00%
21,02%
21,27%
15,05%
10,00%
24,97%
23,61%
17,84%
24,38%
26,09%
Dài hạn
20,52%
15,73%
16,55%
16,12%
account for over 57%, followed by loans for industry construction accounting for
over 20% of the outstanding loans (see Table 2.5). The proportion of loans in
accordance with the industry's economic structure in the area.
Table 2.4 Loans by sectors of commercial banks in HCM City in the period of
20062012
17
Loans
Trade Service
Industry Construction
Argiculture
Other industries
2006
64,72%
23,55%
2,81%
8,92%
2007
61,57%
22,54%
2,44%
13,46%
2008
59,63%
20,69%
5,73%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
100,00%
19
Source: Annual Report of the State Bank of VietnamHo 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
20062012
20
indicator
VND
24,77%
27,25%
29,72%
25,10%
100%
100%
100%
100%
100%
100%
100%
Source: Annual Report of the State Bank of VietnamHo 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
2012 accounted for over 70% of loans outstanding (see Table 2.6)
Diversification of loan by customer types:
38,94%
40,00%
39,57% nghiệp
nhà
nước
Doanh
nghiệp
khác
30,00%
20,00%
Cá nhân
10,00%
3,17%
2,47%
2,91%
3,72%
2,68%
2012 (see Chart 2.3).
Chart 2.3. Proportion of loans by business sectors and consumer sectors of
commercial banks in HCM City in the period of 20062012
21
90,00%
81,75%
81,04%
80,00%
76,18%
79,95%
81,40%
78,09%
77,04%
70,00%
Sản
xuất
kinh
doanh
60,00%
50,00%
Năm 2009
Năm 2010
Năm 2011
Năm 2012
Source: Annual Report of the State Bank of VietnamHo Chi Minh City
Branch, annual reports, financial reports of commercial banks and the author's
calculations
Diversification of loans by methods: loans outstanding by limitation and by
times accounted for the highest proportion, over 48%58% of total credit outstanding,
projects investment loans accounted for 30%42% of total credit outstanding,
instalment loans accounted for over 6% of total credit outstanding. In particular,
syndicated loans, overdraft loanslimit accounted for very low propotion, less than 1%
of total credit outstanding (see Table 2.7).
Table 2.6 Loans by methods of commercial banks in HCM City in the
period of 20062012
22
Indicator
Ratio
By limitation and time
By projects investment
Syndicated loans
Overdraft loans
2006
41,03%
0,49%
0,17%
2011
100%
52,17%
39,96%
0,53%
0,14%
2012
100%
48,97%
42,39%
0,60%
0,25%
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