Doctor of philosophy thesis: State manamgement in diversification of credit activities of commercial banks in Ho Chi Minh city to the year of 2020

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Objective to analyse the situation of state manangement in credit activity diversification of the commercial banks and to identify factors affecting the results of state manangement in diversification of credit activity of the commercial banks in HCM City to the year 2020; and to recommend the solutions to improve state management in diversification of credit activity of the commercial banks in HCM City to the year 2020.

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Nội dung Text: Doctor of philosophy thesis: State manamgement in diversification of credit activities of commercial banks in Ho Chi Minh city to the year of 2020

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 ……………………………………………… ………………………………………………………….. 3rd critic: ……………………………………………… …………………………………………………………….. (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 national library, Hanoi
1 FOREWORD
2 1. Motivation of the Study Credit activity of the banks in general and of the join stock banks in the area of Ho Chi Minh City (HCMC) in particular have an important contribution to economic growth health and poverty alleviation through providing capital to the economy, boosting investment, creating jobs and implementing social welfare. With the important role of bank credit, the safety, health and efficiency of the system of finance institutions (FIs) is an important factor for stability of the national financial system and the macroeconomics. However, due to the impact of the financial crisis spread around the world comes from the rapidly developed financial markets with the new model, business activity, the variety of complex financial products, involves greater risk; management framework and banking supervision as well as cognitive and credit activity safety standards are not being upgraded make the financial safety and stability level decreased. In Vietnam, the credit activity gradually implemented within the framework of ever-improving legal and international experience drawn from the crisis to apply in 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 large-scale 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 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 diversification; to identify the causes, the weakness in the credit activity of the local commercial banks, especially, to analyse the situation of state manangement in credit activity diversification of the commercial banks and to identify factors affecting the results of state manangement in diversification of credit activity of the commercial banks in HCM City to the year 2020; and (iii) To recommend the solutions to improve state management in diversification of credit activity of the commercial banks in HCM City to the year 2020. 4. Object and scope of the Study Subjects of the Study are the contents of state management in diversification of credit activity of commercial banks in HCMC. The specific subjects include: (i) theory and international experience of the state management in credit activity diversification; (ii) state management practices in diversification of credit activity of the commercial banks in HCM City. 5. Methodology of the Study Methodology of the Study: The thesis analyzes credit actitivies, credit diversification and state regulatory on credit diversification, the international 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.
4 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 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 1.1 Diversification of credit activity of commercial banks 1.1.1 Definition of diversification of credit activity of commercial banks
5 There are many concepts of diversification related to different areas. Applying and combining of concepts and purposes of credit activity diversification, the authors of the thesis think that diversification of credit activity of commercial banks means expanding forms of credit, such as loans, CCCN discount and other valuable papers, bank guarantees, credit card issuance, factoring and other forms of credit; and expanding the types and methods of each form of credit, in order to develop advantages of each form of credit, to exploit the advantages of all kinds, each 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 Term lending LOAN Currency lending Customer oriented lending Sectoral, industrial lending LOAN Lending for each loans Lending as limits METHODS Project lending OF LOAN Syndicate lending Installment lending FORMS Lending under the limit provision OF Lending overdraft limit CREDIT METHODS VALUATBLE DOCUMENTS OF Term purchasing DISCOUNT AND CCCN DISCOUNT Purchasing with recource Loan guarantee TYPES OF GUARANTEE Payment guarantee GUARANTEE Bidding guarantee Contract implementation guarantee Product quality guarantee Advance repayment guarantee Other guarantees CREDIT CARD
6 TYPES OF CREDIT Domestic credit card CARD International credit card TYPES OF Factoring with recourse FACTORING Factoring without recourse FACTORING METHODS Factoring for each time OF FACTORING Factoring for each limit Co-factoring
7 Source: Author collected from other articles and legislation documents 1.1.4 Criteria for evaluating the results of the diversification of credit activity of commercial banks Based on the detailed direction of diversification and diversifying selection shows the development requirements in terms of quantity, size, growth rate of forms of credit, types and methods of credit and apply indicators of a CAMELS criteria, the author provides evaluation criteria for the results of diversification of credit activity of commercial banks include quantitative criteria, criteria of size, growth speed criteria and safety criteria. 1.2 State manangement in diversification of credit activity of commercial banks 1.2.1 Some views on state management 1.2.1.1 The view of state intervention in the economy in general 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.
8 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 credit activity of commercial banks From the relationships between the objectives, functions and contents of state management in diversification of credit activity and using the criteria to evaluate the state management of the Asian Development Bank, the author synthesize criteria for evaluating the results of state management in diversification of credit activity include: validity criteria, effectiveness criteria, eligibility criteria, equality criteria and sustainability criteria. 1.2.7 Factors affecting the results of state management in diversification of credit activity of commercial banks Objective factors: (i)The social- economic development, (ii) The finance market development level; Subjective factors: (i) Orientation of social- economic development; (ii) Formulation and implementation of banking and finance services development schemes; (iii)Application of the method of state management in diversification of credit activity; (iv) Selection tools of state management and support 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.
9 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 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 2006-2012 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 2006-2012 (see Table 2.1, Table 2.2). Table 2.1. Credit activity of commercial banks in the HCM City in 2006- 2012 by forms
10 2006 2007 2008 2009 2010 2011 2012 Loans (tỷ đồng) 80.417,75 169.947,81 198.990,98 324.688,76 446.298,44 497.009,18 554.236,49 CCCN and other valuable papers discount 1.452,95 6.318,56 855,61 1.227,73 2.872,83 1.619,95 969,69 Bank guarantees 4.445,15 3.666,14 4.685,43 8.194,34 11.124,42 13.434,82 16.570,23 Credit cards 121,13 186,35 393,34 553,66 681,74 1.816,74 2.150,84 Factoring 115,14 295,77 365,08 548,62 607,85 630,06 664,21 Grand total 86.552,12 180.414,63 205.290,44 335.213,11 461.587,66 514.510,75 574.591,46 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
11 100% 100% 100% 100% 100% 100% 100%
12 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
13 Forms 2006 2007 2008 2009 2010 2011 2012 Loans 111,33% 17,09% 63,17% 37,45% 11,36% 11,51% CCCN and other 334,88% -86,46% 43,49% 134,00% -43,61% -40,14% valuable papers discount Bank guarantees -17,52% 27,80% 74,89% 35,76% 20,77% 23,34% 53,85% 111,08 40,76% 23,13% 166,49% 18,39% Credit cards % Factoring 156,88% 23,43% 50,27% 11,23% 3,25% 5,42% Credit growth 108,45% 13,79% 63,29% 37,70% 11,47% 11,68%
14 Funding growth 109,34% 24,59% 37,54% 12,32% 11,31% 16,22%
15 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. 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
16 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 39,64% 44,41 21,70% 56,20% 33,74% 30,50% 36,84% ratio % 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 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 Diversification of loan terms: Short term loans always account for over 57% of total loan outstanding and tend to decrease due to the SBV's regulation of limit consumer lending, not recommended areas lending. Medium-term and long-term loans tend to increase up to over 40% of total loan outstanding (see Table 2.4 and Figure 2.1), because commercial banks lend to investment projects under the program of economic restructuring, investment stimulus in HCM city. Chart 2.1. Proportion of loans of commercial banks by type in HCM City in the period of 2006-2012
17 70,00% 68,64% 63,68% 63,75% 60,00% 58,55% 58,49% 59,50% 57,02% 50,00% 40,00% Ngắn hạn Trung h ạn 30,00% Dài hạn 24,97% 26,09% 23,61% 24,38% 21,02% 21,27% 20,52% 20,00% 17,84% 15,73% 16,55% 16,12% 16,90% 15,05% 10,34% 10,00% 0,00% Năm Năm Năm Năm Năm Năm Năm 2006 2007 2008 2009 2010 2011 2012 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 economic sectors: Trade and service sector loans 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 2006-2012
18 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%