A study on the enhancement of personal loans quality at Vietnam International Joint - Stock Commercial Bank – Hai Ba Trung Branch

BANKITNG ACADEMY

OE VIETNAM

FOREICGN LANGUAGES

GRADUATION
A SLTUDY ON THE ENHANCEMENT

FACULTY

THESIS
OE PERSONAL LOANS

QUALITTY AT VIETNAM INTERNATIONAL JOINT - SFOCKE
COMMERCLAL

BANK - HAI BA TRUƯNG BRANCH

Studenf

:

Vu Thi Thu Van

Class

:

K20ATCC

Academic Year

:

2017 - 2021

Sftudent ID

:

20A7510201

Advisor

:

Ms. Pham Thi Hoang Anh (Assoc. Prof.PhD)

Ha Noi, May 2021


Graditafion TÌiesiS

Banking 4cadeIny
CERTIEICATE OEF ORIGINALITY

I would like to reassure that my øraduation thesis 1s conducted by myself with
the support of the Instructor and do not copy the research works of others. The
secondary Information dafa used in the article 1s sourced and explicitly cited.
Itake full responsIbility for this certlficate of originality!

Ha Nol, May 2021
Studenf

Vu Thi Thu Van

SfIdenf:

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1

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Banking 4cadeIny
ACKNOWLEDGEMEXNIS

I would like to express my deep and sincere øratitude to my supervisor, Ms.
Pham Thị Hoang Anh (Assoc. Prof. PhD), for helping me in the process of the
research and providing ¡nvaluable guidance throughout my research. Ms. Hoang
Anh has made a suitable sugøestion and detailed commenfs to make my article as
complete as possible. It was a øreaf privileøe and honor to work under her guidance.
I also take Immense
Languaøe

pleasure in thanking

Faculty at Banking Academy

all of my teacher in Foreign

for their compensation and expensive

lessons during the past 4 years of study.
Finally, my special thanks are extended to Vietnam International Joint-Stock
Commercial Bank — Hai Ba Trung Branch. Especially, the Board of Directors of the
bank has expedited me to go to the practice and enthusiastically supported me
during the training period. At the same time, I would like to thank the staff working
In the personal client room for enthusiastically helping and facilitating me during
the training process at the branch.

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TABLE OEF CONTENT

0 5)›09013i9.095/9)329).3i60/.1051A01114................... |
0.99140830860517... .....................

II

IV.1:)0519)09)60596600114............

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1.5. Scope and limifation of the SfUỦY.......................
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.................... 5

CHAPTER 2: LITERATURE REVIEW AND THEORETICAL FRAMEWORK...?7
"PP co

............................

P4 0y i0ii0) 0n

7

...................... 9

2.2.1. Theoretical Background of Personal Loans at Commercial Bank....................... 9
2.2.2. Theoretical Background of Personal Loans QuaÏity...........................-----+--«~++- 14
CHAPIER

3: PROCEDURE

OFE SECONDARY

DATA

COLLECTION

AND

ANALYSIS/ RESEARCH METHODOLOGY............................
+ 5+ + St svxeeveeeeereeee 20

kNNPuv. lồi

là mẽ...

20

3.2. Research design/ methoclOlÒV ..........................- - - + Sc 22 2x vn ng ng
21

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...................... 21

K6)

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....................... 21

K60

300i

5 ........................

21

3.3. Sources of Secondary ÏDafa.......................---: - c cv vs x
HH ng rrêc 24

3.4. Validity and Reliability of data analySIS.............................--Ă S series 24
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3.5. Self Reflectlon on Secondary Data Collection AnalyS1S ...............................---- -- 25
CHAPTER 4: FINDINGS AND DISCUSSION .................................
. cà cieieieirree 27
4.1. Findinøgs and Discussion of the business operations at VIB Hai Ba Trung
Branch for three years (201§-2020) .........................-¿5c 232121 *E +23 rrsrrrrrrkerkerkrrkrrerree 27

4.1.1. Business Results of VIB Hai Ba Trung Branch from 2018 to 2020............... 28
1U

9) 00/0000

00000 ....................... 31

4.1.3. Outstanding OaINS ............................-- + tt vn TT HH TT nhe 35

4.1.4. Indicator reflecting the quality of business aCfIVIfIeS ...........................
-.39
4.2. Findinøs and Discussion of øeneral assessmenf on Personal Credit AcfIvifies at
1;

; 8.

“>0...
AC

.......................... 47
................................. 47

on

Š

.......Ả....

4§

4.2.3. Main causes limiting personal loans quaÏIfV...........................
.--- ¿+ s+<+xs+s+xs+xsxss2 49
“6tu9

0n...

ỞỎ....

52

CHAPTER Š: CƠNCLUSION AND RECOMMENDATION................................ 53
5.1. Orlenfation for enhancing personal loans quality at VIB Hai Ba Trung Branch
08001 505y1:0920530922. 01101... ...................

353

5.2. SolutIlons for enhancing personal loans quality at VIB Hai Ba Trung Branch..S6
5.2.1. Product developmenf SOÏufIOIS .............................65-5 5+ St S+SvsvEererrerrrrrrrrrrrrree 56
5.2.2. Solutlons fo Improve credIf quaÌIfV......................... -‹s-ccsxsxxsnisereixrrrrrrrrrrrrrrrree 57
5.2.3. Human resource development SoÏufIOIS............................
¿5255252 s+* sex 59

5.2.4. Solutlons to enhancing technologøy InÍrastruCfure...........................-- 55s s+ss+xsxss+ 60
5.2.5. Solutlons to broaden customer relations and marketing acfIVIfIes..................... 60
=NC dung.

ha .....................

62

5.3.1. Recommendations to The Goverment and The State Bank of Vietnam......... 62
Š.3.2. Recommendation

0n

to The head

office of Vietnam

International Joint Stock

2v0/10805.0) T1 ............................ 64
¡cá 2

5

.......................... 6S

;3535)›35À\ 011 ................................
3500980117...

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LIST OEF ABBREVLATIONS

Abbrevations
VIB
CBs

Meanings
Vietnam International Joint-Stock Commercial Bank
Commercial Banks

HBT

Hai Ba Trung Branch

NPLs

Non-performing Loans

KPIs

Key Performance Indicators

ITME

International Monefary Fund

UNCTAD

United Nations Conference on Trade and Development

EFDI

Foreign Direct Investment

WTO

World Trade Organization

ILO

International Labour OrganizatIlon

OCB

OricomBank

ACB

A Chau Joint-Stock Commercial Bank

CIE

Customer Information Files

CIC

Credit Information Center

SBV

State Bank of Vietnam

VND

Sfndenf:

Viet Nam Dong

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LIST OE TABLES

Table 4.1: VIB Hai Ba Trungˆs Outstanding Loans based on

Page: 37

customer types from 2018 to 2020

Table 4.2: Loss Loan Provision of VIB Hai Ba Trung over the

Page: 42

vears (2018-2020)

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LIST OE EIGURES

Diagram 1.1: The proportion of personal credit ørowth of banks In

Paøe: 2

2020
Diagram 1.2: Lowest Personal Loans IR in 12/2020

Page: 4

Diagram 1.3: Credit Granting Process

Page: l3

Diagram 4.1: Total Operating Income of VIB Hai Ba Trung (2018-

Page: 28

2020)
Diagøram 4.2: Total Mobilized Capital of VIB

Page: 32

Diagram 4.3: Mobilized Capital based on customer types

Page: 34

Diagram 4.4: Total Outstanding Loans of VIB Hai Ba Trung Branch

Page: 36

(2018-2020)
Diagram 4.5: VIB Hai Ba Trungˆs Oufstanding Loans based on

Page: 38

customer types from 2018 to 2020

Diaøram 4.6: NPLs and Overdue Debt Ratio of VIB — Hai Ba Trung

Paøe: 40

Branch In period 2018 — 2020
Diagram 4.7: Customer survey results on the abilify to meet theneeds

Page: 43

of customer at the HBT Branch

Diagram 4.8: Customer survey results on the safety of credit
transactlons at VIB HBT

Page: 44

Diagøram 4.9: Customer survey results on utilitles of products

Pagøe: 45

Diagram
4.10: Customer survey results on satisfaction with the service
l
attitude of employees

p„gẹ:
age: 46

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ABSTREACT

It is undeniable that personal credif is a very pofenf type of service, promising
to bring øreat profifs to commercial banks. Accordingly, enhancing personal loans
has become a priority goal of the entire financial industry in the context of fIercely
competitive markets.
PERSONAL

LOANS

The thesis "A STUDY
QUALITY

AT

ƠON THE

VIETNAM

ENHANCEMENT

INIERNATIONAL

OF

IOINT-

STOCK COMMERCIAL BANK - HAI BA TRUNG BRANCH" will shed light on
Issues related to personal credit development at VIB. This includes an overview of
credit operations 1n Individual customer seøments and business efficlency. At the
same time, the thesis aims to analyze the lending situation of VIB Hai Ba Trung

while following retail model banks and find their current weakness and lending.
Finally, to come up with some solutions fo attract customers among this animated
market.

In

addition,

the

author

also

made

several

recommendations

to the

Government, State bank of Vietnam, and Head Office of VIB to contribute to the

evolution of personal loan quality at commercial banks in øeneral and VIB Hai Ba
Trung In particular.

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CHAPTER

1: NLRODUCTION

1.1.Infroducfion

Nowadays, as a developed society, people's lives are Increasing, accompanied
by significant improvement of human beinøs in manufacturing secfors such as
science and technoloøy, transportation, home appliances. Thank that, demand for
capifal use of people and businesses that have pushed to the maximum.
Along with the burgeoning of commodity production, the commercial banking
sysfem 1s expanding while confirming 1fs vifal role in the economy and finance. In
parficular, credit activify 1s considered the foundation of the entire banking Indusfry,
accounting for a large proportion of the bank's tofal assets profitably.
After experlencing many periods of hardship from world economic crises such
as the 1997 Asian financial crisis, 200§ world financial crisis; Now, the banking
markets

of

many

countries,

include

Vietnams

banking

system,

have

been

dramatically reformed and arranged In a new order. By multi-secfor restrucfuring
acfivities, they have succeeded In improving their quality and diversifying product
Items. In specific, the credit products for the individual customer seøment evaluate
as one of the hiøgh potential products which have a vibrant market, with the
pArficipatlon of most commercial banks.
In line with McKinsey's forecasfs (2020), Asia would reach more than $900

billion ¡1n retail banking revenue, with an average ørowth rate of 14% per year by
the end of 2020. Of course, the retail banking market in Vietnam wIll catch up with
the øeneral trend of the world, and the potential for personal lending ¡n the fufure 1s
enormous. Due to Le Thi Anh Quyen's (2020) report, personal loans account for 60709% of total loan sales (at VIB or Agribank ) and are ørowing higher and higher.
However, the ørowth rate of customer loans in the banking system still had a strong
differentiation. Some banks had negative ørowth, while another bank had a growth
rate of over 10%, as Indicated 1n diagram I.1. Overall, the consequence that bankers
are flush with cash.

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Điagram 1.1: The proportion of personal credif øgrowfh of banRs in 2020
Dhmif: 2
29.40%

24.40%

19 40%

14 40%

9 40%

lÏI1ini

5

-060%

Ï

Ï

ng

H

ũ

"

m

I

-5.60%

~10 ©O0%

về

Về VỀ SẺ

K

về về về c2 vở về KÝ
.

XS

he
NzS

ẤU o Q0
-

sÉT

J2

J

s SG set

Vua

42 số

cà

Source: Collectedl data from Retnoithanhcong.com
This thesis alms to provide an overview of credif operation in individual
customer seøments

and business efficlency. At the same time, to analyze the

lending situation of VIB while following retail model banks, to find their current
weakness. Finally, this study brings forward some solutlons fo aftract customers In
this animated market.

1.2. Backøround of the study

The last in 2020 1s one of the most crisis years of the world economy,
including Vietnam. COVID 19 pandemic - originating in Wuhan (China) at the end
of 2019 has been causing severe damage fo countrles. Its influence pushes the
world, countries, and territorles into an economic and medical crisis. As a result,
many

natons

íell Into

deliberate

recession,

commerce,

social

securify,

and

significantly the economy declined sharply: tourism activitles, festivals, production,
or business Investment also sfalled.

Following the IME

and World Bank (10/2020),

the world economy was

forecasfted to diminish in 2020 (from -Š.29% to -4.43%4). UNCTAD

(2020) estimated

ølobal FDI would reduce by about 40% compared to 2019 and resume to fall by Š10% in 2020; WTO
SfIdenf:

(10/2020) predicted world trade to decrease by 9.2%. In 2020,

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ølobal inflation was forecasted to be low (1.8-2%%) due to weak demand and lower

oi

prices

(Can

et al.,

2020).

Otherwise,

COVID-I9

also

¡mpacted

global

employment strongly. Under the World Trade Organization report (10/2020), in the
second

quarter of 2020,

total gølobal working

hours were decreased

by

14%,

equivalent to 400 million full-time employees. The global Job was fell off even

more robust than previously forecast by the ILO (2020). Particularly in Vietnam,
this epidemiological shock ¡in 2020 has leff many natural consequences for the
economy. Specifically, based on the General Statistics Office (2020), in the Íirst six

months of 2020, the total retail sales of consumer øoods and services decreased by
0.8% over the same period in 2019 and would be even more terrible If the price
factor was excluded, at 5.3% (while in the same period in 2019 the Index was
§,5%). Besides, the sale of accommodation services, food, and beveràe services
decreased by I§.1% over the same period in 2019; Travel tourism revenue fell by

53.2% - this was the two-sector most severely affected by the COVID-19 epidemic
due to the implemenfation of social distancing measures (Nguyen, 2020).
What should the bank do when facing those difficulties?
The subsfantial damage causes soclety in øeneral, the whole banking industry,
and those who need to borrow money from the bank, in particular, have to face
many difficultles. However, dealing with such problems and challenges posed by
the SARS-CoV-I

pandemic,

commercial

banks

are determined

to recover

by

offeringø many coping solutions such as lowering the prime infteresf rate and taking
preferential interest for businesses that suffered heavy losses, extending monthly
Interest payment fo stimulate credit demand. Especially, bankers have promoted
personal credit activites and followed retail banking orlentation. As shown in
diagram 1.2, the personal loan interest rates of banks plummeted in December 2020.
This TR 1s the lowest Interest rate cut in the last four years of financial markets,
culminating in OCB bank reducing lending rates to only 4.993%%. Consumer loans
that are popular today are real estate loans, car loans, consumer loans, home repalr
loans, and certain types of surety, personal guarantees. The scale and number of
Individual customer services are more plentiful and diverse than ever.
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Diagram 1.2: Lowesf Personal Loans IR in 12/2020
(%)
14

42

3y

10

8
s

s79.
|

727
|

7
|

2s

a.29

z.49
|

|

11-5

sa.

6

6.88 6.84

|

8.59

8.3

z.49

6.45

6.49

|
«>

|
,sˆ

6.5

cóo

4.9

2
:°

|

vàn

se

«<

.°` sơŠ .
c<
` h
-Ÿ% =>

ŠƠ

|

cế

|
se “c
SN cS

[Ï
vê

“

‹ ` «° < <

c

]
..

cũve

.c

|
â

..

. ô`

eS



_ ...

..



.

|
sa

.

|
...c
c

ôv

..

".

Source: Collected dafa 'oin viefnainnef.VH
However,

this current strateứy of CBs

has remained plenty of risks and

inadequate due to the lack of turnover. It rarely hit expected KPIs of senlor
leadership, while NPLs and debt recovery rates are still below average. Therefore,
what solutions are needed to enhance this strategy? What are the shortcominøs still
oufstanding? The study will consider this 1ssue closely.
1.3.Objecfive

The prerequisie
Operaflons,

goal of this study ¡is to evaluate

to put forward

some practical assessmenfs

the quality of credit
of credit operatlons of

commercial banks, particularly the personal one, based on 1fs rationale.
Also, the next goal 1s to analyze the status of individual customer loans at VIB
Hai Ba Trung Branch, based on which determines the results, advantages. and
disadvantages available and the reasons that limit the development of lending to
individual customers.

Einally, proposing and offering solutions and tools to support the Improvement
of the personal loans quality at Vietnam International Joint-Stock Commercial Banks.
1.4. Siønificance of the study

Up to now, Vietnam's population 1s approximately 97.5§ million people, and
this filgure 1s sfill rising. Such means that the demand for bank loans to serve
peoples daily lives 1s becoming a modern trend. Therefore, this market naturally
becomes a delicious piece of cake for banks to fea.
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Not to miss this fertile segment, for many years, VIB Hai Ba Trung Branch
has constantly self-consciously Improved the quality of credit services and the entire
types of services available at the branch. Their goal 1s to provide the best service
eXperience for every customer, achieve the objectives effectively, and make VIB the
best retail bank in Vietnam. Hence, the author decides to write about this †opIc
while being an intern here. By comprehensively systematizing the related content
and the analyzed theoretical bases, the thesis aims to dissect and evaluate the result
of personal credit activitles at the branch, thereby proposing some clarIficafions to
enhance quality.
In conclusion, not only do the banks take benefit from the thesis, but also other
researchers do. The author Intends to use her work as valuable secondary data by
providing exact Information ¡in detail, with the overall aim of completing the
banking apparafus as well as personal loans service.
1.5.Scope and limifafion of the study
1.5.1. Limifafion of the síudy

The banking and financial system 1s a vast category with many related topics.
However, ¡in this thesis, the author will only limit the scope to learn to revolve
around the credit sector, namely personal credit, to help reader overview the credif
Indusfry.
1.5.2. Scope ø0ffhe síudy
Personal

customer

credit

activitles

at

Vietnam

Internatlonal

Joint-Stock

Commercial Banks — Hai Ba Trung Branch period of 2018-2020.
1.6. Definifion of ferms

There are plenty of key words related to the topic which will exist within the
study. Below are some definitions of them moreover as relevant theoretical content.
Bank

Credit refers to the number

of credit avallable to a business or

individual from a banking institution within the varlety of loans. Bank credit,
therefore, 1s that the total amount of cash an individual or business can borrow from

a bank or other establishment. A borrower's bank credit depends on thetr ability to
Sfnudermf:

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repay any loans and therefore the total amount of credit available to lend by the

banking Institution. Varletles of bank credit include car loans, personal loans, and
mortgages (Khartit, 2020).

Commercial Bank refers to a Íinancial organization that accepts deposits,
offer

bank

account

services,

making

varlous

loans,

and

offers

basic

financial

products like certificates of deposit (CDs) and saving accounts to individuals and
litle businesses.

A commerclal

bank ¡s where

the majorlty do their banking

(Anderson, 2021).

Personal Loans is an amount of cash which individuals and households can
borrow fo use for a range of purposes. For example, clients may use a privafe fo
consolidate debt, procure home renovations, or plan a dream wedding. Personal
loans 1s offered by banks, credit unions, or online lenders. The money they borrow
must be repaid over time, typically with interest. Some lenders might also charge
fees for privafte loans (Lake, 2021).

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CHAPTER 2: LIIERATURE REVIEW AND THEORETICAL
ERAMEWORE
2.1 Liferafure review

In addition to new Issues such as valuing corporate shares or Improving risk
management to apply Basel II standards, Improving credit quality has become one
of the most scorching topics for the past few vears because of 1fs surrounding
problems. Its appeal attracted the author and many students and researchers in the
banking sector in particular and finance In øeneral. That 1s also the reason why the
author chose this topic for her research. Throughout the research process, the author
has researched

and referenced several previous masters theses and øraduatlon

thesis, which can be menfioned as:

Graduation thesis: "Solution to improve the quality of personal credif acfIvifles
at Natlonal Citizen Joint Stock Commercial Bank - Hanoi Branch" by Phung Huong
Ly (2014). The essay had pointed out some backlog ¡ssues such as limitations In the
selection of credit reciplents, thereby proposing many recommendations to the
Government, the State, and the Head Office of NCB, to offer solutlons Improving
the quality of personal credit operations at National CItIzen Commercial Joint Stock
Bank - Hanoi branch. Besides that, the author reflected the development orIentation
of the whole banking industrys consumer lending activities in the coming time by
analyzing and assessing the quality of personal loans at the NCB - Hanoi branch.

The thesis had approached the topic from many different angles through research
methods such as data collection methods, comparison methods, analysis methods,
and synthesis methods.
Master thesis: "Development of lending to individual customers at Vietnam
Technological and Commercial Joint Stock Bank" by Nguyen Anh Duc (2015)
aimed to help systematize the fundamental theoretical bases of credit activifles af
commercial banks, analyze the factors affecting the development of this lending
secfor includes subjective factors and obJective factors, thereby proposing solutions
to development problems. The author flexibly applied various methods during the
study period, such as sfatistical methods, comparison,

synthesis, and incredibly

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expert methods. He also ¡nterviewed banking experfs fo Increase the credibility of
the theS15.

Research by author Tran Thi Hong Nhung (2017) had outlined the necessify to

enhance the quality of credit for individual customers based on an analysis of the
relatlonship between credit risk and credit quality. In addition, the author had
summarized some experlences of several Vietnamese retail banks In promofting
credit quality, thereby pointing out the existing advanfages and disadvantaøges of
Asian banks and the whole banking ¡industry. At the same time, she proposed
supporting tools to develop loan quality. Moreover, the thesis pointed out some
unsolved problems

at ACB

¡in detail, which could be mentioned

that product

regulations were quite loose, lax: lack of evaluation In the bank's appraisal staøe to
achieve credit ørowth target.
The thesis "Solutlon to expand

retail credit activiles at the Joint Stock

Commercial Bank for Investment and Development of Vietnam Hong Ha Branch"
by Nguyen Thị Le Thu (201§) gave directions to expand reftail credit actIvitles by
completing the retail credit process towards efficiency, savinø processing time as
well as simplifying the credit extension process. Besides, another direction was
promoting Investment and technology development to catch up with the 4.0 era. The
author flexibly applied methods of invesfigatlon, synthesis, sfafIsfics, comparIson.
Masters thesis: "Improving the efficlency of lending to individual customers
at the Joint Stock Commerclal Bank for Foreign Trade of Vietnam - Hoan Kiem
branch" by Pham Thị Hai Yen (2019). This thesis specifically researched the
efficiency of lending activitles at the Joint Stock Commercial Bank for Foreign

Trade of Vietnam, thereby verifying that lending activitles shall go towards sfable
ørowth to achieve hiph efficlency. The thesis had pointed out some practical
solutlons suitable to the current market situatlon, such as updating customer and
collateral appraIsal, enhancing ¡nternal inspection and confrol at branches. , etc.
In addition, there are many other studies interesfed ¡n this credif 1ssue, such as

research by author Vo Hoang Yen (2015). research by Nguyen Thị Van Anh (2013),
or Nguyen The Dung (2013).
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However,

Banking 4cadeIny

due to the difference ¡in time, banking environment,

and other

sublective reasons, the above studies have not dissolved and estimated each bank's
current sfatus and Indicators wholly and accurately. As a result, the most suitable

and practical solutions have yet to be found out. Therefore, the research of these
individual customer credif activifles should be done confinuously to be consistent
and effective with reality. Based

on the leøgacy of existing values, this thesiIs

continues

and

to delve

Into

the

¡ssue

come

up with

advanced,

systematic,

and

seamless solutIons.
2.2. Theorefical ramework

2.2.1. Theoretical Background of Personal Loans at Commercial Bank
2.2.1.1. Definifion of Commercial Bank

A commercial bank 1s a financial Instiftution that performs the functlons of
accepting deposits from the øeneral public and øiving loans to people in need only
to earn profit. A bank is a finance trade and commerce with short, middle, and longterm loans. Thetr business principles typically charge a higher rate of Interest from
the borrowers than the rate of interest that they must pay to their depositors, with
the result that the difference between the two rates of interest becomes the prImary
source of profit of the banks. Commercial Banking is an Intermediary financial
Institutlon that provides financial services, Including receiving deposifs and lending
money, payments, and other financial services (Mishkin, 2001).
According to the law of credit institutlons 1m Vietnam 2010. “Credift Institution
means

an enterprise performing

one,

several or all banking

activites.

Credif

Institutlons include banks, non-bank credif institutlons, microfinance Insfitutions,
and people's credit fund”: “Commmercial bank 1s a type of bank which can conduct
all banking activitles and other business activitles following this Law for profit
pUuTpOSe€S.`

In general, the bank 1s a financial Institution that offers the most diverse

portfolio of financial services — especially credif, savings, and payment services —
and performs

a speciÍic range of financial functions than any other business

Orøanization in the economy (Peter S. Rose, 2004).
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In conclusion, commercial banks are one of the financial Insfiftutlons with the

essential characferistics of providing varilous financial services, trading ¡n legal
credit currency, including mobilizing capital, credit øranting, foreign exchange, efc.
Credit extension 1s considered a "darling" of the bank because of the enormous
profits it brinøs back. Moreover, commercial banks also provide plenty of monetary
and credit services to satisfy the maximum demand for producfs and services of the
SOCI€TV.
2.2.1.2. Definifions of Personal Loans

Personal credit 1s understood as the relationship of borrowing property from

each other on the principle of repayment of principal and interest affer a specific
tune. Between credit issuers being commercial banks, financial institutlons, and
credit takers are Individual customers., business households.

According to the Law on Vietnam Credit Institutlons 2010, “personal credif 1s
a type of credit in which commercial banks act as the transfer of the righf to use
the capifal to individual customers or households to exercise for liíe serving,
production,

and business in the form of individual business households. Both

prIncipal and 1mterest must be returned 1m a certain time”.
Furthermore, personal credit 1s: “the temporary transfer of a quantity of value
†rom CBs (owners) to borrowers (users) drunk for a cerfain period returns to CBs

with a value greater than the original amount of value.” (Commercial Banking
Professional Textbook — Thang Long Ủniversity)
Loan actIvify 1s a primary credif activity that any bank must have, especially
personal loans, which 1s becoming a trend nowadays. Accordingly, this activify will
take place under the aøgreement of the two partles without any pressure. Such
agreement Includes loan terms and interest rates, loan purposes, collateral (1f any),
and proof of collectlon and repayment. Also, customers will be øiven the option to
disburse in 2 ways: cash disbursement or disbursement via account. If they choose
to disburse via an account, they must have a credit account opened at the borrowing
bank. After receiving the disbursement, customers must use the money for the
exemplary purposes as commiftfed with the bank, such as buying a house, building
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and repairing a house, buying a new car for consumption,

doing business, or

receiving the transfer of houses and apartments.
2.2.1.3. Types of Personal Loans

“Personal

loans may

be secured

or unsecured.

A

secured personal

loan

requires some collateral as a condition of borrowing. For instance, you may secure a
personal loan with cash assets, such as a savings accountf or certificate of deposif
(CD), or with a physical asset, such as your car or boat. If you default on the loan,
the lender could keep your collateral to satisfy the debt. An unsecured personal loan

requires no collateral to borrow money. Banks, credit unions, and online lenders can
offer secure and unsecured personal loans to qualified borrowers. Banks øenerally
consider the latter to be riskier than the former, as there is no collateral to collect.
That can mean paying a higher 1nterest rate for a personal loan “(Lake. 2021).
Moreover, ¡n this study, the author will divide loans Into fwo mains øroups
that are oufstanding loans and overdue loans. An outstanding loan 1s an amount of
money

that the clients borrow from a commercial

bank. In simple terms, an

oufstanding loan 1s a type of loan that the customer has not paid off vet and ¡s still in
the repayment period. Customers are supposed to pay the debt, including Interesf
and principal payments, to the bank on time and complete the agreement signed.
Besides, this Index helps financial experfs analyze the efficlency of the Investment
of a mobilized capital.
An overdue loan 1s the loan amount that customers fail to repay on time due fo
some

unforeseen

cicumstances

that

customers

face

some

fÍinancial

crunch.

“Overdue đebt 1s the debt that some or all of principal or interesf 1s overdue. When a
debt ¡1s not paid on a term, the entire principal remaining will be converted ¡nfo
overdue debf” (Nguyen Van Tien, 2012, p.306). In other words, the overdue amount
1s the amount left unpaid even after the due date of paymenI.
2.2.1.4. Characferisfics of Personal Loans
q, Broad scope of activities

Most of the borrowers of this type are individuals and households borrowing
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for consumer life, build and repalr houses, or small business production. Therefore,
the value of these loans 1s usually much lower and smaller than the available capital
of banks. However, unlike loans to businesses and economic organizatlons, the
number of individual loans 1s vast due to the diverse needs of all people nowadays,
especially when bank loans are becoming more popular and obtainable. Although
the scale of credit provision 1s not large, 1ts effecfiveness 1s very remarkable.
b, Dhnerse and hiehi efficienf prodhicts

The birth of any product ¡s aimed at satisfving customers' needs. Personal
credit products are no exception, especially when the essential requirements of
customers

banks

become

have

more

quickly

and

designed

more

abundant.

Foreseeing

that trend,

and

launched

a variety

of products

commercial

to satisfy

customers. As a result, they have achieved high loan efficlency and brought in huge
profits.
c.Stable Interest Rate

The Interest rate of personal loans ¡s not affected much by market interest
rafes, so If 1s usually more stable than corporate ones. Usually, the interest rate fix
by agreement from the start and will not change until the maturity of the short-term
loan. For medium and long-term loans, the bank will have a preferential interesf rate
for the first six - months. The following months will adJusf to a certain amplitude.
d| Brimơing q hieh level of risẴ

However,

this retail activity also has many potential risks relatve to the

number of profits it brings. Due fo some complicated reasons, the Information
provided by the customer ¡1s offen Inaccurate. Pleces of information related to
Careers, social Insurance, or income sources to pay debts are subJective because they
are only provided one way from customers and not closely audited and assessed.
Besides, the source of the customer to repay debt 1s not stable due to many factors.

A typical example 1s a household that has a business loan. Because this ¡s a small
business, people do not have much producftion experience plus outdated technology,
leading to the inability to compete ¡n the market. As a result, the bank will face the
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risk of when

the

Banking A4cadeiny

customer

øoes

bankrupt,

along

with

other

risks

such

as

unemployment, accident, death.
2.2.1.5. Credit Granfing Process
*How a Personal Loan Works:

(In Customer Term)

“To get a personal loan. you need to apply to a lender. Agam. this can be a
bank, credit union, or online personal loan lender.

Generally, you would first complete an application. The lender reviews 1t and
decides whether to approve or deny 1t. If approved, you will be given the loan
terms, which you can accept or reject. If you agree to them, the next step 1s
finalizing your loan paperwork.

Once that has been done, the lender will fund the loan, which means payIng
the proceeds to you. Depending on the lender, this may be done through a direct
deposit Into your bank account or a check. After the loan 1s funded, you can use the
money as you see fit. You then have to begin repaying the loan according to the
terms established 1n your loan agreement “(Lake, 202 I).

*How a Personal Loan Works: (In Bank Term)
DĐiagram 2.1: Credit( Granfing Process

PI, SG Hi

s5 IĐ cot01)

j)Ẻ)—1I

ẢPpraisa
and

A90 0T)

Source: Collected data from VIB'% internadl regulafions
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- PL. Selling:
In this step, the sales management

searches for new customers,

exploits

eXisting customers as planned, and sales strategy. Then, they start to advise products
and prices through ¡nterest rate table. If the customer agrees with the terms, sale
manaøgement would advise loan applications and collect loan documents, CTF.
- P2. Credit Proposal, Appraisal and Approvadl:
After gathering the necessary documentfs, the banker needs to assesS Custoimers
and stakeholders through checking CTIF sfatus, CIC credit history, prohibited or
restricted, blacklist customer;

scoring Internal credit rating of them; evaluating

customer conditions and finance. Beside that, he/she has to obtain property records
øuarantee and pricing 1t. Next, the CEO will review the clienfs profile to decide
whether to approve øranting credift or not.
- P3. Drafting and Signing the Confract:
If the

loan

profile

Is passed,

the

sale

manaøgement

issues

a paymenf

commitment of the bank and make an offer to draft a credit file. If that credit file
meets banks conditions, the credit transaction department wIll prepare the contract.
The sale management confirms the contract with thetr clients then siøns.
- P4. Disbursement:

Before disbursing, the credit transaction department needs to notarize and
TeØIster seCur1fy transactions and notIfy the results to the sales manager. Then they
disburse as requires by sale management, in cash or bank transfer 1s optlonal. After
disbursing, the bank checks and confirms customer debt status. Ending process.
2.2.2. Theorefical Background of Personal Loans Quality
2.2.2.1. Definifion of Personal Loans Qualify

For any service product, quality ¡s the thing customers especially care aboul.
Good product quality will leave much impression on the "God”, open countless
Opportunifles for cooperative development, and mainly help build up the prestige of
the Issuers. Commercial banks' credit products are no exception. Personal credit
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quality 1s understood as safisfying the customer demand, a timely response to the
size,

time,

and

¡nterest rate, helping

the customer

cover

lie

and

overcome

difficultles of the Financial Sponsor. Since then, ¡ft has helped not only Improve the

quality of social life but also increase the profits for CBs to ensure business
stability.
In particular, personal loans quality had a substantial Impact on four subJects,
Including the economy, comunercial banks, producers, and customers in general. For
economic development, personal credit qualify 1s an inteøral component of fostering
economc restructfuring ¡n the desired direction of the Sftate. Furthermore, consumer
lending has played an essential role In creating more employment opportunifies,
Increasing the productlon of øoods, and sttmulating demand

through adequate

capttal. It led to the øradual development of the national economy.
Secondly, loan quality 1s a sign of commercial bank performance. The higher
the quality of lending, the stronger the bank's prestige and position in financial
markets. That quality ¡1s reflected in debit balance rafes, overdue debt rates, and
bank defaults.
Senior Imporfant, the high quality of personal loans has fueled the prosperIty
of an organization. Personal credit has helped the State and factories solve the
problem of "excess supply but Insufficlent demand”, addressing the stale block
between productlon and circulatlon of øoods on the markefs. Consumers were
†inancially supplied in a varlefty of ways, thereby promoting producf consumptfion.
Manufacturers were also expanding the scale of production,

increasing market

competifiveness, and making a profit.
Last but not least, for øeneral customers, the quality of the loan manifests
Ifself In response to timely capifal demand at reasonable Interest rates to saftIsfy
consumer
borrowing

demand.

In addition, there is a simplificatlon of the current bank's

procedures

to

provide

convenience

to

customers

but

still

ensure

compliance with Vietnamese laws.

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2.2.2.2. The Necessify of Personal Loans Qualify

It can be said that the current consumption level reflects the expectation of the
future Iincome of the population. It 1s the driving force, the demand to pay for øoods
and services for production and business. Therefore, consumer credit has long been
considered
according

an essential part of retail banking
to Peter

Drucker

(1991),

consumer

(the most
credit

has

criical part). Even,
been

the

lifesaver

of

commercial banks since the 1970s, when corporafe credit was flercely competifive
by financial companies, Investment funds, and the stock market. The consulting
øroup BCG (2019) survey also shows that although reftail credit accounts for only

30% -35% of total ouftstanding loans, it øenerates over 60% of profits of leading
commercial banks in Asia. The reason for this number ¡s straightforward. The flerce
competition has made the profitability of corporate credit decreasing, while in
confrast, retail credit (including credif cards) 1s now ørowing strongly.
In consonance with the evidence sfated above, it can be seen that upgrading
the quality of retail credit in commercial banks 1s extremely necessary, especially
when more and more products and services are Iincreasingly available. Several
commercial banks were esfablished, accompanied by attractive offers on Interest
rafes and services. When the quality of credit operatlons of CBs Increases, service
cosfs and related cosfs are reduced, the profitability of products will be enlarged and
stable im the long run. That helps bring in enormous profits for the banker and
enhances the Imaøe and reputation of the bank in the economy. Besides, Improving
the quality of lending to individual customers also helps to speed up the currency
circulation, contributing to social stability. Moreover, if† supports reducing labor
pressure in big citles, alleViate poverty 1n rural areas.
Joining that trend, to mainfain 1†s currenf position 1n the financial market, VIB
must have an effectve development policy and business strategy, Íocusing on

talenfs to prior1tIze the development of this field.
2.2.2.3. Criteria of Personal Loans Quality
a, Qualifafive criferia:
- The qbilih' to meet the needls of CHSfOlners

The first prerequisite criterion when considering the enhancement of cerfain
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