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)
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critic: ………………………………………………
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nd
critic ………………………………………………
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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 national library, Hanoi
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FOREWORD
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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.
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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
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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


Project lending
Currency lending
Lending as limits
TYPES OF
LOAN
LOAN
VALUATBLE
DOCUMENTS
AND CCCN

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

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Domestic credit card
FACTORING
TYPES OF
CREDIT
CARD
International credit card
Factoring with recourse
Factoring without recourse
TYPES OF
FACTORING
METHODS
OF
FACTORING
Factoring for each limit
Factoring for each time
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.
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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.
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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

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
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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
86.552,12 180.414,6
3

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
11
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%

CCCN and other
valuable papers
discount
334,88
%
-86,46% 43,49% 134,00
%
-43,61% -40,14%
Bank guarantees
-17,52% 27,80% 74,89% 35,76% 20,77% 23,34%
Credit cards
53,85% 111,08
%
40,76% 23,13% 166,49
%
18,39%
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%
Funding growth
109,34
%
24,59% 37,54% 12,32% 11,31% 16,22%
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
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

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
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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 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
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-

2012 accounted for over 70% of loans outstanding (see Table 2.6)
Diversification of loan by customer types:
Chart 2.2. Proportion of loans by customer types of commercial banks
in HCM City in the period of 2006-2012

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
The target customer group of commercial banks is the non-state enterprises.
Therefore, lending activity of commercial banks mostly focused on this group at a
rate more than 95% of the total loan portfolio (see Chart 2.2)
Diversification of loans by business sectors and consumer sectors: in 2006
and 2007, VND interest rate was mostly stable, that was a favorable condition for the
development of consumer lending activity, especially installment loans to buy
houses, cars and living facilities. Therefore, the consumer loans of these years
accounted for a higher proportion than the remaining years in the period of 2006-
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 2006-2012
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
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 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%
16
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

7,64% 15,55% 11,70% 10,91% 14,78% 15,39% 11,21%
Bid guarantee 3,12% 5,57% 4,29% 3,25% 2,91% 3,37% 2,81%
Loan guarantee 0,00% 2,24% 3,64% 0,82% 1,32% 1,72% 11,40%
Other guarantee 18,41% 28,76% 30,47% 26,18% 33,77% 33,01% 32,01%
17
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 credit card issuance types: Issuance of domestic credit
cards always accounted for higher proportion than international credit card, showed
that transaction and payment via local credit card demand was high (see Chart 2.4).
Chart 2.4. Proportion of loans by credit card issuance types of commercial
banks in HCM City in the period of 2006-2012
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 factoring types and methods: This activity’s growth
fluctuated sharply and it accounted for a low proportion (see Table 2.1). The reason
was the lack of synchronization between the laws and regulations applicable to
finance institutions to ensure the effective implementation of commercial banks,
besides the lack of information is one of the factors affecting the implementation of
factoring activity.
2.2.3. Diversification of credit activity of commercial banks review
2.2.3.1. Diversification of credit forms 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
credit forms include CCCN and other valuable papers discount, bank guarantees;
42.86% of commercial banks implement 4 diversified credit forms include CCCN
and other valuable papers discount, guarantees, issuance of credit cards; 35.71 % of
commercial banks implement 5 diversified credit forms include include CCCN and

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).

The bank guarantees had significant volatility, many types of guarantees had negative
growth. The issue of credit card grew annually and grew at higher rate in the years of
2006-2012. Growth in the balance of 1 type and 1 method of factoring is unstable and
only reached over 5% at the end of 2012 (see Table 2.2 ).
2.2.3.3. Diversification of credit activity review by safety criteria
According to the above criterias, the commercial banks mainly focused on
lending, diversified the types of loans, but not really diversified forms of credit, as
well as not fully diversified credit types and methods in the period of 2006-2012. The
reason was lending was the traditional activity and new laws allowing further
development of other forms of credit in recent years. The safety criteria review by the
author’s synthesis from commercial banks’s financial reports showed that
commercial banks had complied the capital adequacy ratio minimum and the rate of
short-term deposits used for medium and long-term loans and diversified effectively
credit activity. However, safety is not actually guaranteed, NPLs ratio was 3.63%,
higher than the threshold of the SBV warning, loan to deposit ratio was 93%, the ratio
of income from loan to total income from credit was 96% was quite high, showed
that commercial banks had not really diversified credit activity.
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2.3. Status of state management in diversification of credit activity of
commercial banks in HCM City in the period of 2006-2012
2.3.1. Orientation of development strategy of the State of diversifying credit activity
Orientation of credit growth’s average rate at 18%/year - 20%/year in the
banking system, of the development and diversification of banking products and
services. HCMC people’s committee built up and implemented banking and financial
services development schemes for the period of 2006-2010 in the area with the aim of
diversifying the banking products and services, with the development of modern
banking, achieving sustainable and efficient growth.
Annual orientation of the SBV included annual credit growth plans and loans
for investment in real estate and securities limitation. Orientation of the HCMC
branch of the State Bank included focusing on the business credit and planned annual

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

banks to develop short-term loans, medium-term loans and long-term loans consistent
with annual orientation, also facilitating local commercial banks to expand lending
activity and diversifying lending methods.
2.3.4. Testing, inspection and monitoring process of diversification of credit
activity
Testing, inspection, monitoring activities focused on compliance of the
lending laws and regulations restrict lending on business factor of investment real
estate, securities, and consumer. Through the years’s fact, a number of commercial
banks had not strictly complied the credit activity’s law, violating credit activity’s
regulations, not comply with the law in loan classification and provisioning and had
violations of credit activity, bank guarantee, not legal compliance of credit records,
appraisal and loan approval, improper loans, loans ineligible, unstrictly
implementation sufficiency in regulation of credit growth, debt hiding in various
forms showed that inspection and supervision of the SBV was an urgent
requirement.
2.3.5. Achievements and limitations of state management in diversification of
credit activity of commercial banks in HCM City
- Achievement: The state’s activities oriented inflation control and macro-
economic stability. The law of diversification of credit activity has achieved
significant improvement. Regulating expansion of diversified lending activity;
limiting lending to certain high-risk areas to ensure safety in credit activities and
facilitate of information, customer support and accessing to commercial banks credit
in diversification of credit activitity. Regulations of inspection and supervision were
completed gradually, the author's aggregate results from SBV’s information about
operating, monitoring showed that regulations of credit activities’ safety also
improved gradually, has created a legal framework for the inspection and supervision
of the process of diversification of credit activity, helped commercial banks supervise
and inspect to ensure safety and contribute to ensuring the safety of the system.
21
Limitations: The state concentration on preventing the risk of monetary

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

social-economic conditions in each stage, the orientation of the State towards
inflation control and macro-economic stability, prevent the risk of monetary inflation
from credit channel, especially lending, so the orientation activities, regulation,
direction, administration and inspection and supervision of the State Bank and the
State Bank City Branch HCM is not directed to deploy diversifying credit activities
but focus and direct to lending activity. Since then, it had not built specific objectives
and proposed solutions to diversify credit activity, impact on the outcome of state
management in diversification of credit activities.
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Third, project of developing banking and finance services construction and
implementation: Formulation and implementation of development schemes banking
and financial services in HCM City had not specified goals of credit activity’s
diversification in the construction and implementation of the project. Thereby, it
impacted on orientation, regulation and inspection and supervision of the State Bank
HCMC Branch, not aimed to diversifying credit activity and affected the results of
the state management in diversification of credit activity.
Fourth, application of state management methods: The state applied
administrative method for direct intervention in lending activity that has created
circumvention of regulations phenomena, lack of compliance from commercial banks
and causing some difficult to regulate the activities of the SBV, showed that the
intervention by the administrative method was not really appropriate, impacted the
outcome of state management in diversification of credit activity.
Fifth, tool selection of state management and support of the State: the State
has chosen to use the full suite of state management tools that influenced the
diversification of credit activity. However, it had not promoted the role of the state
management tools in creating the best conditions for the development of other multi-
utilities credit forms of commercial banks, contribute to improve the results of state
management in diversification of credit activity.
Sixth, compliance with the laws of diversifying credit activities of commercial
banks and customers: A number of commercial banks had not complied with 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

side: not to use the utility and advantages of each appropriate form, type and method
of credit granting, primarily focus on lending and risk aversion in lending. On the
other hand, high interest rate is one of the obstacles which cause firms difficult to
access credit.
Fifth, the evaluation by sustainability criteria: State Bank guided to ensure
safety for each credit form and limited for each type of credit. However, law are
issued by the state for each form of credit, types and methods of credit has been
adjusted and added pretty much, that was difficult to access due to inappropriate,
inconsistent, hardly access to life, and lack of long-term stability. The evaluation by
sustainability criteria showed that laws have not guaranteed long-term stability, and
many changes have not ensured the requirements of sustainability criteria.
CHAPTER 3
IMPROVEMENT SOLUTIONS FOR STATE MANAGEMENT IN
DIVERSIFICATION OF CREDIT ACTIVITY OF COMMERCIAL BANKS IN
HCM CITY TO THE YEAR 2020
3.1 Object, view and orientation of the state management improvement of
diversification credit activity of commercial banks in HCM City to 2020
3.1.1 The development orientation of the Party and the State and economic context
in the current period
The 2011-2020 social-economic development strategy’s object is the country
strives to access GDP growth at average 7-8 %/year. For HCMC, striving average
GDP growth for the period 2011-2020 as 1.5 times higher than the national’s average
growth. To build HCMC civilized, modern, gradually become major centers of
economy, finance, trade, science and technology of the country.