LV Thạc sỹ_Developing bank overdraft for individual customer in BIDV

National Economics University

Université Libre de Bruxelles
Solvay Brussels School of Economics
and Management

MBA FINAL PROJECT
Title
DEVELOPING BANK OVERDRAFT FOR INDIVIDUAL
CUSTOMERS IN BANK FOR INVESTMENT AND
DEVELOPMENT OF VIETNAM (BIDV)


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

Acknowledgements
I would like to extend special thanks to Dr… for her invaluable guidance during
research implementation and her enthusiasm, supportive goodwill as well. I have
benefited greatly from her crossover between theory and practical experiences. I
am also grateful to Prof. … and Prof. … for their valuable lectures and working
attitude.
I also want to express sincere gratitude to all members of management boards
and back-office staffs of Vietnam-Belgium Program for their efforts to facilitate
MBA students completing the course successfully. In particular, Mbis… has
always been important supporter for all students in MBA10 Class.


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

EXECUTIVE SUMMARY
Bank overdraft for individual customers also know as personal
overdraft has been commonly used over the world for a long time.
However, Vietnameses have only known it for 5-7 years. Personal
overdraft is consumption loan which allows customers to spend more
than what they have in their current accounts. Commercial Joint Stock
Bank for Investment and Development of Vietnam (BIDV) was a
pioneer in providing overdraft service. This is a very useful and
convenient service; however the number of people awaring and using
this service is still minor. Therefore, the author carried out the research
project to grasp understanding about the situation of personal overdraft
in BIDV and the demand of customers in order to find out how to
develop this service.
In this research, the author used theory on personal overdraft from
Banking course to explain the nature of the service, its features and
factors affecting the development of the service. In the next part, the
overview of personal overdraft in Vietnam and the situation of personal
overdraft in BIDV were described in detail. Through the analysis,
readers will draw out the problems BIDV facing in developing this
service.
To solve those problems, the author has done the survey on demand on
personal overdraft and depth interviews with BIDV’s employees. These
primary data will give insight of what causes the problems and what
customers want in this service. Based on that, the author suggested
recommendations to improve the service policy, promote the service
and fix BIDV’s weaknesses in order to develop personal overdraft
service.


Master Final Project

Developing Bank overdraft for Individual customer in BIDV

TABLE OF CONTENT


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

LIST OF TABLES AND FIGURES


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

LIST OF ABBREVIATION
BIDV: Commercial Joint Stock Bank for Investment and Development of Vietnam
NPL: Non performing loan
SBV: State Bank of Vietnam


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

INTRODUCTION
Rationale of the research
In recent years, with the growth of Vietnam economy, the average
income of Vietnameses has increased. According to World Bank’s
report, GDP per capita of Vietnam was USD 1.130 in year 2009, USD
1.224 in year 2010, USD 1.411 in year 2011. In addition, more and
more services have appeared to make life better and help people to

enjoy life. Those factors lead to the increase in people’s spending. As a
result, consumption loans have become common as a mean to finance
personal expenses, especially for urban residents.
The fact that many banks focusing too much in wholesale banking and
corporate lending has posed as a threat to the bank’s sustainable
development. Accordingly, many banks choose to make retail banking
their major aim in order to diversify customer portfolio and minimize
the risks. BIDV is no exception to this trend; the bank has set a goal to
become the leading retail bank of Vietnam in the next five years. The
scale of retail credit has increased remarkably, the average growth of
outstanding balance in retail credit in the period 2009-2011 is over
37%. With the increasing number of people receiving salary through
bank accounts, other banking services are more and more popular, such
as personal overdraft.
Personal overdraft service has been commonly used over the world for
a long time. However, Vietnameses have only known it for 5-7 years.
Nowadays, many banks provide this service, such as BIDV,
Vietcombank, ACB, Techcombank, Sacombank… Yet, the customers
using this service are limited, mostly urban citizens with relatively high
income. BIDV started providing individual bank overdraft from 2008,
the outstanding balance increases continuously in recent years. The
outstanding balance at the end of 2011 was VND 1.190 billion,
increased by 82.5% compared to the balance at the end of 2010. But all
the same, the customers are mainly bank employees and other
individuals receiving salary through bank account at BIDV.


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

Personal overdraft service is useful and convenient but the number of
people awaring and using this service is minor. Therefore, the potential
development of this service is quite huge. In order to develop personal
overdraft in BIDV, the author carries out this research project to
complete and perfect the overdraft policy, to recommend solutions to
attract more customers, increase the credit outstanding balance and to
control the risks.

Research Problem and Specific research objectives
To address successfully the mentioned target, it is necessary to
understand the nature of personal overdraft service, the current situation
of personal overdraft service in BIDV and the customer’s demand on
personal overdraft service. In more details, the research should aim at
fulfilling following specific research objectives:
Firstly, to figure out what is personal overdraft service and its features.
Secondly, to understand the situation of personal overdraft service in
BIDV.
Thirdly, to identify the demand of customers on personal overdraft service.
Last, to suggest solutions to develop personal overdraft service.

Research questions
1. What is personal overdraft service?
2. How is BIDV’s personal over draft?
3. For customers who have already used personal overdraft service,

how do they response to this service and what changes do they
want? For potential customers, what do they want from this service?
4. What should BIDV do to develop personal overdraft service?

Research Methodology

The research is based on theory of Banking, specifically personal
overdraft theory. As other research projects, this research uses both
Secondary data and Primary data.
Secondary data was collected from the following documents: annual
banking report, banking magazines, annual report and other internal
reports of BIDV, information posted on website of other banks, articles
relating to personal overdraft on the internet,…


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

Primary data was collected through interview and survey. The details
will be described in Chapter III.

Research scope
The research analyzes data of period between 2009 and June 2012 to
work out solutions as suggestion for BIDV to develop personal
overdraft in upcoming years.

Structure of the Final project
The content of this Final project document is organized in four main
chapters.
Chapter I: Theoretical Framework
This chapter mentions the theory and concepts which are used as
backgrounds for this research.
Chapter II: Personal overdraft in BIDV
This chapter describes the overview of personal overdraft in Vietnam
and the current situation of personal overdraft in BIDV.
Chapter III: Research Findings

This chapter uses result from the survey and interview to explain why
personal overdraft in BIDV has not developed strongly.
Chapter IV: Recommendations
This chapter recommends some solutions to develop personal overdraft
in BIDV.


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

Chapter I
THEORETICAL FRAMEWORK
This chapter summarizes all key principles involving personal overdraft
service to give general idea on what the service is. Also, in this chapter,
we will know which indicators indicate the development of personal
overdraft service. Last, it points out main factors affecting the
development of personal overdraft service.
I.1.
I.1.1.

Personal Overdraft service
Definition of overdraft
Overdraft is an extension of credit from a lending institution when an
account reaches zero. An overdraft occurs when money is withdrawn from
a bank account and the available balance goes below zero. It means that
the individual is allowed to continue withdrawing money even if his
account has no funds in it. In this situation the account is said to be
"overdrawn". Basically the bank allows people to borrow a set amount of
money.
The bank often provides overdraft services to both individual

customers, corporate and other banks. Yet, in this study, only personal
overdraft services provided to individual customers are mentioned and
analyzed.
An overdraft often takes form on the current account. It can be drawn,
repaid and the redrawn from the current account by the borrower at any
time throughout its life. Therefore, with the inflow and outflow of
money from the current account, the balance used to calculate interest
always changes.

I.1.2.

Features of overdraft
Limit
Bank will set upper limit on overdraft to one’s current account. Thus,
with bank overdrafts one will be able to withdraw more money than in his
current account. The total drawn amount does not exceed the limit.
However the effectively drawn amount can vary from day to day, it


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

depends on the agreement between the bank and the customer. There may
be a pre-agreed reduction schedule of maximum amount available to be
drawn. For example, in case the account balance is in negative continually
in a number of days without inflow money then the customer can not
overdraw more money even if he hasn’t reached the overdraft limit.
The limit will depend on the bank and the customer himself. For the bank,
the limit changes with the bank’s policy at a given time. For the customer,
the amount he qualifies for depends on his affordability and credit risk.

Basically, if the customer has stable, high income and good credit history,
the chance of getting a high overdraft limit is very big.
Maturity
The term of an overdraft is generally between 1 month and 12 months.
When the term is due, the customer can make an extension for the same
length of time or longer, but often not longer than 12 months. However,
the renewal will take some acceleration clauses in case of credit
deteriorations.
Cost
Cost of overdraft facility often includes two components: “per annum”
and “flat upfront”.
“Flat upfront” or opening fee is payable on total amount of the loan.
“Per annum” is the component including costs that are calculated
during overdraft’s life and often annually base. “Per annum” cost
includes interest payment, commitment fee and overspending fee.
Interest payment: The interest is determined by the drawn amount and
the duration. It is calculated on the negative current account balance at
the end of each day and paid monthly/quarterly/yearly depending on the
bank’s policy.
Commitment fee: It is payable on the undrawn amount of facility, the
purpose is to compensate the bank for the commitment of funds.
Overspending fee (in case overspending allowed): when the amount
overdrawn is within the authorized overdraft limit, interest is normally
charged at the agreed rate. If the negative balance exceeds the agreed
limit, then additional fees may be charged and higher interest rates may
apply.


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

Security
Most of overdraft facility is unsecured loans. The security collateral
will be needed only when the bank can not keep in check the
customer’s cash flow. The security for overdraft can take the form of
deposits, bonds, stocks, real estates and other assets.
Following is the demonstration of the fluctuation of balance on the
current account in overdraft state:
Figure 1.1: Balance of the current account with overdraft
Unit: VND million

Source: The author’s demonstration
According to the theory, from day 10 to day 24, the account is in
overdraft state. From day 10 to day 21, customer has to pay the interest
calculated on the balance at the end of each day. From day 22 to day 25,
apart from interest, customer has to pay overspending fee for the
amount exceeding VND 20 million. From day 1 to day 9 and from day
26 to day 30, customer has to pay commitment fee.
I.1.3.

Advantage and Disadvantage of personal overdraft
Advantage
An overdraft is flexible and quick. It brings customers many benefits:
 An overdraft provides money for unplanned expenses. Even if

the account has no money, the bank will not decline one’s card or
bounce the check. This helps to avoid embarrassment from a
declined credit card; imagine, for example, being at the grocery
store with a cart full of groceries and no way to pay because your
card has been declined.

Master Final Project
Developing Bank overdraft for Individual customer in BIDV

 An overdraft will provide the comfort of instant access to extra

cash for emergencies. It will be helpful if one has a payment that
really can't be late, such as a mortgage payment; instead of
having the check returned and experiencing hefty late fees from
the lender, one simply pays overdraft fee to the financial
institution.
 The total limit is always available for use. One can use as much

of his agreed overdraft limit as one needs whenever one needs it.
 Customers only pay interest on the portion of their overdraft used

in any given month.
Disadvantage
For customers, in general, an overdraft is rather expensive with higher
interest rate and fees than other personal loans. In addition, overdrafts
can not be used for large borrowing or long term borrowing. That
means overdrafts are not for big assets like car or house.
For banks, despite its high profitability, overdrafts give banks much
“worry”. As customers are allowed much liberty with overdraft, the
bank has no control on use of funds. On the other hand, banks have
difficulty in mobilizing funds due to customer’s unpredictable needs
while commitment is ensued.
I.2.

Indicators to assess the development of
personal overdraft service
To evaluate the development of a bank service, specifically personal
overdraft service, we should base on the following criteria:
The outstanding: the outstanding of personal overdraft service shows
the scale of the service. If the outstanding at a time is higher than the
outstanding at the previous times, it means the service develops more
than before. The growth rate of the outstanding also points out the
development of the service. The higher the growth rate is, the more
developed the service is.
The number of customers: if the number of customers using personal
overdraft service increases, it means the service develops.
NPL: personal overdraft service is a type of credit so the quality of this
service also shows in NPL ratio. Personal overdraft service gives


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

customers a lot of freedom so there is some potential risk. Therefore,
the bank needs applying some precautions to secure the risk. A
developed personal overdraft service companies with a complete policy
to control the risk. As a result, the NPL of personal overdraft service is
low, it means the possibility of collecting all debt is high.
I.3.

I.3.1.

Factors influencing the development of
personal overdraft overdraft

External factors
People’s awareness
In the past, when you need money, people rarely think of the bank.
Because deep down they always thought that the bank credit was difficult
and complex. So they often went to pawnshops to mortgage their assets
for money or went for usury. However, with the development of people’s
awareness, bank credit becomes familiar.
Spending habit
Spending habit plays an important role in the development of personal
overdraft. If people only spend on necessary demand, it is very difficult
for personal overdraft to develop. If people only spend what they have, the
personal overdraft will not be developed. In contrary, people tend to spend
more than their budget to improve the standard of life, then that is good
condition for personal overdraft to develop.
Economic condition
When the economy grows at high rate, people will love to shop more. It is
time for bank to expand consumption loans, including personal overdraft
service. In contrast, as the economy is in depression, it will result in loss
of consumer confidence in the prospects of their income thereby reducing
their consumption needs. In that case, personal overdraft will be difficult
to expand and need a lot of promotion to develop.

I.3.2.

Internal factors
Bank’s policy on personal overdraft service
The bank's policy is understood simply as a statement on standards for that
kind of loan. A comprehensible policy will bring many advantages and
benefits to the bank. It guides staff through credit procedures, step by step
to comply with and specify the scope of their responsibilities. It helps to

Master Final Project
Developing Bank overdraft for Individual customer in BIDV

achieve many objectives, such as increasing profitability, mitigate risks
and meet the demands of the legal authorities. Also a policy must be
flexible to suit the changes in the economy and in the regulations.
Therefore, a good policy is clear, flexible and complying with the law.
Reputation of bank
The reputation of the bank is an important factor influencing customer’s
choice of bank. The more well-known the bank is, the more customers
come using the bank’s service. The scale of the bank is also one of the
determinants of customer confidence in the bank. Especially equity scale
will determine the maximum loan for a client. In short, a big bank with
good reputation has more advantage in developing personal overdraft
service.
Employees’ qualifications
Personal overdraft is of service nature so human plays a very important
role in the development of it. The bank's success depends greatly on the
working ability of employees. Credit staffs communicate directly with
customers, guide and help them to understand thoroughly the service, then
process customers’ requests. In current competitive condition between
banks, customers are easy to choose another bank. Thus, a friendly with
comprehensive knowledge of the service is a deciding factor to keep
customers’ loyalty.
Technology
The application of technology in the banking sector is essential. Thanks to
information technology, the workload in the bank decreases significantly,
the information is processed quickly and accurately. In particular, it

provides a competitive advantage for the bank. Today with the rapid
development of information technology, customers can sit at home or
anywhere to apply for loans in a bank, as well as easy access to other
services of the bank. Customers always prefer bank with high technology
to give them simple and fast services.
Marketing the service
Marketing has become more and more vital in developing a bank service.
It only takes a short time to make services widely known. Moreover, it
also introduces and highlights features and benefits of the service to
customers. A good marketing campaign will help to increase sales volume
of the service.


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

Chapter II
PERSONAL OVERDRAFT SERVICE IN BIDV
This chapter describes generally the situation of personal overdraft
service in Vietnam, then explains comprehensively the situation of
personal overdraft service in BIDV.
II.1.
II.1.1.

Overview of Personal overdraft service in Vietnam
The demand on personal overdraft service
Personal overdraft is a “new” service. It appeared in Vietnam in the last
five years. This is a service full of potential development.
Vietnam is viewed as one of the most politically stable countries in
Asia. This provides a suitable environment for economic development

that leads to prosperous enterprises. As a result, the per capita income
has increased in recent years and the life quality of people has been
improved. In the last ten years, GDP per capita of Vietnam has
continually increased with the average growth rate of 14%. In 2011,
Vietnam’s GDP per capita reaches USD 1,411. Due to that,
Vietnameses’ expenditure has also increased.
Vietnam is the world’s 13th most populous country. Vietnam’s
population has surpassed 88 million in 2012 and now Vietnam is
entering the “golden” population period with around 70% of the
population in the working age. That implies the country has both an
energetic labor force for economic prosperity and a large market for
goods consumption.
Vietnam also enjoys a young population. Vietnam is full of young
people who are always eager for new things, ready to receive a modern
life together with all its conveniences. Vietnameses are famous for
preferring foreign goods to domestic goods, quickly adopting modern
items and favoring luxury brand name. Consumer behavior changed from
daily shopping in traditional markets to bulk procurement for the entire
week in supermarkets and via the Internet. People use more health care
services, including beauty treatments for both women and men; travel
services, insurance, education, etc. Young consumers as well as high-


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

income consumers increase, promoting high-end retail. It is easy to see
Hummer, Mini Cooper, Bentley and many other expensive brand cars on
the road in Hanoi and Hochiminh city. People are ready to pay for
expensive items such as Iphone, sometimes more than their monthly

income, only to stand out in the crowd.
Nowadays, Vietnameses are familiar with bank’s services, such as
savings deposit, card services, payroll service… The trend of using
bank account increases fast, accompanied by the development of paying
without cash system. Many people receive salary via banks and paying
through bank account using POS, Visa, online banking…
The concept of funding their needs by loans from banks has become
popular with Vietnamese. In the past, they only used their own money
or borrowed their relatives for their spending or investing. Now, they
considered banks a reliable source when they are in need of money.
They go to banks to borrow money to buy houses, to buy cars, to invest
in stocks, to do business, to travel, etc. For individual customers, banks
give many options of loan to satisfy various demands of customers.
However, there is no loan that allows customers such flexibilities as
withdrawing money whenever they want without advance notice to bank,
interest calculated daily on the negative outstanding and no need for
bank’s acceptance on using funds. Therefore, personal overdraft is quite
the most convenient service for consumption expenditure. This gives an
opportunity for developing personal overdraft service.
II.1.2.

Suppliers of personal overdraft service
According to SBV, Vietnam has 39 commercial joint-stock banks
(including three banks which the State still holds majority share:
Vietcombank 77%1, Vietinbank 80%2, BIDV 95.7%3), 50 branches of
foreign bank including 5 wholly foreign-owned banks, 5 joint-venture
banks. With the increasing number of banks, the competition in banking
industry becomes more and more intense.
At the moment, there are many banks providing personal overdrafts, about
half the number of commercial banks participates in this market. However,

each bank has different overdraft policy on the limit, interest, fees,

1 />2 />3 />

Master Final Project
Developing Bank overdraft for Individual customer in BIDV

collateral and other conditions. Following is the comparison of personal
overdraft policy between some big banks in retail credit.

Table 2.1. Policy on personal overdraft service
Bank

Limit

Vietcombank

Up to VND 30 million

BIDV
Military Bank

5 times monthly income,
up to VND 100 million
Up to VND 150 million

ACB

Up to VND 100 million

VPBank

Eximbank

.Secured loan: up to
VND 300 million
.Unsecured loan: up to
VND 200 million
.Secured loan: up to
VND 500 million
.Unsecured loan: 5 times
monthly income and up
to VND 100 million
Secured loan: 90%
savings deposit
Unsecured loan: 2-3
monthly income, up to
VND 300 million
Up to VND 500 million

Sacombank

Up to savings deposit

HSBC

80%-95% savings
deposit

Techcombank

Maritime Bank

Term

Collateral

Conditions

12
months
12
months
12
months
12
months
12
months

Unsecured

Working at VCB

Unsecured

Unsecured/
Secured

Salaries paid

through BIDV
Salaries paid
through MB
Minimum monthly
income 4 million
Minimum monthly
income 5 million

3-12
months

Unsecured/
Secured

Minimum monthly
income 5 million

6-12
months

Unsecured/
Secured

.Secured with
savings deposit
.Salaries paid
through Maritime
bank

Unsecured

Unsecured

12
months
Deposit
term

Secured

12
months

Secured

Secured

Secured with
savings deposit at
Sacombank
Secured with
savings deposit at
HSBC

Source: Author’s summary from website of above banks
From the chart, there are three groups: (i) banks with only unsecured
overdraft, (ii) banks with only secured overdraft, (iii) banks with both
secured and unsecured overdraft. Each kind of overdraft has different
characteristics: unsecured overdraft often has higher interest rate; secured
overdraft has many fees (such as asset evaluating fee, notary fee,
registration fee, asset management fee…). Banks have to build their

Master Final Project
Developing Bank overdraft for Individual customer in BIDV

service to meet customers’ demand regarding other banks’ product but the
service also has to guarantee security for banks.
In conclusion, it is clear that there are many opportunities for
developing personal overdraft in Vietnam at the present. Therefore,
BIDV needs to grab this opportunity to expand scale of this service.
II.2.
II.2.1.

Personal overdraft service in BIDV
Overview of BIDV
History
BIDV is one of the four biggest banks in Vietnam with the history of 55
years with difficulties but full of proud achievements. The construction
and development of BIDV associates with the historic period against
invaders and country construction of Vietnameses.
BIDV was founded on 26th April 1957 as a state-owned commercial
bank under the name Bank for Construction of Vietnam. From 1981 to
1989, the bank was renamed as Bank for Investment and Construction
of Vietnam, and was under the control of the State Bank of Vietnam.
From 1990 to 27/04/2012, the bank operated under the name Bank for
Investment and Development of Vietnam. After the equalization, from
27/04/2012 to now, the bank has been renamed as Joint Stock
Commercial Bank
for
Investment

and
Development
of
Vietnam (BIDV).
BIDV has been known and recognized as one of the largest banking brand
in Vietnam and certified as a trademark in the U.S. In 2011, BIDV was
honorably granted “The 2011 International Star Award for Quality by
Business Initiative Directors Group”, “Top 20 Vietnam Strong Brand
Name”, “Top 20 Best-known brands of Vietnam”, “Sao Khue Award
2011”. The long history of goodwill and companionship helps BIDV to
gain trust of both individual and corporate customers.
As a long-established bank, BIDV has funded many investment projects
and key economic areas of the country. BIDV has also built the largest
enterprise customers, while confirming the implementation of
prestigious items, objectives, economic programs and social security of
the country. In recent years, BIDV has focused on retail banking and
aimed to become one of the best retail banks in Vietnam.
Organization structure


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

BIDV has developed a wide traditional and modern network, covering
63 provinces and cities nationwide, raising the total number of the
bank’s network points as at 30 June 2012 to 118 branches and
transactions centers, 379 transactions offices, 157 saving counters with
more than 16,700 employees. BIDV is one of the top three commercial
banks with the most extensive network in Vietnam. In addition, BIDV
has 05 subsidiaries operating in leasing, security, holdings, insurance,

asset management; and 03 representative offices in Cambodia, Lao and
Myanmar.
Scale
Over the long development, BIDV continually spreads the scale with
the average growth of 40-50 thousand billion VND each year. At 30
June 2012, total asset is VND 444,636 billion 4 (approximately USD
21.3 billion), total deposit is VND 315,770 billion (approximately USD
15.2 billion), total credit to customers is VND 318,127 billion
(approximately USD 15.3 billion), chartered capital is VND 23,018
billion (approximately USD 1.1 billion). In 2012, BIDV take the third
place in the deposit and credit market share of Vietnam 5.
Retail credit
Due to the history of serving country’s construction, development and
modernization, BIDV’s customers mainly were big State enterprises
with long term loans. However, in recent years, BIDV has positively
adjusted the customer structure to reduce the proportion of outstanding
credit in the State enterprises and to orient to individuals and private
enterprises. In addition, BIDV has actively adjusted the credit structure,
reduced the proportion of medium and long term loans, and focused on
short-term credits. As the result, BIDV’s retail credit has been paid
more and more attention recently.
The retail credit scale has increased strongly, the outstanding of retail
credit at the end of year 2009 was VND 19,710 billion and at the end of
year 2011 is VND 38,393 billion. The average growth rate of the period
2009-2011 is 37%. The proportion of retail credit in the whole bank’s
credit has also increased from 10% in 2009 to 14% in 2012. BIDV has
developed a list of retail credit products which are basically to the
demand of customers with competitive interest and fees. As the
4 BIDV’s Interim Consolidated Financial Statements as at 30 June 2012
5 />

Master Final Project
Developing Bank overdraft for Individual customer in BIDV

consequences, BIDV ranks the fifth biggest banks in retail credit in
Vietnam (after Agribank, Vietinbank, ACB and Sacombank).
However, the economic crisis in 2010-2011 has strong impact on the
whole economy, thus the retail credit also takes effect. The NPL
proportion has increased sharply, from 1.8% in 2010 to 2.1% in 2011,
and continually increased to 2.3% at 30/6/2012.
By products, BIDV’s retail credit has 7 groups: home loan, loan secured
by estate, car loan, loan secured by valuable papers, unsecured
consumption loan, T-day securities loan, and loan for personal business.
Of which, loan for personal business, home loan and loan secured by
valuable papers are the most popular products and take the biggest part
of retail credit outstanding, about more than 80%. That proportion has
not changed much since 2009. Unsecured consumption loans only takes
8%-9% in total retail credit, however with the growth of retail credit,
unsecured consumption credit has continually increased.
Unsecured consumption loans include salary loan, overdraft and visa.
Among which, salary loan was launched firstly, then overdraft in 2008
and visa in 2009. Although overdraft came later than salary loan, due to
its conveniences, overdraft has outnumbered salary loan.
Table 2.2. Portion of consumption loans, 2011-2012
Product
Salary loan
Overdraft
Visa
Total unsecured consumption loans

2009
1,532
153
42
1,727

2010
1,619
652
105
2,376

Unit: VND billion
2011
6/2012
1,571
1,442
1,190
1,693
197
185
2,958
3,320

Source: BIDV’s internal report
Despite many difficulties in fierce competitive market, BIDV continues
improving products, developing customer service and finding new
clients in order to expand retail credit in both quantity and quality.
BIDV’s target is to become the top bank in retail credit with about 10%
market share in 2015. That is quite a challenging goal but with its own

strength, BIDV will make it in the near future.
II.2.2.

Situation of Personal overdraft service in BIDV
In the retail credit portfolio, personal overdraft is a “relatively” new
product. BIDV is one of a few pioneers in providing personal overdraft


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

service. Personal overdraft was launched by BIDV in the year end of
2008.
II.2.2.1.

Current policy
In the four years of implementation, the policy on personal overdraft has
not changed much.
Application criteria:
- Vietnamese individuals in the age not over 55 for female clients and 60
for male clients.
- Customers should have long-term residence or permanent job in the
same city/province with the lending branch’s location.
- Customers should periodically receive salary via current account at
BIDV.
Limit
Depending on the customer’s ranking result and ability to repay; BIDV
will give maximum overdraft amount of 5 times of client’s monthly
income, up to VND 100 million.
Term

The loan term depends on the remaining time of the customer’s labor
contract but not longer than 12 months. When the term is due, the
customer can apply to reissue overdraft if he still fulfills all requirements.
Interest
The interest rate changes according to BIDV’s policy in each period.
Interest is calculated on the actual overdraft balance. There is no interest if
the customers do not advance the money.
However, the customers will be charged interest penalty (150% the
interest rate) in these situations:
- When the payment of interest is due, there is no money in the current
account because the customer withdrawn up to the overdraft limit.
- When the overdraft term is due and the customer does not put money in
the current account to cover the negative balance.
Fees
There is issuance fee and re-issuance fee. At the present, the charging fee
is about VND 100,000 for both kinds.


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

Repayment
BIDV shall automatically collect principal and interest:
- Principal is collected instantly when the client’s current account is
credited.
- Interest is collected on a determined day of every month.
When the term is due, if the customer does not reissue overdraft, he has to
pay off all principal and interest arisen till that moment.
Collateral
No collateral is required. BIDV provides unsecured overdraft.

Insurance
Customers are required to buy insurance for the loan. The purpose of
insurance is to cover some of overdraft in case the customer can not work
because of an accident or sickness. The insurance may also pay if the
customer made unemployed through no fault of his own. It could also help
pay off his overdraft if he dies. The insurance fee is about VND 400,000,
collected with the issuance fee.
Required documents:
Customers have to present following documents at one of BIDV’s branch:
- Overdraft application form;
- Valid Identification card/Passport
- Employee contract or equivalent documents.
- Household registration book/Temporary residence book of borrower
- Proof of income.
Customer ranking
In order to evaluate customers, BIDV has built a rating system. Customer
rating will be applied to the implementation of BIDV’s retail banking
policy in each period. The rating system has four groups of criteria:
- Information on personal and professional
- Information of financial status
- Information on relationship with BIDV and other banks


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

- Information on credit history with BIDV.
Each criterion is given point, then the total point will indicate customer’s
ranking. BIDV categorizes customers into 10 ranks corresponding with
different policies of loan amount, interest rate, collateral, fees…

II.2.2.2.

Analysis on BIDV’s past performance
Since coming out in the end of year 2008, personal overdraft has quickly
proved its preeminence over other personal loans. The overdraft
outstanding has increased rapidly, at the end of year 2009, 2010, 2011 in
turn is VND 288 billion, VND 652 billion, VND 1,190 billion. The
outstanding at 30/6/2012 reached VND 1,693 billion. In the period of four
years, the average growth rate of personal overdraft is around 120% per
year. However, the growth has slowed down, partly because the economy
is in crisis and partly because this product is done with the hot growing
phase.
Figure 2.1. Growth of personal overdraft in 2009-2012
Unit: VND billion

Source: BIDV’s internal report
As the nature of overdraft is to fund temporary financing shortage, the
loan is often low, compared to other personal loans. At the start, BIDV
provided the maximum overdraft limit of VND 50 million. From late of
year 2010, BIDV increased the overdraft limit to VND 100 million. This is
partly the reason for the rapid rising in overdraft balance. Another reason
is the competitive interest rate. The overdraft interest rate of BIDV is often
2%-2.5% higher than the deposit interest rate, a rather attracting rate in
comparison to other banks’. As BIDV has strong customer base and


Master Final Project
Developing Bank overdraft for Individual customer in BIDV

always complies with the interest rate policy of SBV, BIDV has plenty of

low-interest fund. Thus, BIDV always provides loans with good interest
rate.
Table 2.3. Outstanding and NPL of personal overdraft
service in 2009-2012
Unit: VND billion
Criteria
End balance of Personal Overdraft
- Proportion in total retail credit
- Proportion in unsecured consumption credit
NPL of Personal Overdraft
- Proportion in total retail credit
- Proportion in unsecured consumption credit

2009
153
0.8%
8.9%
0
0.0%
0.0%

2010
652
2.2%
27.4%
0
0.0%
0.0%

2011

1,190
3.1%
40.2%
4.4
0.6%
22.9%

6/2012
1,693
4.1%
51.0%
3.9
0.4%
21.7%

Source: Author’s calculation from BIDV’s internal report
The table above shows the rise of overdraft in BIDV’s retail product
portfolio. In 2009, the overdraft balance took 8.9% of unsecured
consumption credit balance and 0.8% of total retail credit balance. At
30/6/2012, the overdraft balance made 51% of unsecured consumption
credit balance and 4.1% of total retail credit balance. Also, it can be seen
from the table that personal overdraft is quite safe and secure loan. In 2009
and 2010, there was no NPL from overdraft. But in 2011, as the
consequence of economy crisis, there were many customers having
difficulties in repayment, that leads to NPL in overdraft. In 2011, NPL was
VND 4.4 billion, but that number did decrease to VND 3.9 billion at
30/6/2012. On the other hand, NPL of overdraft is much lower than other
products’ and only takes a very small part in total retail credit NPL.
II.2.2.3.

Current customers
According to BIDV’s policy, customers using personal overdraft have to
receive salary via a current account at BIDV. Consequently, the users of
overdraft are mainly staffs of BIDV itself and of some enterprises which
pay salary through BIDV. For its own employees, BIDV grants the
maximum overdraft limit of VND 100 million per person. For other
customers, the overdraft limit is offered based on their income, the highest
is five times their income and up to VND 100 million.
At the end of year 2009, the number of overdraft clients was 5,060 and
most of this number is BIDV’s employees. Over the years, the number of