Credit expansions to SMEs at techcombank trung yen branch

ACKNOWLEDGEMENT
Firstly, I – the author of this graduation thesis wish to express my gratitude to my
instructor, Nguyen Thu Thuy, MSc. who have been abundantly helpful and offered
invaluable assistance, support and guidance to finish this graduation thesis.
Secondly, I am grateful to all lecturers of Finance and Banking Faculty of
Foreign Trade University for their untiring efforts in my professional growth
throughout 4 years I studied at the university.
Thirdly, I also would like to send special thanks to the officers of Techcombank –
Trung Yen branch, who had kind concerns and considerations in regard to academic
requirements and valuable reference documents.
Last but not least, I wish to express my sincere thanks to my beloved family and
friends for their understanding and encouragement through the duration of my studies
Sincerely,
Hanoi, June 2013
Student

Do Nhu Trang

TABLE OF CONTENT


INTRODUCTION................................................................................................................1
CHAPTER 1 OVERVIEW OF EXTENDING CREDIT TO SMES IN COMMERCIAL BANKS..............3
1.1. Overview of commercial banks .......................................................................................3
1.1.1. Concepts of bank and commercial bank..................................................................................................3
1.1.2. Functions and roles of commercial banks...............................................................................................3

1.2 Overview of small and medium enterprises .....................................................................5
1.2.1. Concepts of SMEs .....................................................................................................................................5
1.2.2. The role of SMEs in the economy.............................................................................................................7
1.2.3. Major types and sources of SMEs’ capital funds.....................................................................................8

1.3. Credit activities of commercial banks to SMEs.................................................................10
1.3.1. The essentials of commercial banks’ credit to SMEs ............................................................................10
1.3.2. Types of loans for SMEs in commercial banks.......................................................................................11
1.3.3. Roles of commercial banks’ activities to SMEs......................................................................................13

1.4. Extending credit to SMEs in commercial banks................................................................14
1.4.1. Views on expanding credit to SMEs from commercial banks...............................................................14
1.4.2. The necessary of extending credit to SMEs...........................................................................................14
1.4.3. Factors that impact on the expansion of credit to SMEs......................................................................15
1.4.4. Indicators that impact on the ability to the expansion of credit to SMEs in commercial banks.........16

CHAPTER 2.SITUATION OF CREDIT EXPANSION FOR SMALL AND MEDIUM ENTERPRISES
(SMEs) AT TECHCOMBANK - TRUNG YEN BRANCH...........................................................19
2.1. Introduction to Techcombank – Trung Yen branch..........................................................19
2.1.1. General information...............................................................................................................................19
2.1.2 Business operation of Techcombank from 2010 to 2012......................................................................21

2.2. Current situation of credit activities to SMEs at Techcombank - Trung Yen.......................28
2.2.1. The general provisions on lending to SMEs...........................................................................................28
2.2.2. Current situation of credit activities to SMEs at Techcombank - Trung Yen branch...........................31

2.3. Assessing credit activities to SMEs at Techcombank – Trung Yen branch..........................33
2.3.1. Achievements..........................................................................................................................................33
2.3.2. The limitations of credit expansions to SMEs of the banks and the causes.........................................34

CHAPTER 3: SOLUTIONS TO EXPANDING LENDING TO SMES AT TECHCOMBANK - TRUNG
YEN BRANCH..................................................................................................................38
3.1. The essentials of extending credit to SMEs at Techcombank – Trung Yen branch.............38
3.1.1. Small and medium enterprises development orientation in Vietnam.................................................38

3.1.2. General development orientation of Techcombank – Trung Yen branch............................................40
3.1.3. Orientation of credit expansion to SMES at Techcombank – Trung Yen branch.................................41

3.2 Solutions to credit extension to SMEs at Techcombank – Trung Yen branch......................43
3.2.1 Develop flexible policies for customers..................................................................................................43
3.2.2 Developing an appropriate supportive credit policies for SMEs...........................................................45
3.2.3 Awareness of clientele, change in marketing to clients:........................................................................48
3.2.4 Strengthen advisory role, creating close relationships between SMEs and the bank, forming
specialized lending division for SMEs...............................................................................................................49
3.2.5 Simplification of loan applying procedures:...........................................................................................50
3.2.6 Diversification of credit activities for SMEs............................................................................................50


3.2.7 Developing a marketing strategy with the goal of attracting SMEs......................................................52
3.2.8 Improving the quality of credit appraisal for SMEs................................................................................52
3.2.9 Good organization in term of raising capital in order to ensure meeting the borrowing needs of
customers..........................................................................................................................................................56
3.2.10 Enhance the work of staff.....................................................................................................................57
3.2.11 Strengthening consultancy for SMEs....................................................................................................59

3.3. Recommendations.........................................................................................................59
3.3.1. Recommendations for the Government and Ministries.......................................................................59
3.3.2. Recommendation for Techcombank .....................................................................................................60
3.3.3 Recommendations for SMEs...................................................................................................................61

CONCLUSION..................................................................................................................64
REFERENCES...................................................................................................................65

LIST OF ABBREVIATIONS

No

Abbreviation

Original

1

SME

Small and medium enterprises

2

Techcombank

Vietnam Technological and Commercial Joint- stock Bank

3

CAR

Capital adequacy ratio

4

NIM

Net interest margin

5

NPL

Net profit loss

6

VND

Vietnamese Dong

7

USD

United Stated Dollar

8

ROA

Return on assets

9

ROE

Return on equity

10

WTO

World Trade Organization

11

MSE

Micro and small enterprise

12

VCCI

Vietnam Chamber of Commerce and Industry

13

GDP

Gross Domestic Product


LIST OF FIGURES AND TABLES
1. List of figures
Name of figures

Page

Figure 2.1

Income structure of Techcombank in 2010 – 2012

23

Figure 2.2

Capital mobilizing situation of Techcombank in 2010 –
2012

25

Figure 2.3

The deposit mobilization structure over the years

26

Figure 2.4

The loans allocation by industry segment of Techcombank

28

2. List of tables

Name of tables

Table 2.1
Table 2.2

The number of SMEs, loans and loan ratio of SMEs
Delinquency and delinquency rate of loans to SMEs
through the years

Page
32
33


Page 1

INTRODUCTION
1. The necessity of the research
In recent years, following the general trend of the world, SMEs have been
increasingly playing an important role in the growth of economic. In fact, SMEs
model, which is appropriate for the multi-commodity economy, allowing exploitation
and efficient use of all potentials and resources of the country: capital, labor,
technology, resources, etc., should be encouraged to develop in the current period of
economic innovation.
Currently, SMEs are facing many difficulties, especially in term of capital.
Businesses cannot rely only on their own equity, they need to have external funds to
expand production and increase business competitiveness. Therefore, in order to help
SMEs, the banks need to be the one who help them meet the needs of capital quickly
and promptly.
However, in recent years, activities of small and medium enterprise lending in
Techcombank - Trung Yen branch have been still under development. This not only
affects the profit of the bank for not exploiting a huge market of small and mediumsized enterprises, but also limits the SMEs’ access to the bank credits. Therefore the

research of: "Credit expansions to SMEs at Techcombank - Trung Yen branch" is
needed in order to support for the development of the economy of Vietnam
2. Purpose of the research
Based on the reality of credit activities at Techcombank, this thesis analyzes the
result and points out the achievements and existed limitations and from those
suggested some development solutions.
To obtain the above target, the thesis solves the following basic tasks:
• Generalize basic theory about credit activities of commercial banks.
• Present an overview of real situations of credit activities at Techcombank.
• Suggest some solutions to improve the efficiency of credit activites at

Techcombank.


Page 2

3. Research objectives and scopes
• Lending activities in commercial banks.
• Analyze and assess the credit extension to SMEs Techcombank - Trung Yen
branch.
• Extending credits to SMEs at Techcombank - Trung Yen branch.
4. Research methodology
Research taken in Techcombank - Trung Yen from 2010 to 2012
The project has been using a number of methods: methods of analysis,
synthesis, comparison and the accompanying tables illustrate system.
5. Research structure
In addition to the introduction, conclusion, references, the project is divided
into three chapters:
Chapter 1: Overview of extending credit to SMEs of commercial banks.
Chapter 2: Situation of credit expansion for SMEs at Techcombank – Trung

Yen branch.
Chapter 3: Solutions to extending credit to SMEs at Techcombank – Trung Yen
branch.


Page 3

CHAPTER 1 OVERVIEW OF EXTENDING CREDIT TO
SMES IN COMMERCIAL BANKS
1.1. Overview of commercial banks
1.1.1. Concepts of bank and commercial bank
A bank is a financial institution and a financial intermediary that
accepts deposits and channels those deposits into lending activities, either directly or
through capital markets. A bank connects customers that have capital deficits to
customers with capital surpluses. Due to their influence within a financial system and
an economy, banks are generally highly regulated in most countries. Most banks
operate under a system known as fractional reserve banking where they hold only a
small reserve of the funds deposited and lend out the rest for profit. They are generally
subject to minimum capital requirements, which are based on an international set of
capital standards, known as the Basel Accords.
A commercial bank (or business bank) is an institution which accepts deposits,
makes business loans and offers related services. Commercial banks also allow for a
variety of deposits accounts, such as checking, savings and time deposits. These
institutions are run to make a profit.
According to Article 4, Section 2 and 4, Law on Credit Institution of Vietnam,
“Bank means a type of credit institution which may conduct all banking operations
under this Law. Based on their characteristics and operation objectives, banks include
commercial banks, policy banks and cooperative banks.” and “Commercial bank
means a type of bank which may conduct all banking operations and other business
activities under this Law for profit.”

1.1.2. Functions and roles of commercial banks
 Functions of Commercial Banks
Commercial bank being the financial institution performs diverse types of
functions. It satisfies the financial needs of the sectors such as agriculture, industry,
trade, communication, etc. That means they play very significant role in a process of


Page 4

economic social needs. The functions performed by banks are changing according to
change in time and recently they are becoming customer centric and widening their
functions. Generally the functions of commercial banks are divided into two categories
viz. primary functions and the secondary functions. The following chart simplifies the
functions of banks.
 Primary Functions of Commercial Banks
Commercial Banks performs various primary functions some of them are given
below:
1. Accepting Deposits: Commercial bank accepts various types of deposits from
public especially from its clients. It includes saving account deposits, recurring
account deposits, fixed deposits, etc. These deposits are payable after a certain
time period
2. Making Advances : The commercial banks provide loans and advances of
various forms. It includes an overdraft facility, cash credit, bill discounting, etc.
They also give demand and demand and term loans to all types of clients
against proper security.
3. Credit Creation: It is most significant function of the commercial banks.
While sanctioning a loan to a customer, a bank does not provide cash to the
borrower Instead it opens a deposit account from where the borrower can
withdraw. In other words while sanctioning a loan a bank automatically creates
deposits. This is known as a credit creation from commercial bank.

 Secondary Functions of Commercial Banks
Along with the primary functions each commercial bank has to perform several
secondary functions too. It includes many agency functions or general utility
functions. The secondary functions of commercial banks can be divided into agency
functions and utility functions.
a) Agency Functions: Various agency functions of commercial banks are


Page 5

1 To collect and clear cheque, dividends and interest warrant.
2 To make payment of rent, insurance premium, etc.
3 To deal in foreign exchange transactions.
4 To purchase and sell securities.
5 To act as trusty, attorney, correspondent and executor.
6 To accept tax proceeds and tax returns.
b) General Utility Functions: The general utility functions of the commercial banks
include
1 To provide safety locker facility to customers.
2 To provide money transfer facility.
3 To issue traveller's cheque.
4 To act as referees.
5 To accept various bills for payment i.e: phone bills, gas bills, water bills, etc.
6 To provide merchant banking facility.
7 To provide various cards such as credit cards, debit cards, Smart cards, etc.
1.2 Overview of small and medium enterprises
1.2.1. Concepts of SMEs
Small

and

medium

enterprise (SMEs, small

and

medium-sized

businesses, SMBs and variations thereof) are companies whose personnel numbers fall
below certain limits. The abbreviation "SME" is used in the European Union and by
international organizations such as the World Bank, the United Nations and the World
Trade Organization (WTO). In most economies, smaller enterprises outnumber large
companies by a wide margin. SMEs are said to be responsible for driving innovation
and competition in many economic sectors.


Page 6

For example in Europe, EU member states have had individual definitions of
what constitutes an SME. For example, the definition in Germany had a limit of
255 employees, while in Belgium it could have been 100. In July 2011, the European
Commission said it would open a consultation on the definition of SMEs in 2012. In
Europe, there are three broad parameters which define SMEs: micro-entities are
companies with up to 10 employees; small companies employ up to 50 workers, whilst
medium-sized enterprises have up to 250 employees. SMEs are also defined as firms
with either revenue (turnover) of €10–50 million or a balance-sheet total of €10–43
million.
In the United States, the Small Business Administration sets small
business criteria based on industry, ownership structure, revenue and number of

employees (which in some circumstances may be as high as 1,500, although the cap is
typically 500). Both the US and the EU generally use the same threshold of fewer than
10 employees for small offices (SOHO).
In India, the sizes of enterprises are defined as follow:
 Micro-enterprise
A micro-enterprise is one where the investment in plant and machinery (their
original cost excluding land, building and items specified by the Ministry of Small
Scale Industries in its notification No. S.O. 1722(E) dated October 5, 2006) does not
exceed Rs.25 lakh.
 Small enterprise
A small enterprise is one where the investment in plant and machinery (see
above) is more than Rs.25 lakh but does not exceed Rs.5 crore.
 Medium enterprise
A medium enterprise is one where the investment in plant and machinery (see
above) is more than Rs.5 crore but does not exceed Rs.10 crore.
The definition of MSMEs in the service sector is:
•

Micro-enterprise: Investment in equipment does not exceed Rs.10 lakh


Page 7
•

Small enterprise: Investment in equipment is more than Rs.10 lakh but does not
exceed Rs.2 crore

•

Medium enterprise: Investment in equipment is more than Rs.2 crore but does

not exceed Rs.5 crore
The Indian micro and small enterprises (MSEs) sector plays a pivotal role in the

country's industrial economy. It is estimated that in value, the sector accounts for about
45 percent of manufacturing output and about 40 percent of total exports. In recent
years, the MSE sector has consistently registered a higher growth rate than the overall
industrial sector. The major advantage of the MSE sector is its employment potential
at a low capital cost. According to available statistics (4th Census of MSME Sector),
the sector employs an estimated 59.7 million people in 26.1 million enterprises; labor
intensity in the MSE sector is estimated to be nearly four times that of large
enterprises.
In Vietnam, According to Government Decree No.90/2001/ND – CP 23/1/2007 of
supporting the Vietnamese SMEs, we can define SMEs as “production facilities,
independent businesses registered under current law, have a registered capital of VND10
billion or annual average number of employees not exceeding 300.”
1.2.2. The role of SMEs in the economy
In each national economy and territory, SMEs play the role in different levels, but
generally have a number of roles as follows:
Role in the economy: SMEs account for a large proportion, even overwhelming in
the total number of enterprises (In Vietnam, only at registered businesses, the rate is
over 95 %). Therefore, their contribution to total output and employment is significant.
Role in stabilizing the economy: in the majority of the economy, SMEs act as
subcontractors for large enterprises. The subcontract adjustment at times allowed the
economy to get stability. Therefore, SMEs help stabilizing the economy.
Make the economy dynamic: SMEs are flexible, therefore it is easy for them in
term of adjusting businesses.


Page 8

Create the important industries and auxiliary services: SMEs can be specialized in
producing a few components in order to be assembled into a finished product.
Important role of the local economy: while large firms are often placed in the
economic centers of the country, SMEs are presented throughout the local and play the
role of important contributors to revenue, output and create local jobs.
According to the Vietnam Chamber of Commerce and Industry (VCCI), up until
31-12-2011, Vietnam has 543,963 enterprises (companies), with a capital of about 6
million billion. Of the total number of enterprises, nearly 97% are small and mediumsized, mainly private businesses. SMEs (SMEs) use 51% of the workforce and
contribute more than 40% of the national GDP. If we count other 133,000
cooperatives, farms and about 3 million individual business, then SMEs contribute to
60% of GDP. Not only contribute significantly to the economic development of the
country, SMEs create more than a million new jobs per year for the most untrained
labor, contributing to poverty reduction, enhanced security society.
1.2.3. Major types and sources of SMEs’ capital funds.
Major means of financing small and medium-sized businesses are:
-

internal funds;

-

overdrafts and bank loans;

-

leasing and hire purchase arrangements;

-

stock market equity and corporate bond issues;

-

venture capital or private equity;

-

asset-based finance such as factoring and invoice discounting; and

-

trade finance.

Internal funds are the largest single source of business finance and some
element of internal funding is involved in most significant investment projects.
The second largest capital source of SMEs comes from bank overdrafts or
similar short-term credit loans from banks. By contrast, term loans of varying lengths


Page 9

are typically used for asset purchasing and other business development and investment
purposes over time. However, overlaps between the two main forms of business debt
finance are common. For example, overdraft-type finance is often used directly or
indirectly for capital investment purposes – while term loan finance is often used to
cover additional working capital requirements arising out of higher-volume production
and sales.
As an alternative to buying capital equipment outright, SMEs sector might be
acquired through leasing or hire purchase. The attractions of this method of investment
financing to businesses include not only the avoidance of heavy immediate drains on

business financial resources/costly borrowing commitments but also opportunities to
obtain the latest capital equipment on a flexible short-term basis when required and
guaranteed professional maintenance cover. A significant financing variant here is for
businesses to sell and then buy- or lease-back assets that they already own.
However, outside equity capital is by far the most important alternative or
substitute for conventional medium-to-long-term business debt finance. Equity is
especially used to finance larger, longer-term, and higher-risk/higher-reward projects
and investments. It is also often used by firms to whom debt finance is not available
because (e.g.) they are already very highly geared – and may be resorted to more
generally by businesses when base interest rates are high and debt capital is available
only on relatively unfavorable terms and conditions.
The stock exchange is the biggest source of external equity capital where large
and established companies are concerned. By contrast, smaller and newer enterprises
tend to rely on venture capitalists and/or secondary or unlisted market sources for
equity funding.
Historically, a major alternative to both long-term bank borrowing and share
issues has been the sale of interest-paying corporate bonds. Nowadays, there is
substantial product diversity in the corporate bonds market. Some corporate bonds
(e.g. those issued by newer and smaller companies and for leveraged take-over
purposes generally) have risk-and-reward characteristics little different from those of


Page 10

shares. Conversely, the bonds issued by large established blue-chip corporations may
be closely akin to government gilts.
Finally, asset-based financing in the form of factoring and invoice discounting
became major and growing means of raising finance against the trade debts of
companies. Major attractions of factoring have tended to be the flexibility and benefits
to cash flows and the speed with which individual factors are able to convert most of

the face value of invoices into cash. In addition, factors may provide useful and staffsaving

associated

services

–

such

as

debt

collection,

general

credit

management/protection, and sales ledger administration.
Ordinary trade debts or delays in payment for purchases of goods and services
are effectively a kind of informal borrowing or extension of credit to customers by the
sellers. There is substantial similarity and substitutability between trade credit,
factoring and invoice discounting, and overdrafts as instruments of business financing.
All are used mainly to provide short-term flexible working capital. But in practice, all
may develop into means of directly or indirectly financing long-term fixed capital
investment and business growth.
1.3. Credit activities of commercial banks to SMEs
1.3.1. The essentials of commercial banks’ credit to SMEs

Bank is one of the most important credit institutions of the economy. It
provides the most diverse financial services, especially credit, savings and payment
services. Commercial banks have more financial functions than any business
organization active in the economy. Activities of banks are currency trading activities
and banking services: to take deposits from customers and use this money to provide
credit and provide payment services for the economy.
Credit is one of commercial banks’ services, occupied a very important position
in the operation of commercial banks. The main activities of a commercial bank are: to
raise capital and to make profit from the fund raised. The use of capital is the process
of creating various assets of the bank in which the loan is the largest amount of assets
and also, the most important one.


Page 11

Loans (or credits) benefit both businesses and banks. This is not the relationship
between allocation, in which the principle of the borrower is to repay the principal and
interest to the bank after a certain period of time stated in the loan agreement. Before
becoming lenders, banks themselves borrow money from other organizations and
individuals in society. Business make loan from bank in order to have the financial
resources to implement investment projects and business for their profit target. Banks
raise capital and lend them to get the interest-rate-difference profit to exist and operate.
Raising capital without loans, banks will not survive.
Bank lending situation has a close reciprocal relationship with the economic
development of the country. Obviously, loan is the leading economic functions of
banks - financing business activities of enterprises, contributing to the growth of the
businesses; ensuring the operation of the economy in order for it to exist and develop.
1.3.2. Types of loans for SMEs in commercial banks
Secured loan
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or

property) as collateral for the loan, which then becomes a secured debt owed to the
creditor who gives the loan. The debt is thus secured against the collateral — in the
event that the borrower defaults, the creditor takes possession of the asset used as
collateral and may sell it to regain some or all of the amount originally lent to the
borrower, for example, foreclosure of a home. From the creditor's perspective this is a
category of debt in which a lender has been granted a portion of the bundle of rights to
specified property. If the sale of the collateral does not raise enough money to pay off
the debt, the creditor can often obtain a deficiency judgment against the borrower for
the remaining amount.
A mortgage loan is a very common type of debt instrument, used to purchase
real estate. Under this arrangement, the money is used to purchase the property.
Commercial banks, however, are given security - a lien on the title to the house - until
the mortgage is paid off in full. If the borrower defaults on the loan, the bank would
have the legal right to repossess the house and sell it, to recover sums owing to it.


Page 12

In the past, commercial banks have not been greatly interested in real estate
loans and have placed only a relatively small percentage of assets in mortgages. As
their name implies, such financial institutions secured their earning primarily from
commercial and consumer loans and left the major task of home financing to others.
However, due to changes in banking laws and policies, commercial banks are
increasingly active in home financing.
Changes in banking laws now allow commercial banks to make home mortgage
loans on a more liberal basis than ever before. In acquiring mortgages on real estate,
these institutions follow two main practices. First, some of the banks maintain active
and well-organized departments whose primary function is to compete actively for real
estate loans. In areas lacking specialized real estate financial institutions, these banks
become the source for residential and farm mortgage loans. Second, the banks acquire

mortgages by simply purchasing them from mortgage bankers or dealers.
In addition, dealer service companies, which were originally used to obtain car
loans for permanent lenders such as commercial banks, wanted to broaden their
activity beyond their local area. In recent years, however, such companies have
concentrated on acquiring mobile home loans in volume for both commercial banks
and savings and loan associations. Service companies obtain these loans from retail
dealers, usually on a nonrecourse basis. Almost all bank/service company agreements
contain a credit insurance policy that protects the lender if the consumer defaults.
Unsecured loan
Unsecured loans are monetary loans that are not secured against the borrower's
assets (i.e., no collateral is involved). There are small business unsecured loans such as
credit cards and credit lines to large corporate credit lines. These may be available
from financial institutions under many different guises or marketing packages:


Bank overdrafts
An overdraft occurs when money is withdrawn from a bank account and the

available balance goes below zero. In this situation the account is said to be
"overdrawn". If there is a prior agreement with the account provider for an overdraft,


Page 13

and the amount overdrawn is within the authorized overdraft limit, then interest is
normally charged at the agreed rate. If the positive balance exceeds the agreed terms,
then additional fees may be charged and higher interest rates may apply.
1.3.3. Roles of commercial banks’ activities to SMEs
- The bank's lending activities provide capital for SMEs:
Investment for expanding production is a required objective for the development

of enterprises. Through the bank's lending activities, it will be done very quickly.
Banks are financial intermediaries whose task is to take the capital from
temporarily not-in-need-of-capital enterprise to another one where capital is demanded
to ensure production and business processes. Banks finance for enterprises not only in
short term but also in medium and long term, thereby ensuring that the business not
only can maintain operation but also can expand production, especially in the key
industries of the country.
- The bank's lending activity helps businesses organize production efficiently:
The most important thing in bank's lending activity is not allocated capital but the
principle of principal and interest repayment by the specified time. That is the reason
why, for a business, capital regain is not enough: using capital efficiently, saving, and
increasing the rotation of the capital are also very important. Banks only credit for
enterprises whose businesses’ plans are effective. Therefore, enterprises have to show
the banks that their businesses are profitable.
Moreover, the bank's lending activity of checking up carefully before, during and
after the loan also monitors the progress and goals of the business-funded in order to
achieve the highest profit. Bank credit also contributed to forcing businesses to do
business in the right way through the periodic inspection of corporate financial
statements. Because the process of making profit of banks is closely related to the
business process of the enterprises, in order to ensure the profits as well as the
business’s, banks are always willing to remove barriers for the enterprises in allowed
range, give advice to businesses so they operate more efficiently and improve the
competitiveness of the enterprises.


Page 14

In summary, we can conclude that the assets of commercial banks brought many
benefits to enterprises in general and SMEs in particular. It does not only provide the
enterprises the capital requirements for production and business activities, but also

help businesses exist and develop, enhance competitiveness in the market and make
businesses more responsible. The enterprises will use their funds in an effective,
economical way and also, for the right purposes.
1.4. Extending credit to SMEs in commercial banks
1.4.1. Views on expanding credit to SMEs from commercial banks
Expansion of commercial bank lending to SMEs can be defined as an increase
in the volume of bank lending to SMEs, including a large increase in loan size for
SMEs, as well as the number of customers who are SMEs.
In addition, the expansion of lending to small and medium-sized enterprises
must be based on the quality of lending operations such as the nature and structure of
the loan, reducing overdue ... If these mentioned processes can be well operated, then
the expanded lending activities will be sustainable.
In summary, the expansion of lending to SMEs is an increase in the volume on
the basis of improving the quality of the loans.
1.4.2. The necessary of extending credit to SMEs
1.4.2.1. From commercial banks’ perspectives
Credit is the mainly profitable business of banks, while SMEs account for the
largest number of business types in the economy. They are highly potential customers
of the bank. Especially in the context of the current international economic integration,
commercial banks in Vietnam are also facing competition from foreign banks. The
competition between domestic and foreign commercial banks are currently becoming
more aggressive, these giant foreign competitors such forced domestic banks to
maximize the search for customers. Therefore, the group of SMEs is the appropriate
object for the commercial banks in Vietnam in order to expand credit relations in the
current period.


Page 15

1.4.2.2. From SMEs’ perspectives

SMEs are vital for economic growth and development in both industrialised
and developing countries, by playing a key role in creating new jobs.
Financing is necessary to help them set up and expand their operations, develop
new products, and invest in new staff or production facilities. Many small businesses
start out as an idea from one or two people, who invest their own money and probably
turn to family and friends for financial help in return for a share in the business. But if
they are successful, there comes a time for all developing SMEs when they need new
investment to expand or innovate further. That is where they often run into problems,
because they find it much harder than larger businesses to obtain financing from
banks, capital markets or other suppliers of credit.
This “financing gap” is all the more important in a fast-changing knowledgebased economy because of the speed of innovation. Innovative SMEs with high
growth potential, many of them in high-technology sectors, have played a pivotal role
in raising productivity and maintaining competitiveness in recent years. But innovative
products and services, however great their potential, need investment to flourish. If
SMEs cannot find the financing they need, brilliant ideas may fall by the wayside and
this represents a loss in potential growth for the economy. The “bagless” vacuum
cleaner and the “wind-up” radio or flashlight which need no batteries are now common
household items, but nearly failed to see the light of day because their inventors could
not find financial backing to transform their ideas into production.
1.4.3. Factors that impact on the expansion of credit to SMEs
1.4.3.1. Number of SMEs which have loans at commercial banks
This is the most specific indicator reflecting the expansion of bank lending.
This index is calculated by the total numbers of SMEs loan relationships with the bank
for a period of time.
1.4.3.2. Outstanding loans of SMEs
This indicator reflects the amount of bank’s capital, which customers owed at a
particular time. This index is usually expressed as the ending balance of business on


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the balance sheet of the banks. If the outstanding balance of the current period
increases compared to the previous one or exceeded the plan, then the expansion in
lending to small and medium-sized enterprises increases. However, asserting banks
expansion in lending to small and medium-sized businesses considers not only the
above criteria but also other indicators.
1.4.3.3. Proportion of outstanding loans to SMEs
Proportion of loans to small and medium enterprise loans to total bank loans (T1):

Indicators show the ratio of banks increased or decreased. If this indicator is
positive then the lending activities of SMEs expand over the year before. In addition, if
this ratio increases continuously, it can be concluded that the rate of expansion is
increasing. However, the rate should be set in relation to comparison with the growth
of other economic sectors in order to clarify the general trend in banking activities.
1.4.3.5. Overdue and overdue ratio of lending activities of SMEs
Overdue debt is the total debt (principal and interest) of the enterprise that has not
been paid back or rescheduled at maturity. The rate (T2) is calculated according to the
following formula:

This is the criteria for evaluating the quality of bank loans to small and
medium-sized enterprises.
1.4.4. Indicators that impact on the ability to the expansion of credit to SMEs in
commercial banks
1.4.4.1. Subjective factors
1.4.4.1.1 The bank
a. Credit policy


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Credit policy plays an important role in determining the existence and
development of each Bank. A flexible reasonable and attractive credit policy will
help the Bank in attracting customers, increasing revenue, prestige and profit of the
Bank.
b. Funding policy
Funding policies have a major impact on the Bank's credit policy. If the Bank
can mobilize a large amount of capital which has diversity in time, size, and credit
limits for customers can be expanded then businesses will have more chances to
approach the Bank's capital.
c. The human factor.
Quality of the products and services that bank provide depends much on the
human factor. If the Bank has a qualified, capable, well managed human resource then
it can predict possible risks, the investment environment’s effectiveness and quickly
capture the evolution of the market, which will help the customers get the highest
efficiency from their investments.
d. The bank's information system.
A quality information system will make the Bank become capable of analyzing all
the happenings inside or outside itself completely, accurately and timely. Thereby, the
Bank can conduct the analysis and process of the information to make the right
decision in selecting customers for loans and expanding the access to capital for
businesses.
1.4.4.2. Objective factors
1.4.4.2.1. SMEs
a. The size of the enterprises.
The bigger in size, stronger financial capacity of the businesses, the more
ability they have to meet the conditions for larger loans. As a result, businesses will
have better conditions in accessing to bank loans and the bank's lending activities. The
first obstacle in accessing bank loans of SMEs is the size of the business.

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b. The feasibility of the project.
If SMEs want to borrow money from banks, they must establish investment
projects, which are feasible and effective. Moreover, the profits of the project must be
sufficient to offset the costs, interest and capital repayment banks, while can still be a
profitable business ... However, the ability of constructing projects feasibility of SMEs
are generally not well done, while the consulting services to support the business are
not developing.
c. Security property, mortgage.
This is a very important factor to the loan of the SMEs. Because financial
collateral and mortgages are the basis for determining the maximum loan to customers.
So, if the business has sufficient collateral, collateral security or property, mortgages
then they will be have more chances in accessing bank loans.
1.4.4.2.2. Other factors
a. The economic environment
Business activities of the Bank in general and lending activities in particular are
very sensitive to any variation from the economic environment. As the economy
grows, enterprises will increase bank loans to invest and expand production. Banks
tend to expand their credit businesses to meet the credit needs of the enterprises.
Conversely, when the economy is in the doldrums, business hampered, inflation occur,
the enterprises also tend to not expand production loans, the Bank's investment
environment becomes narrow. In conclusion, the economic environment has a
significant impact on the bank's ability to access capital of SMEs.
b. The law environment
Commercial banks are strictly controlled by the state. Credit is one of the riskiest
activities of the Bank, so it is the most tightly controlled one. A synchronized,
comprehensive system of legal documents is the required condition for banks to
expand and improve access to capital for SMEs and to ensure profit targets, safety for
the banks.

c. Politic environment


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A stable political environment will increase the confidence of the people and
create favorable conditions to attract foreign investment, thus promoting the
development of SMEs as well as the expansion of banks’ lending activities. In
contrast, the unstable political environment will undermine the confidence of
investors, thus makes the Bank loans become riskier and banks tend to narrow the
loans.

CHAPTER 2.SITUATION OF CREDIT EXPANSION FOR
SMALL AND MEDIUM ENTERPRISES (SMEs) AT
TECHCOMBANK - TRUNG YEN BRANCH
2.1. Introduction to Techcombank – Trung Yen branch
2.1.1. General information
2.1.1.1. History of Techcombank
Vietnam Technological and Commercial Joint- stock Bank - Techcombank was
established on September 27th, 1993 with the initial registered capital of VND 20
billion with the aim to become an efficient financial intermediary bridging the savers
with the investors in need of capital for business and economic development in the
open-door era. The head office is at 191 Ba Trieu, Hanoi, Vietnam.
 Vision
Techcombank aspires to be the best bank and a leading business in Vietnam.
 Missions


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1. To be the preferred and most trusted financial partner of customers,
providing them with a full range of financial products and services through a
personalized/customer centric relationship.
2. To provide employees with a great working environment where they have
multiple opportunities to develop, contribute and build a successful career
3. To offer shareholders superior long term returns by executing a fast growth
strategy while enforcing rigorous corporate governance and risk management best
practices
 Core Values
1. Customer first. Techcombank treasures customers and work hard to offer
them the products and services that best meet their needs
2. Innovation. Techcombank is good but can always be better therefore
Techcombank never stop learning and improving
3. Team work. Techcombank can achieve goals by trusting colleagues and
collaborating to deliver the best to the bank
4. People development. Techcombank develops people to achieve their best
potential and rewards the best performers
5. Accountability. When Techcombank commites to do something,
Techcombank will do whatever it takes to get things done
2.1.1.2. About Techcombank Trung Yen
- Full name: Vietnam Technological and Commercial Joint stock Bank – Trung
Yen branch
- Address: Number 12, 1B – Trung Yen, Trung Hoa, Cau Giay, Hanoi.
Achievements :
-

Capital mobilization

In order to attract customers, Techcombank - Trung Yen branch continuously
offer products that help to mobilize capital at attractive interest rates, abundant