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

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Nguyen Manh Hai (PhD)2. Le Xuan Sang (PhD)1ST critic: �����������������������������������������.2nd critic ������������������ ����������������������..3rd critic: �����������������������������������������.. (Name, science position)The thesis will be defensed at the Evaluation Coucil at Central Institute for Economic Management on �.. /dd/mm/yyyyThe thesis could be found at: The library of Central Institute for Economic Management The national library, Hanoi FOREWORDMotivation of the StudyCredit 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 CityHoweve#r#,# #t#h#e# #c#r#e#d#i#t# #a#c#t#i#v#i#t#y# #i#n# #V#i#e#t#n#a#m# #a#n#d# #H#o#c#h#i#m#i#n#h# #c#i#t#y# #s#t#i#l#l# #c#o#n#t#a#i#n#t#s# #r#i#s#k#s#.# #I#i#n# #t#h#e# #p#r#o#c#e#s#s# #o#f# #i#m#p#l#e#m#e#n#t#i#n#g# #p#o#l#i#c#i#e#s#,# #s#o#m#e# #c#o#m#m#e#r#c#i#a#l# #b#a#n#k#s# #s#t#i#l#l# #h#a#v#e# #n#o#t# #m#a#d#e# ## # a# #c#o#m#p#l#i#a#n#c#e# #w#i#t#h# #r#e#g#u#l#a#t#i#o#n#s# #o#n# #c#r#e#d#i#t# #a#n#d# #l#e#n#d#i#n#g# #i#s# #t#h#e# #p#r#i#m#a#r#y# #a#c#t#i#v#i#t#y#,# #m#a#n#y# #c#o#m#m#e#r#c#i#a#l# #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.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.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.Objective of the StudyThe 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.Object and scope of the StudySubjects 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.Methodology of the StudyMethodology 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. Thesis uses qualitative methods and research tools. It uses statistical methods, survey and interview methods, expert method, comparative method, and analysis and synthesis method.New contributions of the thesisFirst, 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.Structure of the StudyChapter 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 1LITERATURE OVERVIEW OF STATE MANAGEMENT IN DIVERSIFACTION OF CREDIT ACTIVITY OF COMMERCIAL BANKS Diversification of credit activity of commercial banks Definition of diversification of credit activity of commercial banks 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.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.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####### ####### ###############################Source: Author collected from other articles and legislation documentsCriteria 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.State manangement in diversification of credit activity of commercial banks Some views on state management The view of state intervention in the economy in generalAll 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.The view of state management in the money market and credit activityBased 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.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.State management goal of diversifying the credit activity of commercial banksTo 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.Contents of state management in diversification of credit activity of commercial banksState management in diversifying credit activity of commercial banks with the functions: development planning, administration and control of the State on various credit activity.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 banksThe 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 banksFrom 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. International experience in state management in diversification of credit activityAll 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. 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 2THE REALITY OF STATE MANAGEMENT IN DIVERSIFICATION OF CREDIT ACTIVITY OF COMMERCIAL BANKS IN HCM CITY IN THE PERIOD OF 2006-2012The commercial banks in HCM City overview Overview of the social-economic situation in HCM CityHo 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.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.The reality of diversification of credit activity of commercial banks in HCM City in the period of 2006-20122.2.1 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 b#a#n#k#s# #i#n# #t#h#e# #H#C#M# #C#i#t#y# #i#n# #2#0#0#6#-#2#0#1#2# #b#y# #f#o#r#m#s# #2#0#0#6###2#0#0#7###2#0#0#8###2#0#0#9###2#0#1#0###2#0#1#1###2#0#1#2#####L#o#a#n #s# #(#t#�# ###�#n#g#)#�#�#####8#0#.#4#1#7#,#7#5###1#6#9#.#9#4#7#,#8#1###1#9#8#.#9#9#0#,#9#8 ###3#2#4#.#6#8#8#,#7#6###4#4#6#.#2#9#8#,#4#4###4#9#7#.#0#0#9#,#1#8###5#5#4#.#2#3 #6#,#4#9#####C#C#C#N# #a#n#d# #o#t#h#e#r# #v#a#l#u#a#b#l#e# #p#a#p#e#r#s# #d#i#s#c#o#u#n#t#####1#.#4#5#2#,#9#5###6#.#3#1#8#,#5#6###8#5#5#,#6#1###1#.#2#2#7 #,#7#3###2#.#8#7#2#,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##C redit cards##121,13#186,35#393,34#553,66#681,74#1.816,74#2.150,84##Factoring##115,14#2 95,77#365,08#548,62#607,85#630,06#664,21##Grand total##86.552,12#180.414,63#205.290,44#335.213,11#461.587,66#514.510,75#574.591, 46##�Loans proprotion##92,91%#94,20%#96,93%#96,86%#96,69%#96,60%#96,46%##CCCN and other valuable papers discount proprotion##1,68%#3,50%#0,42%#0,37%#0,62%#0,31%#0,16%##Bank guarantees proprotion##5,14%#2,03%#2,28%#2,44%#2,41%#2,61%#2,66%##Credit cards proprotion##0,14%#0,10%#0,19%#0,17%#0,15%#0,35%#0,35%##�Factoring proprotion##0,13%#0,16%#0,18%#0,16%#0,13%#0,12%#0,11%##Grand total##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%##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 #d#e#p#l#o#y#m#e#n#t#.##I#s#s#u#a#n#c#e# #o#f# #c#r#e#d#i#t# #c#a#r#d#s# #a#c#t#i#v#i#t#y#:# #t#h#e# #l#e#g#a#l# #f#r#a#m#e#w#o#r#k# #h#a#d# #b#e#e#n# #i#s#s#u#e#d# #s#i#n#c#e# #1#9#9#9#,# #b#u#t# #i#n# #2#0#0#7# #a# ## # n#e#w# #r#e#g#u#l#a#t#i#o#n# #w#a#s# #e#n#a#c#t#e#d#,# #a#l#l#o#w#i#n#g# #c#o#m#m#e#r#c#i#a#l# #b#a#n#k#s# #i#s#s#u#i#n#g# #c#r#e#d#i#t# #c#a#r#d#s#.# #H#i#g#h# #c#r#e#d#i#t# #g#r#o#w#t#h#,# #e#s#p#e#c#i#a#l#l#y# #i#n# #2#0#1#1# #(#s#e#e# #T#a#b#l#e# #2#.#2#)#,# #a#s# #t#h#e# #S#B#V# #l#imit 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.The reality of diversification of types and methods in each form of credit Diversification of loan types and methodsDiversification 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#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%##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 calculationsDiversification 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 calculationsThe 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 #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 calculationsDiversification 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%##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 calculationsDiversification 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 20062011, 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 2006-2012Indicator#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%##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 calculationsDiversification 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 calculationsDiversification 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.Diversification of credit activity of commercial banks reviewDiversification of credit forms of commercial banks reviewQuantity: According to #t#h#e# #d#a#t#a# #c#o#m#p#i#l#e#d# #b#y# #t#h#e# #a#u#t#h#o#r# #f#r#o#m# #t#h#e# #f#i#n#a#n#c#i#a#l# #r#e#p#o#r#t#s# #o#f# #c#o#m#m#e#r#c#i#a#l# #b#a#n#k#s#,# #1#0#0#%# #o#f# #c#o#m#m#e#r#c#i#a#l# #b#a#n#k#s# #i#m#p#l#e#m#e#n#t#e#d# ## # 3# #d#i#v#e#r#s#i#f#i#e#d# #c#r#e#d#i#t# #f#o#r#m#s# #i#n#c#l#u#d#e# #C#C#C#N# #a#n#d# #o#t#h#e#r# #v#a#l#u#a#b#l#e# #p#a#p#e#r#s# #d#i#s#c#o#u#n#t#,# #b#a#n#k# #g#u#a#r#a#n#t#e#e#s#;# #4#2#.#8#6#%# #o#f# #c#o#m#m#e#r#c#i#a#l# #b#a#n#k#s# #i#m#p#l#e#m#e#n#t# #4# #d#i#v#e#rsified 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 .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.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# #d#i#v#e#r#s#i#f#i#e#d# #l#o#a#n# #t#y#p#e#s#,# #a#t# #t#h#e# #e#n#d# #o#f# #2#0#1#2# #j#u#s#t# #o#v#e#r# #7#%# #i#m#p#l#e#m#e#n#t#e#d# ## # 5# #t#y#p#e#s# #(#e#a#c#h# #t#i#m#e#,# #l#i#m#i#t#,# #p#r#o#j#e#c#t#s# #i#n#v#e#s#t#m#e#n#t#,# #s#y#n#d#i#c#a#t#i#o#n#,# #o#v#e#r#d#r#a#f#t#)#.# #C#C#C#N# #a#n#d# #o#t#h#e#r# #v#a#l#u#a#b#l#e# #p#a#p#e#r#s# #d#i#s#c#o#u#n#t# #a#c#t#i#v#i#t#y# #j#u#s#t# #i#m#p#l#e#m#e#n#t#e#d# #t#h#e# #m#e#t#h#o#d#s# #w#h#i#c#h# ## # b#u#y#e#r#s# #h#a#d# #r#e#c#o#u#r#s#e# #r#i#g#ht, 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 ).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.Status of state management in diversification of credit activity of commercial banks in HCM City in the period of 2006-2012Orientation of development strategy of the State of diversifying credit activityOrientation 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)Issuance of law of credit activity� diversificationBy 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 o#f# #t#h#e# #S#B#V#.# #D#i#s#c#o#u#n#t# #m#e#t#h#o#d#s# #i#n#c#l#u#d#e#d#:# #C#C#C#N# #a#n#d# #o#t#h#e#r# #v#a#l#u#a#b#l#e# #p#a#p#e#r#s# #r#e#p#u#r#c#h#a#s#e# #a#g#r#e#e#m#e#n#t#,# #a#c#t#i#v#i#t#y# #w#h#i#c#h# ## # b#u#y#e#r#s# #h#a#d# #r#e#c#o#u#r#s#e# #r#i#g#h#t#,# #C#C#C#N# #a#n#d# #o#t#h#e#r# #v#a#l#u#a#b#l#e# #p#a#p#e#r#s# #d#i#s#c#o#u#n#t# #s#y#n#d#i#c#a#t#i#o#n#.# #T#h#e# #t#y#p#e#s# #o#f# #g#u#a#r#a#n#t#e#e#s#:# #p#a#y#m#e#n#t# #g#u#a#r#a#n#t#e#e#,# #b#i#d# #g#u#a#r#a#n#t#e#e#,# #c#o#n#t#r#a#c#t# performance guarantee, loan guarantee, product quality guarantee, refund guarantee, counter guarantee, guarantee certification, coguarantee, 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. Regulate the diversification of credit activityThe 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.Testing, inspection and monitoring process of diversification of credit activityTesting, 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.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. 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.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.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
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